Commodity prices, commodity currencies, and global economic developments

In this paper we seek to produce forecasts of commodity price movements that can systematically improve on naive statistical benchmarks, and revisit the forecasting performance of changes in commodity currencies as efficient predictors of commodity prices, a view emphasized in the recent literature. In addition, we consider different types of factor-augmented models that use information from a large data set containing a variety of indicators of supply and demand conditions across major developed and developing countries. These factor-augmented models use either standard principal components or partial least squares (PLS) regression to extract dynamic factors from the data set. Our forecasting analysis considers ten alternative indices and sub-indices of spot prices for three different commodity classes across different periods. We .find that the exchange rate-based model and especially the PLS factor-augmented model are more prone to outperform the naive statistical benchmarks. However, across our range of commodity price indices we are not able to generate out-of-sample forecasts that, on average, are systematically more accurate than predictions based on a random walk or autoregressive specifications.

Waterborne GPR survey for estimating bottom-sediment variability: A survey on the Po River, Turin, Italy

We conducted an integrated geophysical survey on a stretch of the river Po in order to check the GPR ability to discriminate the variability of riverbed sediments through an analysis of the bottom reflection amplitudes. We conducted continuous profiles with a 200-MHzGPR system and a handheld broadband EM sensor.Aconductivity meter and a TDR provided punctual measurements of water conductivity, permittivity, and temperature. The processing and interpretation of the GEM-2 and GPR data were enhanced by reciprocal results and by integration with the punctual measurements of the EM properties of the water. We used a processing flow that improved the radargram images and preserved the amplitude ratios among the different profiles and the frequency content at the bottom reflection signal.We derived the water attenuation coefficient both from the punctual measurements using the Maxwell formulas and from the interpretation of the GPR data, finding an optimal matching between the two values. The GPR measurements provided maps of the bathymetry and of the bottom reflection amplitude. The high reflectivity of the riverbed, derived from the GPR interpretation, agreed with the results of the direct sampling campaign that followed the geophysical survey. The variability of the bottom-reflection-amplitudes map, which was not confirmed by the direct sampling, could also have been caused by scattering phenomena due to the riverbed clasts which are dimensionally comparable to the wavelength of the radar pulse

A Center-Periphery Model of Monetary Coordination and Exchange Rate Crises

The paper analyzes the modalities and consequences of a breakdown of cooperation between the monetary authorities of inflation-prone Periphery Countries that use an exchange rate peg as an anti- inflationary device, when the Center is hit by an aggregate demand shock. Cooperation in the Periphery is constrained to be symmetric: costs and benefits must be equal for all. Our model suggests that there are at least two ways in which a generalized crisis of the exchange rate system may emerge. The first is when the constrained cooperative response of the Periphery is a moderate common devaluation while the non-cooperative equilibrium has large devaluations by a few countries. An exchange rate crisis emerges if Periphery countries give in to their individual incentives to renege on the cooperative agreement. In the second case, the Center shock is not large enough to trigger a general devaluation in the constrained cooperative equilibrium; yet some of the Periphery countries would devalue in the Nash equilibrium, making the monetary stance in the system more expansionary. In this case, reversion to Nash is collectively rational. We offer this model as a useful parable for interpreting the collapse of the EMR in 1992-93.

Productivity Spillovers, Terms of Trade and the "Home Market Effect"

This paper analyzes the welfare implications of international spillovers related to productivity gains, changes in market size, or government spending. We introduce trade costs and endogenous varieties in a two-country general-equilibrium model with monopolistic competition, drawing a distinction between productivity gains that enhance manufacturing efficiency, and gains that lower the cost of firms' entry and product differentiation. Our model suggests that countries with lower manufacturing costs have higher GDP but supply a smaller number of goods at a lower international price. Countries with lower entry and differentiation costs also have higher GDP, but supply a larger array of goods at improved terms of trade. The sign of the international welfare spillovers depends on terms of trade, but also on consumers' taste for variety. Higher domestic demand has macroeconomic implications that are similar to those of a reduction in firms' entry costs.

Reverse sensitivity testing: What does it take to break the model?

Sensitivity analysis is an important component of model building, interpretation and validation. A model comprises a vector of random input factors, an aggregation function mapping input factors to a random output, and a (baseline) probability measure. A risk measure, such as Value-at-Risk and Expected Shortfall, maps the distribution of the output to the real line. As is common in risk management, the value of the risk measure applied to the output is a decision variable. Therefore, it is of interest to associate a critical increase in the risk measure to specific input factors. We propose a global and model-independent framework, termed ‘reverse sensitivity testing’, comprising three steps: (a) an output stress is specified, corresponding to an increase in the risk measure(s); (b) a (stressed) probability measure is derived, minimising the Kullback-Leibler divergence with respect to the baseline probability, under constraints generated by the output stress; (c) changes in the distributions of input factors are evaluated. We argue that a substantial change in the distribution of an input factor corresponds to high sensitivity to that input and introduce a novel sensitivity measure to formalise this insight. Implementation of reverse sensitivity testing in a Monte-Carlo setting can be performed on a single set of input/output scenarios, simulated under the baseline model. Thus the approach circumvents the need for additional computationally expensive evaluations of the aggregation function. We illustrate the proposed approach through a numerical example of a simple insurance portfolio and a model of a London Insurance Market portfolio used in industry

Euler allocations in the presence of non-linear reinsurance: comment on Major (2018)

Major (2018) discusses Euler/Aumann-Shapley allocations for non-linear portfolios. He argues convincingly that many (re)insurance portfolios, while non-linear, are nevertheless positively homogeneous, owing to the way that deductibles and limits are typically set. For such non-linear but homogeneous portfolio structures, he proceeds with defining and studying a particular type of capital allocation. In this comment, we build on Major's (2018) insights but take a slightly different direction, to consider Euler capital allocations for distortion risk measures applied to homogeneous portfolios. Thus, the important problem of capital allocation in portfolios with non-linear reinsurance is solved

Emission lines from rotating proto-stellar jets with variable velocity profiles. I. Three-dimensional numerical simulation of the non-magnetic case

Using the Yguazu-a three-dimensional hydrodynamic code, we have computed a set of numerical simulations of heavy, supersonic, radiatively cooling jets including variabilities in both the ejection direction (precession) and the jet velocity (intermittence). In order to investigate the effects of jet rotation on the shape of the line profiles, we also introduce an initial toroidal rotation velocity profile, in agreement with some recent observational evidence found in jets from T Tauri stars which seems to support the presence of a rotation velocity pattern inside the jet beam, near the jet production region. Since the Yguazu-a code includes an atomic/ionic network, we are able to compute the emission coefficients for several emission lines, and we generate line profiles for the H, [O I]6300, [S II]6716 and [N II]6548 lines. Using initial parameters that are suitable for the DG Tau microjet, we show that the computed radial velocity shift for the medium-velocity component of the line profile as a function of distance from the jet axis is strikingly similar for rotating and non-rotating jet models. These findings lead us to put forward some caveats on the interpretation of the observed radial velocity distribution from a few outflows from young stellar objects, and we claim that these data should not be directly used as a doubtless confirmation of the magnetocentrifugal wind acceleration models.Comment: 15 pages, 8 figures. Accepted to publication in Astronomy and Astrophysic