Nonlinear mixture autoregressive model: economic applications

The aim of this dissertation is to model economic variables by a mixture autoregressive (MAR) model. The MAR model is a generalization of linear autoregressive (AR) model. The MAR -model consists of K linear autoregressive components. At any given point of time one of these autoregressive components is randomly selected to generate a new observation for the time series. The mixture probability can be constant over time or a direct function of a some observable variable. Many economic time series contain properties which cannot be described by linear and stationary time series models. A nonlinear autoregressive model such as MAR model can a plausible alternative in the case of these time series. In this dissertation the MAR model is used to model stock market bubbles and a relationship between inflation and the interest rate. In the case of the inflation rate we arrived at the MAR model where inflation process is less mean reverting in the case of high inflation than in the case of normal inflation. The interest rate move one-for-one with expected inflation. We use the data from the Livingston survey as a proxy for inflation expectations. We have found that survey inflation expectations are not perfectly rational. According to our results information stickiness play an important role in the expectation formation. We also found that survey participants have a tendency to underestimate inflation. A MAR model has also used to model stock market bubbles and crashes. This model has two regimes: the bubble regime and the error correction regime. In the error correction regime price depends on a fundamental factor, the price-dividend ratio, and in the bubble regime, price is independent of fundamentals. In this model a stock market crash is usually caused by a regime switch from a bubble regime to an error-correction regime. According to our empirical results bubbles are related to a low inflation. Our model also imply that bubbles have influences investment return distribution in both short and long run.

Dynamics of inflation expectations in the euro area

The present study examines empirically the inflation dynamics of the euro area. The focus of the analysis is on the role of expectations in the inflation process. In six articles we relax rationality assumption and proxy expectations directly using OECD forecasts or Consensus Economics survey data. In the first four articles we estimate alternative Phillips curve specifications and find evidence that inflation cannot instantaneously adjust to changes in expectations. A possible departure of expectations from rationality seems not to be powerful enough to totally explain the persistence of euro area inflation in the New Keynesian framework. When expectations are measured directly, the purely forward-looking New Keynesian Phillips curve is outperformed by the hybrid Phillips curve with an additional lagged inflation term and the New Classical Phillips curve with a lagged expectations term. The results suggest that the euro area inflation process has become more forward-looking in the recent years of low and stable inflation. Moreover, in low inflation countries, the inflation dynamics have been more forward-looking already since the late 1970s. We find evidence of substantial heterogeneity of inflation dynamics across the euro area countries. Real time data analysis suggests that in the euro area real time information matters most in the expectations term in the Phillips curve and that the balance of expectations formation is more forward- than backward-looking. Vector autoregressive (VAR) models of actual inflation, inflation expectations and the output gap are estimated in the last two articles.The VAR analysis indicates that inflation expectations, which are relatively persistent, have a significant effect on output. However,expectations seem to react to changes in both output and actual inflation, especially in the medium term. Overall, this study suggests that expectations play a central role in inflation dynamics, which should be taken into account in conducting monetary policy.

The Macroeconomic Effects of Fiscal Policy in a Small Open Economy under a Flexible Exchange Rate Regime

This licentiate's thesis analyzes the macroeconomic effects of fiscal policy in a small open economy under a flexible exchange rate regime, assuming that the government spends exclusively on domestically produced goods. The motivation for this research comes from the observation that the literature on the new open economy macroeconomics (NOEM) has focused almost exclusively on two-country global models and the analyses of the effects of fiscal policy on small economies are almost completely ignored. This thesis aims at filling in the gap in the NOEM literature and illustrates how the macroeconomic effects of fiscal policy in a small open economy depend on the specification of preferences. The research method is to present two theoretical model that are extensions to the model contained in the Appendix to Obstfeld and Rogoff (1995). The first model analyzes the macroeconomic effects of fiscal policy, making use of a model that exploits the idea of modelling private and government consumption as substitutes in private utility. The model offers intuitive predictions on how the effects of fiscal policy depend on the marginal rate of substitution between private and government consumption. The findings illustrate that the higher the substitutability between private and government consumption, (i) the bigger is the crowding out effect on private consumption (ii) and the smaller is the positive effect on output. The welfare analysis shows that the less fiscal policy decreases welfare the higher is the marginal rate of substitution between private and government consumption. The second model of this thesis studies how the macroeconomic effects of fiscal policy depend on the elasticity of substitution between traded and nontraded goods. This model reveals that this elasticity a key variable to explain the exchange rate, current account and output response to a permanent rise in government spending. Finally, the model demonstrates that temporary changes in government spending are an effective stabilization tool when used wisely and timely in response to undesired fluctuations in output. Undesired fluctuations in output can be perfectly offset by an opposite change in government spending without causing any side-effects.

Flight metabolic rate in the Glanville fritillary butterfly

Dispersal is a highly important life history trait. In fragmented landscapes the long-term persistence of populations depends on dispersal. Evolution of dispersal is affected by costs and benefits and these may differ between different landscapes. This results in differences in the strength and direction of natural selection on dispersal in fragmented landscapes. Dispersal has been shown to be a nonrandom process that is associated with traits such as flight ability in insects. This thesis examines genetic and physiological traits affecting dispersal in the Glanville fritillary butterfly (Melitaea cinxia). Flight metabolic rate is a repeatable trait representing flight ability. Unlike in many vertebrates, resting metabolic rate cannot be used as a surrogate of maximum metabolic rate as no strong correlation between the two was found in the Glanville fritillary. Resting and flight metabolic rate are affected by environmental variables, most notably temperature. However, only flight metabolic rate has a strong genetic component. Molecular variation in the much-studied candidate locus phosphoglucose isomerase (Pgi), which encodes the glycolytic enzyme PGI, has an effect on carbohydrate metabolism in flight. This effect is temperature dependent: in low to moderate temperatures individuals with the heterozygous genotype at the single nucleotide polymorphism (SNP) AA111 have higher flight metabolic rate than the common homozygous genotype. At high temperatures the situation is reversed. This finding suggests that variation in enzyme properties is indeed translated to organismal performance. High-resolution data on individual female Glanville fritillaries moving freely in the field were recorded using harmonic radar. There was a strong positive correlation between flight metabolic rate and dispersal rate. Flight metabolic rate explained one third of the observed variation in the one-hour movement distance. A fine-scaled analysis of mobility showed that mobility peaked at intermediate ambient temperatures but the two common Pgi genotypes differed in their reaction norms to temperature. As with flight metabolic rate, heterozygotes at SNP AA111 were the most active genotype in low to moderate temperatures. The results show that molecular variation is associated with variation in dispersal rate through the link of flight physiology under the influence of environmental conditions. The evolutionary pressures for dispersal differ between males and females. The effect of flight metabolic rate on dispersal was examined in both sexes in field and laboratory conditions. The relationship between flight metabolic rate and dispersal rate in the field and flight duration in the laboratory were found to differ between the two sexes. In females the relationship was positive, but in males the longest distances and flight durations were recorded for individuals with low flight metabolic rate. These findings may reflect male investment in mate locating. Instead of dispersing, males with high flight metabolic rate may establish territories and follow a perching strategy when locating females and hence move less on the landscape level. Males with low metabolic rate may be forced to disperse due to low competitive success or may show adaptations to an alternative strategy: patrolling. In the light of life history trade-offs and the rate of living theory having high metabolic rate may carry a cost in the form of shortened lifespan. Experiments relating flight metabolic rate to longevity showed a clear correlation in the opposite direction: high flight metabolic rate was associated with long lifespan. This suggests that individuals with high metabolic rate do not pay an extra physiological cost for their high flight capacity, rather there are positive correlations between different measures of fitness. These results highlight the importance of condition.

Mutations as molecular tools : The metabolic-rate dependent molecular clock and DNA barcoding of allied species

Mutation and recombination are the fundamental processes leading to genetic variation in natural populations. This variation forms the raw material for evolution through natural selection and drift. Therefore, studying mutation rates may reveal information about evolutionary histories as well as phylogenetic interrelationships of organisms. In this thesis two molecular tools, DNA barcoding and the molecular clock were examined. In the first part, the efficiency of mutations to delineate closely related species was tested and the implications for conservation practices were assessed. The second part investigated the proposition that a constant mutation rate exists within invertebrates, in form of a metabolic-rate dependent molecular clock, which can be applied to accurately date speciation events. DNA barcoding aspires to be an efficient technique to not only distinguish between species but also reveal population-level variation solely relying on mutations found on a short stretch of a single gene. In this thesis barcoding was applied to discriminate between Hylochares populations from Russian Karelia and new Hylochares findings from the greater Helsinki region in Finland. Although barcoding failed to delineate the two reproductively isolated groups, their distinct morphological features and differing life-history traits led to their classification as two closely related, although separate species. The lack of genetic differentiation appears to be due to a recent divergence event not yet reflected in the beetles molecular make-up. Thus, the Russian Hylochares was described as a new species. The Finnish species, previously considered as locally extinct, was recognized as endangered. Even if, due to their identical genetic make-up, the populations had been regarded as conspecific, conservation strategies based on prior knowledge from Russia would not have guaranteed the survival of the Finnish beetle. Therefore, new conservation actions based on detailed studies of the biology and life-history of the Finnish Hylochares were conducted to protect this endemic rarity in Finland. The idea behind the strict molecular clock is that mutation rates are constant over evolutionary time and may thus be used to infer species divergence dates. However, one of the most recent theories argues that a strict clock does not tick per unit of time but that it has a constant substitution rate per unit of mass-specific metabolic energy. Therefore, according to this hypothesis, molecular clocks have to be recalibrated taking body size and temperature into account. This thesis tested the temperature effect on mutation rates in equally sized invertebrates. For the first dataset (family Eucnemidae, Coleoptera) the phylogenetic interrelationships and evolutionary history of the genus Arrhipis had to be inferred before the influence of temperature on substitution rates could be studied. Further, a second, larger invertebrate dataset (family Syrphidae, Diptera) was employed. Several methodological approaches, a number of genes and multiple molecular clock models revealed that there was no consistent relationship between temperature and mutation rate for the taxa under study. Thus, the body size effect, observed in vertebrates but controversial for invertebrates, rather than temperature may be the underlying driving force behind the metabolic-rate dependent molecular clock. Therefore, the metabolic-rate dependent molecular clock does not hold for the here studied invertebrate groups. This thesis emphasizes that molecular techniques relying on mutation rates have to be applied with caution. Whereas they may work satisfactorily under certain conditions for specific taxa, they may fail for others. The molecular clock as well as DNA barcoding should incorporate all the information and data available to obtain comprehensive estimations of the existing biodiversity and its evolutionary history.

Gravitino phenomenology and cosmological implications of supergravity

In this thesis we consider the phenomenology of supergravity, and in particular the particle called "gravitino". We begin with an introductory part, where we discuss the theories of inflation, supersymmetry and supergravity. Gravitino production is then investigated into details, by considering the research papers here included. First we study the scattering of massive W bosons in the thermal bath of particles, during the period of reheating. We show that the process generates in the cross section non trivial contributions, which eventually lead to unitarity breaking above a certain scale. This happens because, in the annihilation diagram, the longitudinal degrees of freedom in the propagator of the gauge bosons disappear from the amplitude, by virtue of the supergravity vertex. Accordingly, the longitudinal polarizations of the on-shell W become strongly interacting in the high energy limit. By studying the process with both gauge and mass eigenstates, it is shown that the inclusion of diagrams with off-shell scalars of the MSSM does not cancel the divergences. Next, we approach cosmology more closely, and study the decay of a scalar field S into gravitinos at the end of inflation. Once its mass is comparable to the Hubble rate, the field starts coherent oscillations about the minimum of its potential and decays pertubatively. We embed S in a model of gauge mediation with metastable vacua, where the hidden sector is of the O'Raifeartaigh type. First we discuss the dynamics of the field in the expanding background, then radiative corrections to the scalar potential V(S) and to the Kähler potential are calculated. Constraints on the reheating temperature are accordingly obtained, by demanding that the gravitinos thus produced provide with the observed Dark Matter density. We modify consistently former results in the literature, and find that the gravitino number density and T_R are extremely sensitive to the parameters of the model. This means that it is easy to account for gravitino Dark Matter with an arbitrarily low reheating temperature.

Non-Gaussian Cosmological Perturbations from Hybrid Inflation and Preheating

This thesis consists of four research papers and an introduction providing some background. The structure in the universe is generally considered to originate from quantum fluctuations in the very early universe. The standard lore of cosmology states that the primordial perturbations are almost scale-invariant, adiabatic, and Gaussian. A snapshot of the structure from the time when the universe became transparent can be seen in the cosmic microwave background (CMB). For a long time mainly the power spectrum of the CMB temperature fluctuations has been used to obtain observational constraints, especially on deviations from scale-invariance and pure adiabacity. Non-Gaussian perturbations provide a novel and very promising way to test theoretical predictions. They probe beyond the power spectrum, or two point correlator, since non-Gaussianity involves higher order statistics. The thesis concentrates on the non-Gaussian perturbations arising in several situations involving two scalar fields, namely, hybrid inflation and various forms of preheating. First we go through some basic concepts -- such as the cosmological inflation, reheating and preheating, and the role of scalar fields during inflation -- which are necessary for the understanding of the research papers. We also review the standard linear cosmological perturbation theory. The second order perturbation theory formalism for two scalar fields is developed. We explain what is meant by non-Gaussian perturbations, and discuss some difficulties in parametrisation and observation. In particular, we concentrate on the nonlinearity parameter. The prospects of observing non-Gaussianity are briefly discussed. We apply the formalism and calculate the evolution of the second order curvature perturbation during hybrid inflation. We estimate the amount of non-Gaussianity in the model and find that there is a possibility for an observational effect. The non-Gaussianity arising in preheating is also studied. We find that the level produced by the simplest model of instant preheating is insignificant, whereas standard preheating with parametric resonance as well as tachyonic preheating are prone to easily saturate and even exceed the observational limits. We also mention other approaches to the study of primordial non-Gaussianities, which differ from the perturbation theory method chosen in the thesis work.

A Cointegration Approach to Topics in Empirical Macroeconomics (summary section only)

Mikael Juselius’ doctoral dissertation covers a range of significant issues in modern macroeconomics by empirically testing a number of important theoretical hypotheses. The first essay presents indirect evidence within the framework of the cointegrated VAR model on the elasticity of substitution between capital and labor by using Finnish manufacturing data. Instead of estimating the elasticity of substitution by using the first order conditions, he develops a new approach that utilizes a CES production function in a model with a 3-stage decision process: investment in the long run, wage bargaining in the medium run and price and employment decisions in the short run. He estimates the elasticity of substitution to be below one. The second essay tests the restrictions implied by the core equations of the New Keynesian Model (NKM) in a vector autoregressive model (VAR) by using both Euro area and U.S. data. Both the new Keynesian Phillips curve and the aggregate demand curve are estimated and tested. The restrictions implied by the core equations of the NKM are rejected on both U.S. and Euro area data. These results are important for further research. The third essay is methodologically similar to essay 2, but it concentrates on Finnish macro data by adopting a theoretical framework of an open economy. Juselius’ results suggests that the open economy NKM framework is too stylized to provide an adequate explanation for Finnish inflation. The final essay provides a macroeconometric model of Finnish inflation and associated explanatory variables and it estimates the relative importance of different inflation theories. His main finding is that Finnish inflation is primarily determined by excess demand in the product market and by changes in the long-term interest rate. This study is part of the research agenda carried out by the Research Unit of Economic Structure and Growth (RUESG). The aim of RUESG it to conduct theoretical and empirical research with respect to important issues in industrial economics, real option theory, game theory, organization theory, theory of financial systems as well as to study problems in labor markets, macroeconomics, natural resources, taxation and time series econometrics. RUESG was established at the beginning of 1995 and is one of the National Centers of Excellence in research selected by the Academy of Finland. It is financed jointly by the Academy of Finland, the University of Helsinki, the Yrjö Jahnsson Foundation, Bank of Finland and the Nokia Group. This support is gratefully acknowledged.

Price Inflation, Unemployment and Devaluations: The Finnish Experience of the 1990s

In this paper I provide some empirical answers to important questions such as the determinants of price inflation and the role of inflation polices. The results indicate that monetary policy is surprisingly impotent as a device for controlling inflation and there is little support that it influences the real variables. The low inflation after the Finnish devaluations in the beginning of 90s is foremost due to a previous imbalance in the labor markets and depressed aggregate demand.

Rate Control State-of-the-art Survey

The majority of Internet traffic use Transmission Control Protocol (TCP) as the transport level protocol. It provides a reliable ordered byte stream for the applications. However, applications such as live video streaming place an emphasis on timeliness over reliability. Also a smooth sending rate can be desirable over sharp changes in the sending rate. For these applications TCP is not necessarily suitable. Rate control attempts to address the demands of these applications. An important design feature in all rate control mechanisms is TCP friendliness. We should not negatively impact TCP performance since it is still the dominant protocol. Rate Control mechanisms are classified into two different mechanisms: window-based mechanisms and rate-based mechanisms. Window-based mechanisms increase their sending rate after a successful transfer of a window of packets similar to TCP. They typically decrease their sending rate sharply after a packet loss. Rate-based solutions control their sending rate in some other way. A large subset of rate-based solutions are called equation-based solutions. Equation-based solutions have a control equation which provides an allowed sending rate. Typically these rate-based solutions react slower to both packet losses and increases in available bandwidth making their sending rate smoother than that of window-based solutions. This report contains a survey of rate control mechanisms and a discussion of their relative strengths and weaknesses. A section is dedicated to a discussion on the enhancements in wireless environments. Another topic in the report is bandwidth estimation. Bandwidth estimation is divided into capacity estimation and available bandwidth estimation. We describe techniques that enable the calculation of a fair sending rate that can be used to create novel rate control mechanisms.

Monetary policy rules and estimated reaction functions for the European Central Bank

This thesis studies the interest-rate policy of the ECB by estimating monetary policy rules using real-time data and central bank forecasts. The aim of the estimations is to try to characterize a decade of common monetary policy and to look at how different models perform at this task.The estimated rules include: contemporary Taylor rules, forward-looking Taylor rules, nonlinearrules and forecast-based rules. The nonlinear models allow for the possibility of zone-like preferences and an asymmetric response to key variables. The models therefore encompass the most popular sub-group of simple models used for policy analysis as well as the more unusual non-linear approach. In addition to the empirical work, this thesis also contains a more general discussion of monetary policy rules mostly from a New Keynesian perspective. This discussion includes an overview of some notable related studies, optimal policy, policy gradualism and several other related subjects. The regression estimations are performed with either least squares or the generalized method of moments depending on the requirements of the estimations. The estimations use data from both the Euro Area Real-Time Database and the central bank forecasts published in ECB Monthly Bulletins. These data sources represent some of the best data that is available for this kind of analysis. The main results of this thesis are that forward-looking behavior appears highly prevalent, but that standard forward-looking Taylor rules offer only ambivalent results with regard to inflation. Nonlinear models are shown to work, but on the other hand do not have a strong rationale over a simpler linear formulation. However, the forecasts appear to be highly useful in characterizing policy and may offer the most accurate depiction of a predominantly forward-looking central bank. In particular the inflation response appears much stronger while the output response becomes highly forward-looking as well.