In this paper, we use the estimated three-region DSGE model GEAR, which pictures Germany, the Euro Area and the Rest of the world and which is used by the Deutsche Bundesbank for policy analysis, to analyze how discretionary fiscal policy in Germany and the rest of EMU affected GDP growth and...

This paper uncovers a novel mechanism by which bubbles crowd in capital investment. If capital is initially depressed by a binding credit constraint, injecting a bubble triggers a savings glut. Higher returns in a new bubbly equilibrium attract additional investors who expand investment at the...

We show that an otherwise standard one-sector real business cycle model with variable capital utilization and mild increasing returns-to-scale is able to generate qualitatively as well as quantitatively realistic aggregate fluctuations driven by news shocks to two formulations of future...

According to empirical studies, the life cycle of labor supply volatility exhibits a U-shaped pattern. This may lead to the conclusion that demographic change induces a drop in output volatility. We present an overlapping generations model that replicates the empirically observed pattern and...

Theoretical models of downward real wage rigidity generate asymmetric wage cyclicality with real wages being rigid in "bad" times but upwardly flexible during "good". In this paper we use an administrative panel dataset from Germany to establish that such asymmetries are very salient in Germany....

This paper investigates the risk-taking channel of monetary policy on the asset side of banks' balance sheets. We use a factor-augmented vector autoregression (FAVAR) model to show that aggregate lending standards of U.S. banks, e.g. their collateral requirements for firms, are significantly...

We examine how borrowing constraints affect monetary transmission and the trade-off of a welfare maximizing central bank. We develop a sticky price model where money serves as the means of payment and ex-ante identical agents borrow/lend among each other. The credit market is distorted as...

Austerity measures are frequently enacted when the sustainability of public finances is in doubt. Such doubts are reflected in high sovereign yield spreads and put further strain on government finances. Is austerity successful in restoring market confidence, bringing about a reduction in yield...

The interaction between monetary and fiscal policy and the associated uncertainty about this interaction have been put on center stage by the recent financial crisis and the associated recession. In our model agents learn about both fiscal and monetary policy rules via the Kalman Filter. In...

We discuss properties of alternatives or complements to GDP as a measure of welfare at business cycle frequencies. We argue that these figures are not useful to measure the welfare costs of business cycles. First, data is not available at an appropriate quality and frequency. Second, since the...