Hessian Foundation for Peace and Conflict Research (HSFK), project manager
Science Center Berlin (WZB)
German Development Institute (DIE)
Universities of Leuphana, Konstanz and St. Gallen (Switzerland)
The research network 'External Democratization Policy' (EDP) brings together political scientists from Germany working at the interface between International Relations and Comparative Politics. Our common interest lies in the field of transnational activities of states, non-state actors and international organizations working to establish, improve or defend democracy in third countries. The EDP Network is a collaborative project of six partner institutions: the two Leibniz Institutes Hessian Foundation for Peace and Conflict Research (HSFK) and the Social Science Research Center Berlin (WZB), the German Development Institute (DIE), and three universities (Erfurt, Konstanz, Lüneburg). The University of St. Gallen is an associate member.
Pattern-based expectations in macroeconomics: economics.
German Research Foundation (DFG)
This project deals with the collection and modeling of expectations with a view to macroeconomic studies. Particularly important variables about whose future course expectations are formed are inflation and income. Such expectations play a central role in many decisions that are significant for macroeconomic phenomena. Price-setting in goods and financial markets and the consumption/savings decision deserve special mention. Expectations thus influence business cycle fluctuations and inflation. Modeling expectation formation is a core element in the analysis of macroeconomic interrelationships and influences the economic policy conclusions derived from it. Research on expectation formation in recent decades has been characterized by different variants of rational expectations. However, much empirical work (including, for example, experimental work and studies based on survey data) questions the rational expectations hypothesis and points to systematic errors in human estimation of the future. The project projected here follows this critical view and is thus a contribution to the modeling of bounded-rational expectations. The project ties in with contributions from cognitive psychology and collects data under experimental conditions. The theoretical basis of this endeavor is the concept of pattern recognition. Building on preliminary work in financial market economics, subjects are shown a sufficient variety of patterns of a time series for the modeling phase, whose future development they have to estimate. In this project, expectations about the course of inflation and national income are thus asked over horizons of one year and five years. In the various experimental setups, subjects are also given information on expert forecasts and central bank inflation targets, among other things. In a first round of statistical tests, hypotheses can thus be tested on the relationship between short- and long-term expectations, on the difference between inflation and income expectations and on the importance of central bank communication and published economic forecasts. However, the experimentally collected data are then mainly used to model inflation and national income expectations in various econometric studies. Thus, questions of the dynamics and heterogeneity of inflation expectations, the role of inflation expectations in the inflation process and in the determination of interest rates, and ultimately the influence of expectations on aggregate consumption are examined in turn. The experimentally collected data also allow us to quantify the heterogeneity and uncertainty of expectations. These variables in turn play an important role in the evolution of inflation, interest rates and consumption.