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.

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.

On the Political Aspects of Unemployment: The Case of Election Results

Unemployment is related to economic, political and social aspects. One of the least analysed political aspects is the relationship that, from a partisan or ideological perspective, should exist between the election results and the aging level of the voters, which is to be reflected in different electoral costs of unemployment. This chapter updates previous work on the subject, using a spatial econometrics methodology to estimate the relationship between the levels of aging and the election results that were obtained in the most recent elections that took place in Portugal, i.e. the October 2015 legislative elections. The results confirm the hypothesis that the level of unemployment involves a higher (resp. lower) electoral cost the less (resp. more) aged is the electorate.

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.

The Influence of Accounting Information in the Re-Election of the Mayors in Portugal

The changes recommended by the New Public Management (NPM) in public accounting have given special attention and importance to the evaluation of mayor’s performance by citizens/voters. Thus, this study aims to assess the impact of accounting information on the re-election of Portuguese mayors. Taking the agency theory as a point of departure, we start from the following research question: Does the accounting information disclosed by the municipalities influence the re-election of Portuguese mayors? The research methodology used in this study is the quantitative type, through which a multivariate analysis of data was performed on 308 Portuguese municipalities, in the period 2005-2008, based on the election results of 2009. The results from the binary logistic regression show that some indicators of accounting nature have impact on the re-election of mayors in Portugal, namely, the components of financial accounting and municipal revenues.

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.