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Transcript of WEM_June
Dun & Bradstreet’s Regional View Europe
June 2015
2
Contents1. Contribution to growth and real GDP growth forecast
2. A BIG MACronomic approach to the evolution of households’ purchasing power
3. Is sluggish labour productivity to blame?
4. A Hodrick-Prescott approach to the relation between Unemployment Cycle and Business Cycle
5. Inflation and Inflation forecast: are cycles getting longer?
6. Financial Markets’ jitteriness: A Multivariate-GARCH approach to volatility
Follow us on Twitter @DnBEconomy | #DnBEconBrief
1. Contribution to growth and real GDP growth forecast
4Follow us on Twitter @DnBEconomy | #DnBEconBrief
2. A BIG MACronomic approach to the evolution of households’
purchasing power
6Follow us on Twitter @DnBEconomy | #DnBEconBrief
3. Is sluggish labour productivity to blame?
8Follow us on Twitter @DnBEconomy | #DnBEconBrief
A Markov Switching Model approach to labour productivity
• Under the Markov Switching (MS) approach, the observed variable is assumed to switch regimes according to some unobserved variable
• Movements of the state variable between regimes are driven by a Markov process
• Why MS is so popular? Because the probability distribution of the state at any time t depends only on the state at time t-1, and not on the states at times t-2, t-3, etc…In other words, Markov processes are not path-dependent
• If a variable follows a Markov process, all that is required to forecast the probability that it will be in a given regime during the next period is the current period’s probability and a matrix of (time-varying) transition probabilities, the transition probabilities being the probability for the state variable to move from regime i to regime j
• Here, the two regimes are ‘fast growth’ and ‘slow growth’.
• Running a MS regression, I’ve compute the time-varying probabilities for the economy to move from a fast-growth mode to a slow-growth mode.
• The interesting (albeit not surprising) finding is that (on average) the probability of moving from fast to slow growth (hence, a deceleration of the GDP growth rate) is higher when labour productivity is lower.
9Follow us on Twitter @DnBEconomy | #DnBEconBrief
Spain Italy
Greece Ireland
4. A Hodrick-Prescott approach to the relation between
Unemployment Cycle and Business Cycle
11Follow us on Twitter @DnBEconomy | #DnBEconBrief
12Follow us on Twitter @DnBEconomy | #DnBEconBrief
5. Inflation and Inflation forecastsAre cycles getting longer?
14Follow us on Twitter @DnBEconomy | #DnBEconBrief
15Follow us on Twitter @DnBEconomy | #DnBEconBrief
6. Financial Markets’ jitterinessA Multivariate-GARCH approach to volatility
17Follow us on Twitter @DnBEconomy | #DnBEconBrief
18Follow us on Twitter @DnBEconomy | #DnBEconBrief
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