Research

Publications

Completed Fertility Effects of Family Policy Measures: Evidence from a Life-Cycle Model (with Karsten Reuss and Holger Stichnoth), Economics Bulletin, 2015, 35(3): 1726-1733

We estimate a structural life-cycle model of fertility and female labour supply and use it to evaluate the effects of a number of key family policy measures based on data for Germany. Parental leave benefits, child benefits and subsidized childcare are found to have substantial fertility effects. Without these measures, completed fertility is estimated to be lower by 6%, 7%, and 10%, respectively. Income tax splitting, which is fiscally expensive, reduces female labour supply but has a negligible effect on fertility.

Media coverage in Der Spiegel

Working Papers

Demographic Change and Secular Trends in Interest Rates and Risk Premia

Demographic change lowers raw labor supply and leads to a relative abundance of physical capital, resulting in an increase of physical capital intensity in production. This leads to lower asset returns. However risk-free and risky returns are affected to a different extent. Both rates fall, but the decrease in the risk-free rate exceeds the decrease in the risky rate. The reasoning is that demographic change increases the share of old-age households with older households holding a larger share of their wealth in risk-free assets, as compared to younger households. The increase in demand for risk-free assets compared to risky assets puts downward pressure on risk-free asset prices and leads to an increase in the risk premium. I develop an overlapping generations model and quantify these effects for the US economy. Until 2050 I find that risky returns and the risk-free rate decrease by roughly 0.85 percentage points, and the risk premium increases by a mild 5.4 basis points. Allowing households to endogenously increase their human capital holdings, these figures reduce to 0.25 percentage points and 1.5 basis points, respectively.

Climate Change Mitigation: How Effective is Green Quantitative Easing? (with Marien Ferdinandusse, Alexander Ludwig and Carolin Nerlich)

We develop a two sector integrated assessment model with incomplete markets to analyze the effectiveness of green quantitative easing in complementing fiscal policies for climate change mitigation. We model green quantitative easing through a given outstanding stock of bonds held by a monetary authority and its portfolio allocation between a clean (green) and a dirty (brown) sector of production. Our key research question is whether the monetary authority can effectively contribute to a reduction of global damages caused by carbon emissions. Our findings show that green quantitative easing does not lead to a perfect crowding out of capital and thus has real effects in the long-run. Since green quantitative easing only indirectly affects the allocation of production to dirty and clean technologies and since its impact is capped by the (relatively small) private asset holdings of the monetary authority, it is, however, less effective in climate change mitigating than carbon taxes. We conclude that green quantitative easing might be a quantitatively important complement to fiscal policies in particular if governments only insufficiently coordinate on implementing green fiscal policies.

Profiled in Green Fiscal Policy Network

Secular Stagnation? Growth, Asset Returns and Welfare in the Next Decades (with Christian Geppert and Alexander Ludwig)

Ongoing demographic change will lead to a relative scarcity of raw labor to the effect that output growth will be decreasing in the next decades, a secular stagnation. As physical capital will be relatively abundant, this decrease of output will be accompanied by reductions of asset returns. We quantify these effects for the US economy by developing an overlapping generations model with risky and risk-free assets. Without adjustments of human capital, risky returns decrease until 2035 by about 0.7 percentage points, and the risk-free rate by about one percentage point, leading to substantial welfare losses for asset rich households. Per capita output is reduced by 6%. Endogenous human capital adjustments strongly mitigate these effects. We conclude that human capital policies will be crucial in the context of labor shortages.

Idiosyncratic Asset Return Risk and Portfolio Choice - When does Social Security lead to Crowding IN of Capital?

When studying the welfare effects of pay-as-you-go social security systems, efficiency gains due to risk-sharing are contrasted to welfare losses due to distortions. In related literature distorted saving decisions leading to crowding out of capital are identified as a major source for welfare losses. By and large many studies find that the costs of introducing social security outweigh the benefits.

But to my knowledge the literature so far disregards positive welfare effects of social security due to shifts in the asset portfolio of households. I study an overlapping generations model featuring idiosyncratic asset return risk and portfolio choice and find that social security benefits stipulate households to shift their savings to riskier assets with higher returns. On the one hand social security lowers the marginal propensity to save, but on the other hand it boosts returns on savings. The overall effect on savings and hence capital depends on which of these two effects dominates. Whether we encounter crowding in or out depends on the level of the risk-free rate and its elasticity with respect to changes in the quantity of the safe asset. Near-zero inelastic risk-free rates guarantee that crowding in prevails.

Work in Progress

Assessing the Numerical Accuracy of Campbell and Viceira's Log-Normal Approximation Approach in Life-Cycle Portfolio Choice Models