online and official price indexes measuring argentina s inflation abstract prices collected from online retailers can be used to construct daily price indexes that complement official statistics this paper studies their ability to match official inflation estimates in five latin american countries with a focus on argentina where official statistics have been heavily criticized in recent years the data were collected between october 2007 and march 2011 from the largest supermarket in each country in brazil chile colombia and venezuela online price indexes approximate both the level and main dynamics of official inflation by contrast argentina s online inflation rate is nearly three times higher than the official estimate

optimal discretionary monetary policy in a model of asymmetric central bank preferences this paper considers optimal monetary policy in the context of the central bank adopting an asymmetric objective function our results show that under asymmetric preferences many of the extant results on the time consistency problem need no longer hold

measuring the time inconsistency of us monetary policy this paper offers an alternative explanation for the great inflation of the 1970s by measuring a novel source of monetary policy time inconsistency in the presence of asymmetric preferences the monetary authorities generate a systematic inflation bias through the private sector expectations of a larger policy response in recessions than in booms the estimated fed s implicit target for inflation has declined from the pre to the post volcker regime the average inflation bias was about 1 before 1979 but this has disappeared over the last two decades because the preferences on output stabilization were large and asymmetric only in the former period

quantifying the uncertainty about the half life of deviations from ppp we propose a bayesian framework in which the uncertainty about the half life of deviations from purchasing power parity can be quantified based on the responses to a survey study we propose a prior probability distribution for the half life under the recent float intended to capture widely held views among economists we derive the posterior probability distribution of the half life under this consensus prior and confirm the presence of substantial uncertainty about the half life we provide for the first time a comprehensive formal evaluation of several nonnested hypotheses of economic interest including rogoff s 1996 claim that the half life is contained in the range of 3 to 5 years we find that no hypothesis receives strong support from the data copyright 2002 john wiley sons ltd

heterogeneous dynamics aggregation and the persistence of economic shocks estimates of shock persistence based on disaggregate or on aggregate data are frequently very different this article takes a step toward reconciling this apparent disconnect between micro and macro based estimates of shock response it is shown that although the average of the individual impulse response functions irfs is identical to the aggregate irf averages of other popular persistence measures such as the sum of the autoregressive coefficients among others tend to be larger the higher the aggregation level the theoretical results are illustrated with two applications that use u s and european inflation data

on the loss function of the bank of canada a note abstract based on the approach advanced by elliott et al elliott g komunjer i timmermann a 2005 estimation and testing of forecast rationality under flexible loss review of economic studies 72 1107 1125 we studied whether the inflation and output growth projections published by the bank of canada are consistent with an asymmetric loss function current year projections provide no signs of asymmetry but next year projections do the hypothesis of rationality of the projections can be rejected under symmetric loss but not under asymmetric loss

survey forecasts in brazil a prismatic assessment of epidemiology performance and determinants abstract this paper assesses the behavior of survey forecasts in brazil during the inflation targeting regime when managing expectations is one of the cornerstones of the conduct of monetary policy the distinctive database of the survey conducted by the central bank of brazil bcb among professional forecasters allows for a thorough investigation of the epidemiology determinants and performance of forecasts the main results are i top performing forecasters are influential to other forecasters ii survey forecasts perform better than vector autoregressive model based forecasts iii common forecast errors prevail over idiosyncratic components across respondents iv inflation targets play an important role in inflation expectations and v agents perceive the bcb as following a taylor rule consistent with inflation targeting the last two suggest high credibility of the monetary authority

disaggregate evidence on the persistence of consumer price inflation this paper uses disaggregate inflation data spanning all of consumption to examine i the persistence of disaggregate inflation relative to aggregate inflation ii the distribution of persistence across consumption sectors and iii whether persistence has changed assuming mean inflation to be unchanged disaggregate persistence inflation is consistently below aggregate persistence taking into account an early 1990s shift in mean inflation identified by break tests yields much lower estimates of both aggregate and disaggregate persistence for 1984 2002 but with the mean break average disaggregate persistence is actually as great as aggregate inflation persistence a factor model provides a natural framework for interpreting the relationship between aggregate and disaggregate persistence copyright 2006 john wiley sons ltd

the changing climate of climate change economics climate change economics is now four decades old much of what it has achieved as a field of academic enquiry can be linked back to issues of integrated assessment modelling this paper shows that the standard approach is going through a major change in scope as of the last five years the conventional focus on determining optimal mitigation paths based on modelling the social cost of carbon is being enlarged to embrace promising new waves of research these are 1 the economics of insurance against catastrophic risks 2 the economics of trade and climate and 3 the economics of climate change adaptation the paper helps to bridge the gap between economics and climate policy by showing that the analytical toolkit of climate change economics has shifted towards more realistic representations of climatic policy

central banks inflation forecasts under asymmetric loss evidence from four latin american countries we study the rationality of the inflation forecasts of the central banks of argentina brazil chile and mexico we reject rationality under a symmetric chile is an exception but not under an asymmetric loss function an overprediction implies a larger loss than an underprediction we also analyze alternative rationality tests growth forecasts and private sector forecasts

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

inflation targeting under asymmetric preferences this paper develops and estimates a game theoretical model of inflation targeting where the central banker s preferences are asymmetric around the targeted rate specifically positive deviations from the target can be weighted more or less severely than negative ones in the central banker s loss function it is shown that some of the previous results derived under the assumption of symmetry are not robust to this generalization of preferences estimates of the central banker s preference parameters for canada sweden and the uk are statistically different from the one implied by the commonly used quadratic loss function

bias in federal reserve inflation forecasts is the federal reserve irrational or just cautious abstract inflation forecasts of the federal reserve seem to have systematically under predicted inflation from the fourth quarter of 1968 until volcker s appointment as chairman and to systematically over predict it afterwards until the second quarter of 1998 furthermore under quadratic loss commercial forecasts seem to have information not contained in those forecasts to investigate the cause of this apparent irrationality this paper recovers the loss function implied by federal reserve s inflation forecasts the results suggest that the cost of having inflation above an implicit time varying target was larger than the cost of having inflation below it for the period since volcker and that the opposite was true for the pre volcker era once these asymmetries are taken into account the federal reserve s inflation forecasts are found to be rational

ppp strikes back aggregation and the real exchange rate we show the importance of a dynamic aggregation bias in accounting for the ppp puzzle we prove that the aggregate real exchange rate is persistent because its components have heterogeneous dynamics established time series and panel methods fail to control for this using eurostat data we find that when heterogeneity is taken into account the estimated persistence of real exchange rates falls dramatically its half life for instance may fall to as low as eleven months significantly below the consensus view of three to five years

can aggregation explain the persistence of inflation abstract an aggregation exercise is proposed that aims at investigating whether the fast average adjustments of the disaggregate inflation series of the euro area cpi is coherent with the slow adjustment of euro area aggregate inflation estimating a dynamic factor model for 404 inflation sub indices of the euro area cpi allows to decompose the dynamics of inflation sub indices into a part due to a common macroeconomic shock and to sector specific idiosyncratic shocks although idiosyncratic shocks dominate the variance of sectoral prices one common factor appears to be the main driver of aggregate dynamics in addition the heterogenous propagation of this common shock across sectoral inflation rates and in particular its slow propagation to inflation rates of services generates the persistence of aggregate inflation we conclude that the aggregation mechanism explains a significant amount of aggregate inflation persistence

sectoral and aggregate inflation dynamics in the euro area this paper synthesises the implications of recent statistical evidence regarding inflation persistence in the euro area for aggregate data the degree of inflation persistence appears to be very high for sample periods spanning multiple decades but falls dramatically once we allow for time variation in the mean level of inflation furthermore the timing of these breaks in mean generally coincides with observed shifts in the monetary policy regime finally sectoral inflation series exhibit much less persistence than aggregate inflation mainly because of the influence of transitory sector specific shocks jel e31 c22 c43

patterns of rainfall insurance participation in rural india take up of an innovative rainfall insurance policy offered to smallholder farmers in rural india decreases with basis risk between insurance payouts and income fluctuations increases with household wealth and decreases with binding credit constraints these results are consistent with the predictions of a simple neoclassical model with borrowing constraints other patterns are less consistent with the benchmark model for example participation in village networks and measures of familiarity with the insurance vendor are strongly correlated with insurance take up decisions and risk averse households are less not more likely to purchase insurance these results may reflect household uncertainty about the product given their limited experience with it

the impact of global warming on agriculture a ricardian analysis reply we measure the economic impact of climate on land prices using cross sectional data on climate farmland prices and other economic and geophysical data for almost 3 000 counties in the united states we find that higher temperatures in all seasons except autumn reduce average farm values while more precipitation outside of autumn increases farm values applying the model to a global warming scenario shows a significantly lower estimated impact of global warming on u s agriculture than the traditional production function approach and in one case suggests that even without co sub 2 fertilization global warming may have economic benefits for agriculture 16 refs 5 figs 5 tabs

the research cost of adapting agriculture to climate change a global analysis to 2050 investments in agricultural research and development r d made over the next few decades will likely prove critical in offsetting adverse climate change impacts on the global food system in this study we offer cost estimates of public r d led adaptation to climate change grounded in an explicit framework relating the flow of annual r d expenditures to building knowledge capital and thereby raising productivity in agriculture our research uses a comprehensive collection of historical public agricultural r d expenditure and a literature review of elasticity estimates linking knowledge stocks to agricultural productivity growth for key world regions given climate driven crop yield projections generated from extreme combinations of crop and global circulation models we find that offsetting crop yield losses projected by climate and crop models over 2006 2050 would require increased r d adaptation investments of between 187 billion and 1 384 billion in 2005 ppp if we invest between 2020 and 2040 this is 16 118 higher than global r d investment if present spending trends continue although these costs are significant worldwide r d led climate adaptation could offer favorable economic returns moreover r d led adaptation could deliver gains in food security and environmental sustainability by mitigating food price increases and slowing cropland expansion

combining micro and macro data in microeconometric models or panel samples to improve accuracy of estimation in this paper we show how to do this efficiently we show that the gains from use of marginal information can be substantial we also discuss how to test the compatibility of sample and marginal information

can the fed predict the state of the economy abstract we show that systematic forecast errors reveal that the fed is surprised by real and inflationary cycles the fed knows the state of the economy for the current quarter but cannot predict it one quarter ahead

aggregation and simple dynamics the koyck geometric lag or ar 1 specification is a commonly proposed behavioral model sometimes after differencing the distribution of koyck lag or ar 1 coefficients across agents in an economy is shown to be completely identified just from the dynamic behavior of aggregate macroeconomic data aggregate testable implications of an economy composed of agents having koyck lags or ar 1 models are provided extensions to higher order and time varying lags are discussed aggregate u s consumption data are shown to support the hypothesis that some consumers have random walk consumption while the rest have arima 1 1 0 consumption with widely varying ar coefficients copyright 1994 by american economic association

can openness mitigate the effects of weather shocks evidence from india s famine era transformation of countries throughout history rural citizens in developing countries today however remain highly exposed to fluctua tions in the weather this exposure affects the incomes these citizens earn and the prices of the foods they eat recent work has documented the significant mortality stress that rural house holds face in times of adverse weather robin burgess olivier deschenes dave donaldson and michael greenstone 2009 masayuki kudamatsu torsten persson and david stromberg 2009 famines times of acutely low nominal agricultural income and acutely high food prices are an extreme manifestation of this mapping from weather to death lilian c a knowles 1924 describes these events as agricultural lockouts where both food sup plies and agricultural employment on which the bulk of the rural population depends plummet the result is catastrophic with widespread hun ger and loss of life though now confined to the world s poor est countries food shortages and famines were features of most preindustrial societies over time there has been intense debate over what role openness to trade in food might play in

empirical studies on agricultural impacts and adaptation abstract agricultural production is heavily dependent on weather outcomes and hence climate change has the potential to significantly alter the sector s productivity both reduced form studies as well as integrated assessment models have found that the agricultural sector might experience significant impacts we discuss the advantages of empirical reduced form studies and their link and potential usefulness to integrated assessment models we further discuss challenges facing empirical studies and recent research that looks at the longer term changes in climate and attempts to measure adaptation

new evidence on inflation persistence and price stickiness in the euro area implications for macro modeling this paper evaluates new evidence on price setting practices and inflation persistence in the euro area with respect to its implications for macro modeling it argues that several of the most commonly used assumptions in micro founded macro models are seriously challenged by the new findings jel e31 e52

agricultural adaptation to climate change in rich and poor countries current modeling practice and potential for empirical contributions abstract in this paper we discuss the scope of the adaptation challenge facing world agriculture in the coming decades due to rising temperatures throughout the tropics pressures for adaptation will be greatest in some of the poorest parts of the world where the adaptive capacity is least abundant we discuss both autonomous market driven and planned adaptations distinguishing a those that can be undertaken with existing technology b those that involve development of new technologies and c those that involve institutional market and policy reforms the paper then proceeds to identify which of these adaptations are currently modeled in integrated assessment studies and related analyses at global scale this in turn gives rise to recommendations about how these models should be modified in order to more effectively capture climate change adaptation in the farm and food sector in general we find that existing integrated assessment models are better suited to analyzing adaptation by relatively well endowed producers operating in market integrated developed countries they likely understate climate impacts on agriculture in developing countries while overstating the potential adaptations this is troubling since the need for adaptation will be greatest amongst the lower income producers in the poorest tropical countries this is also where policies and public investments are likely to have the highest payoff we conclude with a discussion of opportunities for improving the empirical foundations of integrated assessment modeling with an emphasis on the poorest countries

evaluating rationality of level and growth rate forecasts of direct tax revenues under flexible loss function evidence from swiss cantons abstract we explore the rationality of tax revenue forecasts in swiss cantons under asymmetric loss functions we find evidence of asymmetric losses for the level forecasts but not for growth rates allowing for asymmetric losses alters the outcome of rationality tests for the level forecasts

biases in macroeconomic forecasts irrationality or asymmetric loss empirical studies using survey data on expectations have frequently observed that forecasts are biased and have concluded that agents are not rational we establish that existing rationality tests are not robust to even small deviations from symmetric loss and hence have little ability to tell whether the forecaster is irrational or the loss function is asymmetric we quantify the exact trade off between forecast inefficiency and asymmetric loss leading to identical outcomes of standard rationality tests and explore new and more general methods for testing forecast rationality jointly with flexible families of loss functions that embed quadratic loss as a special case an empirical application to survey data on forecasts of nominal output growth demonstrates the empirical significance of our results and finds that rejections of rationality may largely have been driven by the assumption of symmetric loss

sectoral phillips curves and the aggregate phillips curve sector level phillips curves are estimated in french data there is considerable heterogeneity across sectors with vastly different estimates of the backward looking component of inflation and the duration of nominal rigidities a multi sector model of inflation dynamics is calibrated on the basis of these sectoral estimates aggregate inflation simulated on the basis of heterogeneous sectors displays comparable dynamics to actual data a comparison is drawn between the policy trade offs implied by a phillips curve based on macroeconomic estimates vs one based on a model with heterogeneous sectors the difference is sizeable

implications of higher global food prices for poverty in low income countries in many poor countries the recent increases in prices of staple foods raise the real incomes of those selling food many of whom are relatively poor while hurting net food consumers many of whom are also relatively poor the impacts on poverty will certainly be very diverse but the average impact on poverty depends upon the balance between these two effects and can only be determined by looking at real world data results using household data for ten observations on nine low income countries show that the short run impacts of higher staple food prices on poverty differ considerably by commodity and by country but that poverty increases are much more frequent and larger than poverty reductions the recent large increases in food prices appear likely to raise overall poverty in low income countries substantially

the rationality of usda forecasts under multivariate asymmetric loss a large number of previous studies suggest that many usda forecasts are biased and or inefficient these findings however may be the result of the assumed loss function of usda forecasters we test the rationality of the usda net cash income forecasts and the wasde production and price forecasts between 1988 and 2018 using a flexible multivariate loss function that allows for asymmetric loss and non separable forecast errors our results provide robust evidence that usda forecasters are rational expected loss minimizers yet demonstrate a tendency to place a greater weight on under or overprediction as a result this study provides an alternate interpretation of previous findings of forecast irrationality

aggregation is not the solution the ppp puzzle strikes back we acknowledge financial support from the spanish ministry of education through grants sej2006 00369 and sej2005 05215 the fundacion ramon areces the barcelona economics program of crea and from the aragon s research unit seim

testing for asymmetries in the preferences of the euro area monetary policymaker this article tests for asymmetries in the preferences of the euro area monetary policymaker with 1995 1 2005 2 data from the latest update of the european central bank s ecb s area wide database following the relevant literature we distinguish between three types of asymmetry precautionary demand for expansions precautionary demand for price stability and interest rate smoothing asymmetry based on the joint generalized method of moments gmm estimation of the euler equation of optimal policy and the aggregate supply aggregate demand as ad structure of the macroeconomy we find evidence of precautionary demand for price stability in the preferences revealed by the monetary policymaker this type of asymmetry is consistent with the ecb s definition of price stability and with the priority of credibility building by a recently created monetary authority 1cempre centro de estudos macroeconomicos e previsao is a research centre supported by the fundacao para a ciencia e a tecnologia portugal whi

aggregate real exchange rate persistence through the lens of sectoral data a novel approach to analyzing real exchange rate rer persistence and its sources is presented using highly disaggregated data for a group of eu 15 countries it is shown that the distribution of sectoral persistence is highly heterogeneous and skewed to the right so that a limited number of sectors are responsible for the high levels of persistence observed at the aggregate level quantile regression has been employed to investigate whether traditional theories such as the lack of arbitrage due to nontradability or imperfect competition combined with price stickiness are able to account for the slow reversion to parity of rers

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