38 research outputs found
Forecasting Emerging Market Indicators: Brazil and Russia
The adoption of inflation targeting in emerging market economies makesaccurate forecasting of inflation and output growth in these economies of primary importance. Since only short spans of data are available for such markets, autoregressive and small-scale vector autoregressive models can be suggested as forecasting tools. However,these models include only a few economic time series from the whole variety of data available to forecasters. Therefore dynamic factor models, extracting information from a large number of time series, can be suggested as a reasonable alternative. In this paper two approaches are evaluated on the basis of data available for Brazil and Russia. The results allow us to suggest that the forecasting performance of the models considered depends on the statistical properties of the series to be forecast, which are affected by structural changes and changes in operating regime. This interaction between the statistical properties of the series and the forecasting performance of models requires more detailed investigation.forecasting, emerging markets, factor models
On the power of direct tests for rational expectations against the alternative of constant gain learning
In this paper we study the power of direct tests for rational expectations against the constant gain learning alternative. The investigation is by means of a Monte Carlo study. The tests considered use quantitative expectations data and qualitative survey data that has been quantified. The main finding is that the power of tests for rational expectations against constant gain learning may be very small, making it impossible to distinguish the hypotheses.adaptive learning, tests for rational expectations, quantification methods, constant gain least squares
The Response of Retail Interest Rates to Factor Forecasts of Money Market Rates in Major European Economies
The recent financial crisis has underlined that banks no longer simply accumulate deposits and lend a fraction to their clients. Instead they use interbank markets and structured finance to increase their loan book. This has implications for the understanding of interest rate pass through since a large number of interest rates and macro variables influence the retail rates they set on loans and deposits. This paper uses Stock-Watson factor forecasts to predict market interest rates which are then used as the basis for setting retail rates. We find a significant role for forecasts of future interest rates in determining short- and long-run pass through, and we argue that models which do not include future rates are misspecified.forecasting, factor models, interest rate pass-through
Interest rate Pass-Through in the Major European Economies - The Role of Expectations
Much of the literature on interest rate pass through assumes banks set retail rates in relation to contemporary market rates. We argue that future rates also matter, and if forecasts of future rates are included, the empirical specifications of many previous studies are misspecified. Including forecasts requires careful choice of the data and models used to make forecasts: a large number of variables could influence future market rates, suggesting that factor forecasts method may be an appropriate method to consider. We evaluate forecasts before including them in a model of retail rate adjustment for five interest rates in five European countries and the euro area as a whole. We find a significant role for forecasts of future interest rates in determining short- and long-run pass through, and we show that models which do not include future rates do not provide accurate estimates.forecasting, factor models, interest rate pass-through.
A factor-augemented model of markup on mortgage loans in Poland
The paper describes the results of estimation of a factor-augmented vector autoregressive model that relates the
markup on mortgage loans in national currency, granted to households by monetary financial institutions, and 1-month
inter-bank rate that represents the cost of funds for financial institutions. The factors by which the
model is augmented, summarize information that can be used by banks to forecast interest rates and evaluate
macroeconomic risks. The estimation results indicate that there is a significant relation between the markup
and the changes in 1-month WIBOR. This relation can be interpreted as evidence of incomplete transmission of
the monetary policy shocks to mortgage rates set by monetary financial institutions. The policy shocks are partially
absorbed by changes in the markup
Measuring the Natural Rates of Interest in Germany and Italy
In this paper a semi-structural econometric model is implemented in order to estimate the natural rates of interest in two large economies of the Euro Area: Germany an Italy. The estimates suggest that after the financial crisis of 2007-2008 a decrease of the growth rate of potential output and the corresponding natural rate of interest was greater in Italy than in Germany which could have had important implications for the effectiveness of a common monetary policy. Unlike in other studies, it is found that the monetary policy stance was less expansionary in Italy as compared to Germany for the whole after-crisis period
A factor-augemented model of markup on mortgage loans in Poland
The paper describes the results of estimation of a factor-augmented vector autoregressive model that relates the
markup on mortgage loans in national currency, granted to households by monetary financial institutions, and 1-month
inter-bank rate that represents the cost of funds for financial institutions. The factors by which the
model is augmented, summarize information that can be used by banks to forecast interest rates and evaluate
macroeconomic risks. The estimation results indicate that there is a significant relation between the markup
and the changes in 1-month WIBOR. This relation can be interpreted as evidence of incomplete transmission of
the monetary policy shocks to mortgage rates set by monetary financial institutions. The policy shocks are partially
absorbed by changes in the markup
Recurrent explosive behaviour of debt-to-GDP ratio
In this paper the recurrent explosive behaviour of debt-to-GDP ratio is tested in three countries with a long fiscal record: Sweden, the UK and the US. The testing is based on the method developed by Phillips et al. (2015) which is new in this context. The method allows us to avoid the size distortion problem of the traditional tests of fiscal sustainability and makes it possible to examine potential unsustainability as a transitory rather than permanent phenomenon. It has been demonstrated that in the economies analyzed, long periods of fiscal sustainability were interrupted by relatively short periods when the debt-to-GDP ratio had explosive dynamics
Choosing the Number of Topics in LDA Models -- A Monte Carlo Comparison of Selection Criteria
Selecting the number of topics in LDA models is considered to be a difficult
task, for which alternative approaches have been proposed. The performance of
the recently developed singular Bayesian information criterion (sBIC) is
evaluated and compared to the performance of alternative model selection
criteria. The sBIC is a generalization of the standard BIC that can be
implemented to singular statistical models. The comparison is based on Monte
Carlo simulations and carried out for several alternative settings, varying
with respect to the number of topics, the number of documents and the size of
documents in the corpora. Performance is measured using different criteria
which take into account the correct number of topics, but also whether the
relevant topics from the DGPs are identified. Practical recommendations for LDA
model selection in applications are derived
Martingale approximation for common factor representation
In this paper a martingale approximation is used to derive the limiting distribution of simple positive eigenvalues of the sample covariance matrix for a stationary linear process. The derived distribution can be used to study stability of the common factor representation based on the principal component analysis of the covariance matrix