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Gonzalo Camba-Méndez
Risk Management
- Division
Risk Strategy
- Current Position
-
Principal Economist
- Other current responsibilities
Principal Economist, Capital Markets and Financial Structure Division
- Education
PhD in Economics. London Guildhall University, 1997.
MSc in International Trade and Finance. Lancaster University, 1993.
BSc in Economics. Universidad de Santiago de Compostela, 1989.
- Professional experience
Principal Economist. ECB, Capital Markets and Financial Structure Division. 2008 - present.
Principal Economist. ECB, Euro Area Macroeconomic Developments Division. 2005 - 2008.
Senior Economist. ECB, Monetary Policy Research Division. 2003 - 2005.
Economist. ECB, Econometric Modelling Division. 1999-2003.
Research Officer. National Institute of Economic and Social Research. 1996 - 1999.
Trainee. Banco Hipotecario de Espana. 1992.
- 28 March 2023
- OCCASIONAL PAPER SERIES - No. 312Details
- Abstract
- In implementing its monetary policy, the ECB conducts collateralised credit operations with banks. The bulk of the financial risks involved in these collateralised credit operations are mitigated primarily by the valuation haircuts imposed on the mobilised collateral. Since the establishment of the euro in January 1999, valuation haircuts have been formulated mainly on the basis of risk management considerations and have been systematically calibrated with a very low level of risk tolerance. However, their implied risk tolerance may sometimes be used as a monetary policy stance lever, as clearly illustrated when the ECB decided to reduce haircuts to improve funding conditions for the real economy during the outset of the coronavirus (COVID-19) pandemic. In addition, the ECB ensures that financial market developments warranting general methodological changes are incorporated into the calibration of valuation haircuts adequately and in good time. In a particularly challenging economic environment, the ECB has also recently committed to ensuring that climate change risks are considered when calibrating the valuation haircuts applied to corporate bonds. Against this background, the purpose of this paper is to provide an overview and explanation of the main guiding rules, as well as explaining some of the statistical methods currently employed by the ECB when formulating valuation haircuts. Keywords: monetary policy implementation, risk control framework of credit operations, valuation haircuts
- JEL Code
- D02 : Microeconomics→General→Institutions: Design, Formation, and Operations
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G32 : Financial Economics→Corporate Finance and Governance→Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill
Q54 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Climate, Natural Disasters, Global Warming
- 26 January 2021
- WORKING PAPER SERIES - No. 2514Details
- Abstract
- How much of the heterogeneity in bank loan pricing is explained by disparities in banks’ attitude towards risk? The answer to this question is not simple because there are only very weak proxies for gauging the degree of a bank’s risk aversion. We handle this constraint by means of a novel econometric approach that allows us to disentangle the amount of risk faced by banks and the price they charge for holding that risk. Some of our results are aligned with previous studies and confirm that disparities in market power, banks’ funding costs, and banks’ funding risks are reflected in bank lending rates. However, our new modelling framework reveals that the heterogeneity in bank lending rates is also a reflection of the non-negligible disparities in banks’ risk aversion.
- JEL Code
- C23 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Panel Data Models, Spatio-temporal Models
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
- 23 June 2020
- WORKING PAPER SERIES - No. 2423Details
- Abstract
- The purpose of this paper is to study the compensation for inflation risks priced in sovereign bond yields. And we do so by modelling the time-varying dynamics of asset returns and inflation, and then estimating the cost of hedging inflation risks from the perspective of a well diversified portfolio. This allows to disentangle the time-varying compensation for expected and unexpected inflation shocks embedded in sovereign bond yields; and provides estimates of the real risk-free rate. We show that nominal sovereign bond yields for Germany, France, Japan and the United States, reflect, over the more recent years, a low real risk-free rate, as well as low levels of compensation for both expected and unexpected inflation. The simultaneous occurrence of these low contributions is novel, and not encountered previously in our sample. We also find that inflation risks are not necessarily reduced with the inclusion of real estate assets in the minimum variance portfolio. Our analysis also prompts us to suggest that the financial advantage of issuing inflation-linked sovereign debt, and namely saving on the embedded inflation risk premium of issuing nominal debt, appears to be eroded by the liquidity premium charged by investors for holding the less attractive inflation-linked debt asset.
- JEL Code
- C32 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models, Diffusion Processes
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
- 28 June 2018
- ECONOMIC BULLETIN - BOXEconomic Bulletin Issue 4, 2018Details
- Abstract
- Following very strong growth rates in 2017, quarterly real GDP growth in the euro area moderated to 0.4% in the first quarter of 2018. The slowdown in growth at the start of the year, which appears to reflect temporary factors as well as more lasting cyclical factors, was in line with developments in economic indicators, notably survey data. Both the composite output Purchasing Managers' Index (PMI) and the European Commission's Economic Sentiment Indicator (ESI) declined throughout the first quarter of 2018. However, it is important to note that, like output growth, these indicators fell back from exceptionally high levels.
- JEL Code
- E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
E66 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→General Outlook and Conditions
- 13 March 2017
- WORKING PAPER SERIES - No. 2033Details
- Abstract
- In this paper we construct model-free and model-based indicators for the inflation risk premium in the US and the euro area. We study the impact of market liquidity, surprises from inflation data releases, inflation volatility and deflation fears on the inflation risk premium. For our analysis, we construct a special dataset with a broad range of indicators. The dataset is carefully constructed to ensure that at every point in time the series are aligned with the information set available to traders. Furthermore, we adopt a Bayesian variable selection procedure to deal with the strong multicollinearity in the variables that potentially can explain the movements in the inflation risk premium. We find that the inflation risk premium turned negative, on both sides of the Atlantic, during the post-Lehman period. This confirms the recent finding by Campbell et al. (2016) that nominal bonds are no longer "inflation bet" but have turned into "deflation hedges". We also find, and contrary to common beliefs, that indicators of inflation uncertainty alone cannot explain the movements in the inflation risk premium in the post-Lehman period. The decline in the inflation risk premium seems mostly related to increased deflation fears and the belief that inflation will stay far away from the monetary policy target rather than declining inflation uncertainty. This in turn would suggest that central banks should not be complacent with low or even negative inflation risk premia.
- JEL Code
- E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
G17 : Financial Economics→General Financial Markets→Financial Forecasting and Simulation
- 16 September 2016
- WORKING PAPER SERIES - No. 1965Details
- Abstract
- This paper sheds light on how recent financial tensions in the euro area were ultimately reflected in bank interest rate setting. We make two new contributions. First, we develop a theoretical model capturing banks financing and the rate setting choices. Banks in the model can finance themselves through deposits, on the money market and/or by issuing bonds. Second, we assemble a novel database and put our model to test. Our model extends that of Gambacorta (2004), as we formalise banks' decision to issue debt endogenously. Gambacorta's analysis was conducted for Italian banks and did not include the recent financial crisis. Instead, we focus our analysis on the Great Recession period (July 2007 to October 2014) and euro area banks. From a monetary policy perspective, both our theoretical model and the empirical results provide useful information on the impact of some of the measures introduced by the ECB during the financial crisis. First, the ECB introduced specific measures to alleviate tensions in money markets. To the extent that these measures fostered stability in money markets, and reduced the volatility of money market rates, this paper shows that they were also channelled to bank rates. Second, the ECB also introduced measures to address tensions in bond markets. Our results also show that having access to debt financing has important implications for bank rate setting.
- JEL Code
- C32 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models, Diffusion Processes
E43 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G01 : Financial Economics→General→Financial Crises
- 27 June 2016
- WORKING PAPER SERIES - No. 1924Details
- Abstract
- We analyze the market assessment of sovereign credit risk in an emerging market using a reduced-form model to price the credit default swap (CDS) spreads thus enabling us to derive values for the probability of default (PD) and loss given default (LGD) from the quotes of sovereign CDS contracts. We compare different specifications of the models allowing for both fixed and time varying LGD, and we use these values to analyze the sovereign credit risk of Polish debt throughout the recent global financial crisis. Our results suggest the presence of a low LGD and a relatively high PD for Poland during the crisis. The highest PD is in the months following the collapse of Lehman Brothers. The derived measures of sovereign risk are strongly linked with the level of public debt and with another measure of PD from a structural model. Correlations between our PD values and the CDS spreads heavily depend on the maturity of the sovereign CDS.
- JEL Code
- C11 : Mathematical and Quantitative Methods→Econometric and Statistical Methods and Methodology: General→Bayesian Analysis: General
C32 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models, Diffusion Processes
G01 : Financial Economics→General→Financial Crises
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G15 : Financial Economics→General Financial Markets→International Financial Markets
- 1 April 2015
- WORKING PAPER SERIES - No. 1773Details
- Abstract
- This paper assesses the forecasting performance of various variable reduction and variable selection methods. A small and a large set of wisely chosen variables are used in forecasting the industrial production growth for four Euro Area economies. The results indicate that the Automatic Leading Indicator (ALI) model performs well compared to other variable reduction methods in small datasets. However, Partial Least Squares and variable selection using heuristic optimisations of information criteria along with the ALI could be used in model averaging methodologies.
- JEL Code
- C11 : Mathematical and Quantitative Methods→Econometric and Statistical Methods and Methodology: General→Bayesian Analysis: General
C32 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models, Diffusion Processes
C52 : Mathematical and Quantitative Methods→Econometric Modeling→Model Evaluation, Validation, and Selection
- 11 November 2014
- WORKING PAPER SERIES - No. 1741Details
- Abstract
- In this paper we study the impact that financial reputation and official market interventions have on the timing and amount of debt issuance decisions by banks. To do so, we propose an extension of the two-part modelling framework of Cragg (1971, eq. 7 and 9) to accommodate random effects. We use quarterly information on 70 major listed European banks from 2003Q1 to 2012Q1. Focusing on a wide range of financial reputation indicators, we show that credit ratings are a significant and positive determinant of the timing of uncollateralised debt issuance decisions. Empirical results do not suggest that ratings have a significant impact on the amount of debt placed by banks. Other financial reputation indicators analysed are found to be of second- order relevance on debt issuance decisions. Our results also suggest that central bank liquidity programs may have had a large impact on both the timing and the amount of collateralised debt issuance during the recent financial crisis, but had a negligible impact on uncollateralised debt issuance decisions.
- JEL Code
- G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G01 : Financial Economics→General→Financial Crises
G15 : Financial Economics→General Financial Markets→International Financial Markets
- 11 August 2014
- WORKING PAPER SERIES - No. 1710Details
- Abstract
- We study market perception of sovereign credit risk in the euro area during the financial crisis. In our analysis we use a parsimonious CDS pricing model to estimate the probability of default (PD) and the loss given default (LGD) as perceived by financial markets. We find that separate identification of PD and LGD appears empirically tractable for a number of euro area countries. In our empirical results the estimated LGDs perceived by financial markets stay comfortably below 40% in most of the samples. We also find that macroeconomic and institutional developments were only weakly correlated with the market perception of sovereign credit risk, whereas financial contagion appears to have exerted a non-negligible effect.
- JEL Code
- C11 : Mathematical and Quantitative Methods→Econometric and Statistical Methods and Methodology: General→Bayesian Analysis: General
C32 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models, Diffusion Processes
G01 : Financial Economics→General→Financial Crises
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G15 : Financial Economics→General Financial Markets→International Financial Markets
- 28 October 2008
- WORKING PAPER SERIES - No. 949Details
- Abstract
- Global financial integration unlocks a huge potential for international risk sharing. We examine the degree to which international equity holdings act as a risk sharing device in industrial and emerging economies. We split equity returns into investment income (dividend distribution) and capital gains to investigate which of the two channels delivers the largest potential for risk sharing. Our evidence suggests that net capital gains are a more potent channel of risk sharing. They behave in a countercyclical way, that is they tend to be positive (negative) when the domestic economy is growing more slowly (rapidly) than the rest of the world. Countries with more countercyclical net capital gains experience improved consumption risk sharing. The empirical analysis furthermore suggests that these risk sharing properties of net capital gains have increased through time, in particular in the 1990s and early-2000s, on the back of a declining equity home bias and financial market deepening.
- JEL Code
- E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
C33 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Panel Data Models, Spatio-temporal Models
C53 : Mathematical and Quantitative Methods→Econometric Modeling→Forecasting and Prediction Methods, Simulation Methods
- 25 January 2008
- WORKING PAPER SERIES - No. 850Details
- Abstract
- Testing and estimating the rank of a matrix of estimated parameters is key in a large variety of econometric modelling scenarios. This paper describes general methods to test for and estimate the rank of a matrix, and provides details on a variety of modelling scenarios in the econometrics literature where such methods are required. Four different methods to test the true rank of a general matrix are described, as well as one method that can handle the case of a matrix subject to parameter constraints associated with defineteness structures. The technical requirements for the implementation of the tests of rank of a general matrix differ and hence there are merits to all of them that justify their use in applied work. Nonetheless, we review available evidence of their small sample properties in the context of different modelling scenarios where all, or some, are applicable.
- JEL Code
- C12 : Mathematical and Quantitative Methods→Econometric and Statistical Methods and Methodology: General→Hypothesis Testing: General
C15 : Mathematical and Quantitative Methods→Econometric and Statistical Methods and Methodology: General→Statistical Simulation Methods: General
C32 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models, Diffusion Processes
- 25 April 2005
- WORKING PAPER SERIES - No. 470Details
- Abstract
- The quantity theory of money predicts a positive relationship between monetary growth and inflation over long-run horizons. However, in the short-run, transitory shocks to either money or inflation can obscure the inflationary signal stemming from money. The spectral analysis of time series provides filtering tools for removing fluctuations associated with certain frequency movements. However, use of these techniques in isolation is often criticised as being an oversimplistic statistical exercise potentially void of economic content. The objective of this paper is to develop 'structural' filtering techniques that rely on the use of spectral analysis in combination with a structural economic model with well identified shocks. A 'money augmented' Phillips curve that links inflation to money tightness and demand shocks of medium to long-term persistence is presented. It is shown that medium to long-term movements in inflation are mostly associated with the estimated monetary indicators.
- JEL Code
- E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E50 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→General
C32 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models, Diffusion Processes
- 5 November 2004
- WORKING PAPER SERIES - No. 402Details
- Abstract
- Standard measures of prices are often contaminated by transitory shocks. This has prompted economists to suggest the use of measures of underlying inflation to formulate monetary policy and assist in forecasting observed inflation. Recent work has concentrated on modelling large datasets using factor models. In this paper we estimate factors from datasets of disaggregated price indices for European countries. We then assess the forecasting ability of these factor estimates against other measures of underlying inflation built from more traditional methods. The power to forecast headline inflation over horizons of 12 to 18 months is adopted as a valid criterion to assess forecasting. Empirical results for the five largest euro area countries as well as for the euro area are presented.
- JEL Code
- E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
C13 : Mathematical and Quantitative Methods→Econometric and Statistical Methods and Methodology: General→Estimation: General
C32 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models, Diffusion Processes
- 18 May 2004
- WORKING PAPER SERIES - No. 361Details
- Abstract
- This paper explains to what extent excess reserves are and should be relevant today in the implementation of monetary policy, focusing on the specific case of the operational framework of the Eurosystem. In particular, this paper studies the impact that changes to the operational framework for monetary policy implementation have on the level and volatility of excess reserves. A 'transaction costs' model that replicates the rather specific intra-reserve maintenance period pattern of excess reserves in the euro area is developed. Simulation results presented not only show that excess reserves may increase considerably under some changes to the operational framework, but also that their volatility and hence unpredictability could.
- JEL Code
- E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
- 28 April 2004
- WORKING PAPER SERIES - No. 349Details
- Abstract
- The rank of the spectral density matrix conveys relevant information in a variety of statistical modelling scenarios. This note shows how to estimate the rank of the spectral density matrix at any given frequency. The method presented is valid for any hermitian positive definite matrix estimate that has a normal asymptotic distribution with a covariance matrix whose rank is known.
- JEL Code
- C12 : Mathematical and Quantitative Methods→Econometric and Statistical Methods and Methodology: General→Hypothesis Testing: General
C32 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models, Diffusion Processes
C52 : Mathematical and Quantitative Methods→Econometric Modeling→Model Evaluation, Validation, and Selection
- 1 September 2003
- WORKING PAPER SERIES - No. 278Details
- Abstract
- This paper reviews the key economic issues concerning the welfare costs of inflation and deflation, with a view to shedding light on the desirable properties of the inflation process. Our review of the evidence on the overall costs of inflation and deflation indicates that such costs could be even higher than previously thought, also at moderate rates of inflation, thereby strengthening the case for price stability. We also review two of the arguments usually invoked for maintaining a small positive rate of inflation: the potential alleviation of poor economic performance arising from downward nominal rigidities and the role of sustained inflation differentials within the euro area. Recent evidence suggests that the macroeconomic relevance of these two factors is minor, even when considered in combination, although this assessment remains surrounded by high uncertainty.
- JEL Code
- D60 : Microeconomics→Welfare Economics→General
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E41 : Macroeconomics and Monetary Economics→Money and Interest Rates→Demand for Money
E61 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Policy Objectives, Policy Designs and Consistency, Policy Coordination
H21 : Public Economics→Taxation, Subsidies, and Revenue→Efficiency, Optimal Taxation - Network
- Background study for the evaluation of the ECB's monetary policy strategy
- 1 June 2002
- WORKING PAPER SERIES - No. 152Details
- Abstract
- Under the Maastricht Treaty and the Stability and Growth Pact (SGP) European Union (EU) Member States commit themselves to avoid excessive deficits over 3% of GDP and to pursue the medium-term objective of budgetary positions close to balance or in surplus. The SGP provides also regulation for the surveillance of budgetary positions. An analysis of associated tools is the focus of this paper. In particular, it addresses two open issues in the empirical public finance literature which are crucial for monitoring fiscal policy discipline in the EU. First, the estimation of the structural component of the fiscal balance ratio. Second, the computation, when only annual fiscal data is available, of quarterly budget balance ratios, using relevant information from quarterly measured macroeconomic series. An econometric model that addresses both issues is presented and estimated. Additionally, this modelling framework allows us to answer questions such as: what is the safety margin that will prevent a particular country from reaching with certain probability abudget deficit that breaches the 3% upper bound?
- JEL Code
- C32 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models, Diffusion Processes
E60 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→General
H62 : Public Economics→National Budget, Deficit, and Debt→Deficit, Surplus
- 1 May 2002
- WORKING PAPER SERIES - No. 142Details
- Abstract
- The main focus of this paper is to model the daily series of banknotes in circulation in the context of the liquidity management of the Eurosystem. The series of banknotes in circulation displays very marked seasonal patterns. To the best of our knowledge the empirical performance of two competing approaches to model seasonality in daily time series, namely the ARIMA-based approach and the Structural Time Series approach, has never been put to the test. The application presented in this paper provides valid intuition on the merits of each approach. The forecasting performance of the models is also assessed in the context of their impact on the liquidity management of the Eurosystem.
- JEL Code
- C22 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models &bull Diffusion Processes
C51 : Mathematical and Quantitative Methods→Econometric Modeling→Model Construction and Estimation
C53 : Mathematical and Quantitative Methods→Econometric Modeling→Forecasting and Prediction Methods, Simulation Methods
C59 : Mathematical and Quantitative Methods→Econometric Modeling→Other
- 1 April 2001
- WORKING PAPER SERIES - No. 62Details
- Abstract
- The rank of the spectral density matrix conveys relevant information in a variety of modelling scenarios. Phillips (1986) showed that a necessary condition for cointegration is that the spectral density matrix of the innovation sequence at frequency zero is of a reduced rank. In a recent paper Forni and Reichlin (1998) suggested the use of generalized dynamic factor model to explain the dynamics of a large set of macroeconomic series. Their method relied also on the computation of the rank of the spectral density matrix. This paper provides formal tests to estimate the rank of the spectral density matrix at any given frequency. The tests of rank at frequency zero are tests of the null of 'cointegration', complementary to those suggested by Phillips and Ouliaris (1988) which test the null of 'no cointegration'.
- JEL Code
- C12 : Mathematical and Quantitative Methods→Econometric and Statistical Methods and Methodology: General→Hypothesis Testing: General
C15 : Mathematical and Quantitative Methods→Econometric and Statistical Methods and Methodology: General→Statistical Simulation Methods: General
C32 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models, Diffusion Processes
- 1 April 2001
- WORKING PAPER SERIES - No. 54Details
- Abstract
- This paper assesses the statistical reliability of different measures of the output gap for the Euro-11 area and the US using output, inflation and unemployment systems. In order to assess the reliability of an output gap estimate two criteria are adopted. Firstly, the estimate should have forecasting power over inflation. Secondly, the ex post statistical revisions of the output gap should not differ significantly from previously computed measures. As an additional check on reliability, we find out whether the estimate of the output gap is positively correlated with standard measures of capacity utilization. We find that under our multivariate specification, unobservable components (UC) type models of the output gap show temporal consistency between sequential and final estimates and are consistent with known cyclical indicators. On the other hand, our UC models for the output gap have limited forecasting power for inflation, since they underperform an arbitrary autoregressive model.
- JEL Code
- C32 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models, Diffusion Processes
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
E37 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Forecasting and Simulation: Models and Applications
- 1 March 2001
- WORKING PAPER SERIES - No. 45Details
- Abstract
- The rank of the Hankel matrix, corresponding to a system transfer function, is equal to the order of its minimal state space realization. The computation of the rank of the Hankel matrix is complicated by the fact that its block elements are rarely given exactly but are estimated instead. In this paper, we propose new statistical tests to determine the rank of the Hankel matrix. We also provide a Monte Carlo study on the reliability of these tests compared to existing procedures.
- JEL Code
- C12 : Mathematical and Quantitative Methods→Econometric and Statistical Methods and Methodology: General→Hypothesis Testing: General
C15 : Mathematical and Quantitative Methods→Econometric and Statistical Methods and Methodology: General→Statistical Simulation Methods: General
C32 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models, Diffusion Processes
- ECB Ocassional Paper Series, forthcoming.A Chronology of the crisis and the ECB's Monetary Policy Responses
- Journal of Time Series Analysis 26(1), pp. 37-48, 2005Estimating the rank of the Spectral Density Matrix
- IEEE Transactions on Automatic Control 46(2), pp. 331-336, 2001Testing the Rank of the Hankel Covariance Matrix: A Statistical Approach
- In D. Hendry and M. Clements (eds) A Companion to Economic Forecasting, Blackwell publishers, Oxford, 2001The Forecasting Performance of the OECD Composite Leading Indicators for France, Germany, Italy and the UK
- Econometrics Journal 4(1), pp. 56-90, 2001An Automatic Leading Indicator of Economic Activity: Forecasting GDP growth for European Countries
- European Central Bank, Frankfurt am Main, July 2002Measurement Issues in European Consumer Price Indices and the Conceptual Framework of the HICP
- Journal of Business and Economic Statistics 21(1), pp. 145-155, 2003Tests of Rank in Reduced Rank Regression Models
- Economic Modelling 20(3), pp. 528-561, 2003Assessment Criteria for Output Gap Estimates
- In O. Issing (ed) Background Studies for the ECB's Evaluation of its Monetary Policy Strategy, European Central Bank, Frankfurt am Main, 2003Relevant economic issues concerning the optimal rate of inflation
- In O. Issing (ed) 'Background Studies for the ECB's Evaluation of its Monetary Policy Strategy', European Central Bank, Frankfurt am Main, 2003The definition of Price Stability: Choosing a Price Measure
- IEEE Transactions on Automatic Control 49(2), pp. 238-243, 2004Bootstrap Statistical Tests of Rank Determination for System Identification
- Journal of Applied Econometrics 19(2), pp. 247-265, 2004Short-Term Monitoring of Fiscal Policy Discipline
- Journal of Forecasting 24(7), pp. 491-503, 2005Forecasting Inflation using Dynamic Factor Measures of Underlying inflation
- ECB Working Paper Series No. 2033. March 2017.The inflation risk premium during the great recession
- Journal of Policy Modelling 28(5), pp. 491-510, 2006Excess Reserves and the Implementation of Monetary Policy of the ECB
- Journal of Forecasting, 28(3), pp. 194-217, 2009Modelling the Daily Banknotes in Circulation in the Context of the Liquidity Management of the European Central Bank
- Econometric Reviews 28(6), pp. 581-611, 2009Statistical tests and estimators of the rank of a matrix and their applications in econometric modelling
- Econometrics Journal 14(1), pp. C25-C44, 2011.Short-term forecasts of euro area GDP growth
- Economics Letters, 2012, Vol. 115, pp. 376-378.Conditional Forecasts on SVAR models using the Kalman Filter
- North American Journal of Economics and Finance, 2016, Vol. 37, pp. 168-189.Market perception of sovereign credit risk in the euro area during the financial crisis
- ECB Working Paper No 1741. November 2014.Financial reputation, market interventions and debt issuance by banks
- ECB Working Paper No 1773. April 2015.An Automatic Leading Indicator, Variable Reduction and Variable Selection Methods using Small and Large Datasets: Forecasting the Industrial Production Growth for Euro Area Economies
- Emerging Markets Finance and Trade, 2016, Vol. 52, No. 12, pp. 2687-2705.Pricing sovereign credit risk of an emerging market
- ECB working Paper series No. 1965. September 2016.Bank interest rate setting in crisis times and the impact of the ECB monetary policies
- Economic Letters 59(2), pp. 163-168, 1998Filtered Least Squares and Measurement Error