Christian Pierdzioch

Financial Openness and Business Cycle Volatility

This paper discusses whether the integration of international financial markets affects business cycle fluctuations. In the framework of a new open economy macro-model, we show that the link between financial openness and business cycle volatility depends on the nature of the underlying shock. Empirical evidence supports this conclusion. Our results also show that the link between business cycle volatility and financial openness has not been stable over time.

Do professional economists’ forecasts reflect Okun's law? Some evidence for the G7 countries

Using survey data for the G7 countries, we report that professional economists’ forecasts of changes in the unemployment rate and the growth rate of real output are consistent with Okuns law. Professional economists do not believe in potential asymmetries in Okuns law over the business cycle. They believe in the classic linear version of Okuns law.

The Integration of Imperfect Financial Markets: Implications for Business Cycle Volatility

During the last two decades, the degree of openness of national financial systems has increased substantially. At the same time, asymmetries in information and other financial market frictions have remain prevalent. We study both empirically and theoretically the implications of the opening up of national financial systems in the presence of financial market frictions for business cycle volatility. In our empirical analysis, we demonstrate that stylised facts suggest that countries with more developed financial systems have lower business cycle volatility. Financial openness has no strong impact on business cycle volatility, in contrast. In our theoretical analysis, we use a dynamic general equilibrium model to study the implications of the opening up of national financial markets and of financial market frictions for business cycle volatility. We find that the implications of opening up national financial markets for business cycle volatility are largely unaffected by the presence of financial market frictions.

Monetary Policy Rules and Oil Price Shocks

This paper studies the relative performance of alternative monetary policy rules in the presence of oil price shocks in a small open economy optimizing model. Our analysis shows that it is important to distinguish between alternative price indices (CPI, core CPI, and GDP deflator) when modeling the effects of oil price increases. This distinction has important implications for monetary policy as the central bank has to decide which inflation rate to target. Our results demonstrate that targeting the change in the GDP deflator is an inferior monetary policy strategy in the presence of oil price shocks.

Do exchange-rate forecasters herd?

We used the foreign-exchange-rate forecasts of the Wall Street Journal (WSJ) poll to analyse whether exchange-rate forecasters herd or anti-herd. Forecasters herd (anti-herd) if their forecasts are biased towards (away from) the consensus forecast. Upon implementing a robust empirical test developed by Bernhardt et al. (2006), we found that forecasters of the yen/dollar and the dollar/euro exchange rates anti-herd.

Real-Time Forecasting and Political Stock Market Anomalies: Evidence for the United States

Using monthly data from 1953 to 2003, we apply a real-time modeling approach to investigate the implications of U.S. political stock market anomalies for forecasting excess stock returns in real-time. Our empirical findings show that political variables, chosen on the basis of widely used model-selection criteria, are often included in real-time forecasting models. However, political variables do not contribute systematically to improving the performance of simple trading rules. For this reason, political stock market anomalies are not necessarily an indication of market inefficiency.

Modeling coordinated foreign exchange market interventions: The case of the Japanese and U.S. interventions in the 1990s

During the past thirty years, central banks often intervened in foreign exchange markets. Sometimes they carried out foreign exchange market interventions on a unilateral basis. However, central banks often coordinated their foreign exchange market interventions. We develop a quantitative reaction function model that renders it possible to study the factors that made central banks switch from unilateral to coordinated interventions. We apply our model to the intervention policies of the Japanese monetary authorities and the U.S. Federal Reserve in the yen/U.S. dollar market during the period 1991–2001. To this end, we use recently released official data on the foreign exchange market interventions of the Japanese monetary authorities. JEL no. F31, F33, G14, G15

Bank of Japan and Federal Reserve Interventions in the Yen/ U.S. Dollar Market: Estimating the Central Banks' Reaction Functions

This paper uses recently released official data on the foreign exchange market interventions of the Bank of Japan (BoJ) in the yen/U.S. dollar market during the period 1991-2001 in order to examine the motivation for the intervention policy of the BoJ. We also compare the intervention policy of the BoJ and the Federal Reserve. Our results suggest that the BoJ regularly responded to deviations of the yen/U.S. dollar exchange rate from a short-term and a long-term exchange rate target. By contrast, the Fed intervened only occasionally and seemed to have merely reinforced BoJ interventions.

Periodically collapsing bubbles in the German stock market, 1876–1913

The present-discounted value model of stock price determination implies that, rational bubbles being absent, stock prices and dividends should be cointegrated. The results of tests for noncointegration indicate that the possibility of periodically collapsing rational bubbles in the German stock market before World War I cannot be ruled out.

Does The Ecb Have A Time‐Inconsistency Problem? A Note

A standard time-inconsistency model of monetary policy, extended to include a time-varying natural rate of unemployment, implies cointegration between the inflation rate and the unemployment rate. An application of the model to data for the EMU countries does not yield strong evidence of cointegration. In addition, the sign of the estimated coefficient of cointegration is not in line with a sign restriction imposed by the time-inconsistency model.