Research

Refereed publications

Housing and the Business Cycle Revisited [accepted manuscript], Journal of Economic Dynamics and Control 99 (2019), February 2019, pp. 103-115.

I present a multisectoral DSGE model with housing, real frictions, and variable capital utilization that generates aggregate and sectoral co-movements due to uncorrelated sector-specific shocks. Major advances are the robust positive correlations of residential investment with house prices and business investment. In addition, business investment is lagging other economic activities. The key improvements are adjustment costs to business investment. I identify the parameters of the exogenous shock processes, business adjustment costs, and variable capital utilization with Bayesian estimation; the results confirm those obtained from earlier work in this field.

Working Papers

Hedging Against Inflation: Housing vs. Equity, Augsburger Volkswirtschaftliche Diskussionsreihe No. 342, 2021.

To which extent do equity and housing hedge against inflation? This paper presents evidence on this question from the Jordà-Schularick-Taylor Macrohistory Database covering 16 countries from 1870 to 2015. The results depend on the time horizon and period considered. Within one to ten years, housing at least partially hedges against inflation. In the long run, housing provides excess hedging across the whole sample and perfect hedging in the post-war period. Equity is not a hedge, rather a hazard within a year. Hedging improves with a longer time horizon and is perfect in the long run in the post-war period.

The return on everything and the business cycle in production economies (with Christopher Heiberger), BGPE Discussion Paper No.193, 2020

The risk premium puzzle is even worse than previously reported if housing is also taken into consideration next to equity. While housing premia are only moderately smaller than equity premia, they are significantly less volatile and the Sharpe ratio of housing is significantly larger. Hence, three question arise: i) are existing approaches to explain the equity premium puzzle also capable of explaining even larger Sharpe ratios than previously required, ii) can return rates and volatilities of various assets be differentiated, and iii) can different Sharpe ratios between the two risky assets be matched.
We analyze these questions, next to business cycle statistics, by including housing into seminal approaches to solve the risk premium puzzle in production economies. Non-disaster economies with habit formation, capital adjustment costs and limited factor mobility fail to generate a Sharpe ratio of housing of the empirically observed size and do not explain co-moving economic activity. A basic model with time-varying disaster risk can reproduce the large Sharpe ratio of housing. Moreover, the model can explain different means and volatilities of the risky assets, economic activity comoves and the model explains the volatility ratio of business investments, residential investments and house prices. However, the model does not allow to disentangle the Sharpe ratios of the risky assets and premia on equity remain too involatile.

Polynomial chaos expansion: Efficient evaluation and estimation of computational models (with Christopher Heiberger and Johannes Huber), BGPE Discussion Paper No. 202, 2020

Polynomial chaos expansion (PCE) provides a method that enables the user to represent a quantity of interest (QoI) of a model’s solution as a series expansion of uncertain model inputs, usually its parameters. Among the QoIs are the policy function, the second moments of observables, or the posterior kernel. Hence, PCE sidesteps the repeated and time consuming evaluations of the model’s outcomes. The paper discusses the suitability of PCE for computational economics. We, therefore, introduce to the theory behind PCE, analyze the convergence behavior for different elements of the solution of the standard real business cycle model as illustrative example, and check the accuracy, if standard empirical methods are applied. The results are promising, both in terms of accuracy and efficiency.

Business cycle accounting for the German fiscal stimulus program during the Great Recession (with Johannes Huber), BGPE Discussion Paper No. 197, 2020.

We take the neoclassical perspective and apply the business cycle accounting method as proposed by Chari, Kehoe, and McGrattan (2007, Econometrica) for the Great Recession and the associated stimulus program in Germany 2008-2009. We include wedges to the variables government consumption, durables, investment, labor, net exports, and efficiency. The results suggest: The crisis was mainly driven by the efficiency wedge, followed by the net exports and the investment wedge. The government consumption wedge and in particular the durables wedge acted counter-cyclical. We attribute the latter to an internationally incomparably large cash for clunkers program and conclude that this subsidy on durable goods was more effective than pure government consumption.
We introduce a strategy for likelihood maximization, which reliably and quickly locates the maximum; enables a detailed evaluation of the likelihood function and allows large robustness checks.