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on Forecasting |
| By: | Eraslan, Sercan; Schröder, Maximilian |
| Abstract: | We propose a novel time-varying parameters mixed-frequency dynamic factor model which is integrated into a dynamic model averaging framework for macroeconomic nowcasting. Our suggested model can efficiently deal with the nature of the real-time data flow as well as parameter uncertainty and time-varying volatility. In addition, we develop a fast estimation algorithm. This enables us to generate nowcasts based on a large factor model space. We apply the suggested framework to nowcast German GDP. Our recursive out-of-sample forecast evaluation results reveal that our framework is able to generate forecasts superior to those obtained from a naive and more competitive benchmark models. These forecast gains seem to emerge especially during unstable periods, such as the Great Recession, but also remain over more tranquil periods. |
| Keywords: | dynamic factor model,forecasting,GDP,mixed-frequency,model averaging,time-varying-parameter |
| JEL: | C11 C32 C51 C52 C53 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:412019&r=all |
| By: | Gogas, Periklis (Democritus University of Thrace, Department of Economics); Papadimitriou, Theophilos (Democritus University of Thrace, Department of Economics); Sofianos, Emmanouil (Democritus University of Thrace, Department of Economics) |
| Abstract: | The issue of whether or not money affects real economic activity (money neutrality) has attracted significant empirical attention over the last five decades. If money is neutral even in the short-run, then monetary policy is ineffective and its role limited. If money matters, it will be able to forecast real economic activity. In this study, we test the traditional simple sum monetary aggregates that are commonly used by central banks all over the world and also the theoretically correct Divisia monetary aggregates proposed by the Barnett Critique (Chrystal and MacDonald, 1994; Belongia and Ireland, 2014), both in three levels of aggregation: M1, M2, and M3. We use them to directionally forecast the Eurocoin index: A monthly index that measures the growth rate of the euro area GDP. The data span from January 2001 to June 2018. The forecasting methodology we employ is support vector machines (SVM) from the area of machine learning. The empirical results show that: (a) The Divisia monetary aggregates outperform the simple sum ones and (b) both monetary aggregates can directionally forecast the Eurocoin index reaching the highest accuracy of 82.05% providing evidence against money neutrality even in the short term. |
| Keywords: | Eurocoin; simple sum; Divisia; SVM; machine learning; forecasting; money neutrality |
| JEL: | E00 E27 E42 E51 E58 |
| Date: | 2019–07–05 |
| URL: | http://d.repec.org/n?u=RePEc:ris:duthrp:2016_004&r=all |
| By: | Suss, Joel (Bank of England); Treitel, Henry (Bank of England) |
| Abstract: | Using novel data and machine learning techniques, we develop an early warning system for bank distress. The main input variables come from confidential regulatory returns, and our measure of distress is derived from supervisory assessments of bank riskiness from 2006 through to 2012. We contribute to a nascent academic literature utilising new methodologies to anticipate negative firm outcomes, comparing and contrasting classic linear regression techniques with modern machine learning approaches that are able to capture complex non-linearities and interactions. We find the random forest algorithm significantly and substantively outperforms other models when utilising the AUC and Brier Score as performance metrics. We go on to vary the relative cost of false negatives (missing actual cases of distress) and false positives (wrongly predicting distress) for discrete decision thresholds, finding that the random forest again outperforms the other models. We also contribute to the literature examining drivers of bank distress, using state of the art machine learning interpretability techniques, and demonstrate the benefits of ensembling techniques in gaining additional performance benefits. Overall, this paper makes important contributions, not least of which is practical: bank supervisors can utilise our findings to anticipate firm weaknesses and take appropriate mitigating action ahead of time. |
| Keywords: | Machine learning; bank distress; early warning system |
| JEL: | C14 C33 C52 C53 G21 |
| Date: | 2019–10–04 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0831&r=all |
| By: | Taiebat, Morteza; Stolper, Samuel; Xu, Ming |
| Abstract: | Connected and automated vehicles (CAVs) are expected to yield significant improvements in safety, energy efficiency, and time utilization. However, their net effect on energy and environmental outcomes is unclear. Higher fuel economy reduces the energy required per mile of travel, but it also reduces the fuel cost of travel, incentivizing more travel and causing an energy “rebound effect.” Moreover, CAVs are predicted to vastly reduce the time cost of travel, inducing further increases in travel and energy use. In this paper, we forecast the induced travel and rebound from CAVs using data on existing travel behavior. We develop a microeconomic model of vehicle miles traveled (VMT) choice under income and time constraints; then we use it to estimate elasticities of VMT demand with respect to fuel and time costs, with fuel cost data from the 2017 United States National Household Travel Survey (NHTS) and wage-derived predictions of travel time cost. Our central estimate of the combined price elasticity of VMT demand is -0.4, which differs substantially from previous estimates. We also find evidence that wealthier households have more elastic demand, and that households at all income levels are more sensitive to time costs than to fuel costs. We use our estimated elasticities to simulate VMT and energy use impacts of full, private CAV adoption under a range of possible changes to the fuel and time costs of travel. We forecast a 2-47% increase in travel demand for an average household. Our results indicate that backfire – i.e., a net rise in energy use – is a possibility, especially in higher income groups. This presents a stiff challenge to policy goals for reductions in not only energy use but also traffic congestion and local and global air pollution, as CAV use increases. |
| Date: | 2019–04–17 |
| URL: | http://d.repec.org/n?u=RePEc:osf:lawarx:dk6qv&r=all |