The aim of this paper is to assess whether explicitly modeling structural change increases the accuracy of macroeconomic forecasts. We produce real time out-of-sample forecasts for inflation, the unemployment rate and the interest rate using a Time-Varying Coefficients VAR with Stochastic Volatility (TV-VAR) for the US. The model generates accurate predictions for the three variables.In particular for inflation the TV-VAR outperforms, in terms of mean square forecast error, all the competing models: fixed coefficients VARs, Time-Varying ARs and the naïve random walk model. These results are also shown to hold over the most recent period in which it has been hard to forecast inflation.JEL classification: C32, E37, E47.
Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractAgainst the background of the current debate about fiscal sustainability in several advanced economies, this paper estimates determinants of G7 sovereign bond spreads, using high-frequency proxies for market expectations about macroeconomic fundamentals and allowing for time-varying parameters. The paper finds substantial asymmetry in the importance of country fundamentals and considerable time variations in the pricing of risks. There has been a reduced pricing of several risk factors in the years preceding the financial crisis, and either an overpricing of risk or the pricing of a re-denomination risk of euro area bonds during the European sovereign debt crisis. JEL-codes: E43, E44, F34, G15Keywords: sovereign spreads; fiscal policy; time-varying coefficients 2 Non-technical summaryA question at the heart of the current debate about the sovereign debt crisis is to which extent market prices of sovereign bonds reflect economic fundamentals in an appropriate fashion, or whether swings in risk appetite have led to an under-pricing of risk prior to the global financial crisis, and possibly to an over-pricing of risk during the sovereign debt crisis. Although the focus of the discussion currently rests on the euro area, fiscal sustainability concerns have also arisen in many other advanced economies, inside and outside Europe. Even several countries with long-standing excellent credit ratings have been affected; for instance, both the United States and France have recently lost their AAA ratings by Standard and Poors, on concerns about the governments' budget deficits and rising debt burdens. As a consequence, we need to understand better the pricing mechanisms in sovereign debt markets in advanced economies.In the current paper, we will therefore study sovereign bond spreads of the G7 countries over the last two decades. To estimate to what extent market prices reflect fundamentals, and how this has changed over time, the model employed in this paper allows for time variation in the coefficients, and stochastic volatility in the error term. As market prices are likely to reflect expectations about the evolution of fundamentals much more than past realised values, all fundamental variables used in the current paper are forward-looking. The use of Consensus Economics data allows us to have a set of expectations by market participants for all these variables for the G7 countries at a monthly frequency, covering ...
In any dataset with individual forecasts of economic variables, some forecasters will perform better than others. However, it is possible that these ex post differences reflect sampling variation and thus overstate the ex ante differences between forecasters. In this paper, we present a simple test of the null hypothesis that all forecasters in the US Survey of Professional Forecasters have equal ability. We construct a test statistic that reflects both the relative and absolute performance of the forecaster and use bootstrap techniques to compare the empirical results with the equivalents obtained under the null hypothesis of equal forecaster ability. Results suggests limited evidence for the idea that the best forecasters are actually innately better than others, though there is evidence that a relatively small group of forecasters perform very poorly.
Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractIn this paper, we propose a time-varying parameter VAR model with stochastic volatility which allows for estimation on data sampled at different frequencies. Our contribution is twofold. First, we extend the methodology developed by Cogley and Sargent (2005), and Primiceri (2005), to a mixed-frequency setting. In particular, our approach allows for the inclusion of two different categories of variables (high-frequency and low-frequency) into the same time varying model. Second, we use this model to study the macroeconomic effects of government spending shocks in Italy over the 1988Q4-2013Q3 period. Italy -as well as most other euro area economies -is characterised by short quarterly time series for fiscal variables, whereas annual data are generally available for a longer sample before 1999. Our results show that the proposed timevarying mixed-frequency model improves on the performance of a simple linear interpolation model in generating the true path of the missing observations. Second, our empirical analysis suggests that government spending shocks tend to have positive effects on output in Italy. The fiscal multiplier, which is maximized at the one year horizon, follows a U-shape over the sample considered: it peaks at around 1.5 at the beginning of the sample, it then stabilizes between 0.8 and 0.9 from the mid-1990s to the late 2000s, before rising again to above unity during of the recent crisis. Non-technical summaryThe scope for conducting empirical analysis in the fiscal policy field, as well as in other economic fields, is sometimes limited by the unavailability of high frequency data or by the short length of these time series. Indeed, most econometric models -such as vector autoregressions (VARs) -typically need relatively long time series of data to obtain meaningful and robust estimates. As regards fiscal policy, most time series for euro area countries are available at the annual frequency prior to 1999 and at the quarterly frequency only beginning in 1999. This has contributed to prevent a rapid development of the literature on the macroeconomic effects of fiscal policies for these countries.To address the problem of insufficiently long high-frequency time series, data sampled at different frequencies and, in general, irregular data patterns, a very rich research has soared which is generally Our results indicate that, first, our time-varying mixed-frequency model well tracks the data in-sample. Second...
Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract 4 Non-technical summary 5 Terms of use: Documents in
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