Multifractality and long-range dependence of asset returns: the scaling behavior of the Markov-switching multifractal model with lognormal volatility components

In this paper, we consider daily financial data from various sources (stock market indices, foreign exchange rates and bonds) and analyze their multiscaling properties by estimating the parameters of a Markov-switching multifractal (MSM) model with Lognormal volatility components. In order to see how well estimated models capture the temporal dependency of the empirical data, we estimate and compare (generalized) Hurst exponents for both empirical data and simulated MSM models. In general, the Lognormal MSM models generate "apparent" long memory in good agreement with empirical scaling provided that one uses sufficiently many volatility components. In comparison with a Binomial MSM specification [11], results are almost identical. This suggests that a parsimonious discrete specification is flexible enough and the gain from adopting the continuous Lognormal distribution is very limited.

True and apparent scaling : the proximity of the Markov-switching multifractal model to long-range dependence

In this paper, we consider daily financial data of a collection of different stock market indices, exchange rates, and interest rates, and we analyze their multi-scaling properties by estimating a simple specification of the Markov-switching multifractal (MSM) model. In order to see how well the estimated model captures the temporal dependence of the data, we estimate and compare the scaling exponents H(q) (for q=1,2) for both empirical data and simulated data of the MSM model. In most cases the multifractal model appears to generate ‘apparent’ long memory in agreement with the empirical scaling laws.

The aid effectiveness literature : the sad results of 40 years of research

The aid effectiveness literature (AEL) consists of empirical macroeconomic estimates of the effects of development aid. By the end of 2004, it comprised 97 econometric studies of three families of related effects. Each family has been analyzed in a separate meta-analysis. The AEL is an ideal subject for meta-analysis as it uses only a few formally similar models to estimate the same underlying effects. It is also an area with strong beliefs, often generated by altruism. When this whole literature is examined, a clear pattern emerges. After 40 years of development aid, the preponderance of the evidence indicates that aid has not been effective. We show that the distribution of results is significantly asymmetric reflecting the reluctance of the research community to publish negative results. The Dutch disease effect on exchange rates provides a plausible explanation for the observed aid ineffectiveness.

The J-curve : evidence from Fiji

This article provides new evidence on both long run and short-run determinants of trade balance for Fiji and investigates evidence of J-curve adjustment behaviour in the aftermath of a devaluation. We adopt a partial reduced form model that models the real trade balance directly as a function of the real exchange rate and real domestic and foreign incomes. Cointegration analysis is based on a recently developed autoregressive distributed lag approach—shown to provide robust results in finite samples. The long run elasticities are also estimated using a dynamic ordinary least squares approach and the Fully Modified Ordinary Least Squares (FM-OLS) approach. Amongst our key results we find that there is a long-run relationship between trade balance and its determinants. There is evidence of the J-curve pattern; growth in domestic income affects Fiji's trade balance adversely while foreign income improves it.

Determinants of intra-ASEAN exports and imports

Analyses the factors which explain the behaviour of intro-ASEAN exports and imports including the real exchange rate, real income, the industrial production capacity, and other factors; namely foreign direct investment and industrialisation policies, regionalism and emerging new markets.

Evidence on PPP for selected Asian countries from a panel cointegration test with structural breaks

The goal of this article is to examine evidence for purchasing power parity (PPP) for a panel of Asian countries, namely Malaysia, Thailand, India, Pakistan, Sri Lanka and the Philippines. Our main contribution is that for the first time in this literature we use a panel cointegration test, developed by Westerlund (2006), which allows us to incorporate multiple structural breaks. We find that using Gregory and Hansen's (1996) residual-based test for cointegration and Pedroni's (1999) panel cointegration test without structural breaks provide weak evidence of cointegration between nominal exchange rates vis-à-vis the US dollar and relative prices. However, when we use the Lagrange multiplier panel structural break cointegration test we find strong evidence of panel cointegration, providing evidence for PPP.

Post Asian financial crisis : a survey of Thai hedging practices

This thesis examines how companies in Thailand coped with exchange rate volatility post Asian Financial Crisis. Findings indicate businesses quickly adjusted to the transition from a fixed to floating regime. However, Thai businesses appear to be less rigorous in their internal control of currency hedging activities. The thesis recommends strategies to overcome this risk.

Afghanistan? Somewhere west of India isn't it?

For more than 10 years the senior co-author has been regularly testing tertiary journalism students on their "News Geography" - the ability to accurately locate on a world map 10 countries that had been in the news at the time, or with which Australia has or has had a bond. His co-author joined him in 1997 to compare results from two universities, Charles Sturt and Western Sydney. They joined forces again in 2002 to compare the geographic knowledge of first-year journalism students at Queensland University of Technology with that of senior students at the University of Queensland. The most surprising result was that despite "The War on Terror", and Australia's involvement, relatively few could accurately locate Afghanistan. For several years the senior co-author has also tested first-year journalism students' knowledge of a series of figures and statistics that give a barometer of the Australian and world economies. The latest monetary exchange rates, gold and oil prices and national and state unemployment rates are used to test students' knowledge of the various statistics journalists regularly rely on as indicators of economic movements. The authors also combined in 2002 to test students at QUT and UQ on this knowledge.

Does a currency union provide the answer?

Reviews the history of NZ's foreign exchange policy, explains how floating exchange rates work and considers the performance of the NZ dollar over the last 15 years. Discusses the effects of a volatile currency on exporters, particularly of agricultural products, and whether currency union with Australia is a suitable solution to the problem.

Inflation dynamics and New Keynesian Phillips Curve in Australia

The New Keynesian Phillips Curve (NKPC) is a standard model in the analysis of inflation dynamics. For the Australian economy, this study establishes the empirical evidence that the NKPC can explain the process of inflation dynamics and the price-setting mechanism. The trade shocks, such as the real exchange rate and the terms of trade, play an important role in inflation dynamics.

Has international borrowing or lending driven Australia's net capital inflow?

Over the recent decades the most significant global imbalances have been between Asia-Pacific economies, with most attention directed to the imbalances of the largest economies, China, Japan and the United States. In contrast, this paper examines how external account imbalances and real long term interest rates are determined in smaller open economies. It first derives the proposition that external imbalances and long term interest rates move together whenever saving-investment shocks are predominantly domestically sourced, but move oppositely when saving-investment shocks mainly emanate abroad. It then shows that in the case of Australia, an Asia-Pacific economy that has borrowed heavily from abroad since the mid 1980's, rising net capital inflow has had a statistically significant negative impact on domestic real interest rates. This suggests that over that time net international lending rather than net foreign borrowing was mainly responsible for the variation in its external imbalance and real interest rates.

Credit cycle dependent spread determinants in emerging sovereign debt markets

We address credit cycle dependent sovereign credit risk determinants. In our model, the spread determinants' magnitude is conditional on an unobservable endogenous sovereign credit cycle as represented by the underlying state of a Markov regime switching process. Our explanatory variables are motivated in the tradition of structural credit risk models and include changes in asset prices, interest rates, implied market volatility, gold price changes and foreign exchange rates. We examine daily frequency variations of U.S. dollar denominated Eurobond credit spreads of four major Latin American sovereign bond issuers (Brazil, Colombia, Mexico and Venezuela) with liquid bond markets during March 2000 to June 2011. We find that spread determinants are statistically significant and consistent with theory, while their magnitude remarkably varies with the state of the credit cycle. Crisis states are characterized by high spread change uncertainty and high sensitivities with respect to the spread change determinants. We further document that not only changes of local currencies, but also changes of the Euro with respect to the U.S. dollar are significant spread drivers and argue that this is consistent with the sovereigns' ability to pay.

Investigating and understanding CO2 levels in school classrooms

 It is a reported fact that a high CO2 concentration is a problem in school classrooms. However, the mere reporting of such results stops short of investigating causes; understanding is often missing. Steady-state results are often used in situations where changes occur frequently, such as varying student numbers, opening and closing classroom doors and windows and changing weather conditions. We revisit the mass balance model commonly used to predict or track CO2 concentrations in enclosed spaces as these factors change over time under varying conditions. This has prompted the study in several classrooms of actual air exchange rates, student exhalation rates, room volumes and ventilation design. In these cases, student numbers, room ventilation conditions (open and closed doors), room volume and the CO2 concentration have been recorded throughout the day. By fitting the model equation to the data, unknown parameters such as actual air change rates and CO2 exhalation rates per student can be determined. Having verified that the data can be modelled, we can predict behaviour in other cases such as a realistic rate of CO2 increase. This allows designers to size classrooms and ventilation systems to achieve a desired CO2 characteristic for known usages while saving energy.

The new Keynesian Phillips curve: an update on recent empirical advances

This paper presents a comprehensive review of the newly emerging literature on the New Keynesian Phillips Curve (NKPC). The theoretical predictions, econometric estimation techniques as well as the corresponding empirical evidence are discussed focusing on both the closed economy and the open economy versions of the NKPC. A number of important findings are reported about the ability of NKPC to explain the process of inflation dynamics. First, there is weak support for the open economy version of the NKPC to be able to track inflation dynamics if imported inputs are used in the production process. Second, the NKPC describes inflation dynamics across sectors if microeconomic and sectoral level data are used. Further, the survey data employed as a proxy for inflation measure in the newer studies provide enhanced support to the closed economy NKPC with the sign, size and statistical significance of coefficients in line with the theoretical predictions. We provide fresh empirical evidence to check the first finding from the review. The deep structural parameters for four different versions of the NKPC, the pure forward looking NKPC, the Gali and Monacelli's (2005) NKPC, the open economy NKPC and the open economy hybrid NKPC, are estimated for Australia, Canada, New Zealand and the United Kingdom. These estimated coefficients show some support that the specifications of open economy NKPC, which incorporate prices of imported goods as opposed to the terms of trade and real exchange rate, seems to be a better, however, weak indicator of the inflation dynamics. These findings may have important policy implications.