Gabriel Perez-Quiros's research while affiliated with European Central Bank and other places

Publications (68)

Preprint
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The frequency and severity of extreme events related to climate change have intensified worldwide in the last decades. It is documented that increasing extreme rainfall and flooding cause more nutrient runoff into waterbodies initiating numerous harmful algal bloom (HAB) events. We analyze the dramatic economic damage of one of these episodes in Ma...
Article
This paper develops a novel indicator of global economic activity, the GEA Tracker, which is based on commodity prices selected recursively through a genetic algorithm. The GEA Tracker allows for daily real-time knowledge of international business conditions using a minimum amount of information. We find that the GEA Tracker outperforms its competi...
Preprint
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We propose an empirical framework to measure the degree of weakness of the global economy in real-time. It relies on nonlinear factor models designed to infer recessionary episodes of heterogeneous deepness, and fitted to the largest advanced economies (U.S., Euro Area, Japan, U.K., Canada and Australia) and emerging markets (China, India, Russia,...
Article
In this paper, we analyse the volatility of US GDP growth using quarterly series starting in 1875. We find structural breaks in volatility at the end of World War II and at the beginning of the Great Moderation period. We show that the Great Moderation volatility reduction is only linked to changes in expansions, whereas that after World War II is...
Article
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We extend the Markov-switching dynamic factor model to account for some of the specificities of the day-to-day monitoring of economic developments from macroeconomic indicators, such as mixed sampling frequencies and ragged-edge data. First, we evaluate the theoretical gains of using data that are available promptly for computing probabilities of r...
Article
Many have argued that the Great Recession of 2008 marks the end of the reduction in output volatility known as the Great Moderation. This article shows that this is not the case through an empirical analysis. Output volatility remains subdued despite the output loss of the Great Recession. This finding has important implications for policymaking be...
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We develop an international comparative assessment of the Great Recession, in terms of the features that characterize the form of the recession phases, namely length, depth and shape. The potential unobserved heterogeneity in the international recession characteristics is modeled by a finite mixture model. Using Bayesian inference via Gibbs samplin...
Article
The excellent article by David Hendry describes how to nest "theory-driven" and "data-driven" approaches when deciding between alternative models in macroeconomics. The article's final conclusion is that theory allows the econometrician to select a set of variables, while data allows him/her to select across a wide range of alternatives: lag select...
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We propose a set of new quantitative measures to characterize more fully the features of economic recoveries. We apply these measures to post-war US expansions and use cluster analysis to determine that there are two different types of recoveries in recent US economic history, with most expansions before 1984 (Great Moderation) looking quite differ...
Article
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We examine the finite-sample performances of dynamic factor models that use either aggregate or disaggregate data, where the latter rely on finer disaggregations of the headline concepts of a small set of economic categories. Our Monte Carlo analysis reveals that the use of the series with the largest averaged within-category correlations outperfor...
Chapter
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Previous studies have shown that the effectiveness of monetary policy depends, to a large extent, on the market expectations of its future actions. This paper proposes an econometric framework to address the effect of the current state of the economy on monetary policy expectations. Specifically, we study the effect of contractionary (or expansiona...
Article
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We develop a twofold analysis of how the information provided by several economic indicators can be used in Markov switching dynamic factor models to identify the business cycle turning points. First, we compare the performance of a fully nonlinear multivariate specification (one-step approach) with the 'shortcut' of using a linear factor model to...
Article
Much has been written about why economists failed to predict the latest crisis. Reading the literature, it seems that this crisis was so obvious that economists must have been blind not to see it coming. We approach this failure by looking at one of the key variables in this analysis, the evolution of credit. We compare the conclusions reached in t...
Article
Full-text available
Previous studies have shown that the effectiveness of monetary policy largely depends on market expectations about future policy actions. This paper proposes an econometric framework to address the effect of the current state of the economy on monetary policy expectations. Specifically, we study the effect of contractionary (or expansionary) demand...
Article
The Great Moderation (GM) is widely documented in the literature as one of the most important changes in the US business cycle. All the papers that analyze it use post WWII data. In this paper, for the first time we place the GM in a long historical perspective, stretching back a century and a half, which includes secular changes in the economic st...
Article
Should rational agents take into consideration government policy announcements? A skilled agent (an econometrician) could set up a model to combine the following two pieces of information in order to anticipate the future course of fiscal policy in real-time: (i) the ex-ante path of policy as published/announced by the government; (ii) incoming, ob...
Article
Many have argued that the Great Recession of 2008 marked the end of the Great Moderation of the eighties and nineties. Through painstaking empirical analysis of the data, this paper shows this is not the case. Output volatility remains subdued despite the turmoil created by the Great Recession. This fi nding has important implications for policymak...
Article
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We analyze the dynamic interactions between commodity prices and output growth of the seven greatest exporters Latin American countries: Argentina, Brazil, Colombia, Chile, Mexico, Peru and Venezuela. Using Markov-switching impulse response functions, we find that the responses of their respective output growths to commodity price shocks are time d...
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Practitioners do not always use research findings, sometimes because the research is not always conducted in a manner relevant to real-world practice. This survey seeks to close the gap between research and practice on short-term forecasting in real time. Towards this end, we review the most relevant recent contributions to the literature, examine...
Article
During the last crisis, developed economies’ sovereign Credit Default Swap (hereafter CDS) premia have gained in importance as a tool for approximating credit risk. In this paper, we fit a dynamic factor model to decompose the sovereign CDS spreads of ten OECD economies into three components: a common factor, a second factor driven by European peri...
Article
Much has been written about why economists failed to predict the latest financial and real crisis. Reading the recent literature, it seems that the crisis was so obvious that economists must have been blind when looking at data not to see it coming. In this paper, we analyze whether such claims are justified by looking at one of the most cited and...
Article
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We examine the short-term performance of two alternative approaches to forecasting using dynamic factor models. The first approach extracts the seasonal component of the individual indicators before estimating the dynamic factor model, while the alternative uses the non-seasonally adjusted data in a model that endogenously accounts for seasonal adj...
Article
Full-text available
We extend the Markov-switching dynamic factor model to account for some of the specifi cities of the day-to-day monitoring of economic developments from macroeconomic indicators, such as ragged edges and mixed frequencies. We examine the theoretical benefi ts of this extension and corroborate the results through several Monte Carlo simulations. Fin...
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We examine the finite-sample performance of small versus large scale dynamic factor models. Our Monte Carlo analysis reveals that small scale factor models out-perform large scale models in factor estimation and forecasting for high levels of cross-correlation across the idiosyncratic errors of series belonging to the same category, for oversampled...
Article
Full-text available
We develop a twofold analysis of how the information provided by several economic indicators can be used in Markov-switching dynamic factor models to identify the business cycle turning points. First, we compare the performance of a fully non-linear multivariate specification (one-step approach) with the “shortcut” of using a linear factor model to...
Article
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We propose a fundamentals-based econometric model for the weekly changes in the euro-dollar rate with the distinctive feature of mixing economic variables quoted at different frequencies. The model obtains good in-sample fit and, more importantly, encouraging out-of-sample forecasting results at horizons ranging from one week to one month. Specific...
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We develop a dynamic factor model to compute short-term forecasts of the Spanish GDP growth in real time. With this model, we compute a business cycle index which operates as an indicator of the business cycle conditions in Spain. To examine its real-time forecasting accuracy, we use real-time data vintages from 2008.02 through 2009.01. We conclude...
Article
This paper analyzes the role of standing facilities in the determination of the demand for reserves in the overnight money market. In particular, we study how the asymmetric nature of the deposit and lending facilities could be used as a powerful policy tool for the simultaneous control of prices and quantities in the market for daily funds.
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We show that an extension of the Markov-switching dynamic factor models that accounts for the specificities of the day to day monitoring of economic developments such as ragged edges, mixed frequencies and data revisions is a good tool to forecast the Euro area recessions in real time. We provide examples that show the nonlinear nature of the relat...
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We present evidence about the loss of the so-called "plucking effect", that is, a high-growth phase of the cycle typically observed at the end of recessions. This result matches the belief, presented informally by different authors, that recession may have now permanent effects, or recession have now an L shape versus old-time recessions that alway...
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This paper provides a comprehensive framework to analyze business cycle features other than synchronization. We use stationary bootstrap and model-based clustering methods to analyze similarities and differences among the European cycles. We find evidence that the length, deep and shape of cycles differ across European countries and that these diff...
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We set out a model to compute short-term forecasts of the euro area GDP growth in real time. To allow for forecast evaluation, we construct a real-time dataset that changes for each vintage date and includes the exact information that was available at the time of each forecast. With this dataset we show that our simple factor model algorithm, which...
Chapter
Predictability of the mean and volatility of stock returns over the course of the business cycle have generated considerable interest in the financial community. This chapter studies the patterns and magnitude of variations in the mean and volatility of US stock returns around turning points of the business cycle. During the brief spell from the pe...
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In this paper, we propose a new framework to analyze pairwise business cycle synchronization across a given set of countries. We show that our approach, which is based on multi-variate Markov-switching procedures, leads to more reasonable results than other popular approaches developed in the literature. According to recent findings, we show that t...
Article
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Based on a novel extension of existing multivariate Markov-switching models, we provide the reader with a useful tool for analyzing current business conditions and making predictions about the future state of the Euro-area economy in real time. Apart from the Industrial Production Index, we find that the European Commission Industrial Confidence In...
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One of the most familiar empirical stylized facts about output dynamics in the United States is the positive autocorrelation of output growth. This paper shows that positive autocorrelation can be better captured by shifts between business cycle states rather than by the standard view of autoregressive coefficients. The result is extremely robust t...
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We propose a comprehensive methodology to characterize the business cycle comovements across European economies and some industrialized countries, without imposing any given model but trying to ’leave the data speak’. We develop a novel method to show that there is no evidence of a ’European economy’ that acts as an attractor to the other economies...
Article
The objective of this paper is to examine the predictability of the monetary policy decisions of the Governing Council of the ECB and the transmission of the unexpected component of the monetary policy decisions to the yield curve. We find, using new methodologies, that markets do not fully predict the ECB decisions but the lack of perfect predicta...
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This paper calculates indices of central bank autonomy (CBA) for 163 central banks as of end-2003, and comparable indices for a subgroup of 68 central banks as of the end of the 1980s. The results confirm strong improvements in both economic and political CBA over the past couple of decades, although more progress is needed to boost political auton...
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Paper for a conference sponsored by the Federal Reserve Bank of New York entitled Financial Innovation and Monetary Transmission
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We propose an optimal filter to transform the Conference Board Composite Leading Index (CLI) into recession probabilities in the US economy. We also analyse the CLI's accuracy at anticipating US output growth. We compare the predictive performance of linear, VAR extensions of smooth transition regression and switching regimes, probit, non-parametri...
Article
This paper explores two aspects of the conduct of monetary policy under a monetary union. First, even if the preferences of policymakers over inflation and output variability are identical across member countries, differences in economic structure will mean different desired policy responses to even a common shock. Second, policymakers may be force...
Article
This paper aims at contributing to the understanding of how the ECB conducts monetary policy as seen from a money market perspective. More specifically it covers two different issues. First, it looks at the ‘learning period’ for banks since the Eurosystem started implementing the single monetary policy. It shows that during the first three weeks of...
Article
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This paper presents evidence that the existence of deposit and lending facilities combined with an averaging provision for the reserve requirement are powerful tools to stabilize the overnight rate. We reach this conclusion by comparing the behavior of this rate in Germany before and after the beginning of the EMU. The analysis of the German experi...
Article
Markov switching models with time-varying means, variances and mixing weights are applied to characterize business cycle variation in the probability distribution and higher order moments of stock returns. This allows us to provide a comprehensive characterization of risk that goes well beyond the mean and variance of returns. Several mixture model...
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The purpose of this paper is two-fold. First, we compare the accuracy of previous studies that analyze the ability of the Composite Index of Leading Indicators (CLI) for predicting turning points. Alternative filters are also proposed. For these comparisons, we adapt the test developed by Diebold and Mariano (1995) to the business cycles framework....
Article
We document a structural decline in the volatility of real U.S. GDP growth in the first quarter of 1984. As a means of understanding the dramatic volatility reduction, we decompose output growth by major product type and provide evidence that the break emanates from a reduction in the volatility of durable goods production. We further show that the...
Article
this article, the volatility of growth is measured as the standard deviation of quarterly growth rates over a particular time period. The standard deviation of growth---which is measured in percentage points---is the square root of the variance of growth. The variance of growth is the average of the squared deviations of individual quarterly growth...
Article
Recent imperfect capital market theories predict the presence of asymmetries in the variation of small and large firms risk over the economic cycle. Small firms with little collateral should be more strongly affected by tighter credit market conditions in a recession state than large, better collateralized ones. This paper adopts a flexible econome...
Article
In this paper, we document a structural break in the volatility of U.S. GDP growth in the first quarter of 1984 and provide evidence that this break emanates from a reduction in the volatility of durable goods production. Further, the reduction in durables volatility corresponds to a decline in the share of durable goods accounted for by inventorie...
Article
The authors find that the composite leading index (CLI) is useful for forecasting gross national product (GNP), both in sample and in an out-of-sample real-time exercise. They propose a nonlinear specification in which cyclical shifts of the CLI precede those in GNP. However, the authors find that better forecasts are provided by a simple linear re...

Citations

... In this regard, whereas most studies have focused on business cycles, few papers have tried to measure the¯nancial cycle and investigate its statistical properties [3]. Existing work argues that¯nancial equity cycles are considered to exist with periods of one up to eight years (short-term periods) while housing prices and debt between 8 years and 30 years [3,41]. c The rest of this paper is organized as follows. ...
... Literature has often recognized that the Basel credit gap is best in signaling future crises (Drehmann et al., 2010;Borio and Lowe, 2002;Borio and Drehmann, 2009;Galán, 2019, Detken et al., 2014; as well as it is the leading indicator of the probability of crises, alongside their severity Schularick and Taylor, 2012;Dell Ariccia et al., 2012). This is supported by general findings that 1 See, e.g., Ampudia et al., 2021 for a concise and concrete overview in macroprudential terms when describing the happenings before the GFC hit. 2 Within the revision of the Basel accords, the CCyB has been designed and put forward (BCBS, 2011;ESRB, 2014) as one of the key macroprudential instruments. Its main task is to help counter some of the pro-cyclicality of the financial cycle, and its primary intent is for credit institutions to accumulate additional capital in the upward phase of the financial cycle. ...
... They further reiterated that leveraging is amplified when the funding of banking operations comes from customer deposits. According to Gadea Rivas et al. (2020), albeit the speed of credit growth precedes economic recessions, it also increases economic expansion and growth. ...
... However, as mentioned earlier, various sudden economic changes, such as war or pandemics, suggest that the usual indicators for monitoring economic activity are no longer sufficient. For this reason, the number of monitored indicators is expanded, and the frequency of their monitoring is increased to assess the situation in time [20][21][22]. Examples of such new data can be Google's mobile movement data, satellite data, and other data related to people's mobility during the pandemic [20,23]. ...
... Taylor (2011) pointed out that macroeconomic policies were deviating from the standard rules, arguing that such deviations ended the great moderation and fostered the great recession. On the other hand, Gadea et al. (2018) found that output volatility remained subdued even after the great recession, applying a two-step testing procedure for structural changes in the conditional mean and variance similar to that of McConnell and Perez-Quiros (2000) for GDP growth from 1953:1 to 2014:3. 1 Gadea et al. (2019) used historical data of the US GDP growth from 1875:1 to 2014:2 and reached a similar conclusion. ...
... The COVID-19 pandemic very quickly became a threat and not only to public health. The initial conclusions on the socioeconomic consequences of the pandemic were logical: a decrease in cross-border mobility and tourist flows, a decrease in production and consumption, disruption of global supply chains, and a drop in international trade (Leiva-Leon et al. 2020;Responding. . . 2020). ...
... Our paper is also related to studies assessing the gains from pursuing a disaggregated (also referred to as indirect) approach for forecasting GDP. Pareja et al. (2020) focus on the expenditure account only. They find evidence for a higher predictive accuracy when following an indirect approach. ...
... Other researches find that the multivariate error-correction models can be used to estimate time-varying equilibrium using long-run relationships between macroeconomic variables. Estimates from this approach are done by (Fiorentini, et al., 2018). They use a long time series of a broad set of macroeconomic information, including total factor productivity and demographic developments. ...
... See, e.g.,Marcellino et al. (2016), for a dynamic factor model featuring the stochastic volatility. For Markov-switching models, see, e.g.,Barnett et al. (2016),Camacho et al. (2018), and more recently,Caldara et al. (2021).Antolin-Diaz et al. (2021) finds that forecast errors during the COVID lockdown for the USA are greatly reduced if the model features both the stochastic volatility and fat tails. ...
... Del Negro et al., 2017). Laubach and Williams (2016) use an approach following Laubach and Williams (2003) and present updated estimates of the natural rate of interest that impose restrictions from economic theory for the US and conclude that the natural rate has been on a decreasing trend since the Fiorentini et al. (2018) also consider a long sample starting in 1890 for 17 countries, improving the method by Laubach and Williams (2003) to handle periods with underlying changes in the structure of the economy. They find a similar path as other studies with an increase in the natural rate from 1960 to the late 1980's, followed by a decrease. ...