Jaime Marquez

This paper offers estimates of the per-capita GDP growth trajectories consistent with zero growth in per-capita CO₂ emissions using Ordinary Least Squares (OLS) and Instrumental Variables (IVs). The focus is on six developed economies (Canada, Germany, Italy, Japan, Singapore, and the United States) and six emerging economies (China, India, Indonesia, Malaysia, Mexico, and South Korea). To this end, we postulate a model linking the growth of per-capita CO₂ emissions to per-capita GDP growth and technology. Given the parameter estimates, we use the model to estimate the growth rate of per-capita GDP that is consistent with zero growth in CO₂ emissions.

This paper offers estimates of the per-capita GDP growth trajectories consistent with zero CO₂ emissions. The focus is on six developed economies (Canada, Germany, Italy, Japan, Singapore, United States) and six emerging economies (China, India, Indonesia, Malaysia, Mexico, South Korea). To this end, we postulate model linking per-capita CO₂ emissions growth to per-capita GDP growth and technology. Parameter estimation relies on annual data from 1980 to 2022 using Ordinary Least Squares (OLS) and Instrumental Variables (IV). Given the parameter estimates, we use the model to estimate the growth rate of per-capita GDP that is consistent with zero growth in CO2 emissions.

This paper empirically examines the relationship between movements in the price of oil and movements in the dollar’s external value. Specifically, to what extent do financial markets arbitrage price differentials among internationally traded assets, such as oil, gold, and foreign exchange? To this end, we use daily data observations from January 1999 to March 2024 to estimate the parameters of vector autoregressive process with six variables and five lags. As it turns out, using a daily frequency carries its own practical complications that do not arise when using either quarterly or monthly observations. One such complication arose on April 20, 2020, when the price for West Texas Intermediate (WTI) closed at negative $38 per barrel. A market that can record a negative price cannot be modeled empirically relying on the widely used logarithmic formulations. We use this event to motivate the development of an alternative to the logarithmic formulation. There are several results of interest. First, there is one cointegration relation among the prices of these international trade assets; arguably, this finding might be interpreted as suggesting a long-run arbitrage relation. Second, the implied elasticities of the model are far from constant.

Conventional explanations of monetary policy decisions in the United States assume that the longer-run Federal funds rate is determined by a representative central banker (i.e., the Fed) using longer-term forecasts of economic activity and unemployment. This assumption is inconsistent with the federalist structure of the Federal Reserve in which the Federal funds rate is determined by a committee made up of the Federal Reserve Board and the Federal Reserve Banks. This inconsistency would be irrelevant if differences in the Fed participants’ longer-run projections were small or constant, but they are not: disparities in these longer-run projections are large and volatile. This finding raises several questions: Are FOMC participants relying on the same forecasting framework (i.e., model or rules of thumb) but using different values for the forecast drivers? Or are these participants using the same forecast drivers but relying on different frameworks?

This paper examines the relevancy of price measurement for characterizing the relation between real oil prices and real exchange rates. The current empirical literature shows a consensus on using the U.S. CPI to deflate the nominal oil price simply because of its numerous advantages. However, reliance on the U.S. CPI assumes that the worldwide alternative to a barrel of oil is the U.S. consumption basket. There are, however, alternative baskets, and I consider two: the price of gold and the IMF Global Commodity Price Index. Inspection of the results reveals that the relation between real oil prices and real exchange rates is sensitive to the choice of deflator for the price of oil and to the use of effective or bilateral exchange rates. Specifically, using the IMF’s Global Commodity Price Index as a deflator reveals that real oil prices and real exchange rates (effective or bilateral) are clustered along a long-run relation with unitary elasticity. Further, this choice of deflator has the lowest forecast errors. To be sure, much work remains to be completed along the lines of measurement and estimation methods. However, extending the results of this paper will emphasize its main point—namely, that measurement matters.

(Hendry 1980, p. 403) The three golden rules of econometrics are “test, test, and test”. The current paper applies that approach to model the forecasts of the Federal Open Market Committee over 1992–2019 and to forecast those forecasts themselves. Monetary policy is forward-looking, and as part of the FOMC’s effort toward transparency, the FOMC publishes its (forward-looking) economic projections. The overall views on the economy of the FOMC participants–as characterized by the median of their projections for inflation, unemployment, and the Fed’s policy rate–are themselves predictable by information publicly available at the time of the FOMC’s meeting. Their projections also communicate systematic behavior on the part of the FOMC’s participants.

This paper offers an empirical characterization of the relation between the international price of oil and exchange rates that is both useful and reliable. Our characterization is useful because it rests on information of asset prices that are determined in functioning asset markets. Our characterization is reliable because its maintained assumptions are not rejected by the data. Four features differentiate our work from previous analyses. First, our reliance on bilateral rates opens previously ignored financial arbitrage opportunities between oil prices and exchange rates. Second, our emphasis on statistical testing makes our characterization empirically reliable. Specifically, we use a vector-error correction modeling strategy in which both oil prices and exchange rates are endogenous. This framework allows testing for the existence of an arbitrage relation, for the direction of causality, for parameter constancy, for white noise residuals, and for forecast accuracy. Third our reliance on data through 2020 makes our analysis timely. Fourth, to emphasize the advantages of our approach, we compare our results to those derived for formulations relying on effective exchange-rate indexes.

Monetary policy is forward looking and, in its pursuit of transparency, it communicates its economic projections to the public at large. As a result, there is interest in whether these projections are credible. We argue that central to that credibility is the public’s ability to replicate the FOMC’s projections using publicly available data only. In other words, is it possible to anticipate, reliably and independently, what the FOMC will anticipate for the federal funds rate? To address this question, we assemble FOMC projections from 1992 to 2017; examine their statistical properties; postulate models to predict FOMC projections; and estimate the parameters of these models. We are not arguing that the FOMC determines their projections using these models. Rather, these equations are the ones that the public could use to forecast FOMC forecasts and to anticipate interest-rate decisions.

That the global market for derivatives has expanded beyond recognition is well known. What is not know is how this market interacts with economic activity. We provide the first empirical characterization of interdependencies between OECD economic activity and the global OTC derivatives market. To this end, we apply a vector-error correction model to OTC derivatives disaggregated across instruments and counterparties. The results indicate that with one exception, the heterogeneity of OTC contracts is too pronounced to be reliably summarized by our measures of economic activity. The one exception is interest-rate derivatives held by Other Financial Institutions.