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Working Paper
On the Aggregation of Probability Assessments: Regularized Mixtures of Predictive Densities for Eurozone Inflation and Real Interest Rates
We propose methods for constructing regularized mixtures of density forecasts. We explore a variety of objectives and regularization penalties, and we use them in a substantive exploration of Eurozone inflation and real interest rate density forecasts. All individual inflation forecasters (even the ex post best forecaster) are outperformed by our regularized mixtures. From the Great Recession onward, the optimal regularization tends to move density forecasts’ probability mass from the centers to the tails, correcting for overconfidence.
Working Paper
Real-time measurement of business conditions
We construct a framework for measuring economic activity at high frequency, potentially in real time. We use a variety of stock and flow data observed at mixed frequencies (including very high frequencies), and we use a dynamic factor model that permits exact filtering. We illustrate the framework in a prototype empirical example and a simulation study calibrated to the example.
Working Paper
Evaluating density forecasts
The authors propose methods for evaluating and improving density forecasts. They focus primarily on methods that are applicable regardless of the particular user's loss function, though they take explicit account of the relationships between density forecasts, action choices, and the corresponding expected loss throughout. They illustrate the methods with a detailed series of examples, and they discuss extensions to improving and combining suboptimal density forecasts, multistep-ahead density forecast evaluation, multivariate density forecast evaluation, monitoring for structural change and ...
Discussion Paper
Does the business cycle have duration memory?
Working Paper
The past, present, and future of macroeconomic forecasting
Broadly defined, macroeconomic forecasting is alive and well. Nonstructural forecasting, which is based largely on reduced-form correlations, has always been well and continues to improve. Structural forecasting, which aligns itself with economic theory and, hence, rises and falls with theory, receded following the decline of Keynesian theory. In recent years, however, powerful new dynamic stochastic general equilibrium theory has been developed, and structural macroeconomic forecasting is poised for resurgence.
Working Paper
Exact maximum likelihood estimation of ARCH models
Working Paper
Real-time price discovery in global stock, bond and foreign exchange markets
Using a unique high-frequency futures dataset, we characterize the response of U.S., German and British stock, bond and foreign exchange markets to real-time U.S. macroeconomic news. We find that news produces conditional mean jumps; hence high-frequency stock, bond and exchange rate dynamics are linked to fundamentals. Equity markets, moreover, react differently to news depending on the stage of the business cycle, which explains the low correlation between stock and bond returns when averaged over the cycle. Hence our results qualify earlier work suggesting that bond markets react most ...