forecasting recessions the puzzle of the enduring power of the yield curve for over two decades researchers have provided evidence that the yield curve specifically the spread between long and short term interest rates contains useful information for signaling future recessions despite these findings forecasters appear to have generally placed too little weight on the yield spread when projecting declines in the aggregate economy indeed we show that professional forecasters are worse at predicting recessions a few quarters ahead than a simple real time forecasting model that is based on the yield spread this relative forecast power of the yield curve remains a puzzle the appendix is included online as supplementary material

the federal funds rate and the channels of monetary transmission the authors show that the interest rate on federal funds is extremely informative about future movements of real macroeconomic variables then they argue that the reason for this forecasting success is that the funds rate sensitively records shocks to the supply of bank reserves that is the funds rate is a good indicator of monetary policy actions finally using innovations to the funds rate as a measure of changes in policy the authors present evidence consistent with the view that monetary policy works at least in part through credit i e bank loans as well as through money i e bank deposits copyright 1992 by american economic association

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

infrequent housing adjustment limited participation and monetary policy this paper asks why monetary contractions have strong effects on the housing market the paper presents a model with staggered housing adjustment in which monetary policy has real effects in the absence of any rigidity in producer pricing or wages limited participation in financial markets leads to a rise in the real mortgage rate following an increase in the nominal short rate since households must take on a mortgage to consume housing the rise in the real interest rate reduces the share of residential investment in output

federal reserve financial crisis lending programs and bank stock returns abstract we use an e garch model to estimate the wealth effects of federal reserve lending during the financial crisis to investment banks i banks too big to fail tbtf banks and traditional commercial banks borrowing from the term auction facility program has negative wealth effects for all banks and i banks in particular we also find that the market view of the liquidity programs changed across the sample sub periods i bank and tbtf bank borrowing from the discount window is initially viewed positively however continued use of the discount window and the term auction facility was generally though not universally viewed negatively commercial paper funding facility program participation is consistently positive only for traditional banks and programs that focus on the purchase of specific securities e g commercial paper to address specific problems also appear to primarily benefit traditional banks the inconsistency of results across the time periods of the crisis is telling as market participants struggled to discern what access to these programs meant

forecasting and trading monetary policy effects on the riskless yield curve with regime switching nelson siegel models abstract we use 1982 2014 data on the us riskless yield curve to show that regime switching dynamics in nelson siegel factor models extended to encompass variables that summarize the state of monetary policy lead to superior predictive accuracy such spread in forecasting power turns out to be statistically significant even controlling for parameter uncertainty and sample variation exploiting regimes we obtain evidence that the increase in predictive accuracy is stronger during the great financial crisis when monetary policy underwent a significant sudden shift although more caution applies in comparisons to a naive random walk benchmark over a few sub samples and when transaction costs are accounted for we report that the increase in predictive power owed to the combination of regimes and of variables that capture the stance of unconventional monetary policies is tradeable we devise and test butterfly strategies that exploit the forecasts from the models and obtain evidence of risk adjusted profits both per se and in comparisons to simpler models

monetary policy signaling and movements in the term structure of interest rates this paper examines how various monetary policy signals such as repo rate changes inflation reports speeches and minutes from monetary policy meetings affect the term structure of interest rates we find that unexpected movements in the short end of the yield curve are mainly driven by unexpected changes in the repo rate however published inflation reports and speeches also have some impact on short rates speeches are found to be a more important determinant for the longer end of the term structure our conclusion is that central bank communication is an essential part of the conduct of monetary policy

daily monetary policy shocks and new home sales abstract the conventional notion of a monetary policy shock as a surprise change in the fed funds rate is misspecified the primary news for market participants is not what the fed just did but is instead new information about the fed s future intentions revisions in these anticipations show up instantaneously in long term mortgage rates home sales do not respond until much later this paper attributes this delay and hence much of the hump shaped response of economic activity to monetary policy to cross sectional heterogeneity in search times this framework allows one in principle to measure policy impacts at the daily frequency

yield spreads currency movements and recession predictability for southern border economies in the united states abstractprior research establishes that the spread between long and short term bond yields often provides valuable information for predicting business cycle downturns this study examines the predictive capacity of the yield spread for the united states metropolitan economies situated along the border with mexico because of the location of these urban economies and various economic ties linking them with twin cities across the border the mexico yield spread and the real dollar peso exchange rate are also employed as potential recession predictors results suggest that a flattening of the yield curve for either country tends to increase the probability of recessions in border economies furthermore declines in the real value of the peso which are typically associated with greater cross border manufacturing activity are found to reduce recession likelihoods in the metropolitan economies examined on the north side of the international boundary

the effect of democracy and press freedom on corruption an empirical test this paper tests the effect of democracy and press freedom on corruption the empirical investigation carried out in this paper suggests that democracy and press freedom can have significant impact on corruption

causes and effects of corruption what has past decade s empirical research taught us a survey corruption has fierce impacts on economic and societal development and is subject to a vast range of institutional jurisdictional societal and economic conditions it is this paper s aim to provide a reassessment and a comprehensive state of the art survey of existing literature on corruption and its causes and effects a particularly strong focus is put on presenting and discussing insights resulting from empirical research and contrasting recent with older findings

asymmetric over and undershooting of major exchange rates evidence from quantile regressions abstract this paper uses quantile regression techniques to investigate the temporal dependence patterns of major exchange rates around the globe specifically we estimate quantile autoregressive models for daily exchange rate returns of the usd eur usd jpy usd gbp usd aud usd chf and usd cad exchange rates between 1999 and 2014 testing for the equality of cross quantile effects we reveal substantial state dependence in the return dynamics in particular we find that large us dollar appreciations tend to exhibit positive dependence on past returns whereas large us dollar depreciations tend to exhibit negative dependence on past returns around central return quantiles however there is virtually no evidence for significant temporal dependence exceptions from this pattern are only apparent for the usd jpy and the usd chf exchange rate theoretically our results point to the presence of over and undershooting in terms of asymmetric exchange rate adjustment to previous day information

housing finance and monetary policy we document three facts concerning how the structure of housing finance affects the monetary transmission mechanism first the characteristics of residential mortgage markets differ markedly across industrialized countries second the impact of monetary policy shocks to residential investment and house prices is significantly stronger in those countries with larger flexibility development of mortgage markets third the transmission to consumption is stronger only in those countries where mortgage equity release is common and mortgage contracts are predominantly of the variable rate type we then build a two sector dsge model with financial constraints to rationalize those facts

the structure and degree of dependence a quantile regression approach abstract the copula function defines the degree of dependence and the structure of dependence this paper proposes an alternative framework to decompose the dependence using quantile regression we demonstrate that the methodology provides a detailed picture of dependence including asymmetric and non linear relationships in addition changes in the degree or structure of dependence can be modeled and tested for each quantile of the distribution the empirical part applies the framework to three different sets of financial time series and demonstrates substantial differences in dependence patterns among asset classes and through time the analysis of 54 global equity markets shows that detailed information about the structure of dependence is crucial to adequately assess the benefits of diversification in normal times and crisis times

forecasting national recessions using state level data a large literature studies the information contained in national level economic indicators such as nancial and aggregate economic activity variables for forecasting u s business cycle phases expansions and recessions in this paper we investigate whether there is additional information regarding business cycle phases contained in subnational measures of economic activity using a probit model to predict the nber expansion and recession classification we assess the forecasting benets of adding state level employment growth to a common list of national level predictors as state level data adds a large number of variables to the model we employ a bayesian model averaging procedure to construct forecasts based on a variety of forecast evaluation metrics we find that including state level employment growth substantially improves short horizon forecasts of the business cycle phase the gains in forecast accuracy are concentrated during months of national recession posterior inclusion probabilities indicate substantial uncertainty regarding which states belong in the model highlighting the importance of the bayesian model averaging approach

risk return tradeoff in u s stock returns over the business cycle in the empirical finance literature findings on the risk return tradeoff in excess stock market returns are ambiguous in this study i develop a new qualitative response qr generalized autoregressive conditional heteroskedasticity in mean garch m model combining a probit model for a binary business cycle indicator and a regime switching garch m model for excess stock market return with the business cycle indicator defining the regime estimation results show that there is statistically significant variation in the u s excess stock returns over the business cycle however consistent with the conditional intertemporal capital asset pricing model icapm there is a positive risk return relationship between volatility and expected return independent of the state of the economy

public information and coordination evidence from a credit registry expansion this paper provides evidence that lenders to a firm close to distress have incentives to coordinate lower financing by one lender reduces firm creditworthiness and causes other lenders to reduce financing to isolate the coordination channel from lenders joint reaction to new information we exploit a natural experiment that forced lenders to share negative private assessments about their borrowers we show that lenders while learning nothing new about the firm reduce credit in anticipation of other lenders reaction to the negative news about the firm the results show that public information exacerbates lender coordination and increases the incidence of firm financial distress

why does the yield curve predict output and inflation the slope of the yield curve has been shown empirically to be a significant predictor of inflation and real economic activity but there is no standard theory as to why the relationship exists this article constructs an analytical rational expectations model to investigate the reasons for the empirical results the model suggests that the relationships are not structural but are instead influenced by the monetary policy regime however the yield curve should have predictive power for output and inflation in most circumstances various implications of the theoretical model are tested and confirmed empirically

evaluating predictions of change this article applies a technique developed by robert c merton 1981 and roy d henriksson and robert c merton 1981 for evaluating the market timing of financial managers to macroeconomic predictions of change this methodology may be used to determine whether the predictions may be of value to the user as an illustration the methodology is applied to a set of real gross national product forecasts copyright 1990 by the university of chicago

dimensions of civic activism and their effectiveness in exposing corruption evidence from italy this article studies the influence of civic activism in exposing corruption across italian regions using different dimensions of civic activism including local and national newspapers the intern

central banks and financial stability rediscovering the lender of last resort practice in a finance economy the purpose of our paper is to assess whether central banks have adopted new practices of lending in last resort during the 2007 09 financial crisis we compare the current period with the classical period both featured by a finance economy with developed financial markets and unregulated institutions beyond the differences determined by the monetary regime and concerning the central bank rate policy we find similarities such as the enlargements of the set of counterparties and eligible collateral assets since the credit system is based on financial markets and innovations central banks have a wider involvement that goes beyond a narrow conception of the lender of last resort that prevailed under a regulated banking system we conclude that the historical roots of financial stabilisation by central banks in a finance economy have just been rediscovered and that the functions of lender of last resort and market maker of last resort may be analytically integrated copyright oxford university press

rationality of inflation output forecasts of mms survey international evidence we analyse the individual rationality of inflation and output forecasts from money market survey mms for a group of g7 countries and eu under asymmetric univariate linlin and linex loss functions we also test for joint rationality of inflation output forecasts using the forecast rationality test under multivariate asymmetric loss functions proposed by ulu 2013 our results indicate that rationality is often rejected under symmetric loss and results improve towards rationality when asymmetric loss functions are assumed the assumption of multivariate asymmetric loss compared to univariate asymmetric loss provides further evidence towards rationality we also analyse directional forecast accuracy of the inflation and output forecasts and find that the inflation output forecasts of mms are valuable when considered both jointly and separately

evaluating federal reserve predictions of growth in consumer spending this study shows that federal reserve forecasts of growth in both total consumption and durable spending are generally rational under asymmetric loss and the forecasts of growth in nondurable services spending while unbiased biased fail to be rational yet these forecasts are all directionally accurate the forecasts of growth in total consumption durable and services spending are more less accurate in predicting the downward upward moves and are thus of value when policymakers assign more less cost to incorrect downward upward predictions the forecasts of growth in nondurable spending are equally accurate in predicting the downward and upward moves and are thus of value when policymakers assign similar cost to both incorrect downward and upward predictions utilizing survey data to measure the private forecasts we further provide partial support for the asymmetric information hypothesis that the federal reserve has useful information about the state of the economy that is not known by

measuring business cycles a modern perspective in the first half of this century special attention was given to two features of the business cycle 1 the comovement of many individual economic series and 2 the different behavior of the economy during expansions and contractions both of these attributes were ignored in many subsequent business cycle models which were often linear representations of a single macroeconomic aggregate however recent theoretical and empirical research has revived interest in each attribute separately notably dynamic factor models have been used to obtain a single common factor from a set of macroeconomic variables and nonlinear models have been used to describe the regime switching nature of aggregate output we survey these two strands of research and then provide some suggestive empirical analysis in an effort to unite the two literatures and to assess their usefulness in a statistical characterization of business cycle dynamics

does confidence data help forecast business cycles new evidence from canada abstractthis paper assesses the contribution of confidence or sentiment data for predicting canadian economic slowdowns a probit framework is applied to an indicator of the status of the canad

a monte carlo study of the forecasting performance of empirical setar models in this paper we investigate the multi period forecast performance of a number of empirical selfexciting threshold autoregressive setar models that have been proposed in the literature for modelling exchange rates and gnp amongst other variables we take each of the empirical setar models in turn as the dgp to ensure that the non linearity characterises the future and compare the forecast performance of setar and linear autoregressive models on a number of quantitative and qualitative criteria our results indicate that non linear models have an edge in certain states of nature but not in others and that this can be highlighted by evaluating forecasts conditional upon the regime

the near term forward yield spread as a leading indicator a less distorted mirror the spread between the yields on a 10 year us t note and a 2 year t note is commonly used as a harbinger of us recessions we show that such long term spreads are statistically dominated in forec

viewpoint boosting recessions this paper explores the effectiveness of boosting often regarded as the state of the art classification tool in giving warning signals of recessions 3 6 and 12 months ahead boosting is used to screen as many as 1 500 potentially relevant predictors consisting of 132 real and financial time series and their lags estimation over the full sample 1961 1 2011 12 finds that there are fewer than 10 important predictors and the identity of these variables changes with the forecast horizon there is a distinct difference in the size and composition of the relevant predictor set before and after mid 1980 rolling window estimation reveals that the importance of the term and default spreads are recession specific the aaa spread is the most robust predictor of recessions three and 6 months ahead while the risky bond and 5 year spreads are important for 12 months ahead predictions certain employment variables have predictive power for the two most recent recessions when the interest rate spreads were uninformative warning signals for the post 1990 recessions have been sporadic and easy to miss the results underscore the challenge that changing characteristics of business cycles pose for predicting recessions prevoir les recessions ce texte explore l efficacite de la methode dite du boosting qu on considere souvent comme un instrument de classification qui est a la fine pointe de l art de prevoir les recessions 3 6 et 12 mois a l avance cette methode est utilisee pour passer au crible quelques 1500 predicteurs potentiellement pertinents construits a partir de 132 series chronologiques de variables reelles et financieres plus ou moins decalees des estimations de l echantillon complet pour la periode du debut de 1961 a la fin de 2011 revelent qu aussi peu que dix predicteurs sont importants et que l identite de ces variables change selon l horizon de prevision considere il y a aussi une difference marquee dans la taille et la composition de cet ensemble de predicteurs avant et apres le milieu des annees 1980 il appert que l importance des ecarts de credit ecarts des taux d interet et des risques de defaut de paiement est specifique a la recession particuliere l ecart aaa est le predicteur le plus robuste des recessions dans trois et six mois alors que la debenture risquee et l ecart des taux d interet pour la fenetre de 5 ans sont les predicteurs importants pour un horizon temporel de 12 mois certaines variables reliees a l emploi ont eu un certain pouvoir de prediction pour les deux dernieres recessions quand les ecarts de taux d interet n ont pas ete eclairants les signaux des clignotants pour les recessions d apres 1990 ont ete sporadiques et faciles a manquer les resultats soulignent le defi que posent a ceux qui font des previsions de recessions les caracteristiques changeantes des cycles economiques

reassessing the relative power of the yield spread in forecasting recessions summary in this paper we replicate the main results of previous research showing that the use of the yield spread in a probit model can predict recessions better than the survey of professional forecasters we investigate the robustness of their results in several ways extending the sample to include the 2007 09 recession changing the starting date of the sample using rolling windows of data instead of just an expanding sample and using alternative measures of the actual value of real output our results show that the rudebusch williams findings are robust in all dimensions copyright 2015 john wiley sons ltd

do financial indicators have directional predictability for us home sales abstractthis study investigates the directional predictability of financial indicators for home sales across tranquil 1984 2005 and volatile 1972 1983 and 2006 2013 periods we find that the mortgage rate has directional predictability for both existing and newly built home sales for up to 2005 the federal funds rate generally has directional predictability for existing newly built home sales in 1984 2005 1972 1983 the term spread has directional predictability for home sales in 1972 1983 but generally not in the tranquil period of 1984 2005 further unlike mortgage and federal funds rates the term spread has directional predictability for home sales in 2006 2013 and thus can help the fed with useful information assuming that this trend continues

have postwar economic fluctuations been stabilized previous investigations of whether the volatility of the u s economy diminished after world war ii have been inconclusive because of questionable prewar macroeconomic aggregates we examine more broadly the hypothesis of the stabilization of the postwar economy by focusing on the duration of business cycles rather than their amplitude in the process we avoid the debate about the quality of prewar aggregates using distribution free statistics we find clear evidence of postwar duration stabilization in terms of a shift toward longer expansions and shorter contractions moreover we find no shift in whole cycle durations which suggests a reallocation of the business cycle away from contraction and toward expansion

isolated capital cities accountability and corruption evidence from us states we show that isolated capital cities are robustly associated with greater levels of corruption across us states in line with the view that this isolation reduces accountability we then provide direct evidence that the spatial distribution of population relative to the capital affects different accountability mechanisms newspapers cover state politics more when readers are closer to the capital voters who live far from the capital are less knowledgeable and interested in state politics and they turn out less in state elections we also find that isolated capitals are associated with more money in state level campaigns and worse public good provision jel d72 d73 h41 h83 k42 r23

the central bank as shaper and observer of events the case of the yield spread the yield spread has commonly been employed as a successful predictor of economic growth and recessions although its marginal predictive power has decreased since the 1990s notably the yield spread s declining power to predict us economic activity coincided with its growing power to predict us interest rate changes in my view these phenomena are inevitably linked and share one cause the central bank intended to enhance both its transparency and credibility through greater information disclosure this disclosure improved interest rate predictability but might also have crowded out useful private information formerly in the yield spread that helped predict economic activity

predicting severe simultaneous recessions using yield spreads as leading indicators abstract severe simultaneous recessions are defined to occur when at least half of the countries under investigation australia canada germany japan united kingdom and united states are in recession simultaneously i pose two new research questions that extend upon stylized facts for us recessions one are the occurrences of simultaneous recessions predictable two does the yield spread predict future occurrences of simultaneous recessions i use the indicator for severe simultaneous recessions as the explained variable in probit models the lagged yield spread is an important explanatory variable where decreasing yield spreads are a leading indicator for severe simultaneous recessions both us and german yield spreads act as leading indicator for severe simultaneous recessions

predicting u s recessions financial variables as leading indicators this paper examines the out of sample performance of various financial variables as predictors of u s recessions series such as interest rates and spreads stock prices and monetary aggregates are evaluated individually and in comparison with other financial and nonfinancial indicators the analysis focuses on out of sample performance from one to eight quarters ahead results show that stock prices are useful with one to three quarter horizons as are some well known macroeconomic indicators beyond one quarter however the slope of the yield curve emerges as the clear individual choice and typically performs better by itself out of sample than in conjunction with other variables

whistleblower laws and exposed corruption in the united states this research creates a unique internet based measure of awareness about state level whistleblower laws and provisions to examine their effects on observed corruption in the united states are whistleblower laws complementary or substitutes for other more direct corruption control measures placing the analysis within the corruption literature the findings show that greater whistleblower awareness results in more observed corruption and this finding holds across specifications internet awareness about whistleblower laws seems relatively more effective at exposing corruption than the quantity and quality of state whistleblower laws themselves

empirical determinants of corruption a sensitivity analysis many variables have been proposed by past studies as significant determinants of corruption this paper asks if their estimated impact on corruption is robust to alteration of the information set a global sensitivity analysis based on the leamer s extreme bounds analysis gives a clear answer five variables are robustly related to corruption corruption is lower in richer countries where democratic institutions have been preserved for a long continuous period and the population is mainly protestant corruption is instead higher where political instability is a major problem finally a country s colonial heritage appears to be a significant determinant of present corruption

bank liquidity creation and recessions abstract we investigate the relationship between bank liquidity creation and recessions in the u s for the 1984 2010 sample we find that i lower bank on balance sheet liquidity creation signals recessions four quarters into the future ii off balance sheet liquidity creation is not a robust predictor of recessions at longer forecast horizons iii off balance sheet liquidity creation falls in tandem with on balance sheet liquidity creation one quarter prior to recessions and aggregate on and off balance sheet bank liquidity creation continue to decline during and up to five quarters after recessions and iv liquidity creation of larger banks contains more information about future recessions than that of smaller ones

directional forecasts of gdp and inflation a joint evaluation with an application to federal reserve predictions many studies have undertaken separate analyses of the fed s forecasts of real gross domestic product gdp growth and inflation this article presents a method for jointly evaluating the direction of change predictions of these variables we conclude that some of the inflation forecasts examined separately were not valuable however the joint pattern of gdp and inflation projections was generally in accord with the economy s movements directional forecasting is now an increasingly popular metric for forecasting performance pesaran and timmermann 2004 414

does customer satisfaction have directional predictability for u s discretionary spending abstractresearch indicates that past growth in customer satisfaction is an important factor in explaining the in sample behaviour of growth in discretionary spending motivated by such evidence we take an out of sample forecasting approach to examine whether customer satisfaction has directional predictability for two types of discretionary spending these include spending on motor vehicles and spending on recreation services which display frequent negative growth for the period 1995 2015 our results indicate that customer satisfaction accurately predicts the direction of change in both types of spending under symmetric loss to augment we further show that the widely reported consumer sentiment has no directional predictability for either types of discretionary spending

federal reserve information and the behavior of interest rates this paper tests for the existence of asymmetric information between the federal reserve and the public by examining federal reserve and commercial inflation forecasts it demonstrates that the federal reserve has considerable information about inflation beyond what is known to commercial forecasters it also shows that monetary policy actions provide signals of the federal reserve s information and that commercial forecasters modify their forecasts in response to those signals these findings may explain why long term interest rates typically rise in response to shifts to tighter monetary policy jel e52 e43 d82 asymmetric information between the federal reserve and the public is a phenomenon that is often posited but rarely tested numerous models of central bank behavior for example show that the existence of asymmetric information has important implications for the effectiveness of policy and the consequences of dynamic inconsistency yet there

crisis and responses the federal reserve in the early stages of the financial crisis in summer 2007 u s and global financial markets found themselves facing a potential financial crisis and the u s federal reserve found itself in a difficult situation it was becoming clear that banks and other financial institutions would ultimately lose tens or even hundreds of billions of dollars from their exposure to subprime mortgage market loans bank lending is closely tied to bank capital or net worth specifically bank regulators require that loans not exceed a certain multiple of capital thus the federal reserve faced the danger of a sharp contraction in credit and bank lending in a way that threatened a deep recession or worse when this kind of event happens the job of the central bank is to assure that financial institutions have the necessary funds to conduct their daily business that they have the liquidity they need to make timely payments and transfers modern financial institutions need to replenish their funding every day in the united states alone literally trillions of dollars are transferred between banks each day to support the 50 trillion credit outstanding in the economy as a whole commercial banks require funds to initiate the mortgages auto loans and credit card debt they then sell into financial markets while investment banks finance much of their activity with daily borrowing in the early stages of the crisis the situation often arose in which a wellcapitalized bank was forced to make sudden large loans based on previously committed lines of credit in this circumstance central bank actions can ease

eight questions about corruption this paper will discuss eight frequently asked questions about public corruption 1 what is corruption 2 which countries are the most corrupt 3 what are the common characteristics of countries with high corruption 4 what is the magnitude of corruption 5 do higher wages for bureaucrats reduce corruption 6 can competition reduce corruption 7 why have there been so few recent successful attempts to fight corruption 8 does corruption adversely affect growth

corruption perceptions vs corruption reality abstract this paper examines the accuracy of corruption perceptions by comparing indonesian villagers reported perceptions about corruption in a road building project in their village with a more objective measure of missing expenditures in the project i find that villagers reported perceptions do contain real information and that villagers are sophisticated enough to distinguish between corruption in a particular road project and general corruption in the village the magnitude of the reported information however is small in part because officials hide corruption where it is hardest for villagers to detect i also find that there are biases in reported perceptions the findings illustrate the limitations of relying solely on corruption perceptions whether in designing anti corruption policies or in conducting empirical research on corruption

the effect of the interbank network structure on contagion and common shocks abstract this paper proposes a dynamic multi agent model of a banking system with central bank banks optimize a portfolio of risky investments and riskless excess reserves according to their risk return and liquidity preferences they are linked via interbank loans and face stochastic deposit supply comparing different interbank network structures it is shown that money centre networks are more stable than random networks evidence is provided that the central bank stabilizes interbank markets in the short run only systemic risk via contagion is compared with common shocks and it is shown that both forms of systemic risk require different optimal policy responses

estimation and testing of forecast rationality under flexible loss in situations where a sequence of forecasts is observed a common strategy is to examine rationality conditional on a given loss function we examine this from a different perspective supposing that we have a family of loss functions indexed by unknown shape parameters then given the forecasts can we back out the loss function parameters consistent with the forecasts being rational even when we do not observe the underlying forecasting model we establish identification of the parameters of a general class of loss functions that nest popular loss functions as special cases and provide estimation methods and asymptotic distributional results for these parameters this allows us to construct new tests of forecast rationality that allow for asymmetric loss the methods are applied in an empirical analysis of imf and oecd forecasts of budget deficits for the g7 countries we find that allowing for asymmetric loss can significantly change the outcome of empirical tests of forecast rationality

rational expectations and macroeconomic forecasts the article presents extensive results from testing for bias and serially correlated errors in a collection of time series of quarterly multiperiod forecasts for six variables including real gnp growth inflation and unemployment the analysis covers responses by 79 frequent participants in economic outlook surveys conducted regularly since 1968 it shows much greater incidence of apparently systematic errors for inflation than for the other variables also the tests are more favorable to composite group forecasts than to most of the individual forecast sets

the yield spread puzzle and the information content of spf forecasts while the yield spread has long been recognized as a good predictor of recessions it seems to have been largely overlooked by professional forecasters we examine this puzzle established by rudebusch and williams 2009 in a data rich environment including not just the yield spread but many other predictors as well we confirm the puzzle in this context by examining the contributions of both the spf forecasts and the yield spread in predicting recessions and by examining the information content of spf forecasts directly furthermore we take the first step towards a possible resolution of this puzzle by recognizing the heterogeneity across professional forecasters

predicting u s recessions with dynamic binary response models abstract we develop dynamic binary probit models and apply them for predicting u s recessions using the interest rate spread as the driving predictor the new models use lags of the binary response a recession dummy to forecast its future values and allow for the potential forecast power of lags of the underlying conditional probability we show how multiperiod ahead forecasts are computed iteratively using the same one period ahead model iterated forecasts that apply specific lags supported by statistical model selection procedures turn out to be more accurate than previously used direct forecasts based on horizon specific model specifications

the taylor rule and optimal monetary policy where it denotes the fed s operating target for the federal funds rate pt is the inflation rate measured by the gdp deflator yt is the log of real gdp and y t is the log of potential output identified empirically with a linear trend the rule has since been subject to considerable attention both as an account of actual policy in the united states and elsewhere and as a prescription for desirable policy taylor argues for the rule s normative significance both on the basis of simulations and on the ground that it describes u s policy in a period in which monetary policy is widely judged to have been unusually successful taylor 1999 suggesting that the rule is worth adopting as a principle of behavior here i wish to consider to what extent this prescription resembles the sort of policy that economic theory would recommend i consider the question in the context of a simple but widely used optimizing model of the monetary transmission mechanism which allows one to reach clear conclusions about economic welfare the model is highly stylized but incorporates important features of more realistic models and allows me to make several points that are of more general validity out of concern for the robustness of the conclusions reached the analysis here addresses only broad qualitative features of the taylor rule and attempts to identify features of a desirable policy rule that are likely to hold under a variety of model specifications

discount window borrowing after 2003 the explicit reduction in implicit costs abstract in 2003 the federal reserve introduced primary credit as its main discount window lending program this program replaced the adjustment credit program which subject to a number of restrictions had generated a stigma associated with borrowing from the federal reserve lessening the stigma of borrowing was viewed as essential for reducing the reluctance to borrow from the federal reserve we develop a structural model of daily borrowing using this model we estimate the implicit cost associated with borrowing our results suggest that the stigma of borrowing is significantly reduced

international house price cycles monetary policy and credit abstract we evaluate three alternative predictors of house price corrections anticipated tightenings of monetary policy deviations of house prices from fundamentals and rapid credit growth a new cross country measure of monetary policy expectations based on an international term structure model with time varying risk premiums is constructed house price overvaluation is estimated via an asset pricing model the variables are incorporated into a panel logit regression model that estimates the likelihood of a large house price correction in 18 oecd countries the results show that corrections are predicted by increases in the market s forecast of higher policy rates the estimated degree of house price overvaluation also contains significant information about subsequent price reversals in contrast to the financial crisis literature credit growth is less important all of these variables help forecast recessions

dynamic debt runs we develop a dynamic model of debt runs on a rm which invests in an illiquid asset by rolling over staggered short term debt contracts i e dierent contracts mature at dierent times we derive a unique threshold equilibrium in which creditors coordinate their asynchronous rollover decisions based on the rm s publicly observable and time varying fundamental the coordination problem ampli es the creditors concerns about the rm s future rollover risk created by its time varying fundamental and causes each maturing creditor to run ahead of others even when the current fundamental is substantially higher than its liability our model provides a set of implications on the roles played by volatility illiquidity and debt maturity in driving debt runs as well as on rms capital adequacy standards and credit risk

investigating time variation in the marginal predictive power of the yield spread abstract we use bayesian time varying parameters vars with stochastic volatility to investigate changes in the marginal predictive content of the yield spread for output growth in the united states and the united kingdom since the gold standard era and in the eurozone canada and australia over the post wwii period overall our evidence does not provide much support for either of the two dominant explanations why the yield spread may contain predictive power for output growth the monetary policy based one and harvey s 1988 the real term structure and output growth journal of financial economics 22 305 333 real yield curve one instead we offer a new conjecture

the market for news we investigate the market for news under two assumptions that readers hold beliefs which they like to see confirmed and that newspapers can slant stories toward these beliefs we show that on the topics where readers share common beliefs one should not expect accuracy even from competitive media competition results in lower prices but common slanting toward reader biases on topics where reader beliefs diverge such as politically divisive issues however newspapers segment the market and slant toward extreme positions yet in the aggregate a reader with access to all news sources could get an unbiased perspective generally speaking reader heterogeneity is more important for accuracy in media than competition per se

the fed and interest rates a high frequency identification we measure monetary policy shocks as changes in the fed funds target rate that surprise bond markets in daily data these shock series avoid the omitted variable time varying parameter and orthogonalization problem of monthly vars and do not impose the expectations hypothesis we find surprisingly large and persistent responses of bond yields to these shocks 10 year rates rise as much as 8 10 of a percent to a one percent target shock the usual view that monetary policy only temporarily raises long term rates and influences inflation would lead one to predict a negative long rate response this abstract was borrowed from another version of this item

a re examination of the predictability of economic activity using the yield spread this paper revisits the yield spread s usefulness for predicting future real gdp growth we show that the contribution of the spread can be decomposed into the effect of expected future changes in short rates and the effect of the term premium we find that both factors are relevant for predicting real gdp growth but the respective contributions differ we investigate whether the cyclical behavior of interest rate volatility could account for either or both effects we find that while volatility displays important correlations with both the term structure of interest rates and gdp it does not appear to account for the yield spread s usefulness for predicting gdp growth

public guarantee schemes corruption and gender a european sme level analysis does a corrupt politico institutional environment affect the demand of public subsidies for credit access so called public guarantee schemes by small and medium sized enterprises smes helmed

markov switching midas models this article introduces a new regression model markov switching mixed data sampling ms midas that incorporates regime changes in the parameters of the mixed data sampling midas models and allows for the use of mixed frequency data in markov switching models after a discussion of estimation and inference for ms midas and a small sample simulation based evaluation the ms midas model is applied to the prediction of the u s economic activity in terms of both quantitative forecasts of the aggregate economic activity and the prediction of the business cycle regimes both simulation and empirical results indicate that ms midas is a very useful specification

data revisions and forecasting the relationship between two sets of gnp data the earliest and the first revisions is examined this comparison enables us to determine whether the early numbers are valuable to forecasters the analysis uses two methods the first is based on a technique which has been used to evaluate whether financial and economic forecasts are valuable to the users the second approach uses time series techniques we conclude that revisions to the 15 day estimates that occur when the 45 day numbers are released are successful and that the 15 day numbers are useful to forecasters

fighting corruption to improve schooling evidence from a newspaper campaign in uganda what are the most effective ways to increase primary school enrollment and student learning we argue that innovations in governance of social services may yield the highest return since social service delivery in developing countries is often plagued by inefficiencies and corruption we illustrate this by using data from an unusual policy experiment a newspaper campaign in uganda aimed at reducing capture of public funds by providing schools parents with information to monitor local officials handling of a large education grant program the campaign was highly successful and the reduction in capture had a positive effect on enrollment and student learning jel d73 i22 o12

forecasting the distribution of economic variables in a data rich environment this article investigates the relevance of considering a large number of macroeconomic indicators to forecast the complete distribution of a variable the baseline time series model is a semiparametric specification based on the quantile autoregressive qar model that assumes that the quantiles depend on the lagged values of the variable we then augment the time series model with macroeconomic information from a large dataset by including principal components or a subset of variables selected by lasso we forecast the distribution of the h month growth rate for four economic variables from 1975 to 2011 and evaluate the forecast accuracy relative to a stochastic volatility model using the quantile score the results for the output and employment measures indicate that the multivariate models outperform the time series forecasts in particular at long horizons and in tails of the distribution while for the inflation variables the improved performance occurs mostly at the 6 month horizon we also illustra

weak form efficiency in currency markets many past studies have found that currencies trend so technical trading rules produced statistically and economically significant profits in other words foreign exchange markets were weak form inefficient the study reported here reexamined this phenomenon with use of a new database of currency futures for 1975 2006 that includes old and newly liquid currencies the findings from the recent data are contradictory the profitability of trend following eroded for major currencies and their associated cross exchange rates around the mid 1990s newly liquid currencies after 2000 do trend however just as major currencies did in earlier years the evidence is consistent with early weak form inefficiency followed by vanishing trends as traders learn and adapt their strategies

the yield curve and the macro economy across time and frequencies this paper assesses the relation between the yield curve and the main macroeconomic variables in the u s between early 1960s and 2009 across time and frequencies using wavelet analyses the shape of the yield curve is modelled by latent factors corresponding to its level slope and curvature estimated by maximum likelihood with the kalman filter the macroeconomic variables measure economic activity unemployment inflation and the fed funds rate the cross wavelet tools employed coherency and phase difference the set of variables and the length of the sample allow for a thorough appraisal of the timevariation and structural breaks in the direction intensity synchronization and periodicity of the relation between the yield curve and the macro economy our evidence establishes a number of new stylized facts on the yield curve macro relation and sheds light on several results found in the literature which could not have been achieved with analyses conducted strictly in the time domain as most of the literature or purely in the frequency domain

the role of real estate uncertainty in predicting us home sales growth evidence from a quantiles based bayesian model averaging approach abstractthis paper investigates the role of real estate specific uncertainty in predicting the conditional distribution of us home sales growth over the monthly period of 1970 07 to 2017 12 based

do measures of monetary policy in a var make sense a reply to christopher a sims using the estimated var system one can trace out how monetary policy innovations affect the economy as john cochrane 1996 p 1 notes this literature has at last produced impulse response functions that capture common views about monetary policy for example in finding that a positive innovation to monetary policy is followed by increases in output prices and money and by a decline in the short term nominal interest rate in addition despite ongoing debates about precisely how the policy innovation should be identified the estimated responses of key macroeconomic variables to a policy shock are reasonably similar across a variety of studies and suggest that monetary policy shocks can have significant and persistent real effects

macro finance linkages in this survey i review the academic and policy oriented literature on the linkages between financial markets and the rest of the economy first i summarize the leading economic theories for why the financial sector can influence the macroeconomy second i consider empirical research on spillovers from the financial sector to the rest of the economy as well as across financial markets in different countries third i discuss key monetary policy debates regarding the appropriate response of central banks to financial conditions finally i conclude with an overview of the major gaps in the existing literature

a free press is bad news for corruption abstract this paper tests the proposition that a free press may be a powerful control on corruption we find evidence of a significant relationship between more press freedom and less corruption in a large cross section of countries this result is robust to specification and sample and the relationship is not sensitive to the choice of a particular measure of corruption or of press freedom furthermore we present evidence which suggests that the direction of causation runs from higher press freedom to lower corruption

financial deepening and economic growth the core of shapley shubik games and general equilibrium models with a venn diagram is applied for a theory on the role of real finance in economic growth among advanced economies then the dynamic computable general equilibrium dcge models for germany france the uk japan and the usa are constructed to assess the validity of the over financing hypothesis that has reappeared after the financial crisis of 2008 actual financial deepening ratios observed in the nonconsolidated balance sheet of the oecd exceeded by factors of 3 5 2 4 5 1 11 6 and 4 8 than the optimal financial deepening ratios implied by dcge models respectively in these countries because of excessive leveraging and bubbles up to 19 times of gdp which were responsible for this great recession containing such massive fluctuations for macroeconomic stability and growth in these economies are not possible in conventional fiscal and monetary policy models and require a dcge analysis like this along with adoption of separating equilibri

who owns the media the authors examine patterns of media ownership in 97 countries around the world they find that almost universally the largest media firms are controlled by the government or by private families government ownership is more pervasive in broadcasting than in the printed media government ownership is generally associated with less press freedom fewer political and economic rights inferior governance and most conspicuously inferior social outcomes in education and health the adverse effects of government ownership on political and economic freedom are stronger for newspapers than for television the adverse effects of government ownership of the media do not appear to be restricted solely to instances of government monopoly the authors present a range of evidence on the adverse consequences of state ownership of the media state ownership of the media is often argued to be justified on behalf of the social needs of the disadvantaged but if their findings are correct increasing private ownership of the media through privatization or by encouraging the entry of privately owned media can advance a variety of political and economic goals especially those of meeting the social needs of the poor

predicting gasoline prices using michigan survey data abstract this study investigates the predictive power of michigan surveys of consumers msc data for gasoline prices specifically we utilize the msc data on both expected inflation and consumer sentiment to construct a vector autoregressive var model for forecasting gasoline prices for 2003 2014 our findings indicate that the var forecasts are superior to the comparable benchmark forecasts obtained from a univariate integrated moving average ma model in terms of both predictive information content and directional accuracy as such we conclude that the msc data on both expected inflation and consumer sentiment have significant predictive information for gasoline prices further inspection reveals that the var forecasts are particularly accurate for the period since 2008 reinforcing the notion that consumers are economically rational

did established early warning signals predict the 2008 crises abstract over the past 60 years a voluminous literature has painstakingly developed crises theories and their associated early warning signals the hallmark of this literature is the consistency with which selected early warning signals such as the level of reserves and exchange rate appreciations are presumed to predict different types of crises across countries and time the diversity of crises theories that motivate early warning signals presents however a challenge to empirical implementations given that the true model of early warning signals is unknown omitted variable bias contaminates estimates and confidence levels when the uncertainty surrounding a particular theory has been ignored after addressing model uncertainty in early warning signal regressions using an extended version of frankel and saravelos 2012 j int econ 87 216 231 dataset we do not find a single early warning signal that alerts to all dimensions of the 2008 crisis instead distinct sets of early warning signals identify different dimensions of the crisis banking balance of payments exchange rate pressure and recession

are government and imf forecasts useful an application of a new market timing test abstract we investigate the directional accuracy of gdp and price forecasts by the japanese government and the imf with a new method developed by pesaran and timmermann pesaran m h timmermann a 2009 testing dependence among serially correlated multi category variables journal of the american statistical association 485 325 337 extending the literature to government forecasts our results illustrate an empirical application of the new test our findings provide positive evidence about the usefulness of imf forecasts whereas they cast doubts about government forecasts

a directional evaluation of corporate executives exchange rate forecasts we investigate the directional accuracy of exchange rate forecasts by corporate executives we find that a forecast with a 1 year horizon is valuable for the profitability and unprofitability predictions of manufacturers although previous studies provide considerable evidence that forecasts with horizons of 1 year and longer are not valuable however a forecast is not valuable in predicting an appreciation or depreciation of the exchange rate our findings suggest that corporate executives are more concerned about and focused on the impact of the exchange rate on their profitability rather than the exchange rate itself

how stable is the predictive power of the yield curve evidence from germany and the united states empirical research over the last decade has uncovered predictive relationships between the slope of the yield curve and subsequent real activity and inflation some of these relationships are highly significant but their theoretical motivations suggest that they may not be stable over time we use recent econometric techniques for break testing to examine whether the empirical relationships are in fact stable we consider continuous models which predict either economic growth or inflation and binary models which predict either recessions or inflationary pressure in each case we draw on evidence from germany and the united states models that predict real activity are somewhat more stable than those that predict inflation and binary models are more stable than continuous models the model that predicts recessions is stable over our full sample period in both germany and the united states

tourism demand and economic growth in spain new insights based on the yield curve abstract this study examines for the first time the dynamic relationship between tourism growth and expected macroeconomic conditions of the destination country using a dcc garch model the focus is on the spanish economy in which monthly tourist arrivals data from 1998 to 2017 were collected for five key origin countries and around the world to capture expected macroeconomic conditions the spanish term structure of interest rates is used the results suggest that the tourism expected economic growth relationship is time varying without any country specific differences in the behaviour of the correlations importantly positive correlations reportedly coincides with a regime shift in the spanish economy whereas negative correlations are evident when expected economic conditions are stable it is also shown that the aforementioned relationship is influenced by key geopolitical and economic events the 9 11 terrorist attacks global financial crisis and the ecb s quantitative easing programme finally policy implications derived from the main findings are discussed