Real-Time Macroeconomic Monitoring

Transcription

1 Real-Time Macroeconomic Monitoring Francis X. Diebold University of Pennsylvania 3th CIRET Conference, New York October 8, 1 1 / 8

2 Several Authors/Papers/Teams... Aruoba, Diebold and Scotti (9) Real-Time Measurement of Business Conditions Journal of Business and Economic Statistics Aruoba, Diebold, Price, Sill, Stark (9-present) ADS Index (Web) FRB Philadelphia, Real-Time Data Research Center Aruoba and Diebold (1) Real-Time Macroeconomic Monitoring: Real Activity, Inflation, and Interactions American Economic Review Aruoba, Diebold, Kose and Terrones (1) Globalization, the Business Cycle, and Macro Monitoring NBER Working Paper No / 8

3 Our Approach Guide real people, making real decisions, in real time Nowcasting, updated in real-time Dynamic factor model with missing data Close Cousins: Stock and Watson (1989) (small data) Mariano and Murasawa (3) (mixed frequency) 3 / 8

4 Interest is Percolating Conferences Centers Handbook chapters Policy Even Google! / 8

5 Economic Decision Making Over the Cycle Merger activity over the cycle Pricing and other competitive issues over the cycle Accounting behavior over the cycle Distress and bankruptcy over the cycle Labor/personnel decisions over the cycle Portfolio allocation over the cycle Risk management over the cycle Asset pricing over the cycle We want: Real-time information Based on many indicators Quantitative (cardinal), not -1 (ordinal) 5 / 8

6 Underlying High-Frequency Dynamic Factor Structure Economic activity factor: x t = φx t 1 + η t i th indicator: y i t = c i + β i x t + ε i t 6 / 8

7 Methodological Econometric Issues High-frequency, mixed-frequency, missing data Potentially time-varying system matrices Likelihood evaluation and model estimation Optimal extraction of latent macroeconomic activity 7 / 8

8 State Space Representation y t = Zα t + Γw t + ε t α t+1 = T α t + Rη t ε t (, H), η t (, Q) 8 / 8

9 Kalman Filter Extraction of Latent Economic Activity where a t t = a t + P t Z Ft 1 v t P t t = P t P t Z Ft 1 ZP t a t+1 = Ta t t P t+1 = TP t t T + RQR, v t = y t Za t Γw t F t = ZP t Z + H a t t E (α t Y t ), P t t = var (α t Y t ), a t E (α t Y t 1 ), P t = var (α t Y t 1 ), Y t {y 1,..., y t } 9 / 8

10 Filtering with Missing Data All of y t missing (skip updating): a t+1 = Ta t P t+1 = TP t T + RQR Some of y t missing (update w/ modified measurement eqn.): yt = Z α t + Γ w t + ε t ε t N (, H ) y t = W t y t, Z = W t Z, Γ = W t Γ, ε t = W t ε t, H = W t HW t 1 / 8

11 Likelihood Evaluation with Missing Data where T ln L = lnl t t=1 ln l t =, if no elements of y t are observed log l t = 1 [ N log π + ( log F t + v t Ft 1 vt )], otherwise 11 / 8

12 Substantive Macroeconomic Issues What indicators at what frequencies? How do real activity and inflation behave? How do real activity and inflation interact? What of the recent recession? Where is the economy now? 1 / 8

13 Real Activity [ Initial unemployment claims (weekly) ] Payroll employment (monthly) Industrial production (monthly) Personal income less transfers (monthly) Manufacturing and trade sales (monthly) GDP (quarterly) 13 / 8

14 Real Activity Index Coherence with NBER Less noisy than individual indicators Great Moderation Recent recession long and deep 1 / 8

15 -6 Real Activity Index During Recessions Recession 198 Recession Recession Recession 1 Recession 7-9 Recession Recent recession: Moderately extreme depth severity Highly extreme duration severity 15 / 8

16 Moderately Extreme Depth Severity 7 Recession Depth Severity / 8

17 Extreme Duration Severity Recession Duration Severity / 8

18 Highly Extreme Overall Severity Overall Recession Severity / 8

19 Real-time real activity index updates at: Federal Reserve Bank of Philadelphia 19 / 8

20 Inflation All items CPI (monthly) Finished goods PPI (monthly) Standard and Poor s GSCI Non-Energy Commodities Index (monthly) Spot price of West Texas intermediate crude oil (monthly) Hourly compensation in the non-farm business sector (quarterly) GDP deflator (quarterly) / 8

21 Inflation Index Great inflation, Volcker containment Increased volatility post- Recent episode 1 / 8

22 Inflation Index, M1 7M7 8M1 8M7 9M1 9M7 Very steep but very brief decline / 8

23 Real Activity and Inflation Interaction Demand shocks: Real activity and inflation positively correlated Supply shocks: Real activity and inflation negatively correlated 3 / 8

24 Real Activity and Inflation Indexes Inflation Real Activity Usually positively correlated Negatively correlated during oil shocks Recent episode / 8

25 Real Activity and Inflation Indexes, 7-9 Inflation - Real Activity -6 7M1 7M7 8M1 8M7 9M1 9M Positive correlation A Keynesian demand-driven recession 5 / 8

26 Going Global: An Extracted G-7 Factor / 8

27 Comparative Behavior of Country Factors in Two Recessions Country Factors around I II III IV I II III IV I II III IV Country Factors around I II III IV I II III IV I II III IV / 8

28 Concluding Remarks This time was not different, but it was certainly severe. Interactions of global real and price/wage activity with financial markets (e.g., yield curve) 8 / 8