Economic modelling
BoE paper: ‘imperfect common knowledge’ implies Taylor principle need not hold
It is not strictly necessary for a central bank to respond to temporary deviations of the economy from trend, paper finds; result challenges findings such as ‘Neo Fisherism’
Scrap micro-foundations to repair macroeconomics – Steve Keen
Professor says economy should be viewed as a dynamic system with credit playing a crucial role, arguing we should ditch models such as DSGE
RBA paper assesses FOMC’s forecasting performance
RBA and Fed economists collaborate on study of forecasting errors by the Federal Open Market Committee
Fed’s Fischer: econometric models are still flawed
US Fed vice-chair says models still cannot capture the complexities and rapid evolution of the economy – despite his hopes as an undergraduate
Fed paper flags risk of low rates misallocating capital
Where firms rely heavily on intangible capital, lower rates could harm firms’ investment and contribute to secular stagnation, economists warn
Poloz considers the future of economic modelling
Theoretical and empirical two-pronged approach likely to stay, governor says, though economists are still on the hunt for the “holy grail” single model
RBNZ paper sheds light on core macro model
'NZSIM' is a semi-structural model, with a DSGE core augmented with a handful of additional equations
Riksbank early warning indicator signals high risks
New measure of financial fragility performs better than credit gap method, economists say; current readings suggest risks are on a par with 2008
BoE article sees benefits to agent-based modelling
“Bottom-up” approach is complementary to models that are already widely used; the Bank of England has created new models for both housing and corporate bond markets
BIS economists model benefits of leaning against the wind
Endogenous model of financial crises points to benefits of using monetary policy to lean against financial imbalances, in contrast to many other studies
Researcher uses dynamic factor model for ‘nowcasting’
Research makes three additions to widely-used model
Changing policy impact may knock forecasts askew – Riksbank economists
Economists suggest systematic errors of forecasts in recent years may reflect changes in the effectiveness of monetary policy
Poloz urges economists to create new economic models
The rise of the service sector has changed the way productivity and output can be calculated, the Canadian governor says, musing on whether the relationship between inflation and growth could change over time
Colombian paper models non-linearity in sovereign risk
Model of real exchange rates seeks to capture the non-linear effects of sovereign risk for Latin American countries
Haldane turns to other disciplines to solve big economic questions
BoE chief economist calls for an interdisciplinary approach to tackling the problems economics faces in understanding complex systems; warns of shortcomings in micro-founded models
Fed research proposes micro-founded approach to term structure modelling
Economists build structural New Keynesian model in contrast to the statistical approaches in much of the available literature, identifying key factors shaping term premiums
BoE paper takes DSGE approach to deflation probabilities
Comparing simulations using a DSGE model estimated on different market-based measures of deflation probability helps to pick out causality, researchers say
Riksbank paper shows importance of modelling bank costs
Models should not assume financial intermediation is free, authors say, showing banks can reduce aggregate welfare in some cases
BoE paper tackles ‘sectoral co-movement puzzle’
Adding labour market frictions and habit formation helps to solve the problem of models implying a monetary contraction produces little response in output
BoE paper tests agent-based model of macro-prudential policy
Researchers use agent-based model to capture diversity of behaviour between different housing market participants, pointing to risks from larger buy-to-let sector
Danish economist updates DSGE model with financial frictions
Jesper Pedersen adds imperfectly competitive banking system and housing market to improve model’s ability to explain crises
ECB paper aims to improve small-scale models for assessing policy shocks
Paper outlines a structural factor model, which the authors say better accounts for the asset price impact of monetary policy shocks
BIS research seeks to forecast global inflation
Economist builds global inflation forecast using country-level survey forecasts, finding it can be used to improve domestic inflation projections in some countries
Norges Bank paper studies forecast asymmetry at lower bound
Effective lower bound need not translate into asymmetries in other forecast variables, authors find; regime-switching DSGE model helps overcome Lucas critique