Operations Research
http://lists.repec.orgmailman/listinfo/nep-ore
Operations Research
2016-09-25
Realized Matrix-Exponential Stochastic Volatility with Asymmetry, Long Memory and Spillovers
http://d.repec.org/n?u=RePEc:ucm:doicae:1615&r=ore
The paper develops a novel realized matrix-exponential stochastic volatility model of multivariate returns and realized covariances that incorporates asymmetry and long memory (hereafter the RMESV-ALM model). The matrix exponential transformation guarantees the positivedefiniteness of the dynamic covariance matrix. The contribution of the paper ties in with Robert Basmann’s seminal work in terms of the estimation of highly non-linear model specifications (“Causality tests and observationally equivalent representations of econometric models”, Journal of Econometrics, 1988, 39(1-2), 69–104), especially for developing tests for leverage and spillover effects in the covariance dynamics. Efficient importance sampling is used to maximize the likelihood function of RMESV-ALM, and the finite sample properties of the quasi-maximum likelihood estimator of the parameters are analysed. Using high frequency data for three US financial assets, the new model is estimated and evaluated. The forecasting performance of the new model is compared with a novel dynamic realized matrix-exponential conditional covariance model. The volatility and co-volatility spillovers are examined via the news impact curves and the impulse response functions from returns to volatility and co-volatility.
Manabu Asai
Chia-Lin Chang
Michael McAleer
Matrix-exponential transformation, Realized stochastic covariances, Realized conditional covariances, Asymmetry, Long memory, Spillovers, Dynamic covariance matrix, Finite sample properties, Forecasting performance.
2016-09
The effects of Labour Market Reforms upon Unemployment and Income Inequalities : an agent based model
http://d.repec.org/n?u=RePEc:fce:doctra:1624&r=ore
This paper is meant to analyse the e ects of labour market structural reforms by means of an agent-based model. Building on Dosi et al. (2016b) we introduce a policy regime change characterized by a set of structural reforms on the labour market, keeping constant the structure of the capital- and consumption-good markets. Con rming a recent IMF report (Jaumotte and Buitron, 2015), the model shows how labour market structural reforms reducing workers' bargaining power and compressing wages tend to increase (i) unemployment, (ii) functional income inequality, and (iii) personal income inequality. We further undertake a global sensitivity analysis on key variables and parameters which confirms the robustness of our findings.
G. Dosi
M.C. Pereira
A. Roventini
M.E. Virgillito Author-Workplace-Name Scuola Superiore Sant'Anna
Labor market structural reforms, Income distribution, Inequality, Unemployment, Long Run Growth
2016-07
Looking Backward and Looking Forward
http://d.repec.org/n?u=RePEc:cor:louvco:2016014&r=ore
Filtering has had a profound impact as a device of perceiving information and deriving agent expectations in dynamic economic models. For an abstract economic system, this paper shows that the foundation of applying the filtering method corresponds to the existence of a conditional expectation as an equilibrium process. Agent-based rational behavior of looking backward and looking forward is generalized to a conditional expectation process where the economic system is approximated by a class of models, which can be represented and estimated without information loss. The proposed framework elucidates the range of applications of a general filtering device and is not limited to a particular model class such as rational expectations.
GAO, Zhengyuan
HAFNER, Christian M,
Perception, filter, rational expectations, estimation
2016-05-11
Hidden Markov models in time series, with applications in economics
http://d.repec.org/n?u=RePEc:szg:worpap:1606&r=ore
Markov models introduce persistence in the mixture distribution. In time series analysis, the mixture components relate to different persistent states characterizing the state-specific time series process. Model specification is discussed in a general form. Emphasis is put on the functional form and the parametrization of timeinvariant and time-varying specifications of the state transition distribution. The concept of mean-square stability is introduced to discuss the condition under which Markov switching processes have finite first and second moments in the indefinite future. Not surprisingly, a time series process may be mean-square stable even if it switches between bounded and unbounded state-specific processes. Surprisingly, switching between stable state-specific processes is neither necessary nor sufficient to obtain a mean-square stable time series process. Model estimation proceeds by data augmentation. We derive the basic forward-filtering backward-smoothing/sampling algorithm to infer on the latent state indicator in maximum likelihood and Bayesian estimation procedures. Emphasis is again laid on the state transition distribution. We discuss the specification of state-invariant prior parameter distributions and posterior parameter inference under either a logit or probit functional form of the state transition distribution. With simulated data, we show that the estimation of parameters under a probit functional form is more efficient. However, a probit functional form renders estimation extremely slow if more than two states drive the time series process. Finally, various applications illustrate how to obtain informative switching in Markov switching models with time-invariant and time-varying transition distributions.
Sylvia Kaufmann
2016-09
Asymptotic Theory for Extended Asymmetric Multivariate GARCH Processes
http://d.repec.org/n?u=RePEc:ucm:doicae:1614&r=ore
The paper considers various extended asymmetric multivariate conditional volatility models, and derives appropriate regularity conditions and associated asymptotic theory. This enables checking of internal consistency and allows valid statistical inferences to be drawn based on empirical estimation. For this purpose, we use an underlying vector random coefficient autoregressive process, for which we show the equivalent representation for the asymmetric multivariate conditional volatility model, to derive asymptotic theory for the quasi-maximum likelihood estimator. As an extension, we develop a new multivariate asymmetric long memory volatility model, and discuss the associated asymptotic properties.
Manabu Asai
Michael McAleer
Multivariate conditional volatility, Vector random coefficient autoregressive process, Asymmetry, Long memory, Dynamic conditional correlations, Regularity conditions, Asymptotic properties.
2016-09
Nonparametric Dynamic Conditional Beta
http://d.repec.org/n?u=RePEc:pra:mprapa:73764&r=ore
This paper derives a dynamic conditional beta representation using a Bayesian semiparametric multivariate GARCH model. The conditional joint distribution of excess stock returns and market excess returns are modeled as a countably infinite mixture of normals. This allows for deviations from the elliptic family of distributions. Empirically we find the time-varying beta of a stock nonlinearly depends on the contemporaneous value of excess market returns. In highly volatile markets, beta is almost constant, while in stable markets, the beta coefficient can depend asymmetrically on the market excess return. The model is extended to allow nonlinear dependence in Fama-French factors.
Maheu, John M
Shamsi, Azam
GARCH, Dirichlet process mixture, slice sampling
2016-09-16
Modeling changes in U.S. monetary policy
http://d.repec.org/n?u=RePEc:lan:wpaper:127876159&r=ore
The monetary economics literature has highlighted four issues that are important in evaluating U.S. monetary policy since the late 1960s: (i) time variation in policy parameters, (ii) asymmetric preferences, (iii) revisions to economic data, and (iv) heteroskedasticity. This paper, for the first time, estimates a Taylor rule model that addresses these four issues simultaneously. Our findings suggest that U.S. monetary policy has experienced substantial changes in terms of both the response to inflation and to real economic activity, as well as changes in preferences. These changes cannot be captured adequately by a single structural break at the late 1970s, as has been commonly assumed in the literature, and play a non-trivial role in economic performance.
Anh Nguyen
Efthymios Pavlidis
David Alan Peel
Real-time data, Asymmetric objective, Stochastic volatility, Time-varying parameter model, Taylor rule, Monetary policy rules, Particle filter
2016
Asset Pricing in a Semi-Markov Modulated Market with Time-dependent Volatility
http://d.repec.org/n?u=RePEc:arx:papers:1609.04907&r=ore
This project attempts to address the problem of asset pricing in a financial market, where the interest rates and volatilities exhibit regime switching. This is an extension of the Black-Scholes model. Studies of Markov-modulated regime switching models have been well-documented. This project extends that notion to a class of semi-Markov processes known as age-dependent processes. We also allow for time-dependence in volatility within regimes. We show that the problem of option pricing in such a market is equivalent to solving a certain integral equation.
Tanmay S. Patankar
2016-09
Cumulated sum of squares statistics for non-linear and non-stationary regressions
http://d.repec.org/n?u=RePEc:nuf:econwp:1509&r=ore
We show that the cumulated sum of squares test has a standard Brownian bridge-type asymptotic distribution in non-linear regression models with non-stationary regressors. This contrasts with cumulated sum tests which have been studied previously and where the asymptotic distribution involves nuisance quantities. Through simulation we show that the power is comparable in a wide of range of situations.
Vanessa Berenguer-Rico
Bent Nielsen
Cumulated sum of squares, Non-linear Least Squares, Non-stationarity, Specification tests.
2015-08-03
Agent-based Macroeconomics and Dynamic Stochastic General Equilibrium Models: Where do we go from here?
http://d.repec.org/n?u=RePEc:sur:surrec:0116&r=ore
Agent-based computational economics (ACE) has been used for tackling major research questions in macroeconomics for at least two decades. This growing field positions itself as an alternative to dynamic stochastic general equilibrium (DSGE) models. In this paper we first review the arguments raised against DSGE in the ACE literature. We then review existing ACE models, and their empirical performance. We then turn to a literature on behavioural New Keynesian models that attempts to synthesise these two approaches to macroeconomic modelling by incorporating some of the insights of ACE into DSGE modelling. We highlight the individually rational New Keynesian model following Deak et al. (2015) and discuss how this line of research can progress.
Özge Dilaver
Robert Jump
Paul Levine
2016-01
Semiparametric Estimation under Shape Constraints
http://d.repec.org/n?u=RePEc:ecl:riceco:15-021&r=ore
Economic theory provides the econometrician with substantial structure and restrictions necessary to give economic interpretation to empirical findings. In many settings, such as those in consumer demand and production studies, these restrictions often take the form of monotonicity and curvature constraints. Although such restrictions may be imposed in certain parametric empirical settings in a relatively straight-forward fashion by utilizing parametric restrictions or particular parametric functional forms (Cobb-Douglas, CES, etc.), imposing such restrictions in semiparametric models is often problematic. Our paper provides one solution to this problem by incorporating penalized splines, where monotonicity and curvature constraints are maintained via integral transformations of spline basis expansions. We derive the estimator, algorithms for its solution, and its large sample properties. Inferential procedures are discussed as well as methods for selecting the smoothing parameter. We also consider multiple regressions under the framework of additive models. We conduct a series of Monte Carlo simulations to illustrate the finite sample properties of the estimator. We apply the proposed methods to estimate two canonical relationships, one in consumer behavior and one in producer behavior. These two empirical settings examine the relationship between individuals' degree of optimism and risk tolerance and a production function with multiple inputs.
Wu, Ximing
Sickles, Robin
2014-12
The effect of sequentiality and heterogeneity in network formation games
http://d.repec.org/n?u=RePEc:gat:wpaper:1629&r=ore
In the benchmark model of Bala and Goyal (2000) on network formation, the equilibrium network is asymmetric and unfair as agents have different payoffs. While they are prominent in reality, asymmetric networks do not emerge in the lab mainly because of fairness concerns. We extend this model with a sequential linking decision process to ease coordination and with heterogeneous agents. Heterogeneity is introduced with the presence of a special agent who has either a higher monetary value or a different status. The equilibrium is asymmetric and unfair. Our experimental results show that thanks to sequentiality and fairness concerns, individuals coordinate on fair and efficient networks in homogeneous settings. Heterogeneity impacts the network formation process by increasing the asymmetry of networks but does not decrease the level of fairness nor efficiency
Liza Charroin
Network formation, sequentiality, heterogeneity, fairness, asymmetry
2016
A Spatial Autoregressive Stochastic Frontier Model for Panel Data with Asymmetric Efficiency Spillovers
http://d.repec.org/n?u=RePEc:ecl:riceco:15-014&r=ore
By blending seminal literature on non-spatial stochastic frontier models with key contributions to spatial econometrics we develop a spatial autoregressive (SAR) sto- chastic frontier model for panel data. The specification of the SAR frontier allows efficiency to vary over time and across the cross-sections. Efficiency is calculated from a composed error structure by assuming a half-normal distribution for inefficiency. The spatial frontier is estimated using maximum likelihood methods taking into account the endogenous SAR variable. We apply our spatial estimator to an aggregate production frontier for 41 European countries over the period 1990-2011. In the application section, the fitted SAR stochastic frontier specification is used to discuss, among other things, the asymmetry between efficiency spillovers to and from a country.
Glass, Anthony J.
Kenjegalieva, Karligash
Sickles, Robin C.
2015-04
Nonlinear Tax Incidence and Optimal Taxation in General Equilibrium
http://d.repec.org/n?u=RePEc:nbr:nberwo:22646&r=ore
We study the incidence and the optimal design of nonlinear income taxes in a Mirrleesian economy with a continuum of endogenous wages. We characterize analytically the incidence of any tax reform by showing that one can mathematically formalize this problem as an integral equation. For a CES production function, we show theoretically and numerically that the general equilibrium forces raise the revenue gains from increasing the progressivity of the U.S. tax schedule. This result is reinforced in the case of a Translog technology where closer skill types are stronger substitutes. We then characterize the optimum tax schedule, and derive a simple closed-form expression for the top tax rate. The U-shape of optimal marginal tax rates is more pronounced than in partial equilibrium. The joint analysis of tax incidence and optimal taxation reveals that the economic insights obtained for the optimum may be reversed when considering reforms of a suboptimal tax code.
Dominik Sachs
Aleh Tsyvinski
Nicolas Werquin
2016-09