Following the Russian invasion of Ukraine on 24 February 2022, financial stress indicators suddenly increased. Using this high-frequency daily information conveyed by financial markets, this column presents a newly developed mixed-frequency quantile regression model in order to quantify macro risks in the euro area for the first quarter of 2022. The authors show that macro downside risks perceived by financial markets in the euro area are about three times higher than those for the US economy.
The Covid-19 recession that hit the French economy was completely non-standard, characterised by an unprecedented and sharp contraction of activity. This column discusses recent findings from the French business cycle dating committee, which show that the recession reached its trough in the second quarter of 2020. Since the third quarter of 2020, the economy has been in a recovery phase, with the majority of commercial sectors experiencing an increase in activity. Nevertheless, past experiences suggest caution about future growth, especially regarding the policy support for economic activity.
See our VoxEU column
What role does the international environment play in shaping US monetary policy decisions? To measure its influence, we construct an international indicator extracted from minutes of Fed monetary policy committee meetings. In a Taylor rule model, we show that the indicator has a significant and negative impact on the fed funds rate. Discussions centred more on the international environment may thus be associated with greater monetary policy easing.
While the UK economy was one of the traditional G7 leaders, UK GDP q-o-q growth stands now below the slowest G7 economy (excluding UK). More worryingly, the global recovery is not beneficial to the British economy, while other G7 countries accelerate.
See our last post on Econbrowser on the global economy.
We had a great workshop at UCL in London, May 12-13, on the role of uncertainties in the global economy. See the summary on Econbrowser.
The 2 keynote speakers gave fantastic talks. Nick Bloom (Stanford) gave a cristal-clear speech on the role of uncertainty on macro and financial variables, while Barbara Rossi (UPF) introduced an approach to disentangle between Knigthian uncertainty and risk based of SPF density forecasts.
Many other papers from researchers from Fed Board, Banque de France, IMF, U. Notre Dame, LSE, Pompeu Fabra, U. Oregaon, U. Padova, U. Chapel Hill … were great, see the program.
We plan to have a special issue in the Journal of International Money and Finance
Special thanks to Svetlana Makarova (UCL) for the great organisation.
In a 2013 WP, David Papell et al. propose to extend standard Taylor rules for the US by allowing parameters to change over time. They assume that changes in parameters are driven by an unobserved Markov-Chain. They point out the response of the FED to inflation is regime dependent. Results show that the usual decomposition of samples between pre and post-Volcker period is not necessarily the best choice.
In May 2013, Ben Bernanke, Chairman of the FOMC, evoked the possible end the FED asset purchases program. The effects on financial conditions in emerging countries were immediate and quite large. In a NBER WP, Aizenman, Binici and Hutchinson (2014) showed that, in opposition to what could be expected, the effects were larger on emerging countries with stronger macro fundamentals (current accounts, reserves, external debt) than on fragile countries. Indeed they observe larger depreciation, larger drops in the stock market and a sharp increase in spreads. Some explanations are provided, including the fact that robust countries received larger inflows during the quantitative years, because of sound domestic financial markets, leading thus to a stronger adjustment afterwards.
Jim Hamilton proposes in an Econbrowser post a regression equation to describe oil prices using a demand factor (copper prices), USD exchange rate and long-term US interest rates. According to model, that accounts mainly for demand side variables, a significant proportion of the decline in oil prices since mid-2014 can be explained.
The Diebold and Yilmaz paper (Economic Journal, 2009) to estimate financial spillovers using variance error decomposition in VAR models