Volume 28, Issue 1

This paper investigates the ability of several generalized Bayesian vector autoregressions to cope with the extreme COVID-19 observations and discusses their impact on prior calibration for inference and forecasting purposes. It shows that the preferred model interprets the pandemic episode as a rare event rather than a persistent increase in macroeconomic volatility. For forecasting, the choice among outlier-robust error structures is less important, however, when a large cross-section of information is used. Besides the error structure, this paper shows that the standard Minnesota prior calibration is an important source of changing macroeconomic transmission channels during the pandemic, altering the predictability of real and nominal variables. To alleviate this sensitivity, an outlier-robust prior calibration is proposed.

We consider testing for the presence of rational bubbles during hyperinflations via an analysis of the non-stationarity properties of relevant observable time series. The test procedure is based on a Markov regime-switching model with independent stochastic changes in its intercept, error variance and autoregressive coefficients. This model formulation allow us to disentangle fundamentals-driven changes in the drift, bubble-driven explosiveness, and volatility changes that may be fundamentals-driven and/or bubble-driven. The testing methodology is illustrated by applying it to data from hyperinflations in Argentina, Brazil, Germany and Poland.

This paper investigates macroeconomic uncertainty spillover effects across countries and their impact on real economic activity in different economic periods, i.e. pre-crisis and during the recent financial crisis. The analysis is initially carried out using Monte Carlo simulations and, subsequently, real data for four euro zone economies, namely Italy, France, Germany, and Spain. The Monte Carlo findings clearly indicate a need to account for spillover effects across countries when investigating the impact of aggregate uncertainty on economic variables. The empirical results provide clear-cut evidence of the existence of macroeconomic spillovers between the four euro countries, with some feedback from periphery economies, notably Italy, to the core economies during the financial crisis period. Further, the impact of uncertainty on real economic activity is dampened for the four euro countries when spillover effects are accounted for. Spillover effects among the four countries are also observed when US uncertainty is taken into account. Further, US macroeconomic uncertainty impacts negatively on the real economic activity of the four euro countries.

We present the Beta- t -QVAR (quasi-vector autoregression) model for the joint modelling of score-driven location plus scale of strictly stationary and ergodic variables. Beta- t -QVAR is an extension of Beta- t -EGARCH (exponential generalized autoregressive conditional heteroscedasticity) and Beta- t -EGARCH-M (Beta- t -EGARCH-in-mean). We prove the asymptotic properties of the maximum likelihood (ML) estimator for correctly specified Beta- t -QVAR models. We use Dow Jones Industrial Average (DJIA) data for the period of 1985–2020. We find that the volatility forecasting accuracy of Beta- t -QVAR is superior to the volatility forecasting accuracies of Beta- t -EGARCH, Beta- t -EGARCH-M, A-PARCH (asymmetric power ARCH), and GARCH for the period of 2010–2020.

This paper studies high-dimensional threshold models with a time-varying threshold approximated using a Fourier function. We develop a weighted LASSO estimator of regression coefficients as well as the threshold parameters. Our LASSO estimator can not only select covariates but also distinguish between linear and threshold models. We derive non-asymptotic oracle inequalities for the prediction risk, the l 1 and l ∞ bounds for regression coefficients, and provide an upper bound on the l 1 estimation error of the time-varying threshold estimator. The bounds can be translated easily into asymptotic consistency for prediction and estimation. We also establish the variable selection consistency and threshold detection consistency based on the l ∞ bounds. Through Monte Carlo simulations, we show that the thresholded LASSO works reasonably well in finite samples in terms of variable selection, and there is little harmness by the allowance for Fourier approximation in the estimation procedure even when there is no time-varying feature in the threshold. On the contrary, the estimation and variable selection are inconsistent when the threshold is time-varying but being misspecified as a constant. The model is illustrated with an empirical application to the famous debt-growth nexus.

We use a semiparametric GARCH-in-Mean copula model to examine the volatility dynamics and tail dependence between cryptocurrency markets and financial markets. We do not find any statistically significant tail dependence between the financial and cryptocurrency markets, but we find lower tail dependence between Bitcoin and stock returns. There is lower tail dependence among Bitcoin, Ethereum, and Litecoin, and the lower tail dependence between Ethereum and Litecoin returns is the strongest. The GARCH-in-Mean model shows that the uncertainty effect on cryptocurrency returns is not statistically significant, while uncertainty has a negative and statistically significant effect on Bitcoin returns. The fact that there is no tail dependence between cryptocurrency and the interest rate or the effective exchange rate of U.S. dollar suggests that cryptocurrency could offer safe haven, defined as an asset that is uncorrelated with stocks and bonds.