Forecast errors of bivariate EqCMs and dVARs
In this section, we illustrate how the forecast errors of an EqCM and the corresponding dVAR are affected differently by structural breaks. Practical forecasting models are typically open systems, with …
Testing the specification
The main tools of evaluation of models like the NPCM have been the GMM test of validity of overidentifying restrictions (i. e. the xj-test earlier) and measures and graphs of …
The dynamic wage-price model
When modelling the short-run relationships we impose the estimated steady state from (9.3) to (9.4) on a subsystem for {Awt, Apt} conditional on {Aat, Ayt, Aut-1, Apit, At1t, At3t} with …
Does the MA(1) process prove that the forward solution applies?
Assume that the true model is Apt = bp1^pt-1 + £pt: bpl < 1 and the the following model is estimated by means of instrumental variables Apt = bpiApt+i + …
Inversion may lead to forecast failure
Assuming that the monetary authorities can control the stock of money balances in the economy, it would be appealing if one could obtain a model of inflation from the established …
Four groups of interest rate rules
The rules we consider are of the type RSt = ш RSt_i + (1 — шr )(n* + RR*) + Шп (fit+в — n*) + шу (A4 Vt+K — 3*y) …
The New Keynesian Phillips curve
We estimate a hybrid NPCM as described in Section 8.5.3 (cf. Chapter 7 for further details). Using the instruments of Gall et al. (2001)[77]—five lags of inflation, Apt, and two …
A large-scale EqCM model and four dVAR type forecasting systems based on differenced data
Section 11.2.1 brought out that even for very simple systems, it is in general difficult to predict which version of the model is going to have the smallest forecast error, …
An encompassing representation
The main alternatives to the NPCM as models of inflation are the Standard Phillips Curve Model (PCM) and the Incomplete Competition Model (ICM). They will therefore be important in suggesting …
Closing the model: marginal models for feedback variables
We have established a wage-price model conditional upon the exchange rate vt (which works through pit), GDP mainland output yt, the rate of unemployment ut, and average labour productivity at. …
Calculation of interim multipliers in a linear dynamic model: a general exposition
Interim multipliers provide a simple yet powerful way to describe the dynamic properties of a dynamic model. We follow Lutkepohl (1991) and derive the dynamic multipliers in a simultaneous system …
8.4 Monetary analysis of Norwegian data
8.4.1 Money demand in Norway—revised and extended data The demand for broad money in Norway has previously been analysed by Eitrheim (1998) using seasonally unadjusted data from 1969(1) to 1993(4). …
Revisions of output data: a case for real-time variables?
A first version of the quarterly national accounts (QNA) data is published by Statistics Norway shortly after the end of each quarter, based on a limited information set. As more …
Evaluation of the inflation models’ properties
In this section, we summarise the statistical properties of the different inflation models, in order to make more formal comparisons. In Table 8.6 we have collected the p-values for the …
Model specification and forecast accuracy
Forecasters and policy decision-makers often have to choose a model to use from a whole range of different models, all claiming to represent the economy (or the part of it …
Testing against richer dynamics
In the case of the NPCM, the specification of the econometric model used for testing a substantive hypothesis—forward and lagged endogenous variable— incorporates the alternative hypothesis associated with a mis-specification …
The nominal exchange rate vt
The nominal exchange rate affects wages and prices via import prices pit. Let pft be an index of import prices in foreign currencies. Then, as a first step in the …
An example
As an example, and in the process of illustrating different techniques, we will work out the dynamic properties of the wage-price model of Section 9.2.2. This involves evaluating the stability …
Monetary effects in the inflation equation?
We find no effect of inflation in the money demand equations for Norway. Hence it does not make sense to interpret the money demand functions as inverted inflation equations. We …
Data input for interest rate rules
Figure 10.2 shows the variation in the variables we use in the different interest rate rules over the period 1995(1) to 2000(4). Underlying inflation A4put is headline inflation corrected for …
Comparing the forecasting properties of the models
Figure 8.15 shows graphs of 20 quarters of one-step ahead forecasts with +/- two forecast errors to indicate the forecast uncertainty for the five models we have estimated. It is …
Forecast errors of stylised inflation models
We formulate a simple DGP to investigate the theoretical forecasting capabilities of the ICM and the PCM, thus providing a background for the interpretation of the actual forecast errors in …
Evaluation of the system
The nature of the solution for the rate of inflation is a system property, as noted in Section 7.3. Hence, unless one is willing to accept at face value that …
Mainland GDP output yt
The model for Ayt is adapted from the ‘AD’ equation in Bardsen and Klovland (2000). The growth in output Ayt is in the short run a function of public demand …
Inflation models for the Euro area
In Section 8.3 we found that an inverted money demand function did not provide a sound basis for explaining inflation in the Euro area. Still, there may be a case …
Ex post calculated interest rate rules
To get a feel for the properties and implications of the different monetary policy rules in Table 10.1, we have calculated ex post interest rates corresponding to the different rules, …
Summary of findings—Euro-area data
The model comparisons in this section do not allow us to draw decisive conclusions. Some caveats no doubt apply: the presumptions of a clearly defined monetary policy for the economy …
Revisiting empirical models of Norwegian inflation
The definitions of the variables are in line with those we presented for the ICM in Chapter 9, but the sample is different and covers the period 1966(4)-1996(4). The wage …
Testing the encompassing implications
So far the NPCM has mainly been used to describe the inflationary process in studies concerning the United States economy or for aggregated Euro data. Heuristically, we can augment the …
Productivity at
Productivity growth Д^ is basically modelled as a moving average with declining weights Дat = 0.73 — 0.76Д^_ 1 — 0.79Д^_ 2 — 0.48Да^ 3 (0.15) (0.05) (0.05) (0.10) — …
The wage-price block of the Area Wide Model
The unique feature of the AWM is that it treats the Euro area as a single economy. Since the Euro was introduced only on 1 January 1999 and the information …
Evaluation of interest rate rules
10.3.1 A new measure—RMSTEs Since we set the monetary policy instrument RSt in order to make a target variable xt stay close to its target level x*, it makes sense …
Lineages of the Phillips curve
Following Phillips’ (1958) discovery of an empirical regularity between the rate of unemployment and money wage inflation in the United Kingdom, the Phillips curve was integrated in macroeconomics through a …
Beyond the natural rate doctrine: unemployment-inflation dynamics
In this section, we relax the assumption, made early in the section, of exogenously determined unemployment which, after all, was made for a specific purpose, namely for showing that under …
The Econometrics of. Macroeconomic Modelling
At the European Meeting of the Econometric Society in Santiago de Compostela in September 1999, Clive Granger asked if we would like to write a book for the Advanced Texts …
