Economic modelling
Riksbank paper offers method for tackling distorted forecast evaluation
Authors adjust for different amounts of information available, allowing them to overcome distortions in forecast evaluation
Bank of Finland looking to streamline and upgrade payments simulator
Economist sheds light on the bank’s plans for adding new features, improving efficiency and integrating agent-based modelling
Economists add to theory and empirics of economy’s non-linear dynamics
Paper by Bank of England economists finds “strong evidence” of non-linearity in UK data, while Markus Brunnermeier and Yuliy Sannikov expand theory of financial amplification mechanisms
RBNZ better at forecasting growth and inflation than exchange rate, notes study
Economists compare judgement-based forecasts with benchmark set by suite of statistical models, finding judgement tends to work well, but both types of forecast struggle with exchange rates
BoE paper finds fault with empirical methods for studying contagion
Review of spillover and contagion literature finds methods plagued by bias and heteroskedasticity, concluding no single technique is flawless, but some offer a partial solution
Climbing ‘Mount Economy’
The BIS’s quest for financial stability-oriented monetary policy throws up questions not only about decision-making but also how one should think about economics, as Claudio Borio explains
Blanchard sees reformed DSGE as ‘central’ to future of macroeconomics
Former IMF chief economist says DSGE models are “seriously flawed” but “eminently improvable”, and will have a leading role to play in the future
BoJ research uses ‘global game’ to explain zero inflation
Model of monopolistic competition implies co-ordination between firms may lead to zero inflation
Philadelphia paper explores drivers of bankruptcy decisions
Working paper examines the extent to which the structure of a household’s balance sheet and income statement influences its decision to file for bankruptcy in the wake of an income shock
IMF paper offers alternative explanation for Venezuelan inflation
Working paper argues fall in oil prices combined with restrictions in foreign exchange best explains hyperinflation in Venezuela, rather than a self-reinforcing rise in expectations
Dutch paper explores information content of asset prices for inflation
Working paper finds high asset prices can be an indicator of either high or low inflation, though more commonly the former; considers information content of range of financial variables
Atlanta Fed paper demonstrates signalling mechanism in mortgage market
Lenders in mortgage market able to reveal quality of loans by delaying trade, authors find; loans sold five months after origination less likely to default
RBNZ can evaluate forecasts using benchmarks – McDermott
Inflation has been weaker and the NZ dollar stronger than the central bank forecast, assistant governor says; can gain insight from comparing its forecast with others
Japanese inflation target a partial success – Fed paper
Authors show adopting inflation target during a liquidity trap can have powerful effects, but in the Japanese case it seems to have been weakened by other factors
BoE’s Weale: t-distribution may outperform normal
Representing monetary policy committee’s judgements using the t-distribution implies GDP outcomes are skewed to the downside and inflation to the upside
Building a fast, flexible and free DSGE model
A team at the New York Fed is part way through translating its DSGE model into Julia, a fast, open-source mathematical programming language
Researchers conduct ‘horse race’ of financial crisis early-warning models
Statistical approaches based on machine learning appear to offer more robust early warnings of financial crisis than models based on more conventional techniques, two researchers say
Nonlinear models struggle to outperform VARs, Azerbaijani paper finds
Central bank’s first working paper finds various different nonlinear forecasting models perform poorly against autoregressive and VAR models, and even random walks
Researchers explore link between rates and consumption in new model
Working paper published by ECB examines transmission mechanism of monetary policy in a heterogeneous agent New Keynesian model
Paper finds Norwegian housing market is ‘micro efficient’
Research published by Norges Bank exploits dataset comprising 472,378 housing transactions; finds little persistence but a lot of reversion in sale prices
BoJ paper attempts to ditch Friedman rule with new model
Paper outlines model where mild inflation is welfare-optimising, in contrast to Milton Friedman’s rule implying mild deflation, which underpins many monetary models
Competition in treasury auctions reduces bidder surplus, working paper finds
Data from before and after Austria’s entry into the European Union shows increased competition in bond auctions substantially reduces bidder surplus, researchers say
Norges Bank researchers grapple with nonlinear exchange rate pass-through
Exchange rate pass-through in Norway is unusually high, which the authors suggest could be due to the size of recent currency movements – but pinning down the effect empirically proves difficult
Paper uses machine learning to nowcast GDP in Lebanon
Working paper published by IMF explores use of machine learning technique in assessing economic conditions in Lebanon, where analysis is a ‘distinct challenge’ on account of data lags