Why is Unemployment so Countercyclical?
Lawrence J. Christiano, Martin S. Eichenbaum, Mathias Trabandt
Review of Economic Dynamics,
July
2021
Abstract
We argue that wage inertia plays a pivotal role in allowing empirically plausible variants of the standard search and matching model to account for the large countercyclical response of unemployment to shocks.
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Lender-specific Mortgage Supply Shocks and Macroeconomic Performance in the United States
Franziska Bremus, Thomas Krause, Felix Noth
IWH Discussion Papers,
No. 3,
2021
Abstract
This paper provides evidence for the propagation of idiosyncratic mortgage supply shocks to the macroeconomy. Based on micro-level data from the Home Mortgage Disclosure Act for the 1990-2016 period, our results suggest that lender-specific mortgage supply shocks affect aggregate mortgage, house price, and employment dynamics at the regional level. The larger the idiosyncratic shocks to newly issued mortgages, the stronger are mortgage, house price, and employment growth. While shocks at the level of shadow banks significantly affect mortgage and house price dynamics, too, they do not matter much for employment.
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Involuntary Unemployment and the Business Cycle
Lawrence J. Christiano, Mathias Trabandt, Karl Walentin
Review of Economic Dynamics,
January
2021
Abstract
Can a model with limited labor market insurance explain standard macro and labor market data jointly? We construct a monetary model in which: i) the unemployed are worse off than the employed, i.e. unemployment is involuntary and ii) the labor force participation rate varies with the business cycle. To illustrate key features of our model, we start with the simplest possible framework. We then integrate the model into a medium-sized DSGE model and show that the resulting model does as well as existing models at accounting for the response of standard macroeconomic variables to monetary policy shocks and two technology shocks. In addition, the model does well at accounting for the response of the labor force and unemployment rate to these three shocks.
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Switching to Good Policy? The Case of Central and Eastern European Inflation Targeters
Andrej Drygalla
Macroeconomic Dynamics,
No. 8,
2020
Abstract
The paper analyzes how actual monetary policy changed following the official adoption of inflation targeting in the Czech Republic, Hungary, and Poland and how it affected the volatilities of important macroeconomic variables in the years thereafter. To disentangle the effects of the policy shift from exogenous changes in the volatilities of these variables, a Markov-switching dynamic stochastic general equilibrium model is estimated that allows for regime switches in the policy parameters and the volatilities of shocks hitting the economies. Whereas estimation results reveal periods of high and low volatility for all three economies, the presence of different policy regimes is supported by the underlying data for the Czech Republic and Poland, only. In both economies, monetary policy switched from weak and unsystematic to strong and systematic responses to inflation dynamics. Simulation results suggest that the policy shifts of both central banks successfully reduced inflation volatility in the following years. The observed reduction in output volatility, on the other hand, is attributed more to a reduction in the size of external shocks.
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On the International Dissemination of Technology News Shocks
João Carlos Claudio, Gregor von Schweinitz
IWH Discussion Papers,
No. 25,
2020
Abstract
This paper investigates the propagation of technology news shocks within and across industrialised economies. We construct quarterly utilisation-adjusted total factor productivity (TFP) for thirteen OECD countries. Based on country-specific structural vector autoregressions (VARs), we document that (i) the identified technology news shocks induce a quite homogeneous response pattern of key macroeconomic variables in each country; and (ii) the identified technology news shock processes display a significant degree of correlation across several countries. Contrary to conventional wisdom, we find that the US are only one of many different sources of technological innovations diffusing across advanced economies. Technology news propagate through the endogenous reaction of monetary policy and via trade-related variables. That is, our results imply that financial markets and trade are key channels for the dissemination of technology.
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Economy in Shock — Financial Policy is Holding Up
Oliver Holtemöller, Stefan Kooths, Claus Michelsen, Torsten Schmidt, Timo Wollmershäuser
Wirtschaftsdienst,
No. 4,
2020
Abstract
Nach Ansicht der führenden deutschen Wirtschaftsforschungsinstitute bricht die Konjunktur in Deutschland als Folge der Corona-Pandemie drastisch ein. Um die Infektionswelle abzubremsen, hat der Staat die wirtschaftliche Aktivität hierzulande stark eingeschränkt. Deshalb dürfte das Bruttoinlandsprodukt 2020 um 4,2 % schrumpfen. Die Rezession hinterlässt deutliche Spuren auf dem Arbeitsmarkt und im Staatshaushalt. In der Spitze wird die Arbeitslosenquote auf 5,9 % und die Zahl der Kurzarbeiter auf 2,4 Mio. hochschnellen. Die finanzpolitischen Stabilisierungsmaßnahmen führen 2020 zu einem Rekorddefizit im gesamtstaatlichen Haushalt von 159 Mrd. Euro. Nach dem Shutdown wird sich die Konjunktur schrittweise erholen. Entsprechend fällt der Anstieg des Bruttoinlandsprodukts 2021 mit 5,8 % kräftig aus. Mit dieser Prognose sind erhebliche Abwärtsrisiken verbunden, etwa weil sich die Pandemie deutlich langsamer abschwächen lässt, oder weil das Wiederhochfahren der wirtschaftlichen Aktivität schlechter gelingt als angenommen bzw. eine erneute Ansteckungswelle auslöst.
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Why is Unemployment so Countercyclical?
Lawrence J. Christiano, Martin S. Eichenbaum, Mathias Trabandt
Abstract
We argue that wage inertia plays a pivotal role in allowing empirically plausible variants of the standard search and matching model to account for the large countercyclical response of unemployment to shocks.
Read article
Resolving the Missing Deflation Puzzle
Jesper Lindé, Mathias Trabandt
Abstract
We propose a resolution of the missing deflation puzzle. Our resolution stresses the importance of nonlinearities in price- and wage-setting when the economy is exposed to large shocks. We show that a nonlinear macroeconomic model with real rigidities resolves the missing deflation puzzle, while a linearized version of the same underlying nonlinear model fails to do so. In addition, our nonlinear model reproduces the skewness of inflation and other macroeconomic variables observed in post-war U.S. data. All told, our results caution against the common practice of using linearized models to study inflation and output dynamics.
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19.12.2018 • 23/2018
IWH Mid-term Projections: The German Economy and Public Finances 2018 to 2025
In 2018 the general government overall balance is likely to be in surplus by almost 60 billion euros. In the medium term, however, demographic conditions will deteriorate, as will public finances. The financial position of the German state will nevertheless remain stable until 2025, unless major negative shocks occur. “But even if interest rates rose significantly or foreign demand declined markedly, only moderate deficits would arise”, says Oliver Holtemöller, head of the Department of Macroeconomics and vice president at Halle Institute for Economic Research (IWH). However, given the expected reduction of the surplus under existing legislation, there is no room for further increases in spending.
Oliver Holtemöller
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