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Abstract

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Nonlinear Time Series Analysis of Business Cycles
Type: Book
ISBN: 978-0-44451-838-5

Book part
Publication date: 13 December 2013

Kirstin Hubrich and Timo Teräsvirta

This survey focuses on two families of nonlinear vector time series models, the family of vector threshold regression (VTR) models and that of vector smooth transition…

Abstract

This survey focuses on two families of nonlinear vector time series models, the family of vector threshold regression (VTR) models and that of vector smooth transition regression (VSTR) models. These two model classes contain incomplete models in the sense that strongly exogeneous variables are allowed in the equations. The emphasis is on stationary models, but the considerations also include nonstationary VTR and VSTR models with cointegrated variables. Model specification, estimation and evaluation is considered, and the use of the models illustrated by macroeconomic examples from the literature.

Details

VAR Models in Macroeconomics – New Developments and Applications: Essays in Honor of Christopher A. Sims
Type: Book
ISBN: 978-1-78190-752-8

Keywords

Open Access
Article
Publication date: 29 January 2021

Oguzhan Ozcelebi

Might the impact of the global economic policy uncertainty (GEPU) and the long-term bond yields on oil prices be asymmetric? This paper aims to consider the effects of the…

1093

Abstract

Purpose

Might the impact of the global economic policy uncertainty (GEPU) and the long-term bond yields on oil prices be asymmetric? This paper aims to consider the effects of the GEPU and the US long-term government bond yields on oil prices using quantile-based analysis and nonlinear vector autoregression (VAR) model. The author hypothesized whether the negative and positive changes in the GEPU and the long-term bond yields of the USA have different effects on oil prices.

Design/methodology/approach

To address this question, the author uses quantile cointegration model and the impulse response functions (IRFs) of the censored variable approach of Kilian and Vigfusson (2011).

Findings

The quantile cointegration test showed the existence of non-linear cointegration relationship, whereas Granger-causality analysis revealed that positive/negative variations in GEPU will have opposite effects on oil prices. This result was supported by the quantile regression model’s coefficients and nonlinear VAR model’s IRFs; more specifically, it was stressed that increasing/decreasing GEPU will deaccelerate/accelerate global economic activity and thus lead to a fall/rise in oil prices. On the other hand, the empirical models indicated that the impact of US 10-year government bond yields on oil prices is asymmetrical, while it was found that deterioration in the borrowing conditions in the USA may have an impact on oil prices by slowing down the global economic activity.

Originality/value

As a robustness check of the quantile-based analysis results, the slope-based Mork test is used.

Article
Publication date: 9 September 2022

Xiaojie Xu and Yun Zhang

With the rapid-growing house market in the past decade, the purpose of this paper is to study the important issue of house price information flows among 12 major cities in…

Abstract

Purpose

With the rapid-growing house market in the past decade, the purpose of this paper is to study the important issue of house price information flows among 12 major cities in China, including Shanghai, Beijing, Xiamen, Shenzhen, Guangzhou, Hangzhou, Ningbo, Nanjing, Zhuhai, Fuzhou, Suzhou and Dongguan, during the period of June 2010 to May 2019.

Design/methodology/approach

The authors approach this issue in both time and frequency domains, latter of which is facilitated through wavelet analysis and by exploring both linear and nonlinear causality under the vector autoregressive framework.

Findings

The main findings are threefold. First, in the long run of the time domain and for timescales beyond 16 months of the frequency domain, house prices of all cities significantly affect each other. For timescales up to 16 months, linear causality is weaker and is most often identified for the scale of four to eight months. Second, while nonlinear causality is seldom determined in the time domain and is never found for timescales up to four months, it is identified for scales beyond four months and particularly for those beyond 32 months. Third, nonlinear causality found in the frequency domain is partly explained by the volatility spillover effect.

Originality/value

Results here should be of use to policymakers in certain policy analysis.

Details

International Journal of Housing Markets and Analysis, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1753-8270

Keywords

Book part
Publication date: 30 November 2011

Massimo Guidolin

I survey applications of Markov switching models to the asset pricing and portfolio choice literatures. In particular, I discuss the potential that Markov switching models…

Abstract

I survey applications of Markov switching models to the asset pricing and portfolio choice literatures. In particular, I discuss the potential that Markov switching models have to fit financial time series and at the same time provide powerful tools to test hypotheses formulated in the light of financial theories, and to generate positive economic value, as measured by risk-adjusted performances, in dynamic asset allocation applications. The chapter also reviews the role of Markov switching dynamics in modern asset pricing models in which the no-arbitrage principle is used to characterize the properties of the fundamental pricing measure in the presence of regimes.

Details

Missing Data Methods: Time-Series Methods and Applications
Type: Book
ISBN: 978-1-78052-526-6

Keywords

Article
Publication date: 24 February 2020

Khandokar Istiak and Md Rafayet Alam

This study aims to investigate the nature and degree of US economic policy uncertainty spillover on the stock markets of a group of non-conventional economies like the…

Abstract

Purpose

This study aims to investigate the nature and degree of US economic policy uncertainty spillover on the stock markets of a group of non-conventional economies like the Gulf Cooperation Council (GCC) countries, where a risk-sharing-based financial system is prominent and foreign investment, risk-free interest, derivatives, etc. are not as widespread as in the western economies.

Design/methodology/approach

the monthly data of 1992–2018, linear and nonlinear structural vector autoregression (VAR) model, and an impulse response-based test to explore the nature and degree of US economic policy uncertainty spillover on the stock markets of the GCC countries.

Findings

This study finds that an unexpected increase in the US economic policy uncertainty significantly decreases the stock market index of all the GCC countries. This study also gets this relationship symmetric, meaning that the GCC stock market indices decrease and increase by the same amount when the US economic policy uncertainty increases and decreases, respectively.

Originality/value

This study investigates the characteristics of economic policy uncertainty spillover from the biggest economy of the world to the stock markets of the GCC region, which is new to the literature. The study results provide the first evidence that a risk-sharing based financial system does not necessarily protect the stock market from US uncertainty shock. However, the abundance of local investors, risk-sharing investment activities, the absence of derivatives, etc. may be responsible for the symmetric behavior of a stock market.

Details

Journal of Economic Studies, vol. 47 no. 1
Type: Research Article
ISSN: 0144-3585

Keywords

Article
Publication date: 1 April 2003

DOOWOO NAM and BENTON E. GUP

The curvilinear shape of a bond price‐yield curve implies that risk management based on a linear approximation using duration is only viable for very small changes in…

Abstract

The curvilinear shape of a bond price‐yield curve implies that risk management based on a linear approximation using duration is only viable for very small changes in interest rates. Not accounting for convexity when there are large yield changes can result in critical errors in measuring or hedging interest rate risk. The linear approximations will under‐or overestimate the value at risk (VaR) for non‐linear financial instruments. Nonlinearity can be particularly problematic if there are large changes in market risk factors. The large changes are more likely to occur when VaR is computed for high confidence levels and/or longer time horizons. Even if the movements in risk factors are small, estimation errors in VaR would get larger as the degree of non‐linearity in financial instruments increases.

Details

The Journal of Risk Finance, vol. 5 no. 1
Type: Research Article
ISSN: 1526-5943

Article
Publication date: 15 May 2017

Xiaofen Tan and Yongjiao Ma

The purpose of this paper is to empirically analyze the impact of macroeconomic uncertainty on a large sample of 19 commodity markets.

Abstract

Purpose

The purpose of this paper is to empirically analyze the impact of macroeconomic uncertainty on a large sample of 19 commodity markets.

Design/methodology/approach

The authors rely on Jurado et al.’s (2015) measure of macroeconomic uncertainty based on a wide range of monthly macroeconomic and financial indicators and estimate a threshold VAR model to assess whether the impact of macroeconomic uncertainty on commodity prices differs under the high- or low-uncertainty state.

Findings

The findings show that positive macroeconomic uncertainty shocks affect commodity prices returns negatively on average and the impact of macroeconomic uncertainty is generally higher in high-uncertainty states compared with low-uncertainty states. Besides, although the safe-haven role of precious metals is confirmed, energy and industrial markets are more sensitive to short-run and long-run macroeconomic uncertainty, respectively.

Research limitations/implications

The findings in this study suggest that commodity prices reflect not only the level of economic fundamental but also the volatility of economic fundamental.

Originality/value

This study empirically analyzes and verifies the influence of macroeconomic uncertainty not only on oil prices but also on four groups of 19 raw materials. As for the methodological issues, the authors rely on a structural threshold vector autoregressive specification for modeling commodity price returns to account for potentially different effects depending on the macroeconomic uncertainty states.

Details

China Finance Review International, vol. 7 no. 2
Type: Research Article
ISSN: 2044-1398

Keywords

Book part
Publication date: 13 December 2013

Bertrand Candelon, Elena-Ivona Dumitrescu, Christophe Hurlin and Franz C. Palm

In this article we propose a multivariate dynamic probit model. Our model can be viewed as a nonlinear VAR model for the latent variables associated with correlated binary…

Abstract

In this article we propose a multivariate dynamic probit model. Our model can be viewed as a nonlinear VAR model for the latent variables associated with correlated binary time-series data. To estimate it, we implement an exact maximum likelihood approach, hence providing a solution to the problem generally encountered in the formulation of multivariate probit models. Our framework allows us to study the predictive relationships among the binary processes under analysis. Finally, an empirical study of three financial crises is conducted.

Details

VAR Models in Macroeconomics – New Developments and Applications: Essays in Honor of Christopher A. Sims
Type: Book
ISBN: 978-1-78190-752-8

Keywords

Book part
Publication date: 1 January 2008

Deborah Gefang

This paper proposes a Bayesian procedure to investigate the purchasing power parity (PPP) utilizing an exponential smooth transition vector error correction model (VECM)…

Abstract

This paper proposes a Bayesian procedure to investigate the purchasing power parity (PPP) utilizing an exponential smooth transition vector error correction model (VECM). Employing a simple Gibbs sampler, we jointly estimate the cointegrating relationship along with the nonlinearities caused by the departures from the long-run equilibrium. By allowing for nonlinear regime changes, we provide strong evidence that PPP holds between the US and each of the remaining G7 countries. The model we employed implies that the dynamics of the PPP deviations can be rather complex, which is attested to by the impulse response analysis.

Details

Bayesian Econometrics
Type: Book
ISBN: 978-1-84855-308-8

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