External Research Funding

Project period: 07/2019 – 06/2022

Funding agency: DFG (Priority Programme 1859 „Experience and Expectation“)

Principal Investigator (at the FAU): Jonas Dovern

Summary: Expectations are at the heart of modern macroeconomic theory. The commonly made assumptions of full information rational expectations (Muth, 1961) or its recently proposed variants with information rigidities are simplistic and do not allow for genuine heterogeneity of expectations. In particular, they do not allow individual experiences of households or firms to affect their expectations of aggregate macroeconomic variables. Similarly, the role of individual experiences in the formation of financial expectations and decision making is not yet well understood. This research project will provide empirical analyses based on survey data to enhance our understanding of how individual experiences of private households or firms influence their expectations. This evidence will help relaxing the commonly made assumption in economic models that expectations are formed by a process that is invariant across time and individuals. The results of this research project will be useful for both academic economists and researchers from other disciplines that investigate expectation formation processes as well as for monetary policy makers. The project contributes to the ongoing quest in macroeconomics for a better understanding of the relevance of heterogeneity, in particular of expectations, across households and firms. Overall, the project will lead to a better understanding of survey data on macroeconomic expectations and, thus, will help to properly interpret such surveys. All of these issues are of first-order importance for the conduct of monetary policy because modern central banking relies heavily on expectations, both as a source of information and as a tool to steer the economy.

Cooperation partners: Christian Conrad (Universität Heidelberg), Fabian Krüger (Universität Heidelberg)

Project period: 08/2017 – 07/2020

Funding agency: Federal Ministry of Education and Research

Principal Investigator (at the FAU): Michael Grottke

Summary: Digitalization is one of the mega-tends of our time. The global data volume is predicted to exceed 44 trillion Gigabytes by 2020, a ten-fold increase over 2013. The challenge for businesses is therefore to filter, target and bring forward relevant information out of the daunting mass of data and to make something useful out of it in a timely manner. For example, finding new trends and technological advances that would lead to real-world competitive advantages. Currently, to monitor the business climate businesses must invest large amounts of time and capital. This has a much more detrimental impact on the small and medium-sized enterprises than on their larger competitors, because of the smaller amount of resources they can invest in the implementation of environmental scanning. The goal of the RADAR research project is to create an environmental scanning system that can take large sources of data and detect the relevant signals, trends, technologies as well as disruptive changes in the company’s environment in real time. To this end, techniques from the fields of machine learning, applied statistics and semantic analysis of large amounts of data are combined in a theoretical model. Based on this theoretical foundation, a new software will be created that scans the business environment and, through self-learning mechanisms, automatically adapts itself to the given examination context. With such a cloud-based environmental scanning system, companies of all sizes and industries can observe their respective environments with great accuracy and minimal capital allocation. As a result, they will be able to react quickly and to create forward-looking strategies that allow them to successfully respond to challenges.

Cooperation partners: TU Braunschweig, itonics GmbH, Bayern Innovativ, LEONI Kabel GmbH, DMK Deutsches Milchkontor GmbH (associated partner)

Project period: 03/2016 – 02/2019

Funding agency: Ministerium für Wissenschaft, Forschung und Kunst Baden-Württemberg

Principal Investigator: Jonas Dovern

Summary:The period following the Great Recession of 2008/09 has shown that estimates of potential output (or its growth rate) are frequently and substantially revised downwards after recessions and economic crises. Based on two cross-country panel data sets with real-time information about potential output estimates, this project investigated i) when and in reaction to which type of macroeconomic shocks such revisions occur, ii) how much of the revisions are due to the individual components of potential output (labor, capital stock, total factor productivity), and iii) whether the behavior of monetary and fiscal policy during a crisis can affect the impact that recessions have on the long-term growth prospects of an economy.