Operations Research
http://lists.repec.orgmailman/listinfo/nep-ore
Operations Research
2017-04-23
Constrained principal components estimation of large approximate factor models
http://d.repec.org/n?u=RePEc:swe:wpaper:2017-12&r=ore
Principal components (PC) are fundamentally feasible for the estimation of large factor models because consistency can be achieved for any path of the panel dimensions. The PC method is however inefficient under cross-sectional dependence with unknown structure. The approximate factor model of Chamberlain and Rothschild [1983] imposes a bound on the amount of dependence in the error term. This article proposes a constrained principal components (Cn-PC) estimator that incorporates this restriction as external information in the PC analysis of the data. This estimator is computationally tractable. It doesn't require estimating large covariance matrices, and is obtained as PC of a regularized form of the data covariance matrix. The paper develops a convergence rate for the factor estimates and establishes asymptotic normality. In a Monte Carlo study, we find that the Cn-PC estimators have good small sample properties in terms of estimation and forecasting performances when compared to the regular PC and to the generalized PC method (Choi [2012]).
Rachida Ouysse
High dimensionality, unknown factors, principal components, cross-sectional correlation, shrinkage regression, out-of-sample forecasting
2017-04
An Entropy-Constrained Model of Induced Technical Change with a Single Innovation Possibility Frontier
http://d.repec.org/n?u=RePEc:new:wpaper:1714&r=ore
This paper proposes an entropy-constrained model of induced technical change (ITC) and estimates the innovation possibilities frontier (IPF) of the OECD countries. The ITC model captures endogenous dynamics of technical progress driven by competition among capitalists to lower production costs. However, its assumption that the typical capitalist is able to maximize cost reductions with complete certainty leads to the implausible result that all capitalists end up being on the technological frontier. The entropy constrained ITC model generalizes the canonical model by allowing the economic agent to have a positive degree of uncertainty. This leads to a qualitatively different result in that the solution of the same maximization problem is not a single point on the frontier but a probability distribution of the possible states of the technological change. The Bayesian inference is then employed and successfully recovers the single IPF of the entropy constrained ITC model for the OECD countries.
Jangho Yang
Induced technical change, innovation possibilities frontier, entropy constrained model, Bayesian inference
2017-04
Wild Bootstrap Seasonal Unit Root Tests for Time Series with Periodic Non-Stationary Volatility
http://d.repec.org/n?u=RePEc:gai:wpaper:wpaper-2016-269&r=ore
This paper investigates the behaviour of the well-known HEGY (Hylleberg, Engle, Granger and Yoo, 1990, Journal of Econometrics, vol.44, pp.215-238) regression-based seasonal unit root tests in cases where the driving shocks are allowed to display periodic non-stationary volatility and conditional heteroskedasticity. Our set up allows for periodic heteroskedasticity, non-stationary volatility and (seasonal) GARCH as special cases. We show that the limiting null distributions of the HEGY tests depend, in general, on nuisance parameters which derive from the underlying volatility process. Monte Carlo simulations show that the standard HEGY tests can be substantially over-sized in the presence of such effects. As a consequence, we propose bootstrap implementations of the HEGY tests, based around a seasonal block wild bootstrap principle. This is shown to deliver asymptotically pivotal inference under our general conditions on the shocks. Simulation evidence is presented which suggests that our proposed bootstrap tests perform well in practice, largely correcting the size problems seen with the standard HEGY tests even under extreme patterns of heteroskedasticity, yet not losing finite sample relative to the standard HEGY tests.
Skrobotov Anton
Cavaliere Giuseppe
Taylor Robert
seasonal unit roots, (periodic) non-stationary volatility, conditional heteroskedasticity, wild bootstrap
2016
Testing for Extreme Volatility Transmission with Realized Volatility Measures
http://d.repec.org/n?u=RePEc:drm:wpaper:2017-20&r=ore
This paper proposes a simple and parsimonious semi-parametric testing procedure for variance transmission. Our test focuses on conditional extreme values of the unobserved process of integrated variance since they are of utmost concern for policy makers due to their sudden and destabilizing effects. The test statistic is based on realized measures of variance and has a convenient asymptotic x2 distribution under the null hypothesis of no Granger causality, which is free of estimation risk. Extensive Monte Carlo simulations show that the test has good small sample size and power properties. An extension to the case of spillovers in quadratic variation is also developed. An empirical application on extreme variance transmission from US to EU equity markets is further proposed. We find that the test performs very well in identifying periods of significant causality in extreme variance, that are subsequently found to be correlated with changes in US monetary policy.
Christophe Boucher
Gilles de Truchis
Elena Dumitrescu
Sessi Tokpavi
Extreme volatility transmission, Granger causality, Integrated variance, Realized variance, Semi-parametric test, Financial contagion.
2017
A near optimal test for structural breaks when forecasting under square error loss
http://d.repec.org/n?u=RePEc:tin:wpaper:20170039&r=ore
We propose a near optimal test for structural breaks of unknown timing when the purpose of the analysis is to obtain accurate forecasts under square error loss. A bias-variance trade-off exists under square forecast error loss, which implies that small structural breaks should be ignored. We study critical break sizes, assess the relevance of the break location, and provide a test to determine whether modeling a break will improve forecast accuracy. Asymptotic critical values and near optimality properties are established allowing for a break under the null, where the critical break size varies with the break location. The results are extended to a class of shrinkage forecasts with our test statistic as shrinkage constant. Empirical results on a large number of macroeconomic time series show that structural breaks that are relevant for forecasting occur much less frequently than indicated by existing tests.
Tom Boot
Andreas Pick
structural break test, forecasting, squared error loss
2017-04-18
Which estimator to measure local governments’ cost efficiency? An application to Spanish municipalities
http://d.repec.org/n?u=RePEc:jau:wpaper:2017/06&r=ore
We analyse overall cost efficiency in Spanish local governments during the crisis period (2008–2013). To this end, we first consider some of the most popular methods to evaluate local government efficiency, DEA (Data Envelopment Analysis) and FDH (Free Disposal Hull), as well as recent proposals, namely the order-m partial frontier and the non-parametric estimator proposed by Kneip, Simar and Wilson (2008), which are also non-parametric approaches. Second, we compare the methodologies used to measure efficiency. In contrast to previous literature, which has regularly compared techniques and made proposals for alternative methodologies, we follow recent proposals (Badunenko et al., 2012) with the aim of comparing the four methods and choosing the one which performs best with our particular dataset, that is, the most appropriate method for measuring local government cost efficiency in Spain. We carry out the experiment via Monte Carlo simulations and discuss the relative performance of the efficiency scores under various scenarios. Our results suggest that there is no one approach suitable for all efficiency analysis. We find that for our sample of 1,574 Spanish local governments, the average cost efficiency would have been between 0.54 and 0.77 during the period 2008–2013, suggesting that Spanish local governments could have achieved the same level of local outputs with about 23% to 36% fewer resources.
Isabel Narbón-Perpiñá
Mª Teresa Balaguer-Coll
Marko Petrovic
Emili Tortosa-Ausina
OR in government, efficiency, local government, nonparametric frontiers
2017
Between Trust and Performance: Exploring Socio-Economic Mechanisms on Directed Weighted Regular Ring with Agent-Based Modeling
http://d.repec.org/n?u=RePEc:pra:mprapa:78428&r=ore
This paper explores the evolution of interaction and cooperation supported by individuals’ changing trust and trustworthiness on directed weighted regular ring though agent-based modeling. This agent-based model integrates fragility of trust, interaction decision, strategy decision, payoff matrix decision, interaction density and information diffusion. Marginal rate of exploitation of original payoff matrix and relative exploitation degree between the original and mutated payoff matrices are stressed in trust updating; influence of observing is introduced via imagined strategy; relation is maintained through relation maintenance strength. The impact of degree of embeddedness in social network, mutation probability of payoff matrix, mutated payoff matrix, proportion of high trust agents and probabilities of information diffusion within neighborhood and among non-neighbors on the sum of number of actual interaction and cooperation of all agents are probed on the base of a baseline simulation, respectively. Under the experimental design and parameter values selection in this paper, it is found that basically as degree of embeddedness in social network, proportion of high trust agents and probability of information diffusion in neighbors increase, as mutation probability of payoff matrix, conflict in mutated payoff matrix and probability of information diffusion in non-neighbors decrease, interaction and cooperation perform better.
Gao, Lin
Trust, directed weighted regular ring, agent-based modeling, evolution of cooperation
2017-04-16
Violations of Uniform Partner Ranking Condition in Two-way Flow Strict Nash Networks
http://d.repec.org/n?u=RePEc:pra:mprapa:77961&r=ore
The paper of Charoensook ((2015), [3]) extends the results of the original model of two-way ﬂow information sharing network of Bala and Goyal ((2000),[1]), given that a condition called Uniform Partner Ranking is satisﬁed. In this technical note, we study what happen to these results when this condition is violated. By providing some examples, we conclude that a certain degree of agent homogeneity needs to exist in order that the results of [3] remains satisﬁed.
Charoensook, Banchongsan
Network Formation, Strict Nash Network, Two-way Flow Network, Branching Network, Agent Heterogeneity,Information Network
2017-01-27
A Simple Test on Structural Change in Long-Memory Time Series
http://d.repec.org/n?u=RePEc:han:dpaper:dp-592&r=ore
We propose a simple test on structural change in long-range dependent time series. It is based on the idea that the test statistic of the standard CUSUM test retains its asymptotic distribution if it is applied to fractionally differenced data. We prove that our approach is asymptotically valid if the memory is estimated consistently under the null hypothesis. Therefore, the well-known CUSUM test can be used on the differenced data without any further modification. In a simulation study, we compare our test with a CUSUM test on structural change that is specifically constructed for long-memory time series and show that our approach performs well.
Wenger, Kai
Leschinski, Christian
Sibbertsen, Philipp
Fractional Integration; Structural Breaks; Long Memory
2017-04