Disagreement, Uncertainty and the True Predictive Density

In this issue we have Disagreement, Uncertainty and the True Predictive Density, Self-reinforcing feedback loops in a core macro econometric model, Market inefficiency identified by both single and multiple currency trends, Monash Multi-Regional Forecasting Model, and more.


  1. Disagreement, Uncertainty and the True Predictive Density
    Date: 2011-09-01
    By: Fabian Krüger (Department of Economics, University of Konstanz, Germany)
    Ingmar Nolte (Warwick Business School, Financial Econometrics Research Centre (FERC), University of Warwick)
    URL: http://d.repec.org/n?u=RePEc:knz:dpteco:1143&r=for
    This paper generalizes the discussion about disagreement versus uncertainty in macroeconomic survey data by emphasizing the importance of the (unknown) true predictive density. Using a forecast combination approach, we ask whether cross sections of survey point forecasts help to approximate the true predictive density. We find that although these cross-sections perform poorly individually, their inclusion into combined predictive densities can significantly improve upon densities relying solely on time series information.
    Keywords: Disagreement, Uncertainty, Predictive Density, Forecast Combination
    JEL: C53
  2. The Financial Accelerator and the real economy. Self-reinforcing feedback loops in a core macro econometric model for Norway
    Date: 2011-10
    By: Roger Hammersland and Cathrine Bolstad Træe (Statistics Norway)
    URL: http://d.repec.org/n?u=RePEc:ssb:dispap:668&r=for
    This paper gives a brief description and studies the salient features of a core macro-econometric model that allows for self-reinforcing co-movements between credit, asset prices and real economic activity, often denominated a financial accelerator in the literature. In contrast to the economic literature that cultivates highly stylized model representations aimed at illustrating the working and the implications of such a feature, the model of this paper integrates no less than two mutually reinforcing financial accelerator mechanisms in a full-fledged core macroeconomic model framework. Noteworthy, the impulse response pattern overall of such a model turns out to be very much in line with the ones one would have expected using a SVAR/DSGE modelling framework, though the amplitude of shocks is in most cases stronger than the ones pertaining to these kind of models. This is due to the working of the financial accelerators that contribute to magnify the effects of shocks to the economy. Furthermore, a forecast comparison undertaken between our model and an alternative macro econometric model not furnished with a financial block, suggests that financial feedback mechanisms have got the potential of boosting the forecasting property of theory-informed macro econometric models. Hence, in addition to enhancing the practical relevance of a model by incorporating a mechanism of high real-world authenticity, financial accelerators seem to come with a couple of values added. Namely, to i) guarantee against a systematic underestimation of the effects of macroeconomic shocks and to ii) be forecast-promoting
    Keywords: The Financial Accelerator; Structural Vector Error Correction Modelling; Core Macroeconomic Modelling; Impulse response analysis
    JEL: E1
  3. Market inefficiency identified by both single and multiple currency trends
    Date: 2011-10
    By: Tom\’a\v{s} Tok\’ar
    Denis Horv\’ath
    URL: http://d.repec.org/n?u=RePEc:arx:papers:1110.2612&r=for
    Many studies have shown that there are good reasons to claim very low predictability of currency nevertheless, the deviations from true randomness exist which have potential predictive and prognostic power [J.James, Quantitative finance 3 (2003) C75-C77]. We analyze the local trends which are of the main focus of the technical analysis. In this article we introduced various statistical quantities examining role of single temporal discretized trend or multitude of trends corresponding to different time delays. Our specific analysis based on Euro-dollar currency pair data at the one minute frequency suggests the importance of cumulative nonrandom effect of trends on the forecasting performance.
  4. MMRF: Monash Multi-Regional Forecasting Model: A Dynamic Multi-Regional Model of the Australian Economy
    Date: 2010-12
    By: Philip Adams
    Janine Dixon
    James Giesecke
    Mark Horridge
    URL: http://d.repec.org/n?u=RePEc:cop:wpaper:g-223&r=for
    MMRF is a dynamic CGE model of Australia’s six State and two Territory economies. MMRF is used extensively in contract research. Several features of MMRF make it an ideal tool for policy analysis, including: dynamics, a highly disaggregated regional and sectoral database, a national labour market, and detailed modelling of government financial statistics.
    Keywords: CGE modelling, dynamics, regional economics
    JEL: C68
  5. Monitoring sub-central government spending in Spain
    Date: 2011-10
    By: Laura Fernández-Caballero (Banco de España)
    Diego J. Pedregal (Universidad de Castilla-La Mancha)
    Javier J. Pérez (BANCO DE ESPAÑA)
    URL: http://d.repec.org/n?u=RePEc:bde:wpaper:1127&r=for
    The evolution of Regional and Local governments’ spending in Spain is currently under close scrutiny by national and international investors and analysts, international organizations and rating agencies. Indeed, some 50% of general government spending and some 70% of public employment are managed by Regions and Municipalities, which consequently have to bear a great portion of the overall fiscal consolidation plan currently under way. Despite recent efforts of the Spanish government at increasing transparency, the significant shortages of the existing data render the task of monitoring regional and local governments’ public spending in real-time a complicated endeavor. Within this framework, we exploit all available short-term information on sub-national governments’ spending from scattered sources, and find a subset of indicators usable for real-time policy analysis. In particular: (i) we compile a dataset on quarterly and monthly regional government’s spending variables, by reviewing all available, scattered sources, and put together a database usable for economic and policy analysis; (ii) we exploit the compiled information, and other additional sources, by fitting time-series mixed-frequencies models to the data, and show the forecasting and monitoring capabilities of the selected short-term fiscal indicators; (iii) we show that official annual budgetary targets do present a reasonable forecasting performance when used as indicators of regional and local spending targets in national accounts terms, in particular when used in combination with time series indicators.
    Keywords: Regional and local public finances; government expenditure; fiscal forecasting
    JEL: E17
  6. Empirical estimation of trend and cyclical export elasticities
    Date: 2011
    By: Jane Haltmaier
    URL: http://d.repec.org/n?u=RePEc:fip:fedgif:1030&r=for
    This paper uses an adaptation of Vahid and Engle’s common trend/common cycle analysis to estimate trend and cyclical export elasticities for trading partner income and real exchange rates for 36 countries. For the countries for which both types of income elasticities can be identified, the cyclical elasticity is on average more than twice as large as the trend elasticity. The methodology is applied to forecasting exports during the recent cycle and it appears to improve on simpler models for about half of the countries. For an aggregate of all of the countries for which separate elasticities can be identified, the RMSE is about half as large for the trend/cycle model as for the simple model.
  7. Endogenous Rational Bubbles
    Date: 2011-10
    By: George A. Waters (Department of Economics, Illinois State University)
    URL: http://d.repec.org/n?u=RePEc:ils:wpaper:20111003&r=for
    Tests on simulated data from an asset pricing model with heterogeneous forecasts show excess variance in the price and ARCH effects in the returns, features not explained by the strong version of the efficient markets hypothesis. An evolutionary game theory dynamic describes how agents switch between a fundamental forecast, a rational bubble forecast and the reflective forecast, which is a weighted average of the former two. Conditions determining the frequency and duration of episodes where a significant fraction of agents adopt the rational bubble forecast leading to large deviations in the price-dividend ratio are discussed.
    Keywords: return predictability, excess variance, ARCH, evolutionary game theory, rational bubble
    JEL: C22


Taken from the NEP-FOR mailing list edited by Rob Hyndman.