FEDERAL RESERVE BANK OF ATLANTA (2008)
Thomas J. Sargent, Mark W. Watson
ABSTRACT. The dynamics of a linear (or linearized) dynamic stochastic economic model can be expressed in terms of matrices (A,B,C,D) that define a state space system for a vector of observables. An...
Federal Reserve Bank of Richmond (2007)
Robert G. King, Mark W. Watson
Linear rational expectations models are the workhorse of modern dynamic economics. We provide necessary and su¢cient conditions for the solvability of a general rational expectations model called a...
Thomas Knox, James H. Stock, Mark W. Watson
We consider both frequentist and empirical Bayes forecasts of a single time series using a linear model with T observations and K orthonormal predictors. The frequentist formulation considers...
Preliminary Draft Comments Welcome Forecasting Output And Inflation: The Role Of Asset Prices (2007)
May Revised June, James H. Stock, Mark W. Watson
This paper first reviews the large literature on the prediction of real economic activity and inflation using asset prices. We then undertake our own assessment of the practical value of the...
James H. Stock, Mark W. Watson
The volatility of economic activity in most G7 economies has moderated over the past forty years. Also, despite large increases in trade and openness, G7 business cycles have not become more...
Prices, Wages and the U.S. NAIRU in the 1990s (2007)
Douglas Staiger, Douglas Staiger, James H. Stock, James H. Stock, Mark W. Watson, Mark W. Watson
Using quarterly macro data and annual state panel data, we examine various explanations of the low rate of price inflation, strong real wage growth, and low rate of unemployment in the U.S. economy...
Replication data for: Relative Goods' Prices and Pure Inflation (2007)
This paper uses a dynamic factor model for the quarterly changes in consumption goods’ prices to separate them into three components: idiosyncratic relative-price changes, aggregate relative-price...
Watson, Mark W., West, Kenneth D. (Kenneth David)
Journal of Money, Credit, and Banking - Volume 37, Number 3, June 2005
Implications of dynamic factor models for VAR analysis (2005)
James H. Stock, Mark W. Watson, Jel C E
This paper considers VAR models incorporating many time series that interact through a few dynamic factors. Several econometric issues are addressed including estimation of the number of dynamic...
Oil Shocks and Aggregate Macroeconomic Behavior: The Role of Monetary Policy: A Reply (2004)
Bernanke, Ben., Gertler, Mark., Watson, Mark W.
Journal of Money, Credit, and Banking - Volume 36, Number 2, March 2004
Rhinovirus is not detectable in peripheral lung tissue after asthma death (2003)
Watson, Mark W., Beasley, Rrichard, Holgate, Stephen T., Bardin, Philip G.
Objective: Viral infections are associated with both mild and severe exacerbations of asthma and may therefore be associated with asthma death. As such we hypothesized that it might be possible to...
Macroeconomic Forecasting Using Many Predictors (2000)
paper. I thank Jean-Philippe Laforte for research assistance. This research was supported by the National
This paper is based on research carried out jointly with James H. Stock, who I thank for comments on this paper. Thanks also to Frank Diebold, Lars Hansen and Lucrezia Reichlin for comments and...
Macroeconomic Forecasting In The Euro Area: Country Specific Versus Area-Wide Information (2000)
Massimiliano Marcellino Istituto, Massimiliano Marcellino, James H. Stock, Mark W. Watson, Professor Mark, W. Watson
This paper compares several time series methods for short-run forecasting of Euro-wide inflation and real activity using data from 1982-1997. Forecasts are constructed from univariate...
Money, Prices, Interest Rates and the Business Cycle (1996)
Robert G. King, Mark W. Watson
The mechanisms governing the relationship of money, prices and interest rates to the business cycle are one of the most studied and most disputed topics in macroeconomics. In this paper, we first...
Robert G. King, Mark W. Watson
A large class of linear dynamic economic models can be represented as …rst order linear di¤erence systems under rational expectations. While seemingly special, this framework has proved to be very...
Applications of Kalman filter models in econometrics--[microform] /--by Mark Wayne Watson. (1980)
Vita.
Implications of Dynamic Factor Models for VAR Analysis
James H. Stock, Mark W. Watson
This paper considers VAR models incorporating many time series that interact through a few dynamic factors. Several econometric issues are addressed including estimation of the number of dynamic...
Measures of Fit for Calibrated Models.
This paper suggests a new procedure for evaluating the fit of a dynamic structural economic model. The procedure begins by augmenting the variables in the model with just enough stochastic error so...
Understanding Changes In International Business Cycle Dynamics
James H. Stock, Mark W. Watson
The volatility of economic activity in most G7 economies has moderated over the past 40 years. Also, despite large increases in trade and openness, G7 business cycles have not become more...
Sources of Business Cycle Fluctuations
Matthew D. Shapiro, Mark W. Watson
What shocks account for the business cycle frequency and long run movements of output and prices? This paper addresses this question using the identifying assumption that only supply shocks, such as...
Time series and spectral methods in econometrics
Granger, C.W.J., Watson, Mark W., Z. Griliches†, M. D. Intriligator
Seasonal Adjustment with Measurement Error Present
Jerry A. Hausman, Mark W. Watson
Seasonal adjustment procedures attempt to estimate the sample realizations of an unobservable economic time series in the presence of both seasonal factors and irregular factors. In this paper we...
Sources of Business Cycle Fluctuations
Matthew D. Shapiro, Mark W. Watson
What shocks account for the business cycle frequency and long run movements of output and prices? This paper addresses this question using the identifying assumption that only supply shocks, such as...
Business Cycle Durations and Postwar Stabilization of the U.S. Economy
The average length of business cycle contractions in the United States fell from 20.5 months in the prewar period to 10.7 months in the postwar period. Similarly, the average length of business cycle...
James H. Stock, Mark W. Watson
This paper examines the forecasting performance of various leading economic indicators and composite indexes since 1988. in particular during the onset of the 1990 recession. The primary focus is on...
Why Has U.S. Inflation Become Harder to Forecast?
JAMES H. STOCK, MARK W. WATSON
We examine whether the U.S. rate of price inflation has become harder to forecast and, to the extent that it has, what changes in the inflation process have made it so. The main finding is that the...
Bubbles, Rational Expectations and Financial Markets
Olivier J. Blanchard, Mark W. Watson
This paper investigates the nature and the presence of bubbles in financial markets. Are bubbles consistent with rationality? If they are, do they, like Ponzi games, require the presence of new...
A Probability Model of The Coincident Economic Indicators
James H. Stock, Mark W. Watson
The Index of Coincident Economic Indicators, currently compiled by the U.S. Department of Commerce, is designed to measure the state of overall economic activity. The index is constructed as a...
Stochastic Trends and Economic Fluctuations
Robert G. King, Charles I. Plosser, James H. Stock, Mark W. Watson
Recent developments in macroeconomic theory emphasize that transient economic fluctuations can arise as responses to changes in long run factors -- in particular, technological improvements -- rather...
Measuring changes in the value of the numeraire
This paper estimates a common component in many price series that has an equiproportional effect on all prices. Changes in this component can be interpreted as changes in the value of the numeraire...
Forecasting with Many Predictors
Stock, James H., Watson, Mark W., G. Elliott, C. Granger, A. Timmermann
Historically, time series forecasts of economic variables have used only a handful of predictor variables, while forecasts based on a large number of predictors have been the province of judgmental...
Heteroskedasticity-Robust Standard Errors for Fixed Effects Panel Data Regression
James H. Stock, Mark W. Watson
The conventional heteroskedasticity-robust (HR) variance matrix estimator for cross-sectional regression (with or without a degrees-of-freedom adjustment), applied to the fixed-effects estimator for...
Inference in Linear Time Series Models with Some Unit Roots.
Sims, Christopher A, Stock, James H, Watson, Mark W
This paper considers estimation and hypothesis testing in linear time series when some or all of the variables have (possibly multiple) unit roots. The motivating example is a vector autoregression...
Business-Cycle Durations and Postwar Stabilization of the U.S. Economy.
Average postwar expansions are twice as long as prewar expansions and contractions are one-half as long. This paper investigates three possible explanations. The first explanation is that shocks to...
James H. Stock, Mark W. Watson
This paper critically reviews the use of vector autoregressions (VARs) for four tasks: data description, forecasting, structural inference, and policy analysis. The paper begins with a review of VAR...
Business cycle fluctuations in us macroeconomic time series
Stock, James H., Watson, Mark W., J. B. Taylor, M. Woodford
This chapter examines the empirical relationship in the postwar United States between the aggregate business cycle and various aspects of the macroeconomy, such as production, interest rates, prices,...
Relative Goods’ Prices and Pure Inflation
This paper uses a dynamic factor model for the quarterly changes in consumption goods’ prices to separate them into three components: idiosyncratic relative-price changes, aggregate relative-price...
Temporal instability of the unemployment-inflation relationship
Robert G. King, James H. Stock, Mark W. Watson
Inflation (Finance) ; Unemployment
ABCs (and Ds) of Understanding VARs
Jesús Fernández-Villaverde, Thomas J. Sargent, Mark W. Watson
The dynamics of a linear (or linearized) dynamic stochastic economic model can be expressed in terms of matrices (A, B, C, D) that define a state space system for a vector of observables. An...
Combination forecasts of output growth in a seven-country data set
Mark W. Watson, James H. Stock
This paper uses forecast combination methods to forecast output growth in a seven-country quarterly economic data set covering 1959-1999, with up to 73 predictors per country. Although the forecasts...
Empirical Bayes Forecasts of One Time Series Using Many Predictors
Thomas Knox, James H. Stock, Mark W. Watson
We consider the problem of forecasting a single time series, y(t+1), using a linear regression model with k predictor variables, X(t), when each predictor makes a small but nonzero marginal...
A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems.
Stock, James H, Watson, Mark W
Efficient estimators of cointegrating vectors are presented for systems involving deterministic components and variables of differing, higher orders of integration. The estimators are computed using...
Vector autoregressions and cointegration
Watson, Mark W., R. F. Engle, D. McFadden
This paper surveys three topics: vector autoregressive (VAR) models with integrated regressors, cointegration, and structural VAR modeling. The paper begins by developing methods to study potential...
Stochastic Trends and Economic Fluctuations.
King, Robert G., Plosser, Charles I., Stock, James H., Watson, Mark W.
Are business cycles mainly the result of permanent shocks to productivity? This paper uses a long-run restriction implied by a large class of real-business-cycle models--identifying permanent...
Forecasting Output and Inflation: The Role of Asset Prices
James H. Stock, Mark W. Watson
Are asset prices useful predictors of inflation and real output growth? After reviewing the large literature on this topic, we undertake an empirical analysis of quarterly data for seven OECD...
The NAIRU, Unemployment and Monetary Policy.
Staiger, Douglas, Stock, James H, Watson, Mark W
This paper examines the precision of conventional estimates of the NAIRU and the role of the NAIRU and unemployment in forecasting inflation. The authors find that, although there is a clear...
Macroeconomic Forecasting Using Diffusion Indexes.
Stock, James H, Watson, Mark W
This article studies forecasting a macroeconomic time series variable using a large number of predictors. The predictors are summarized using a small number of indexes constructed by principal...
Evidence on Structural Instability in Macroeconomic Time Series Relations.
Stock, James H, Watson, Mark W
An experiment is performed to assess the prevalence of instability in univariate and bivariate macroeconomic time series relations and to ascertain whether various adaptive forecasting techniques...
The Solution of Singular Linear Difference Systems under Rational Expectations.
King, Robert G, Watson, Mark W
Many linear rational expectations macroeconomic models can be cast in the first-order form, AE[subscript t]y[subscript t + 1] = By[subscript t] + CE[subscript t]x[subscript]t, if the matrix A is...
A simple estimator of cointegrating vectors in higher order integrated systems
James H. Stock, Mark W. Watson
Money theory ; Vector autoregression
Stochastic trends and economic fluctuations
Robert G. King, Charles I. Plosser, James H. Stock, Mark W. Watson
Business cycles
James H. Stock, Mark W. Watson
Forecasting ; Economic indicators ; Business cycles ; Recessions
Testing for cointegration when some of the cointegrating vectors are known
Time-series analysis
Evidence on structural instability in macroeconomic times series relations
James H. Stock, Mark W. Watson
Time-series analysis ; Macroeconomics ; Forecasting
The post-war U.S. Phillips curve: a revisionist econometric history
Robert G. King, Mark W. Watson
Business cycles ; Phillips curve
The post-war U.S. Phillips curve: a revisionist econometric history: response to Evans and McCallum
Robert G. King, Mark W. Watson
Phillips curve ; Business cycles
Estimating deterministic trends in the presence of serially correlated errors
Eugene Canjels, Mark W. Watson
Econometrics
Money, prices, interest rates and the business cycle
Robert G. King, Mark W. Watson
Business cycles ; Interest rates ; Macroeconomics
Forecasting output and inflation: the role of asset prices
James H. Stock, Mark W. Watson
This paper examines old and new evidence on the predictive performance of asset prices for inflation and real output growth. We first review the large literature on this topic, focusing on the past...
Assessing changes in the monetary transmission mechanism: a VAR approach : commentary
Paper for a conference sponsored by the Federal Reserve Bank of New York entitled Financial Innovation and Monetary Transmission
Temporal instability of the unemployment-inflation relationship
Robert G. King, James H. Stock, Mark W. Watson
Inflation (Finance) ; Unemployment
Market anticipations of monetary policy actions - commentary
Monetary policy ; Federal funds rate
Explaining the increased variability in long-term interest rates
Interest rates ; Federal funds rate
Macroeconomic Forecasting in the Euro Area: Country Specific versus Area-Wide Information
Massimiliano Marcellino, James H. Stock, Mark W. Watson
This paper investigates time series methods for forecasting four Euro-area wide aggregate variables: real GDP, industrial production, price inflation, and the unemployment rate. We consider two...
A Comparison of Direct and Iterated Multistep AR Methods for Forecasting Macroeconomic Time Series
Marcellino, Massimiliano, Stock, James H, Watson, Mark W
‘Iterated’ multiperiod ahead time series forecasts are made using a one-period ahead model, iterated forward for the desired number of periods, whereas ‘direct’ forecasts are made using a...
Estimating Deterministic Trends In The Presence Of Serially Correlated Errors
Eugene Canjels, Mark W. Watson
This paper studies the problems of estimation and inference in the linear trend model yt = α + βt + ut, where ut follows an autoregressive process with largest root ρ and β is the parameter of...
Money, Prices, Interest Rates and the Business Cycle.
King, Robert G, Watson, Mark W
The mechanisms governing the relationship of money, prices and interest rates to the business cycle are the most studied and most disputed topics in macroeconomics. In this paper, we first document...
A dynamic factor model framework for forecast combination
Yeung Lewis Chan, James H. Stock, Mark W. Watson
A panel of ex-ante forecasts of a single time series is modeled as a dynamic factor model, where the conditional expectation is the single unobserved factor. When applied to out-of-sample...
Phillips curve inflation forecasts
James H. Stock, Mark W. Watson
This paper surveys the literature since 1993 on pseudo out-of-sample evaluation of inflation forecasts in the United States and conducts an extensive empirical analysis that recapitulates and...
Testing Models of Low-Frequency Variability
Ulrich K. Müller, Mark W. Watson
We develop a framework to assess how successfully standard time series models explain low-frequency variability of a data series. The low-frequency information is extracted by computing a finite...
Sectoral vs. Aggregate Shocks: A Structural Factor Analysis of Industrial Production
Andrew T. Foerster, Mark W. Watson
This paper uses factor analytic methods to decompose industrial production (IP) into components arising from aggregate shocks and idiosyncratic sector-specific shocks. An approximate factor model...
Phillips Curve Inflation Forecasts
James H. Stock, Mark W. Watson
This paper surveys the literature since 1993 on pseudo out-of-sample evaluation of inflation forecasts in the United States and conducts an extensive empirical analysis that recapitulates and...
Interpreting Evidence on Money-Income Causality
James H. Stock, Mark W. Watson
Previous authors have reached puzzlingly different conclusions about the usefulness of money for forecasting real output based on closely related regression-based tests. An examination of this and...
Are Business Cycles All Alike?
Olivier J. Blanchard, Mark W. Watson
This paper examines two questions. The first is whether economic fluctuations-business cycles-are due to an accumulation of nall shocks or instead mostly to infrequent large shocks. The paper...
Business Cycle Properties of Selected U.S. Economic Time Series, 1959-1988
James H. Stock, Mark W. Watson
This paper catalogs the business cycle properties of 163 monthly U.S. economic time series over the three decades from 1959 through 1988. Two general sets of summary statistics are reported. The...
Propositions about long run neutrality are at the heart of most macroeconomic models. Yet, since the 1970's when Lucas and Sargent presented powerful critiques of traditional neutrality tests,...
How Precise are Estimates of the Natural Rate of Unemployment?
Douglas Staiger, James H. Stock, Mark W. Watson
This paper investigates the precision of conventional and unconventional estimates of the natural rate of unemployment (the 'NAIRU'). The main finding is that the NAIRU is imprecisely estimated: a...
Business Cycle Fluctuations in U.S. Macroeconomic Time Series
James H. Stock, Mark W. Watson
This paper examines the empirical relationship in the postwar United States between the aggregate business cycle and various aspects of the macroeconomy, such as production, interest rates, prices,...
A Comparison of Linear and Nonlinear Univariate Models for Forecasting Macroeconomic Time Series
James H. Stock, Mark W. Watson
A forecasting comparison is undertaken in which 49 univariate forecasting methods, plus various forecast pooling procedures, are used to forecast 215 U.S. monthly macroeconomic time series at three...
James H. Stock, Mark W. Watson
This paper considers forecasting a single time series using more predictors than there are time series observations. The approach is to construct a relatively few indexes, akin to diffusion indexes,...
James H. Stock, Mark W. Watson
This paper investigates forecasts of U.S. inflation at the 12-month horizon. The starting point is the conventional unemployment rate Phillips curve, which is examined in a simulated out of sample...
Forecasting Output and Inflation: The Role of Asset Prices
James H. Stock, Mark W. Watson
This paper examines old and new evidence on the predictive performance of asset prices for inflation and real output growth. We first review the large literature on this topic, focusing on the past...
Prices, Wages and the U.S. NAIRU in the 1990s
Douglas Staiger, James H. Stock, Mark W. Watson
Using quarterly macro data and annual state panel data, we examine various explanations of the low rate of price inflation, strong real wage growth, and low rate of unemployment in the U.S. economy...
Has the Business Cycle Changed and Why?
James H. Stock, Mark W. Watson
From 1960-1983, the standard deviation of annual growth rates in real GDP in the United States was 2.7%. From 1984-2001, the corresponding standard deviation was 1.6%. This paper investigates this...
Understanding Changes in International Business Cycle Dynamics
James H. Stock, Mark W. Watson
The volatility of economic activity in most G7 economies has moderated over the past forty years. Also, despite large increases in trade and openness, G7 business cycles have not become more...
Why Has U.S. Inflation Become Harder to Forecast?
James H. Stock, Mark W. Watson
Forecasts of the rate of price inflation play a central role in the formulation of monetary policy, and forecasting inflation is a key job for economists at the Federal Reserve Board. This paper...
Testing Models of Low-Frequency Variability
Ulrich Mueller, Mark W. Watson
We develop a framework to assess how successfully standard times eries models explain low-frequency variability of a data series. The low-frequency information is extracted by computing a finite...
Relative Goods' Prices and Pure Inflation
This paper uses a dynamic factor model for the quarterly changes in consumption goods' prices to separate them into three components: idiosyncratic relative-price changes, aggregate relative-price...
A Simple MLE of Cointegrating Vectors in Higher Order Integrated Systems
James H. Stock, Mark W. Watson
An MLE of the unknown parameters of co integrating vectors is presented for systems in which some variables exhibit higher orders of integration, in which there might be deterministic components, and...
Measures of Fit for Calibrated Models
This paper develops a new procedure for assessing how well a given dynamic economic model describes a set of economic time series. To answer the question, the variables in the model are augmented...
Evidence on Structural Instability in Macroeconomic Time Series Relations
James H. Stock, Mark W. Watson
An experiment is performed to assess the prevalence of instability in univariate and bivariate macroeconomic time series relations and to ascertain whether various adaptive forecasting techniques...
Estimating Deterministic Trends in the Presence of Serially Correlated Errors
Eugene Canjels, Mark W. Watson
This paper studies the problems of estimation and inference in the linear trend model: yt=à+þt+ut, where ut follows an autoregressive process with largest root þ, and þ is the parameter of...
Testing for Cointegration When Some of the Contributing Vectors are Known
Many economic models imply that ratios, simple differences, or `spreads' of variables are I(0). In these models, cointegrating vectors are composed of 1's, 0's and -1's, and contain no unknown...
Asymptotically Median Unbiased Estimation of Coefficient Variance in a Time Varying Parameter Model
James H. Stock, Mark W. Watson
This paper considers the estimation of the variance of coefficients in time varying parameter models with stationary regressors. The maximum likelihood estimator has large point mass at zero. We...
Empirical Bayes Forecasts of One Time Series Using Many Predictors
Thomas Knox, James H. Stock, Mark W. Watson
We consider both frequentist and empirical Bayes forecasts of a single time series using a linear model with T observations and K orthonormal predictors. The frequentist formulation considers...
Heteroskedasticity-Robust Standard Errors for Fixed Effects Panel Data Regression
James H. Stock, Mark W. Watson
The conventional heteroskedasticity-robust (HR) variance matrix estimator for cross-sectional regression (with or without a degrees of freedom adjustment), applied to the fixed effects estimator for...
Sectoral vs. aggregate shocks : a structural factor analysis of industrial production
Andrew T. Foerster, Mark W. Watson
This paper uses factor analytic methods to decompose industrial production (IP) into components arising from aggregate shocks and idiosyncratic sector-specific shocks. An approximate factor model...
Testing for Cointegration When Some of the Cointegrating Vectors are Prespecified
Horvath, Michael T.K., Watson, Mark W.
Many economic models imply that ratios, simple differences, or of variables are I(0). In these models, cointegrating vectors are composed of 1's, 0's, and spot premium.
Phillips curve inflation forecasts
James H. Stock, Mark W. Watson
This paper surveys the literature since 1993 on pseudo out-of-sample evaluation of inflation forecasts in the United States and conducts an extensive empirical analysis that recapitulates and...
Has inflation become harder to forecast?
James H. Stock, Mark W. Watson
Inflation (Finance) ; Economic forecasting
Low-Frequency Robust Cointegration Testing
Ulrich Müller, Mark W. Watson
Standard inference in cointegrating models is fragile because it relies on an assumption of an I(1) model for the common stochastic trends, which may not accurately describe the data's persistence....
Granger,Clive W. J., Ghysels,Eric, Swanson,Norman R., Watson,Mark W.
This book, and its companion volume in the Econometric Society Monographs series (ESM number 32), present a collection of papers by Clive W. J. Granger. His contributions to economics and...
Granger,Clive W. J., Ghysels,Eric, Swanson,Norman R., Watson,Mark W.
This book, and its companion volume in the Econometric Society Monographs series (ESM number 32), present a collection of papers by Clive W. J. Granger. His contributions to economics and...
Granger,Clive W. J., Ghysels,Eric, Swanson,Norman R., Watson,Mark W.
This book, and its companion volume in the Econometric Society Monographs series (ESM number 33), present a collection of papers by Clive W. J. Granger. His contributions to economics and...
Granger,Clive W. J., Ghysels,Eric, Swanson,Norman R., Watson,Mark W.
This book, and its companion volume in the Econometric Society Monographs series (ESM number 33), present a collection of papers by Clive W. J. Granger. His contributions to economics and...