Search Results
Speech
Improving the measurement of inflation expectations
Remarks at the Barclays 16th Annual Global Inflation-Linked Conference, New York City.
Report
Belief updating among college students: evidence from experimental variation in information
We investigate how college students form and update their beliefs about future earnings using a unique ?information? experiment. We provide college students true information about the population distribution of earnings and observe how this information causes respondents to update their beliefs about their own future earnings. We show that college students are substantially misinformed about population earnings and logically revise their self-beliefs in response to the information we provide, with larger revisions when the information is more specific and is good news. We classify the ...
Working Paper
Does the Yield Curve Predict Output?
Does the yield curve have the ability to predict output and recessions? At some times and in certain places, of course! But many details are matters of dispute: When and where does the yield curve predict successfully, which aspects of the curve matter most, and which economic forces account for the predictive ability? Over the years, an increasingly sophisticated set of tools, both statistical and theoretical, have addressed these issues. For the US, an inverted yield curve, particularly when the spread between the yield on 10-year and 3-month Treasuries becomes negative, has been a robust ...
Journal Article
Recession Probabilities
Statistical models that estimate 12-month-ahead recession probabilities using the term spread have been around for many years. However, the reliability of the term spread as a predictor may have been affected by short-term interest rates being at zero. At the zero lower bound, long-term yields cannot go too far into negative territory due to the portfolio constraints of institutional investors. Therefore, the yield curve may not invert when it should or as much as it should despite the anticipated path of the economy. I enhance the simple model with two variables that should have predictive ...
Working Paper
Bootstrapping out-of-sample predictability tests with real-time data
In this paper we develop a block bootstrap approach to out-of-sample inference when real-time data are used to produce forecasts. In particular, we establish its first-order asymptotic validity for West-type (1996) tests of predictive ability in the presence of regular data revisions. This allows the user to conduct asymptotically valid inference without having to estimate the asymptotic variances derived in Clark and McCracken’s (2009) extension of West (1996) when data are subject to revision. Monte Carlo experiments indicate that the bootstrap can provide satisfactory finite sample size ...
Working Paper
Bootstrapping out-of-sample predictability tests with real-time data
In this paper we develop a block bootstrap approach to out-of-sample inference when real-time data are used to produce forecasts. In particular, we establish its first-order asymptotic validity for West-type (1996) tests of predictive ability in the presence of regular data revisions. This allows the user to conduct asymptotically valid inference without having to estimate the asymptotic variances derived in Clark and McCracken’s (2009) extension of West (1996) when data are subject to revision. Monte Carlo experiments indicate that the bootstrap can provide satisfactory finite sample size ...
Working Paper
Tests of Conditional Predictive Ability: Existence, Size, and Power
We investigate a test of conditional predictive ability described in Giacomini and White (2006; Econometrica). Our main goal is simply to demonstrate existence of the null hypothesis and, in doing so, clarify just how unlikely it is for this hypothesis to hold. We do so using a simple example of point forecasting under quadratic loss. We then provide simulation evidence on the size and power of the test. While the test can be accurately sized we find that power is typically low.
Working Paper
Tests of Conditional Predictive Ability: A Comment
We investigate a test of equal predictive ability delineated in Giacomini and White (2006; Econometrica). In contrast to a claim made in the paper, we show that their test statistic need not be asymptotically Normal when a fixed window of observations is used to estimate model parameters. An example is provided in which, instead, the test statistic diverges with probability one under the null. Simulations reinforce our analytical results.
Working Paper
Diverging Tests of Equal Predictive Ability
We investigate claims made in Giacomini and White (2006) and Diebold (2015) regarding the asymptotic normality of a test of equal predictive ability. A counterexample is provided in which, instead, the test statistic diverges with probability one under the null.
Working Paper
Tests of Conditional Predictive Ability: Some Simulation Evidence
In this note we provide simulation evidence on the size and power of tests of predictive ability described in Giacomini and White (2006). Our goals are modest but non-trivial. First, we establish that there exist data generating processes that satisfy the null hypotheses of equal finite-sample (un)conditional predictive ability. We then consider various parameterizations of these DGPs as a means of evaluating the size and power properties of the proposed tests. While some of our results reinforce those in Giacomini and White (2006), others do not. We recommend against using the fixed scheme ...