Forecasting multivariate time series under present-value-model short- and long-run co-movement restrictions

It is well known that cointegration between the level of two variables (e.g. prices and dividends) is a necessary condition to assess the empirical validity of a present-value model (PVM) linking them. The work on cointegration,namelyon long-run co-movements, has been so prevalent that it is often over-looked that another necessary condition for the PVM to hold is that the forecast error entailed by the model is orthogonal to the past. This amounts to investigate whether short-run co-movememts steming from common cyclical feature restrictions are also present in such a system. In this paper we test for the presence of such co-movement on long- and short-term interest rates and on price and dividend for the U.S. economy. We focuss on the potential improvement in forecasting accuracies when imposing those two types of restrictions coming from economic theory.

Forecasting Multivariate Time Series under Present-Value-Model Short- and Long-run Co-movement Restrictions

This paper has two original contributions. First, we show that the present value model (PVM hereafter), which has a wide application in macroeconomics and fi nance, entails common cyclical feature restrictions in the dynamics of the vector error-correction representation (Vahid and Engle, 1993); something that has been already investigated in that VECM context by Johansen and Swensen (1999, 2011) but has not been discussed before with this new emphasis. We also provide the present value reduced rank constraints to be tested within the log-linear model. Our second contribution relates to forecasting time series that are subject to those long and short-run reduced rank restrictions. The reason why appropriate common cyclical feature restrictions might improve forecasting is because it finds natural exclusion restrictions preventing the estimation of useless parameters, which would otherwise contribute to the increase of forecast variance with no expected reduction in bias. We applied the techniques discussed in this paper to data known to be subject to present value restrictions, i.e. the online series maintained and up-dated by Shiller. We focus on three different data sets. The fi rst includes the levels of interest rates with long and short maturities, the second includes the level of real price and dividend for the S&P composite index, and the third includes the logarithmic transformation of prices and dividends. Our exhaustive investigation of several different multivariate models reveals that better forecasts can be achieved when restrictions are applied to them. Moreover, imposing short-run restrictions produce forecast winners 70% of the time for target variables of PVMs and 63.33% of the time when all variables in the system are considered.

Forecasting multivariate time series under present-value-model short- and long-run co-movement restrictions

Using a sequence of nested multivariate models that are VAR-based, we discuss different layers of restrictions imposed by present-value models (PVM hereafter) on the VAR in levels for series that are subject to present-value restrictions. Our focus is novel - we are interested in the short-run restrictions entailed by PVMs (Vahid and Engle, 1993, 1997) and their implications for forecasting. Using a well-known database, kept by Robert Shiller, we implement a forecasting competition that imposes different layers of PVM restrictions. Our exhaustive investigation of several different multivariate models reveals that better forecasts can be achieved when restrictions are applied to the unrestricted VAR. Moreover, imposing short-run restrictions produces forecast winners 70% of the time for the target variables of PVMs and 63.33% of the time when all variables in the system are considered.

Time-series properties and empirical evidence of growth and infraestructure: revised version

After more than forty years studying growth, there are two classes of growth models that have emerged: exogenous and endogenous growth models. Since both try to mimic the same set of long-run stylized facts, they are observationally equivalent in some respects. Our goals in this paper are twofold First, we discuss the time-series properties of growth models in a way that is useful for assessing their fit to the data. Second, we investigate whether these two models successfully conforms to U.S. post-war data. We use cointegration techniques to estimate and test long-run capital elasticities, exogeneity tests to investigate the exogeneity status of TFP, and Granger-causality tests to examine temporal precedence of TFP with respect to infrastructure expenditures. The empirical evidence is robust in confirming the existence of a unity long-run capital elasticity. The analysis of TFP reveals that it is not weakly exogenous in the exogenous growth model Granger-causality test results show unequivocally that there is no evidence that TFP for both models precede infrastructure expenditures not being preceded by it. On the contrary, we find some evidence that infras- tructure investment precedes TFP. Our estimated impact of infrastructure on TFP lay rougbly in the interval (0.19, 0.27).

Output convergence in Mercosur: multivariate time series evidence

The aim of this paper is to provide evidence on output convergence among the Mercosur countries and associates, using multivariate time-series tests. The methodology is based on a combination of tests and estimation procedures, both univariate and multivariate, applied to the differences in per capita real income. We use the definitions of time-series convergence proposed by Bernard & Durlauf and apply unit root and tests proposed by Abuaf & Jorion and Taylor & Sarno. In this same multivariate context, the Flôres, Preumont & Szafarz and Breuer, MbNown & Wallace tests, which allow for the existence of correlations across the series without imposing a common speed of mean reversion, identify the countries that convergence. Concerning the empirical results, there is evidence of long-run convergence or, at least, catching up, for the smaller countries, Bolivia, Paraguay, Peru and Uruguay, towards Brazil and, to some extent, Argentina. In contrast, the evidence on convergence for the larger countries is weaker, as they have followed different (or rather opposing) macroeconomic policy strategies. Thus the future of the whole area will critically depend on the ability of Brazil, Argentina and Chile to find some scope for more cooperative policy actions.

The long run economic impact of AIDS

This paper studies the long-run impact of HIV/AIDS on per capita income and education. We introduce a channel from HIV/AIDS to long-run income that has been overlooked by the literature, the reduction of the incentives to study due to shorter expected longevity. We work with a continuous time overlapping generations mo deI in which life cycle features of savings and education decision play key roles. The simulations predict that the most affected countries in Sub-Saharan Africa will be in the future, on average, a quarter poorer than they would be without AIDS, due only to the direct (human capital reduction) and indirect (decline in savings and investment) effects of life-expectancy reductions. Schooling will decline on average by half. These findings are well above previous results in the literature and indicate that, as pessimistic as they may be, at least in economic terms the worst could be yet to come.

Watching the World Cup, one data point at a time

Retirado do blog de Marc Pickren do dia 13 jun. 2014.

Watching the World Cup, one data point at a time

Sound the vuvuzelas, the World Cup is officially here. The biggest sporting event in the world is set to break all kinds of viewing records. Sporting in the digital world is just as much about stats as it is about the game itself. Enter Brandwatch. The social media analytics company has taken it upon itself to track social media statistics for the entire run of the World Cup with their new real-time data visualization tool.

The long-run economic impact of AIDS

This paper studies the long-run impact of HIV / AIDS on per capita income and education. We introduce a channel from HIV / AIDS to long-run income that has been overlooked by the literature, the reduction of the incentives to study due to shorter expected longevity. We work with a continuous time overlapping generations mo deI in which life cycle features of savings and education decision play key roles. The simulations predict that the most affected countries in Sub-Saharan Africa will be in the future, on average, a quarter poorer than they would be without AIDS, due only to the direct (human capital reduction) and indirect (decline in savings and investment) effects of life-expectancy reductions. Schooling will decline on average by half. These findings are well above previous results in the literature and indicate that, as pessimistic as they may be, at least in economic terms the worst could be yet to come.