Predicting Short-Term Interest Rates: Does Bayesian Model Averaging Provide Forecast Improvement?

This paper examines the forecasting qualities of Bayesian Model Averaging (BMA) over a set of single factor models of short-term interest rates. Using weekly and high frequency data for the one-month Eurodollar rate, BMA produces predictive likelihoods that are considerably better than the majority of the short-rate models, but marginally worse off than the best model in each dataset. We observe preference for models incorporating volatility clustering for weekly data and simpler short rate models for high frequency data. This is contrary to the popular belief that a diffusion process with volatility clustering best characterizes the short rate.Bayesian model averaging, out-of-sample forecasts

The behaviour of U.S. public debt and deficits during the global financial crisis

In this paper we test the sustainability of U.S. public debt for the period 1916-2012 by analyzing how the primary surplus to gross domestic product (GDP) responds to changes in the debt to GDP ratio in a time-varying parameter model. Further, we determine the stationarity property of the debt/GDP ratio while accommodating possible breaks in the data caused by wars and economic crisis under both the null and alternative hypotheses of an endogenous unit root test. The results show that the U.S. public debt was sustainable until 2005 when the primary surplus to GDP reacted negatively to the debt/income ratio. This is further exacerbated during the global financial crisis when primary surpluses continued to fall with increased debt, thus jeopardizing the sustainability of fiscal policy. While the stationarity test shows that the U.S. fiscal debt/GDP ratio is sustainable, it fails to highlight the risk that its debt policy has been becoming unsustainable in recent years

Phenomenological constraints on minimally coupled exotic lepton triplets

By introducing a set of new triplet leptons (with nonzero hypercharge) that can Yukawa couple to their Standard Model counterparts, new sources of tree-level flavor changing currents are induced via mixing. In this work, we study some of the consequences of such new contributions on processes such as the leptonic decays of gauge bosons, $\ell \rightarrow 3\ell'$ and $\ell \rightarrow \ell' \gamma$ which violate lepton flavor, and mu-e conversion in atomic nuclei. Constraints are then placed on the parameters associated with the exotic triplets by invoking the current low-energy experimental data. Moreover, the new physics contribution to the lepton anomalous magnetic moments is calculated.Comment: 17 pages, 1 figure, 2 tables (REVTeX4.1); v2: refs added, to appear in PR

Inverse seesaw and dark matter in models with exotic lepton triplets

We show that models with exotic leptons transforming as E ~ (1,3,-1) under the standard model gauge symmetry are well suited for generating neutrino mass via a radiative inverse seesaw. This approach realizes natural neutrino masses and allows multiple new states to appear at the TeV scale. The exotic leptons are therefore good candidates for new physics that can be probed at the LHC. Furthermore, remnant low-energy symmetries ensure a stable dark matter candidate, providing a link between dark matter and the origins of neutrino mass.Comment: 6 pages, 3 figures (revtex4.1, two-columns

Constraints on exotic lepton doublets with minimal coupling to the standard model

We investigate the consequences of introducing a set of exotic doublet leptons which couple to the standard model leptons in a minimal way. Through these additional gauge invariant and renormalizable coupling terms, new sources of tree-level flavor changing currents are induced via mixing. In this work, we derive constraints on the parameters that govern the couplings to the exotic doublets by invoking the current low-energy experimental data on processes such as leptonic Z decays, $\ell \rightarrow 3 \ell'$, $\ell \rightarrow \ell' \gamma$, and $\mu$-$e$ conversion in atomic nuclei. Moreover, we have analyzed the role these doublets play on the lepton anomalous magnetic moments, and found that their contribution is negligible.Comment: 18 pages, 1 figure, 2 tables (REVTeX4.1); v2: added discussions in Sec.II, III & IX and new ref. To appear in JHEP. arXiv admin note: text overlap with arXiv:1011.473

On the Pernicious Effects of Oil Price Uncertainty on U.S. Real Economic Activities

The last five decades have witnessed dramatic changes in crude oil price dynamics. We identify the influence of extreme oil shocks and changing oil price uncertainty dynamics associated with economic and political events. Neglecting these features of the data can lead to model misspecification that gives rise to: firstly, an explosive volatility process for oil price uncertainty; and secondly, erroneous output growth dynamic responses to oil shocks. Unlike past studies, our results show that the sharp increase in oil price uncertainty after mid-1985 has a pernicious e¤ect on output growth. Output growth responds symmetrically (asymmetrically) to positive and negative shocks in the period when oil price uncertainty is lower (higher) and more (less) persistent before (after) mid- 1985. These contrasting results from Elder and Serletis (2010) highlight the importance of accounting for outliers and volatility breaks in oil price and output growth, and the need to better understand the response of economic activity to oil shocks in the presence of oil price uncertainty

Do Petrol Prices Increase Faster than They Fall in Market Disequilibria?

This paper tests the idea that petrol prices respond more quickly to price increases than to decreases. We show that the results previously documented in the literature for Australia are spurious due to failure to establish the stationarity property of the price series, and the cointegration relationship between retail and wholesale prices when neglecting to account for a regime shift in the data. Using a robust approach involving a threshold error correction model, we find little evidence to support the contention that retail petrol price reverts asymmetrically to long-run equilibrium. Asymmetric adjustments in retail prices are found only in four of the twenty-eight retail gas stations in Queensland. These results cast doubt on the previously reported pervasiveness of this asymmetric price response phenomenon in Australia. We further caution on erroneous inference with the use of weekly rather than daily data, and when failing to account for a regime shift in the data

Markov-switching mean reversion in short-term interest rates: Evidence from East Asian economies

This paper employs a Markov-switching approach to model the dynamics of East Asian short rates. Regime changes are incorporated in standard unit root test to reveal periodic changes in the stationarity property of interest rates. There is evidence that three of the five short rates follow a random walk process in tranquil and low rates episodes but mean-revert in periods when rates are high and volatile. Singapore short rates are characterised by a random walk process, whereas the Philippines rates behave as a mean-reverting process in both regimes. Factors such as exchange rates, monetary policy and interest rate differentials vis-à-vis US interest rates influence the likelihood of short rates being in a volatile state. The regime switching dynamics of interest rates carry important implications for policy-makers