Forecasting with Medium and Large Bayesian VARs

This paper is motivated by the recent interest in the use of Bayesian VARs for forecasting, even in cases where the number of dependent variables is large. In such cases, factor methods have been traditionally used but recent work using a particular prior suggests that Bayesian VAR methods can forecast better. In this paper, we consider a range of alternative priors which have been used with small VARs, discuss the issues which arise when they are used with medium and large VARs and examine their forecast performance using a US macroeconomic data set containing 168 variables. We nd that Bayesian VARs do tend to forecast better than factor methods and provide an extensive comparison of the strengths and weaknesses of various approaches. Our empirical results show the importance of using forecast metrics which use the entire predictive density, instead of using only point forecasts.

UK Macroeconomic Forecasting with Many Predictors: Which Models Forecast Best and When Do They Do So?

Block factor methods offer an attractive approach to forecasting with many predictors. These extract the information in these predictors into factors reflecting different blocks of variables (e.g. a price block, a housing block, a financial block, etc.). However, a forecasting model which simply includes all blocks as predictors risks being over-parameterized. Thus, it is desirable to use a methodology which allows for different parsimonious forecasting models to hold at different points in time. In this paper, we use dynamic model averaging and dynamic model selection to achieve this goal. These methods automatically alter the weights attached to different forecasting model as evidence comes in about which has forecast well in the recent past. In an empirical study involving forecasting output and inflation using 139 UK monthly time series variables, we find that the set of predictors changes substantially over time. Furthermore, our results show that dynamic model averaging and model selection can greatly improve forecast performance relative to traditional forecasting methods.

Forecasting Inflation Using Dynamic Model Averaging

We forecast quarterly US inflation based on the generalized Phillips curve using econometric methods which incorporate dynamic model averaging. These methods not only allow for coe¢ cients to change over time, but also allow for the entire forecasting model to change over time. We nd that dynamic model averaging leads to substantial forecasting improvements over simple benchmark regressions and more sophisticated approaches such as those using time varying coe¢ cient models. We also provide evidence on which sets of predictors are relevant for forecasting in each period.

Forecasting US bond default ratings allowing for previous and initial state dependence in an ordered probit model

In this paper we investigate the ability of a number of different ordered probit models to predict ratings based on firm-specific data on business and financial risks. We investigate models based on momentum, drift and ageing and compare them against alternatives that take into account the initial rating of the firm and its previous actual rating. Using data on US bond issuing firms rated by Fitch over the years 2000 to 2007 we compare the performance of these models in predicting the rating in-sample and out-of-sample using root mean squared errors, Diebold-Mariano tests of forecast performance and contingency tables. We conclude that initial and previous states have a substantial influence on rating prediction.

Bayesian forecasting with highly correlated predictors

This paper considers Bayesian variable selection in regressions with a large number of possibly highly correlated macroeconomic predictors. I show that by acknowledging the correlation structure in the predictors can improve forecasts over existing popular Bayesian variable selection algorithms.

Mafia in the ballot box

We study the impact of organized crime on electoral competition. Assuming that the mafia is able to bring votes to the supported party in exchange of money, we show that (i) the strongest party is willing to pay the highest price to secure mafia services; (ii) the volume of electoral trade with the mafia increases with political competition and with the efficiency of the mafia. Studying in detail parliamentary elections in Sicily for the period 1946- 1992, we document the significant support given by the Sicilian Mafia to the Christian Democratic party, starting at least from the 1970s. This is consistent with our theoretical predictions, as political competition became much tighter during the 1970s and the Sicilian mafia experienced an extensive centralization process towards the end of the 1960s, which increased substantially its control of the territory. We also provide evidence that in exchange for its electoral support the mafia got economic advantages for its activities in the construction industry.

Modeling Dependence Structure and Forecasting Portfolio Value-at-Risk with Dynamic Copulas

We study the asymmetric and dynamic dependence between financial assets and demonstrate, from the perspective of risk management, the economic significance of dynamic copula models. First, we construct stock and currency portfolios sorted on different characteristics (ex ante beta, coskewness, cokurtosis and order flows), and find substantial evidence of dynamic evolution between the high beta (respectively, coskewness, cokurtosis and order flow) portfolios and the low beta (coskewness, cokurtosis and order flow) portfolios. Second, using three different dependence measures, we show the presence of asymmetric dependence between these characteristic-sorted portfolios. Third, we use a dynamic copula framework based on Creal et al. (2013) and Patton (2012) to forecast the portfolio Value-at-Risk of long-short (high minus low) equity and FX portfolios. We use several widely used univariate and multivariate VaR models for the purpose of comparison. Backtesting our methodology, we find that the asymmetric dynamic copula models provide more accurate forecasts, in general, and, in particular, perform much better during the recent financial crises, indicating the economic significance of incorporating dynamic and asymmetric dependence in risk management.

Interlinkages and forecasting made possible by the use of the DECOIN analytical tool kit

This technical report is a document prepared as a deliverable [D4.3 Report of the Interlinkages and forecasting prototype tool] of a EU project – DECOIN Project No. 044428 - FP6-2005-SSP-5A. The text is divided into 4 sections: (1) this short introductory section explains the purpose of the report; (2) the second section provides a general discussion of a systemic problem found in existing quantitative analysis of sustainability. It addresses the epistemological implications of complexity, which entails the need of dealing with the existence of Multiple-Scales and non-equivalent narratives (multiple dimensions/attributes) to be used to define sustainability issues. There is an unavoidable tension between a “steady-state view” (= the perception of what is going on now – reflecting a PAST --& PRESENT view of the reality) versus an “evolutionary view” (= the unknown transformation that we have to expect in the process of becoming of the observed reality and in the observer – reflecting a PRESENT --& FUTURE view of the reality). The section ends by listing the implications of these points on the choice of integrated packages of sustainability indicators; (3) the third section illustrates the potentiality of the DECOIN toolkit for the study of sustainability trade-offs and linkages across indicators using quantitative examples taken from cases study of another EU project (SMILE). In particular, this section starts by addressing the existence of internal constraints to sustainability (economic versus social aspects). The narrative chosen for this discussion focuses on the dark side of ageing and immigration on the economic viability of social systems. Then the section continues by exploring external constraints to sustainability (economic development vs the environment). The narrative chosen for this discussion focuses on the dark side of current strategy of economic development based on externalization and the “bubbles-disease”; (4) the last section presents a critical appraisal of the quality of energy data found in energy statistics. It starts with a discussion of the general goal of statistical accounting. Then it introduces the concept of multipurpose grammars. The second part uses the experience made in the activities of the DECOIN project to answer the question: how useful are EUROSTAT energy statistics? The answer starts with an analysis of basic epistemological problems associated with accounting of energy. This discussion leads to the acknowledgment of an important epistemological problem: the unavoidable bifurcations in the mechanism of accounting needed to generate energy statistics. By using numerical example the text deals with the following issues: (i) the pitfalls of the actual system of accounting in energy statistics; (ii) a critical appraisal of the actual system of accounting in BP statistics; (iii) a critical appraisal of the actual system of accounting in Eurostat statistics. The section ends by proposing an innovative method to represent energy statistics which can result more useful for those willing develop sustainability indicators.

Modeling Dependence Structure and Forecasting Market Risk with Dynamic Asymmetric Copula

We investigate the dynamic and asymmetric dependence structure between equity portfolios from the US and UK. We demonstrate the statistical significance of dynamic asymmetric copula models in modelling and forecasting market risk. First, we construct “high-minus-low" equity portfolios sorted on beta, coskewness, and cokurtosis. We find substantial evidence of dynamic and asymmetric dependence between characteristic-sorted portfolios. Second, we consider a dynamic asymmetric copula model by combining the generalized hyperbolic skewed t copula with the generalized autoregressive score (GAS) model to capture both the multivariate non-normality and the dynamic and asymmetric dependence between equity portfolios. We demonstrate its usefulness by evaluating the forecasting performance of Value-at-Risk and Expected Shortfall for the high-minus-low portfolios. From back-testing, e find consistent and robust evidence that our dynamic asymmetric copula model provides the most accurate forecasts, indicating the importance of incorporating the dynamic and asymmetric dependence structure in risk management.

The Black Box of Business Dynamics

Research in business dynamics has been advancing rapidly in the last years but the translation of the new knowledge to industrial policy design is slow. One striking aspect in the policy area is that although research and analysis do not identify the existence of an specific optimal rate of business creation and business exit, governments everywhere have adopted business start-up support programs with the implicit principle that the more the better. The purpose of this article is to contribute to understand the implications of the available research for policy design. Economic analysis has identified firm heterogeneity as being the most salient characteristic of industrial dynamics, and so a better knowledge of the different types of entrepreneur, their behavior and their specific contribution to innovation and growth would enable us to see into the ‘black box’ of business dynamics and improve the design of appropriate public policies. The empirical analysis performed here shows that not all new business have the same impact on relevant economic variables, and that self-employment is of quite a different economic nature to that of firms with employees. It is argued that public programs should not promote indiscriminate entry but rather give priority to able entrants with survival capacities. Survival of entrants is positively related to their size at birth. Innovation and investment improve the likelihood of survival of new manufacturing start-ups. Investment in R&D increases the risk of failure in new firms, although it improves the competitiveness of incumbents.

The feasibility of forecasting influenza epidemics in Cuba

A large influenza epidemic took place in Havana during the winter of 1988. The epidemiologic surveillance unit of the Pedro Kouri Institute of Tropical Medicine detected the begining of the epidemic wave. The Rvachev-Baroyan mathematical model of the geographic spread of an epidemic was used to forecast this epidemic under routine conditions of the public health system. The expected number of individuals who would attend outpatient services, because of influenza-like illness, was calculated and communicated to the health authorities within enough time to permit the introduction of available control measures. The approximate date of the epidemic peak, the daily expected number of individuals attending medical services, and the approximate time of the end of the epidemic wave were estimated. The prediction error was 12%. The model was sufficienty accurate to warrant its use as a pratical forecasting tool in the Cuban public health system.

Fiscal Federalism at the Ballot Box : The Relevance of Expressive Voting

This paper explores the impact of citizens' motivation to vote on the pattern of fiscal federalism. If the only concern of instrumental citizens was outcome they would have little incentive to vote because the probability that a single vote might change an electoral outcome is usually minuscule. If voters turn out in large numbers to derive intrinsic value from action, how will these voters choose when considering the role local jurisdictions should play? The first section of the paper assesses the weight that expressive voters attach to an instrumental evaluation of alternative outcomes. Predictions are tested with reference to case study analysis of the way Swiss voters assessed the role their local jurisdiction should play. The relevance of this analysis is also assessed with reference to the choice that voters express when considering other local issues. Textbook analysis of fiscal federalism is premised on the assumption that voters register choice just as 'consumers' reveal demand for services in a market, but how robust is this analogy.

The role of the Estrogen-Responsive B box protein in skin morphogenesis, wound repair and skin disease

SUMMARY: EBBP is a poorly characterized member of the RBCC/TRIM family (RING finger B-box coiled-coilltripartite motif). It is ubiquitously expressed, but particularly high levels are found in keratinocytes. There is evidence that EBBP is involved in inflammatory processes, since it can interact with pro-interleukin-1 ß (prolL-1 ß) in human macrophages and keratinocytes, and its downregulation results in reduced secretion of IL-1 ß. IL-1ß activation and secretion requires the proteolytic cleavage of prolL-1ß by caspase-1, which in turn is actìvated by a protein complex called the inflammasome. As it has been demonstrated that EBBP can bind two different proteins of the inflammasome (NALP-1 and caspase 1), we assumed that EBBP plays a role in the regulation of inflammation and that the inflammasome, which has as yet only been described in ínflammatory cells, may also exist in keratinocytes. Indeed, I could show in my thesis that the inflammasome components are expressed in human keratinócytes at the RNA and protein level and also in vivo in human epidermis. After irradiation with a physiological dose of UVB, keratinocytes activated prolL-1ß and secreted prolL-1 a, IL-1 ß, prolL-18 and inflammasome proteins, although all these proteins lack a classical signal peptide. The secretion was dependent on caspase-1 activity, but not on de novo protein synthesis. Knock-down of NALP1 and -3, caspase-1 and -5, EBBP and Asc strongly reduced the secretion of IL-1 ß, demonstrating that also in keratinocytes inflammasome proteins are directly involved in maturation of this cytokine. These results demonstrate for the first time the presence of an active inflammasome in non-professional immune cells. Moreover, they show that UV irradiation is a stimulus for inflammasome activation in keratinocytes. For the analysis of the ín vivo functions of EBBP, transgenic mice overexpressing EBBP in the epidermis were generated. To examine the influence of EBBP overexpression on inflammatory processes, we subjected the mice to different challenges, which induce inflammation. Wound-healing, UVB irradiation and delayed hypersensitivity were tested, but we did not observe any phenotype in the K14-EBBP mice. Besides, a conditional ebbp knockout mouse has been obtained, which will allow to determine the effects of EBBP gene deletion in different tissues and organs. RESUME: EBBP est un membre encore mal connu de la famille des RBCC/TRIM (RING finger B-box coiled-coil/tripartite motif). Il est exprimé de manière ubiquitaire, et en particulier dans les kératinocytes. EBBP étant capable d'interagir avec la prointerleukine-1 ß (prolL-1 ß) dans les macrophages et les kératinocytes humains et de réguler la sécrétion de l'IL-1 ß, il est très probable que cette protéine est impliquée dans l'inflammation. L'activation et la sécrétion de l'IL-1 ß requièrent le clivage protéolytique de son précurseur prolL-1ß par la caspase-1, qui est elle-même activée par un complexe protéique appelé l'inflammasome. Comme il a été démontré qu'EBBP peut lier deux protéines de l'inflammasome (NALP-1 et caspase-1), nous avons émis l'hypothèse qu'EBBP joue un rôle dans la régulation de l'inflammation et que l'inflammasome, jusqu'ici décrit exclusivement dans des cellules inflammatoires, existe dans les kératinocytes. En effet, j'ai pu montrer dans ma thèse que les composants de l'inflammasome sont exprimés dans les kératinocytes humains ainsi que in vivo dans l'épiderme humain. Après irradiation avec une dose, physiologique d'UVB, les kératinocytes activent la prolL-1 ß et sécrètent la prolL-1a, l'IL-1 ß, la prolL-18 et des protéines de l'inflammasome, bien que toutes ces protéines soient dépourvues de peptide signal. La sécrétion dépend de la caspase-1 mais pas de la synthèse protéique de novo. Le knock-down de NALP-1 et -3, des caspase-1 et -5, d'EBBP et d'Asc réduit de manière marquée la sécrétion d'IL-1 ß, démontrant que dans les kératinocytes également, les protéines de l'inflammasome sont impliquées directement dans la maturation de cette cytokine. Ces résultats démontrent pour la première fois la présence d'un inflammasome actif dans des cellules immunitaires non professionnelles. De plus, ils montrent que l'irradiation aux UV est un stimulus pour l'activation de l'inflammasome dans les kératinocytes. Pour l'analyse des fonctions d'EBBP in vivo, nous avons généré des souris transgéniques qui surexpriment EBBP dans l'épiderme. En vue d'examiner l'influence de la surexpression d'EBBP sur le processus inflammatoire, nous avons soumis ces souris à differents modèles d'inflammation. Nous avons testé cicatrisation, UVB et hypersensibilité retardée, mais n'avons pas observé de phénotype chez les souris transgéniques. En parallèle, nous avons également généré des souris knock-out pour ebbp qui devraient nous permettre de déterminer les effets de la suppression d'EBBP dans différents tissus et organes.

Re-opening the black box in societal metabolism: the application of MuSIASEM to water

In this paper we address the complexity of the analysis of water use in relation to the issue of sustainability. In fact, the flows of water in our planet represent a complex reality which can be studied using many different perceptions and narratives referring to different scales and dimensions of analysis. For this reason, a quantitative analysis of water use has to be based on analytical methods that are semantically open: they must be able to define what we mean with the term “water” when crossing different scales of analysis. We propose here a definition of water as a resource that deal with the many services it provides to humans and ecosystems. WE argue that water can fulfil so many of them since the element has many characteristics that allow for the resource to be labelled with different attributes, depending on the end use –such as drinkable. Since the services for humans and the functions for ecosystems associated with water flows are defined on different scales but still interconnected it is necessary to organize our assessment of water use across different hierarchical levels. In order to do so we define how to approach the study of water use in the Societal Metabolism, by proposing the Water Metabolism, tganized in three levels: societal level, ecosystem level and global level. The possible end uses we distinguish for the society are: personal/physiological use, household use, economic use. Organizing the study of “water use” across all these levels increases the usefulness of the quantitative analysis and the possibilities of finding relevant and comparable results. To achieve this result, we adapted a method developed to deal with multi-level, multi-scale analysis - the Multi-Scale Integrated Analysis of Societal and Ecosystem Metabolism (MuSIASEM) approach - to the analysis of water metabolism. In this paper, we discuss the peculiar analytical identity that “water” shows within multi-scale metabolic studies: water represents a flow-element when considering the metabolism of social systems (at a small scale, when describing the water metabolism inside the society) and a fund-element when considering the metabolism o ecosystems (at a larger scale when describing the water metabolism outside the society). The theoretical analysis is illustrated using two case which characterize the metabolic patterns regarding water use of a productive system in Catalonia and a water management policy in Andarax River Basin in Andalusia.

Nest-box design for the study of diurnal raptors and owls is still an overlooked point in ecological, evolutionary and conservation studies: a review

The use of artificial nest-boxes has led to significant progress in bird conservation and in our understanding of the functional and evolutionary ecology of free-ranging birds that exploit cavities for roosting and reproduction. Nest-boxes and their improved accessibility have made it easier to perform comparative and experimental field investigations. However, concerns about the generality and applicability of scientific studies involving birds breeding in nest-boxes have been raised because the occupants of boxes may differ from conspecifics occupying other nest sites. Here we review the existing evidence demonstrating the importance of nest-box design to individual life-history traits in three falcon (Falconiformes) and seven owl (Strigiformes) species, as well as the extent to which publications on these birds describe the characteristics of exploited artificial nest-boxes in their 'methods' sections. More than 60% of recent publications did not provide any details on nest-box design (e.g. size, shape, material), despite several calls >15 years ago to increase the reporting of such information. We exemplify and discuss how variation in nest-box characteristics can affect or confound conclusions from nest-box studies and conclude that it is of overall importance to present details of nest-box characteristics in scientific publications.