This paper provides a review of the empirical macroeconomic model (EMMA) built for forecasting purposes at the Finnish Labour Institute for Economic Research. The model is quite small, consisting of 71 endogenous and 70 exogenous variables. The number of behavioural equations is 15. The basis of the model is Keynesian, although the model has some novel properties. They are the treatment of the supply side and prices that follow the routes of the neoclassical synthesis. The parameters of the model are estimated from quarterly data that cover the years 1990–2005. The model also contains a Kalman-filtered variable to control the deep recession in Finland at the beginning of the ’90s. This special feature brings the model closer to the new calibrated models.
My master thesis on exchange rate modelling and imperfect knowledge. With a exchange rate model including risk, based on the Vector Auto Regressive (VAR) method.
This paper provides a review of the empirical macroeconomic model (EMMA) built for forecasting purposes at the Finnish Labour Institute for Economic Research. The model is quite small, consisting of 71 endogenous and 70 exogenous variables. The number of behavioural equations is 15. The basis of the model is Keynesian, although the model has some novel properties. They are the treatment of the supply side and prices that follow the routes of the neoclassical synthesis. The parameters of the model are estimated from quarterly data that cover the years 1990–2005. The model also contains a Kalman-filtered variable to control the deep recession in Finland at the beginning of the ’90s. This special feature brings the model closer to the new calibrated models.
My master thesis on exchange rate modelling and imperfect knowledge. With a exchange rate model including risk, based on the Vector Auto Regressive (VAR) method.
here we are trying to explain how firms can benefit from forecasting exchange rate, to describe common technique that used to forecast, how to evaluate forecasting performance
here we are trying to explain how firms can benefit from forecasting exchange rate, to describe common technique that used to forecast, how to evaluate forecasting performance
Fundamental analysis is really a logical and systematic approach to estimating the future dividends and share price.
It is based on the basic premise that share price is determined by a number of fundamental factors relating to the economy, industry and company.
It is a detailed analysis of the fundamental factors affecting the performance of companies.
Each share is assumed to have an economic worth based on its present and future earning capacity. This is called its intrinsic value or fundamental value.
The purpose of fundamental analysis is to evaluate the present and future earning capacity of a share based on the economy, industry and company fundamentals.
The investor can compare the intrinsic value of the share with the prevailing market price to arrive at an investment decision.
If the market price of the share is lower than the its intrinsic value, the investor would decide to buy the share as it is underpriced.
The price of such a share is expected to move up in future to match with its intrinsic value
When the market price of a share is higher than its intrinsic value, it is perceived to be overpriced.
The market price of such share is expected to comedown in future.
The investor would decide to sell such a share
When the market price of a share is higher than its intrinsic value, it is perceived to be overpriced.
The market price of such share is expected to comedown in future.
The investor would decide to sell such a share
The fundamental analysis thus involves 3 steps:
Economic analysis
Industry analysis
Company analysis
The performance of a company depends on the performance of the economy.
If the economy grows rapidly, the industry can also be expected to show rapid growth and vice versa.
When the level of economic activity is low, stock prices are low, and when the level of economic activity is high, stock prices are high reflecting the prosperous outlook for sales and profits of the firms.
A study of these economic variables would give an idea about future corporate earnings and the payment of dividends and interest to investors.
The following are the some of the key economic variables that an investor must monitor as part of his fundamental analysis.
Growth Rates of National Income
Inflation
Interest Rates
Budget
The balance of payment
Infrastructure
Monsoon
Economic and Political Stability
GNP (Gross national product), NNP (Net national product) and GDP (Gross domestic product) are the different measures of the total income or total economic output of the country as a whole.
The growth rates of these measures indicate the growth rate of the economy.
The estimate of GNP, NNP and GDP and their growth rates are made available by the government from time to time.
An economy typically passes through different phases of prosperity known as the different stages of the economic or business cycle
The stage of the economic cycle through which a country passes has a direct impact on the performance of industries an
5th International Disaster and Risk Conference IDRC 2014 Integrative Risk Management - The role of science, technology & practice 24-28 August 2014 in Davos, Switzerland
The best way to invest your surplus money and
take back the best rate of return among all financial investment
avenues is to invest in the Stock Market. And stock markets give
us the most common, the most successful way of Investment i.e.
Equity shares. We have a fixed Income bearing Securities. But
when it comes to analysis part, the equity shares become the most
difficult part. Equity shares have two great features and that of
Risk lunation inherent in it and the growth that market forces of
demand and supply provide it.
As an investor you should know that what your top priority
as an investor is. There are many ways of doing investment.
Every investment decision has two parts – Risk and Return. The
article is an attempt to improve your ability in the fields of
investments especially for equity shares or equity stock or which
represents the direct ownership securities. So try to know the
intrinsic value of the equity stock, not only mathematically but
try to measure how fundamentally strong the equities going to be
in which you will be investing.
1. Fixed investment, uncertainty and
financial market volatility in Japan
Luke Meehan, PhD Candidate in Economic Policy
AJBCC Scholar @ AJRC
Crawford School of Public Policy
2. 2
Outline
• Aim
• Why is investment interesting?
• Why may uncertainty be important?
• A simple model
• Which variables and data sources matter?
• What empiric method is appropriate?
• Simulation results
• Conclusion
3. Aim
To consider the theory that “uncertainty shocks”
embody variations in the distribution of expected returns
to capital goods investment
By evaluating the stochastic impact of uncertainty on
Japanese private fixed investment patterns
And so understand the causes of Japanese private
fixed investment variation during the ‘Lost Decade(s)’.
3
4. Why is investment interesting?
4
13.55
13.65
13.75
13.85
13.95
14.05
14.15
14.25
70
80
90
100
110
120
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160
1987.2
1988.2
1989.2
1990.2
1991.2
1992.2
1993.2
1994.2
1995.2
1996.2
1997.2
1998.2
1999.2
2000.2
2001.2
2002.2
2003.2
2004.2
2005.2
2006.2
2007.2
2008.2
2009.2
2010.2
Yen/USD
Machinery Investment
Horioka (2006) found that the
proximate cause of Japan’s Lost
Decade were falls in inventory and
fixed investment, particularly private
fixed investment.
This sits well with most modern macro
models, in which investment is a key
driver of cycles and trends.
The question about what caused these
investment falls remains open, with
financing constraints, long-term TFP /
demographic trends and policy
uncertainty all found in the literature.
But neither supply nor demand factors
seem able to provide the necessary
richness of relationship. (Kasahara,
Sawada, Suzuki 2012) -4.00
-3.00
-2.00
-1.00
0.00
1.00
2.00
3.00
4.00
Mfn Labor Costs, %
Real interest rates
6. …with uncertainty
• Uncertainty might be important for investment if it is related the anticipated
returns on irreversible investment under uncertainty.
– As per a theory first sighted in Nick Bloom’s IMF presentation, but probably existing elsewhere
• Under this concept, uncertainty is the anticipated shape of the return to
investment distribution. This can impact investment decisions by increasing the
‘real option’ value of waiting as well as via manager risk-aversion.
• Note, volatility is the realisation of unanticipated uncertainty.
6
7. Variables and data, (1)
Wanted: E(R), Var(E(R)), E(Costs)
– Also important to distinguish between anticipated and
unanticipated variance
E(R), Var(E(R)), E(Costs) are unobservable at a macro level
– and imperfectly observable at the micro
And so we need to use a series of instruments which are:
– available to decision-makers
– theoretically-sound
– useful to the wider literature
Period: 1987Q2: 2011Q1, quarterly
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8. Variables and data, (2)
Private fixed investment: Property, Plant, Equipment.
• property likely to be a bit odd post-bubble, so want plant and equipment
• use ESRI’s ‘Private machinery orders’ data, seasonally adjusted
E(Costs): Labour and Capital
• whilst both are relatively stable, real interest rates show more variation
• use BoJ’s discount rate, turned into real rate with CPI from MIAC
E(R): the current value of mean anticipated future returns
• this sounds usefully similar to definition of fundamental value of a
financial asset, so Nikkei 225 Index used
Var(E(R): the spread and skew of the returns distribution curve
• significant behavioural literature showing as distribution of potential
outcomes increases, so does the degree to which individuals are
decreasingly confident in making a decision entailing risk
• use BoJ’s ‘Tankan’ business confidence survey, seasonally adjusted
8
11. Results 1 – investment impulses
• In the short term, machinery exhibits
positive autocorrelation, typically
becoming neutral after 8-quarters.
• Increases in machinery purchases
consistently and constantly lower
Tankan indications.
• Real interest rate responses appear
consistent and negative at 4-
quarters, becoming volatile and
positive in 8-12 quarters.
• The Nikkei Index responds
consistently positively at 4- quarters,
becoming volatile and generally
positive in 8-12 quarters.
11
12. Results 2 – real interest impulses
• Machinery purchases are
relatively unresponsive at early
time periods, but in later periods a
short-term positive response is
observable. This response decays
to a slight negative response at
the 1 year point.
• Real interest rate autocorrelation
appears to decay over 3 years.
• Throughout the estimation period,
real interest rates spikes increase
business confidence in the short-
term, but with varying results in
the medium-term.
• The Nikkei 225 Index typically
exhibits at negative short- and
medium-term response to real
interest rate increases
12
13. Results 3 – Tankan impulses
• Machinery purchases exhibit
significant ‘noise’ in response to
Tankan variations.
• Tankan autocorrelation is does
not appear to fully decay over
the 3-year period
• The Nikkei relation is generally
neutral, but becomes strongly
positive during and after the
Asian Financial Crisis and the
Global Financial Crisis
• The real rate of interest falls in
response to Tankan spikes, but
this response typically decays
over 3 years
13
14. Results 4 – Nikkei impulses
• Machinery purchases respond
positively to Nikkei innovations
over the 1- and 2-year horizon,
typically decaying by 3 years.
• The Tankan reacts positively over
1- and 2-years to the Nikkei. The 3-
year points are less clear, but
appear to inversely reflect business
cycle trends.
• The real interest rate is neutral to
slightly negative in response, a
consistent relation across the
period.
• The Nikkei’s level response
appears consistent and positive
after 12 quarters.
14
17. Conclusion
• This paper sought to understand the relationship between
investment, uncertainty and Japan’s Lost Decade.
• The simulations present evidence of a relationship between
uncertainty and investment that of important magnitude and
duration.
• The direction of investment responses to uncertainty shocks
are as anticipated in the model
• The results add credence to the theory that variations in
uncertainty alter the shape of the distribution of expected
returns to investment and are therefore important business
cycle events.
17