No relief in sight for the U.S. economy
For at least the next two years, the U.S. economy will grow more slowly than it has on average since World War II. This is the forecast of a Bayesian vector autoregression model developed and used by researchers at the Minneapolis Federal Reserve Bank. The model's previous forecast?of a very weak start to the 1991?92 recovery?was remarkably accurate. Both forecasts are supported by evidence on long-term problems among consumers, in the commercial real estate industry, and at all levels of government. These problems will most likely constrain economic growth for years, although short spurts of ...
Statistical inference in the multinomial multiperiod probit model
Statistical inference in multinomial multiperiod probit models has been hindered in the past by the high dimensional numerical integrations necessary to form the likelihood functions, posterior distributions, or moment conditions in these models. We describe three alternative approaches to inference that circumvent the integration problem: Bayesian inference using Gibbs sampling and data augmentation to compute posterior moments, simulated maximum likelihood (SML) estimation using the GHK recursive probability simulator, and method of simulated moment (MSM) estimation using the GHK simulator. ...
Bad news from a forecasting model of the U.S. economy
This paper describes and analyzes the 1990-92 economic forecasts of a Bayesian vector autoregression model developed by researchers at the Minneapolis Fed. The model's 1990 forecast was pretty bad - too optimistic about both inflation and economic growth, especially growth in consumption and housing. An analysis of the model's errors, however, turns up no reason to think the model is unsound. Based on data available on November 30, 1990, the model predicts weak economic conditions for the next two years: a likely recession in 1991 and moderate inflation and weak overall growth in 1991-92. The ...
An experimental study of learning and limited information in games
We report on experiments that tested the predictions of competing theories of learning in games. Experimental subjects played a version of the three-person matching-pennies game. The unique mixed-strategy Nash equilibrium of this game is locally unstable under naive Bayesian learning. Sophisticated Bayesian learning predicts that expectations will converge to Nash equilibrium if players observe the entire history of play. Neither theory requires payoffs to be common knowledge. We develop maximum-likelihood tests for the independence conditions implied by the mixed-strategy Nash equilibrium. ...
The U.S. economy in 1990 and 1991: continued expansion likely
This paper reports an optimistic forecast of U.S. output and inflation trends in 1990_91. Generated by a Bayesian vector autoregression (BVAR) model of the U.S. economy using data available on November 30, 1989, the forecast is more optimistic than a consensus forecast. The key to the model's greater optimism for real growth is its outlook for strong consumer spending. The model's optimism is defended by examining historical precedents as well as comparing the track records of the model and consensus forecasts. The model's measures of forecast uncertainty, however, suggest that its ...
The U.S. economy in 1989 and 1990: walking a fine line
Delayed financial disclosure: Mexico's recent experience
This article documents a delay in the public release of Mexican international reserve data in the months before Mexico's debt crisis at the end of 1994. The article establishes that in that year investors did not know the level of Mexican reserves before October; yet this lack of information did not seem to reduce investor confidence in the Mexican economy. The article does not establish whether the delay in releasing reserve data was due to logistical problems or to a government strategy. The possibility that the delay was strategic is evaluated by developing an economic model that captures ...
Learning to be unpredictable : an experimental study.
This study tests experimentally whether the ability of subjects to play a noncooperative game's mixed-strategy equilibrium (to make their play unpredictable) is affected by how much information subjects have about the structure of the game. Subjects played the mixed-strategy equilibrium when they had all the information about other players' payoffs and actions, but not otherwise. Previous research has shown that players of a game can play a mixed-strategy equilibrium if they observe the actions of all players and use sophisticated Bayesian learning to infer the likely payoffs to other ...
On the relation between the expected value and the volatility of the nominal excess return on stocks
We find support for a negative relation between conditional expected monthly return and conditional variance of monthly return, using a GARCH-M model modified by allowing (i) seasonal patterns in volatility, (ii) positive and negative innovations to returns having different impacts on conditional volatility, and (iii) nominal interest rates to predict conditional variance. Using the modified GARCH-M model, we also show that monthly conditional volatility may not be as persistent as was thought. Positive unanticipated returns appear to result in a downward revision of the conditional ...
A fine time for monetary policy?
Recent research in evaluating the effects of monetary policy is potentially tainted by the problem of time aggregation: that is, effects may be incorrectly estimated using quarterly data if the effects of policy occur rapidly. This study evaluates whether time aggregation is a serious problem in a simple vector autoregression. It shows time aggregation has little impact on evaluating the effect of monetary policy in a simple vector autoregression including total reserves, nonborrowed reserves, and the federal funds rate. This finding suggests that time aggregation is unlikely to be important ...