Papers by William Barnett
Open Economies Review, Oct 19, 2021
The paper constructs monthly GDP nowcasts for Saudi Arabia by estimating a Generalized Dynamic Fa... more The paper constructs monthly GDP nowcasts for Saudi Arabia by estimating a Generalized Dynamic Factor Model (GDFM) on a panel of 272 variables over the period from January 2010 to June 2018. The GDP nowcasts produced in this paper can accurately mimic GDP growth rates for Saudi Arabia, including for the non-oil sector. Our GDFM has outperformed other traditional models in tracking the business cycle in Saudi Arabia. In our view, the non-oil private sector GDP nowcasts provided in this paper can substitute the traditional set of indicators used to monitor monthly private sector activity.
Studies in Nonlinear Dynamics and Econometrics, Aug 28, 2020
Since the publication of Nobel lecture, the relationship between the mean function of the inflati... more Since the publication of Nobel lecture, the relationship between the mean function of the inflation stochastic process and its uncertainty has been the subject of much research. Friedman postulated that high inflation causes increased inflation uncertainty. Ball (1992) produces macroeconomic theory that could justify that causality. But other researchers have found the converse causality, from increased inflation uncertainty to increased mean inflation, and postulated macroeconomic theory that could support their views. In addition, some researchers have found inverse correlation between mean inflation and inflation volatility with causation in either direction. These controversies are important, since they have different implications for economic theory and policy. We conduct a systematic econometric study of the relationship among the first two moments of the inflation stochastic process using state of the art approaches. We propose a time-varying inflation uncertainty measure based on stochastic volatility to take into account unpredictable shocks. Further, we extend previous related literature by providing a new econometric specification of this relationship using two semi-parametric approaches: the frequency evolutionary co-spectral approach and the continuous wavelet methodology. We theoretically justify their use through an extension of Ballʼs (1992) model. These frequency approaches have two advantages: they provide the analyses for different frequency horizons and do not impose restriction on the data. While related literature always focused on the US data, our study explores this relationship for five major developed and emerging countries (the US, the UK, the Euro area, South Africa, and China) over the last five decades to investigate robustness of our inferences and investigate sources of prior inconsistencies in inferences among prior studies. This selection of countries permits investigation of the inflation versus inflation uncertainty relationship under different hypotheses, including explicit versus implicit inflation targets, conventional versus unconventional monetary policy, independent versus dependent central banks, and calm versus crisis periods. Our findings depict a significant relationship between inflation and inflation uncertainty that varies with time and frequency and offer an improved comprehension of the ambiguous inflation versus inflation uncertainty relationship. This relationship seems positive in the short and medium terms during stable periods, confirming the Friedman-Ball theory, while it is negative during crisis periods. In addition, our analysis identifies the phases of leading and lagging inflation uncertainty. Our general approach nests within it the earlier approaches, permitting explanation of the prior appearances of ambiguity in the relationship and identifies the conditions associated with the various outcomes.
Energy Economics, Sep 1, 2016
This paper assess nonlinear structures in the time series data generating mechanism of crude oil ... more This paper assess nonlinear structures in the time series data generating mechanism of crude oil prices. We apply well-known univariate tests for nonlinearity, with distinct power functions over alternatives, but with different null hypotheses reflecting the existence of different concepts of linearity and nonlinearity in the time series literature. We utilize daily data on crude oil spot prices for over 26 years, as well as monthly data on crude oil spot prices for 41 years. Investigating the monthly price process of crude oil distinguishes this paper from existing studies of the time series structure of energy markets. All the tests detect strong evidence of general nonlinear serial dependence, as well as nonlinearity in the mean, variance, and skewness functions in the daily spot price process of crude oil. Since evidence of nonlinear dependence is less dramatic in monthly observations, nonlinear serial dependence is moderated by time aggregation in crude oil prices.
International symposia in economic theory and econometrics, Jun 3, 2019
No part of this book may be reproduced, stored in a retrieval system, transmitted in any form or ... more No part of this book may be reproduced, stored in a retrieval system, transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without either the prior written permission of the publisher or a licence permitting restricted copying issued in the UK by The Copyright Licensing Agency and in the USA by The Copyright Clearance Center. Any opinions expressed in the chapters are those of the authors. Whilst Emerald makes every effort to ensure the quality and accuracy of its content, Emerald makes no representation implied or otherwise, as to the chapters' suitability and application and disclaims any warranties, express or implied, to their use.
Contributions to economic analysis, 2000
Economic Modelling, Nov 1, 2010
found that the parameter space of the most classical dynamic general-equilibrium macroeconomic mo... more found that the parameter space of the most classical dynamic general-equilibrium macroeconomic models are stratified into an infinite number of subsets supporting an infinite number of different kinds of dynamics, from monotonic stability at one extreme to chaos at the other extreme, and with all forms of multiperiodic dynamics between. But Grandmont provided his result with a model in which all policies are Ricardian equivalent, no frictions exist, employment is always full, competition is perfect, and all solutions are Pareto optimal. Hence he was not able to reach conclusions about the policy relevance of his dramatic discovery. As a result, investigated a Keynesian structural model, and found results supporting Grandmont's conclusions within the parameter space of the Bergstrom-Wymer continuous-time dynamic macroeconometric model of the UK economy. That prototypical Keynesian model was produced from a system of second order differential equations. The model contains frictions through adjustment lags, displays reasonable dynamics fitting the UK economy's data, and is clearly policy relevant. In addition, results by Duzhak (2008,2009) demonstrate the existence of Hopf and flip (period doubling) bifurcation within the parameter space of recent New Keynesian models. Lucas-critique criticism of Keynesian structural models has motivated development of Euler equations models having policy-invariant deep parameters, which are invariant to policy rule changes. Hence, we continue the investigation of policy-relevant bifurcation by searching the parameter space of the best known of the Euler equations general-equilibrium macroeconometric models: the pathbreaking model. We find the existence of singularity bifurcation boundaries within the parameter space. Although never before found in an economic model, singularity bifurcation may be a common property of Euler equations models, which often do not have closed form solutions. Our results further confirm Grandmont's views. Beginning with Grandmont's findings with a classical model, we continue to follow the path from the Bergstrom-Wymer policy-relevant Keynesian model, to New Keynesian models, and now to Euler equations macroeconomic models having deep parameters.
Economic Modelling, Mar 1, 2013
We explore bifurcation phenomena in the open-economy New Keynesian model developed by . We find t... more We explore bifurcation phenomena in the open-economy New Keynesian model developed by . We find that the open economy framework can bring about more complex dynamics, along with a wider variety of qualitative behaviors and policy responses. Introducing parameters related to the open economy structure affects the values of bifurcation parameters and changes the location of bifurcation boundaries. As a result, the stratification of the confidence region, as previously seen in closed-economy New Keynesian models, remains an important research and policy risk to be considered in the context of the open-economy New Keynesian functional structures. In fact, econometrics and optimal policy design become more complex within an open economy. Dynamical inferences need to be qualified by the risk of bifurcation boundaries crossing the confidence regions. Without adequate prior econometric research, policy design needs to take into consideration that a change in monetary policy can produce an unanticipated bifurcation.
International Journal of Nonlinear Sciences and Numerical Simulation, 2006
In this article we provide a review of the literature with respect to fluctuations in real system... more In this article we provide a review of the literature with respect to fluctuations in real systems and chaos. In doing so, we contrast the order and organization hypothesis of real systems to nonlinear chaotic dynamics and discuss some techniques used in distinguishing between stochastic and deterministic behavior. Moreover, we look at the issue of where and when the ideas of chaos could profitably be applied to real systems.
Macroeconomic Dynamics, Jun 1, 2000
Franco Modigliani's contributions in economics and finance have transformed both fields. Although... more Franco Modigliani's contributions in economics and finance have transformed both fields. Although many other major contributions in those fields have come and gone, Modigliani's contributions seem to grow in importance with time. His famous 1944 article on liquidity preference has not only remained required reading for generations of Keynesian economists but has become part of the vocabulary of all economists. The implications of the life-cycle hypothesis of consumption and saving provided the primary motivation for the incorporation of finite lifetime models into macroeconomics and had a seminal role in the growth in macroeconomics of the overlapping generations approach to modeling of Allais, Samuelson, and Diamond. Modigliani and Miller's work on the cost of capital transformed corporate finance and deeply influenced subsequent research on investment, capital asset pricing, and recent research on derivatives. Modigliani received the Nobel Memorial Prize for Economics in 1985. In macroeconomic policy, Modigliani has remained influential on two continents. In the United States, he played a central role in the creation of a the Federal Reserve System's large-scale quarterly macroeconometric model, and he frequently participated in the semiannual meetings of academic consultants to the Board of Governors of the Federal Reserve System in Washington, D.C. His visibility in European policy matters is most evident in Italy, where nearly everyone seems to know him as a celebrity, from his frequent appearances in the media. In the rest of Europe, his visibility has been enhanced by his publication, with a group of distinguished European and American economists, of "An Economists' Manifesto on Unemployment in the European Union," which was signed by a number of famous economists and endorsed by several others. This interview was conducted in two parts on different dates in two different locations, and later unified. The initial interview was conducted by Robert Solow
Macroeconomic Dynamics, Sep 1, 2009
In aggregation theory, the admissibility condition for clustering together components to be aggre... more In aggregation theory, the admissibility condition for clustering together components to be aggregated is blockwise weak separability, which also is the condition needed to separate out sectors of the economy. Although weak separability is thereby of central importance in aggregation and index number theory and in econometrics, prior attempts to produce statistical tests of weak separability have performed poorly in Monte Carlo studies. This paper deals with seminonparametric tests for weak separability. It introduces both a necessary and su¢ cient test, and a fully stochastic procedure allowing to take into account measurement error. Simulations show that the test performs well, even for large measurement errors.
Economic Theory, Jan 6, 2009
As is well known in systems theory, the parameter space of most dynamic models is stratified into... more As is well known in systems theory, the parameter space of most dynamic models is stratified into subsets, each of which supports a different kind of dynamic solution. Since we do not know the parameters with certainty, knowledge of the location of the bifurcation boundaries is of fundamental importance. Without knowledge of the location of such boundaries, there is no way to know whether the confidence region about the parameters' point estimates might be crossed by one or more such boundaries. If there are intersections between bifurcation boundaries and a confidence region, the resulting stratification of the confidence region damages inference robustness about dynamics, when such dynamical inferences are produced by the usual simulations at the point estimates only. Recently, interest in policy in some circles has moved to New Keynesian models, which have become common in monetary policy formulations. As a result, we explore bifurcations within the class of New Keynesian models. We study different specifications of monetary policy rules within the New Keynesian functional structure. In initial research in this area, found a New Keynesian Hopf bifurcation boundary, with the setting of the policy parameters influencing the existence and location of the bifurcation boundary. Hopf bifurcation is the most commonly encountered type of bifurcation boundary found among economic models, since the existence of a Hopf bifurcation boundary is accompanied by regular oscillations within a neighborhood of the bifurcation boundary. Now, following a more extensive and systematic search of the parameter space, we also find the existence of Period Doubling (flip) bifurcation boundaries in the class of models. Central results in this research are our theorems on the existence and location of Hopf bifurcation boundaries in each of the considered cases. We also solve numerically for the location and properties of the Period Doubling bifurcation boundaries and their dependence upon policy-rule parameter settings.
RePEc: Research Papers in Economics, Nov 11, 2008
This paper is the basis for the Guest Columnist article in the Tuesday, November 11, 2008 issue o... more This paper is the basis for the Guest Columnist article in the Tuesday, November 11, 2008 issue of the Kansas City Star Business Weekly. Because of space limitations, the published newspaper column had to be shortened from the original and unfortunately did not include either of the two supporting figures. This is the unedited source article. The position taken by this opinion editorial is that the declining trend of total reserves during the recent period of financial crisis was counterproductive, and the declining level of the federal funds rate during that period was an inadequate indicator of Federal Reserve policy stance. But the recent startling surge in reserves potentially offsets the problem, although for reasons not motivated by the issues raised by this article. In fact, the reason for the surge is associated with the declining stock of Treasury bonds available to the Federal Reserve for sterilization of the effects of the new lending initiatives on bank reserves.
RePEc: Research Papers in Economics, Sep 1, 2012
In a recent paper, we studied bifurcation phenomena in continuous time macroeconometric models. T... more In a recent paper, we studied bifurcation phenomena in continuous time macroeconometric models. The objective was to explore the relevancy of ndings to models permitting more reasonable elasticities than were possible in Grandmont's Cobb Douglas overlapping generations model. Another objective w as to explore the relevancy of his ndings to a model in which some solution paths are not Pareto optimal, so that policy rules can serve a clearly positive purpose. We used the Bergstrom, Nowman, and Wymer 1992 UK continuous time second order di erential equations macroeconometric model that permits closer connection with economic theory than is possible with most discrete time structural macroeconometric models. We do not yet have the ability to explore these phenomena in a comparably general Euler equations model having deep parameters, rather than structural parameters. It was discovered that the UK model displays a rich set of bifurcations including transcritical bifurcations, Hopf bifurcations, and codimension two bifurcations. The point estimates of the parameters are in the unstable region. But we did not test the null hypothesis that the parameters are actually in the stable region. In addition, we did not investigate the dynamical properties on the bifurcation boundaries; and we did not investigate the relevancy of stabilization policy rules. In this paper, we further examine the stability properties and bifurcation boundaries of the UK continuous time macroeconometric models by analyzing the stability of the model along center manifolds. The results of this paper show that the model is unstable on bifurcation boundaries for those cases we consider. Hence calibration of the model to operate on those bifurcation boundaries would produce no increase in the model's ability to explain observed data. However, we h a ve not yet determined the dynamic properties of the model on the Hopf bifurcation boundaries, which sometimes do produce useful dynamical properties for some models. Of more immediate interest, it is also shown that bifurcations exist within the Cartesian product of 95 con dence intervals for the estimators of the individual parameters. This seems to suggest that we cannot reject the null hypothesis of stability, despite the fact that the point estimates are in the unstable region. However, when we decreased the con dence level to 90, the intersection of the stable region and the Cartesian product of the con dence intervals became empty, thereby suggesting rejection of stability. But a formal sampling theoretic hypothesis test of that null would be very di cult to conduct, since some of the sampling distributions are truncated by boundaries, and since there are some corner solutions. A Bayesian approach might be possible, but would be very di cult to implement. A new formula is also given for nding the closed forms of transcritical bifurcation boundaries. Finally, e ects of scal policy on stability are considered. It is found that change in scal policy may a ect the stability of the continuous time macroeconometric models. But we nd that the selection of an advantageous stabilization policy is more di cult than expected. Augmentation of the model by feedback policy rules chosen from plausible economic reasoning can contract the stable region and thereby be counterproductive, even if the policy is time consistent and has insigni cant e ect on structural parameter values.
RePEc: Research Papers in Economics, 2006
In his Foreword to wrote: "I conclude with an unworthy hypothesis regarding past and present dire... more In his Foreword to wrote: "I conclude with an unworthy hypothesis regarding past and present directions of economic research. Sherlock Holmes said, 'Cherchez la femme.' When asked why he robbed banks, Willie Sutton replied, 'That's where the money is.' We economists do primarily work for our peers' esteem, which figures in our own self-esteem. When post-depression Roosevelt's New Deal provided exciting job opportunities, first the junior academic faculties moved leftward. To get back ahead of their followers, subsequently the senior academic faculties shoved ahead of them. As post-Reagan, post-Thatcher electorate turned rightward, follow the money pointed, alas, in only one direction. So to speak, we eat our own cooking. We economists love to quote Keynes's final lines in his 1936 General Theory ---for the reason that they cater so well to our vanity and self-importance. But to admit the truth, madmen in authority can self-generate their own frenzies without needing help from either defunct or avant garde economists. What establishment economists brew up is as often what the Prince and the Public are already wanting to imbibe. We guys don't stay in the best club by proffering the views of some past academic crank or academic sage.
RePEc: Research Papers in Economics, Sep 1, 2012
The determinants of money velocity are theoretically explored under various assumptions of intere... more The determinants of money velocity are theoretically explored under various assumptions of interest rate uncertainty in a monetary general equilibrium model. Money is introduced by putting monetary services in the utility function. Monetary assets pay interest. When interest rates are uncertain, it is found that the degree of risk aversion in consumers' preferences and the risk in the return rates of the benchmark asset affect both the intercept and slope of the money velocity function, while the risk in return rates of monetary assets only affects the intercept of the money velocity function. The traditional money velocity function would become unstable if covariances change over time between interest rates and consumption growth rate or between interest rates and real money growth rate. We simulate the model developed in this paper and find that the coefficients of the money velocity function are volatile. The Swamy and Tinsley (1980) random coefficient model is then estimated with money velocity data to compare the results with those from model simulation. It is found that the estimated stochastic slope coefficient of the velocity function behaves in a manner that is approximately consistent with the simulation results.
MPRA Paper, Jan 30, 2006
In his Foreword to wrote: "I conclude with an unworthy hypothesis regarding past and present dire... more In his Foreword to wrote: "I conclude with an unworthy hypothesis regarding past and present directions of economic research. Sherlock Holmes said, 'Cherchez la femme.' When asked why he robbed banks, Willie Sutton replied, 'That's where the money is.' We economists do primarily work for our peers' esteem, which figures in our own self-esteem. When post-depression Roosevelt's New Deal provided exciting job opportunities, first the junior academic faculties moved leftward. To get back ahead of their followers, subsequently the senior academic faculties shoved ahead of them. As post-Reagan, post-Thatcher electorate turned rightward, follow the money pointed, alas, in only one direction. So to speak, we eat our own cooking. We economists love to quote Keynes's final lines in his 1936 General Theory ---for the reason that they cater so well to our vanity and self-importance. But to admit the truth, madmen in authority can self-generate their own frenzies without needing help from either defunct or avant garde economists. What establishment economists brew up is as often what the Prince and the Public are already wanting to imbibe. We guys don't stay in the best club by proffering the views of some past academic crank or academic sage.
MPRA Paper, 2008
This chapter is an up-to-date survey of the state-of-the art in consumer demand analysis. We revi... more This chapter is an up-to-date survey of the state-of-the art in consumer demand analysis. We review (and evaluate) advances in a number of related areas, in the spirit of the recent survey paper by . In doing so, we only deal with consumer choice in a static framework, ignoring a number of important issues, such as, for example, the e¤ects of demographic or other variables that a¤ect demand, welfare comparisons across households (equivalence scales), and the many issues concerning aggregation across consumers.
Macroeconomic Dynamics, Oct 14, 2014
We explore bifurcation phenomena in the open-economy New Keynesian model developed by Gali and Mo... more We explore bifurcation phenomena in the open-economy New Keynesian model developed by Gali and Monacelli (2005). We find that the open economy framework brings about more complex dynamics, along with a wider variety of qualitative behaviors and policy responses. Introducing parameters related to the open economy structure affects the values of bifurcation parameters and changes the location of bifurcation boundaries. As a result, the stratification of the confidence region, as previously seen in closed-economy New Keynesian models, remains an important research and policy risk to be considered in the context of the open-economy New Keynesian functional structures. In fact, econometrics and optimal policy design become more complex within an open economy. Dynamical inferences need to be qualified by the risk of bifurcation boundaries crossing the confidence regions. Policy design needs to take into consideration that a change in monetary policy can produce an unanticipated bifurcation, without adequate prior econometrics research.
Journal of Macroeconomics, Mar 1, 2006
The paper in this volume by Serletis and Shintani, "Chaotic Monetary Dynamics with Confidence," i... more The paper in this volume by Serletis and Shintani, "Chaotic Monetary Dynamics with Confidence," is important, since it resolves some of the problems associated with a long standing controversy. In fact the paper is close to being the "last word" on the subject. As they state, Barnett and Chen (1988) motivated many papers on the question of whether or not there is chaos in economic data. Using the algorithms and tests available from physicists at the time, Barnett and Chen found that certain Divisia monetary aggregate data passes the tests for chaos. Ping Chen is a physicist, who was associated with two of the most active centers for research on chaos at the University of Texas at Austin at the time, and was particularly well situated to know how to design and run those tests.
Macroeconomic Dynamics, Jun 1, 2000
In aggregation theory, index numbers are judged relative to their ability to track the exact aggr... more In aggregation theory, index numbers are judged relative to their ability to track the exact aggregator functions nested within the economy's structure. Within the monetary sector, compared two statistical index numbers: the Divisia monetary aggregate and the simple sum monetary aggregate. They produced those comparisons using simulated data. In this paper, we again compare those two statistical index numbers with the exact rational expectations monetary aggregate, but we use actual data. Since we are not using simulated data, we estimate the parameters of the Euler equations and thereby of the nested monetary aggregator function using generalized method of moments. We explore the tracking errors of the two index numbers relative to the estimated exact aggregate. We investigate the circumstances under which risk aversion increases tracking error. We also use polyspectral methods to test for the existence of remaining nonlinear structure in the residual tracking errors.
Uploads
Papers by William Barnett