The correlation matrix between break-even inflation rate movements and real interest rate movements across several countries shows puzzling features. Correlation is significantly positive for nearly all cross-border pairs whereas it is nil, positive or negative unsystematically within countries. By means of a correlation matrix decomposition, we provide an explanation for this puzzle.
{"title":"The Rocky Ride of Break-Even-Inflation Rates","authors":"G. Cette, Marielle de Jong","doi":"10.2139/SSRN.1676892","DOIUrl":"https://doi.org/10.2139/SSRN.1676892","url":null,"abstract":"The correlation matrix between break-even inflation rate movements and real interest rate movements across several countries shows puzzling features. Correlation is significantly positive for nearly all cross-border pairs whereas it is nil, positive or negative unsystematically within countries. By means of a correlation matrix decomposition, we provide an explanation for this puzzle.","PeriodicalId":101534,"journal":{"name":"Banque de France Research Paper Series","volume":"13 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132203255","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Business surveys are an important element in the analysis of the short-term economic situation because of the timeliness and nature of the information they convey. Especially, surveys are often involved in econometric models in order to provide an early assessment of the current state of the economy, which is of great interest for policy-makers. In this paper, we focus on non-seasonally adjusted business surveys released by the European Commission. We introduce an innovative way for modelling those series taking the persistence of the seasonal roots into account through seasonal-cyclical long memory models. We empirically prove that such models produce more accurate forecasts than classical seasonal linear models.
{"title":"Business Surveys Modelling with Seasonal-Cyclical Long Memory Models","authors":"L. Ferrara, D. Guégan","doi":"10.2139/ssrn.1678415","DOIUrl":"https://doi.org/10.2139/ssrn.1678415","url":null,"abstract":"Business surveys are an important element in the analysis of the short-term economic situation because of the timeliness and nature of the information they convey. Especially, surveys are often involved in econometric models in order to provide an early assessment of the current state of the economy, which is of great interest for policy-makers. In this paper, we focus on non-seasonally adjusted business surveys released by the European Commission. We introduce an innovative way for modelling those series taking the persistence of the seasonal roots into account through seasonal-cyclical long memory models. We empirically prove that such models produce more accurate forecasts than classical seasonal linear models.","PeriodicalId":101534,"journal":{"name":"Banque de France Research Paper Series","volume":"741 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123209579","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Using daily data stemming from inflation-indexed markets, we analyse the effects of numerous macroeconomic surprises on inflation compensation data - the sum of inflation expectations, risk and liquidity premia - in the euro area between 2 January 2004 and 31 December 2007. Our results suggest that when gauging short and medium-term inflation compensations, market operators are sensitive to surprises related to real activity and prices. Interestingly, oil futures prices tend to impact at some point on the short- and medium-ends of the inflation compensation curve. Notwithstanding, long-term inflation compensations remain generally unresponsive to macroeconomic surprises, attesting the high ECB's credibility.
{"title":"Macroeconomic Surprises and the Inflation Compensation Curve in the Euro Area","authors":"J. Coffinet, Sébastien Frappa","doi":"10.2139/ssrn.1679671","DOIUrl":"https://doi.org/10.2139/ssrn.1679671","url":null,"abstract":"Using daily data stemming from inflation-indexed markets, we analyse the effects of numerous macroeconomic surprises on inflation compensation data - the sum of inflation expectations, risk and liquidity premia - in the euro area between 2 January 2004 and 31 December 2007. Our results suggest that when gauging short and medium-term inflation compensations, market operators are sensitive to surprises related to real activity and prices. Interestingly, oil futures prices tend to impact at some point on the short- and medium-ends of the inflation compensation curve. Notwithstanding, long-term inflation compensations remain generally unresponsive to macroeconomic surprises, attesting the high ECB's credibility.","PeriodicalId":101534,"journal":{"name":"Banque de France Research Paper Series","volume":"228 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115558387","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper investigates the properties of the decomposition of a time series presented in a companion paper (Lacroix, (2008)). The procedure relies upon an extension of Beveridge-Nelson methodology. We focus on its empirical implementation and show the need for additional steps in order to clarify the interpretation of the transitory component. Calendar effects are included in the modelization through a slight extension of the methodology while backward filtering of the cycle provides a smoother picture of its dynamic. In addition, special attention is paid to two drawbacks of any filtering method : revisions of the estimates and desynchronization between the raw series and the seasonal adjusted series. We provide an assessment of these effects through a small simulation experiment. The empirical analysis is devoted to three key indicators, the US GNP, the French IPI and the french contribution to M3 monetary aggregate for the euro zone. A limited comparison with alternative filtering methods shows that the results depend heavily on the method chosen for the decomposition. However, the Beveridge-Nelson decomposition displays nice properties and provides sensible and useful results without excessive expense, thanks to its transparent methodology.
{"title":"Short Term Analysis of Raw Data and Business Cycle Estimation - Part 2: Empirical Implementation (Analyse Conjoncturelle de Données Brutes et Estimation de Cycles Partie 2: Mise en Oeuvre Empirique) (French)","authors":"Renaud Lacroix","doi":"10.2139/SSRN.1679796","DOIUrl":"https://doi.org/10.2139/SSRN.1679796","url":null,"abstract":"This paper investigates the properties of the decomposition of a time series presented in a companion paper (Lacroix, (2008)). The procedure relies upon an extension of Beveridge-Nelson methodology. We focus on its empirical implementation and show the need for additional steps in order to clarify the interpretation of the transitory component. Calendar effects are included in the modelization through a slight extension of the methodology while backward filtering of the cycle provides a smoother picture of its dynamic. In addition, special attention is paid to two drawbacks of any filtering method : revisions of the estimates and desynchronization between the raw series and the seasonal adjusted series. We provide an assessment of these effects through a small simulation experiment. The empirical analysis is devoted to three key indicators, the US GNP, the French IPI and the french contribution to M3 monetary aggregate for the euro zone. A limited comparison with alternative filtering methods shows that the results depend heavily on the method chosen for the decomposition. However, the Beveridge-Nelson decomposition displays nice properties and provides sensible and useful results without excessive expense, thanks to its transparent methodology.","PeriodicalId":101534,"journal":{"name":"Banque de France Research Paper Series","volume":"138 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131985620","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper offers a framework to study commitment and cooperation issues in games with multiple policymakers. To reconcile some puzzles in the recent literature on the nature of policy interactions among nations, we prove that games characterized by different commitment and cooperation schemes can admit the same equilibrium outcome if certain spillover effects vanish at the common solution of these games. We provide a detailed discussion of these spillovers, showing that, in general, commitment and cooperation are non-trivial issues. Yet, in linear-quadratic models with multiple policymakers commitment and cooperation schemes are shown to become irrelevant under certain assumptions. The framework is sufficiently general to cover a broad range of results from the recent literature on policy interactions as special cases, both within monetary unions and among fully sovereign nations.
{"title":"On Policy Interactions Among Nations: When Do Cooperation and Commitment Matter?","authors":"H. Kempf, Leopold von Thadden","doi":"10.2139/ssrn.1680329","DOIUrl":"https://doi.org/10.2139/ssrn.1680329","url":null,"abstract":"This paper offers a framework to study commitment and cooperation issues in games with multiple policymakers. To reconcile some puzzles in the recent literature on the nature of policy interactions among nations, we prove that games characterized by different commitment and cooperation schemes can admit the same equilibrium outcome if certain spillover effects vanish at the common solution of these games. We provide a detailed discussion of these spillovers, showing that, in general, commitment and cooperation are non-trivial issues. Yet, in linear-quadratic models with multiple policymakers commitment and cooperation schemes are shown to become irrelevant under certain assumptions. The framework is sufficiently general to cover a broad range of results from the recent literature on policy interactions as special cases, both within monetary unions and among fully sovereign nations.","PeriodicalId":101534,"journal":{"name":"Banque de France Research Paper Series","volume":"31 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123910987","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This article deals with the estimation of a time-varying coefficients equation with endogenous regressors. A non-parametric approach is proposed, combining the Generalized Method of Moments (GMM) with the smoothing splines litterature as in Hodrick and Prescott (1981). This new method is used to analyze the evolution of a forward-looking Taylor rule for the Federal Reserve (FED) from 1960 until 2006. It suggests that monetary policy accommodated inflation during the 60s and the 70s whereas the chairmanship of P. Volcker was a turning point toward a more aggressive stance on inflation. In addition, monetary policy became more and more countercyclical.
{"title":"Time-Varying Coefficients in a GMM Framework: Estimation of a Forward Looking Taylor Rule for the Federal Reserve","authors":"H. Partouche","doi":"10.2139/ssrn.1689467","DOIUrl":"https://doi.org/10.2139/ssrn.1689467","url":null,"abstract":"This article deals with the estimation of a time-varying coefficients equation with endogenous regressors. A non-parametric approach is proposed, combining the Generalized Method of Moments (GMM) with the smoothing splines litterature as in Hodrick and Prescott (1981). This new method is used to analyze the evolution of a forward-looking Taylor rule for the Federal Reserve (FED) from 1960 until 2006. It suggests that monetary policy accommodated inflation during the 60s and the 70s whereas the chairmanship of P. Volcker was a turning point toward a more aggressive stance on inflation. In addition, monetary policy became more and more countercyclical.","PeriodicalId":101534,"journal":{"name":"Banque de France Research Paper Series","volume":"42 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2007-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130036637","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper presents a microstructure model for the unsecured overnight euro money market, similar to that developed for stock markets by Easley and O'Hara (1992). More specifically, this paper studies the role of heterogeneity in the population of banks participating on this market, and the influence of the institutional framework and market organizational aspects of the overnight deposit market. A first empirical assessment of the functioning of this market is based on the probability of informed trade which measures the ability of traders (banks) to interpret signals on the expected evolution of the overnight rate. This indicator is estimated on real-time data publicly available to market participants. Results show that between 2000 and 2004 a heterogeneous learning process of market mechanisms within participants could be observed. From 2005 onwards, however, heterogeneity in the learning process sharply decreased. Moreover, the empirical evidence show that the March 2004 changes in Eurosystem's operational framework have modified the informational patterns of order flow in the euro area money market: informed trades became even more predominant between the last main refinancing operation and the end of the reserves maintenance period than they were before March 2004.
{"title":"Probability of Informed Trading: An Empirical Application to the Euro Overnight Market Rate","authors":"","doi":"10.2139/ssrn.1689468","DOIUrl":"https://doi.org/10.2139/ssrn.1689468","url":null,"abstract":"This paper presents a microstructure model for the unsecured overnight euro money market, similar to that developed for stock markets by Easley and O'Hara (1992). More specifically, this paper studies the role of heterogeneity in the population of banks participating on this market, and the influence of the institutional framework and market organizational aspects of the overnight deposit market. A first empirical assessment of the functioning of this market is based on the probability of informed trade which measures the ability of traders (banks) to interpret signals on the expected evolution of the overnight rate. This indicator is estimated on real-time data publicly available to market participants. Results show that between 2000 and 2004 a heterogeneous learning process of market mechanisms within participants could be observed. From 2005 onwards, however, heterogeneity in the learning process sharply decreased. Moreover, the empirical evidence show that the March 2004 changes in Eurosystem's operational framework have modified the informational patterns of order flow in the euro area money market: informed trades became even more predominant between the last main refinancing operation and the end of the reserves maintenance period than they were before March 2004.","PeriodicalId":101534,"journal":{"name":"Banque de France Research Paper Series","volume":"53 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2007-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126295797","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We test the hypothesis of Pareto optimal risk-sharing in a transition economy using a new dataset on a representative sample of 364 rural households from Romania. We identify income shocks as instances of adverse weather, crop and animal diseases, as well as illness and unemployment spells. Despite limited participation of Romanian rural households in formal insurance and credit markets, we fail to reject the hypothesis of full insurance of total non-durable consumption and its components. Survey responses indicate that the main channels of consumption smoothing are self-insurance (for adverse weather, crop and animal diseases), public transfers (for unemployment spells), and to a lesser extent, family ties. We find that adverse weather is associated with higher growth rates of non-food expenditures. Furthermore, richer households are better able to cope with crop failure than poorer households. An alternative explanation to our not rejecting the hypothesis of full insurance is that some shocks to consumption (e.g., illness) play the role of preference shifters of the utility function.
{"title":"Risk Insurance in a Transition Economy: Evidence from Rural Romania","authors":"Delphine M. Irac, Camelia Minoiu","doi":"10.2139/ssrn.1697649","DOIUrl":"https://doi.org/10.2139/ssrn.1697649","url":null,"abstract":"We test the hypothesis of Pareto optimal risk-sharing in a transition economy using a new dataset on a representative sample of 364 rural households from Romania. We identify income shocks as instances of adverse weather, crop and animal diseases, as well as illness and unemployment spells. Despite limited participation of Romanian rural households in formal insurance and credit markets, we fail to reject the hypothesis of full insurance of total non-durable consumption and its components. Survey responses indicate that the main channels of consumption smoothing are self-insurance (for adverse weather, crop and animal diseases), public transfers (for unemployment spells), and to a lesser extent, family ties. We find that adverse weather is associated with higher growth rates of non-food expenditures. Furthermore, richer households are better able to cope with crop failure than poorer households. An alternative explanation to our not rejecting the hypothesis of full insurance is that some shocks to consumption (e.g., illness) play the role of preference shifters of the utility function.","PeriodicalId":101534,"journal":{"name":"Banque de France Research Paper Series","volume":"19 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2006-08-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122934701","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Hourly labour productivity, along with average hours worked, the employment rate and the working-age population as a share of the total population, is one of the accounting aggregates that determine per capita GDP. Yet according to many analyses, hourly labour productivity in several European countries is much the same as or even higher than in the United States, while per capita GDP is markedly lower (see Cette 2004, 2005 for a summary of this work).
{"title":"A Comparison of Structural Productivity Levels in the Major Industrialised Countries","authors":"Renaud Bourlès, G. Cette","doi":"10.2139/ssrn.1703435","DOIUrl":"https://doi.org/10.2139/ssrn.1703435","url":null,"abstract":"Hourly labour productivity, along with average hours worked, the employment rate and the working-age population as a share of the total population, is one of the accounting aggregates that determine per capita GDP. Yet according to many analyses, hourly labour productivity in several European countries is much the same as or even higher than in the United States, while per capita GDP is markedly lower (see Cette 2004, 2005 for a summary of this work).","PeriodicalId":101534,"journal":{"name":"Banque de France Research Paper Series","volume":"EM-19 2","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2005-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114126074","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper quantitatively evaluates the ability of a Kydland and Prescott type model with permanent technology shocks and labor wedges to reproduce output persistence together with persistent impulse response functions of output to permanent and transitory shocks. When calibrated on US labor market features, this model, in which technology shocks account for the bulk of output fluctuations, successfully passes the Cogley and Nason test.
{"title":"Can the Kydland-Prescott Model Pass the Cogley-Nason Test?","authors":"P. Fève, J. Matheron","doi":"10.2139/ssrn.1706090","DOIUrl":"https://doi.org/10.2139/ssrn.1706090","url":null,"abstract":"This paper quantitatively evaluates the ability of a Kydland and Prescott type model with permanent technology shocks and labor wedges to reproduce output persistence together with persistent impulse response functions of output to permanent and transitory shocks. When calibrated on US labor market features, this model, in which technology shocks account for the bulk of output fluctuations, successfully passes the Cogley and Nason test.","PeriodicalId":101534,"journal":{"name":"Banque de France Research Paper Series","volume":"17 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2005-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115453379","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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