Abstract: Abstract This article analyses the business cycle dynamics in the European Union (EU28) during recent decades. Following Camacho et al. (J Econ Dyn Control 30:1687–1706, 2006), we extend the analysis of European cycles to a broader range of countries, including new entrants. In addition, we update their sample by including the Great Recession data with the aim of exploring whether the financial crisis led to changes in cyclical features across these countries. Our results indicate that the Great Recession has undermined European cyclical linkages. Notably, we succeeded in detecting that the European economies do not follow more closed dynamics, despite the fact that the countries are showing more similar cyclical characteristics. PubDate: 2019-07-02 DOI: 10.1007/s41549-019-00038-7
Abstract: Abstract This research studies the theoretical determinants of the exchange rate regime choice in oil-producing countries and investigates whether these choice determinants differ if oil-producing countries classified as high (HOP) and low (LOP) oil-producing countries. To gain insight into these issues, governance indicators are introduced in addition to the main theoretical determinants to determine whether these variables play significant roles in regime decisions. An ordinal probit model was utilized to examine panel data from 38 oil-producing countries from 1996 to 2015. The results support the research hypothesis that the determinants of the choice of exchange rate regime differ between HOP and LOP countries. This difference was evident when governance indicators were included in the model in the de jure classifications for HOP and LOP countries. The main policy implication is that enhanced governance indicators provide support for a fixed exchange rate regime in oil-producing countries. PubDate: 2019-05-09 DOI: 10.1007/s41549-019-00037-8
Abstract: Abstract The aim of this paper is to investigate the relationship between the manufacturing confidence indicator (CI) and the industrial production index (IPI) as well as to address the effects of the “Great Recession” on this relation. Some stylized facts about CI are firstly presented and the stability of the relationship in the framework of a linear model is subsequently explored. In addition, the findings are tested to be robust with respect to a “sample selection” effect in survey data and also to the hypothesis that they may suggest a change in the long-term trends in the industrial activity. The empirical evidence shows that: (1) the change in the relationship may be due to some cyclical reasons, rather than structural ones; (2) the performance of CI is not affected by the different permanence of firms in the panel; (3) agents are likely to adjust their production plans during the financial crisis, considering a new lower benchmark for their industrial activity in the long term. In particular, as the capacity utilization that managers consider as “ideal/sufficient” is proven to be changed over time, this finding may be consistent with the presence of non-linearities in the relation between CI and IPI. PubDate: 2019-04-01 DOI: 10.1007/s41549-018-00033-4
Abstract: Abstract The paper employs survey data on quantitative inflation perceptions to investigate the formation of consumers’ opinions about current price developments. Firstly, we compare Polish consumers’ estimates of price changes with the consumer price index (CPI) and find that consumers react more quickly to inflation increases than decreases, and that they ignore small moves in inflation. Moreover, the previously stable relation between inflation perception and the CPI inflation was distorted during the deflationary period, leading to a smaller perception bias. Secondly, we relax the assumption that consumers perceive price changes in the CPI terms and show that consumers over-weight clothing and footwear prices and under-weight transport prices relative to the expenditure shares of these items. Prices of food and beverages, as well as prices related to housing, water, gas, electricity, etc. have similar impact on inflation perception as on the CPI inflation. Thirdly, selective attention of consumers to price changes and asymmetric reaction to increases and falls in prices, captured by alternative price aggregates, do not explain inflation perception during deflation. PubDate: 2019-04-01 DOI: 10.1007/s41549-019-00036-9
Abstract: Abstract We propose a measure of economic uncertainty, the Brazilian Economic Uncertainty Indicator, based on the news as well as business forecasts. The index expands the variety of newspapers handled by Baker et al. (Q J Econ 131(4):1593–1636, 2016) for Brazil. Our indicator captures Brazilian recent events such as the corruption scandals, the fiscal and economic crisis, the 2016 impeachment, the 2008 financial crisis and the 2002 presidential elections as moments of high uncertainty. An econometric study using a Bayesian Vector Autoregressive approach was carried out and revealed that uncertainty shocks cause an economic downturn in subsequent periods, as emphasized in the relevant literature. PubDate: 2019-04-01 DOI: 10.1007/s41549-018-00034-3
Abstract: Abstract Seasonality in economic time series can ‘obscure’ movements of other components in a series that are operationally more important for economic and econometric analyses. In practice, one often prefers to work with seasonally adjusted data to assess the current state of the economy and its future course. This paper presents a seasonal adjustment program called CAMPLET, an acronym of its tuning parameters, which consists of a simple adaptive procedure to extract the seasonal and the non-seasonal component from an observed series. Once this process is carried out there will be no need to revise these components at a later stage when new observations become available. The paper describes the main features of CAMPLET. We evaluate the outcomes of CAMPLET and X-13ARIMA-SEATS in a controlled simulation framework using a variety of data generating processes and illustrate CAMPLET and X-13ARIMA-SEATS with three time series: U.S. non-farm payroll employment, operational income of Ahold and real GDP in the Netherlands. PubDate: 2019-04-01 DOI: 10.1007/s41549-018-0031-3
Abstract: Abstract The Japanese economy has experienced massive structural changes since the end of the 1990s, including a decline in the working-age population, a decade of deflation, an increase in the number of non-regular workers, which has almost doubled since the early 1990s, contributing to a large reduction in wage costs, and rapid advances in globalization. What are the implications of such changes for Japan’s business cycle dynamics' This study analyzes the stylized facts of Japanese business cycles under structural change. The results, based on traditional frequency domain analysis using more than 60 quarterly macroeconomic time series, provide robust findings. Among the most interesting ones is that scheduled hours worked play an increasingly important role as a buffer for labor input, suggesting that Japanese firms tend to adjust their labor input through hours worked, owing, in part, to the increasing number of non-regular workers, which allows firms to adjust labor input in a relatively flexible manner while keeping the number of employees unchanged. The increased role of hours worked is confirmed by an analysis based on a time-varying parameter structural vector autoregression (TVP-VAR) model taking the time-varying nature of the underlying structure of the economy into account. Meanwhile, in other areas such as private consumption and investment, wages, deflators and prices, and financial market indicators, the basic mechanism of business cycles appears to have remained largely unchanged, as reflected in the links between cyclical fluctuations in these series and cyclical fluctuations in output, implying that structural change may not necessarily affect the cyclical regularities in all macroeconomic time series. PubDate: 2018-11-01 DOI: 10.1007/s41549-018-00035-2
Abstract: Abstract In energy economics literature, the controversial assertion of whether crude oil markets are regionalized (Weiner in Energy J 12:95–107, 1991) or behave as one unified entity (Adelman in Energy J 5(3):1–9, 1984) is still an unsettled debate. While the proponents of globalization hypothesis trust that the crude oil markets behave as one big pool, the advocates of regionalization believe that they are segmented. To settle this debate, we tested the globalization–regionalization hypothesis by estimating the wavelet coherence, multiple correlation, cross-correlation, and club convergence at different time horizons. The results suggest that the crude oil markets remain synced over longer time horizons, thereby reaffirming the globalization argument. However, at shorter time horizons, they behave rather independently and are hence mostly regionalized. PubDate: 2018-11-01 DOI: 10.1007/s41549-018-0028-y
Abstract: Abstract For policy institutions such as central banks, it is important to have a timely and accurate measure of past and current economic activity and the business cycle situation. The most prominent example for such a measure is gross domestic product (GDP). However, GDP is only released at a quarterly frequency and with a substantial delay. Furthermore, it captures elements that are not directly linked to the business cycle and the underlying momentum of the economy. In this paper, I construct a new business cycle index for the Swiss economy, which uses state-of-the-art methods, is available at a monthly frequency and can be calculated in real-time, even when some indicators are not yet available for the most recent periods. The index is based on a large and broad set of monthly and quarterly indicators. As I show, for the case of Switzerland, it is important to base a business cycle index on a broad set of indicators instead of only a small subset. This result confirms the findings of a previous study on tracking short-term economic developments in Switzerland and is in contrast with the results for other countries. PubDate: 2018-11-01 DOI: 10.1007/s41549-018-0030-4
Abstract: Abstract Price surveys became popular after the seminal work of Blinder (Am Econ Rev 81(2):89–100, 1991) exploring US firms’ price-setting practices, which filled some blanks left by the simple observation of prices charged by firms. The present paper reports the findings from a survey conducted by the Central Bank of Brazil with local firms and discusses some policy implications. The sample consisted of 7002 firms and three economic sectors: manufacturing, services and commerce. Data suggest important features about price-setting behavior in Brazil: the cost of reviewing prices is low, but there is significant nominal rigidity—firms report to change prices approximately 3.6 times per year; state-dependent rules seem to be more frequent than time-dependent behavior; markup pricing appears to be the dominant strategy; and the two most important factors driving price changes in Brazil are the cost of intermediate goods and the inflation rate . PubDate: 2018-11-01 DOI: 10.1007/s41549-018-0029-x
Abstract: Abstract Real-time evidence for the euro area shows that a tracker for real GDP growth using only the Purchasing Managers’ Index (PMI) composite output is of similar accuracy for the final GDP release as the first GDP release. No signs of instability—except during the 2008/09 crisis—in this tracking performance are found. This is surprising given the small size of the underlying PMI panel. From a closer look at what is driving this outstanding track record, seven conclusions emerge: (i) the level of and change in the PMI composite output explain one-third of the GDP revisions; (ii) later available information is more accurate; (iii) services are key; (iv) firm size breakdown is valuable; (v) export status breakdown creates only noise; (vi) aggregated euro area PMI track record is not consistently related to a particular country; (vii) take firm defaults into account during very bad times. These findings imply that PMI surveys are not only valuable for analysts and policymakers as a timely and reliable GDP tracker, but also for statisticians to potentially improve the accuracy of the first preliminary flash estimate of euro area real GDP. PubDate: 2018-09-21 DOI: 10.1007/s41549-018-0032-2
Abstract: Abstract In this paper, we investigate the effects of uncertainty shocks on the US daily online price index by Cavallo and Rigobon (J Econ Perspect 30(2):151–78, 2016) within a VAR framework. We find evidence that shocks increasing uncertainty dampen prices significantly. This result is robust to various changes to the baseline model and rejects the Upward Pricing Bias that is often found in the Sticky-Price DSGE literature. PubDate: 2018-04-01 DOI: 10.1007/s41549-018-0024-2
Abstract: Abstract This study examines the impact of outlier-adjusted data on business cycle inferences using coincident indicators of the composite index (CI) in Japan. To estimate the CI and business cycles, this study proposes a Markov switching dynamic factor model incorporating Student’s t-distribution in both the idiosyncratic noise and the factor equation. Furthermore, the model includes a stochastic volatility process to identify whether a large shock is associated with a business cycle. From the empirical analysis, both the factor and the idiosyncratic component have fat-tail error distributions, and the estimated CI and recession probabilities are close to those published by the Economic and Social Research Institute. Compared with the estimated CI using the adjusted data set, the outlier adjustment reduces the depth of the recession. Moreover, the results of the shock decomposition show that the financial crisis in mid-2008 was caused by increase of clustering shocks and large unexpected shocks. In contrast, the Great East Japan Earthquake in 2011 was derived from idiosyncratic noise and did not cause a recession. When analyzing whether to use a sample that includes outliers associated with the business cycle, it is not desirable to use the outlier-adjusted data set. PubDate: 2018-04-01 DOI: 10.1007/s41549-018-0027-z
Abstract: Abstract Dynamic stochastic general equilibrium (DSGE) models are the common workhorse of modern macroeconomic theory. Whereas story-telling and policy analysis were in the forefront of applications since its inception, the forecasting perspective of DSGE models is only recently topical. In this study, we perform a post-mortem analysis of the predictive power of DSGE models in the case of Austria’s Great Recession in 2009. For this purpose, eight DSGE models with different characteristics (small and large models; closed and open economy models; one and two-country models) were used. The initial hypothesis was that DSGE models are inferior in ex-ante forecasting a crisis. Surprisingly however, it turned out that not all but those models which implemented features of the causes of the global financial crisis (like financial frictions or interbank credit flows) could not only detect the turning point of the Austrian business cycle early in 2008 but they also succeeded in forecasting the following severe recession in 2009. In comparison, non-DSGE methods like the ex-ante forecast with the Global Economic (Macro) Model of Oxford Economics and WIFO’s expert forecasts performed comparable or better than most DSGE models in the crisis. PubDate: 2018-04-01 DOI: 10.1007/s41549-018-0025-1
Abstract: Abstract This paper analyses the contribution of survey data, in particular various sentiment indicators, to nowcasts of quarterly euro area GDP. It uses a genuine real-time dataset that is constructed from original press releases in order to transform the actual dataflow into an interpretable flow of news. The latter is defined as the difference between the released values and the prediction of a mixed-frequency dynamic factor model. Our purpose is twofold. First, we aim to quantify the specific value added for nowcasting GDP from a set of heterogeneous data releases including not only sentiment indicators constructed by Eurostat, Markit, the National Bank of Belgium, IFO, ZEW, GfK or Sentix, but also hard data regarding industrial production or retail sales in the aggregate euro area and individually in some of the largest euro area countries. Second, our quantitative analysis is used to draw up an overall ranking of the indicators, on the basis of their average contribution to updates of the nowcast. Among the survey indicators, we find the strongest impact for the Markit Manufacturing PMI and the Business Climate Indicator in the euro area, and the IFO Business Climate and IFO Expectations in Germany. The widely monitored consumer confidence indicators, on the other hand, typically do not lead to significant revisions of the nowcast. In addition, even if euro area industrial production is a relevant predictor, hard data generally contribute less to the nowcasts: they may be more closely correlated with GDP but their relatively late availability implies that they can to a large extent be anticipated by nowcasting on the basis of survey data and, hence, their ‘news’ component is smaller. Finally, we also show that, in line with the previous literature, the NBB’s own business confidence indicator appears to be useful for predicting euro area GDP. The prevalence of survey data remains also under a counterfactual scenario in which hard data are released without any delay. This finding confirms that, in addition to being available in a more timely manner, survey data also contain relevant information that does not seem to be captured by hard data. PubDate: 2018-04-01 DOI: 10.1007/s41549-017-0022-9
Abstract: Abstract It is well known among practitioners that the seasonal adjustment applied to economic time series involves several decisions to be made by the econometrician. As such, it would always be desirable to have an informed opinion on the risks taken by each of those decisions. In this paper, I assess which disaggregation strategy delivers the best results for the case of the Chilean 1986–2009 GDP quarterly dataset (base year: 2003). This is done by performing an aggregate-by-disaggregate analysis under different schemes, as the fixed base year dataset allows this fair comparison. The analysis is based on seasonal adjustment diagnostics contained in the X-12-ARIMA program plus some statistical tests for robustness. This exercise is relevant for conjunctural economic assessment, as it concerns signal extraction from seasonal, noisy series, direction of change detection, and econometric applications based on reliable and accurate unobserved variables. The results show that it is preferable, in terms of stability, to use the first block of supply-side disaggregation, while demand-side disaggregation tends to be less reliable. This result carries important implications for policymakers aiming to evaluate its short-term effectiveness in both households and firms. PubDate: 2018-04-01 DOI: 10.1007/s41549-018-0023-3
Abstract: Abstract Dynamic factor models based on Kalman Filter techniques are frequently used to nowcast GDP. This study deals with the selection of indicators for this practice. We propose a two-tiered mechanism which is shown in a case study to produce more accurate nowcasts than a benchmark stochastic process and a standard model including extreme bounds fragile indicators. Our pseudo-ex-ante forecast nearly measures up to the genuine ex-ante forecast of the European Commission. PubDate: 2018-04-01 DOI: 10.1007/s41549-018-0026-0
Abstract: Abstract This paper empirically investigates and theoretically reflects on the generality of some “stylized facts” of business cycles. Using data for 1960–2016 and a sample of OECD countries, the duration of business cycles as well as three models capturing core macroeconomic relations are estimated: the Phillips curve (the inflation-unemployment nexus), Okun’s law (i.e. the relation between output growth and unemployment) and the inflation-output relation. Results are validated by relevant statistical tests. Observed durations vary from 4.2 to 7.4 years, and estimated coefficients differ in signs and magnitudes. An explanation of this heterogeneity is attempted by referring to proxies for various institutional variables. The findings suggest that core coefficients in the relations, such as the slope of the Phillips curve, show significant correlation with some of these variables, but no uniform results are obtained. In the detailed theoretical discussion and interpretation it is thus argued that the notable differences between countries call the universality of the “stylized facts” into question, but also that these variations cannot be explained exhaustively by the institutional proxy variables employed here. PubDate: 2017-11-01 DOI: 10.1007/s41549-017-0018-5
Abstract: Abstract We consider optimal monetary policy in a model that integrates credit frictions in the standard New Keynesian model with sticky prices and wages as well as adjustment costs of capital. Different from traditional models with credit frictions, such as those by Carlstrom and Fuerst (Econ Theory 12:583–597, 1998), our model is able to generate an anti-cyclical external finance premium as observed empirically in the U.S. economy. Monetary policy is characterized by a Taylor rule according to which the nominal interest rate is set as a function of the deviation of the inflation rate from its target rate, the output gap, and Tobin’s q. The latter is measured by the relative price of newly installed capital. We show that monetary policy should optimally decrease interest rates with higher capital prices. However, the consideration of Tobin’s q implies only small welfare effects. These results are robust with respect to a more general Epstein and Zin (Econometrica 57:937–969, 1989) welfare specification and to exogenous shifts to both the atemporal marginal rate of substitution between consumption and leisure as well as the households’ discounting behavior. PubDate: 2017-11-01 DOI: 10.1007/s41549-017-0019-4
Abstract: Abstract This is paper considers the role of economic sentiment and economic uncertainty in explaining economic adjustment in the Euro area during the Financial Crisis and Great Recession. The analysis is based on VAR models of economic activity, sentiment and uncertainty in four sectors—industry, retail, services and construction. Evidence is found that sentiment and uncertainty have non-negligible effects on economic activity. Finally also some additional evidence is provided by studying the two largest Euro area countries: Germany and France. PubDate: 2017-11-01 DOI: 10.1007/s41549-017-0020-y
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