This paper develops an early warning model of systemic banking crises that combines regression tree technology with a statistical algorithm to improve its accuracy and overcome some drawbacks of more standard models....
This paper develops an early warning model of systemic banking crises that combines regression tree technology with a statistical algorithm to improve its accuracy and overcome some drawbacks of more standard models.
The results of the ECB Survey of Professional Forecasters (SPF) for the first quarter of 2016 show average inflation expectations of 0.7%, 1.4% and 1.6% for 2016, 2017 and 2018 respectively. This implies downward revisions of 0.3 percentage point for 2016 and of 0.1 percentage point for 2017 (ex...
The results of the ECB Survey of Professional Forecasters (SPF) for the first quarter of 2016 show average inflation expectations of 0.7%, 1.4% and 1.6% for 2016, 2017 and 2018 respectively. This implies downward revisions of 0.3 percentage point for 2016 and of 0.1 percentage point for 2017 (expectations for 2018 were not surveyed in the previous round), but maintains the upward path in the forecast inflation profile. Average longer-term inflation expectations (for 2020) edged down to 1.8% from 1.9% (at the second decimal down to 1.80% from 1.86%). Real GDP growth expectations were unchanged at all horizons, standing at 1.7% for 2016, 1.8% for 2017 and 1.7% for 2018 and in the longer term (for 2020). Unemployment rate expectations, which continue to show a downward profile, were revised down over the whole horizon.
This article compares the properties of the European Commission's Consumer Confidence Indicator (CCI) for the euro area with three alternative indices which differ from the former in that they (i) consider a richer set of survey questions and (ii) are the result of data-driven statistical techni...
This article compares the properties of the European Commission's Consumer Confidence Indicator (CCI) for the euro area with three alternative indices which differ from the former in that they (i) consider a richer set of survey questions and (ii) are the result of data-driven statistical techniques, rather than the simple arithmetic mean of the input series. The alternative indicators are shown to perform only slightly better than the CCI in tracking real private consumption growth and to fail to produce significantly better forecasts of expansions and contractions in private consumption, once information from relevant, timely available hard data is controlled for. The conclusions change, however, if the analysis is re-conducted on well-defined subsets of survey questions. Concretely, the application of the alternative construction techniques to a data set which is limited to questions about consumers' personal finances produces an indicator which, combined with relevant macro-economic time series, yields significant improvements in forecasting expansions and contractions in private consumption.
The 2018 EU-wide stress test requires banks to evaluate the impact on profits and capital of common macroeconomic scenarios for 2018-2020. The methodology set up by the EBA addresses four main sources of uncertainty: credit risk, market risk, financial risks on net interest income and operationa...
The 2018 EU-wide stress test requires banks to evaluate the impact on profits and capital of common macroeconomic scenarios for 2018-2020. The methodology set up by the EBA addresses four main sources of uncertainty: credit risk, market risk, financial risks on net interest income and operational risk. Credit risk is assessed on the basis of the new IFRS 9 accounting standard. Market risk includes a valuation of illiquid, hard-to-price level 2/3 financial instruments. Net interest income is assumed to suffer from an asymmetric increase in the rates earned on assets and paid on liabilities. Operating risk includes conduct risk and takes into account past loss events. This written advice highlights some weaknesses in the EBA methodology, which may lead to a different degree of conservativeness for some business models or countries. It also discusses ways to make future stress tests more realistic and reliable, by addressing resource gaps and improving governance.
We compare real-time density forecasts for the euro area using three DSGE models. The benchmark is the Smets-Wouters model and its forecasts of real GDP growth and inflation are compared with those from two extensions. The first adds financial frictions and expands the observables to include a m...
We compare real-time density forecasts for the euro area using three DSGE models. The benchmark is the Smets-Wouters model and its forecasts of real GDP growth and inflation are compared with those from two extensions. The first adds financial frictions and expands the observables to include a measure of the external finance premium. The second allows for the extensive labor-market margin and adds the unemployment rate to the observables. The main question we address is if these extensions improve the density forecasts of real GDP and inflation and their joint forecasts up to an eight-quarter horizon. We find that adding financial frictions leads to a deterioration in the forecasts, with the exception of longer-term inflation forecasts and the period around the Great Recession. The labor market extension improves the medium to longer-term real GDP growth and shorter to medium-term inflation forecasts weakly compared with the benchmark model.
We propose a class of prior distributions that discipline the long-run behavior of Vector Autoregressions (VARs). These priors can be naturally elicited using economic theory, which provides guidance on the joint dynamics of macroeconomic time series in the long run. Our priors for the long run ...
We propose a class of prior distributions that discipline the long-run behavior of Vector Autoregressions (VARs). These priors can be naturally elicited using economic theory, which provides guidance on the joint dynamics of macroeconomic time series in the long run. Our priors for the long run are conjugate, and can thus be easily implemented using dummy observations and combined with other popular priors. In VARs with standard macroeconomic variables, a prior based on the long-run predictions of a wide class.
This paper finds that participants in the European Central Bank’s Survey of Professional Forecasters have submitted forecasts that are consistent with a (mostly forward-looking) New Keynesian Phillips Curve for the euro area. The estimation results suggest that euro-area inflation forecasts have...
This paper finds that participants in the European Central Bank’s Survey of Professional Forecasters have submitted forecasts that are consistent with a (mostly forward-looking) New Keynesian Phillips Curve for the euro area. The estimation results suggest that euro-area inflation forecasts have reacted less to unemployment forecasts after the start of the financial crisis but another cost measure (energy inflation) remains significant. This finding is consistent with a flatter Phillips Curve in the euro area. However, the reasons suggested by the International Monetary Fund for this finding, namely a better anchoring of inflation expectations and increases in structural unemployment do not seem to find support in the survey data. Instead, downward wage rigidities may be playing a prominent role.
