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Working Paper
Thousands of models, one story: current account imbalances in the global economy
The global financial crisis has led to a revival of the empirical literature on current account imbalances. This paper contributes to that literature by investigating the importance of evaluating model and parameter uncertainty prior to reaching any firm conclusion. We explore three alternative econometric strategies: examining all models, selecting a few, and combining them all. Out of thousands (or indeed millions) of models a story emerges. The chance that current accounts were aligned with fundamentals prior to the financial crisis appears to be minimal.
Working Paper
The GVAR approach and the dominance of the U.S. economy
This paper extends the recent literature about global macroeconomic modelling by allowing the presence of a globally dominant economy. Our contribution is both theoretical and empirical. From a theoretical standpoint, we follow Chudik and Pesaran (2011 and 2012) to derive the GVAR approach as an approximation to two Infinite-Dimensional VAR (IVAR) models featuring nonstationary variables: one corresponding to the world consisting of several small open economies (benchmark model), and one corresponding to the world featuring a dominant economy (extended model). ; It is established that in the ...
Journal Article
Rising Public Debt to GDP Can Harm Economic Growth
The debt?growth relationship is complex, varying across countries and affected by global factors. While there is no simple universal threshold above which debt to GDP significantly depresses growth, high and rising public debt burdens slow growth in the long term, data from the past four decades indicate.
Working Paper
Pooled Bewley Estimator of Long-Run Relationships in Dynamic Heterogenous Panels
This paper, using the Bewley (1979) transformation of the autoregressive distributed lag model, proposes a pooled Bewley (PB) estimator of long-run coefficients for dynamic panels with heterogeneous short-run dynamics, in the same setting as the widely used Pooled Mean Group (PMG) estimator. The Bewley transform enables us to obtain an analytical closed form expression for the PB, which is not available when using the maximum likelihood approach. This lets us establish asymptotic normality of PB as n,Tââ jointly, allowing for applications with n and T large and of the same order of ...
Journal Article
Global and National Shocks Explain A Large Share of State Job Growth
Global and U.S. national shocks on average appear to equally explain more than half of the fluctuations in state employment growth, an important measure of assessing real economic activity. The overall assessment, however, conceals a wide variation among states.
Working Paper
Variable Selection and Forecasting in High Dimensional Linear Regressions with Structural Breaks
This paper is concerned with the problem of variable selection and forecasting in the presence of parameter instability. There are a number of approaches proposed for forecasting in the presence of breaks, including the use of rolling windows and exponential down-weighting. However, these studies start with a given model specification and do not consider the problem of variable selection, which is complicated by time variations in the effects of signal variables. In this study we investigate whether or not we should use weighted observations at the variable selection stage in the presence of ...
Working Paper
Estimation of Impulse Response Functions When Shocks are Observed at a Higher Frequency than Outcome Variables
This paper proposes mixed-frequency distributed-lag (MFDL) estimators of impulse response functions (IRFs) in a setup where (i) the shock of interest is observed, (ii) the impact variable of interest is observed at a lower frequency (as a temporally aggregated or sequentially sampled variable), (iii) the data-generating process (DGP) is given by a VAR model at the frequency of the shock, and (iv) the full set of relevant endogenous variables entering the DGP is unknown or unobserved. Consistency and asymptotic normality of the proposed MFDL estimators is established, and their small-sample ...
Working Paper
A simple model of price dispersion
This article considers a simple stock-flow matching model with fully informed market participants. Unlike in the standard matching literature, prices are assumed to be set ex-ante. When sellers pre-commit themselves to sell their products at an advertised price, the unique equilibrium is characterized by price dispersion due to the idiosyncratic match payoffs (in a marketplace with full information). This provides new insights into the price dispersion literature, where price dispersion is commonly assumed to be generated by a costly search of uninformed buyers.
Persistence of house-price growth highlights geographic, credit factors
Growth in house prices is highly persistent and therefore more predictable than that of other assets, such as stocks.
Working Paper
Common correlated effects estimation of heterogeneous dynamic panel data models with weakly exogenous regressors
This paper extends the Common Correlated Effects (CCE) approach developed by Pesaran (2006) to heterogeneous panel data models with lagged dependent variable and/or weakly exogenous regressors. We show that the CCE mean group estimator continues to be valid but the following two conditions must be satisfied to deal with the dynamics: a sufficient number of lags of cross section averages must be included in individual equations of the panel, and the number of cross section averages must be at least as large as the number of unobserved common factors. We establish consistency rates, derive the ...