Saturday, August 29, 2015

New CEA Overview of GDO

The U.S. Council of Economic Advisors has a nice new review of "Gross Domestic Output" (GDO), a simple average of expenditure- and income-side GDP estimates now published by the BEA.

In an earlier post I wrote rather negatively about GDO as compared to GDPplus, which is an optimally-weighted blend rather than a simple average. (See the FRB Philadelphia GDPplus site and the corresponding Aruba et al. paper available there.) My view has not changed.

But I want to be very clear about one thing: Quite apart from whether GDO is as accurate as GDPplus, GDO is surely much, much more accurate than standard expenditure-side GDP alone, or income-side GDP alone. Just look at Figure 2 and the surrounding discussion here. (in X. Chen and N. Swanson, eds., Causality, Prediction, and Specification Analysis: Recent Advances and Future Directions, Essays in Honor of Halbert L. White Jr., Springer, 2013, 1-26).

As I said in the above-mentioned earlier post (but alas, burried at the end):
I applaud the BEA's new averaged GDP. If it's not at the cutting edge, it's nevertheless much superior to the standard approach of doing nothing ... and it's an official acknowledgment of the wastefulness of doing so. Hence it's a significant step in the right direction. Hopefully its publication by BEA will nudge people away from uncritical and exclusive reliance on expenditure-side GDP. 
So here's to GDO.

[By the way, speaking of the Hal White volume, the introductory chapter is marvelous, filled with wonderful memories of Hal's career and insights into his research. You must read his description of his career path leading to UCSD, pp. vii-xi in the gray box.]

Wednesday, August 26, 2015

Monday, August 24, 2015

The Superiority of Economists

The title of this post is the title of a newish paper by Marion Fourcade (Berkeley), Etienne Ollion (Strasbourg), and Yann Algan (Sciences Po, Paris) (FOA). 

Yes, I know FOA is already published, even insightfully blogged by Krugman. (Blogged on? Blogged upon? Or maybe give up and just say "reviewed"?) But I'm often slow to notice things; maybe you are too. So if you haven't read it yet, take a look. Regardless of your reaction, it's undeniably fascinating reading.

FOA popped back into my head because I recently received an email announcing its September 2015 presentation at the 20th Anniversary Conference of the Foundation Banque de France, with discussion by Ramon Marimon (EUI) and Lucrezia Reichlin (LBS).

It's interesting that FOA is still being presented after publication, which is highly unusual in economics. But it makes sense: it's a unique paper, and there's still a lot to discuss.

Sunday, August 16, 2015

Manski on Uncertainty in Official Statistics

Chuck Manski has a fascinating forthcoming Journal of Economic Literature piece, "Communicating Uncertainty in Official Economic Statistics: An Appraisal Fifty Years After Morgenstern."

Manski's subtitle refers to Oskar Morgenstern's book, On the Accuracy of Economic Observations (1950, 2nd rev. ed. 1963), in which he assessed the accuracy of economic data and argued for the provision of error estimates in official statistics. (Morgenstern's book also famously reports that, after reading an early version, Norbert Wiener remarked that "economics is a one or two digit science.")

Significantly updating and amplifying Morgenstern's already-forceful case, Manski's treatment contains important new insights. He organizes his discussion not around the usual "sampling error" and "non-sampling error," but rather around what he calls "transient statistical error" (whether sampling or non-sampling), "permanent statistical error" (again, whether sampling or non-sampling), and conceptual error. I'll stop here; you can read it for yourself. Great stuff.

Monday, August 10, 2015

2015 CIRANO Real‐Time Workshop

The 2015 CIRANO Real‐Time Workshop will be in Montreal, October 9-10, 2015. As usual, the program is looking great, thanks to the Program Committee of Dean Croushore (University of Richmond),  Domenico Giannone (FRB New York), Shaun Vahey (University of Warwick) and  Simon van Norden (HEC Montreal and CIRANO). The preliminary program appears below. Presumably the program and the papers will be posted online in due course.

Forecasting Software

Charles, De Antonio Liedo, Maggi and Palate 
JDEMETRA + Nowcasting: Macroeconomic Monitoring and Visualizing News

McDonald, Thamotheram, Vahey and Wakerly 
Assessing the Economic value of Probabilistic forecasts in the Presence of an Inflation Target

Forecasting Inflation

Jarocinski and Lenza 
Output gap and inflation forecasts in a Bayesian dynamic factor model of the euro area

Kishor and Koenig 
The Role of Inflation Expectations, Core Inflation and Slack in Real‐Time Inflation Forecasting

Mertens and Nason 
Inflation and Professional Forecast Dynamics: An Evaluation of Stickiness, Persistence and Volatility

Mixed Frequency Forecasting

Brave, Butters, Justiniano 
Forecasting Economic Activity with Mixed Frequency Bayesian VARs

Dahlhaus, Guenette and Vasishtha 
Nowcasting BRICS+M in Real Time

Data Revision and Measuring Shocks

Amir‐Ahmdi, Matthes and Wang 
Measurement Errors and Monetary Policy: Then and Now

Jo and Sekkel 
Macroeconomic Uncertainty Through the Lens of Professional Forecasters

Density Forecasting

Smith and Vahey
Asymmetric Forecast Densities for US Macroeconomic Variables from a Gaussian Copula Model of Cross‐Sectional and Serial Dependence

Diebold, Schorfheide and Shin 
Real‐Time Forecast Evaluation of DSGE Models with Stochastic Volatility

Rossi and Sekhposyan 
Alternative Tests for Correct Specification of Conditional Predictive Densities

Macro Financial Linkages

Kapetanios, Price and Young 
A financial conditions index using targeted data reduction

Crump, Eusepi and Mönch 
The Term Structure of Expectations and Bond Yields

Saturday, August 1, 2015

On the Great Financial Panic of 2007

(a) I've always felt that the "Great Financial Panic of 2007" was a good old-fashioned banking panic, even if the modern version at first looks quite different from those of the nineteenth and early twentieth centuries. Gary Gorton's wonderful book, building on his earlier research, gets it exactly right:
"Holders of short-term liabilities...refused to fund "banks" [that is, various vehicles in the shadow banking system] due to rational fears of loss. ... As with the earlier panics, the problem at root is a lack of information."
(b) Simultaneously, I've always felt that the Great Panic of 2007 was largely driven by "too big to fail" (TBTF) (e.g. see Gary Stern here), which creates incentives that promote excessive risk-taking. (If you win, you make a fortune; if you lose, you get bailed out.)

What didn't occur to me until a dinner with Gorton during the 2015 PIER Workshop is that (a) and (b) are largely incompatible. That is, if the Panic of 2007 really is like those of the nineteenth century, then it can't have been driven by TBTF, which didn't exist back then. And the Panic of 2007 really was like those of the nineteenth century. 

So my view has evolved significantly: TBTF may well have made the Great Panic more likely than it otherwise would have been, and TBTF may well have increased its severity relative to what otherwise would have been, but TBTF simply can't be "responsible." Thanks, Gary for pushing me forward.