This paper presents a novel framework to estimate the elasticity between nighttime lights and quarterly economic activity. The relationship is identified by accounting for varying degrees of measurement errors in nighttime light data across countries. The estimated elasticity is 1.55 for emerging markets and developing economies, ranging from 1.36 to 1.81 across country groups and robust to different model specifications. The paper uses a light-adjusted measure of quarterly economic activity to show that higher levels of development, statistical capacity, and voice and accountability are associated with more precise national accounts data. The elasticity allows quantification of subnational economic impacts. During the COVID-19 pandemic, regions with higher levels of development and population density experienced larger declines in economic activity.
We introduce unFEAR, Unsupervised Feature Extraction Clustering, to identify economic crisis regimes. Given labeled crisis and non-crisis episodes and the corresponding features values, unFEAR uses unsupervised representation learning and a novel mode contrastive autoencoder to group episodes into time-invariant non-overlapping clusters, each of which could be identified with a different regime. The likelihood that a country may experience an econmic crisis could be set equal to its cluster crisis frequency. Moreover, unFEAR could serve as a first step towards developing cluster-specific crisis prediction models tailored to each crisis regime.
This paper reconsiders the effects of fiscal policy on long-term interest rates employing a Factor Augmented Panel (FAP) to control for the presence of common unobservable factors. We construct a real-time dataset of macroeconomic and fiscal variables for a panel of OECD countries for the period 1989-2012. We find that two global factors—the global monetary and fiscal policy stances—explain more than 60 percent of the variance in the long-term interest rates. Compared to the estimates from models which do not account for global factors, we find that the importance of domestic variables in explaining long-term interest rates is weakened. Moreover, the propagation of global fiscal shocks is larger in economies characterized by macroeconomic and institutional weaknesses.
Mr. Jesus R Gonzalez-Garcia and Mr. Gonzalo C Pastor Campos
This paper examines the usefulness of testing the conformity of macroeconomic data with Benford's law as indicator of data quality. Most of the macroeconomic data series tested conform with Benford's law. However, questions emerge on the reliability of such tests as indicators of data quality once conformity with Benford's law is contrasted with the data quality ratings included in the data module of the Reports on the Observance of Standards and Codes (data ROSCs). Furthermore, the analysis shows that rejection of Benford's law may be unrelated to the quality of statistics, and instead may result from marked structural shifts in the data series. Hence, nonconformity with Benford's law should not be interpreted as a reliable indication of poor quality in macroeconomic data.
The paper analyzes foreign exchange market volatility in four Central European EU accession countries in 2001-2003. By using a Markov regime-switching model, it identifies two regimes representing high- and low-volatility periods. The estimation results show not only that volatilities are different between the two regimes but also that some of the cross-correlations differ. Notably, cross-correlations increase substantially for two pairs of currencies (the Hungarian forint-Polish zloty and the Czech koruna-Slovak koruna) in the high-volatility period. The paper concludes by discussing the policy implications of these findings.
Mr. James Y. Yao, Mr. Jorge A Chan-Lau, and Mr. Donald J Mathieson
This study uses bivariate extremal dependence measures, based on the number of equity return co-exceedances in two markets, to quantify both negative and positive equity returns contagion in mature and emerging equity markets during the past decade. The results indicate (a) higher contagion for negative returns than for positive returns; (b) a secular increase in contagion in Latin America not matched in other regions; (c) global increases in contagion following the 1998 financial crises; and (d) that the use of simple correlations as a proxy for contagion could be misleading, as the former exhibit low correlation with extremal dependence measures of contagion.
The paper suggests an econometric methodology for testing the effectiveness of reforms implemented in one major step, i.e., discrete reforms. The methodology is based on the exogeneity properties of variables in an econometric model. The paper specifies the preconditions for setting up an appropriate model; suggests an economic interpretation of the tests for weak, strong, and superexogeneity; and illustrates this methodology by applying it to two cases of instantaneous reforms. The exogeneity properties of variables in a correctly specified econometric model may help uncover information on the preparation, implementation, and the outcome of such reforms, which could be useful for future policy advice.
This paper replies to Ahking’s (1990) re-examination of Taylor and McMahon’s (1988) analysis of long-run purchasing power parity in the 1920s. We demonstrate that Ahking’s conclusions are only partially correct and reestablish our conclusion that, a form of long-run purchasing-power parity did in fact hold for dollar-sterling during this period. The new results are also employed to gauge the degree of overvaluation of sterling relative to the imposed prewar parity of $4.86 upon its return to gold and for 12 months afterwards.