Linear vs. log-linear unit-root specification: an application of mis-specification encompassing

The objective of this paper is to apply the mis-specification (M-S) encompassing perspective to the problem of choosing between linear and log-linear unit-root models. A simple M-S encompassing test, based on an auxiliary regression stemming from the conditional second moment, is proposed and its empirical size and power are investigated using Monte Carlo simulations. It is shown that by focusing on the conditional process the sampling distributions of the relevant statistics are well behaved under both the null and alternative hypotheses. The proposed M-S encompassing test is illustrated using US total disposable income quarterly data.

Linkage disequilibrium assessment via log-linear modeling of SNP haplotype frequencies

Analyses of high-density single-nucleotide polymorphism (SNP) data, such as genetic mapping and linkage disequilibrium (LD) studies, require phase-known haplotypes to allow for the correlation between tightly linked loci. However, current SNP genotyping technology cannot determine phase, which must be inferred statistically. In this paper, we present a new Bayesian Markov chain Monte Carlo (MCMC) algorithm for population haplotype frequency estimation, particulary in the context of LD assessment. The novel feature of the method is the incorporation of a log-linear prior model for population haplotype frequencies. We present simulations to suggest that 1) the log-linear prior model is more appropriate than the standard coalescent process in the presence of recombination (>0.02cM between adjacent loci), and 2) there is substantial inflation in measures of LD obtained by a "two-stage" approach to the analysis by treating the "best" haplotype configuration as correct, without regard to uncertainty in the recombination process. Genet Epidemiol 25:106-114, 2003. (C) 2003 Wiley-Liss, Inc.

Optimal linearization trajectories for tangent linear models

We examine differential equations where nonlinearity is a result of the advection part of the total derivative or the use of quadratic algebraic constraints between state variables (such as the ideal gas law). We show that these types of nonlinearity can be accounted for in the tangent linear model by a suitable choice of the linearization trajectory. Using this optimal linearization trajectory, we show that the tangent linear model can be used to reproduce the exact nonlinear error growth of perturbations for more than 200 days in a quasi-geostrophic model and more than (the equivalent of) 150 days in the Lorenz 96 model. We introduce an iterative method, purely based on tangent linear integrations, that converges to this optimal linearization trajectory. The main conclusion from this article is that this iterative method can be used to account for nonlinearity in estimation problems without using the nonlinear model. We demonstrate this by performing forecast sensitivity experiments in the Lorenz 96 model and show that we are able to estimate analysis increments that improve the two-day forecast using only four backward integrations with the tangent linear model. Copyright © 2011 Royal Meteorological Society

Conditional mean functions of non-linear models of US output

We compare a number of models of post War US output growth in terms of the degree and pattern of non-linearity they impart to the conditional mean, where we condition on either the previous period's growth rate, or the previous two periods' growth rates. The conditional means are estimated non-parametrically using a nearest-neighbour technique on data simulated from the models. In this way, we condense the complex, dynamic, responses that may be present in to graphical displays of the implied conditional mean.

Forecasting economic and financial time series with non-linear models

In this paper we discuss the current state-of-the-art in estimating, evaluating, and selecting among non-linear forecasting models for economic and financial time series. We review theoretical and empirical issues, including predictive density, interval and point evaluation and model selection, loss functions, data-mining, and aggregation. In addition, we argue that although the evidence in favor of constructing forecasts using non-linear models is rather sparse, there is reason to be optimistic. However, much remains to be done. Finally, we outline a variety of topics for future research, and discuss a number of areas which have received considerable attention in the recent literature, but where many questions remain.

Forecasting US output growth with non-linear models in the presence of data uncertainty

We consider the impact of data revisions on the forecast performance of a SETAR regime-switching model of U.S. output growth. The impact of data uncertainty in real-time forecasting will affect a model's forecast performance via the effect on the model parameter estimates as well as via the forecast being conditioned on data measured with error. We find that benchmark revisions do affect the performance of the non-linear model of the growth rate, and that the performance relative to a linear comparator deteriorates in real-time compared to a pseudo out-of-sample forecasting exercise.

Alternatives to linear analysis of energy balance data from lactating dairy cows

The current energy requirements system used in the United Kingdom for lactating dairy cows utilizes key parameters such as metabolizable energy intake (MEI) at maintenance (MEm), the efficiency of utilization of MEI for 1) maintenance, 2) milk production (k(l)), 3) growth (k(g)), and the efficiency of utilization of body stores for milk production (k(t)). Traditionally, these have been determined using linear regression methods to analyze energy balance data from calorimetry experiments. Many studies have highlighted a number of concerns over current energy feeding systems particularly in relation to these key parameters, and the linear models used for analyzing. Therefore, a database containing 652 dairy cow observations was assembled from calorimetry studies in the United Kingdom. Five functions for analyzing energy balance data were considered: straight line, two diminishing returns functions, (the Mitscherlich and the rectangular hyperbola), and two sigmoidal functions (the logistic and the Gompertz). Meta-analysis of the data was conducted to estimate k(g) and k(t). Values of 0.83 to 0.86 and 0.66 to 0.69 were obtained for k(g) and k(t) using all the functions (with standard errors of 0.028 and 0.027), respectively, which were considerably different from previous reports of 0.60 to 0.75 for k(g) and 0.82 to 0.84 for k(t). Using the estimated values of k(g) and k(t), the data were corrected to allow for body tissue changes. Based on the definition of k(l) as the derivative of the ratio of milk energy derived from MEI to MEI directed towards milk production, MEm and k(l) were determined. Meta-analysis of the pooled data showed that the average k(l) ranged from 0.50 to 0.58 and MEm ranged between 0.34 and 0.64 MJ/kg of BW0.75 per day. Although the constrained Mitscherlich fitted the data as good as the straight line, more observations at high energy intakes (above 2.4 MJ/kg of BW0.75 per day) are required to determine conclusively whether milk energy is related to MEI linearly or not.

Describing long-term trends in precipitation using generalized additive models

With the current concern over climate change, descriptions of how rainfall patterns are changing over time can be useful. Observations of daily rainfall data over the last few decades provide information on these trends. Generalized linear models are typically used to model patterns in the occurrence and intensity of rainfall. These models describe rainfall patterns for an average year but are more limited when describing long-term trends, particularly when these are potentially non-linear. Generalized additive models (GAMS) provide a framework for modelling non-linear relationships by fitting smooth functions to the data. This paper describes how GAMS can extend the flexibility of models to describe seasonal patterns and long-term trends in the occurrence and intensity of daily rainfall using data from Mauritius from 1962 to 2001. Smoothed estimates from the models provide useful graphical descriptions of changing rainfall patterns over the last 40 years at this location. GAMS are particularly helpful when exploring non-linear relationships in the data. Care is needed to ensure the choice of smooth functions is appropriate for the data and modelling objectives. (c) 2008 Elsevier B.V. All rights reserved.

Neural and wavelet network models for financial distress classification

This work analyzes the use of linear discriminant models, multi-layer perceptron neural networks and wavelet networks for corporate financial distress prediction. Although simple and easy to interpret, linear models require statistical assumptions that may be unrealistic. Neural networks are able to discriminate patterns that are not linearly separable, but the large number of parameters involved in a neural model often causes generalization problems. Wavelet networks are classification models that implement nonlinear discriminant surfaces as the superposition of dilated and translated versions of a single "mother wavelet" function. In this paper, an algorithm is proposed to select dilation and translation parameters that yield a wavelet network classifier with good parsimony characteristics. The models are compared in a case study involving failed and continuing British firms in the period 1997-2000. Problems associated with over-parameterized neural networks are illustrated and the Optimal Brain Damage pruning technique is employed to obtain a parsimonious neural model. The results, supported by a re-sampling study, show that both neural and wavelet networks may be a valid alternative to classical linear discriminant models.