10,614 research outputs found

    A Multivariate Perspective for Modeling and Forecasting Inflation's Conditional Mean and Variance

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    We test the importance of multivariate information for modelling and forecasting in- flation's conditional mean and variance. In the literature, the existence of inflation's conditional heteroskedasticity has been debated for years, as it seemed to appear only in some datasets and for some lag lengths. This phenomenon might be due to the fact that inflation depends on a linear combination of economy-wide dynamic common fac- tors, some of which are conditionally heteroskedastic and some are not. Modelling the conditional heteroskedasticity of the common factors can thus improve the forecasts of inflation's conditional mean and variance. Moreover, it allows to detect and predict con- ditional correlations between inflation and other macroeconomic variables, correlations that might be exploited when planning monetary policies. The Dynamic Factor GARCH (DF-GARCH) by Alessi et al. [2006] is used here to exploit the relations between inflation and the other macroeconomic variables for inflation fore- casting purposes. The DF-GARCH is a dynamic factor model as the one by Forni et al. [2005], with the addition of an equation for the evolution of static factors as in Giannone et al. [2004] and the assumption of heteroskedastic dynamic factors. When comparing the Dynamic Factor GARCH with univariate models and with the classical dynamic factor models, the DF-GARCH is able to provide better forecasts both of inflation and of its conditional variance.Inflation, Factor Models, GARCH

    Forecasting Industry-Level CPI and PPI Inflation: Does Exchange Rate Pass-Through Matter?

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    In this paper, we examine whether industry-level forecasts of CPI and PPI inflation can be improved using the ``exchange rate pass-through" effect, that is, when one accounts for the variability of the exchange rate and import prices. An exchange rate depreciation leading to a higher level of pass-through to import prices implies greater expenditure switching, which should be manifested, possibly with a lag, in both producer and consumer prices. We build a forecasting model based on a two or three equation system involving CPI and PPI inflation where the effects of the exchange rate and import prices are taken into account. This setup also incorporates their dynamics, lagged correlations and appropriate restrictions suggested by the theory. We compare the performance of this model with a variety of unrestricted univariate and multivariate time series models, as well as with a model that, in addition, includes standard control variables for inflation, like interest rates and unemployment. Our results indicate that improvements on the forecast accuracy can be effected when one takes into account the possible pass-through effects of exchange rates and import prices on CPI and PPI inflation.Forecasting, Vector Autoregression, Non-linear Models, Inflation, Exchange Rates, Pass-Through Effect

    Forecasting the time-varying beta of UK firms: GARCH models vs Kalman filter method

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    This paper forecast the weekly time-varying beta of 20 UK firms by means of four different GARCH models and the Kalman filter method. The four GARCH models applied are the bivariate GARCH, BEKK GARCH, GARCH-GJR and the GARCH-X model. The paper also compares the forecasting ability of the GARCH models and the Kalman method. Forecast errors based on return forecasts are employed to evaluate out-of-sample forecasting ability of both GARCH models and Kalman method. Measures of forecast errors overwhelmingly support the Kalman filter approach. Among the GARCH models both GJR and GARCH-X models appear to provide a bit more accurate forecasts than the bivariate GARCH model

    Comovements among European equity sectors: Selected evidence from the consumer discretionary, consumer staples, financial, industrial and materials sectors

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    This paper examines comovements between equity sectors across European markets during the post-euro adoption period 1999-2002. The markets comprise six selected Member States of the European Union (EU): namely, Belgium, Finland, France, Germany, Ireland and Italy. The five sectors selected are classified according to the Global Industry Classification Standard (GICS). They include the consumer discretionary, consumer staples, financial, industrials and materials sectors. Multivariate cointegration procedures, Granger-causality tests and generalised variance decomposition analyses based on error-correction and vector autoregressive models are conducted to examine long and short-run relationships among these markets. The results indicate that there are few stationary long-run relationships between sectors in different markets, but many significant short-run causal linkages between these sectors. Variance decomposition indicates that the consumer discretionary, financial and materials sectors in the EU are relatively more integrated than the consumer staples and industrials sectors. However, irrespective of the sector examined the large equity markets of France, Germany and Italy remain the most influential in terms of causality and the proportion of variance accounted for by innovations in these same markets.Financial integration, sectors and industries, portfolio diversification, market efficiency.

    Summary report on sensory-related socio-economic and sensory science literature about organic food products

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    Organic food’s initial attraction to the public was that it was perceived to be healthier and tastier, but scientists and policy makers have mainly stressed the benefits to the environment of organic and sustainable farming. Scientific support for marketing actions addressed to those who want to be healthier and who want to enjoy better taste, and are willing to pay more for these benefits is scarce. Past research has produced little clear evidence about the importance of sensory characteristics such as taste, smell, appearance etc in consumers’ preferences with regard to organic food. The Ecropolis project, funded by the E.U., was set up with the aim of investigating the role of the senses in consumers’ preferences regarding organic food, and leading to research into how best to satisfy those preferences. This deliverable is aimed at providing a solid basis for such research with an in-depth review of, and two reports on, the relevant scientific literature. The first report (Annex I) regards what consumers expect from organic products in terms of taste, smell, appearance, etc and how these expectations are (or are not) met; the second is about the science of the senses (Annex II). The first project tasks included creating and agreeing on a glossary of terms, deciding on search criteria (key words, etc.), setting up a bibliographical data base, preparing then circulating the above-mentioned reports, and finally preparing a summary of the reports. The report on consumers expectations highlights the suggestion that while organic food has traditionally been marketed through specialized retailers, its market share will only grow significantly if it is promoted by multiple retailers. Research literature from all over the world seems to agree in indicating that consumers’ choices are largely motivated by health, the environment, price and social status. Other considerations include ethics, the localness of the product and lifestyle choices. The literature also indicates that the organic market will expand significantly only if consumers are more willing, and able, to recognize quality, but this presents serious issues. When buying the product they cannot personally verify its quality and genuineness and thus must rely on regulation and inspection bodies. The recognition of quality can also be encouraged by effective communication by producers and retailers through appropriate branding, labelling and presentation. There are connections between this information and questions of sense perception, but researchers disagree about how important the latter is in influencing the customer, and in which ways it does so. The following report focuses, in fact, on the science of the senses, which tries to analyze in detail people’s responses to food, despite the many potential pitfalls in carrying out the research which might influence the reliability of the results. There is broad agreement on two points: - there is no proof that organic food is more nutritious or safer, and - most studies that have compared the taste and organoleptic quality of organic andconventional foods report no consistent or significant differences between organic and conventional produce. Therefore, claiming that all organic food tastes different from all conventional food would not be correct. However, among the well-designed studies with respect to fruits and vegetables that have found differences, the vast majority favour organic produce. Organic produce tends to store better and has longer shelf life, probably because of lower levels of nitrates and higher average levels of antioxidants. The former can accelerate food spoilage, while antioxidants help preserve the integrity of cells and some are natural antibiotics. The first conclusion may, however, depend on factors not directly connected to organic farming, such as harvesting and storage methods and the type of land used for growing the food. About the second finding it must be considered that measuring organoleptic quality is difficult and inherently subjective and evaluations may be clouded by the influence of numerous factors on the consumer’s perceptions of the food and not just its appearance and taste. Experimental research indicates that the information that a food is organic confers upon it a “halo effect” (making it seem better sense-wise simply because it is organic) which might make consumers like it more. Ecropolis researchers will analyze in detail which senses are indeed impacted on, and how, and try to match them to consumer needs and expectations in order to be able to offer suggestions for future policy, including how the food is stored, transported and presented, which is also essential for maintaining sensory properties. The workpackage WP1 has also produced a specific report on how organic food sensory aspects are regulated. International standards, with some important exceptions, are largely in line with European ones. Differences in standards usually regard whether there is orientation towards freshness “per se” as opposed to increasing shelf-life, or quality standardization as opposed to quality differentiation. Differences in regulations regard such aspects as ingredients, additives, processing aids and methods, packaging, storage and transport. The lack of harmony among the different regulatory systems often reflects different traditions and market conditions, however, more complicated compliance procedures result in higher costs for importers. Greater homogeneity would not only reduce such costs but would also increase consumer confidence in international standards. Ecropolis will also investigate the effect of different regulations on how people perceive organic goods sense-wise. The work done to date is seen as a starting point for future research aimed at producing practical results in the organic food market. Ecropolis will try to bring together separate strands of research concerning how organic goods are regulated and marketed with regard to taste, appearance, etc., and how consumers themselves are affected by such factors. The aim is to find optimal matches between the two, and thus to greatly increase organic food’s share of the food market

    Short-term forecasts of euro area GDP growth

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    Global financial integration unlocks a huge potential for international risk sharing. We examine the degree to which international equity holdings act as a risk sharing device in industrial and emerging economies. We split equity returns into investment income (dividend distribution) and capital gains to investigate which of the two channels delivers the largest potential for risk sharing. Our evidence suggests that net capital gains are a more potent channel of risk sharing. They behave in a countercyclical way, that is they tend to be positive (negative) when the domestic economy is growing more slowly (rapidly) than the rest of the world. Countries with more countercyclical net capital gains experience improved consumption risk sharing. The empirical analysis furthermore suggests that these risk sharing properties of net capital gains have increased through time, in particular in the 1990s and early-2000s, on the back of a declining equity home bias and financial market deepening. JEL Classification: E52, C33, C53consumption smoothing, Cross-Border Investment, International portfolio diversification, International risk sharing, Valuation effects

    Estimating and forecasting the euro area monthly national accounts from a dynamic factor model

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    We estimate and forecast growth in euro area monthly GDP and its components from a dynamic factor model due to Doz et al. (2005), which handles unbalanced data sets in an efficient way. We extend the model to integrate interpolation and forecasting together with cross-equation accounting identities. A pseudo real-time forecasting exercise indicates that the model outperforms various benchmarks, such as quarterly time series models and bridge equations in forecasting growth in quarterly GDP and its components. JEL Classification: E37, C53Dynamic Factor Models, Interpolation, nowcasting
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