A complementary test for the KPSS test with an application to the US Dollar/Euro exchange rate

This paper shows by simulation experiments some failures of the KPSS test when the source of the nonstationarity is explained by an unconditional volatility shift. So, a complementary test is proposed. An application to the US Dollar/Euro exchange rate reveals an instability in the unconditional volatility.

Classical vs wavelet-based filters Comparative study and application to business cycle

In this article, we compare the performance of Hodrickk-Prescott and Baxter-King filters with a method of filtering based on the multi-resolution properties of wavelets. We show that overall the three methods remain comparable if the theoretical cyclical component is defined in the usual waveband, ranging between six and thirty two quarters. However the approach based on wavelets provides information about the business cycle, for example, its stability over time which the other two filters do not provide. Based on Monte Carlo simulation experiments, our method applied to the American GDP using growth rate data shows that the estimate of the business cycle component is richer in information than that deduced from the level of GDP and includes additional information about the post 1980 period of great moderation.Filters, HP, BK, wavelets, Monte Carlo Simulation break, business cycles.

The impact of the European Union Emission Trading Scheme on electricity generation sectors

In order to comply with their commitments under the Kyoto Protocol, France and Germany participate to the European Union Emission Trading Scheme (EU ETS) which concerns predominantly electricity generation sectors. In this paper we seek to know if the EU ETS gives appropriate economic incentives for an e¢ cient and strong system in line with Kyoto commitments. Because if so electricity producers in these countries should include the price of carbon in their costs functions. After identifying the di¤erent sub periods of the EU ETS during its pilot phase (2005-2007), we model the prices of various electricity contracts and look at their volatilities around their fundamentals while evaluating the correlation between the electricity prices in the two countries. We finnd that electricity producers in both countries were constrained to include the carbon price in their cost functions during the …rst two years of operation of the EU ETS. During this period, German electricity producers were more constrained than their French counterparts and the inclusion of the carbon price in the cost function of electricity generation has been so much more stable in Germany than in France. Furthermore, the European market for emission allowances has increased the market power of the historical French electricity producer and has greatly contributed to the partial alignment of the wholesale price of electricity in France with those of Germany. .Carbon Emission Trading, Multivariate GARCH models, Structural break, Non Parametric Approach, Energy prices.

Wavelets unit root test vs DF test : A further investigation based on monte carlo experiments

Test for unit root based in wavelets theory is recently defined (Genay and Fan, 2007). While the new test is supposed to be robust to the initial value, we bring out by contrast the significant effects of the initial value in the size and the power. We found also that both the wavelets unit root test and ADF test give the same efficiency if the data are corrected of the initial value. Our approach is based in monte carlo experiment.Unit root tests, wavelets, monte carlo experiments, size-power curve.

The power of some standard tests of stationarity against changes in the unconditional variance

Abrupt changes in the unconditional variance of returns have been recently revealed in many empirical studies. In this paper, we show that traditional KPSS-based tests have a low power against nonstationarities stemming from changes in the unconditional variance. More precisely, we show that even under very strong abrupt changes in the unconditional variance, the asymptotic moments of the statistics of these tests remain unchanged. To overcome this problem, we use some CUSUM-based tests adapted for small samples. These tests do not compete with KPSS-based tests and can be considered as complementary. CUSUM-based tests confirm the presence of strong abrupt changes in the unconditional variance of stock returns, whereas KPSS-based tests do not. Consequently, traditional stationary models are not always appropriate to describe stock returns. Finally, we show how a model allowing abrupt changes in the unconditional variance is well appropriate for CAC 40 stock returns.KPSS test, panel stationarity test, unconditional variance, abrupt changes, stock returns, size-power curve.

The power of some standard tests of stationarity against changes in the unconditional variance

URL des Documents de travail : http://ces.univ-paris1.fr/cesdp/CESFramDP2010.htmDocuments de travail du Centre d'Economie de la Sorbonne 2010.28 - ISSN : 1955-611XAbrupt changes in the unconditional variance of returns have been recently revealed in many empirical studies. In this paper, we show that traditional KPSS-based tests have a low power against nonstationarities stemming from changes in the unconditional variance. More precisely, we show that even under very strong abrupt changes in the unconditional variance, the asymptotic moments of the statistics of these tests remain unchanged. To overcome this problem, we use some CUSUM-based tests adapted for small samples. These tests do not compete with KPSS-based tests and can be considered as complementary. CUSUM-based tests confirm the presence of strong abrupt changes in the unconditional variance of stock returns, whereas KPSS-based tests do not. Consequently, traditional stationary models are not always appropriate to describe stock returns. Finally, we show how a model allowing abrupt changes in the unconditional variance is well appropriate for CAC 40 stock returns.Dans ce papier, nous montrons dans un premier temps que les moments asymptotiques des statistiques du test KPSS et ses extensions en panel restent inchangés aux variations brusques de la variance inconditionnelle même si l'ampleur du saut reste élevé. Dans un deuxième temps, nous étudions des tests complémentaires ainsi que leurs propriétés asymptotiques. Les tests complémentaires s'adaptent bien aux échantillons réduits puisque nous donnons aussi des valeurs simulées des moments des statistiques en fonction de T, nombre des observations. Enfin, une illustration concrète est proposée à partir de la série SP500

Classical vs wavelet-based filters Comparative study and application to business cycle

URL des Documents de travail : http://ces.univ-paris1.fr/cesdp/CESFramDP2010.htmDocuments de travail du Centre d'Economie de la Sorbonne 2010.27 - ISSN : 1955-611XIn this article, we compare the performance of Hodrickk-Prescott and Baxter-King filters with a method of filtering based on the multi-resolution properties of wavelets. We show that overall the three methods remain comparable if the theoretical cyclical component is defined in the usual waveband, ranging between six and thirty two quarters. However the approach based on wavelets provides information about the business cycle, for example, its stability over time which the other two filters do not provide. Based on Monte Carlo simulation experiments, our method applied to the American GDP using growth rate data shows that the estimate of the business cycle component is richer in information than that deduced from the level of GDP and includes additional information about the post 1980 period of great moderation.Dans cet article, nous comparons les performances des filtres de Hodrick et Prescott et de Baxter et king avec une méthode de filtrage basée sur les propriétés multi-résolution des ondelettes. Nous montrons que globalement les trois méthodes restent comparables si la composante cyclique théorique est définie dans la bande de fréquences usuelle comprise entre six et trente et deux trimestres. En revanche, l'approche basée sur les ondelettes fournit des informations sur le cycle des affaires, par example sa stabilité dans le temps, que les deux autres filtres ne permettent pas. Nos résultats s'appuient sur des expériences de Monte Carlo. Notre méthode appliquée au PIB américain montre aussi que l'estimation de la composante du cycle économique basée sur les données du taux de croissance est meilleur et plus riche d'informations que celle déduite du PIB en niveau et apporte des éléments d'information sur la période de "grande modération" de l'après 1980

The impact of phase II of the EU ETS on the electricity-generation sector

This paper addresses the economic impact of the European Union Emission Trading Scheme (EU ETS) for carbon on wholesale electricity prices in France and Germany during the Kyoto commitment period (2008-2012). Specifically, we use first identify a structural break occurred on the carbon spot price series on October 2008, which is mainly resulting from the financial and economic crisis. Then, we model the prices of day-ahead electricity contracts. We look at the volatilities around their fundamentals and simultaneously evaluate the correlation between electricity prices in both countries. We find that the price of carbon does not matter for electricity prices in either countries before October 2008. After October 2008, electricity producers in both countries were constrained to include the carbon price in their cost functions. During that period, French electricity producers were more constrained than their German counterparts. Comparing the results with those reported in Kirat and Ahamada (2011) reveals improvements in the response of electricity generation sector to carbon constraints. The impact of carbon constraint increased significantly by 300% and 150% in France and Germany, respectively, between the pilot phase and the second phase of the EU ETS. This is a consequence of the possibility of "banking" for subsequent periods and the reduction of allowance caps introduced in the second phase. We also find evidence of a trade off between gas and coal in electricity generation in Germany. Furthermore, the conditional correlation of electricity prices in both countries is highly significant and greater than during the pilot phase of the EU ETS.Carbon emission trading, multivariate GARCH models, structural breaks, energy prices.

A Complementary Test for the KPSS test with an application to the US dollar/euro exchange rate

Accessible en ligne : http://economicsbulletin.vanderbilt.edu/National audienceThis paper shows by simulation experiments some failures of the KPSS test when the source of the nonstationarity is explained by an unconditional volatility shift. So, a complementary test is proposed. An application to the US Dollar/Euro exchange rate reveals an instability in the unconditional volatility

Non Stationarity Characteristics of the S&P500 Returns: An approach based on the evolutionary spectral density.

Accessible en ligne : http://economicsbulletin.vanderbilt.eduIn this paper we study the characteristics of the non stationarity of the covariance structure of the S\&P 500 returns by analyzing the time spectral density of the data. We show that the S\&P 500 returns has the same characteristics as the modulate white noise process. So, some precautions must be taken before applying traditional stationary models to describe like long size financial time series