the phillips curve macroeconomic policy and the welfare of canadians a review of the two competing paradigms explaining inflation and unemployment fluctuations singles out the keynesian phillips curve as the clear empirical winner over its classic competitors reestimation of the canadian phillips curve for 1957 90 identifies a sharp structural shift toward a high degree of unemployment hysteresis after 1972 the recent attempt of macropolicy to flatten the aggregate demand curve and limit supply side shock accommodation which aims at lower and more stable inflation is then shown to make unemployment higher and more unstable on average to an extent that is an increasing function of the degree of hysteresis understanding and reducing hysteresis and developing a consensus based incomes policy that has a chance of alleviating the dismal trade off should therefore to top research and policy priorities

analysts interim earnings forecasts evidence on the forecasting process existing empirical evidence indicates that analyst forecasts of corporate earnings do not meet the strict rationality standards prescribed by econometric tests of the rational expectations hypothesis 1 in this paper we address the question of whether the expectation formation process underlying analyst forecasts is adaptive or whether these forecasts are influenced by noninformational factors such as incentives arising from the market for their forecasts o brien 1988 lin and mcnichols 1993 francis and philbrick 1993 and dugar and nathan 1992 and interaction between judgmental and or statistical forecasting methods bunn and wright 1991 fan 1990 and hoerl and kennard 1970 the rejection of rational expectations gives rise to two views of the forecasting process of analysts the first based on an informational argument is that the forecasting process is adaptive marcet and sargent

rational bias in yield curve forecasts empirical studies of forecasts often fail to reconcile the rational expectations hypothesis with a minimum mean square error objective function recent studies however have argued that observed b

models of inflation expectations formation a comparison of household and economist forecasts the recent appreciation of the critical role played by expectations of inflation in the behavior of macromodels has stimulated empirical studies of the formation of expectations by different groups time series survey data on expectations of inflation exist now for economists households and businesses these data have been used as independent variables in explaining wage behavior gordon 16 turnovsky and wachter 34 and de menil and bhatta 5 prices turnovsky and wachter 34 and wachtel 36 interest rates gibson 14 hendershott and van horne 19 pearce 30 and mishkin 27 and consumption wachtel 36 generally with a significant improvement in explanatory power they have also been used as dependent variables in attempts to determine how expectations are formed by gordon 15 mullineaux 28 jacobs and jones 20 and figlewski and wachtel 9 for the economist survey van duyne 35 for the household survey and leonard 23 and de leeuw and mckelvey 4 for businesses given their different levels of knowlege of economics and perspectives one might expect that the models used by the different groups to forecast inflation would

a multivariate cointegrated modelling approach in testing temporal causality between energy consumption real income and prices with an application to two asian ldcs unlike previous studies on the casual relationship between energy consumption and economic growth this paper illustrates how the finding of cointegration i e long term equilibrium relationship between these variables may be used in testing granger causality based on the most recent johansen s multiple cointegration tests preceded by various unit root or nonstationarity tests we test for cointegration between total energy consumption real income and price level of two asian ldcs thailand and sri lanka nonrejection of cointegration between variables rules out granger noncausality and implies at least one way of granger causality either unidirectional or bidirectional secondly by using a dynamic vector error correction model we then analyse the direction of granger causation and hence the within sample grangerexogeneity or endogeneity of each of the variables thirdly the relative strength of the causality is gauged through the dynamic variance decomposition technique by decomposing the total

macroeconomic forecasts and microeconomic forecasters in the presence of principal agent problems published macroeconomic forecasts by professional economists may not measure expectations forecasters may use their forecasts in order to manipulate beliefs about their ability i test a cross sectional implication of models of reputation and information revelation i find that as forecasters become older and more established they produce more radical forecasts since these more radical forecasts are in general less accurate ex post forecast accuracy grows significantly worse as forecasters become older and more established these findings are consistent with reputational factors at work in professional macroeconomic forecasts

does money matter in canada evidence from a vector error correction model this paper investigates the statistical properties of a set of canadian and u s economic time series and uses the data to address the question of the importance of monetary variables in canadian business cycle fluctuations the individual time series are found to contain unit roots but the data reveal the existence of several economically meaningful cointegrating vectors a multivariate vector error correction model is estimated and canadian velocity which appears as an error correction term is significant in the canadian output equation this supports the contention that monetary variables have predictive content for real output copyright 1989 by mit press

energy consumption real income and temporal causality results from a multi country study based on cointegration and error correction modelling techniques abstract unlike previous studies on the causal relationship between energy consumption and economic growth this paper illustrates how the finding of cointegration i e long term equilibrium relationship between these variables may be used in testing granger causality based on the most recent johansen s multivariate cointegration tests preceded by various unit root or non stationarity tests we test for cointegration between total energy consumption and real income of six asian economies india pakistan malaysia singapore indonesia and the philippines non rejection of cointegration between variables rules out granger non causality and imples at least one way of granger causality either unidirectional or bidirectionial secondly by using a dynamic vector error correction model we then analyse the direction of granger causation and hence the within sample granger exogeneity or endogeneity of each of the variables thirdly the relative strength of the causality is gauged through the dynamic variance decomposition technique by decomposing the total impact of an unanticipated shock to each of the variables beyond the sample period into proportions attributable to shocks in the other variables including its own in the bivariate system results based on these tools of methodology indicate that while all pair wise relationships shared common univariate integrational properties only relationships for three countries india pakistan and indonesia were cointegrated for these countries temporal causality results were mixed with unidirectional causality from energy to income for india exactly the reverse for indonesia and mutual causality for pakistan the vdcs were not inconsistent with these results and provided us with an additional insight as to the relatively more dominant direction of causation in pakistan simple bivariate vector autoregressive models for the three non cointegrated systems did not indicate any direction of causality significantly in either direction

the canadian u s exchange rate evidence from a vector autoregression a vector autoregression is used to elicit the empirical facts co ncerning exchange rate movements the author finds 1 the exchange rate relati ve price levels and trade balances are closely related 2 most other lagged v ariables have no perceptible influence in theexchange rate equation 3 exchan ge rate innovations are negativelycorrelated with innovations in output and pri ces positively with innovations in the balance of trade and almost not at all with innovations in money and 4 impulses in money trade balances and govern ment spending are followed by opposing future movements in theexchange rate and the price level taken as a whole the evidence suggests that exchange rate cha nges may be associated with real rather than monetary shocks copyright 1986 by mit press

inflation expectations in latin america this paper tests the rationality of inflation forecasts surveyed in mexico brazil and chile and identifies their recent formation rule there is strong evidence that forecasts are unbiased but forecasters have not been fully efficient in the use of available information the paper assesses the importance of inflation targets to anchor inflation expectations in these countries and finds that in most cases there is room for improvement in credibility

inflation forecast errors and time variation in term premia the expectations theory of the term strueture is well known to give wrong signals as to the future course of long term interest rates one explanation involves rational time varying term premia however the anomaly may also be due to inflation forecast errors we study survey forecasts of inflation it seems that the respondents forecasts are insufficiently adaptive interest rates reflect expectations similar to the inflation forecasts as a result past survey forecast errors reliably predict premia on u s government bonds

wage expectations in the labor market survey evidence on rationality using a new set of directly observed wage expectations among firms this paper finds that in general firms forecasts fail the unbiasedness and efficiency requirements of weak form rational expectations these market participants consistently underestimate the wages they actually end up paying and their expectations do not efficiently utilize the information in past realizations the mean absolute forecast error of two percent compares with an error of only five percent if static expectations were held the major source of wage fore cast error seems to be errors in predicting demand rather than in predicting supply or the general price level wage forecast errors are positively correlated across fields with distinct supply patterns and are positively correlated with quantity forecast error the properties of stochastically weighted expectations and the effectiveness of the wage and price controls of the early 1970 s are also discussed this abstract was borrowed from another version of this item

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

the euro crisis undetected by conventional economics favoured by nationally focused polity this article interprets the initial success of the launch of the euro and its muddling through since the outbreak of the greek sovereign debt crisis two interrelated processes interacted to deliver a quite complex idiosyncratic systemic crisis first new classical macroeconomics had diffused the belief that market economies are structurally stable money is neutral financial markets are efficient and that the only culprit is public finance the euro crisis was thus inaccurately diagnosed second in the political arena monetary integration has been used by many governments as a justification for liberalisation reforms opposed by various domestic social groups at the european level most governments have been defending national interests whereas the european commission and european parliament had lost most of their expertise and legitimacy in defending a common community in line euro ambitions crisis resolution calls for leadership from a key collective actor to return coherence to the eurozone s institutional setting copyright oxford university press

using survey data to test standard propositions regarding exchange rate expectations survey data provide a measure of exchange rate expectations superior to the forward rate in that no risk premium interferes we estimate extrapolative adaptive and regressive models of expectations static or random walk expectations and bandwagon expectations are rejected current appreciation generates the expectation of future depreciation because variables other than the contemporaneous spot rate receive weight in comparing expectations to the process governing the spot rate we find statistically significant bias no variable is as ubiquitous in international financial theory and yet as elusive empirically as investors expectations regarding exchange rates in the past expectations have been modeled in an ad hoc way often by using the forward exchange rate there is however a serious problem with using the forward discount as the measure of the expected change in the exchange rate in that the two may not be equal the gap that may separate the forward discount and expected depreciation is generally interpreted as a risk premium most of the large empirical literature testing the unbiasedness of the forward exchange rate for example has found it necessary either arbitrarily to assume away the existence of the risk premium if the aim

oil and the macroeconomy since world war ii all but one of the u s recessions since world war ii have been preceded typically with a lag of around three fourths of a year by a dramatic increase in the price of crude petroleum this does not mean that oil shocks caused these recessions evidence is presented however that even over the period 1948 72 this correlation is statistically significant and nonspurious supporting the proposition that oil shocks were a contributing factor in at least some of the u s recessions prior to 1972 by extension energy price increases may account for much of post opec macroeconomic performance

rational bias in macroeconomic forecasts do professional forecasters provide their true unbiased estimates or do they behave strategically in our model forecasters have common information confer actively and thus know the true pdf of future outcomes intensive users of economic forecasts monitor forecasters performance closely occasional users are drawn to the forecaster who fared best in the previous period in the resulting nash equilibrium even though economists have identical expectations they make a range of projections that mimics the true probability distribution of the forecast variable those whose wages depend most on publicity produce forecasts that differ most from the consensus empirical evidence supports the model

modelling the general public s inflation expectations using the michigan survey data in this article we discuss a few models developed to explain the general public s inflation expectations formation and provide some relevant estimation results furthermore we suggest a simple bayesian learning model which could explain the expectations formation process on the individual level when the model is aggregated to the population level it could explain not only the mean values but also the variance of the public s inflation expectations the estimation results of the mean and variance equations seem to be consistent with the results of the questionnaire studies in which the respondents were asked to report their thoughts and opinions about inflation

the dynamics of fertility family planning and female education in a developing economy unlike most empirical works on fertility analysis this study is the first attempt to analyse the dynamics of fertility and its determinants with a particular focus on the role played by female education and family planning programmes in the context of a traditional society the analysis is based on the application of the following dynamic time series techniques in a multivariate context cointegration vector error correction modelling and variance decompositions these dynamic tools are recently developed and hitherto untried in fertility analysis in the context of a poor developing economy such as india the results based on the above most recently developed methodology broadly indicate that in the complex dynamic interactions the importance of conventional structural hypothesis as a granger causal factor in bringing fertility down in the longer term cannot be denied however overall in the short to long term the findings appear to be more consistent with the recent ideational hypothesis

canadian monetary policy will the checklist approach ever get us to price stability the purpose of this paper is to investigate whether the checklist approach that the bank of canada has followed in one way or another over the last two decades is likely to lead us to the stated objective of price stability the analysis of canadian monetary policy is performed through the estimation of a bayesian var model of a set of important canadian macroeconomic variables in their international context to estimate the model the authors borrowed form c sims 1989 but they also transposed his methodology to take into account canadian features the results suggest that the exchange rate has been high on the checklist of the bank of canada over the years and that rather the bank should concentrate its attention on broad monetary aggregates if it really wants to deliver price stability

money does granger cause output in the bivariate money output relation abstract a bivariate granger causality test on money and output finds statistically significant causality when data are measured in log levels but not when they are measured in first differences of the logs bootstrap simulation experiments indicate that most probably the first difference results reflect lack of power whereas the level results reflect granger causality that is actually in the data the reason for the lack of power in the first difference f statistic is that first differencing the data appears to entail a specification error by showing that money does granger cause output in the bivariate relation we remove a potential embarrassment for models that assign an important role to money in business fluctuations

an analysis of a panel of spanish gdp forecasts this article undertakes an analysis of the forecasts included in the panel of spanish forecasts in order to highlight the fact that the predictions made and the errors committed by the entities participating on this panel contain information that is particularly useful in analysing the evolution of the spanish economy here a study is undertaken of the gdp growth forecasts for the spanish economy for the period 2000 to 2002 made in distinct forecast time horizons specifically it analyses whether the forecasts are optimistic or pessimistic and whether new information concerning the variable being predicted is used efficiently in revising earlier forecasts

prospects for the eurozone for wim duisenberg the euro s perceived independence from the nation state was a path breaking achievement to be proud of and to cherish little more than a decade later and three years into the deepest economic crisis europe has known since the great depression duisenberg s elation rings strangely anachronistic since what the nationless euro seems to have achieved above all is to undermine whatever mutual confidence at the heart of our community there may have been at the start this special issue takes stock of the euro crisis so far it is concerned with the in depth analysis of its main causes policy proposals for a recovery from the crisis and reform strategies for the reconstruction of a more viable and egalitarian eurozone in the future this introduction provides an overview of both core features of the euro crisis and related debates as well as individual contributions to this special issue section 1 examines the origins of the euro crisis section 2 reviews key policy developments in the evolution of the crisis from its onset in may 2010 to the adoption of outright monetary transactions omts by the european central bank ecb in september 2012 and section 3 provides an overview of the contributions to the special issue

dangerous interconnectedness economists conflicts of interest ideology and financial crisis this study investigates potential conflicts of interest among academic economists and some measures to address them we investigated the financial affiliations of 19 prominent academic financial economists who were associated with two economist groups proposing financial reform measures in the wake of the 2008 financial crisis we assessed whether they had private financial affiliations and identified the degree to which these economists disclosed these affiliations in their academic and media publications from 2005 to 2009 and again from january 2011 through april 2011 we found that private affiliations were common but that these academic economists disclosed these affiliations infrequently and inconsistently we advocate the adoption of a code of ethics by the economics profession similar to those commonly implemented by other disciplines prescribing more transparent conduct for economists facing such potential conflicts of interest

building faith in a common currency can the eurozone get beyond the common market logic building faith in a common future which is at the core of the making of a common currency has been declining since the turn of the 1980s the economic neoliberalism that diffused worldwide after the collapse of the gold exchange standard and the economic crisis of the mid 1970s challenged the european project could a specific european model of social market economy help to forge the solidarity and discipline required to meet this challenge it turned out that members had different understandings of the european model especially regarding the role of central government meanwhile in all forced adjustments of the european union eu to a more open and competitive world be it enlargements new treaties or new institutions the german conception of social market economy prevailed mainly because germany was in a better position than its partners in most cases a rising discontent progressively eroded the faith in the eu project even in germany where a difficult reunification became a major national source of worries by the end of the 1990s when the euro was finally created the eu project had lost its momentum the relative success of the euro in the early 2000s was much linked with the weakness of the dollar answers to the 2008 financial then economic crisis that rest on harsh austerity plans can only worsen the situation a reconstruction of the eu project clearly needs a new pact of solidarity measures integration of the youths in all member countries stands as a good rallying common objective copyright the author 2012 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

inattentive professional forecasters abstract using the ecb survey of professional forecasters to characterize expectations at the micro level we emphasize two new facts forecasters i fail to systematically update their forecasts and ii disagree even when updating it is moreover found that forecasters have predictable forecast errors these facts are qualitatively supportive of recent models of inattention and suggest a setup where agents imperfectly process information due to both sticky information a la mankiw reis and noisy information a la sims however building and estimating such an expectation model we find that it cannot quantitatively replicate the error and disagreement observed in the data

the international transmission of economic fluctuations abstract this paper suggests that for a wide class of international real business cycle models including models with imperfect competition the traditional channels of international transmission of business cycles through world interest rate and terms of trade variations cannot explain the cyclical response of the canadian economy to innovations in u s output empirically testable quantitative models of the effects on canadian economic activity of shocks to the u s economy are developed and their empirical relevance is tested by comparing impulse responses estimated from vector autoregressions to the quantitative predictions of the theoretical models

do professional forecasters trust in taylor type rules evidence from the wall street journal poll this article uses the monthly wall street journal poll between 2002 and 2010 to analyse whether professional economic forecasters believe in and thus apply taylor type rules for their own forecasts using their forecasts for the federal funds rate the inflation rate and capacity utilization we estimate whether these are internally consistent with the message of taylor type rules we find that the expectation formation can indeed be described by taylor type rules

efficiency and formation of expectations evidence from the european investment survey the european commission conducts an annual survey regarding planned and realized business fixed investment across various manufacturing sectors in euroland in this study we investigate the predictive content of survey based expectations on investment in addition we empirically test the rationality of respondents both in a time series as well as in a panel context according to our results based on pooling the data efficiency is rejected since expectations are biased predictors of actual outcomes furthermore expectations revisions are found to be correlated with components of the information set known at the time of decision making finally our results qualify regressive expectations as the mechanism that more adequately describes the formation of expectations

forecasting errors by the troika in the economic adjustment programme for portugal this article presents an evaluation of the economic adjustment programme negotiated between the portuguese government and the troika european commission ecb and imf in may 2011 using an assessment that is different from the usual studies instead of a comparison between the actual results and the proposed targets an evaluation of the quality of the programme forecast is made showing that errors could have been avoided if the productive input output structure of the economy and also the unemployment rate external deficit trade off had been taken into account the main conclusion of this assessment is that a large underestimation of the unemployment rate was made amounting to about four percentage points which illustrates the technical flaw of this adjustment programme and the huge economic and social costs it unnecessarily caused the methodology used can easily be replicated for assessing other similar programmes such those applied in greece ireland and cyprus

vested interest and biased price estimates evidence from an auction market this study employs a new data set from art auctions to examine the relationship between auctioneer presale price estimates and the long term performance of artworks we find that the price estimates for expensive paintings have a consistent upward bias over a long period of 30 years high estimates at the time of purchase are associated with adverse subsequent abnormal returns moreover the estimation error for individual paintings tends to persist over time these results are consistent with the view that auction house price estimates are affected by agency problems and that

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

testing the rationality of price forecasts new evidence from panel data this paper tests the rationality of individual price forecasts in a panel of professional forecasters here unlike in most previous studies rationality is not rejected the results here differ because 1 using individual forecasts avoids aggregation bias 2 comparison of forecasts to initial data avoids bias due to data revision 3 the professional forecasters have economic incentives to state their expectations accurately and 4 a new covariance matrix estimator consistent when forecast errors are correlated across individuals is used copyright 1990 by american economic association

money real interest rates and output a reinterpretation of postwar u s data this paper reexamines both monthly and quarterly u s postwar data to investigate if the observed comovements between money real interestrates prices and output are compatible with the money real interest output link suggested by existing monetary theories of output which include both keynesian and equilibrium models the major empirical findings are these 1 in both monthly and quarterly data we cannot reject the hypothesis that the ex ante real rate is exogenous or granger causally prior in the context of a four variable system which contains money prices nominal interest rates and industrial production 2 in quarterly data there is significantly more information con tained in either the levels of expected inflation or the innovationof this variable for predicting future output given current and lagged output than in any other variable examined money actualinflation nominal interest rates or ex ante real rates the effect of an inflation innovation on future output is unambiguously negative the first result casts strong doubt on the empirical importance of existing monetary theories of output which imply that money should have a causal role on the ex ante real rates the second result would appear incompatible with most demand driven models of output in light of these results we propose an alternative structural model which can account for the major dynamic interactions among the variables this model has two central features i output is unaffected by money supply and ii the money supply process is motivated by short run price stability this abstract was borrowed from another version of this item

imperfect information and wage inertia in the business cycle a comment in a recent article gertler 1982 presents a model that explains certain stylized facts concerning the relative behavior of the money supply and nominal wages one additional feature of the model is the behavior of real output which is found to have a serially correlated response to a money supply shock this serial correlation appears to arise from an information structure that precludes agents from directly disentangling permanent versus transitory movements in relevant state variables this information structure complicates the forecasting problem that must be solved to analyze the model and affects the behavior of wages and the variance of output it will not however lead to serial correlation in real output an algebraic error is responsible for the serial correlation found by gertler this note corrects the error and presents an alternative solution to the forecasting problem gertler constructs forecasts of the relevant state variable through the use of a kalman filter while this technique is appropriate for the problem a simpler solution is available this solution is based on an equivalent representation of the stochastic process generating the disturbances of the model this equivalent representation can then be used in a straightforward way to describe wage dynamics and the variance of real output it is sufficient to analyze gertler s model in the case where there are only monetary disturbances the relevant equations are

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

iceland s rise fall stabilisation and beyond iceland is an unusually pure example of the dynamics that blocked regulation and caused financial fragility across the developed world for 20 years this essay describes the statist and corporatist political economy of the country as it soared from near the bottom of the western european income hierarchy at the end of the world war ii to up near the top by the 1980s it illustrates how a group of neoliberal politicians and allied civil servants drove through selective deregulation and privatisation in the 1990s and 2000s in the space created for newly privatised banks icelandic financiers grew the banks and linked private equity firms through mergers and acquisitions abroad to the point where by 2007 tiny iceland supported three banks in the world s biggest 300 banks with assets eight times the gdp second highest in the world after switzerland as profits from these overseas operations were partly redistributed back to iceland the economy boomed in the grip of super minsky processes the government the banks and the media interpreted the boom as testimony to the validity of neoliberal policies and went out of their way to hide increasing financial fragility from view preventing a negative or self correcting policy feedback loop the accident waiting to happen happened in the wake of the lehman collapse in september 2008 the essay charts the zigzags of the government s response and the citizens response and discusses the prospects for a resumption of growth on a more sustainable basis it suggests that iceland illustrates in miniature the ratcheting down of mass living standards underway across the western world now that the cushion of debt has been removed even as financiers and others in the top few percentiles of national income distributions increase their share of national income but economic institutions and politics matter in iceland the large devaluation spread the cut in a relatively apolitical way the government let the banks go bust rather than bail them out at taxpayers expense it imposed capital controls on outflows and it used fiscal transfers to protect the bottom half of the population from disproportionate cuts

forecast uncertainty ex ante and ex post u s inflation and output growth survey respondents who make point predictions and histogram forecasts of macro variables reveal both how uncertain they believe the future to be ex ante as well as their ex post performance macroeconomic forecasters tend to be overconfident at horizons of a year or more but overestimate i e are underconfident regarding the uncertainty surrounding their predictions at short horizons ex ante uncertainty remains at a high level compared to the ex post measure as the forecast horizon shortens there is little evidence of a link between individuals ex post forecast accuracy and their ex ante subjective assessments

interest rate innovations and the business cycle abstract recent evidence from vector autoregressions points towards the importance of interest rate innovations in explaining output variations we show that this evidence supports an interpretation of business cycles based on nominal contractual rigidities rather than cotinuous market clearing

on the rationality of us macroeconomic forecasts evidence from a panel of professional forecasters asa nber survey data is used to check the rationality of us macroeconomic forecasts it is found that of 75 forecast series examined 51 are biased 25 are both unbiased and efficient and only two pass the null hypothesis of orthogonality this calls into question the validity of rational expectations hypothesis

testing the rationality of price forecasts reply carl bonham and richard cohen 1995 are quite correct in noting the errors in our paper keane and runkle 1990 which were caused by our ignorance of cointegration we stand chagrined however bonham and cohen are overstating their case when they claim that keane and runkle s results do not support the empirical validity of the rational expectations hypothesis p 289 bonham and cohen focus on our tests of price forecast rationality conditioned on past oil prices and ml which they claim are the core of our paper and provide our most stringent tests of rationality those particular tests account for only two paragraphs of our 20 page paper obviously these tests do not provide the core results of our paper rather the main result of our paper is that individual price forecasts are unbiased and rational conditioned on the forecaster s own past errors no previous researchers had ever found even this limited support for the rational expectations hypothesis these core results are unaffected by the cointegration issues noted by bonham and cohen given that caveat however note how few of our results are actually overturned by bonham and cohen although our test statistics for determining whether forecasters properly condition on ml growth are incorrect bonham and cohen reach the same conclusion that we do price forecasts conditioned on ml growth are rational bonham and cohen do reach different conclusions about forecast rationality than we do when they condition on oil price changes but they themselves show that forecasters were only irrational in conditioning on oil prices after 1973 their table 2 rows 5 and 6 to call such forecasting failure irrationality may or may not be correct we think that bonham and cohen s results merely confirm the widespread view that forecasters did not completely understand the effects that oil price shocks would have on the economy because such large oil price shocks had never been seen before although bonham and cohen overturn only one of our original tests they do provide additional evidence against forecast rationality with their tests that condition on interest rate spreads and the unemployment rate we have no doubt that a search over a large number of conditioning variables will uncover some instances in which forecast rationality is rejected but conducting such a search will also incorrectly bias tests toward rejecting rationality since our original paper we have also examined the rationality of earnings forecasts made by individual stock analysts a group that has even more incentive than economic forecasters to make accurate predictions although all previous studies in that literature had found individual earnings forecasts to be irrational we found keane and runkle 1994 that analysts forecasts are rational this additional research provides further support for the paper criticized by bonham and cohen

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

the structure of expectations of the weekly money supply announcement abstract this paper examines the structure of expectations of the weekly money supply announcement in the late 1970s the data used are from a weekly telephone survey of money market participants the rationality and structure of expectations are explored with the data organized in three ways the mean response to each weekly survey the pooled sample of individual responses and time series of responses by each individual in the survey the effect of data aggregation on rationality tests is investigated the structure of the expectations data are also examined and it is found that both strong regressive influences and adaptive learning characterize the data

schumpeter meeting keynes a policy friendly model of endogenous growth and business cycles this paper studies an agent based model that bridges keynesian theories of demandgeneration and schumpeterian theories of technology fueled economic growth we employ the model to investigate the properties of macroeconomic dynamics and the impact of public polices on supply demand and the fundamentals of the economy we find profound complementarities between factors influencing aggregate demand and drivers of technological change that affect both short run fluctuations and longterm growth patterns from a normative point of view simulations show a corresponding complementarity between keynesian and schumpeterian policies in sustaining long run growth paths characterized by milder fluctuations and relatively lower unemployment levels the matching or mismatching between innovative exploration of new technologies and the conditions of demand generation appear to suggest the presence of two distinct regimes of growth or absence thereof characterized by different short run fluctuations and unemployment levels

fiscal policy and the great recession in the euro area how much did fiscal policy contribute to euro area real gdp growth during the great recession we estimate that discretionary fiscal measures have increased annualized quarterly real gdp growth during the crisis by up to 1 6 percentage points we obtain our result by using an extended version of the european central bank s new area wide model with a rich specification of the fiscal sector a detailed modeling of the fiscal sector and the incorporation of as many as eight fiscal time series appear pivotal for our result

long and short term dynamic causal transmission amongst international stock markets abstract this paper investigates the dynamic causal linkages amongst nine major international stock price indexes in order to gauge the causal transmission patterns we employ very recent methods of i vector error correction modeling and ii level var modeling with possibly integrated and cointegrated processes advocated by i toda and phillips econometrica 61 1993 1367 and ii toda and yamamoto j econometrics 66 1995 225 respectively the paper illustrates how such methods may be appropriately augmented in a compatible fashion to unearth previously unfounded linkage properties inherent amongst a system of stock price indexes in particular we demonstrate that previous research by using ordinary difference vars ignored an important component of linkages displayed purely over the long run this untapped evidence essentially provides robust and very useful information to international financial analysts and investors at a substantive level results of this study tend to support the contention offered by several studies in the literature of significant interdependencies between the established oecd and the asian markets and also the leadership of the us and uk markets over the short and long run the levels var however illustrate the japanese market s influence as an additional long run leader findings seem to be plausible given that these three markets us uk and japan have consistently contributed over 75 of global stock market capitalization over the major part of the sample under consideration at a methodological level this analysis also provides a primer for the wealth of applied financial econometric research focusing on dynamic causal inference which involve systems containing possibly integrated and cointegrated processes

the four fallacies of contemporary austerity policies the lost keynesian legacy the contemporary wide scale austerity measures are likely to fail in most countries the first fallacy derives from the false diagnosis that the present crisis is the outcome of lax public spending policy when it is actually the outcome of a private credit led speculative boom the second fallacy assumes the possibility or even the generality of the so called expansionary fiscal contractions this neglects the short term negative effects on domestic demand and overestimates the generality of ricardian equivalence the importance of crowd in effects related to lower interest rates and the positive impact on trade balances the third fallacy one size fits all is problematic since greece and portugal cannot replicate the hard won german success their productive institutional and political configurations differ drastically and thus they require different policies the fourth fallacy states that the spill over from one country to another may resuscitate the inefficient and politically risky beggar my neighbour policies from the interwar period

temporal causality and the dynamics of different categories of crime and their socioeconomic determinants evidence from australia hale and sabbagh 1991 failed to find cointegration i e a long term equilibrium relationship between crime and unemployment in the case of england and wales the present study basedon multiple cointegrationtests preceded by various unit root or non stationarity tests is the first attempt at putting the analysis of crime in a temporal granger causal framework in the australian case 1963 90 by binding the relationship between different categories of crime and their socioeconomic determinants within a multivariate cointegrated system the results based on the most recent methodology broadly indicate that although the relative importance of the determinants of crime varied by type of crime of all the determinants it is dwelling commencements a proxy for wealth that appears to impact more or less on all the categories of crime significantly followed by urbanization

is bank supervision central to central banking whether central banks should play an active role in bank supervision and regulation is being debated both in the united states and abroad while the bank of england has recently been stripped of its supervisory responsibilities and several proposals in the united states have advocated removing bank supervision from the federal reserve system other countries are considering enhancing central bank involvement in this area many of the arguments for and against these proposals hinge on the effect this change would have on the ability of the central bank to conduct monetary policy we find that confidential supervisory information on bank ratings significantly improves

what do economists know an empirical study of experts expectations for more than three decades economic columnist joseph a livingston has canvassed a panel of economists twice a year eliciting their six month and twelve month forecasts for more than a dozen key variables this study analyzes whether the experts predictions are unbiased and whether complete use was made of all relevant known information unbiasedness and completeness being necessary conditions for fully rational expectations little bias was found in either the half year or full year predictions but extensive underutilization of information particularly data on monetary growth occurred to prophecy is extremely difficult especially with respect to the future chinese proverb do economists expectations regarding key price and nonprice variables utilize all known relevant information in an unbiased efficient manner this is a worthy subject for research for several reasons properties of experts predictions likely form an upper bound for those of laymen further as john muth 14 has noted the character of dynamic processes is typically very sensitive to the way expectations are influenced by the actual course of events p 316 hence we need to know precisely how events do affect expectations finally the common practice of replacing a variable s generally unobserved expectation with a proxy based on its past values will be unbiased and will not cause bias in other

tests of the rational expectations hypothesis this paper reviews evidence on the structure of anticipation from a number of empirical studies jack muth s rational expectations hypothesis is compared with a variety of alternative models including ferber s law the implicit expectations model of edwin mills and muth s new errors in the variables model the cumulative evidence is of such strength as to compel the suspension of belief in the concept of rational expectations this implies that it is a mistake to proceed under the maintained hypothesis that expectations are rational instead it is necessary to test the sensitivity of empirical and theoretical results to alternative assumptions about the structure by which anticipations are generated copyright 1986 by american economic association

unemployment and infant health times series evidence from the state of tennessee this is the first study that decomposes unemployment into its structural and cyclical components and investigates their impact on income distribution controlling for the influence of inflation increases in structural unemployment have a substantial

some further evidence on the law of one price the law of one price still holds international trade models often postulate the existence of a representative price i e the price which prevails at all markets this is known as the law of one price in this paper the law of one price is tested for seven commodities among four countries by explicitly considering transaction costs the empirical evidence suggests that in most cases the law of one price cannot be rejected asa maintained hypothesis furthermore for the remaining cases transaction costs seem to cause the failure