Template-Type: ReDIF-Paper 1.0 Author-Name: Jamie L. Cross Author-Name-First: Jamie L. Author-Name-Last: Cross Author-Email: j.cross@mbs.edu Author-Name: Aubrey Poon Author-Name-First: Aubrey Author-Name-Last: Poon Author-Email: aubrey.poon@oru.se Author-Name: Wenying Yao Author-Name-First: Wenying Author-Name-Last: Yao Author-Email: W.Yao@mbs.edu Author-Name: Dan Zhu Author-Name-First: Dan Author-Name-Last: Zhu Author-Email: dan.zhu@monash.edu Title: A Constrained Dynamic Nelson-Siegel Model for Monetary Policy Analysis Abstract: The Dynamic Nelson-Siegel (DNS) model implies that the instantaneous bond yield is a linear combination of yield curve’s level and slope factors. However, this constraint is not used in practice because it induces a singularity in the state covariance matrix. We show that this problem can be resolved using Bayesian methods. The key idea is to view the state equation as a prior distribution over missing data to obtain a hyperplane truncated multivariate normal conditional posterior distribution for the latent factors. This distribution can then be reparameterized as a conditional multivariate normal distribution given the constraint. Samples from this distribution can be obtained in a direct and computationally efficient manner, thus bypassing the Kalman filter recursions. The empirical significance of the resulting Yield-Macro Constrained DNS (YM-CDNS) model is demonstrated through both a reduced form analysis of the US Treasury yield curve, and a structural analysis of functional conventional and unconventional monetary policy shocks on the yield curve and the broader macroeconomy. Length: 38 pages Creation-Date: 2024-07 File-URL: https://hdl.handle.net/11250/3153617 Number: No 06/2024 Handle: RePEc:bny:wpaper:0133 Template-Type: ReDIF-Paper 1.0 Author-Name: Knut Are Aastveit Author-Name-First: Knut Are Author-Name-Last: Aastveit Author-Email: knut-are.aastveit@norges-bank.no Author-Name: Hilde C. Bjørnland Author-Name-First: Hilde C. Author-Name-Last: Bjørnland Author-Email: hilde.c.bjornland@bi.no Author-Name: Jamie L. Cross Author-Name-First: Jamie L. Author-Name-Last: Cross Author-Email: j.cross@mbs.edu Author-Name: Helene Olsen Author-Name-First: Helene Author-Name-Last: Olsen Author-Email: helene.olsen@bi.no Title: Unveiling inflation: Oil Shocks, Supply Chain Pressures, and Expectations Abstract: This paper demonstrates that inflation expectations have acted as significant amplifiers of recent global demand and supply shocks, thereby playing a crucial role in maintaining inflation at relatively high levels. This finding is established by applying a structural vector autoregression model that includes various shocks to global demand and supply, along with domestic inflation and inflation expectations for six economies: the United States, Canada, New Zealand, the Euro area, the United Kingdom, and Norway. We begin by documenting that global demand and supply shocks in the oil market, as well as global supply chain disruptions, have been major drivers of the recent inflation surge in all these economies. Subsequently, through various counterfactual and conditional forecasting exercises, we demonstrate that inflation expectations generally amplify the transmission of global shocks to inflation and have played a critical role in sustaining elevated inflation rates in recent years, particularly in the United States, Canada, and New Zealand. Length: 39 pages Creation-Date: 2024-07 File-URL: https://hdl.handle.net/11250/3144314 Number: No 05/2024 Handle: RePEc:bny:wpaper:0132 Template-Type: ReDIF-Paper 1.0 Author-Name: Knut Are Aastveit Author-Name-First: Knut Are Author-Name-Last: Aastveit Author-Email: knut-are.aastveit@norges-bank.no Author-Name: Jamie L. Cross Author-Name-First: Jamie L. Author-Name-Last: Cross Author-Email: j.cross@mbs.edu Author-Name: Francesco Furlanetto Author-Name-First: Francesco Author-Name-Last: Furlanetto Author-Email: francesco.furlanetto@norges-bank.no Author-Name: Herman K. Van Dijk Author-Name-First: Herman K. Author-Name-Last: Van Dijk Author-Email: hkvandijk@ese.eur.nl Title: Taylor Rules with Endogenous Regimes Abstract: The Fed’s policy rule switches during the different phases of the business cycle. This finding is established using a dynamic mixture model to estimate regime-dependent Taylor-type rules on US quarterly data from 1960 to 2021. Instead of exogenously partitioning the data based on tenures of the Fed chairs, a Bayesian framework is introduced in order to endogenously select timing and number of regimes in a data-driven way. This agnostic approach favors a partitioning of the data based on two regimes related to business cycle phases. Estimated policy rule coefficients differ in two important ways over the two regimes: the degree of gradualism is substantially higher during normal times than in recessionary periods while the output gap coefficient is higher in the recessionary regime than in the normal one. The estimate of the inflation coefficient largely satisfies the Taylor principle in both regimes. The results are substantially reinforced when using real-time data. Length: 41 pages Creation-Date: 2024-05 File-URL: https://hdl.handle.net/11250/3129806 Number: No 04/2024 Handle: RePEc:bny:wpaper:0131 Template-Type: ReDIF-Paper 1.0 Author-Name: Yoosoon Chang Author-Name-First: Yoosoon Author-Name-Last: Chang Author-Email: yoosoon@indiana.edu Author-Name: Steven N. Durlauf Author-Name-First: Steven N. Author-Name-Last: Durlauf Author-Email: sdurlauf@uchicago.edu Author-Name: Bo Hu Author-Name-First: Bo Author-Name-Last: Hu Author-Email: hu21@iu.edu Author-Name: Joon Y. Park Author-Name-First: Joon Y. Author-Name-Last: Park Author-Email: joon@indiana.edu Title: Accounting for Individual-Specific Heterogeneity in Intergenerational Income Mobility Abstract: This paper proposes a fully nonparametric model to investigate the dynamics of intergenerational income mobility. In our model, an individual’s income class probabilities depend on parental income in a manner that accommodates nonlinearities and interactions among various individual characteristics and parental characteristics, including race, education, and parental age at childbearing. Consequently, we offer a generalization of Markov chain mobility models. We employ kernel techniques from machine learning and further regularization for estimating this highly flexible model. Utilizing data from the Panel Study of Income Dynamics (PSID), we find that race and parental education play significant roles in determining the influence of parental income on children’s economic prospects. Length: 32 pages Creation-Date: 2024-02 File-URL: https://hdl.handle.net/11250/3120003 Number: No 03/2024 Handle: RePEc:bny:wpaper:0130 Template-Type: ReDIF-Paper 1.0 Author-Name: Yoosoon Chang Author-Name-First: Yoosoon Author-Name-Last: Chang Author-Email: yoosoon@indiana.edu Author-Name: Fabio Gómez-Rodríguez Author-Name-First: Fabio Author-Name-Last: Gómez-Rodríguez Author-Email: fag221@lehigh.edu Author-Name: Christian Matthes Author-Name-First: Christian Author-Name-Last: Matthes Author-Email: matthesc@iu.edu Title: The Influence of Fiscal and Monetary Policies on the Shape of the Yield Curve Abstract: We investigate the influence of the U.S. government’s spending and taxation decisions, along with the monetary policy choices made by the Federal Reserve, on the dynamics of the nominal yield curve. Aggregate government spending moves the long end of the yield curve, whereas monetary policy and changes in taxation move the short end of the yield curve on impact. Disentangling different types of government spending, we find that only government consumption exerts a discernible influence on the short end of the yield curve. The effects are generally transient and disappear after one year. Length: 34 pages Creation-Date: 2024-01 File-URL: https://hdl.handle.net/11250/3113608 Number: No 02/2024 Handle: RePEc:bny:wpaper:0129 Template-Type: ReDIF-Paper 1.0 Author-Name: Yoosoon Chang Author-Name-First: Yoosoon Author-Name-Last: Chang Author-Email: yoosoon@iu.edu Author-Name: Yongok Choi Author-Name-First: Yongok Author-Name-Last: Choi Author-Email: choiyongok@cau.ac.kr Author-Name: Chang Sik Kim Author-Name-First: Chang Sik Author-Name-Last: Kim Author-Email: skimcs@skku.edu Author-Name: J. Isaac Miller Author-Name-First: J. Isaac Author-Name-Last: Miller Author-Email: millerjisaac@missouri.edu Author-Name: Joon Y. Park Author-Name-First: Joon Y. Author-Name-Last: Park Author-Email: joon@iu.edu Title: Common Trends and Country Specific Heterogeneities in Long-Run World Energy Consumption Abstract: We employ a semiparametric functional coefficient panel approach to allow an economic relationship of interest to have both country-specific heterogeneity and a common component that may be nonlinear in the covariate and may vary over time. Surfaces of the common component of coefficients and partial derivatives (elasticities) are estimated and then decomposed by functional principal components, and we introduce a bootstrap-based procedure for inference on the loadings of the functional principal components. Applying this approach to national energyGDP elasticities, we find that elasticities are driven by common components that are distinct across two groups of countries yet have leading functional principal components that share similarities. The groups roughly correspond to OECD and non-OECD countries, but we utilize a novel methodology to regroup countries based on common energy consumption patterns to minimize root mean squared error within groups. The common component of the group containing more developed countries has an additional functional principal component that decreases the elasticity of the wealthiest countries in recent decades. Length: 40 pages Creation-Date: 2024-01 File-URL: https://hdl.handle.net/11250/3111740 Number: No 01/2024 Handle: RePEc:bny:wpaper:0128 Template-Type: ReDIF-Paper 1.0 Author-Name: Hilde C. Bjørnland Author-Name-First: Hilde C. Author-Name-Last: Bjørnland Author-Email: hilde.c.bjornland@bi.no Author-Name: Malin C. Jensen Author-Name-First: Malin C. Author-Name-Last: Jensen Author-Email: malin.c.jensen@bi.no Author-Name: Leif Anders Thorsrud Author-Name-First: Leif Anders Author-Name-Last: Thorsrud Author-Email: leif.a.thorsrud@bi.no Title: Business Cycle and Health Dynamics during the COVID-19 Pandemic. A Scandinavian Perspective Abstract: We use a unique measure of daily economic activity and manually audited nonpharmaceutical intervention (NPI) indexes for Noway and Sweden to model the joint dynamic interaction between COVID-19 policy, health, and business cycle outcomes within a SVAR framework. Our analysis documents potentially large measurement errors in commonly used containment policy measures, and significant endogeneity between the model’s variables. Assuming reduced rank for the stochastic elements of the model and applying sign restrictions, we find that both containment policy shocks and precautionary behavior lowers the pandemic burden, but that containment policies also have significant adverse economic effects. Moreover, we find little support for using mobility statistics as a proxy for economic activity and we document that a large share of the variation in containment policies is driven by forward-looking behavior. Finally, we perform a series of counterfactual simulations highlighting the difference between unexpected and systematic NPI strategies, and the nexus between the Norwegian and Swedish experience in particular. Length: 50 pages Creation-Date: 2023-12 File-URL: https://hdl.handle.net/11250/3108626 Number: No 15/2023 Handle: RePEc:bny:wpaper:0127 Template-Type: ReDIF-Paper 1.0 Author-Name: Paul Labonne Author-Name-First: Paul Author-Name-Last: Labonne Author-Email: paul.labonne@bi.no Author-Name: Leif Anders Thorsrud Author-Name-First: Leif Anders Author-Name-Last: Thorsrud Author-Email: leif.a.thorsrud@bi.no Title: Risky news and credit market sentiment Abstract: The nonlinear nexus between financial conditions indicators and the conditional distribution of GDP growth has recently been challenged. We show how one can use textual economic news combined with a shallow Neural Network to construct an alternative financial indicator based on word embeddings. By design the index associates growth-at-risk to news about credit, leverage and funding, and we document that the proposed indicator is particularly informative about the lower left tail of the GDP distribution and delivers significantly better out-of-sample density forecasts than commonly used alternatives. Speaking to theories on endogenous information choice and credit-market sentiment we further document that the news-based index likely carries information about beliefs rather than fundamentals. Length: 45 pages Creation-Date: 2023-12 File-URL: https://hdl.handle.net/11250/3107610 Number: No 14/2023 Handle: RePEc:bny:wpaper:0126 Template-Type: ReDIF-Paper 1.0 Author-Name: Hilde C. Bjørnland Author-Name-First: Hilde C. Author-Name-Last: Bjørnland Author-Email: hilde.c.bjornland@bi.no Author-Name: Roberto Casarin Author-Name-First: Roberto Author-Name-Last: Casarin Author-Email: r.casarin@unive.it Author-Name: Marco Lorusso Author-Name-First: Marco Author-Name-Last: Lorusso Author-Email: marco.lorusso@ncl.ac.uk Author-Name: Francesco Ravazzolo Author-Name-First: Francesco Author-Name-Last: Ravazzolo Author-Email: francesco.ravazzolo@bi.no Title: Fiscal Policy Regimes in Resource-Rich Economies Abstract: We analyse fiscal policy in resource-rich economies using a novel Bayesian regime-switching panel model. The identified regimes capture pro- or countercyclical fiscal behaviour, while the switches between the regimes have the interpretation of changes in fiscal policy. Applying the model to sixteen oil-producing economies, we show that fiscal policy has alternated between a procyclical and countercyclical regime multiple times over the sample. Furthermore, we find fiscal policy to be more volatile in the procyclical regime and that the probability of being in the procyclical regime is higher for OPEC countries rather than non-OPEC countries. We also show that following either an increase or decrease in oil revenues, the growth in government expenditure mostly increases, suggesting there is an upward bias in expenditures in oil-producing countries. These are new findings in the literature. Length: 42 pages Creation-Date: 2023-10 File-URL: https://hdl.handle.net/11250/3098196 Number: No 13/2023 Handle: RePEc:bny:wpaper:0125 Template-Type: ReDIF-Paper 1.0 Author-Name: Jamie L. Cross Author-Name-First: Jamie L. Author-Name-Last: Cross Author-Email: j.cross@mbs.edu Author-Name: Aubrey Poon Author-Name-First: Aubrey Author-Name-Last: Poon Author-Email: aubrey.poon@oru.se Author-Name: Dan Zhu Author-Name-First: Dan Author-Name-Last: Zhu Author-Email: dan.zhu@monash.edu Title: Uncertainty and the Term Structure of Interest Rates Abstract: We present a new stylized fact about the link between uncertainty and the term structure of interest rates: Unexpectedly heightened uncertainty elicits a lower, steeper, and flatter yield curve. This result is established through a Yields-Macro model that includes dynamic Nelson-Siegel factors of U.S. Treasury yields, and accounts for endogenous feed back with observable measures of uncertainty, monetary policy, and macroeconomic aggregates. It is also robust to three distinct measures of uncertainty pertaining to the financial sector, the macroeconomy and economic policy. An efficient Bayesian algorithm for estimating the class of Yields-Macro models is also developed. Length: 35 pages Creation-Date: 2023-10 File-URL: https://hdl.handle.net/11250/3096684 Number: No 12/2023 Handle: RePEc:bny:wpaper:0124 Template-Type: ReDIF-Paper 1.0 Author-Name: Jamie L. Cross Author-Name-First: Jamie L. Author-Name-Last: Cross Author-Email: jamie.cross@bi.no Author-Name: Lennart Hoogerheide Author-Name-First: Lennart Author-Name-Last: Hoogerheide Author-Email: l.f.hoogerheide@vu.nl Author-Name: Paul Labonne Author-Name-First: Paul Author-Name-Last: Labonne Author-Email: paul.labonne@bi.no Author-Name: Herman K. van Dijk Author-Name-First: Herman K. Author-Name-Last: Van Dijk Author-Email: hkvandijk@ese.eur.nl Title: Bayesian Mode Inference for Discrete Distributions in Economics and Finance Abstract: Detecting heterogeneity within a population is crucial in many economic and financial applications. Econometrically, this requires a credible determination of multimodality in a given data distribution. We propose a straightforward yet effective technique for mode inference in discrete data distributions which involves fitting a mixture of novel shifted-Poisson distributions. The credibility and utility of our proposed approach is demonstrated through empirical investigations on datasets pertaining to loan default risk and inflation expectations. Length: 11 pages Creation-Date: 2023-06 File-URL: https://hdl.handle.net/11250/3095578 Number: No 11/2023 Handle: RePEc:bny:wpaper:0123 Template-Type: ReDIF-Paper 1.0 Author-Name: Madison Terrell Author-Name-First: Madison Author-Name-Last: Terrell Author-Email: terrellm@rba.gov.au Author-Name: Qazi Haque Author-Name-First: Qazi Author-Name-Last: Haque Author-Email: qazi.haque@adelaide.edu.au Author-Name: Jamie L. Cross Author-Name-First: Jamie L. Author-Name-Last: Cross Author-Email: jamie.cross@bi.no Author-Name: Firmin Doko Tchatoka Author-Name-First: Firmin Author-Name-Last: Doko Tchatoka Author-Email: firmin.dokotchatoka@adelaide.edu.au Title: Monetary policy shocks and exchange rate dynamics in small open economies Abstract: This paper investigates the relationship between monetary policy shocks and real exchange rates in several small open economies. To that end, we develop a novel identification strategy for time-varying structural vector autoregressions with stochastic volatility. Our approach combines short-run and long-run restrictions to preserve the contemporaneous interaction between the interest rate and the exchange rate. Using this framework, we find that the volatility of monetary policy shocks has substantially decreased in all countries. This leads to a considerable reduction in the significance of policy shocks in explaining exchange rate and macroeconomic fluctuations since the 1990s. However, we find that the dynamic effects of the policy shocks have remained stable over time. Finally, while we do identify violations of uncovered interest parity (UIP) in some countries, we find no evidence of the ‘exchange rate puzzle’ or the ‘delayed overshooting puzzle’ in any country. Length: 59 pages Creation-Date: 2023-06 File-URL: https://hdl.handle.net/11250/3095574 Number: No 10/2023 Handle: RePEc:bny:wpaper:0122 Template-Type: ReDIF-Paper 1.0 Author-Name: Stylianos Asimakopoulos Author-Name-First: Stylianos Author-Name-Last: Asimakopoulos Author-Email: stylianos.asimakopoulos@brunel.ac.uk Author-Name: Marco Lorusso Author-Name-First: Marco Author-Name-Last: Lorusso Author-Email: marco.lorusso@ncl.ac.uk Author-Name: Francesco Ravazzolo Author-Name-First: Francesco Author-Name-Last: Ravazzolo Author-Email: francesco.ravazzolo@bi.no Title: A Bayesian DSGE Approach to Modelling Cryptocurrency Abstract: We develop and estimate a DSGE model to evaluate the economic repercussions of cryptocurrency. In our model, cryptocurrency offers an alternative currency option to government currency, with endogenous supply and demand. We uncover a substitution effect between the real balances of government currency and cryptocurrency in response to technology, preferences and monetary policy shocks. We find that an increase in cryptocurrency productivity induces a rise in the relative price of government currency with respect to cryptocurrency. Since cryptocurrency and government currency are highly substitutable, the demand for the former increases whereas it drops for the latter. Our historical decomposition analysis shows that fluctuations in the cryptocurrency price are mainly driven by shocks in cryptocurrency demand, whereas changes in the real balances for government currency are mainly attributed to government currency and cryptocurrency demand shocks. Length: 98 pages Creation-Date: 2023-09 File-URL: https://hdl.handle.net/11250/3091713 Number: No 09/2023 Handle: RePEc:bny:wpaper:0121 Template-Type: ReDIF-Paper 1.0 Author-Name: Hilde C. Bjørnland Author-Name-First: Hilde C. Author-Name-Last: Bjørnland Author-Email: hilde.c.bjornland@bi.no Author-Name: Jamie L. Cross Author-Name-First: Jamie L. Author-Name-Last: Cross Author-Email: jamie.cross@bi.no Author-Name: Felix Kapfhammer Author-Name-First: Felix Author-Name-Last: Kapfhammer Author-Email: felix.kapfhammer@bi.no Title: The Drivers of Emission Reductions in the European Carbon Market Abstract: This paper studies the drivers of emission reductions in the carbon market of the European Union Emission Trading System (EU ETS) since its inception in 2005. We introduce a novel empirical framework that facilitates the joint identification of simultaneous demand and supply shocks underlying the European carbon market. We find that emission supply restrictions of the EU ETS were the dominant driver of emissions reductions, reducing emissions by 46%. However we also find that two opposing emission demand factors also played an important role. Demand from industrial economic activity increased emissions by 15%, while other demand-side factors, primarily reflecting the transition to low-carbon economies, reduced emissions by 21%. Length: 42 pages Creation-Date: 2023-09 File-URL: https://hdl.handle.net/11250/3090022 Number: No 08/2023 Handle: RePEc:bny:wpaper:0120 Template-Type: ReDIF-Paper 1.0 Author-Name: Øistein Røisland Author-Name-First: Øistein Author-Name-Last: Røisland Author-Email: oistein.roisland@norges-bank.no Author-Name: Tommy Sveen Author-Name-First: Tommy Author-Name-Last: Sveen Author-Email: tommy.sveen@bi.no Author-Name: Ragnar Torvik Author-Name-First: Ragnar Author-Name-Last: Torvik Author-Email: ragnar.torvik@ntnu.no Title: The interplay between monetary and fiscal policy in a small open economy Abstract: We develop a theory for the optimal interaction between monetary and fiscal policy. While one might initially think that monetary and fiscal policy should pull in the same direction, we show within a simple model that this is not always the case. If there are small costs of changing the interest rate, it is optimal that monetary policy and fiscal policy pull in opposite directions when the economy is hit by an inflation or exchange rate shock. The reason is that monetary policy affects inflation through both the demand channel and the exchange rate channel, while fiscal policy only affects inflation through the demand channel. Therefore, monetary policy has a comparative advantage in stabilizing inflation, while fiscal policy has a comparative advantage in stabilizing output. Only when the costs of changing the interest rate are sufficiently high will it be optimal for monetary and fiscal policy to pull in the same direction. We also analyse how tax deduction for interest payments affects the monetary policy transmission. Such an interest subsidy improves goal achievement in response to inflation and exchange rate shocks, but the opposite is true in response to demand shocks. Length: 23 pages Creation-Date: 2023-08 File-URL: https://hdl.handle.net/11250/3086068 Number: No 07/2023 Handle: RePEc:bny:wpaper:0119 Template-Type: ReDIF-Paper 1.0 Author-Name: Dimitris Korobilis Author-Name-First: Dimitris Author-Name-Last: Korobilis Author-Email: Dimitris.Korobilis@glasgow.ac.uk Author-Name: Maximilian Schröder Author-Name-First: Maximilian Author-Name-Last: Schröder Author-Email: Maximilian.Schroder@bi.no Title: Monitoring multicountry macroeconomic risk Abstract: We propose a multicountry quantile factor augmeneted vector autoregression (QFAVAR) to model heterogeneities both across countries and across characteristics of the distributions of macroeconomic time series. The presence of quantile factors allows for summarizing these two heterogeneities in a parsimonious way. We develop two algorithms for posterior inference that feature varying level of trade-off between estimation precision and computational speed. Using monthly data for the euro area, we establish the good empirical properties of the QFAVAR as a tool for assessing the effects of global shocks on country-level macroeconomic risks. In particular, QFAVAR short-run tail forecasts are more accurate compared to a FAVAR with symmetric Gaussian errors, as well as univariate quantile autoregressions that ignore comovements among quantiles of macroeconomic variables. We also illustrate how quantile impulse response functions and quantile connectedness measures, resulting from the new model, can be used to implement joint risk scenario analysis. Length: 63 pages Creation-Date: 2023-08 File-URL: https://hdl.handle.net/11250/3082894 Number: No 06/2023 Handle: RePEc:bny:wpaper:0118 Template-Type: ReDIF-Paper 1.0 Author-Name: Dimitris Korobilis Author-Name-First: Dimitris Author-Name-Last: Korobilis Author-Email: Dimitris.Korobilis@glasgow.ac.uk Author-Name: Maximilian Schröder Author-Name-First: Maximilian Author-Name-Last: Schröder Author-Email: Maximilian.Schroder@bi.no Title: Probabilistic Quantile Factor Analysis Abstract: This paper extends quantile factor analysis to a probabilistic variant that incorporates regularization and computationally efficient variational approximations. By means of synthetic and real data experiments it is established that the proposed estimator can achieve, in many cases, better accuracy than a recently proposed loss-based estimator. We contribute to the literature on measuring uncertainty by extracting new indexes of low, medium and high economic policy uncertainty, using the probabilistic quantile factor methodology. Medium and high indexes have clear contractionary effects, while the low index is benign for the economy, showing that not all manifestations of uncertainty are the same. Length: 51 pages Creation-Date: 2023-08 File-URL: https://hdl.handle.net/11250/3082893 Number: No 05/2023 Handle: RePEc:bny:wpaper:0117 Template-Type: ReDIF-Paper 1.0 Author-Name: Vegard Høghaug Larsen Author-Name-First: Vegard Høghaug Author-Name-Last: Larsen Author-Email: vegard.h.larsen@bi.no Author-Name: Nicolò Maffei-Faccioli Author-Name-First: Nicolò Author-Name-Last: Maffei-Faccioli Author-Email: nicolo.maffei-faccioli@norges-bank.no Author-Name: Laura Pagenhardt Author-Name-First: Laura Author-Name-Last: Pagenhardt Author-Email: lpagenhardt@diw.de Title: Where do they care? The ECB in the media and inflation expectations Abstract: This paper examines how news coverage of the European Central Bank (ECB) affects consumer inflation expectations in the four largest euro area countries. Utilizing a unique dataset of multilingual European news articles, we measure the impact of ECB-related inflation news on inflation expectations. Our results indicate that German and Italian consumers are more attentive to this news, whereas in Spain and France, we observe no significant response. The research underscores the role of national media in disseminating ECB messages and the diverse reactions among consumers in different euro area countries. Length: 8 pages Creation-Date: 2023-05 File-URL: https://hdl.handle.net/11250/3067704 Number: No 04/2023 Handle: RePEc:bny:wpaper:0116 Template-Type: ReDIF-Paper 1.0 Author-Name: Hilde C. Bjørnland Author-Name-First: Hilde C. Author-Name-Last: Bjørnland Author-Email: hilde.c.bjornland@bi.no Author-Name: Yoosoon Chang Author-Name-First: Yoosoon Author-Name-Last: Chang Author-Email: yoosoon@indiana.edu Author-Name: Jamie L. Cross Author-Name-First: Jamie L. Author-Name-Last: Cross Author-Email: jamie.cross@bi.no Title: Oil and the Stock Market Revisited: A mixed functional VAR approach Abstract: This paper proposes a new mixed vector autoregression (MVAR) model to examine the relationship between aggregate time series and functional variables in a multivariate setting. The model facilitates a re examination of the oil-stock price nexus by estimating the effects of demand and supply shocks from the global market for crude oil on the entire distribution of U.S. stock returns since the late 1980s. We show that the MVAR effectively extracts information from the returns distribution that is more relevant for understanding the oil-stock price nexus beyond simply looking at the first few moments. Using novel functional impulse response functions (FIRFs), we find that oil market demand and supply shocks tend to increase returns, reduce volatility, and have an asymmetric effect on the returns distribution as a whole. In a value-at-risk (VaR) analysis we also find that the oil market contains important information that reduces expected loss, and that the response of VaR to the oil market demand and supply shocks has changed over time. Length: 43 pages Creation-Date: 2023-03 File-URL: https://hdl.handle.net/11250/3058236 Number: No 03/2023 Handle: RePEc:bny:wpaper:0115 Template-Type: ReDIF-Paper 1.0 Author-Name: Yoosoon Chang Author-Name-First: Yoosoon Author-Name-Last: Chang Author-Email: yoosoon@indiana.edu Author-Name: Ana María Herrera Author-Name-First: Ana María Author-Name-Last: Herrera Author-Email: amherrera@uky.edu Author-Name: Elena Pesavento Author-Name-First: Elena Author-Name-Last: Pesavento Author-Email: epesave@emory.edu Title: Oil Prices Uncertainty, Endogenous Regime Switching, and Inflation Anchoring Abstract: Using a novel approach to model regime switching with dynamic feedback and interactions, we extract latent mean and volatility factors in oil price changes. We illustrate how the volatility factor constitutes a useful measure of oil market risk (or oil price uncertainty) for policy makers and analysts as it captures uncertainty not reflected in other economic/financial uncertainty measures. Then, in the context of a VAR, we investigate the role of oil price uncertainty in driving inflation expectations and inflation anchoring. We show that shocks to the mean factor lead to higher expected inflation and inflation disagreement among professional forecasters and households. In contrast, shocks to the volatility factor act as aggregate demand shocks in that they result in lower expected inflation, yet they do increase disagreement about future inflation among professional forecasters and, especially, among households. We also provide econometric evidence suggesting the proposed endogenous volatility switching model can outperform other regime switching models. Length: 38 pages Creation-Date: 2023-02 File-URL: https://hdl.handle.net/11250/3057160 Number: No 02/2023 Handle: RePEc:bny:wpaper:0114 Template-Type: ReDIF-Paper 1.0 Author-Name: Felix Kapfhammer Author-Name-First: Felix Author-Name-Last: Kapfhammer Author-Email: felix.kapfhammer@bi.no Title: The Economic Consequences of Effective Carbon Taxes Abstract: This paper studies the economic consequences of carbon taxes at the macroeconomic and sectoral level. I propose a novel monthly measure of effective carbon tax rates, which, in contrast to the measures used by the existing literature, accounts for the time-varying emission coverage of taxes that are both explicitly and implicitly levied on greenhouse gas-emitting goods. Employing the new measure for four Nordic countries, I find that effective carbon taxes reduce emissions as expected but also decrease macroeconomic and sectoral activity - though there is some heterogeneity in the effects within and across the Nordic countries. Length: 69 pages Creation-Date: 2023-01 File-URL: https://hdl.handle.net/11250/3053679 Number: No 01/2023 Handle: RePEc:bny:wpaper:0113 Template-Type: ReDIF-Paper 1.0 Author-Name: Jan Ditzen Author-Name-First: Jan Author-Name-Last: Ditzen Author-Email: jan.ditzen@unibz.it Author-Name: Francesco Ravazzolo Author-Name-First: Francesco Author-Name-Last: Ravazzolo Author-Email: francesco.ravazzolo@bi.no Title: Dominant Drivers of National Inflation Abstract: For western economies a long-forgotten phenomenon is on the horizon: rising inflation rates. We propose a novel approach christened D2ML to identify drivers of national inflation. D2ML combines machine learning for model selection with time dependent data and graphical models to estimate the inverse of the covariance matrix, which is then used to identify dominant drivers. Using a dataset of 33 countries, we find that the US inflation rate and oil prices are dominant drivers of national inflation rates. For a more general framework, we carry out Monte Carlo simulations to show that our estimator correctly identifies dominant drivers. Length: 36 pages Creation-Date: 2022-12 File-URL: https://hdl.handle.net/11250/3041831 Number: No 08/2022 Handle: RePEc:bny:wpaper:0112 Template-Type: ReDIF-Paper 1.0 Author-Name: Hilde C. Bjørnland Author-Name-First: Hilde C. Author-Name-Last: Bjørnland Author-Email: hilde.c.bjornland@bi.no Title: The effect of rising energy prices amid geopolitical developments and supply disruptions Abstract: The effect of rising energy prices amid geopolitical developments and supply disruptions Length: 35 pages Creation-Date: 2022-12 File-URL: https://hdl.handle.net/11250/3038760 Number: No 07/2022 Handle: RePEc:bny:wpaper:0111 Template-Type: ReDIF-Paper 1.0 Author-Name: Jon Ellingsen Author-Name-First: Jon Author-Name-Last: Ellingsen Author-Email: ellingsen.jon@gmail.com Author-Name: Caroline Espegren Author-Name-First: Caroline Author-Name-Last: Espegren Author-Email: Caroline.Espegren@bi.no Title: Lost in transition? Earnings losses of displaced petroleum workers Abstract: We estimate the earnings losses of displaced petroleum workers using a matched employer-employee longitudinal data set from Norway, coupled with an event-study framework of the oil price drop in 2014. Displacement leads to sizable and persistent earnings losses, and the magnitudes are particularly large for petroleum workers moving to other industries. More importantly, we document that almost 70 percent of the earnings losses can be attributed to lost industry-specific earnings premiums caused by workers moving from an industry characterized by large resource rents. In contrast, worker-industry match effects are negligible. Length: 36 pages Creation-Date: 2022-12 File-URL: https://hdl.handle.net/11250/3035432 Number: No 06/2022 Keywords: Dutch disease, Resource Movements, Difference-in-Differences, Labor mobility, Displaced Handle: RePEc:bny:wpaper:0110 Template-Type: ReDIF-Paper 1.0 Author-Name: Jon Ellingsen Author-Name-First: Jon Author-Name-Last: Ellingsen Author-Email: ellingsen.jon@gmail.com Author-Name: Caroline Espegren Author-Name-First: Caroline Author-Name-Last: Espegren Author-Email: Caroline.Espegren@bi.no Title: Lost in transition? Earnings losses of displaced petroleum workers Abstract: We estimate the earnings losses of displaced petroleum workers using a matched employer-employee longitudinal data set from Norway, coupled with an event-study framework of the oil price drop in 2014. Displacement leads to sizable and persistent earnings losses, and the magnitudes are particularly large for petroleum workers moving to other industries. More importantly, we document that almost 70 percent of the earnings losses can be attributed to lost industry-specific earnings premiums caused by workers moving from an industry characterized by large resource rents. In contrast, worker-industry match effects are negligible. Length: 36 pages Creation-Date: 2022-12 File-URL: https://hdl.handle.net/11250/3035432 Number: No 06/2022 Keywords: Dutch disease, Resource Movements, Difference-in-Differences, Labor mobility, Displaced Handle: RePEc:bny:wpaper:0109 Template-Type: ReDIF-Paper 1.0 Author-Name: Vegard H. Larsen Author-Name-First: Vegard H. Author-Name-Last: Larsen Author-Email: vegard.larsen@bi.no Author-Name: Ragnar E. Juelsrud Author-Name-First: Ragnar E. Author-Name-Last: Juelsrud Author-Email: ragnar.juelsrud@norges-bank.no Title: Macroeconomic uncertainty and bank lending Abstract: We investigate the impact of macro-related uncertainty on bank lending in Norway. We show that an increase in general macroeconomic uncertainty reduces bank lending. Importantly, however, we show that this effect is largely driven by monetary policy uncertainty, suggesting that uncertainty about the monetary policy stance is key for understanding why macro-related uncertainty impacts bank lending. Length: 10 pages Creation-Date: 2022-11 File-URL: https://hdl.handle.net/11250/3035431 Number: No 05/2022 Keywords: Macroeconomic uncertainty, Textual analysis, Bank lending Handle: RePEc:bny:wpaper:0108 Template-Type: ReDIF-Paper 1.0 Author-Name: Drago Bergholt Author-Name-First: Drago Author-Name-Last: Bergholt Author-Email: Drago.Bergholt@Norges-Bank.no Author-Name: Øistein Røisland Author-Name-First: Øistein Author-Name-Last: Røisland Author-Email: oistein.roisland@norges-bank.no Author-Name: Tommy Sveen Author-Name-First: Tommy Author-Name-Last: Sveen Author-Email: tommy.sveen@bi.no Author-Name: Ragnar Torvik Author-Name-First: Ragnar Author-Name-Last: Torvik Author-Email: ragnar.torvik@svt.ntnu.no Title: Monetary Policy when Export Revenues Drop Abstract: We study how monetary policy should respond to shocks which permanently alter the steady state structure of the economy. In such a case monetary policy affects not only the short run misallocations due to nominal rigidities, but also relative prices which stimulate reallocation of capital. We consider a permanent and negative shock to export revenues that requires a larger traded sector and a smaller non-traded sector in the new steady state. This reallocation calls for a change in relative prices during the transition, but may also lead to a period of high unemployment. We show how an appropriate monetary policy could mitigate the welfare costs of the transition by allowing the exchange rate to depreciate, and thereby allowing inflation to increase in the short run. Traditional monetary policy regimes, such as inflation targeting or a fixed exchange rate, would imply high unemployment and inefficiently slow transition. Stabilizing nominal wage growth, in contrast, would be close to the welfare-optimal monetary policy. Length: 26 pages Creation-Date: 2022-11 File-URL: https://hdl.handle.net/11250/2983258 Number: No 04/2022 Keywords: Structural Change, Dutch Disease, Monetary Policy Handle: RePEc:bny:wpaper:0107 Template-Type: ReDIF-Paper 1.0 Author-Name: Jonas Hveding Hamang Author-Name-First: Jonas Author-Name-Last: Hveding Hamang Author-Email: jonas.h.hamang@bi.no Title: Local economic development and oil discoveries Abstract: In this paper I use data on the location of all historic petroleum discoveries onshore to establish a new stylized fact: Economically developed areas are significantly more likely (about five percentage points) to contain an oil discovery, compared to undeveloped areas. This result is robust to accounting for reverse causality, confounding geology and observed or unobserved country characteristics. By implication, there are large underexplored oil and gas deposits in currently undeveloped areas. I calculate these deposits to be approximately 600 billion barrels of oil — amounting to about 50% of the globe’s currently known onshore endowment — and to be mainly located outside of Europe and North America. Exploring alternative mechanisms, I find that infrastructure access may explain the documented discovery differential. Length: 38 pages Creation-Date: 2022-09 File-URL: https://hdl.handle.net/11250/3019026 Number: No 03/2022 Keywords: Handle: RePEc:bny:wpaper:0106 Template-Type: ReDIF-Paper 1.0 Author-Name: Julia Skretting Author-Name-First: Julia Author-Name-Last: Skretting Author-Email: julia.skretting@ssb.no Title: Oil Windfalls and Regional Economic Performance in Russia* Abstract: I construct a novel dataset to investigate the effects of oil income in regions of Russia. My data combines regional level data on oil endowments and a wide range of economic series for 85 geographical regions of Russia. Focusing on exogenous oil windfall gains induced by movements in oil prices, I compare outcomes in oil endowed regions to outcomes in other areas. In doing so, I show that oil resources do not seem to benefit regional economic growth. Indeed, I provide evidence that oil windfalls lead to an expansion of the local public sector and a contraction of the private sector, resulting in lower profitability and a decline in economic growth. Overall, my results indicate that only a small share of revenues benefits the local population and that there are signs of missing money. Length: 36 pages Creation-Date: 2022-08 File-URL: https://hdl.handle.net/11250/3012049 Number: No 02/2022 Keywords: Natural Resource Curse, Rent Seeking, Dutch Disease, Regional Windfalls Handle: RePEc:bny:wpaper:0105 Template-Type: ReDIF-Paper 1.0 Author-Name: Lassi Ahlvik Author-Name-First: Lassi Author-Name-Last: Ahlvik Author-Email: lassi.ahlvik@helsinki.fi Author-Name: Jørgen Juel Andersen Author-Name-First: Jørgen Author-Name-Last: Juel Andersen Author-Email: jorgen.j.andersen@bi.no Author-Name: Jonas Hveding Hamang Author-Name-First: Jonas Author-Name-Last: Hveding Hamang Author-Email: jonas.h.hamang@bi.no Author-Name: Torfinn Harding Author-Name-First: Torfinn Author-Name-Last: Harding Author-Email: torfinnh@gmail.com Title: Quantifying supply-side climate policies Abstract: What are the effects of supply-side climate policies? We use global firm-level data to estimate the impact of 130 oil-tax reforms between 2000 and 2019 on oil production, exploration and discoveries. Higher taxes are found to reduce firms exploration expenditures and oil discoveries. We quantify the oil market implications and show that the existing productionbased taxes, averaging at 21%, reduce the long-term emissions by 1.3-2.7 GtCO2 annually. Increasing the global tax rate would reduce emissions almost linearly, by 0.16 GtCO2 per percentage point, while further shifting the distribution of rents from consumers to producers and governments. Length: 42 pages Creation-Date: 2022-02 File-URL: https://hdl.handle.net/11250/2983258 Number: No 01/2022 Keywords: oil taxation, climate change, supply-side climate policies Handle: RePEc:bny:wpaper:0104 Template-Type: ReDIF-Paper 1.0 Author-Name: Knut Are Aastveit Author-Name-First: Knut Are Author-Name-Last: Aastveit Author-Email: knut-are.aastveit@norges-bank.no Author-Name: Ragnar Enger Juelsrud Author-Name-First: Ragnar Enger Author-Name-Last: Juelsrud Author-Email: ragnar.juelsrud@norges-bank.no Author-Name: Ella Getz Wold Author-Name-First: Ella Getz Author-Name-Last: Wold Author-Email: ella.g.wold@bi.no Title: The household effects of mortgage regulation Abstract: We evaluate the impact of mortgage regulation on child and parent household balance sheets, highlighting important trade-offs in terms of financial vulnerability. Using Norwegian tax data, we show that loan-to-value caps reduce house purchase probabilities, debt and interest expenses thereby improving household solvency. Moreover, parents of first-time buyers also reduce their debt uptake, suggesting that concerns about regulatory arbitrage are unwarranted. However, the higher downpayment requirement also leads to a persistent deterioration of household liquidity. We show that this reduction in liquid buffers coincides with larger house sale propensities given unemployment, as households become more vulnerable to adverse income shocks. Length: 42 pages Creation-Date: 2021-12 File-URL: https://hdl.handle.net/11250/2835776 Number: No 07/2021 Keywords: Household leverage, Financial regulation, Macroprudential policy, Mortgage markets Handle: RePEc:bny:wpaper:0103 Template-Type: ReDIF-Paper 1.0 Author-Name: Jamie L. Cross Author-Name-First: Jamie L. Author-Name-Last: Cross Author-Email: jamie.cross@bi.no Author-Name: Bao H. Nguyen Author-Name-First: Bao H. Author-Name-Last: Nguyen Author-Email: b.nguyen@utas.edu.au Author-Name: Trung Duc Tran Author-Name-First: Trun Duc Author-Name-Last: Tran Author-Email: trungduc.tran@sydney.edu.au Title: The Role of Precautionary and Speculative Demand in the Global Market for Crude Oil Abstract: Contemporary structural models of the global market for crude oil jointly specify precautionary and speculative demand as a composite shock, known as storage demand shocks, due to difficulties in identifying these distinct demand components. This difficulty arises because shifts in the underlying expectations are latent and operate through similar transmission mechanisms. In this paper, we resolve this identification problem and for the first time examine the relative effects of these two shocks, in addition to more conventional demand and supply shocks, on the global price of crude oil. Overall, we find that uncertainty driven precautionary demand for crude oil is, on average, the primary driver of fluctuations in the real price of oil that has previously been associated with the composite storage demand shock. Historically, we find that these shocks also shaped the real oil price dynamics since the 1970s. Precautionary demand for oil was the primary driver of the oil price spike in the 1979 oil crisis, the second most important driver of the price decline in the Great Recession of 2008 and provided significant contributions towards the price dynamics during the Iran-Iraq War of 1980, the Persian Gulf War of 1990, the collapse of OPEC in 1985. Speculative demand for oil largely shaped the oil price dynamics around the collapse of OPEC and contributed towards the oil price spike in the Persian Gulf War and the oil price decline of 2014. Length: 30 pages Creation-Date: 2021-11 File-URL: https://hdl.handle.net/11250/2827429 Number: No 06/2021 Keywords: Oil price uncertainty, Oil market, SVAR, Narrative sign restrictions Handle: RePEc:bny:wpaper:0102 Template-Type: ReDIF-Paper 1.0 Author-Name: Knut Are Aastveit Author-Name-First: Knut Are Author-Name-Last: Aastveit Author-Email: knut-are.aastveit@norges-bank.no Author-Name: Hilde C. Bjørnland Author-Name-First: Hilde C. Author-Name-Last: Bjrnland Author-Email: hilde.c.bjornland@bi.no Author-Name: Thomas S. Gundersen Author-Name-First: Thomas S. Author-Name-Last: Gundersen Author-Email: thomas.s.gundersen@bi.no Title: The Price Responsiveness of Shale Producers: Evidence From Micro Data Abstract: Shale oil producers respond positively and significantly to favourable oil price signals. This finding is established using a novel proprietary data set consisting of more than 200,000 shale wells across ten U.S. states spanning almost two decades. We document large heterogeneity in the estimated responses across the various shale wells, suggesting that aggregation bias is an important issue for this kind of analysis. We find responses to be stronger for the largest oil producing firms, among wells that are spaced further apart and in regions where the density of shale wells is higher. The response also depend on the level of production. Our empirical results calls for new models that can account for a growing share of shale oil in the U.S., the inherent flexibility of shale extraction technology in production and the role of shale oil in transmitting oil price shocks to the U.S. economy. Length: 31 pages Creation-Date: 2021-09 File-URL: https://hdl.handle.net/11250/2777341 Number: No 05/2021 Keywords: Oil price, Shale oil supply, Well-level panel data Handle: RePEc:bny:wpaper:0101 Template-Type: ReDIF-Paper 1.0 Author-Name: Jamie L. Cross Author-Name-First: Jamie L. Author-Name-Last: Cross Author-Email: jamie.cross@bi.no Author-Name: Chenghan Hou Author-Name-First: Chenghan Author-Name-Last: Hou Author-Email: chenghan.hou@hotmail.com Author-Name: Gary Koop Author-Name-First: Gary Author-Name-Last: Koop Author-Email: gary.koop@strath.ac.uk Title: Macroeconomic Forecasting with Large Stochastic Volatility in Mean VARs Abstract: Vector autoregressions with stochastic volatility in both the conditional mean and variance are commonly used to estimate the macroeconomic effects of uncertainty shocks. Despite their popularity, intensive computational demands when estimating such models have made out-of-sample forecasting exercises impractical, particularly when working with large data sets. In this article, we propose an efficient Markov chain Monte Carlo (MCMC) algorithm for posterior and predictive inference in such models that facilitates such exercises. The key insight underlying the algorithm is that the (log-)conditional densities of the log volatilities possess Hessian matrices that are banded. This enables us to build upon recent advances in band and sparse matrix algorithms for state space models. In a simulation exercise, we evaluate the new algorithm numerically and establish its computational and statistical efficiency over a conventional particle filter based algorithm. Using macroeconomic data for the US we find that such models generally deliver more accurate point and density forecasts over a conventional benchmark in which stochastic volatility only enters the variance of the model. Length: 50 pages Creation-Date: 2021-06 File-URL: https://hdl.handle.net/11250/2760927 Number: No 04/2021 Keywords: Bayesian VARs, Macroeconomic Forecasting, Stochastic Volatility in Mean, State Space Models, Uncertainty Handle: RePEc:bny:wpaper:0100 Template-Type: ReDIF-Paper 1.0 Author-Name: Knut Are Aastveit Author-Name-First: Knut Are Author-Name-Last: Aastveit Author-Email: knut-are.aastveit@norges-bank.no Author-Name: Jamie Cross Author-Name-First: Jamie Author-Name-Last: Cross Author-Email: jamie.cross@bi.no Author-Name: Herman K. Djik Author-Name-First: Herman Author-Name-Last: K. Djik Author-Email: hkvandijk@ese.eur.nl Title: Quantifying time-varying forecast uncertainty and risk for the real price of oil Abstract: We propose a novel and numerically efficient quantification approach to forecast uncertainty of the real price of oil using a combination of probabilistic individual model forecasts. Our combination method extends earlier approaches that have been applied to oil price forecasting, by allowing for sequentially updating of time-varying combination weights, estimation of time-varying forecast biases and facets of miscalibration of individual forecast densities and time-varying inter-dependencies among models. To illustrate the usefulness of the method, we present an extensive set of empirical results about time-varying forecast uncertainty and risk for the real price of oil over the period 1974-2018. We show that the combination approach systematically outperforms commonly used benchmark models and combination approaches, both in terms of point and density forecasts. The dynamic patterns of the estimated individual model weights are highly time-varying, reflecting a large time variation in the relative performance of the various individual models. The combination approach has built-in diagnostic information measures about forecast inaccuracy and/or model set incompleteness, which provide clear signals of model incompleteness during three crisis periods. To highlight that our approach also can be useful for policy analysis, we present a basic analysis of profit-loss and hedging against price risk. Length: 36 pages Creation-Date: 2021-06 File-URL: https://hdl.handle.net/11250/2757472 Number: No 03/2021 Keywords: Oil price, Forecast density combination, Bayesian forecasting, Instabilities, Model uncertainty Handle: RePEc:bny:wpaper:0099 Template-Type: ReDIF-Paper 1.0 Author-Name: Halvor Mehlum Author-Name-First: Halvor Author-Name-Last: Mehlum Author-Email: halvor.mehlum@econ.uio.no Author-Name: Gisle Natvik Author-Name-First: Gisle Author-Name-Last: Natvik Author-Email: gisle.j.natvik@bi.no Author-Name: Ragnar Torvik Author-Name-First: Ragnar Author-Name-Last: Torvik Author-Email: ragnar.torvik@ntnu.no Title: The Inefficient Combination: Competitive Markets, Free Entry, and Democracy Abstract: We show that under fairly general conditions, the combination of (i) competitive markets, (ii) free entry, and (iii) democracy is inconsistent with allocative efficiency. This fundamental impossibility result, which has not been derived before, holds whenever not only prices, but also policy, responds to factor allocations. We develop a theory where agents enter an occupation (more generally, enter an economic activity) and thereafter make a policy decision. Thus, each voter's self interest becomes endogenous to the entry decision. In our baseline model, the policy instrument that citizens decide upon is simply taxation. Workers in occupations whose services are in high demand by the government have an incentive to vote for high taxes. Voters in occupations whose services are in low demand by the government have an incentive to vote for low taxes. We show that the socially efficient size of the public sector cannot be sustained in equilibrium, despite free entry into occupations. We generalize our theory, and show how our impossibility result extends well beyond the baseline model. We also discuss how departing from competitive markets may affect equilibrium outcomes. Our analysis implies that when assessing causes and consequences of factor allocations, it is key to acknowledge how allocations affect not only prices, but also policies. Length: 49 pages Creation-Date: 2021-01 File-URL: https://hdl.handle.net/11250/2725468 Number: No 02/2021 Keywords: Political Economy, Efficiency and Democracy, Endogenous Political Interests, The Size of Government, Labor Market Institutions, Dutch Disease Handle: RePEc:bny:wpaper:0097 Template-Type: ReDIF-Paper 1.0 Author-Name: Thomas St rdal Gundersen Author-Name-First: Thomas Author-Name-Last: St rdal Gundersen Author-Email: thomas_gundersen@me.com Author-Name: Even Soltvedt Hvinden Author-Name-First: Even Soltvedt Author-Name-Last: Hvinden Author-Email: even.c.hvinden@gmail.com Title: OPEC's crude game: Strategic Competition and Regime-switching in Global Oil Markets Abstract: We develop a model of oligopolistic competition under imperfect monitoring and dynamic observable demand. Efficient symmetric equilibria feature disciplined cooperative regimes interrupted by rare but severe price wars. The model predicts that the frequency, duration, and supply schedule associated with each regime may persistently deviate from average behavior. We find evidence for the theoretical predictions of our model in historical Organization of Petroleum Exporting Countries (OPEC) output using a Markov-switching Bayesian vector autoregressive model of the global oil market. The evidence suggests that conventional models without regime-switching of oil supply underestimates the linkages between quantities supplied and oil prices. Length: 74 pages Creation-Date: 2021-01 File-URL: https://hdl.handle.net/11250/2724938 Number: No 01/2021 Keywords: Regime-switching, OPEC, cartel, price war, crude oil demand and supply Handle: RePEc:bny:wpaper:0096 Template-Type: ReDIF-Paper 1.0 Author-Name: Hilde Christiane Bjørnland Author-Name-First: Hilde Christiane Author-Name-Last: Bjørnland Author-Email: hilde.c.bjornland@bi.no Author-Name: Ragna Alstadheim Author-Name-First: Ragna Author-Name-Last: Alstadheim Author-Email: Ragna.Alstadheim@norges-bank.no Author-Name: Junior Maih Author-Name-First: Junior Author-Name-Last: Maih Author-Email: Junior.Maih@norges-bank.no Title: Do Central Banks Respond to Exchange Rate Movements? A Markov-Switching Structural Investigation of Commodity Exporters and Importers Abstract: We analyse whether central banks in small open commodity exporting and importing countries respond to exchange rate movements, taking into consideration that there may be structural changes in parameters and volatility throughout the sample. Using a Markov Switching Rational Expectations framework, we estimate the model for Australia, Canada, New Zealand, Norway, Sweden and the UK. We find that the size of policy responses, and the volatility of structural shocks, have not stayed constant during the sample. Furthermore, monetary policy has responded strongly to the exchange rate in many commodity exporters, most notably in Norway. This has had a stabilizing effect on the exchange rate. In particular, although the terms of trade are highly volatile among commodity exporters, the exchange rate has about the same volatility across all importers and exporters in the recent period. Length: 37 pages Creation-Date: 2021-01 File-URL: https://hdl.handle.net/11250/2724936 Number: No 12/2020 Keywords: Monetary policy, exchange rates, commodity exporters, markov switching Handle: RePEc:bny:wpaper:0095 Template-Type: ReDIF-Paper 1.0 Author-Name: Hilde Christiane Bjørnland Author-Name-First: Hilde Christiane Author-Name-Last: Bjørnland Author-Email: hilde.c.bjornland@bi.no Author-Name: Roberto Casarin Author-Name-First: Robreto Author-Name-Last: Casarin Author-Email: r.casarin@unive.it Author-Name: Marco Lorusso Author-Name-First: Marco Author-Name-Last: Lorusso Author-Email: marco.lorusso@ncl.ac.uk Author-Name: Francesco Ravazzolo Author-Name-First: Francesco Author-Name-Last: Ravazzolo Author-Email: francesco.ravazzolo@unibz.it Title: Oil and Fiscal Policy Regimes Abstract: We analyse fiscal policy responses in oil rich countries by developing a Bayesian regime-switching panel country analysis. We use parameter restrictions to identify procyclical and countercyclical fiscal policy regimes over the sample in 23 OECD and non-OECD oil producing countries. We find that fiscal policy is switching between pro- and countercyclial regimes multiple times. Furthermore, for all countries, fiscal policy is more volatile in the countercyclical regime than in the procyclical regime. In the procyclical regime, however, fiscal policy is systematically more volatile and excessive in the non-OECD (including OPEC) countries than in the OECD countries. This suggests OECD countries are able to smooth spending and save more than the non-OECD countries. Our results emphasize that it is both possible and important to separate a procyclical regime from a countercyclical regime when analysing fiscal policy. Doing so, we have encountered new facts about fiscal policy in oil rich countries. Length: 38 pages Creation-Date: 2020-12 File-URL: https://hdl.handle.net/11250/2722610 Number: No 11/2020 Keywords: Dynamic Panel Model, Mixed-Frequency, Markov Switching, Bayesian Inference, Fiscal Policy, Resource Rich Countries, Oil Prices Handle: RePEc:bny:wpaper:0094 Template-Type: ReDIF-Paper 1.0 Author-Name: Felix Kapfhammer Author-Name-First: Felix Author-Name-Last: Kapfhammer Author-Email: felix.kapfhammer@bi.no Author-Name: Vegard H. Larsen Author-Name-First: Vegard H. Author-Name-Last: Larsen Author-Email: Vegard-Hoghaug.Larsen@norges-bank.no Author-Name: Leif Anders Thorsrud Author-Name-First: Leif Anders Author-Name-Last: Thorsrud Author-Email: leif.a.thorsrud@bi.no Title: Climate Risk and Commodity Currencies Abstract: The positive relationship between real exchange rates and natural resource income is well understood and studied. However, climate change and the transition to a lower-carbon economy now challenges this relationship. We document this by proposing a novel news media-based measure of climate change transition risk and show that when such risk is high, major commodity currencies experience a persistent depreciation and the relationship between commodity price fluctuations and currencies tends to become weaker. Length: 49 pages Creation-Date: 2020-12 File-URL: https://hdl.handle.net/11250/2711929 Number: No 10/2020 Keywords: Exchange Rates, Climate, Risk, Commodities Handle: RePEc:bny:wpaper:0093 Template-Type: ReDIF-Paper 1.0 Author-Name: Bo Zhang Author-Name-First: Bo Author-Name-Last: Zhang Author-Email: bozhangyc@gmail.com Author-Name: Jamie Cross Author-Name-First: Jamie Author-Name-Last: Cross Author-Email: jamie.cross@bi.no Author-Name: Na Guo Author-Name-First: Na Author-Name-Last: Guo Author-Email: nkguona@gmail.com Title: Time-Varying Trend Models for Forecasting Inflation in Australia Abstract: We investigate whether a class of trend models with various error term structures can improve upon the forecast performance of commonly used time series models when forecasting CPI inflation in Australia. The main result is that trend models tend to provide more accurate point and density forecasts compared to conventional autoregressive and Phillips curve models. The best short term forecasts come from a trend model with stochastic volatility in the transitory component, while medium to long-run forecasts are better made by specifying a moving average component. We also find that trend models can capture various dynamics in periods of significance which conventional models can not. This includes the dramatic reduction in inflation when the RBA adopted inflation targeting, the a one-off 10 per cent Goods and Services Tax inflationary episode in 2000, and the gradually decline in inflation since 2014. Length: 27 pages Creation-Date: 2020-11 File-URL: https://hdl.handle.net/11250/2688909 Number: No 09/2020 Keywords: trend model, inflation forecast, Bayesian analysis, stochastic volatility Handle: RePEc:bny:wpaper:0092 Template-Type: ReDIF-Paper 1.0 Author-Name: Jon Ellingsen Author-Name-First: Jon Author-Name-Last: Ellingsen Author-Email: Jon.Ellingsen@bi.no Author-Name: Vegard H. Larsen Author-Name-First: Vegard Author-Name-Last: Larsen Author-Email: Vegard-Hoghaug.Larsen@norges-bank.no Author-Name: Leif Anders Thorsrud Author-Name-First: Leif Anders Author-Name-Last: Thorsrud Author-Email: leif.a.thorsrud@bi.no Title: News media vs. FRED-MD for macroeconomic forecasting Abstract: Using a unique dataset of 22.5 million news articles from the Dow Jones Newswires Archive, we perform an in depth real-time out-of-sample forecasting comparison study with one of the most widely used data sets in the newer forecasting literature, namely the FRED-MD dataset. Focusing on U.S. GDP, consumption and investment growth, our results suggest that the news data contains information not captured by the hard economic indicators, and that the news-based data are particularly informative for forecasting consumption developments. Length: 45 pages Creation-Date: 2020-10 File-URL: https://hdl.handle.net/11250/2682897 Number: No 08/2020 Keywords: Forcasting, Real-time, Machine Learning, News, Text data Handle: RePEc:bny:wpaper:0091 Template-Type: ReDIF-Paper 1.0 Author-Name: Andr Kall k Anundsen Author-Name-First: Andr Author-Name-Last: Kall k Anundsen Author-Email: Andre-Kallak.Anundsen@oslomet.no Author-Name: Bjørnar Karlsen Kivedal Author-Name-First: Bjørnar Author-Name-Last: Karlsen Kivedal Author-Email: BjornarKarlsen.Kivedal@oslomet.no Author-Name: Erling R ed Larsen Author-Name-First: Erling Author-Name-Last: R ed Larsen Author-Email: erling.r.larsen@bi.no Author-Name: Leif Anders Thorsrud Author-Name-First: Leif Anders Author-Name-Last: Thorsrud Author-Email: leif.a.thorsrud@bi.no Title: Behavioral changes and policy effects during Covid-19 Abstract: We exploit unique Norwegian day-by-day transaction and bid-by-bid auction data in order to examine how market participants reacted to the spreading news of Covid-19 in early March 2020, the lock-down on March 12, and the re-opening on April 20. We find that behavior changed voluntarily before the lock-down, and we find effects on the housing market from both the lock-down and the re-opening. In particular, there exists a discontinuity on the date of the lock-down in transaction volumes, sell-prediction spreads, aggressive bidding behavior, and seller confidence. However, when we compare observed price developments with our estimated counter-factual price developments, we find that roughly half of the total fall in prices had occurred when the lock-down was implemented. The re-opening completely reverses the lock-down effect on prices. We also show that voluntary behavioural changes, as well as lock-down and re-opening effects, are visible in various measures of social mobility, and that changes in daily news sentiment correlate with the abnormal price movements during this period. Length: 34 pages Creation-Date: 2020-09 File-URL: https://hdl.handle.net/11250/2678885 Number: No 07/2020 Keywords: Auctions, Bids, Covid-19, Discontinuity, Housing Market, Policy Intervention Handle: RePEc:bny:wpaper:0090 Template-Type: ReDIF-Paper 1.0 Author-Name: Matteo Iacopini Author-Name-First: Matteo Author-Name-Last: Iacopini Author-Email: matteo.iacopini@unive.it Author-Name: Francesco Ravazzolo Author-Name-First: Francesco Author-Name-Last: Ravazzolo Author-Email: francesco.ravazzolo@unibz.it Author-Name: Luca Rossini Author-Name-First: Luca Author-Name-Last: Rossini Author-Email: rossini@qmul.ac.uk Title: Proper scoring rules for evaluating asymmetry in density forecasting Abstract: This paper proposes a novel asymmetric continuous probabilistic score (ACPS) for evaluating and comparing density forecasts. It extends the proposed score and defines a weighted version, which emphasizes regions of interest, such as the tails or the center of a variable s range. A test is also introduced to statistically compare the predictive ability of different forecasts. The ACPS is of general use in any situation where the decision maker has asymmetric preferences in the evaluation of the forecasts. In an artificial experiment, the implications of varying the level of asymmetry in the ACPS are illustrated. Then, the proposed score and test are applied to assess and compare density forecasts of macroeconomic relevant datasets (US employment growth) and of commodity prices (oil and electricity prices) with particular focus on the recent COVID-19 crisis period. Length: 33 pages Creation-Date: 2020-09 File-URL: https://hdl.handle.net/11250/2678134 Number: No 06/2020 Keywords: asymmetric continuous probablistic score, asymmetric loss, proper score, density forecast, predictive distribution, weighted score, probabilistic forecast Handle: RePEc:bny:wpaper:0089 Template-Type: ReDIF-Paper 1.0 Author-Name: Angelica Gianfreda Author-Name-First: Angelica Author-Name-Last: Gianfreda Author-Email: angelica.gianfreda@unimore.it Author-Name: Francesco Ravazzolo Author-Name-First: Francesco Author-Name-Last: Ravazzolo Author-Email: francesco.ravazzolo@unibz.it Author-Name: Luca Rossini Author-Name-First: Luca Author-Name-Last: Rossini Author-Email: l.rossini@vu.nl Title: Large Time-Varying Volatility Models for Electricity Prices Abstract: We study the importance of time-varying volatility in modelling hourly electricity prices when fundamental drivers are included in the estimation. This allows us to contribute to the literature of large Bayesian VARs by using well-known time series models in a huge dimension for the matrix of coefficients. Based on novel Bayesian techniques, we exploit the importance of both Gaussian and non-Gaussian error terms in stochastic volatility. We find that by using regressors as fuels prices, forecasted demand and forecasted renewable energy is essential in order to properly capture the volatility of these prices. Moreover, we show that the time-varying volatility models outperform the constant volatility models in both the in-sample model- fit and the out-of-sample forecasting performance. Length: 28 pages Creation-Date: 2020-07 File-URL: https://hdl.handle.net/11250/2660739 Number: No 05/2020 Keywords: Electricity, Hourly Prices, Renewable Energy Sources, Non-Gaussian, Stochastic-Volatility, Forecasting Handle: RePEc:bny:wpaper:0088 Template-Type: ReDIF-Paper 1.0 Author-Name: Halvor Mehlum Author-Name-First: Halvor Author-Name-Last: Mehlum Author-Email: halvor.mehlum@econ.uio.no Author-Name: Ragnar Torvik Author-Name-First: Ragnar Author-Name-Last: Torvik Author-Email: ragnar.torvik@ntnu.no Title: Macroeconomics in the time of the Corona Abstract: For a developed market economies, the corona crisis is a new type of crisis, but this crisis has parallels to economies at other times, and to crises at other places. We discuss some mechanisms from the traditional macro literature, and from the literature on macroeconomics for developing countries, which contains economic mechanisms that overnight have also become more relevant to developed market economies. Phenomena such as bottlenecks, rationing, forced savings, production constrained by access to inputs, liquidity constraints, sector heterogeneity, and costs running despite production being shut down, are all permanent phenomena in developing countries. During the corona crisis, however, they have also emerged as key mechanisms in developed market economies. We discuss some of these well developed, but partially forgotten mechanisms, by extending simple textbook descriptions, and we provide some examples of how the effects of fiscal and monetary policy are modified in a time of crisis. Length: 21 pages Creation-Date: 2020-06 File-URL: https://hdl.handle.net/11250/2660738 Number: No 04/2020 Keywords: Handle: RePEc:bny:wpaper:0087 Template-Type: ReDIF-Paper 1.0 Author-Name: Knut Are Aastveit Author-Name-First: Knut Are Author-Name-Last: Aastveit Author-Email: Knut-Are.Aastveit@Norges-Bank.no Author-Name: Hilde Christiane Bjørnland Author-Name-First: Hilde Christiane Author-Name-Last: Bjørnland Author-Email: hilde.c.bjornland@bi.no Author-Name: Jamie L. Cross Author-Name-First: Jamie L. Author-Name-Last: Cross Author-Email: jamie.cross@bi.no Title: Inflation expectations and the pass-through of oil prices Abstract: Do inflation expectations and the associated pass-though of oil price shocks depend on demand and supply conditions underlying the global market for crude oil? We answer this question with a novel structural vector autoregressive model of the global oil market that jointly identifies transmissions of oil demand and supply shocks through the real price of oil to both expected and realized inflation. Our main insight is that US households form their expectations of inflation differently when faced with long sustained increases in the price of oil, such as the early millennium oil price surge of 2003 to 2008, as compared to short and sharp price fluctuations that characterized much of the twentieth century. We also find that oil demand and supply shocks can explain a large proportion of expected and realized inflation dynamics during multiple periods of economic significance, and resolve disagreements around the role of oil prices in explaining the missing deflation puzzle of the Great Recession. Length: 36 pages Creation-Date: 2020-06 File-URL: https://hdl.handle.net/11250/2659927 Number: No 03/2020 Keywords: Inflation expectations, inflation pass-through, oil prices Handle: RePEc:bny:wpaper:0086 Template-Type: ReDIF-Paper 1.0 Author-Name: Helene Olsen Author-Name-First: Helene Author-Name-Last: Olsen Author-Email: helene.olsen@bi.no Author-Name: Harald Wieslander Author-Name-First: Harald Author-Name-Last: Wieslander Author-Email: harald.wieslander@gmail.com Title: The Impact of Monetary Policy on Leading Variables for Financial Stability in Norway Abstract: We search for leading determinants of financial instability in Norway using a signaling approach, and examine how these respond to a monetary policy shock with the use of structural VAR models. We find that the wholesale funding ratio and gap, credit-to-GDP gap, house price-to-income ratio and gap, and credit growth provide good signals of future financial instability. Following a contractionary monetary policy shock, the credit-to-GDP gap and house price-to-income ratio decrease significantly. The implication of our findings is that the central bank can respond to an increase in these indicators by increasing the interest rate, which in turn will decrease the indicators and thereby the probability of financial distress. Length: 58 pages Creation-Date: 2020-03 File-URL: https://hdl.handle.net/11250/2647912 Number: No 02/2020 Keywords: Financial stability, Monetary policy, Structural VAR, Signaling Approach Handle: RePEc:bny:wpaper:0085 Template-Type: ReDIF-Paper 1.0 Author-Name: Isabel Hovdahl Author-Name-First: Isabel Author-Name-Last: Hovdahl Author-Email: isabel.hovdahl@ntnu.no Title: Deadly Variation: The Effect of Temperature Variability on Mortality Abstract: While economists have focused on the e?ect of mean temperatures on mortality, climate scientists have emphasized that global warming might not only lead to an increase in mean temperatures, but can potentially also a?ect temperature variability. This is the ?rst paper to estimate the causal e?ect of temperature variability on mortality. Using monthly state level data for the US in the period 1969-2004, I o?er three main results: (1) Increased monthly temperature variability causes increased mortality, (2) omitting the e?ect of temperature variability on mortality can severely bias our predictions on the number of temperature-induced fatalities caused by global warming, and (3) adaptation to increased temperature variability is more di?cult than adaptation to increased mean temperatures. Length: 58 pages Creation-Date: 2020-02 File-URL: https://hdl.handle.net/11250/2644047 Number: No 01/2020 Handle: RePEc:bny:wpaper:0084 Template-Type: ReDIF-Paper 1.0 Author-Name: Davide Ferrari Author-Name-First: Davide Author-Name-Last: Ferrari Author-Email: davide.ferrari2@unibz.it Author-Name: Francesco Ravazzolo Author-Name-First: Francesco Author-Name-Last: Ravazzolo Author-Email: francesco.ravazzolo@unibz.it Author-Name: Joaquin Vespignani Author-Name-First: Joaquin Author-Name-Last: Vespignani Author-Email: Joaquin.Vespignani@utas.edu.au Title: Forecasting Energy Commodity Prices: A Large Global Dataset Sparse Approach Abstract: This paper focuses on forecasting quarterly energy prices of commodities, such as oil, gas and coal, using the Global VAR dataset proposed by Mohaddes and Raissi (2018). This dataset includes a number of potentially informative quarterly macroeconomic variables for the 33 largest economies, overall accounting for more than 80% of the global GDP. To deal with the information on this large database, we apply a dynamic factor model based on a penalized maximum likelihood approach that allows to shrink parameters to zero and to estimate sparse factor loadings. The estimated latent factors show considerable sparsity and heterogeneity in the selected loadings across variables. When the model is extended to predict energy commodity prices up to four periods ahead, results indicate larger predictability relative to the benchmark random walk model for 1-quarter ahead for all energy commodities. In our application, the largest improvement in terms of prediction accuracy is observed when predicting gas prices from 1 to 4 quarters ahead. Length: 25 pages Creation-Date: 2019-12 File-URL: http://hdl.handle.net/11250/2634381 Number: No 11/2019 Keywords: Energy Prices, Forecasting, Dynamic Factor model, Sparse Estimation, Penalized Maximum Likelihood Handle: RePEc:bny:wpaper:0083 Template-Type: ReDIF-Paper 1.0 Author-Name: Even Comfort Hvinden Author-Name-First: Even Comfort Author-Name-Last: Hvinden Author-Email: even.c.hvinden@gmail.com Title: OPEC's crude game Abstract: The market behavior nationalized oil companies in the Organization of Petroleum Exporting Countries (OPEC) is starkly time-varying. I rationalize OPEC's behavior in an infinitely repeated game of Cournot competition with imperfect monitoring, capacity constraints to output, and demand evolving as a Markov chain. I adapt the methodology of Abreu, Pearce, and Stacchetti (1990) to derive optimal symmetric equilibria. High powered incentives are created by the threat of output wars, the severity of which is endogenously determined by current and future expected market conditions. Implied price elasticities of supply increase in magnitude and may change sign under constrained incentive creation. The key empirical implication is that unanticipated changes to OPEC's strategic environment will persistently alter their behavior and create breaks in the joint stochastic distribution of equilibrium prices and quantities. Length: 32 pages Creation-Date: 2019-11 File-URL: http://hdl.handle.net/11250/2630791 Number: No 10/2019 Handle: RePEc:bny:wpaper:0082 Template-Type: ReDIF-Paper 1.0 Author-Name: Andrew Binning Author-Name-First: Andrew Author-Name-Last: Binning Author-Email: andrew.binning@treasury.govt.nz Author-Name: Hilde C. Bjørnland Author-Name-First: Hilde C. Author-Name-Last: Bjørnland Author-Email: hilde.c.bjornland@bi.no Author-Name: Junior Maih Author-Name-First: Junior Author-Name-Last: Maih Author-Email: Junior.Maih@norges-bank.no Title: Is Monetary Policy Always Effective? Incomplete Interest Rate Pass-through in a DSGE Model Abstract: We estimate a regime-switching DSGE model with a banking sector to explain incomplete and asymmetric interest rate pass-through, especially in the presence of a binding zero lower bound (ZLB) constraint. The model is estimated using Bayesian techniques on US data between 1985 and 2016. The framework allows us to explain the time-varying interest rate spreads and pass-through observed in the data. We ?nd that pass-through tends to be delayed in the short run, and incomplete in the long run. All this impacts the dynamics of the other macroeconomic variables in the model. In particular, we ?nd monetary policy to be less e?ective under incomplete pass-through. Furthermore, the behavior of pass-through in the loan rate is di?erent from that of the deposit rate shocks. This creates asymmetric dynamics at the zero lower bound, and incomplete pass-through exacerbates that asymmetry. Length: 68 pages Creation-Date: 2019-11 File-URL: http://hdl.handle.net/11250/2630790 Number: No 09/2019 Keywords: banking sector, incomplete or symmetric interest rate pass-through, DSGE Handle: RePEc:bny:wpaper:0081 Template-Type: ReDIF-Paper 1.0 Author-Name: Hilde C. Bjørnland Author-Name-First: Hilde C. Author-Name-Last: Bjørnland Author-Email: hilde.c.bjornland@bi.no Title: Supply flexibility in the shale patch: Facts, no fiction Abstract: In two recent papers, Kilian and Zhou (2019) and Kilian (2019) have criticized Bjørnland, Nordvik, and Rohrer (2017), arguing that our finding of a large price elasticity of output for shale producers is not credible. We welcome a discussion of our methods and findings, but the criticisms made in these two papers are inaccurate and mischaracterize our analysis and results. In this note I address the criticism that has been made, arguing that our findings support the notion that the degree of output fl exibility is dependent on the production technology in question. Furthermore, I argue that knowledge that shale producers are more price elastic than conventional oil producers could have far reaching implications for the industry, for macroeconomic outcomes, and for policy analysis. Length: 14 pages Creation-Date: 2019-11 File-URL: http://hdl.handle.net/11250/2629918 Number: No 08/2019 Handle: RePEc:bny:wpaper:0080 Template-Type: ReDIF-Paper 1.0 Author-Name: Stylianos Asimakopoulos Author-Name-First: Stylianos Author-Name-Last: Asimakopoulos Author-Email: S.Asimakopoulos@bath.ac.uk Author-Name: Marco Lorusso Author-Name-First: Marco Author-Name-Last: Lorusso Author-Email: marco.lorusso@northumbria.ac.uk Author-Name: Francesco Ravazzolo Author-Name-First: Francesco Author-Name-Last: Ravazzolo Author-Email: francesco.ravazzolo@unibz.it Title: A New Economic Framework: A DSGE Model with Cryptocurrency Abstract: This paper develops a Dynamic Stochastic General Equilibrium (DSGE) model to evaluate the economic repercussions of cryptocurrency. We assume that cryptocurrency offers an alternative currency option to government currency for households and we have an endogenous supply and demand for cryptocurrency. We estimate our model with Bayesian techniques using monthly data for the period 2013:M6-2019:M3. Our results indicate a substitution effect between the real balances of government currency and cryptocurrency in response to technology, preferences and monetary policy shocks. In addition, real balances of cryptocurrency exhibit a countercyclical reaction to these shocks. Moreover, we find that government currency demand shocks have larger effects on the economy than shocks to cryptocurrency demand. Our results also show that cryptocurrency productivity shocks have negative effects on output and on the exchange rate between government currency and cryptocurrency, with a more pronounced negative reaction to output if the central bank increases its weight to government currency growth. Overall, our results provide novel insights on the underlying mechanisms of cryptocurrency and spillover effects to the economy. Length: 82 pages Creation-Date: 2019-10 File-URL: http://hdl.handle.net/11250/2624020 Number: No 07/2019 Keywords: DSGE Model, Government Currency, Cryptocurrency, Bayesian Estimation Handle: RePEc:bny:wpaper:0079 Template-Type: ReDIF-Paper 1.0 Author-Name: Saskia ter Ellen Author-Name-First: Saskia Author-Name-Last: ter Ellen Author-Email: Saskia.Ter-Ellen@Norges-Bank.no Author-Name: Vegard H. Larsen Author-Name-First: Vegard Author-Name-Last: H. Larsen Author-Email: vegard-hoghaug.larsen@norges-bank.no Author-Name: Leif Anders Thorsrud Author-Name-First: Leif Anders Author-Name-Last: Thorsrud Author-Email: leif.a.thorsrud@bi.no Title: Narrative monetary policy surprises and the media Abstract: We propose a method to quantify narratives from textual data in a structured manner, and identify what we label "narrative monetary policy surprises" as the change in economic media coverage explained by central bank communication accompanying interest rate meetings. Our proposed method is fast and simple, and relies on a Singular Value Decomposition of the different texts and articles coupled with a unit rotation identifi cation scheme. Identifying narrative surprises in central bank communication using this type of data and identifi cation provides surprise measures that are uncorrelated with conventional monetary policy surprises, and, in contrast to such surprises, have a signifi cant effect on subsequent media coverage. In turn, narrative monetary policy surprises lead to macroeconomic responses similar to what recent monetary policy literature associates with the information component of monetary policy communication. Our study highlights the importance of written central bank communication and the role of the media as information intermediaries. Length: 35 pages Creation-Date: 2019-10 File-URL: http://hdl.handle.net/11250/2624019 Number: No 06/2019 Keywords: communication, monetary policy, factor identification, textual data Handle: RePEc:bny:wpaper:0078 Template-Type: ReDIF-Paper 1.0 Author-Name: Isabel Hovdahl Author-Name-First: Isabel Author-Name-Last: Hovdahl Author-Email: isabel.hovdahl@ntnu.no Title: On the use of machine learning for causal inference in climate economics Abstract: One of the most important research questions in climate economics is the relationship between temperatures and human mortality. This paper develops a procedure that enables the use of machine learning for estimating the causal temperature-mortality relationship. The machine-learning model is compared to a traditional OLS model, and although both models are capturing the causal temperature-mortality relationship, they deliver very different predictions of the effect of climate change on mortality. These differences are mainly caused by different abilities regarding extrapolation and estimation of marginal effects. The procedure developed in this paper can find applications in other fields far beyond climate economics. Length: 51 pages Creation-Date: 2019-06 File-URL: http://hdl.handle.net/11250/2602267 Number: No 05/2019 Keywords: Climate change, machine learning, mortality Handle: RePEc:bny:wpaper:0077 Template-Type: ReDIF-Paper 1.0 Author-Name: Knut Are Aastveit Author-Name-First: Knut Are Author-Name-Last: Aastveit Author-Email: knut-are.aastveit@norges-bank.no Author-Name: Bruno Albuquerque Author-Name-First: Bruno Author-Name-Last: Albuquerque Author-Email: brunoalbuquerque19@yahoo.com Author-Name: Andr Anundsen Author-Name-First: Andr Author-Name-Last: Anundsen Author-Email: andre-kallak.anundsen@oslomet.no Title: Changing supply elasticities and regional housing booms Abstract: Recent developments in US house prices mirror those of the 1996-2006 boom, but the recovery in construction activity has been weak. Using data for 254 US metropolitan areas, we show that housing supply elasticities have fallen markedly in recent years. Consistent with this, we ?nd that monetary policy shocks have a stronger e?ect on house prices during the recent recovery than the previous boom. At the same time, building permits respond less. Finally, we ?nd that housing supply elasticities have declined more in areas where land-use regulation has tightened the most, and in areas that experienced the sharpest housing busts. Length: 53 pages Creation-Date: 2019-06 File-URL: http://hdl.handle.net/11250/2601599 Number: No 04/2019 Keywords: House prices, Heterogeneity, Housing supply elasticities, Monetary Policy Handle: RePEc:bny:wpaper:0076 Template-Type: ReDIF-Paper 1.0 Author-Name: Vegard H. Larsen Author-Name-First: Vegard H. Author-Name-Last: Larsen Author-Email: Vegard-Hoghaug.Larsen@norges-bank.no Author-Name: Leif Anders Thorsrud Author-Name-First: Leif Anders Author-Name-Last: Thorsrud Author-Email: Leif.a.thorsrud@bi.no Author-Name: Julia Zhulanova Author-Name-First: Julia Author-Name-Last: Zhulanova Author-Email: julia.zhulanova@bi.no Title: News-driven inflation expectations and information rigidities Abstract: We investigate the role played by the media in the expectations formation process of households. Using a news-topic-based approach we show that news types the media choose to report on, e.g., (Internet) technology, health, and politics, are good predictors of households' stated in ation expectations. In turn, in a noisy information model setting, augmented with a simple media channel, we document that the underlying time series properties of relevant news topics explain the timevarying information rigidity among households. As such, we not only provide a novel estimate showing the degree to which information rigidities among households vary across time, but also provide, using a large news corpus and machine learning algorithms, robust and new evidence highlighting the role of the media for understanding infl ation expectations and information rigidities. Length: 76 pages Creation-Date: 2019-04 File-URL: http://hdl.handle.net/11250/2598089 Number: No 03/2019 Keywords: Expectations, Media, Machine Learning, Inflation Handle: RePEc:bny:wpaper:0075 Template-Type: ReDIF-Paper 1.0 Author-Name: Jamie Cross Author-Name-First: Jamie Author-Name-Last: Cross Author-Email: jamie.cross@bi.no Author-Name: Bao H. Nguyen Author-Name-First: Bao H. Author-Name-Last: Nguyen Author-Email: bao.nguyen@anu.edu.au Author-Name: Bo Zhang Author-Name-First: Bo Author-Name-Last: Zhang Author-Email: bzhang@uow.edu.au Title: New Kid on the Block? China vs the US in World Oil Markets Abstract: China has recently overtaken the US to become the world largest importer of crude oil. In light of this fact, we formally compare contributions of demand shocks from China, the US and the rest of the world. We find that China's in fluence on the real price of oil has increased over the past two decades and surpassed that of the US. Despite this result, oil prices are more sensitive to demand shocks from the US than China. Finally, we document that demand shocks from China alone were too small to have caused the mid 2003-2008 price surge. Instead, oil specific demand shocks are found to be the major determinant of the real oil price during this period. Length: 12 pages Creation-Date: 2019-04 File-URL: http://hdl.handle.net/11250/2596418 Number: No 02/2019 Keywords: China, US, oil markets Handle: RePEc:bny:wpaper:0074 Template-Type: ReDIF-Paper 1.0 Author-Name: Kenichiro McAlinn Author-Name-First: Kenichiro Author-Name-Last: McAlinn Author-Email: kenichiro.mcalinn@chicagobooth.edu Author-Name: Knut Are Aastveit Author-Name-First: Knut Are Author-Name-Last: Aastveit Author-Email: knut-are.aastveit@norges-bank.no Author-Name: Jouchi Nakajima Author-Name-First: Jouchi Author-Name-Last: Nakajima Author-Email: jouchi.nakajima@bis.org Author-Name: Mike West Author-Name-First: Mike Author-Name-Last: West Author-Email: mike.west@duke.edu Title: Multivariate Bayesian Predictive Synthesis in Macroeconomic Forecasting Abstract: We present new methodology and a case study in use of a class of Bayesian predictive synthesis (BPS) models for multivariate time series forecasting. This extends the foundational BPS framework to the multivariate setting, with detailed application in the topical and challenging context of multi-step macroeconomic forecasting in a monetary policy setting. BPS evaluates sequentially and adaptively over time varying forecast biases and facets of miscalibration of individual forecast densities for multiple time series, and critically their time-varying interdependencies. We define BPS methodology for a new class of dynamic multivariate latent factor models implied by BPS theory. Structured dynamic latent factor BPS is here motivated by the application context sequential forecasting of multiple US macroeconomic time series with forecasts generated from several traditional econometric time series models. The case study highlights the potential of BPS to improve of forecasts of multiple series at multiple forecast horizons, and its use in learning dynamic relationships among forecasting models or agents. Length: 59 pages Creation-Date: 2019-01 File-URL: https://brage.bibsys.no/xmlui/bitstream/handle/11250/2582375/working_camp_1-2019.pdf?sequence=1&isAllowed=y Number: No 01/2019 Keywords: Agent opinion analysis, Bayesian forecasting, Dynamic latent factors models, Dynamic SURE models, Macroeconomic forecasting, Multivariate density forecast combination, Handle: RePEc:bny:wpaper:0073 Template-Type: ReDIF-Paper 1.0 Author-Name: Halvor Mehlum Author-Name-First: Halvor Author-Name-Last: Mehlum Author-Email: halvor.mehlum@econ.uio.no Author-Name: Ragnar Torvik Author-Name-First: Ragnar Author-Name-Last: Torvik Author-Email: ragnar.torvik@ntnu.no Author-Name: Simone Valente Author-Name-First: Simone Author-Name-Last: Valente Author-Email: s.valente@uea.ac.uk Title: Growth with Age-Dependent Preferences Abstract: We study the consequences of age-dependent preferences for economic growth and structural change in a two-sector model with overlapping generations and nondimishing returns to capital. Savings and accumulation rates depend on the relative price of services consumed by old agents and on the intergenerational distribution of income. The feedback effects originating in preferences and income distribution yield three possible long-run growth outcomes: sustained endogenous growth, decumulation traps, and bounded accumulation. In the endogenous growth scenario, the transition features rising savings and accumulation rates accompanied by distributional shifts in favor of young workers, growing employment and rising prices in the service sector. Traps are triggered by initially low capital in manufacturing and low employment in services. Bounded accumulation yielding zero long-run growth in per capita incomes is induced by preferences, not by diminishing returns to capital. Length: 18 pages Creation-Date: 2018-12 File-URL: https://brage.bibsys.no/xmlui/bitstream/handle/11250/2577032/14-GrowthAgeDepCAMP.pdf?sequence=1&isAllowed=y Number: No 14/2018 Keywords: Endogenous growth, structural change, overlapping generations Handle: RePEc:bny:wpaper:0072 Template-Type: ReDIF-Paper 1.0 Author-Name: Fabio Canova Author-Name-First: Fabio Author-Name-Last: Canova Author-Email: fabio.canova@bi.no Author-Name: Filippo Ferroni Author-Name-First: Filippo Author-Name-Last: Ferroni Author-Email: fferroni@frbchi.org Title: Mind the gap! Stylized dynamic facts and structural models. Abstract: We study what happens to identi?ed shocks and to dynamic responses when the structural model features q disturbances and m endogenous variables, q = m, but only m1 < q variables are used in the empirical model. Aggregation create problems. Identi?ed shocks do not necessarily combine structural disturbances of the same type. Instead, they are linear combinations of current and past values of all structural disturbances. Appropriate theoretical restrictions may be insu?cient to obtain structural dynamics. The theory used to interpret the data and the disturbances it features determine whether an empirical model is too small. We highlight the magnitude of the distortions and the steps needed to reduce them with an example. We revisit Iacoviello [2005] s evidence regarding the transmission of house price shocks. Length: pages 30 Creation-Date: 2018-12 File-URL: https://brage.bibsys.no/xmlui/bitstream/handle/11250/2577654/13_v2.pdf?sequence=1&isAllowed=y Number: No 13/2018 Keywords: Handle: RePEc:bny:wpaper:0071 Template-Type: ReDIF-Paper 1.0 Author-Name: Jamie L. Cross Author-Name-First: Jamie L. Author-Name-Last: Cross Author-Email: jamie.cross@bi.no Author-Name: Chenghan Hou Author-Name-First: Chenghan Author-Name-Last: Hou Author-Email: chenghan.hou@hotmail.com Author-Name: Aubrey Poon Author-Name-First: Aubrey Author-Name-Last: Poon Author-Email: aubrey.poon@strath.ac.uk Title: International Transmission of Macroeconomic Uncertainty in Small Open Economies: An Empirical Approach Abstract: We estimate the effects of domestic and international sources of macroeconomic uncertainty in three small open economy (SOE) inflation targeting countries: Australia, Canada and New Zealand. To this end, we propose a structural VAR model with a common stochastic volatility in mean component, and develop an efficient Markov chain Monte Carlo algorithm to estimate the new model. An important feature of the model is that it allows us to test various hypotheses in an internally consistent manner. Our main result is that international uncertainty spillovers shape the macroeconomic conditions in all SOEs. The general mechanism is that international uncertainty shocks reduce real GDP, while raising inflation and interest rates. Domestic uncertainty shocks are found to have a similar effect on inflation and interest rates, however the real GDP responses are idiosyncratic. In particular, the transmission of domestic uncertainty shocks is found to be negative in Canada and positive in New Zealand, while the Australian response is initially negative and becomes positive over time. While the Canadian responses are similar to established results on the US economy, our findings highlight potentially different transmission mechanisms in Australia and New Zealand. Finally, in a forecasting exercise, we show that accounting for macroeconomic uncertainty via our model specification provides more accurate point and density forecasts compared to commonly used benchmarks. Length: 43 pages Creation-Date: 2018-11 File-URL: https://brage.bibsys.no/xmlui/bitstream/handle/11250/2577492/12_v2.pdf?sequence=1&isAllowed=y Number: No 12/2018 Keywords: Bayesian VARs, International Spillovers, Small Open Economies, Stochastic Volatility in Mean, Uncertainty Handle: RePEc:bny:wpaper:0070 Template-Type: ReDIF-Paper 1.0 Author-Name: Jamie L. Cross Author-Name-First: Jamie L. Author-Name-Last: Cross Author-Email: j.cross@anu.edu.au Author-Name: Chenghan Hou Author-Name-First: Chenghan Author-Name-Last: Hou Author-Email: chenghan.hou@hotmail.com Author-Name: Bao H. Nguyen Author-Name-First: Bao H. Author-Name-Last: Nguyen Author-Email: bao.nguyen@anu.edu.au Title: On the China factor in international oil markets: A regime switching approach Abstract: We investigate the relationship between world oil markets and China's macroeconomic performance over the past two decades. Our analysis starts by proposing a simple method for disentangling real economic activity stemming from China and the rest of the world. We then consider a sufficiently large set of dynamic VAR models to distinguish between abrupt and gradual changes in the macroeconomic relationships and volatility clustering in the shocks. A model exercise shows that a Markov-switching model is preferred to previously used models in the literature. When investigating the role of oil market shocks on China's output, we find that oil supply shocks tend to elicit a positive response, while the response of oil demand shocks is negative. Next, when analyzing world oil price dynamics, we find that demand shocks have had significant positive impacts over the past two decades. The average proportion of oil price variation explained by demand from China and rest of world demand are around 30 percent over the sample period. Importantly, while China specific effects are relatively constant, rest of world aggregate demand shocks are found to have larger impact during times of global macroeconomic downturn. This highlights the importance of our model comparison exercise. Finally, we find that the recent 2014/15 oil price drop was due to a combination of increased oil supply and decreased demand from China. Length: 35 pages Creation-Date: 2018 File-URL: https://brage.bibsys.no/xmlui/bitstream/handle/11250/2577653/11_v2.pdf?sequence=1&isAllowed=y Number: No 11/2018 Keywords: Oil prices, China, Vector autoregression (VAR), Markov-switching, Sign restrictions Handle: RePEc:bny:wpaper:0069 Template-Type: ReDIF-Paper 1.0 Author-Name: Fabio Canova Author-Name-First: Fabio Author-Name-Last: Canova Author-Email: fabio.canova@bi.no Author-Name: Christian Matthes Author-Name-First: Christian Author-Name-Last: Matthes Author-Email: christian.matthes@rich.frb.org Title: A composite likelihood approach for dynamic structural models Abstract: We describe how to use the composite likelihood to ameliorate estimation, computational, and inferential problems in dynamic stochastic general equilibrium models. We present a number of situations where the methodology has the potential to resolve well-known problems and formally justi?es existing practices. In each case we consider, we provide an example to illustrate how the approach works and its properties in practice. Length: 44 pages Creation-Date: 2018-10 File-URL: https://brage.bibsys.no/xmlui/bitstream/handle/11250/2577028/10-combining_models_10_2018.pdf?sequence=1&isAllowed=y Number: No 10/2018 Keywords: Dynamic structural models, composite likelihood, identification, singularity, large scale models, panel data Handle: RePEc:bny:wpaper:0068 Template-Type: ReDIF-Paper 1.0 Author-Name: Yoosoon Chang Author-Name-First: Yoosoon Author-Name-Last: Chang Author-Email: yoosoon@iu.edu Author-Name: Junior Maih Author-Name-First: Junior Author-Name-Last: Maih Author-Email: junior.maih@norges-bank.no Author-Name: Fei Tan Author-Name-First: Fei Author-Name-Last: Tan Author-Email: tanf@slu.edu Title: State Space Models with Endogenous Regime Switching Abstract: This article studies the estimation of state space models whose parameters are switching endogenously between two regimes, depending on whether an autoregressive latent factor crosses some threshold level. Endogeneity stems from the sustained impacts of transition innovations on the latent factor, absent from which our model reduces to one with exogenous Markov switching. Due to the flexible form of state space representation, this class of models is vastly broad, including classical regression models and the popular dynamic stochastic general equilibrium (DSGE) models as special cases. We develop a computationally efficient filtering algorithm to estimate the nonlinear model. Calculations are greatly simplified by appropriate augmentation of the transition equation and exploiting the conditionally linear and Gaussian structure. The algorithm is shown to be accurate in approximating both the likelihood function and filtered state variables. We also apply the filter to estimate a small-scale DSGE model with threshold-type switching in monetary policy rule, and find apparent empirical evidence of endogeneity in the U.S. monetary policy shifts. Overall, our approach provides a greater scope for understanding the complex interaction between regime switching and measured economic behavior. Length: 33 pages Creation-Date: 2018-11 File-URL: https://brage.bibsys.no/xmlui/bitstream/handle/11250/2575527/EndoSwitchSSMWP09.pdf?sequence=1&isAllowed=y Number: No 9/2018 Keywords: state space model, regime switching, endogenous feedback, filtering, DSGE model Handle: RePEc:bny:wpaper:0067 Template-Type: ReDIF-Paper 1.0 Author-Name: Hilde C. Bjørnland Author-Name-First: Hilde C. Author-Name-Last: Bjørnland Author-Email: hilde.c.bjornland@bi.no Author-Name: Julia Zhulanova Author-Name-First: Julia Author-Name-Last: Zhulanova Author-Email: julia.zhulanova@bi.no Title: The Shale Oil Boom and the U.S. Economy: Spillovers and Time-Varying Effects Abstract: We analyze if the transmission of oil price shocks on the U.S. economy has changed as a result of the shale oil boom. To do so we allow for spillovers at the state level, as well as aggregate country level effects. We identify and quantify these spillovers using a factor-augmented vector autoregressive (VAR) model, allowing for time-varying changes. In contrast to previous results, we find considerable changes in the way oil price shocks are transmitted: there are now positive spillovers to non-oil investment, employment and production in many U.S. states from an increase in the oil price - effects that were not present before the shale oil boom. Length: 66 pages Creation-Date: 2018-10 File-URL: https://brage.bibsys.no/xmlui/bitstream/handle/11250/2568782/08-Main_Oct2018CAMPwp.pdf?sequence=1&isAllowed=y Number: No 8/2018 Keywords: Shale oil boom, FAVAR model, Time-varying changes, Geographical dispersion Handle: RePEc:bny:wpaper:0066 Template-Type: ReDIF-Paper 1.0 Author-Name: Thomas S. Gundersen Author-Name-First: Thomas S. Author-Name-Last: Gundersen Author-Email: thomas.s.gundersen@bi.no Title: The Impact of U.S. Supply Shocks on the Global Oil Price Abstract: I examine the role of the U.S. shale oil boom in driving global oil prices. Using a structural vector autoregressive (SVAR) model that identifies separate oil supply shocks for the U.S. and OPEC, I find that U.S. supply shocks have exerted considerable negative pressure on the oil price. More specifically, U.S. supply shocks explain up to 13% of the oil price variation over the 2003 2015 period, considerably more than what has been found in other studies. However, the timing of the downward pressure on prices is delayed relative to the boom in U.S. shale oil production. This mismatch implies a temporary friction in the transmission of U.S. supply shocks to the rest of the world likely caused by logistical and technological challenges in the downstream supply chain. Length: 28 pages Creation-Date: 2018-04 File-URL: https://brage.bibsys.no/xmlui/bitstream/handle/11250/2496247/WP_CAMP_7_2018.pdf?sequence=1&isAllowed=y Number: No 7/2018 Keywords: structural VARs, oil prices, demand and supply shocks, shale oil Handle: RePEc:bny:wpaper:0065 Template-Type: ReDIF-Paper 1.0 Author-Name: Vegard H ghaug Larsen Author-Name-First: Vegard H ghaug Author-Name-Last: Larsen Author-Person: pla789 Author-Email: vegard.h.larsen@bi.no Author-Name: Leif Anders Thorsrud Author-Name-First: Leif Anders Author-Name-Last: Thorsrud Author-Person: pth175 Author-Email: leif.a.thorsrud@bi.no Title: Business cycle narratives Abstract: This article quantifies the epidemiology of media narratives relevant to business cycles in the US, Japan, and Europe (euro area). We do so by first constructing daily business cycle indexes computed on the basis of the news topics the media writes about. At a broad level, the most in uential news narratives are shown to be associated with general macroeconomic developments, finance, and (geo-)politics. However, a large set of narratives contributes to our index estimates across time, especially in times of expansion. In times of trouble, narratives associated with economic uctuations become more sparse. Likewise, we show that narratives do go viral, but mostly so when growth is low. While narratives interact in complicated ways, we document that some are clearly associated with economic fundamentals. Other narratives, on the other hand, show no such relationship, and are likely better explained by classical work capturing the market's animal spirits. Length: 77 pages Creation-Date: 2018-04 File-URL: https://brage.bibsys.no/xmlui/bitstream/handle/11250/2492713/WP_CAMP_6_2018.pdf?sequence=1&isAllowed=y Number: No 6/2018 Keywords: Business cycles, Narratives, Dynamic Factor Model (DFM), Latent Dirichlet Allocation (LDA) Handle: RePEc:bny:wpaper:0064 Template-Type: ReDIF-Paper 1.0 Author-Name: Leopoldo Catania Author-Name-First: Leopoldo Author-Name-Last: Catania Author-Email: leopoldo.catania@econ.au.dk Author-Name: Stefano Grassi Author-Name-First: Stefano Author-Name-Last: Grassi Author-Email: stefanograssi@uniroma2.it Author-Name: Francesco Ravazzolo Author-Name-First: Francesco Author-Name-Last: Ravazzolo Author-Person: pra286 Author-Email: francesco.ravazzolo@unibz.it Title: Forecasting Cryptocurrencies Financial Time Series Abstract: This paper studies the predictability of cryptocurrencies time series. We compare several alternative univariate and multivariate models in point and density forecasting of four of the most capitalized series: Bitcoin, Litecoin, Ripple and Ethereum. We apply a set of crypto predictors and rely on Dynamic Model Averaging to combine a large set of univariate Dynamic Linear Models and several multivariate Vector Autoregressive models with different forms of time variation. We find statistical significant improvements in point forecasting when using combinations of univariate models and in density forecasting when relying on selection of multivariate models. Length:28 Creation-Date: 2018-03 File-URL: https://brage.bibsys.no/xmlui/bitstream/handle/11250/2489408/WP_CAMP_5_2018.pdf?sequence=1&isAllowed=y Number: No 5/2018 Keywords: Cryptocurrency, Bitcoin, Forecasting, Density Forecasting, VAR, Dynamic Model Averaging Handle: RePEc:bny:wpaper:0063 Template-Type: ReDIF-Paper 1.0 Author-Name: Hilde C. Bjørnland Author-Name-First: Hilde C. Author-Name-Last: Bjørnland Author-Person: pbj2 Author-Email: hilde.c.bjornland@bi.no Author-Name: Leif Anders Thorsrud Author-Name-First: Leif Anders Author-Name-Last: Thorsrud Author-Person: pth175 Author-Email: leif.a.thorsrud@bi.no Author-Name: Ragnar Torvik Author-Name-First: Ragnar Author-Name-Last: Torvik Author-Person: pto24 Author-Email: ragnar.torvik@svt.ntnu.no Title: Dutch Disease Dynamics Reconsidered Abstract: In this paper we develop the first model to incorporate the dynamic productivity consequences of both the spending e ect and the resource movement e ect of oil abundance. We show that doing so dramatically alters the conclusions drawn from earlier models of learning by doing (LBD) and the Dutch disease. In particular, the resource movement e ect suggests that the growth e ects of natural resources are likely to be positive, turning previous growth results in the literature relying on the spending e ect on their head. We motivate the relevance of our approach by the example of a major oil producer, Norway, where it seems clear that the predictions based on existing theory do not apply. Although the e ects of an increase in the price of oil may resemble results found in the earlier Dutch disease literature, the effects of increased oil activity do not. Therefore, models that only focus on windfall gains due to increased spending potential from higher oil prices, would conclude - incorrectly based on our analysis - that the resource sector cannot be an engine of growth. Length: 41 Creation-Date: 2018-02 File-URL: https://brage.bibsys.no/xmlui/bitstream/handle/11250/2483401/WP_CAMP_4_2018.pdf?sequence=1&isAllowed=y Number: No 4/2018 Keywords: Dutch disease, resource movements, learning by doing, oil prices, time-varying VAR model Handle: RePEc:bny:wpaper:0062 Template-Type: ReDIF-Paper 1.0 Author-Name: Leopoldo Catania Author-Name-First: Leopoldo Author-Name-Last: Catania Author-Email: leopoldo.catania@econ.au.dk Author-Name: Stefano Grassi Author-Name-First: Stefano Author-Name-Last: Grassi Author-Email: stefanograssi@uniroma2.it Author-Name: Francesco Ravazzolo Author-Name-First: Francesco Author-Name-Last: Ravazzolo Author-Person: pra286 Author-Email: francesco.ravazzolo@unibz.it Title: Predicting the Volatility of Cryptocurrency Time Series Abstract: Cryptocurrencies have recently gained a lot of interest from investors, central banks and governments worldwide. The lack of any form of political regulation and their market far from being efficient , require new forms of regulation in the near future. From an econometric viewpoint, the process underlying the evolution of the cryptocurrencies volatility has been found to exhibit at the same time differences and similarities with other financial time series, e.g. foreign exchanges returns. This short note focuses on predicting the conditional volatility of the four most traded cryptocurrencies: Bitcoin, Ethereum, Litecoin and Ripple. We investigate the effect of accounting for long memory in the volatility process as well as its asymmetric reaction to past values of the series to predict: one day, one and two weeks volatility levels. Length: 7 Creation-Date: 2018-02 File-URL: https://brage.bibsys.no/xmlui/bitstream/handle/11250/2482825/WP_CAMP_3_2018.pdf?sequence=1&isAllowed=y Number: No 3/2018 Handle: RePEc:bny:wpaper:0061 Template-Type: ReDIF-Paper 1.0 Author-Name: Angelica Gianfreda Author-Name-First: Angelica Author-Name-Last: Gianfreda Author-Name: Francesco Ravazzolo Author-Name-First: Francesco Author-Name-Last: Ravazzolo Author-Person: pra286 Author-Email: francesco.ravazzolo@unibz.it Author-Name: Luca Rossini Author-Name-First: Luca Author-Name-Last: Rossini Author-Person: pro1002 Title: Comparing the Forecasting Performances of Linear Models for Electricity Prices with High RES Penetration Abstract: This paper compares alternative univariate versus multivariate models, probabilistic versus Bayesian autoregressive and vector autoregressive specifications for hourly day-ahead electricity prices, with and without renewable energy sources. The accuracy of point and density forecasts are inspected in four main European markets (Germany, Denmark, Italy and Spain) characterized by different levels of renewable energy power generation. Our results show that the Bayesian VAR specifications with exogenous variables dominate other multivariate and univariate specifications, in terms of both point and density forecasting. Length: 36 Creation-Date: 2018-01 File-URL: https://brage.bibsys.no/xmlui/bitstream/handle/11250/2477647/WP_CAMP_2_2018.pdf?sequence=1&isAllowed=y Number: No 2/2018 Keywords: Density Forecasting, Electricity Market, Forecasting, Hourly Prices, Renewable Energies. Handle: RePEc:bny:wpaper:0060 Template-Type: ReDIF-Paper 1.0 Author-Name: Komla Mawulom Agudze Author-Name-First: Komla Mawulom Author-Name-Last: Agudze Author-Name: Monica Billio Author-Name-First: Monica Author-Name-Last: Billio Author-Person: pbi55 Author-Email: billio@unive.it Author-Name: Roberto Casarin Author-Name-First: Roberto Author-Name-Last: Casarin Author-Person: pca216 Author-Email: r.casarin@unive.it Author-Name: Francesco Ravazzolo Author-Name-First: Francesco Author-Name-Last: Ravazzolo Author-Person: pra286 Author-Email: francesco.ravazzolo@unibz.it Title: Markov Switching Panel with Network Interaction Effects Abstract: The paper introduces a new dynamic panel model for large data sets of time series, each of them characterized by a series-specific Markov switching process. By introducing a neighbourhood system based on a network structure, the model accounts for local and global interactions among the switching processes. We develop an efficient Markov Chain Monte Carlo (MCMC) algorithm for the posterior approximation based on the Metropolis adjusted Langevin sampling method. We study efficiency and convergence of the proposed MCMC algorithm through several simulation experiments. In the empirical application, we deal with US states coincident indices, produced by the Federal Reserve Bank of Philadelphia, and find evidence that local interactions of state-level cycles with geographically and economically networks play a substantial role in the common movements of US regional business cycles. Length: 41 Creation-Date: 2018-01 File-URL: https://brage.bibsys.no/xmlui/bitstream/handle/11250/2477643/WP_CAMP_1_2018.pdf?sequence=1&isAllowed=y Number: No 1/2018 Keywords: Bayesian inference, interacting Markov chains, Metropolis adjusted Langevin, panel Markov-switching. Handle: RePEc:bny:wpaper:0059 Template-Type: ReDIF-Paper 1.0 Author-Name: Andrew Binning Author-Name-First: Andrew Author-Name-Last: Binning Author-Person: pbi315 Author-Email: andrew.binning@norges-bank.no Author-Name: Junior Maih Author-Name-First: Junior Author-Name-Last: Maih Author-Person: pma2398 Author-Email: junior.maih@norges-bank.no Title: Modelling Occasionally Binding Constraints Using Regime-Switching Abstract: Occasionally binding constraints are part of the economic landscape: for instance recent experience with the global financial crisis has highlighted the gravity of the lower bound constraint on interest rates; mortgagors are subject to more stringent borrowing conditions when credit growth has been excessive or there is a downturn in the economy. In this paper we take four common examples of occasionally binding constraints in economics and demonstrate how to use regime-switching to incorporate them into DSGE models. In particular we investigate the zero lower bound constraint on interest rates, occasionally binding collateral constraints, downward nominal wage rigidities and irreversible investment. We compare our approach against some well-known methods for solving occasionally-binding constraints. We demonstrate the versatility of our regime-switching approach by combining multiple occasionally binding constraints to a model solved using higher-order perturbation methods, a feat that is difficult to achieve using alternative methodologies. Length: 90 Creation-Date: 2017-12 File-URL: https://brage.bibsys.no/xmlui/bitstream/handle/11250/2475574/WP_CAMP_9_2017.pdf?sequence=1&isAllowed=y Number: No 9/2017 Keywords: Occasionally Binding Constraints, DSGE models, ZLB, Collateral Constraints Handle: RePEc:bny:wpaper:0058 Template-Type: ReDIF-Paper 1.0 Author-Name: Knut Are Aastveit Author-Name-First: Knut Are Author-Name-Last: Aastveit Author-Email: Knut-Are.Aastveit@norges-bank.no Author-Person: paa22 Author-Name: Andr K. Anundsen Author-Name-First: Andr K. Author-Name-Last: Anundsen Author-Email: andre-kallak.anundsen@norges-bank.no Author-Person: pan429 Author-Name: Eyo I. Herstad Author-Name-First: Eyo I. Author-Name-Last: Herstad Author-Email: eyoherstad@gmail.com Title: Residential investment and recession predictability Abstract: We assess the importance of residential investment in predicting economic recessions for an unbalanced panel of 12 OECD countries over the period 1960Q1 2014Q4. Our approach is to estimate various probit models with di?erent leading indicators and evaluate their relative prediction accuracy using the receiver operating characteristic curve. We document that residential investment contains information useful in predicting recessions both in-sample and out-of-sample. This result is robust to adding typical leading indicators, such as the term spread, stock prices, consumer confidence surveys and oil prices. It is shown that residential investment is particularly useful in predicting recessions for countries with high home-ownership rates. Finally, in a separate exercise for the US economy, we show that the predictive ability of residential investment is robust to employing real-time data. Length: 31 pages Creation-Date: 2017-12 File-URL: https://brage.bibsys.no/xmlui/bitstream/handle/11250/2475573/WP_CAMP_8_2017.pdf?sequence=1&isAllowed=y Number: No 8/2017 Keywords: Recession predictability, Housing, Leading indicators, Real-time data Handle: RePEc:bny:wpaper:0057 Template-Type: ReDIF-Paper 1.0 Author-Name: Knut Are Aastveit Author-Name-First: Knut Are Author-Name-Last: Aastveit Author-Email: Knut-Are.Aastveit@norges-bank.no Author-Person: paa22 Author-Name: Andr K. Anundsen Author-Name-First: Andr K. Author-Name-Last: Anundsen Author-Email: andre-kallak.anundsen@norges-bank.no Author-Person: pan429 Title: Asymmetric effects of monetary policy in regional housing markets Abstract: The responsiveness of house prices to monetary policy shocks depends both on the nature of the shock expansionary versus contractionary and on city-specific housing supply elasticities. We test and find supporting evidence for the hypothesis that expansionary monetary policy shocks have a larger impact on house prices when supply elasticities are low on 263 US metropolitan areas. We also test whether contractionary shocks are orthogonal to supply elasticities, as implied by downward rigidity of housing supply, and find supporting evidence. A final theoretical conjecture is that contractionary shocks should have a greater impact on house prices than expansionary shocks, as long as supply is not perfectly inelastic. For areas with high housing supply elasticity, our results are in line with this conjecture. However, for areas with an inelastic housing supply, we find that expansionary shocks have a greater impact on house prices than contractionary shocks. We provide evidence that this is related to a momentum effect that is more pronounced when house prices are increasing than when they are falling. Length: 47 pages Creation-Date: 2017-12 File-URL: https://brage.bibsys.no/xmlui/bitstream/handle/11250/2474301/WP_CAMP_7_2017.pdf?sequence=1&isAllowed=y Number: No 7/2017 Keywords: House prices, Heterogeneity, Monetary policy, Non-linearity, Supply elasticities Handle: RePEc:bny:wpaper:0056 Template-Type: ReDIF-Paper 1.0 Author-Name: Hilde C. Bjørnland Author-Name-First: Hilde C. Author-Name-Last: Bjørnland Author-Person: pbj2 Author-Email: hilde.c.bjornland@bi.no Author-Name: Vegard H ghaug Larsen Author-Name-First: Vegard H ghaug Author-Name-Last: Larsen Author-Person: pla789 Author-Email: vegard.h.larsen@bi.no Author-Name: Junior Maih Author-Name-First: Junior Author-Name-Last: Maih Author-Person: pma2398 Author-Email: junior.maih@norges-bank.no Title: Oil and macroeconomic (in)stability Abstract: We analyze the role of oil price volatility in reducing U.S. macroeconomic instability. Using a Markov Switching Rational Expectation New-Keynesian model we revisit the timing of the Great Moderation and the sources of changes in the volatilityof macroeconomic variables. We find that smaller or fewer oil price shocks did not play a major role in explaining the Great Moderation. Instead oil price shocksare recurrent sources of economic fluctuations. The most important factor reducing overall variability is a decline in the volatility of structural macroeconomic shocks. A change to a more responsive (hawkish) monetary policy regime also played a role. Length: 52 pages Creation-Date: 2017-11 File-URL: https://brage.bibsys.no/xmlui/bitstream/handle/11250/2468574/WP_CAMP_6_2017.pdf?sequence=1&isAllowed=y Number: No 6/2017 Keywords: Oil price, Great Moderation, New-Keynesian model, Markov Switching Handle: RePEc:bny:wpaper:0055 Template-Type: ReDIF-Paper 1.0 Author-Name: Vegard H ghaug Larsen Author-Name-First: Vegard H ghaug Author-Name-Last: Larsen Author-Person: pla789 Author-Email: vegard.h.larsen@bi.no Author-Name: Leif Anders Thorsrud Author-Name-First: Leif Anders Author-Name-Last: Thorsrud Author-Person: pth175 Author-Email: leif.a.thorsrud@bi.no Title: Asset returns, news topics, and media effects Abstract: We decompose the textual data in a daily Norwegian business newspaper into news topics and investigate their predictive and causal role for asset prices. Our three main findings are: (1) a one unit innovation in the news topics predict roughly a 1 percentage point increase in close-to-open returns and significant continuation patterns peaking at 4 percentage points after 15 business days, with little sign of reversal; (2) simple zero-cost news-based investment strategies yield significant annualized risk-adjusted returns of up to 20 percent; and (3) during a media shortage, due to an exogenous strike, returns for firms particularly exposed to our news measure experience a substantial fall. Our estimates suggest that between 20 to 40 percent of the news topics predictive power is due to the causal media effect. Together these findings lend strong support for a rational attention view where the media alleviate information frictions and disseminate fundamental information to a large population of investors. Length: 48 pages Creation-Date: 2017-09 File-URL: https://brage.bibsys.no/xmlui/bitstream/handle/11250/2455955/Working_CAMP_5-2017.pdf?sequence=1&isAllowed=y Number: No 5/2017 Keywords: Stock returns, News, Machine learning, Latent Dirichlet Allocation (LDA) Handle: RePEc:bny:wpaper:0054 Template-Type: ReDIF-Paper 1.0 Author-Name: Vegard H ghaug Larsen Author-Name-First: Vegard H ghaug Author-Name-Last: Larsen Author-Person: pla789 Author-Email: vegard.h.larsen@bi.no Title: Components of Uncertainty Abstract: Uncertainty is acknowledged to be a source of economic fluctuations. But, does the type of uncertainty matter for the economy s response to an uncertainty shock? This paper offers a novel identification strategy to disentangle different types of uncertainty. It uses machine learning techniques to classify different types of news instead of specifying a set of keywords. It is found that, depending on its source, the effects of uncertainty on macroeconomic variable may differ. I find that both good (expansionary effect) and bad (contractionary effect) types of uncertainty exist Length: 39 pages Creation-Date: 2017-04 File-URL: https://brage.bibsys.no/xmlui/bitstream/handle/11250/2444266/Working_CAMP_4-2017-I.pdf?sequence=3&isAllowed=y Number: No 4/2017 Keywords: Newspaper, Topic model, Uncertainty, Business cycles, Machine learning Handle: RePEc:bny:wpaper:0053 Template-Type: ReDIF-Paper 1.0 Author-Name: Ragnar Torvik Author-Name-First: Ragnar Author-Name-Last: Torvik Author-Person: pto24 Author-Email: ragnar.torvik@svt.ntnu.no Title: Should Developing Countries Establish Petroleum Funds? Abstract:Many natural-resource-abundant countries have established petroleum funds as part of their strategy to manage their resource wealth. This paper examines reasons that such funds may be established, discusses how these funds are organized, and draws some policy lessons. The paper then develops a theory of how petroleum funds may affect the economic and political equilibrium of an economy, and how this depends on the initial institutions. A challenge with petroleum funds is that they may produce economic and political incentives that undermine their potential benefits. An alternative to establishing petroleum funds is to use revenues to invest domestically in sectors such as infrastructure, education, and health. Such investments have the potential to produce a better economic, as well as institutional, development. This is particularly the case if the initial institutions are weak. Length: 33 pages Creation-Date: 2017-04 File-URL: https://brage.bibsys.no/xmlui/bitstream/handle/11250/2440211/Working_CAMP_3-2017.pdf?sequence=1&isAllowed=y Number: No 3/2017 Keywords: Fiscal policy, Extractive industries, Resource curse, Sovereign wealth fund Handle: RePEc:bny:wpaper:0052 Template-Type: ReDIF-Paper 1.0 Author-Name: Hilde C. Bjørnland Author-Name-First: Hilde C. Author-Name-Last: Bjørnland Author-Person: pbj2 Author-Email: hilde.c.bjornland@bi.no Author-Name: Frode Martin Nordvik Author-Name-First: Frode Martin Author-Name-Last: Nordvik Author-Person: pno220 Author-Email: frode.m.nordvik@bi.no Author-Name: Maximilian Rohrer Author-Name-First: Maximilian Author-Name-Last: Rohrer Title: Supply Flexibility in the Shale Patch: Evidence from North Dakota Abstract: We analyse if output flexibility in oil production depends on the extraction technology.In particular, we ask to what extent shale oil producers respond to price incentives by changing completion of new wells as well as oil production from completed wells. Using a novel well-level monthly production data set covering more than 15,000 crude oil wells in North Dakota, we find large differences in response between conventional and unconventional (shale) extraction technology: While shale oil wells respond significantly to spot future spreads by changing both well completion and crude oil production, conventional wells do not. Our results indicate that firms using shale oil technology are more flexible in allocating output intertemporally. We interpret such output pattern of shale oil wells to be consistent with the Hotelling theory of optimal extraction. Length: 37 pages Creation-Date: 2017-04 File-URL: https://brage.bibsys.no/xmlui/bitstream/handle/11250/2434235/Working_CAMP_2-2017.pdf?sequence=3&isAllowed=y Number: No 2/2017 Keywords:Oil extraction, crude oil prices, US oil shale boom, Hotelling theory Handle: RePEc:bny:wpaper:0051 Template-Type: ReDIF-Paper 1.0 Author-Name: J rgen Juel Andersen Author-Name-First: J rgen Juel Author-Name-Last: Andersen Author-Person: pan249 Author-Email: jorgen.j.andersen@bi.no Author-Name: Frode Martin Nordvik Author-Name-First: Frode Martin Author-Name-Last: Nordvik Author-Person: pno220 Author-Email: frode.m.nordvik@bi.no Author-Name: Andrea Tesei Author-Name-First: Andrea Author-Name-Last: Tesei Title: Oil and Civil Conflict: On and Off (Shore) Abstract: We reconsider the relationship between oil and conflict, focusing on the location of oil resources. In a panel of 132 countries over the period 1962-2009, we show that oil windfalls increase the probability of conflict in onshore-rich countries, while they decrease this probability in offshore-rich countries. We use a simple model of conflict to illustrate how these opposite effects can be explained by a fighting capacity mechanism, whereby the government can use offshore oil income to increase its fighting capacity, while onshore oil may be looted by oppositional groups to fi-nance a rebellion. We provide empirical evidence supporting this interpretation: we find that oil windfalls increase both the number and strength of active rebel groups in onshore-rich countries, while they strengthen the government in offshore-rich ones. Length: 32 pages Creation-Date: 2017-01 File-URL: https://www.bi.edu/contentassets/b89f526b9f10415eba948de2f61cf683/working_camp_1-2017.pdf Number: No 1/2017 Keywords:Natural Resources, Conflict Handle: RePEc:bny:wpaper:0050 Template-Type: ReDIF-Paper 1.0 Author-Name: Carlo Altavilla Author-Name-First: Carlo Author-Name-Last: Altavilla Author-Person: pal73 Author-Email: carlo.altavilla@ecb.europa.eu Author-Name: Fabio Canova Author-Name-First: Fabio Author-Name-Last: Canova Author-Person: pca50 Author-Email: fabio.canova@eui.eu Author-Name: Matteo Ciccarelli Author-Name-First: Matteo Author-Name-Last: Ciccarelli Author-Person: pci57 Title: Mending the broken link: heterogeneous bank lending and monetary policy pass-through. Abstract: We analyze the pass-through of monetary policy measures to lending rates to rms and households in the euro area using a novel bank-level dataset. Banks characteristics such as the capital ratio, the exposure to sovereign debt, and the percentage of non-performing loans are responsible for the heterogeneity in pass-through of conventional monetary policy changes. The location of a bank is irrelevant. Non-standard measures normalized the capacity of banks to grant loans. Banks with high level of non-performing loans and low capital ratio were most a ected. Banks lending margins fell considerably. Macroeconomic implications are discussed. Length: 47 pages Creation-Date: 2016-10 File-URL: https://www.bi.edu/globalassets/forskning/camp/working-papers/working_camp_9-2016.pdf File-Format: Application/pdf Number: No 9/2016 Keywords:Monetary policy pass-through, european banks, heterogeneity, VARs. Handle: RePEc:bny:wpaper:0049 Template-Type: ReDIF-Paper 1.0 Author-Name: Hilde C. Bjørnland Author-Name-First: Hilde C. Author-Name-Last: Bjørnland Author-Person: pbj2 Author-Email: hilde.c.bjornland@bi.no Author-Name: Leif Anders Thorsrud Author-Name-First: Leif Anders Author-Name-Last: Thorsrud Author-Person: pth175 Author-Email: leif.a.thorsrud@bi.no Author-Name: Sepideh K. Zahiri Author-Name-First: Sepideh K. Author-Name-Last: Zahiri Author-Email: sepideh.k.zahiri@bi.no Title: Do central banks respond timely to developments in the global economy? Abstract: Our analysis suggests; they do not! To arrive at this conclusion we construct a real-time data set of interest rate projections from central banks in three small open economies; New Zealand, Norway, and Sweden, and analyze if revisions to these projections (i.e., forward guidance) can be predicted by timely information. Doing so, we find a systematic role for forward looking international indicators in predicting the revisions to the interest rate projections in all countries. In contrast, using similar indexes for the domestic economy yields largely insignificant results. Furthermore, we find that revisions to forward guidance matter. Using a VAR identified with external instruments based on forecast errors from the predictive regressions, we show that the responses to output, inflation, the exchange rate and asset returns resemble those one typically associates with a conventional monetary policy shock. Length: 42 pages Creation-Date: 2016-11 File-URL: https://www.bi.edu/globalassets/forskning/camp/working-papers/working_camp_8-2016.pdf File-Format: Application/pdf Number: No 8/2016 Keywords: Monetary policy, interest rate path, forecast revisions and global indicators Handle: RePEc:bny:wpaper:0048 Template-Type: ReDIF-Paper 1.0 Author-Name: Francesco Ravazzolo Author-Name-First: Francesco Author-Name-Last: Ravazzolo Author-Person: pra286 Author-Email: francesco.ravazzolo@unibz.it Author-Name: Tommy Sveen Author-Name-First: Tommy Author-Name-Last: Sveen Author-Person: psv10 Author-Email: tommy.sveen@bi.no Author-Name: Sepideh K. Zahiri Author-Name-First: Sepideh K. Author-Name-Last: Zahiri Author-Email: sepideh.k.zahiri@bi.no Title: Commodity Futures and Forecasting Commodity Currencies Abstract: This paper analyzes the extent to which information in commodity futures markets is useful for out-of-sample forecasting of commodity currencies. In the earlier literature, commodity price changes are documented to be weak out-of-sample predictors of commodity currency return. In contrast, we find that the basis of several commodities may contain useful information, but the usefulness of any particular commodity basis varies over time and depends on the nature of the commodity. In particular, it seems the basis of commodities with relatively high storage costs tend to be more useful. We argue that high storage costs will tend to make the basis more prone to fluctuations in commodity risk and therefore provide information about the risk premium for commodity currencies. We implement forecast combination strategies that take full advantage Length: 39 pages Creation-Date: 2016-11 File-URL:https://www.bi.edu/globalassets/forskning/camp/working-papers/working_camp_7-2016.pdf File-Format: Application/pdf Number: No 7/2016 Keywords: Exchange rate predictability, commodity futures market, commodity currencies, forecast combinations Handle: RePEc:bny:wpaper:0047 Template-Type: ReDIF-Paper 1.0 Author-Name: Leif Anders Thorsrud Author-Name-First: Leif Anders Author-Name-Last: Thorsrud Author-Person: pth175 Author-Email: leif.a.thorsrud@bi.no Title: Nowcasting using news topics Big Data versus big bank Abstract:The agents in the economy use a plethora of high frequency information, including news media, to guide their actions and thereby shape aggregate economic fluctuations. Traditional nowcasting approches have to a relatively little degree made use of such information. In this paper, I show how unstructured textual information in a business newspaper can be decomposed into daily news topics and used to nowcast quarterly GDP growth. Compared with a big bank of experts, here represented by official central bank nowcasts and a state-of-the-art forecast combination system, the proposed methodology performs at times up to 15 percent better, and is especially competitive around important business cycle turning points. Moreover, if the statistical agency producing the GDP statistics itself had used the news-based methodology, it would have resulted in a less noisy revision process. Thus, news reduces noise. Length: 60 pages Creation-Date: 2016-11 File-URL: https://www.bi.edu/globalassets/forskning/camp/working-papers/working_camp_6-2016.pdf File-Format: Application/pdf Number: No 6/2016 Keywords: Nowcasting, Dynamic Factor Model (DFM), Latent Dirichlet Allocation (LDA) Handle: RePEc:bny:wpaper:0046 Template-Type: ReDIF-Paper 1.0 Author-Name: Farooq Akram Author-Name-First: Farooq Author-Name-Last: Akram Author-Person: pak42 Author-Email: farooq.akram@norges-bank.no Author-Name: Andrew Binning Author-Name-First: Andrew Author-Name-Last: Binning Author-Email: andrew.binning@norges-bank.no Author-Name: Junior Maih Author-Name-First: Junior Author-Name-Last: Maih Author-Email: junior.maih@norges-bank.no Title: Joint Prediction Bands for Macroeconomic Risk Management Abstract: In this paper we address the issue of assessing and communicating the joint probabilities implied by density forecasts from multivariate time series models. We focus our attention in three areas. First, we investigate a new method of producing fan charts that better communicates the uncertainty present in forecasts from multivariate time series models. Second, we suggest a new measure for assessing the plausibility of non-central point forecasts. And third, we describe how to use the density forecasts from a multivariate time series model to assess the probability of a set of future events occurring. An additional novelty of this paper is our use of a regime-switching DSGE model with an occasionally binding zero lower bound constraint, estimated on US data, to produce the density forecasts. The tools we offer will allow practitioners to better assess and communicate joint forecast probabilities, a criticism that has been leveled at central bank communications. Length: 22 pages Creation-Date: 2016-05 File-URL: https://www.bi.edu/contentassets/e9c498f5290f4364bc2ae8d874d183b6/working_camp_5-2016.pdf File-Format: Application/pdf Number: No 5/2016 Keywords: Monetary Policy, Fan charts, DSGE, Zero Lower Bound, Regime-switching, Bayesian Estimation Handle: RePEc:bny:wpaper:0045 Template-Type: ReDIF-Paper 1.0 Author-Name: Leif Anders Thorsrud Author-Name-First: Leif Anders Author-Name-Last: Thorsrud Author-Person: pth175 Author-Email: leif.a.thorsrud@bi.no Title: Words are the new numbers: A newsy coincident index of business cycles Abstract: In this paper I construct a daily business cycle index based on quarterly GDP and textual information contained in a daily business newspaper. The newspaper data is decomposed into time series representing newspaper topics using a Latent Dirichlet Allocation model. The business cycle index is estimated using the newspaper topics and a time-varying Dynamic Factor Model where dynamic sparsity is enforced upon the factor loadings using a latent threshold mechanism. I show that both contributions, the usage of newspaper data and the latent threshold mechanism, contribute towards the qualities of the derived index: It is more timely and accurate than commonly used alternative business cycle indicators and indexes, and, it provides the index user with broad based high frequent information about the type of news that drive or reflect economic fluctuations. Length: 45 pages Creation-Date: 2016-02 File-URL: https://www.bi.edu/contentassets/082a6ace23ff45aeb996aa49de7b35ca/working_camp_4-2016.pdf File-Format: Application/pdf Number: No 4/2016 Keywords: Business cycles, Dynamic Factor Model, Latent Dirichlet Allocation (LDA) Handle: RePEc:bny:wpaper:0044 Template-Type: ReDIF-Paper 1.0 Author-Name: Andrew Binning Author-Name-First: Andrew Author-Name-Last: Binning Author-Email: andrew.binning@norges-bank.no Author-Name: Junior Maih Author-Name-First: Junior Author-Name-Last: Maih Author-Email: junior.maih@norges-bank.no Title: Implementing the Zero Lower Bound in an Estimated Regime-Switching DSGE Model Abstract: The Zero Lower Bound (ZLB) on policy rates is one of the key monetary policy issues du jour. In this paper we investigate the problem of modelling and estimating the ZLB in a simple New Keynesian model with regime switches. The key features of the model include switches in the time preference shock, productivity growth rate and the steady state rate of inflation leading to two steady states: a normal steady state and a ZLB steady state. The model is fitted to US data using Bayesian methods and is found to match the US experience over the great moderation and the ZLB periods very well. The key features of the model allow us to test competing theories about the determinants of the ZLB steady state. Our results suggest that the ZLB steady state is driven by precautionary savings behavior. It is also found that expectations over different regimes crucially matter for the dynamics of the system.Length: 43 pages Creation-Date: 2016-02 File-URL: https://www.bi.edu/contentassets/0dbcb88c46e344e393cbf06ed92bfe2d/working_camp_3-2016.pdf File-Format: Application/pdf Number: No 3/2016 Keywords: Zero Lower Bound, Regime-switching, DSGE, Bayesian Estimation Handle: RePEc:bny:wpaper:0043 Template-Type: ReDIF-Paper 1.0 Author-Name: Fabio Canova Author-Name-First: Fabio Author-Name-Last: Canova Author-Email: fabio.canova@bi.no Author-Name: Mehdi Hamidi Sahneh Author-Name-First: Mehdi Author-Name-Last: Hamidi Sahneh Author-Email: mhamidis@eco.uc3m.es Title: Are Small-Scale SVARs Useful for Business Cycle Analysis? Revisiting Non-Fundamentalness Abstract: Non-fundamentalness arises when observables do not contain enough information to recover the vector of structural shocks. Using Granger causality tests, the literature suggested that many small scale VAR models are non-fundamental and thus not useful for business cycle analysis. We show that causality tests are problematic when VAR variables are cross sectionally aggregated or proxy for non-observables. We provide an alternative testing procedure, illustrate its properties with a Monte Carlo exercise, and reexamine the properties of two prototypical VAR models. Length: 35 pages Creation-Date: 2016-02 File-URL: https://www.bi.edu/contentassets/5f68a465bade4f23b07d1a912ef1f9da/working_camp_2-2016.pdf File-Format: Application/pdf Number: No 2/2016 Keywords: Aggregation, Non-Fundamentalness, Granger causality, Small scale VARs Handle: RePEc:bny:wpaper:0042 Template-Type: ReDIF-Paper 1.0 Author-Name: Fabio Canova Author-Name-First: Fabio Author-Name-Last: Canova Author-Email: fabio.canova@bi.no Author-Name: Filippo Ferroni Author-Name-First: Filippo Author-Name-Last: Ferroni Author-Email: filippo.ferroni@banque-france.fr Author-Name: Christian Matthes Author-Name-First: Christian Author-Name-Last: Matthes Author-Email: christian.matthes@rich.frb.org Title: Approximating time varying structural models with time invariant structures Abstract: The paper studies how parameter variation affects the decision rules of a DSGE model and structural inference. We provide diagnostics to detect parameter variations and to ascertain whether they are exogenous or endogenous. Identification and inferential distortions when a constant parameter model is incorrectly assumed are examined. Likelihood and VAR-based estimates of the structural dynamics when parameter variations are neglected are compared. Time variations in the financial frictions of Gertler and Karadi s (2010) model are studied. Length: 41 pages Creation-Date: 2016-01 File-URL: https://www.bi.edu/contentassets/e9f3152b72f0434d9c69cef18abee43b/working_camp_1-2016.pdf File-Format: Application/pdf Number: No 1/2016 Keywords: Structural model, Time-varying coefficients, Endogenous variations, Misspecification Handle: RePEc:bny:wpaper:0041 Template-Type: ReDIF-Paper 1.0 Author-Name: Andrew Binning Author-Name-First: Andrew Author-Name-Last: Binning Author-Email: andrew.binning@norges-bank.no Author-Name: Junior Maih Author-Name-First: Junior Author-Name-Last: Maih Author-Email: junior.maih@norges-bank.no Title: Applying Flexible Parameter Restrictions in Markov-Switching Vector Autoregression Models Abstract: We present a new method for imposing parameter restrictions in Markov-Switching Vector Autoregression (MS-VAR) models. Our method is more flexible than competing methodologies and easily handles a range of parameter restrictions over different equations, regimes and parameter types. We also expand the range of priors used in the MS-VAR literature. We demonstrate the versatility of our approach using three appropriate examples. Length: 17 pages Creation-Date: 2015-12 File-URL: https://www.bi.edu/contentassets/572739a903c340ee973412a9adbadcf6/working_camp_12-2015.pdf File-Format: Application/pdf Number: No 12/2015 Keywords: Parameter Restrictions, MS-VAR estimation, Block Exogeneity, Zero Restrictions, Bayesian estimation Handle: RePEc:bny:wpaper:0040 Template-Type: ReDIF-Paper 1.0 Author-Name: Drago Bergholt Author-Name-First: Drago Author-Name-Last: Bergholt Author-Person: pbe717 Author-Email: drago.bergholt@norges-bank.no Title: Foreign Shocks Abstract: How and to what extent are small open economies affected by international shocks? I develop and estimate a medium scale DSGE model that addresses both questions. The model incorporates i) international markets for firm-to-firm trade in production inputs, and ii) producer heterogeneity where technology and price setting constraints vary across industries. Using Bayesian techniques on Canadian and US data, I document several macroeconomic regularities in the small open economy, all attributed to international disturbances. First, foreign shocks are crucial for domestic fluctuations at all forecasting horizons. Second, productivity is the most important driver of business cycles. Investment efficiency shocks on the other hand have counterfactual implications for international spillover. Third, the relevance of foreign shocks accumulates over time. Fourth, business cycles display strong co-movement across countries, even though shocks are uncorrelated and the trade balance is countercyclical. Fifth, exchange rate pass-through to aggregate CPI inflation is moderate, while pass-through at the sector level is positively linked to the frequency of price changes. Few of these features have been accounted for by existing open economy DSGE literature, but all are consistent with reduced form evidence. The model presented here offers a structural interpretation of the results. Length: 56 pages Creation-Date: 2015-11 File-URL: https://www.bi.edu/contentassets/c007677d1f094005bc267b518349ecf5/working_camp_11-2015.pdf File-Format: Application/pdf Number: No 11/2015 Keywords: DSGE, Small open economy, International business cycles, Bayesian estimation Handle: RePEc:bny:wpaper:0039 Template-Type: ReDIF-Paper 1.0 Author-Name: Francesco Ravazzolo Author-Name-First: Francesco Author-Name-Last: Ravazzolo Author-Person: pra286 Author-Email: francesco.ravazzolo@norges-bank.no Author-Name: Philip Rothman Author-Name-First: Philip Author-Name-Last: Rothman Author-Person: pro90 Author-Email: rothmanp@ecu.edu Title: Oil-Price Density Forecasts of U.S. GDP Abstract: We carry out a pseudo out-of-sample density forecasting study for U.S. GDP with an autoregressive benchmark and alternatives to the benchmark than include both oil prices and stochastic volatility. The alternatives to the benchmark produce superior density forecasts. This comparative density performance appears to be driven more by stochastic volatility than by oil prices. We use our density forecasts to compute a recession risk indicator around the Great Recession. The alternative model that includes the real price of oil generates the earliest strong signal of a recession; but it also shows increased recession risk after the Great Recession. Length: 19 pages Creation-Date: 2015-10 File-URL: https://www.bi.edu/contentassets/8645e321cbe34b43b009d17a060d0f1d/working_camp_10-2015.pdf File-Format: Application/pdf Number: No 10/2015 Handle: RePEc:bny:wpaper:0038 Template-Type: ReDIF-Paper 1.0 Author-Name: Davide Pettenuzzo Author-Name-First: Davide Author-Name-Last: Pettenuzzo Author-Person: ppe516 Author-Email: dpettenu@brandeis.edu Author-Name: Francesco Ravazzolo Author-Name-First: Francesco Author-Name-Last: Ravazzolo Author-Person: pra286 Author-Email: francesco.ravazzolo@norges-bank.no Title: Optimal Portfolio Choice under Decision-Based Model Combinations Abstract: We extend the density combination approach of Billio et al. (2013) to feature combination weights that depend on the past forecasting performance of the individual models entering the combination through a utility-based objective function. We apply our model combination scheme to forecast stock returns, both at the aggregate level and by industry, and investigate its forecasting performance relative to a host of existing combination methods. Overall, we find that our combination scheme produces markedly more accurate predictions than the existing alternatives, both in terms of statistical and economic measures of out-of-sample predictability. We also investigate the performance of our model combination scheme in the presence of model instabilities, by considering individual predictive regressions that feature time-varying regression coefficients and stochastic volatility. We find that the gains from using our combination scheme increase significantly when we allow for instabilities in the individual models entering the combination.Length: 61 pages Length: 61 Creation-Date: 2015-08 File-URL: https://www.bi.edu/contentassets/38c58dedc1a640459b9cb02696d9284a/working_camp_9-2015.pdf File-Format: Application/pdf Number: No 9/2015 Keywords: Bayesian econometrics, Time-varying parameters, Model combinations, Portfolio choice Handle: RePEc:bny:wpaper:0037 Template-Type: ReDIF-Paper 1.0 Author-Name: Fabian Kr ger Author-Name-First: Fabian Author-Name-Last: Kr ger Author-Email: fabian.krueger@h-its.org Author-Name: Todd E. Clark Author-Name-First: Todd E. Author-Name-Last: Clark Author-Person: pcl55 Author-Email: todd.clark@clev.frb.org Author-Name: Francesco Ravazzolo Author-Name-First: Francesco Author-Name-Last: Ravazzolo Author-Person: pra286 Author-Email: francesco.ravazzolo@norges-bank.no Title: Using Entropic Tilting to Combine BVAR Forecasts with External Nowcasts Abstract: This paper shows entropic tilting to be a flexible and powerful tool for combining mediumterm forecasts from BVARs with short-term forecasts from other sources (nowcasts from either surveys or other models). Tilting systematically improves the accuracy of both point and density forecasts, and tilting the BVAR forecasts based on nowcast means and variances yields slightly greater gains in density accuracy than does just tilting based on the nowcast means. Hence entropic tilting can offer more so for persistent variables than not-persistent variables some benefits for accurately estimating the uncertainty of multi-step forecasts that incorporate nowcast information. Length: 42 pages Creation-Date: 2015-08 File-URL: https://www.bi.edu/contentassets/5c1b36d9ec86494e9749dc26b3f5e1a0/working_camp_8-2015.pdf File-Format: Application/pdf Number: No 8/2015 Keywords: Forecasting, Prediction, Bayesian Analysis Handle: RePEc:bny:wpaper:0036 Template-Type: ReDIF-Paper 1.0 Author-Name: Hilde C. Bjørnland Author-Name-First: Hilde C. Author-Name-Last: Bjørnland Author-Person: pbj2 Author-Email: hilde.c.bjornland@bi.no Author-Name: Vegard H. Larsen Author-Name-First: Vegard H. Author-Name-Last: Larsen Author-Person: pla789 Author-Email: vegard.h.larsen@bi.no Title: Oil and macroeconomic (in)stability Abstract: We analyze the role of oil price volatility in reducing U.S. macroeconomic instability. Using a regime-switching structural model we revisit the timing of the Great Moderation and the sources of changes in the volatility of macroeconomic variables. We find that smaller or fewer oil price shocks did not play a major role in explaining the Great Moderation. Instead oil price shocks are recurrent sources of macroeconomic fluctuations. The most important factor reducing macroeconomic variability is a decline in the volatility of other structural shocks (demand and supply). A change to a more responsive monetary policy regime also played a role. Length: 45 pages Length: 45 Creation-Date: 2015-06 File-URL: https://www.bi.edu/contentassets/428555dc862f41d6a85b788aa213ccf7/working_camp_7-2015.pdf File-Format: Application/pdf Number: No 7/2015 Handle: RePEc:bny:wpaper:0035 Template-Type: ReDIF-Paper 1.0 Author-Name: Vegard H. Larsen Author-Name-First: Vegard H. Author-Name-Last: Larsen Author-Person: pla789 Author-Email: vegard.h.larsen@bi.no Author-Name: Leif Anders Thorsrud Author-Name-First: Leif Anders Author-Name-Last: Thorsrud Author-Person: pth175 Author-Email: leif.a.thorsrud@bi.no Title: The Value of News Abstract: We decompose a major business newspaper according to the topics it writes about, and show that the topics have predictive power for key economic variables and, especially noteworthy, for asset prices. Unexpected innovations to an aggregated news index, derived as a weighted average of the topics with the highest predictive scores, cause large and persistent economic fluctuations, a permanent increase in productivity, and are especially associated with financial markets, credit and borrowing. Unexpected innovations to asset prices, orthogonal to news shocks and labeled as noise, have only temporary positive effects. Length: 49 pages Length: 51 Creation-Date: 2015-06 File-URL: https://www.bi.edu/contentassets/005cdb42d49e47c79467a5e5372bf51b/working_camp_6-2015.pdf File-Format: Application/pdf Number: No 6/2015 Keywords: Machine learning, Latent Dirichlet Allocation (LDA), Bayesian Dynamic Threshold Model, Business Cycles Handle: RePEc:bny:wpaper:0034 Template-Type: ReDIF-Paper 1.0 Author-Name: Hilde C. Bjørnland Author-Name-First: Hilde C. Author-Name-Last: Bjørnland Author-Person: pbj2 Author-Email: hilde.c.bjornland@bi.no Author-Name: Leif Anders Thorsrud Author-Name-First: Leif Anders Author-Name-Last: Thorsrud Author-Person: pth175 Author-Email: leif.a.thorsrud@bi.no Title: Commodity prices and fiscal policy design: Procyclical despite a rule Abstract: We analyse if the adoption of a fiscal spending rule insulates the domestic economy from commodity price fluctuations in a resource-rich economy. To do so we develop a time-varying Dynamic Factor Model, in which we allow both the volatility of structural shocks and the systematic fiscal policy responses to change over time. We focus on Norway, a country that is put forward as exemplary with its handling of resource wealth. Unlike most oil exporters, Norway has devised a fiscal framework with the view to shield the domestic economy from oil price fluctuations. By transferring its petroleum revenues to a sovereign wealth fund, and then consuming only the expected real return on the fund, fiscal policy allows for a gradual phasing in of the petroleum revenue, unrelated to movements in oil prices. We find that, contrary to common perception, fiscal policy has been more (not less) procyclical with commodity prices since the adoption of the fiscal rule in 2001. Fiscal policy has thereby worked to exacerbate the commodity price fluctuations on the domestic economy. Large inflows of money to the fund during a period of rapidly increasing oil prices is part of the explanation. Still, Norway has managed to save a large share of its petroleum income for future generations. Compared to many other resource-rich economies practising a more spend-as-you-go strategy, this is a great success. Length: 55 pages Length: 61 Creation-Date: 2015-06 File-URL:https://www.bi.edu/contentassets/48309b23d6ff4fb8999eaedafd167bf6/working_camp_5-2015.pdf File-Format: Application/pdf Number: No 5/2015 Keywords: Commodity prices, fiscal policy, Time-varying Dynamic Factor Model Handle: RePEc:bny:wpaper:0033 Template-Type: ReDIF-Paper 1.0 Author-Name: Andrew Binning Author-Name-First: Andrew Author-Name-Last: Binning Author-Email: andrew.binning@norges-bank.no Author-Name: Junior Maih Author-Name-First: Junior Author-Name-Last: Maih Author-Email: junior.maih@norges-bank.no Title: Sigma Point Filters For Dynamic Nonlinear Regime Switching Models Abstract: In this paper we take three well known Sigma Point Filters, namely the Unscented Kalman Filter, the Divided Difference Filter, and the Cubature Kalman Filter, and extend them to allow for a very general class of dynamic nonlinear regime switching models. Using both a Monte Carlo study and real data, we investigate the properties of our proposed filters by using a regime switching DSGE model solved using nonlinear methods. We find that the proposed filters perform well. They are both fast and reasonably accurate, and as a result they will provide practitioners with a convenient alternative to Sequential Monte Carlo methods. We also investigate the concept of observability and its implications in the context of the nonlinear filters developed and propose some heuristics. Finally, we provide in the RISE toolbox, the codes implementing these three novel filters. Length: 35 pages Length: 35 Creation-Date: 2015-04 File-URL: https://www.bi.edu/contentassets/9715b906a5ef4cbc9fc4eb5c2300714e/working_camp_4-2015.pdf File-Format: Application/pdf Number: No 4/2015 Keywords: Regime Switching, Higher-order Perturbation, Sigma Point Filters, Nonlinear DSGE estimation, Observability Handle: RePEc:bny:wpaper:0032 Template-Type: ReDIF-Paper 1.0 Author-Name: James A. Robinson Author-Name-First: James A. Author-Name-Last: Robinson Author-Email: jrobinson@gov.harvard.edu Author-Person: pro179 Author-Name: Ragnar Torvik Author-Name-First: Ragnar Author-Name-Last: Torvik Author-Email: ragnar.torvik@svt.ntnu.no Author-Person: pto24 Author-Name: Theirry Verdier Author-Name-First: Theirry Author-Name-Last: Verdier Author-Person: pve75 Author-Email: tv@java.ens.fr Title: The Political Economy of Public Income Volatility: With an Application to the Resource Curse Abstract: We develop a model of the political consequences of public income volatility. As is standard, political incentives create inefficient policies, but we show that making income uncertain creates specific new effects. Future volatility reduces the benefit of being in power, making policy more efficient. Yet at the same time it also reduces the re-election probability of an incumbent and since some of the policy inefficiencies are concentrated in the future, this makes inefficient policy less costly. We show how this model can help think about the connection between volatility and economic growth and in the case where volatility comes from volatile natural resource prices, a characteristic of many developing countries, we show that volatility in itself is a source of inefficient resource extraction. Length: 31 pages Creation-Date: 2015-03 File-URL: https://www.bi.edu/contentassets/06c294b740ec40fc84431aca7b26299e/working_camp_3-2015.pdf File-Format: Application/pdf Number: No 3/2015 Keywords: Income Volatility, Public Policy, Politics, Resource Extraction Handle: RePEc:bny:wpaper:0031 Template-Type: ReDIF-Paper 1.0 Author-Name: Francesco Ravazzolo Author-Name-First: Francesco Author-Name-Last: Ravazzolo Author-Person: pra286 Author-Email: francesco.ravazzolo@norges-bank.no Author-Name: Joaquin L. Vespignani Author-Name-First: Joaquin L. Author-Name-Last: Vespignani Author-Person: pve271 Author-Email: Joaquin.Vespignani@utas.edu.au Title: A New Monthly Indicator of Global Real Economic Activity Abstract: In modelling macroeconomic time series, often a monthly indicator of global real economic activity is used. We propose a new indicator, named World steel production, and compare it to other existing indicators, precisely the Kilian s index of global real economic activity and the index of OECD World industrial production. We develop an econometric approach based on desirable econometric properties in relation to the quarterly measure of World or global gross domestic product to evaluate and to choose across different alternatives. The method is designed to evaluate short-term, long-term and predictability properties of the indicators. World steel production is proven to be the best monthly indicator of global economic activity in terms of our econometric properties. Kilian s index of global real economic activity also accurately predicts World GDP growth rates. When extending the analysis to an out-of-sample exercise, both Kilian s index of global real economic activity and the World steel production produce accurate forecasts for World GDP, confirming evidence provided by the econometric properties. Specifically, a forecast combination of the three indices produces statistically significant gains up to 40% at nowcast and more than 10% at longer horizons relative to an autoregressive benchmark. Length: 38 pages Creation-Date: 2015-02 File-URL: https://www.bi.edu/contentassets/5b2dd1d0414d4083851d26363810c929/working_camp_2-2015.pdf File-Format: Application/pdf Number: No 2/2015 Keywords: Global real economic activity, World steel production, Forecasting Handle: RePEc:bny:wpaper:0030 Template-Type: ReDIF-Paper 1.0 Author-Name: Hilde C. Bjørnland Author-Name-First: Hilde C. Author-Name-Last: Bjørnland Author-Person: pbj2 Author-Email: hilde.c.bjornland@bi.no Author-Name: Francesco Ravazzolo Author-Name-First: Francesco Author-Name-Last: Ravazzolo Author-Email: francesco.ravazzolo@norges-bank.no Author-Person: pra286 Author-Name: Leif Anders Thorsrud Author-Name-First: Leif Anders Author-Name-Last: Thorsrud Author-Person: pth175 Author-Email: leif.a.thorsrud@bi.no Title: Forecasting GDP with global components. This time is different Abstract: A long strand of literature has shown that the world has become more global. Yet, the recent Great Global Recession turned out to be hard to predict, with forecasters across the world committing large forecast errors. We examine whether knowledge of in-sample co-movement across countries could have been used in a more systematic way to improve forecast accuracy at the national level. In particular, we ask if a model with common international business cycle factors forecasts better than the purely domestic alternative? To answer this question we employ a Dynamic Factor Model (DFM) and run an out-of-sample forecasting experiment. Our results show that exploiting the informational content in a common global business cycle factor improves forecasting accuracy in terms of both point and density forecast evaluation across a large panel of countries. In line with much reported in-sample evidence, we also document that the Great Recession has a huge impact on this result. The event causes a clear preference shift towards the model including a common global factor. Similar shifts are not observed earlier in the evaluation sample. However, this time is different also in other respects. On longer forecasting horizons the performance of the DFM deteriorates substantially in the aftermath of the Great Recession. This indicates that the recession shock itself was felt globally, but that the recovery phase has been very different across countries. Length: 41 pages Creation-Date: 2015-01 File-URL: https://www.bi.edu/contentassets/19559719c8334cc498927a31aea3d98b/working_camp_1-2015.pdf File-Format: Application/pdf Number: No 1/2015 Keywords: Bayesian Dynamic Factor Model (BDFM), forecasting, model uncertainty and global factors Handle: RePEc:bny:wpaper:0029 Template-Type: ReDIF-Paper 1.0 Author-Name: Junior Maih Author-Name-First: Junior Author-Name-Last: Maih Author-Email: junior.maih@norges-bank.no Title: Efficient Perturbation Methods for Solving Regime-Switching DSGE Models Abstract: In an environment where economic structures break, variances change, distributions shift, conventional policies weaken and past events tend to reoccur, economic agents have to form expectations over different regimes. This makes the regime-switching dynamic stochastic general equilibrium (RS-DSGE) model the natural framework for analyzing the dynamics of macroeconomic variables. We present efficient solution methods for solving this class of models, allowing for the transition probabilities to be endogenous and for agents to react to anticipated events. The solution algorithms derived use a perturbation strategy which, unlike what has been proposed in the literature, does not rely on the partitioning of the switching parameters. These algorithms are all implemented in RISE, a flexible object-oriented toolbox that can easily integrate alternative solution methods. We show that our algorithms replicate various examples found in the literature. Among those is a switching RBC model for which we present a third-order perturbation solution. Length: 49 pages Creation-Date: 2014-12 File-URL: https://www.bi.edu/globalassets/forskning/camp/working-papers/2014/working_camp_10-2014.pdf File-Format: Application/pdf Number: No 10/2014 Keywords: DSGE, Markov switching, Sylvester equation, Newton algorithm, perturbation, matrix polynomial Handle: RePEc:bny:wpaper:0028 Template-Type: ReDIF-Paper 1.0 Author-Name: J rgen Juel Andersen Author-Name-First: J rgen Juel Author-Name-Last: Andersen Author-Person: pan249 Author-Email: jorgen.j.andersen@bi.no Author-Name: Mads Greaker Author-Name-First: Mads Author-Name-Last: Greaker Author-Person: pgr400 Author-Email: mgr@ssb.no Title: The Fiscal Incentive of GHG Cap and Trade: Permits May Be Too Cheap and Developed Countries May Abate Too Little Abstract: The theoretical justi cation for a greenhouse gas (GHG) cap and trade system is that participants will trade emission permits until their marginal cost of abatement equals the equilibrium price of emission permits. However, for scally constrained governments this logic does not apply, as they have a scal incentive to let welfare concerns, rather than industrial cost effciency, guide their abatement policy. Then, global cost e ciency will fail even if just a (small) subset of governments are scally constrained. Finally, we argue that any institutional change which breaks the connection between a government s abatement policy and its budget will increase welfare. Length: 28 pages Creation-Date: 2014-11 File-URL: https://www.bi.edu/globalassets/forskning/camp/working-papers/2014/working_camp_9-2014.pdf File-Format: Application/pdf Number: No 9/2014 Keywords: environmental policy, fiscal icentive, fiscal constraints, GHG cap and trade, welfare Handle: RePEc:bny:wpaper:0027 Template-Type: ReDIF-Paper 1.0 Author-Name: Monica Billio Author-Name-First: Monica Author-Name-Last: Billio Author-Person: pbi55 Author-Email: billio@unive.it Author-Name: Roberto Casarin Author-Name-First: Roberto Author-Name-Last: Casarin Author-Person: pca216 Author-Email: r.casarin@unive.it Author-Name: Francesco Ravazzolo Author-Name-First: Francesco Author-Name-Last: Ravazzolo Author-Email: francesco.ravazzolo@norges-bank.no Author-Person: pra286 Author-Name: Herman K. van Dijk Author-Name-First: Herman K. Author-Name-Last: van Dijk Author-Person: pva325 Title: Interactions between eurozone and US booms and busts: A Bayesian panel Markov-switching VAR model Abstract: Interactions between eurozone and United States booms and busts and among major eurozone economies are analyzed by introducing a panel Markov-switching VAR model. The model is well suitable for a multi-country cyclical analysis and accommodates changes in low and high data frequencies and endogenous time-varying transition matrices of the country-specific Markov chains. The transition matrix of each Markov chain depends on its own past history and on the history of other chains, thus allowing for modelling the interactions between cycles. An endogenous common eurozone cycle is derived by aggregating country-specific cycles. The model is estimated using a simulation based Bayesian approach in which an efficient multi-move algorithm is defined to draw time-varying Markov-switching chains. Using real and financial data on industrial production growth and credit spread for all countries, our main empirical results are as follows. Recession, slow recovery and expansion are empirically identified as three regimes with slow recovery becoming persistent in the eurozone in recent years differing from the US. US and eurozone cycles are not fully synchronized over the 1991-2013 period, with evidence of more recessions in the eurozone, in particular during the 90 s. Larger synchronization across regions occurs at beginning of the financial crisis but recently more heterogeneity takes place. Cluster analysis yields a group of core countries: Germany, France and Netherlands and a group of peripheral countries Spain and Italy. Reinforcement effects in the recession probabilities and in the probabilities of exiting recessions occur for both eurozone and US with substantial differences in phase transitions within the eurozone. Finally, credit spreads provide accurate predictive content for business cycle fluctuations. A credit shock results in statistically significant negative industrial production growth for several months in Germany, Spain and US. Our empirical result may serve as important information for the specification of a coordinated policy between the eurozone and the US and within the eurozone. Length: 30 pages Creation-Date: 2014-11 File-URL: https://www.bi.edu/globalassets/forskning/camp/working-papers/2014/working_camp_8-2014.pdf File-Format: Application/pdf Number: No 8/2014 Classification-JEL: C11, C15, C53, E37 Keywords: Bayesian Modelling, Panel VAR, Markov-switching, International Business Cycles, Interaction mechanisms Handle: RePEc:bny:wpaper:0026 Template-Type: ReDIF-Paper 1.0 Author-Name: Frode Martin Nordvik Author-Name-First: Frode Martin Author-Name-Last: Nordvik Author-Person: pno220 Author-Email: frode.m.nordvik@bi.no Title: Does Oil Promote or Prevent Coups? Abstract: A large literature investigates the relation between oil and conflict, yet no empirical study has found any link between oil and coups d etat. Using a new data set on oil production separated into onshore and offshore production, and covering 172 countries from 1900 to 2012, onshore oil is seen to promote coup while offshore oil prevents them. A likely mechanism is that onshore oil motivates military build-ups, while offshore oil does not. From a political leader s point of view, a large military is a double-edged sword, because it may turn against him and stage a coup. Length: 35 pages Creation-Date: 2014-10 File-URL: https://www.bi.edu/globalassets/forskning/camp/working-papers/2014/working_camp_7-2014.pdf File-Format: Application/pdf Number: No 7/2014 Classification-JEL: Q34, Q41, D74, H56, O17 Keywords: political economy, natural resoruces, coups d' tat, military spending Handle: RePEc:bny:wpaper:0025 Template-Type: ReDIF-Paper 1.0 Author-Name: Hilde C. Bjørnland Author-Name-First: Hilde C. Author-Name-Last: Bjørnland Author-Person: pbj2 Author-Email: hilde.c.bjornland@bi.no Author-Name: Leif Anders Thorsrud Author-Name-First: Leif Anders Author-Name-Last: Thorsrud Author-Person: pth175 Author-Email: leif.a.thorsrud@bi.no Title: Boom or gloom? Examining the Dutch disease in two-speed economies Abstract: Traditional studies of the Dutch disease do not account for productivity spillovers between the booming resource sector and other domestic sectors. We put forward a simple theory model that allows for such spillovers. We then identify and quantify these spillovers using a Bayesian Dynamic Factor Model (BDFM). The model allows for resource movements and spending effects through a large panel of variables at the sectoral level, while also identifying disturbances to the commodity price, global demand and non-resource activity. Using Australia and Norway as representative cases studies, we find that a booming resource sector has substantial productivity spillovers on non-resource sectors, effects that have not been captured in previous analysis. That withstanding, there is also evidence of two-speed economies, with non-traded industries growing at a faster pace than traded. Furthermore, com- modity prices also stimulate the economy, but primarily if an increase is caused by higher global demand. Commodity price growth unrelated to global activity is less favourable, and for Australia, there is evidence of a Dutch disease effect with crowding out of the tradable sectors. As such, our results show the importance of distinguishing between windfall gains due to volume and price changes when analysing the Dutch disease hypothesis. Length: 47 pages Creation-Date: 2014-09 File-URL: https://www.bi.edu/globalassets/forskning/camp/working-papers/2014/working_camp_6-2014.pdf File-Format: Application/pdf Number: No 6/2014 Classification-JEL: C32, E32, F41, Q33 Keywords: Resource boom, commodity prices, Dutch disease, learning by doing, two-speed economy, Bayesian Dynamic Factor Model (BDFM) Handle: RePEc:bny:wpaper:0024 Template-Type: ReDIF-Paper 1.0 Author-Name: Drago Bergholt Author-Name-First: Drago Author-Name-Last: Bergholt Author-Person: pbe717 Author-Email: drago.bergholt@bi.no Title: Monetary Policy in Oil Exporting Economies Abstract: How should monetary policy be constructed when national income depends on oil exports? I set up a general equilibrium model for an oil exporting small open economy to analyze this question. Fundamentals include an oil sector and domestic non-oil firms some of which are linked to oil markets via supply chains. In the model, the intermediate production network implies transmission of international oil shocks to all domestic industries. The presence of wage and price rigidities at the sector level leads to non-trivial trade-offs between different stabilization tar- gets. I characterize Ramsey-optimal monetary policy in this environment, and use the framework to shed light on i) welfare implications of the supply chain channel, and ii) costs of alternative policy rules. Three results emerge: First, optimal policy puts high weight on nominal wage stability. In contrast, attempts to target impulses from the oil sector can be disastrous for welfare. Second, while oil sector activities contribute to macroeconomic fluctuations, they do not change the nature of optimal policy. Third, operational Taylor rules with high interest rate inertia can approximate the Ramsey equilibrium reasonably well. Length: 42 pages Creation-Date: 2014-07 File-URL: https://www.bi.edu/globalassets/forskning/camp/working-papers/2014/working_camp_5-2014.pdf File-Format: Application/pdf Number: No 5/2014 Classification-JEL: E52, F41, Q33, Q43 Keywords: Monetary policy, oil exports, small open economy, Ramsey equilibrium, DSGE Handle: RePEc:bny:wpaper:0023 Template-Type: ReDIF-Paper 1.0 Author-Name: Drago Bergholt Author-Name-First: Drago Author-Name-Last: Bergholt Author-Person: pbe717 Author-Email: drago.bergholt@bi.no Title: Foreign shocks in an estimated multi-sector model Abstract: How are macroeconomic fluctuations in open economies affected by interna- tional business cycles? To shed some light on this question, I develop and estimate a medium scale DSGE model for a small open economy. The model incorporates i) international markets for firm-to-firm trade in production inputs, and ii) producer heterogeneity where technology and price setting constraints vary across industries. Using Bayesian techniques on Canadian and US data, I document several macroe- conomic regularities in the small open economy, all attributed to international dis- turbances. First, foreign shocks are crucial for domestic fluctuations at all forecast- ing horizons. Second, productivity is the most important driver of business cycles. Investment efficiency shocks on the other hand have counterfactual implications for international spillover. Third, the relevance of foreign shocks accumulates over time. Fourth, business cycles display strong co-movement across countries, even though shocks are uncorrelated and the trade balance is countercyclical. Fifth, exchange rate pass-through to aggregate CPI inflation is moderate, while pass-through at the sector level is positively linked to the frequency of price changes. Few of these fea- tures have been accounted for in existing open economy DSGE literature, but all are consistent with reduced form evidence. The model presented here offers a structural interpretation of the results. Length: 84 pages Creation-Date: 2014-04 File-URL: https://www.bi.edu/globalassets/forskning/camp/working-papers/2014/working_camp_4-2014.pdf File-Format: Application/pdf Number: No 4/2014 Classification-JEL: C11, F41, F44 Keywords: DSGE, small open economy, international business cycles, Bayesian estimation Handle: RePEc:bny:wpaper:0022 Template-Type: ReDIF-Paper 1.0 Author-Name: Knut Are Aastveit Author-Name-First: Knut Are Author-Name-Last: Aastveit Author-Email: Knut-Are.Aastveit@norges-bank.no Author-Person: paa22 Author-Name: Claudia Foroni Author-Name-First: Claudia Author-Name-Last: Foroni Author-Person: pfo230 Author-Email: claudia.foroni@norges-bank.no Author-Name: Francesco Ravazzolo Author-Name-First: Francesco Author-Name-Last: Ravazzolo Author-Email: francesco.ravazzolo@norges-bank.no Author-Person: pra286 Title: Density forecasts with MIDAS models Abstract: In this paper we derive a general parametric bootstrapping approach to compute density forecasts for various types of mixed-data sampling (MIDAS) regressions. We consider both classical and unrestricted MIDAS regressions with and without an autoregressive component. First, we compare the forecasting performance of the different MIDAS models in Monte Carlo simulation experiments. We find that the results in terms of point and density forecasts are coherent. Moreover, the results do not clearly indicate a superior performance of one of the models under scrutiny when the persistence of the low frequency variable is low. Some differences are instead more evident when the persistence is high, for which the AR- MIDAS and the AR-U-MIDAS produce better forecasts. Second, in an empirical exercise we evaluate density forecasts for quarterly US output growth, exploiting information from typical monthly series. We find that MIDAS models provide accurate and timely density forecasts. Length: 32 pages Creation-Date: 2014-09 File-URL: https://www.bi.edu/globalassets/forskning/camp/working-papers/2014/working_camp_3-2014.pdf File-Format: Application/pdf Number: No 3/2014 Classification-JEL: C10, C53, E37 Keywords: Mixed Data Sampling, Density Forecasts, Nowcasting Handle: RePEc:bny:wpaper:0021 Template-Type: ReDIF-Paper 1.0 Author-Name: Drago Bergholt Author-Name-First: Drago Author-Name-Last: Bergholt Author-Person: pbe717 Author-Email: drago.bergholt@bi.no Author-Name: Tommy Sveen Author-Name-First: Tommy Author-Name-Last: Sveen Author-Person: psv10 Author-Email: tommy.sveen@bi.no Title: Sectoral Interdependence and Business Cycle Synchronization in Small Open Economies Abstract: Existing DSGE models are not able to reproduce the observed influence of international business cycles on small open economies. We construct a two-sector New Keynesian model to address this puzzle. The set-up takes into account intermediate trade and producer heterogeneity, where goods and service industries differ in terms of i) price flexibility, ii) trade intensity, iii) technology, iv) I-O structure, and v) the volatility of productivity innovations. The combination of intermediate markets and heterogeneous producers makes international business cycles highly important for the small economy, even if it has a large service sector. Exploiting I-O matrices of Canadian and US industries, the model is able to reproduce the role of international disturbances typically found in empirical studies. Model simulations deliver cross-country correlations in macroeconomic variables of about 0.7, with half of the variation in domestic variables attributed to foreign shocks. Length: 26 pages Creation-Date: 2014 File-URL: https://www.bi.edu/globalassets/forskning/camp/working-papers/2014/working_camp_2-2014.pdf File-Format: Application/pdf Number: No 2/2014 Classification-JEL: E32, F41, F44 Keywords: small open economy, multi-sector, international trade, international business cycle Handle: RePEc:bny:wpaper:0020 Template-Type: ReDIF-Paper 1.0 Author-Name: Egil Matsen Author-Name-First: Egil Author-Name-Last: Matsen Author-Person: pma83 Author-Email: egil.matsen@svt.ntnu.no Author-Name: Gisle J. Natvik Author-Name-First: Gisle J. Author-Name-Last: Natvik Author-Person: pna248 Author-Email: gisle-james.natvik@norges-bank.no Author-Name: Ragnar Torvik Author-Name-First: Ragnar Author-Name-Last: Torvik Author-Person: pto24 Author-Email: ragnar.torvik@svt.ntnu.no Title: Petro Populism Abstract: We aim to explain petro populism - the excessive use of oil revenues to buy political support. To reap the full gains of natural resource income politicians need to remain in office over time. Hence, even a rent-seeking incumbent who prioritizes his own welfare above that of citizens, will want to provide voters with goods and services if it promotes his probability of remaining in office. While this incentive benefits citizens under the rule of rent-seekers, it also has the adverse effect of motivating benevolent policymakers to short-term overprovision of goods and services. In equilibrium politicians of all types indulge in excessive resource extraction, while voters reward policies they realize cannot be sustained over time. Length: 28 pages Creation-Date: 2014 File-URL: https://www.bi.edu/globalassets/forskning/camp/working-papers/2014/working_camp_1-2014.pdf File-Format: Application/pdf Number: No 1/2014 Classification-JEL: D72, O13, Q33 Keywords: resource curse, political economy Handle: RePEc:bny:wpaper:0019 Template-Type: ReDIF-Paper 1.0 Author-Name: Ragna Alstadheim Author-Name-First: Ragna Author-Name-Last: Alstadheim Author-Person: pal188 Author-Email: Ragna.Alstadheim@norges-bank.no Author-Name: Hilde C. Bjørnland Author-Name-First: Hilde C. Author-Name-Last: Bjørnland Author-Person: pbj2 Author-Email: hilde.c.bjornland@bi.no Author-Name: Junior Maih Author-Name-First: Junior Author-Name-Last: Maih Author-Email: Junior.Maih@norges-bank.no Title: Do Central Banks Respond to Exchange Rate Movements? A Markow-Switching Structural Investigation Abstract: Do central banks respond to exchange rate movements? According to Lubik and Schorfheide (2007) who estimate structural general equilibrium models with monetary policy rules, the answer is "Yes, some do". However, their analysis is based on a sample with multiple regime changes, which may bias the results. We revisit their original question using a Markov switching set up which explicitly allows for parameter changes. Fitting the data from four small open economies to the model, we find that the size of policy responses, and the volatility of structural shocks, have not stayed constant during the sample period (1982-2011). In particular, central banks in Sweden and the UK switched from a high response to the exchange rate in the 1980s and early 1990s, to a low response some time after inflation targeting was implemented. Canada also observed a regime change, but the decline in the exchange rate response was small relative to the increase in the response to inflation and output. Norway, on the other hand, did not observe a shift in the policy response over time, as the central bank has stayed in a regime of high exchange rate response prior and post implementing inflation targeting. Length: 23 pages Creation-Date: 2013-12 File-URL: https://www.bi.edu/globalassets/forskning/camp/working-papers/2013/working_camp_9-2013.pdf File-Format: Application/pdf Number: No 9/2013 Classification-JEL: C68, E52, F41 Keywords: Monetary policy, exchange rates, inflation targeting, markov switching, small open economy Handle: RePEc:bny:wpaper:0018 Template-Type: ReDIF-Paper 1.0 Author-Name: J rgen Juel Andersen Author-Name-First: J rgen Juel Author-Name-Last: Andersen Author-Person: pan249 Author-Email: jorgen.j.andersen@bi.no Author-Name: Jon H. Fiva Author-Name-First: Jon H. Author-Name-Last: Fiva Author-Person: pfi35 Author-Email: j.h.fiva@bi.no Author-Name: Gisle James Natvik Author-Name-First: Gisle James Author-Name-Last: Natvik Author-Person: pna248 Author-Email: gisle-james.natvik@norges-bank.no Title: Voting When the Stakes Are High Abstract: Most theories of voter behavior predict that electoral participation will be higher in elections where more is at stake. We test this prediction by studying how participation is affected by exogenous variation in local governments' financial flexibility to provide pork for their voters. Utilizing simultaneous elections for different offices, we identify a positive effect of election stakes on participation: Higher stakes at the local level increase participation at the local relative to the regional election. Survey evidence indicates that the underlying mechanism relates to citizens' aquisition of information. Length: 39 pages Creation-Date: 2013-10 File-URL: https://www.bi.edu/globalassets/forskning/camp/working-papers/2013/working_camp_8-2013.pdf File-Format: Application/pdf Number: No 8/2013 Classification-JEL: D72, D83, H71, H7 Keywords: Voter Motivation, Electoral Participation, Roll-Off, Pork Barrel Spending Handle: RePEc:bny:wpaper:0017 Template-Type: ReDIF-Paper 1.0 Author-Name: J rgen Juel Andersen Author-Name-First: J rgen Juel Author-Name-Last: Andersen Author-Person: pan249 Author-Email: jorgen.j.andersen@bi.no Author-Name: Niels Johannesen Author-Name-First: Niels Author-Name-Last: Johannesen Author-Person: pjo288 Author-Email: Niels.Johannesen@econ.ku.dk Author-Name: David Dreyer Lassen Author-Name-First: David Author-Name-Last: Lassen Author-Person: pla126 Author-Email: ddl@econ.ku.dk Author-Name: Elena Paltseva Author-Name-First: Elena Author-Name-Last: Paltseva Author-Person: ppa346 Author-Email: elena.paltseva@hhs.se Title: Petro Rents, Political Institutions, and Hidden Wealth: Evidence from Bank Deposits in Tax Havens Abstract: Do political institutions limit rent-seeking by politicians? To address this question, we study the transformation of petroleum rents into hidden wealth using unique data on bank deposits in tax havens. We find that petroleum rents are associated with increases in hidden wealth, but only when political institutions are very weak. We also discern an interesting interaction with political risk: events such as elections and domestic conflict are preceded by increases in hidden wealth when political institutions are weak, which is consistent with a view of autocratic rulers as forward-looking rent-seekers whose behavior is constrained by political checks and balances. Length: 33 pages Creation-Date: 2013-08 File-URL: https://www.bi.edu/globalassets/forskning/camp/working-papers/2013/working_camp_7-2013.pdf File-Format: Application/pdf Number: No 7/2013 Classification-JEL: Keywords: Handle: RePEc:bny:wpaper:0016 Template-Type: ReDIF-Paper 1.0 Author-Name: Hilde C. Bjørnland Author-Name-First: Hilde Author-Name-Last: Bjørnland Author-Person: pbj2 Author-Email: hilde.c.bjornland@bi.no Author-Name: Leif Anders Thorsrud Author-Name-First: Leif Anders Author-Name-Last: Thorsrud Author-Person: pth175 Author-Email: leif.a.thorsrud@bi.no Title: Boom or gloom? Examining the Dutch disease in a two-speed economy Abstract: Traditional studies of the Dutch disease do not typically account for productivity spillovers between the booming energy sector and non-oil sectors. This study identifes and quantifes these spillovers using a Bayesian Dynamic Factor Model (BDFM). The model allows for resource movements and spending effects through a large panel of variables at the sectoral level, while also identifying disturbances to the real oil price, global demand and non-oil activity. Using Norway as a representative case study, we find that a booming energy sector has substantial spillover effects on the non-oil sectors. Furthermore, windfall gains due to changes in the real oil price also stimulates the economy, but primarily if the oil price increase is caused by global demand. Oil price increases due to, say, supply disruptions, while stimulating activity in the technologically intense service sectors and boosting government spending, have small spillover effects on the rest of the economy, primarily because of reduced cost competitiveness. Yet, there is no evidence of Dutch disease. Instead, we find evidence of a two-speed economy, with non-tradables growing at a much faster pace than tradables. Our results suggest that traditional Dutch disease models with a fixed capital stock and exogenous labor supply do not provide a convincing explanation for how petroleum wealth affects a resource rich economy when there are productivity spillovers between sectors. Length: 42 pages Creation-Date: 2013-08 File-URL: https://www.bi.edu/globalassets/forskning/camp/working-papers/2013/working_camp_6-2013.pdf File-Format: Application/pdf Number: No 6/2013 Classification-JEL: C32, E32, F41, Q33 Keywords: Resource boom, oil prices, Dutch disease, learning by doing, two-speed economy, Bayesian Dynamic Factor Model (BDFM) Handle: RePEc:bny:wpaper:0015 Template-Type: ReDIF-Paper 1.0 Author-Name: Lars-Erik Borge Author-Name-First: Lars-Erik Author-Name-Last: Borge Author-Person: pbo125 Author-Email: lars.erik.borge@svt.ntnu.no Author-Name: Pernille Parmer Author-Name-First: Pernille Author-Name-Last: Parmer Author-Email: parmer@svt.ntnu.no Author-Name: Ragnar Torvik Author-Name-First: Ragnar Author-Name-Last: Torvik Author-Person: pto24 Author-Email: ragnar.torvik@svt.ntnu.no Title: Local Natural Resource Curse? Abstract: The large variation in revenues among Norwegian local governments can partly be explained by revenues collected from hydropower production. This revenue variation, combined with good data availability, can be used to extend the literature on the resource curse in two directions. First, to ensure that there is no problem of endogeneity in the analysis we obtain a purely exogenous measure of local revenue by instrumenting the variation in hydropower revenue, and thus total revenue, by topology, average precipitation and meters of river in steep terrain. Second, using data for revenue derived from hydropower production in Norwegian local governments we test the Rentier State hypothesis; that revenue derived from natural resources should harm efficiency more than revenue derived from other sources such as taxation. Although we do ?nd that higher local government revenue reduces the efficiency in production of public goods, we do not ?nd that this effect is stronger for natural resource revenue than for other revenue. Length: 36 pages Creation-Date: 2013-06 File-URL: https://www.bi.edu/globalassets/forskning/camp/working-papers/2013/working_camp_5-2013.pdf File-Format: Application/pdf Number: No 5/2013 Classification-JEL: D78, H11, H27, H71, H72, H75, Q2 Keywords: resource curse, rentier state, identi?cation, local government, political economy. Handle: RePEc:bny:wpaper:0014 Template-Type: ReDIF-Paper 1.0 Author-Name: Halvor Mehlum Author-Name-First: Halvor Author-Name-Last: Mehlum Author-Person: pme64 Author-Email: halvor.mehlum@econ.uio.no Author-Name: Ragnar Torvik Author-Name-First: Ragnar Author-Name-Last: Torvik Author-Person: pto24 Author-Email: ragnar.torvik@svt.ntnu.no Author-Name: Simone Valente Author-Name-First: Simone Author-Name-Last: Valente Author-Person: pva166 Author-Email: simone.valente@svt.ntnu.no Title: China s Savings Multiplier Abstract:China s growth is characterized by massive capital accumulation, made possible by high and increasing domestic savings. In this paper we develop a model with the aim of explaining why savings rates have been high and increasing,and we investigate the general equilibrium effects on capital accumulation and growth. We show that increased savings and capital accumulation stimulates further savings and capital accumulation, through an intergenerational distribution effect and an old-age requirement effect. We introduce what we term the savings multiplier, and we discuss why and how the one-child policy, and the dismantling of the cradle-to-grave social bene?ts provided through the state owned enterprises, have stimulated savings and capital accumulation. Length: 50 pages Creation-Date: 2013-06 File-URL: https://www.bi.edu/globalassets/forskning/camp/working-papers/2013/working_camp-4-2013.pdf File-Format: Application/pdf Number: No 4/2013 Classification-JEL: O11, D91, E21 Keywords: China, One-child policy, Overlapping generations, Growth, Savings Handle: RePEc:bny:wpaper:0013 Template-Type: ReDIF-Paper 1.0 Author-Name: Leif Anders Thorsrud Author-Name-First: Leif Anders Author-Name-Last: Thorsrud Author-Person: pth175 Author-Email: leif.a.thorsrud@bi.no Title: Global and regional business cycles. Shocks and propagations Abstract: We study the synchronization of real and nominal variables across four different regions of the world, Asia, Europe, North and South America, covering 32 different countries. Employing a FAVAR framework, we distinguish between global and regional demand and supply shocks and document the relative contributions of these shocks to explaining macroeconomic fluctuations and synchronization. Our results support the decoupling hypothesis advanced in recent business cycle studies and yields new insights regarding the causes of business cycle synchronization. In particular, global supply shocks cause more severe activity fluctuations in European and North American economies than in Asian and South American economies, whereas global demand shocks shift activity in the different regions in opposite directions at longer horizons. Furthermore, demand shocks play a larger role than that found in related studies. Finally, only innovations to the Asian activity and price factors have significant spillover effects on shared global factors, demonstrating the growing importance of Asia in the global economy. Length: 34 pages Creation-Date: 2013-02 File-URL: https://www.bi.edu/globalassets/forskning/camp/working-papers/2013/working_camp_3-2013.pdf File-Format: Application/pdf Number: No 3/2013 Classification-JEL: C11, C38, F41, F44 Keywords: Business cycles, Factor model, Globalization, International macro Handle: RePEc:bny:wpaper:0012 Template-Type: ReDIF-Paper 1.0 Author-Name: Daron Acemoglu Author-Name-First: Daron Author-Name-Last: Acemoglu Author-Email: daron@mit.edu Author-Person: pac16 Author-Name: James A. Robinson Author-Name-First: James A. Author-Name-Last: Robinson Author-Email: jrobinson@gov.harvard.edu Author-Person: pro179 Author-Name: Ragnar Torvik Author-Name-First: Ragnar Author-Name-Last: Torvik Author-Email: ragnar.torvik@svt.ntnu.no Author-Person: pto24 Title: Online Appendix: Why Do Voters Dismantle Checks and Balances? Extensions and Robustness Abstract: In this online appendix we extend the basic model in the paper in several directions, discuss the robustness of the results, and moreover what new mechanisms our extensions implies as compared to the ones in the basic model. Length: 23 pages Creation-Date: 2013-01 File-URL: https://www.bi.edu/globalassets/forskning/camp/working-papers/2013/working_camp_2-2013.pdf File-Format: Application/pdf Number: No 2/2013 Classification-JEL: Keywords: Handle: RePEc:bny:wpaper:0011 Template-Type: ReDIF-Paper 1.0 Author-Name: Daron Acemoglu Author-Name-First: Daron Author-Name-Last: Acemoglu Author-Email: daron@mit.edu Author-Person: pac16 Author-Name: James A. Robinson Author-Name-First: James A. Author-Name-Last: Robinson Author-Email: jrobinson@gov.harvard.edu Author-Person: pro179 Author-Name: Ragnar Torvik Author-Name-First: Ragnar Author-Name-Last: Torvik Author-Email: ragnar.torvik@svt.ntnu.no Author-Person: pto24 Title: Why Do Voters Dismantle Checks and Balances? Abstract: Voters often dismantle constitutional checks and balances on the executive. If such checks and balances limit presidential abuses of power and rents, why do voters support their removal? We argue that by reducing politician rents, checks and balances also make it cheaper to bribe or in?uence politicians through non-electoral means. In weakly-institutionalized polities where such non-electoral in?uences, particularly by the better organized elite, are a major concern, voters may prefer a political system without checks and balances as a way of insulating politicians from these in?uences. When they do so, they are e?ectively accepting a certain amount of politician (presidential) rents in return for redistribution. We show that checks and balances are less likely to emerge when the elite is better organized and is more likely to be able to in?uence or bribe politicians, and when inequality and potential taxes are high (which makes redistribution more valuable to the majority). We also provide case study evidence from Bolivia, Ecuador and Venezuela and econometric evidence on voter attitudes from a Latin American survey consistent with the model. Length: 44 pages Creation-Date: 2013-01 File-URL: https://www.bi.edu/globalassets/forskning/camp/working-papers/2013/working_camp_1-2013.pdf File-Format: Application/pdf Number: No 1/2013 Classification-JEL: H1, O17, P48 Keywords: corruption, checks and balances, political economy, redistribution, separation of powers, taxes Handle: RePEc:bny:wpaper:0010 Template-Type: ReDIF-Paper 1.0 Author-Name: Massimiliano Caporin Author-Name-First: Massimiliano Author-Name-Last: Caporin Author-Email: massimiliano.caporin@unipd.it Author-Person: pca441 Author-Name: Loriana Pelizzon Author-Name-First: Loriana Author-Name-Last: Pelizzon Author-Email: loriana.pelizzon@unive.it Author-Person: ppe207 Author-Name: Francesco Ravazzolo Author-Name-First: Francesco Author-Name-Last: Ravazzolo Author-Email: francesco.ravazzolo@norges-bank.no Author-Person: pra286 Author-Name: Roberto Rigobon Author-Name-First: Roberto Author-Name-Last: Rigobon Author-Email: rigobon@mit.edu Author-Person: pri12 Title: Measuring Sovereign Contagion in Europe Abstract: This paper analyzes the sovereign risk contagion using credit default swaps (CDS) and bond premiums for the major eurozone countries. By emphasizing several econometric approaches (nonlinear regression, quantile regression and Bayesian quantile regression with heteroskedasticity) we show that propagation of shocks in Europe's CDS has been remarkably constant for the period 2008-2011 even though a significant part of the sample periphery countries have been extremely affected by their sovereign debt and fiscal situations. Thus, the integration among the different eurozone countries is stable, and the risk spillover among these countries is not affected by the size of the shock, implying that so far contagion has remained subdue. Results for the CDS sample are confirmed by examining bond spreads. However, the analysis of bond data shows that there is a change in the intensity of the propagation of shocks in the 2003-2006 pre-crisis period and the 2008-2011 post-Lehman one, but the coefficients actually go down, not up! All the increases in correlation we have witnessed over the last years come from larger shocks and the heteroskedasticity in the data, not from similar shocks propagated with higher intensity across Europe. This is the first paper, to our knowledge, where a Bayesian quantile regression approach is used to measure contagion. This methodology is particularly well-suited to deal with nonlinear and unstable transmission mechanisms. Length: 57 pages Creation-Date: 2012-12 File-URL: https://www.bi.edu/globalassets/forskning/camp/working-papers/2012/working_camp_4-2012.pdf File-Format: Application/pdf Number: No 4/2012 Classification-JEL: E58, F34, F36, G12, G15 Keywords: Sovereign Risk, Contagion Handle: RePEc:bny:wpaper:0009 Template-Type: ReDIF-Paper 1.0 Author-Name: Francesco Ravazzolo Author-Name-First: Francesco Author-Name-Last: Ravazzolo Author-Email: francesco.ravazzolo@norges-bank.no Author-Person: pra286 Author-Name: Marco J. Lombardi Author-Name-First: Marco J. Author-Name-Last: Lombardi Author-Email: marco.lombardi@bis.org Author-Person: plo54 Title: Oil price density forecasts: Exploring the linkages with stock markets Abstract: In the recent years several commentators hinted at an increase of the correlation between equity and commodity prices, and blamed investment in commodity-related products for this. First, this paper investigates such claims by looking at various measures of correlation. Next, we assess to what extent correlations between oil and equity prices can be exploited for asset allocation. We develop a time-varying Bayesian Dynamic Conditional Correlation model for volatilities and correlations and find that joint modelling of oil and equity prices produces more accurate point and density forecasts for oil which lead to substantial benefits in portfolio wealth. Length: 29 pages Creation-Date: 2012-12 File-URL: https://www.bi.edu/globalassets/forskning/camp/working-papers/2012/working_camp_3-2012.pdf File-Format: Application/pdf Number: No 3/2012 Classification-JEL: C11, C15, C53, E17, G17 Keywords: Oil price, stock price, density forecasting, correlation, Bayesian DCC Handle: RePEc:bny:wpaper:0008 Template-Type: ReDIF-Paper 1.0 Author-Name: Knut Are Aastveit Author-Name-First: Knut Are Author-Name-Last: Aastveit Author-Email: Knut-Are.Aastveit@norges-bank.no Author-Name: Hilde C. Bjørnland Author-Name-First: Hilde C. Author-Name-Last: Bjørnland Author-Email: hilde.c.bjornland@bi.no Author-Person: pbj2 Author-Name: Leif Anders Thorsrud Author-Name-First: Leif Anders Author-Name-Last: Thorsrud Author-Person: pth175 Author-Email: leif.a.thorsrud@bi.no Title: What drives oil prices? Emerging versus developed economies Abstract: We analyze the importance of demand from emerging and developed economies as drivers of the real price of oil. Using a method that allows us to identify demand from different groups of countries across the world, we find that demand from emerging economies (most notably from Asian countries) is more than twice as important as demand from developed countries in accounting for the fluctuations in the real price of oil and in oil production. Furthermore, we find that different geographical regions respond differently to oil supply shocks and oil-specific demand shocks that drive up oil prices, with Europe and North America being more negatively affected than emerging economies in Asia and South America. We demonstrate that this heterogeneity in responses is not only attributable to differences in energy intensity in production across regions but also to degree of openness and the investment share in GDP. Length: 39 pages Creation-Date: 2012-12 File-URL: https://www.bi.edu/globalassets/forskning/camp/working-papers/2012/working_camp_2-2012.pdf File-Format: Application/pdf Number: No 2/2012 Classification-JEL: C32, E32, F41 Keywords: Oil prices, emerging and developed countries, demand and supply shocks, factor augmented vector autoregressions Handle: RePEc:bny:wpaper:0007 Template-Type: ReDIF-Paper 1.0 Author-Name: Hilde C. Bjørnland Author-Name-First: Hilde C. Author-Name-Last: Bjørnland Author-Email: hilde.c.bjornland@bi.no Author-Person: pbj2 Author-Name: Dag Henning Jacobsen Author-Name-First: Dag Henning Author-Name-Last: Jacobsen Author-Email: Dag-henning.jacobsen@norges-bank.no Title: House prices and stock prices: Different roles in the U.S. monetary transmission mechanism Abstract: We analyze the role of house and stock prices in the monetary policy transmission mechanism in the U.S. using a structural VAR model. The VAR is identifed using a combination of short-run and long-run (neutrality) restrictions, allowing for contemporaneous interaction between monetary policy and asset prices. By allowing the interest rate and asset prices to react simultaneously to news, we find different roles for house and stock prices in the monetary transmission mechanism. In particular, following a contractionary monetary policy shock, stock prices fall immediately, while the response in house prices is much more gradual. However, the fall in both house prices and stock prices enhances the negative response in output and inflation that has traditionally been found in the literature. Regarding the systematic response in monetary policy, stock prices play a more important role in the interest rate setting in the short run than house prices. As a consequence, shocks to house prices contribute more to GDP and inflation fluctuations than stock price shocks. Length: 36 pages Creation-Date: 2012-08 File-URL: https://www.bi.edu/globalassets/forskning/camp/working-papers/2012/camp_wp_01-2012.pdf File-Format: Application/pdf Number: No 1/2012 Classification-JEL: C32, E52, E44 Keywords: VAR, monetary policy, house prices, identification Handle: RePEc:bny:wpaper:0006 Template-Type: ReDIF-Paper 1.0 Author-Name: Knut Are Aastveit Author-Name-First: Knut Are Author-Name-Last: Aastveit Author-Email: Knut-Are.Aastveit@norges-bank.no Author-Name: Hilde C. Bjørnland Author-Name-First: Hilde C. Author-Name-Last: Bjørnland Author-Email: hilde.c.bjornland@bi.no Author-Person: pbj2 Author-Name: Leif Anders Thorsrud Author-Name-First: Leif Anders Author-Name-Last: Thorsrud Author-Email: Leif.A.Thorsrud@bi.no Author-Person: pth175 Title: The world is not enough! Small open economies and regional dependence Abstract: This paper bridges the new open economy factor augmented VAR (FAVAR) studies with the recent findings in the business cycle synchronization literature emphasizing the importance of regional factors. That is, we estimate and identify a three block FAVAR model with separate world, regional and domestic blocks and study the transmission of both global and regional shocks to four small open economies (Canada, New Zealand, Norway and UK). The results show that foreign shocks explain a major share of the variance in all countries, most so shocks that are common to the world. However, regional shocks also play an important role, explaining more than 20 percent of the variance in the variables. Hence in small open economies, the world is not enough. The regional factors impact the four countries differently, though, some through trade and some through consumer sentiment. Our findings of a strong transmission of both global and regional shocks to open economies are in sharp contrast to the evidence from recently developed open economy DSGE models. Length: 59 pages Creation-Date: 2011-11 File-URL: https://www.bi.edu/globalassets/forskning/camp/working-papers/2011/working_camp-3-2011-revidert.pdf File-Format: Application/pdf Number: No 3/2011 Classification-JEL: C32, E32, F41 Keywords: International transmission, world and region, small open economy, FAVAR, Business cycles Handle: RePEc:bny:wpaper:0005 Template-Type: ReDIF-Paper 1.0 Author-Name: Francesco Ravazzolo Author-Name-First: Francesco Author-Name-Last: Ravazzolo Author-Person: pra286 Author-Name: Philip Rothman Author-Name-First: Philip Author-Name-Last: Rothman Title: Oil and US GDP: A Real-Time out-of Sample Examination Abstract: We study the real-time predictive content of crude oil prices for US real GDP growth through a pseudo out-of-sample (OOS) forecasting exercise. Comparing our benchmark model ?withoutoil? against alternatives ?with oil,? we strongly reject the null hypothesis of no OOS population-level predictability from oil prices to GDP at the longer forecast horizon we consider. These results may be due to our oil price measures serving as proxies for a recently developed measure of global real economic activity omitted from the alternatives to the benchmark forecasting models. This examination of the global OOS relative performance of the models we consider is robust to use of ex-post revised data. But when we focus on the forecasting models? local relative performance, we observe strong differences across use of real-time and ex-post revised data. Length: 23 pages Creation-Date: 2011-11 File-URL: https://www.bi.edu/globalassets/forskning/camp/working-papers/2011/camp_wp_02-2011.pdf File-Format: Application/pdf Number: No 2/2011 Classification-JEL: C22, C53, E32, E37 Handle: RePEc:bny:wpaper:0004 Template-Type: ReDIF-Paper 1.0 Author-Name: Knut Are Aastveit Author-Name-First: Knut Are Author-Name-Last: Aastveit Author-Email: Knut-Are.Aastveit@norges-bank.no Author-Name: Karsten R. Gerdrup Author-Name-First: Karsten R. Author-Name-Last: Gerdrup Author-Email: Karsten.Gerdrup@norges-bank.no Author-Name: Anne Sofie Jore Author-Name-First: Anne Sofie Author-Name-Last: Jore Author-Email: Anne-Sofie.Jore@norges-bank.no Author-Person: pjo169 Author-Name: Leif Anders Thorsrud Author-Name-First: Leif Anders Author-Name-Last: Thorsrud Author-Email: Leif.A.Thorsrud@bi.no Author-Person: pth175 Title: Nowcasting GDP in Real-Time: A Density Combination Approach Abstract: In this paper we use U.S. real-time vintage data and produce combined density nowcasts for quarterly GDP growth from a system of three commonly used model classes. The density nowcasts are combined in two steps. First, a wide selection of individual models within each model class are combined separately. Then, the nowcasts from the three model classes are combined into a single predictive density. We update the density now-cast for every new data release throughout the quarter, and highlight the importance of new information for the evaluation period 1990Q2-2010Q3. Our results show that the logarithmic score of the predictive densities for U.S. GDP increase almost monotonically as new information arrives during the quarter. While the best performing model class is changing during the quarter, the density nowcasts from our combination framework is always performing well both in terms of logarithmic scores and calibration tests. The density combination approach is superior to a simple model selection strategy and also performs better in terms of point forecast evaluation than standard point forecast combinations. Length: 45 pages Creation-Date: 2011-09 File-URL: https://www.bi.edu/globalassets/forskning/camp/working-papers/2011/camp_wp_01-2011.pdf File-Format: Application/pdf Number: No 1/2011 Classification-JEL: C32, C52, C53, E37, E52 Keywords: Density combination; Forecast densities; Forecast evaluation; Monetary policy; Nowcasting; Real-time data Handle: RePEc:bny:wpaper:0003 Template-Type: ReDIF-Paper 1.0 Author-Name: Hilde C. Bjørnland Author-Name-First: Hilde C. Author-Name-Last: Bjørnland Author-Email: hilde.c.bjornland@bi.no Author-Person: pbj2 Author-Name: Karsten R. Gerdrup Author-Name-First: Karsten R. Author-Name-Last: Gerdrup Author-Email: Karsten.Gerdrup@norges-bank.no Author-Name: Anne Sofie Jore Author-Name-First: Anne Sofie Author-Name-Last: Jore Author-Email: Anne-Sofie.Jore@norges-bank.no Author-Person: pjo169 Author-Name: Leif Anders Thorsrud Author-Name-First: Leif Anders Author-Name-Last: Thorsrud Author-Email: Leif.A.Thorsrud@bi.no Author-Person: pth175 Author-Name: Christie Smith Author-Name-First: Christie Author-Name-Last: Smith Author-Person: psm51 Title: Does forecast combination improve Norges Bank inflation forecasts? Abstract: We develop a system that provides model-based forecasts for inflation in Norway. We recursively evaluate quasi out-of-sample forecasts from a large suite of models from 1999 to 2009. The performance of the models are then used to derive quasi real time weights that are used to combine the forecasts. Our results indicate that a combination forecast improves upon the point forecasts from individual models. Furthermore, a combination forecast out-performs Norges Bank?s own point forecast for inflation. The beneficial results are obtained using a trimmed weighted average. Some degree of trimming is required for the combination forecasts to out-perform the judgmental forecasts from the policymaker. Length: 34 pages Creation-Date: 2010-12 File-URL: https://www.bi.edu/globalassets/forskning/camp/working-papers/2010/camar_wp_0210.pdf File-Format: Application/pdf Number: No 2/2010 Classification-JEL: E52, E37 E47 Keywords: Forecasting, forecast combination, model versus judgment Handle: RePEc:bny:wpaper:0002 Template-Type: ReDIF-Paper 1.0 Author-Name: Hilde C. Bjørnland Author-Name-First: Hilde C. Author-Name-Last: Bjørnland Author-Email: hilde.c.bjornland@bi.no Author-Person: pbj2 Author-Name: J rn I. Halvorsen Author-Name-First: J rn I. Author-Name-Last: Halvorsen Author-Person: pha481 Title: How does monetary policy respond to exchange rate movements? New international evidence Abstract: This paper analyzes how monetary policy has responded to exchange rate movements in six open economies, paying particular attention to the two-way interaction between monetary policy and the exchange rate. We address this issue using a structural VAR model that is identified using a combination of sign and short-term (zero) restrictions. Our suggested identification scheme allows for a simultaneous reaction between the interest rates and the exchange rate. Doing so we find that, while there is a instantaneous reaction in the exchange rate following a monetary policy shock in all countries, monetary policy responds on impact to an exchange rate shock in only four of the six countries. While this suggests that the exchange rate is not equally important in the interest rate setting in all countries, we find that accounting for a potential interaction is still crucial when identifying monetary policy shocks in open economies structural VARs. Length: 49 pages Creation-Date: 2010-11 File-URL: https://www.bi.edu/globalassets/forskning/camp/working-papers/2010/camar_wp_0110.pdf File-Format: Application/pdf Number: No 1/2010 Classification-JEL: C32, E52, F31, F41 Keywords: Exchange rate, monetary policy, SVAR, Bayesian estimation, sign restrictions. Handle: RePEc:bny:wpaper:0001