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on Forecasting |
| By: | Svensson, Lars E.O.; Williams, Noah |
| Abstract: | We examine optimal and other monetary policies in a linear-quadratic setup with a relatively general form of model uncertainty, so-called Markov jump-linear-quadratic systems extended to include forward-looking variables. The form of model uncertainty our framework encompasses includes : simple i.i.d. model deviations; serially correlated model deviations; estimable regimeswitching models; more complex structural uncertainty about very different models, for instance, backward- and forward-looking models; time-varying central-bank judgment about the state of model uncertainty; and so forth. We provide an algorithm for finding the optimal policy as well as solutions for arbitrary policy functions. This allows us to compute and plot consistent distribution forecasts–fan charts–of target variables and instruments. Our methods hence extend certainty equivalence and “mean forecast targeting” to more general certainty non-equivalence and “distribution forecast targeting.” |
| Keywords: | Optimal policy, multiplicative uncertainty |
| JEL: | E42 E52 E58 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:4229&r=for |
| By: | Monika Piazzesi; Eric T. Swanson |
| Abstract: | Many researchers have used federal funds futures rates as measures of financial markets' expectations of future monetary policy. However, to the extent that federal funds futures reflect risk premia, these measures require some adjustment. In this paper, we document that excess returns on federal funds futures have been positive on average and strongly countercyclical. In particular, excess returns are surprisingly well predicted by macroeconomic indicators such as employment growth and financial business-cycle indicators such as Treasury yield spreads and corporate bond spreads. Excess returns on eurodollar futures display similar patterns. We document that simply ignoring these risk premia significantly biases forecasts of the future path of monetary policy. We also show that risk premia matter for some futures-based measures of monetary policy shocks used in the literature. |
| Keywords: | Federal funds rate ; Federal funds market (United States) ; Monetary policy |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2006-23&r=for |
| By: | Beckmann, Daniela; Menkhoff, Lukas; Sawischlewski, Katja |
| Abstract: | Early warning systems (EWSs) are subject to restrictions that apply to exchange rates in general: fundamentals matter but their influence is small and unstable. Keeping this in mind, five lessons emerge : First, EWSs have robust forecasting power and thus help policy-makers to prevent crises. Second, among competing crisis definitions there is one which is most practical. Third, take a logit model to condense information from various fundamental variables. Fourth, add a regional contagion dummy to the standard set of variables. Fifth, one may be tempted to address instability over time and countries by taking shorter samples and regional EWSs. |
| Keywords: | early warning system, currency crises, emerging markets |
| JEL: | F31 F33 F37 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:gdec05:3476&r=for |