Browsing by Subject "E37"

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  • Oinonen, Sami; Vilmi, Lauri (2021)
    BoF Economics Review 5/2021
    This paper presents the New Keynesian Phillips Curve (NKPC) -based framework for analysing euro area inflation outlook. Our NKPC specification, that relies on market- and surveybased inflation expectations, explains well euro area inflation dynamics. Its forecasting performance is also comparable to the performance of the ECB’s official forecasts in both short- and long-horizons. Overall, the NKPC is a useful tool for monitoring euro area inflation outlook. Thanks to its fast and light updating procedure it provides almost real-time information on inflation outlook.
  • Oinonen, Sami; Paloviita, Maritta (2014)
    Bank of Finland Research Discussion Papers 29/2014
    This paper examines aggregated inflation expectations based on the ECB Survey of Professional Forecasters (ECB SPF). We analyse possible impacts of changing panel composition on short and long term point forecasts and forecast uncertainties using approach, which is based on a set of sub-panels of fixed composition. Our results indicate that the unbalanced panel data do not cause systematic distortions to aggregated survey information. However, micro level analysis of expectations would also be useful, especially in times of wide disagreement across forecasters and high levels of inflation uncertainty. Keywords: survey data, expectations, changing panel composition
  • Paloviita, Maritta; Virén, Matti (2014)
    Bank of Finland Research Discussion Papers 8/2014
    This paper studies forecasts errors at the micro level using two alternative survey data sets. The main focus is on inflation and real GDP growth forecasts in the ECB Survey of Professional Forecasters. For comparison, inflation forecasts in the US Survey of Professional Forecasters are also examined. Our analysis indicates that forecast errors are positively related to the subjective uncertainties based on probability distributions, but not to disagreement (standard deviation of point forecasts). We also show that forecast errors, which are rather persistent, are related to forecast revisions. Revisions of expectations generally lead to larger forecast errors. Subjective uncertainty measures, which are available at the time of forecasting, are useful in assessing future forecast errors. Key words: Forecasting, Survey data, Expectations JEL Classification: C53, E37, E31
  • D'Acunto, Francesco; Hoang, Daniel; Paloviita, Maritta; Weber, Michael (2019)
    AEA Papers and Proceedings May
    Cognitive abilities help explain the large cross-sectional variation in inflation expectations at the household level. But which type of cognitive abilities are important? We find that not only quantitative abilities but also logical and verbal abilities are important to explain the accuracy and plausibility of households' inflation expectations. We discuss the channels through which different forms of cognition might shape households' abilities to forecast future macroeconomic variables. We also draw implications for the effectiveness of policies that aim to manage households' expectations.
  • Amstad, Marlene; Ye, Huan; Ma, Guonan (2018)
    BOFIT Discussion Papers 11/2018
    Inflation in emerging markets is often driven by large, persistent changes in food and energy prices. Core inflation measures that neglect or under-weight volatile CPI subcomponents such as food and energy risk excluding information helpful in assessing current and future inflation trends. This paper develops an underlying inflation gauge (UIG) for China, extracting the persistent part of the common component in a broad dataset of price and non-price variables. Our proposed UIG for China avoids the excess volatility reduction that plagues traditional Chinese core inflation measures. When forecasting headline CPI, the proposed UIG outperforms traditional core inflation measures over a variety of samples.
  • Mehrotra, Aaron; Rautava, Jouko (2007)
    BOFIT Discussion Papers 11/2007
    Published in Journal of Chinese Economic and Business Studies, Vol. 6, No. 3, 2008, pp. 225-239
    This paper evaluates the usefulness of business sentiment indicators for forecasting developments in the Chinese real economy.We use data on diffusion indices collected by the People's Bank of China for forecasting industrial production, retail sales and exports.Our bivariate vector autoregressive models, each composed of one diffusion index and one real sector variable, generally outperform univariate AR models in forecasting one to four quarters ahead.Similarly, principal components analysis, combining information from various diffusion indices, leads to enhanced forecasting performance.Our results indicate that Chinese business sentiment indicators convey useful information about current and future developments in the real economy.They also suggest that the official data provide a fairly accurate picture of the Chinese economy. Keywords: forecasting, diffusion index, VAR, China. JEL: E32, E37, P27
  • Ponomarenko, Alexey (2012)
    BOFIT Discussion Papers 22/2012
    Published in Emerging Markets Review 15, 92–106 (2013)
    We apply recently developed early warning indicators systems to a cross-section of emerging markets. We find that, with little or no modification, models designed to predict asset price booms/busts in advanced countries may be useful for emerging markets. The concept of monitoring a set of asset prices, real activity (especially investment) and financial (especially credit) indicators is generally found to be efficacious. Keywords: early warning indicators, asset prices, emerging markets JEL classification: E37, E44, E51.
  • Guse, Eran A. (2004)
    Suomen Pankin keskustelualoitteita 19/2004
    I introduce Expectational Business Cycles where aggregate activity fluctuates due to learning, heterogeneous updating rules and random changes in the social norm predictor.Agents use one of two updating rules to learn the equilibrium values while heterogeneity is dictated via an evolutionary process.Uncertainty of a new equilibrium, due to a shock to the structure of the economy, results in a sudden decrease in output.As agents learn the equilibrium, output slowly increases to its equilibrium value. These business cycles arrive faster, are longer and more severe as agents possess less rationality. Key words: adaptive learning, aggregate fluctuations, heterogeneous expectations, multiple equilibria, rational expectations JEL classification numbers: C62, D84, E37
  • Ambrocio, Gene (2021)
    Applied Economics Letters 9
    I study the effects of expected and realized uncertainty on Euro area macroeconomic conditions. I use a range of expected and realized uncertainty measures including those based on survey forecasts and find that the effects of expected uncertainty vanish once realized uncertainty is accounted for when using financial or news media-based measures. On the other hand, shocks to a survey-based measure of expected uncertainty do appear to have dampening effects.
  • Haavio, Markus; Mendicino, Caterina; Punzi, Maria Teresa (2013)
    Bank of Finland Research Discussion Papers 35/2013
    Published in Applied Economics Letters, Volume 21, Issue 6, April 2014, Pages 407-412 ; https://doi.org/10.1080/13504851.2013.864025
    This article empirically studies the linkages between financial variable downturns and economic recessions. We present evidence that real asset prices tend to lead real cycles, while loan-to-GDP and loan-to-deposit ratios lag them. Using a probit analysis, we document that downturns in real asset prices, particularly real house prices, are useful leading indicators of economic recessions. Keywords: macro-financial linkages; turning point analysis; probit models JEL classification numbers: C53, E32, E37, G17
  • Martins, Manuel M. F.; Verona, Fabio (2020)
    Bank of Finland Research Discussion Papers 4/2020
    We show that the New Keynesian Phillips Curve (NKPC) outperforms standard benchmarks in forecasting U.S. inflation once frequency-domain information is taken into account. We do so by decomposing the time series (of inflation and its predictors) into several frequency bands and forecasting separately each frequency component of inflation. The largest statistically significant forecasting gains are achieved with a model that forecasts the lowest frequency component of inflation (corresponding to cycles longer than 16 years) flexibly using information from all frequency components of the NKPC inflation predictors. Its performance is particularly good in the returning to recovery from the Great Recession.
  • Pönkä, Harri; Stenborg, Markku (2020)
    Finnish Economic Papers 1
    We employ probit models to study the predictability of recession periods in Finland using a set of commonly used variables based on previous literature. The findings point out that individual predictors, including the term spread and the real housing prices from the capital area, are useful predictors of recession periods. However, the best in-sample fit is found using combinations of variables. The pseudo out-of-sample forecasting results are generally in line with the in-sample results, and suggest that in the one-quarter ahead forecasts a model combining the term spread, the unemployment expectation component of the consumer confidence index, and the real housing price index performs the best based on the area under the receiver operating characteristic curve. Autoregressive probit models yield higher in-sample fits compared to the static probit models, and the best pseudo out-of-sample forecasts for longer forecasting horizons are given by an autoregressive model.
  • Jokivuolle, Esa; Kilponen, Juha; Kuusi, Tero (2007)
    Bank of Finland Research Discussion Papers 26/2007
    We suggest a complementary tool for financial stability analysis based on stochastic simulation of a dynamic stochastic general equilibrium model (DSGE) of the macro economy. The paper relates to financial stability research in which financial aggregates crucial to financial stability are modelled as functions of macroeconomic variables. In these models, stress tests for eg banking sector loan losses can be generated by considering adverse scenarios of macro variables. A DSGE model provides a systematic way of generating coherent macro scenarios which can be given a rigorous economic interpretation. The approach is illustrated using a DSGE model of the Finnish economy and a simple model of Finnish banking sector loan losses. Keywords: DSGE models, financial stability, loan losses, stress testing JEL classification numbers: E13, E37, G21, G28
  • Oinonen, Sami; Paloviita, Maritta (2016)
    Bank of Finland Research Discussion Papers 15/2016
    Journal of Business Cycle Research, 13, 2017: 139 - 163 https://rd.springer.com/article/10.1007/s41549-017-0017-6
    This study examines aggregated short- and long-term inflation expectations in the unbalanced panel of the ECB Survey of Professional Forecasters. The focus of the study is on heterogeneity of expectations and changing panel composition. First, we compare two sub-groups of survey respondents divided on the basis of forecast accuracy. Then, we examine possible differences between regular and irregular forecasters. Finally, we assess the relevance of aggregated forecast revisions in the unbalanced panel by constructing alternative forecast revisions based on the set of sub-panels of fixed composition. The results show that, because of heterogeneity across individual views, aggregated inflation expectations in the ECB SPF must be analysed also on a micro level.
  • Oinonen Sami; Paloviita Maritta (2017)
    Journal of Business Cycle Research 2
    This study examines short- and long-term inflation expectations in the unbalanced panel of the ECB Survey of Professional Forecasters. We focus on dispersion of forecaster views comparing two sub-groups of survey respondents based on forecast accuracy. We then examine possible differences between regular and irregular forecasters, and assess the impacts of varying panel composition on aggregated survey information. Our analysis indicates that survey participation is not necessarily completely random, i.e., statistically independent of forecaster views or confidence levels. While the study provides evidence that aggregated survey responses are generally a reliable proxy for inflation expectations in the euro area, one should also pay attention to expectations at the micro level, especially in periods of increased forecast uncertainty.
  • Paloviita, Maritta; Virén, Matti (2012)
    Bank of Finland Research Discussion Papers 37/2012
    Published in Empirica, Volume 41, Issue 1, 2014, Pages 69-81
    This paper studies uncertainty using the ECB Survey of Professional Forecasters' data. We consider both inflation and real GDP growth forecasts at the micro level and explore forecast uncertainty using two alternative measures, i.e. conventional standard deviation of individual point forecasts and the median values of individual forecasters' uncertainty, which are based on subjective probability distributions of survey respondents. Our analysis indicates that individual inflation uncertainty is closely related to the output growth uncertainty. In forming expectations, individual forecasters seem to behave according to an uncertainty-augmented hybrid specification of the New Keynesian Phillips curve. We also find evidence that inflation uncertainty has a negative impact on economic activity by decreasing output growth and increasing inflation and lowering the price sensitiveness of aggregate supply. Key words: Forecasting, Survey data, Expectations, Phillips curve JEL Classification: C53, E37, E31
  • Martins, Manuel M. F.; Verona, Fabio (2021)
    Bank of Finland Research Discussion Papers 8/2021
    Policymakers and researchers see inflation characterized by cyclical fluctuations driven by changes in resource utilization and temporary shocks, around a trend influenced by inflation expectations. We study the in-sample inflation dynamics and forecast inflation out-of-sample by analyzing a New Keynesian Phillips Curve (NKPC) in the frequency domain. In-sample, while inflation expectations dominate medium-to-long-run cycles, energy prices dominate short cycles and business-to-medium cycles once expectations became anchored. While statistically significant, unemployment is not economically relevant for any cycle. Out-of-sample, forecasts from a low-frequency NKPC significantly outperform several benchmark models. The long-run component of unemployment is key for such remarkable forecasting performance.
  • Virén, Matti (2005)
    Bank of Finland Research Discussion Papers 25/2005
    Published in Principles of Modelling, Forecasting and Decision-making, Volume 1 (2007), Number 4, 127-142
    This paper focuses on the determination of inflation expectations. The following two questions are examined: How much do inflation expectations reflect different economic and institutional regime shifts and in which way do inflation expectations adjust to past inflation?The basic idea in the analysis is an assumption that inflation expectations do not mechanically reflect past inflation as may econometric specification de facto assume but rather they depend on the relevant economic regime.Also the adjustment of expectations to past inflation is different in different inflation regimes.The regime analysis is based on panel data from EMU/EU countries for the period 1973- 2004, while the inflation adjustment analysis mainly uses the Kalman filter technique for individual countries for the same period.Expectations (forecasts) are derived from OECD data.Empirical results strongly favour the regime-sensitivity hypothesis and provide an explanation for the poor performance of conventional estimation procedures in the context of Phillips curves. Key words: inflation expectations, Kalman filter, stability JEL classification numbers: E32, E37
  • Oinonen, Sami; Virén, Matti (2020)
    Equilibrium. Quarterly Journal of Economics and Economic Policy 4
    Research background: At the background, there are issues related to policy credibility and policy targets. For these issues, long-term forecasts can provide important information. Of course, long-term forecasts are needed also e.g. for evaluation of real returns. Purpose of the article: This paper tries to find out how informative the ECB Survey of Professional Forecasters data on long-term inflation prospects are from the point of view of the overall quality of the survey and on the other hand from the point of view of monetary policy credibility. Methods: The analysis makes use of individual forecaster level quarterly panel data for the period 1999Q1?2018Q4. Conventional panel econometrics tools are used to find out whether forecasts are sensitive to changes in actual inflation and other relevant variables. Findings & Value added: We find some weaknesses considering the size of the survey, the selection of the sample (more precisely the participation to the survey) and the inertial responses of forecasters which suggest that the survey values are not actively updated. Moreover, we find that towards the end of the sample period, the survey values are related to actual inflation and to short-term expectations, which is not consistent with the credibility of the official inflation target.
  • Ambrocio, Gene (2019)
    Bank of Finland Research Discussion Papers 17/2019
    I provide a measure of household uncertainty available for European Union (EU) countries. The measure draws from the same consumer survey data used to construct widely-used consumer sentiment indices. I find that increases in household uncertainty are followed by declines in consumer sentiment and household financial conditions. Using Euro Area-wide indices, I also find that the effects of increases in household uncertainty differ from increases in uncertainty from other sources such as financial markets and economic policy. Notably, household uncertainty shocks are inflationary. These results challenge the notion that (household) uncertainty shocks act like negative demand shocks.