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What is included with this book?
List of tables | p. xvi |
List of figures | p. xvii |
Introduction | p. 1 |
Historical background | p. 3 |
Alternative modelling approaches | p. 4 |
The long-run modelling approach | p. 6 |
The organisation of the book | p. 9 |
Macroeconometric modelling: Alternative approaches | p. 13 |
Large-scale simultaneous equation models | p. 13 |
Unrestricted and structural VARs | p. 16 |
Unrestricted VARs | p. 16 |
Structural VARs | p. 18 |
Dynamic stochastic general equilibrium models | p. 19 |
The structural cointegrating VAR approach | p. 23 |
Comparisons with the alternative approaches | p. 24 |
National and global structural macroeconometric modelling | p. 33 |
Identification in a dynamic structural vector error correction model | p. 34 |
Identifying long-run relationships | p. 36 |
Identifying short-run structural parameters and shocks | p. 37 |
A modelling strategy | p. 39 |
Specifying the dynamic structure of a macroeconomic model | p. 41 |
Dynamics of DSGE models | p. 41 |
Dynamics of adjustment cost models | p. 46 |
Identification of short-run dynamics based on 'tentative' theory on contemporaneous relations | p. 48 |
Measuring the effects of monetary policy | p. 51 |
Identification using 'tentative' theory on long-run relations | p. 54 |
National macroeconomic modelling in a global context | p. 56 |
VARX models: VAR models with weakly exogenous variables | p. 57 |
Developing satellite or sectoral models | p. 59 |
Global vector autoregressive (GVAR) models | p. 62 |
An economic theory of the long run | p. 67 |
Production technology and output determination | p. 68 |
Arbitrage conditions | p. 71 |
Accounting identities and stock-flow relations | p. 74 |
Long-run solvency requirements | p. 75 |
Liquidity (real money balances) | p. 78 |
Imports and exports | p. 78 |
Econometric formulation of the model | p. 81 |
An economic theory of the short run | p. 87 |
Modelling monetary policy | p. 89 |
The monetary authority's decision problem | p. 89 |
The derivation of the base rate | p. 92 |
The structural interest rate equation | p. 96 |
Alternative model specifications | p. 98 |
Forecast-inflation targeting | p. 98 |
Choice of targets and their desired levels | p. 99 |
Econometric methods: A review | p. 105 |
Augmented VAR or VARX models | p. 107 |
The structural VARX model | p. 107 |
The reduced form VARX model | p. 109 |
Impulse response analysis | p. 110 |
Cointegrating VAR models | p. 117 |
Treatment of the deterministic components | p. 118 |
Trace and maximum eigenvalue tests of cointegration | p. 122 |
Identifying long-run relationships in a cointegrating VAR | p. 123 |
Estimation of the short-run parameters of the conditional VEC model | p. 128 |
Analysis of stability of the cointegrated system | p. 129 |
Impulse response analysis in cointegrating VARs | p. 132 |
The cointegrated VAR model with I(1) exogenous variables | p. 135 |
Small sample properties of test statistics | p. 140 |
Empirical distribution of impulse response functions and persistence profiles | p. 141 |
Probability forecasting: Concepts and analysis | p. 145 |
Probability forecasting | p. 145 |
Probability forecasts in a simple univariate AR(1) model | p. 147 |
Modelling forecast uncertainties | p. 153 |
Future and parameter uncertainties | p. 153 |
Model uncertainty: Combining probability forecasts | p. 157 |
Bayesian model averaging | p. 158 |
Pooling of forecasts | p. 159 |
Computation of probability forecasts: Some practical issues | p. 161 |
Computation of probability forecasts using analytic methods | p. 163 |
Computation of probability forecasts based on VAR models by stochastic simulation | p. 164 |
Generating simulated errors | p. 166 |
Estimation and forecasting with conditional models | p. 168 |
The UK macroeconomy | p. 171 |
Domestic and foreign output | p. 173 |
Domestic and foreign prices | p. 178 |
Exchange rates | p. 187 |
Domestic and foreign interest rates | p. 189 |
Real money balances relative to income | p. 193 |
A long-run structural model of the UK | p. 197 |
The different stages of estimation and testing | p. 198 |
Unit root properties of the core variables | p. 200 |
Testing and estimating of the long-run relations | p. 204 |
Small sample properties of the tests of restrictions on the cointegrating vectors | p. 208 |
The vector error correction model | p. 209 |
The long-run estimates | p. 209 |
Error correction specifications | p. 212 |
Comparing the core model with benchmark univariate models | p. 218 |
An alternative model specification | p. 221 |
Impulse response and trend/cycle properties of the UK model | p. 225 |
Identification of monetary policy shocks | p. 227 |
Estimates of impulse response functions | p. 231 |
Effects of an oil price shock | p. 232 |
Effects of a foreign output equation shock | p. 236 |
Effects of a foreign interest rate equation shock | p. 239 |
Effects of a monetary policy shock | p. 242 |
Trend/cycle decomposition in cointegrating VARs | p. 248 |
Relationship of GRW and BN decompositions | p. 250 |
Computation of the GRW decomposition | p. 252 |
An application to the UK model | p. 254 |
Concluding remarks | p. 260 |
Probability event forecasting with the UK model | p. 263 |
An updated version of the core model | p. 264 |
Estimation results and in-sample diagnostics | p. 265 |
Model uncertainty | p. 266 |
Evaluation and comparisons of probability forecasts | p. 269 |
Probability forecasts of inflation and output growth | p. 274 |
Point and interval forecasts | p. 275 |
Predictive distribution functions | p. 278 |
Event probability forecasts | p. 280 |
A postscript | p. 286 |
Concluding remarks | p. 286 |
Global modelling and other applications | p. 289 |
Recent applications of the structural cointegrating VAR approach | p. 289 |
Regional interdependencies and credit risk modelling | p. 292 |
A monthly version of the core model | p. 297 |
Probability forecasting and measuring financial distress in the UK | p. 303 |
A satellite model of the UK financial sector | p. 303 |
UK financial distress in the early 1990s and early 2000s | p. 305 |
Directions for future research | p. 306 |
Concluding remarks | p. 309 |
Appendices | |
Derivation of the interest rate rule | p. 315 |
The relationship between policy instruments and targets | p. 316 |
Deriving the monetary authority's reaction function | p. 318 |
Inflation targeting and the base rate reaction function | p. 319 |
Reaction functions and targeting future values of variables | p. 320 |
Invariance properties of the impulse responses with respect to monetary policy shocks | p. 323 |
Data for the UK model | p. 327 |
Definitions and sources of the core model variables | p. 327 |
Gauss programs and result files | p. 333 |
General comments on the Gauss programs | p. 334 |
Impulse response and persistence profile programs | p. 334 |
Programs for computing probability forecasts | p. 337 |
Programs for computing out-of-sample probability event forecasts | p. 338 |
Programs for computing in-sample probability event forecast evaluation | p. 339 |
Program for computing the decomposition of trends in cointegrating VARs | p. 342 |
Bibliography | p. 343 |
Index | p. 363 |
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