Search results for "jel:C32"
showing 10 items of 11 documents
Nonlinear dynamics of interest rate and inflation
2004
According to several empirical studies, US inflation and nominal interest rates, as well as the real interest rate, can be described as unit root processes. These results imply that nominal interest rates and expected inflation do not move one-for-one in the long run, which is not consistent with the theoretical models. In this paper we introduce a nonlinear bivariate mixture autoregressive model that seems to fit quarterly US data (1952 Q1 – 2000 Q2) reasonably well. It is found that the three-month treasury bill rate and inflation share a common nonlinear component that explains a large part of their persistence. The real interest rate is devoid of this component, indicating one-for-one m…
Monetary policy and the exchange rate during the Asian crisis: identification through heteroscedasticity
2005
Abstract This paper examines whether a monetary policy tightening (i.e., an increase in the domestic interest rate) was successful in defending the exchange rate from speculative pressures during the Asian financial crisis. We estimate a bivariate VECM for four Asian countries, and improve upon existing studies in two important ways. First, by using a long data span we are able to compare the effects of an interest rate rise on the nominal exchange rate during tranquil and turbulent periods. Second, we take into account the endogeneity of interest rates and identify the system by exploiting the heteroscedasticity properties of the relevant time series, following Rigobon [Identification thro…
Forecasting Financial Crises and Contagion in Asia using Dynamic Factor Analysis
2009
Abstract In this paper we use principal components analysis to obtain vulnerability indicators able to predict financial turmoil. Probit modelling through principal components and also stochastic simulation of a Dynamic Factor model are used to produce the corresponding probability forecasts regarding the currency crisis events affecting a number of East Asian countries during the 1997–1998 period. The principal components model improves upon a number of competing models, in terms of out-of-sample forecasting performance.
A Stochastic Variance Factor Model for Large Datasets and an Application to S&P Data
2008
The aim of this paper is to consider multivariate stochastic volatility models for large dimensional datasets. We suggest the use of the principal component methodology of Stock and Watson [Stock, J.H., Watson, M.W., 2002. Macroeconomic forecasting using diffusion indices. Journal of Business and Economic Statistics, 20, 147–162] for the stochastic volatility factor model discussed by Harvey, Ruiz, and Shephard [Harvey, A.C., Ruiz, E., Shephard, N., 1994. Multivariate Stochastic Variance Models. Review of Economic Studies, 61, 247–264]. We provide theoretical and Monte Carlo results on this method and apply it to S&P data.
Model Based Monte Carlo Pricing of Energy and Temperature Quanto Options
2010
Weather derivatives have become very popular tools in weather risk management in recent years. One of the elements supporting their diffusion has been the increase in volatility observed on many energy markets. Among the several available contracts, Quanto options are now becoming very popular for a simple reason: they take into account the strong correlation between energy consumption and certain weather conditions, so enabling price and weather risk to be controlled at the same time. These products are more efficient and, in many cases, significantly cheaper than simpler plain vanilla options. Unfortunately, the specific features of energy and weather time series do not enable the use of …
Volatility risk premia and financial connectedness
2014
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…
New Evidence of the Real Interest Rate Parity for OECD Countries Using Panel Unit Root Tests with Breaks
2006
This paper tests for real interest parity (RIRP) among the nineteen major OECD countries over the period 1978:Q2-1998:Q4. The econometric methods applied consist of combining the use of several unit root or stationarity tests designed for panels valid under cross-section dependence and presence of multiple structural breaks. Our results strongly support the fulfillment of the weak version of the RIRP for the studied period once dependence and structural breaks are accounted for.
Potential Growth and Business Cycle in the Spanish Economy: Implications for Fiscal Policy
2007
An accurately estimation of the cyclical position of an economy is a necessary condition for the success of fiscal stabilisation policies. In this paper we show that the estimation of the output gap by means of decomposing a production function produces similar results to univariate and multivariate methods, increasing their robustness and allowing us to conclude that most of the information on the economic cycle is included in the cyclical component of the unemployment rate. The results also indicate that there is reduced uncertainty about the periods when the Spanish economy has clearly been in a deep recession or in a sharp expansion. These periods have been limited and of relatively sho…
Volatility transmission patterns and terrorist attacks
2009
The objective of this study is to analyze volatility transmission between the US and Eurozone stock markets considering the effects of the September 11, March 11 and July 7 financial crises. In order to do this, we use a multivariate GARCH model and take into account the asymmetric volatility phenomenon, the non-synchronous trading problem and the crises themselves. Moreover, a graphical analysis of the Asymmetric Volatility Impulse-Response Functions (AVIRF) is introduced, which takes into consideration the crisis effect. Results suggest that there is bidirectional and asymmetric volatility transmission and show the different impact that terrorist attacks had on both markets. El objetivo d…
IMPORTANCIA DE LAS PERTURBACIONES EXTERNAS EN LA ECONOMÍA ESPAÑOLA TRAS LA INTEGRACIÓN: ¿TAMAÑO DEL SHOCK O GRADO DE RESPUESTA?
2005
This paper analyses whether the impact of European shocks in the Spanisheconomy has increased after the entry of Spain in the European Community. UsingVAR models, we try to disentangle whether the change in the importance of Europe isdue to a change in the size of the shocks or in the propagation effects. The results showsthat after 1986, despite the decrease in the size of European shocks, their impact on theSpanish business cycle has increases due to a larger sensitivity of the Spanish economyto these shocks. El objetivo de este trabajo es analizar si ha aumentado la influencia de los shocks europeos en la economía española tras el proceso de integración en Europa, distinguiendo si los ca…