Wouter Den Haan - Research Interests

Research Interests

Uncertainty and forward-looking agents play a crucial role in modern macroeconomics and Wouter den Haan helped in making it feasible to analyze models with these features by developing computer algorithms to solve these models. Together with Albert Marcet he developed the Parameterized Expectations Algorithm (PEA) and the “Denhaan-Marcet statistic” is used to evaluate the accuracy of numerical solutions. His more recent work deals with solving macroeconomic models in which heterogeneity and contracting issues play a key role.

The key theme in Wouter den Haan’s research is the idea that to understand macroeconomic fluctuations one has to understand how transactions take place at the micro level. In particular, it is important to understand how agents find each other (and in particular what the search costs are and how long it takes), what agents know about each other (and in particular whether there are informational asymmetries), and what kind of contracts agents can write. The importance of these “frictions” for macroeconomics has been understood for quite some time but only recently do we have the computational tools to analyze macroeconomic models that are buildup from non-trivial micro foundations.

Wouter den Haan has applied this theme both to labour and financial markets. His research has shown that a job-market matching model is very helpful in accounting for the high unemployment rates in several European countries. In particular, his research makes clear that the Growth and Stability pact — by keeping tax rates high until the number of unemployment has actually dropped—may make it more difficult to move towards the better equilibrium of low unemployment rates.

His work on the role of frictions in financial markets has shown how initially small shocks can lead to large fluctuations because of the feedback effects between the destruction of relationships of lending institutions and their clients and the amount that investors want to provide to these lending institutions. His research on financial markets also looks at the effects that changes in the interest rate by the central bank has on the economy. His recent work shows both empirically and theoretically that frictions between banks and consumers may actually be more important for economic fluctuations than frictions between banks and firms.