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on Econometric Time Series |
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Issue of 2020‒03‒02
eleven papers chosen by Jaqueson K. Galimberti Auckland University of Technology |
| By: | Leybourne, Stephen J; Harvey, David I; Taylor, AM Robert |
| Abstract: | Predictive regression methods are widely used to examine the predictability of (excess) stock returns by lagged financial variables characterised by unknown degrees of persistence and endogeneity. We develop new and easy to implement tests for predictability in these circumstances using regression t-ratios. The simplest possible test, optimal (under Gaussianity) for a weakly persistent and exogenous predictor, is based on the standard t-ratio from the OLS regression of returns on a constant and the lagged predictor. Where the predictor is endogenous, we show that the optimal, but infeasible, test for predictability is based on the t-ratio on the lagged predictor when augmenting the basic predictive regression above with the current period innovation driving the predictor. We propose a feasible version of this test, designed for the case where the predictor is an endogenous near-unit root process, using a GLS-based estimate of this innovation. We also discuss a variant of the standard t-ratio obtained from the predictive regression of OLS demeaned returns on the GLS demeaned lagged predictor. In the near-unit root case, the limiting null distributions of these three statistics depend on both the endogeneity correlation parameter and the local-to-unity parameter characterising the predictor. A feasible method for obtaining asymptotic critical values is discussed and response surfaces are provided. To develop procedures which display good size and power properties regardless of the degree of persistence of the predictor, we propose tests based on weighted combinations of the three t-ratios discussed above, where the weights are obtained using the p-values from a unit root test on the predictor. Using Monte Carlo methods we compare our preferred weighted test with the leading tests in the literature. These results suggest that, despite their simplicity, our weighted tests display very good finite sample size control and power across a range of persistence and endogeneity levels for the predictor, comparing very favourably with these extant tests. An empirical illustration using US stock returns is provided. |
| Keywords: | predictive regression, persistence, endogeneity, weighted statistics |
| Date: | 2020–02–24 |
| URL: | http://d.repec.org/n?u=RePEc:esy:uefcwp:26886&r=all |
| By: | Canova, Fabio (Norwegian Business School, CAMP and CEPR) |
| Abstract: | I study potentials and gaps, permanent and transitory fluctuations in macroeconomic variables using the Smets and Wouter (2007) model. Model-based gaps display low frequency variations; possess more than business cycle fluctuations; have similar frequency representation as potentials, and are correlated with them. Permanent and transitory fluctuations display similar features, but are uncorrelated. I use a number of filters to extract trends and cycles using simulated data. Gaps are best approximated with a polynomial filter; transitory fluctuations with a differencing approach, but distortions are large. Explanations for the results are given. I propose a filter which reduces the biases of existing procedures. |
| Keywords: | Gaps and potentials; permanent and transitory components; filtering; cyclical fluctuations; gain functions |
| JEL: | C31 E27 E32 |
| Date: | 2020–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0386&r=all |
| By: | Lian An; Mark A. Wynne (Rice University); Ren Zhang |
| Abstract: | This paper studies shock-dependent exchange rate pass-through for Japan with a Bayesian structural vector autoregression model. We identify the shocks by complementing the traditional sign and zero restrictions with narrative sign restrictions related to the Plaza Accord. We find that the narrative sign restrictions are highly informative, and substantially sharpen and even change the inferences of the structural vector autoregression model originally identified with only the traditional sign and zero restrictions. We show that there is a significant variation in the exchange rate pass-through across different shocks. Nevertheless, the exogenous exchange rate shock remains the most important driver of exchange rate fluctuations. Finally, we apply our model to “forecast” the dynamics of the exchange rate and prices conditional on certain foreign exchange interventions in 2018, which provides important policy implications for our shock-identification exercise. |
| Keywords: | Inflation Forecasting; Narrative Sign Restrictions; Exchange Rate Pass-Through; Structural Scenario Analysis |
| JEL: | E31 F31 F41 |
| Date: | 2020–02–12 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:87486&r=all |
| By: | Rob Luginbuhl (CPB Netherlands Bureau for Economic Policy Analysis) |
| Abstract: | We propose a model-based method to estimate a unique financial cycle based on a rank-restricted multivariate state-space model. This permits us to use mixed-frequency data, allowing for longer sample periods. In our model the financial cycle dynamics are captured by an unobserved trigonometric cycle component. We identify a single financial cycle from the multiple time series by imposing rank reduction on this cycle component. The rank reduction can be justified based on a principal components argument. The model also includes unobserved components to capture the business cycle, time-varying seasonality, trends, and growth rates in the data. In this way we can control for these effects when estimating the financial cycle. We apply our model to US and Dutch data and conclude that a bivariate model of credit and house prices is sufficient to estimate the financial cycle. |
| JEL: | E5 F3 G15 G01 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpb:discus:409.rdf&r=all |
| By: | Aydin, Mucahit |
| Abstract: | In the literature, there are no nonlinear wavelet-based unit root tests with structural breaks. To fill this gap in the literature, this study proposes new wavelet-based unit root tests that take into account nonlinearity and structural breaks. According to Monte Carlo simulations results, the proposed tests show better size and power properties as the sample size increases. Moreover, the results indicate that the Fourier Wavelet-based KSS (FWKSS) unit root test is more powerful than the WKSS test in the presences of structural breaks. |
| Keywords: | Unit Root Test, Nonlinearity, Wavelet, Fourier Function. |
| JEL: | C12 C22 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:98693&r=all |
| By: | Mogaji, Peter Kehinde |
| Abstract: | Money neutrality is about what the long run relationship between money and price imply for the use of monetary aggregates in the conduct of monetary policy. The argument is that if a single monetary policy is prevalent in a monetary union, it is significant that members of such monetary integration should exhibit similarities in behaviour of money. The West African subcontinent (proposing monetary integration) deserves feasibility assessments in aspects of neutrality and superneutrality of money. This study, which is significant for the proposed monetary integration of the West Africa, provided answers to the question on if money matters within the proposed monetary union. The autoregressive distributed lag (ARDL) bound testing cointegration approach developed by Pesaran et al (2001) was employed to test money neutrality and money superneutrality in this research work. This cointegration method is no common in the investigation of neutrality and superneutrality of money. Relevant annual data (real output, quasi-money, inflation) collected for the six WAMZ countries (The Gambia, Ghana, Guinea, Nigeria, Liberia and Sierra Leone) for the purpose of this study span over the period between 1980 and 2014. Finding and results generated in this study produced evidence to suggest that money is not neutral in four of the six (except for Liberia and Guinea) WAMZ countries. The superneutrality tests (and other sensitivity tests) however reveal more uniform non-superneutrality of money across the WAMZ (apart from the inconclusiveness of the tests in the cases Liberia and Guinea when real exchange rate change was applied; as a well as the non-superneutrality of Liberia when real output growth served in the determination of money super neutrality). |
| Keywords: | Money Neutrality, Superneutrality of Money, ARDL, WAMZ |
| JEL: | E12 E13 E4 E5 F3 F45 |
| Date: | 2018–07–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:98741&r=all |
| By: | Marek Chudy; Sayar Karmakar; Wei Biao Wu |
| Abstract: | We construct long-term prediction intervals for time-aggregated future values of univariate economic time series. We propose computational adjustments of the existing methods to improve coverage probability under a small sample constraint. A pseudo-out-of-sample evaluation shows that our methods perform at least as well as selected alternative methods based on model-implied Bayesian approaches and bootstrapping. Our most successful method yields prediction intervals for eight macroeconomic indicators over a horizon spanning several decades. |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2002.05384&r=all |
| By: | Taco de Wolff; Alejandro Cuevas; Felipe Tobar |
| Abstract: | In Financial Signal Processing, multiple time series such as financial indicators, stock prices and exchange rates are strongly coupled due to their dependence on the latent state of the market and therefore they are required to be jointly analysed. We focus on learning the relationships among financial time series by modelling them through a multi-output Gaussian process (MOGP) with expressive covariance functions. Learning these market dependencies among financial series is crucial for the imputation and prediction of financial observations. The proposed model is validated experimentally on two real-world financial datasets for which their correlations across channels are analysed. We compare our model against other MOGPs and the independent Gaussian process on real financial data. |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2002.05789&r=all |
| By: | Furuoka, Fumitaka; Pui, Kiew Ling; Ezeoke, Chinyere Mary Rose; Jacob, Ray Ikechukwu; Yaya, OlaOluwa S |
| Abstract: | This paper suggests a new testing procedure to systematically examine the middle-income trap (MIT). To empirically demonstrate this procedure, one high income and 14 middle-income countries are examined using newly developed unit root tests - Fourier ADF with structural break (FADF-SB) and Seemingly Unrelated Regressions Fourier ADF (SUR-FADF). The FADF-SB test incorporates unknown nonlinearity and smooth break in the time-series, while the SUR-FADF test accounts for cross-sectional dependency. The empirical findings produced mixed results: 10 countries have a relatively high possibility of facing the MIT problem, while only one country has a relatively low possibility of facing the problem. For the remaining three countries, it is uncertain whether they will face the problem of MIT. These empirical findings have significant policy implications. |
| Keywords: | Cross-sectional dependency; Fourier approximation; Income convergence; Middle-income trap; Structural break; Unit root JEL Classification: C19, C22, N17 1. Introduction |
| JEL: | C19 C22 N17 |
| Date: | 2019–12–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:98672&r=all |
| By: | Filippo Beltrami (University of Padua); Andrew Burlinson (University of East Anglia); Luigi Grossi (Department of Economics (University of Verona)); Monica Giulietti (Loughborough University); Paul Rowley (Loughborough University); Grant Wilson (University of Birmingham) |
| Abstract: | This paper offers a novel contribution to the literature on marginal emission factors by proposing a robust empirical methodology for their estimation across both time and space. Our ARIMA model with time-effects not only outperforms the established models in the economics literature but it also proves more reliable than variations adopted in the field of engineering. Utilising half-hourly data on carbon emissions and generation in Great Britain, the results allow us to identify a more stable path of MEFs than obtained with existing methodologies. We also estimate marginal emission effects over subsequent time periods (intra-day), rather than focussing only on individual settlement periods (inter-day). This allows us to evaluate the annual cycle of emissions as a result of changes in the economic and social activity which drives demand. Moreover, the reliability of our approach is further confirmed upon exploring the cross-country context. Indeed, our methodology proves reliable when applied to the case of Italy, which is characterised by a different data generation process. Crucially, we provide a more robust basis for valuing actual carbon emission reductions, especially in electricity systems with high penetration of intermittent renewable technologies. |
| Keywords: | electricity generation, marginal emission factors, time series analysis, regulation |
| JEL: | C22 Q41 Q53 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:ver:wpaper:02/2020&r=all |
| By: | Yunus Aksoy; Rubens Morita; Zacharias Psaradakis |
| Abstract: | We investigate regime-dependent Granger causality between real output, inflation and monetary indicators and map with U.S. Fed Chairperson’s tenure since 1965. While all monetary indicators have causal predictive content in certain time periods, we report that the Federal Funds rate (FFR) and Domestic Money (DM) are substitutes in their role as lead or feedback variables to explain variations in real output and inflation. We provide a comprehensive account of evolution of causal relationships associated with all US Fed Chairpersons we consider. |
| Keywords: | causality regimes, domestic money, Federal Reserve Chairperson, Markov switching, policy instrument, vector autoregression |
| JEL: | C32 C54 C61 E52 E58 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8035&r=all |