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Ongoing projects

Risk sharing among countries of the euro are and among US states

Member countries of a currency union cannot use exchange rate adjustments to absorb asymmetric macroeconomic shocks. Nevertheless, there are a number of mechanismen that may, intended or not, "smooth" their per-capita consumption relative to these shocks: international diversification of asset holdings, international credit flows, international transfers und international labor mobility. Indeed, the presence of labor rmobility between countires is often argued to be a criterion for the fruitful formation of a currency union. But how can the contribution of the labor mobility channel to consumption smoothing within a certain currency union be measured, relative to that of other channels? Is the widespread view that this contribution is much larger for the US than for the euro supported by such empirical measurement? Tentative answers in a joint paper with Susanne Wellmann and Gernot Müller: 

This paper is part of a larger project that was funded by the Volkswagen-Foundation.

In the presence of input-output linkages, markup-pricing leads to inefficient production

Firms often have market power due to product differentiation. Consequently, they pursue markup-pricing. At the same time, such products are often used, not just for consumption, but also as material inputs in production. One may speak of roundaboutness in production. In such an environment, the prices of intermediate inputs are distorted, relative to the price of primary inputs like labor: markup-prices make them appear more expensive than they are from the society's perspective. We must therefore expect the market equilibrium to be inefficient, involving a less than optimal degree of roundaboutness in production. What, exactly does this market inefficiency look like? What can policy do to correct this inefficiency? How does this inefficiency affect the trade policy incentives? Answers in a joint paper with Benjamin Jung:

Behavioral adjustment to a pandemic and to pandemic-induced lockdowns

The study of infection dynamics routinely relies on versions of the compartmental SIR model, describing the interrelationship between different groups of a population hit by an epidemic: the Susceptibles, the Infectious and the Recovered. A full understanding of a pandemic and of the public policies implemented for its containment requires that this model be extended to include behavioural incentives, or trade-offs. In a joint paper with with Alexander Dietrich und Gernot Müller, we extend the basic SIR model to explore economic trade-offs. Reducing the model's complexity to allow for analytical tractability, we demonstrate that individuals adjust to the arrive of the pandemic as such and that rational individuals' reaction to public policies such as lockdowns and rolling out vaccination is characterized what is called the Peltzman effect. This states that the direct effect of the policy, which is to reduce the health risk, makes people more inclined to undertake risky behavior. This reduces the effectiveness of the policies and may explain the low effectivness of the policies implemented during the Covid-19 pandemic that has at times caused frustration on the part of policy makers. Our empirical analysis on EU and US data reveals that Peltzman effects may have importantly shaped the evolution of the Covid-19 pandemic as it evolved in the face of public policies.

Firm heterogeneity in German foreign trade

It is well known that internationale trade of any country - even wtihin a narrowly defined sector or industry - is unevenly distributed acorss firms. In a joint paper Matthias Fauth und Benjamin Jung, we provide detailed descriptive evidence of this on the basis of new transaction-based data. We conduct a decomposition of German foreign trade along several dimensions (firms, products and partner country), thus drawing a rich picture of unequal distribution of foreign trade across different dimensions. We look at both imports and exports and we also look at different types of firms:

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