nep-for New Economics Papers
on Forecasting
Issue of 2012‒01‒18
eight papers chosen by
Rob J Hyndman
Monash University

  1. Measuring the economic significance of structural exchange rate models By Mario Cerrato; John Crosby; Muhammad Kaleem
  2. Inflation Dynamics in FYR Macedonia By Maral Shamloo
  3. Forecasting US bond default ratings allowing for previous and initial state dependence in an ordered probit model By Paul Mizen; Serafeim Tsoukas
  4. Predicting swings in exchange rates with macro fundamentals By Shiu-Sheng, Chen
  5. Dynamic Activity Analysis Model Based Win-Win Development Forecasting Under the Environmental Regulation in China By Shiyi Chen; Wolfgang Karl Härdle
  6. The Causal Effect of Cognitive Abilities on Economic Behavior: Evidence from a Forecasting Task with Varying Cognitive Load By Ondrej Rydval
  7. Government Spending, Monetary Policy, and the Real Exchange Rate By Aurélien Eyquem; Hafedh Bouakez
  8. Analyzing existing customers’ websites to improve the customer acquisition process as well as the profitability prediction in B-to-B marketing By D. THORLEUCHTER; D. VAN DEN POEL; A. PRINZIE

  1. By: Mario Cerrato; John Crosby; Muhammad Kaleem
    Abstract: This paper examines both the in-sample and out-of-sample performance of three monetary fundamental models of exchange rates and compares their out-of-sample performance to that of a simple Random Walk model. Using a data-set consisting of five currencies at monthly frequency over the period January 1980 to December 2009 and a battery of newly developed performance measures, the paper shows that monetary models do better (in-sample and out-of- sample forecasting) than a simple Random Walk model.
    Keywords: monetary models, forecasting
    JEL: F31 G10
    Date: 2011–06
  2. By: Maral Shamloo
    Abstract: In this paper we study the dynamics of inflation in Macedonia, provide three forecasting tools and draw some policy conclusions from the quantitative results. We explore three forecasting methods for inflation. We use a Dynamic Factor Model (DFM) for short-term, monthly forecasting. We also develop two quarterly models: A Vector Error Correction Model (VECM), and a New Keynesian Phillips Curve (NKPC) for a more structural model of inflation. The NKPC shows a significant effect of output gap and inflation expectations on current inflation, confirming that the expectations channel of monetary transmission mechanism is strong. In terms of forecast-error variance, we show that all three models do very well in one-period ahead forecasting.
    Keywords: Forecasting models , Inflation , Interest rates , Macedonia, former Yugoslav Republic of , Monetary policy ,
    Date: 2011–12–06
  3. By: Paul Mizen; Serafeim Tsoukas
    Abstract: In this paper, we investigate the ability of a number of different ordered probit models to predict ratings based on firm-specific data on business and financial risks. We investigate models based on momentum, drift and ageing and compare them against alternatives that take into account the initial rating of the firm and its previous actual rating. Using data on US bond issuing firms rated by Fitch over the years 2000 to 2007 we compare the performance of these models in predicting the rating in-sample and out-of-sample using root mean squared errors, Diebold-Mariano tests of forecast performance and contingency tables. We conclude that initial and previous states have a substantial influence on rating prediction.
    Keywords: Credit ratings, probit, state dependence
    JEL: G24 G33 C25 C53
    Date: 2011–08
  4. By: Shiu-Sheng, Chen
    Abstract: This paper investigates fundamentals-based exchange rate predictability from a different perspective. We focus on predicting currency swings (major trends in depreciation or appreciation) rather than on quantitative changes of exchange rates. Having used a nonparametric approach to identify swings in exchange rates, we examine the links between fundamentals and swings in exchange rates using both in-sample and out-of-sample forecasting tests. We use data from 12 developed countries, and our empirical evidence suggests that the uncovered interest parity fundamentals and Taylor rule model with interest rate smoothing are strong predictors of exchange rate swings.
    Keywords: exchange rate swings; fundamentals
    JEL: E31 C22
    Date: 2012–01
  5. By: Shiyi Chen; Wolfgang Karl Härdle
    Abstract: Porter Hypothesis states that environmental regulation may lead to win-win opportunities, that is, improve the productivity and reduce the undesirable output simultaneously. Based on directional distance function, this paper proposes a novel dynamic activity analysis model to forecast the possibilities of win-win development in Chinese Industry between 2009 and 2049. The evidence reveals that the appropriate energy-saving and emission-abating regulation will result in both the improvement in net growth of potential output and the steadily increasing growth of total factor productivity. This favors Porter Hypothesis.
    Keywords: Dynamic Activity Analysis Model, Energy-Saving and Emission-Abating, Environmental Regulation, Win-Win Development
    JEL: D24 O47 Q25 Q32
    Date: 2012–01
  6. By: Ondrej Rydval (Max Planck Institute of Economics, Jena, and CERGE-EI, Charles University Prague and Academy of Sciences of the Czech Republic)
    Abstract: We identify the causal effect of cognitive abilities on economic behavior in an experimental setting. Using a forecasting task with varying cognitive load, we identify the causal effect of working memory on subjects' forecasting performance, while also accounting for the effect of other cognitive, personality and demographic characteristics. Addressing the causality is important for understanding the nature of various decision-making errors, as well as for providing reliable policy implications in contexts such as student placement, personnel assignment, and public policy programs designed to augment abilities of the disadvantaged. We further argue that establishing the causality of cognitive abilities is a prerequisite for studying their interaction with financial incentives, with implications for the design of efficient incentive schemes.
    Keywords: Cognitive ability, Causality, Experiment, Financial incentives, Performance, Working memory
    JEL: C81 C91 D80 D83 J24
    Date: 2012–01–06
  7. By: Aurélien Eyquem (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure de Lyon); Hafedh Bouakez (CIRPEE - Centre interuniversitaire sur le risque, les politiques économiques et l'emploi - Centre Interuniversitaire sur le Risque, les Politiques Economiques et l'Emploi, HEC Montréal - HEC MONTRÉAL)
    Abstract: A robust prediction across a wide range of open-economy macroeconomic models is that an unanticipated increase in public spending in a given country appreciates it currency in real terms. This result, however, contradicts the findings of a number of recent empirical studies, which instead document a signifi...cant and persistent depreciation of the real exchange rate following an expansionary government spending shock. In this paper, we rationalize the findings of the empirical literature by proposing a small-open-economy model that features three key ingredients : incomplete and imperfect international financial markets, sticky prices, and a not-too-aggressive monetary policy. The model predicts that in response to an unexpected increase in public expenditures, the risk-adjusted long-term real interest rate falls, causing the real exchange rate to depreciate. We establish this result both analytically, within a special version of the model, and numerically for the more general case.
    Keywords: Real exchange rate; public spending shocks; small open economy; sticky prices; monetary policy
    Date: 2012–01–03
    Abstract: We investigate the issue of predicting new customers as profitable based on information about existing customers in a business-to-business environment. In particular, we show how latent semantic concepts from textual information of existing customers’ websites can be used to uncover characteristics of websites of companies that will turn into profitable customers. Hence, the use of predictive analytics will help to identify new potential acquisition targets. Additionally, we show that a regression model based on these concepts is successful in the profitability prediction of new customers. In a case study, the acquisition process of a mail-order company is supported by creating a prioritized list of new customers generated by this approach. It is shown that the density of profitable customers in this list outperforms the density of profitable customers in traditional generated address lists (e. g. from list brokers).<br><br> From a managerial point of view, this approach supports the identification of new business customers and helps to estimate the future profitability of these customers in a company. Consequently, the customer acquisition process can be targeted more effectively and efficiently. This leads to a competitive advantage for B2B companies and improves the acquisition process that is time- and cost-consuming with traditionally low conversion rates.
    Keywords: B-to-B marketing, Text Mining, Web Mining, Acquisition, SVD
    Date: 2011–08

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