Real interest rates, inflation and the open economy : a regime-switching perspective on Australia and New Zealand

We investigate the time-series properties of Australian and New Zealand real interest rates within a Markov-switching framework. This enables us to identify characteristics in real interest rate behavior hitherto unacknowledged. We find that rates switch between alternative stationary regimes characterized by differing means, speeds of mean-reversion and volatility. For New Zealand, high rates of inflation increase the probability of remaining in a regime characterized by a faster speed of adjustment. Further application of this methodology considers the real interest rate differential between Australia and New Zealand and points to differing regimes based on volatility rather than persistence.

The dynamic relationship between real exchange rates, real interest rates and foreign exchange reserves : empirical evidence from China

This article examines the long-run and short-run relationship between China's real exchange rate, foreign exchange reserves and the real interest rate differential between China and the United States using monthly data from 1980 to 2002. Extensive testing for unit roots allowing for up to two structural breaks in the trend indicates that the variables are not integrated of the same order. Thus, the bounds testing approach to cointegration is used, which finds that there is a single long-run relationship between the three variables. In the long run the real exchange rate has a statistically significant positive effect on foreign exchange reserves. The coefficient on the real interest rate differential is also positive, but is statistically insignificant. In the short-run it is found that the relationship between the real exchange rate, real interest rate differential and foreign exchange reserves is non-monotonic.

The relationship between exchange rates, interest rates and Australian bank returns

Although there has been significant research on US financial intermediaries' stock returns and sensitivity to interest yields, there has only been limited research on Australian bank stock returns and key macro variables, such as interest rates and exchange rates. The aim of this article is to examine this relationship for four major Australian banks, namely the Australia New Zealand bank (ANZ), the Commonwealth Bank of Australia (CBA), the National Australia Bank (NAB) and the Westpac Banking Corporation (WBC). We use the EGARCH model and examine the relationship using monthly data covering the period 1992 to 2007. The results suggest that for all four banks: (1) there is a similar and statistically significant negative relationship between interest rates and stock returns; and (2) there is evidence of an increase in returns during the period of appreciation of the Australian dollar.

Deep bed filtration : mathematical models and observations

Numerous mathematical models have been developed to evaluate both initial and transient stage removal efficiency of deep bed filters. Microscopic models either using trajectory analysis or convective diffusion equations were used to compute the initial removal efficiency. These models predicted the removal efficiency under favorable filtration conditions quantitatively, but failed to predict the removal efficiency under unfavorable conditions. They underestimated the removal efficiency under unfavorable conditions. Thus, semi-empirical formulations were developed to compute initial removal efficiencies under unfavorable conditions. Also, correction for the adhesion of particles onto filter grains improved the results obtained for removal efficiency from the trajectory analysis. Macroscopic models were used to predict the transient stage removal efficiency of deep bed filters. The O’Melia and Ali1 model assumed that the particle removal is due to filter grains as well as the particles that are already deposited onto the filter grain. Thus, semi-empirical models were used to predict the ripening of filtration. Several modifications were made to the model developed by O’Melia and Ali to predict the deterioration of particle removal during the transient stages of filtration. Models considering the removal of particles under favorable conditions and the accumulation of charges on the filter grains during the transient stages were also developed. This article evaluates those models and their applicability under different operating conditions of filtration.

High rate filtration using buoyant medium : experiments and mathematical models

In this study, the high rate filtration system using buoyant medium of polypropylene or polystyrene was introduced with the study on its performance evaluation via: (i) specific surface coverage, (ii) ultimate specific deposit, (iii) blocking effect and (iv) particle detachment. The filter system was arranged in the downflow mode with an in-line flocculation. Experimental results obtained were analyzed using filtration models. This study showed that: (i) the specific surface coverage increased with the increase in the velocity; (ii) the ultimate specific deposit changed slightly at different filtration velocities and different flocculants; (iii) the blocking effect was significant in the transient stage removal of flocs; and (iv) the detachment model parameter was found to decrease with the increase in the adhesive force, Fad that acts on the flocs (above-micron size).

Modelling solute transport in structured soils: performance evaluation of the ADR and TRM models

The movement of chemicals through the soil to the groundwater or discharged to surface waters represents a degradation of these resources. In many cases, serious human and stock health implications are associated with this form of pollution. The chemicals of interest include nutrients, pesticides, salts, and industrial wastes. Recent studies have shown that current models and methods do not adequately describe the leaching of nutrients through soil, often underestimating the risk of groundwater contamination by surface-applied chemicals and overestimating the concentration of resident solutes. This inaccuracy results primarily from ignoring soil structure and nonequilibrium between soil constituents, water, and solutes. A multiple sample percolation system (MSPS), consisting of 25 individual collection wells, was constructed to study the effects of localized soil heterogeneities on the transport of nutrients (NO−3, Cl−, PO3−4) in the vadose zone of an agricultural soil predominantly dominated by clay. Very significant variations in drainage patterns across a small spatial scale were observed (one-way ANOVA, p < 0.001 indicating considerable heterogeneity in water flow patterns and nutrient leaching. Using data collected from the multiple sample percolation experiments, this paper compares the performance of two mathematical models for predicting solute transport, the advective-dispersion model with a reaction term (ADR), and a two-region preferential flow model (TRM) suitable for modelling nonequilibrium transport. These results have implications for modelling solute transport and predicting nutrient loading on a larger scale.

Credit risk of interest rate swaps : a comparative study of CIR and Monte Carlo simulation approach

This paper compares the credit risk profile for two types of model, the Monte Carlo model used in the existing literature, and the Cox, Ingersoll and Ross (CIR) model. Each of the profiles has a concave or hump-backed shape, reflecting the amortisation and diffusion effects. However, the CIR model generates significantly different results. In addition, we consider the sensitivity of these models of credit risk to initial interest rates, volatility, maturity, kappa and delta. The results show that the sensitivities vary across the models, and we explore the meaning of that variation.

Building awareness of mathematical modelling at teacher education: a case study in Indonesia

A growing interest to teach mathematics closely connected to its use in daily life has taken place in Indonesia for over a decade (Sembiring, Hadi, and Dolk 2008). This chapter  reports an exploratory case study of  the building of an awareness of mathematical modelling in teacher education in Indonesia. A modelling task, re-designing a parking lot (Ang 2009), was assigned to groups of pre-service secondary mathematics teachers. All groups undertook the stages of collecting data on a parking lot, identifying limitations in the current design of the parking lot, and proposing a new design based on their observations and analyses. The nature of the mathematical models elicited by pre-service teachers during various stages of completing the modelling task will be examined. Implications of this study suggest the need to encourage pre-service teachers to state the assumptions and real-world considerations and link them to the mathematical model in order to validate their models.

Panel cointegration tests of the Fisher effect

Most empirical evidence suggests that the Fisher effect, stating that inflation and nominal interest rates should cointegrate with a unit slope on inflation, does not hold, a finding at odds with many theoretical models. This paper argues that these results can be attributed in part to the low power of univariate tests, and that the use of panel data can generate more powerful tests. For this purpose, we propose two new panel cointegration tests that can be applied under very general conditions, and that are shown by simulation to be more powerful than other existing tests. These tests are applied to a panel of quarterly data covering 20 OECD countries between 1980 and 2004. The evidence suggest that the Fisher effect cannot be rejected once the panel evidence on cointegration has been taken into account. Copyright © 2008 John Wiley & Sons, Ltd.

Determination of long-run and short-run dynamics in EC-VARMA models via canonical correlations

This article studies a simple, coherent approach for identifying and estimating error-correcting vector autoregressive moving average (EC-VARMA) models. Canonical correlation analysis is implemented for both determining the cointegrating rank, using a strongly consistent method, and identifying the short-run VARMA dynamics, using the scalar component methodology. Finite-sample performance is evaluated via Monte Carlo simulations and the approach is applied to modelling and forecasting US interest rates. The results reveal that EC-VARMA models generate significantly more accurate out-of-sample forecasts than vector error correction models (VECMs), especially for short horizons.

Mathematical modelling of the crankshaft pin grinding process

Novel mathematical models to predict crankshaft pin grinding forces, out-of-roundness and thermal damage were developed as part of this thesis. The models were validated at a local automotive manufacturer's plant. The outcomes of this research have resulted in reduced scrap and warranty costs, improved manufacturing process quality and reduced lead times.

Dynamic interactions in models with Kaleckian lags

Provides a careful assessment of previous research on lags in economic models. Several interesting lines of research are opened up. Chief among them is the analysis of bubbles and their bursting in the financial components of economic models.