tracking the slowdown in long run gdp growth using a dynamic factor model that allows for changes in both the long run growth rate of output and the volatility of business cycles we document a significant decline in long run output growth in the united states our evidence supports the view that most of this slowdown occurred prior to the great recession we show how to use the model to decompose changes in long run growth into its underlying drivers at low frequencies a decline in the growth rate of labor productivity appears to be behind the recent slowdown in gdp growth for both the united states and other advanced economies when applied to real time data the proposed model is capable of detecting shifts in long run growth in a timely and reliable manner

short run forecasting of the euro dollar exchange rate with economic fundamentals abstract we propose a fundamentals based econometric model for the weekly changes in the euro dollar rate with the distinctive feature of mixing economic variables quoted at different frequencies the model obtains good in sample fit and more importantly encouraging out of sample forecasting results at horizons ranging from one week to one month specifically we obtain statistically significant improvements upon the hard to beat random walk model using traditional statistical measures of forecasting error at all horizons moreover our model obtains a great improvement when we use the direction of change metric which has more economic relevance than other loss measures with this measure our model performs much better at all forecasting horizons than a naive model that predicts the exchange rate as an equal chance to go up or down with statistically significant improvements

some empirical evidence on the effects of shocks to monetary policy on exchange rates this paper investigates the effects of shocks to u s monetary policy on exchange rates we consider three measures of these shocks orthogonalized shocks to the federal funds rate orthogonalized shocks to the ratio of nonborrowed to total reserves and changes in the romer and romer index of monetary policy in sharp contrast to the literature we find substantial evidence of a link between monetary policy and exchange rates specifically according to our results a contractionary shock to u s monetary policy leads to i persistent significant appreciations in u s nominal and real exchange rates and ii significant persistent deviations from uncovered interest rate parity in favor of u s interest rates

nowcasting mexico s short term gdp growth in real time a factor model versus professional forecasters we introduce a novel real time database for the mexican economy and propose a small scale mixed frequency dynamic factor model for nowcasting mexico s short term gdp growth in real time we compare our factor based backcasts nowcasts and forecasts with those of the consensus of the survey of professional forecasters during the period from the second quarter of 2008 through the second quarter of 2014 our results suggest that our factor based backcasts nowcasts and forecasts outperform those of the consensus of professional forecasters in real time comparisons despite some structural instability during the 2008 09 crisis and its aftermath in 2010

monetary policy and investment dynamics evidence from disaggregate data we use disaggregated data on the components of private fixed investment pfi to estimate industry level responses of real investment and capital prices to unanticipated monetary policy the response functions derive from a restricted large scale var estimated over 1959 2007 our results point to significant cross sector heterogeneity in the behavior of pfi prices and quantities for assets belonging to the equipment category of fixed investment we find that quantities rather than prices absorb most of the fallout from a policy shock by contrast the price effects tend to be higher and the output effects lower for nonresidential structures

evidence on the cross country transmission of monetary shocks the international transmission of monetary shocks between the us and canada is explored focusing on real variables such as consumption investment employment and the bilateral trade balance along with measures of us and canadian money the empirical analysis examines the impact of a monetary shock in one country on real activity in both countries the long run analysis provides evidence of cointegration among the variables and suggests that money plays an important role in the equilibrium relationships between the two countries variance decompositions and impulse response functions reveal interesting avenues of real transmission in the short run the short run analysis provides strong evidence that us monetary shocks affect real activity in both the usa and canada the analysis also indicates that canadian monetary disturbances affect canadian and us real activity and that many of these effects are similar in magnitude to the effects of us monetary shocks the importance of the nominal exchange rate

the identification of monetary policy disturbances explaining the liquidity puzzle abstract this paper examines recent work on the identification of monetary policy disturbances its main finding is that the empirical anomalies found in the literature reflect a failure to properly address the federal reserve s policy of accommodating reserve demand shocks a new method of identifying monetary policy using nonborrowed reserves is proposed using this specification policy has a strong persistent liquidity effect regardless of subsample policy granger causes output even in the presence of interest rates explaining approximately 49 of the variance in output at a two year horizon and the residual explanatory power of interest rates for output is negligible

mixed frequency var models with markov switching dynamics this paper extends the markov switching vector autoregressive models to accommodate both the typical lack of synchronicity that characterizes the real time daily flow of macroeconomic information and economic indicators sampled at different frequencies the results of the empirical application suggest that the model is able to capture the features of the nber business cycle chronology very accurately

anti herding and strategic consultation in this paper i analyze how careerist decision makers aggregate and use information provided by others i find that decision makers who are motivated by reputation concerns tend to anti herding i e they excessively contradict public information such as the prior or others recommendations i also find that some decision makers may deliberately act unilaterally and not consult advisers although advice is costless moreover advisers to the decision maker may not report their information truthfully even if the advisers care only about the outcome they bias their recommendation since they anticipate inefficient anti herding behavior by the decision maker

energy and resource allocation a dynamic model of the dutch disease it is well known that a domestic resource discovery gives rise to wealth effects that cause a squeeze of the tradeable good sector of an open economy the decline of the manufacturing sector following an energy discovery has been termed the dutch disease and has been investigated in many recent studies our model extends the principally static analyses to date by allowing for 1 short run capital specificity and long run capital mobility 2 international capital flows and 3 far sighted intertemporal optimizing behaviour by households and firms the model is solved by numerical simulation

interpreting the macroeconomic time series facts the effects of monetary policy existing theory and evidence on the effects of monetary policy are reviewed substantial room for disagreement among economists remains new evidence based on multivariate time series studies of several countries is presented while certain patterns in the data consistent with effective monetary policy are strikingly similar across countries others particularly the tendency of interest rate increases to predict high inflation are harder to reconcile with effective monetary policy

real time macroeconomic monitoring real activity inflation and interactions the authors sketch a framework for monitoring macroeconomic activity in real time and push it in new directions in particular they focus not only on real activity which has received most attention to date but also on inflation and its interaction with real activity as for the recent recession the authors find that 1 it likely ended around july 2009 2 its most extreme aspects concern a real activity decline that was unusually long but less unusually deep and an inflation decline that was unusually deep but brief and 3 its real activity and inflation interactions were strongly positive consistent with an adverse demand shock this abstract was borrowed from another version of this item

a theory of credibility this paper presents models in which one agent must decide whether to trust another whose motives are uncertain reliability can only be communicated through actions in this context it pays for people to build a reputation based on reliable behaviour someone becomes credible by consistently providing accurate and valuable information or by performing useful services the theory provides a justification for long term arrangements without binding contracts it also describes those situations where it pays an agent to cash in on his reputation many decisions depend on trusting someone consumers must decide whether to believe advertisements banks need to judge the reliability of loan applicants and employers must decide how much responsibility to delegate to their employees this paper attempts to model situations that arise when someone is uncertain about whether to trust the people he deals with in this context reputations for reliability are valuable an agent becomes credible by consistently providing accurate valuable information or by always acting responsibly i analyse a series of simple abstract models of information transmission in the basic model there are two agents the sender s and the receiver r who are to play the game a known finite number of times at each stage both players learn the value of a parameter measuring the importance of that period s play of the game that is the value of making a correct decision and s obtains payoff relevant information s then sends a signal to r who makes a decision that affects the welfare of both players after both players learn the consequences of r s decision the process repeats at each stage r must decide what action to take in order to do that he must assess the credibility of s the difficulty arises because r is uncertain about s s preferences when play begins i model this by assuming that with positive probability s has identical preferences to r s is a friend and with positive probability s has completely opposed preferences to r s is an enemy this uncertainty creates a trade off for enemy senders at each stage providing honest information enhances s s reputation but only at the expense of foregoing an opportunity for immediate gain by duping r the possibility that s is a friend lends credibility to what he says but this credibility may also be exploited by an enemy s the principal equilibrium has the following form in the basic model where s has no control over the importance of a given play s typically conveys accurate information for the first several periods r raises the probability he places on s being friendly after receiving accurate information if he believes that an enemy would have lied to him with positive probability the more important the information the more likely an enemy will attempt to deceive r an enemy will eventually take advantage of r by misleading him when this happens the sender loses all opportunities for deception in the future i

short term gdp forecasting with a mixed frequency dynamic factor model with stochastic volatility in this article we develop a mixed frequency dynamic factor model in which the disturbances of both the latent common factor and of the idiosyncratic components have time varying stochastic volatilities we use the model to investigate business cycle dynamics in the euro area and present three sets of empirical results first we evaluate the impact of macroeconomic releases on point and density forecast accuracy and on the width of forecast intervals second we show how our setup allows to make a probabilistic assessment of the contribution of releases to forecast revisions third we examine point and density out of sample forecast accuracy we find that introducing stochastic volatility in the model contributes to an improvement in both point and density forecast accuracy supplementary materials for this article are available online

consistent economic indexes for the 50 states in the late 1980s james stock and mark watson developed for the u s economy an alternative coincident index to the one now published by the conference board they used the kalman filter to estimate a latent dynamic factor for the national economy and designated the common factor as the coincident index this paper uses the stock watson methodology to estimate a consistent set of coincident indexes for the 50 states these indexes provide researchers with a comprehensive monthly measure of economic activity that can be used to examine a number of state and regional issues

world oil market or mayhem the world oil market is regarded by many as a puzzle why are oil prices so volatile what is opec and what does opec do where are oil prices headed in the long run is peak oil a genuine concern why did oil prices spike in the summer of 2008 and what role did speculators play any attempt to answer these questions must be informed and disciplined by economics such is the purpose of this essay to illuminate recent developments in the world oil market from the perspective of economic theory

market structure and resource extraction under uncertainty this paper compares the rate of extraction of a natural resource under alternative market structures when there is uncertainty about the date of discovery of a substitute or about the date of discovery of a new deposit the analysis shows that imperfectly competitive market structures are excessively conservationist for any value of the initial stock of the natural resource the price is higher than in competitive equilibrium and therefore higher than the socially optimal level but markets with limited competition may have a higher price than markets with pure monopoly the same monopolist controlling the natural resource and its substitute in particular we find that the highest prices are associated with nash quantity setting duopolists the next highest prices occur in markets in which the monopolist controls the resource but the substitute is competitively produced the pure monopolist sets his price lower than this while the market in which a monopolist controls the substitute but the resource is competitvely owned is still lower

managerial incentive problems a dynamic perspective the paper studies how a person s concern for a future career may influence his or her incentives to put in effort or make decisions on the job in the model the person s productive abilities are revealed over time through observations of performance there are no explicit output contingent contracts but since the wage in each period is based on expected output and expected output depends on assessed ability an implicit contract links today s performance to future wages an incentive problem arises from the person s ability and desire to influence the learning process and therefore the wage process by taking unobserved actions that affect today s performance the fundamental incongruity in preferences is between the individual s concern for human capital returns and the firm s concern for financial returns the two need be only weakly related it is shown that career motives can be beneficial as well as detrimental depending on how well the two kinds of capital returns are aligned it is well understood by now that informational externalities may place special demands on the organization of economic exchange simple price mediated markets will frequently fail in the presence of asymmetric information in that case more elaborate contractual arrangements have to be used as substitutes for the price system lately considerable effort has been devoted to the analysis of contracting under incomplete information with the objective to understand the range of economic institutions that emerge in response to the failure of the price system the analysis of moral hazard has played a prominent role in this development moral hazard problems arise when for some reason or another transacting parties cannot contract contingent on the delivery of the good for instance in buying labour services it may be that the amount of labour supplied is not directly observable precluding a simple exchange of wage for labour as a partial remedy to this problem an imperfect mutually observed signal about the supply of labour can be used as a proxy in the contract frequently output is taken as such a proxy the drawback is that output is often influenced by other factors than labour input which induce undesirable risk into the contract one is therefore faced with a tradeoff between allocating risk associated with incomplete observability and providing incentives for a proper supply of labour gaining insight into this tradeoff is important not only for understanding contracting in the small e g managerial incentive schemes but also because it is closely related to the fundamental tension between equity and efficiency in the society as a whole while our understanding of moral hazard has advanced a lot in past years it is clear that much work remains an important question that has received little attention until

euromind d a density estimate of monthly gross domestic product for the euro area euromind d is a density estimate of monthly gross domestic product gdp constructed according to a bottom up approach pooling the density estimates of eleven gdp components by output and expenditure type the components density estimates are obtained from a medium size dynamic factor model of a set of coincident time series handling mixed frequencies of observation and ragged edged data structures they reflect both parameter and filtering uncertainty and are obtained by implementing a bootstrap algorithm for simulating from the distribution of the maximum likelihood estimators of the model parameters and conditional simulation filters for simulating from the predictive distribution of gdp both algorithms process sequentially the data as they become available in real time the gdp density estimates for the output and expenditure approach are combined using alternative weighting schemes and evaluated with different tests based on the probability integral transform and by applying scoring rules

business cycle turning points a new coincident index and tests of duration dependence based on a dynamic factor model with regime switching the synthesis of the dynamic factor model of stock and watson 1989 and the regime switching model of hamilton 1989 proposed by diebold and rudebusch 1996 potentially encompasses both features of the business cycle identified by burns and mitchell 1946 1 comovement among economic variables through the cycle and 2 nonlinearity in its evolution however maximum likelihood estimation has required approximation recent advances in multimove gibbs sampling methodology open the way to approximation free inference in such non gaussian nonlinear models this paper estimates the model for u s data and attempts to address three questions are both features of the business cycle empirically relevant might the implied new index of coincident indicators be a useful one in practice do the resulting estimates of regime switches show evidence of duration dependence the answers to all three would appear to be yes

modeling opec behavior economic and political alternatives the predominant approach to modeling opec behavior depends upon the assumption that economic self interest provides the best predictor of the cartel s price and production strategy with rational monopoly behavior the exogenous characteristics of the oil market determine an optimal price path for the group but opec members have diverse economic as well as political goals and uncertainty about oil market responses provides substantial leeway to argue about what is optimal an examination of the five key opec price decisions since 1973 shows that an operational code of advancing political priorities on arab israeli issues while deflecting security challenges better explains saudi arabia s decision making than the economic optimizing approach moreover no economic formula alone is consistent with saudi behavior the balance of internal and external forces of a political or security character on saudi leadership suggests more of a tilt toward price hawkishness than pure considerations of economic self interest would indicate this tilt is reinforced by a systematic weakness on the part of the u s government to exercise a sustained countervailing influence on the kingdom on behalf of moderation

a new coincident index of business cycles based on monthly and quarterly series maximum likelihood factor analysis of time series is possible even when some series are quarterly and others are monthly treating quarterly series as monthly series with missing observations and replacing them with artificial observations independent of the model parameters one can apply the kalman filter to a state space representation of a factor model and evaluate the likelihood function an application to quarterly real gdp and monthly coincident business cycle indicators gives a new coincident index of business cycles the new index is essentially the smoothed estimate of latent monthly real gdp and should improve upon the stock watson index

natural gas vs oil in u s transportation will prices confer an advantage to natural gas abstract the u s energy information administration eia projects that u s natural gas prices will provide a substantial cost advantage over petroleum products as a transportation fuel during the next 30 years although u s natural gas prices closely tracked those of world oil prices from the mid 1990s to early 2009 u s natural gas prices have been much lower relative to those for oil since early 2009 the break owes to technological change that substantially increased the supply of u s shale gas resources although recent weakness in world oil prices has restored at least some temporary comparability between u s natural gas prices and those for petroleum products eia projects u s natural gas prices will rise more slowly as world oil prices recover relatively weaker gains in u s natural gas prices would support the substitution of natural gas for other fuels such as petroleum products in transportation whether such substitution is driven by business or policy decisions will u s natural gas prices be sustainably lower relative to those for petroleum products so as to support the increased use of natural gas in the transportation sector an interpretative review of current market developments and recent research finds the answer is yes

careerist experts and political incorrectness abstract while political correctness is a dominant norm in many public situations we also observe behaviors that are apparently politically incorrect often from professionals and experts this paper examines the flip side of political correctness as analyzed in morris 2001 to shed some light on the elusive notion of political incorrectness and elucidate its equilibrium and welfare properties we show that there are circumstances in which unbiased experts deliberately take a politically incorrect stance out of reputational concerns and identify key elements which give rise to this perverse reputational incentive the results suggest that political incorrectness cannot necessarily be viewed as a sign of blunt honesty when informed experts have long term reputational concerns we also examine the welfare consequences of political incorrectness and argue that this form of information manipulation can be beneficial under some conditions

dynamic effects of credit shocks in a data rich environment we examine the dynamic effects of credit shocks using a large dataset of u s economic and financial indicators in a structural factor model an identified credit shock resulting in an unanticipate

commodity price volatility with endogenous natural resources abstract natural resource reserves are exogenous in models of small commodity exporters changes in the stock of reserves play no role in the macroeconomy including in business cycle volatility trade dynamics or exchange rate volatility we consider richer supply dynamics and model exploration and depletion we show that an endogenous supply of reserves is important for capturing the stylised facts associated with commodity price shocks including a commodity currency the crowding out of non commodity activity dutch disease and a volatile business cycle we also consider how exploration and depletion affect the ranking of optimal monetary and taxation policies when natural resource reserves are held fixed monetary policy is an efficient tool for stabilising the effects of commodity price shocks however when exploration and depletion are accounted for using interest rates to stabilise the effects of commodity price changes becomes inefficient using taxes on the resource sector specifically an ad valorem royalty remains efficient

words are the new numbers a newsy coincident index of the business cycle i construct a daily business cycle index based on quarterly gdp growth and textual information contained in a daily business newspaper the newspaper data are decomposed into time series representi

dissecting the cycle a methodological investigation following burns and mitchell we define the cycle as a pattern in the level of aggregate economic activity an algorithm to locate turning points is developed as is a new measure of pro cyclicality a link between turning points and the moments of the series is established thereby providing the statistical foundation that burns and mitchell s work lacked using these tools we are able to dissect cycles in terms of the contributions made by trend growth volatility serial correlation and non linear effects we dissect several models and find little evidence that certain non linear effects are important to the nature of business cycles

regional output growth in the united kingdom more timely and higher frequency estimates from 1970 output growth estimates for the regions of the uk are currently published at the annual frequency only and are released with a long delay regional economists and policymakers would benefit from having higher frequency and more timely estimates in this paper we develop a mixed frequency vector autoregressive mf var model and use it to produce estimates of quarterly regional output growth temporal and cross sectional restrictions are imposed in the model to ensure that our quarterly regional estimates are consistent with the annual regional observations and the observed quarterly uk totals we use a machine learning method based on the hierarchical dirichlet laplace prior to ensure optimal shrinkage and parsimony in our over parameterised mf var thus this paper presents a new regional quarterly database of nominal and real gross value added dating back to 1970 we describe how we update and evaluate these estimates on an ongoing quarterly basis to publish online at www escoe ac uk regionalnowcasting more timely estimates of regional economic growth we illustrate how the new quarterly data can be used to contribute to our historical understanding of business cycle dynamics and connectedness between regions

managerial incentives and capital management the paper shows how career concerns rather than effort aversion can induce a natural incongruity in risk preferences between managers and superiors a model based on learning about managerial talent is developed to study second best contractual remedies we show that the optimal wage contract is an option of the value of the manager s human capital for insurance reasons and that consequently rationing of capital is often required to counterbalance the manager s resulting incentive to overinvest rationing is strictly superior to price decentralization offering one reason for the prevalence of centralized capital budgeting procedures

a theory of yes men this paper illustrates an incentive for workers to conform to the opinion of their supervisors when firms use subjective performance evaluation this desire to conform arises endogenously from the firm s need to induce the worker to exert effort the author shows that firms may optimally eschew the use of incentive contracts to retain workers incentives for honesty the author illustrates that the incentive to conform implies inefficiencies even when workers are risk neutral and is likely to lead to more centralized decision making than in the absence of the desire to conform copyright 1993 by american economic association

models and their uses it is argued that economists ought to recognize that modeling in different styles will be appropriate for different purposes or different stages in the development of an area of economics as an example the paper displays simulations of a stochastic general equilibrium model which shed light on the interpretation of widely discussed small macroeconomic vector autoregressive models connecting monetary variables to output and prices this abstract was borrowed from another version of this item

curtailing the black box german banking groups in the transmission of monetary policy abstract the paper examines the role of portfolio decisions of german banking groups in the transmission of monetary policy a small econometric model is augmented with segregated bank balance sheet variables in order to study potentially different effects of tight money on these variables the results provide evidence for banks playing an active role in the transmission process and are beneficial for two fields of research the findings indicate sectoral differences of monetary policy in line with transmission models based on informational frictions in addition the results lend econometric support to the existence of close bank customer ties for certain banking groups in germany whereas large banks adjust their credit position markedly following a monetary shock the smaller savings banks and credit cooperatives seem to shield their customers from the brunt of a policy tightening

opec behavior a test of alternative hypotheses since interpretations of past and future oil price patterns depends on the model chosen the author tests and compares alternative theories of opec as a first step in validating the choice on any one model the results show that among opec countries the partial market sharing cartel model is the only model not rejected by at least some of the 11 members and gives the best explanation of production in comparison with 11 non opec countries the competitive model could not be rejected for 10 of the 11 non opec producers this raises the question of why if opec is a cartel friedman s predictions have not come true and introduces new questions for future research 19 references 3 tables

information aggregation in debate who should speak first abstract privately informed individuals speak openly in front of other members of a committee about the desirability of a public decision each individual wishes to appear well informed for any given order of speech committee members may herd by suppressing their true information with individuals of heterogeneous expertise optimizing over the order of speech can improve the extraction of information but not perfectly so it is not always optimal to use the common anti seniority rule whereby experts speak in order of increasing expertise a committee with more able experts may be afflicted by greater herding problems yielding a worse outcome

do exchange rate shocks have asymmetric effects on reserve accumulation evidence from emerging markets it is generally argued that central banks in emerging market countries motivated by a desire to defend export competitiveness tend to intervene in foreign exchange markets to limit currency appreciations rather than depreciations using panel data from 13 emerging market countries for the period 1998 m1 to 2016 m12 we find that exchange rate shocks play an important role in determining the accumulation of international reserves moreover we find evidence that central banks in emerging markets tend to follow a leaning against the depreciation wind policy rather than the appreciation wind i e we provide evidence of a fear of depreciation

on committees of experts a committee makes a decision on a project on behalf of the public members of the committee agree on the a priori value of the project and hold additional private information about its consequences they are experts who care about the value of the project and about being considered well informed before voting on the project members can exchange their private information simultaneously we show that reputational concerns make the a priori unconventional decision more attractive and lead committees to show a united front these results hold irrespective of whether information can be manipulated or not also reputational concerns induce members to manipulate information and vote strategically if their preferences differ considerably from those of the member casting the decisive vote our last result is that the optimal voting rule balances the quality of information exchange and the alignment of interests of the decisive voter with those of the public

opec saudi arabia and the shale revolution insights from equilibrium modelling and oil politics why did opec not cut oil production in the wake of 2014 s price fall this study aims at aiding the mostly qualitative discussion with quantitative evidence from computing quarterly partial market equilibria q4 2011 q4 2015 under present short term profit maximisation and different competition setups although the model performs reasonably well in explaining pre 2014 prices all setups fail to capture low prices which fall even beyond perfect competition outcomes this result is robust with respect to large variations in cost parameters rejecting present short term profit maximisation as well as a qualitative discussion of saudi arabian politics and the shale oil revolution lead to the conclusion that the price drop of 2014 16 was most plausibly the result of an attempt to defend market shares and to test for shale oil resilience besides being fuelled by other factors such as rising competitiveness of alternative technologies although shale oil might have increased competition permanently as supported by model results the agreement of december 2016 should not be misunderstood as an opec defeat

reconsidering monetary policy an empirical examination of the relationship between interest rates and nominal gdp growth in the u s u k germany and japan abstract the rate of interest the price of money is said to be a key policy tool economics has in general emphasised prices this theoretical bias results from the axiomatic deductive methodology centring on equilibrium without equilibrium quantity constraints are more important than prices in determining market outcomes in disequilibrium interest rates should be far less useful as policy variable and economics should be more concerned with quantities including resource constraints to investigate we test the received belief that lower interest rates result in higher growth and higher rates result in lower growth examining the relationship between 3 month and 10 year benchmark rates and nominal gdp growth over half a century in four of the five largest economies we find that interest rates follow gdp growth and are consistently positively correlated with growth if policy makers really aimed at setting rates consistent with a recovery they would need to raise them we conclude that conventional monetary policy as operated by central banks for the past half century is fundamentally flawed policy makers had better focus on the quantity variables that cause growth

indeterminacy change points and the price puzzle in an estimated dsge model abstract we extend lubik and schorfheide s 2004 testing for indeterminacy an application to u s monetary policy american economic review 94 190 217 likelihood based estimation of dynamic stochastic general equilibrium dsge models under indeterminacy to encompass a sample period the includes both determinacy and indeterminacy by implementing a change point methodology chib s 1998 estimation and comparison of multiple change point models journal of econometrics 86 221 241 by letting the data provide estimates of the dates of the determinacy regimes and allowing the estimates of structural parameters to be the same across regimes we obtain more precise estimates of the differences in characteristics such as the impulse responses across the regimes the most striking finding about the indeterminacy regime which is estimated to coincide with the great inflation of the 1970s is that it exhibits the price puzzle in that the inflation rate rises immediately and in a sustained manner following a positive interest rate shock thus the price puzzle might have been a genuine phenomenon under indeterminacy rather than a false finding to be excised through specification search and parameter restrictions

exchange rate stabilization in the erm identifying european monetary policy reactions abstract we develop the structural var models for european countries france denmark and germany during the erm period to examine the monetary policy reactions especially the within erm exchange rate stabilization in addition to analyzing the impulse responses and variance decomposition we present the full monetary reaction function in an interpretable manner without introducing additional assumptions the results suggest some asymmetry in exchange rate stabilization non german exchange rate stabilization is stronger than german exchange rate stabilization but do not support the hypothesis that german monetary policy was independent of the erm

an alternative explanation of the price puzzle abstract this paper proposes an explanation for the frequent appearance of a price puzzle in vars designed for monetary policy analysis it assumes that the data are generated by a model in which output and output gap are not equivalent while an econometrician follows the common practice of including only output in the var the omission of the output gap is shown to spuriously produce a price puzzle and several other incorrect conclusions in a class of commonly used models this can happen even if the model admits a triangular identification and if the forecasts produced by the misspecified var are optimal when the model is tested on us data all predictions are supported a commodity price index is not needed to solve the puzzle

forecasting with medium and large bayesian vars this paper is motivated by the recent interest in the use of bayesian vars for forecasting even in cases where the number of dependent variables is large in such cases factor methods have been traditionally used but recent work using a particular prior suggests that bayesian var methods can forecast better in this paper we consider a range of alternative priors which have been used with small vars discuss the issues which arise when they are used with medium and large vars and examine their forecast performance using a us macroeconomic dataset containing 168 variables we find that bayesian vars do tend to forecast better than factor methods and provide an extensive comparison of the strengths and weaknesses of various approaches typically we find that the simple minnesota prior forecasts well in medium and large vars which makes this prior attractive relative to computationally more demanding alternatives our empirical results show the importance of using forecast metrics based on the entire predictive density instead of relying solely on those based on point forecasts

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

intermediate monetary targets and macroeconomic fluctuations it is investigated whether the choice of intermediate target has altered macroeconomic fluctuations and whether the observed changes are consistent with predictions from economic theory since implications from the theoretical literature focus on the effects of structural disturbances an empirical analysis must identify these effects the structural vector autoregressive var technique estimates structural disturbances using restrictions from standard macroeconomic theory based on descriptions of actual targeting procedures by insiders to federal reserve policy decisions the intermediate target for the united states is identified as the interest rate from 1951 to 1969 and money from 1970 to 1986 var models are estimated over each subsample to assess whether the estimated structural disturbances cause endogenous variables to behave as economic theory predicts tests are also performed to assess whether or not the targeting rule affects the variance of endogenous variables attributable to structural sh

herding and anti herding a model of reputational differentiation abstract we analyze a model related to the strategic herding literature where a second expert maximizes his expected second period value by conforming with a first expert herding in contrast to the herding literature we assume that an agent is most valuable if he is the only smart agent if the value of being the only smart agent is sufficiently large the second expert always opposes its predecessor s report otherwise herding may result

new estimates of the security costs of u s oil consumption abstract in recent years the united states has become much more self reliant in producing oil and a newer economics literature suggests that oil demand may be more elastic and u s gdp may be less sensitive to world oil price shocks than was previously estimated these developments suggest somewhat lower security costs may be associated with u s oil consumption this analysis provides updated estimates of the security premiums for u s consumption of imported oil u s consumption of domestically produced oil and the substitution of imported oil for domestically produced oil estimates of the expected security costs of u s oil consumption are provided over the time horizon from 2015 to 2040 while taking into account projected world oil market conditions the probabilities and sizes of world oil supply disruptions the response of world oil prices to those supply disruptions and the response of u s real gdp to those oil price shocks the estimated oil security premiums suggest that u s oil security has become less of a policy concern

has monetary policy become more effective we investigate the implications of changes in the structure of the u s economy for monetary policy effectiveness estimating a vector autoregression over the pre and post 1980 periods we provide evidence of a reduced effect of monetary policy shocks in the latter period we estimate a structural model that replicates well the economy s response in both periods and perform counterfactual experiments to determine the source of the change in the monetary transmission mechanism and in the economy s volatility we find that by responding more strongly to inflation expectations monetary policy has stabilized the economy more effectively in the post 1980 period

the impact of opec on east asian oil import security a multidimensional analysis abstract east asian countries such as china japan and south korea are major importers in the international oil market therefore oil import security is critical to sustainable economic development in these countries this paper uses a modified two stage dea like model to investigate the impact of the organization of petroleum exporting countries opec on oil import security in the east asian region over time specifically three dimensional variables were introduced to the model the opec internal dimension the opec and asian country interaction dimension and the international external dimension the empirical results show a substantial difference between china and the other two countries in terms of these dimensions although the impact of opec on china s oil security has increased over time its impact on japan has declined political uncertainty in opec countries and oil price volatility are the major issues for china whereas cost is the key area of concern for japan south korea s concerns are less clear the results of this study lay an important foundation for discussing policy issues involved in regional cooperation integration and sustainable growth in the east asian region

the franc shock and swiss gdp how long does it take to start feeling the pain abstractthe article addresses the question on what is the typical time horizon over which a full transmission of movements in the real exchange rate takes place into real economy we base our analysis on the mixed frequency small scale dynamic factor model dfm proposed by siliverstovs in 2012 fitted to the swiss data in this article we augment the benchmark model with the real exchange rate of the swiss franc vis a vis currencies of its 24 trading partners while keeping the rest of model specification intact we are interested in investigating the relationship between the common latent factor representing the swiss business cycle and the real exchange rate we explore the temporal relationship between these two variables by varying the time lag with which the real exchange rate enters the factor model by recording the magnitude and statistical significance of the factor loading coefficient in the equation pertaining to the real exchange rate variable our main conclusion is that the fluctuations in

metro business cycles abstract we construct monthly economic activity indices for the 50 largest u s metropolitan statistical areas msas beginning in 1990 each index is derived from a dynamic factor model based on twelve underlying variables capturing various aspects of metro area economic activity to accommodate mixed frequency data and differences in data publication lags we estimate the dynamic factor model using a maximum likelihood approach that allows for arbitrary patterns of missing data our indices highlight important similarities and differences in business cycles across msas while a number of msas experience sizable recessions during the national recessions of the early 1990s and early 2000s other msas escape recessions altogether during one or both of these periods nearly all msas suffer relatively deep recessions near the recent great recession but we still find significant differences in the depth of recent metro recessions we relate the severity of metro recessions to a variety of msa characteristics and find that msas with less educated populations and less elastic housing supplies experience significantly more severe recessions after controlling for national economic activity we also find significant evidence of dynamic spillover effects in economic activity across msas

monetary policy housing rents and inflation dynamics in this paper we study the effect of monetary policy shocks on housing rents our main finding is that in contrast to house prices housing rents increase in response to contractionary monetary policy shocks we also find that after a contractionary monetary policy shock rental vacancies and the homeownership rate decline this combination of results suggests that monetary policy may affect housing tenure decisions own versus rent in addition we show that with the exception of the shelter component all other main components of the consumer price index cpi either decline in response to a contractionary monetary policy shock or are not responsive these findings motivated us to study the statistical properties of alternative measures of inflation that exclude the shelter component we find that measures of inflation that exclude shelter have most of the statistical properties of the widely used measures of inflation such as the cpi and the price index for personal consumption expenditures but have higher standard deviations and react more to monetary policy shocks finally we show that the response of housing rents accounts for a large proportion of the price puzzle found in the literature

monetary policy shocks and foreign investment income evidence from a large bayesian var abstract this paper assesses the transmission of monetary policy in a large bayesian vector autoregression based on the approach proposed by banbura et al 2010 the paper analyzes the impact of monetary policy shocks in the united states and canada not only on a range of domestic aggregates trade flows and exchange rates but also foreign investment income the analysis provides three main results first a surprise monetary policy contraction has a statistically important impact on both gross and net foreign investment income flows in both countries against the background of growing foreign wealth and investment income this result provides preliminary evidence that foreign balance sheet channels might play an increasingly significant role for monetary transmission second the impact of monetary policy on foreign investment income flows differs considerably across asset categories and over time suggesting that the investment instruments and the currency denomination of a country s foreign assets and liabilities are potentially relevant for the way in which monetary policy affects the domestic economy finally the results support existing evidence on the effectiveness of large vector autoregressions and the bayesian shrinkage approach in eliminating price and exchange rate puzzles

an econometric characterization of business cycle dynamics with factor structure and regime switching a dynamic factor model with regime switching is proposed as an empirical characterization of business cycles the approach integrates the idea of comovements among macroeconomic variables and asymmetries of business cycle expansions and contractions the first is captured with an unobservable dynamic factor and the second by allowing the factor to switch regimes the model is estimated by maximizing its likelihood function and the empirical results indicate that the combination of these two features leads to a successful representation of the data relative to extant literature this holds for within and out of sample and for both revised and real time data copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

short term forecasting with mixed frequency data a midasso approach abstractin this article we extend the targeted regressor approach suggested in bai and ng 2008 for variables sampled at the same frequency to mixed frequency data our midasso approach is a combination of the unrestricted mixed frequency data sampling approach u midas see foroni et al 2015 castle et al 2009 bec and mogliani 2013 and the lasso type penalized regression used in bai and ng 2008 called the elastic net zou and hastie 2005 we illustrate our approach by forecasting the quarterly real gdp growth rate in switzerland

using privileged information to manipulate markets insiders gurus and credibility access to private information is shown to generate both the incentives and the ability to manipulate asset markets through strategically distorted announcements the fact that privileged information is noisy interferes with the public s attempts to learn whether such announcements are honest it allows opportunistic individuals to manipulate prices repeatedly without ever being fully found out this leads us to extend sobel s 1985 model of strategic communication to the case of noisy private signals our results show that when truthfulness is not easily verifiable restrictions on trading by insiders may be needed to preserve the integrity of information embodied in prices

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

monetary shocks in the g 6 countries is there a puzzle les auteurs cherchent a clarifier la dynamique du mecanisme de transmission de la politique monetaire l identification des chocs de politique monetaire est au coeur de ce genre d analyse divers chercheurs ont reussi recemment a isoler de tels chocs en imposant des restrictions de suridentification a des modeles vectoriels autoregressifs var

opec and world oil security abstract on the margin the effectiveness of policy to enhance the stability of world oil market oil conditions greatly depends on which countries supply what economists would call the marginal barrels that is the barrels whose production responds to changes in demand if the countries dominating the production of the marginal barrels are relatively unstable policies to reduce world oil consumption or boost oil production from stable suppliers will provide the additional benefit of reducing the contribution of unstable producers to the world oil market if the countries dominating the marginal barrel are relatively stable however policies to reduce world oil consumption or boost oil production from stable suppliers will be less effective in promoting oil market stability typically we think of the highest cost producers as supplying the marginal barrel of oil but our assessment finds it quite likely that opec dominates production of the marginal barrel of world oil moreover opec members have been among the more unstable producers on a historical basis hence reducing world oil consumption and promoting oil production in stable non opec countries will enhance world oil security policies to promote stability in opec countries also would enhance world oil security

combining time variation and mixed frequencies an analysis of government spending multipliers in italy summary in this paper we propose a time varying parameter vector autoregression var model with stochastic volatility which allows for estimation on data sampled at different frequencies our contribution is twofold first we extend the methodology developed by cogley and sargent drifts and volatilities monetary policies and outcomes in the post wwii u s review of economic studies 2005 8 262 302 and primiceri time varying structural vector autoregressions and monetary policy review of economic studies 2005 72 821 852 to a mixed frequency setting in particular our approach allows for the inclusion of two different categories of variables high frequency and low frequency into the same time varying model second we use this model to study the macroeconomic effects of government spending shocks in italy over the 1988 q4 2013 q3 period italy as well as most other euro area economies is characterized by short quarterly time series for fiscal variables whereas annual data are generally available for a longer sample before 1999 our results show that the proposed time varying mixed frequency model improves on the performance of a simple linear interpolation model in generating the true path of the missing observations second our empirical analysis suggests that government spending shocks tend to have positive effects on output in italy the fiscal multiplier which is maximized at the 1 year horizon follows a u shape over the sample considered it peaks at around 1 5 at the beginning of the sample it then stabilizes between 0 8 and 0 9 from the mid 1990s to the late 2000s before rising again to above unity during the recent crisis copyright 2015 john wiley sons ltd

imperfect cartelization in opec a model of global oil production is applied to study cartelization by opec countries we define a measure for the degree of cooperation analogous to the market conduct parameter of cyert et al 1973 geroski et al 1987 lofaro 1999 and symeonidis 2000 this parameter is used to assess the incentives of different opec members to collude we find that heterogeneity in opec and the supplies of the non opec fringe create strong incentives against collusion more specifically opec s supply strategy although observed to be substantially more restrictive than that of a cournot nash oligopoly is found to still be more accommodative than that of a perfect cartel the strategy involves allocating larger than proportionate quotas to smaller and relatively costlier producers as if to bribe their participation in the cartel this is in contrast to predictions of the standard cartel model that such producers should be allocated relatively more stringent quotas furthermore we demonstrate that cartel collusion is more likely to be sustained for elastic than for inelastic demand since global oil demand is well known to be inelastic this observation provides another structural explanation for why opec behavior is inconsistent with that of a perfect cartel our study points to multiple headwinds that limit opec s ability to mark up the oil price 2016 elsevier b v

evaluating u s oil security and import reliance abstract we examine the literature that considers the consequences of u s reliance on imported oil we take an approach that covers many ideas about the costs arising from u s reliance on imported oil and we identify which of those ideas have broad support in the economics literature and which ideas have only limited support we also quantify the costs of u s reliance on imported oil using two approaches one is fairly narrow conforms to the economics view of externalities and yields small cost estimates the other is relatively expansive is favored by some policy analysts and yields much larger cost estimates we estimate these costs as expected u s economic losses over a time horizon from 2010 through 2035 while taking into account world oil market conditions market power probable oil supply disruptions and the oil market response to those supply disruptions

the effect of monetary policy shocks on macroeconomic variables evidence from the eurozone this paper investigates how european central bank ecb monetary policy shocks impact industrial production output and inflation prices i gather a novel dataset of macroeconomic forecasts and using a narrative approach i construct a new measure of monetary policy shocks industrial production responds to an unpredictable positive monetary policy shock of 100 basis points with a decline of over 0 5 on the contrary inflation responds weakly with a very modest decrease of 0 05

opec s optimal crude oil price abstract in march 2000 opec decided to stabilise oil prices within a range of 22 28 us dollar barrel of crude oil such an oil price level is far beyond the short and long run marginal costs of oil production beyond even that in regions with particularly high costs nevertheless opec may achieve its goal if world demand for oil increases substantially in the future and oil resources outside the opec are not big enough to accordingly increase production in this case opec which controls about 78 of world oil reserves has to supply a large share of that demand increase if we assume opec will behave as a partial monopolist on the oil market which takes into consideration the reaction of the other producers to its own sales strategy it can reach its price target lower prices before 2020 are probable only if the opec cartel breaks up higher prices are possible if production outside opec is inelastic as assumed by some geologists but they would probably stimulate the production of unconventional oil based on oil sand or coal crude oil prices above 30 us dollar barrel are therefore probably not sustainable for a long period

toward a more reliable picture of the economic activity an application to argentina abstract we advocate a dynamic factor model to provide alternative measures of output data using indirect information from economic indicators we apply the method to show evidence of a significant gap between estimated and official measures of argentine gdp since 2007

real time forecasting of inflation and output growth with autoregressive models in the presence of data revisions we examine how the accuracy of real time forecasts from models that include autoregressive terms can be improved by estimating the models on lightly revised data instead of using data from the latest available vintage the benefits of estimating autoregressive models on lightly revised data are related to the nature of the data revision process and the underlying process for the true values empirically we find improvements in root mean square forecasting error of 2 4 when forecasting output growth and inflation with univariate models and of 8 with multivariate models we show that multiple vintage models which explicitly model data revisions require large estimation samples to deliver competitive forecasts copyright 2012 john wiley sons ltd

new index of coincident indicators a multivariate markov switching factor model approach abstract this paper extends the univariate markov switching unobserved component model to the multivariate markov switching factor model of coincident economic indicators an approximate ml method is developed to estimate the model the extracted markov switching factor may be interpreted as the coincident index and is comparable to the stock watson index which differs only by the markov switching component using four constituent series of the doc coincident index for the period january 1960 to june 1992 the proposed model generates recessionary and expansionary periods which are remarkably consistent with the nber chronology of the business cycles from the noisy monthly data this paper also finds that duration dependence does matter

effects of oil price fall on the betas in the unconventional oil gas industry abstract we examine the consequences of the oil prices movements started in july 2014 on the financial systematic risk proxied by betas of firms operating in the unconventional oil gas industry compared to that of the conventional oil gas players the analysis is developed using two cross section regressions performed before and after the 2014 oil price drop respectively the results look coherent with the reasonable belief that a sharp and sudden decrease in the oil price can generally lead to higher betas in the oil gas industry interestingly it emerged that the market tends to attribute an additional risk to unconventional firms and analyzing the regression coefficients evolution it appears that this circumstance has been substantially amplified by the 2014 oil price shock to our knowledge this is the first paper covering the topic treated

an indicator of monthly gdp and an early estimate of quarterly gdp growth a range of monthly series are currently available giving indications of short term movements in output in the uk the main aim of this paper is to suggest a formal and coherent procedure for grossing these monthly data up to represent the whole of gdp although the resultant estimates of gdp would be worse than those obtained by direct measurement they should be more satisfactory than simply making an informal inference from whatever monthly data are available our examination of the efficacy of the method for estimation of the state of economic activity indicates a rather satisfactory outcome macroeconomic policy making in real time faces the perennial problem of uncovering what is actually happening to the economy movements of seasonally adjusted real gdp referred to subsequently simply as gdp and related estimates of the output gap are widely regarded as important predictors of future inflation and thus are relevant to the problem of inflation targeting estimates of gdp are typically produced quarterly with the first estimates in the uk available about 25 days after the end of the quarter to which they relate 1 in many countries

introducing the euro sting short term indicator of euro area growth we set out a model to compute short term forecasts of the euro area gdp growth in real time to allow for forecast evaluation we construct a real time dataset that changes for each vintage date and includes the exact information that was available at the time of each forecast with this dataset we show that our simple factor model algorithm which uses an easy to replicate methodology is able to forecast the euro area gdp growth as well as professional forecasters who can combine the best forecasting tools with the possibility of incorporating their own judgement in this context we provide examples showing how data revisions and data availability affect point forecasts and forecast uncertainty copyright 2010 john wiley sons ltd

reputation concerned policy makers and institutional status quo bias abstract we study the policy choice of an office holding politician who is concerned with the public s perception of his capabilities the politician decides whether to maintain the status quo or to conduct a risky reform the reform s success depends critically on the politician s capabilities which are privately known to the politician the public observes both his policy choice and the outcome of the reform and assesses his competence we show that the politician may engage in socially detrimental reform in order to be perceived as more capable we investigate the institutional remedy that balances the gains and costs when the policy maker is subject to reputation concerns conservative institutions that thwart beneficial reform may potentially improve social welfare

assessing the u s oil security premium abstract world oil supply disruptions lead to u s economic losses increased oil consumption increases the vulnerability of the economy to oil supply disruptions but it matters where the additional oil is produced increased production from stable producers can dampen future oil price shocks whereas increased production from unstable producers can exacerbate future oil price shocks because oil is fungible u s pricing and import policies can differentiate only between domestic and imported oil rather than between stable and unstable sources the economic losses associated with oil supply disruptions gdp losses and some transfers abroad are externalities that can be quantified as oil security premiums we estimate these premiums by taking into account projected world oil market conditions probable oil supply disruptions the market response to oil supply disruptions and the resulting u s economic losses