The survey-supported business-cycle research of the Department of Business Cycle Analyses and Surveys includes the following main areas:
Four times a year the department prepares a comprehensive economic forecast for Germany, the European Union and important countries of the global economy. At mid-year and year-end, Ifo presents its own economic forecasts. In spring and autumn it participates along with its partner, KOF (Swiss Institute for Business Cycle Research) at the ETH Zurich, and other institutes in the Joint Economic Forecast commissioned by the Federal Ministry of Economics and Technology. Together with INSEE (Paris) and ISAE (Rome) a quarterly, short-term forecast of important macroeconomic variables is published for the euro area.
The economic forecasts are based on the on-going observation and analysis of economic developments, under special consideration of the results of the surveys of the Ifo Institute. Building on this, numerous empirical models are employed. For the short-term forecasts, approaches are typically used with which the information of timely indicators is suitably compacted and employed in the forecasting. Examples are bridge equations and vector-autoregression (VAR) models, whose prognostic quality is ascertained by means of Bayesian methods, as well as models of mixed frequencies. For a forecast horizon of more than 2 quarters, both more a-theoretical time-series methods as well as structural models are used. The forecasts for employment in Germany are carried out using a co-integration model, whose long-term relationships are derived from a labour-demand function. For policy simulations, recourse is increasingly made also to calibrated equilibrium models.
In facilitate the quantification of overall economic output gaps as a measure of cyclical swings, the production potential of key countries is also estimated. The main focus is on the German economy, for which supply-side determinants of trend potential output like productivity, labour market participation and capital are documented and analysed. Moreover, key statistics for business cycle trends and the special circumstances of individual countries – currently, for example, debt ratios, budget deficits, current account balances, measures of competitiveness and financial policy reforms – are systematically compared to offer insights into potential economic policy options for Germany and Europe.
The regular surveys of the Ifo Institute include the Ifo Business Survey, the Ifo World Economic Survey, the Ifo Investment Survey and the Ifo Innovation Survey (in collaboration with the Department of Industrial Organisation and New Technologies). The institute also conducts additional special surveys. The core questions in the business-cycle and investment surveys have been posed in a harmonised form in all EU member states since the beginning of the 1960s and the survey results published monthly by the European Commission.
The monthly Ifo Business Survey is one of the main surveys, with ca. 7,000 responses from enterprises in manufacturing, construction, retailing and wholesaling. The economic leading indicator, the Ifo Business Climate Index, is closely followed by the world’s business media In 2001, a monthly business survey of the German services sector was started, in which now more than 2,500 firms participate. Business surveys are also conducted for the leasing sector and insurance companies. The Ifo World Economic Survey (WES) is a quarterly survey of international economic activity conducted by the Ifo Institute since 1981. Every quarter, more than 1000 economic experts in more than 90 countries assess the current economic situation as well as the outlook for economic development in their respective countries. The survey involves the co-operation of institutions in many countries, especially with the International Chamber of Commerce in Paris (ICC). The Ifo Investment Survey in manufacturing is conducted twice a year, with separate results for western and for eastern Germany; it is conducted once a year in retailing, wholesaling, construction and in leasing. The Ifo Innovation Survey has been conducted annually since 1979 and is supervised by the Department of Industrial Organisation and New Technologies. The survey results identify the industry- and product-specific innovation activities of enterprises; also, the results supply information on the macroeconomic level for industrial, structural and growth analyses. For special surveys the Ifo Institute has built up a panel (“Manager Panel”) of 1,000 businesses that are regularly consulted for their assessments of current issues.
To ensure that the economic forecasts are scientifically sound, theoretical models of business-cycle development and economic growth are constantly examined for their practical suitability and improved. In addition, innovations in forecast methods are adopted and expanded. Finally the quality of the surveys is ensured via studies in survey methodology.
The department's macroeconomic research primarily investigates the causes and economic impact of macroeconomic shocks. Their implications for applied business cycle analysis are deduced from this. The department's research can be divided into four areas. Against the background of the worldwide financial crisis, the first area focuses on the transmission and emission of macroeconomic shocks through the banking system. This research is financially supported by the Monetary Stability Foundation during the period of 2010 - 2013 and is being conducted in cooperation with research professor Horst Rozttmann. Its goal is to analyse the role of banks in causing and transmitting macroeconomic shocks. The key question is the economic importance of banks' lending behaviour and the extent to which credit supply shocks can give rise to cyclical fluctuations. Company feedback on the credit situation collected in the surveys feeds into this research.
The relevance of the department's second research area, uncertainty and business confidence, has become clear over the course of the financial crisis. Questions of the economic impact of irrational expectations and changes in business confidence, and especially the significance of uncertainty have now taken centre stage. This research area looks at the question of whether exogenous uncertainty shocks have notable effects on economic activity or whether increased uncertainty is primarily the result of unfavourable macroeconomic developments. Moreover, the research analyses the significance of persistent false expectations and the role played by information procurement in corporate production planning. An important source of data in this respect is the feedback from companies regarding their expectations collected in the context of the business surveys. The results are presented by the department at its annual "Macroeconomics and Survey Data" conference. These projects are conducted in cooperation with research professors Rüdiger Bachmann and Gernot Müller. The causes and effects of time-dependent inflation uncertainty are also being analysed together with Helmut Herwartz (University of Kiel) in the framework of a DFG project. The importance of this issue has faded into the background over the past decade, but could soon increase again as a result of the extraordinary measures taken by many central banks. The goal is to develop a new measure of inflation uncertainty that condenses as large an amount of information as possible and, building upon this, to analyse the interactions between inflation uncertainty, the level of inflation and real variables.
The department's third research area, inflation dynamics, looks at the mechanisms underlying observable fluctuations in process levels and inflation expectations. These mechanisms are of central importance to the design and transmission of monetary policy. Specifically, theoretical and empirical studies analyse the macroeconomic results of various forms of price rigidity, and of key influencing factors that shape inflation expectations like the causes of inflation dispersion in the context of European monetary union. Moreover, the question of how price rigidity changes in a business cycle is also examined using Ifo's survey data. This research is conducted with the support of research professors Gernot Müller, Gebhard Flaig and Joachim Winter.
The fourth research area, fiscal and monetary policy analysis, looks at the impact of monetary and fiscal policy behaviour on real and financial variables. Empirical processes like VAR models and event studies, as well as theoretical approaches like DSGE are used to this end. This research looks at the impact and international transmission of taxation shocks and the importance of central bank behaviour. The department cooperates with research professor Rüdiger Bachmann as well as other external researchers in this area.
In the area of forecasting methodology the department primarily concentrates on processes of information condensation and selection against a background of the enormous amounts of data available to the forecasters (partly as a result of Ifo's own surveys). For example, this area looks at the question of whether micro-data from business and surveys are suitable for forecasting macroeconomic time series. In addition, alternative procedures of micro-data on participants, industries and regional delimitations are examined. One example is boosting techniques that enable the transmission of core information (e.g. firms with a high forecasting quality). Furthermore, processes like Bayesian model averaging or models with mixed frequencies that are already frequently applied are examined for their suitability and further developed.
The methodological foundations of business surveys are subject to on-going analysis. In this context a meta-survey of the wholesale and retail reporting category looked at the question of who replies to the surveys within companies and what these individuals understand by vague expressions such as "business situation" and "business expectations". A research project is currently looking at the influence of non-responses on survey results. The department should be able to use the insights gained to improve the quality of the data collected if potential selectivities and influences on the aggregate results are revealed.
The data gained by the Ifo Institute from its surveys are a valuable foundation for empirical economic research. For internal and external researchers, the Ifo Datapool exists and has been further developed into the Economic and Business Data Center (EBDC) in cooperation with the University of Munich. In this data centre, Ifo data plays a key role. Not only the long time-series of the Ifo surveys but also the micro-data derived from the surveys are made available (with strict data-protection precautions) in a user friendly form. For research with these data a special guest researcher room has been set up. The time series of the aggregated survey results are also made available to interested firms upon payment of an administrative fee. In addition, the EBDC has developed its own, innovative data set of German firms. This data set contains both Ifo survey data and enterprise balance-sheet data from the Amadeus and Hoppenstedt databases. The EBDC Business Expectations Panel (focus on cyclical factors and balance-sheet data) and the EBDC Business Investment Panel (focus on investments and balance-sheet data) provides new and interesting research opportunities through the juxtaposition of qualitative Ifo data and the actual, realised figures from the enterprise databases.
The department’s methodological knowledge in the area of business surveys and the development of instruments for analysing time series is made available to third parties in the form of advisory projects. Especially in the construction of survey systems and in the creation of composite leading indicators, the department’s experts are sought-after advisors.
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