Globalization and Monetary Policy Institute
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The Globalization and Monetary Policy Institute Working Papers
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2012
No. 106
Financial Markets Forecasts Revisited: Are They Rational, Herding or Bold?
Ippei Fujiwara, Hibiki Ichiue, Yoshiyuki Nakazono and Yosuke Shigemi
Abstract: We test whether professional forecasters forecast rationally or behaviorally using a unique database, QSS Database, which is the monthly panel of forecasts on Japanese stock prices and bond yields. The estimation results show that (i) professional forecasts are behavioral, namely, significantly influenced by past forecasts, (ii) there exists a stock-bond dissonance: while forecasting behavior in the stock market seems to be herding, that in the bond market seems to be bold in the sense that their current forecasts tend to be negatively related to past forecasts, and (iii) the dissonance is due, at least partially, to the individual forecasters' behavior that is influenced by their own past forecasts rather than others. Even in the same country, forecasting behavior is quite different by market.
No. 105
Bayesian Estimation of NOEM Models: Identification and Inference in Small Samples
Enrique Martínez-García, Diego Vilán and Mark Wynne
Abstract: The global slack hypothesis (e.g., Martínez-García and Wynne [2010]) is central to the discussion of the trade-offs monetary policy faces in an increasingly more open world economy. Open-Economy (forward-looking) New Keynesian Phillips curves describe how expected future inflation and a measure of global output gap (global slack) affect the current inflation rate. This paper studies the (potential) weak identification of these relationships in the context of a fully specified structural model using Bayesian estimation techniques. We trace the problems to sample size, rather than misspecification bias. We conclude that standard macroeconomic time series with a coverage of less than forty years are subject to potentially serious identification issues, and also to model selection errors. We recommend estimation with simulated data prior to bringing the model to the actual data as a way of detecting parameters that are susceptible to weak identification in short samples.
No. 104
Optimal Monetary Policy in a Two Country Model with Firm-Level Heterogeneity
Dudley Cooke
Abstract: This paper studies non-cooperative monetary policy in a two country general equilibrium model where international economic integration is endogenised through firm-level heterogeneity and monopolistic competition. Economic integration between countries is a source of policy competition, generating higher long-run inflation, and increased gains from monetary cooperation.
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