Foreign Direct Investment and the Equity Home Bias Puzzle

Abstract

The views expressed in this paper are those of the authors and do not necessarily reflect those of the Deutsche Bundesbank, the Banco de España or the Eurosystem. We would like to thank seminar participants at the Banco de España and an anonymous referee for their comments, as well as Masashige Hamano for sharing his codes with us.

Real-time Weakness of the Global Economy: A First Assessment of the Coronavirus Crisis

“…We justify our modelling choice as the minimal specification that is necessary to account for the obvious fact that recessionary episodes come with very different growth rates of the GDP, and other real activity indicators. On the one hand, the Global Financial Crisis of [2007][2008] was unusually severe for many economies that, compared to it, subsequent recessions look barely distinguishable from normal times. For example, based on the data for many European countries, one would almost certainly fail to detect any other recession but the one observed upon the Global Financial Crisis when using a Markov-switching model with the common factor of the Hamilton type.…”

“…Dynamic factor models have been widely applied to the U.S. economy since it has been shown that they provide both accurate forecasts of GDP growth and inferences on the state of the economy in a real-time environment. On the one hand, Giannone et al (2008) and Banbura et al (2012), among others, have relied on linear factor models, that allow for mixed frequency data, to provide short-term forecasts of real GDP. On the other hand, Chauvet (1998) employs single-frequency nonlinear factor models, where the factor is subject to regime changes, with aim of providing timely inferences on turning points.…”

“…On the other hand, Chauvet (1998) employs single-frequency nonlinear factor models, where the factor is subject to regime changes, with aim of providing timely inferences on turning points. Moreover, Chauvet and Piger (2008) show that Markov-switching dynamic factor models outperform alternative nonparametric methods when inferring U.S. recessions as dated by the NBER.…”

“…The last Global Financial Crisis has had ramifications that, arguably, can be seen to this day across the globe. Europe has been no exception: it has witnessed a dramatic recession in [2008][2009] across the euro area and the Sovereign Debt Crisis in [2009][2010][2011][2012]; ever since, it has been plagued by lacklustre growth that has turned resistant to a plethora of unprecedented nonconventional monetary and fiscal stimuli. More recently, there has been growing concern among academics and policy-makers about a new recessionary phase.…”

“…2 Chauvet and Piger (2008) rely on a similar model, however, it is estimated with Bayesian instead of classical methods.…”