Fixed  Investment,  uncertainty  and  financial  markets  vola7lity  in  Japan  

Author  Luke  Meehan  Discussant  Omer  Majeed  

Strengths    

•  Interes7ng  topic.    •  Methodologically  sound.    

•  A  novel  approach.  Using  TVP-­‐VAR,  along  with  Bayesian  methods.  

Sugges7on/comments  

•  Posterior  can  be  quite  sensi7ve  to  priors.    o  Karagedikli  et  al  (2010),  “RBCs  and  DSGEs:  

the  computa7onal  approach  to  business  cycle  theory  and  evidence",  Journal  of  Economic  Surveys.  

•  Should  under  take  sensi7vity  analysis  to  see  if  posterior  is  prior  driven  or  likelihood  driven.  

Sugges7on/comments  

•  Bayesian  techniques  adapted  to  deal  with  model  uncertainty.  

•  There  usually  is  considerable  model  uncertainty  with  these  models.  –  Variables  to  choose  (unit  labour  costs  etc,  integrated  health  of  world  economy  and/or  financial  markets  ma\er);  

–  Cointegra7on  rank;  –  Lag  length;  and  –  Structural  breaks.  

Sugges7on/comments  

•  Could  construct  a  reasonable  model  space  and  use  Bayesian  Method  Averaging  to  see  how  robust  your  results  are.    

o  Garra\,  Koop,  Mise  and  Vahey  (2009)  “Real-­‐7me  predic7on  with  UK  monetary  aggregates  in  the  presence  of  model  uncertainty",  Journal  of  Business  and  Economic  Sta7s7cs,  27(4),  480-­‐491  

Sugges7on/comments  

•  Sample  size.  (September  1987  to  February  2011).  Why?  

Sugges7on/comments  

•  Some  interes7ng  results.  Which  need  to  be  explained.    •  For  example  :  •  “Posi7ve  spikes  in  machinery  investment  deliver  short-­‐  and  long-­‐term  Tankan  falls.  This  indicates,  according  to  the  assump7ons  made  here  about  the  strong  link  between  Tankan  business-­‐confidence  and  uncertainty,  that  increasing  the  fixed  produc7ve  capacity  of  firms  on  a  macro  scale  increases  macro-­‐level  uncertainty.  This  inverse  rela7onship  between  investment  and  confidence  requires  further  study.”  

In  conclusion  

•  A  very  novel  approach  to  looking  at  fixed  investment,  uncertainty  and  financial  markets.  

•   Sound  methodology.      

•  May  be  the  sugges7ons  given  will  help.