Michał Rubaszek

On the Empirical Evidence of the Intertemporal Current Account Model for the Euro Area Countries

In this paper we present a novel approach to the empirical validation of the intertemporal approach to the current account. We develop a calibrated model highlighting the role of consumption smoothing and capital accumulation in the economic convergence process. After solving the model, we derive the theoretical values for the euro area countries’ current account, testing to what extent they match reality. The model explains most of the dispersion in the current account and saving ratio, though cannot equally well capture differences in the investment ratios. The conclusion that we draw is that consumption smoothing, based on expectations of economic convergence, is driving the current account of the euro area countries over medium-term horizons. Capital accumulation appears to play a less pronounced role. JEL Classification: D91, F36, F41

Firms in the Great Global Recession: The Role of Foreign Ownership and Financial Dependence

This paper investigates the channels through which the global crisis of 2008-2009 spread to economic activity of an emerging, fast growing economy with sound macroeconomic fundamentals. On the basis of Polish firm-level data we find that a number of individual firm characteristics account for a heterogeneous response. In particular, foreign ownership appears to have provided a higher degree of resilience to the crisis. Our results indicate that this effect might be due to intra-group lending mechanisms supporting affiliates facing external credit constraints.

A Model of Balance of Payments Equilibrium Exchange Rate

In this article we present the balance of payments equilibrium exchange rate model and its empirical application to the Polish zloty. Results of the estimation indicate that in 1995-99 the zloty was not misaligned, while in 2000-2001 it was overvalued by about 10-15 percent, and, after considerable depreciation in 2002, it returned to the equilibrium level.

Determinants of Credit to Households in a Life-Cycle Model

This paper applies a life-cycle model with individual income uncertainty to investigate the determinants of credit to households. We show that the value of household credit to GDP ratio depends on (i) the lending-deposit interest rate spread, (ii) individual income uncertainty, (iii) individual productivity persistence, and (iv) the generosity of the pension system. Subsequently, we provide empirical evidence for the predictions of the theoretical model on the basis of data for OECD and EU countries.

Monetary Policy in a Non-Representative Agent Economy: A Survey

It is well known that central bank policies affect not only macroeconomic aggregates, but also their distribution across economic agents. Similarly, a number of papers demonstrated that heterogeneity of agents may matter for the transmission of monetary policy to macro variables. Despite this, the mainstream monetary economics literature has so far been dominated by dynamic stochastic general equilibrium models with representative agents. This paper aims to tilt this imbalance towards heterogeneous agents setups by surveying the main positive and normative findings of this line of the literature, and suggesting areas in which these models could be implemented. In particular, we review studies that analyse the heterogeneity of (i) households’ income, (ii) households’ preferences, (iii) consumers’ age, (iv) expectations and (v) firms’ productivity and financial position. We highlight the results on issues that, by construction, cannot be investigated in a representative agent framework and discuss important papers modifying the findings from the representative agent literature.

Real Exchange Rate Forecasting and PPP: This Time the Random Walk Loses

This paper brings four new insights into the Purchasing Power Parity (PPP) debate. First, we show that a half-life PPP (HL) model is able to forecast real exchange rates better than the random walk (RW) model at both short and long-term horizons. Second, we find that this result holds if the speed of adjustment to the sample mean is calibrated at reasonable values rather than estimated. Third, we find that it is preferable to calibrate, rather than to elicit as a prior, the parameter determining the speed of adjustment to PPP. Fourth, for most currencies in our sample, the HL model outperforms the RW also in terms of nominal effective exchange rate forecasting.

Real Exchange Rate Forecasting: A Calibrated Half-life PPP Model Can Beat the Random Walk

This paper brings two new insights into the Purchasing Power Parity (PPP) debate. First, even if PPP is thought to hold only in the long run, we show that a half-life PPP model outperforms the random walk in real exchange rate forecasting, also at short-term horizons. Second, we show that this result holds as long as the speed of adjustment to the sample mean is imposed and not estimated. The reason is that the estimation error of the pace of convergence distorts the results in favor of the random walk model, even if the PPP holds in the long-run.

How frequently should we re-estimate DSGE models?

A common practice in policy making institutions using DSGE models for forecasting is to re-estimate them only occasionally rather than every forecasting round. In this paper we ask how such a practice affects the accuracy of DSGE model-based forecasts. To this end we use a canonical medium-sized New Keynesian model and compare how its quarterly real-time forecasts for the US economy vary with the interval between consecutive re-estimations. We find that updating the model parameters only once a year usually does not lead to any significant deterioration in the accuracy of point forecasts. On the other hand, there are some gains from increasing the frequency of re-estimation if one is interested in the quality of density forecasts.

Forecasting the Polish zloty with non-linear models

The literature on exchange rate forecasting is vast. Many researchers have tested whether implications of theoretical economic models or the use of advanced econometric techniques can help explain future movements in exchange rates. The results of the empirical studies for major world currencies show that forecasts from a naive random walk tend to be comparable or even better than forecasts from more sophisticated models. In the case of the Polish zloty, the discussion in the literature on exchange rate forecasting is scarce. This article fills this gap by testing whether non-linear time series models are able to generate forecasts for the nominal exchange rate of the Polish zloty that are more accurate than forecasts from a random walk. Our results confirm the main findings from the literature, namely that it is difficult to outperform a naive random walk in exchange rate forecasting contest.

Can a Simple DSGE Model Outperform Professional Forecasters

DSGE models have recently become one of the most frequently used tools in policy analysis. Nevertheless, their forecasting proprieties are still unexplored. In this article we address this problem by examining the quality of forecasts from a small size DSGE model, a trivariate VAR model and the Philadelphia Fed Survey of Professional Forecasters. The forecast performance of these methods is analysed for the key U.S. economic variables: the three month Treasury bill yield, the GDP growth rate and the GDP price index inflation. We evaluate the ex post forecast errors on the basis of the data from the period of 1994–2006. We apply the Philadelphia Fed “Real-Time Data Set for Macroeconomists,” described by Croushore and Stark (2001a), to ensure that the information available to the SPF was exactly the same as the data used to estimate the DSGE and VAR models. Overall, the results are mixed. It appears that when comparing the root mean squared errors for some forecast horizons the DSGE model seems to outperform the SPF in forecasting the GDP growth rate. However, this characteristic turned out to be not statistically significant. In principle most forecasts of the GDP price index inflation and the short term interest rate by the SPF are significantly better than those from the DSGE model. The forecast quality of the VAR model turned out to be the worst one.