Band 21, Heft 4

Recently, there has been a growing interest in studying the autoregressive conditional duration (ACD) models, originally introduced by (Engle, R. F., and J. R. Russell. 1998. “Autoregressive Conditional Duration: A New Model for Irregularly Spaced Transaction Data. Econometrica 66: 1127–1162). ACD models are useful for modeling the time between the events, especially, in financial context, the time between trading of stocks. In this paper, we propose a specific type of nonstationary ACD model, viz., time varying ACD model (tvACD), by allowing the parameters of the usual ACD model to vary as functions of time. Some probabilistic and inferential aspects of such models have been investigated. We also develop a local polynomial procedure for the estimation of the parameter functions of the proposed tvACD model. Asymptotic properties of the estimators have been investigated, including the asymptotic normality. The asymptotic distribution being dependent on the parameters of the original distribution, a weighted bootstrap estimator is suggested and its validity is established. Simulation study and empirical analysis using high frequency data (HFD) from National Stock Exchange (NSE, INDIA) illustrate the application of the proposed tvACD model.

This paper compares Bayesian estimators with different prior choices for the time variation of the coefficients of Time Varying Parameter Vector Autoregression models using Monte Carlo simulations. Since the commonly used prior choice only allows for a tiny amount of time variation, less informative priors are proposed. Additional empirical evidence on the time varying response of inflation to an interest rate shock is provided for USA. While a ‘price puzzle’ is detected for the period 1972–1979, the estimated response of inflation to an interest rate shock is negative for most other time periods.

We empirically investigate the short-run impact of anticipated and unanticipated unemployment rates on stock prices. We particularly examine the nonlinearity in the stock market’s reaction to the unemployment rate and study the effect at each individual point (quantile) of the stock return distribution. Using nonparametric Granger causality and quantile regression-based tests, we find that only anticipated unemployment rate has a strong impact on stock prices. Quantile regression analysis shows that the causal effects of anticipated unemployment rate on stock returns are usually heterogeneous across quantiles. For the quantile range 0.35, 0.80, an increase in the anticipated unemployment rate leads to an increase in stock market prices. For other quantiles, the impact is generally statistically insignificant. Thus, an increase in the anticipated unemployment rate is, in general, good news for stock prices. Finally, we offer a reasonable explanation for the reason, and manner in which, the unemployment rate affects stock market prices. Using the Fisher and Phillips curve equations, we show that a high unemployment rate is followed by monetary policy action of the Federal Reserve (Fed). When the unemployment rate is high, the Fed decreases the interest rate, which in turn increases the stock market prices.

This paper adopts the Caputo fractional derivative to re-specify the hybrid Phillips curve as a dynamic process of inflation with memory. The Caputo fractional derivative contains a non-integer differencing order, providing the same insight for persistence as emphasized in the Autoregressive Fractionally Integrated Moving Average (ARFIMA) time series models. We utilize the hybrid Phillips curve with memory to forecast US inflation during 1967–2014. The results indicate that our model performs well against a traditional hybrid Phillips curve, an integrated moving average model and a naive random walk model in quasi-in-sample forecasts. In out-of-sample forecasts based on Consumer Price Index (CPI) and Personal Consumption Expenditure (PCE) data, we find that the forecasting performance of Phillips curve models depends on the sample period. Our model with CPI data can outperform others in out-of-sample forecasts during and after the most recent financial crisis (2006–2014).

We propose a new stochastic long-memory model with a time-varying fractional integration parameter, evolving non-linearly according to a Logistic Smooth Transition Autoregressive (LSTAR) specification. To estimate the time-varying fractional integration parameter, we implement a method based on the wavelet approach, using the instantaneous least squares estimator (ILSE). The empirical results show the relevance of the modeling approach and provide evidence of regime change in inflation persistence that contributes to a better understanding of the inflationary process in the US. Most importantly, these empirical findings remind us that a “one-size-fits-all” monetary policy is unlikely to work in all circumstances. The empirical results are consistent with newly developed tests of wavelet-based unit root and fractional Brownian motion.

This study explores the asymmetric exchange rate exposure of stock returns building upon the capital asset pricing model (CAPM) framework, using monthly returns of Chinese industry indices. We are interested in estimating long run and short run relationships as well as asymmetric effects. In order to do so, we estimate nonlinear autoregressive distributed lags models to (1) obtain the long run or cointegrated effects and dynamics, (2) be able to mix I(1) and I(0) variables and (3) to split the effect of positive and negative changes in the variables, i.e. asymmetries. In accordance with the existing literature, industry returns are subject to lagged exposure effects, but the asymmetries vary across industries, which could be due to the discrepancies in, amongst others, trade balance and ownership of certain industries. Furthermore, the dynamic multipliers depict that industry returns quickly respond to changes in the exchange rate and correct the disequilibrium within a short time, making the long run exposure to be symmetric or very small. The remaining shocks are mainly explained by the return of market portfolios. This implies that the ongoing restrictions on the RMB daily trading band do indeed protect the Chinese stock market against the effects of currency movements.