Where Are We Now? Real-Time Estimates of the Macro Economy

This paper describes a method for calculating daily real-time estimates of the current state of the U.S. economy. The estimates are computed from data on scheduled U.S. macroeconomic announcements using an econometric model that allows for variable reporting lags, temporal aggregation, and other complications in the data. The model can be applied to find real-time estimates of GDP, inflation, unemployment or any other macroeconomic variable of interest. In this paper I focus on the problem of estimating the current level of and growth rate in GDP. I construct daily real-time estimates of GDP that incorporate public information known on the day in question. The real-time estimates produced by the model are uniquely-suited to studying how perceived developments the macro economy are linked to asset prices over a wide range of frequencies. The estimates also provide, for the first time, daily time series that can be used in practical policy decisions.

A New Micro Model of Exchange Rate Dynamics

We address the exchange rate determination puzzle by examining how information is aggregated in a dynamic general equilibrium (DGE) setting. Unlike other DGE macro models, which enrich either preference structures or production structures, our model enriches the information structure. The model departs from microstructure-style modeling by identifying the real activities where dispersed information originates, as well as the technology by which information is subsequently aggregated and impounded. Results relevant to the determination puzzle include: (1) persistent gaps between exchange rates and macro fundamentals, (2) excess volatility relative to macro fundamentals, (3) exchange rate movements without macro news, (4) little or no exchange rate movement when macro news occurs, and (5) a structural-economic rationale for why transaction flows perform well in accounting for monthly exchange rate changes, whereas macro variables perform poorly. Though past micro analysis has made progress on results (1) through (3), results (4) and (5) are new. Excess volatility arises in our model for a new reason: rational exchange rate errors feed back into the fundamentals that the exchange rate is trying to track.

Do Currency Markets Absorb News Quickly?

This paper addresses whether macro news arrivals affect currency markets over time. The null from macro exchange-rate theory is that they do not: macro news is impounded in ex-change rates instantaneously. We test this by examining the effects of news on subsequent trades by end-user participants (such as hedge funds, mutual funds, and non-financial corporations). News arrivals induce subsequent changes in trading in all of the major end-user segments. These induced changes remain significant for days. Induced trades also have persistent effects on prices. Currency markets are not responding to news instantaneously.

Order Flow and Exchange Rate Dynamics

Macroeconomic models of nominal exchange rates perform poorly. In sample, R2 statistics as high as 10 percent are rare. Out of sample, these models are typically out-forecast by a na‹ve random walk. This paper presents a model of a new kind. Instead of relying exclusively on macroeconomic determinants, the model includes a determinant from the field of microstructure-order flow. Order flow is the proximate determinant of price in all microstructure models. This is a radically different approach to exchange rate determination. It is also strikingly successful in accounting for realized rates. Our model of daily exchange-rate changes produces R2 statistics above 50 percent. Out of sample, our model produces significantly better short-horizon forecasts than a random walk. For the DM/$spot market as a whole, we find that$1 billion of net dollar purchases increases the DM price of a dollar by about 1 pfennig.

Inventory Information

In a market with symmetric information about fundamentals, can information-based trade still arise? Consider bond and FX markets, where private information about nominal cash flows is generally absent, but participants are convinced that superior information exists. We analyze a class of asymmetric information - inventory information - that is unrelated to fundamentals, but still forecasts future price (by forecasting future discount factors). Empirical work based on the analysis shows that inventory information in FX does indeed forecast discount factors, and does so over both short and long horizons. The immediate price impact of shocks to inventory information is large, roughly 50 percent of that from public information shocks (the latter being the whole story under symmetric information). Within about 30 minutes the transitory effect dies out, and prices reflect a permanent effect from inventory information that ranges between 15 and 30 percent of that from public information.

The Influence of Soil Crusts on Heat and Water Storage, Chapter 5

There is a continuous exchange of water, air, and heat between the soil and atmosphere. This has a profound influence on weather, plant growth, and ground water storage. Increased advective energy transport and air turbulence are often consequences of heat exchanged between the soil and the atmosphere. The release of heat from a firmly packed soil which makes crop plants less apt to be frozen than those growing on a loose, recently cultivated soil is another example. The interchange of water between soil and atmosphere also profoundly affects our environment. If water reaches the soil surface faster than it can be absorbed, runoff and flooding occur. Water absorption by the soil is a basic requirement for ground water recharge and, consequently, necessary for the continued flow of all springs and wells. Taken from this veiwpoint, the exchange of heat and water through soil crusts is of quite general interest

Predicting early data revisions to US GDP and the effects of releases on equity markets

The effects of data uncertainty on real-time decision-making can be reduced by predicting early revisions to US GDP growth. We show that survey forecasts efficiently anticipate the first-revised estimate of GDP, but that forecasting models incorporating monthly economic indicators and daily equity returns provide superior forecasts of the second-revised estimate. We consider the implications of these findings for analyses of the impact of surprises in GDP revision announcements on equity markets, and for analyses of the impact of anticipated future revisions on announcement-day returns

Inventory Information

When information about fundamentals is symmetric, can information-based trade still arise? Consider bond and FX markets, where private information about nominal cash flows is generally absent, but participants are convinced that superior information exists. We analyze a class of asymmetric information-inventory-information-that is unrelated to fundamentals, but still forecasts future price (by forecasting future discount factors). We find that inventory information in FX does indeed forecast discount factors, and does so over both short and long horizons. The permanent effect from inventory information ranges between 15 and 30 percent of that from public information.

Density functional theory of phase coexistence in weakly polydisperse fluids

The recently proposed universal relations between the moments of the polydispersity distributions of a phase-separated weakly polydisperse system are analyzed in detail using the numerical results obtained by solving a simple density functional theory of a polydisperse fluid. It is shown that universal properties are the exception rather than the rule.Comment: 10 pages, 2 figures, to appear in PR

Determination of step--edge barriers to interlayer transport from surface morphology during the initial stages of homoepitaxial growth

We use analytic formulae obtained from a simple model of crystal growth by molecular--beam epitaxy to determine step--edge barriers to interlayer transport. The method is based on information about the surface morphology at the onset of nucleation on top of first--layer islands in the submonolayer coverage regime of homoepitaxial growth. The formulae are tested using kinetic Monte Carlo simulations of a solid--on--solid model and applied to estimate step--edge barriers from scanning--tunneling microscopy data on initial stages of Fe(001), Pt(111), and Ag(111) homoepitaxy.Comment: 4 pages, a Postscript file, uuencoded and compressed. Physical Review B, Rapid Communications, in press