Forecasting using heterogeneous panels with cross-sectional dependence

In this paper, we focus on forecasting methods that use heterogeneous panels in the presence of cross-sectional dependence in terms of both spatial error dependence and common factors. We propose two main approaches to estimating the factor structure: a residuals-based approach, and an approach that uses a panel of auxiliary variables to extract the factors. Small sample properties of the proposed methods are investigated through Monte Carlo simulations and applied to predict house price inflation in OECD countries.     

Resilience of sustainability‐oriented and financially‐driven organizations

To answer key questions concerning how negative and positive financial performance gaps motivate organizations to build more resilient systems, we develop a conceptual process model to reveal the process by which financially and sustainability‐driven organizations can translate these negative and positive financial performance gaps into organizational resilience. We specify the different modes of search behaviors that these organizations pursue when encountering negative and positive financial performance gaps. We then expand on group engagement model to theorize that vicarious search is likely to encourage limiting behaviors, whereas internal search is likely to foster promotion behaviors. Finally, we explain how both promoting and limiting behaviors can be helpful in improving organizational resilience. In this way, we hope to advance research that connects and integrates relatively disparate realms and, more specifically, to contribute to the sustainability, resilience, and performance feedback literatures.     

Is the unemployment–inflation trade-off still alive in the Euro Area and its member countries? It seems so

The unemployment–inflation trade-off can be interpreted as a proposition concerning the response of these two variables to aggregate demand shocks. In this paper, we study the possible presence of the trade-off in the Euro Area and in a wide group of Euro-area countries in the last 20 years, that is, since the start of EMU. We use the structural VAR methodology that allows the separation between supply and demand shocks. Our main finding is that the existence of a trade-off is largely confirmed both at the Euro Area and at the national level. Nevertheless, the size of the trade-off, measured at different horizons, shows some heterogeneity among countries. No less important, when we augment the VAR model by introducing monetary policy in the context of an open economy, we find that monetary policy shocks push inflation and unemployment in opposite directions in the currency area. Another interesting result concerns the evidence of a relatively flat relation between unemployment and inflation, conditionally to monetary policy shocks. The bulk of these conclusions seem to be confirmed by a number of robustness checks.     

Price gap anomaly in the US stock market: The whole story

This paper analyses the price gap anomaly in the US stock market (comprised of the DJI, S&P 500 and NASDAQ) covering the period 1928 to 2018. This paper aims to investigate whether or not price gaps create market inefficiencies. Price gaps occur when the current day’s opening price is different from the previous day’s closing price due orders placed before the opening of the market. Several hypotheses are tested using various statistical tests (Student’s t-test, ANOVA, Mann-Whitney test), regression analysis, and special methods, that is, the modified cumulative returns and the trading simulation approaches. We find strong evidence in favour of abnormal price movements after price gaps. We observe that during a gap day prices tend to change in the direction of the gap. A trading strategy based on this anomaly was efficient in that its results were not random, indicating that this market was not efficient. The momentum effect was found to be temporary and no evidence of seasonality in price gaps was found. Lastly, our results were also contrary to the myth that price gaps tend to get filled.     

Decomposing financial (in)stability in emerging economies

The analysis of the build-up of risks in emerging economies have traditionally been scarce and focused mostly on external risks, despite the recent substantial development of their financial system. This paper builds an index of financial vulnerabilities tailored to emerging economies, grouping 32 indicators around four poles: valuation and risk appetite, imbalances in the non-financial sector, financial sector vulnerabilities, and global vulnerabilities. It adopts a model-free approach, purposely departing from early warning models or complex econometric constructs, and rely on data made already available by international organisations. Our index of financial vulnerabilities enables a granular mapping of where risk originates and how it spreads to other parts of the financial system. Using various data visualisation tools and benefitting from the flexibility of our index’s methodology, we are able build a narrative of the evolution of financial stability in emerging economies from 2005 to 2015. Finally, we also discuss the relation between our index and both the business cycle (proxied by GDP) and the credit cycle (proxied by the credit-to-GDP gap).     

The Role of Inflation Target Adjustment in Stabilization Policy

How and under what circumstances can adjusting the inflation target serve as a stabilization-policy tool and contribute to welfare improvement? We answer these questions quantitatively with a standard New Keynesian model that includes cost-push-type shocks. Our proposed inflation target rule calls for the target to be adjusted in a persistent manner and in the opposite direction to the realization of a cost-push shock, which is essentially a makeup strategy. The inflation target rule, combined with a Taylor-type rule, significantly reduces inflation fluctuations originating from cost-push shocks and mitigates the stabilization trade-off, resulting in a similar level of welfare to that associated with the Ramsey optimal policy.     

Troubled by unequal pay rather than low pay:The incentive effects of a top management team pay gap

We examine the relationships with firm performance of the internal pay gap among individual members of the top management team(TMT) and the compensation level o...     

On the test score gap between Roma and non‐Roma students in Hungary and its potential causes

Using unique data from Hungary, the gap in reading and mathematics test scores between Roma and non‐Roma 8th grade students is assessed and a substantial gap between them revealed. Standardized test scores as well as the fraction of students with competences considered inadequate are examined. Regardless of measurement and subject area, the bulk of the gap is explained by social differences in income, wealth and parental education. Using reduced‐form regressions, two major mediating mechanisms are identified: first, on average the home environment of Roma children is less favourable for cognitive development; second, the educational environment of the average Roma student is different from the average non‐Roma student. Comparing students with similar home environments from the same school and class, the ethnic gap in test scores is found to be insignificant. Ethnic differences in the home environment are explained by social disparity, and ethnicity seems to play no additional role in that regard. The unequal distribution of Roma students in schools and classes is found to be explained predominantly by social difference, too, with a significant residual portion, indicating the effect of ethnic segregation.     

Impact of macroeconomic surprises on the Brazilian yield curve and expected inflation

This study investigates how unexpected announcements in Brazilian and U.S. macroeconomic indicators affect the term structure of nominal interest rates, as well as implicit inflation expectations and real interest rates. Using daily data from March 2005 to December 2012, we employ an extended Vector Error Correction Model to take into account nonstationarity and the long-term equilibrium among different maturities of those curves. We found empirical evidence that macroeconomic surprises, domestic (Brazilian) and external (U.S. American), which lead the market to believe that there might be a higher risk of inflation or an overheated economy, raise nominal interest rates, implicit expected inflation and real interest rates. Surprisingly, in relation to the efficient-market hypothesis, we found that some macroeconomic surprises have a lagged effect on the yield curves. We also tested the impact of the global financial crisis of 2007–09 and found that the crisis affected significantly the direction and magnitude of the responses to macroeconomic news.     

Does Money Matter in Shaping Domestic Business Cycles? An International Investigation

We study the contribution of money to business‐cycle fluctuations in the United States, the United Kingdom, Japan, and the euro area using a small‐scale structural monetary business cycle model. Constrained likelihood‐based estimates of the parameters are provided and time instabilities analyzed. Real balances are statistically important for output and inflation fluctuations. Their contribution changes over time. Models giving money no role provide a distorted representation of the sources of cyclical fluctuations, of the transmission of shocks, and of the events of the last 40 years.