Business cycle asymmetries: characterisation and testing based on Markov-switching autoregressions

Tests for business cycle asymmetries are developed for Markov-switching autoregressive models. The tests of deepness, steepness, and sharpness are Wald statistics, which have standard asymptotics. For the standard two-regime model of expansions and contractions, deepness is shown to imply sharpness (and vice versa), whereas the process is always nonsteep. Two and three-state models of U.S. GNP growth are used to illustrate the approach, along with models of U.S. investment and consumption growth. The robustness of the tests to model misspecification, and the effects of regime-dependent heteroscedasticity, are investigated.

Evaluating interval forecasts of high-frequency financial data

A number of methods of evaluating the validity of interval forecasts of financial data are analysed, and illustrated using intraday FTSE100 index futures returns. Some existing interval forecast evaluation techniques, such as the Markov chain approach of Christoffersen (1998), are shown to be inappropriate in the presence of periodic heteroscedasticity. Instead, we consider a regression-based test, and a modified version of Christoffersen's Markov chain test for independence, and analyse their properties when the financial time series exhibit periodic volatility. These approaches lead to different conclusions when interval forecasts of FTSE100 index futures returns generated by various GARCH(1,1) and periodic GARCH(1,1) models are evaluated.

Forecast uncertainty—ex Ante and ex Post: U.S. inflation and output growth

Survey respondents who make point predictions and histogram forecasts of macro-variables reveal both how uncertain they believe the future to be, ex ante, as well as their ex post performance. Macroeconomic forecasters tend to be overconfident at horizons of a year or more, but overestimate (i.e., are underconfident regarding) the uncertainty surrounding their predictions at short horizons. Ex ante uncertainty remains at a high level compared to the ex post measure as the forecast horizon shortens. There is little evidence of a link between individuals’ ex post forecast accuracy and their ex ante subjective assessments.

Do real balance effects invalidate the Taylor principle in closed and open economies?

This paper examines the determinacy implications of forecast-based monetary policy rules that set the interest rate in response to expected future inflation in a Neo-Wicksellian model that incorporates real balance effects. We show that the presence of such effects in closed economies restricts the ability of the Taylor principle to prevent indeterminacy of the rational expectations equilibrium. The problem is exacerbated in open economies, particularly if the policy rule reacts to consumer-price, rather than domestic-price, inflation. However, determinacy can be restored in both closed and open economies with the addition of monetary policy inertia.

Comparative Cluster/Double Star observations of the high and low latitude dayside magnetopause

The launch of the Double Star mission has provided the opportunity to monitor events at distinct locations on the dayside magnetopause, in coordination with the quartet of Cluster spacecraft. We present results of two such coordinated studies. In the first, 6 April 2004, both Cluster and the Double Star TC-1 spacecraft were on outbound transits through the dawn-side magnetosphere. Cluster observed northward moving FTEs with +/- polarity, whereas TC-1 saw -/+ polarity FTEs. The strength, motion and occurrence of the FTE signatures changes somewhat according to changes in IMF clock angle. These observations are consistent with ongoing reconnection on the dayside magnetopause, resulting in a series of flux transfer events (FTEs) seen both at Cluster and TC-1. The observed polarity and motion of each FTE signature advocates the existence of an active reconnection region consistently located between the positions of Cluster and TC-1, lying north and south of the reconnection line, respectively. This scenario is supported by the application of a model, designed to track flux tube motion, to conditions appropriate for the prevailing interplanetary conditions. The results from the model confirm the observational evidence that the low-latitude FTE dynamics is sensitive to changes in convected upstream conditions. In particular, changing the interplanetary magnetic field (IMF) clock angle in the model predicts that TC-1 should miss the resulting FTEs more often than Cluster, as is observed. For the second conjunction, on the 4 Jan 2005, the Cluster and TC-1 spacecraft all exited the dusk-side magnetosphere almost simultaneously, with TC-1 lying almost equatorial and Cluster at northern latitudes at about 4 RE from TC-1. The spacecraft traverse the magnetopause during a strong reversal in the IMF from northward to southward and a number of magnetosheath FTE signatures are subsequently observed. One coordinated FTE, studied in detail by Pu et al, [this issue], carries and inflowing energetic electron population and shows a motion and orientation which is similar at all spacecraft and consistent with the predictions of the model for the flux tube dynamics, given a near sub-solar reconnection line. This event can be interpreted either as the passage of two parallel flux tubes arising from adjacent x-line positions, or as a crossing of a single flux tube at different positions.

Energetic electron signatures in an active magnetotail plasma sheet

Particles with energies of tens to hundreds of keV provide a powerful diagnostic of the acceleration processes that characterise the Earth’s magnetosphere, in particular the highly dynamic nightside plasma sheet. Such energetic particles can be detected by the RAPID experiment, onboard the quartet of Cluster spacecraft. We present results from the study of a series of quasi-periodic, intense energetic electron signatures in the magnetotail revealed by RAPID Imaging Electron Spectrometer (IES) observations some 19 Earth radii (RE) downtail, associated with the passage of a highly geoeffective, high-speed solar wind stream. The RAPID-IES signatures – interpreted in combination with magnetic field and lower-energy electron measurements from the FGM and PEACE experiments on Cluster, respectively, and with reference to energetic electron observations from the CEPPAD-IES instrument on Polar – are understood in terms of repeated encounters of the Cluster spacecraft with the tail plasma sheet in response to the resultant tail reconfiguration in each of a series of substorms. We consider the Cluster response for two of these substorms (identified according to the conventional expansion phase onset indicators of particle injection at geosynchronous orbit and Pi2 pulsations at Earth) in terms of two possible tail configurations in which a Near-Earth Neutral Line forms either antisunward or sunward of the Cluster spacecraft. The latter scenario, in which the reconnection X-line is assumed to form sunward of Cluster and subsequently migrate downtail such that the spacecraft become engulfed in a tailward expanding plasma sheet, is shown to be more consistent with the observations.

Coordinated Cluster/Double Star observations of dayside reconnection signatures

The recent launch of the equatorial spacecraft of the Double Star mission, TC-1, has provided an unprecedented opportunity to monitor the southern hemisphere dayside magnetopause boundary layer in conjunction with northern hemisphere observations by the quartet of Cluster spacecraft. We present first results of one such situation where, on 6 April 2004, both Cluster and the Double Star TC-1 spacecraft were on outbound transits through the dawnside magnetosphere. The observations are consistent with ongoing reconnection on the dayside magnetopause, resulting in a series of flux transfer events (FTEs) seen both at Cluster and TC-1, which appear to lie north and south of the reconnection line, respectively. In fact, the observed polarity and motion of each FTE signature advocates the existence of an active reconnection region consistently located between the positions of Cluster and TC-1, with Cluster observing northward moving FTEs with +/− polarity, whereas TC-1 sees −/+ polarity FTEs. This assertion is further supported by the application of a model designed to track flux tube motion for the prevailing interplanetary conditions. The results from this model show, in addition, that the low-latitude FTE dynamics are sensitive to changes in convected upstream conditions. In particular, changing the interplanetary magnetic field (IMF) clock angle in the model suggests that TC-1 should miss the resulting FTEs more often than Cluster and this is borne out by the observations.

Coordinated ground-based, low altitude satellite and Cluster observations on global and local scales during a transient post-noon sector excursion of the magnetospheric cusp

On 14 January 2001, the four Cluster spacecraft passed through the northern magnetospheric mantle in close conjunction to the EISCAT Svalbard Radar (ESR) and approached the post-noon dayside magnetopause over Greenland between 13:00 and 14:00 UT During that interval, a sudden reorganisation of the high-latitude dayside convection pattern accurred after 13:20 UT most likely caused by a direction change of the Solar wind magnetic field. The result was an eastward and poleward directed flow-channel, as monitored by the SuperDARN radar network and also by arrays of ground-based magnetometers in Canada, Greenland and Scandinavia. After an initial eastward and later poleward expansion of the flow-channel between 13:20 and 13:40 UT, the four Cluster spacecraft, and the field line footprints covered by the eastward looking scan cycle of the Sondre Stromfjord incoherent scatter radar were engulfed by cusp-like precipitation with transient magnetic and electric field signatures. In addition, the EISCAT Svalbard Radar detected strong transient effects of the convection reorganisation, a poleward moving precipitation, and a fast ion flow-channel in association with the auroral structures that suddenly formed to the west and north of the radar. From a detailed analysis of the coordinated Cluster and ground-based data, it was found that this extraordinary transient convection pattern, indeed, had moved the cusp precipitation from its former pre-noon position into the late post-noon sector, allowing for the first and quite unexpected encounter of the cusp by the Cluster spacecraft. Our findings illustrate the large amplitude of cusp dynamics even in response to moderate solar wind forcing. The global ground-based data proves to be an invaluable tool to monitor the dynamics and width of the affected magnetospheric regions.

Coordinated Cluster, ground-based instrumentation and low-altitude satellite observations of transient poleward-moving events in the ionosphere and in the tail lobe

During the interval between 8:00-9:30 on 14 January 2001, the four Cluster spacecraft were moving from the central magnetospheric lobe, through the dusk sector mantle, on their way towards intersecting the magnetopause near 15:00 MLT and 15:00 UT. Throughout this interval, the EIS-CAT Svalbard Radar (ESR) at Longyearbyen observed a series of poleward-moving transient events of enhanced F-region plasma concentration ("polar cap patches"), with a repetition period of the order of 10 min. Allowing for the estimated solar wind propagation delay of 75 ( 5) min, the interplanetary magnetic field (IMF) had a southward component during most of the interval. The magnetic footprint of the Cluster spacecraft, mapped to the ionosphere using the Tsyganenko T96 model (with input conditions prevailing during this event), was to the east of the ESR beams. Around 09:05 UT, the DMSP-F12 satellite flew over the ESR and showed a sawtooth cusp ion dispersion signature that also extended into the electrons on the equatorward edge of the cusp, revealing a pulsed magnetopause reconnection. The consequent enhanced ionospheric flow events were imaged by the SuperDARN HF backscatter radars. The average convection patterns (derived using the AMIE technique on data from the magnetometers, the EISCAT and SuperDARN radars, and the DMSP satellites) show that the associated poleward-moving events also convected over the predicted footprint of the Cluster spacecraft. Cluster observed enhancements in the fluxes of both electrons and ions. These events were found to be essentially identical at all four spacecraft, indicating that they had a much larger spatial scale than the satellite separation of the order of 600 km. Some of the events show a correspondence between the lowest energy magnetosheath electrons detected by the PEACE instrument on Cluster (10-20 eV) and the topside ionospheric enhancements seen by the ESR (at 400-700 km). We suggest that a potential barrier at the magnetopause, which prevents the lowest energy electrons from entering the magnetosphere, is reduced when and where the boundary-normal magnetic field is enhanced and that the observed polar cap patches are produced by the consequent enhanced precipitation of the lowest energy electrons, making them and the low energy electron precipitation fossil remnants of the magnetopause reconnection rate pulses.

Assessing macro uncertainty in real-time when data are subject to revision

Model-based estimates of future uncertainty are generally based on the in-sample fit of the model, as when Box-Jenkins prediction intervals are calculated. However, this approach will generate biased uncertainty estimates in real time when there are data revisions. A simple remedy is suggested, and used to generate more accurate prediction intervals for 25 macroeconomic variables, in line with the theory. A simulation study based on an empirically-estimated model of data revisions for US output growth is used to investigate small-sample properties.

Predicting early data revisions to US GDP and the effects of releases on equity markets

The effects of data uncertainty on real-time decision-making can be reduced by predicting early revisions to US GDP growth. We show that survey forecasts efficiently anticipate the first-revised estimate of GDP, but that forecasting models incorporating monthly economic indicators and daily equity returns provide superior forecasts of the second-revised estimate. We consider the implications of these findings for analyses of the impact of surprises in GDP revision announcements on equity markets, and for analyses of the impact of anticipated future revisions on announcement-day returns.

Uniform factorial decay estimate for the remainder of rough Taylor expansion

We establish an uniform factorial decay estimate for the Taylor approximation of solutions to controlled differential equations. Its proof requires a factorial decay estimate for controlled paths which is interesting in its own right.