Forecasting exchange rates in the presence of instabilities

Many exchange rate papers articulate the view that instabilities constitute a major impediment to exchange rate predictability. In this thesis we implement Bayesian and other techniques to account for such instabilities, and examine some of the main obstacles to exchange rate models' predictive ability. We first consider in Chapter 2 a time-varying parameter model in which fluctuations in exchange rates are related to short-term nominal interest rates ensuing from monetary policy rules, such as Taylor rules. Unlike the existing exchange rate studies, the parameters of our Taylor rules are allowed to change over time, in light of the widespread evidence of shifts in fundamentals - for example in the aftermath of the Global Financial Crisis. Focusing on quarterly data frequency from the crisis, we detect forecast improvements upon a random walk (RW) benchmark for at least half, and for as many as seven out of 10, of the currencies considered. Results are stronger when we allow the time-varying parameters of the Taylor rules to differ between countries. In Chapter 3 we look closely at the role of time-variation in parameters and other sources of uncertainty in hindering exchange rate models' predictive power. We apply a Bayesian setup that incorporates the notion that the relevant set of exchange rate determinants and their corresponding coefficients, change over time. Using statistical and economic measures of performance, we first find that predictive models which allow for sudden, rather than smooth, changes in the coefficients yield significant forecast improvements and economic gains at horizons beyond 1-month. At shorter horizons, however, our methods fail to forecast better than the RW. And we identify uncertainty in coefficients' estimation and uncertainty about the precise degree of coefficients variability to incorporate in the models, as the main factors obstructing predictive ability. Chapter 4 focus on the problem of the time-varying predictive ability of economic fundamentals for exchange rates. It uses bootstrap-based methods to uncover the time-specific conditioning information for predicting fluctuations in exchange rates. Employing several metrics for statistical and economic evaluation of forecasting performance, we find that our approach based on pre-selecting and validating fundamentals across bootstrap replications generates more accurate forecasts than the RW. The approach, known as bumping, robustly reveals parsimonious models with out-of-sample predictive power at 1-month horizon; and outperforms alternative methods, including Bayesian, bagging, and standard forecast combinations. Chapter 5 exploits the predictive content of daily commodity prices for monthly commodity-currency exchange rates. It builds on the idea that the effect of daily commodity price fluctuations on commodity currencies is short-lived, and therefore harder to pin down at low frequencies. Using MIxed DAta Sampling (MIDAS) models, and Bayesian estimation methods to account for time-variation in predictive ability, the chapter demonstrates the usefulness of suitably exploiting such short-lived effects in improving exchange rate forecasts. It further shows that the usual low-frequency predictors, such as money supplies and interest rates differentials, typically receive little support from the data at monthly frequency, whereas MIDAS models featuring daily commodity prices are highly likely. The chapter also introduces the random walk Metropolis-Hastings technique as a new tool to estimate MIDAS regressions.

Carbon losses in terrestrial hydrological pathways in sugarcane cropping systems of Australia

Climate change and carbon (C) sequestration are a major focus of research in the twenty-first century. Globally, soils store about 300 times the amount of C that is released per annum through the burning of fossil fuels (Schulze and Freibauer 2005). Land clearing and introduction of agricultural systems have led to rapid declines in soil C reserves. The recent introduction of conservation agricultural practices has not led to a reversing of the decline in soil C content, although it has minimized the rate of decline (Baker et al. 2007; Hulugalle and Scott 2008). Lal (2003) estimated the quantum of C pools in the atmosphere, terrestrial ecosystems, and oceans and reported a “missing C” component in the world C budget. Though not proven yet, this could be linked to C losses through runoff and soil erosion (Lal 2005) and a lack of C accounting in inland water bodies (Cole et al. 2007). Land management practices to minimize the microbial respiration and soil organic C (SOC) decline such as minimum tillage or no tillage were extensively studied in the past, and the soil erosion and runoff studies monitoring those management systems focused on other nutrients such as nitrogen (N) and phosphorus (P).

Tourism demand modelling and forecasting with artificial neural network models: the Mozambique case study

This study is aimed to model and forecast the tourism demand for Mozambique for the period from January 2004 to December 2013 using artificial neural networks models. The number of overnight stays in Hotels was used as representative of the tourism demand. A set of independent variables were experimented in the input of the model, namely: Consumer Price Index, Gross Domestic Product and Exchange Rates, of the outbound tourism markets, South Africa, United State of America, Mozambique, Portugal and the United Kingdom. The best model achieved has 6.5% for Mean Absolute Percentage Error and 0.696 for Pearson correlation coefficient. A model like this with high accuracy of forecast is important for the economic agents to know the future growth of this activity sector, as it is important for stakeholders to provide products, services and infrastructures and for the hotels establishments to adequate its level of capacity to the tourism demand.

Areal rainfall estimation using moving cars - computer experiments including hydrological modeling

The need for high temporal and spatial resolution precipitation data for hydrological analyses has been discussed in several studies. Although rain gauges provide valuable information, a very dense rain gauge network is costly. As a result, several new ideas have been emerged to help estimating areal rainfall with higher temporal and spatial resolution. Rabiei et al. (2013) observed that moving cars, called RainCars (RCs), can potentially be a new source of data for measuring rainfall amounts. The optical sensors used in that study are designed for operating the windscreen wipers and showed promising results for rainfall measurement purposes. Their measurement accuracy has been quantified in laboratory experiments. Considering explicitly those errors, the main objective of this study is to investigate the benefit of using RCs for estimating areal rainfall. For that, computer experiments are carried out, where radar rainfall is considered as the reference and the other sources of data, i.e. RCs and rain gauges, are extracted from radar data. Comparing the quality of areal rainfall estimation by RCs with rain gauges and reference data helps to investigate the benefit of the RCs. The value of this additional source of data is not only assessed for areal rainfall estimation performance, but also for use in hydrological modeling. The results show that the RCs considering measurement errors derived from laboratory experiments provide useful additional information for areal rainfall estimation as well as for hydrological modeling. Even assuming higher uncertainties for RCs as obtained from the laboratory up to a certain level is observed practical.

A review on the recent history of wind power ramp forecasting.

Forecasting large and fast variations of wind power (the so called ramps) helps achieve the integration of large amounts of wind energy. This paper presents a survey on wind power ramp forecasting, reflecting the increasing interest on this topic observed since 2007. Three main aspects were identified from the literature: wind power ramp definition, ramp underlying meteorological causes and experi-ences in predicting ramps. In this framework, we additionally outline a number of recommendations and potential lines of research.

Forecasting errors, directional accuracy and profitability of currency trading: The case of EUR/USD exchange rate

We provide a comprehensive study of out-of-sample forecasts for the EUR/USD exchange rate based on multivariate macroeconomic models and forecast combinations. We use profit maximization measures based on directional accuracy and trading strategies in addition to standard loss minimization measures. When comparing predictive accuracy and profit measures, data snooping bias free tests are used. The results indicate that forecast combinations, in particular those based on principal components of forecasts, help to improve over benchmark trading strategies, although the excess return per unit of deviation is limited.

Essays on mixed-frequency data : forecasting and unit root testing

Doutoramento em Economia

Probabilistic methods for seasonal forecasting in a changing climate: Cox-type regression models.

For climate risk management, cumulative distribution functions (CDFs) are an important source of information. They are ideally suited to compare probabilistic forecasts of primary (e.g. rainfall) or secondary data (e.g. crop yields). Summarised as CDFs, such forecasts allow an easy quantitative assessment of possible, alternative actions. Although the degree of uncertainty associated with CDF estimation could influence decisions, such information is rarely provided. Hence, we propose Cox-type regression models (CRMs) as a statistical framework for making inferences on CDFs in climate science. CRMs were designed for modelling probability distributions rather than just mean or median values. This makes the approach appealing for risk assessments where probabilities of extremes are often more informative than central tendency measures. CRMs are semi-parametric approaches originally designed for modelling risks arising from time-to-event data. Here we extend this original concept beyond time-dependent measures to other variables of interest. We also provide tools for estimating CDFs and surrounding uncertainty envelopes from empirical data. These statistical techniques intrinsically account for non-stationarities in time series that might be the result of climate change. This feature makes CRMs attractive candidates to investigate the feasibility of developing rigorous global circulation model (GCM)-CRM interfaces for provision of user-relevant forecasts. To demonstrate the applicability of CRMs, we present two examples for El Ni ? no/Southern Oscillation (ENSO)-based forecasts: the onset date of the wet season (Cairns, Australia) and total wet season rainfall (Quixeramobim, Brazil). This study emphasises the methodological aspects of CRMs rather than discussing merits or limitations of the ENSO-based predictors.

A novel ranking procedure for forecasting approaches using Data Envelopment Analysis

To compare the accuracy of different forecasting approaches an error measure is required. Many error measures have been proposed in the literature, however in practice there are some situations where different measures yield different decisions on forecasting approach selection and there is no agreement on which approach should be used. Generally forecasting measures represent ratios or percentages providing an overall image of how well fitted the forecasting technique is to the observations. This paper proposes a multiplicative Data Envelopment Analysis (DEA) model in order to rank several forecasting techniques. We demonstrate the proposed model by applying it to the set of yearly time series of the M3 competition. The usefulness of the proposed approach has been tested using the M3-competition where five error measures have been applied in and aggregated to a single DEA score.

Ontology forecasting in scientific literature:semantic concepts prediction based on innovation-adoption priors

The ontology engineering research community has focused for many years on supporting the creation, development and evolution of ontologies. Ontology forecasting, which aims at predicting semantic changes in an ontology, represents instead a new challenge. In this paper, we want to give a contribution to this novel endeavour by focusing on the task of forecasting semantic concepts in the research domain. Indeed, ontologies representing scientific disciplines contain only research topics that are already popular enough to be selected by human experts or automatic algorithms. They are thus unfit to support tasks which require the ability of describing and exploring the forefront of research, such as trend detection and horizon scanning. We address this issue by introducing the Semantic Innovation Forecast (SIF) model, which predicts new concepts of an ontology at time t + 1, using only data available at time t. Our approach relies on lexical innovation and adoption information extracted from historical data. We evaluated the SIF model on a very large dataset consisting of over one million scientific papers belonging to the Computer Science domain: the outcomes show that the proposed approach offers a competitive boost in mean average precision-at-ten compared to the baselines when forecasting over 5 years.

GA-ANN Short-Term Electricity Load Forecasting

This paper presents a methodology for short-term load forecasting based on genetic algorithm feature selection and artificial neural network modeling. A feed forward artificial neural network is used to model the 24-h ahead load based on past consumption, weather and stock index data. A genetic algorithm is used in order to find the best subset of variables for modeling. Three data sets of different geographical locations, encompassing areas of different dimensions with distinct load profiles are used in order to evaluate the methodology. The developed approach was found to generate models achieving a minimum mean average percentage error under 2 %. The feature selection algorithm was able to significantly reduce the number of used features and increase the accuracy of the models.

Coastal modelling studies for forecasting and remediation solutions

The coastal area along the Emilia-Romagna (ER), in the Italian side of the northern Adriatic Sea, is considered to implement an unstructured numerical ocean model with the aim to develop innovative tools for the coastal management and a forecasting system for the storm surge risk reduction. The Adriatic Sea has been the focus of several studies because of its peculiar dynamics driven by many forcings acting at basin and local scales. The ER coast is particularly exposed to storm surge events. In particular conditions, winds, tides and seicehs may combine and contribute to the flooding of the coastal area. The global sea level rise expected in the next decades will increase even more the hazard along the ER and Adriatic coast. Reliable Adriatic and Mediterranean scale numerical ocean models are now available to allow the dynamical downscaling of very high-resolution models in limited coastal areas. In this work the numerical ocean model SHYFEM is implemented in the Goro lagoon (named GOLFEM) and along the ER coast (ShyfER) to test innovative solutions against sea related coastal hazards. GOLFEM was succesfully applied to analyze the Goro lagoon dynamics and to assess the dynamical effects of human interventions through the analysis of what-if scenarios. The assessment of storm surge hazard in the Goro lagoon was carried out through the development of an ensemble storm surge forecasting system with GOLFEM using forcing from different operational meteorological and ocean models showing the fundamental importance of the boundary conditions. The ShyfER domain is used to investigate innovative solutions against storm surge related hazard along the ER coast. The seagrass is assessed as a nature-based solution (NBS) for coastal protection under present and future climate conditions. The results show negligible effects on sea level but sensible effects in reducing bottom current velocity.

Urban air quality: new high-resolution modeling approaches and forecasting tools for citizens

Air pollution is one of the greatest health risks in the world. At the same time, the strong correlation with climate change, as well as with Urban Heat Island and Heat Waves, make more intense the effects of all these phenomena. A good air quality and high levels of thermal comfort are the big goals to be reached in urban areas in coming years. Air quality forecast help decision makers to improve air quality and public health strategies, mitigating the occurrence of acute air pollution episodes. Air quality forecasting approaches combine an ensemble of models to provide forecasts from global to regional air pollution and downscaling for selected countries and regions. The development of models dedicated to urban air quality issues requires a good set of data regarding the urban morphology and building material characteristics. Only few examples of air quality forecast system at urban scale exist in the literature and often they are limited to selected cities. This thesis develops by setting up a methodology for the development of a forecasting tool. The forecasting tool can be adapted to all cities and uses a new parametrization for vegetated areas. The parametrization method, based on aerodynamic parameters, produce the urban spatially varying roughness. At the core of the forecasting tool there is a dispersion model (urban scale) used in forecasting mode, and the meteorological and background concentration forecasts provided by two regional numerical weather forecasting models. The tool produces the 1-day spatial forecast of NO2, PM10, O3 concentration, the air temperature, the air humidity and BLQ-Air index values. The tool is automatized to run every day, the maps produced are displayed on the e-Globus platform, updated every day. The results obtained indicate that the forecasting output were in good agreement with the observed measurements.

Power flow forecasting and smart charging for electric vehicle charging systems with photovoltaic integration

An essential role in the global energy transition is attributed to Electric Vehicles (EVs) the energy for EV traction can be generated by renewable energy sources (RES), also at a local level through distributed power plants, such as photovoltaic (PV) systems. However, EV integration with electrical systems might not be straightforward. The intermittent RES, combined with the high and uncontrolled aggregate EV charging, require an evolution toward new planning and paradigms of energy systems. In this context, this work aims to provide a practical solution for EV charging integration in electrical systems with RES. A method for predicting the power required by an EV fleet at the charging hub (CH) is developed in this thesis. The proposed forecasting method considers the main parameters on which charging demand depends. The results of the EV charging forecasting method are deeply analyzed under different scenarios. To reduce the EV load intermittency, methods for managing the charging power of EVs are proposed. The main target was to provide Charging Management Systems (CMS) that modulate EV charging to optimize specific performance indicators such as system self-consumption, peak load reduction, and PV exploitation. Controlling the EV charging power to achieve specific optimization goals is also known as Smart Charging (SC). The proposed techniques are applied to real-world scenarios demonstrating performance improvements in using SC strategies. A viable alternative to maximize integration with intermittent RES generation is the integration of energy storage. Battery Energy Storage Systems (BESS) may be a buffer between peak load and RES production. A sizing algorithm for PV+BESS integration in EV charging hubs is provided. The sizing optimization aims to optimize the system's energy and economic performance. The results provide an overview of the optimal size that the PV+BESS plant should have to improve whole system performance in different scenarios.

A coupled ocean-atmosphere system for short term forecasting in the southern european seas

This coupled model combines two state-of-the-art numerical models, NEMO for the oceanic component and WRF for the atmospheric component and implements them at an appropriate resolution. The oceanic model has been implemented starting from the Mediterranean Forecasting System with a resolution of 1/24° and the domain was extended to exactly match the grid of a newly implemented atmospheric model for the same area. The uncoupled ocean model has been validated against SST observed data, both in the simulation of an extreme event and in the short-term forecast of two seasonal periods. A new setup of the model was successfully tested in which the downward radiative fluxes were prescribed from atmospheric forecasts. Various physical schemes, domain, boundary, and initial conditions were tested with the atmospheric model to obtain the best representation of medicane Ianos. The heat fluxes calculated by the uncoupled models were compared to determine which setup gave the best energy balance between the components of the coupled model. The coupling strategy used is the traditional one, where the ocean is driven by the surface stress, heat fluxes, and radiative fluxes computed in the atmospheric component, which in turn receives the SST and surface currents. As expected, the overall skills of the coupled model are slightly degraded compared to the uncoupled models, even though the positioning and timing of the cyclone at the time of the landfall is enhanced. The mean heat fluxes do not change compared to the uncoupled model, whereas the pattern of the shortwave radiation and latent heat is changed. Moreover, the two energy fluxes are larger in absolute values than those calculated with the MFS formulas. The fact that they have opposite signs give raise to a compensation error that limits the overall degradation of the coupled simulation.