0000000000731876
AUTHOR
Iolanda Lo Cascio
Territorial capital and the economic crisis: The role of spatial effects
Activity-geospatial approach forms methodological basis of the concept of geospatial self-organization of a society as new theoretical paradigm of societal geography (SG) with next main principles: a) Self-organization of society and its key subsystems (economical, social, political, spiritual) in specifically localised natural and societal qualities of geospace (Earth's surface space) forms the process of geospatial self-organization of a society and its results - geospatial interests, processes, systems, structures as societal-geospatial phenomena of different scale (global, regional, local, etc.). So societal processes acquire specific geospatial shapes that combine a geospatial (geograp…
Wavelet analysis of financial contagion
The aim is to estimate a factor model fitted to financial returns to disentagle the role played by common shock and idiosincratic shocks in shaping the comovement between asset returns during periods of calm and financial turbulence. For this purpose, we use wavelet analysis and, in particular, the Maximum Overlapping Discrete Wavelet Transform, to decompose the covariance matrix of the asset returns on a scale by scale basis, where each scale is associated to a given frequency range. This decomposition will give enough moment conditions to identify the role played by common and idiosincratic shocks. A Montecarlo simulation experiment shows that our testing methodology has good size and power …
Non-Dyadic Wavelet Analysis
The conventional dyadic multiresolution analysis constructs a succession of frequency intervals in the form of $(\pi/2^j, \pi/2^{j-1});j = 1, 2, \ldots, n$ of which the bandwidths are halved repeatedly in the descent from high frequencies to low frequencies. Whereas this scheme provides an excellent framework for encoding and transmitting signals with a high degree of data compression, it is less appropriate to the purposes of statistical data analysis. This paper describes a non-dyadic mixed-radix wavelet analysis which allows the wave bands to be defined more flexibly than in the case of a conventional dyadic analysis. The wavelets that form the basis vectors for the wave bands are derive…
Testing for public debt sustainability using band spectrum regression analysis "
In this note we focus on the response of the primary surplus to debt (ratios to GDP)over a low frequency band (associated with cycles with period between eight and sixteen years) to filter out business cycle effects. For this purpose, we use band spectrum regression, using both the Fourier Transform and the Discrete Wavelet transform, fitted to pooled panel dataset of 18 EMU countries. The empirical findings give evidence of fiscal fatigue within Eurozone:the response of primary surplus to debt will decrease over a finite debt limit.
Testing for public debt sustainability using a time-scale decomposition analysis
In this paper we estimate the response of primary surplus to lagged debt to test for debt sustainability within the 17 EMU countries by using a factor model. The analysis is split into two stages. In the first stage we retrieve the cyclical and long-run components of primary surplus and debt ratios of each EMU country using a wavelet decomposition for each fiscal covariate, based on the Maximal Overlapping Discrete Wavelet Transform. In the second stage, we use Full Information Maximum Likelihood for a factor decomposition of thecross covariance matrix of the wavelet coefficients of primary deficit and debt to GDP ratios in order to measure the short run and the long run reaction of the pri…
Territorial Capital And The Great Recession: A Nuts-3 Analysis For Southern Italy
Up to now, the analyses of the current “Great Recession†have been mainly confined to the national and international scale leaving aside the differential effects of the crisis upon regions and smaller areas. Although the current crisis has a strong international and global flavor, it must be admitted that the different structural characteristics of regions and urban areas might be often responsible for the specific economic and social impact of the recession and will strongly determine the possibility of resilience in the future. In the effort of better defining which regional characteristics may be considered as strategic for measuring the absorption capacity of the region vis-à -vis th…
Regional Asymmetric Reactions to Shocks in EMU: an Assessment of Different Approaches
In recent years there has been an increasing research effort in estimating regional asymmetric shocks and assessing their importance within the European Monetary Union (EMU). In this chapter we offer an evaluation of the different approaches by distinguishing them according to methodological underpinnings, variables used and pitfalls and potential extensions of the analysis. The structure of this contribution is the following. In section 2 we discuss the relative importance of asymmetric shocks and the main problems connected with their measurement. In section 3 we focus on the explanatory variables which are assumed to determine the asymmetric reaction to shocks and distinguish between sec…
Risk aversion connectedness in five European countries
Abstract In this paper we compute an aggregate index of risk aversion and indices of vulnerability and the contribution to systemic risk aversion for five European countries. The variance risk premium proxies risk aversion. The contribution to the literature is twofold. First, this is the first study estimating not only the common component, but also indices of directional connectedness among variance risk premia. Second, it is the first to estimate the interconnections by means of a FIVAR model, in order to account for long memory. Our analysis indicates measures of total and directional connectedness unlike those that would be obtained with the use of a short memory VAR. These differences…
Wavelet Analysis Of Variance Risk Premium Spillovers
In this paper we construct a variance risk premium spillover index among France, Germany, UK, Switzerland and the US. The variance risk premium is measured by the difference between the difference between the (square) of implied volatility and expected realized variance of the stock market for next month. We also construct a spillover index for the constituents of the variance risk premium. The series under investigation exhibit long memory properties. The construction of a total spillover indicator suggested by Diebold-Yilmaz (2009) would then rely on modeling a fractionally integrated Vector Autoregressive Model, which might be subject to errors in specifying the correct lag length and th…
A wavelet analysis of US fiscal sustainability
Abstract In this paper, we reassess the relationship between primary deficit and lagged debt to GDP ratio (Bohn, 1998), to test for US debt sustainability over the period 1795–2012. Our analysis is rooted in the wavelet domain enabling the detection of interesting patterns and otherwise hidden information. We find evidence of long term fiscal sustainability but only up until 1995 and also we show that governments tend to respond more vigorously to budget deficits when the level of debt is high rather than low.
Volatility co-movements: a time-scale decomposition analysis
In this paper, we are interested in detecting contagion from US to European stock market volatilities in the period immediately after the Lehman Brothers collapse. The analysis is based on a factor decomposition of the covariance matrix, in the time and frequency domain, using wavelets. The analysis aims to disentangle two components of volatility contagion (anticipated and unanticipated by the market). Once we focus on standardized factor loadings, the results show no evidence of contagion (from the US) in market expectations (coming from implied volatility) and evidence of unanticipated contagion (coming from the volatility risk premium) for almost any European country. Finally, the estim…
Volatility co-movements: a time scale decomposition analysis
In this paper we are interested in detecting contagion from US to European stock market volatilities in the period immediately after the Lehman Brothers’ collapse. The analysis, based on a factor decomposition of the covariance matrix of implied and realized volatilities, is carried for different sub-samples (identified as normal and crisis periods) and across different (high) frequency bands. In particular, the analysis is split in two stages. In the first stage, we retrieve the time series of wavelet coefficients for each volatility series for high frequency scales, using the Maximal Overlapping Discrete Wavelet transform and, in a second stage, we apply Maximum Likelihood for a factor de…
Territorial determinants and NUTS-3 regional performance: a spatial analysis for Italy across the crisis
This paper analyses the differential impact of several territorial determinants of the economic performance of Italian provinces (NUTS 3 level). as measured by per capita GDP, export and employment growth from 1999 to 2014. It covers both the pre‐crisis and the crisis period and stresses the role of geographical proximity in shaping local performance over a wide set of explanatory variables. In order to do so, we employ, firstly, a spatial Durbin model which enables us to discriminate between direct and indirect effects and to highlight the possible contagion or crowding‐out spatial effects for each territorial dimension affecting growth. Then, we extend the analysis by allowing for the pos…
Testing for contagion: a time-scale decomposition
The aim of the paper is to test for financial contagion by estimating a simultaneous equation model subject to structural breaks. For this purpose, we use the Maximum Overlapping Discrete Wavelet Transform, MODWT, to decompose four asset returns into different scale components (each associated with a given frequency range). The decomposition will enable us to obtain the moment conditions necessary to (over)identify a structural form model with a single dummy and the one with multiple dummies capturing shifts in the co-movement of asset returns occurring during periods of financial turmoil. A Montecarlo simulation exercise shows that test based on a single dummy structural form model has goo…
Wavelet analysis of variance risk premium spillovers
In this paper we construct a variance risk premium spillover index among France, Germany, UK, Switzerland and the US. The variance risk premium is measured by the difference between the difference between the (square) of implied volatility and expected realized variance of the stock market for next month. We also construct a spillover index for the constituents of the variance risk premium. The series under investigation exhibit long memory properties. The construction of a total spillover indicator suggested by Diebold-Yilmaz (2009) would then rely on modeling a fractionally integrated Vector Autoregressive Model, which might be subject to errors in specifying the correct lag length and th…
Wavelet analysis of asset price misalignments
Asset price misalignments are analyzed through wavelet decomposition. The analysis, carried within the time-frequency domain, allows us to detect how far, in a given time period, financial time series, such as house or stock prices, are from their fundamental value. The latter is associated with the low frequency component of a given time series. Moreover, using wavelet analysis, we explore whether monetary policy can contribute to asset price misalignments.
Comparative Economic Cycles
The income cycles that have been experienced by six OECD countries over the past 24 years are analysed. The amplitude of the cycles relative to the level of aggregate income varies amongst the countries, as does the degree of the damping that affects the cycles. The study aims to reveal both of these characteristics. It also seeks to determine whether there exists a clear relationship between the degree of damping and the length of the cycles. In order to estimate the parameters of the cycles, the data have been subjected to the processes of detrending, anti-alias filtering and subsampling.
DECLINE IN US OUTPUT GROWTH VOLATILITY: A WAVELET ANALYSIS*
The aim of the paper is to determine (endogenously) whether the volatility of the US output growth rate has changed since the late 1940s. By applying the discrete wavelet transform to the annualized quarter-to-quarter output growth series, we test the homogeneity of the variance on a scale-by-scale basis. A version of the Normalized and Centered Cumulative Sum of Squares test, adapted to wavelets, leads us to reject the null of constant variance in the two levels of decomposition of the highest resolution and to locate a single break in 1982. The economic implications are explored.
Volatility risk premia and financial connectedness
In this paper we use the Diebold Yilmaz (2009 and 2012) methodology to construct an index of connectedness among five European stock markets: France, Germany, UK, Switzerland and the Netherlands, by using volatility risk premia. The volatility risk premium, which is a proxy of risk aversion, is measured by the difference between the implied volatility and expected realized volatility of the stock market for next month. While Diebold and Yilmaz focus is on the forecast error variance decomposition of stock returns or range based volatilities employing a stationary VAR in levels, we account for the (locally) long memory stationary properties of the levels of volatility risk premia series. The…
Il capitale territoriale e la crisi: un'analisi provinciale per l'Italia Centro-Meridionale
Le analisi sugli effetti della crisi si sono prevalentemente incentrate su una dimensione nazionale e internazionale. Nel presente lavoro si focalizza l’attenzione sul capitale territoriale allo scopo di identificare gli elementi territoriali che possono essere considerati strategici per le capacità di resilienza e recupero dalla recessione a livello regionale e sub-regionale. A tal fine si utilizzerà un vasto dataset sull’Italia centro-meridionale con l’intento di misurare le relazioni empiriche tra capitale territoriale e variazione delle performance a livello provinciale, allo scopo di verificare come la dotazione di capitale territoriale possa avere influito su reazioni differenziate e,…
Territorial Capital and the Great Recession: a Nuts-3 Analysis for Central and Southern Italy
The analyses on the effects of the actual crisis have been mainly concentrated on a national and international dimension, leaving aside the differential effects of the crisis on regions and sub-regional areas. Notwithstanding the international character of the Great Recession, it has to be stressed that the different structural features of regions and urban areas might influence the economic and social impact of the crisis. They also might have an important effect on the resilience and recover chance. In the present paper, we focus on territorial capital, a concept that takes into account of the different features of goods and services in terms of their degree of appropriability and rivalry…
The Decline in U.S. Output Growth Volatility: A Wavelet Analysis
The aim of the paper is to determine whether or not the volatility of the growth rate of US output has changed in the period since late 1940's, and to attribute a precise date, if possible, to any such change. By applying the Discrete Wavelet Transform (DWT) to the annualized quarter-to quarter output growth series, we can test the homogeneity of the variance on a scale by scale basis without needing to fit a parametric model to the observed time series. A version of the Inclan and Tiao (1994) Normalised and Centered Cumulative Sum of Squares test, adapted to wavelet analysis, leads us to reject the null hypothesis of constant variance in the two levels of decomposition of the highest resol…
A wavelet analysis of the ripple effect in UK regional housing markets
Abstract The paper aims at gaining insights on the spatio-temporal mechanism of house price spillovers, also known as ripple effect, among 12 UK regional housing markets, over the period 1973–2018. From a policy perspective, it is essential to discriminate if the effects of a shock decay more slowly along the geographical dimension as compared to the decay along the time dimension. We enter the debate in a novel manner by using some wavelet analysis tools (wavelet coherence and phase differences amongst others) which reveal the spectral characteristics of a series and show how different periodic components of housing returns evolve over time. Results are interesting. Spillovers from London …
Territorial Capital and Growth over the Great Recession: a Local Analysis for Italy"
The consequences of the crisis have been mainly analyzed at national/ international levels, neglecting its differential effects on local areas. Notwithstanding the international character of the Great Recession, the different local structural features might have influenced the economic and social impact of the crisis, determining effects on the resilience and recovery chance. In this paper, we focus on the role of different territorial indicators by looking at how their relevance has changed during the recent crisis at provincial level. Our aim is threefold. First, we identify the strategic territorial elements which might be particularly relevant in ensuring a greater local absorption capa…
Spectral Structures in Econometrics: Modern Techniques in Wavelet Analysis and Band Limited Estimation
This thesis presents a number of innovative techniques that can be used in the analysis of econometric data sequences in which the underlying components can be identified by their spectral signatures. To present these techniques intelligibly requires the preparatory expositions of Fourier analysis and of the theory of linear filtering that are presented in Chapters 2 and 3. Amongst the techniques for extracting components from short non stationary sequences that are described in Chapter 3 is a variant of the Hodrick--Prescott filter with a smoothing parameter that varies locally. This enables us to extract from the data trends that incorporate a number of structural breaks. The inadequacy o…
An index of financial connectedness applied to variance risk premia
The purpose is to construct an index of financial connectedness among France, Germany, UK, Switzerland and the Netherlands variance risk premia. The variance risk premium of each country stock market is measured by the difference between the (square) of implied volatility and expected realized variance of the stock market for next month. The total and directional indices of financial connectedness are obtained from the forecast error variance decomposition of a Vector Autoregressive Model, VAR, as recently suggested by Diebold and Yilmaz. While the authors main focus is on connectedness among financial returns, they base their analysis on a short memory stationary VAR. Given the long memory…
Volatility co-movements: a time scale decomposition analysis
In this paper we investigate short-run co-movements before and after the Lehman Brothers’ collapse among the volatility series of US and a number of European countries. The series under investigation (implied and realized volatility) exhibit long-memory and, in order to avoid missspecification errors related to the parameterization of a long memory multivariate model, we rely on wavelet analysis. More specifically, we retrieve the time series of wavelet coefficients for each volatility series for high frequency scales, using the Maximal Overlapping Discrete Wavelet transform and we apply Maximum Likelihood for a factor decomposition of the short-run covariance matrix. The empirical evidence…
Testing for Contagion: a Time-Scale Decomposition
The aim of the paper is to test for financial contagion by estimating a simultaneous equation model subject to structural breaks. For this purpose, we use the Maximum Overlapping Discrete Wavelet Transform, MODWT, to decompose four asset returns into different scale components (each associated with a given frequency range). The decomposition will enable us to obtain the moment conditions necessary to (over)identify a structural form model with a single dummy and the one with multiple dummies capturing shifts in the co-movement of asset returns occurring during periods of financial turmoil. A Montecarlo simulation exercise shows that test based on a single dummy structural form model has goo…