macroeconomic forecasting in the euro area country specific versus area wide information abstract this paper compares several time series methods for short run forecasting of euro wide inflation and real activity using data from 1982 to 1997 forecasts are constructed from univariate autoregressions vector autoregressions single equation models that include euro wide and us aggregates and large model methods in which forecasts are based on estimates of common dynamic factors aggregate euro wide forecasts are constructed from models that utilize only aggregate euro wide variables and by aggregating country specific models the results suggest that forecasts constructed by aggregating the country specific models are more accurate than forecasts constructed using the aggregate data

price changes in the euro area and the united states some facts from individual consumer price data prices of goods and services do not adjust immediately in response to changing demand and supply conditions this paper characterizes the average frequency and size of price changes in the euro area and its member countries investigates the determinants of the probability of price changes and compares the evidence for the euro area with available u s results the facts documented in this paper are based on evidence from individual price data recorded at the store level in all euro area countries except ireland and greece that is in datasets covering austria belgium finland france germany italy luxembourg the netherlands portugal and spain which together account for around 97 percent of euro area gdp the data used are the monthly price records underlying the computation of national consumer price indices and harmonized consumer price indices these data cover a large number of products selected on the basis of extensive household budget surveys

nowcasting the real time informational content of macroeconomic data abstract a formal method is developed for evaluating the marginal impact that intra monthly data releases have on current quarter forecasts nowcasts of real gross domestic product gdp growth the method can track the real time flow of the type of information monitored by central banks because it can handle large data sets with staggered data release dates each time new data are released the nowcasts are updated on the basis of progressively larger data sets that reflecting the unsynchronized data release dates have a jagged edge across the most recent months

estimation of hybrid phillips curve a source of conflicting empirical results author affiliation hae shin hwang hshwang tamu eduwoong kim kw bok or kr1 introductionthe new keynesian phillips curve nkpc models are based on the microeconomic foundation that introduces nominal rigidities into the forward looking optimizing behavior of monopolistically competitive firms the baseline model specifies the inflation as a function of forward looking expectations of inflation and marginal costs as the underlying driving force gali and gertler henceforth identified as gg 1999 extend the baseline model by introducing two types of firms forward looking and backward looking firms the resulting model is a hybrid model that includes past inflation and expected inflation in addition to the marginal cost as the driving force the presence of the past inflation in the model helps to explain the persistence of inflation main interests in the empirical analysis of gg s model are the degree of price rigidity the relative roles of forward and backward looking behavior and the relevance of the marginal cost as the driving force instead of a more conventional measure of the output gap the model is typically estimated in a structural form sf or in a closed form cf using the generalized methods of moments gmm the inflation rate is usually measured by the rate of change in either the gdp deflator or the non farm business nfb deflator the two inflation rates show very similar time paths with a high correlation coefficient and the sf and the cf equations are alternative expressions of the same theoretical model therefore one would expect that the estimates of underlying parameters and the tests of hypotheses will be similar regardless of the choice of the inflation measure and the estimation equation however recent empirical studies show contradicting conclusions gg and gali gertler and lopez salido henceforth referred to as ggls5 2005 find the dominance of forward looking behavior and significance of the marginal cost as the driving force while rudd and whelan henceforth referred to as rw7 2007 find the results that contradict the conclusions of gg and ggls5 the source of conflicting results cannot be easily identified from the studies of these authors because of the differences in their data sets and their different choices of three factors estimation equation sf or cf measurement of inflation gdp or nfb and instrumental variables see table 1 for the list of instrumental variables that are used in each study gg draw their conclusion from the estimation of sf equations sf gdp and sf nfb and ggls5 draw their conclusion from the estimation of equations with gdp deflator sf gdp and cf gdp while rw7 estimate the cf equation with the nfb deflator cf nfb table 1 set of instrumental variables table omitted see article image to examine the effects of the different choices of these factors we estimated their models on a common data set that covers the period extending from 1960 i to 2003 iv 1 we find that conclusions in previous studies are indeed sensitive to the choices of the equation inflation measure and instrumental variables 2 for example rw7 report an insignificant effect of the marginal cost in their cf nfb model however if the gdp deflator is used instead the marginal cost becomes highly significant and their conclusion would have been reversed conversely ggls5 report a highly significant effect of the marginal cost in their sf gdp model but it becomes insignificant if nfb is used in their estimation equation gg s conclusion of a predominance of forward looking behavior of the firms in their sf gdp model would have been also reversed if they estimated a cf equation cf gdp with the same set of instrumental variables choices of instrumental variables also play a critical role gg s finding of significant marginal cost in their sf gdp model is reversed if rw7 s instrumental variables are used

investment and abandonment behavior of rural households an empirical investigation this article uses models of irreversible investment under uncertainty to examine the investment and abandonment behavior of poor rural households it considers the decision of ugandan coffee farming households to invest in or abandon coffee trees the observed levels of investment and abandonment are found to be consistent with models of investment that allow for irreversibility uncertainty fixed costs and liquidity constraints the findings highlight the importance of addressing volatility irreversibility fixed costs and liquidity constraints in order to increase households responsiveness to changes in the fundamentals and to enable households to recover from shocks to their capital stock

openness imperfect exchange rate pass through and monetary policy abstract this paper analyses the implications of imperfect exchange rate pass through for optimal monetary policy in a linearised open economy dynamic general equilibrium model calibrated to euro area data imperfect exchange rate pass through is modelled by assuming sticky import price behaviour the degree of domestic and import price stickiness is estimated by reproducing the empirical identified impulse response of a monetary policy and exchange rate shock conditional on the response of output net trade and the exchange rate it is shown that a central bank that wants to minimise the resource costs of staggered price setting will aim at minimising a weighted average of domestic and import price inflation

nonlinear forecasting analysis using diffusion indexes an application to japan this paper extends the diffusion index di forecast approach of stock and watson 1998 2002 to the case of possibly nonlinear dynamic factor models when the number of series is large a two step procedure based onthe method of principal components is useful since it allows wide variety of nonlinearity in the factors the factors extracted from a large japanese data suggest some evidence of nonlinear structure furthermore both the linear and nonlinear di forecasts in japan outperform traditional time series forecasts while the linear di forecast in most cases performs as well as the nonlinear di forecast

global value chain participation and current account imbalances abstract this paper draws a causal link between increased levels of global value chain participation gvcp and increases in a country s current account we document empirically that stronger gvcp is associated with larger current account balances according to our estimates cross country differences in gvcp reduce the hitherto unexplained part of current account imbalances substantially for some countries for example for the united states and japan the unexplained part of the current account falls by 75 and 50 over the sample period when controlling for their gvcp relative to the rest of the world for germany the unexplained part of the current account deficit falls by an average of 10

who produces for whom in the world economy la part du commerce en produits intermediaires dans le commerce international appele aussi commerce vertical n a cesse d augmenter depuis vingt ans cet article propose une nouvelle mesure du commerce international le commerce en valeur ajoutee qui re alloue les flux commerciaux aux pays et aux secteurs produisant les intrants en 2004 le commerce vertical represente 27 du commerce total les repartitions geographique et sectorielle du commerce en valeur ajoutee sont tres differentes de celles du commerce standard la difference entre le commerce en valeur ajoutee et le commerce standard est plus importante dans le cas du commerce regional mais ce n est pas plus le cas en asie qu en amerique

an analysis of rubber supply in sri lanka an analysis of the supply response for perennial crops is undertaken for rubber in sir lanka focusing on the uprooting replanting decision and disaggregating the typical reduced form supply response equation into several structural relationships this approach is compared and contrasted with dowling s analysis of supply response for rubber in thailand which is based upon a sophisticated reduced form supply function developed by wickens and greenfield for brazilian coffee because the uprooting replanting decision is central to understanding rubber supply response in sri lanka and for other perennial crops where replanting activities dominate new planting the standard approaches do not adequately capture supply response

uncertainty and the employment dynamics of small and large businesses we examine the impact of uncertainty on employment dynamics alternative measures of uncertainty are constructed based on the survey of professional forecasters and regression based forecasting models for gdp growth inflation sp the impact on large businesses are generally non existent or weaker our results suggest that to truly understand the effects of uncertainty on employment dynamics we need to focus on the relatively smaller and entrepreneurial businesses we discuss implications for the framing of economic policy

is inflation sticky abstract new keynesian sticky price models predict that monetary policy can affect real variables however they also predict that inflation can be reduced without depressing output or employment in fact bringing down inflation is costly presenting a challenge to the new keynesian model two departures from the new keynesian model predict costly disinflation one assumes sticky inflation rather than sticky prices while the other assumes less than perfectly rational expectations taking into account information from surveys of inflation expectations i find the evidence suggests that inflation is not sticky and that inflation expectations are less than perfectly rational

tobin s imperfect asset substitution in optimizing general equilibrium in this paper we present a dynamic optimizing model that allows explicitly for imperfect substitutability between different financial assets this is specified in a manner which captures tobin s 1969 view that an expansion of one asset s supply affects both the yield on that asset and the spread or risk premium between returns on that asset and alternative assets our estimates of this model on u s data confirm that some of the observed deviations of long term rates from the expectations theory of the term structure can be traced to movements in the relative stocks of financial assets the richer aggregate demand and asset specifications imply that there exists an additional channel of monetary policy our results suggest that central bank operations exercise a modest influence on the relative prices of alternative financial securities and so exert an extra effect on long term yields and aggregate demand separate from their effect on the expected path of short term rates

forecasting oil prices high frequency financial data are indeed useful abstract the paper examines the importance of combining high frequency financial information along with the oil market fundamentals in order to gain incremental forecasting accuracy for oil prices inspired by french et al 1987 and bollerslev et al 1988 who maintain that future asset returns are also influenced by past volatility we use daily volatilities and returns from financial and commodity markets to generate real out of sample forecasts for the monthly oil futures prices our results convincingly show that although the oil market fundamentals are useful for long run forecasting horizons the combination of the latter with high frequency financial data significantly improve oil price forecasts by reducing the rmse of the no change forecast by approximately 68 results are even more impressive during the oil price collapse period of 2014 15 these findings suggest that we cannot ignore the information extracted from the financial markets when forecasting oil prices our results are both statistically and economically significant as suggested by several robustness tests

international outsourcing and the productivity of low skilled labor in the eu this article presents first insights into the role of international outsourcing on the productivity of low skilled workers in eu manufacturing whereas in the short run international outsourcing exhibits a negative marginal effect on real value added per low skilled worker the long run parameter estimates reveal a positive impact this may be explained by imperfections in european labor and goods markets which prohibit an immediate adjustment in the factor employment and the output structure the change in the outsourcing intensity since 1993 alone acounts for a long run increase of about 6 0 in the real value added per low skilled worker jel c33 f14 f15

the role of shocks and institutions in the rise of european unemployment the aggregate evidence two key facts about european unemployment must be explained the rise in unemployment since the 1960s and the heterogeneity of individual country experiences while adverse shocks can potentially explain much of the rise in unemployment there is insufficient heterogeneity in these shocks to explain cross country differences alternatively while explanations focusing on labour market institutions explain current heterogeneity well many of these institutions pre date the rise in unemployment based on a panel of institutions and shocks for 20 oecd nations since 1960 we find that the interaction between shocks and institutions is crucial to explaining both stylised facts

an analysis of apple supply response abstract an empirical analysis of apple supply response is undertaken by modeling new plantings removals and yield the important determinants of plantings are apple profits cherry profits weather and lagged investment these variables are highly significant underscoring their importance in determining new planting decisions in the removals equation expected short run revenues of apples and peaches were the important determinants and the signs of the estimated coefficients for these variables are consistent with a priori expectations for the yield equation price and weather variables are significant highlighting their relevance in determining apple yield

using stated preferences and beliefs to identify the impact of risk on poor households abstract whilst the importance of uncertainty in shaping economic behaviour of poor households is widely acknowledged empirically identifying the impact of risk is difficult by using data on risk preferences and perceptions of risk collected through hypothetical questions in combination with more traditional measures of a household s ability to deal with risk this article identifies the impact of risk on production decisions it shows both that data on stated preferences and beliefs can be usefully utilised to explain household behaviour and that risk has a significant impact on the production decisions of poor households

evaluating point and density forecasts of dsge models this paper investigates the accuracy of point and density forecasts of four dsge models for inflation output growth and the federal funds rate model parameters are estimated and forecasts are derived successively from historical u s data vintages synchronized with the fed s greenbook projections point forecasts of some models are of similar accuracy as the forecasts of nonstructural large dataset methods despite their common underlying new keynesian modeling philosophy forecasts of different dsge models turn out to be quite distinct weighted forecasts are more precise than forecasts from individual models the accuracy of a simple average of dsge model forecasts is comparable to greenbook projections for medium term horizons comparing density forecasts of dsge models with the actual distribution of observations shows that the models overestimate uncertainty around point forecasts

european inflation and the new keynesian phillips curve author affiliation sandeep mazumder mazumds wfu edu acknowledgment i wish to thank the anonymous referees for their valuable comments and suggestions that helped shape this manuscript 1 introductionon june 1 1998 the european central bank came into being with the goal of maintaining price stability in the euro zone 1 the ability to describe inflation as accurately as possible has long been a key goal that macroeconomists pursue and in light of the introduction of the euro currency in the late 1990s this topic is particularly pertinent in europe to this end recent research has devoted a great deal of time to the new keynesian phillips curve nkpc a model that examines price setting behavior based on nominal rigidities founded on the work of authors such as taylor 1980 and calvo 1983 this model has not been without controversy but even so it remains a workhorse of macroeconomics perhaps attributable to the lack of a better alternative in particular the model is thought to have first seen genuine empirical success when gali and gertler 1999 estimated the nkpc using u s data and found that the model describes changes in u s prices considerably well indeed gali gertler and lopez salido 2001 conduct a similar exercise using european inflation data and find that the nkpc is even more applicable to the euro area than for the united states over the period from the 1970s to the latter 1990s one of the key innovations of these articles is that the labor income share equivalently real unit labor costs is used as the proxy for real marginal cost in the nkpc as opposed to previously used proxies such as detrended real output following in the same vein as gali gertler and lopez salido 2001 others have also found that the nkpc can be accurately used to describe inflation in europe for example rumler 2007 estimates the labor share nkpc for nine euro area countries and finds evidence in favor of the model while jondeau and bihan 2005 argue that the labor share nkpc may describe european inflation dynamics well depending on the number of leads or lags that one is willing to include into the model similarly leith and malley 2005 use the nkpc to find greater evidence of price stickiness in europe as compared to the united states where the proxy for real marginal cost is labor s share of income while some authors have questioned the empirical performance of the nkpc in europe when using different econometric techniques such as bardsen jansen and nymoen 2004 paloviita 2005 lawless and whelan 2007 boug cappelen and swensen 2010 a more obvious problem remains with the approach of gali gertler and lopez salido 2001 to estimating the nkpc for europe that has not received much attention in the literature that is the labor income share cannot be used to proxy for real marginal cost in the nkpc if we are to address the cyclicality of real marginal cost in a manner in keeping with predictions from basic microeconomic theory namely we believe that marginal cost is likely to be procyclical over the business cycle whereas the labor income share in fact moves countercyclically furthermore the labor share proxy of real marginal cost is founded on the assumption that labor input can be freely adjusted at a fixed real wage rate the problem with this assumption is that it ignores the notion of labor adjustment costs which is something that cannot reasonably be discounted specifically one can think of labor as being the product of the number of workers in an economy and the respective number of hours that they work seminal work by oi 1962 has argued that employment is not perfectly flexible in the short run something that the derivation of the labor share marginal cost proxy does not take into account this article reconsiders the derivation of a proxy for real marginal cost in a similar manner to that done in gali and gertler 1999 and gali gertler and lopez salido 2001 with the crucial difference that we account for the existence of labor adjustment costs

customer markets and the welfare effects of monetary policy a customer market model in which firms and customers form long term relations is developed and integrated into the canonical new keynesian framework this leads to two important differences compared to the standard model first the purely forward looking phillips curve is replaced by a hybrid variant where current inflation also depends on past inflation second the welfare cost of inflation is much lower which leads to an optimal monetary policy where relatively more weight is put on output gap stabilization than previously found in the literature

a core inflation indicator for the euro area this paper proposes a new core inflation indicator for the euro area obtained by cleaning monthly price changes from short run volatility idiosyncratic and measurement errors we use a factor model to project monthly inflation on a large panel of time series exploiting multivariate information we obtain a satisfactory degree of smoothing without using backward looking moving averages which induce a time delay in the signal the indicator forecasts inflation and is a useful tool for policy makers it outperforms other commonly used predictors at 6 months and longer horizons it tracks past policy interventions of the ecb

sticky price and limited participation models of money a comparison abstract we provide new evidence that models of the monetary transmission mechanism should be consistent with at least the following facts after a contractionary monetary policy shock the aggregate price level responds very little aggregate output falls interest rates initially rise real wages decline by a modest amount and profits fall we compare the ability of sticky price and limited participation models with frictionless labor markets to account for these facts the key failing of the sticky price model lies in its counterfactual implications for profits the limited participation model can account for all the above facts but only if one is willing to assume a high labor supply elasticity 2 percent and a high markup 40 percent the shortcomings of both models reflect the absence of labor market frictions such as wage contracts or factor hoarding which dampen movements in the marginal cost of production after a monetary policy shock 1997 elsevier science b v

who profits from innovation in global value chains a study of the ipod and notebook pcs in an era when new ideas are brought to the market by global value networks of specialists rather than by one company a key question is who captures the most value from innovation in such a structure and why this paper addresses the question of who benefits from innovation in global value chains by looking at specific computer and electronics products we apply a novel industry studies methodology for measuring the distribution of financial value across the supply chains for two models from apple s ipod family and notebook pc models from lenovo and hewlett packard hp these are all examples of globally innovated products combining technologies from the u s japan and other countries and assembled in china our analysis shows that the gross margins of apple for its high end ipod products are generally higher than those earned by hp and lenovo for notebook pcs although not so high as to be considered supernormal a key reason for the difference is that apple s control of the core software proprietary standards and complementary infrastructure of the ipod enables it to retain greater profits whereas a large share of the pc industry profits are siphoned off to microsoft and intel who control key technical standards consistent with teece 1986 our results confirm the importance of stages of technical evolution appropriability regimes and complementary assets as determinants of profiting from innovation on the other hand we find that manufacturing has become commoditized and is no longer a key to profiting from innovation in final electronic products also contrary to recent suggestions in the literature we find no evidence of a causal link between product and industry architectures instead there is a vast electronics industry architecture that can easily support product level value chain configurations ranging from modular to integrated

thousands of models one story current account imbalances in the global economy the global financial crisis has led to a revival of the empirical literature on current account imbalances this paper contributes to that literature by investigating the importance of evaluating model and parameter uncertainty prior to reaching any firm conclusion we explore three alternative econometric strategies examining all models selecting a few and combining them all out of thousands or indeed millions of models a story emerges the chance that current accounts were aligned with fundamentals prior to the financial crisis appears to be minimal

has the inflation process changed does it change inflation has been low in many countries for at least a decade but have inflation processes changed in ways that would help make low inflation permanent using both aggregate and disaggregated inflation data we find that the means of inflation processes have become smaller over the past two decades and that allowing for these changes in the mean their persistence has not declined much changes in monetary policy frameworks and recessions appear to have contributed to a reduction in the mean of inflation but do not appear to have a meaningful impact on persistence and there is some evidence that the shifts in inflation expectations are the proximate cause of the changes in the mean of inflation these findings suggest that policy makers should focus on maintaining credibility and carefully monitoring inflation expectations for any indication that they are rising stephen g cecchetti and guy debelle

are daily financial data useful for forecasting gdp evidence from mexico this article evaluates the use of financial data sampled at high frequencies to improve short term forecasts of quarterly gdp for mexico the model uses both quarterly and daily sampling frequencies while remaining parsimonious in particular the mixed data sampling midas regression model is employed to deal with the multi frequency problem to preserve parsimony factor analysis and forecast combination techniques are used to summarize the information contained in a data set containing 392 daily financial series our findings suggest that the midas model incorporating daily financial data leads to improvements in quarterly forecasts of gdp growth over traditional models that either rely only on quarterly macroeconomic data or average daily frequency data the evidence suggests that this methodology improves the forecasts for the mexican gdp notwithstanding its higher volatility relative to that of developed countries furthermore we explore the ability of the midas model to provide forecast updates for gdp growth nowcasting

a state space approach to perennial crop supply analysis in perennial crop supply analysis separate estimation of the qualitatively different new planting and replanting decisions is desirable commonly data paucity restricts estimation to a single reduced form equation this study develops a dynamic unobserved components method where separate estimation of the structural equations is possible in the absence of detailed data on new plantings and replantings the proposed method is empirically implemented in a case study of the florida grapefruit industry in terms of both statistical and forecasting performance the proposed structural approach is found superior to a single equation reduced form specification

european inflation dynamics abstract we provide evidence on the fit of the new phillips curve npc for the euro area over the period 1970 1998 and use it as a tool to compare the characteristics of european inflation dynamics with those observed in the u s we also analyze the factors underlying inflation inertia by examining the cyclical behavior of marginal costs as well as that of its two main components namely labor productivity and real wages some of the findings can be summarized as follows a the npc fits euro area data very well possibly better than u s data b the degree of price stickiness implied by the estimates is substantial but in line with survey evidence and u s estimates c inflation dynamics in the euro area appear to have a stronger forward looking component i e less inertia than in the u s d labor market frictions as manifested in the behavior of the wage markup appear to have played a key role in shaping the behavior of marginal costs and consequently inflation in europe

estimating the linear quadratic inventory model maximum likelihood versus generalized method of moments abstract we compare generalized method of moments gmm and maximum likelihood ml estimators of the parameters of a linear quadratic inventory model using nondurable manufacturing data and monte carlo simulations data based gmm estimates for five normalizations vary widely generally rejecting the model the ml estimate generally supports the model monte carlo experiments reveal that the gmm estimates are often biased apparently due to poor instruments statistically insignificant economically implausible and dynamically unstable the ml estimates are generally unbiased even in misspecified models statistically significant economically plausible and dynamically stable asymptotic standard errors for ml are 3 to 15 times smaller than for gmm

euro area business cycles in turbulent times convergence or decoupling we study the business cycle properties of the four largest european economies in the wake of the recent recession episodes the analysis is based on the factors estimated from a multi country and multi sector data rich environment we measure alikeness of business cycles by studying the synchronization of up and down phases the convergence properties of country fluctuations towards the euro area ea cycles and the contribution of the ea factor to national gdp volatilities while the economic fluctuations of the four ea member states were similar before the global financial turmoil we gather compelling evidence of an asymmetric behaviour of spanish fluctuations relative to the ea one

forecasting china s inflation in a data rich environment inflation is one of the most recent critical issues facing china to improve inflation forecasts within china this study investigates the predictive ability of three dimension reduction techniques used in a data rich environment principal components analysis pca sliced inverse regression sir and partial least squares pls applied in the factor augmented autoregression faar model proposed by stock and watson 2005 varied macroeconomic data from china between january 1998 and december 2009 are obtained to construct factors for use by three different techniques the performance of different dimension reduction methods depends on forecasting horizons the number of factors chosen and the number of slices for sir the empirical study finds that the faar model with an optimal number of pca factors outperforms the other model in out of sample inflation forecasting in china

principal components at work the empirical analysis of monetary policy with large data sets the empirical analysis of monetary policy requires the construction of instruments for future expected inflation dynamic factor models have been applied rather successfully to inflation forecasting in fact two competing methods have recently been developed to estimate large scale dynamic factor models based respectively on static and dynamic principal components this paper combines the econometric literature on dynamic principal components and the empirical analysis of monetary policy we assess the two competing methods for extracting factors on the basis of their success in instrumenting future expected inflation in the empirical analysis of monetary policy we use two large data sets of macroeconomic variables for the usa and for the euro area our results show that estimated factors do provide a useful parsimonious summary of the information used in designing monetary policy copyright 2005 john wiley sons ltd

a multilevel factor model identification asymptotic theory and applications this paper studies a multilevel factor model with global and country factors the global factors affect all individuals while the country factors affect only those within each specific country a sequential procedure to identify the global and country factors separately is proposed in the initial step the global factors are estimated by canonical correlation analysis using this initial estimator the principal component estimators pces of the global and country factors are constructed it is shown that the pces estimate the spaces of the global and country factors consistently and are normally distributed in the limit several information criteria that can estimate the numbers of the country factors are proposed the number of the global factors is assumed to be known extensive simulation results demonstrate that the sequential procedure and the information criteria work well in finite samples the method of this paper is applied to 25 oecd countries to identify international business cycle it is reported that the method extracts a global factor reasonably well

do monetary indicators lead euro area inflation abstract this paper assesses based on euro area data whether the strong in sample long run link between money growth and inflation that has been highlighted by a number of recent empirical studies is exploitable to predict inflation out of sample the results from standard bivariate forecasting models suggest that no monetary nor any other single indicator significantly outperforms a simple benchmark forecast the further analysis shows that it would be premature however to discard based on such evidence the usefulness of monetary and all other indicators first it is shown that based on judgemental adjustments to monetary indicators correcting for the effects of identifiable persistent velocity shifts it appears possible to significantly improve predictive ability in real time second i find that a factor forecasting model combining monetary and economic indicators which can be regarded as a generalized quantity theory or two pillar phillips curve forecasting model delivers a fairly good and stable forecasting performance

is there a fiscal free lunch in a liquidity trap this paper uses a dsge model to examine the eects of an expansion in government spending in a liquidity trap the spending multiplier can be much larger than in the normal situation if the liquidity trap is very persistent and scal stimulus can be rapidly implemented moreover the budgetary costs may be minimal as the large response of output boosts tax revenues allowing for something close to a scal free lunch however we caution that the multiplier may be much smaller under plausible implementation lags for many types of public spending and or if the liquidity trap lasts less than two years in addition because the marginal impact of scal expansion decreases in the scale of the outlay it is crucial to distinguish between average and marginal multipliers

real time fiscal forecasting using mixed frequency data the sovereign debt crisis has increased the importance of monitoring budgetary execution we employ real time data using a mixed data sampling midas methodology to demonstrate how budgetary slippages can be detected early on we show that in spite of using real time data the year end forecast errors diminish significantly when incorporating intra annual information our results show the benefits of forecasting aggregates via subcomponents in this case total government revenue and expenditure our methodology could significantly improve fiscal surveillance and could therefore be an important part of the european commission s model toolkit

competitiveness through disinflation an assessment of the french macroeconomic strategy france olivier jean blanchard and pierre alain muet over most of the last decade france has followed increasingly rigorous policies the hard franc approach has meant that external competitiveness is no longer sought through devaluation instead the new policy is to achieve a lower inflation rate than abroad in principle the competitiveness through disinflation approach should work and eventually bring down the unemployment rate which has remained broadly unchanged at a high level for many years while maintaining external balance this article investigates whether the policy is working inflation is lower than in germany profits have steadily increased and trade balance has been reestablished but unemployment is higher than in 1983 the policy has been more successful at bringing down inflation than at returning the economy to lower unemployment the adjustment process has been protracted credibility effects have not been fulfilled but nor however have fears that the drastic change of policy might prove unusually disruptive it simply turns out that the policy is working very slowly it would take an improbable 30 accumulated competitiveness gain to bring unemployment down by 3 which does not seem acceptable to france s trading partners

international real business cycles we ask whether a two country real business cycle model can account simultaneously for domestic and international aspects of business cycles with this question in mind we document a number of discrepancies between theory and data the most striking discrepancy concerns the correlations of consumption and output across countries in the data outputs are generally more highly correlated across countries than consumptions in the model we see the opposite

perennial crop supply response a kalman filter approach a state space model for perennial crop supply response is developed new plantings and removals depend on the existing age structure of the crop and expected values for future prices and other exogenous variables acreage in individual age categories evolves depending upon existing acreage new plantings and removals the kalman filter and an iterative parameter search provide maximum likelihood estimates of the unknown parameters and age group acreages from observed data on total acreage and production an empirical application for alfalfa shows that existing acreage has differential impacts on new plantings and removals depending upon age