We integrate systemic financial instability in an empirical macroeconomic model for the euro area. We find that at times of widespread financial instability the macroeconomy functions fundamentally differently from tranquil times. We employ a richly specified Markov-Switching...

Due to their well-known indeterminacies, factor models require identifying assumptions to guarantee unique parameter estimates. For Bayesian estimation, these identifying assumptions are usually implemented by imposing constraints on certain model parameters. This strategy, however, may result...

In this paper, we analyse nominal exchange rate and price dynamics after risk shocks with short-term interest rates constrained by the zero lower bound (ZLB). We show with a stylized theoretical model that temporary risk shocks may lead to permanent shifts of the exchange rate and the price...

This paper makes use of Hierarchical Bayes Models to model and estimate spatial health effects. We focus on Germany, combining rich individual-level household panel data with administrative county level information to estimate spatial county-level health dependencies. As dependent variable, we...

Forecast models with large cross-sections are often subject to overparameterization leading to unstable parameter estimates and hence inaccurate forecasts. Recent articles suggest that a large Bayesian vector autoregression (BVAR) with sufficient prior information dominates competing approaches....

We employ a money-based early warning model in order to analyse the risk of a low inflation regime in the Euro Area, Japan and the US. The model specification allows for three different inflation regimes: "Low", "Medium" and "High" inflation, while state transition probabilities vary over time...

The interest rate assumptions for macroeconomic forecasts differ considerably among central banks. Common approaches are given by the assumption of constant interest rates, interest rates expected by market participants, or the central bank's own interest rate expectations. From a theoretical...

In this paper I discuss the estimation of the process governing the structural shocks (or wedges) to a DSGE model, arguing that a well-specified model would satisfy certain sets of moment conditions. Based on tests for overidentifying restrictions, I compare three specifications of the Taylor...

We provide an overidentification test for a nonparametric treatment model where individuals are allowed to select into treatment based on unobserved gains. Our test can be used to test the validity of instruments in a framework with essential heterogeneity (Imbens and Angrist 1994). The...

This paper argues that typical applications of panel unit root tests should take possible nonstationarity in the volatility process of the innovations of the panel time series into account. Nonstationarity volatility arises for instance when there are structural breaks in the innovation...