The diversity of forecasts from macroeconomic models of the US economy

This paper investigates the accuracy and heterogeneity of output growth and inflation forecasts during the current and the four preceding NBER-dated US recessions. We generate forecasts from six different models of the US economy and compare them to professional forecasts from the Federal Reserve??s Greenbook and the Survey of Professional Forecasters (SPF). The model parameters and model forecasts are derived from historical data vintages so as to ensure comparability to historical forecasts by professionals. The mean model forecast comes surprisingly close to the mean SPF and Greenbook forecasts in terms of accuracy even though the models only make use of a small number of data series. Model forecasts compare particularly well to professional forecasts at a horizon of three to four quarters and during recoveries. The extent of forecast heterogeneity is similar for model and professional forecasts but varies substantially over time. Thus, forecast heterogeneity constitutes a potentially important source of economic fluctuations. While the particular reasons for diversity in professional forecasts are not observable, the diversity in model forecasts can be traced to different modeling assumptions, information sets and parameter estimates.     

Monetary Policy in Austria–Hungary, 1876–1913: An Econometric Analysis of the Determinants of the Central Bank’s Discount Rate and the Liquidity Ratio

This paper presents a model to explain the official discount rate of the Central Bank of Austria–Hungary from 1876 to 1913. The discount rate is assumed to depend on the liquidity ratio of the Bank, defined as the ratio of its stock of metals to banknotes issued, and on changes in foreign discount rates. The paper also presents an equation explaining the liquidity ratio. We use “not equally spaced chronologically ordered data” referring to the 50 discount rate changes enacted. The regressions confirm that the liquidity ratio was the main determinant of the discount rate and that Germany (and not Great Britain) played a significant role in determining the Austro–Hungarian discount rate and the liquidity ratios, supporting the view that the classical gold standard was a decentralized multipolar system rather than a system fully dominated by London as suggested by Keynes. The regressions also suggest that, although Austria–Hungary had an inconvertible paper currency (1879–1892) and fluctuating exchange rates (1876–1895) and formally joined the gold standard only in 1902, it “shadowed” the behaviour of gold standard Central Banks with such consistency that the stability of the estimated regressions was relatively unaffected by the frequent institutional changes.

Obituary: Henri Theil, 1924–2000

This note contains a short biography of Professor Henri Theil and a brief sketch of his contributions to econometrics and related fields. Professor Theil is known as the author of the Principles of Econometrics , one of the most cited advanced textbooks of econometrics, and in particular made a large number of contributions including two and three stage least squares, the inequality coefficient, the Rotterdam model of consumer demand and the entropy based measure for income inequality.     

Common stochastic volatility trends in international stock returns

The aim of this work is to capture common stochastic trends in weekly volatilities of the Dow Jones, Nikkei, Hang Seng and Strait Times index using a multivariate stochastic volatility (SV) model. The results suggest a very high correlation among the volatility innovations, so that it is examined whether the four series share any common stochastic trends. A Principal Component Analysis and a Factor Analysis in the state space setting reveal that two common stochastic trends can be found to underlie the volatility series. The resulting linear combinations of the volatility series no more exhibit any stochastic trend but are stationary in the state space framework. Thus, it can be concluded that volatilities of the four stock indexes are in essence co-persistent.     

Actor and Institutional Dynamics in the Development of Multi-stakeholder Initiatives

As forms of private self-regulation, multi-stakeholder initiatives (MSIs) have emerged as an important empirical phenomenon in global governance processes. At the same time, MSIs are also theoretically intriguing because of their inherent double nature. On the one hand, MSIs spell out CSR standards that define norms for corporate behavior. On the other hand, MSIs are also the resultof corporate and stakeholder behavior. We combine the perspectives of institutional theory and club theory to conceptualize this double nature of MSIs. Based on a stage model that looks at the interplay of actor and institutional dynamics, we generate insights into why actors join a voluntary MSI, how the various motivations and intentions of the actors influence the standard development, and how these as well as the MSI design are subsequently influenced by both external (institutional) and internal (club) dynamics.     

The response of long-term interest rates to news about monetary policy actions: Empirical evidence for the U.S. and Germany

The Response of Long-Term Interest Rates to News about Monetary Policy Actions. Empirical Evidence for the U.S. and Germany. — The authors reestimate the expectations theory of the term structure focusing on the question of how monetary policy actions indicated by changes in the very short rate affect long-term interest rates. Their main point is that the expectations hypothesis implies that very long rates should only react to unanticipated changes of the very short rate. In contrast to cointegration tests of expectations theory, this implication only requires rational expectations but not stationary risk premia. Therefore, its empirical test sheds new light on the importance of expectations theory for the determinants of the term structure of interest rates.