Zero-non-zero patterned vector error correction modeling for I(2) cointegrated time series with applications in testing PPP and stock market relationships

Vector error-correction models (VECMs) have become increasingly important in their application to financial markets. Standard full-order VECM models assume non-zero entries in all their coefficient matrices. However, applications of VECM models to financial market data have revealed that zero entries are often a necessary part of efficient modelling. In such cases, the use of full-order VECM models may lead to incorrect inferences. Specifically, if indirect causality or Granger non-causality exists among the variables, the use of over-parameterised full-order VECM models may weaken the power of statistical inference. In this paper, it is argued that the zero–non-zero (ZNZ) patterned VECM is a more straightforward and effective means of testing for both indirect causality and Granger non-causality. For a ZNZ patterned VECM framework for time series of integrated order two, we provide a new algorithm to select cointegrating and loading vectors that can contain zero entries. Two case studies are used to demonstrate the usefulness of the algorithm in tests of purchasing power parity and a three-variable system involving the stock market.

Linking riparian vegetation spatial structure in Australian tropical savannas to ecosystem health indicators: semi-variogram analysis of high spatial resolution satellite imagery

Government agencies responsible for riparian environments are assessing the combined utility of field survey and remote sensing for mapping and monitoring indicators of riparian zone health. The objective of this work was to determine if the structural attributes of savanna riparian zones in northern Australia can be detected from commercially available remotely sensed image data. Two QuickBird images and coincident field data covering sections of the Daly River and the South Alligator River - Barramundie Creek in the Northern Territory were used. Semi-variograms were calculated to determine the characteristic spatial scales of riparian zone features, both vegetative and landform. Interpretation of semi-variograms showed that structural dimensions of riparian environments could be detected and estimated from the QuickBird image data. The results also show that selecting the correct spatial resolution and spectral bands is essential to maximize the accuracy of mapping spatial characteristics of savanna riparian features. The distribution of foliage projective cover of riparian vegetation affected spectral reflectance variations in individual spectral bands differently. Pan-sharpened image data enabled small-scale information extraction (< 6 m) on riparian zone structural parameters. The semi-variogram analysis results provide the basis for an inversion approach using high spatial resolution satellite image data to map indicators of savanna riparian zone health.