In this paper we empirically examine a heterogenous bounded rationality version of a hybrid New-Keynesian model. The model is estimated via the simulated method of moments using Euro Area data from 1975Q1 to 2009Q4. It is generally assumed that agents' beliefs display waves of optimism and...

We analyze the implications of changes in the trend growth rate for optimal monetary policy in the presence of search and matching unemployment. We show that trend growth in itself does not generate a trade-off for the monetary authority, but that it interacts importantly with the inefficiencies...

This paper analyzes Germany's fiscal policy position. Half of GDP passes through the hands of government, a high debt to GDP ratio limits the maneuvering, and the revenue sharing mechanism prevents a competitive federalism. Most importantly for the future, the federal finance minister has to...

This paper studies the effects of protectionism as a business cycle instrument. In normal times, protectionism reduces international trade, distorts production and reduces output. However, in a liquidity trap protectionism lowers the real interest rate because inflation goes up while the nominal...

In sticky price models with endogenous investment, virtually all monetary policy rules that set a nominal interest rate in response solely to future inflation induce real indeterminacy of equilibrium. Applying the Samuelson-Farebrother conditions, we obtain a necessary and su?cient condition for...

I build a dynamic stochastic general equilibrium model with search and matching frictions in the labor market and analyze the optimal monetary policy response to an outward shift in the Beveridge curve. The results cover several cases depending on the reason for the shift. If the shift is due to...

This paper analyzes the effects of short-time work (i.e., government subsidized working time reductions) on unemployment and output fluctuations. The central question is whether the rule based component (i.e., the existence of the institution short-time work) and the discretionary component...

I present evidence that the linear mixed-frequency Bayesian VAR provides very sharp and well calibrated monthly real-time recession probabilities for the euro area for the period from 2004 until 2013. The model outperforms not only the univariate regime-switching models for a number of hard and...

Output gap estimates at the current edge are subject to severe revisions. This study analyzes whether monetary aggregates can be used to improve the reliability of early output gap estimates as proposed by several theoretical models. A real-time experiment shows that real M1 can improve output...

Many labor market models use both idiosyncratic productivity and a vacancy free entry condition. This paper shows that these two features combined generate an equilibrium comovement between matches on the one hand and unemployment and vacancies on the other hand, which is observationally...