Using mixed frequency data to improve macroeconomic forecasts of inventory investment

This paper briefly reviews and extends the evidence on the importance of inventory investment in business cycles. A method for combining high-frequency observations with forecasts of a conventional quarterly econometric model is then proposed. The method is applied to the Michigan Quarterly Econometric Model of the U.S. Economy to see if improved forecasts of inventory investment can be obtained. The use of a small set of monthly indicators is found to yield improved forecasts of real GNP but are of little help in forecasting inventory investment. A more comprehensive set of monthly indicators including inventory and sales may be needed to obtain improved estimates of quarterly inventory investment.Peer Reviewedhttp://deepblue.lib.umich.edu/bitstream/2027.42/30214/1/0000604.pd

An analysis of RSQE forecasts: 1971–1992

The purpose of this paper is to evaluate the accuracy of ex ante econometric model forecasts of four key macroeconomic variables: real GNP growth, the rate of price inflation measured by the GNP deflator, the civilian unemployment rate, and the Treasury Bill rate. Annual forecasts produced by the Research Seminar in Quantitative Economics (RSQE) based on the Michigan Quarterly Econometric Model of the U.S. Economy are compared with quasi ex ante forecasts from a four-variable vector autoregressive (VAR) model. Statistical tests of the equality of forecast error variances as well as univariate and multivariate forecast encompassing-type tests are conducted. The forecast error variance comparisons indicate that for three of the four variables the RSQE forecasts are more accurate than the VAR forecasts and for one of the variables (real GNP growth) only slightly less accurate. The forecast encompassing-type tests indicate that the RSQE forecasts contain information not contained in the VAR forecasts and, conversely, that VAR forecasts contain information not included in the RSQE forecasts. The scope for improving RSQE forecasts by combining them with VAR forecasts is rather limited, however.Peer Reviewedhttp://deepblue.lib.umich.edu/bitstream/2027.42/43925/1/11293_2006_Article_BF02299030.pd

Decomposing consumer wealth effects: evidence on the role of real estate assets following the wealth cycle of 1990-2002

During the period from 1990 to 2002, U.S. households experienced a dramatic wealth cycle, induced by a 369-percent appreciation in the value of real per capita liquid stock-market assets, followed by a 55-percent decline. However, despite predictions at the time by some analysts relying on life-cycle models of consumption, consumer spending in real terms continued to rise throughout this period. Using data from 1990 to 2005, traditional approaches to estimating macroeconomic wealth effects on consumption confront two puzzles: (i) econometric evidence of a stable cointegrating relationship among consumption, income, and wealth is weak at best; and (ii) life-cycle models that rely on aggregate measures of wealth cannot explain why consumption did not collapse when the value of stock-market assets declined so dramatically. We address both puzzles by decomposing wealth according to the liquidity of household assets. In particular, we find that significant appreciation in the value of real estate assets that occurred after the peak of the wealth cycle helped to sustain consumer spending from 2001 to 2005.Wealth

Differential Environmental Regulation: Effects on Electric Utility Capital Turnover and Emissions.

This paper tests the hypothesis that differential regulations reduced the rate of capital turnover in the electric utility industry, resulting in increased emissions of sulfur dioxide. Based on a sample of forty-four privately owned electric utilities operating over the period 1969-83, the authors' results indicate that (1) regulation increased the age of capital by an average of 3.29 years (24.6 percent); (2) increases in the age of capital have no statistically significant impact on emissions; and (3) in the absence of regulation, emissions would have increased by 3.79 tons per million kWhs (34.6 percent). Copyright 1993 by MIT Press.

The Economic Impact of Shale Gas Development: A Natural Experiment along the New York / Pennsylvania Border

We investigate local economic impacts of shale gas development using the natural experiment of the discontinuity in regulation caused by New York’s 2008 moratorium on fracking. Using county- and zip-code-level data for 2001–2013 to examine differences in New York and Pennsylvania counties before and after the moratorium, we find that shale gas development has a positive local impact on employment and wages in the natural resource, mining, and construction sectors and an offsetting reduction in employment in the manufacturing sector. Overall, we find no statistically significant local effects on total employment or on wages