rationality of preliminary money stock estimates earlier studies have presented mixed evidence on the rationality of the federal reserve s preliminary money stock estimates the authors investigate the rationality of m1a m1 m2 and m3 for both seasonally and not seasonally adjusted data they find preliminary growth rates of these aggregates to be rational for not seasonally adjusted data but irrational when data are seasonally adjusted using monte carlo studies the authors conclude that irrationality in seasonally adjusted data arises from the specific seasonal adjustment procedure used by the federal reserve as a result researchers conducting similar tests may want to focus exclusively on not seasonally adjusted data copyright 1995 by mit press

frontiers of real time data analysis in the past ten years researchers have explored the impact of data revisions in many different contexts researchers have examined the properties of data revisions how structural modeling is affected by data revisions how data revisions affect forecasting the impact of data revisions on monetary policy analysis and the use of real time data in current analysis this paper summarizes many of the questions for which real time data analysis has provided answers in addition researchers and institutions have developed better real time data sets around the world still additional research is needed in key areas and research to date has uncovered even more fruitful areas worth exploring jel c52 c53 c80 e01

testing intertemporal budget constraints theory and applications to u s federal budget and current account deficits this paper extends previous tests of intertemporal budget balance and present value relationships by expanding the set of allowable deficit processes and by deriving a testable condition that is sufficient to ensure intertemporal budget balance as long as the expected discount rate is strictly positive using these tests the authors find that both the postwar federal budget deficit process and the process governing accumulation of u s assets by foreigners are consistent with intertemporal budget balance copyright 1991 by ohio state university press

assessing the importance of global shocks versus country specific shocks abstract a common assumption is that global shocks have little influence on current accounts relative output levels and real exchange rates we use a four variable structural var of the sims bernanke type that allows us to obtain a global shock and three country specific shocks we find that global shocks explain sizable portions of real rate movements and bilateral current account balances our decomposition also allows us to measure the extent to which third country effects are important in explaining bilateral real exchange rates and relative output levels

var estimation and forecasting when data are subject to revision we show that howrey s method for producing economic forecasts when data are subject to revision is easily generalized to handle the case where data are produced by a sophisticated statistical agency the proposed approach assumes that government estimates are efficient with a finite lag it takes no stand on whether earlier revisions are the result of news or of reductions in noise we present asymptotic performance results in the scalar case and illustrate the technique using several simple models of economic activity in each case it outperforms both conventional var analysis and the original howrey method it produces gdp forecasts that are competitive with those of professional forecasters special cases and extensions of the analysis are discussed in a series of appendices that are available online

electricity derivatives pricing with forward looking information in order to increase overall transparency on key operational information power transmission system operators publish an increasing amount of fundamental data including forecasts of electricity demand and available capacity we employ a fundamental model for electricity prices which lends itself well to integrating such forecasts while retaining ease of implementation and tractability to allow for analytic derivatives pricing formulae in an extensive futures pricing study the pricing performance of our model is shown to further improve based on the inclusion of electricity demand and capacity forecasts thus confirming the general importance of forward looking information for electricity derivatives pricing however we also find that the usefulness of integrating forecast data into the pricing approach is primarily limited to those periods during which electricity prices are highly sensitive to demand or available capacity whereas the impact is less visible when fuel prices are the primary underlying driver to prices instead

investment and the current account in the short run and the long run theoretical models of the relationship between investment and the current account impose restrictions on the joint dynamic behavior of these variables these restrictions come in two forms one imposes causal orderings on investment and the current account the other restriction concerns the permanent responses of these variables to different shocks we use these restrictions to identify empirically structural shocks from vector autoregressions of investment and the current account for canada under certain identifications our results support the implications of the intertemporal small open economy model however these results are sensitive to perturbations of the identifications

valuation of bankrupt firms this study compares the market value of firms that reorganize in bankruptcy with estimates of value based on management s published cash flow projections we estimate firm values using models that have been shown in other contexts to generate relatively precise estimates of value we find that these methods generally yield unbiased estimates of value but the dispersion of valuation errors is very widethe sample ratio of estimated value to market value varies from less than 20 to greater than 250 cross sectional analysis indicates that the variation in these errors is related to empirical proxies for claimholders incentives to overstate or understate the firm s value

dynamic capacity planning using strategic slack valuation in this paper we analyze a particular aspect of capacity planning that is concerned with the active trading of production facilities for a homogenous product market we provide a theoretical rationale for the valuation and trading of these assets based on a metric of strategic slack we show that trading production assets with non additive portfolio profitability involves complex coordination with multiple equilibria and that these equilibria depend on the foresight in the planning horizon using the concept of strategic slack we have analyzed the dynamics of market structure the impact of asset trading on the level of production of the industry and to derive boundaries on the value of the traded assets moreover through computational learning the formulation is applied to a large oligopolistic electricity market showing that plant trading tends to lead to increased market concentration high prices lower production and a decrease in consumer surplus

international evidence on the neutrality of money the authors use the backus and kehoe 1992 long low frequency data on real gnp gdp and money for australia canada denmark germany italy japan norway sweden the united kingdom and the united states to examine the long run neutrality and superneutrality of money propositions in doing so they applied the king and watson 1992 methodology paying particular attention to the integration and cointegration properties of the variables since meaningful neutrality tests critically depend on such properties

vertical integration and firm boundaries the evidence since ronald h coase s 1937 seminal paper a rich set of theories has been developed that deal with firm boundaries in vertical or input output structures in the last twenty five years empirical evidence that can shed light on those theories also has been accumulating we review the findings of empirical studies that have addressed two main interrelated questions first what types of transactions are best brought within the firm and second what are the consequences of vertical integration decisions for economic outcomes such as prices quantities investment and profits throughout we highlight areas of potential cross fertilization and promising areas for future work

the role of exchange rate for current account a panel data analysis abstract the goal of this paper is to address the role of the real effective exchange rate fundamentals misalignment and volatility for the current account using a panel data analysis for a set of 58 countries over the period of 1994 2014 the results suggest that exchange rate misalignment is relevant for current account adjustment where countries with a more appreciated depreciated exchange rate face a worse better current account performance regarding the role of other control variables current account adjustment is affected by the savings rate where higher lower values are associated with better worse current account performance corroborating the lessons from the consumption smoothing approach there is also evidence of a positive effect for the lagged current account persistence effect for emerging and less developed countries there is evidence of a significant role played by monetary independence where more less monetary independence is associated with better worse current account performance

determinants of the current account balance in the united states this article studies the role of public and private imbalances in the behaviour of the current account balance in the united states in the context of an intertemporal model the estimation evaluates the effects of public and private imbalances on the dynamics of the current account correlation coefficients support the ricardian equivalence higher budget deficit correlates with a reduction in private consumption and an increase in private savings government saving does not vary significantly with macroeconomic variables in the short or in the long run in contrast fluctuations in government investment vary significantly with a number of economic variables in the long and in the short run accordingly fluctuations in the budget deficit are likely to be driven by fluctuations in public investment in contrast to government savings private savings vary significantly with macro variables in the long and in the short run fluctuations in private investment appear less evident compared to that in privat

dynamic convexification within nested benders decomposition using lagrangian relaxation an application to the strategic bidding problem abstract many decomposition algorithms like benders decomposition and stochastic dual dynamic programming are limited to convex optimization problems in this paper we utilize a dynamic convexification method that makes use of lagrangian relaxation to overcome this limitation and enables the modeling of non convex multi stage problems using decomposition algorithms though the algorithm is confined by the duality gap of the problem being studied the computed upper bounds for maximization problems are at least as good as those found via a linear programming relaxation approach we apply the method to the strategic bidding problem for a hydroelectric producer in which we ask what is the revenue maximizing production schedule for a single price maker hydroelectric producer in a deregulated bid based market because the price maker s future revenue function has a sawtooth shape we model it using mixed integer linear programming to remedy the non concavity issues associated with modeling the future revenue function as a mixed integer linear program we model the price maker s bidding decision utilizing both benders decomposition and lagrangian relaxation we demonstrate the utility of our algorithm through an illustrative example and through three case studies in which we model electricity markets in el salvador honduras and nicaragua

international capital mobility amongst the major industrialised countries too little or too much this paper examines capital flows among the major industrialized countries with a view to assessing m feldstein and c horioka s 1980 claim that international capital mobility is limited it argues that saving investment correlation tests are inherently flawed and proposes an alternative methodology for testing the degree of international capital mobility it finds that capital flows have been excessive in the sense that they are driven by speculative forces rather than by economic fundamentals copyright 1995 by royal economic society

what drives china s current account the paper offers an empirical taxonomy of the factors driving china s current account a simple present value model with non tradeable goods explains more than 70 percent of current account variability over the period 1982 2007 including the persistent surpluses since 2001 it also correctly predicts the decline of china s current account since 2008 expected increases in the prices of non tradeables e g housing and medical care and expected declines in net output gdp less investment and government spending are the main channels of external adjustment much of china s current account surplus seems driven by shocks that have global effects by persistently depressing the world real interest rate this is consistent with recent theoretical models that suggest that factors related to china s domestic financial development are key in understanding global imbalances

the effects and incentive of vertical mergers an analysis from the view of om abstract we investigate the effects and incentive of vertical mergers in a supply chain with three types of firms i e suppliers manufacturers and integrated firms integrated firms can sell both intermediate and final goods while suppliers and manufacturers can sell only intermediate or final goods respectively whether selling intermediate goods to other manufacturers is introduced as the integrated firms endogenous decisions we find that a vertical merger always decreases the price of final products both the production quantity and the profits of each unintegrated manufacturer and integrated firm and most of the time leads to a drop in the total profit of the supply chain while it always results in a rise in the quantity of final products and social welfare second we find that market foreclosure only happens when competition among integrated firms is weak and vertical mergers occur only when competition among unintegrated manufacturers is weak finally we provide a theoretical explanation for the phenomenon of merger waves with the aid of our model

habit formation and the present value model of the current account yet another suspect abstract in a recent paper gruber gruber j w 2004 a present value test of habits and the current account journal of monetary economics 51 1495 1507 claims that habit formation in consumption plays an important role in current account fluctuations in selected developed countries extending the present value model of the current account pvm with consumption habits in this paper however i show that the habit forming pvm is observationally equivalent to the pvm augmented with persistent transitory consumption which is induced by world real interest rate shocks based on a small open economy real business cycle soe rbc model endowed with consumption habits as well as persistent world real interest rate shocks this paper resolves the inherent identification problem of the habit forming pvm by bayesian methods to seek effects of habit formation on current account fluctuations in typical small open economies canada and the united kingdom results reveal no clear evidence that habit formation plays a crucial role in current account fluctuations

are preliminary announcements of the money stock rational forecasts abstract we develop a theoretical framework of analyzing preliminary announcements of economic data and then apply this framework to the money stock we find that preliminary announcements of the money stock are best characterized as measured with classical errors in variables that is the revision is not correlated with the true value of the series the revision is however forecastable using information available at the time of the preliminary announcement our ability to forecast the revision implies that preliminary announcements are not rational estimates of the true money stock

monetary policy rules based on real time data this paper examines the magnitude of informational problems associated with the implementation and interpretation of simple monetary policy rules using taylor s rule as an example i demonstrate that real time policy recommendations differ considerably from those obtained with ex post revised data further estimated policy reaction functions based on ex post revised data provide misleading descriptions of historical policy and obscure the behavior suggested by information available to the federal reserve in real time these results indicate that reliance on the information actually available to policy makers in real time is essential for the analysis of monetary policy rules

data revisions and the expenditure components of gdp the constant price components of the expenditure estimate of gdp for the united kingdom undergo an extensive process of revision as new information comes to light this study is concerned with three central themes the authors assess whether the preliminary vintages efficiently incorporate information available at the time of their compilation whether there is any evidence for the nonstationarity of data revisions and how to construct constant price time series when there are several changes of base copyright 1991 by royal economic society

explaining saving investment correlations national saving and investment rates are highly positively correlated in virtually all countries this is puzzling as it apparently implies a low degree of international capital mobility this paper shows that the observed positive correlation between national saving and investment rates arises naturally within a quantitatively restricted equilibrium model with perfect mobility of financial and physical capital the model is consistent with the fact that saving investment correlations are larger for larger countries but are still substantial for small countries further the model is consistent with the finding that current account deficits tend to be associated with investment booms copyright 1993 by american economic association

predictive power of weekly money stock announcements abstract the objective of this study is to test if the weekly money stock can help to predict the monthly money stock using the data in the period of 1974 to 1985 pitman s nearness measure and a statistic which is similar to the linear feedback statistic are used respectively for the qualitative and quantitative investigations other variables such as interest rates and stock prices are also considered in the model the results indicate that the weekly money supply provides little information concerning the monthly money stock

is the markup a useful real time predictor of inflation abstract unlike their revised counterparts real time markup data fail to improve the performance of a simple phillips curve inflation forecasting equation and have little predictive power beyond that of survey measures of inflation expectations

intertemporal optimizing models of trade and current account balance a survey abstract this study surveys the intertemporal optimizing models of trade and current account balance that were developed calibrated and empirically tested since they came into vogue in the 1980s the implications of these models often differ from those of static and dynamic conventional non optimizing models the literature on optimizing models has not only grown reasonably fast but has also witnessed significant advances in methodology and these models have culminated into a distinct strand of new open economy macroeconomics the studies conducted until the late 1980s have used deterministic perfect foresight models while several studies conducted since the 1990s relax the perfect foresight and certainty equivalence assumptions and develop stochastic dynamic general equilibrium models to account for uncertainty confronting the optimizing agents the future research needs to explore the possibility of tracing any preferred specification of household preferences model the effect of time varying discount factor on household utility function and intertemporal budget constraint examine the role of costs in international trade place a parallel emphasis on the empirical verifications of theoretical propositions examine the relative performance of optimizing vis a vis non optimizing models and rationalize the extreme propositions of perfect and imperfect capital mobility in the wake of moderately open capital accounts

electricity retail contracting under risk aversion abstract risk has always been a dominant part of financial decision making in any industry recently models tools and computational techniques have been developed so that we can effectively incorporate risk in optimal decision policies the focus of this paper is on electricity markets where much of the inherent risk falls on the retail sector we introduce a three stage model of an electricity market where firms can choose to enter the retail market then enter into retail contracts and finally purchase electricity in a wholesale market to satisfy their contracts we explicitly assume that firms are risk averse in this model we demonstrate how the behaviour of firms change with risk aversion and use the example of an asset swap policy over a transmission network to demonstrate the importance of modeling risk aversion in determining policy outcomes

the dynamics of a small open economy in response to monetary fiscal and productivity shocks abstract this paper evaluates empirically the relative importance of monetary and fiscal versus technology shocks in an open economy characterized by perfect international capital mobility the variance covariance matrix of these shocks is estimated a stochastic model is used to perform numerical simulations the results show that persistent shocks to productivity can reproduce several empirical regularities including the puzzling high correlation between national saving and investment remarkably well and that monetary and fiscal shocks play a minor role

net foreign asset positions and consumption dynamics in the international economy we examine the effect of non zero steady state foreign assets on consumption dynamics in response to productivity shocks in a two country dynamic general equilibrium model the model generates non zero steady state net foreign assets by allowing for different discount factors across countries as a consequence of discounting differences individual steady state consumption profiles are tilted upward or downward worldwide shocks to long run productivity levels lead to dynamics that are absent in standard symmetric models with equal discount factors we then compare the model results to those of a var in common trend representation for the u s versus the rest of the g7 in the data we find that permanent worldwide productivity shocks lead to net foreign asset and consumption dynamics that are broadly consistent with interpreting the u s as the relatively impatient model economy and are not consistent with symmetric models with equal discount factors

risk aversion and technology mix in an electricity market this article analyzes the eff ect of risk and risk aversion on the long term equilibrium technology mix in an electricity market it develops a model where fi rms can invest in baseload plants with a fi xed variable cost and peak plants with a random variable cost and demand for electricity varies over time but is perfectly predictable at equilibrium the electricity price is partly determined by the random variable cost and the returns from the two kinds of plants are negatively correlated when the variable cost of the peak technology is high the return of peak plants is low but the return to baseload plants is high risk averse fi rms reduce the capacity of the riskiest technology and develop the capacity of the other compared to risk neutral fi rms in the particular case where a risk neutral fi rm invests heavily in baseload technology and only sparely in peak capacity a risk averse fi rm would invest less in baseload increase peak capacity and increase total installed capacity

a model of financial market liquidity based on intermediary capital we present a model ofnancial market liquidity provided bynanciallyconstrained inter mediaries we show that market liquidity increases with the level of intermediary capital we also characterize conditions under which intermediaries play a stabilizing or destabi lizing role in markets finally we sketch a number of areas including welfare and public policy on which the model can shed light jel g01 g11 g12 g15 g18

taylor rules with real time data a tale of two countries and one exchange rate abstract using real time data that reflects information available to monetary authorities at the time they are formulating policy we find that estimated taylor rules based on revised and real time data differ more for germany than for the u s taylor rules using real time data suggest differences between u s and german monetary policies and taylor rules for the u s using inflation forecasts are nearly identical to those using lagged inflation rates evidence of out of sample predictability for the dollar mark nominal exchange rate with forecasts based on taylor rule fundamentals is only found with real time data and does not increase if inflation forecasts are used

hedging and vertical integration in electricity markets this paper analyzes the interactions between competitive wholesale spot retail and forward markets and vertical integration in electricity markets we develop an equilibrium model with producers retailers and traders to study and quantify the impact of forward markets and vertical integration on prices risk premia and retail market shares we point out that forward hedging and vertical integration are two separate mechanisms for demand and spot price risk diversification that both reduce the retail price and increase retail market shares we show that they differ in their impact on prices and firms utility because of the asymmetry between production and retail segments vertical integration restores the symmetry between producers and retailers exposure to demand risk whereas linear forward contracts do not vertical integration is superior to forward hedging when retailers are highly risk averse we illustrate our analysis with data from the french electricity market this paper was accepted by wei xiong finance

good times bad times and vertical upstream integration abstract we consider a set of downstream firms each of which has a stochastic requirement for a particular input downstream firms can produce the input themselves yet do not trade it upstream firms produce the input to sell it through a walrasian market to downstream firms efficient pooling of capacities requires the input to be produced by upstream firms and traded in the market yet downstream firms will always vertically integrate by producing some of its own input needs a downstream firm cuts down on aggregate input demand thus depressing prices in the market

consumption smoothing channels in open economies abstract many intertemporal open economy macro models imply a theory of consumption smoothing channels thus we build an empirical model to analyze the intertemporal smoothing role of saving components fixed investments inventories and trade balance through the use of var impulse responses to different types of shocks we find that for the oecd countries the bulk of intertemporal smoothing has been carried out domestically via gross fixed investments and inventories but the trade balance has also played a relevant albeit volatile smoothing role we also characterize the dynamic behavior of each component the trade balance and inventories are mostly used as short run smoothing tools while fixed investment provides more and more smoothing over time we can also address some empirical puzzles such as the excess sensitivity of investment anomaly glick r rogoff k 1995 global versus country specific productivity shocks and the current account journal of monetary economics 35 159 192 and the saving investment correlation puzzle feldstein m horioka c 1980 domestic saving and international capital flows economic journal 90 314 329

on the optimal monetary policy response to noisy indicators abstract we describe a behavior of a central bank when its measures of current inflation and output are subject to measurement errors in a framework of optimizing models with nominal price stickiness in our model a central bank sets the interest rate equal to its current estimate of the so called wicksellian natural rate of interest this is shown to imply that the interest rate responds to the central bank s estimates of both current inflation and output gap as advocated by taylor 1993 it is also shown that the noise contained in the indicators justifies a degree of policy cautiousness a reduced form representation of optimal policy should exhibit interest rate smoothing which is often found in the empirical literature on monetary policy reaction functions

are statistical reporting agencies getting it right data rationality and business cycle asymmetry this article provides new evidence on the rationality of early releases of industrial production ip and producer price index ppi data rather than following the usual practice of examining only first available and fully revised data we examine the entire revision history for each variable thus we are able to assess for example whether earlier releases of data are in any sense less rational than later releases and when data become rational our findings suggest that seasonally unadjusted ip and ppi become rational after approximately 3 4 months whereas seasonally adjusted versions of these series remain irrational for at least 6 12 months after initial release for all variables examined we find evidence that the remaining revision is predictable from its own past or from publicly available information in other economic and financial variables in addition we find a clear increase in the volatility of revisions during recessions suggesting that early data releases are less reliable in toughe

a note on partial vertical integration a simple model is constructed to show how partial vertical integration may emerge as an equilibrium market structure in a world characterized by rationing differences in the reservation prices of buyers and in the risk attitudes of buyers and sellers the buyers with the high reservation prices turn out to be vertically integrated

preliminary data errors and their impact on the forecast error of simultaneous equations models econometric models especially when designed for forecasting purposes tend to use updated economic series the last figures s of which embed first published or preliminary data errors this article identifies and assesses the contribution of errors in preliminary data to the forecast error and to the forecast error variance of linear dynamic simultaneous equation models the effect of preliminary data errors is shown to be pervasive although not necessarily weighty the suggested decomposition of the forecast error is applied to a small macroeconometric model of the italian economy

incomplete contracts vertical integration and supply assurance this paper extends the analysis of transactions cost models of vertical integration to multilateral settings its main focus is on supply assurance concerns which arise when several downstream firms are competing for inputs in limited supply integration reduces supply assurance concerns for an integrating firm but it may increase them for others therefore to explain the scope of any firm one must consider the overall network of production and distribution relations three fundamental questions are addressed 1 what are the effects of different integration structures 2 what are the determinants of the socially efficient integration structures 3 in what way do equilibrium integration structures differ from socially efficient structures

learning and shifts in long run productivity growth abstract an extensive literature has analyzed the macroeconomic effects of shocks to the level of aggregate productivity however there has been little corresponding research on sustained shifts in the growth rate of productivity in this paper we examine the effects of shocks to productivity growth in a dynamic general equilibrium model where agents do not directly observe whether shocks are transitory or persistent we show that an estimated kalman filter model using real time data describes economists long run productivity growth forecasts in the united states extremely well and that filtering has profound implications for the macroeconomic effects of shifts in productivity growth

hedging strategies in energy markets the case of electricity retailers as market intermediaries electricity retailers buy electricity from the wholesale market or self generate for re sale on the retail market electricity retailers are uncertain about how much electricity their residential customers will use at any time of the day until they actually turn switches on while demand uncertainty is a common feature of all commodity markets retailers generally rely on storage to manage demand uncertainty on electricity markets retailers are exposed to joint quantity and price risk on an hourly basis given the physical singularity of electricity as a commodity in the literature on electricity markets few articles deal on intra day hedging portfolios to manage joint price and quantity risk whereas electricity markets are hourly markets the contributions of the article are twofold first we define through a var and cvar model optimal portfolios for specific hours 3 am 6 am 12 pm based on electricity market data from 2001 to 2011 for the french market we prove that the optimal hedging strategy differs depending on the cluster hour secondly we demonstrate the significantly superior efficiency of intra day hedging portfolios over daily therefore weekly and yearly portfolios over a decade 2001 2011 our results clearly show that the losses of an optimal daily portfolio are at least nine times higher than the losses of optimal intra day portfolios

is the fed too timid monetary policy in an uncertain world estimates of the taylor rule using historical data from the past decade or two suggest that monetary policy in the u s can be characterized as having reacted in a moderate fashion to output and in

market power vertical integration and the wholesale price of gasoline this paper examines empirically the relationship between vertical integration and wholesale gasoline prices we use discrete and differential changes in the extent of vertical integration generated by mergers in west coast gasoline refining and retailing markets to test for incentives to raise rivals costs the research design allows us to test for a relationship between vertical integration and wholesale prices controlling for horizontal market structure cost shocks and trends we find evidence consistent with the strategic incentive to raise competitors input costs this suggests that vertical integration can have a significant impact on wholesale prices

tests of equilibrium macroeconomics using contemporaneous monetary data abstract this paper uses contemporaneous monetary data to carry out econometric tests of the equilibrium approach to modelling the relation between monetary disturbances and macroeconomic fluctuations the theoretical analysis introduces into an equilibrium macroeconomic model the availability of preliminary data on current monetary aggregates and the process of accumulation of revised monetary data the econometric analysis tests two hypothesis derived from this extended model one hypothesis concerns the neutrality of perceived monetary policy the econometric results imply rejection of this hypothesis the other hypothesis concerns the non neutrality of errors in preliminary monetary data the econometric results fail to reject the contrary of this hypothesis these tests provide strong evidence against the reality of the equilibrium approach

data revisions and the identification of monetary policy shocks abstract monetary policy research using time series methods has been criticized for using more information than the federal reserve had available to quantify the role of this criticism we estimate vars with real time data while accounting for the latent nature of many economic variables such as output our estimated monetary policy shocks are closely correlated with typically estimated measures the impulse response functions are broadly similar across estimation methods our evidence suggests that the use of revised data in var analyses of monetary policy shocks may not be a serious limitation for recursively identified systems but presents more challenges for simultaneous systems

savings investment and international capital flows abstract the high correlation between national savings and domestic investment rateshas been interpreted as evidence that capital is not internationally mobile this paper surveys the theory and evidence on the relationship between savings and investment in a sample of 23 oecd countries a positive correlation between savings and investment rates is found in both the short and long runs however a wide variety of models generate such co movements in savings and investment in response to exogenous disturbances even under conditions of complete financial markets thus the savings investment correlation provides little evidence on the question of international capital mobility

the macroeconomic effects of false announcements suppose that the government were to announce the economy will be booming in six months and this announcement is based on false data what effect would such an announcement have on future aggregate activity this paper employs revisions of the series of leading economic indicators to test the hypothesis that such an announcement would have a positive effect on future activity we find that the evidence is generally consistent with the hypothesis and that for the time period 1976 1988 the expectational shocks measured by these revisions explain over 20 percent of the fluctuation in the quarterly growth rate of industrial production

semi parametric predictions of the intertemporal approach to the current account abstract this paper uses the method dynamic programming dp by gmm and canadian data to estimate a dynamic model of a small open economy dp by gmm has several appealing features it does not impose certainty equivalence it accommodates multiple shocks and imposes few restrictions on the properties of the shocks in the model also since it uses the actual shocks series to estimate approximate decision rules it produces sample paths for the endogenous variables in the model the model estimated fits the data well in particular the variance of the predicted trade balance output ratio matches its empirical counterpart

preliminary data error and monetary aggregate targeting preliminary monetary aggregate data are subject to subsequent revision because of errors from seasonal and nonseasonal sources that will only be known later this article examines the characteristics of these revision errors and analyzes their possible effect on monetary policy it is found that false signals in the sense that the preliminary m1 growth rate falls within the tolerance band set monthly by the federal open market committee while the final revised figure lies outside the tolerance limits or vice versa occur about two fifths of the time it is shown that this proportion can be halved by the adoption of improved seasonal adjustment procedures

news and noise in g 7 gdp announcements revisions to gdp announcements are known to be quite large in all g 7 countries quarterly growth rate revisions are regularly more than a full percentage point at an annualized rate we examine the predictability of these revisions using standard statistical tests of whether the preliminary announcement is a rational forecast of the subsequently revised data previous work suggests that u s gdp revisions are largely unpredictable as would be the case if the revisions reflect news not available at the time that the preliminary number is produced we find that the degree of predictability varies throughout the g 7 although we find little predictability in u s revisions the data revisions for several foreign countries are highly predictable we also perform a simple real time forecasting exercise showing that for several countries the predictability of data revision could be used to generate improved preliminary data

replication in empirical economics the journal of money credit and banking project this paper examines the role of replication in empirical economic research it presents the findings of a two year study that collected programs and data from authors and attempted to replicate their published results the research provides new and important information about the extent and causes of failures to replicate published results in economics the findings suggest that inadvertent errors in published empirical articles are a commonplace rather than a rare occurence copyright 1986 by american economic association

present value tests of an intertemporal model of the current account abstract this paper first demonstrates that in a simple intertemporal open economy model the current account is equal to the expected decline of the present discounted value of net output of a country net output is defined as gross domestic product less the sum of investment plus government spending it then uses econometric methods for present value models to analyze the current account for four countries in two of these countries the model does a satisfactory job of explaining the current account

on the neutrality of inside and outside money outside money and real economic activity are explored using data on checkable deposits m2 excluding currency the monetary base and real income in the united states from 1900 to 1992 this is done by calculating the long run elasticities of real output with respect to inside and outside components of the money stock small but significant deviations from neutrality are detected for inside money over a range of identifying assumptions the evidence suggests however that the source of non neutrality is not the one hypothesized by gurley and shaw 1960

data revisions and time series models of gdp and its components this paper examines how time series models of gross domestic product and its components in the uk change as a result of both new observations becoming available and the provisional data series being revised quarterly predictions from the time series models are compared with the series of first estimates of each quarterly change the series available one year after the forecasts are made and the most recent data available the time series models are found to be satisfactory in a number of cases and are better predictors of the final values of total final expenditure than the first estimates series surprisingly the first estimates series are closer to the most recent data available than the estimates obtained one year after the data period ended

anticompetitive vertical integration by a dominant firm backward vertical integration by a dominant firm into an upstream competitive industry causes both input and output prices to rise the dominant firm s advantage may or may not offset the negative effect of higher prices on social welfare whether it does depends on a simple indicator derived from input and output market shares and the degree of prior vertical integration a vertical merger is similar to a hypothetical horizontal merger suggesting that vertical merger policy for this industry should be similar to horizontal merger policy the dominant firm model yields an observable sufficient indicator of welfare improving vertical mergers copyright 1998 by american economic association

macroeconomic forecasting using diffusion indexes this article studies forecasting a macroeconomic time series variable using a large number of predictors the predictors are summarized using a small number of indexes constructed by principal component analysis an approximate dynamic factor model serves as the statistical framework for the estimation of the indexes and construction of the forecasts the method is used to construct 6 12 and 24 monthahead forecasts for eight monthly u s macroeconomic time series using 215 predictors in simulated real time from 1970 through 1998 during this sample period these new forecasts outperformed univariate autoregressions small vector autoregressions and leading indicator models

the nairu unemployment and monetary policy this paper examines the precision of conventional estimates of the nairu and the role of the nairu and unemployment in forecasting inflation the authors find that although there is a clear empirical phillips relation the nairu is imprecisely estimated forecasts of inflation are insensitive to the nairu and there are other leading indicators of inflation that are at least as good as unemployment this suggests deemphasizing the nairu in public discourse about monetary policy and instead drawing on a richer variety of leading indicators of inflation

real time prediction with u k monetary aggregates in the presence of model uncertainty a popular account for the demise of the u k s monetary targeting regime in the 1980s blames the fluctuating predictive relationships between broad money and inflation and real output growth yet ex post policy analysis based on heavily revised data suggests no fluctuations in the predictive content of money in this paper we investigate the predictive relationships for inflation and output growth using both real time and heavily revised data we consider a large set of recursively estimated vector autoregressive var and vector error correction models vecm these models differ in terms of lag length and the number of cointegrating relationships we use bayesian model averaging bma to demonstrate that real time monetary policymakers faced considerable model uncertainty the in sample predictive content of money fluctuated during the 1980s as a result of data revisions in the presence of model uncertainty this feature is only apparent with real time data as heavily revised data obscure these fluctua