Is Euro Area Money Demand (Still) Stable? – Cointegrated VAR versus Single Equation Techniques

In this paper we present an empirically stable euro area money demand model. Using a sample period until 2009:2 shows that the current fi nancial and economic crisis that started in 2007 does not appear to have any noticeable impact on the stability of the euro area money demand function. We also compare single equation methods like the ARDL approach, FM-OLS, CCR and DOLS with the commonly used cointegrated Johansen VAR framework and show that the former are under certain circumstances more appropriate than the latter. What is more, they deliver results that are more in line with the economic theory. Hence, FMOLS, CCR and DOLS are useful in estimating standard money demand as well, although they have only been rarely applied for this purpose in previous studies.ARDL model; cointegration; euro area; fi nancial crisis; money demand

Anchoring of Inflation Expectations and the Role of Monetary Policy and Cost-Push Factors

This paper proposes a new measure proxying the degree of anchoring of inflation expectations on an individual forecaster level and studies the co-movement of this measure with expectations regarding monetary policy and different cost-push factors. In doing so, we rely on data taken from the ECB Survey of Professional Forecasters for both parts of the analysis. First, we construct a measure for the degree of anchoring of inflation expectations for each forecaster based on his inflation expectations taking into account both point and density forecasts. Second, we regress this anchoring measure on the professional forecasters' expectations regarding the policy rate of the ECB and three different cost factors potentially affecting the inflation rate: the crude oil price, the USD/EUR exchange rate, and unit labor costs. The main findings indicate that expectations regarding a tightening of monetary policy are generally able to enhance the degree of anchoring while an expected increase in both the crude oil price and unit labor costs seems to lower the degree of anchoring. The latter finding is more pronounced for shorter horizons

Anchoring of Inflation Expectations and the Role of Monetary Policy and Cost-Push Factors

This paper proposes a new measure proxying the degree of anchoring of inflation expectations on an individual forecaster level and studies the co-movement of this measure with expectations regarding monetary policy and different cost-push factors. In doing so, we rely on data taken from the ECB Survey of Professional Forecasters for both parts of the analysis. First, we construct a measure for the degree of anchoring of inflation expectations for each forecaster based on his inflation expectations taking into account both point and density forecasts. Second, we regress this anchoring measure on the professional forecasters' expectations regarding the policy rate of the ECB and three different cost-push factors potentially affecting the inflation rate: the crude oil price, the USD/EUR exchange rate, and unit labor costs. The main findings indicate that expectations regarding a tightening of monetary policy are generally able to enhance the degree of anchoring while an expected increase in both the crude oil price and unit labor costs seems to lower the degree of anchoring. The latter finding is more pronounced for shorter horizons

Anchoring of Inflation Expectations and the Role of Monetary Policy and Cost-Push Factors

This paper proposes a new measure proxying the degree of anchoring of inflation expectations on an individual forecaster level and studies the co-movement of this measure with expectations regarding monetary policy and different cost-push factors. In doing so, we rely on data taken from the ECB Survey of Professional Forecasters for both parts of the analysis. First, we construct a measure for the degree of anchoring of inflation expectations for each forecaster based on his/her inflation expectations taking into account both point and density forecasts. Second, we regress this anchoring measure on the professional forecasters' expectations regarding the policy rate of the ECB and three different cost-push factors potentially affecting the inflation rate: the crude oil price, the USD/EUR exchange rate, and unit labor costs. The main findings indicate that expectations regarding a tightening of monetary policy are generally able to enhance the degree of anchoring while an expected increase in unit labor costs seems to lower the degree of anchoring. We also find the our anchoring measure was sensitive to short-term inflation expectations in the most recent high inflation period indicating a de-anchoring

Fundamental determinants of exchange rate expectations

This paper provides a new perspective on the expectations building mechanism in foreign exchange markets. We analyze the role of expectations regarding macroeconomic fundamentals for expected exchange rate changes. In doing so, we assess real-time survey data for 29 economies from 2002 to 2023 and consider expectations regarding GDP growth, inflation, interest rates, and current accounts. Our empirical findings show that fundamentals expectations are more important over longer horizons compared to shorter horizons. We find that an expected increase in GDP growth relative to the US leads to an expected appreciation of the domestic currency while higher relative inflation expectations lead to an expected depreciation, a finding consistent with purchasing power parity. Our results also indicate that the expectation building process differs systematically across pessimistic and optimistic forecasts with the former paying more attention to fundamentals expectations. Finally, we also observe that fundamentals expectations have some explanatory power for forecast errors, especially for longer horizons

Perceived monetary policy uncertainty

This paper examines whether media attention affects the macroeconomic effects of monetary policy uncertainty. We combine survey data from Consensus Economics and data on media attention from MarketPsych to distinguish between uncertainty and perceived uncertainty among the public. We assess the corresponding nonlinear effects on stock returns, the growth of industrial production, and inflation. Our results confirm that monetary policy uncertainty tends to have negative effects on production growth and stock returns. In particular for industrial production, such effects tend to be stronger in case of higher media coverage which acts as a propagation mechanism

The role of expectations for currency crisis dynamics - the case of the Turkish lira

This paper examines whether and how expectations have contributed to the turbulent path of the Turkish lira since 2008. We derive uncertainty measures surrounding GDP growth, inflation, the interest rate, and exchange rates based on survey data from Consensus Economics. Our results illustrate that forecasts have affected realized exchange rates and stock market returns via increased uncertainty. We also show that expectations regarding monetary policy have changed throughout the sample period. In line with a gradual adjustment of expectations professionals have accounted for the violation of the Taylor rule

Renewable Energy Consumption-Economic Growth Nexus in G7 Countries: New Evidence from a Nonlinear ARDL Approach

The paper investigates the nonlinear pass-through from economic growth to renewable energy consumptionby applying a Nonlinear Auto-Regressive Distributed Lag model (NARDL) for G7 countries. This study covers the period of 1995Q1-2015Q4. The recent approach allows for empirical tests of short-run and long-run asymmetric responses of renewable energy consumption to positive and negative shocks stemming from economic growth. The results reveal that renewable energy consumption responds asymmetrically to economic growth in the long-run for France, Japan, Italy and the UK. However, we find no evidence for a long-run equilibrium between renewable energy consumption and economic growth in Germany, Canada and the US

An empirical assessment of recent challenges in today's financial markets

This special issue comprises a selection of papers from the first Workshop on Financial Econometrics and Empirical Modelling of Financial Markets which took place in Bochum in April 2017 and the annual conference of the European Economics and Finance Society in Ljubljana in June 2017. The broad range of methods and topics covered in these papers reflects the aim of the workshop and the annual conference to bring together young econometricians and economists. Essentially, all papers deal with important aspects of today's financial markets and relate them to issues faced by policymakers