[PDF] News Real Time Forecasts And The Price Puzzle eBook

Author : Pavel S. Kapinos
Publisher :
Page : 37 pages
File Size : 44,10 MB
Release : 2017
Category :
ISBN :

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This paper revisits the effects of news shocks in the context of an otherwise standard New Keynesian dynamic general equilibrium (DSGE) model. We use the U.S. real-time forecasts from the Federal Reserve's Green Book to model agents' and the central bank's expectations of future macroeconomic outcomes. We show that unlike with the ex post data where the identification of news shocks is driven by the modeling assumptions, the identification strategy that relies on the Greenbook forecasts ascribes a larger role to news shocks in explaining variation in the model's endogenous variables. Furthermore, we demonstrate that the presence of sizable news shocks explains the emergence of the price puzzle in the structural vector autoregressive framework.

Author : Falkmar Butgereit
Publisher : Diplomica Verlag
Page : 120 pages
File Size : 35,91 MB
Release : 2010
Category : Business & Economics
ISBN : 383669543X

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Still after more than thirty years of free floating exchange rates, large parts of exchange rate dynamics remain a puzzle. As this book shows, much progress has been made in explaining exchange rate movements over longer horizons. It also shows, however, that short-run movements are far more challenging to explain. The book is based upon a variety of papers, many of them released recently. A key aspiration of the literature has always been not only to explain past exchange rate behavior but also to forecast out of sample and to compare it to the simple random walk outcome. Here some development has been made after Meese and Rogoff's (1983) truculent verdict of the performance of common exchange rate models. By means of empirical analysis and descriptive statistics this book further supports the established long-run relationships between exchange rates and fundamentals such as expected productivity growth, real GDP growth, domestic investment, interest rates, inflation, government spending, and current account balances. It finds that these fundamentals affect the exchange rate to varying degrees over time. Turning to short-term exchange rate dynamics, it turns out that a different set of forces is at play. The key to explaining short-run movements is to be found in an extensive micro-foundation that factors in a pronounced heterogeneity among market participants and information asymmetries, as well as the possibility of sudden shifts in sentiment, beliefs, and the degree of risk aversion. Promising results have been obtained by order-flow analysis and high frequency data. Also, the consideration of chartism and speculators facilitates understanding for otherwise puzzling exchange rate movements. The last attempt to tackle the understanding of exchange rate behavior is the use of frequency domain analysis and in particular spectral analysis which tries to track down any cyclical patterns in the various moments of time series. And as we shall see forex indeed incorpor

Author : Mark Buchanan
Publisher : Bloomsbury Publishing USA
Page : 273 pages
File Size : 34,43 MB
Release : 2013-03-26
Category : Business & Economics
ISBN : 1608198529

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Picture an early scene from The Wizard of Oz: Dorothy hurries home as a tornado gathers in what was once a clear Kansas sky. Hurriedly, she seeks shelter in the storm cellar under the house, but, finding it locked, takes cover in her bedroom. We all know how that works out for her. Many investors these days are a bit like Dorothy, putting their faith in something as solid and trustworthy as a house (or, say, real estate). But market disruptions--storms--seem to arrive without warning, leaving us little time to react. Why are we so often blindsided by these things, left outdoors with nothing but our little dogs? More to the point: how did Kansas go from blue skies to tornadoes in such a short time? In this deeply researched and piercingly intelligent book, physicist Mark Buchanan shows how a simple feedback loop can lead to major consequences, the kind predictable by mathematical models but hard for most people to anticipate. From his unique perspective, Buchanan argues that our basic assumptions about economic markets--that they are for the most part stable, with occasional interruptions--are simply wrong. Markets really act more like the weather: a brief heat wave can become a massive storm in a matter of a few days, or even hours. The Physics of Finance reimagines the basics of how economics, with consequences that affect everyone.

Author : Todd E. Clark
Publisher :
Page : 70 pages
File Size : 20,97 MB
Release : 2007
Category : Economic forecasting
ISBN :

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A body of recent work suggests commonly-used VAR models of output, inflation, and interest rates may be prone to instabilities. In the face of such instabilities, a variety of estimation or forecasting methods might be used to improve the accuracy of forecasts from a VAR. These methods include using different approaches to lag selection, different observation windows for estimation, (over-) differencing, intercept correction, stochastically time-varying parameters, break dating, discounted least squares, Bayesian shrinkage, and detrending of inflation and interest rates. Although each individual method could be useful, the uncertainty inherent in any single representation of instability could mean that combining forecasts from the entire range of VAR estimates will further improve forecast accuracy. Focusing on models of U.S. output, prices, and interest rates, this paper examines the effectiveness of combination in improving VAR forecasts made with real-time data. The combinations include simple averages, medians, trimmed means, and a number of weighted combinations, based on: Bates-Granger regressions, factor model estimates, regressions involving just forecast quartiles, Bayesian model averaging, and predictive least squares-based weighting. Our goal is to identify those approaches that, in real time, yield the most accurate forecasts of these variables. We use forecasts from simple univariate time series models and the Survey of Professional Forecasters as benchmarks.

Author : James Ming Chen
Publisher : Springer
Page : 293 pages
File Size : 10,85 MB
Release : 2017-10-04
Category : Business & Economics
ISBN : 3319634658

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This book rehabilitates beta as a definition of systemic risk by using particle physics to evaluate discrete components of financial risk. Much of the frustration with beta stems from the failure to disaggregate its discrete components; conventional beta is often treated as if it were "atomic" in the original Greek sense: uncut and indivisible. By analogy to the Standard Model of particle physics theory's three generations of matter and the three-way interaction of quarks, Chen divides beta as the fundamental unit of systemic financial risk into three matching pairs of "baryonic" components. The resulting econophysics of beta explains no fewer than three of the most significant anomalies and puzzles in mathematical finance. Moreover, the model's three-way analysis of systemic risk connects the mechanics of mathematical finance with phenomena usually attributed to behavioral influences on capital markets. Adding consideration of volatility and correlation, and of the distinct cash flow and discount rate components of systematic risk, harmonizes mathematical finance with labor markets, human capital, and macroeconomics.

Author : Todd E. Clark
Publisher :
Page : 72 pages
File Size : 41,73 MB
Release : 2007
Category : Business forecasting
ISBN :

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Motivated by the common finding that linear autoregressive models forecast better than models that incorporate additional information, this paper presents analytical, Monte Carlo, and empirical evidence on the effectiveness of combining forecasts from nested models. In our analytics, the unrestricted model is true, but as the sample size grows, the DGP converges to the restricted model. This approach captures the practical reality that the predictive content of variables of interest is often low. We derive MSE-minimizing weights for combining the restricted and unrestricted forecasts. In the Monte Carlo and empirical analysis, we compare the effectiveness of our combination approach against related alternatives, such as Bayesian estimation.

Author : John Y. Campbell
Publisher : University of Chicago Press
Page : 444 pages
File Size : 47,88 MB
Release : 2008-11-15
Category : Business & Economics
ISBN : 0226092127

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Economic growth, low inflation, and financial stability are among the most important goals of policy makers, and central banks such as the Federal Reserve are key institutions for achieving these goals. In Asset Prices and Monetary Policy, leading scholars and practitioners probe the interaction of central banks, asset markets, and the general economy to forge a new understanding of the challenges facing policy makers as they manage an increasingly complex economic system. The contributors examine how central bankers determine their policy prescriptions with reference to the fluctuating housing market, the balance of debt and credit, changing beliefs of investors, the level of commodity prices, and other factors. At a time when the public has never been more involved in stocks, retirement funds, and real estate investment, this insightful book will be useful to all those concerned with the current state of the economy.