Real-time monitoring of bubbles and crashes

Given the financial and economic damage that can be caused by the collapse of an asset price bubble, it is of critical importance to rapidly detect the onset of a crash once a bubble has been identified. We develop a real-time monitoring procedure for detecting a crash episode in a time series. We adopt an autoregressive framework, with the bubble and crash regimes modelled by explosive and stationary dynamics respectively. The first stage of our approach is to monitor for the presence of a bubble; conditional on having detected a bubble, we monitor for a crash in real time as new data emerges. Our crash detection procedure employs a statistic based on the different signs of the means of the first differences associated with explosive and stationary regimes, and critical values are obtained using a training period, over which no bubble or crash is assumed to occur. Monte Carlo simulations suggest that our recommended procedure has a well-controlled false positive rate during a bubble regime, while also allowing very rapid detection of a crash when one occurs. Application to the US housing market demonstrates the efficacy of our procedure in rapidly detecting the house price crash of 2006

Kalman filtering and the estimation of systems of consumer demand equations with time-varying coefficients

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Tests for symmetric and asymmetric nonlinear mean reversion in real exchange rates

New tests, based on smooth transition autoregressive models, for mean reversion in time series of real exchange rates are proposed. One test forces mean reversion to be symmetric about the integrated process central case, while the other permits asymmetry. The tests are applied to monthly series of seventeen real exchange rates against the U.S. dollar and fourteen against the deutsche mark. They reveal stronger evidence against the unit root null hypothesis than does the usual Dickey-Fuller test

Real-time monitoring of bubbles and crashes

Given the financial and economic damage that can be caused by the collapse of an asset price bubble, it is of critical importance to rapidly detect the onset of a crash once a bubble has been identified. We develop a real-time monitoring procedure for detecting a crash episode in a time series. We adopt an autoregressive framework, with bubble and crash regimes modelled by explosive and stationary dynamics respectively. The first stage of our approach is to monitor for a bubble; conditional on which, we monitor for a crash in real time as new data emerges. Our crash detection procedure employs a statistic based on the different signs of the means of the first differences associated with explosive and stationary regimes, and critical values are obtained using a training period of data. We show that the procedure has desirable asymptotic properties in terms of its ability to rapidly detect a crash while never indicating a crash earlier than one occurs. Monte Carlo simulations further demonstrate that our procedure can offer a well-controlled false positive rate during a bubble regime. Application to the US housing market demonstrates the efficacy of our procedure in rapidly detecting the house price crash of 2006

US and UK interest rates 1890-1934: new evidence on structural breaks

This paper presents econometric evidence on whether the founding of the Federal Reserve in 1914 caused a structural change from level stationarity to difference stationarity in U.S. and U.K. short-term nominal interest rates. We develop new econometric tests that allow for parameter transitions to test for a break of this kind and undertake a grid search analysis of dates and speeds for the change. We find that U.S. nominal interest rates most likely evolved rapidly to difference stationarity in June 1917. For the United Kingdom we fail to reject the null that U.K. interest rate series follow a difference stationary process over the entire period 1890-1934. Our analysis differs from previous research on this topic in that we take care to explore statistical uncertainty around parameter estimates, and incorporate higher-order dynamics into our econometric analysis

Real exchange rate dynamics under the current float A re-examination

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Spurious rejections by Perron tests in the presence of a misplaced or second break under the null

SIGLEAvailable from British Library Document Supply Centre-DSC:3597.93385(99/37) / BLDSC - British Library Document Supply CentreGBUnited Kingdo

U.S. and U.K. interest rates 1890-1934 New evidence on structural breaks

SIGLEAvailable from British Library Document Supply Centre-DSC:9050.662256(no 2001/1) / BLDSC - British Library Document Supply CentreGBUnited Kingdo