Riccardo Cristadoro

New Eurocoin: Tracking Economic Growth in Real Time

This paper presents ideas and methods underlying the construction of an indicator that tracks the euro area GDP growth, but, unlike GDP growth, (i) is updated monthly and almost in real time; (ii) is free from hort-run dynamics. Removal of short-run dynamics from a time series, to isolate the mediumlong-run component, can be obtained by a band-pass filter. However, it is well known that band-pass filters, being two-sided, perform very poorly at the end of the sample. New Eurocoin is an estimator of the medium- long-run component of the GDP that only uses contemporaneous values of a large panel of macroeconomic time series, so that no end-of-sample deterioration occurs. Moreover, as our dataset is monthly, New Eurocoin can be updated each month and with a very short delay. Our method is based on generalized principal components that are designed to use leading variables in the dataset as proxies for future values of the GDP growth. As the medium- long-run component of the GDP is observable, although with delay, the performance of New Eurocoin at the end of the sample can be measured.

Real Exchange Rate Volatility and Disconnect: An Empirical Investigation

A two-country model that incorporates many features proposed in the New Open Economy Macroeconomics literature is developed in order to replicate the volatility of the real exchange rate and its disconnect with macroeconomic variables. The model is estimated using data for the euro area and the U.S. and Bayesian methods. The analysis delivers the following results: (a) international price discrimination, home bias and shocks to the uncovered interest rate parity (UIRP) condition are key features to replicate the variance of the real exchange rate; (b) home bias, shocks to the UIRP condition and to production technologies help replicating the disconnect;(c) distribution services intensive in local nontradeables are an important source of international price discrimination.

Monetary policy in India: is something amiss?

Purpose - Indian monetary policy performed reasonably well in the past, while both strategy and operational framework were evolving on par with domestic financial and monetary markets. The purpose of this paper is to document how this good track record came to an abrupt stop in recent years as inflation rose sharply and, more worryingly, expected inflation followed suit. Design/methodology/approach - This paper has analytical, empirical and policy dimensions. Given the recent surge in inflation in India, as well as in inflation expectations, a discussion of the role of monetary policy is needed. This is presented by resorting to survey evidence on expectations as well as to indirect evidence inferred from the market reactions to macroeconomic news. Findings - The authors documented the unhinging of inflation expectations in India in the aftermath of the financial crisis. The evidence gathered leads to the conclusion that both the monetary policy strategy and framework of the Reserve Bank of India would benefit from further evolution in the direction of a precisely defined and overarching objective (price stability), instead of the present multiplicity of goals, and of a well-defined operating target, enhancing the transparency, communication and signalling effect of policy moves. The authors suggest that embracing a flexible inflation targeting approach is a possible solution. Originality/value - This is a highly topical issue that has attracted a great deal of attention in policy discussions, both in India and in the region. Very few papers combine the analytical and empirical considerations in this topic.

Are Firms Exporting to China and India Different from Other Exporters

This chapter asks if and why advanced countries differ in their ability to export to China and India. To this end we exploit a newly collected, comparable cross-country dataset (EFIGE) obtained from a survey of 15,000 manufacturing firms in Austria, France, Germany, Hungary, Italy, Spain and the United Kingdom. The EFIGE dataset contains detailed information on firms international activities as well as firm characteristics such as size and productivity, governance and management structure, workforce, innovation and research activity. We study both the extensive and intensive margins of exports and identify firm characteristics that are positively or negatively correlated with exporting activity tout court and with exporting to China and India conditional on being an exporter. We confirm previous rich evidence and show that larger, more productive, and more innovative firms are more likely to become exporters and export more. We also provide some new evidence on the role of governance and management: while there does not seem to be a strong negative effect of family ownership, we find that a higher percentage of family management reduces a firms export propensity and export volumes. When we turn to exports to China and India, we find that firms exporting there must be on average larger, more productive, and more innovative than firms exporting elsewhere.

Tracking the Economy in the Largest Euro Area Countries: a Large Datasets Approach

The paper proposes a set of monthly business (growth-) cycle indicators for Germany, France, Italy and the euro area useful for ex post characterization of the cycle, and, most importantly, to assess the current economic outlook. These indicators are projections of quarterly aggregates on the space spanned by a set of regressors extracted from a large panel of monthly series. Being based on static linear combinations of monthly series, they do not suffer from the end-of-sample problem associated with traditional bilateral filters (HP filter). The indicators are used to: (1) study the degree of co-movement and synchronization across economies; (2) derive a dating of the cycle; (3) obtain the ‘stylized’ cyclical facts; (4) assess the predictive content of the panel for GDP growth. The monthly indicators are good forecasters of GDP performing often better than other simple methods. As expected, since the growth cycle indicator is a ‘smoothed’ estimate of the GDP growth, the best forecasts are obtained in terms of year-on-year (rather than quarter-on-quarter) GDP growth.