Forecasting annual inflation with seasonal monthly data: using levels versus logs of the underlying price index

This paper investigates whether using natural logarithms (logs) of price indices for forecasting inflation rates is preferable to employing the original series. Univariate forecasts for annual inflation rates for a number of European countries and the USA based on monthly seasonal consumer price indices are considered. Stochastic seasonality and deterministic seasonality models are used. In many cases, the forecasts based on the original variables result in substantially smaller root mean squared errors than models based on logs. In turn, if forecasts based on logs are superior, the gains are typically small. This outcome sheds doubt on the common practice in the academic literature to forecast inflation rates based on differences of logs.

Asymmetric output gap effects in Phillips Curve and mark-up pricing models: evidence for the US and the UK

A number of studies have found an asymmetric response of consumer price index inflation to the output gap in the US in simple Phillips curve models. We consider whether there are similar asymmetries in mark-up pricing models, that is, whether the mark-up over producers' costs also depends upon the sign of the (adjusted) output gap. The robustness of our findings to the price series is assessed, and also whether price-output responses in the UK are asymmetric.

Seasonality in Southeast Asian stock markets: some new evidence on day-of-the-week effects

This paper examines the evidence for a day-of-the-week effect in five Southeast Asian stock markets: South Korea, Malaysia, the Philippines, Taiwan and Thailand. Findings indicate significant seasonality for three of the five markets. Market risk, proxied by the return on the FTA World Price Index, is not sufficient to explain this calendar anomaly. Although an extension of the risk-return equation to incorporate interactive seasonal dummy variables can explain some significant day-of-the-week effects, market risk alone appears insufficient to characterize this phenomenon.

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.

The role of index trading in price formation in the grains and oilseeds markets

We use both Granger-causality and instrumental variables (IV) methods to examine the impact of index fund positions on price returns for the main US grains and oilseed futures markets. Our analysis supports earlier conclusions that Granger-causal impacts are generally not discernible. However, market microstructure theory suggests trading impacts should be instantaneous. IV-based tests for contemporaneous causality provide stronger evidence of price impact. We find even stronger evidence that changes in index positions can help predict future changes in aggregate commodity price indices. This result suggests that changes in index investment are in part driven by information which predicts commodity price changes over the coming months.

Consumption of welfare-friendly food products in Great Britain, Italy and Sweden, and how it may be influenced by consumer attitudes to, and behaviour towards, animal welfare attributes

The interest in animal welfare and welfare-friendly food products has been increasing in Europe over the last 10 years. The media, highlighting traditional farming methods and food scares such as those related to salmonella, bovine spongiform encephalopathy/variant Creutzfeldt-Jakob disease (BSE) and avian influenza, have brought the methods of animal farming to public attention. Concerns about farm animal welfare are reflected in the increase in the number of vegetarians and vegans and an increase in consumers wishing to purchase food which is more animal welfare-friendly. This paper considers consumers’ attitudes to animal welfare and to marketing practices, such as product labelling, welfare grading systems and food assurance marks using comparative data collected in a survey of around 1500 consumers in each of Great Britain, Italy and Sweden as part of the EU-funded Welfare Quality research project. The findings suggest a need for the provision of improved consumer information on the welfare provenance of food using appropriate product labelling and other methods.

Stochastic volatility jump-diffusions for European equity index dynamics

Major research on equity index dynamics has investigated only US indices (usually the S&P 500) and has provided contradictory results. In this paper a clarification and extension of that previous research is given. We find that European equity indices have quite different dynamics from the S&P 500. Each of the European indices considered may be satisfactorily modelled using either an affine model with price and volatility jumps or a GARCH volatility process without jumps. The S&P 500 dynamics are much more difficult to capture in a jump-diffusion framework.

Milk, dairy products and consumer health: a short review

There appears to be a large mis-match between (1) the advice given on milk/dairy foods by various authorities, (2) public perceptions of harm from the consumption of milk and dairy products and, (3) the evidence from long-term prospective cohort studies. These studies provide convincing evidence that increased consumption of milk can lead to reductions in the risk of vascular disease and possibly some cancers and provide an overall survival advantage. The volume of evidence available for milk products such as cheese and butter is however surprisingly limited and too small to come to any clear conclusions as to their effects on health.

Can we explain the dynamics of the UK FTSE 100 stock and stock index futures markets?

If stock and stock index futures markets are functioning properly price movements in these markets should best be described by a first order vector error correction model with the error correction term being the price differential between the two markets (the basis). Recent evidence suggests that there are more dynamics present than should be in effectively functioning markets. Using self-exciting threshold autoregressive (SETAR) models, this study analyses whether such dynamics can be related to different regimes within which the basis can fluctuate in a predictable manner without triggering arbitrage. These findings reveal that the basis shows strong evidence of autoregressive behaviour when its value is between the two thresholds but that the extra dynamics disappear once the basis moves above the upper threshold and their persistence is reduced, although not eradicated, once the basis moves below the lower threshold. This suggests that once nonlinearity associated with transactions costs is accounted for, stock and stock index futures markets function more effectively than is suggested by linear models of the pricing relationship.

The impact of price promotions on producer strategies in markets with large product heterogeneity

Although current research indicates that increasing the number of options has negative effects on the cognitive ability of consumers, little understanding has been given to the consequences on producers and their strategic behavior. This article tests whether a large portfolio of products is beneficial to producers by observing UK consumer response to price promotions. The article shows that discounts induce mainly segment switching (74% of the total impact), with a limited effect on stockpiling (26%) and no impact on purchase incidence. Consequently, consumers prefer to “follow the discount” rather than purchase multiple units of the same wine. This result seems to explain the current structure of the market, and suggests that discounts may conflict with segment loyalty, a situation that disfavors producers, particularly in very populated segments. Results also casts doubts on the economic sustainability of competition based on an intense product differentiation in the wine sector.

Green marketing in housing: reality or rhetoric?

All new homes in the UK will be required to be zero carbon from 2016. Housing sector bodies and individual housing developers are championing a transition from traditional marketing to green marketing approaches to raise consumer awareness of the benefits of low and zero carbon homes. On-site sales teams on housing developments form a central interface between the developer and potential buyers. These teams, then, have a critical role in the success or otherwise of the developers’ green marketing strategies. However, there is a dearth of empirical research that explores the actual attitudes and practices of these teams. An exploratory case study approach was adopted. The data collection consisted of reviewing relevant company documentation and semi-structure interviews with the on-site sales teams from six housing developments. The findings from two case studies suggest that the sales teams do have potential to forge a bridge between the design / production and consumption spheres in the way that consumers understand and appreciate, but further work is required. The sales teams’ practices were constrained by the incumbent, traditional marketing logic that rotates around issues such as location and selling price. The sales teams appeared to adopt a strategy of a restriction of information about the benefits of low and zero carbon homes to not disturb the prevailing logic. Further, the sales teams justify this insulating mechanism by the argument that consumers are not interested in those benefits. This rhetoric may be driving a real wedge between the design / production and consumption spheres to the detriment of the consumer and, in the longer term, the house builder itself.

The significance of occupancy steadiness in residential consumer response to Time of Use pricing: Evidence from a stochastic adjustment model

The recent roll-out of smart metering technologies in several developed countries has intensified research on the impacts of Time-of-Use (TOU) pricing on consumption. This paper analyses a TOU dataset from the Province of Trento in Northern Italy using a stochastic adjustment model. Findings highlight the non-steadiness of the relationship between consumption and TOU price. Weather and active occupancy can partly explain future consumption in relation to price.

A trading strategy based on the lead–lag relationship between the spot index and futures contract for the FTSE 100

This paper examines the lead–lag relationship between the FTSE 100 index and index futures price employing a number of time series models. Using 10-min observations from June 1996–1997, it is found that lagged changes in the futures price can help to predict changes in the spot price. The best forecasting model is of the error correction type, allowing for the theoretical difference between spot and futures prices according to the cost of carry relationship. This predictive ability is in turn utilised to derive a trading strategy which is tested under real-world conditions to search for systematic profitable trading opportunities. It is revealed that although the model forecasts produce significantly higher returns than a passive benchmark, the model was unable to outperform the benchmark after allowing for transaction costs.

Tests of non-linearity using LIFFE futures transactions price data

This paper presents and implements a number of tests for non-linear dependence and a test for chaos using transactions prices on three LIFFE futures contracts: the Short Sterling interest rate contract, the Long Gilt government bond contract, and the FTSE 100 stock index futures contract. While previous studies of high frequency futures market data use only those transactions which involve a price change, we use all of the transaction prices on these contracts whether they involve a price change or not. Our results indicate irrefutable evidence of non-linearity in two of the three contracts, although we find no evidence of a chaotic process in any of the series. We are also able to provide some indications of the effect of the duration of the trading day on the degree of non-linearity of the underlying contract. The trading day for the Long Gilt contract was extended in August 1994, and prior to this date there is no evidence of any structure in the return series. However, after the extension of the trading day we do find evidence of a non-linear return structure.