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Breaks, trends and unit roots in commodity prices: a robust investigation (2014)

Ghoshray, Atanu ; Kejriwal, Mohitosh ; Wohar, Mark

De Gruyter

In: Studies in Nonlinear Dynamics and Econometrics. 2014; 18(1): Published 2014 Jan 01. doi: 10.1515/snde-2013-0022.

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Publikationsdatum: 2014-01-01

Beschreibung: This paper empirically examines the time series behavior of primary commodity prices relative to manufactures with reference to the nature of their underlying trends and the persistence of shocks driving the price processes. The direction and magnitude of the trends are assessed employing a set of econometric techniques that is robust to the nature of persistence in the commodity price shocks, thereby obviating the need for unit root pretesting. Specifically, the methods allow consistent estimation of the number and location of structural breaks in the trend function as well as facilitate the distinction between trend breaks and pure level shifts. Further, a new set of powerful unit root tests is applied to determine whether the underlying commodity price series can be characterized as difference or trend stationary processes. These tests treat breaks under the unit root null and the trend stationary alternative in a symmetric fashion thereby alleviating the procedures from spurious rejection problems and low power issues that plague most existing procedures. Relative to the extant literature, we find more evidence in favor of trend stationarity suggesting that real commodity price shocks are primarily of a transitory nature. We conclude with a discussion of the policy implications of our results.

Print ISSN: 1081-1826

Digitale ISSN: 1558-3708

Thema: Mathematik , Wirtschaftswissenschaften

Publiziert von De Gruyter

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Factor-based forecasting in the presence of outliers: Are factors better selected and estimated by the median than by the mean? (2014)

Kristensen, Johannes Tang

De Gruyter

In: Studies in Nonlinear Dynamics and Econometrics. 2014; 18(3): Published 2014 Jan 01. doi: 10.1515/snde-2012-0049.

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Publikationsdatum: 2014-01-01

Beschreibung: Macroeconomic forecasting using factor models estimated by principal components has become a popular research topic with many both theoretical and applied contributions in the literature. In this paper we attempt to address an often neglected issue in these models: The problem of outliers in the data. Most papers take an ad-hoc approach to this problem and simply screen datasets prior to estimation and remove anomalous observations. We investigate whether forecasting performance can be improved by using the original unscreened dataset and replacing principal components with a robust alternative. We propose to use an estimator based on least absolute deviations (LAD) as this alternative and establish a tractable method for computing the estimator. In addition to this we demonstrate the robustness features of the estimator through a number of Monte Carlo simulation studies. Finally, we apply the estimator in a simulated real-time forecasting exercise to test its merits. We use a newly compiled dataset of US macroeconomic series spanning the period 1971:2–2012:10. Our findings suggest that the chosen treatment of outliers does affect forecasting performance and that in many cases improvements can be made using a robust estimator such as the proposed LAD estimator.

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Thema: Mathematik , Wirtschaftswissenschaften

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Are income differences within the OECD diminishing? Evidence from Fourier unit root tests (2014)

King, Alan ; Ramlogan-Dobson, Carlyn

De Gruyter

In: Studies in Nonlinear Dynamics and Econometrics. 2014; 18(2): Published 2014 Jan 01. doi: 10.1515/snde-2013-0008.

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Publikationsdatum: 2014-01-01

Print ISSN: 1081-1826

Digitale ISSN: 1558-3708

Thema: Mathematik , Wirtschaftswissenschaften

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Functional cointegration: definition and nonparametric estimation (2014)

Banerjee, Anurag ; Pitarakis, Jean-Yves

De Gruyter

In: Studies in Nonlinear Dynamics and Econometrics. 2014; 18(5): Published 2014 Jan 01. doi: 10.1515/snde-2013-0083.

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Publikationsdatum: 2014-01-01

Beschreibung: We formally define a concept of functional cointegration linking the dynamics of two time series via a functional coefficient. This is achieved through the use of a concept of summability as an alternative to I(1)’ness which is no longer suitable under nonlinear dynamics. We subsequently introduce a nonparametric approach for estimating the unknown functional coefficients. Our method is based on a piecewise local least squares principle and is computationally simple to implement. We establish its consistency properties and evaluate its performance in finite samples. We subsequently illustrate its usefulness through an application that explores linkages between stock prices and dividends via a sentiment indicator.

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Thema: Mathematik , Wirtschaftswissenschaften

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The effect of round-off error on long memory processes (2014)

La Spada, Gabriele ; Lillo, Fabrizio

De Gruyter

In: Studies in Nonlinear Dynamics and Econometrics. 2014; 18(4): Published 2014 Jan 01. doi: 10.1515/snde-2013-0011.

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Publikationsdatum: 2014-01-01

Beschreibung: We study how the round-off (or discretization) error changes the statistical properties of a Gaussian long memory process. We show that the autocovariance and the spectral density of the discretized process are asymptotically rescaled by a factor smaller than one, and we compute exactly this scaling factor. Consequently, we find that the discretized process is also long memory with the same Hurst exponent as the original process. We consider the properties of two estimators of the Hurst exponent, namely the local Whittle (LW) estimator and the detrended fluctuation analysis (DFA). By using analytical considerations and numerical simulations we show that, in presence of round-off error, both estimators are severely negatively biased in finite samples. Under regularity conditions we prove that the LW estimator applied to discretized processes is consistent and asymptotically normal. Moreover, we compute the asymptotic properties of the DFA for a generic (i.e., non-Gaussian) long memory process and we apply the result to discretized processes.

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Thema: Mathematik , Wirtschaftswissenschaften

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Inequality-growth nexus along the development process (2014)

Lin, Yi-Chen ; Huang, Ho-Chuan (River) ; Yeh, Chih-Chuan

De Gruyter

In: Studies in Nonlinear Dynamics and Econometrics. 2014; 18(3): Published 2014 Jan 01. doi: 10.1515/snde-2012-0037.

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Publikationsdatum: 2014-01-01

Beschreibung: The paper examines whether the effect of inequality on growth varies with the level of economic development. Using a comprehensive panel of annual data for the 48 contiguous US states over the period 1945–2004, we find overwhelming evidence in support of threshold effects in the relationship between inequality and growth. Our analysis shows that while the effect of inequality on growth is significantly negative at lower levels of development, this effect diminishes along the growth process and then turns significantly positive at higher levels of development. Quantitatively, the coefficient estimates imply that when real income per capita is below the threshold of $12,140 (2004 US dollar), a one standard deviation increase in the share of income held by the top 1% of the population

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Thema: Mathematik , Wirtschaftswissenschaften

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Estimating the Wishart Affine Stochastic Correlation Model using the empirical characteristic function (2014)

Da Fonseca, José ; Grasselli, Martino ; Ielpo, Florian

De Gruyter

In: Studies in Nonlinear Dynamics and Econometrics. 2014; 18(3): Published 2014 Jan 01. doi: 10.1515/snde-2012-0009.

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Publikationsdatum: 2014-01-01

Beschreibung: This paper provides the first estimation strategy for the Wishart Affine Stochastic Correlation (WASC) model. We provide elements showing that the use of empirical characteristic function-based estimates is advisable as this function is exponential affine in the WASC case. We use a GMM estimation strategy with a continuum of moment conditions based on the characteristic function. We present the estimation results obtained using a dataset of equity indexes. The WASC model captures most of the known stylized facts associated with financial markets, including leverage and asymmetric correlation effects.

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Thema: Mathematik , Wirtschaftswissenschaften

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The effects of the monetary policy stance on the transmission mechanism (2014)

Galvao, Ana Beatriz ; Marcellino, Massimiliano

De Gruyter

In: Studies in Nonlinear Dynamics and Econometrics. 2014; 18(3): Published 2014 Jan 01. doi: 10.1515/snde-2012-0027.

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Publikationsdatum: 2014-01-01

Beschreibung: This paper contributes to the literature on changes in the transmission mechanism of monetary policy by introducing a model whose parameter evolution explicitly depends on the stance of monetary policy. The model, a structural break endogenous threshold VAR, also captures changes in the variance of shocks, and allows for a break in the parameters at an estimated time. We show that the transmission is asymmetric depending on the extention of the deviation of the actual policy rate from the one required by the Taylor rule. When the policy stance is tight – actual rate is higher than the one implied by the Taylor rule – contractionary shocks have stronger negative effects on output and prices.

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Thema: Mathematik , Wirtschaftswissenschaften

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Real vs. nominal cycles: a multistate Markov-switching bi-factor approach (2014)

Leiva-Leon, Danilo

De Gruyter

In: Studies in Nonlinear Dynamics and Econometrics. 2014; 18(5): Published 2014 Jan 01. doi: 10.1515/snde-2012-0002.

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Publikationsdatum: 2014-01-01

Beschreibung: This paper proposes a probabilistic model based on comovements and nonlinearities useful to assess the type of shock affecting each phase of the business cycle. By providing simultaneous inferences on the phases of real activity and inflation cycles, contractionary episodes are dated and categorized into demand, supply and mix recessions. The impact of shocks originated in the housing market over the business cycle is also assessed, finding that recessions are usually accompanied by housing deflationary pressures, while expansions are mainly influenced by housing demand shocks, with the only exception occurred during the period surrounding the “Great Recession,” affected by expansionary housing supply shocks.

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Thema: Mathematik , Wirtschaftswissenschaften

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