The yield spread and GDP growth - Time Varying Leading Properties and the Role of Monetary Policy

The yield spread is a well documented leading indicator of GDP growth. Estrella (2005) proposes a model to explain this relationship. Within the model, the leading properties of the yield spread are determined by the monetary policy. Accordingly, changes of the leading properties that have been reported in many studies should correspond to changes of the monetary policy. This paper analyzes whether and what form of time variation of the leading properties can be found in four major industrialized countries (France, Germany, the UK and the US). The results are connected with time varying behavior of the monetary policy by modeling a joint state dependency of the leading properties and the reaction parameters of the monetary policy. Time variation of the leading properties seem to exist in all countries under consideration. For the US and Germany they are best modeled as a structural break while France and the UK exhibit recurring phases. Evidence for a link between the time variations of the monetary policy and the leading properties can be found. However, a clear determination of the leading properties by the monetary policy cannot be confirmed. --leading indicator,yield spread,GDP growth,monetary policy,Markov-Switching

A bayesian approach to model-based clustering for panel probit models

Consideration of latent heterogeneity is of special importance in non linear models for gauging correctly the effect of explaining variables on the dependent variable. This paper adopts the stratified model-based clustering approach for modeling latent heterogeneity for panel probit models. Within a Bayesian framework an estimation algorithm dealing with the inherent label switching problem is provided. Determination of the number of clusters is based on the marginal likelihood and out-of-sample criteria. The ability to decide on the correct number of clusters is assessed within a simulation study indicating high accuracy for both approaches. Different concepts of marginal effects incorporating latent heterogeneity at different degrees arise within the considered model setup and are directly at hand within Bayesian estimation via MCMC methodology. An empirical illustration of the developed methodology indicates that consideration of latent heterogeneity via latent clusters provides the preferred model specification compared to a pooled and a random coefficient specification. --Bayesian Estimation,MCMC Methods,Panel Probit Model,Mixture Modelling

Low bond yields have saved the German government €80 billion in interest since 2009.

The Eurozone crisis has created huge volatility in the market for government bonds, with the heavily indebted countries on the Eurozone’s periphery facing significantly higher rates. One side effect of this volatility, writes Jens Boysen-Hogrefe, is that Germany has been seen as a “safe haven“ for those who wish to invest in government debt, leading to unusually low yields for government bonds. He finds that these low yields have saved the German government over €80 billion in the past five years

The Decline in German Output Volatility: A Bayesian Analysis

Empirical evidence suggests a sharp volatility decline of the growth in U.S. gross domestic product (GDP) in the mid-1980s. Using Bayesian methods, we analyze whether a volatility reduction can also be detected for the German GDP. Since statistical inference for volatility processes critically depends on the specification of the conditional mean we assume for our volatility analysis different time series models for GDP growth. We find across all specifications evidence for an output stabilization around 1993, after the downturn following the boom associated with the German reunification. However, the different GDP models lead to alternative characterizations of this stabilization : In a linear AR model it shows up as smaller shocks hitting the economy, while regime switching models reveal as further sources for a stabilization, a narrowing gap between growth rates during booms and recessions or flatter trajectories characterizing the GDP growth rates. Furthermore, it appears that the reunification interrupted an output stabilization emerging already around 1987. --business cycle models,Gibbs sampling,Markov Chain Monte Carlo,regime switching,structural breaks

Global imbalances after the financial crisis.

Finanzmarktkrise; Wirtschaftskrise; Leistungsbilanz; Zahlungsbilanzungleichgewicht; Welt;

Aspekte der Konjunkturprognose: Modellierung, Vorhersage und Datenqualität des Bruttoinlandsprodukts

Die Arbei diskuiert verschiedene Aspekte, die im Rahmen der Prognose des Bruttoinlandsprodukts eine Rolle spielen. Unter Verwendung verschiedener univariater Zeitreihenmodelle wird überprüft, ob Nicht-Linearitäten in deutschen Bruttoinlandsproduktwachstum vorliegen. Ferner werden die Prognoseeigenschaften des Zinsdifferenz und die Möglichkeit, mit Hilfe gemischt frequenter Ansätze die Prognostizierbarkeit von Datenrevisionen des Bruttoinlandsprodukts zu verbessern, untersucht

Bayesian analysis of reduced rank regression models using post-processing

Bayesian estimation of reduced rank regression models requires careful consideration of the well known identification problem. We demonstrate that this identification problem can be handled efficiently by using prior distributions that restrict a part of the parameter space to the Stiefel manifold and post-processing the obtained Gibbs sampler output according to an appropriately specified loss function. This extends the possibilities for Bayesian inference in reduced rank regression models. Besides inference, we also discuss model selection in terms of posterior predictive assessment. We choose this approach because computing the marginal data likelihood under the identifying restrictions implies prohibitive computational burden. We illustrate the proposed approach with a simulation study and an empirical application

Trade, Tasks, and Training: The Effect of Offshoring on Individual Skill Upgrading

We offer a theoretical explanation and empirical evidence for a positive link between increased offshoring and individual skill upgrading. Skill upgrading takes the form of on-the-job training, complementing the existing literature, which mainly focuses on the retraining of workers after a direct job displacement through offshoring. To establish a link between offshoring and on-the-job training, we introduce an individual skill upgrading margin into the small-open-economy version of the Grossman and Rossi-Hansberg (2008) model of offshoring. In our model offshoring, by scaling up workers’ wages, creates previously unexploited skill upgrading possibilities and, thus, leads to more on-the-job training. Using data from German manufacturing, we find strong empirical support for the prediction that increased offshoring is positively related to individual on-the-job training participation

Euroraum: Konjunktur trotz Schuldenkrise aufwärtsgerichtet.

Konjunktur; Konjunkturprognose; Öffentliche Schulden; Währungskrise; Eurozone;