nep-ets New Economics Papers
on Econometric Time Series
Issue of 2006‒02‒19
eleven papers chosen by
Yong Yin
SUNY at Buffalo

  1. Generalized Empirical Likelihood Tests in Time Series Models With Potential Identification Failure (with R.J.Smith), August 2003, this version April 2005 By Patrik Guggenberger
  2. Bias-Reduced Log-Periodogram and Whittle Estimation of the Long-Memory Parameter Without Variance Inflation (joint with Yixiao Sun), accepted at Econometric Theory By Patrik Guggenberger
  3. A Time-Varying Parameter Model of A Monetary Policy Rule for Switzerland. The Case of the Lucas and Friedman Hypothesis. By Marwan Elkhoury
  4. New Improved Tests for Cointegration with Structural Breaks By Westerlund, Joakim; Edgerton , David
  5. Arbitrage Bounds and the Time Series Properties of the Discount on UK Closed-End Mutual Funds By Copeland, Laurence
  6. Simulating Stock Returns under switching regimes - a new test of market efficiency By Meenagh, David; Minford, Patrick; Peel, David
  7. Bootstrapping Systems Cointegration Tests with a Prior Adjustment for Deterministic Terms By Carsten Trenkler
  8. SPURIOUS AND HIDDEN VOLATILITY By M. Angeles Carnero; Daniel Peña; Esther Ruiz

  1. By: Patrik Guggenberger
    Date: 2005–04–10
  2. By: Patrik Guggenberger
    Date: 2006–01–09
  3. By: Marwan Elkhoury (IUHEI, The Graduate Institute of International Studies, Geneva)
    Abstract: This paper is an empirical research of a monetary policy rule for a small open economy model, taking Switzerland as a case-study. A time-varying parameter model of a monetary policy reaction function is proposed to integrate various trade-offs to be made about various macroeconomic variables -- inflation, the output gap and the real exchange rate gap. The Kalman filter estimations of the time-varying parameters shows how rational economic agents combine past and new information to make new expectations about the state variables. The uncertainty created by the time-varying parameter model, and estimated by the conditional forecast error and conditional variance, is decomposed into two components, the uncertainty related to the time-varying parameters and the uncertainty related to the purely monetary shock. Most of the monetary shock uncertainty comes from the time-varying parameters and not from the pure monetary shock. The Lucas and Friedman hypotheses about the impact of uncertainty on output are revisited, using a conditional variance to test them. Both hypothesis are confirmed, using the one-step ahead conditional variance of the monetary shock. An inverse relation between the magnitude of the response on output to the nominal shock and the variance of this shock is found, as Lucas had predicted. Moreover, there is a direct negative impact of uncertainty which reduces output in the long-term.
    Keywords: time-varying parameter model; Taylor rule; Kalman Filter.
    Date: 2005–12
  4. By: Westerlund, Joakim (Department of Economics, Lund University); Edgerton , David (Department of Economics, Lund University)
    Abstract: This paper proposes Lagrange multiplier based tests for the null hypothesis of no cointegration. The tests are general enough to allow for heteroskedastic and serially correlated errors, deterministic trends, and a structural break of unknown timing in both the intercept and slope. The limiting distributions of the test statistics are derived, and are found to be invariant not only with respect to trend and structural break, but also with respect to the regressors. A small Monte Carlo study is also con- ducted to investigate the small-sample properties of the tests. The results reveal that the tests have small size distortions and good power relative to other tests.
    Keywords: Cointegration Test; Lagrange Multiplier Principle; Structural Break; Deterministic Trend.
    JEL: C12 C32 C33
    Date: 2006–01–14
  5. By: Copeland, Laurence (Cardiff Business School)
    Abstract: In a dataset of weekly observations over the period since 1990, the discount on UK closed-end mutual funds is shown to be nonstationary, but reverting to a nonzero long run mean. Although the long run discount could be explained by factors like management expenses etc., its short run arbitrage-free equilibrium. In time series terms, there is evidence of long memory in discounts consistent with a bounded random walk. This conclusion is supported by explicit nonlinearity tests, and by results which suggest the behaviour of the discount is perhaps best represented by one of the class of Smooth-Transition Autoregressive (STAR) models.
    Keywords: Mutual Funds; ESTAR
    Date: 2006–02
  6. By: Meenagh, David (Cardiff Business School); Minford, Patrick (Cardiff Business School); Peel, David
    Abstract: A model of profits switches between four regimes with fixed probabilities; the rationally expected profits stream implies the stock market value. This efficient market model is not rejected by UK post-war time-series behaviour of either profits or the FTSE index.
    Keywords: regime switching; stock returns; efficient markets; rational expectations
    JEL: C15 C5 G14
    Date: 2006–02
  7. By: Carsten Trenkler
    Abstract: In this paper we analyse bootstrap procedures for systems cointegration tests with a prior adjustment for deterministic terms suggested by Saikkonen & Lütkepohl (2000b) and Saikkonen, Lütkepohl & Trenkler (2006). The asymptotic properties of the bootstrap test procedures are derived and their small sample properties are studied. The simulation study also considers the standard asymptotic test versions and the Johansen cointegration test for comparison.
    Keywords: Bootstrap, Systems cointegration tests, VEC models
    JEL: C12 C13 C15 C32
    Date: 2006–02
  8. By: M. Angeles Carnero (Universidad de Alicante); Daniel Peña (Universidad Carlos III de Madrid); Esther Ruiz (Universidad Carlos III de Madrid)
    Abstract: This paper analyzes the effects caused by outliers on the identification and estimation of GARCH models. We show that outliers can lead to detect spurious conditional heteroscedasticity and can also hide genuine ARCH effects. First, we derive the asymptotic biases caused by outliers on the sample autocorrelations of squared observations and their effects on some homoscedasticity tests. Then, we obtain the asymptotic biases of the OLS estimates of ARCH(p) models and analyze their finite sample behaviour by means of extensive Monte Carlo experiments. The finite sample results are extended to GLS and ML estimates ARCH(p) and GARCH(1,1) models.
    Keywords: GARCH, Outliers, Heteroscedasticity
    JEL: C22
    Date: 2004–11
  9. By: Paulo M.M. Rodrigues (University of Algarve); Antonio Rubia (Universidad de Alicante)
    Abstract: Testing for unit roots in short-term interest rates plays a key role in the empirical modelling of these series. It is widely assumed that the volatility of interest rates follows some time-varying function which is dependent of the level of the series. This may cause distortions in the performance of conventional tests for unit root nonstationarity since these are typically derived under the assumption of homoskedasticity. Given the relative unfamiliarity on the issue, we conducted an extensive Monte Carlo investigation in order to assess the performance of the DF unit root tests, and examined the effects on the limiting distributions of test procedures (t- and likelihood ratio tests) based on maximum likelihood estimation of models for short-term rates with a linear drift.
    Keywords: Unit root, interest rates, CKLS model.
    JEL: C12 C15 C52 E43
    Date: 2004–03
  10. By: Ángel León (Universidad de Alicante); Gonzalo Rubio (Universidad del País Vasco); Gregorio Serna (Universidad de Castilla-La Mancha)
    Abstract: This paper proposes a GARCH-type model allowing for time-varying volatility, skewness and kurtosis. The model is estimated assuming a Gram-Charlier series expansion of the normal density function for the error term, which is easier to estimate than the non-central t distribution proposed by Harvey and Siddique (1999). Moreover, this approach accounts for time-varying skewness and kurtosis while the approach by Harvey and Siddique (1999) only accounts for nonnormal skewness. We apply this method to daily returns of a variety of stock indices and exchange rates. Our results indicate a significant presence of conditional skewness and kurtosis. It is also found that specifications allowing for time-varying skewness and kurtosis outperform specifications with constant third and fourth moments.
    Keywords: Conditional volatility, skewness and kurtosis; Gram-Charlier series expansion; Stock indices.
    JEL: G12 G13 C13 C14
    Date: 2004–03
  11. By: Ivan Paya (Universidad de Alicante); David A. Peel (University Management School)
    Abstract: Nonlinear models of deviations from PPP have recently provided an important, theoretically well motivated, contribution to the PPP puzzle. Most of these studies use temporally aggregated data to empirically estimate the nonlinear models. As noted by Taylor (2001), if the true DGP is nonlinear, the temporally aggregated data could exhibit misleading properties regarding the adjustment speeds. We examine the effects of different levels of temporal aggregation on\ estimates of ESTAR models of real exchange rates. Our Monte Carlo results show that temporal aggregation does not imply the disappearance of nonlinearity and that adjustment speeds are significantly slower in temporally aggregated data than in the true DGP. Furthermore, the autoregressive structure of some monthly ESTAR estimates found in the literature is suggestive that adjustment speeds are even faster than implied by the monthly estimates.
    Keywords: ESTAR, Real Exchange Rate, Purchasing Power Parity, Aggregation.
    JEL: F31 C22 C51
    Date: 2004–06

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