Efficient Evaluation of Multidimensional Time-Varying Density Forecasts

We propose two simple evaluation methods for time varying density forecasts of continuous higher dimensional random variables. Both methods are based on the probability integral transformation for unidimensional forecasts. The first method tests multinormal densities and relies on the rotation of the coordinate system. The advantage of the second method is not only its applicability to any continuous distribution but also the evaluation of the forecast accuracy in specific regions of its domain as defined by the user’s interest. We show that the latter property is particularly useful for evaluating a multidimensional generalization of the Value at Risk. In simulations and in an empirical study, we examine the performance of both tests.

Dynamic Density Forecasts for Multivariate Asset Returns

We propose a simple and flexible framework for forecasting the joint density of asset returns. The multinormal distribution is augmented with a polynomial in (time-varying) non-central co-moments of assets. We estimate the coefficients of the polynomial via the Method of Moments for a carefully selected set of co-moments. In an extensive empirical study, we compare the proposed model with a range of other models widely used in the literature. Employing a recently proposed as well as standard techniques to evaluate multivariate forecasts, we conclude that the augmented joint density provides highly accurate forecasts of the “negative tail” of the joint distribution.

Neural network forecasts of input-output technology

A significant part of the literature on input-output (IO) analysis is dedicated to the development and application of methodologies forecasting and updating technology coefficients and multipliers. Prominent among such techniques is the RAS method, while more information demanding econometric methods, as well as other less promising ones, have been proposed. However, there has been little interest expressed in the use of more modern and often more innovative methods, such as neural networks in IO analysis in general. This study constructs, proposes and applies a Backpropagation Neural Network (BPN) with the purpose of forecasting IO technology coefficients and subsequently multipliers. The RAS method is also applied on the same set of UK IO tables, and the discussion of results of both methods is accompanied by a comparative analysis. The results show that the BPN offers a valid alternative way of IO technology forecasting and many forecasts were more accurate using this method. Overall, however, the RAS method outperformed the BPN but the difference is rather small to be systematic and there are further ways to improve the performance of the BPN.

Evaluating monthly volatility forecasts using proxies at different frequencies

This paper analyses the forecastability of stock returns monthly volatility. The forecast obtained from GARCH and AGARCH models with Normal and Student's t errors are evaluated with respect to proxies for the unobserved volatility obtained through sampling at different frequencies. It is found that aggregation of daily multi-step ahead GARCH-type forecasts provide rather accurate predictions of monthly volatility.

Improving accuracy of inflation forecasts using macroeconomic information

This thesis examines the effects of macroeconomic factors on inflation level and volatility in the Euro Area to improve the accuracy of inflation forecasts with econometric modelling. Inflation aggregates for the EU as well as inflation levels of selected countries are analysed, and the difference between these inflation estimates and forecasts are documented. The research proposes alternative models depending on the focus and the scope of inflation forecasts. I find that models with a Generalized AutoRegressive Conditional Heteroskedasticity (GARCH) in mean process have better explanatory power for inflation variance compared to the regular GARCH models. The significant coefficients are different in EU countries in comparison to the aggregate EU-wide forecast of inflation. The presence of more pronounced GARCH components in certain countries with more stressed economies indicates that inflation volatility in these countries are likely to occur as a result of the stressed economy. In addition, other economies in the Euro Area are found to exhibit a relatively stable variance of inflation over time. Therefore, when analysing EU inflation one have to take into consideration the large differences on country level and focus on those one by one.