Main Research Areas

In the first main research area of the Research Training Group, we investigate the economic consequences of macroprudential regulatory measures, such as the effects of procyclical capital buffer requirements for banks. Moreover, we analize the stability of financial markets, which are increasingly under the influence of fake news. Since fake news influence not only financial markets, but also political processes, one can immediately think of the increasing misuse of social media such as Facebook and Twitter. This is why this research field is closely related to the third research field (group identity, social polarization and political economy under (bounded) rationality) of our Research Training Group. Agent-based modeling is used as a general framework for our research, which can also be used for the analysis of network effects. Finally, we perform not only computer simulations, but also laboratory experiments to improve our understanding of macro-financial stability and financial market regulation

The second research area addresses the question of how business cycle fluctuations can be explained beyond traditional macroeconomic theory. The starting points are three state-of-the-art studies by Gabaix (2011) about the granular origin of economic fluctuations, the second by Acemoglu et al. (2012) about the influence of the production network on these fluctuations and finally by Baqaee & Farhi (2019) about higher-order effects that significantly influence these fluctuations, such as substitution effects in supplier relationships in the production network. In contrast to traditional business cycle theory, idiosyncratic shocks at the firm level have a much greater impact on business cycle fluctuations than previously assumed. This is mainly due to the fact that shocks to very large firms or central companies in the production network propagate disproportionately and lead to considerable macroeconomic fluctuations. In the first phase (2017-2020) of this Research Training Group, we have already shown that the interaction of granularity and production network effects leads to a significant increase in the explanatory power of macroeconomic fluctuations and clearly exceeds that of the above mentioned studies. For example, almost 80% of the business cycle in the EU28 is explained by this interaction alone.  Given this background, we are now investigating how idiosyncratic shocks on production networks with a granular structure, such as the European production network, propagate in a kind of contagion process via supplier relationships and under which conditions these shocks can be amplified or mitigated in order to derive new appropiate economic policy measures beyond conventional business cycle policy.

Related Literatur

Acemoglu, D., Carvalho, V. M., Ozdaglar, A. & A. Tahbaz-Salehi (2012). The network origins of aggregate fluctuations. Econometrica 80(5): 1977-2016.

Baqaee, D. R. & E. Farhi (2019). The macroeconomic impact of microeconomic shocks: Beyond Hulten's theorem. Econometrica 87(4): 1155-1203.

Gabaix, X. (2011). The granular origins of aggregate fluctuations, Econometrica 79(3): 733-772.

The third research area investigates the intersection between group identities and social polarization from a political and economic perspective. What are the rational reasons  to be part of a group, to develop a group idenditiy, and then to react as a group? To which extent can mathematical models of social networks help to understand and analyse this group formation? Does the limited attention of agents influence the formation of group identities, the degree of political polarization and political economy outcomes? To what extent is the degree of polarization in a society influenced by the electoral system and other factors? And viceversa, how does polarization influence the political discourse and the political outcomes? To what extent are these developments driven by the growing presence of disinformation regarding social and economic developments as well as by subjective perceptions of one's own identity and group membership? How can behavioral political aspects be introduced into economic models in order to explore the interdependence between the political and economic spheres?

In this research area, we investigate the effects of digital technologies on the integration process of migrants, especially on the labour market participation and their potential for integration, as well as the reactions of the majority population with respect to migration. We take into account opportunities and risks associated with migration and focus, in particular, on network effects and information asymmetries. Relevant indicators for migrants and the majority population are examined in sub-projects. As previously mentioned, we are mainly interested in both the labor market participation of immigrants, and the political economic aspects, such as attitudes of the majority population towards migrants or for both groups, trust in institutions, social trust or voting behavior. To answer these questions, we plan to use longitudinal data. We also plan to conduct independent online surveys, including experimental approaches, to investigate relevant questions such as the spread and impact of fake news.