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 order to comprehend business cycles in their entirety, in addition to short-term business cycles, medium-term growth processes are analysed, particularly in Europe. This includes the systematic comparison of relevant policy measures and special conditions in individual countries, which provides insight into policy options in 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). Special surveys are also conducted in addition. 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, meets with special interest in the 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 1000 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. In addition, innovations in forecast methods are adopted and expanded. Finally the quality of the surveys is ensured via studies in survey methodology.
The area of business cycle research examines current issues, especially the question of the national and international transmission of economic shocks. A particular emphasis is placed on the examination of the European Monetary Union and on European monetary policy.
Studies are made, for example, on whether shocks in the euro area spread asymmetrically and what the consequences of this are for a uniform monetary policy. Building on previous studies on the bank channel in monetary transmission and on the importance of asset prices, the role of the banking system in the transmission and emission of macroeconomic shocks is additionally analysed. In an empirical part, a multi-country examination shows how the institutional characteristics of the financial system contribute to intensifying or weakening the shocks. Moreover, the meaning of bank-specific shocks for Germany is examined. The results are integrated into a theoretical model with the help of which the effects of the bank-specific credit-supply shocks and the transmission of other macroeconomic shocks via the banking system can be analysed.
Of particular importance for the transmission of monetary impulses to real factors is the development of prices. The central paradigm of neo-Keynesian literature is the thesis that prices are adjusted to new information only with a delay and for that reason pure monetary shocks also trigger volume adjustments. The thesis seems to have very good empirical support, but recent research with microeconomic price data often concludes that prices are not sufficiently sticky in order to produce macroeconomic volume reactions in the typically assumed order of magnitude. With the help of Ifo survey data, the department will make a contribution to this debate, examining the frequency of price changes at the company level. Since the surveys also collect data on business expectations, the role of changes in expectations will also be analysed.
In a further project, the focus is on inflation uncertainty. In the transmission of economic shocks it is often overlooked that there can be a reciprocal reaction between the first and second moments. We know from portfolio theory, for example, that such an interaction can be significant. It is problematic, however, that there is not a generally recognised measurement of inflation uncertainty. For this reason, the various measurements of inflation uncertainty will be compared and a new procedure will be developed that condenses the greatest possible amount of information on the uncertainty of representative agents. With alternative estimates of inflation uncertainty, its emergence and impact will be examined.
In the area of forecast methodology the question is examined of whether microdata from businesses and surveys are suitable for forecasting macroeconomic time series. Both the concrete path (point forecast) as well as the turning points are forecast. Both the procedures from microeconomics, such as the survival analysis, binary und ordinal estimating equations, as well as transition equations (Markov systems) for linking micro- and macrodata are used and further developed. In addition, alternative aggregation procedures of microdata on participants, industries and regional delimitations are examined. An example is boosting techniques that permit the transmission of core information (e.g., firms with a high forecasting quality). In addition, methods such as the Bayesian model averaging or models with mixed frequencies, which are already in constant use, are examined for their suitability and are further developed.
The methodological foundations of business surveys are subject to an on-going analysis. Currently, a research project is examining whether a continuous analogue scale can be used in place of the three-point scale for business confidence surveys, with the analysis of the distribution of responses being of particular interest. Initial results indicate that, for example, the slope of distribution is correlated with that of economic activity. An additional project examines the question of when and why firms terminate their cooperation with survey institutions. The quality and validity of survey data largely depends on the response behaviour of the examination units. Especially non-response has a considerable effect on data stability. The results of this study will be used for quality improvement (e.g. panel stability) and to discover whatever selectivities may exist.
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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