Browsing by Subject "C52"

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  • Angelini, Giovanni; Caggiano, Giovanni; Castelnuovo, Efrem; Fanelli, Luca (2020)
    Bank of Finland Research Discussion Papers 13/2020
    How large are government spending and tax multipliers? The fiscal proxy-SVAR literature provides heterogeneous estimates, depending on which proxies - fiscal or non-fiscal - are used to identify fiscal shocks. We reconcile the existing estimates via flexible vector autoregressive model that allows to achieve identification in presence of a number of structural shocks larger than that of the available instruments. Our two main findings are the following. First, the estimate of the tax multiplier is sensitive to the assumption of orthogonality between total factor productivity (non-fiscal proxy) and tax shocks. If this correlation is assumed to be zero, the tax multiplier is found to be around one. If such correlation is nonzero, as supported by our empirical evidence, we find a tax multiplier three times as large. Second, we find the spending multiplier to be robustly larger than one across different models that feature different sets of instruments. Our results are robust to the joint employment of different fiscal and non-fiscal instruments.
  • Juselius, Mikael (2008)
    Bank of Finland Research Discussion Papers 6/2008
    This paper derives the cointegration spaces that are implied by linear rational expectations models when data are I(1). The cointegration implications are easy to calculate and can be readily applied to test if the models are consistent with the long-run properties of the data. However, the restrictions on cointegration only form a subset of all the cross-equation restrictions that the models place on data. The approach is particularly useful in separating potentially data-consistent models from the remaining models within a large model family. Moreover, the approach provides useful information on the empirical shock structure of the data. Keywords: rational expectations, cointegration JEL classification numbers: C52
  • Paloviita, Maritta (2005)
    Bank of Finland Research Discussion Papers 22/2005
    Published in Applied Economics, Volume 40, Issue 17, September 2008, pp. 2259-2270
    This paper examines inflation dynamics in Europe.Econometric specification tests with pooled European data are used to compare the empirical performance of the New Classical, New Keynesian and Hybrid specifications of the Phillips curve.Instead of imposing any specific form of expectations formation, direct measures, ie Consensus Economics survey data are used to proxy economic agents' inflation expectations.According to the results, the New Classical Phillips curve has satisfactory statistical properties.Moreover, the purely forward-looking New Keynesian Phillips curve is clearly outperformed by the New Classical and Hybrid Phillips curves.We interpret our results as indicating that the European inflation process is not purely forward-looking, and inflation cannot instantaneously adjust to changes in expectations.Consequently, even allowing for possible non-rationality in expectations, a lagged inflation term enters the New Keynesian Phillips curve for inflation dynamics in Europe.Key words: Phillips curve, expectations, Europe JEL classification numbers: E31, C52
  • Paloviita, Maritta (2007)
    Bank of Finland Research Discussion Papers 14/2007
    Using European panel data and GMM system estimation, we explore the empirical performance of the standard three-equation New Keynesian macro model under different informational assumptions. As a benchmark, we consider the performance of the model under rational expectations and revised (final) data. Alternatively, instead of imposing rational expectations hypothesis we use realtime information, ie Consensus Economics survey data, to generate empirical proxies for expectations in the model and the current output gap in the Taylor rule. We demonstrate that, contrary to the assumption of rational expectations, the errors in measured expectations and real-time current output gaps are positively autocorrelated. We produce evidence that the use of real-time variables (including measured expectations) improves the empirical performance of the New Keynesian model. Relaxation of the rational expectations hypothesis makes a noticeable difference for the parameters of the New Keynesian model, especially in the Taylor rule. Keywords: DSGE model, survey expectations, GMM system estimation, expectations, estimation JEL classification numbers: C52, E52, E20
  • Laakkonen, Helinä (2007)
    Bank of Finland Research Discussion Papers 23/2007
    Published in Quantitative Finance, Volume 14, Issue 12, 13 December 2014: 2093-2104
    Filtering intraday seasonality in volatility is crucial for using high frequency data in econometric analysis. This paper studies the effects of filtering on statistical inference concerning the impact of news on exchange rate volatility. The properties of different methods are studied using a 5-minute frequency USD/EUR data set and simulated returns. The simulation results suggest that all the methods tend to produce downward-biased estimates of news coefficients, some more than others. The study supports the Flexible Fourier Form method as the best for seasonality filtering. Keywords: high-frequency, volatility, macro announcements, seasonality JEL classification numbers: C22, C49, C52, E44
  • Paloviita, Maritta (2002)
    Suomen Pankin keskustelualoitteita 20/2002
    This paper assesses empirically the two main alternative specifications of the output gap-based Phillips relation for the euro area: the older expectations-augmented Phillips curve and the new Keynesian Phillips curve.The main focus is on the role of expectations and comparison of the two theories.Instead of imposing rational expectations, an alternative and in principle less restrictive approach is applied to operationalising expectations.Direct measures of inflation expectations, ie OECD forecasts, are used as empirical proxies of economic agents' inflation expectations.The main interest is in the euro area as a whole, although potential heterogeneity of inflation dynamics is also examined across eleven EMU countries.According to the results, inflation expectations are central to the inflation process in all euro area countries.The paper finds evidence that the new Keynesian Phillips curve fits the euro area data slightly better than the expectations-augmented Phillips curve.Research on expectations formation would be an important complement to the present study. Key words: Phillips curve, expectations, euro area JEL classification numbers: E31, C52
  • Paloviita, Maritta (2004)
    Suomen Pankin keskustelualoitteita 21/2004
    Published in Empirical Economics, Volume 31, No. 4, November 2006: 847-860
    This paper examines the empirical performance of the New Keynesian Phillips curve and its hybrid specification in the euro area. Instead of imposing rational expectations, direct measures, ie OECD forecasts, are used as empirical proxies for economic agents inflation expectations.Real marginal costs are proxied by three different measures.The results suggest that OECD inflation forecasts perform relatively well as a proxy for inflation expectations in the euro area, since under this approach the European inflation process can be modeled using the forward-looking New Keynesian Phillips curve.However, inflation can be modeled even more accurately by the hybrid Phillips curve.Thus, even allowing for possible non-rationality in expectations, the additional lagged inflation term is needed in the New Keynesian Phillips relation.In this approach, the output gap turns out to be at least as good a proxy for real marginal costs as the labor income share.Moreover, the inflation process seems to have become more forward-looking in the recent years of low and stable inflation. Key words: Phillips curve, expectations, euro area JEL classification numbers: E31, C52
  • Itkonen, Juha; Juvonen, Petteri (2017)
    BoF Economics Review 6/2017
    Timely and accurate assessment of current macroeconomic activity is crucial for policymakers and other economic agents. Nowcasting aims to forecast the current economic situation ahead of official data releases. We develop and apply a large Bayesian vector autoregressive (BVAR) model to nowcast quarterly GDP growth rate of the Finnish economy. We study the BVAR model’s out-of-sample performance at different forecasting horizons, and compare to various bridge models and a dynamic factor model.
  • Granziera, Eleonora; Sekhposyan, Tatevik (2018)
    Bank of Finland Research Discussion Papers 23/2018
    Also in International Journal of Forecasting 35 ; 2019 https://doi.org/10.1016/j.ijforecast.2019.01.010
    The relative performance of forecasting models changes over time. This empirical observation raises two questions: is the relative performance itself predictable? If so, can it be exploited to improve forecast accuracy? We address these questions by evaluating the predictive ability of a wide range of economic variables for two key US macroeconomic aggregates, industrial production and inflation, relative to simple benchmarks. We find that business indicators, financial conditions, uncertainty as well as measures of past relative performance are generally useful for explaining the relative forecasting performance of the models. We further conduct a pseudo-real-time forecasting exercise, where we use the information about the conditional performance for model selection and model averaging. The newly proposed strategies deliver sizable improvements over competitive benchmark models and commonly used combination schemes. Gains are larger when model selection and averaging are based on financial conditions as well as past performance measured at the forecast origin date.
  • Tölö, Eero (2019)
    Bank of Finland Research Discussion Papers 14/2019
    We consider predicting systemic financial crises one to five years ahead using recurrent neural networks. The prediction performance is evaluated with the Jorda-Schularick-Taylor dataset, which includes the crisis dates and relevant macroeconomic series of 17 countries over the period 1870-2016. Previous literature has found simple neural network architectures to be useful in predicting systemic financial crises. We show that such predictions can be greatly improved by making use of recurrent neural network architectures, especially suited for dealing with time series input. The results remain robust after extensive sensitivity analysis.
  • Tölö, Eero (2020)
    Journal of Financial Stability August
    Published in BoF 14/2019.
    We consider predicting systemic financial crises one to five years ahead using recurrent neural networks. We evaluate the prediction performance with the Jórda-Schularick-Taylor dataset, which includes the crisis dates and annual macroeconomic series of 17 countries over the period 1870−2016. Previous literature has found that simple neural net architectures are useful and outperform the traditional logistic regression model in predicting systemic financial crises. We show that such predictions can be significantly improved by making use of the Long-Short Term Memory (RNN-LSTM) and the Gated Recurrent Unit (RNN-GRU) neural nets. Behind the success is the recurrent networks’ ability to make more robust predictions from the time series data. The results remain robust after extensive sensitivity analysis.
  • Kaliva, Kasimir; Koskinen, Lasse (2006)
    Insurance Supervisory Authority. Research reports 2
    This paper proposes an autoregressive regime-switching model of stock price dynamics in which the process creates pricing bubbles in one regime while error-correction prevails in the other. In the bubble regime the stock price depends negatively on inflation. In the error-correction regime it depends on the price-dividend -ratio. We find that the probability of regime-switch depends on exogenous inflation and lagged price. The model is consistent with Shleifer and Vishny’s theoretical noise trader and arbitrageur model and Modigliani’s inflation illusion phenomenon. The results emphasize the importance of inflation and the price-dividend -ratio when assessing investment risk.
  • Curran, Declan; Funke, Michael (2006)
    BOFIT Discussion Papers 6/2006
    We present a new composite leading indicator of economic activity in mainland China, estimated using a dynamic factor model.Our leading indicator is constructed from three series: exports, a real estate climate index, and the Shanghai Stock Exchange index.These series are found to share a common, unobservable element from which our indicator can be identified.This indicator is then incorporated into out-of-sample one-step-ahead forecasts of Chinese GDP growth.Recursive out-of-sample accuracy tests indicate that the smallscale factor model approach leads to a successful representation of the sample data and provides an appropriate tool for forecasting Chinese business conditions. Keywords: Forecasting, China, Leading Indicator, Factor Model, Growth Cycles JEL-Classification: C32, C52, E32, E37
  • Blagov, Boris; Funke, Michael (2013)
    BOFIT Discussion Papers 24/2013
    Published in Macroeconomic Dynamics, Vol 23, No 6 (2019), pp. 2434-2468
    An estimated Markov-switching DSGE modelling framework that allows for parameter shifts across regimes is employed to test the hypothesis of regime-dependent credibility of Hong Kong's linked exchange rate system. The model distinguishes two regimes with respect to the time-series properties of the risk premium. Regime-dependent impulse responses to macroeconomic shocks reveal substantial differences in spreads. These findings contribute to efforts at modelling exchange rate regime credibility as a non-linear process with two distinct regimes. Keywords: Markov-switching DSGE models, exchange rate regime credibility, Hong Kong. JEL-Classification: E32, F41, C51, C52
  • Paloviita, Maritta (2005)
    Suomen Pankki. E 32
    This paper examines empirical performance of three different Phillips curve specifications in the euro area.Instead of imposing rational expectations, direct measures, ie OECD forecasts, are used to proxy economic agents' inflation expectations.Real marginal costs are measured in three different ways.The results suggest that with directly measured expectations the estimated New Classical Phillips curve has satisfactory statistical properties. Moreover, the driving variable enters the estimated, purely forward-looking, New Keynesian Phillips curve with the correct sign, but it is clearly outperformed by the New Classical and Hybrid Phillips curves.We interpret our results as indicating that the European inflation process is not purely forwardlooking, so that inflation cannot instantaneously adjust to new information. Consequently, even allowing for possible non-rationality in expectations, a lagged inflation term enters the New Keynesian Phillips curve for European inflation dynamics.The inflation process seems to have become more forward-looking in the recent years of low and stable inflation.Furthermore, in the New Keynesian Phillips curve relationship, the output gap turns out to be at least as good a proxy for real marginal cost as is the labour income share. Key words: Phillips curve, expectations, euro area JEL Classification: E31, C52