Elena Bobeica, Gabriel Pérez-Quirós, Gerhard Rünstler, Georg Strasser, 31 October 2021

The Covid-19 pandemic shock, new shifting economic trends, and revisions in monetary policy by major central banks make macroeconomic forecasting a challenging task. This column reviews advancements in forecasting techniques that were discussed at the ECB’s 11th Conference on Forecasting Techniques, dedicated to “forecasting in abnormal times”. Researchers are currently advancing primarily on two fronts – either by sheltering linear models against extreme events or explicitly modelling the dynamics of the latter. New approaches and methods are rapidly developing, partly inspired by big data and machine learning techniques.

Alex Bryson, David Blanchflower, 21 October 2021

Economic downturns are not as unpredictable as we once thought. There is mounting evidence that the expectations of consumers, workers and employers predict economic downturns, sometimes 12 to 18 months ahead. But we live in exceptional times. The COVID-19 pandemic and its aftermath have sown doubt and uncertainty among consumers and producers and may do so for some time to come. So what’s the economic prognosis? this column argues that expectations data for the US suggest the country is entering recession about now.

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The Essex Centre for Macro and Financial Econometrics (ECMFE) is holding a virtual workshop over three (12-14 July 2021) days on Predictability, Forecasting and Monitoring.  Speakers include Barbara Rossi, Todd Clark and Allan Timmermann.  All sessions are at 16:00-18:00 BST (starting 17:00 CEST, 11:00 EST, 08:00 PDT).  

The full programme is at https://www.essex.ac.uk/events/2021/07/12/esrc-virtual-workshop-on-predictability-forecasting-and-monitoring 

Registration is free through this link:  https://www.eventbrite.co.uk/e/esrc-virtual-workshop-on-predictability-forecasting-and-monitoring-tickets-151629886071

Programme

12th July (BST ): Session 1

4:00pm - 4:05pm: Welcome and Introduction
Organisers: Robert Taylor, Simon Price and Yuqian Zhao

4:05pm - 5:00pm: “Monitoring and Comparing Forecasting Performance with Panel Data”
Speaker: Allan Timmermann (UC San Diego)
(joint with Yinchu Zhu)

5:00pm - 6:00pm: “Forecasting with Shadow rate VARs”
Speaker: Todd Clark,(Federal Reserve Bank of Cleveland)

13th July (BST): Session 2

4:00pm - 5:00pm : On Local Projection Based Inference
Speaker: Ke Li Xu (Indiana University)

5:00pm - 6:00pm : “Extensions to IVX Methods of Inference for Return Predictability”
Speaker: Robert Taylor, (Essex Business School)
(joint with Matei Demetrescu, Iliyan Georgiev and Paulo Rodrigues)

14th July (BST ): Session 3

4:00pm - 5:00pm : Censored Density Forecasts: Production and Evaluation
Speaker: James Mitchell, (Federal Reserve Bank of Cleveland)
(Joint with Martin Weale)

5:00pm - 6:00pm: The 8 th Annual John C. Nankervis Memorial Lecture
Speaker: Barbara Rossi (CREI, Univ. Pompeu Fabra)

The Essex Centre for Macro and Financial Econometrics (ECMFE) is a joint venture between Essex Business School and the Department of Economics and brings together academics and industry expertise from both inside and outside the University of Essex to research and help solve important issues in macroeconomics and financial markets.

This is an EBS ECMFE and MMF event. The organisers are grateful to the Economic and Social Research Council of the United Kingdom for their funding of this workshop under the research grant ES/R 00496 X/ 1

Maarten Verwey, Milan Vyskrabka, Philipp Pfeiffer, 15 February 2021

The breakthroughs in vaccine development in the autumn of 2020 and the start of mass vaccination campaigns in 2021 brightened the near-term outlook for the EU economy. However, hopes of a quick recovery have, to some extent, been overshadowed by the recent resurgence of the pandemic. In order to highlight the extent of prevailing uncertainty and the importance of vaccinations for EU’s economic trajectory, this column describes the optimistic and pessimistic model-based scenarios for the EU economy forecast by the European Commission. It finds that effective vaccines and their quick roll-out could add about three percentage points to annual growth of EU this year. 

Nicolas Woloszko, 19 December 2020

A pre-requisite for good macroeconomic policymaking is timely information on the current state of the economy, particularly when economic activity is changing rapidly. Given that GDP figures are usually only available on a quarterly basis, the current crisis has prompted a search for alternative high‑frequency indicators of economic activity. This column presents evidence from a new tracker developed by OECD which uses Google Trends and machine learning to provide real-time estimates of GDP growth in countries all over the world.

Paweł Baranowski, Wirginia Doryń, Tomasz Łyziak, Ewa Stanisławska, 22 October 2020

To achieve macroeconomic stabilisation, central banks attempt to manage the expectations of the private sector. Decisions on short-term interest rates and communication can both impact expectations, but communication is especially important under the effective lower bound, when the room to move interest rates down is limited. Using data from Poland, this column shows that while monetary policy shapes the expectations of the private sector through both communication and interest rate decisions, the impact can differ depending on the variable forecasted and on the forecasting horizon.

Claudia Foroni, Massimiliano Marcellino, Dalibor Stevanovic, 29 September 2020

Forecasting the recession and recovery from the COVID-19 crisis is of substantial policy interest. The pandemic shock shares both similarities and differences with previous crises, such as the financial crisis of 2007-2009. This column evaluates the ability of different forecasting and nowcasting approaches to predict the COVID-19 economic shock and forecast the potential recovery path. It shows that adjusting for forecasting errors made during the financial crisis of 2007-2009 better aligns the COVID forecasts with observed data. The results suggest a slow recovery to pre-COVID-19 levels, lasting several years.

Danilo Leiva-León, Gabriel Pérez-Quirós, Eyno Rots, 21 June 2020

The Global Weakness Index (GWI) is a real-time measure of how weak the global economy is. This column uses GWI to assess the repercussions of the coronavirus (COVID-19) crisis in real time. It finds that, after the release of certain soft indicators on 2 March 2020, the GWI increased sharply – much faster than in the 2008 crisis. Moreover, the index remained at a record high at the time of writing, 14 May 2020.

Masayuki Morikawa, 10 February 2020

Although long-term macroeconomic forecasts substantially affect the sustainability of government debt and the social security system, they cannot avoid significant uncertainty. This column assesses whether academic researchers in economics make accurate long-term growth forecasts, comparing ten-year growth forecasts made by Japanese economists in 2006–2007 with the realised figures. Even excluding the years affected by the Global Crisis, the results show that forecasts tend to be biased upwards and involve significant uncertainty, even for economics researchers specialising in macroeconomics or economic growth.

Sanjiv Das, Kris Mitchener, Angela Vossmeyer, 11 March 2019

The Global Crisis brought attention to how connections among financial institutions may make systems more prone to crises. Turning to a major financial crisis from the past, this column uses data from the Great Depression to study risk in the commercial banking network leading up to the crisis and how the network structure influenced the outcomes. It demonstrates that when the distribution of risk is more concentrated at the top of the system, as it was in 1929, fragility and the propensity for risk to spread increases.

Roberto Duncan, Enrique Martínez García, 08 June 2018

Understanding what helps forecast inflation is important for any modern economy, but analysis remains limited in the emerging market economy context. This column presents recent findings on inflation forecasting in such economies, showing that a variant of the simple random walk model specification seems difficult to beat. The strong forecasting performance of this model can be observed even though many emerging economies have adopted a de facto or de jure inflation-targeting regime.

Jon Danielsson, 30 May 2018

Roger Farmer, 29 May 2018

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The Centre for International Macroeconomic Studies (CIMS) in the School of Economics, University of Surrey will hold a five-day Summer School from 4th-8th September, 2017.

The School will consist of two parallel four-day courses (Foundations of DSGE modelling; Advanced DSGE modelling) and four parallel one-day stand-alone courses on day five (Financial Frictions in DSGE Models; DSGE-VAR Models and Forecasting; Occasionally Binding Constraints and Nonlinear Estimation; Emerging Open Economies). Participants can register for all five days, or for only one of the stand-alone one-day courses.

To apply or for further details visit our website: www.surrey.ac.uk/cimssummercourse

Yin-Wong Cheung, Menzie Chinn, Antonio Garcia Pascual, Yi Zhang, 27 April 2017

Previous assessments of nominal exchange rate determination have focused on a narrow set of models. Using data for six currencies, this column examines the performance of an expanded set of models at various forecast horizons. No model consistently outperforms a random walk benchmark, although the purchasing power parity model does fairly well. Overall, combinations of model, specification, and currency that work in one period will not necessarily work well in another.

Michele Ca' Zorzi, Marcin Kolasa, Michał Rubaszek, 03 March 2017

Macroeconomic models have been criticised for their inability to forecast exchange rates better than the random walk model. This column argues that open-economy DGSE models are useful in forecasting the real exchange rate but not the nominal exchange rate, owing to their failure to capture adequately the international co-movement of prices. They correctly predict, however, that the bulk of the real exchange rate adjustment occurs through the nominal rate. The central role of the nominal rate in restoring price competitiveness in flexible exchange rate regimes can be exploited from a forecasting perspective. 

Massimiliano Marcellino, Angela Abbate, 04 February 2017

Exchange rates are important contributors to business cycle fluctuations in open economies. Forecasting exchange rates is not an easy task, however, perhaps due to the instability of their relationship with economic drivers. This column introduces a model that also allows for changing volatility when forecasting exchange rates. Modelling time variation in the cross-rate relationships, and in the volatilities of the shocks hitting the economic system, significantly improves forecasts.

Hannes Mueller, Christopher Rauh, 20 October 2016

Effective forecasting of conflict risk could help prevent civil wars. But resource constraints mean that policymakers rarely act until conflict begins because they fear the number of false positive warnings. This column argues that the policy of reacting to violence instead of preventing it cannot be justified, given the accuracy of simple forecasting models such as news analysis.

Bruce Hansen, 03 June 2016

If an economist selects the wrong model to study a question, the results are also likely to be wrong. In this video, Bruce Hansen talks to Soumaya Keynes about how model selection and combination can be used for forecasting with small error. Model combination methods are suited for forecasting and policy evaluation. This video was recorded in March 2016 during the Royal Economic Society’s Annual Conference held at the University of Sussex.

Joan Paredes, Javier Pérez, Gabriel Pérez-Quirós, 12 July 2015

Uncertainty about fiscal policies can be damaging for economic performance, as it affects decisions about consumption, investment, and savings. This column argues that it is possible to reduce such uncertainty. Even if governments’ fiscal plans turn out to be (purposely) wrong ex post, they can convey useful information. It is just a matter of using the appropriate learning device whereby government promises are confronted every quarter with reality (i.e. what the government is actually doing).

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