
on Forecasting 
By:  Ekrem Kilic (Marmara University) 
Abstract:  Volatility of financial markets is an important topic for academics, policy makers and market participants. In this study first I summarized several specifications for the conditional variance and also define some methods for combination of these specifications. Then assuming that the squared returns are the benchmark estimate for actual volatility of the day, I compare all of the models with respect to how much efficient they are to mimic the realized volatility. At the same time I used a VaR approach to compare these forecasts. With the help of these analyses I examine if combination of the forecast could outperform the single models. 
Keywords:  volatility, arch, garch, combination, VaR 
JEL:  C1 C2 C3 C4 C5 C8 
Date:  2005–10–29 
URL:  http://d.repec.org/n?u=RePEc:wpa:wuwpem:0510007&r=for 
By:  Antonello D'Agostino (ECARES, Universite' Libre de Bruxelles); Domenico Giannone (ECARES, Universite' Libre de Bruxelles); Paolo Surico (Bank of England & University of Bari) 
Abstract:  This paper documents a new stylized fact of the U.S. greater macroeconomic stability of the last two decades or so. Using 131 monthly time series, three popular statistical methods and the forecasts of the Federal Reserve's Green book and the Survey of Professional Forecasters, we show that the ability of predicting several measures of inflation and real activity, relative to naive forecasts, declined remarkably across most models and horizons since the mid1980s. This fact appears to reflect a prominent feature of the recent observations and thus represents a new challenge for competing explanations of the 'Great Moderation' 
Keywords:  predictive accuracy, macroeconomic stability, forecasting models, subsample analysis, Fed Green book. 
JEL:  E37 E47 C22 C53 
Date:  2005–10–28 
URL:  http://d.repec.org/n?u=RePEc:wpa:wuwpma:0510024&r=for 
By:  Ilias Lekkos (Eurobank Ergasias); Costas Milas (Keele University); Theodore Panagiotidis (Loughborough University) 
Abstract:  This paper explores the ability of common risk factors to predict the dynamics of US and UK interest rate swap spreads within a linear and a nonlinear framework. We reject linearity for the US and UK swap spreads in favour of a regimeswitching smooth transition vector autoregressive (STVAR) model, where the switching between regimes is controlled by the slope of the US term structure of interest rates. The first regime is characterised by a "flat" term structure of US interest rates, while the alternative is characterised by an "upward" sloping US term structure. We compare the ability of the STVAR model to predict swap spreads with that of a nonlinear nearestneighbours model as well as that of linear AR and VAR models. We find some evidence that the nearestneighbours and STVAR models predict better than the linear AR and VAR models. However, the evidence is not overwhelming as it is sensitive to swap spread maturity. We also find that within the nonlinear class of models, the nearestneighbours model predicts better than the STVAR model US swap spreads in periods of increasing risk conditions and UK swap spreads in periods of decreasing risk conditions. 
Keywords:  Interest rate swap spreads, term structure of interest rates, regime switching, smooth transition models, nearestneighbours, forecasting. 
JEL:  C51 C52 C53 E43 
Date:  2005–09 
URL:  http://d.repec.org/n?u=RePEc:lbo:lbowps:2005_9&r=for 
By:  Guglielmo Maria Caporale; Luis A. GilAlana 
Abstract:  This paper proposes a model of the US unemployment rate which accounts for both its asymmetry and its long memory. Our approach introduces fractional integration and nonlinearities simultaneously into the same framework, using a Lagrange Multiplier procedure with a standard null limit distribution. The empirical results suggest that the US unemployment rate can be specified in terms of a fractionally integrated process, which interacts with some nonlinear functions of labour demand variables such as real oil prices and real interest rates. We also find evidence of a longmemory component. Our results are consistent with a hysteresis model with path dependency rather than a NAIRU model with an underlying unemployment equilibrium rate, thereby giving support to more activist stabilisation policies. However, any suitable model should also include business cycle asymmetries, with implications for both forecasting and policymaking. 
Date:  2005–09 
URL:  http://d.repec.org/n?u=RePEc:bru:bruedp:0517&r=for 
By:  Sharon Kozicki; P.A. Tinsley 
Abstract:  A timevarying parameter framework is suggested for use with realtime multiperiod forecast data to estimate implied forecast equations. The framework is applied to historical briefing forecasts prepared for the Federal Open Market Committee to estimate the U.S. central bank’s ex ante perceptions of the natural rate of unemployment. Relative to retrospective estimates, empirical results do not indicate severe underestimation of the natural rate of unemployment in the 1970s. 
Date:  2005 
URL:  http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp0503&r=for 
By:  Guglielmo Maria Caporale; Luis A. GilAlana 
Abstract:  This paper examines the longrun dynamics and the cyclical structure of the US stock market using fractional integration techniques. We implement a version of the tests of Robinson (1994a), which enables one to consider unit roots with possibly fractional orders of integration both at the zero (longrun) and the cyclical frequencies. We examine the following series: inflation, real riskfree rate, real stock returns, equity premium and price/dividend ratio,annually from 1871 to 1993. When focusing exclusively on the longrun or zero frequency, the estimated order of integration varies considerably, but nonstationarity is found only for the price/dividend ratio. When the cyclical component is also taken into account, the series appear to be stationary but to exhibit long memory with respect to both components in almost all cases. The exception is the price/dividend ratio, whose order of integration is higher than 0.5 but smaller than 1 for the longrun frequency, and is between 0 and 0.5 for the cyclical component. Also, mean reversion occurs in all cases. Finally, we use six different criteria to compare the forecasting performance of the fractional (at both zero and cyclical frequencies) models with others based on fractional and integer differentiation only at the zero frequency. The results show that the former outperform the others in a number of cases. 
Date:  2005–06 
URL:  http://d.repec.org/n?u=RePEc:bru:bruedp:0509&r=for 
By:  Sydeny C. Ludvigson; Serena Ng 
Abstract:  Empirical evidence suggests that excess bond returns are forecastable by financial indicators such as forward spreads and yield spreads, a violation of the expectations hypothesis based on constant risk premia. But existing evidence does not tie the forecastable variation in excess bond returns to underlying macroeconomic fundamentals, as would be expected if the forecastability were attributable to time variation in risk premia. We use the methodology of dynamic factor analysis for large datasets to investigate possible empirical linkages between forecastable variation in excess bond returns and macroeconomic fundamentals. We find that several common factors estimated from a large dataset on U.S. economic activity have important forecasting power for future excess returns on U.S. government bonds. Following Cochrane and Piazzesi (2005), we also construct single predictor state variables by forming linear combinations of either five or six estimated common factors. The single state variables forecast excess bond returns at maturities from two to five years, and do so virtually as well as an unrestricted regression model that includes each common factor as a separate predictor variable. The linear combinations we form are driven by both "real" and "inflation" macro factors, in addition to financial factors, and contain important information about one year ahead excess bond returns that is not captured by forward spreads, yield spreads, or the principal components of the yield covariance matrix. 
JEL:  G10 G12 E0 E4 
Date:  2005–10 
URL:  http://d.repec.org/n?u=RePEc:nbr:nberwo:11703&r=for 
By:  Frank T. Denton; Amiram Gafni; Byron G. Spencer 
Abstract:  Physician shortages and their implications for required increases in the physician population are matters of considerable interest in many health care systems, in light especially of the widespread phenomenon of population ageing. To determine the extent to which shortages exist one needs to study the population of users of physician services as well as that of the physicians themselves. In this paper we study both, using the province of Ontario, Canada, as an example. The user population is projected and the implications for requirements calculated, conditional on given utilization rates. On the supplier side, the age and other characteristics of the (active) physician population are examined and patterns of withdrawal investigated. The necessary future growth of supply is calculated, assuming alternative levels of present shortages. The effects of population change on requirements are found to be smaller in the future than in the decade 1981 1991, in the aggregate, not far from the effects in 19912001, but highly variable among different categories of physicians. 
Keywords:  physician shortages, physician requirements, population aging 
JEL:  I11 J11 
Date:  2005–10 
URL:  http://d.repec.org/n?u=RePEc:mcm:qseprr:399&r=for 