Cointegration in Fractional Systems with Deterministic Trends

We consider a cointegrated system generated by processes that may be fractionally integrated, and by additive polynomial and generalized polynomial trends. In view of the consequent competition between stochastic and deterministic trends, we consider various estimates of the cointegrating vector and develop relevant asymptotic theory, including the situation where fractional orders of integration are unknown.Fractional cointegration, deterministic trends, ordinary least squares estimation, generalized least squares estimation, Wald tests.

Exchange Rate Management and Inflation Targeting in the CEE Accession Countries

We consider a small structural model to describe the transmission mechanism of monetary policy and the dynamics of inflation. We first verify the validity of the general structure estimating it for Germany which represents a sort of benchmark model. At least one of the links required for the transmission mechanism of monetary policy, when we analyse the Central and Eastern European Countries (CEECs), reveals to be not significant when considered on the whole sample. On the contrary the results are closer to a textbook description when the attention is shifted to the second part of the sample only. We interpret this as a piece of evidence indicating that the transition is indeed operating, but it is still ongoing and in some cases it is not complete yet. We also verify that the effects of the exchange rate on both the aggregate demand and on the inflation are in agreement with the economic theory. We conclude that the exchange rate should be actively used to control the inflation in the CEECs

The Eastward Enlargement of the Eurozone Final Report on "Exchange Rate Regimes"

The CEEC are approaching the accession to the EU with a variety of exchange rate regimes. The authors find that these differences depend on economical factors as well as on the history of the countries. For that purpose, they discuss the role of the exchange rate in the stabilization of the inflation rate at the beginning of the transition from the central planning to the market economy, finding that, combining internal price liberalisation, openness to the international trade and a commitment to exchange rate stability the countries in transition - with the exception of Slovenia - provided the system with a nominal anchor by importing the price structure of the trade partners. Later, the capital liberalisation required for the progressive integration in the EU exposed the CEEC to speculative attacks and exchange rate pressure and most of them weakened the exchange rate commitment or withdrew it at all. The Baltic States are the only ones still maintaining a strong exchange-rate commitment. The authors conjecture that this is due to the smaller size of these countries, which makes the interest rates of the domestic currency of little importance to the economy when compared to the exchange rate. Policy advice completes this report

Semiparametric detection of changes in long range dependence

We consider changes in the degree of persistence of a process when the degree of persistence is characterized as the order of integration of a strongly dependent process. To avoid the risk of incorrectly specifying the data generating process we employ local Whittle estimates which uses only frequencies local to zero. The limit distribution of the test statistic under the null is not standard but it is well known in the literature. A Monte Carlo study shows that this inference procedure performs well in finite samples. We demonstrate the practical utility of these results with an empirical example, where we analyse the inflation rate in Germany for the period 1986–2017

Comparing predictive accuracy in small samples using fixed-smoothing asymptotic

We consider fixed-smoothing asymptotics for the Diebold and Mariano (1995) test of predictive accuracy. We show that this approach delivers predictive accuracy tests that are correctly sized even when only a small number of out of sample observations is available. We apply the fixed-smoothing asymptotics to the Diebold and Mariano (1995) test to evaluate the predictive accuracy of the Survey of Professional Forecasters (SPF) and of the ECB Survey of Professional Forecasters (ECB SPF) against a simple random walk. Our results show that the predictive abilities of the SPF and of the ECB SPF were partially spurious

Long memory and fractional cointegration with deterministic trends.

We discuss the estimation of the order of integration of a fractional process that may be contaminated by a time-varying deterministic component, or subject to a break in the dynamics of the zero-mean stochastic component, and the estimation of the cointegrating parameter in a bivariate system generated by fractionally integrated processes and by additive polynomial trends. In Chapter 1 we review the theoretical literature on fractional integration and cointegration, and we analyse a situation in which a fractional model reconciles two apparently conflicting economic theories. In Chapter 2 we consider local Whittle estimation of the order of integration when the process is contaminated by a deterministic trend or by a break in the mean. We propose a simple condition to assess whether the asymptotic properties of the estimate are unaffected by the time-varying mean, and a test, with asymptotically normal test statistic under the null, to detect if that condition is met. In Chapter 3 we discuss local Whittle estimation when the zero-mean stochastic component is subject to a break: we show that the estimate is robust to instability in the short term dynamics, while in presence of a break in the long term dynamics only the highest order of integration is consistently estimated. We propose a test to detect that break: the limit distribution of the test statistic under the null is not standard, but it is well known in the literature. We also propose a procedure to estimate the location of a break when it is present. In Chapter 4 we consider a cointegrating relation in which a nonstationary, bivariate process is augmented by a deterministic trend. We derive the limit properties of the Ordinary Least Squares and Generalised Least Squares estimates: these depend on the comparison between the deterministic and the stochastic components

Modelling the Dynamics of a Public Health Care System: Evidence from Time-Series Data

The English National Health Service was established in 1948, and has therefore yielded some long time series data on health system performance. Waiting times for inpatient care have been a persistent cause of policy concern since the creation of the NHS. This paper develops a theoretical model of the dynamic interaction between key indicators of health system performance. It then investigates empirically the relationship between hospital activity, waiting times and population characteristics using aggregate time-series data for the NHS over the period 1952— 2005. Structural Vector Auto-Regression suggests that in the long run: a) higher activity is associated with lower waiting times (elasticity = -0.9%); b) a higher proportion of old population is associated with higher waiting times (elasticity = 1.6%). In the short run, higher lagged waiting time leads to higher activity (elasticity = 0.2%). We also find that shocks in waiting times are countered by higher activity, so the effect is only temporary, while shocks in activity have a permanent effect. We conclude that policies to reduce waiting times should focus on initiatives that increase hospital activity.Waiting Times, Dynamics, Vector Auto-Regression

Modelling the Dynamics of a Public Health Care System: Evidence from Time-Series Data

The English National Health Service was established in 1948, and has therefore yielded some long time series data on health system performance. Waiting times for inpatient care have been a persistent cause of policy concern since the creation of the NHS. This paper develops a theoretical model of the dynamic interaction between key indicators of health system performance. It then investigates empirically the relationship between hospital activity, waiting times and population characteristics using aggregate time-series data for the NHS over the period 1952-2005. Structural Vector Auto-Regression suggests that in the long run: a) higher activity is associated with lower waiting times (elasticity = -0.9%); b) a higher proportion of old population is associated with higher waiting times (elasticity = 1.6%). In the short run, higher lagged waiting time leads to higher activity (elasticity = 0.2%). We also find that shocks in waiting times are countered by higher activity, so the effect is only temporary, while shocks in activity have a permanent effect. We conclude that policies to reduce waiting times should focus on initiatives that increase hospital activity.Waiting times, Dynamics, Vector Auto-Regression.

Testing for a change in mean under fractional integration

We consider testing for the presence of a change in mean, at an unknown point in the sample, in data that are possibly fractionally integrated, and of unknown order. This testing problem has recently been considered in a number of papers, most notably Shao (2011, “A Simple Test of Changes in Mean in the Possible Presence of Long-Range Dependence.” Journal of Time Series Analysis 32:598–606) and Iacone, Leybourne, and Taylor (2013b, “A Fixed-b Test for a Break in Level at an Unknown Time under Fractional Integration.” Journal of Time Series Analysis 35:40–54) who employ Wald-type statistics based on OLS estimation and rely on a self-normalization to overcome the fact that the standard Wald statistic does not have a well-defined limiting distribution across different values of the memory parameter. Here, we consider an alternative approach that uses the standard Wald statistic but is based on quasi-GLS estimation to control for the effect of the memory parameter. We show that this approach leads to significant improvements in asymptotic local power