semi autonomous revenue authorities in sub saharan africa silver bullet or white elephant a major component of tax administration reform in sub saharan africa for the last 30 years has been the creation of semi autonomous revenue authorities saras the effects of their creation on rev

globalization and emerging markets with or without crash we analyze the effects of financial and trade globalization on the likelihood of financial crashes in emerging markets while trade globalization always makes crashes less likely financial globalization may make them more likely especially when trade costs are high pessimistic expectations can be self fulfilling and lead to a collapse in demand for goods and assets such a crash comes with a current account reversal and drops in income and investment lower income countries are more prone to such demand based financial crises a quantitative evaluation shows our model is consistent with the main stylized facts of financial crashes in emerging markets

measuring the pricing error of the arbitrage pricing theory this article provides an exact bayesian frame work for analyzing the arbitrage pricing the ory apt based on the gibbs sampler we show how to obtain the exact posterior distributions for functions of interest in the factor model in particular we propose a measure of the apt pricing deviations and obtain its exact posterior distribution using monthly portfolio returns grouped by industry and market capitalization we find that there is little improvement in reduc ing the pricing errors by including more factors beyond the first one as an important extension of the asset pricing model of sharpe 1964 and lintner 196 5 ross 1976 1977 derived the arbitrage pricing theory apt which addresses a fundamental problem in finance to char acterize the expected return on a security the apt implies that the expected return is approximately a

the dynamics of international capital flows results from a dynamic hierarchical factor model abstract the present paper examines the degree of comovement of gross capital inflows which is a highly sensitive issue for policy makers we estimate a dynamic hierarchical factor model that is able to decompose inflows in a sample of 47 economies into i a global factor common to all types of flows and all recipient countries ii a factor specific to a given type of capital inflows iii a regional factor and iv a country specific component we find that the latter explains by far the largest fraction of fluctuations in capital inflows followed by regional factors which are particularly important for emerging markets fdi and portfolio inflows as well as bank lending to emerging europe the global factor however explains only a small share of the overall variation we also employ dynamic panel and time series regressions to explain the determinants of the estimated components the global factor is shown to reflect u s financial conditions

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

global factors and emerging market spreads this paper shows that a large fraction of the variability of emerging market bond spreads is explained by the evolution of global factors such as risk appetite as reflected in the spread of high yield corporate bonds in developed markets global liquidity measured by the international interest rates and contagion from systemic events like the russian default this link has remained relatively stable over the history of the emerging market class is robust to the inclusion of country specific factors and helps provide accurate long run predictions overall the results highlight the critical role played by exogenous factors in the evolution of the borrowing cost faced by emerging economies

erratum to why has u s inflation become harder to forecast the article journal of money credit and banking supplement to vol 39 no 1 february 2007 contains errors in figures 2 4 and tables 4 5 associated with a coding error in our program for estimating the uc sv model we thank ling hu of platinum grove asset management for finding this error and bringing it to our attention the corrected uc sv rows for tables 4 and 5 are given below corrected versions of figures 2 4 and corrected replication files can be found at http www princeton edu mwatson

how important are global factors for understanding the dynamics of international capital flows abstract we propose a dynamic factor model with time varying parameters and stochastic volatility to analyze the relationship between global factors and country specific capital flow dynamics studying a global sample of 43 countries from 1994 until 2015 we show that global co movement of macroeconomic financial and capital flow variables can explain a major share of country specific capital flow volatility and that the impact of these variables has become even more important in the aftermath of the 2008 2009 global financial crisis our results indicate that country specific changes in capital flows are strongly affected by fluctuations in global financial cycles and to some extent by global real business cycles we provide also some evidence that the exchange rate regime the stock of reserves prudent fiscal policy and more developed stock markets can insulate economies at least partially from the global financial cycle

macroprudential policies capital flows and the structure of the banking sector abstract using a large sample of advanced and emerging market economies over the period 1999 2012 we examine the effectiveness of macroprudential policies mpps in managing cross border bank flows conditioning on the structure of the banking sector in the mpp implementing country we find that higher regulatory quality and a higher credit to deposit ratio increase the effectiveness of mpps while a higher cost to income ratio has the opposite effect if all three financial variables are evaluated at the median the marginal effect of our preferred mpp measure leads to a reduction of international bank inflows in percent of gdp by around half a percentage point and is only marginally significant however when the more enhanced 25th 10th percentiles of their respective distributions are considered we observe as a response to the same mpp measure a reduction of bank inflows by 3 44 5 39 percentage points that is highly statistically and economically significant additionally we find that the structure of the domestic banking sector determines spillovers from mpps across asset classes while spillovers from mpps across countries are a function of banking sector conditions both at home and abroad

global financial shocks and foreign asset repatriation do local investors play a stabilizing role we study the dynamic response of gross capital flows in emerging market economies to different global financial shocks using a panel vector autoregressive pvar approach our focus lies primarily on the potentially stabilizing role played by domestic investors in offsetting the response of foreign investors to adverse global shocks we find that while foreign investors tend to retrench from emerging markets in response to global risk aversion and monetary policy shocks foreign asset repatriation by resident investors does not always follow suit local investors play a meaningful stabilizing role in the face of global risk aversion shocks with sizeable asset repatriation largely offsetting the retrenchment of non residents in contrast foreign investor retrenchment in response to global monetary policy shocks is not mirrored by asset repatriation finally we find robust evidence that positive global real shocks tend to have a positive impact on net capital inflows to emerging markets our results shed light on the likely impact of the fed s qe tapering on capital flows to emerging market economies

capital flows and gdp in emerging economies and the role of global spillovers abstract this paper provides a global analysis of capital flow impacts on gdp for selected emerging economies as additional control variables we also include currency reserves and effective exchange rates in our analysis we distinguish between gross and net capital flows and also assess the impact of both fdi and portfolio flows accounting for the fact that common factors have been the main drivers of capital flows while country specific determinants pull factors drive the response to such shocks we analyze shocks to country groups but consider country specific responses based on a bayesian time varying panel var framework in the spirit of canova and ciccarelli 2009 based on a sample of 24 economies our results show a robust positive effect of capital flows on gdp except for korea both gross and net capital flows display a positive impact for around two quarters the impact of effective exchange rates on gdp hardly offers an explanation for a possible transmission of capital flow effects with effective depreciations both positively and negatively linked to gdp we also find that the effect of net portfolio flows is even more positive compared to net fdi flows for emerging economies finally we provide evidence that the importance of global factors increases in times of crises

international monetary relations taking finance seriously in our book global capital markets integration crisis and growth we traced out the evolution of the international monetary system using the framework of the international monetary trilemma countries can enjoy at most two from the set exchange rate stability open capital markets and domestic monetary autonomy the events of the past decade or more highlight the further complications for this framework posed by financial stability issues here we update and qualify our prior analysis drawing on recent experience and research under the classical gold standard scant attention was paid to macro management either to stabilize output and employment or to ensure financial stability the interwar years highlighted the changing demands for modern central bank interventions in the economy financial instability followed by wwii left a world with sharply constricted financial markets and little private cross border capital mobility due to this historical accident the bretton woods system agreed in 1944 focused not at all on financial stability and focused on issues like adjustment exchange rate misalignment and international liquidity defined in terms of official not private capital account transactions post 1970s floating rates permitted but did not require liberalization of the capital account but the political equilibrium had shifted in favor of financial interests signaled by the push toward european integration and the later reform process in emerging markets starting in the 1990s this development however opened the door once again to domestic financial crises and their international transmission countries now become more susceptible to a new species of capital account crises fueled by bank and bond lending and its sudden withdrawal these developments in fact made evident a different financial trilemma countries can pick at most two from financial stability open capital markets and autonomy over domestic financial policy we distill the main lessons as to the interactions between the monetary and financial trilemmas and policies that could best address the resulting weaknesses

determinants of technical efficiency in the bioenergy industry in the eu28 region most previous bioenergy industry research has concentrated on how to implement a certain level of yield however few articles have paid attention to rational resource allocation to increase efficiency to enhance bioenergy production through proper use of available resources this study identified the effects of internal country specific and external macroeconomic determinants of technical efficiency level in the bioenergy industry for the eu28 region the study was established based on a conceptual framework suggesting a correlation between input use and level of technical efficiency a panel data analysis method was employed for the analysis and a panel regression analysis framework based on the fixed effect fe model and random effect re model was used to examine the potential determinants of technical efficiency level in the bioenergy industry for the eu28 region for the period between 1990 and 2013 the results indicate that the technical efficiency level of the bioenergy industry in developing countries is higher than in developed countries the empirical findings also suggest that technical efficiency has greater influence on pure technical efficiency levels capital input labor input gross domestic product inflation and interest rate significantly affected the technical efficiency of the bioenergy industry in the developing and developed countries in the eu28 region during the period of this study the findings clearly call for regulators and decision makers to review the technical efficiency level of the bioenergy industry within the eu28 region this study also provides better information and guidance to the boards of the bioenergy industry as they need to have a clear understanding of the influence technical efficiency has on bioenergy production performance moreover the results of this study have implications for investors who focus mainly on profits from their investments

does joint modelling of the world economy pay off evaluating global forecasts from a bayesian gvar we analyze how modeling international dependencies improves forecasts for the global economy based on a bayesian gvar with ssvs prior and stochastic volatility to analyze the source of performance gains we decompose the predictive joint density into its marginals and a copula term capturing the dependence structure across countries the gvar outperforms forecasts based on country specific models this performance is solely driven by superior predictions for the dependence structure across countries whereas the gvar does not yield better predictive marginal densities the relative performance gains of the gvar model are particularly pronounced during volatile periods and for emerging economies

the effects of the ecb s expanded asset purchase programme abstract this paper provides empirical evidence on the financial and macroeconomic impact of the news associated to the announcement launching the ecb s expanded asset purchase programme app we proxy the app announcement shock with an announcement variable derived from the institutional features of the app and survey based evidence the variable is used in a time varying coefficient var model with stochastic volatility to estimate the effects of the announcement shock the evidence suggests that this shock had a significant upward effect on both real economic activity and hicp inflation in the euro area the response of long term interest rates gave rise to a flattening of the yield curve in the short term followed by a steepening in the medium term several channels of transmission appear to have been activated including the portfolio rebalancing channel the exchange rate channel and the credit channel

real time density forecasts from bayesian vector autoregressions with stochastic volatility central banks and other forecasters are increasingly interested in various aspects of density forecasts however recent sharp changes in macroeconomic volatility including the great moderation and the more recent sharp rise in volatility associated with increased variation in energy prices and the deep global recession pose significant challenges to density forecasting accordingly this paper examines with real time data density forecasts of u s gdp growth unemployment inflation and the federal funds rate from bayesian vector autoregression bvar models with stochastic volatility the results indicate that adding stochastic volatility to bvars materially improves the real time accuracy of density forecasts this article has supplementary material online

evaluating interval forecasts a complete theory for evaluating interval forecasts has not been worked out to date most of the literature implicitly assumes homoskedastic errors even when this is clearly violated and proceed by merely testing for correct unconditional coverage consequently i set out to build a consistent framework for conditional interval forecast evaluation which is crucial when higher order moment dynamics are present the new methodology is demonstrated in an application to the exchange rate forecasting procedures advocated in risk management

trend fundamentals and exchange rate dynamics we estimate a multivariate unobserved components stochastic volatility model to explain the dynamics of a panel of six exchange rates against the us dollar the empirical model is based on the assumption that both countries monetary policy strategies may be well described by taylor rules with a time varying inflation target a time varying natural rate of unemployment and interest rate smoothing the estimates closely track major movements along with important time series properties of real and nominal exchange rates across all currencies considered the model generally outperforms a benchmark model that does not account for changes in trend inflation and trend unemployment authors abstract

political regimes and the extractive capacity of governments taxation in democracies and dictatorships recent political and economic transformations in latin america africa asia and eastern europe have brought about a renewed interest in the incentives and capabilities of different types of political regimes to implement policies that are deemed necessary for economic development in particular policies aimed at increasing tax revenue one central question is whether democracies can collect as much in taxes as dictatorships this article addresses this question by examining whether regime type classified as democracy or dictatorship has a causal impact on a government s capacity to mobilize resources through taxation on the basis of data gathered for 108 countries for the period between 1970 and 1990 the article concludes that observed differences across countries regarding the level of taxes collected by the government are not due to the fact that some are under a democracy and others under a dictatorship concerns about the inability of democratic regimes to collect taxes are therefore unfounded

fiscal redistribution and income inequality in latin america income inequality in latin america ranks among the highest in the world it can be traced back to the unequal distribution of assets especially land and education in the region but the extent to which asset inequality translates into income inequality depends on the redistributive capacity of the state this paper documents the performance of latin american fiscal systems from the perspective of income redistribution using newly available information on the incidence of taxes and transfers across the region the findings indicate that i the differences in income inequality before taxes and transfers between latin america and western europe are much more modest than those after taxes and transfers ii the key reason is that in contrast with industrial countries in most latin american countries the fiscal system is of little help in reducing income inequality and iii in countries where fiscal redistribution is significant it is achieved mostly through transfers rather than taxes these facts stress the need for fiscal reforms across the region to further the goal of social equity however different countries need to place different relative emphasis on raising tax collection restructuring the tax system and improving the targeting of expenditures

macroeconomic forecasting and structural change the aim of this paper is to assess whether explicitly modeling structural change increases the accuracy of macroeconomic forecasts we produce real time out of sample forecasts for inflation the unemployment rate and the interest rate using a time varying coefficients var with stochastic volatility tv var for the us the model generates accurate predictions for the three variables in particular for inflation the tv var outperforms in terms of mean square forecast error all the competing models fixed coefficients vars time varying ars and the na ove random walk model these results are also shown to hold over the period commonly referred to as the great moderation

evaluating the bank of england density forecasts of inflation we consider evaluating the uk monetary policy committee s inflation density forecasts using probability integral transform goodness of fit tests these tests evaluate the whole forecast density we also consider whether the probabilities assigned to inflation being in certain ranges are well calibrated where the ranges are chosen to be those of particular relevance to the mpc given its remit of maintaining inflation rates in a band around per annum finally we discuss the decision based approach to forecast evaluation in relation to the mpc forecasts

taming the global financial cycle what role for the global financial safety net abstract an ongoing active debate considers the role of the global financial cycle gfc in driving international capital flows especially in emerging economies as well as the policy options available to absorb their impact we make two contributions to the debate first we rely on a structural measure of the gfc developed in a companion paper to identify episodes of large capital flows and currency crises driven by global conditions second using both ols and instrumental variables we evaluate whether the availability and actual use of elements of the global financial safety net gfsn can help emerging markets cushion the impact of these episodes we find some evidence that potential access to imf support can help countries we also find that the use of imf support and reserves cushions the impact of global shocks on gdp growth this effect is quite heterogeneous across types of crises and across time as it is mostly present during currency crises and the benefits only occur with a delay

tax incidence analysis of developing countries an alternative view misleading conclusions can be drawn from studies of tax incidence that ignore the special features of developing countries incorporating these features can sometimes reverse the incidence pattern of taxes relative to what is often taken to be conventional wisdom even where patterns are not reversed quantitative differences can be substantial the newer views of incidence have implications for tax restructuring options being considered in several developing countries the proposed restructuring may appear to lead only to a more regressive tax system because of improper incidence analysis copyright 1991 by oxford university press

the great moderation in international capital flows a global phenomenon abstract this paper highlights a recent great moderation in global capital flows characterised by smaller volumes and lower volatility of cross border transactions however there are substantial differences across countries and regions which we analyse by comparing the level of international capital flows observed in 2005 06 immediately prior to the onset of the global financial crisis to the post crisis period of 2013 14 when global flows arguably settled at a new normal we find that since the pre crisis period gross capital inflows recovered more for economies with smaller pre crisis external and internal imbalances lower per capita income improving growth expectations a less severe impact of the global financial crisis and less stringent macroprudential policy on the asset side countries with a more accommodative monetary policy a milder impact of the crisis and oil exporters managed to increase gross capital outflows in the post crisis period

does globalization affect growth evidence from a new index of globalization the study develops an index of globalization covering its three main dimensions economic integration social integration and political integration using panel data for 123 countries in 1970 2000 it is analysed empirically whether the overall index of globalization as well as sub indexes constructed to measure the single dimensions affect economic growth as the results show globalization indeed promotes growth the dimensions most robustly related with growth refer to actual economic flows and restrictions in developed countries although less robustly information flows also promote growth whereas political integration has no effect

evolving international inflation dynamics world and country specific factors inflation in the most industrialized economies of the world has an important international common component that accounts for the historical decline in the national rates country specific conditions explain the rise in inflation volatility of the late 1970s and early 1980s and the subsequent fall during the last decade the world contribution to the variance of inflation has become increasingly more important than national contributions monetary policy was a relevant source of country specific fluctuations our conclusions are based on a time varying dynamic factor model applied to a large panel of inflation indicators

capital flows to emerging economies minsky in the tropics capital inflows to emerging economies have a significant exogenous component they are very large when scaled to the size of the domestic financial sectors of recipients and they have large real macroeconomic effects they also sow the seeds for the ensuing sudden stops or capital flow reversals observed in financial crises in emerging markets this paper tests the implications of applying the kindleberger minsky model of financial crises to capital account reversals in emerging economies or sudden stops as they have been called in the recent literature it uses a panel probit framework with heterogeneous unobserved country effects the most important variables that account for sudden stops are preceding capital surges the share of flows other than foreign direct investment the size of the current account deficit contagion from sudden stops in other emerging markets and the ratio of external debt to exports the main policy conclusion is that emerging economies need specific policies to deal with capital surges in addition macroeconomic policies geared toward preserving sustainable macroeconomic balance may be necessary to avoid sudden stops but they are clearly insufficient copyright the author 2010 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

real time macroeconomic forecasting with a heteroskedastic inversion copula there is a growing interest in allowing for asymmetry in the density forecasts of macroeconomic variables in multivariate time series this can be achieved with a copula model where both serial a

the determinants of cross border equity flows abstract we explore a new panel data set on bilateral gross cross border equity flows between 14 countries 1989 1996 we show that a gravity model explains international transactions in financial assets at least as well as goods trade transactions gross transaction flows depend on market size in source and destination country as well as trading costs in which both information and the transaction technology play a role distance proxies some information costs and other variables explicitly represent information transmission an information asymmetry between domestic and foreign investors and the efficiency of transactions the geography of information is the main determinant of the pattern of international transactions while there is weak support in our data for the diversification motive once we control for the informational friction we broaden the scope of our results by presenting some evidence linking the results on equity transactions to equity holdings

bayesian dynamic factor models and portfolio allocation we discuss the development of dynamic factor models for multivariate financial time series and the incorporation of stochastic volatility components for latent factor processes bayesian inference and computation is developed and explored in a study of the dynamic factor structure of daily spot exchange rates for a selection of international currencies the models are direct generalizations of univariate stochastic volatility models and represent specific varieties of models recently discussed in the growing multivariate stochastic volatility literature we discuss model fitting based on retrospective data and sequential analysis for forward filtering and short term forecasting analyses are compared with results from the much simpler method of dynamic variance matrix discounting that for over a decade has been a standard approach in applied financial econometrics we study these models in analysis forecasting and sequential portfolio allocation for a selected set of international exchange rate retur

equity and bond flows to latin america and asia the role of global and country factors abstract this paper investigates the factors motivating the large capital flows to a number of developing countries in recent years we use monthly us capital flows to nine latin american and nine asian countries to analyze the behavior of bond and equity flows employing a panel data approach we find that although global factors the drop in us interest rates and the slowdown in us industrial production are important in explaining capital inflows country specific developments are at least as important especially for asia we also find that equity flows are more sensitive than bond flows to global factors but that bond flows are generally more sensitive to a country s credit rating and secondary market debt price

when do capital inflow surges end in tears abstract we investigate in a sample of 53 emerging markets over 1980 2014 whether countries with open capital accounts are necessarily at the mercy of global events or are able to take policy acti

global business cycles convergence or decoupling we analyze the evolution of the degree of global cyclical interdependence over the period 1960 2008 using a dynamic factor model we decompose macroeconomic fluctuations in output consumption and investment into a global factor factors specific to country groups and country specific factors we find that during 1985 2008 there is some convergence of business cycle fluctuations among industrial economies and among emerging market economies surprisingly there is a concomitant decline in the relative importance of the global factor we conclude that there is evidence of business cycle convergence within each of these two groups of countries but divergence or decoupling between them

a simple adaptive measure of core inflation this paper proposes a new measure of core inflation and compares it with several existing measures the new measure is adaptive and is designed to track sudden and persistent movements in inflation such as those arising from changes in monetary policy regimes the adaptive measure filters out transients more effectively than existing measures and it is a superior predictor of locally mean reverting components of inflation

macroeconomic forecasting performance under alternative specifications of time varying volatility summary this paper compares alternative models of time varying volatility on the basis of the accuracy of real time point and density forecasts of key macroeconomic time series for the usa we consider bayesian autoregressive and vector autoregressive models that incorporate some form of time varying volatility precisely random walk stochastic volatility stochastic volatility following a stationary ar process stochastic volatility coupled with fat tails garch and mixture of innovation models the results show that the ar and var specifications with conventional stochastic volatility dominate other volatility specifications in terms of point forecasting to some degree and density forecasting to a greater degree copyright 2014 john wiley sons ltd

combining forecast densities from vars with uncertain instabilities recursive weight forecast combination is often found to an ineffective method of improving point forecast accuracy in the presence of uncertain instabilities we examine the effectiveness of this strategy for forecast densities using many vector autoregressive var and autoregressive ar models of output growth inflation and interest rates our proposed recursive weight density combination strategy based on the recursive logarithmic score of the forecast densities produces well calibrated predictive densities for us real time data by giving substantial weight to models that allow for structural breaks in contrast equal weight combinations produce poorly calibrated forecast densities for great moderation data copyright 2010 john wiley sons ltd

shadow economies size causes and consequences using various methods the size of the shadow economy in 76 developing transition and oecd countries is estimated average size varies from 12 percent of gdp for oecd countries to 23 percent for transition countries and 39 percent for developing countries increasing taxation and social security contributions combined with rising state regulations are driving forces for the increase of the shadow economy especially in oecd countries according to some findings corruption has a positive impact on the size of the shadow economy and a growing shadow economy has a negative effect on official gdp growth

international business cycles world region and country specific factors the paper investigates the common dynamic properties of business cycle fluctuations across countries regions and the world we employ a bayesian dynamic latent factor model to estimate common components in macroeconomic aggregates output consumption and investment in a 60 country sample covering seven regions of the world the results indicate that a common world factor is an important source of volatility for aggregates in most countries providing evidence for a world business cycle we find that region specific factors play only a minor role in explaining fluctuations in economic activity we also document similarities and differences across regions countries and aggregates jel f41 e32 c11 c32

civil conflict and human capital accumulation the long term effects of political violence in peru this paper provides empirical evidence of the persistent effect of exposure to political violence on human capital accumulation i exploit the variation in conflict location and birth cohorts to identify the long and short term effects of the civil war on educational attainment conditional on being exposed to violence the average person accumulates 0 31 less years of education as an adult in the short term the effects are stronger than in the long run these results hold when comparing children within the same household further exposure to violence during early childhood leads to permanent losses i also explore the potential causal mechanisms

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

have standard vars remained stable since the crisis small or medium scale vars are commonly used in applied macroeconomics for forecasting and evaluating the shock transmission mechanism this requires the var parameters to be stable over the evaluation and forecast sample or to explicitly consider parameter time variation the earlier literature focused on whether there were sizable parameter changes in the early 1980s in either the conditional mean or variance parameters and in the subsequent period till the beginning of the new century in this paper we conduct a similar analysis but focus on the effects of the recent crisis using a range of techniques we provide substantial evidence against parameter stability the evolution of the unemployment rate seems particularly different relative to its past behavior we then discuss and evaluate alternative methods to handle parameter instability in a forecasting context while none of the methods clearly emerges as best some techniques turn out to be useful to improve the forecasting performance

proposal for a sustainability evaluation framework for bioenergy production systems using the mesmis methodology abstract the bioenergy economy promises to stimulate the local economic growth and improve the welfare of people living in rural areas to accomplish this there is global consensus on the sustainability indicators that must be evaluated in bioenergy production systems bpss however the utilization of these indicators has several constraints such as their interpretation and application in developing countries in addition to the inherent complexity of bpss here we propose a sustainability framework applicable to bpss first we use the framework for assessing the sustainability of the natural resource management systems mesmis methodology to define a bps and derive economic environmental and social indicators after that we use the distance to target weighting method to describe a sustainability gradient of five levels for each indicator finally we use the sustainability gradient to normalize the indicators and thereby weight and aggregate the indicators into a sustainability index si after the application of the mesmis methodology a bps was defined as three interrelated subsystems 1 the biomass subsystem dedicated to the feedstock supply 2 the transformation subsystem dedicated to convert the feedstock into bioenergy and 3 the social subsystem that provides the workforce this sustainability framework allows comparing two or more bpss in cross sectional and longitudinal studies a total of 7 economic indicators 10 environmental indicators and 11 social indicators were described in terms of a sustainability gradient the sustainability gradient converts the indicators to comparable units then we propose to aggregate these indicators into three subindices by evaluated area an economic subindex an environmental subindex and a social subindex each subindex ranges from 0 for an unsustainable bps to 5 for a highly sustainable bps the si integrates these three subindices giving the same relevance to the economic environmental and social areas

hot money accounting labels and the permanence of capital flows to developing countries an empirical investigation using maximum likelihood kalman filtering techniques and non parametric variance ratio statistics we gauge the relative importance of permanent and temporary components of capital flows to latin american and asian developing countries over the period 1988 1997 for the broad categories of flows in the capital account equity flows ef bond flows bf official flows of commercial bank credit bc and foreign direct investment fdi we find relatively low permanent components in ef bf and of while commercial bc flows appear to contain quite large permanent components and fdi flows are almost entirely permanent these results have a natural interpretation and clear policy implications

democracy war and wealth lessons from two centuries of inheritance taxation in this article we use an original data set to provide the first empirical analysis of the political economy of inherited wealth taxation that covers a significant number of countries and a long time frame 1816 2000 our goal is to understand why if inheritance taxes are often very old taxes the implementation of inheritance tax rates significant enough to affect wealth inequality is a much more recent phenomenon we hypothesize alternatively that significant taxation of inherited wealth depended on 1 the extension of the suffrage and 2 political conditions created by mass mobilization for war using a difference in differences framework for identification we find little evidence for the suffrage hypothesis but very strong evidence for the mass mobilization hypothesis our study has implications for understanding the evolution of wealth inequality and the political conditions under which countries are likely to implement policies that significantly redistribute wealth and income

common drifting volatility in large bayesian vars the general pattern of estimated volatilities of macroeconomic and financial variables is often broadly similar we propose two models in which conditional volatilities feature comovement and study them using u s macroeconomic data the first model specifies the conditional volatilities as driven by a single common unobserved factor plus an idiosyncratic component we label this model bvar with general factor stochastic volatility bvar gfsv and we show that the loss in terms of marginal likelihood from assuming a common factor for volatility is moderate the second model which we label bvar with common stochastic volatility bvar csv is a special case of the bvar gfsv in which the idiosyncratic component is eliminated and the loadings to the factor are set to 1 for all the conditional volatilities such restrictions permit a convenient kronecker structure for the posterior variance of the var coefficients which in turn permits estimating the model even with large datasets while perhaps misspecifi

the dynamics of capital flow episodes nous proposons une methodologie nouvelle pour reperer les episodes de flux importants de capitaux cette methode repose sur un modele de markov a changement de regime le grand avantage de ce type de modeles sur les approches retenues dans la litterature est qu il permet de classifier les mouvements de capitaux en differents regimes sans qu il soit necessaire de formuler des hypotheses specifiques au contexte ou a l echantillon choisi

business organisations party systems and tax composition in developing countries a comparison between colombia and peru abstractthis paper explores the relationship between socio political institutions and tax composition in developing countries it argues that strong business organisations and stable political party systems reduce the uncertainty of fiscal contracts for economic elites the decrease in uncertainty leads elites to accept a larger share of the tax burden which governments then collect using progressive tax types more intensively to illustrate this claim i provide evidence from a comparative analysis of the peruvian and the colombian tax history between 1970 and 2010

the new wave of private capital inflows push or pull abstract this paper studies the determinants and sustainability of the widespread private capital inflows to middle income countries after 1989 the key question is whether these flows are mostly pulled by attractive domestic conditions or pushed by unfavorable conditions in developed countries an analytical model focusing on country risk is developed and used empirically it is argued that the observed improvement in country creditworthiness is mostly due to the decline in international interest rates and that therefore its importance as a proximate cause does not support the pull interpretation all things considered in most countries the key answer that emerges is push

the pecking order of cross border investment abstract is there a pecking order of cross border investment in that countries become financially integrated through some types of investment rather than others using a novel database of bilateral capital stocks for all types of investment fdi portfolio equity securities debt securities as well as loans for a broad set of 77 countries we show that such a pecking order indeed exists the paper focuses on two key determinants of this pecking order information frictions and the quality of host country institutions overall we find that in particular fdi and to some extent also loans are substantially more sensitive to information frictions than investment in portfolio equity and debt securities we also show that the share as well as the size of fdi that a country receive are largely insensitive to institutional factors in host countries while portfolio investment is by far the most sensitive to the quality of institutions this provides new evidence in favor of some hypotheses but contradicts others put forward in the literature on trade in financial assets

combining var and dsge forecast densities a popular macroeconomic forecasting strategy utilizes many models to hedge against instabilities of unknown timing see among others stock and watson 2004 clark and mccracken 2010 and jore et al 2010 existing studies of this forecasting strategy exclude dynamic stochastic general equilibrium dsge models despite the widespread use of these models by monetary policymakers in this paper we use the linear opinion pool to combine inflation forecast densities from many vector autoregressions vars and a policymaking dsge model the dsge receives a substantial weight in the pool at short horizons provided the var components exclude structural breaks in this case the inflation forecast densities exhibit calibration failure allowing for structural breaks in the vars reduces the weight on the dsge considerably but produces well calibrated forecast densities for inflation

capital market liberalization economic growth and instability summary this paper reviews briefly the arguments for capital market liberalization and identifies their theoretical and empirical weaknesses this provides the foundations for the argument for intervention in short term capital flows the paper concludes with a brief discussion of the various ways in which such interventions may be implemented 2000 elsevier science ltd all rights reserved

information and capital flows the determinants of transactions in financial assets abstract we show that a gravity model explains international transactions in financial assets at least as well as goods trade transactions our results support the hypothesis that informational asymmetries are responsible for the strong negative relationship between asset trade and distance this result is very important for theories of asset trade portfolio adjustments and home bias we strengthen it by investigating the roles of explicit informational variables as well as distance in explaining separately cross border trade in corporate equities corporate bonds and government bonds

shifting endpoints in the term structure of interest rates abstract this paper links the term structure to perceptions of monetary policy long horizon forecasts of short rates required by no arbitrage term structure models are heavily influenced by the endpoints or limiting conditional forecasts of the short rate process common assumptions that the short rate is mean reverting or contains a unit root are shown to generate unrealistic yield predictions failures occur because these assumptions inadequately account for historical shifts in market perceptions of the policy target for inflation this paper links endpoint shifts to agent learning about shifts in long term policy goals shifting endpoints in short rate processes significantly improve yield predictions

the great retrenchment international capital flows during the global financial crisis the current crisis saw an unprecedented collapse in international capital flows after years of rising financial globalization we identify the stylized facts and main drivers of this development the retrenchment in international capital flows is a highly heterogeneous phenomenon first across time being especially dramatic in the wake of the lehman brothers failure secondly across types of flows with banking flows being the hardest hit due to their sensitivity of risk perception and thirdly across regions with emerging economies experiencing a shorter lived retrenchment than developed economies our econometric analysis shows that the magnitude of the retrenchment in capital flows across countries is linked to the extent of international financial integration its specific nature with countries relying on bank flows being the hardest hit as well as domestic macroeconomic conditions and their connection to world trade flows gian maria milesi ferretti and cedric tille

what drives international portfolio flows understanding what drives international portfolio flows has important policy implications for countries wishing to exert some control on the size direction and volatility of the flows this paper empirically assesses the relative contribution of common push and country specific pull factors to the variation of bond and equity flows from the us to 55 other countries using a bayesian dynamic latent factor model we find that more than 80 of the variation in bond and equity flows is due to push factors from the us to other countries hence global economic forces seem to prevail over domestic economic forces in explaining movements in international portfolio flows the dynamics of push and pull factors can be partially explained by us and foreign economic fundamentals

portfolio capital flows hot or cold a distinction is often made between short term and long term capital flows the former are deemed unstable hot money and the latter are deemed stable cold money using time series analysis of balance of payments data for five industrial and five developing countries we find that in most cases the labels short term and long term do not provide any information about the time series properties of the flow in particular long term flows are often as volatile as short term flows and the time it takes for an unexpected shock to a flow to die out is similar across flows long term flows are also at least as unpredictable as short term flows and knowledge of the type of flow does not improve the ability to forecast the aggregate capital account copyright 1995 by oxford university press

tax revenue and or trade liberalization abstract with the public finances of many developing and emerging market countries still heavily dependent on trade tax revenues further trade liberalization may be hindered unless they are able to develop alternative sources of revenue against a background of and to inform heightened theoretical controversy as to the appropriate balance between trade and other taxes not least the vat this paper uses panel data for 117 countries over 32 years cleaned for a variety of problems in standard data sources to address a central question of fact have countries recovered from domestic taxes the revenues they have lost from past episodes of trade liberalization for high income countries the answer is clearly yes for middle income countries there are robust signs of strong replacement both concurrently with the revenue loss and essentially dollar for dollar in the long run signs of significant recovery by low income countries are flimsier however and their experiences appear to have varied widely the picture that emerges for low income countries is thus that replacement has been and become higher than previous studies have suggested but sufficiently incomplete in many cases to give cause for concern

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

sustainability of biofuels in latin america risks and opportunities several latin american countries are setting up biofuel programmes to establish alternative markets for agricultural commodities this is mainly triggered by the current success of brazilian bioethanol production for the domestic market and for export furthermore the global biofuel market is expected to increase due to ambitious biofuel programmes in the eu and in the usa colombia venezuela costa rica and guatemala are focusing on bioethanol production from sugarcane whereas biofuel production in argentina is based on soy biodiesel recent developments of the biofuel sector take place extremely rapid especially in argentina which became one of the five largest biodiesel producers in the world in 2008 till date no specific biofuel sustainability certification systems have been implemented in latin american as well as on global level this fact and the predominant use of food crops for biofuel production raise concerns about the sustainability of biofuel production related to environmental and social aspects this paper provides an overview of the hotspots of conflicts in biofuel production in latin america it investigates presently available sustainability tools and initiatives to ensure sustainable biofuel production in latin america finally it provides an outlook on how to integrate sustainability in the latin american biofuel sector

the heterogeneous impact of monetary policy on the us labor market abstract we empirically investigate the role of central banks in the context of heterogeneous labor markets jobless recoveries and job polarization specifically we estimate the effect of monetary policy on the us labor market using disaggregated time series based on large scale survey data the impact of interest rate changes on unemployment in 32 occupation groups is explored in a bayesian factor augmented vector autoregression framework the results suggest largely heterogeneous impacts across various occupation groups this heterogeneity can be explained by differential task profiles of the workers in their respective occupations workers with tasks that are easily automated or offshored as well as workers at the bottom of the skill distribution are disproportionately affected following a monetary policy shock this implies that labor market participants that are highly vulnerable to structural developments such as skill biased technological change and the globalization of labor markets are also most sensitive to conventional monetary policy measures from a policy perspective we conclude that central banks are unlikely to be able to take on a stabilizing role in the context of labor market polarization

modeling time varying uncertainty of multiple horizon forecast errors we estimate uncertainty measures for point forecasts obtained from survey data pooling information embedded in observed forecast errors for different forecast horizons to track time varying uncer

a comparison of environmental and energetic performance of european countries a sustainability index recently european countries agreed on a new 2030 pact establishing challenging levels for a set of climate and energy indexes in order to achieve a more competitive safe and sustainable energy system in order to evaluate current sustainability performances of european countries from the environmental and energetic perspectives this research proposes a multi criteria decision analysis mcda that starting from both eurostat data and the analytic hierarchy process ahp allows a direct comparison of nations to this aim multiple indexes are taken into account e g greenhouse gas ghg emissions government expenditures for environmental protection recycled and reused waste from electric and electronic equipments weees recycled and reused waste from end of life vehicles elvs recycled materials from municipal solid wastes msws share of renewable energy re in electricity share of re in transport share of re in heating and cooling and primary energy consumption this assessment model provides a sustainability value for each european country and the related ranking with the european average results show as even nowadays twelve out of twenty eight european countries have a value greater than the european average in 2013 top four nations sweden denmark finland and austria have high indexes of sustainability and sweden is the best country from both the environmental and energetic perspectives

a bayesian markov switching correlation model for contagion analysis on exchange rate markets this article develops a new markov switching vector autoregressive var model with stochastic correlation for contagion analysis on financial markets the correlation and the log volatility dynamics are driven by two independent markov chains thus allowing for different effects such as volatility spill overs and correlation shifts with various degrees of intensity we outline a suitable bayesian inference procedure based on markov chain monte carlo algorithms we then apply the model to some major and asian pacific cross rates against the u s dollar and find strong evidence supporting the existence of contagion effects and correlation drops during crises closely in line with the stylized facts outlined in the contagion literature a comparison of this model with its closest competitors such as a time varying parameter var reveals that our model has a better predictive ability supplementary materials for this article are available online

constructing optimal density forecasts from point forecast combinations summary decision makers often observe point forecasts of the same variable computed for instance by commercial banks imf and the world bank but the econometric models used by such institutions are frequently unknown this paper shows how to use the information available on point forecasts to compute optimal density forecasts our idea builds upon the combination of point forecasts under general loss functions and unknown forecast error distributions we use real time data to forecast the density of us inflation the results indicate that the proposed method materially improves the real time accuracy of density forecasts vis a vis those from the unknown individual econometric models copyright 2013 john wiley sons ltd

the conscription of wealth mass warfare and the demand for progressive taxation the dominant narrative of the politics of redistribution in political sci ence and economics highlights the signature role of the rise of electoral democracy and the development of political parties that mobilize working class groups we argue in this article that this narrative ignores the critical role played by mass warfare in the development of redistributive public policies focusing attention on the determi nants of progressive taxation we argue that mobilization for mass warfare led to demands for increased taxation of the wealthy to more fairly distribute the burden for the war effort we then show empirically that during the past century mass mobi lization for war has been associated with a notable increase in tax progressivity in the absence of war neither the establishment of universal suffrage nor the arrival of political control by parties of the left is systematically associated with large increases in tax progressivity in making these arguments we devote particular attention to a difference in differences comparison of participants and nonparticipants in world war i those who have made fortunes out of the war must pay for the war and labour will insist upon heavily graduated direct taxation with a raising of the exemption limit that is what labour means by the conscription of wealth

real time forecasting with a mixed frequency var this article develops a vector autoregression var for time series which are observed at mixed frequencies quarterly and monthly the model is cast in state space form and estimated with bayesian methods under a minnesota style prior we show how to evaluate the marginal data density to implement a data driven hyperparameter selection using a real time dataset we evaluate forecasts from the mixed frequency var and compare them to standard quarterly frequency var and to forecasts from midas regressions we document the extent to which information that becomes available within the quarter improves the forecasts in real time this article has online supplementary materials

priors from general equilibrium models for vars abstract this paper uses a simple new keynesian dynamic stochastic general equilibrium model as a prior for a vector autoregression shows that the resulting model is competitive with standard benchmarks in terms of forecasting and can be used for policy analysis jel classification c11 c32 c53 key words bayesian analysis dsge models forecasting vector autoregressions 1 introduction dynamic stochastic general equilibrium dsge models are popular nowadays in macroeconomics they are taught in virtually every economics ph d program and represent a predominant share of publications in the field yet when it comes to policy making these models are scarcely used at least from a quantitative point of view the main quantitative workhorse for policy making at the federal reserve system is frb us a macro econometric model built in the cowles foundation tradition a style of macroeconomics that is no longer taught in many ph d programs 1 in their decision process fed policy makers rely heavily on forecasting they want to know the expected path of inflation in the next few quarters and by how much a 50 basis point increase in the federal funds rate would affect that path frb us offers answers to these questions answers that many macroeconomists would regard with suspicion given both the lucas 1976 critique and the fact that in general the restrictions imposed by cowles foundation models are at odds with dynamic general equilibrium macroeconomics sims 1980 general equilibrium models on the other hand have a hard time providing alternative answers the fact that these models are perceived to do badly in terms of forecasting as they are scarcely parameterized is perhaps one of the reasons why they are not at the forefront of policy making while progress is being made in the development of dsge models that deliver acceptable forecasts e g smets and wouters 2003 this paper proposes an approach that combines a stylized general equilibrium model with a vector autoregression var to obtain a specification that both forecasts well and is usable for policy analysis specifically the approach involves using prior information coming from a dsge model in the estimation of a vector autoregression loosely speaking this prior can be thought of as the result of the following exercise i simulate time series data from the dsge model ii fit a var to these data in practice we replace the sample moments of the simulated data by population moments computed from the dsge model solution since the dsge model depends on unknown structural parameters we use a hierarchical prior in our analysis by placing a distribution on the dsge model parameters a tightness parameter controls the weight of the dsge model prior relative to the weight of the actual sample markov chain monte carlo methods are used to generate draws from the joint posterior distribution of the var and dsge model parameters the paper shows that the approach makes even a fairly stylized new keynesian dsge model competitive with standard benchmarks in terms of forecasting real output growth inflation and the nominal interest rate the three variables that are of most interest to policy makers 2 up to this point our procedure borrows from the work of dejong ingram and whiteman 1993 and ingram and whiteman 1994 who are the first to use priors from dsge models for vars ingram and whiteman showed that prior information from the bare bones stochastic growth model of king plosser and rebelo 1988 is helpful in forecasting real economic activity such as output consumption investment and hours worked in addition to documenting the forecasting performance of a trivariate var with a prior derived from a monetary dsge model this paper makes two contributions that significantly extend the earlier work first we show formally how posterior inference for the var parameters can be translated into posterior inference for dsge model parameters

what drives capital flows to emerging markets a survey of the empirical literature this paper reviews the rapidly growing empirical literature on the drivers of capital flows to emerging markets the empirical evidence is structured based on the recognition that the drivers of capital flows vary over time and across different types of capital flows the drivers are classified using the traditional push vs pull framework which is augmented by a distinction between cyclical and structural factors push factors are found to matter most for portfolio flows somewhat less for banking flows and least for fdi pull factors matter for all three components but most for banking flows a historical perspective suggests that the recent literature may have overemphasized the importance of cyclical factors at the expense of longer term structural trends

term structure views of monetary policy under alternative models of agent expectations abstract term structure models and many descriptions of the transmission of monetary policy rest on the empirical relevance of the expectations hypothesis small differences in the perceived policy reaction function in var models of agent expectations strongly influence the relevance in the transmission mechanism of the expected short rate component of bond yields mean reverting or difference stationary characterizations of interest rates require large and volatile term premiums to match the observable term structure however short rate descriptions that capture shifting perceptions of long horizon inflation evident in survey data support a more substantial term structure role for short rate expectations

globalization and developing countries a shrinking tax base abstract this paper evaluates the impact of globalisation on tax bases of countries at varying stages of development we see globalisation as a process that induces countries to embrace greater trade and financial integration this in turn should shift their tax revenue from easy to collect taxes tariffs and seigniorage towards hard to collect taxes value added and income taxes we find that trade and financial openness have a positive association with the hard to collect taxes and a negative association with the easy to collect taxes

unconventional policies and exchange rate dynamics abstract we study exchange rate dynamics under cooperative and self oriented policies in a two country dsge model with unconventional monetary and exchange rate policies the cooperative solution features a large exchange rate adjustment that cushions the impact of negative shocks and a moderate use of unconventional policy instruments self oriented policies nash equilibrium however entail limited exchange rate movements and an aggressive use of unconventional policies in both countries our results suggest that sizable exchange rate depreciations are not always a symptom of beggar thy neighbor policies they could also reflect a desirable process of external adjustment that improves global welfare

the stochastic volatility in mean model with time varying parameters an application to inflation modeling this article generalizes the popular stochastic volatility in mean model to allow for time varying parameters in the conditional mean the estimation of this extension is nontrival since the volatility appears in both the conditional mean and the conditional variance and its coefficient in the former is time varying we develop an efficient markov chain monte carlo algorithm based on band and sparse matrix algorithms instead of the kalman filter to estimate this more general variant the methodology is illustrated with an application that involves u s u k and germany inflation the estimation results show substantial time variation in the coefficient associated with the volatility highlighting the empirical relevance of the proposed extension moreover in a pseudo out of sample forecasting exercise the proposed variant also forecasts better than various standard benchmarks

macroeconomic forecasting using diffusion indexes this article studies forecasting a macroeconomic time series variable using a large number of predictors the predictors are summarized using a small number of indexes constructed by principal component analysis an approximate dynamic factor model serves as the statistical framework for the estimation of the indexes and construction of the forecasts the method is used to construct 6 12 and 24 monthahead forecasts for eight monthly u s macroeconomic time series using 215 predictors in simulated real time from 1970 through 1998 during this sample period these new forecasts outperformed univariate autoregressions small vector autoregressions and leading indicator models