Factor models, VARMA processes and parameter instability with applications in macroeconomics

Avec les avancements de la technologie de l'information, les données temporelles économiques et financières sont de plus en plus disponibles. Par contre, si les techniques standard de l'analyse des séries temporelles sont utilisées, une grande quantité d'information est accompagnée du problème de dimensionnalité. Puisque la majorité des séries d'intérêt sont hautement corrélées, leur dimension peut être réduite en utilisant l'analyse factorielle. Cette technique est de plus en plus populaire en sciences économiques depuis les années 90. Étant donnée la disponibilité des données et des avancements computationnels, plusieurs nouvelles questions se posent. Quels sont les effets et la transmission des chocs structurels dans un environnement riche en données? Est-ce que l'information contenue dans un grand ensemble d'indicateurs économiques peut aider à mieux identifier les chocs de politique monétaire, à l'égard des problèmes rencontrés dans les applications utilisant des modèles standards? Peut-on identifier les chocs financiers et mesurer leurs effets sur l'économie réelle? Peut-on améliorer la méthode factorielle existante et y incorporer une autre technique de réduction de dimension comme l'analyse VARMA? Est-ce que cela produit de meilleures prévisions des grands agrégats macroéconomiques et aide au niveau de l'analyse par fonctions de réponse impulsionnelles? Finalement, est-ce qu'on peut appliquer l'analyse factorielle au niveau des paramètres aléatoires? Par exemple, est-ce qu'il existe seulement un petit nombre de sources de l'instabilité temporelle des coefficients dans les modèles macroéconomiques empiriques? Ma thèse, en utilisant l'analyse factorielle structurelle et la modélisation VARMA, répond à ces questions à travers cinq articles. Les deux premiers chapitres étudient les effets des chocs monétaire et financier dans un environnement riche en données. Le troisième article propose une nouvelle méthode en combinant les modèles à facteurs et VARMA. Cette approche est appliquée dans le quatrième article pour mesurer les effets des chocs de crédit au Canada. La contribution du dernier chapitre est d'imposer la structure à facteurs sur les paramètres variant dans le temps et de montrer qu'il existe un petit nombre de sources de cette instabilité. Le premier article analyse la transmission de la politique monétaire au Canada en utilisant le modèle vectoriel autorégressif augmenté par facteurs (FAVAR). Les études antérieures basées sur les modèles VAR ont trouvé plusieurs anomalies empiriques suite à un choc de la politique monétaire. Nous estimons le modèle FAVAR en utilisant un grand nombre de séries macroéconomiques mensuelles et trimestrielles. Nous trouvons que l'information contenue dans les facteurs est importante pour bien identifier la transmission de la politique monétaire et elle aide à corriger les anomalies empiriques standards. Finalement, le cadre d'analyse FAVAR permet d'obtenir les fonctions de réponse impulsionnelles pour tous les indicateurs dans l'ensemble de données, produisant ainsi l'analyse la plus complète à ce jour des effets de la politique monétaire au Canada. Motivée par la dernière crise économique, la recherche sur le rôle du secteur financier a repris de l'importance. Dans le deuxième article nous examinons les effets et la propagation des chocs de crédit sur l'économie réelle en utilisant un grand ensemble d'indicateurs économiques et financiers dans le cadre d'un modèle à facteurs structurel. Nous trouvons qu'un choc de crédit augmente immédiatement les diffusions de crédit (credit spreads), diminue la valeur des bons de Trésor et cause une récession. Ces chocs ont un effet important sur des mesures d'activité réelle, indices de prix, indicateurs avancés et financiers. Contrairement aux autres études, notre procédure d'identification du choc structurel ne requiert pas de restrictions temporelles entre facteurs financiers et macroéconomiques. De plus, elle donne une interprétation des facteurs sans restreindre l'estimation de ceux-ci. Dans le troisième article nous étudions la relation entre les représentations VARMA et factorielle des processus vectoriels stochastiques, et proposons une nouvelle classe de modèles VARMA augmentés par facteurs (FAVARMA). Notre point de départ est de constater qu'en général les séries multivariées et facteurs associés ne peuvent simultanément suivre un processus VAR d'ordre fini. Nous montrons que le processus dynamique des facteurs, extraits comme combinaison linéaire des variables observées, est en général un VARMA et non pas un VAR comme c'est supposé ailleurs dans la littérature. Deuxièmement, nous montrons que même si les facteurs suivent un VAR d'ordre fini, cela implique une représentation VARMA pour les séries observées. Alors, nous proposons le cadre d'analyse FAVARMA combinant ces deux méthodes de réduction du nombre de paramètres. Le modèle est appliqué dans deux exercices de prévision en utilisant des données américaines et canadiennes de Boivin, Giannoni et Stevanovic (2010, 2009) respectivement. Les résultats montrent que la partie VARMA aide à mieux prévoir les importants agrégats macroéconomiques relativement aux modèles standards. Finalement, nous estimons les effets de choc monétaire en utilisant les données et le schéma d'identification de Bernanke, Boivin et Eliasz (2005). Notre modèle FAVARMA(2,1) avec six facteurs donne les résultats cohérents et précis des effets et de la transmission monétaire aux États-Unis. Contrairement au modèle FAVAR employé dans l'étude ultérieure où 510 coefficients VAR devaient être estimés, nous produisons les résultats semblables avec seulement 84 paramètres du processus dynamique des facteurs. L'objectif du quatrième article est d'identifier et mesurer les effets des chocs de crédit au Canada dans un environnement riche en données et en utilisant le modèle FAVARMA structurel. Dans le cadre théorique de l'accélérateur financier développé par Bernanke, Gertler et Gilchrist (1999), nous approximons la prime de financement extérieur par les credit spreads. D'un côté, nous trouvons qu'une augmentation non-anticipée de la prime de financement extérieur aux États-Unis génère une récession significative et persistante au Canada, accompagnée d'une hausse immédiate des credit spreads et taux d'intérêt canadiens. La composante commune semble capturer les dimensions importantes des fluctuations cycliques de l'économie canadienne. L'analyse par décomposition de la variance révèle que ce choc de crédit a un effet important sur différents secteurs d'activité réelle, indices de prix, indicateurs avancés et credit spreads. De l'autre côté, une hausse inattendue de la prime canadienne de financement extérieur ne cause pas d'effet significatif au Canada. Nous montrons que les effets des chocs de crédit au Canada sont essentiellement causés par les conditions globales, approximées ici par le marché américain. Finalement, étant donnée la procédure d'identification des chocs structurels, nous trouvons des facteurs interprétables économiquement. Le comportement des agents et de l'environnement économiques peut varier à travers le temps (ex. changements de stratégies de la politique monétaire, volatilité de chocs) induisant de l'instabilité des paramètres dans les modèles en forme réduite. Les modèles à paramètres variant dans le temps (TVP) standards supposent traditionnellement les processus stochastiques indépendants pour tous les TVPs. Dans cet article nous montrons que le nombre de sources de variabilité temporelle des coefficients est probablement très petit, et nous produisons la première évidence empirique connue dans les modèles macroéconomiques empiriques. L'approche Factor-TVP, proposée dans Stevanovic (2010), est appliquée dans le cadre d'un modèle VAR standard avec coefficients aléatoires (TVP-VAR). Nous trouvons qu'un seul facteur explique la majorité de la variabilité des coefficients VAR, tandis que les paramètres de la volatilité des chocs varient d'une façon indépendante. Le facteur commun est positivement corrélé avec le taux de chômage. La même analyse est faite avec les données incluant la récente crise financière. La procédure suggère maintenant deux facteurs et le comportement des coefficients présente un changement important depuis 2007. Finalement, la méthode est appliquée à un modèle TVP-FAVAR. Nous trouvons que seulement 5 facteurs dynamiques gouvernent l'instabilité temporelle dans presque 700 coefficients.

Optimal Test for Parameter Instability When the Unstable Process and the Error Distribution are Unknown

This paper proposes asymptotically optimal tests for unstable parameter process under the feasible circumstance that the researcher has little information about the unstable parameter process and the error distribution, and suggests conditions under which the knowledge of those processes does not provide asymptotic power gains. I first derive a test under known error distribution, which is asymptotically equivalent to LR tests for correctly identified unstable parameter processes under suitable conditions. The conditions are weak enough to cover a wide range of unstable processes such as various types of structural breaks and time varying parameter processes. The test is then extended to semiparametric models in which the underlying distribution in unknown but treated as unknown infinite dimensional nuisance parameter. The semiparametric test is adaptive in the sense that its asymptotic power function is equivalent to the power envelope under known error distribution.

Macroeconomic News and Exchange Rates: Evidence of Unstable Effect

Although the link between macroeconomic news announcements and exchange rates is well documented in recent literature, this connection may be unstable. By using a broad set of macroeconomic news announcements and high frequency forex data for the Euro/Dollar, Pound/Dollar and Yen/Dollar from Nov 1, 2004 to Mar 31, 2014, we obtain two major findings with regards to this instability. First, many macroeconomic news announcements exhibit unstable effects with certain patterns in foreign exchange rates. These news effects may change in magnitude and even in their sign over time, over business cycles and crises within distinctive contexts. This finding is robust because the results are obtained by applying a Two-Regime Smooth Transition Regression Model, a Breakpoints Regression Model, and an Efficient Test of Parameter Instability which are all consistent with each other. Second, when we explore the source of this instability, we find that global risks and the reaction by central bank monetary policy to these risks to be possible factors causing this instability.

Measuring and testing for the systemically important financial institutions

This paper analyzes the measure of systemic importance ∆CoV aR proposed by Adrian and Brunnermeier (2009, 2010) within the context of a similar class of risk measures used in the risk management literature. In addition, we develop a series of testing procedures, based on ∆CoV aR, to identify and rank the systemically important institutions. We stress the importance of statistical testing in interpreting the measure of systemic importance. An empirical application illustrates the testing procedures, using equity data for three European banks.

Essays on the term structure of interest rates

This PhD thesis contains three main chapters on macro finance, with a focus on the term structure of interest rates and the applications of state-of-the-art Bayesian econometrics. Except for Chapter 1 and Chapter 5, which set out the general introduction and conclusion, each of the chapters can be considered as a standalone piece of work. In Chapter 2, we model and predict the term structure of US interest rates in a data rich environment. We allow the model dimension and parameters to change over time, accounting for model uncertainty and sudden structural changes. The proposed timevarying parameter Nelson-Siegel Dynamic Model Averaging (DMA) predicts yields better than standard benchmarks. DMA performs better since it incorporates more macro-finance information during recessions. The proposed method allows us to estimate plausible realtime term premia, whose countercyclicality weakened during the financial crisis. Chapter 3 investigates global term structure dynamics using a Bayesian hierarchical factor model augmented with macroeconomic fundamentals. More than half of the variation in the bond yields of seven advanced economies is due to global co-movement. Our results suggest that global inflation is the most important factor among global macro fundamentals. Non-fundamental factors are essential in driving global co-movements, and are closely related to sentiment and economic uncertainty. Lastly, we analyze asymmetric spillovers in global bond markets connected to diverging monetary policies. Chapter 4 proposes a no-arbitrage framework of term structure modeling with learning and model uncertainty. The representative agent considers parameter instability, as well as the uncertainty in learning speed and model restrictions. The empirical evidence shows that apart from observational variance, parameter instability is the dominant source of predictive variance when compared with uncertainty in learning speed or model restrictions. When accounting for ambiguity aversion, the out-of-sample predictability of excess returns implied by the learning model can be translated into significant and consistent economic gains over the Expectations Hypothesis benchmark.

Essays on the term structure of interest rates

This PhD thesis contains three main chapters on macro finance, with a focus on the term structure of interest rates and the applications of state-of-the-art Bayesian econometrics. Except for Chapter 1 and Chapter 5, which set out the general introduction and conclusion, each of the chapters can be considered as a standalone piece of work. In Chapter 2, we model and predict the term structure of US interest rates in a data rich environment. We allow the model dimension and parameters to change over time, accounting for model uncertainty and sudden structural changes. The proposed time-varying parameter Nelson-Siegel Dynamic Model Averaging (DMA) predicts yields better than standard benchmarks. DMA performs better since it incorporates more macro-finance information during recessions. The proposed method allows us to estimate plausible real-time term premia, whose countercyclicality weakened during the financial crisis. Chapter 3 investigates global term structure dynamics using a Bayesian hierarchical factor model augmented with macroeconomic fundamentals. More than half of the variation in the bond yields of seven advanced economies is due to global co-movement. Our results suggest that global inflation is the most important factor among global macro fundamentals. Non-fundamental factors are essential in driving global co-movements, and are closely related to sentiment and economic uncertainty. Lastly, we analyze asymmetric spillovers in global bond markets connected to diverging monetary policies. Chapter 4 proposes a no-arbitrage framework of term structure modeling with learning and model uncertainty. The representative agent considers parameter instability, as well as the uncertainty in learning speed and model restrictions. The empirical evidence shows that apart from observational variance, parameter instability is the dominant source of predictive variance when compared with uncertainty in learning speed or model restrictions. When accounting for ambiguity aversion, the out-of-sample predictability of excess returns implied by the learning model can be translated into significant and consistent economic gains over the Expectations Hypothesis benchmark.

Parametric instability of stochastic columns

Columns which have stochastically distributed Young's modulus and mass density and are subjected to deterministic periodic axial loadings are considered. The general case of a column supported on a Winkler elastic foundation of random stiffness and also on discrete elastic supports which are also random is considered. Material property fluctuations are modeled as independent one-dimensional univariate homogeneous real random fields in space. In addition to autocorrelation functions or their equivalent power spectral density functions, the input random fields are characterized by scale of fluctuations or variance functions for their second order properties. The foundation stiffness coefficient and the stiffnesses of discrete elastic supports are treated to constitute independent random variables. The system equations of boundary frequencies are obtained using Bolotin's method for deterministic systems. Stochastic FEM is used to obtain the discrete system with random as well as periodic coefficients. Statistical properties of boundary frequencies are derived in terms of input parameter statistics. A complete covariance structure is obtained. The equations developed are illustrated using a numerical example employing a practical correlation structure.

Influence of system size on spatiotemporal dynamics of a model for plastic instability: Projecting low-dimensional and extensive chaos

This work is a continuation of our efforts to quantify the irregular scalar stress signals from the Ananthakrishna model for the Portevin-Le Chatelier instability observed under constant strain rate deformation conditions. Stress related to the spatial average of the dislocation activity is a dynamical variable that also determines the time evolution of dislocation densities. We carry out detailed investigations on the nature of spatiotemporal patterns of the model realized in the form of different types of dislocation bands seen in the entire instability domain and establish their connection to the nature of stress serrations. We then characterize the spatiotemporal dynamics of the model equations by computing the Lyapunov dimension as a function of the drive parameter. The latter scales with the system size only for low strain rates, where isolated dislocation bands are seen, and at high strain rates, where fully propagating bands are seen. At intermediate applied strain rates corresponding to the partially propagating bands, the Lyapunov dimension exhibits two distinct slopes, one for small system sizes and another for large. This feature is rationalized by demonstrating that the spatiotemporal patterns for small system sizes are altered from the partially propagating band types to isolated burst type. This in turn allows us to reconfirm that low-dimensional chaos is projected from the stress signals as long as there is a one-to-one correspondence between the bursts of dislocation bands and the stress drops. We then show that the stress signals in the regime of partially to fully propagative bands have features of extensive chaos by calculating the correlation dimension density. We also show that the correlation dimension density also depends on the system size. A number of issues related to the system size dependence of the Lyapunov dimension density and the correlation dimension density are discussed.

Wall-mode instability in plane shear flow of viscoelastic fluid over a deformable solid

The linear stability analysis of a plane Couette flow of an Oldroyd-B viscoelastic fluid past a flexible solid medium is carried out to investigate the role of polymer addition in the stability behavior. The system consists of a viscoelastic fluid layer of thickness R, density rho, viscosity eta, relaxation time lambda, and retardation time beta lambda flowing past a linear elastic solid medium of thickness HR, density rho, and shear modulus G. The emphasis is on the high-Reynolds-number wall-mode instability, which has recently been shown in experiments to destabilize the laminar flow of Newtonian fluids in soft-walled tubes and channels at a significantly lower Reynolds number than that for flows in rigid conduits. For Newtonian fluids, the linear stability studies have shown that the wall modes become unstable when flow Reynolds number exceeds a certain critical value Re c which scales as Sigma(3/4), where Reynolds number Re = rho VR/eta, V is the top-plate velocity, and dimensionless parameter Sigma = rho GR(2)/eta(2) characterizes the fluid-solid system. For high-Reynolds-number flow, the addition of polymer tends to decrease the critical Reynolds number in comparison to that for the Newtonian fluid, indicating a destabilizing role for fluid viscoelasticity. Numerical calculations show that the critical Reynolds number could be decreased by up to a factor of 10 by the addition of small amount of polymer. The critical Reynolds number follows the same scaling Re-c similar to Sigma(3/4) as the wall modes for a Newtonian fluid for very high Reynolds number. However, for moderate Reynolds number, there exists a narrow region in beta-H parametric space, corresponding to very dilute polymer solution (0.9 less than or similar to beta < 1) and thin solids (H less than or similar to 1.1), in which the addition of polymer tends to increase the critical Reynolds number in comparison to the Newtonian fluid. Thus, Reynolds number and polymer properties can be tailored to either increase or decrease the critical Reynolds number for unstable modes, thus providing an additional degree of control over the laminar-turbulent transition.

Tuning the metal-insulator transition in NdNiO3 heterostructures via Fermi surface instability and spin fluctuations

We employed in situ pulsed laser deposition (PLD) and angle-resolved photoemission spectroscopy (ARPES) to investigate the mechanism of the metal-insulator transition (MIT) in NdNiO3 (NNO) thin films, grown on NdGaO3(110) and LaAlO3(100) substrates. In the metallic phase, we observe three-dimensional hole and electron Fermi surface (FS) pockets formed from strongly renormalized bands with well-defined quasiparticles. Upon cooling across the MIT in NNO/NGO sample, the quasiparticles lose coherence via a spectral weight transfer from near the Fermi level to localized states forming at higher binding energies. In the case of NNO/LAO, the bands are apparently shifted upward with an additional holelike pocket forming at the corner of the Brillouin zone. We find that the renormalization effects are strongly anisotropic and are stronger in NNO/NGO than NNO/LAO. Our study reveals that substrate-induced strain tunes the crystal field splitting, which changes the FS properties, nesting conditions, and spin-fluctuation strength, and thereby controls the MIT via the formation of an electronic order parameter with QAF similar to (1/4,1/4,1/4 +/- delta).

Hill Instability Analysis Of Tlp Tether Subjected To Combined Platform Surge And Heave Motions

This paper presents the Hill instability analysis of Tension Leg Platform (TLP) tether it, deep sea. The 2-D nonlinear beam model which is Undergoing Coupled axial and transverse vibrations, is applied. The governing equations are reduced to nonlinear Hill equation by use of the Galerkin's method and the modes superposition principle. The Hill instability charted Lip to large parameters is obtained. An important parameter M is defined and can he expressed as the functions of tether length, the platform surge and heave motion amplitudes. Some example studies are performed for various environmental conditions. The results demonstrate that the nonlinear coupling between the axial and transverse vibrations has a significant effect on the response of structure.. It needs to be considered for the accurate dynamic analysis of long TLP tether subjected to the combined platform surge and heave motions.

Experimental and theoretical studies of the electrothermal instability in a nonequilibrium plasma

Experimental and theoretical studies have been made of the electrothermal waves occurring in a nonequilibrium MHD plasma. These waves are caused by an instability that occurs when a plasma having a dependence of conductivity on current density is subjected to crossed electric and magnetic fields. Theoretically, these waves were studied by developing and solving the equations of a steady, one-dimensional nonuniformity in electron density. From these nonlinear equations, predictions of the maximum amplitude and of the half width of steady waves could be obtained. Experimentally, the waves were studied in a nonequilibrium discharge produced in a potassium-seeded argon plasma at 2000°K and 1 atm. pressure. The behavior of such a discharge with four different configurations of electrodes was determined from photographs, photomultiplier measurements, and voltage probes. These four configurations were chosen to produce steady waves, to check the stability of steady waves, and to observe the manifestation of the waves in a MHD generator or accelerator configuration.

Steady, one-dimensional waves were found to exist in a number of situations, and where they existed, their characteristics agreed with the predictions of the steady theory. Some extensions of this theory were necessary, however, to describe the transient phenomena occurring in the inlet region of a discharge transverse to the gas flow. It was also found that in a discharge away from the stabilizing effect of the electrodes, steady waves became unstable for large Hall parameters. Methods of prediction of the effective electrical conductivity and Hall parameter of a plasma with nonuniformities caused by the electrothermal waves were also studied. Using these methods and the values of amplitude predicted by the steady theory, it was found that the measured decrease in transverse conductivity of a MHD device, 50 per cent at a Hall parameter of 5, could be accounted for in terms of the electrothermal instability.

Linear spatio-temporal instability analysis of ice growth under a falling water film

A linear spatio-temporal stability analysis is conducted for the ice growth under a falling water film along an inclined ice plane. The full system of linear stability equations is solved by using the Chebyshev collocation method. By plotting the boundary curve between the linear absolute and convective instabilities (AI/CI) of the ice mode in the parameter plane of the Reynolds number and incline angle, it is found that the linear absolute instability exists and occurs above a minimum Reynolds number and below a maximum inclined angle. Furthermore, by plotting the critical Reynolds number curves with respect to the inclined angle for the downstream and upstream branches, the convectively unstable region is determined and divided into three parts, one of which has both downstream and upstream convectively unstable wavepackets and the other two have only downstream or upstream convectively unstable wavepacket. Finally, the effect of the Stefan number and the thickness of the ice layer on the AI/CI boundary curve is investigated.

Elevated expression of Runx2 as a key parameter in the etiology of osteosarcoma

To understand the molecular etiology of osteosarcoma, we isolated and characterized a human osteosarcoma cell line (OS1). OS1 cells have high osteogenic potential in differentiation induction media. Molecular analysis reveals OS1 cells express the pocket protein pRB and the runt-related transcription factor Runx2. Strikingly, Runx2 is expressed at higher levels in OS1 cells than in human fetal osteoblasts. Both pRB and Runx2 have growth suppressive potential in osteoblasts and are key factors controlling competency for osteoblast differentiation. The high levels of Runx2 clearly suggest osteosarcomas may form from committed osteoblasts that have bypassed growth restrictions normally imposed by Runx2. Interestingly, OS1 cells do not exhibit p53 expression and thus lack a functional p53/p21 DNA damage response pathway as has been observed for other osteosarcoma cell types. Absence of this pathway predicts genomic instability and/or vulnerability to secondary mutations that may counteract the anti-proliferative activity of Runx2 that is normally observed in osteoblasts. We conclude OS1 cells provide a valuable cell culture model to examine molecular events that are responsible for the pathologic conversion of phenotypically normal osteoblast precursors into osteosarcoma cells.

Amplitude modulation of quantum-ion-acoustic wavepackets in electron-positron-ion plasmas: Modulational instability, envelope modes, extreme waves

A semirelativistic fluid model is employed to describe the nonlinear amplitude modulation of low-frequency (ionic scale) electrostatic waves in an unmagnetized electron-positron-ion plasma. Electrons and positrons are assumed to be degenerated and inertialess, whereas ions are warm and classical. A multiscale perturbation method is used to derive a nonlinear Schrödinger equation for the envelope amplitude, based on which the occurrence of modulational instability is investigated in detail. Various types of localized ion acoustic excitations are shown to exist, in the form of either bright type envelope solitons (envelope pulses) or dark-type envelope solitons (voids, holes). The plasma configurational parameters (namely, the relativistic degeneracy parameter, the positron concentration, and the ionic temperature) are shown to affect the conditions for modulational instability significantly, in fact modifying the associated threshold as well as the instability growth rate. In particular, the relativistic degeneracy parameter leads to an enhancement of the modulational instability mechanism. Furthermore, the effect of different relevant plasma parameters on the characteristics (amplitude, width) of these envelope solitary structures is also presented in detail. Finally, the occurrence of extreme amplitude excitation (rogue waves) is also discussed briefly. Our results aim at elucidating the formation and dynamics of nonlinear electrostatic excitations in superdense astrophysical regimes.