The Composite Leading Indicator of Mongolia

Mongolia’s first composite leading indicator (CLI) is designed here to give early signals of turning-points in economic activity in the near future. This information is of prime importance for economists, businesses and policy makers to enable timely analysis of the current and short term economic situation. Mongolia’s CLI uses monthly GDP as a proxy measure for economic activity. It focuses on the business cycle, defined as the difference between the smoothed GDP data and its long-term trend. Mongolia’s CLI aims to predict turning-points in this business cycle estimate. The CLI is composed from a set of selected economic indicators whose composite provides a robust signal of future turning points. Out of 51 monthly time series covering the real economy, financial markets, international trade and the government sector that pass these criteria the quantity of imported diesel, M2, FDI, total import, international gold price and new real estate loans were selected on the basis of their predictive precision of turning points. The composite leading indicator based on these 6 components not only successfully predicts the turning points but also is highly correlated with the cyclical movements of the GDP growth

Growth and Inflation Regimes in Greater Tumen Initiative Area

This paper tests for multiple structural breaks in the mean, seasonality, dynamics and conditional volatility of Greater Tumen Initiative Countries’ (GTI) growth and inflation, while also accounting for outliers. It finds a drop in the level of Chinese growth rate in the third quarter of 2011 and of inflation rate in 1998. There are more volatility regimes than the growth regimes and most GTI countries are currently enjoying historically low volatility of their growth and inflation. Two exceptions are the increased growth volatility for Japan since 2006 and inflation volatility for Russia since 2012. There is an increased importance of seasonality in GTI and especially in Chinese inflation volatility, constituting at least a half of the total volatility

On the Expectations Hypothesis in US Term Structure

We extend the vector autoregression (VAR) based expectations hypothesis (EH) test of term structure, considered in Bekaert & Hodrick (2001), B&H thereafter, using recent developments in bootstrap literature. Modifications include the use of wild bootstrap to allow for conditional heteroskedasticity in the VAR residuals without imposing strict parameterization, while keeping their contemporaneous correlation, endogeneous model selection procedure in the bootstrap replications to reflect true uncertainty and the stationarity correction designed to prevent finite- sample bias adjusted VAR parameters from becoming explosive. Since Lagrange Miltiplier, Wald and Distance Metric test statistics used in this study are all asymptotically pivotal we estimate their finite sample distributions using a computer simulation, rather than relying on the approximation provided by the first order asymptotic theory. When the modified B&H methodology is applied to extensive US zero coupon term structure data ranging from 1 month to 10 years we find less rejections for the theory in a sub-sample of Jan 1982- Dec 2003 than in Jan 1952- Dec 1978, and when it is rejected it occurs at the very short and long ends of the maturity spectrum. It is also relieving to note that this inference seems to be robust to both AIC and SIC model selection methods. In terms of the conclusions made about the validity of the EH of term structure, the main difference between this study and its counterpart of Sarno, Thornton & Valente (2006), which uses the original B&H methodology, is that we reject the theory less often than they do. This is probably as one would expect, since we test the EH theory of term structure only as opposed to Sarno et al (2006) who, in effect, are testing a joint null hypothesis of the conditional homoskedasticity in the residuals and exogenous lag length of the VAR along with the EH.expectations hypothesis, term structure of interest rates, vector autoregression

Macroeconomic risks of Mongolia and ways to mitigate them

The paper explores some of the most prominent macroeconomic risks Mongolia is facing at this stage of her development and provides recommendations to reduce them. These have been classified into four main themes: Financial market risks, portfolio risk of Mongolian export basket, macroeconomic mismanagement, and institutional deterioration. The most important of these is argued to be the possible deterioration in the institutional quality. Since the point resources are easy to appropriate various interest groups have incentives to distort the institutions so that extracting the rent is easier. Fighting corruption and creating a stable legal environment where the rule of law and the property rights are respected should be high on the agenda

Changes in the global oil market

Using a new iterative algorithm that tests for possible breaks in the coefficients and residual variances of recursively identified structural equations, we examine changes in the parameters of the oil market model of Kilian (2009). Our analysis reveals breaks in the coefficients of the oil production and price equations, together with volatility shifts in all equations. In particular, the medium term response of production to aggregate demand shocks increases after 1980 and the price response to supply shocks is more persistent from the mid-1990s. All variables evidence changes in the relative contributions of individual shocks to their forecast error variances

Is the Recent Low Oil Price Attributable to the Shale Revolution?

The U.S. Energy Information Administration estimates that approximately 52\% of total U.S. crude oil was produced from shale oil resources in 2015. We examine whether the recent low crude oil price is attributable to this shale revolution in the U.S., using a SVAR model with structural breaks. Our results reveal that U.S. supply shocks are important drivers of real oil price and, for example, explain approximately a quarter of the 73\% decline between June 2014-February 2016. Failure to consider statistically significant structural changes results in underestimating the role played by global supply shocks, while overestimating the role of the demand shocks

Changes in the relationship between short-term interest rate, inflation and growth: Evidence from the UK, 1820-2014

This paper examines the dynamic relationship between interest rates, inflation and economic growth using the longest available dataset for the UK and a vector autoregression (VAR). The approach adopted enables structural breaks to be identified in the dynamic system. It then can ascribe breaks in covariance to changes in volatility or to changes in correlation. Our empirical findings indicate several structural breaks in the relationship, which lead to very different inference compared to a constant parameter model. For example, interest rates respond much more strongly to growth or inflation over recent decades. Furthermore, our evidence suggests that all variables become more persistent after the classical gold standard ended with the onset of WW1