How quickly do forecasters incorporate news? Evidence from cross‐country surveys

Using forecasts from Consensus Economics Inc., we provide evidence on the efficiency of real GDP growth forecasts by testing whether forecast revisions are uncorrelated. As the forecast data used are multi‐dimensional—18 countries, 24 monthly forecasts for the current and the following year and 16 target years—the panel estimation takes into account the complex structure of the variance–covariance matrix due to propagation of shocks across countries and economic linkages among them. Efficiency is rejected for all 18 countries: forecast revisions show a high degree of serial correlation. We then develop a framework for characterizing the nature of the inefficiency in forecasts. For a smaller set of countries, the G‐7, we estimate a VAR model on forecast revisions. The degree of inefficiency, as manifested in the serial correlation of forecast revisions, tends to be smaller in forecasts of the USA than in forecasts for European countries. Our framework also shows that one of the sources of the inefficiency in a country's forecasts is resistance to utilizing foreign news. Thus the quality of forecasts for many of these countries can be significantly improved if forecasters pay more attention to news originating from outside their respective countries. This is particularly the case for Canadian and French forecasts, which would gain by paying greater attention than they do to news from the USA and Germany, respectively. Copyright © 2006 John Wiley & Sons, Ltd.     

A joint study of expectations formation and the shifting Phillips curve

To avoid certain problems associated with the use of a deterministic distributed lag function of past prices as an observable proxy for inflationary expectations, we estimated an unobservable-variable model which accommodates not only some errors in measurement in the survey data on expectations but also the presence of a stochastic error term in the distributed lag function determining an unobservable variable. We incorporate four hypotheses on expectations formation, including a new one which is a mixture of both regressive and adaptive elements. The estimated coefficient corresponding to the price-expectations variable in the Phillips curve was always more than 0.50.     

Joint estimation and testing for functional form and heteroskedasticity

This paper develops the maximum likelihood procedure to estimate the appropriate functional form in regression models with heteroskedastic errors. The analysis can then enable us to separate out the influence of non-linearity in an estimate of the transformation parameter from the influence of stabilizing the error variance. Illustrative examples have been used to show that estimation and tests for functional form and heteroskedasticity can and should be jointly considered.     

An econometric study on the dynamics of urban spatial structure

Using data on 43 randomly selected census tracts for each of 39 U.S. cities in 1970, we present a comprehensive econometric analysis of a varying parameter density gradient (VCM) model in which the functional form, together with the variance components of an implied error structure, is freely estimated. We generalize a recent model of Johnson and Kau in which certain city- and tract-specific socioeconomic variables are introduced to depict the dynamic process of urban growth. Since these variables can be either controlled by policy actions or projected on the basis of time, we reexamine the usefulness of VCM framework for both forecasting and policy simulation purposes.     

Famines

This is a text of the first Annual Lecture of the Development Studies Association. It investigates a variety of issues that arise in famine analysis, covering identification, causation and prevention. The rejection of the food availability approach is combined with exploration of the ‘entitlement approach’ presented by the author in an earlier contribution in the Cambridge Journal of Economics, Vol. 1 (1977). Four recent famines as well as some famous historical ones are examined in the light of the entitlement approach. Aside from throwing light on the causes and cures of famines, the entitlement approach also permits us to distinguish between various types of famines all of which share the feature of a common predicament of a mass of people but which do not share the same causal mechanism, nor invite the same response. Famine analysis, it is shown, requires more structure than the traditional approaches are able to provide.     

Agglomeration and the choice between acquisitions and alliances: An information economics perspective

Research summary : This research extends agglomeration theory by joining it with information economics research to better understand the determinants of firms' organizational governance choices. We argue that co‐location in a common geographic cluster fosters lower levels of information asymmetry between exchange partners and thus leads firms to employ acquisitions rather than alliances for their external corporate development activities. We further extend agglomeration theory by arguing that the impact of sharing a cluster location on acquisitions versus alliances strengthens with the level and dissimilarity of the exchange partners' knowledge‐based resources as well as with the intra‐cluster geographic proximity of the partners. Evidence from a sample of over 1,100 alliance and acquisition transactions in the U.S. semiconductor industry provides support for our hypotheses. Managerial summary : This paper investigates the role of geographical clustering for firms' external corporate development activities in acquisitions and alliances. We explain how better information is likely to be available among firms co‐located in the same cluster. This suggests that managers should have less need to use alliances over acquisitions as a means of reducing the risk of adverse selection (e.g., overpaying for acquisitions). Our investigation of over 1,100 transactions in the U.S. semiconductor industry shows that common cluster co‐location increases the probability of acquisition relative to alliance. Our arguments and evidence also indicate that the information‐related benefits of cluster co‐location are even more impactful when the parties have more divergent technology bases, possess larger stocks of knowledge‐based resources, or are located in closer geographic proximity. Copyright © 2015 John Wiley & Sons, Ltd.     

Forecasting Consumption: the Role of Consumer Confidence in Real Time with many Predictors

We study the role of consumer confidence in forecasting real personal consumption expenditure, and contribute to the extant literature in three substantive ways. First, we re‐examine existing empirical models of consumption and consumer confidence, not only at the quarterly frequency, but using monthly data as well. Second, we employ real‐time data in addition to commonly used revised vintages. Third, we investigate the role of consumer confidence in a rich information context. We produce forecasts of consumption expenditures with and without consumer confidence measures using a dynamic factor model and a large, real‐time, jagged‐edge dataset. In a robust way, we establish the important role of confidence surveys in improving the accuracy of consumption forecasts, manifesting primarily through the services component. During the recession of 2007–2009, sentiment is found to have a more pervasive effect on all components of aggregate consumption: durables, non‐durables and services. Copyright © 2015 John Wiley & Sons, Ltd.