Simulation of long run trends, adjustment processes and policy scenarios

Interdisciplinary area at DIW Berlin

The interdisciplinary area "Simulation of long run trends, adjustment processes and policy scenarios"

Econometric models are developed for the simulation of long-term trends and short-term adjustment. These tools are microfounded include CGE (computable general equilibrium) models that allow for a deep disaggregation at the sectoral level. Hence sector-specific effects of economic and energy policies are identified.

In addition DSGE (dynamic stochastic general equilibrium) models allow the consistent investigation of short and long-term effects. Depending on the length of the adjustment processes, sign reversals might occur. For example, a stronger consolidation of public finances is expected to have negative short run multipliers. Over the medium and long run perspective, however, economic growth will be stimulated.

Based on the simulation evidence, policy conclusions are derived. They are consistent with an optimizing behaviour of agents. Therefore, the risk of policy-related parameters is reduced. The interdisciplinary area has been established following a successful application for funding from the Leibniz Association.