Commercial real estate: a drag for some banks but maybe not for U.S. economy

Community banks seem to have the most to fear about the state of commercial real estate today. The problems with these loans, however, shouldn't derail the entire economy.Commercial loans ; Real estate development

Inference on Filtered and Smoothed Probabilities in Markov-Switching Autoregressive Models

© 2018. The authors. This document is made available under the CC-BY-NC 4.0 license http://creativecommons.org/licenses/by-nc /4.0/ This document is the submitted version of a published work that appeared in final form in Journal of Business & Economic Statistics.We derive a statistical theory that provides useful asymptotic approximations to the distributions of the single inferences of filtered and smoothed probabilities, derived from time series characterized by Markov-switching dynamics. We show that the uncertainty in these probabilities diminishes when the states are separated, the variance of the shocks is low, and the time series or the regimes are persistent. As empirical illustrations of our approach, we analyze the U.S. GDP growth rates and the U.S. real interest rates. For both models, we illustrate the usefulness of the confidence intervals when identifying the business cycle phases and the interest rate regimes

Forecasting financial vulnerability in the USA: A factor model approach

© 2020 John Wiley & Sons, Ltd. This paper presents a factor-based forecasting model for the financial market vulnerability, measured by changes in the Cleveland Financial Stress Index (CFSI). We estimate latent common factors via the method of the principal components from 170 monthly frequency macroeconomic data in order to forecast the CFSI out-of-sample. Our factor models outperform both the random walk and the autoregressive benchmark models in out-of-sample predictability at least for the short-term forecast horizons, which is a desirable feature since financial crises often come to a surprise realization. Interestingly, the first common factor, which plays a key role in predicting the financial vulnerability index, seems to be more closely related with to activity variables rather than nominal variables. We also present a binary-choice version factor model that estimates the probability of the high stress regime successfully