Anthony Garratt, Kevin Lee, M. Hashem Pesaran, and Yongcheol Shin
- Published in print:
- 2006
- Published Online:
- September 2006
- ISBN:
- 9780199296859
- eISBN:
- 9780191603853
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0199296855.003.0002
- Subject:
- Economics and Finance, Econometrics
This chapter describes some alternative approaches to macroeconometric modelling, focusing on the long-run characteristics of macroeconomic models and the consensus that has developed surrounding ...
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This chapter describes some alternative approaches to macroeconometric modelling, focusing on the long-run characteristics of macroeconomic models and the consensus that has developed surrounding desirable long-run properties. It also considers the effectiveness of the different approaches in their attempts to test and incorporate the long-run properties into models in practice.Less
This chapter describes some alternative approaches to macroeconometric modelling, focusing on the long-run characteristics of macroeconomic models and the consensus that has developed surrounding desirable long-run properties. It also considers the effectiveness of the different approaches in their attempts to test and incorporate the long-run properties into models in practice.
Anthony Garratt, Kevin Lee, M. Hashem Pesaran, and Yongcheol Shin
- Published in print:
- 2006
- Published Online:
- September 2006
- ISBN:
- 9780199296859
- eISBN:
- 9780191603853
- Item type:
- book
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0199296855.001.0001
- Subject:
- Economics and Finance, Econometrics
This book provides a comprehensive description of the state-of-the-art in macroeconometric modelling and describes the ‘long-run structural modelling approach’ applied to the modelling of national ...
More
This book provides a comprehensive description of the state-of-the-art in macroeconometric modelling and describes the ‘long-run structural modelling approach’ applied to the modelling of national economies in a global context. The first part of the book discusses the ways in which economic theory and econometric analysis can be brought together to construct a macroeconometric model, in which the long-run relationships are consistent with economic theory and where the short-run dynamics have an interpretation. The discussion considers theoretical as well as practical considerations involved in the model building process, and gives an overview of the econometric methods covering cointegrating VAR analysis and probability forecasting. The second part of the book is devoted to the practical detail of estimating a long-run structural macroeconometric model and is illustrated through various global and national examples, including a step-by-step description of the development of a model of the UK economy. The third part discusses the interpretation and use of long-run structural macroeconometric models, describing the use of the UK model along with illustrations of the modelling approach in investigating regional interdependencies in a global macroeconometric model and other specified issues in a global or national macroeconometric context. Throughout, the book emphasizes the use of macroeconometric modelling in the real world and provides sufficient detail, including discussion of data collection and computer programmes employed, for the techniques that are introduced to be replicated or applied in new contexts.Less
This book provides a comprehensive description of the state-of-the-art in macroeconometric modelling and describes the ‘long-run structural modelling approach’ applied to the modelling of national economies in a global context. The first part of the book discusses the ways in which economic theory and econometric analysis can be brought together to construct a macroeconometric model, in which the long-run relationships are consistent with economic theory and where the short-run dynamics have an interpretation. The discussion considers theoretical as well as practical considerations involved in the model building process, and gives an overview of the econometric methods covering cointegrating VAR analysis and probability forecasting. The second part of the book is devoted to the practical detail of estimating a long-run structural macroeconometric model and is illustrated through various global and national examples, including a step-by-step description of the development of a model of the UK economy. The third part discusses the interpretation and use of long-run structural macroeconometric models, describing the use of the UK model along with illustrations of the modelling approach in investigating regional interdependencies in a global macroeconometric model and other specified issues in a global or national macroeconometric context. Throughout, the book emphasizes the use of macroeconometric modelling in the real world and provides sufficient detail, including discussion of data collection and computer programmes employed, for the techniques that are introduced to be replicated or applied in new contexts.
Anthony Garratt, Kevin Lee, M. Hashem Pesaran, and Yongcheol Shin
- Published in print:
- 2006
- Published Online:
- September 2006
- ISBN:
- 9780199296859
- eISBN:
- 9780191603853
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0199296855.003.0009
- Subject:
- Economics and Finance, Econometrics
This chapter describes the empirical work underlying the construction of the UK model, discusses the results obtained from testing its long-run properties, and compares the model with benchmark ...
More
This chapter describes the empirical work underlying the construction of the UK model, discusses the results obtained from testing its long-run properties, and compares the model with benchmark univariate models of the variables. The description of the modelling work not only provides one of the first examples of the use of the long-run structural cointegrating VAR techniques in an applied context, but it also includes a discussion of bootstrap experiments designed to investigate the small-sample properties of the tests employed.Less
This chapter describes the empirical work underlying the construction of the UK model, discusses the results obtained from testing its long-run properties, and compares the model with benchmark univariate models of the variables. The description of the modelling work not only provides one of the first examples of the use of the long-run structural cointegrating VAR techniques in an applied context, but it also includes a discussion of bootstrap experiments designed to investigate the small-sample properties of the tests employed.
Stephen K. McNees
- Published in print:
- 1991
- Published Online:
- October 2011
- ISBN:
- 9780195057720
- eISBN:
- 9780199854967
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780195057720.003.0003
- Subject:
- Economics and Finance, Econometrics
Economic forecasts differ because forecasters use different macroeconomic models. However, even if everyone used the same model, all forecasts would not be identical. Most forecasts reflect a complex ...
More
Economic forecasts differ because forecasters use different macroeconomic models. However, even if everyone used the same model, all forecasts would not be identical. Most forecasts reflect a complex interaction among three elements. Unfortunately, little is known about the relative importance of these elements. This chapter addresses three kinds of question. The initial stage of the Model Comparison Seminar's project, starting in early 1986, has been the collection of relevant data, a laborious and time-consuming part of the project. The following results are a preliminary report on an ongoing effort. The conclusions, based on the limited experience so far, must be regarded as highly tentative. Any success that has been achieved should be largely credited to the modelers who participated in this exercise. This chapter compares model solutions based on different sets of conditioning information. In general, a model can be thought of as a conditional statement about the relationship between inputs (Xs) and outputs (Ys), or Y = f(X).Less
Economic forecasts differ because forecasters use different macroeconomic models. However, even if everyone used the same model, all forecasts would not be identical. Most forecasts reflect a complex interaction among three elements. Unfortunately, little is known about the relative importance of these elements. This chapter addresses three kinds of question. The initial stage of the Model Comparison Seminar's project, starting in early 1986, has been the collection of relevant data, a laborious and time-consuming part of the project. The following results are a preliminary report on an ongoing effort. The conclusions, based on the limited experience so far, must be regarded as highly tentative. Any success that has been achieved should be largely credited to the modelers who participated in this exercise. This chapter compares model solutions based on different sets of conditioning information. In general, a model can be thought of as a conditional statement about the relationship between inputs (Xs) and outputs (Ys), or Y = f(X).
John Kay
- Published in print:
- 1996
- Published Online:
- November 2003
- ISBN:
- 9780198292227
- eISBN:
- 9780191596520
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0198292228.003.0003
- Subject:
- Economics and Finance, Microeconomics
Building bigger and more elaborate models will neither help us arrive at more realistic descriptions of the world nor help make our predictions more accurate. Mathematical models are just a more ...
More
Building bigger and more elaborate models will neither help us arrive at more realistic descriptions of the world nor help make our predictions more accurate. Mathematical models are just a more accurate way of describing certain complex systems and even though such a model can enhance our understanding of the problem and help us check the internal consistency of our assumptions, it will not tell us something we have not already told it.Less
Building bigger and more elaborate models will neither help us arrive at more realistic descriptions of the world nor help make our predictions more accurate. Mathematical models are just a more accurate way of describing certain complex systems and even though such a model can enhance our understanding of the problem and help us check the internal consistency of our assumptions, it will not tell us something we have not already told it.
Roman Frydman and Edmund S. Phelps (eds)
- Published in print:
- 2013
- Published Online:
- October 2017
- ISBN:
- 9780691155234
- eISBN:
- 9781400846450
- Item type:
- book
- Publisher:
- Princeton University Press
- DOI:
- 10.23943/princeton/9780691155234.001.0001
- Subject:
- Economics and Finance, Macro- and Monetary Economics
This book originated from a 2010 conference marking the fortieth anniversary of the publication of the landmark “Phelps microfoundations volume,” Microeconomic Foundations of Employment and Inflation ...
More
This book originated from a 2010 conference marking the fortieth anniversary of the publication of the landmark “Phelps microfoundations volume,” Microeconomic Foundations of Employment and Inflation Theory, a book that is often credited with pioneering the currently dominant approach to macroeconomic analysis. However, this book argues that the vast majority of macroeconomic and finance models developed over the last four decades derailed, rather than built on, the Phelps volume's “microfoundations” approach. Whereas the contributors to the 1970 volume recognized the fundamental importance of according market participants' expectations an autonomous role, contemporary models rely on the Rational Expectations Hypothesis (REH), which rules out such a role by design. The financial crisis that began in 2007, preceded by a spectacular boom and bust in asset prices that REH models implied could never happen, has spurred a quest for fresh approaches to macroeconomic analysis. While the alternatives to REH presented in the book differ from the approach taken in the original Phelps volume, they are notable for returning to its major theme: understanding aggregate outcomes requires according expectations an autonomous role. The introductory chapter interprets the various efforts to reconstruct the field—some of which promise to chart its direction for decades to come.Less
This book originated from a 2010 conference marking the fortieth anniversary of the publication of the landmark “Phelps microfoundations volume,” Microeconomic Foundations of Employment and Inflation Theory, a book that is often credited with pioneering the currently dominant approach to macroeconomic analysis. However, this book argues that the vast majority of macroeconomic and finance models developed over the last four decades derailed, rather than built on, the Phelps volume's “microfoundations” approach. Whereas the contributors to the 1970 volume recognized the fundamental importance of according market participants' expectations an autonomous role, contemporary models rely on the Rational Expectations Hypothesis (REH), which rules out such a role by design. The financial crisis that began in 2007, preceded by a spectacular boom and bust in asset prices that REH models implied could never happen, has spurred a quest for fresh approaches to macroeconomic analysis. While the alternatives to REH presented in the book differ from the approach taken in the original Phelps volume, they are notable for returning to its major theme: understanding aggregate outcomes requires according expectations an autonomous role. The introductory chapter interprets the various efforts to reconstruct the field—some of which promise to chart its direction for decades to come.
Filippo di Mauro and M. Hashem Pesaran (eds)
- Published in print:
- 2013
- Published Online:
- May 2013
- ISBN:
- 9780199670086
- eISBN:
- 9780191749469
- Item type:
- book
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199670086.001.0001
- Subject:
- Economics and Finance, Macro- and Monetary Economics
The recent crisis has shown yet again how the world economies are globally interlinked, via a complex net of transmission channels. When it comes, however, to build econometric frameworks aimed at ...
More
The recent crisis has shown yet again how the world economies are globally interlinked, via a complex net of transmission channels. When it comes, however, to build econometric frameworks aimed at analysing such linkages, modellers are faced with what is called the "curse of dimensionality": there far too many parameters to be estimated with respect to the available observations. The GVAR, a VAR based model of the global economy, offers a solution to this problem. The basic model is composed of a large number of country specific models, comprising domestic, foreign and purely global variables. The foreign variables, however, are treated as weakly exogenous. This assumption, which is typically held when empirically tested for virtually all economies - with the notable exception of the US which is treated differently - allows to estimate first the individual country models separately. Only in a second stage country-specific models are simultaneously solved, thus allowing global interactions.This volume presents - for a first time in a compact and rather easy to read format - principles and structure of the basic GVAR model and a number of its many applications and extensions developed in the last few years by a growing literature. Its main objective is to show how powerful the model can be as a tool for forecasting and scenario analysis. The clear modelling structure of the GVAR appeals to policy makers and practitioners as shown by its growing use among major institutions, as well as by econometricians, as shown by the main extensions and applications.Less
The recent crisis has shown yet again how the world economies are globally interlinked, via a complex net of transmission channels. When it comes, however, to build econometric frameworks aimed at analysing such linkages, modellers are faced with what is called the "curse of dimensionality": there far too many parameters to be estimated with respect to the available observations. The GVAR, a VAR based model of the global economy, offers a solution to this problem. The basic model is composed of a large number of country specific models, comprising domestic, foreign and purely global variables. The foreign variables, however, are treated as weakly exogenous. This assumption, which is typically held when empirically tested for virtually all economies - with the notable exception of the US which is treated differently - allows to estimate first the individual country models separately. Only in a second stage country-specific models are simultaneously solved, thus allowing global interactions.This volume presents - for a first time in a compact and rather easy to read format - principles and structure of the basic GVAR model and a number of its many applications and extensions developed in the last few years by a growing literature. Its main objective is to show how powerful the model can be as a tool for forecasting and scenario analysis. The clear modelling structure of the GVAR appeals to policy makers and practitioners as shown by its growing use among major institutions, as well as by econometricians, as shown by the main extensions and applications.
John Kay
- Published in print:
- 1996
- Published Online:
- November 2003
- ISBN:
- 9780198292227
- eISBN:
- 9780191596520
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0198292228.003.0002
- Subject:
- Economics and Finance, Microeconomics
Using data on previous forecasts, this widely influential 1995 FT article criticizes the reliability and usefulness of economic forecasts. Contrary to the widespread belief that economists always ...
More
Using data on previous forecasts, this widely influential 1995 FT article criticizes the reliability and usefulness of economic forecasts. Contrary to the widespread belief that economists always disagree, it shows that economic forecasts typically fall into quite a narrow range, but that the range rarely includes the outcome.Less
Using data on previous forecasts, this widely influential 1995 FT article criticizes the reliability and usefulness of economic forecasts. Contrary to the widespread belief that economists always disagree, it shows that economic forecasts typically fall into quite a narrow range, but that the range rarely includes the outcome.
Hans Dewachter and Marco Lyrio
- Published in print:
- 2008
- Published Online:
- February 2013
- ISBN:
- 9780226092119
- eISBN:
- 9780226092126
- Item type:
- chapter
- Publisher:
- University of Chicago Press
- DOI:
- 10.7208/chicago/9780226092126.003.0006
- Subject:
- Economics and Finance, Macro- and Monetary Economics
This chapter builds and estimates a macroeconomic model that includes learning. Learning was introduced in the model by assuming that agents do not believe in time-invariant inflation targets nor in ...
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This chapter builds and estimates a macroeconomic model that includes learning. Learning was introduced in the model by assuming that agents do not believe in time-invariant inflation targets nor in constant equilibrium real rates. Given these priors, the optimal learning rule was derived in terms of a Kalman gain updating rule. The results show that including learning improves the fit of the model independently of the type of information included in the measurement equation. Although learning models improve on the rational expectations models, they are not fully satisfactory. Autocorrelation in the errors was found to be significant. Introducing learning in a standard New Keynesian model generated sufficiently volatile stochastic endpoints to fit the variation in long-maturity yields and in surveys of inflation expectations. The learning model, therefore, complements the current macrofinance literature linking macroeconomic and term structure dynamics.Less
This chapter builds and estimates a macroeconomic model that includes learning. Learning was introduced in the model by assuming that agents do not believe in time-invariant inflation targets nor in constant equilibrium real rates. Given these priors, the optimal learning rule was derived in terms of a Kalman gain updating rule. The results show that including learning improves the fit of the model independently of the type of information included in the measurement equation. Although learning models improve on the rational expectations models, they are not fully satisfactory. Autocorrelation in the errors was found to be significant. Introducing learning in a standard New Keynesian model generated sufficiently volatile stochastic endpoints to fit the variation in long-maturity yields and in surveys of inflation expectations. The learning model, therefore, complements the current macrofinance literature linking macroeconomic and term structure dynamics.
S. Mansoob. Murshed
- Published in print:
- 2004
- Published Online:
- April 2005
- ISBN:
- 9780199275786
- eISBN:
- 9780191602160
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0199275785.003.0007
- Subject:
- Economics and Finance, Development, Growth, and Environmental
This chapter examines the links between natural resources, economic growth, and economic policy using a short-run theoretical macroeconomic model of a small open economy endowed with a natural ...
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This chapter examines the links between natural resources, economic growth, and economic policy using a short-run theoretical macroeconomic model of a small open economy endowed with a natural resource exporting sector. It considers the short-run effects of resource booms, devaluation, and a consumption tax on the non-traded good. Typologies are developed, distinguishing between the East Asian (diffuse resource-rich) and Latin American (point-source linkages) cases.Less
This chapter examines the links between natural resources, economic growth, and economic policy using a short-run theoretical macroeconomic model of a small open economy endowed with a natural resource exporting sector. It considers the short-run effects of resource booms, devaluation, and a consumption tax on the non-traded good. Typologies are developed, distinguishing between the East Asian (diffuse resource-rich) and Latin American (point-source linkages) cases.
Ray C. Fair and Lewis S. Alexander
- Published in print:
- 1991
- Published Online:
- October 2011
- ISBN:
- 9780195057720
- eISBN:
- 9780199854967
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780195057720.003.0006
- Subject:
- Economics and Finance, Econometrics
This chapter compares the predictive accuracy of the Michigan and Fair econometric models using the method developed in Ray Fair. These models are compared to each other and to an eighth-order ...
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This chapter compares the predictive accuracy of the Michigan and Fair econometric models using the method developed in Ray Fair. These models are compared to each other and to an eighth-order autoregressive model. The method accounts for the four main sources of uncertainty of an economic forecast: uncertainty due to the error terms, the coefficient estimates, the exogenous variables, and the possible misspecification of the model. Because it accounts for these four sources, it can be used to make comparisons across models. The method has been used to compare the Fair model to autoregressive models, vector autoregressive models, Thomas Sargent's classical macroeconomic model, and a small linear model, but this is the first time it has been used to compare two relatively large structural models. The chapter's primary aim is to demonstrate the application of the comparison method to large models.Less
This chapter compares the predictive accuracy of the Michigan and Fair econometric models using the method developed in Ray Fair. These models are compared to each other and to an eighth-order autoregressive model. The method accounts for the four main sources of uncertainty of an economic forecast: uncertainty due to the error terms, the coefficient estimates, the exogenous variables, and the possible misspecification of the model. Because it accounts for these four sources, it can be used to make comparisons across models. The method has been used to compare the Fair model to autoregressive models, vector autoregressive models, Thomas Sargent's classical macroeconomic model, and a small linear model, but this is the first time it has been used to compare two relatively large structural models. The chapter's primary aim is to demonstrate the application of the comparison method to large models.
Sukehiro Hosono
- Published in print:
- 2015
- Published Online:
- September 2015
- ISBN:
- 9781847429841
- eISBN:
- 9781447311515
- Item type:
- chapter
- Publisher:
- Policy Press
- DOI:
- 10.1332/policypress/9781847429841.003.0002
- Subject:
- Political Science, Public Policy
Formal policy analysis including cost-benefit analysis and quantitative policy equation system such as macroeconomic simulation model can be expected to be a strong and high performing analytical ...
More
Formal policy analysis including cost-benefit analysis and quantitative policy equation system such as macroeconomic simulation model can be expected to be a strong and high performing analytical tool for a long time in developed countries. Cost-benefit analysis has been widely utilized with minor importance, but other formal approaches especially macroeconomic modelling and simulation have only had a narrow role for policy formation or policy making process in Japan. This paper considers the reasons why such formal analysis has been only restricted to exploit in policy making process from economic, political and historical points of view, and suggests making use of formal policy analysis more especially macroeconomic model approach with the Cabinet real coordination and international practical cooperation in order to fix public finance failure and to increase transparency of policy formation process in Japan.Less
Formal policy analysis including cost-benefit analysis and quantitative policy equation system such as macroeconomic simulation model can be expected to be a strong and high performing analytical tool for a long time in developed countries. Cost-benefit analysis has been widely utilized with minor importance, but other formal approaches especially macroeconomic modelling and simulation have only had a narrow role for policy formation or policy making process in Japan. This paper considers the reasons why such formal analysis has been only restricted to exploit in policy making process from economic, political and historical points of view, and suggests making use of formal policy analysis more especially macroeconomic model approach with the Cabinet real coordination and international practical cooperation in order to fix public finance failure and to increase transparency of policy formation process in Japan.
John Kay
- Published in print:
- 1996
- Published Online:
- November 2003
- ISBN:
- 9780198292227
- eISBN:
- 9780191596520
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0198292228.003.0004
- Subject:
- Economics and Finance, Microeconomics
The first part of this chapter explains why economics has enjoyed more success in answering microeconomic questions rather than macroeconomic ones. The second part responds to a number of attacks on ...
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The first part of this chapter explains why economics has enjoyed more success in answering microeconomic questions rather than macroeconomic ones. The second part responds to a number of attacks on economics, by clarifying that the foremost role of economics is to clarify our understanding and organize our thoughts rather than to help us make forecasts.Less
The first part of this chapter explains why economics has enjoyed more success in answering microeconomic questions rather than macroeconomic ones. The second part responds to a number of attacks on economics, by clarifying that the foremost role of economics is to clarify our understanding and organize our thoughts rather than to help us make forecasts.
Filippo di Mauro and L. Vanessa Smith
- Published in print:
- 2013
- Published Online:
- May 2013
- ISBN:
- 9780199670086
- eISBN:
- 9780191749469
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199670086.003.0002
- Subject:
- Economics and Finance, Macro- and Monetary Economics
This chapter provides a brief overview of the GVAR modelling framework and presents the basic GVAR model of Dees, di Mauro, Pesaran, and Smith (2007, DdPS). The DdPS GVAR model is estimated for 26 ...
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This chapter provides a brief overview of the GVAR modelling framework and presents the basic GVAR model of Dees, di Mauro, Pesaran, and Smith (2007, DdPS). The DdPS GVAR model is estimated for 26 countries/regions (the euro area being treated as a single economy) covering the period 1979 to 2011, thus extending the original estimation sample of DdPS by eight years. The emphasis is on the short-term and long-term implications of external shocks for a set of focus economies, namely USA, Euro area, China, Japan, UK, Sweden, Switzerland and Norway. The results among other suggest that financial shocks are transmitted relatively rapidly, and often get amplified as they travel from the USA to the rest of the world.Less
This chapter provides a brief overview of the GVAR modelling framework and presents the basic GVAR model of Dees, di Mauro, Pesaran, and Smith (2007, DdPS). The DdPS GVAR model is estimated for 26 countries/regions (the euro area being treated as a single economy) covering the period 1979 to 2011, thus extending the original estimation sample of DdPS by eight years. The emphasis is on the short-term and long-term implications of external shocks for a set of focus economies, namely USA, Euro area, China, Japan, UK, Sweden, Switzerland and Norway. The results among other suggest that financial shocks are transmitted relatively rapidly, and often get amplified as they travel from the USA to the rest of the world.
Filippo di Mauro and M. Hashem Pesaran
- Published in print:
- 2013
- Published Online:
- May 2013
- ISBN:
- 9780199670086
- eISBN:
- 9780191749469
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199670086.003.0001
- Subject:
- Economics and Finance, Macro- and Monetary Economics
The world economies are tightly interlinked, via a complex net of transmission channels, which are however hard to model empirically. The GVAR, a VAR based model of the global economy, offers a ...
More
The world economies are tightly interlinked, via a complex net of transmission channels, which are however hard to model empirically. The GVAR, a VAR based model of the global economy, offers a solution to the so called "curse of dimensionality", i.e. the existence of too many parameters to be estimated with respect to the available observations. This volume presents - for a first time in a compact and rather easy to read format - principles and structure of the basic GVAR model and a number of its many applications and extensions developed in the last few years by a growing literature. Its main objective is to show how powerful the model can be as a tool for forecasting and scenario analysis. The clear modelling structure of the GVAR appeals to policy makers and practitioners as shown by its growing use among major institutions, as well as by econometricians, as shown by the main extensions and applicationsLess
The world economies are tightly interlinked, via a complex net of transmission channels, which are however hard to model empirically. The GVAR, a VAR based model of the global economy, offers a solution to the so called "curse of dimensionality", i.e. the existence of too many parameters to be estimated with respect to the available observations. This volume presents - for a first time in a compact and rather easy to read format - principles and structure of the basic GVAR model and a number of its many applications and extensions developed in the last few years by a growing literature. Its main objective is to show how powerful the model can be as a tool for forecasting and scenario analysis. The clear modelling structure of the GVAR appeals to policy makers and practitioners as shown by its growing use among major institutions, as well as by econometricians, as shown by the main extensions and applications
Filippo di Mauro and M. Hashem Pesaran
- Published in print:
- 2013
- Published Online:
- May 2013
- ISBN:
- 9780199670086
- eISBN:
- 9780191749469
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199670086.003.0018
- Subject:
- Economics and Finance, Macro- and Monetary Economics
Some of the main findings of the book include: Cross-border financial spill-overs are particularly important, not only during the 2007-09 crises but more generally, in transmitting financial and real ...
More
Some of the main findings of the book include: Cross-border financial spill-overs are particularly important, not only during the 2007-09 crises but more generally, in transmitting financial and real shocks across the different regions. US credit supply shocks are found to have strong effects on a range of real and financial variables not only in the US, but also in many other economies. GVAR forecasts are found to perform better than a number of benchmarks, especially for output, inflation and real equity prices. The GVAR approach is particularly relevant in stress-testing exercises. The GVAR approach can be readily adapted to allow for non-linear dynamics. The GVAR model it has proved useful to quantify the effects of China’s emergence in the world economy. The GVAR can provide valuable insights into shock transmission across regions within a given economy with important lessons for regional policy.Less
Some of the main findings of the book include: Cross-border financial spill-overs are particularly important, not only during the 2007-09 crises but more generally, in transmitting financial and real shocks across the different regions. US credit supply shocks are found to have strong effects on a range of real and financial variables not only in the US, but also in many other economies. GVAR forecasts are found to perform better than a number of benchmarks, especially for output, inflation and real equity prices. The GVAR approach is particularly relevant in stress-testing exercises. The GVAR approach can be readily adapted to allow for non-linear dynamics. The GVAR model it has proved useful to quantify the effects of China’s emergence in the world economy. The GVAR can provide valuable insights into shock transmission across regions within a given economy with important lessons for regional policy.
- Published in print:
- 2011
- Published Online:
- June 2013
- ISBN:
- 9780804775663
- eISBN:
- 9780804778961
- Item type:
- chapter
- Publisher:
- Stanford University Press
- DOI:
- 10.11126/stanford/9780804775663.003.0007
- Subject:
- Economics and Finance, Economic History
This chapter focuses on the period from the 1970s to 1989, a time when neoclassical economists around the world felt that something was wrong with their field and began to criticize themselves ...
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This chapter focuses on the period from the 1970s to 1989, a time when neoclassical economists around the world felt that something was wrong with their field and began to criticize themselves despite gaining new forms of political and social influence. Many neoclassical economists saw 1989 as the end of the Soviet Union's state socialism, which they had opposed for so long, and the realization of market socialism. This chapter looks at the transnational critique of neoclassical economics and the transitions of 1989, focusing on criticisms in Hungary, Yugoslavia, and the United States. It looks at how mainstream neoclassical economists used socialisms for macroeconomic modeling, considers the notion of the “representative agent” or “social planner,” and neoclassical economics within the World Bank.Less
This chapter focuses on the period from the 1970s to 1989, a time when neoclassical economists around the world felt that something was wrong with their field and began to criticize themselves despite gaining new forms of political and social influence. Many neoclassical economists saw 1989 as the end of the Soviet Union's state socialism, which they had opposed for so long, and the realization of market socialism. This chapter looks at the transnational critique of neoclassical economics and the transitions of 1989, focusing on criticisms in Hungary, Yugoslavia, and the United States. It looks at how mainstream neoclassical economists used socialisms for macroeconomic modeling, considers the notion of the “representative agent” or “social planner,” and neoclassical economics within the World Bank.
William Poole, Robert H. Rasche, and David C. Wheelock
- Published in print:
- 2013
- Published Online:
- September 2013
- ISBN:
- 9780226066950
- eISBN:
- 9780226043555
- Item type:
- chapter
- Publisher:
- University of Chicago Press
- DOI:
- 10.7208/chicago/9780226043555.003.0004
- Subject:
- Economics and Finance, Macro- and Monetary Economics
The Shadow Open Market Committee (SOMC) was established in 1973 in response to rising inflation in the United States and the apparent failure of either the Nixon administration or the Federal Reserve ...
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The Shadow Open Market Committee (SOMC) was established in 1973 in response to rising inflation in the United States and the apparent failure of either the Nixon administration or the Federal Reserve to formulate effective policies to control inflation. This chapter describes the monetary policy framework of the SOMC and the statements it issued during the Great Inflation period. It simulates a New Keynesian macroeconomic model embedding a representation of the SOMC policy rule to evaluate whether the committee’s proposals could have resulted in a lower average and more stable rate of inflation than actually occurred. The simulations show that a gradual adjustment of money stock growth similar to that advocated by the SOMC is likely to result in less impact on output growth and less variability in inflation or output growth than a large one-time adjustment.Less
The Shadow Open Market Committee (SOMC) was established in 1973 in response to rising inflation in the United States and the apparent failure of either the Nixon administration or the Federal Reserve to formulate effective policies to control inflation. This chapter describes the monetary policy framework of the SOMC and the statements it issued during the Great Inflation period. It simulates a New Keynesian macroeconomic model embedding a representation of the SOMC policy rule to evaluate whether the committee’s proposals could have resulted in a lower average and more stable rate of inflation than actually occurred. The simulations show that a gradual adjustment of money stock growth similar to that advocated by the SOMC is likely to result in less impact on output growth and less variability in inflation or output growth than a large one-time adjustment.
Bradly J. Condon and Tapen Sinha
- Published in print:
- 2013
- Published Online:
- September 2013
- ISBN:
- 9780199654550
- eISBN:
- 9780191747953
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199654550.003.0006
- Subject:
- Law, Environmental and Energy Law, Public International Law
This chapter applies the concepts of environmental economics to the problem of climate change. It highlights the fact that using unilateral measures to address climate change represent only a partial ...
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This chapter applies the concepts of environmental economics to the problem of climate change. It highlights the fact that using unilateral measures to address climate change represent only a partial solution because they will not achieve the desired level of emissions reductions. The chapter also critiques, in economic terms, the approach of dividing countries into developed and developing as an ineffective approach to addressing climate change. It further develops the idea of creating an index of countries that evolves as conditions change, called the ‘Climate Sensitivity Index’ (CSI).Less
This chapter applies the concepts of environmental economics to the problem of climate change. It highlights the fact that using unilateral measures to address climate change represent only a partial solution because they will not achieve the desired level of emissions reductions. The chapter also critiques, in economic terms, the approach of dividing countries into developed and developing as an ineffective approach to addressing climate change. It further develops the idea of creating an index of countries that evolves as conditions change, called the ‘Climate Sensitivity Index’ (CSI).
Markus Brunnermeier and Arvind Krishnamurthy (eds)
- Published in print:
- 2014
- Published Online:
- January 2015
- ISBN:
- 9780226077734
- eISBN:
- 9780226092645
- Item type:
- book
- Publisher:
- University of Chicago Press
- DOI:
- 10.7208/chicago/9780226092645.001.0001
- Subject:
- Economics and Finance, Financial Economics
In the fall of 2010 and the spring of 2011, the NBER held two conferences that brought together leading academic researchers, central bankers, and other financial market experts to discuss ideas on ...
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In the fall of 2010 and the spring of 2011, the NBER held two conferences that brought together leading academic researchers, central bankers, and other financial market experts to discuss ideas on measurement and macroeconomic modelling. This book contains a selection of the papers that were presented at the conferences. Existing measurement systems focus on measuring flows and stock variables. However, simply focusing on flow or stock variables is insufficient, especially in a world of derivatives that may divorce initial risk exposures and cash flows. Thus a theme that runs through the measurement scenarios analyzed in this book is the importance of measuring risks to form a comprehensive "risk topography" of the economy. A large part of macro risk is endogenously generated by the system. Systemic crises are the result of a negative shock, or trigger, affecting a fragile or vulnerable economy. While the triggers vary from crisis to crisis, the underlying vulnerabilities have much more commonality across crises. This book informs us about vulnerabilities as opposed to triggers and outlines the issues that might be addressed by a new measurement system that captures the linkage between finance and the macroeconomy. Many of the chapters explain how a given measurement can be used to further understand systemic risk and thus illustrate the potential of using measurement to inform models.Less
In the fall of 2010 and the spring of 2011, the NBER held two conferences that brought together leading academic researchers, central bankers, and other financial market experts to discuss ideas on measurement and macroeconomic modelling. This book contains a selection of the papers that were presented at the conferences. Existing measurement systems focus on measuring flows and stock variables. However, simply focusing on flow or stock variables is insufficient, especially in a world of derivatives that may divorce initial risk exposures and cash flows. Thus a theme that runs through the measurement scenarios analyzed in this book is the importance of measuring risks to form a comprehensive "risk topography" of the economy. A large part of macro risk is endogenously generated by the system. Systemic crises are the result of a negative shock, or trigger, affecting a fragile or vulnerable economy. While the triggers vary from crisis to crisis, the underlying vulnerabilities have much more commonality across crises. This book informs us about vulnerabilities as opposed to triggers and outlines the issues that might be addressed by a new measurement system that captures the linkage between finance and the macroeconomy. Many of the chapters explain how a given measurement can be used to further understand systemic risk and thus illustrate the potential of using measurement to inform models.
