Economic Modeling in the Post Great Recession Era - Incomplete Data, Imperfect Markets

Reality-based modeling for today's unique economic recovery
 
Economic Modeling in the Post Great Recession Era presents a more realistic approach to modeling, using direct statistical applications to address the characteristics and trends central to current market behaviors. This book's unique focus on the reality of today's markets makes it an invaluable resource for students and practitioners seeking a comprehensive guide to more accurate forecasting. While most books treat the economy as if it were in a vacuum, building models around idealized or perception-biased behaviors, this book deals with the economy as it currently stands--in a state of recovery, limited by financial constraints, imperfect information, and lags and disparities in price movements. The authors identify how these characteristics impact various markets' behaviors, and quantify those behaviors using SAS as the primary statistical tool.
 
Today's economy bears a number of unique attributes that usual modeling methods fail to consider. This book describes how to approach modeling based on real-world, observable data in order to make better-informed decisions in today's markets.
* Discover the three economic characteristics with the greatest impact on various markets
* Create economic models that mirror the current post-recession reality
* Adopt statistical methods that identify and adapt to structural breaks and lags
* Factor real-world imperfections into modeling for more accurate forecasting
 
The past few years have shown a clear demarcation between policymakers' forecasts and actual outcomes. As the dust settles on the Great Recession, after-effects linger--and impact our current recovery in ways that diverge from past experience and theoretical expectations. Economic Modeling in the Post Great Recession Era provides comprehensive guidance grounded in reality for today's economic decision-makers.

List of contents

Preface/Justification xiii
 
Acknowledgments xxi
 
Chapter 1 Setting the Context 1
 
The Problem with Uncritical Assumptions in a Less-Than-Perfect Economy 2
 
The Problem with Models in an Imperfect Economy 3
 
Four Characteristics of a Less-Than-Perfect Economy 4
 
Economic Policy Inconsistencies--The Parable of Strange Bedfellows 13
 
Chapter 2 Dynamic Adjustment in an Economy: Frictions Matter 15
 
Introduction 16
 
Quantifying Frictions: Is the Long-Run Average a Useful Guide for the Future? 32
 
Modeling Dynamic Adjustment due to Economic Frictions: Decision Making in an Evolving World 49
 
Dynamic Economic Adjustment: An Evolution unto Itself 67
 
Appendix 68
 
A Case for the Multiple Markets: 1983-2008 68
 
The Labor Market: 1983-2008 70
 
Chapter 3 Information: Past Imperfect, Present Incomplete, Future Uncertain 73
 
Story Behind the Numbers 76
 
Conclusion 103
 
Chapter 4 Price Adjustment and Search for Equilibrium 105
 
What Barriers Are There to Perfectly Flexible Prices? 107
 
Implications 112
 
Finding Dynamic Adjustment in the Data 116
 
Conclusion 121
 
Chapter 5 Business Investment: This Time Is Different 123
 
Drivers of Business Spending 125
 
Putting It All Together: Explaining Slow Recovery in Capital Investment 134
 
Chapter 6 Corporate Profits: Reward, Incentive, and That Standard of Living 135
 
Introduction: Profits as Essential Partner 136
 
The Role of Profits in the Economic Cycle: Five Drivers 137
 
The Role of Profits: Incentives and Rewards 140
 
Concluding Remarks: Modeling Profits 167
 
Chapter 7 Labor Market Evolution: Implications for Private-Sector and Public-Policy Decision Makers 169
 
Part I: Labor Market Imperfections 171
 
Part II: Heterogeneity in the Labor Market 182
 
Part III: How Do Secular Labor Market Trends Impact Economic Policy? 196
 
Chapter 8 Inflation: When What You Get Isn't What You Expect 205
 
Introduction 206
 
What Is Inflation? 207
 
Why Does Inflation Matter? 208
 
What Determines Inflation? 212
 
Inflation after the Great Recession 219
 
Application: Predicting if Central Banks Can Achieve Price Stability 230
 
Chapter 9 Interest Rates and Credit: Capital Markets in the Post-Great Recession World 235
 
Imperfect Guidance in an Uncertain World 236
 
A Look at Actual History over the Long Run 247
 
Credit and Administered Rates 250
 
Imperfect Information and Credit 255
 
Conclusion: Shift from Historical Benchmarks 280
 
Chapter 10 Three-Dimensional Checkers: Open Economy, Capital Flows, and Exchange Rates 281
 
Newton's Third Law 282
 
Introducing a New Price to the Analysis: The Role of Exchange Rates 289
 
Three-Dimensional Checkers on an International Playing Field 295
 
A Perfect Model in an Imperfect World 298
 
Concluding Remarks: Future Looks Different 330
 
Chapter 11 Assessing Economic Policy in an Imperfect Economy 331
 
Generalized Policy Model 333
 
Rules and Reputation: Beyond Economic Benchmarks 338
 
Confronting Our Three Market Imperfections 340
 
Economic Policy in the Context of an Imperfect Economy 359
 
About the Authors 361
 
Index 363

About the author

JOHN E. SILVIA is a managing director and the chief economist for Wells Fargo. Previously he worked on Capitol Hill as senior economist for the U.S. Senate Joint Economic Committee and chief economist for the U.S. Senate Banking, Housing, and Urban Affairs Committee. AZHAR IQBAL is director and econometrician at Wells Fargo Securities. SARAH WATT HOUSE is vice president of Wells Fargo Securities.

Summary

Reality-based modeling for today's unique economic recovery

Economic Modeling in the Post Great Recession Era presents a more realistic approach to modeling, using direct statistical applications to address the characteristics and trends central to current market behaviors. This book's unique focus on the reality of today's markets makes it an invaluable resource for students and practitioners seeking a comprehensive guide to more accurate forecasting. While most books treat the economy as if it were in a vacuum, building models around idealized or perception-biased behaviors, this book deals with the economy as it currently stands--in a state of recovery, limited by financial constraints, imperfect information, and lags and disparities in price movements. The authors identify how these characteristics impact various markets' behaviors, and quantify those behaviors using SAS as the primary statistical tool.

Today's economy bears a number of unique attributes that usual modeling methods fail to consider. This book describes how to approach modeling based on real-world, observable data in order to make better-informed decisions in today's markets.
* Discover the three economic characteristics with the greatest impact on various markets
* Create economic models that mirror the current post-recession reality
* Adopt statistical methods that identify and adapt to structural breaks and lags
* Factor real-world imperfections into modeling for more accurate forecasting

The past few years have shown a clear demarcation between policymakers' forecasts and actual outcomes. As the dust settles on the Great Recession, after-effects linger--and impact our current recovery in ways that diverge from past experience and theoretical expectations. Economic Modeling in the Post Great Recession Era provides comprehensive guidance grounded in reality for today's economic decision-makers.

Product details

• Authors: Sarah House, Sarah Watt House, Azha Iqbal, Azhar Iqbal, Iqbal Azhar, John Silvia, John E Silvia, John E. Silvia, John E. Iqbal Silvia, John Iqbal Silvia, John Moehring Silvia
• Publisher: Wiley, John and Sons Ltd
• Languages: English
• Product format: Hardback
• Released: 03.03.2017
• EAN: 9781119349839
• ISBN: 978-1-119-34983-9
• No. of pages: 400
• Series: SAS Institute Inc; Wiley and SAS Business; SAS Institute Inc; Wiley and SAS Business Series
• Subjects: Social sciences, law, business > Business > Economics; Volkswirtschaftslehre, Economics, BUSINESS & ECONOMICS / Economic History, POLITICAL SCIENCE / Political Economy, BUSINESS & ECONOMICS / Econometrics, Economic and financial crises and disasters, Econometrics and economic statistics, Economics Special Topics, Spezialthemen Volkswirtschaftslehre