Temporal aggregation of an ESTAR process

Nonlinear models of deviations from PPP have recently provided an important, theoretically well motivated, contribution to the PPP puzzle. Most of these studies use temporally aggregated data to empirically estimate the nonlinear models. As noted by Taylor (2001), if the true DGP is nonlinear, the temporally aggregated data could exhibit misleading properties regarding the adjustment speeds. We examine the effects of different levels of temporal aggregation on estimates of ESTAR models of real exchange rates.

On the relationship between Nominal Exchange Rates and domestic and foreign prices

A number of authors have found significant cointegrating relationships between spot exchange rates and domestic and foreign price levels for the major currencies where the magnitude of the coefficients makes economic interpretation of PPP cumbersome. Using theoretically well motivated nonlinear models for "artifitially" created real exchange rates, this paper investigates the properties of two alternative cointegration procedures, namely the Johansen and Saikkonen methodologies. The latter procedure appears to outperform the former one in terms of finding the "true" cointegrating coefficients. The new weights obtained with the Saikkonen method are then used to estimate nonlinear ESTAR model for the real exchange rate. The "new" real exchange rates exhibit, in most cases, much lower half-life shocks than the ones predicted by the Rogoff (1996) puzzle.

A new analysis of the determinants of the real dollar-sterling exchange rate: 1871-1994

Nonlinear models of deviations from PPP have recently provided an important, theoretically well motivated, contribution to the PPP puzzle. In recent work the equilibrium level has been modelled either as constant or as time varying with very similar statistical fits and very different economic implications. The high persistence of both PPP deviations and the proxy variables for the equilibrium real rate might create a problem of spurious coefficient significance. This paper investigates the possibility of spurious regression within nonlinear models of PPP. Monte Carlo experiments show that standard critical values are not appropriate in such a context. To illustrate we consider the real Dollar-Sterling exchange rate over the period 1871-1994. Due to many exchange rate regime changes over the sample period we employ a Bootstrap methodology that preserves the original structure of the estimated residuals and obtain new critical values of the coefficient estimates. A nonlinear (ESTAR) process with a time varying equilibrium proxied by relative wealth and relative income per capita seems to parsimoniously fit the data. Our results provide further evidence for the nonlinear model with a shifting equilibrium and the implied speed of adjustment is found to be substantially faster than previously reported in the literature.

Specifying Smooth Transition Regression Models in the Presence of Conditional Heteroskedasticity of Unknown Form

The specification of Smooth Transition Regression models consists of a sequence of tests, which are typically based on the assumption of i.i.d. errors. In this paper we examine the impact of conditional heteroskedasticity and investigate the performance of several heteroskedasticity robust versions. Simulation evidence indicates that conventional tests can frequently result in finding spurious nonlinearity. Conversely, when the true process is nonlinear in mean the tests appear to have low size adjusted power and can lead to the selection of misspecified models. The above deficiencies also hold for tests based on Heteroskedasticity Consistent Covariance Matrix Estimators but not for the Fixed Design Wild Bootstrap. We highlight the importance of robust inference through empirical applications.

Linkages between Shanghai and Hong Kong stock indices

This paper examines the dynamics of the linkages between Shang- hai and Hong Kong stock indices. While the volatility linkage is anal- ysed by a multivariate GARCH framework, the linkage of returns is examined using a copula approach. Eight different copula functions are applied in this study including two time-varying copulas which capture the time varying process of the linkage. The results show sig- nificant tail dependence of the returns in the two markets.

Real Exchange Rates and Time-Varying Trade Costs

Previous empirical work on the Purchasing Power Parity does not explicitly account for time-varying trade costs. Motivated by the recent gravity literature we incorporate a microfounded measure of trade costs into two nonlinear regression models for the real exchange rate. Using data for the dollar-sterling real exchange rate from 1830 to 2005, we provide significant evidence in favor of a positive relation between the level of trade costs and the degree of persistence of the real exchange rate.

ESTAR model with multiple fixed points. Testing and Estimation

In this paper we propose a globally stationary augmentation of the Exponential Smooth Transition Autoregressive (ESTAR) model that allows for multiple fixed points in the transition function. An F-type test statistic for the null of nonstationarity against such globally stationary nonlinear alternative is developed. The test statistic is based on the standard approximation of the nonlinear function under the null hypothesis by a Taylor series expansion. The model is applied to the U.S real interest rate data for which we find evidence of the new ESTAR process.

Bubbles in House Prices and their Impact on Consumption: Evidence for the US

This paper provides evidence that some aggregate and regional U.S. real house price indices exhibited a bubble in the last few years according to the Phillips et al. (2007) unit root test. We subsequently investigate whether house price acceleration (deceleration) had a signi.cant impact on consumption in an error correction mechanism implied by a wide class of optimizing models. Our results support the argument that real house prices have their major effect on consumption only during the bubble period

What is the redshift of the gamma- ray BL Lac source S4 0954+65?

High signal-to-noise ratio spectroscopic observations of the BL Lac object S4 0954+65 at the alleged redshift z = 0.367 are presented. This source was detected at gamma frequencies by MAGIC (TeV) and FERMI (GeV) telescopes during a remarkable outburst that occurred in February 2015, making the determination of its distance particularly relevant for our understanding of the properties of the Extragalactic Background Light. Contrary to previous reports on the redshift, we found that the optical spectrum is featureless at an equivalent width limit of \sim 0.1 Ang. A critical analysis of the existing observations indicates that the redshift is still unknown. Based on the new data we estimate a lower limit to the redshift at z \geq 0.45.Comment: Minor comment and accepted for publication in Astronomical Journa

Norm attaining and numerical radius attaining operator

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