An Empirical Analysis of Australian Labour Productivity

This study presents a model capturing sources of Australian aggregate labour productivity using annual time series data from 1970 to 2001. Labour productivity, or real output per hour worked, in this model is determined by real net capital stock in information technology and telecommunications (ITT), real net capital stock in the non-ITT sector, trade openness, human capital, the wage rate, international competitiveness, and the union membership rate. Given the lack of long and consistent time series data, multivariate cointegration techniques are inappropriate as the cointegration results will be sensitive to the lag length, the inclusion or exclusion of the intercept term or a trend in the cointegration equation and/or the vector autoregression (VAR) specification. Therefore, the Engle-Granger representation theorem and the Hausman weak exogeneity test have been employed to determine the short and long-term drivers of Australian productivity. Empirical estimates indicate that, in the long-term, policies aimed at promoting various types of investment, trade openness, international competitiveness, and the use of wage as an stimulant in a decentralised wage negotiation system, will improve labour productivity. In the short term, all the above variables except for human capital and labour reforms, which both need more time to evolve, determine productivity performance.

Projecting the Medium-Term: Outcomes and Errors for GDP Growth

The focus of this paper is the evaluation of a very popular method for potential output estimation and medium-term forecasting? the production function approach?in terms of predictive performance. For this purpose, a forecast evaluation for the three to five years ahead predictions of GDP growth for the individual G7 countries is conducted. To carry out the forecast performance check a particular testing framework is derived that allows the computation of robust test statistics given the specific nature of the generated out-of sample forecasts. In addition, medium-term GDP projections from national and international institutions are examined and it is assessed whether these projections convey a reliable view about future economic developments and whether there is scope for improving their predictive content. --Potential output,projections,forecast evaluation

Long term vs. short term comovements in stock markets: the use of Markov-switching multifractal models.

Empirical techniques to assess market comovements are numerous from cointegration to dynamic conditional correlations. This paper uses the fractal properties of asset returns and presents estimations of Markov switching multifractal models [as MSM] to give new insights about short and long run dependencies in stock returns. The main advantage of the model is to allow for the derivation of several indicators of comovements on heterogenous lasting horizons. Empirical applications are performed for four stock indices (CAC DAX FTSE NYSE) at daily frequency between 1996 and 2008.Multivariate volatility models ; Markov switching multifractal model transmission, comovements.

Macro Stress Testing of the Slovak Banking Sector

In this paper we estimate the impact of a simulated slowdown in the Slovak economy on the Slovak banking sector. Using a vector error correction model, the impact of the slowdown on interest rates and exchange rates is assessed. This allows us to estimate the aggregated impact of the credit risk, interest rate risk and exchange rate risk. The significance of indirect impact of interest rate risk and foreign exchange risk via possible worsening of financial situation of debtors has also been considered. The results suggest that even significant slowdown of the GDP growth would not substantially threaten the Slovak banking sector provided that the response of the monetary policy would be adequate. Given the current portfolio of the Slovak banking sector, this monetary policy would have positive impact on Slovak banking sector also by direct increase of real value of this portfolio, mainly through the interest rate channel. The shocks in GDP growth that would be left without relevant response in other factors might represent more noticeable threat.Macro stress testing, Credit risk, Slovakia

Schätzungen und Prognosen des Produktionstrends und Modellierung des Arbeitseinsatzes : eine Anwendung von Panelmethoden und Faktormodellen

This thesis is concerned with various aspects of estimating trend output and growth and discusses and evaluates methods to prepare medium-term GDP growth projections. Furthermore, econometric techniques suited for cross-correlated macroeconomic panel data with a focus on factor models are applied for unit root and cointegration testing as well as panel error correction estimation. Applications involve the identification of growth determinants as well as the modelling of aggregate labor supply in a multi-country framework. The first chapter evaluates a very popular method for potential output estimation and medium-term forecasting---the production function approach---in terms of predictive performance. For this purpose, a particular forecast evaluation framework is developed and an evaluation of the predictions of GDP growth for the three to five years ahead for each individual G7 country is carried out. In chapter two, a new approach for estimating trend growth of advanced economies is proposed. The suggestion combines econometric methods that have been used to test and estimate the implications of the extended Solow growth model in a cross sectional time series setting with an application of multivariate time series filter techniques. The last chapter discusses several panel unit root tests designed to accommodate cross-sectional dependence. These methods are then applied to an OECD country sample of the aggregate labor supply measure "hours worked".Die vorliegende Dissertation beschäftigt sich mit verschiedenen Gesichtspunkten des empirischen Konzepts der gesamtwirtschaftlichen Trendproduktion und des Trendwachstums sowie diskutiert und evaluiert Methoden zur Erstellung mittelfristiger Wachstumsprojektionen des realen Bruttoinlandsprodukts. Darüber hinaus werden ökonometrische Techniken, die für den Umgang mit kreuzkorrelierten makroökonomischen Paneldaten entwickelt wurden und Kreuzabhängigkeiten insbesondere mit Hilfe von Faktormodellen abbilden, im Rahmen von Integrations- und Kointegrationsanalysen angewendet. Das erste Kapitel der Arbeit wertet den Produktionsfunktionsansatz, welcher eine sehr häufig eingesetzte Methode für die Schätzung des Produktionspotenzials und darauf aufbauende Mittelfristprognosen darstellt, aus. Zu diesem Zweck wird ein analytischer Rahmen erarbeitet, welcher die konsistente Analyse der Güte von mittelfristigen Prognosen auf Basis eines "out-of-sample"-Experiments ermöglicht. Das Vorgehen wird anhand von Drei- bis Fünfjahresprognosen des Wachstums des Bruttoinlandsprodukts für die G7-Länder demonstriert. Im zweiten Kapitel wird ein neues Vorgehen zur Schätzung des Trendwachstums in hochentwickelten Industrieländern konzipiert. Dabei wird ein ökonometrischer Ansatz zum Schätzen und Testen des neuklassischen Solow-Models auf Basis von Zeitreihen-Querschnittsdaten herangezogen, welcher mit multivariaten Filtertechniken der Zeitreihenanalyse kombiniert wird. Im letzten Kapitel werden mehrere Paneleinheitswurzeltests der sogenannten zweiten Generation diskutiert und auf die Fragestellung, ob die aggregierten Arbeitsstunden instationär sind, im OECD-Länderquerschnitt angewendet

The predictive content of the real interest rate gap for macroeconomic variables in the euro area

The real interest rate gap -IRG-, i.e. the gap between the short term real interest rate and its “natural†level, is a theoretical concept of potential policy relevance for central banks, at least to evaluate the monetary policy stance, at best as a guideline for policy moves. This paper aims at clarifying the practical relevance of IRG indicators for monetary policy. To this end, it provides an empirical assessment of the usefulness of various univariate and multivariate estimates of the real IRG for predicting inflation, real activity and real credit growth in the euro area. On the basis of out-of-sample evidence using real-time data, I find that IRG measures are globally of little help to improve our knowledge of future inflation in the euro area. By contrast, some of the estimated IRG measures exhibit a significant predictive power for future real activity, in line with the intuition from a traditional IS curve, as well as for credit growth. Nevertheless, in most cases, the forecasting models that include estimated IRG do not outperform a simpler AR model augmented with the first difference of the nominal interest ratenatural rate of interest, monetary policy, forecasting

How predictable are equity covariance matrices? Evidence from high frequency data for four markets

Most pricing and hedging models rely on the long-run temporal stability of a sample covariance matrix. Using a large dataset of equity prices from four countries—the USA, UK, Japan and Germany—we test the stability of realized sample covariance matrices using two complementary approaches: a standard covariance equality test and a novel matrix loss function approach. Our results present a pessimistic outlook for equilibrium models that require the covariance of assets returns to mean revert in the long run. We find that, while a daily first-order Wishart autoregression is the best covariance matrix-generating candidate, this non-mean-reverting process cannot capture all of the time series variation in the covariance-generating process

Revisiting the Dollar-Euro Permanent Equilibrium Exchange Rate: Evidence from Multivariate Unobserved Components Models

We propose an alterative approach to obtaining a permanent equilibrium exchange rate (PEER), based on an unobserved components (UC) model. This approach offers a number of advantages over the conventional cointegration-based PEER. Firstly, we do not rely on the prerequisite that cointegration has to be found between the real exchange rate and macroeconomic fundamentals to obtain non-spurious long-run relationships and the PEER. Secondly, the impact that the permanent and transitory components of the macroeconomic fundamentals have on the real exchange rate can be modelled separately in the UC model. This is important for variables, where the long and short-run effects may drive the real exchange rate in opposite directions, such as the relative government expenditure ratio.Permanent Equilibrium Exchange Rate; Unobserved Components Model; Exchange rate forecasting.

The Reliability of Macroeconomic Forecasts based on Real Interest Rate Gap Estimates in Real Time: an Assessment for the Euro Area.

The real interest rate gap or IRG -the gap between the short term real interest rate and its "natural" level-, is a theoretical concept that has attracted much attention in central banks in recent years. This paper aims at clarifying its practical relevance for monetary policy in real time. For this purpose, it provides an empirical assessment of the usefulness of various univariate and multivariate estimates of the real IRG for predicting inflation, real activity and real credit growth in the euro area. The results suggest that the reliability of such indicators for real time policy guidance remains limited.Natural rate of interest ; Monetary policy ; Forecasting.