Bayesian Analysis of Latent Threshold Dynamic Models

We discuss a general approach to dynamic sparsity modeling in multivariate time series analysis. Time-varying parameters are linked to latent processes that are thresholded to induce zero values adaptively, providing natural mechanisms for dynamic variable inclusion/selection. We discuss Bayesian model specification, analysis and prediction in dynamic regressions, time-varying vector autoregressions, and multivariate volatility models using latent thresholding. Application to a topical macroeconomic time series problem illustrates some of the benefits of the approach in terms of statistical and economic interpretations as well as improved predictions. Supplementary materials for this article are available online. © 2013 Copyright Taylor and Francis Group, LLC.

The dynamic efficiency costs of common-pool resource exploitation

We conduct the first empirical investigation of common-pool resource users' dynamic and strategic behavior at the micro level using real-world data. Fishermen's strategies in a fully dynamic game account for latent resource dynamics and other players' actions, revealing the profit structure of the fishery. We compare the fishermen's actual and socially optimal exploitation paths under a time-specific vessel allocation policy and find a sizable dynamic externality. Individual fishermen respond to other users by exerting effort above the optimal level early in the season. Congestion is costly instantaneously but is beneficial in the long run because it partially offsets dynamic inefficiencies.

Dynamic analysis of employment trajectories through the concept of fl exicurity

The paper presents a dynamic study of the Spanish labour market which tries to determine if it matches the characteristics of transitional labour markets from a fl exicurity approach. Employment trajectories of Spanish workers during the years 2007-2010 are studied using the Continuous Sample of Working Lives. This period covers the end of the expansion of the Spanish economy and the beginning of the current employment crisis. From the combination of the chosen topic, the approach, and the database used, this is a novel perspective in our country. The article shows evidence of the evolution of the employment and unemployment spells, the Spanish labour market turnover degree, and the diffi culties of some groups for carrying out transition between employment and unemployment. The results obtained show a labour market in which a) transitions have come to a halt, and b) there is high job insecurity.

Vulnerability and multiple deprivation perspectives on economic exclusion in Europe: A latent class analysis

In this paper we address issues relating to vulnerability to economic exclusion and levels of economic exclusion in Europe. We do so by applying latent class models to data from the European Community Household Panel for thirteen countries. This approach allows us to distinguish between vulnerability to economic exclusion and exposure to multiple deprivation at a particular point in time. The results of our analysis confirm that in every country it is possible to distinguish between a vulnerable and a non-vulnerable class. Association between income poverty, life-style deprivation and subjective economic strain is accounted for by allocating individuals to the categories of this latent variable. The size of the vulnerable class varies across countries in line with expectations derived from welfare regime theory. Between class differentiation is weakest in social democratic regimes but otherwise the pattern of differentiation is remarkably similar. The key discriminatory factor is life-style deprivation, followed by income and economic strain. Social class and employment status are powerful predictors of latent class membership in all countries but the strength of these relationships varies across welfare regimes. Individual biography and life events are also related to vulnerability to economic exclusion. However, there is no evidence that they account for any significant part of the socio-economic structuring of vulnerability and no support is found for the hypothesis that social exclusion has come to transcend class boundaries and become a matter of individual biography. However, the extent of socio-economic structuring does vary substantially across welfare regimes. Levels of economic exclusion, in the sense of current exposure to multiple deprivation, also vary systematically by welfare regime and social class. Taking both vulnerability to economic exclusion and levels of exclusion into account suggests that care should be exercised in moving from evidence on the dynamic nature of poverty and economic exclusion to arguments relating to the superiority of selective over universal social policies.

Committing to Economic Openness in Ireland: The Importance of Domestic Institutional Capabilities

This chapter sets out to explain the factors behind Ireland's exceptional period of economic growth from the early 1990s to the mid 2000s. It suggests that an unbending commitment to economic openness and an on-going effort to establish quality domestic institutions were the main drivers of the so-called ‘Celtic tiger’ phenomenon. The commitment to economic openness manifested itself in the relentless search for inward investment and a willingness to accept deep forms of European integration. Building domestic institutional capabilities involved adopting new-classical macroeconomic policies, creating a robust system of social partnership and reforming the educational system. The two factors positively interacted with each other to create dynamic effects.

Family Economic Vulnerability & the Great Recession: An Analysis of the First two Waves of the Growing Up in Ireland Study

In this paper we make use of the first and second waves of the 2008 and 1998 cohorts of the Growing Up in Ireland study, to develop a multidimensional and dynamic approach to understanding the impact on families and children in Ireland of the Great Recession. Economic vulnerability is operationalised as involving a distinctive risk profile in relation to relative income, household joblessness and economic stress. We find that the recession was associated with a significant increase in levels of economic vulnerability and changing risk profiles involving a more prominent role for economic stress for both the 2008 and 1998 cohorts. The factors affecting vulnerability outcomes were broadly similar for both cohorts. Persistent economic vulnerability was significantly associated with lone parenthood, particularly for those with more than one child, lower levels of Primary Care Giver (PCG) education and to a lesser extent younger age of PCG at child’s birth, number of children and a parent leaving or dying. Similar factors were associated with transient vulnerability in the first wave but the magnitude of the effects was significantly weaker particularly in relation to lone parenthood and level of education of the PCG. For entry into vulnerability the impact of these factors was again substantially weaker than for persistent and transient vulnerability indicating a significantly greater degree of socio-economic heterogeneity among the group that became vulnerable during the recession. The findings raise policy and political problems that go beyond those associated with catering for groups that have tended to be characterized by high dependence on social welfare.

A hybrid harmony search with arithmetic crossover operation for economic dispatch

Economic dispatch (ED) problems often exhibit non-linear, non-convex characteristics due to the valve point effects. Further, various constraints and factors, such as prohibited operation zones, ramp rate limits and security constraints imposed by the generating units, and power loss in transmission make it even more challenging to obtain the global optimum using conventional mathematical methods. Meta-heuristic approaches are capable of solving non-linear, non-continuous and non-convex problems effectively as they impose no requirements on the optimization problems. However, most methods reported so far mainly focus on a specific type of ED problems, such as static or dynamic ED problems. This paper proposes a hybrid harmony search with arithmetic crossover operation, namely ACHS, for solving five different types of ED problems, including static ED with valve point effects, ED with prohibited operating zones, ED considering multiple fuel cells, combined heat and power ED, and dynamic ED. In this proposed ACHS, the global best information and arithmetic crossover are used to update the newly generated solution and speed up the convergence, which contributes to the algorithm exploitation capability. To balance the exploitation and exploration capabilities, the opposition based learning (OBL) strategy is employed to enhance the diversity of solutions. Further, four commonly used crossover operators are also investigated, and the arithmetic crossover shows its efficiency than the others when they are incorporated into HS. To make a comprehensive study on its scalability, ACHS is first tested on a group of benchmark functions with a 100 dimensions and compared with several state-of-the-art methods. Then it is used to solve seven different ED cases and compared with the results reported in literatures. All the results confirm the superiority of the ACHS for different optimization problems.

The role of telecommunications infrastructure in the regional economic growth of Africa

This paper presents empirical evidence on how telecommunications infrastructure is related to economic growth in a panel dataset covering 44 African countries for the period from 1990 to 2010. A dynamic panel data approach model is employed, which suggests that telecommunications contribute in a major way to the economic development of the continent, after controlling for a number of other factors. Furthermore, the findings also show that investment in telecommunications is subject to increasing returns, demonstrating that an increase in telecommunications investment produces further growth. Therefore, telecommunications investment and services should be encouraged in the region.

Dynamic Performance Evaluation of Canadian Fixed-Income Funds using Markov Regime Switching Models

This thesis examines the performance of Canadian fixed-income mutual funds in the context of an unobservable market factor that affects mutual fund returns. We use various selection and timing models augmented with univariate and multivariate regime-switching structures. These models assume a joint distribution of an unobservable latent variable and fund returns. The fund sample comprises six Canadian value-weighted portfolios with different investing objectives from 1980 to 2011. These are the Canadian fixed-income funds, the Canadian inflation protected fixed-income funds, the Canadian long-term fixed-income funds, the Canadian money market funds, the Canadian short-term fixed-income funds and the high yield fixed-income funds. We find strong evidence that more than one state variable is necessary to explain the dynamics of the returns on Canadian fixed-income funds. For instance, Canadian fixed-income funds clearly show that there are two regimes that can be identified with a turning point during the mid-eighties. This structural break corresponds to an increase in the Canadian bond index from its low values in the early 1980s to its current high values. Other fixed-income funds results show latent state variables that mimic the behaviour of the general economic activity. Generally, we report that Canadian bond fund alphas are negative. In other words, fund managers do not add value through their selection abilities. We find evidence that Canadian fixed-income fund portfolio managers are successful market timers who shift portfolio weights between risky and riskless financial assets according to expected market conditions. Conversely, Canadian inflation protected funds, Canadian long-term fixed-income funds and Canadian money market funds have no market timing ability. We conclude that these managers generally do not have positive performance by actively managing their portfolios. We also report that the Canadian fixed-income fund portfolios perform asymmetrically under different economic regimes. In particular, these portfolio managers demonstrate poorer selection skills during recessions. Finally, we demonstrate that the multivariate regime-switching model is superior to univariate models given the dynamic market conditions and the correlation between fund portfolios.

A DYNAMIC FRAMEWORK FOR THE RELATIONS BETWEEN FOREIGN EXCHANGE RATES, SAVINGS AND INVESTMENTS

The Meese-Rogoff forecasting puzzle states that foreign exchange (FX) rates are unpredictable. Since one country’s macroeconomic conditions could affect the price of its national currency, we study the dynamic relations between the FX rates and some macroeconomic accounts. Our research tests whether the predictability of the FX rates could be improved through the advanced econometrics. Improving the predictability of the FX rates has important implications for various groups including investors, business entities and the government. The present thesis examines the dynamic relations between the FX rates, savings and investments for a sample of 25 countries from the Organization for Economic Cooperation and Development. We apply quarterly data of FX rates, macroeconomic indices and accounts including the savings and the investments over three decades. Through preliminary Augmented Dickey-Fuller unit root tests and Johansen cointegration tests, we found that the savings rate and the investment rate are cointegrated with the vector (1,-1). This result is consistent with many previous studies on the savings-investment relations and therefore confirms the validity of the Feldstein-Horioka puzzle. Because of the special cointegrating relation between the savings rate and investment rate, we introduce the savings-investment rate differential (SID). Investigating each country through a vector autoregression (VAR) model, we observe extremely insignificant coefficient estimates of the historical SIDs upon the present FX rates. We also report similar findings through the panel VAR approach. We thus conclude that the historical SIDs are useless in forecasting the FX rate. Nonetheless, the coefficients of the past FX rates upon the current SIDs for both the country-specific and the panel VAR models are statistically significant. Therefore, we conclude that the historical FX rates can conversely predict the SID to some degree. Specifically, depreciation in the domestic currency would cause the increase in the SID.

A Systematic Framework for Analyzing the Dynamic Effects of Permanent and Transitory Shocks.

This paper proposes a systematic framework for analyzing the dynamic effects of permanent and transitory shocks on a system of \"n\" economic variables.

Economic Development under Alternative Trade Regimes

How does openness affect economic development? This question is answered in the context of a dynamic general equilibrium model of the world economy, where countries have technological differences that are both sector-neutral and specific to the investment goods sector. Relative to a benchmark case of trade in credit markets only, consider (i) a complete restriction of trade, and (ii) a full liberalization of trade. The first change decreases the cross-sectional dispersion of incomes only slightly, and produces a relatively small welfare loss. The second change, instead, decreases dispersion by a significant amount, and produces a very large welfare gain.

A Systematic Framework for Analyzing the Dynamic Effects of Permanent and Transitory Shocks.

This paper proposes a systematic framework for analyzing the dynamic effects of permanent and transitory shocks on a system of n economic variables.