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on Econometric Time Series |
| By: | Haldrup; Niels; Morten Oerregaard Nielsen (Department of Economics, University of Aarhus, Denmark) |
| Abstract: | The functioning of electricity markets has experienced increasing complexity as a result of deregulation in recent years. Consequently this affects the multilateral price behaviour across regions with physical exchange of power. It has been documented elsewhere that features such aslong memory and regime switching reflecting congestion and non-congestion periods are empirically relevant and hence are features that need to be taken into account when modeling price behavior. In the present paper we further elaborate on the co-existence of long memory and regime switches by focusing on the effect that the direction of possible congestion episodes has on the price dynamics. Under non-congestion prices are identical. The direction of possible congestion is identified by the region with excess demand of power through the sign of price differences and hence three different states can be considered: Non-congestion and congestion periods with excess demand in the one or the other region. Using data from the Nordic power exchange, Nord Pool, we find that the price dynamics and long memory features of the price series generally are rather different across the different states. Also, there is evidence of fractional cointegration at some grid points when conditioning on the states. |
| Keywords: | Cointegration, electricity prices, forecasting, fractional integration and cointegration, long memory, Markov switching |
| JEL: | C2 C22 C32 |
| Date: | 2005–10–17 |
| URL: | http://d.repec.org/n?u=RePEc:aah:aarhec:2005-18&r=ets |
| By: | Andros Gregoriou and Alexandros Kontonikas |
| Abstract: | In this paper we examine the time series properties of inflation in seven countries that have adopted inflation targeting. Unlike previous studies we utilize a non-linear mean reverting adjustment mechanism for inflation and we discover that although deviations of inflation from the target can exhibit a region of non-stationary behavior, overall they are stationary indicating successful targeting implementation. |
| JEL: | E31 C32 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2005_10&r=ets |
| By: | Alexandros Kontonikas, Alberto Montagnoli and Nicola Spagnolo |
| Abstract: | In this paper we investigate the interaction between inflation and stock market volatility. We employ unconditional and conditional volatility measures, the latter derived from a Bivariate GARCH model with the BEKK representation. The results indicate that once the impact of IT is taken into account, the relationship between inflation and stock market volatility ceases to be positive and be comes negative in line with the New Environment Hypothesis. The implication for monetary policy design is that focusing on price stability alone may not be a suffcient condition for financial stability. |
| JEL: | C22 E31 E44 E52 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2005_11&r=ets |
| By: | Karim Abadir, Giovanni Caggiano and Gabriel Talmain |
| Abstract: | We detect a new stylized fact about the common dynamics of macroeconomic and financial aggregates. The rate of decay of the memory (or persistence) of these series is depicted by their autocorrelation functions (ACFs), and they all fit very closely a parsimonious four-parameter functional form that we present. Not only does our formula fit the data better than the ones that arise from autoregressive models, but it also yields the correct shape of the ACF. This can help policymakers understand the lags with which an economy evolves, and its turning points. |
| JEL: | E32 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2005_7&r=ets |
| By: | Westerlund, Joakim (Department of Economics, Lund University); Edgerton , David (Department of Economics, Lund University) |
| Abstract: | This paper proposes Lagrange multiplier (LM) based tests for the null hypothesis of no cointegration in panel data. The tests are general enough to allow for heteroskedastic and serially correlated errors, individual specific time trends, and a single structural break in both the intercept and slope of each regression, which may be located different dates for different individuals. The limiting distributions of the test statistics are derived, and are found to be standard normal and free of nuisance parameters under the null. In particular, the distributions are found to be invariant not only with respect to trend and structural break, but also with respect to the presence of stochastic regressors. A small Monte Carlo study is also conducted to investigate the small-sample properties of the tests. The results reveal that the tests have small size distortions and good power even in very small samples. |
| Keywords: | Panel Cointegration; Residual-Based Cointegration Test; Structural Break; Deterministic Trend; LM Principle |
| JEL: | C12 C32 C33 |
| Date: | 2005–10–11 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:lunewp:2005_042&r=ets |
| By: | Eklund, Jana (Department of Economic Statistics); Karlsson, Sune (Department of Economics, Statistics and Informatics) |
| Abstract: | We extend the standard approach to Bayesian forecast combination by forming the weights for the model averaged forecast from the predictive likelihood rather than the standard marginal likelihood. The use of predictive measures of fit offers greater protection against in-sample overfitting and improves forecast performance. For the predictive likelihood we show analytically that the forecast weights have good large and small sample properties. This is confirmed in a simulation study and an application to forecasts of the Swedish inflation rate where forecast combination using the predictive likelihood outperforms standard Bayesian model averaging using the marginal likelihood. |
| Keywords: | Bayesian model averaging; Predictive likelihood; Partial Bayes factor; Training sample; Inflation rate |
| JEL: | C11 C51 C52 |
| Date: | 2005–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0191&r=ets |
| By: | Rebecca N. Coke; Andrew Berg |
| Abstract: | Many estimates of early-warning-system (EWS) models of currency crisis have reported incorrect standard errors because of serial correlation in the context of panel probit regressions. This paper documents the magnitude of the problem, proposes and tests a solution, and applies it to previously published EWS estimates. We find that (1) the uncorrected probit estimates substantially underestimate the true standard errors, by up to a factor of four; (2) a heteroskedasicity- and autocorrelation-corrected (HAC) procedure produces accurate estimates; and (3) most variables from the original models remain significant, though substantially less so than had been previously thought. |
| Keywords: | Crisis prevention , Currencies , Economic models , |
| Date: | 2004–03–23 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:04/39&r=ets |
| By: | Charalambos G. Tsangarides |
| Abstract: | This paper develops the theoretical background for the Limited Information Bayesian Model Averaging (LIBMA). The proposed approach accounts for model uncertainty by averaging over all possible combinations of predictors when making inferences about the variables of interest, and it simultaneously addresses the biases associated with endogenous and omitted variables by incorporating a panel data systems Generalized Method of Moments estimator. Practical applications of the developed methodology are discussed, including testing for the robustness of explanatory variables in the analyses of the determinants of economic growth and poverty. |
| Keywords: | Forecasting models , Economic models , |
| Date: | 2004–05–11 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:04/68&r=ets |
| By: | Etienne B. Yehoue; Gilles J. Dufrénot |
| Abstract: | We combine some newly developed panel co-integration techniques and common factor analysis to analyze the behavior of the real exchange rate (RER) in a sample of 64 developing countries. We study the dynamic of the RER with its economic fundamentals: productivity, the terms of trade, openness, and government spending. We derive a number of common factors that explain the dynamic of the RER in our sample. We find that while some fundamentals such as productivity, terms of trade, and openness are strongly related to these common factors in low-income countries, no such link is found for the middle-income countries. We also derive the misalignment indices, which seem to reproduce recent episodes of overvaluation and undervaluation in a number of countries. |
| Date: | 2005–08–25 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:05/164&r=ets |
| By: | Alfred A. Haug (Department of Economics, York University); Syed A. Basher (Department of Economics, York University) |
| Abstract: | We test long¨Crun PPP within a general model of cointegration of linear and nonlinear form. Nonlinear cointegration is tested with rank tests proposed by Breitung (2001). We start with determining the order of integration of each variable in the model, applying relatively powerful DF¨CGLS tests of Elliott, Rothenberg and Stock (1996). Using monthly data from the post¨CBretton Woods era for G¨C10 countries, the evidence leads to a rejection of PPP for almost all countries. In several cases the price variables are driven by permanent shocks that differ from the ones that drive the exchange rate. Also, nonlinear cointegration cannot solve the PPP puzzle. |
| Keywords: | Purchasing power parity; unit roots; nonlinear cointegration |
| JEL: | C22 F40 |
| Date: | 2003–01 |
| URL: | http://d.repec.org/n?u=RePEc:yca:wpaper:2003_01&r=ets |