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on Econometric Time Series |
| By: | Sainan Jin (Guanghua School of Management, Peking University); Peter C.B. Phillips (Cowles Foundation, Yale University, University of Auckland and University of York); Yixiao Sun (Dept. of Economics, University of California, San Diego) |
| Abstract: | A new approach to robust testing in cointegrated systems is proposed using nonparametric HAC estimators without truncation. While such HAC estimates are inconsistent, they still produce asymptotically pivotal tests and, as in conventional regression settings, can improve testing and inference. The present contribution makes use of steep origin kernels which are obtained by exponentiating traditional quadratic kernels. Simulations indicate that tests based on these methods have improved size properties relative to conventional tests and better power properties than other tests that use Bartlett or other traditional kernels with no truncation. |
| Keywords: | Cointegration, HAC estimation, long-run covariance matrix, robust inference, steep origin kernel, fully modified estimation |
| JEL: | C12 C14 C22 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:1538&r=ets |
| By: | Guglielmo Maria Caporale; Luis A. Gil-Alana |
| Abstract: | In this article we estimate the order of integration of the volatility process of several exchange rates and stock returns using fractionally integrated semiparametric techniques,namely a local Whittle semiparametric estimator. The results suggest that all series can be well described in terms of I(d) statistical models, with values of d higher than 0, indicating long-memory behaviour. |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:bru:bruedp:05-10&r=ets |
| By: | Guglielmo Maria Caporale; Luis A. Gil-Alana |
| Abstract: | This paper examines the long-run 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 (long-run) and the cyclical frequencies. We examine the following series: inflation, real risk-free rate, real stock returns, equity premium and price/dividend ratio,annually from 1871 to 1993. When focusing exclusively on the long-run 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 long-run 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:05-09&r=ets |
| By: | Guglielmo Maria Caporale; Luis A. Gil-Alana |
| Abstract: | In this paper we use a statistical procedure which is appropriate to test for deterministic and stochastic (stationary and nonstationary) cycles in macroeconomic time series. These tests have standard null and local limit distributions and are easy to apply to raw time series. Monte Carlo evidence shows that they perform relatively well in the case of functional misspecification in the cyclical structure of the series. As an example, we use this approach to test for the presence of cycles in US real GDP. |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:bru:bruedp:05-11&r=ets |
| By: | Guglielmo Maria Caporale; Luis A. Gil-Alana |
| Abstract: | In this paper we show that the monthly structure of the US money stock can be specified in terms of a long-memory process, with roots at both the zero and the seasonal monthly frequencies. We use a procedure that enables us to test simultaneously for the roots at all these frequencies. The results show that the root at the long-run or zero frequency plays a much more important role than the seasonal one, though the latter should also be taken into account. |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:bru:bruedp:05-16&r=ets |
| By: | Guglielmo Maria Caporale; Luis A. Gil-Alana |
| 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 non-linear functions of labour demand variables such as real oil prices and real interest rates. We also find evidence of a long-memory 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 policy-making. |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:bru:bruedp:05-17&r=ets |
| 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 non-linear framework. We reject linearity for the US and UK swap spreads in favour of a regime-switching 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 non-linear nearest-neighbours model as well as that of linear AR and VAR models. We find some evidence that the nearest-neighbours 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 non-linear class of models, the nearest-neighbours 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, nearest-neighbours, forecasting. |
| JEL: | C51 C52 C53 E43 |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:lbo:lbowps:2005_9&r=ets |