Forecasting with Factors: The Accuracy of Timeliness

This paper demonstrates that factor-based forecasts for key Australian macroeconomic series can outperform standard time-series benchmarks. In practice, however, the advantages of using large panels of data to construct the factors typically comes at the cost of using less timely series, thereby delaying when the forecasts can be made. To produce more timely forecasts it is possible to use a narrower data panel, though this will possibly result in less accurate factor estimates and so less accurate forecasts. We demonstrate this trade-off between accuracy and timeliness with out-of-sample forecasts. With the exception of only consumer price inflation, the forecasts do not become less accurate as they utilise less information by excluding less timely series. So while factor forecasts have large data requirements, we show that these should not prevent their practical use when timely forecasts are needed.forecasting; factor models; Australia

Component-smoothed Inflation: Estimating the Persistent Component of Inflation in Real Time

This paper presents a new measure of underlying inflation: component-smoothed inflation. It approaches the problem of determining underlying inflation from a different direction than previous methods. Rather than excluding or trimming out volatile CPI items, it smoothes components of the CPI based on their volatility – CPI expenditure weights are maintained for all items. Items such as rent are smoothed a little, if at all, while volatile series such as fruit, vegetables and automotive fuel are smoothed a lot. This removes much of the temporary volatility in the CPI while retaining most of the persistent signal. Because our underlying inflation measure includes all CPI items at all times, it is robust to sustained relative price changes and is unbiased in the long run. A potential cost of this approach is that, unlike other measures, it places weight on lagged as well as contemporaneous prices for volatile series. An evaluation of the balance between the costs and benefits of this approach remains an open question.CPI; core inflation; underlying inflation; Australia; United States

Rescattering effects in antiproton-induced exclusive J/ψJ/\psi and ψ′\psi^\prime production on the deuteron

On the basis of the generalized eikonal approximation we study the exclusive reactions $\bar p d \to J/\psi\, n$ and $\bar p d \to \psi^\prime\, n$ in vicinity of the thresholds for charmonium production on a free proton target. It is shown that the rescattering of the incoming antiproton and outgoing charmonium on the spectator neutron leads to a depletion of the charmonium production at low- and to an enhancement at high transverse momenta. This is in qualitative agreement with previous studies of hard proton knockout in proton-deuteron collisions. We analyze different physical sources of uncertainty which may influence the extraction of the total charmonium-neutron cross section. The color transparency effect for the incoming $\bar p$ largely compensates the influence of charmonium rescattering both at low and high transverse momenta. Different choices of the deuteron wave function lead to significant uncertainties at high transverse momenta. As an outcome of the calculations of charmonium production, we also provide predictions on the production of open charm hadrons due to the dissociation of the charmonium on the neutron. It is shown that the open charm production cross section is proportional to the total charmonium-nucleon cross section and quite stable with respect to the variation of other parameters of the model. We thus suggest that open charm channels are most suited for future studies of charmonium-nucleon interactions at PANDA with a deuteron target.Comment: 28 pages, 8 figures, modified sec. 1 and 2, new Fig. 2, added references, results unchanged, version accepted in EPJ

The Australian Business Cycle: A Coincident Indicator Approach

This paper constructs coincident indices of Australian economic activity using techniques for estimating approximate factor models with many series, using data that begin in the early 1960s. The resulting monthly and quarterly indices both provide plausible measures of the Australian business cycle. The indices are quite robust to the selection of variables used in their construction, the sample period used in estimation, and the number of factors included. Notably, only a small number of factors is needed to adequately capture the business cycle. The coincident indices provide a much smoother representation of the cycle in economic activity than do standard national accounts measures, especially in the period prior to the early 1980s. Accordingly, they suggest that the marked decline in volatility evident in quarterly Australian GDP growth that occurred up to the 1980s may overstate the reduction in the volatility of economic activity and may at least partially reflect improvements in the measurement of GDP. Because the coincident indices present a smoother perspective of the business cycle in the 1960s and 1970s, they identify fewer recessions in this period than does GDP. Over the past 45 years, the coincident indices locate three recessions – periods when there was a widespread downturn in economic activity; in 1974–1975, 1982–1983 and 1990–1991.business cycle; factor models; coincident indicator; Australia

Urban Structure and Housing Prices: Some Evidence from Australian Cities

This paper studies determinants of some aspects of the structure of cities, including density and the price of land and housing. We use a version of the Alonso-Muth-Mills model, calibrated to broadly match some of the features of a representative large city. While the calibrated model omits many real-world features, it can nonetheless be used to explore the impact of factors such as: (i) the provision of transport infrastructure; (ii) zoning policies that limit housing density; (iii) frictions on the production of housing; and (iv) population size. The empirical section of the paper shows that the model is consistent with some empirical regularities for large Australian cities. The results of the paper draw attention to structural factors that may have contributed to developments in the Australian housing market in recent years.housing; housing prices; land prices; zoning; land use

Charmonium production in pˉ\bar p-induced reactions on nuclei

The production of charmonia in the antiproton-nucleus reactions at $p_{\rm lab}=3-10$ GeV/c is studied within the Glauber model and the generalized eikonal approximation. The main reaction channel is charmonium formation in an antiproton-proton collision. The target mass dependence of the charmonium transparency ratio allows to determine the charmonium-nucleon cross section. The polarization effects in the production of $\chi_{c2}$ states are evaluated.Comment: 4 pages, 3 figures, Proceedings of the 13th International Workshop on Meson Production, Properties and Interaction, Krakow, Poland, 29.05-3.06.201

Do output contractions cause investment in fiscal capacity?

This paper shows that an economic slump can induce a government to invest in fiscal capacity. Large negative income shocks stress the revenue raising capability of narrow tax bases, making an increase in tax base breadth desirable relative to its fixed implementation cost. A broader tax base enables revenue to be raised at lower tax rates, which reduces the efficiency cost of taxation. The behavior of U.S. state governments during the Great Depression supports the model: states experiencing larger than average negative income shocks were more likely to adopt a retail sales tax than were states experiencing smaller than average income shocks. &nbsp

Long-term Patterns in Australia’s Terms of Trade

We examine two important aspects of Australia’s terms of trade using 135 years of annual data up to 2003/04. Since Australia predominantly exports commodities and imports manufactures, the Prebisch-Singer hypothesis suggests that there should be a negative trend in the terms of trade. But the trend is no more than –0.1 per cent per annum, less than the trend decline in world commodity prices relative to manufactured goods prices. The weaker trend appears to be the result of Australia exporting, and importantly diversifying toward, commodities with faster price growth. Extending the sample using projections for the terms of trade for the two years to 2005/06 based on commodity price movements to date, the apparent downward trend disappears. Indeed, based on these projections, the terms of trade will have increased by around 50 per cent over the period 1987–2006, unwinding the decline over the preceding 30 years. We also investigate the volatility of the terms of trade and demonstrate that it was significantly higher between 1923 and 1952. This is attributable to substantially higher volatility in the export prices of a few key commodity exports. Volatility declined after 1952 due to smaller shocks to the prices of these goods. The diversification in Australia’s export base since then means that the terms of trade are less susceptible to shocks to prices of individual commodity exports.terms of trade; commodity prices; Prebisch-Singer