
on Econometric Time Series 
By:  Yannick LE PEN; Benoît SEVI 
Abstract:  Using daily data from March 2001 to June 2005, we estimate a VARBEKK model and find evidence of return and volatility spillovers between the German, the Dutch and the British forward electricity markets. We apply Hafner and Herwartz [2006, Journal of International Money and Finance 25, 719740] Volatility Impulse Response Function(VIRF) to quantify the impact of shock on expected conditional volatility. We observe that a shock has a high positive impact only if its size is large compared to the current level of volatility. The impact of shocks are usually not persistent, which may be an indication of market efficiency. Finally, we estimate the density of the VIRF at different forecast horizon. These fitted distributions are asymmetric and show that extreme events are possible even if their probability is low. These results have interesting implications for market participants whose risk management policy is based on option prices which themselves depend on the volatility level. 
Keywords:  volatility impulse response function, GARCH, non Gaussian distributions, electricity market, forward markets 
JEL:  C3 G1 Q43 
Date:  2008 
URL:  http://d.repec.org/n?u=RePEc:mop:credwp:08.09.77&r=ets 
By:  Rangan Gupta (Department of Economics, University of Pretoria); Alain Kabundi (Department of Economics and Econometrics, University of Johannesburg) 
Abstract:  This paper compares the forecasting ability of five alternative models in predicting four key macroeconomic variables, namely, per capita growth rate, the Consumer Price Index (CPI) inflation, the money market rate, and the growth rate of the nominal effective exchange rate for the South African economy. Unlike the theoretical Small Open Economy New Keynesian Dynamic Stochastic General Equilibrium (SOENKDSGE), the unrestricted VAR, and the smallscale Bayesian Vector Autoregressive (BVAR) models, which are estimated based on four variables, the Dynamic Factor Model (DFM) and the largescale BVAR models use information from a datarich environment containing 266 macroeconomic time series observed over the period of 1983:01 to 2002:04. The results, based on Root Mean Square Errors (RMSEs), for one to fourquartersahead outofsample forecasts over the horizon of 2003:01 to 2006:04, show that, except for the onequarterahead forecast of the growth rate of the of nominal effective exchange rate, largescale BVARs outperform the other four models consistently and, generally, significantly. 
Keywords:  Small Open Economy New Keynesian Dynamic Stochastic Model, Dynamic Factor Model, VAR, BVAR, Forecast Accuracy 
JEL:  C11 C13 C33 C53 
Date:  2008–09 
URL:  http://d.repec.org/n?u=RePEc:pre:wpaper:200830&r=ets 
By:  D.S.G. Pollock 
Abstract:  A filtered data sequence can be obtained by multiplying the Fourier ordinates of the data by the ordinates of the frequency response of the filter and by applying the inverse Fourier transform to carry the product back to the time domain. Using this technique, it is possible, within the constraints of a finite sample, to design an ideal frequencyselective filter that will preserve all elements within a specified range of frequencies and that will remove all elements outside it. Approximations to ideal filters that are implemented in the time domain are commonly based on truncated versions of the infinite sequences of coefficients derived from the Fourier transforms of rectangular frequency response functions. An alternative to truncating an infinite sequence of coefficients is to wrap it around a circle of a circumference equal in length to the data sequence and to add the overlying coefficients. The coefficients of the wrapped filter can also be obtained by applying a discrete Fourier transform to a set of ordinates sampled from the frequency response function. Applying the coefficients to the data via circular convolution produces results that are identical to those obtained by a multiplication in the frequency domain, which constitutes a more efficient approach. 
Keywords:  Signal extraction; Linear filtering; Frequencydomain analysis 
Date:  2008–09 
URL:  http://d.repec.org/n?u=RePEc:lec:leecon:08/32&r=ets 
By:  Otero, Jesús (Facultad de Economía, Universidad del Rosario); Smith, Jeremy (Department of Economics,University of Warwick); Giulietti, Monica (Aston Business School, University of Aston) 
Abstract:  This paper generalises the monthly seasonal unit root tests of Franses (1991) for a heterogeneous panel following the work of Im, Pesaran, and Shin (2003), which we refer to as the FIPS tests. The paper presents the mean and variance necessary to yield a standard normal distribution for the tests, for different number of time observations, T, and lag lengths. However, these tests are only applicable in the absence of crosssectional dependence. Two alternative methods for modifying these FIPS tests in the presence of crosssectional dependency are presented : the first is the crosssectionally augmented test,denoted CFIPS, following Pesaran (2007), the other is a bootstap method, denoted BFIPS. In general, the BFIPS tests have greater power than the CFIPS tests, although for large T and high degree of crosssectional dependency the CFIPS test dominates the BFIPS test. 
Keywords:  Panel unit root tests ; seasonal unit roots ; monthly data ; cross sectional dependence ; Monte Carlo 
JEL:  C12 C15 C22 C23 
Date:  2008 
URL:  http://d.repec.org/n?u=RePEc:wrk:warwec:865&r=ets 
By:  Les Oxley (University of Canterbury); Chris Price; William Rea; Marco Reale 
Abstract:  It is now recognized that long memory and structural change can be confused because the statistical properties of times series of lengths typical of many nancial and economic series are similar for both mod els. We propose a new test aimed at distinguishing between unifractal long memory and structural change. The approach, which utilizes the computationally ecient methods based upon Atheoretical Regression Trees (ART), establishes through simulation the bivariate distribution of the number of breaks reported by ART with the CUSUM range for simulated fractionally integrated series. This bivariate distribution is then used to empirically construct a test. We apply these methods to the realized volatility series of 16 stocks in the Dow Jones Industrial Average. We show the realised volatility series are statistically sig nicantly dierent from fractionally integrated series with the same estimated d value. We present evidence that these series have struc tural breaks. For comparison purposes we present the results of tests by Zhang and Ohanissian, Russell, and Tsay for these series. 
Keywords:  Longrange dependence; strong dependence; global dependence 
JEL:  C13 C22 
Date:  2008–09–12 
URL:  http://d.repec.org/n?u=RePEc:cbt:econwp:08/16&r=ets 
By:  Fulvio Corsi; Davide Pirino; Roberto Renò 
Abstract:  This study reconsiders the role of jumps for volatility forecasting by showing that jumps have positive and mostly significant impact on future volatility. This result becomes apparent once volatility is correctly separated into its continuous and discontinuous component. To this purpose, we introduce the concept of threshold multipower variation (TMPV), which is based on the joint use of bipower variation and threshold estimation. With respect to alternative methods, our TMPV estimator provides less biased and robust estimates of the continuous quadratic variation and jumps. This technique also provides a new test for jump detection which has substantially more power than traditional tests. We use this separation to forecast volatility by employing an heterogeneous autoregressive (HAR) model which is suitable to parsimoniously model long memory in realized volatility time series. Empirical analysis shows that the proposed techniques improve significantly the accuracy of volatility forecasts for the S&P500 index, single stocks and US bond yields, especially in periods following the occurrence of a jump 
Keywords:  volatility forecasting, jumps, bipower variation, threshold estimation, stock, bond 
JEL:  G1 C1 C22 C53 
Date:  2008–06 
URL:  http://d.repec.org/n?u=RePEc:usi:wpaper:534&r=ets 
By:  Rao, B. Bhaskara; Singh, Rup; Kumar, Saten 
Abstract:  Whether or not there is a need for the unit roots and cointegration based time series econometric methods is a methodological issue. An alternative is the econometrics of the London School of Economics (LSE) and Hendry approach based on the simpler classical methods of estimation. This is known as the general to specific method (GETS). Like all other methodological issues it is difficult to resolve which approach is better. However, we think that GETS is conceptually simpler and very useful in applied work. 
Keywords:  GETS, Cointegration, BoxJenkins’s Equations, Hendry, Granger. 
JEL:  B49 C22 B41 
Date:  2008–01–16 
URL:  http://d.repec.org/n?u=RePEc:pra:mprapa:10530&r=ets 
By:  James H. Stock; Mark W. Watson 
Abstract:  This paper surveys the literature since 1993 on pseudo outofsample evaluation of inflation forecasts in the United States and conducts an extensive empirical analysis that recapitulates and clarifies this literature using a consistent data set and methodology. The literature review and empirical results are gloomy and indicate that Phillips curve forecasts (broadly interpreted as forecasts using an activity variable) are better than other multivariate forecasts, but their performance is episodic, sometimes better than and sometimes worse than a good (not naÃ¯ve) univariate benchmark. We provide some preliminary evidence characterizing successful forecasting episodes. 
JEL:  C53 E37 
Date:  2008–09 
URL:  http://d.repec.org/n?u=RePEc:nbr:nberwo:14322&r=ets 