Smooth and Persistent Forecasts of German GDP: Balancing Accuracy and Stability
Katja Heinisch, Simon van Norden, Marc Wildi
IWH Discussion Papers,
No. 1,
2026
Abstract
Forecasts that minimize mean squared forecast error (MSE) often exhibit excessive volatility, limiting their practical applicability. We address this accuracy-smoothness trade-off by introducing a Multivariate Smooth Sign Accuracy (M-SSA) framework, which extracts smoothed components from leading indicators to enhance the signal-to-noise ratio and control the forecast volatility and timing. Applied to quarterly German GDP growth, our method yields smoothed forecasts that can improve forecasting accuracy, particularly over medium-term horizons. We find that while smoother forecasts tend to lag slightly around turning points, this can be offset by adjusting the forecast horizon. These findings highlight the practicality of the M-SSA framework for both forecasters and policymakers, especially in settings where forecast revisions or policy adjustments are costly.
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Credit Card Entrepreneurs
Ufuk Akcigit, Raman Chhina, Seyit Cilasun, Javier Miranda, Nicolas Serrano-Velarde
IWH Discussion Papers,
No. 5,
2025
Abstract
Utilizing near real-time QuickBooks data from over 1.6 million small businesses and a targeted survey, this paper highlights the critical role credit card financing plays for small business activity. We examine a two year period beginning in January of 2021. A turbulent period during which, credit card usage by small U.S. businesses nearly doubled, interest payments rose by 60%, and delinquencies reached 2.8%. We find, first, monthly credit card payments were up to three times higher than loan payments during this time. Second, we use targeted surveys of these small businesses to establish credit cards as a key financing source in response to firm-level shocks, such as uncertain cash flows and overdue invoices. Third, we establish the importance of credit cards as an important financial transmission mechanism. Following the Federal Reserve’s rate hikes in early 2022, banks cut credit card supply, leading to a 15.75% drop in balances and a 10% decline in revenue growth, as well as a 1.5% decrease in employment growth among U.S. small businesses. These higher rates also rendered interest payments unsustainable for many, contributing to half of the observed increase in delinquencies. Lastly, a simple heterogeneous firm model with a cash-in-hand constraint illustrates the significant macroeconomic impact of credit card financing on small business activity.
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