Economic modelling
Borio and co-authors attack concept of natural interest rate
BIS paper sets out a model in which “monetary policy hysteresis” can do lasting damage to the economy
Machine learning can help spot bank distress – BoE paper
Use of confidential data helps catch distress early, and ML can cope with complexity, authors say
Researchers use option prices to gauge ZLB risk – San Fran Fed
Chance of rates hitting zero lower bound by the end of next year is 16%, researchers find
30 years of forecasting: have central banks learned anything?
Forecasting models are constantly being upgraded, but forecast errors are still persistent. What more can central banks do?
BoE paper models exchange rates with private money creation
Uncovered interest parity does a poor job of explaining exchange rates on its own, authors say
RBA sheds light on new ‘Martin’ macro model
Large-scale “macroeconometric” model designed to balance flexibility and theoretical rigour
IMF sets up new monetary policy modelling unit
Fund responds to criticism from IEO report
Proposal to axe Phillips curve triggers controversy
“One cannot just ignore an equation,” retorts Olivier Blanchard
NBER paper outlines ‘four-equation model’
Authors expand the textbook three-equation model to account for unconventional monetary policy; extra policy tool is necessary to overcome credit shocks
BdF paper models tax evasion’s impact on sovereign default
Widespread tax evasion can undermine austerity plans imposed by donors, argue researchers
Monetary policy strongly influences income inequality – DNB paper
Central banks should not overlook income distribution effects, researchers say
RBNZ paper stresses need to understand global shocks
Analysing global shocks ‘increasingly important’ for central banks, says article
Informal sector changes inflation dynamics – BIS paper
Informality dampens impact of some shocks but also impairs policy transmission, authors find
Podcast: Greg Kaplan on heterogeneous-agent models
Monetary and fiscal policy are much more closely connected than many central banks would like
Book notes: Finance and philosophy, by Alex J Pollock
A readable and useful book that provides much food for thought, and should be read widely by economists and policy-makers
Researchers estimate two alternatives to DSGE model at ZLB
Dallas Fed paper finds piecewise linear version of the model is an “excellent substitute”
BoE paper outlines DSGE model of financial and real frictions
“Channels of effect” run between financial markets and labour markets, authors find
Machine learning model outperforms professional forecasters
The model may uncover new relationships in data that were previously overlooked, researcher says
Podcast: The post-crisis world
Andrew Metrick says central banks have changed dramatically since 2008, but more work may be needed to develop new models
BoE paper proposes fix for flawed rate expectation estimates
Model augmented with overnight indexed swap rates performs better, author says
IMF’s Adrian calls for forecasting upgrade
Policy forecasts should do a better job of capturing endogenous risk, economist says
Agent-based models: a new frontier for macroeconomics?
Agent-based modelling is opening up new possibilities for economics, but the discipline is still struggling to move from the sidelines to the mainstream
BoE paper highlights flaws in bank modelling
Many models still treat banks as “warehouses”, authors say, with important modelling implications
Podcast: Arthur Turrell on agent-based modelling
The Bank of England economist says ABMs should complement, not replace, other models