Research

Working papers

Wage Setting in Times of High and Low Inflation (joint with Isabel Gödl-Hanisch)

 The recent surge in inflation led many unions and firms to alter their bargaining and wage-setting policies. Using novel German firm-level survey data, we document the extent of state dependence in wage setting across firms and workers during periods of high and low inflation. We find state dependence along the extensive and intensive margins: the average duration of wage agreements shortens from 14.2 to 12.9 months, and the adjustment per pay round increases from 2-4\% to 4-6\%. We complement these findings with newly compiled union-level panel data on collective bargaining outcomes. We show that the observed state dependence can be rationalized in menu cost and Calvo models of wage-setting with heterogeneous firms. Finally, we examine the implications of state-dependent wage setting for the transmission of shocks and the slope of the Phillips curve in an otherwise standard New Keynesian model.  


Disentangling the Eurozone Crisis: Bank Lending and Government Default in a Business Cycle Model

This paper looks at the Eurozone Crisis through the lens of a dynamic stochastic business cycle model with a simple financial friction and government default risk. In this model, the balance sheets of financial intermediaries play a key role in the transmission of shocks. The model is estimated on quarterly macroeconomic data from Greece using Bayesian methods. The estimated model is used to decompose the structural sources of output growth, government interest spreads, and bank interest spreads during the Eurozone Crisis. The model is used to analyze the quantitative effects of fiscal and macro-prudential policies, such as bank liquidity injections and austerity plans. The results show that fluctuations in aggregate government interest spreads as well as real output are driven to a large extent by exogenous shocks to government default risk, suggesting that earlier interventions of the European Central Bank in bond markets could have prevented much of the fall in Greek output during the crisis. Earlier bank bailouts by the national government would have had similarly positive effects.


Publications

Interest Rate Spreads in the Eurozone: Fundamentals or Sentiments? (with Jörn Kleinert)

In this paper, we show that discrete changes in spreads around specific dates can be related to ''news events'' indicating changes in the fundamental determinants of government solvency, even though one cannot see a robust link between fundamentals and spreads in lower-frequency data.


Assessing the Stochastic Stability of Public Debt: The Case of Austria (with Christoph Zwick)

This paper develops an empirical model of public debt and uses it so estimate the long-run probability distribution of the debt-to-GDP ratio for the case of Austria. It shows how Bayesian techniques can be used to overcome issues in estimating key parameters of the model.


Contributions to books:

Balance of Payments Crises in a Currency Union (with Jörn Kleinert), in K. Farmer (ed.): Financial Crises. Causes, Management, and Economic Impact. New York: Nova Science, 2012. (Link)

Paul Robin Krugman and Joseph Eugene Stiglitz in G. Faccarello/H.D. Kurz (ed.): Handbook on the History of Economic Analysis Volume I. Cheltenham: Edward Elgar, 2015. (Link)