Forecasts that minimize mean squared forecast error (MSE) often exhibit excessive volatility, limiting their practical applicability. We address this accuracy-smoothness trade-off by introducing a Multivariate Smooth Sign Accuracy (M-SSA) framework, which extracts smoothed components from leading indicators to enhance the signal-to-noise ratio and control the forecast volatility and timing. Applied to quarterly German GDP growth, our method yields smoothed forecasts that can improve forecasting accuracy, particularly over medium-term horizons. We find that while smoother forecasts tend to lag slightly around turning points, this can be offset by adjusting the forecast horizon. These findings highlight the practicality of the M-SSA framework for both forecasters and policymakers, especially in settings where forecast revisions or policy adjustments are costly.

On September 25th, financial economists from all over the world travelled for the 11th time to Halle (Saale) to attend the annual FIN-FIRE Workshop at IWH. During two days, authors of ten papers covered a comprehensive overview of contemporary issues that pose potential challenges to the financial system, including data privacy in mortgage markets, climate risks in bond markets, synthetic risk transfers, the effects of geopolitical risks for lending, as well as granular perspectives on the transmission of monetary policy. An intense exchange of thoughts between authors, discussants, and the audience yielded genuinely new insights into the resilience and fragility of financial systems. 

Banks have been operating in a low interest rate environment paired with booming housing markets. For the largest banks in the euro area and the period 2015-2022, we assess whether banks reallocate their foreign loan portfolio backed by real estate as a response to differences in local lending spreads across the home and destination country and conditional on reduced information frictions due to borrowing-country exposures. The main result is that the relative share of foreign real estate backed lending increases in case of return opportunities, and this sensitivity depends on local exposures towards the borrowing country. The result is driven by subsamples for which neither the home nor the borrowing country have implemented macroprudential regulation targeting real estate lending, or for which there is a misalignment in macroprudential policies. Nevertheless, we find limited evidence that the riskiness of real estate backed loans goes up during our sample period, and we discuss potential reasons for this result including the possibility of hidden losses.