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Master Seminar

It is recommended to have completed "Dynamic Quantitative Economics" (MWiWi 2.8) or "International Macroeconomics and Globalization" (MWiWi 2.5) before taking this seminar.

In this seminar, you can obtain seminar credits for either

  • "Dynamic Quantitative Economics" (MWiWi 2.8) or
  • "International Macroeconomics and Globalization" (MWiWi 2.5) or
  • "Economics of Market Imperfections" (MWiWi 2.16) 
  • (or for any other Master module formerly offered by Prof. Welfens)

If you are interested in participating in a Master seminar, please write an email to juessen@wiwi.uni-wuppertal.de (using your BUW email address). I will then put you on my mailing list.

The deadline (binding!) for getting in contact with me when you are interested in a Master seminar is: October 8, 2025.

 

Seminar Announcement — Local Projections in Applied Economics

How do economists trace the dynamic effects of shocks — such as changes in policy, prices, or life events — on economic outcomes over time? A widely used and conceptually simple approach is the local projections (LP) method.

Local projections estimate the response of a variable of interest to a shock over several future periods by running a sequence of regressions, one for each forecast horizon. Instead of specifying and estimating a full dynamic model, the researcher directly relates future outcomes to today’s shock and to suitable controls. This makes LPs highly transparent and flexible: you can “read off” the impulse response function directly from the estimated coefficients across horizons.

A key strength of the approach is its simplicity when the shocks are already observed or well defined. The local projections method becomes more challenging — and intellectually interesting — when the shocks are not directly observable and must first be identified. Example applications include:

  • Monetary policy surprises: unexpected changes in interest rates around central bank announcements.
  • Oil price shocks: sudden changes in global commodity markets.
  • Natural disasters or extreme weather: exogenous local events affecting economic activity.
  • Labor and family economics: for example, the child penalty literature (Kleven et al.) estimates the long-run earnings and labor supply response to the „shock“ (=event) of having the first child.
  • Fiscal policy shocks: researchers aim to separate truly unexpected tax or spending changes from those that simply respond to the state of the economy. For example, they may use narrative records of policy decisions or historical documents to identify budget measures not driven by current growth or unemployment, and then apply local projections to study how such fiscal shocks affect output, consumption, employment, or debt dynamics over time.
  • Climate economics: researchers use local projections to estimate how increases in carbon taxes affect GDP and inflation in European countries. The authors first construct exogenous carbon tax shocks and then, for each forecast horizon, regress future outcomes on today’s tax shock while controlling for lags and fixed effects.
  • Geopolitical tension shocks: researchers build indicators of unexpected escalations in, e.g., U.S.–China political tensions — for example, using event-based measures of major diplomatic or trade-related disputes — and then apply local projections to trace how such shocks affect global oil prices, energy markets, and related macroeconomic variables.

Given this wide range of potential applications, the topics offered in this seminar will be relevant and engaging for students from both tracks of the Master program „Applied Economics“ (Empirical Analysis and International Economic Policy).

In this seminar, students will learn how to implement local projections using the econometric software Stata, drawing largely on replication packages and real research designs. These materials allow students to engage directly with real data and code, replicate published results, and possibly adapt proven workflows to their own empirical questions (even though producing new research results is not the primary scope of this seminar). We will cover best practices for constructing impulse responses, discuss robustness checks, and explore the difference between working with known versus identified shocks.

By the end of the course, students will understand why local projections have become a standard tool across fields — from macro and international economics to labor, family, and policy analysis — and they will be able to apply this versatile method to answer meaningful empirical questions.

There is no expectation to master Stata independently beforehand. Of course, you are welcome to begin familiarizing yourself with the basics of Stata on your own. On the internet, you can find a wide range of resources — from slide decks to video tutorials.