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Working Paper
Nowcasting Business Cycles: a Bayesian Approach to Dynamic Heterogeneous Factor Models
We develop a framework for measuring and monitoring business cycles in real time. Following a long tradition in macroeconometrics, inference is based on a variety of indicators of economic activity, treated as imperfect measures of an underlying index of business cycle conditions. We extend existing approaches by permitting for heterogenous lead-lag patterns of the various indicators along the business cycles. The framework is well suited for high-frequency monitoring of current economic conditions in real time - nowcasting - since inference can be conducted in presence of mixed frequency ...
Discussion Paper
Monetary Policy Surprises and Monetary Policy Uncertainty
In this note we find that after a given monetary policy surprise, primary dealers--key intermediaries in interest rate markets--tend to adjust their positions in the U.S. Treasury market and their exposures to interest rates more when the prevailing level of policy uncertainty is low than when it is high.
Working Paper
A Global Trade Model for the Euro Area
We propose a model for analyzing euro area trade based on the interaction between macroeconomic and trade variables. First, we show that macroeconomic variables are necessary to generate accurate short-term trade forecasts; this result can be explained by the high correlation between trade and macroeconomic variables, with the latter being released in a more timely manner. Second, the model tracks well the dynamics of trade variables conditional on the path of macroeconomic variables during the great recession; this result makes our model a reliable tool for scenario analysis. Third, we ...
Working Paper
Low Frequency Effects of Macroeconomic News on Government Bond Yields
This study analyzes the reaction of the U.S. Treasury bond market to innovations in macroeconomic fundamentals. We identify these innovations with macroeconomic news, defined as differences between the actual releases and their market expectations. We show that macroeconomic news explain about one-third of the low frequency (quarterly) fluctuations of long-term bond yields. When focusing on the high frequency (daily) movements this share decreases to one-tenth. This result is due to the fact that macro news have a persistent effect on the yield curve. Non-fundamental factors, instead, ...
Working Paper
Monetary Policy Uncertainty and Monetary Policy Surprises
Monetary policy uncertainty affects the transmission of monetary policy shocks to longer-term nominal and real yields. For a given monetary policy shock, the reaction of yields is more pronounced when the level of monetary policy uncertainty is low. Primary dealers and other investors adjust their interest rate positions more when monetary policy uncertainty is low than when uncertainty is high. These portfolio adjustments likely explain the larger pass-through of a monetary policy shock to bond yields when uncertainty is low. These findings shed new light on the role that monetary policy ...
Working Paper
Nowcasting Turkish GDP and News Decomposition
Real gross domestic product (GDP) data in Turkey are released with a very long delay compared with other economies, between 10 and 13 weeks after the end of the reference quarter. To infer the current state of the economy, policy makers, media, and market practitioners examine data that are more timely, that are released at higher frequencies than the GDP. In this paper, we propose an econometric model that automatically allows us to read through these more current and higher-frequency data and translate them into nowcasts for the Turkish real GDP. Our model outperforms nowcasts produced by ...
Working Paper
Lessons from Nowcasting GDP across the World
In economics, we need to forecast the present because reliable and comprehensive measures of the state of the economy are released with a substantial delay and considerable measurement error. Nowcasting exploits timely data to obtain early estimates of the state of the economy and updates these estimates continuously as new macroeconomic data are released. In this chapter, we describe how the framework used to nowcast GDP has evolved and is applied worldwide.
Working Paper
The Importance of Updating: Evidence from a Brazilian Nowcasting Model
How often should we update predictions for economic activity? Gross domestic product is a quarterly variable disseminated usually a couple of months after the end of the quarter, but many other macroeconomic indicators are released with a higher frequency, and financial markets react very strongly to them. However, most of the professional forecasters, including the IMF, the OECD, and most central banks, tend to update their forecasts of economic activity only two to four times a year. The main exception is the Central Bank of Brazil which is responsible for collecting and publishing a daily ...
Discussion Paper
Macroeconomic News and Stock Prices Over the FOMC Cycle
We develop novel macroeconomic surprise indices to identify the impact of macroeconomic releases on aggregate stock market returns over the FOMC cycle. We find that the aggregate stock prices are positively correlated with our real economic activity news index and negatively correlated with our price news index.
Discussion Paper
The Relationship between Macroeconomic Overheating and Financial Vulnerability : A Quantitative Exploration
In this note, we explore the link between indicators of financial imbalances and macroeconomic performance, focusing on the experience of the United States. In an accompanying note, The Relationship between Macroeconomic Overheating and Financial Vulnerability: A Narrative Investigation, we follow a narrative approach to review historical episodes of significant financial imbalances and examine whether these episodes were linked to macroeconomic overheating.