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.

Data uncertainty in real estate forecasting

The rapid expansion of the TMT sector in the late 1990s and more recent growing regulatory and corporate focus on business continuity and security have raised the profile of data centres. Data centres offer a unique blend of occupational, physical and technological characteristics compared to conventional real estate assets. Limited trading and heterogeneity of data centres also causes higher levels of appraisal uncertainty. In practice, the application of conventional discounted cash flow approaches requires information about a wide range of inputs that is difficult to derive from limited market signals or estimate analytically. This paper outlines an approach that uses pricing signals from similar traded cash flows is proposed. Based upon ‘the law of one price’, the method draws upon the premise that two identical future cash flows must have the same value now. Given the difficulties of estimating exit values, an alternative is that the expected cash flows of data centre are analysed over the life cycle of the building, with corporate bond yields used to provide a proxy for the appropriate discount rates for lease income. Since liabilities are quite diverse, a number of proxies are suggested as discount and capitalisation rates including indexed-linked, fixed interest and zero-coupon bonds. Although there are rarely assets that have identical cash flows and some approximation is necessary, the level of appraiser subjectivity is dramatically reduced.

Hydrological cycle in the Danube basin in present-day and XXII century simulations by IPCCAR4 global climate models

We present an intercomparison and verification analysis of 20 GCMs (Global Circulation Models) included in the 4th IPCC assessment report regarding their representation of the hydrological cycle on the Danube river basin for 1961–2000 and for the 2161–2200 SRESA1B scenario runs. The basin-scale properties of the hydrological cycle are computed by spatially integrating the precipitation, evaporation, and runoff fields using the Voronoi-Thiessen tessellation formalism. The span of the model- simulated mean annual water balances is of the same order of magnitude of the observed Danube discharge of the Delta; the true value is within the range simulated by the models. Some land components seem to have deficiencies since there are cases of violation of water conservation when annual means are considered. The overall performance and the degree of agreement of the GCMs are comparable to those of the RCMs (Regional Climate Models) analyzed in a previous work, in spite of the much higher resolution and common nesting of the RCMs. The reanalyses are shown to feature several inconsistencies and cannot be used as a verification benchmark for the hydrological cycle in the Danubian region. In the scenario runs, for basically all models the water balance decreases, whereas its interannual variability increases. Changes in the strength of the hydrological cycle are not consistent among models: it is confirmed that capturing the impact of climate change on the hydrological cycle is not an easy task over land areas. Moreover, in several cases we find that qualitatively different behaviors emerge among the models: the ensemble mean does not represent any sort of average model, and often it falls between the models’ clusters.

An improvement in clear-air turbulence forecasting based on spontaneous imbalance theory: the ULTURB algorithm

Recent research has shown that Lighthill–Ford spontaneous gravity wave generation theory, when applied to numerical model data, can help predict areas of clear-air turbulence. It is hypothesized that this is the case because spontaneously generated atmospheric gravity waves may initiate turbulence by locally modifying the stability and wind shear. As an improvement on the original research, this paper describes the creation of an ‘operational’ algorithm (ULTURB) with three modifications to the original method: (1) extending the altitude range for which the method is effective downward to the top of the boundary layer, (2) adding turbulent kinetic energy production from the environment to the locally produced turbulent kinetic energy production, and, (3) transforming turbulent kinetic energy dissipation to eddy dissipation rate, the turbulence metric becoming the worldwide ‘standard’. In a comparison of ULTURB with the original method and with the Graphical Turbulence Guidance second version (GTG2) automated procedure for forecasting mid- and upper-level aircraft turbulence ULTURB performed better for all turbulence intensities. Since ULTURB, unlike GTG2, is founded on a self-consistent dynamical theory, it may offer forecasters better insight into the causes of the clear-air turbulence and may ultimately enhance its predictability.

Strengthening the link between climate, hydrological and species distribution modeling to assess the impacts of climate change on freshwater biodiversity

To understand the resilience of aquatic ecosystems to environmental change, it is important to determine how multiple, related environmental factors, such as near-surface air temperature and river flow, will change during the next century. This study develops a novel methodology that combines statistical downscaling and fish species distribution modeling, to enhance the understanding of how global climate changes (modeled by global climate models at coarse-resolution) may affect local riverine fish diversity. The novelty of this work is the downscaling framework developed to provide suitable future projections of fish habitat descriptors, focusing particularly on the hydrology which has been rarely considered in previous studies. The proposed modeling framework was developed and tested in a major European system, the Adour-Garonne river basin (SW France, 116,000 km(2)), which covers distinct hydrological and thermal regions from the Pyrenees to the Atlantic coast. The simulations suggest that, by 2100, the mean annual stream flow is projected to decrease by approximately 15% and temperature to increase by approximately 1.2 °C, on average. As consequence, the majority of cool- and warm-water fish species is projected to expand their geographical range within the basin while the few cold-water species will experience a reduction in their distribution. The limitations and potential benefits of the proposed modeling approach are discussed. Copyright © 2012 Elsevier B.V. All rights reserved.

Advances in sequential data assimilation and numerical weather forecasting: an Ensemble Transform Kalman-Bucy Filter, a study on clustering in deterministic Ensemble Square Root Filters, and a test of a new time stepping scheme in an atmospheric model

This dissertation deals with aspects of sequential data assimilation (in particular ensemble Kalman filtering) and numerical weather forecasting. In the first part, the recently formulated Ensemble Kalman-Bucy (EnKBF) filter is revisited. It is shown that the previously used numerical integration scheme fails when the magnitude of the background error covariance grows beyond that of the observational error covariance in the forecast window. Therefore, we present a suitable integration scheme that handles the stiffening of the differential equations involved and doesn’t represent further computational expense. Moreover, a transform-based alternative to the EnKBF is developed: under this scheme, the operations are performed in the ensemble space instead of in the state space. Advantages of this formulation are explained. For the first time, the EnKBF is implemented in an atmospheric model. The second part of this work deals with ensemble clustering, a phenomenon that arises when performing data assimilation using of deterministic ensemble square root filters in highly nonlinear forecast models. Namely, an M-member ensemble detaches into an outlier and a cluster of M-1 members. Previous works may suggest that this issue represents a failure of EnSRFs; this work dispels that notion. It is shown that ensemble clustering can be reverted also due to nonlinear processes, in particular the alternation between nonlinear expansion and compression of the ensemble for different regions of the attractor. Some EnSRFs that use random rotations have been developed to overcome this issue; these formulations are analyzed and their advantages and disadvantages with respect to common EnSRFs are discussed. The third and last part contains the implementation of the Robert-Asselin-Williams (RAW) filter in an atmospheric model. The RAW filter is an improvement to the widely popular Robert-Asselin filter that successfully suppresses spurious computational waves while avoiding any distortion in the mean value of the function. Using statistical significance tests both at the local and field level, it is shown that the climatology of the SPEEDY model is not modified by the changed time stepping scheme; hence, no retuning of the parameterizations is required. It is found the accuracy of the medium-term forecasts is increased by using the RAW filter.

Regularized logistic models for probabilistic forecasting and diagnostics

Logistic models are studied as a tool to convert dynamical forecast information (deterministic and ensemble) into probability forecasts. A logistic model is obtained by setting the logarithmic odds ratio equal to a linear combination of the inputs. As with any statistical model, logistic models will suffer from overfitting if the number of inputs is comparable to the number of forecast instances. Computational approaches to avoid overfitting by regularization are discussed, and efficient techniques for model assessment and selection are presented. A logit version of the lasso (originally a linear regression technique), is discussed. In lasso models, less important inputs are identified and the corresponding coefficient is set to zero, providing an efficient and automatic model reduction procedure. For the same reason, lasso models are particularly appealing for diagnostic purposes.

The concept of exchangeability in ensemble forecasting

A set of random variables is exchangeable if its joint distribution function is invariant under permutation of the arguments. The concept of exchangeability is discussed, with a view towards potential application in evaluating ensemble forecasts. It is argued that the paradigm of ensembles being an independent draw from an underlying distribution function is probably too narrow; allowing ensemble members to be merely exchangeable might be a more versatile model. The question is discussed whether established methods of ensemble evaluation need alteration under this model, with reliability being given particular attention. It turns out that the standard methodology of rank histograms can still be applied. As a first application of the exchangeability concept, it is shown that the method of minimum spanning trees to evaluate the reliability of high dimensional ensembles is mathematically sound.

Probabilistic forecasting: why model imperfection is a poison pill

This volume is a serious attempt to open up the subject of European philosophy of science to real thought, and provide the structural basis for the interdisciplinary development of its specialist fields, but also to provoke reflection on the idea of ‘European philosophy of science’. This efforts should foster a contemporaneous reflection on what might be meant by philosophy of science in Europe and European philosophy of science, and how in fact awareness of it could assist philosophers interpret and motivate their research through a stronger collective identity. The overarching aim is to set the background for a collaborative project organising, systematising, and ultimately forging an identity for, European philosophy of science by creating research structures and developing research networks across Europe to promote its development.

Forecasting extinction risk of ectotherms under climate warming: an evolutionary perspective

1. It has been postulated that climate warming may pose the greatest threat species in the tropics, where ectotherms have evolved more thermal specialist physiologies. Although species could rapidly respond to environmental change through adaptation, little is known about the potential for thermal adaptation, especially in tropical species. 2. In the light of the limited empirical evidence available and predictions from mutation-selection theory, we might expect tropical ectotherms to have limited genetic variance to enable adaptation. However, as a consequence of thermodynamic constraints, we might expect this disadvantage to be at least partially offset by a fitness advantage, that is, the ‘hotter-is-better’ hypothesis. 3. Using an established quantitative genetics model and metabolic scaling relationships, we integrate the consequences of the opposing forces of thermal specialization and thermodynamic constraints on adaptive potential by evaluating extinction risk under climate warming. We conclude that the potential advantage of a higher maximal development rate can in theory more than offset the potential disadvantage of lower genetic variance associated with a thermal specialist strategy. 4. Quantitative estimates of extinction risk are fundamentally very sensitive to estimates of generation time and genetic variance. However, our qualitative conclusion that the relative risk of extinction is likely to be lower for tropical species than for temperate species is robust to assumptions regarding the effects of effective population size, mutation rate and birth rate per capita. 5. With a view to improving ecological forecasts, we use this modelling framework to review the sensitivity of our predictions to the model’s underpinning theoretical assumptions and the empirical basis of macroecological patterns that suggest thermal specialization and fitness increase towards the tropics. We conclude by suggesting priority areas for further empirical research.

Evaluating forecasts of extreme events for hydrological applications: an approach for screening unfamiliar performance measures

Many different performance measures have been developed to evaluate field predictions in meteorology. However, a researcher or practitioner encountering a new or unfamiliar measure may have difficulty in interpreting its results, which may lead to them avoiding new measures and relying on those that are familiar. In the context of evaluating forecasts of extreme events for hydrological applications, this article aims to promote the use of a range of performance measures. Some of the types of performance measures that are introduced in order to demonstrate a six-step approach to tackle a new measure. Using the example of the European Centre for Medium-Range Weather Forecasts (ECMWF) ensemble precipitation predictions for the Danube floods of July and August 2002, to show how to use new performance measures with this approach and the way to choose between different performance measures based on their suitability for the task at hand is shown. Copyright © 2008 Royal Meteorological Society

The potential inefficiency of using marketing margins in applied commodity price analysis, forecasting and risk management

This paper examines the implications of using marketing margins in applied commodity price analysis. The marketing-margin concept has a long and distinguished history, but it has caused considerable controversy. This is particularly the case in the context of analyzing the distribution of research gains in multi-stage production systems. We derive optimal tax schemes for raising revenues to finance research and promotion in a downstream market, derive the rules for efficient allocation of the funds, and compare the rules with an without the marketing-margin assumption. Applying the methodology to quarterly time series on the Australian beef-cattle sector and, with several caveats, we conclude that, during the period 1978:2 - 1988:4, the Australian Meat and Livestock Corporation optimally allocated research resources.

Climate warming–related strengthening of the tropical hydrological cycle

The authors estimate climate warming–related twenty-first-century changes of moisture transports from the descending into the ascending regions in the tropics. Unlike previous studies that employ time and space averaging, here homogeneous high horizontal and vertical resolution data from an Intergovernmental Panel on Climate Change Fourth Assessment Report (IPCC AR4) climate model are used. This allows for estimating changes in much greater detail (e.g., the estimation of the distribution of ascending and descending regions, changes in the vertical profile, and separating changes of the inward and outward transports). Low-level inward and midlevel outward moisture transports of the convective regions in the tropics are found to increase in a simulated anthropogenically warmed climate as compared to a simulated twentieth-century atmosphere, indicating an intensification of the hydrological cycle. Since an increase of absolute inward transport exceeds the absolute increase of outward transport, the resulting budget is positive, meaning that more water is projected to converge in the moist tropics. The intensification is found mainly to be due to the higher amount of water in the atmosphere, while the contribution of weakening wind counteracts this response marginally. In addition the changing statistical properties of the vertical profile of the moisture transport are investigated and the importance of the substantial outflow of moisture from the moist tropics at midlevels is demonstrated.

Physically consistent responses of the global atmospheric hydrological cycle in models and observations

Robust and physically understandable responses of the global atmospheric water cycle to a warming climate are presented. By considering interannual responses to changes in surface temperature (T), observations and AMIP5 simulations agree on an increase in column integrated water vapor at the rate 7 %/K (in line with the Clausius­Clapeyron equation) and of precipitation at the rate 2-­3 %/K (in line with energetic constraints). Using simple and complex climate models, we demonstrate that radiative forcing by greenhouse gases is currently suppressing global precipitation (P) at ~ -0.15 %/decade. Along with natural variability, this can explain why observed trends in global P over the period 1988-2008 are close to zero. Regional responses in the global water cycle are strongly constrained by changes in moisture fluxes. Model simulations show an increased moisture flux into the tropical wet region at 900 hPa and an enhanced outflow (of smaller magnitude) at around 600 hPa with warming. Moisture transport explains an increase in P in the wet tropical regions and small or negative changes in the dry regions of the subtropics in CMIP5 simulations of a warming climate. For AMIP5 simulations and satellite observations, the heaviest 5-day rainfall totals increase in intensity at ~15 %/K over the ocean with reductions at all percentiles over land. The climate change response in CMIP5 simulations shows consistent increases in P over ocean and land for the highest intensities, close to the Clausius-Clapeyron scaling of 7 %/K, while P declines for the lowest percentiles, indicating that interannual variability over land may not be a good proxy for climate change. The local changes in precipitation and its extremes are highly dependent upon small shifts in the large-scale atmospheric circulation and regional feedbacks.