Michael P. Clements , Robert W. Rich , Joseph Tracy
{"title":"An Investigation into the Uncertainty Revision Process of Professional Forecasters","authors":"Michael P. Clements , Robert W. Rich , Joseph Tracy","doi":"10.1016/j.jedc.2025.105060","DOIUrl":"10.1016/j.jedc.2025.105060","url":null,"abstract":"<div><div>Following Manzan (2021), this paper examines how professional forecasters revise their fixed-event uncertainty (variance) forecasts and tests the Bayesian learning prediction that variance forecasts should decrease as the horizon shortens. We show that Manzan's (2021) use of first moment “efficiency” tests are not applicable to studying revisions of variance forecasts. Instead, we employ monotonicity tests developed by Patton and Timmermann (2012) in our first known application of these tests to second moments of survey expectations. We find strong evidence that the variance forecasts are consistent with the Bayesian learning prediction of declining monotonicity.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"173 ","pages":"Article 105060"},"PeriodicalIF":1.9,"publicationDate":"2025-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143510759","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Granular information and sectoral movements","authors":"Hao Jiang , Sophia Zhengzi Li , Peixuan Yuan","doi":"10.1016/j.jedc.2024.105018","DOIUrl":"10.1016/j.jedc.2024.105018","url":null,"abstract":"<div><div>This paper shows a strong link between the granular information contained in individual stock prices and sectoral movements. We find that a predictor aggregating the price movements of a broad cross section of individual stocks predicts intraday returns of sector ETF. When we further incorporate the information from structural models, the resulting information signal has even stronger return predictability. These results support theories of granular and network origins of aggregate shocks.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"171 ","pages":"Article 105018"},"PeriodicalIF":1.9,"publicationDate":"2025-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143129413","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"The stochastic implications of autonomous creation and destruction","authors":"Gregory W. Huffman","doi":"10.1016/j.jedc.2024.105022","DOIUrl":"10.1016/j.jedc.2024.105022","url":null,"abstract":"<div><div>A model of stochastic, autonomous creative destruction is developed to study a change in the volatility of inter-firm productivity shocks. The model shows that the observed increase in the variance of firm-specific technology shocks can explain the recent growth slowdown observed in recent decades. This also has implications for inequality. The economy exhibits a non-optimal rate of business destruction, and policies are developed to address this and to raise welfare. The model yields a novel asset pricing formula involving a survival function reflecting the expected random, productivity-dependent lifetime of the firm, and this has implications for the volatility of returns.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"171 ","pages":"Article 105022"},"PeriodicalIF":1.9,"publicationDate":"2025-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143130050","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Financial outreach, bank deposits, and economic growth","authors":"Yuchao Peng , Junhong Yang , Ji Shen , Qin Gou","doi":"10.1016/j.jedc.2025.105036","DOIUrl":"10.1016/j.jedc.2025.105036","url":null,"abstract":"<div><div>This paper explores the relationship between financial outreach and economic growth, both theoretically and empirically. Our theoretical framework suggests that financial outreach reduces household cash holdings and increases bank deposits by lowering transaction costs associated with intermediated activities, thereby boosting economic growth. This effect is more pronounced in regions with higher population density and less developed technology-based financial services. Empirical evidence from 281 prefecture-level Chinese cities supports the theory that financial outreach enhances economic growth indirectly by promoting bank deposits. These findings help explain the finance-growth puzzle in the context of China's economic dynamics.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"171 ","pages":"Article 105036"},"PeriodicalIF":1.9,"publicationDate":"2025-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143130052","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"News and firm entry: The role of the waiting option","authors":"Anastasiia Antonova, Mykhailo Matvieiev","doi":"10.1016/j.jedc.2024.105034","DOIUrl":"10.1016/j.jedc.2024.105034","url":null,"abstract":"<div><div>Firm entry and capital investment both vary over the business cycle. This paper analyzes the role of the firm entry delay option (waiting option) in the joint dynamics of firm entry and investment in a news-driven RBC model. We introduce the waiting option by restricting the number of potential firm entrants and demonstrate that the combination of news shocks and the waiting option effect yields empirically plausible joint dynamics of firm entry and investment over the business cycle. In contrast, the model without the waiting option produces excessively volatile firm entry. We rationalize our findings using an analytical real-option model of firm entry.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"171 ","pages":"Article 105034"},"PeriodicalIF":1.9,"publicationDate":"2025-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143130049","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Phase transitions in debt recycling","authors":"Sabrina Aufiero , Preben Forer , Pierpaolo Vivo , Fabio Caccioli , Silvia Bartolucci","doi":"10.1016/j.jedc.2025.105044","DOIUrl":"10.1016/j.jedc.2025.105044","url":null,"abstract":"<div><div>Debt recycling is an aggressive equity extraction strategy that potentially permits faster repayment of a mortgage. While equity progressively builds up as the mortgage is repaid monthly, mortgage holders may obtain another loan they could use to invest on a risky asset. The wealth produced by a successful investment is then used to repay the mortgage faster. The strategy is riskier than a standard mortgage-repayment plan since fluctuations in the house market and investment's volatility may also lead to a fast default, as both the mortgage and the liquidity loan are secured against the same good. The general conditions of the mortgage holder and the outside market under which debt recycling may be recommended or discouraged have not been fully investigated. In this paper, in order to evaluate the effectiveness of traditional monthly mortgage repayment versus debt recycling strategies, we build a dynamical model of debt recycling and study the time evolution of equity and mortgage balance as a function of loan-to-value ratio, house market performance, and return of the risky investment. We find that the model has a rich behavior as a function of its main parameters, showing strongly and weakly successful phases – where the mortgage is eventually repaid faster and slower than the standard monthly repayment strategy, respectively – a default phase where the equity locked in the house vanishes before the mortgage is repaid, signaling a failure of the debt recycling strategy, and a permanent re-mortgaging phase – where further investment funds from the lender are continuously secured, but the mortgage is never fully repaid. The strategy's effectiveness is found to be highly sensitive to the initial mortgage-to-equity ratio, the monthly amount of scheduled repayments, and the economic parameters at the outset. The analytical results are corroborated with numerical simulations with excellent agreement.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"171 ","pages":"Article 105044"},"PeriodicalIF":1.9,"publicationDate":"2025-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143130054","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Is U.S. real output growth non-normal? A tale of time-varying location and scale","authors":"Matei Demetrescu , Robinson Kruse-Becher","doi":"10.1016/j.jedc.2024.105032","DOIUrl":"10.1016/j.jedc.2024.105032","url":null,"abstract":"<div><div>Testing distributional assumptions is an evergreen topic in applied economics and econometrics. A key assumption is stationarity of the series of interest, however time-varying moments are common in economic data. Yet, under time-varying moments, falsely treating data as homogeneous results in apparent distributions belonging to a mixture family. Therefore, tests consistently reject when stationarity assumptions are violated, even under correct specification of the baseline distribution. We propose robust tests building on local standardization (by flexible nonparametric estimators), in particular we use raw moments of probability integral transformations of locally standardized series. Probability integral transforms accommodate a wide range of null distributions and imply simple raw moment restrictions. We demonstrate our approach in detail for normality, while our main results are extended to general location-scale models without essential modifications. Short-run dynamics are accounted for by the fixed-bandwidth approach which leads to robustness of the proposed test statistics to the estimation error induced by the local standardization. We propose a simple rule for choosing the tuning parameters and an effective finite-sample adjustment. Monte Carlo experiments show that the new tests perform well in terms of size and power and outperform alternative tests even under stationarity. We find – in contrast to other studies building on stationarity – no evidence against normality of U.S. real output growth after accounting for time-variation.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"171 ","pages":"Article 105032"},"PeriodicalIF":1.9,"publicationDate":"2025-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143130051","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"The credit card and small business lending channels of monetary policy","authors":"Maximillian Littlejohn","doi":"10.1016/j.jedc.2025.105045","DOIUrl":"10.1016/j.jedc.2025.105045","url":null,"abstract":"<div><div>This paper analyzes the lending channel of monetary policy exclusively through credit card and small business bank loans. A time-varying parameter vector autoregression is estimated, providing evidence that the direction and strength in which credit card and small business loans respond to monetary policy are time-dependent. To investigate these findings analytically, I develop a general equilibrium model of consumer credit card and small business lending. Households and firms use a combination of monetary assets and bank loans to finance random consumption and investment opportunities. In accordance with conventional theory, when borrowers are sufficiently constrained, a monetary tightening reduces lending through the balance sheet subchannel of monetary policy. However, when borrowers are less constrained, a monetary tightening raises unsecured debt limits through a second subchannel and lending expands. This second subchannel, operating solely through unsecured credit, offers a new theory to justify an expansionary loan response to tightened monetary policy that the traditional lending channel literature has yet to address.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"171 ","pages":"Article 105045"},"PeriodicalIF":1.9,"publicationDate":"2025-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143130059","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Networks, beliefs, and asset prices","authors":"Michael Hatcher, Tim Hellmann","doi":"10.1016/j.jedc.2025.105059","DOIUrl":"10.1016/j.jedc.2025.105059","url":null,"abstract":"<div><div>We set out a novel social communication model of asset prices. An investor's <em>type</em> – which depends on their <em>network</em> and investment performance – determines their price beliefs. We show how properties of the network such as network centrality and diameter influence the price dynamics, convergence speed, and limiting belief types. For the polar cases of no attention to performance and exclusive attention to performance, we obtain analytically tractable results relating price and belief types to properties of the network, while for intermediate attention to performance we rely on numerical results. As applications, our model can explain price bubbles and price oscillations by network-performance effects, and we also study how price and type dynamics depend on connectedness on a small-world network. Our results shed light on when performance-based updating of beliefs on social networks is stabilising – or destabilising – for asset prices. A key finding is that the impact of network structure on asset prices and beliefs depends on how much attention investors pay to performance.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"173 ","pages":"Article 105059"},"PeriodicalIF":1.9,"publicationDate":"2025-01-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143102307","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Liquidity allocation and endogenous aggregate risks","authors":"Ge Zhou","doi":"10.1016/j.jedc.2025.105048","DOIUrl":"10.1016/j.jedc.2025.105048","url":null,"abstract":"<div><div>This paper presents a continuous-time DSGE model that examines an endogenous mechanism for liquidity allocation between the real economy and the financial system, as well as its interaction with systemic risk. The model provides rationales for the phenomena of weak investment and a savings glut observed among non-financial corporations in major advanced economies during the recovery from the Great Recession. It highlights that physical capital has lower liquidity compared to its corresponding equities. By incorporating financial frictions, the model reveals that risk-averse entrepreneurs, who must bear a portion of their investment risks, have their investment decisions significantly shaped by their capital structure. When entrepreneurs face low net worth, they tend to reduce investments and increase holdings in financial assets as a risk hedge. This behavior shifts more funds into the financial system, potentially sparking a financial boom accompanied by elevated systemic risks, while contributing to a sluggish economic recovery.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"173 ","pages":"Article 105048"},"PeriodicalIF":1.9,"publicationDate":"2025-01-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143102306","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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