Miguel Angel Santos was interviewed on CNN’s Global Portfolio where he shared his analysis of the economic crisis in Venezuela.
Master’s alum Miguel Angel Santos was interviewed on CNN’s Global Portfolio where he shared his analysis of the economic crisis in Venezuela. From his post on LinkedIn:
“The collapse of Venezuela has a magnitude never before seen: it is the only country in the top ten of falls in GDP in five years in history (ninth, 45%), of falls in imports (third, 75%), and is also projected as one of the most intense hyperinflations in history, comparable only to Germany and Zimbabwe. There is no country on those three lists which has suffered collapses in imports, production, and hyperinflation at this level of intensity. It’s unprecedented.”
George Bangham (Economics of Public Policy ’17) is an economic researcher at the Resolution Foundation, a London-based think-tank that carries out research and policy analysis to improve the living standards of people in the UK on low and middle incomes.
George Bangham (Economics of Public Policy ’17) is an economic researcher at the Resolution Foundation, a London-based think-tank that carries out research and policy analysis to improve the living standards of people in the UK on low and middle incomes. In recent years the Foundation has been influential in advocating for a living wage and for policymakers to consider the intergenerational impact of public policy. George’s own work focuses on labour markets and social security policy, with his recent publications covering issues from working hours to tax reform.
One of his recent papers, “The new wealth of our nation: the case for a citizen’s inheritance,” has received international attention in the media and was featured in an article in La Vanguardia newspaper this May.
The Intergenerational Commission has identified two major trends affecting young adults today, beside the weak performance of their incomes and earnings, which barely featured in political debate for much of the 20thcentury. The first is that risk is being transferred from firms and government to families and individuals, in their jobs, their pensions and the houses they live in. The second is that assets are growing in importance as a determinant of people’s living standards, and asset ownership is becoming concentrated within older generations – on average only those born before 1960 have benefited from Britain’s wealth boom to the extent that they have been able to improve on the asset accumulation of their predecessors. Both trends risk weakening the social contract between the generations that the state has a duty to uphold, as well as undermining the notion that individuals have a fair opportunity to acquire wealth by their own efforts during their working lives.
This paper, the 22nd report for the Intergenerational Commission, makes the case for the UK to adopt a citizen’s inheritance – a universal sum of money made available to every young person when they reach the age of 25 to address some of the key risks they face – as a central component of a policy programme to renew the intergenerational contract that underpins society.
Policy recommendations from the report:
From 2030, citizen’s inheritances of £10,000 should be available from the age of 25 to all British nationals or people born in Britain as restricted-use cash grants, at a cost of £7 billion per year.
To reflect the experiences of those who entered the labour market during and since the financial crisis, and to minimise cliff edges between recipients and non-recipients, the introduction of citizen’s inheritances should be phased in, starting with 34 and 35 year olds receiving £1,000 in 2020. Each subsequent year, citizen’s inheritance amounts should then rise and be paid to younger groups, until the policy reaches a steady-state in 2030 when it is paid to 25 year olds only from then on.
The citizen’s inheritance should have four permitted uses: funding education and training or paying off tuition fee debt; deposits for rental or home purchase; investment in pensions; and start-up costs for new businesses that are also being supported through recognised entrepreneurship schemes.
The citizen’s inheritance should be funded principally by the new lifetime receipts tax, with additional revenues from terminating existing matched savings schemes – the Help to Buy and Lifetime ISAs.
We’ve just come across some articles written by several Barcelona GSE Alumni who are now Research Assistants and Economists at Caixabank Research in Barcelona. New articles are published each month on a range of topics.
Below is a list of all the alumni we found listed as article contributors, as well as their most recent publications in English (click each author to view his or her full list of articles in English, Catalan, and Spanish).
If you’re an alum and you’re also writing about Economics, let us know where we can find your stuff!
Gerard Arqué (Master’s in Macroeconomic Policy and Financial Markets ’09)
Editor’s note: In this post, Federica Daniele (Economics ’13 and PhD candidate at UPF-GPEFM) shares a summary of her paper, “The Implications of Declining Firm-Level Uncertainty for Consumption Variety and Cities,” which has won the 2017 UniCredit & Universities Economics Job Market Best Paper Award. She also offers some advice to aspiring PhD students in the Barcelona GSE Master’s programs.
There is something alarming about the direction in which firm dynamics have been changing over the course of the last decades. Today it’s much rarer to encounter firms that undergo large up/downsizings than it used to be in the past: in other words, firms have become more tied to their rank in the firm size distribution. This has been of concern for many economists, who see this happening jointly with a slowdown in aggregate productivity growth and competitiveness. Being aware that the question on the drivers behind this trend and its consequences was still open to debate, coupled with an interest for entrepreneurship, is what pushed me to dive into this topic to better our understanding of the issue in my paper, “The Implications of Declining Firm-Level Uncertainty for Consumption Variety and Cities.”
An explanation for the decline in business dynamism consistent with the data is that technological change has caused the degree of idiosyncratic uncertainty that firms routinely face about their chances to grow to go down. This implies that today most of the return from starting a firm is determined by its initial (in)success as opposed to luck in the development of the business over its life-cycle. Based on evidence drawn from data on the universe of German establishments, in the paper I argue that a reduction in firm-level uncertainty is consistent with lower incentives for potential entrepreneurs to start a new business. My paper offers a new insight into the literature on the role of uncertainty for economic activity: some degree of uncertainty is beneficial, because – by unlocking the opportunity for a given firm to grow large out of fortuitous events (such as a favourable demand turn) – it encourages entrepreneurship. In this sense, my paper provides a defence of the classical argument by Frank Knight according to which risk-taking is a characterising feature of entrepreneurship.
A deficit in the growth rate of the stock of establishments triggered by a decline in firm-level uncertainty is cause of concern for multiple reasons. In my paper, I investigate the importance of two dimensions: first of all, the fact that consumers get to consume a less wide variety of goods than otherwise; and secondly, the fact that, being the loss in entrepreneurship larger in big cities, fewer consumers find appealing to move to large cities than otherwise, thus diminishing the extent of positive spillovers due to higher urban density. Another outcome of interest would have been, for example, the process of innovation within an industry.
All in all, the contribution of this paper consists of assessing both empirically and theoretically novel long-run consequences on economic activity of declining firm-level uncertainty.
Advice for future PhD students
I think Barcelona GSE masters students who are considering going the PhD / academic career route should be strategic. There is no harm in taking one year to do some exploratory work, working as RA, for example, for some good professor, if that buys the time to figure out what kind of research best matches your interests, in which institution you would feel better fulfilled, or whether academia suits you at all.
In the end, if you choose to pursue the academic route, you will have most certainly achieved a better match with the institution/supervisor, and spared a lot of time later on during the course of the PhD, which you can instead dedicate to producing research of good quality.
But even if you decide that academia is not for you, the value of the investment will still be positive, as experimenting early during one’s working career is much less costly than doing it later.
“Just when we thought we had all the answers, all the questions changed.” Mario Benedetti
That was my reaction when the 6th Lindau Meeting in Economic Sciences concluded. This meeting occurs every two years and gathers several Nobel Laureates and young economists (graduate students and assistant professors) from around the world. This meeting is certainly the most inspiring academic event I have ever attended.
The meeting took place in the beautiful town of Lindau, next to Lake Constance, in southern Germany between August 22nd and August 27th. During these days, we attended lectures from 18 Nobel laureates in Economics on a wide range of topics: bounded rationality, investment management, pension design, monetary policy, labor markets, morality and markets, political systems, innovation, and econometrics. I will not attempt to summarize these great lectures but all of them were recorded and are available on this link.
I would rather focus these lines on the interactions that occurred outside the “classroom”. Every day the program included lectures, lunch, seminar presentation panel discussions, and dinner.
The first lecture was given by Daniel McFadden, and besides the content, something really caught my attention. In the first row of the room (it was actually a theater) you could see the other Nobel Laureates. All were carefully listening to the speaker! They seemed like young students paying attention to an important professor. So the first lesson from this meeting was that we, as researchers, should actively embrace our academic curiosity.
Over lunch, I had the first opportunity to talk to a Nobel Laureate. I was sitting with some friends I just met and were talking about each others’ research. At some point, Bengt Holmstrom asked: “Would you mind if I join you?” We welcomed him, and seconds later he started asking us about our research interests. He soon realized that all of us were doing empirical work and said: “I am the only theorist in this table!”
He listened to all of us, asked some questions (some of them were hard to answer) and even gave us some advice. I was able to confirm that these brilliant economists have a special talent to listen to others, even if they are PhD students struggling with their papers. He was very generous with his time and recommended us to work hard but only on topics that we really cared about. He also advised us not to focus on publishing papers but instead on gaining respect from our peers through our work.
Hours later, I had the chance to sit on the table with Eric Maskin for dinner. He told us about the day he received the call from Stockholm and found out he won the Nobel prize. Then, we talked about US politics, big data, increasing co-authorship in economic journals, and other current issues in academia. As you can imagine, when you are sitting next to a Nobel Laureate you get the feeling that you can ask him any question. Well, these questions (some of them unrelated to economics) arrived and Maskin, very modestly, said : “I know very little about this particular topic, so I cannot have an informed opinion. In fact, you should know that one wins the Nobel prize, not because you know everything, but because you specialize in certain specific topics”. His reaction really impressed me but he was right. He could not be an expert in every topic and he acknowledged it. How many times do we feel the need to have an opinion on everything? The second lesson from this meeting is that we must always acknowledge our limitations and be humble enough to don’t give uninformed opinions.
One of the big questions most PhD students have is the following: where do great ideas come from? Tirole, Hart and Holmstrom provided some light on this issue and their advice was the third lesson. Tirole said two great sources of ideas were talking to people around you (his office was next to Hart’s) and to people outside the academia (practitioners, policy makers and business men). He encouraged us to talk to practitioners because they are facing the real problems we must address, that they have many important questions that remained unanswered and deserve our attention. Holmstrom said that the idea of his well-known model of career concerns (one of the reasons he was awarded with the Nobel prize) came when he has working in a plant in Finland, and had some problems with his manager. He then went to do his PhD and wrote a model to explain the behavior of this manager. In addition, he recommended us to become experts in the literature of our field of interest, not to follow it but to depart from it. After this, Hart said that working with Holmstrom and Tirole was a great way to find ideas. He also suggested us that when doing theoretical work, we should keep models as simple as possible.
James Heckman’s lecture was about the identification problem in econometrics. He was the most enthusiastic person I have ever seen giving an econometrics lecture. And this enthusiasm was quite contagious. Even though he was talking about highly technical and complex conditions for a new interpretation of Instrumental Variable (IV) estimates, I was surprisingly able to follow his lecture and understand the contribution he was making. Or, at least that’s the impression I had. That same day, we had a Bavarian dinner at night, with traditional music, food, and of course, beer. This was the last night of the event and the time to say good-bye to other fellow economists.
After some drinks, I decided to walk back to my hotel, located around 50-minutes away from the place we had dinner. On my way, I ran into Heckman, who seemed a bit confused. He had been walking with other young economists and then he was not sure where to go. I approached him and we realized we had to walk in the same direction. This was quite a unique and unexpected opportunity to talk about his lecture. So I started with my questions and he replied to all of them with great patience and enthusiasm. I could confirmed I had actually understood his lecture. Then, we started talking about the rapid increase in data availability and how big data should influence econometrics. He also told me good stories about his last trip to Barcelona and Peru. Eventually, we arrived at the hotel and said good-bye. This great conversation was the fourth lesson: we should remain enthusiastic even after years of dealing (doing research or teaching) with the same subject.
The fifth lesson is that these people seem very happy doing their jobs. Yes, I know, they are Nobel Laureates, they have already accomplished important professional goals. But it is still surprising how much they enjoy doing research. During lunch time or dinner, when we were able to talk to them more informally, people would usually ask: Which are the questions we should tackle? What fields are relevant now? Most Nobel Laureates seemed to share the view that the relevant questions are the ones you really care about. And if they actually work according to this view, it is not that hard to understand why they look like if they were having fun all the time.
When I was heading to this meeting, I had a lot of questions in my mind and thought the meeting would be an ideal place to get answers. During the meeting, some of my questions were being answered but later I realized that getting answers was not so important. Once the meeting was over, I realized all the lessons I took from it were unexpected. I had misunderstood the purpose of this meeting. I should have not come to the meeting looking for answers. I should have come looking for questions. These highly talented economists are Nobel Laureates precisely because they are extremely good at raising questions. Questions that open new streams of work. Questions that people had overlooked but that deserve careful thinking and attention. Now, two months after the meeting, I realize that all the questions raised by these Nobel Laureates are the reason why this event was so inspiring. Because in research that’s what keeps us working: Questions!
 I am thankful to the Marie Sklodowska-Curie Fellowship (through the PODER network) for sponsoring my participation in the meeting.
Before McFadden’s lecture, there was a keynote address by Mario Draghi, president of the European Central Bank.
Marc de la Barrera ’17 shares some advice from his recent experience as a student in the Barcelona GSE Economics Program.
At the welcome event for new students on September 26, alum Marc de la Barrera ’17 shared some advice from his recent experience as a student in the Barcelona GSE Economics Program.
Here is the text of his speech (see if you can spot all the references to a certain television series…)
Dear BGSE students, staff, professors and friends,
I am very happy to be here giving this speech, remembering myself just one year ago sitting in your place. By that time I was an engineer starting an Economics Master, both amused but nervous for digging in a new field. “You know nothing, Marc Barrera”, I keept saying to myself. One year later, at least I can say I know something.
In the Economics Master, I learnt to play with macroeconomic models, how to gather valuable information from data, and to understand how we take decisions. Also that asking the right question is almost as important as finding the answer. I remember me having troubles understanding the “risk free rate” concept. How is it possible that you get a return on your money for sure? Then someone told me that America always pays its debts. Well, they assume they do, I don’t know if now they are so confident with its new administration. Those in data science will learn that information is power, while these of you taking political economy classes will argue that power is power. For competition ones… well, competition is lack of power. And no matter which master you are enrolled in, you are going to meet, John Maynard Keynes, 1st Baron Keynes, Companion of the Order of the Bath, Fellow of the British Academy and father of modern economics.
I hope you are enjoying your time here, nice weather, meeting new people every day, no pressure… But summer will not last forever. Soon you will realize that winter is coming, and with them, exams. And remember that when exams come and problem sets appear, the lone student dies but the pack survives. Everyone has its studying style, but I deeply encourage you form teams and work altogether. You are here, hence you are all very intelligent, I have no doubt about that, but there is a problem… Your professors more. You will need to merge several minds to solve one problem. You have different backgrounds, someone will be very strong in formal math, others might excel at economic intuition, and others will know coding. These three aspects, and many others, are needed to succed all the masters at BGSE.
But it is not only what I learnt that made last year special, it was the experiences I lived and more importantly, the people I meet. I want to make use of this privilaged attention I have, to encourage BGSE to do more activities outside the academic environment, at the same time that I congratulate them for the ones they are currently performing. Butifarrada, football tournamen, sky trip, fideuà… Go to as many events as you can, if not all. Defying all economic laws, this events provide one thing that economists belief do not exist: “free lunch” (just ignore the tuition fees).
Then the people. You will get in touch with many people from many nationalities, such opportunity must be taken. But is not only the cultural exchange what matters. Feelings, frienship will arise. Some cuples will form with probability one. Networking to get opportunities, information or new jobs is fine, but spending time with people you like and appreciate, is better.
>And finally the faculty. Their level is extraordinary, make the most of them. Not only during the class, they are here to help and guide you. I might have abused of their kindness last year, but every professor and staff member I asked to see, whether for a technical doubt regarding the notes, to more fundamental and vital questions like “should I do a PhD”, received me and helped me as much as they could. Luckily you don’t have to send a raven, although we have more pidgeons here, an e-mail should work. The objective of the faculty is to make the most of you, so let them help.
Whether you stay in Bellaterra at UAB or in the Citadel Campus at UPF, it is time to go beyond the wall. After the master the research frontier will be near, and some of you, like me, will opt to go further, to the unexplored. Those who opt for a professional career, maybe we will make it to the World Economic Forum in Davos.
Congratulations for being admitted to your program. This year will be a great year: you will learn economics, meet people, and discover cultures. I hope that the first weeks have been pleasant, and get ready to work hard, because as bodybuilders say, “no pain, no gain”.
By Tomas Williams (Economics ’12, GPEFM ’17), Assistant Professor of International Finance at George Washington University in Washington, DC.
Tomas Williams (Economics ’12, GPEFM ’17) is Assistant Professor of International Finance at George Washington University in Washington, DC. His paper, “International Asset Allocations and Capital Flows: The Benchmark Effect” (with Claudio Raddatz, Central Bank of Chile and Sergio Schmukler, World Bank Research Group) is forthcoming at the Journal of International Economics.
International Asset Allocations and Capital Flows: The Benchmark Effect
As financial intermediaries such as open-end funds with benchmark tracking grow in importance around the world, the issue of which countries belong to relevant international benchmark indexes (such as the MSCI Emerging Markets) has generated significant attention in the financial world (Financial Times, 2015). The reason is that the inclusion/exclusion of countries from widely followed benchmarks has implications for the allocation of capital across countries. As institutional investors become more passive, they follow benchmark indexes more closely. These benchmark indexes change over time, as index providers reclassify countries, implying that investment funds have to re-allocate their portfolio among the countries they target. The capital flows generated by these portfolio re-allocations are important since worldwide open-end funds that follow a few well-known stock and bond market indexes manage around 37 trillion U.S. dollars in assets (ICI, 2016). These changes in benchmark indexes can produce unexpected effects in international capital flows, linked to how financial markets work, not necessarily to economic fundamentals.
One clear example of these counterintuitive reallocations happened when MCSI announced in 2009 that it would upgrade Israel from emerging to developed market status, moving it from the MSCI Emerging Markets (EM) Index to the World Index. When the upgrade became effective in May 2010, Israel faced equity capital outflows of around 2 billion dollars despite its better status (Figure 1 below, click image to enlarge). The reason is that Israel became a smaller fish in a bigger pond. Israel’s weight in the MSCI EM Index decreased from 3.17 to 0, while it increased from 0 to 0.37 in the MSCI World Index. Israeli stocks in the MSCI index fell almost 4 percent in the week of the announcement and significantly underperformed the stocks not included in the index. The week prior to the effective date (when index funds rebalanced their portfolio) there was a 4.2 percent drop in the MSCI Israel Index, versus a 1.5 fall in the Israeli stocks outside the index.
The effects of index reclassifications go beyond the countries and asset classes being specifically targeted. Spillovers could occur to other countries that share a certain benchmark with countries affected by reclassifications. A clear example of this is the upgrade in June 2013 of Qatar and United Arab Emirates (UAE) from the MSCI Frontier Markets (FM) Index to the MSCI EM Index. Together, these two countries were around 40 percent of the MSCI FM Index before the reclassification. When this reclassification took place, funds tracking closely the MSCI FM Index had to sell securities from these two countries and use the money to invest in the rest of the countries in the MSCI FM Index. This resulted in significant capital inflows and stock market price increases in countries such as Nigeria, Kuwait, and Pakistan (Figure 2, click image to enlarge).
These movements in financial markets have led to speculations and market movements related to potential new reclassifications. One recent and prominent example is that of China. For the past two years, MSCI delayed numerous times the introduction of China A-shares as a part of the MSCI Emerging Markets. Finally, in June 2017, they confirmed the inclusion of only a fraction of these stocks, creating capital inflows into the Chinese stock markets, and increases in stock prices (Financial Times, 2017). Chinese sovereign bonds may see similar capital inflows if J.P. Morgan, Citibank and Barclays decide to add China into their flagship bond indexes (CNBC, 2017).
In a recent study (Raddatz et al., 2017), we systematically document these benchmark effects, showing the various channels through which prominent international equity and bond market indexes affect asset allocations, capital flows, and asset prices across countries. Benchmarks have statistically and economically significant effects on the allocations and capital flows of mutual funds across countries. For example, a 1 percent increase in a country’s benchmark weight results on average in a 0.7 percent increase in the weight of that country for the typical mutual fund that follows that benchmark. These benchmark effects on the mutual fund portfolios are relevant even after controlling for time-varying industry allocations and country-specific or fundamental factors. Exogenous events that modify benchmark indexes affect benchmark weights. Furthermore, asset prices move both during the announcement and effective dates of the benchmark changes in response to the capital movements.
Academics, financial institutions, and policy makers have already started paying attention to the potential effects of benchmarks on capital flows and asset prices, as well as on herding, momentum, and risk taking (BIS, 2014; Arslanalp and Tsuda, 2015; IMF, 2015, Shek et al., 2015; Vayanos and Woolley, 2016). More work in this area would be welcomed as passive investing continues expanding.
Arslanalp, S., Tsuda, T., 2015. Emerging Market Portfolio Flows: The Role of Benchmark-Driven Investors. IMF Working Paper 15/263, December.
BIS, 2014. International Banking and Financial Market Developments. BIS Quarterly Review.
CNBC, 2017. Chinese Stocks got their Global Stamp of Approval, and now Bonds may be next.
Financial Times, 2015. Emerging Market Investors Dominated by Indices. August 4.
Financial Times, 2017. China Stocks Set for $500bn Inflows after MSCI Move. June 21.
ICI, 2016. Investment Company Institute: Annual Factbook.
IMF, 2015. Global Financial Stability Report.
MSCI, 2016. Potential Impact on the MSCI Indexes in the Event of the United Kingdom’s Exit from the European Union (“Brexit”). June.
Raddatz, C., Schmukler, S., Williams, T., 2017. International Asset Allocations and Capital Flows: The Benchmark Effect. Working Papers 2017-XX, The George Washington University, Institute for International Economic Policy.
Shek, J., Shim, I., Shin H.S., 2015. Investor Redemptions and Fund Manager Sales of Emerging Market Bonds: How Are They Related? BIS Working Paper 509.
Vayanos, D., Woolley, P., 2016. Curse of the Benchmarks. LSE Discussion Paper 747.
Wall Street Journal, 2014. Colombia Wins Investors’ Favor – And That’s the Problem. August 13.
I am an Assistant Professor of International Finance at George Washington University in Washington, D.C. My main fields of research are International Finance, Financial Economics and Empirical Banking. I have a special interest on financial intermediaries and how they affect international capital flows and economic activity. More specifically, I have been working on how the use of well-known benchmark indexes by financial intermediaries affects both financial markets and real economic activity.
More personally, I grew up in Buenos Aires, and studied economics at Universidad del CEMA. Afterwards, I moved to Barcelona and completed the Master’s Degree in Economics and Finance (Economics Program) at Barcelona GSE. Later on, I received my Ph.D. in Economics and Finance from Universitat Pompeu Fabra. I also spent one year as a visiting doctoral student in the Financial Markets Group (FMG) at the London School of Economics and Political Science.
ITFD alum Mihai Patrulescu ’10 analyzes the Romanian market in an article for Emerging Europe.
“Over the past three years, the Romanian economy has recorded some of the fastest growth rates in the European Union, helped by a rapid expansion of consumer spending,” he writes. “During this period, retail sales have benefited from what can be considered as a perfect storm of growth catalysts.”
Mihai has joined Colliers International in October 2016 as Head of Strategic Analysis. Prior to this position, Mihai coordinated the economic research activities of UniCredit Romania, working for the bank between 2012 and 2016. During this period, he has focused on the Romanian economy as well as the CEE region, along with the banking system and financial markets. Prior to UniCredit, Mihai also worked as a research economist for Bancpost, the Romanian subsidiary of EFG Eurobank.
During 2015/2016, Mihai was seconded on assignment to the Milan Headquarters of UniCredit, working as a management consultant on the implementation of the bank’s strategic plan.
Mihai holds a Master’s in International Trade, Finance and Development from the Barcelona Graduate School of Economics. During his academic undertakings, he has focused on economic crises in emerging markets, and particularly their impact on financial systems. Mihai also holds a Bachelor degree from the Academy of Economic Studies in Bucharest.
In this post, Sascha Buetzer ’11 (Macro) shares his experience of giving a talk at TEDx Gothenburg.
Barcelona GSE Macroeconomics and Financial Markets alum Sascha Buetzer ’11 is currently a PhD candidate in Economics at the University of Munich. After starting his career at the European Central Bank, he has been working as an economist in the International Monetary Affairs Division at the Deutsche Bundesbank, primarily in an advisory role for the German executive director at the International Monetary Fund.
In this post, Sascha shares his experience of giving a talk at TEDx Gothenburg in November 2016. The video is included below.
Last November I was given the unique opportunity to present my ideas to an audience that usually doesn’t get to hear much about the inner workings of the financial system and central banking. At the TEDx Conference “Spectrum” in Gothenburg, Sweden, I was one of 10 speakers who were given not more than 20 minutes to convey an “idea worth spreading.”
My talk centered around how money is created in a modern economy and what can be done to improve upon this process, in particular in the context of the euro crisis. Quite a challenge, as it turned out, given the short amount of time and the need to keep things understandable and entertaining since most of the audience did not have an economic background.
It was, however, an extremely exciting and rewarding experience.
After getting in touch with the organizers through a chance encounter at the Annual Meeting of the Asian Development Bank (ADB) last year, all speakers got an individually assigned coach who provided excellent feedback and recommendations for the talk.
The day of the conference itself was thoroughly enjoyable (at least after the initial rush of adrenaline had subsided). It was fascinating to interact with people from widely varying backgrounds that all shared a natural curiosity and desire to learn from each other. And at the end of the day it felt great for having been able to contribute to this, by providing people with insight into a topic so important, yet so little-known.
Greg Ganics (Economics ’12 and PhD candidate at UPF-GPEFM) provides a non-technical summary of his job market paper, which has won the 2016 UniCredit & Universities Economics Job Market Best Paper Award.
After the recent Great Recession, major economies found themselves in a situation with low interest rates and fragile economic growth. This combination, along with major political changes in key countries (the US and the UK) makes forecasting more difficult and uncertain. As a consequence, policy makers and researchers have become more interested in density forecasts, which provide a measure of uncertainty around point forecasts (for a non-technical overview of density forecasts, see Rossi (2014)). This facilitates communication between researchers, policy makers, and the wider public. Well-known examples include the fan charts of the Bank of England, and the Surveys of Professional Forecasters of the Philadelphia Fed and the European Central Bank.
Forecasters often use a variety of models to generate density forecasts. Naturally, these forecasts are different, and therefore researchers face the question: how shall we combine these predictions? While there is an extensive literature on both the theoretical and practical aspects of combinations of point forecasts, our knowledge is rather limited about how density forecasts should be combined.
In my job market paper “Optimal density forecast combinations,” I propose a method that answers this question. My main contribution is a consistent estimator of combination weights, which could be used to produce a combined predictive density that is superior to the individual models’ forecasts. This framework is general enough to include a wide range of forecasting methods, from judgmental forecast to structural and non-structural models. Furthermore, the estimated weights provide information on the individual models’ performance over time. This time-variation could further enhance researchers’ and policy makers’ understanding of the relevant drivers of key economic variables, such as GDP growth or unemployment.
Macroeconomists in academia and at central banks often pay special attention to industrial production, as this variable is available at the monthly frequency, therefore it can signal booms and busts in a timely manner. In an empirical example of forecasting monthly US industrial production, I demonstrate that my novel methodology delivers density forecasts which outperform well-known benchmarks, such as the equal weights scheme. Moreover, I show that housing permits had valuable predictive power before and after the Great Recession. Furthermore, stock returns and corporate bond spreads proved to be useful predictors during the recent crisis, suggesting that financial variables help with density forecasting in a highly leveraged economy.
The methodology I propose in my job market paper can be useful in a wide range of applications, for example in macroeconomics and finance, and offers several avenues for further research, both theoretical and applied.
Ganics, G. (2016): Optimal density forecast combinations. Job market paper
Rossi, B. (2014): Density forecasts in economics and policymaking. Els Opuscles del CREI, No. 37
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