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This paper uses the Consensus Economic Forecast poll to investigate how forecasters in the foreign exchange market form expectations. In order to explain the expectation formation of forecasters, around 50,000 forecasts for 22 OECD-member currencies are analyzed. The results indicate that forecasters do not form expectations rationally when tested for unbiasedness and orthogonality. The results also suggest that forecasts for industrialized economies show a mix of trend-following and fundamentally-oriented behavior. By contrast, forecasts for emerging markets show significantly more destabilizing expectations. We find forecasting tendencies to strengthen in the short-run and medium-run when controlling for the Balassa-Samuelson effect. For long-run forecasts however this can not be confirmed.
In this paper, we study the bias in interest rate projections for four central banks, namely for Czech Republic, New Zealand, Norway, and Sweden. We examine whether central bank projections are based on an asymmetric loss function and report evidence that central banks perceive an overprojection of their longer-term interest rate forecasts as twice as costly as an underprojection of the same size. We document that rationality is consistent with biased interest rate projections which contribute to explaining the central banks’ behavior.
We use data from the Consensus Economics Forecast Poll to analyze how current account forecasters form expectations. Our results suggest that forecasts do not satisfy traditional unbiasedness and orthogonality criteria for forecast rationality. In addition, we find anti-herding behavior among forecasters for the Euro area and G7 countries. We also show that the cross-sectional heterogeneity in anti-herding is associated with cross-sectional heterogeneity in forecast accuracy. More specifically, we find some evidence indicating that forecasters who tend to herd provide more accurate forecasts than their colleagues who follow an anti-herding strategy.
This paper studies the effect of the strength of Bilateral Investment Treaties (BITs) on FDI activity. We develop an index for the strength of international dispute settlement provisions included in BITs in order to examine the role the content of BITs plays in attracting FDI. To this end we make use of data from the UNCTAD's International Investment Agreement Mapping Project and measure the provision strength of 1,676 BITs. Using panel data of bilateral and total inward FDI flows and stocks we study the effect of BITs on FDI. Our main finding indicates that stronger international dispute settlement provisions in BITs are indeed associated with positive effects on FDI activity.
In der vorliegenden Studie werden die finanzwirtschaftlichen und makroökonomischen Effekte der Einführung einer Leverage Ratio Regel in das internationale Bankensystem untersucht. Die Leverage Ratio ist eine risikoungewichtete Maßzahl zur Bestimmung der Eigenkapitalausstattung von Banken. Sie soll an die Seite der herkömmlichen Basel II Regeln gestellt werden, die das Risiko bei der Bestimmung des geforderten Eigenkapitals berücksichtigen. Die Studie kommt zu folgenden Ergebnissen: Erstens setzt die Leverage Ratio Anreize, die in eine unerwünschte Richtung gehen. Sie schafft Anreize für Banken, Bilanzpositionen in Zukunft verstärkt über den Kapitalmarkt abzuwickeln, Absicherungspositionen in Derivaten aufzulösen und das Kreditangebot zurück zu fahren. Zweitens benachteiligt die Leverage Ratio deutsche Banken stärker als andere europäische oder angelsächsische Banken. Drittens sind die volkswirtschaftlichen Auswirkungen der Einführung einer Leverage Ratio markant. Sie dürfte zu einer Reduzierung des Kreditangebots und damit zu einer Verlangsamung der wirtschaftlichen Aktivität führen. Dennoch gehen die Autoren dieser Studie davon aus, dass die Leverage Ratio als weiteres Regulierungselement kommen wird. Dieses Gutachten rät aber dazu, die Leverage Ratio nur mit einer beträchtlichen Übergangsfrist einzuführen. Dadurch kann den Banken Gelegenheit gegeben werden, die Anpassung des tatsächlichen an das regulatorische Niveau der Leverage Ratio über die Bildung von Eigenkapital zu erreichen. Dies würde auch unerwünschte volkswirtschaftliche Kosten zu vermeiden helfen.
Inflation targeting matters!
(2008)
Proponents of inflation targeting argue that such a strategy directly influences expectation formation processes in financial markets. This paper provides a novel test for the evidence that financial market expectations are formed differently under inflation targeting regimes. Using forecasts for the short-term interest rate, the inflation rate, and output growth for ten emerging markets in Latin-America, central and eastern Europe out of which six economies are inflation targeting economies we estimate expected Taylor-type rules. We find evidence for differences in the expectation formation process in the sense that the well-known Taylor principle fairly holds for countries which adopt an inflation targeting system, while for the other countries it does not.
"Ex-ante" Taylor rules
(2008)
This paper addresses the question whether financial market participants apply the framework of Taylor-type rules in their forecasts for the G7 countries. Therefore, we use the Consensus Economic Forecast poll providing us a unique data set of inflation, interest and growth rate forecasts for the time period 1989 - 2007. We provide evidence that Taylor-type rules frameworks are present in forecasts of financial markets. Thus, the paper, uses ex-ante data for the estimation of Taylor rules. This is novel, since so far only ex-post (revised) or real-time data have been applied.