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

market power of local cable television franchises evidence from the effects of deregulation the 1989 cable act eliminated most price regulation of cable television operators including the right of municipalities to enforce price terms in franchise agreements deregulation was justified at least partially by the contention that competition from other entertainment media eliminated any market power of cable franchises we examine the value at sale of existing cable systems before and after deregulation assuming that this value represents the expected present value of future profits deregulation had the predicted negligible effect on profits in cities with significant broadcast competition however profits appear to have increased in areas where the competition from broadcast television was less severe we explore several explanations for this increase and conclude that significant market power is the most plausible explanation

the beauty of bigness on optimal design of multi winner contests abstract this paper examines the variation in total effort expended by participants when prizes are awarded in a grand contest as opposed to a number of subcontests when contestants are homogeneous under a mild and plausible condition regular contest technology a grand contest generates more effort than any set of subcontests when no restrictions are placed on the contest technology the results further demonstrate an increasing return to scale property such that each individual responds to a proportional increase in the number of contestants and the number of each prize by increasing individual effort therefore when a collection of identical subcontests forms a grand contest the total effort always increases and the grand contest leads to a higher rent dissipation rate our results apply to a wide variety of competitive activities such as high profile sports e g diving and gymnastics in the olympic games the internal labor market and the quota system for public resource allocation

predicting early data revisions to u s gdp and the effects of releases on equity markets the effects of data uncertainty on real time decision making can be reduced by predicting data revisions to u s gdp growth we show that survey forecasts efficiently predict the revision implicit in the second estimate of gdp growth but that forecasting models incorporating monthly economic indicators and daily equity returns provide superior forecasts of the data revision implied by the release of the third estimate we use forecasting models to measure the impact of surprises in gdp announcements on equity markets and to analyze the effects of anticipated future revisions on announcement day returns we show that the publication of better than expected third release gdp figures provides a boost to equity markets and if future upward revisions are expected the effects are enhanced during recessions

macroeconomic uncertainty through the lens of professional forecasters abstractwe analyze the evolution of macroeconomic uncertainty in the united states based on the forecast errors of consensus survey forecasts of various economic indicators comprehensive information contained in the survey forecasts enables us to capture a real time measure of uncertainty surrounding subjective forecasts in a simple framework we jointly model and estimate macroeconomic common and indicator specific uncertainties of four indicators using a factor stochastic volatility model our macroeconomic uncertainty estimates have three major spikes has three major spikes aligned with the 1973 1975 1980 and 2007 2009 recessions while other recessions were characterized by increases in indicator specific uncertainties we also show that the selection of data vintages affects the estimates and relative size of jumps in estimated uncertainty series finally our macroeconomic uncertainty has a persistent negative impact on real economic activity rather than producing wait and see dynamics

the role of market forces in assuring contractual performance the conditions under which transactors can use the market repeat purchase mechanism of contract enforcement are examined increased price is shown to be a means of assuring contractual performance a necessary and sufficient condition for performance is the existence of price sufficiently above salvageable production costs so that the nonperforming firm loses a discounted steam of rents on future sales which is greater than the wealth increase from nonperformance this will generally imply a market price greater than the perfectly competitive price and rationalize investments in firm specific assets advertising investments thereby become a positive indicator of likely performance

information aggregation around macroeconomic announcements revisions matter abstract i show that an empirical relation exists between stock returns on macroeconomic news announcement days and the future revisions of the released data but that this link differs across the business cycle using three major macroeconomic series that undergo significant revisions nonfarm payroll gross domestic product and industrial production i present evidence that daily returns on the standard poor s 500 index and revisions are positively related in expansions and negatively related in recessions the results suggest that revisions do matter i e that investors care about the final revised value of a macroeconomic series that they infer accurate information from the release of the preliminary inaccurate report and that the more precise information is aggregated into prices on the day of the initial announcement the results are consistent with the predictions of rational expectations trading models around public announcements combined with well established empirical results on the asymmetric interpretation of information across the business cycle

a multi winner nested rent seeking contest this paper considers a symmetric imperfectly discriminating rent seeking contest in which there may be several winners we first demonstrate a serious flaw in previous work and then go on to suggest an alternative method for analyzing the contest in contrast to the previous work we show that the value of the rent is fully dissipated in equilibrium as the number of players becomes large

improving real time estimates of output and inflation gaps with multiple vintage models real time estimates of output gaps and inflation gaps differ from the values that are obtained using data available long after the event part of the problem is that the data on which the real time estimates are based is subsequently revised we show that vector autoregressive models of data vintages provide forecasts of post revision values of future observations and of already released observations capable of improving estimates of output and inflation gaps in real time our findings indicate that annual revisions to output and inflation data are in part predictable based on their past vintages this article has online supplementary materials

centralized versus decentralized contests with risk averse players abstract we compare the total effort of centralized single prize contests and decentralized single prize contests assuming risk averse contestants decentralized contests outperform centralized contests when contestants are prudent and sufficiently risk averse however decentralized contests are never optimal if the designer can arrange centralized multi prize contests contestants welfare is also discussed

the state dependence of output revisions abstract this paper investigates whether economic activity dynamics predict gdp revisions using panel data from 15 oecd countries we find that economic activity predicts gdp revisions early releases tend to overestimate gdp growth during slowdowns and vice versa we also find that the source of the predictability could be related to the sampling of information collection finally the predictability comes from short term economic activity dynamics rather than business cycle position

forecast encompassing tests and probability forecasts we consider tests of forecast encompassing for probability forecasts for both quadratic and logarithmic scoring rules we propose test statistics for the null of forecast encompassing present the limiting distributions of the test statistics and investigate the impact of estimating the forecasting models parameters on these distributions the small sample performance is investigated in terms of small numbers of forecasts and model estimation sample sizes we show the usefulness of the tests for the evaluation of recession probability forecasts from logit models with different leading indicators as explanatory variables and for evaluating survey based probability forecasts copyright c 2010 john wiley sons ltd

cable franchise renewals do incumbent firms behave opportunistically systematic empirical evidence has heretofore been lacking on the extent to which supplier opportunism at the time of contract renewal is a fundamental problem associated with franchise bidding schemes at least for the case of local cable television distribution this article suggests several theoretical reasons why bad behavior by an incumbent supplier may be the exception rather than the rule and a simple test for supplier opportunism at the time of franchise renewal the simple test is employed to empirically analyze the terms of trade in a cross sectional sample of recent cable franchise renewal contracts

data revisions are not well behaved we document the empirical properties of revisions to major macroeconomic variables in the united states our findings suggest that they do not satisfy simple desirable statistical properties in particular we find that these revisions do not have a zero mean which indicates that the initial announcements by statistical agencies are biased we also find that the revisions are quite large compared to the original variables and they are predictable using the information set at the time of the initial announcement which means that the initial announcements of statistical agencies are not rational forecasts

predictability of output growth and inflation a multi horizon survey approach we develop an unobserved components approach to study surveys of forecasts containing multiple forecast horizons under the assumption that forecasters optimally update their beliefs about past current and future state variables as new information arrives we use our model to extract information on the degree of predictability of the state variable and the importance of measurement errors in the observables empirical estimates of the model are obtained using survey forecasts of annual gdp growth and inflation in the united states with forecast horizons ranging from 1 to 24 months and the model is found to closely match the joint realization of forecast errors at different horizons our empirical results suggest that professional forecasters face severe measurement error problems for gdp growth in real time while this is much less of a problem for inflation moreover inflation exhibits greater persistence and thus is predictable at longer horizons than gdp growth and the persistent component of bot

geographical disaggregation of sectoral inflation econometric modelling of the euro area and spanish economies abstractthis article studies the performance of different modelling strategies for 969 and 600 monthly price indexes disaggregated by sectors and geographical areas in spain regions and in the euro area 12 ea12 countries we also provide by means of spatial bi dimensional vector equilibrium correction models for all pairs of prices between neighbours a description of spatial cointegration restrictions that could be useful for understanding price setting within an economy we study the relevance of the regional disaggregation by using the proposed models to forecast the corresponding headline inflation and testing whether it is more accurate than alternative forecasts based on aggregated models the results for spain show that this is the case country disaggregation forecasts are also reliable for the ea12 but only because derived headline inflation forecasting is not significantly worse than alternative forecasts the models in this article can be used for competitive analysis and other macro and r

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

data revisions and periodic properties of macroeconomic data many macroeconomic time series variables show signs of periodicity that is seasonal heteroskedasticity and seasonally varying autocorrelation structures this paper argues that these periodic properties could in part be due to data revisions in case such revisions follow a particular format periodicity is shown to appear when quarterly data are revised by allocating updated annual information across the quarters in previous years an illustration for four waves of seventeen dutch macroeconomic data emphasizes this result

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

growth expectations undue optimism and short run fluctuations this paper proposes a two step procedure in order to identify belief shocks shocks to expectations about the current state of the economy first we use the survey of professional forecasters to me

contract selection and performance in competitive bidding for electricity generation third parties bidding to supply utilities with electric generation facilities is a new and increasingly important practice six states have either establishes bidding programmes or are considering doing so the paper uses data from maine the first state to use electric generation bidding to examine which bids are awarded contracts and which contracts fail to fulfill their provisions results show that bid price plays a very small role if any in the selection process

how informative are preliminary announcements of the money stock in canada the authors examine hypotheses about the relation between provisional estimates and final values of m1 m2 and m3 and their growth rates in canada using monthly data and multiple revisions preliminary values cannot be viewed as final values plus an error revision uncorrelated with these but they are approximately unbiased forecasts of final values the second difference in short term interest rates is a leading indicator of revisions in m1 growth rates and revisions exhibit significant seasonality hence preliminary values are not completely rational forecasts

market power and price increases for basic cable service since deregulation since the deregulation of rates for basic cable television service increases in price have outpaced the rate of inflation this article examines whether or not cable systems increased market power or their increased exercise of market power explains these price increases an estimated quasi supply function for cable systems before and after deregulation implies that real basic cable prices increased 18 since deregulation holding quality and other costs constant accounting for 43 of the total real price increase a demand equation is also estimated and the estimated demand elasticity of basic cable does not change after deregulation implying that this 18 real price increase is due to greater exercise of existing market power made possible by the elimination ofprice regulation rather than to an increase in market power caused by a change in the demand elasticity for cable

does cross sectional forecast dispersion proxy for macroeconomic uncertainty new empirical evidence we investigate the link between forecast dispersion and macroeconomic uncertainty resulting from the data revision structure of inflation and real output we find that disagreement is significantly related to data uncertainty however results are considerably more distinctive for inflation uncertainty

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

the uniqueness of pure strategy nash equilibrium in rent seeking games with risk averse players this article proves that if each player s measure of absolute risk aversion is nonincreasing in his her wealth then there exists a unique pure strategy nash equilibrium in the general rent seeking game where risk averse players can coexist with risk neutral players attitude toward risk can differ among players and concave production functions for lotteries are not necessarily the same among players

regulation competition and liberalization in many countries throughout the world regulators are struggling to determine whether and how to introduce competition into regulated industries this essay examines the complexities involved in the liberalization process while stressing the importance of case specific analyses this essay distinguishes liberalization policies that generally are procompetitive from corresponding anticompetitive liberalization policies

the on the run liquidity phenomenon abstract we test the implications of a model of multi asset speculative trading in which liquidity differentials between on the run and off the run u s treasury bonds ensue from endowment shocks in the presence of two realistic market frictions information heterogeneity and imperfect competition among informed traders and a public signal our evidence suggests that i off on the run liquidity differentials are economically and statistically significant even after controlling for several of the bonds intrinsic characteristics such as duration convexity repo rates or term premiums and ii off on the run liquidity differentials are smaller immediately following bond auction dates and larger when the uncertainty surrounding the ensuing auction allocations is high when the dispersion of beliefs across informed traders is high and when macroeconomic announcements are noisy consistent with our model

forecasting substantial data revisions in the presence of model uncertainty a recent revision to the preliminary measurement of gdp e growth for 2003q2 caused considerable press attention provoked a public enquiry and prompted a number of reforms to uk statistical reporting procedures in this article we compute the probability of substantial revisions that are greater in absolute value than the controversial 2003 revision the predictive densities are derived from bayesian model averaging over a wide set of forecasting models including linear structural break and regime switching models with and without heteroscedasticity ignoring the nonlinearities and model uncertainty yields misleading predictives and obscures recent improvements in the quality of preliminary uk macroeconomic measurements

taking the pulse of the economy measuring gdp national income and product accounts best known by one of their principle aggregates gross domestic product gdp are produced by virtually every nation in the world simon kuznets and richard stone both later to become nobel prize winners led the creation of the national accounts for the united states and the united kingdom respectively so what exactly does gdp measure how is it constructed why do the gdp and other national accounts estimates sometimes present a different picture of the economy than other economic indicators this article is intended to help answer these questions by providing a broad overview of the measurement techniques used in estimating gdp and the national accounts in the united states in the united states the gdp and the national accounts estimates are fundamentally based on detailed economic census data and other information that is available only once every five years the challenge lies in developing a framework and methods that take these economic census data and combine them using a mosaic of monthly quarterly and annual economic indicators to produce quarterly and annual gdp estimates for example one problem is that the other economic indicators that are used to extrapolate gdp in between the five year economic census data such as retail sales housing starts and manufacturers shipments of capital goods are often collected for purposes other than estimating gdp and

how quickly do forecasters incorporate news evidence from cross country surveys using forecasts from consensus economics inc we provide evidence on the efficiency of real gdp growth forecasts by testing whether forecast revisions are uncorrelated as the forecast data used are multi dimensional 18 countries 24 monthly forecasts for the current and the following year and 16 target years the panel estimation takes into account the complex structure of the variance covariance matrix due to propagation of shocks across countries and economic linkages among them efficiency is rejected for all 18 countries forecast revisions show a high degree of serial correlation we then develop a framework for characterizing the nature of the inefficiency in forecasts for a smaller set of countries the g 7 we estimate a var model on forecast revisions the degree of inefficiency as mananifested in the serial correlation of forecast revisions tends to be smaller in forecasts of the usa than in forecasts for european countries our framework also shows that one of the sources of the inefficiency in a country s forecasts is resistance to utilizing foreign news thus the quality of forecasts for many of these countries can be significantly improved if forecasters pay more attention to news originating from outside their respective countries this is particularly the case for canadian and french forecasts which would gain by paying greater attention than they do to news from the usa and germany respectively

centralized vs decentralized contests we compare two contests decentralized in which there are several independent contests with non overlapping contestants and centralized in which all contestants fight for a unique prize which is the sum of all prizes in the small contests we study the relationship between payoffs and efforts between these two contests

switching costs and screening efficiency of incomplete contracts we study the role of switching costs in a dynamic buyer seller relationship where quality is not contractible and the sellers retain private information about their quality relevant abilities in this environment buyer switching costs increase the seller s bargaining power in negotiations for the second contract but they also induce the seller to improve quality during the first ontract in signalling his type the overall effect is to enhance efficiency and ncrease the buyer s welfare this beneficial effect stems from the link between quality the buyer s posterior beliefs and ex post distribution of bargaining power as a function of the switching cost jel classification l14 l auteur etudie le role des couts de commutation dans une relation dynamique acheteur vendeur ou la qualite de la prestation ne peut etre partie du contrat et ou les vendeurs peuvent rationner l information quant a leurs competences a livrer un produit de qualite dans ce contexte les couts de commutation de l acheteur accroissent le pouvoir de marchandage du vendeur dans la negociation du second contrat mais ils peuvent aussi inciter le vendeur a ameliorer la qualite au cours du premier contrat pour signaler ses competences a l acheteur l effet global est d ameliorer l efficacite et d accroitre le bien etre de l acheteur cet effet benefique emerge du lien entre la qualite les croyances de l acheteur a posteriori et la repartition du pouvoir de negociation ex post en tant que fonction des couts de commutation

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

how the uk economy weathered the financial storm prior to the global financial crisis of 2008 the uk had the largest banking sector asset to gdp ratio among large countries and had experienced rapid real property price increases as well as a persistent current account deficit in the preceding decade these factors together with its role as an international financial centre made the uk economy particularly vulnerable to the onset of the global financial crisis although the initial drop in real gdp was steep we provide evidence that the economy has weathered the financial storm better than many feared and has fared no worse than its peer group of major economies in this paper we assess the reasons underlying this outcome including the possibility of exaggerated vulnerabilities global economic recovery the flexible supply side of the uk economy as well as fiscal financial and monetary policy interventions our analysis suggests that all of these factors played a role in cushioning the impact on the uk real economy leading to a more benign outcome than most observers expected

introducing the euro sting short term indicator of euro area growth we set out a model to compute short term forecasts of the euro area gdp growth in real time to allow for forecast evaluation we construct a real time dataset that changes for each vintage date and includes the exact information that was available at the time of each forecast with this dataset we show that our simple factor model algorithm which uses an easy to replicate methodology is able to forecast the euro area gdp growth as well as professional forecasters who can combine the best forecasting tools with the possibility of incorporating their own judgement in this context we provide examples showing how data revisions and data availability affect point forecasts and forecast uncertainty copyright 2010 john wiley sons ltd