Bond Pricing with a Time‐Varying Price of Risk in an Estimated Medium‐Scale Bayesian DSGE Model

New Keynesian model in which households have Epstein–Zin preferences with time‐varying risk aversion and the central bank has a time‐varying inflation target can match the dynamics of nominal bond prices in the U.S. economy well. The model generates a large steady‐state term spread and its fitting errors for bond yields are comparable to those obtained from a nonstructural three‐factor model, and one‐third smaller than in models with a constant inflation target or risk aversion. Including data on interest rates has large effects on variance decompositions, making investment technology shocks much less important than found in other recent papers.     

GDP nowcasting: application and constraints in a small open developing economy

Despite data limitations, an attempt is made to find out if a GDP nowcasting model can provide reliable forecasts for a small open economy. Two competing Bayesian vector autoregressive models are tested rigorously to obtain the optimal model by minimizing in-sample forecasting errors. The main finding of this study is that GDP nowcasting can produce reliable results for a small open economy despite the unavailability of sufficient data sets and the lack of high frequency indicators.     

Estimating input-mix efficiency in a parametric framework: application to state-level agricultural data for the United States

ABSTRACT

This paper contributes to the productivity literature by demonstrating novel econometric methods to estimate input-mix efficiency (IME) in a parametric framework. Input-mix efficiency is defined as the potential improvement in productivity with change in input mix. Any change in input-mix (e.g., land to labou r ratio) will result in change in productivity. The advantage of this approach is that it does not require data on input prices to estimate the mix efficiency levels. A nonlinear input-aggregator function (e.g., Constant Elasticity of Substitution) is used to derive an expression for input-mix efficiency. Bayesian stochastic frontier is estimated for obtaining mix efficiency using US state-level agricultural data for the period 1960–2004. Significant variation in input-mix efficiency is noted across the states and regions, attributable to diverse topographic and geographic conditions. Furthermore, comparisons of allocative and mix efficiencies provide insightful policy implications. The production incentives such as taxes and subsidies could help farmers in adjusting their input mix in response to changes in input prices, which can affect the US agricultural productivity significantly. The proposed methodology can be extended by i) using flexible functional forms; ii) introducing various time- and region-varying input aggregators; and iii) defining more sophisticated weights for input aggregators.     

Bayesian forecasting of UEFA Champions League under alternative seeding regimes

The evaluation of seeding rules requires the use of probabilistic forecasting models both for individual matches and for the tournament. Prior papers have employed a match-level forecasting model and then used a Monte Carlo simulation of the tournament for estimating outcome probabilities, thus allowing an outcome uncertainty measure to be attached to each proposed seeding regime, for example. However, this approach does not take into account the uncertainty that may surround parameter estimates in the underlying match-level forecasting model. We propose a Bayesian approach for addressing this problem, and illustrate it by simulating the UEFA Champions League under alternative seeding regimes. We find that changes in 2015 tended to increase the uncertainty over progression to the knock-out stage, but made limited difference to which clubs would contest the final.     

Network games with incomplete information

We consider a network game with strategic complementarities where the individual reward or the strength of interactions is only partially known by the agents. Players receive different correlated signals and they make inferences about other players’ information. We demonstrate that there exists a unique Bayesian-Nash equilibrium. We characterize the equilibrium by disentangling the information effects from the network effects and show that the equilibrium effort of each agent is a weighted combinations of different Katz–Bonacich centralities.     

What is the major determinant of cross-border banking flows?

This study examines the major determinant of cross-border credit flows through global banks across 70 countries. Employing a Bayesian dynamic latent factor model, we decompose volatilities of banking flows into the contribution of a global common factor, regional common factor, and country-specific factor. The results indicate that the global and regional common factor explains about 40–50 percent of volatility in overall cross-border banking flows. In particular, the contribution of the global common factor increased in the 2000s. Simultaneously, main determinants are largely heterogeneous across countries: this implies that the desirable policy response to credit inflows may differ for each host country.     

The long-run Phillips curve: A structural VAR investigation

Both cointegration methods, and non-cointegrated structural VARs identified based on either long-run restrictions, or a combination of long-run and sign restrictions, are used in order to explore the long-run trade-off between inflation and the unemployment rate in the post-WWII U.S., U.K., Euro area, Canada, and Australia. Overall, neither approach produces clear evidence of a non-vertical trade-off. The extent of uncertainty surrounding the estimates is however substantial, thus implying that a researcher holding alternative priors about what a reasonable slope of the long-run trade-off might be will likely not see her views falsified.     

Determinants in the forecast of the gross national income of China and India from 1952 to 2015

In 2015, China and India's population represented approximately 35.74% of the total number of people living in the world. Due to the historical context and behavior of the most relevant indicators, this study proposes to utilize a wide variety of demographic, economic, and production indicators from 1952 to 2015 to assess their impact on the GNI in China and India. A comprehensive and new fangled modeling process with stepwise, regularization and distributed lag regression approaches is presented. Accordingly, theoretical results were corroborated through extensive diagnostic tests and an empirical check of the models' predictive capacity. The findings show that GNI in China is most influenced by variables such as reserves in foreign currency and the dependency ratio; whereas, variables of energy production and birth rate were generated for India. Therefore, it's the timing for China to relax the universal two-child policy. Due to the current value below the substitution rate, a gloomy outlook for China's future population and economy is predicted. Conversely, a positive outlook is forecasted for India, given the low price in the future of oil- India's primary raw material.     

Japan's FDI drivers in a time of financial uncertainty. New evidence based on Bayesian Model Averaging

In this paper we analyse the determinants of Japanese outward FDI stock for the period 1996–2017. This period is especially relevant as it covers a process of increasing economic globalization and two financial crises. To this aim, we consider a large set of candidate variables based on the theory as well as on previous empirical analysis. Our sample includes a total of 27 host countries. We select the covariates using a data-driven methodology, the Bayesian Model Averaging (BMA) analysis. Moreover, we also analyse whether these determinants change depending on the degree of development (emerging vs developed) or the geographical areas (EU vs East Asia) of the countries considered. We find that Japan's FDI can be explained by a wide variety of variables, that include not only the typical gravitational ones but also institutional and macroeconomic variables, including those that measure financial development. Moreover, Japanese FDI can be explained by both horizontal and vertical FDI motives in the groups of countries analysed. However, in developed, and more precisely, EU countries, horizontal FDI strategies are predominant, whereas for East Asian and emerging countries, there is more evidence in favour of vertical FDI.     

Small Area Estimation for Disease Prevalence Mapping

Small area estimation (SAE) entails estimating characteristics of interest for domains, often geographical areas, in which there may be few or no samples available. SAE has a long history and a wide variety of methods have been suggested, from a bewildering range of philosophical standpoints. We describe design-based and model-based approaches and models that are specified at the area level and at the unit level, focusing on health applications and fully Bayesian spatial models. The use of auxiliary information is a key ingredient for successful inference when response data are sparse, and we discuss a number of approaches that allow the inclusion of covariate data. SAE for HIV prevalence, using data collected from a Demographic Health Survey in Malawi in 2015–2016, is used to illustrate a number of techniques. The potential use of SAE techniques for outcomes related to coronavirus disease 2019 is discussed.