Chair of Macroeconomics and International Economics
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We examine the effects of the COVID-19 pandemic on the economic decline expected in Germany in 2020. The magnitude of the economic slump that will occur in 2020 depends on the extent of the slump during the shutdown, on the point in time, at which a significant easing of shutdown occurs, and on the length of adjustment process towards the structures that prevailed before the pandemic. We derive several scenarios and find that the shutdown will only remain in the single-digit percentage range if we apply very optimistic assumptions about the extent of the initial decline in GDP during the shutdown and the speed of adjustment after opening up of the economy. However, assuming that the economic crisis cannot end before the medical crisis ends, which medical experts project not to happen before the end of 2020, such optimistic assumptions do not appear realistic. Hence, we find it more likely that the percentage decline of GDP in Germany will be two-digit in 2020. Our findings are in contrast to the growth projections recently issued by the German Council of Economic Experts or by the Federal Ministry of Economic Affairs and Energy of Germany.
In this paper, we study the bias in interest rate projections for four central banks, namely for Czech Republic, New Zealand, Norway, and Sweden. We examine whether central bank projections are based on an asymmetric loss function and report evidence that central banks perceive an overprojection of their longer-term interest rate forecasts as twice as costly as an underprojection of the same size. We document that rationality is consistent with biased interest rate projections which contribute to explaining the central banks’ behavior.
This paper studies the effect of the strength of Bilateral Investment Treaties (BITs) on FDI activity. We develop an index for the strength of international dispute settlement provisions included in BITs in order to examine the role the content of BITs plays in attracting FDI. To this end we make use of data from the UNCTAD's International Investment Agreement Mapping Project and measure the provision strength of 1,676 BITs. Using panel data of bilateral and total inward FDI flows and stocks we study the effect of BITs on FDI. Our main finding indicates that stronger international dispute settlement provisions in BITs are indeed associated with positive effects on FDI activity.
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Using a large international data set we analyze whether business cycle forecasters tend to herd or anti-herd. Applying different measures of economic crises, we distinguish between normal economic circumstances and times of crises. We fnd evidence for anti-herding behavior for most industrial economies, i.e. forecasters eliberately stick out their neck with extreme forecasts for strategic reasons. For a set of emerging market economies, by contrast, we find evidence for herding behavior. We relate this finding to the high incidence of economic and financial crises in these countries. A test for herding behavior during economic crises confirms that forecasters tend to herd in times of high forecast uncertainty.