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Book part
Publication date: 2 December 2003

Ahmed S Abutaleb, Yuzo Kumasaka and Michael G Papaioannou

This paper presents a new adaptive technique for forecasting the Yen/U.S. Dollar exchange rate. The proposed method assumes a time-varying model to describe the evolution of the…

Abstract

This paper presents a new adaptive technique for forecasting the Yen/U.S. Dollar exchange rate. The proposed method assumes a time-varying model to describe the evolution of the exchange rate. Weekly predictions of the Yen/U.S. Dollar rate are dominated by weekly announcements of unexpected changes in the relative unemployment claims between the U.S. and Japan. Monthly predictions are more sensitive to monthly releases of the difference between the expected and announced value of the National Association of Purchasing Managers index. The predictive results of the proposed method are found more accurate than that of conventional ARMA techniques.

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The Japanese Finance: Corporate Finance and Capital Markets in ...
Type: Book
ISBN: 978-1-84950-246-7

Book part
Publication date: 16 September 2022

Carlos Montes-Galdón and Eva Ortega

This chapter proposes a vector autoregressive VAR model with structural shocks (SVAR) that are identified using sign restrictions, and whose distribution is subject to time…

Abstract

This chapter proposes a vector autoregressive VAR model with structural shocks (SVAR) that are identified using sign restrictions, and whose distribution is subject to time varying skewness. The authors also present an efficient Bayesian algorithm to estimate the model. The model allows tracking joint asymmetric risks to macroeconomic variables included in the SVAR, and provides a structural narrative to the evolution of those risks. When faced with euro area data, our estimation suggests that there has been a significant variation in the skewness of demand, supply and monetary policy shocks. Such variation can explain a significant proportion of the joint dynamics of real GDP growth and inflation, and also generates important asymmetric tail risks in those macroeconomic variables. Finally, compared to the literature on growth- and inflation-at-risk, the authors find that financial stress indicators are not enough to explain all the macroeconomic tail risks.

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Essays in Honour of Fabio Canova
Type: Book
ISBN: 978-1-80382-636-3

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Book part
Publication date: 6 November 2018

Svetlana Balashova

We examine the behavior of the Russian stock market as one of the leading indices of economic health, reflecting investors’ expectations about future returns. The sample period…

Abstract

We examine the behavior of the Russian stock market as one of the leading indices of economic health, reflecting investors’ expectations about future returns. The sample period includes the global financial crisis, a recovering period, and the recent crisis in the Russian economy 2014–2015.

We assume that the Russian stock market strongly depends on the global market, but the market is not fully integrated. This chapter investigates whether specific risk factors such as high dependence of the Russian economy on oil prices and currency volatility are priced in the Russian stock market, using International CAPM with time-variant parameters and conditional heteroskedasticity. The results show that the global financial crisis has had a profound negative impact on the Russian market, and that the expected return and liquidity has declined. The risk of investing in the Russian market is estimated as higher than in the developed market and even in other emerging markets after the global recession. We find that oil price exposure and currency risk to be priced in the Russian stock market and indicate that international investors require higher compensation for bearing these risks. The price of the currency risk has decreased since the implementation of the floating exchange rate regime by the Central Bank of Russia in 2014, but still significant.

Some opportunities to overcome the present stagnation and drive for a sustainable development are discussed.

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Exploring the Future of Russia’s Economy and Markets
Type: Book
ISBN: 978-1-78769-397-5

Keywords

Book part
Publication date: 21 September 2022

Dante Amengual, Gabriele Fiorentini and Enrique Sentana

The authors propose the information matrix test to assess the constancy of mean and variance parameters in vector autoregressions (VAR). They additively decompose it into several

Abstract

The authors propose the information matrix test to assess the constancy of mean and variance parameters in vector autoregressions (VAR). They additively decompose it into several orthogonal components: conditional heteroskedasticity and asymmetry of the innovations, and their unconditional skewness and kurtosis. Their Monte Carlo simulations explore both its finite size properties and its power against i.i.d. coefficients, persistent but stationary ones, and regime switching. Their procedures detect variation in the autoregressive coefficients and residual covariance matrix of a VAR for the US GDP growth rate and the statistical discrepancy, but they fail to detect any covariation between those two sets of coefficients.

Book part
Publication date: 6 January 2016

Laurent Callot and Johannes Tang Kristensen

This paper shows that the parsimoniously time-varying methodology of Callot and Kristensen (2015) can be applied to factor models. We apply this method to study macroeconomic…

Abstract

This paper shows that the parsimoniously time-varying methodology of Callot and Kristensen (2015) can be applied to factor models. We apply this method to study macroeconomic instability in the United States from 1959:1 to 2006:4 with a particular focus on the Great Moderation. Models with parsimoniously time-varying parameters are models with an unknown number of break points at unknown locations. The parameters are assumed to follow a random walk with a positive probability that an increment is exactly equal to zero so that the parameters do not vary at every point in time. The vector of increments, which is high dimensional by construction and sparse by assumption, is estimated using the Lasso. We apply this method to the estimation of static factor models and factor-augmented autoregressions using a set of 190 quarterly observations of 144 US macroeconomic series from Stock and Watson (2009). We find that the parameters of both models exhibit a higher degree of instability in the period from 1970:1 to 1984:4 relative to the following 15 years. In our setting the Great Moderation appears as the gradual ending of a period of high structural instability that took place in the 1970s and early 1980s.

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Dynamic Factor Models
Type: Book
ISBN: 978-1-78560-353-2

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Book part
Publication date: 6 January 2016

Davide Delle Monache, Ivan Petrella and Fabrizio Venditti

We analyze the interaction among the common and country-specific components for the inflation rates in 12 euro area countries through a factor model with time-varying parameters…

Abstract

We analyze the interaction among the common and country-specific components for the inflation rates in 12 euro area countries through a factor model with time-varying parameters. The variation of the model parameters is driven by the score of the predictive likelihood, so that, conditionally on past data, the model is Gaussian and the likelihood function can be evaluated using the Kalman filter. The empirical analysis uncovers significant variation over time in the model parameters. We find that, over an extended time period, inflation persistence has fallen and the importance of common shocks has increased relatively to that of idiosyncratic disturbances. According to the model, the fall in inflation observed since the sovereign debt crisis is broadly a common phenomenon since no significant cross-country inflation differentials have emerged. Stressed countries, however, have been hit by unusually large shocks.

Book part
Publication date: 1 January 2008

Arnold Zellner

After briefly reviewing the past history of Bayesian econometrics and Alan Greenspan's (2004) recent description of his use of Bayesian methods in managing policy-making risk…

Abstract

After briefly reviewing the past history of Bayesian econometrics and Alan Greenspan's (2004) recent description of his use of Bayesian methods in managing policy-making risk, some of the issues and needs that he mentions are discussed and linked to past and present Bayesian econometric research. Then a review of some recent Bayesian econometric research and needs is presented. Finally, some thoughts are presented that relate to the future of Bayesian econometrics.

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

Book part
Publication date: 19 November 2014

Miguel Belmonte and Gary Koop

This paper investigates the usefulness of switching Gaussian state space models as a tool for implementing dynamic model selection (DMS) or averaging (DMA) in time-varying…

Abstract

This paper investigates the usefulness of switching Gaussian state space models as a tool for implementing dynamic model selection (DMS) or averaging (DMA) in time-varying parameter regression models. DMS methods allow for model switching, where a different model can be chosen at each point in time. Thus, they allow for the explanatory variables in the time-varying parameter regression model to change over time. DMA will carry out model averaging in a time-varying manner. We compare our exact method for implementing DMA/DMS to a popular existing procedure which relies on the use of forgetting factor approximations. In an application, we use DMS to select different predictors in an inflation forecasting application. We find strong evidence of model switching. We also compare different ways of implementing DMA/DMS and find forgetting factor approaches and approaches based on the switching Gaussian state space model to lead to similar results.

Book part
Publication date: 21 September 2022

Laura Liu, Christian Matthes and Katerina Petrova

In this chapter, the authors ask two questions: (i) Is the conduct of monetary policy stable across time and similar across major economies? and (ii) Do policy decisions of major

Abstract

In this chapter, the authors ask two questions: (i) Is the conduct of monetary policy stable across time and similar across major economies? and (ii) Do policy decisions of major central banks have international spillover effects? To address these questions, the authors build on recent semi-parametric advances in time-varying parameter models that allow us to increase the vector autoregressive () dimension and to jointly model three advanced economies (USA, UK and the Euro Area). The main reduced-form finding of this chapter is an increased connectedness between and within countries during the recent financial crisis. In order to study policy spillovers, we jointly identify three economy-specific monetary policy shocks using a combination of sign and magnitude restrictions. The authors find that monetary policy shocks were larger in magnitude and more persistent in the early 1980s than in subsequent periods. The authors also uncover positive spillover effects of policy between countries in the 1980s and diminished, and sometimes negative ‘beggar-thy-neighbour’ effects in the second half of the sample. Moreover, during the 1980s, the authors find evidence for policy coordination between the Federal Reserve, the Bank of England and the European Central Bank.

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Essays in Honour of Fabio Canova
Type: Book
ISBN: 978-1-80382-832-9

Keywords

Abstract

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

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