Stylized facts of Euroland's business cycle

The paper presents some stylized facts of Euroland's business cycle using aggregated data. The main results are: The determination of turning points in Euroland's business cycle is not very sensitive to the detrending method used, although the level of the recent output gap depends on it. Investment, net exports and stock building explain the largest share of the swings in real GDP. The types of expenditures - except for net exports - are pro-cyclical with almost no lag or lead. The results for monetary variables are unclear, most of them show no clear-cut cyclical behavior. Prices are counter-cyclical, whereas labor productivity and real wages are pro-cyclical. The cyclical component of industrial production in all member countries shows a positive and over time increasing correlation coefficient with the one in the rest of Euroland.Business Cycles,Stylized Facts,European Monetary Union

Real-time data and business cycle analysis in Germany

This paper examines the consequences of using "real-time" data for business cycle analysis in Germany based on a novel data set covering quarterly real output data from 1968 to 2001. Real-time output gaps are calculated. They differ considerably from their counterparts based on the most recent data. Moreover, they are not rational forecasts of the final series. The consequences of using real-time data for inflation forecasts, the dynamic interaction of output gaps and inflation, and stylised facts of the business cycle are also addressed. The results suggest that revisions of data and estimates can seriously distort research and policy implications. --Real-time data,business cycles,output gap,VAR,inflation,Germany

Forecast Errors and the Macroeconomy: A Non-Linear Relationship?

The paper analyses the reasons for departures from strong rationality of German business cycle forecasts based on annual observations from 1963 to 2004. We rely on forecasts from the joint forecast of the so-called "six leading" forecasting institutions in Germany. We test for a non-linear relation between forecast errors and macroeconomic fundamentals and find evidence for such a non-linearity for inflation forecasts. Evidence from probit models further suggests that some macroeconomic fundamentals - especially monetary factors - correlate to large positive or negative forecast growth and inflation forecast errors.Forecast error evaluation; Non-linearities; Business cycles

Growth and Inflation Forecasts for Germany: An Assessment of Accuracy and Dispersion

Based on a panel of German professional forecasts for 1970 to 2002 we find that growth and inflation forecasts are unbiased and weakly, but not strongly efficient. Besides the effect of diverging forecasting dates, no other substantial differences in forecasting quality are found among forecasters. We argue that is not always advisable to listen to the majority of forecast-ers. The dispersion of forecasts correlates positively with the volatility of macroeconomic variables. This suggests that forecasters do not behave predominately strategic, but share no common belief on the adequate model of the economy.Forecast error evaluation; Consensus forecast; Disagreement; Uncertainty; Germany

Real-time macroeconomic data and ex ante predictability of stock returns

We report results on the ex ante predictability of monthly excess stock returns in Germany using real-time and revised macroeconomic data. Our real-time macroeconomic data cover the period 1994-2005. We report three results. 1) Real-time macroeconomic data did not contribute much to ex ante stock-return predictability. 2) The performance of an investor who had to rely on noisy real-time macroeconomic data would have been comparable to the performance of an investor who had access to revised macroeconomic data. 3) In real time, it is important for an investor to know which real-time variable to use for predicting stock returns. --Ex ante predictability of stock returns,real-time macroeconomic data,performance of investment strategies,Germany

Sticky information Phillips curves: European evidence

We estimate the sticky information Phillips curve model of Mankiw and Reis (2002) using survey expectations of professional forecasters from four major European economies. Our estimates imply that inflation expectations in France, Germany and the United Kingdom are updated about once a year, in Italy about once each six months. JEL Classification: E62, H20, H50, H62inflation expectations, Inflation persistence, Phillips curve, sticky information

The cross-sectional dynamics of German business cycles: a bird's eye view

We establish some stylised facts for Germany's business cycle at the level of the firm. Based on longitudinal firm-level data from the Bundesbank's balance sheet statistic covering, on average, 55,000 firms per year from 1971 to 1998, we analyse the reallocation across individual producers and, in turn, the connection of this reallocation to aggregate business cycles. The empirical results indicate a pronounced heterogeneity of real sale changes across firms. Moreover, the distribution of growth rates of firm's real sales is influenced by business cycle conditions. In particular, the cross-section skewness of real sales changes is strongly counter-cyclical. The results confirm most of the findings for the UK and the US by Higson et al. (2002, 2004) and are, therefore, robust stylised facts of the business cycle. --business cycles,cross-sectional moments,firm growth

Forecasting stock market volatility with macroeconomic variables in real time

We compared forecasts of stock market volatility based on real-time and revised macroeconomic data. To this end, we used a new dataset on monthly real-time macroeconomic variables for Germany. The dataset covers the period 1994-2005. We used a statistical, a utility-based, and an options-based criterion to evaluate volatility forecasts. Our main result is that the statistical and economic value of volatility forecasts based on real-time data is comparable to the value of forecasts based on revised macroeconomic data. --Forecasting stock market volatility,Real-time macroeconomic data,Evaluation of forecasting accuracy

Great Moderation at the Firm Level? Unconditional vs. Conditional Output Volatility

Aggregated output in industrialized countries has become less volatile over the past decades. Whether this “Great Moderation” can be found in firm level data as well remains disputed. We study the evolution of firm level output volatility using a balanced panel dataset on German firms that covers 35 years (1971-2005) and about 1,500 firms per year. In contrast to earlier work using firm level data, we use the multifactor residual model proposed by Pesaran (2006) to isolate the idiosyncratic component of firms’ real sales growth from macroeconomic developments. Our paper has three main findings. First, time trends in unconditional firm level and aggregated output volatility in Germany are similar. There has been a long-run downward trend, which was interrupted by the unification period. Second, the conditional, idiosyncratic firm level volatility does not exhibit a downward trend. If anything idiosyncratic volatility has been on a slow trend rise. Third, we find evidence of a positive link between growth and volatility at the firm level.firm level volatility, Great Moderation, multifactor residual model

Real-time forecasting and political stock market anomalies: evidence for the U.S.

Using monthly data for the period 1953-2003, we apply a real-time modeling approach to investigate the implications of U.S. political stock market anomalies for forecasting excess stock returns. Our empirical findings show that political variables, selected on the basis of widely used model selection criteria, are often included in real-time forecasting models. However, they do not contribute to systematically improving the performance of simple trading rules. For this reason, political stock market anomalies are not necessarily an indication of market inefficiency. --Political stock market anomalies,predictability of stock returns,efficient markets hypothesis,real-time forecasting