Economic modelling
Haldane turns to other disciplines to solve big economic questions
BoE chief economist calls for an interdisciplinary approach to tackling the problems economics faces in understanding complex systems; warns of shortcomings in micro-founded models
Fed research proposes micro-founded approach to term structure modelling
Economists build structural New Keynesian model in contrast to the statistical approaches in much of the available literature, identifying key factors shaping term premiums
BoE paper takes DSGE approach to deflation probabilities
Comparing simulations using a DSGE model estimated on different market-based measures of deflation probability helps to pick out causality, researchers say
Riksbank paper shows importance of modelling bank costs
Models should not assume financial intermediation is free, authors say, showing banks can reduce aggregate welfare in some cases
BoE paper tackles ‘sectoral co-movement puzzle’
Adding labour market frictions and habit formation helps to solve the problem of models implying a monetary contraction produces little response in output
BoE paper tests agent-based model of macro-prudential policy
Researchers use agent-based model to capture diversity of behaviour between different housing market participants, pointing to risks from larger buy-to-let sector
Danish economist updates DSGE model with financial frictions
Jesper Pedersen adds imperfectly competitive banking system and housing market to improve model’s ability to explain crises
ECB paper aims to improve small-scale models for assessing policy shocks
Paper outlines a structural factor model, which the authors say better accounts for the asset price impact of monetary policy shocks
BIS research seeks to forecast global inflation
Economist builds global inflation forecast using country-level survey forecasts, finding it can be used to improve domestic inflation projections in some countries
Norges Bank paper studies forecast asymmetry at lower bound
Effective lower bound need not translate into asymmetries in other forecast variables, authors find; regime-switching DSGE model helps overcome Lucas critique
Riksbank paper offers method for tackling distorted forecast evaluation
Authors adjust for different amounts of information available, allowing them to overcome distortions in forecast evaluation
Bank of Finland looking to streamline and upgrade payments simulator
Economist sheds light on the bank’s plans for adding new features, improving efficiency and integrating agent-based modelling
Economists add to theory and empirics of economy’s non-linear dynamics
Paper by Bank of England economists finds “strong evidence” of non-linearity in UK data, while Markus Brunnermeier and Yuliy Sannikov expand theory of financial amplification mechanisms
RBNZ better at forecasting growth and inflation than exchange rate, notes study
Economists compare judgement-based forecasts with benchmark set by suite of statistical models, finding judgement tends to work well, but both types of forecast struggle with exchange rates
BoE paper finds fault with empirical methods for studying contagion
Review of spillover and contagion literature finds methods plagued by bias and heteroskedasticity, concluding no single technique is flawless, but some offer a partial solution
Climbing ‘Mount Economy’
The BIS’s quest for financial stability-oriented monetary policy throws up questions not only about decision-making but also how one should think about economics, as Claudio Borio explains
Blanchard sees reformed DSGE as ‘central’ to future of macroeconomics
Former IMF chief economist says DSGE models are “seriously flawed” but “eminently improvable”, and will have a leading role to play in the future
BoJ research uses ‘global game’ to explain zero inflation
Model of monopolistic competition implies co-ordination between firms may lead to zero inflation
Philadelphia paper explores drivers of bankruptcy decisions
Working paper examines the extent to which the structure of a household’s balance sheet and income statement influences its decision to file for bankruptcy in the wake of an income shock
IMF paper offers alternative explanation for Venezuelan inflation
Working paper argues fall in oil prices combined with restrictions in foreign exchange best explains hyperinflation in Venezuela, rather than a self-reinforcing rise in expectations
Dutch paper explores information content of asset prices for inflation
Working paper finds high asset prices can be an indicator of either high or low inflation, though more commonly the former; considers information content of range of financial variables
Atlanta Fed paper demonstrates signalling mechanism in mortgage market
Lenders in mortgage market able to reveal quality of loans by delaying trade, authors find; loans sold five months after origination less likely to default
RBNZ can evaluate forecasts using benchmarks – McDermott
Inflation has been weaker and the NZ dollar stronger than the central bank forecast, assistant governor says; can gain insight from comparing its forecast with others
Japanese inflation target a partial success – Fed paper
Authors show adopting inflation target during a liquidity trap can have powerful effects, but in the Japanese case it seems to have been weakened by other factors