Results 1  10
of
135
The Demand for M3 in the Euro Area
, 1999
"... In this paper, an empirically stable money demand model for M3 in the euro area is constructed. Starting with a multivariate system, three cointegrating relationships with economic content are found: (i) the spread between the long and the shortterm nominal interest rates, (ii) the longterm real ..."
Abstract

Cited by 68 (2 self)
 Add to MetaCart
In this paper, an empirically stable money demand model for M3 in the euro area is constructed. Starting with a multivariate system, three cointegrating relationships with economic content are found: (i) the spread between the long and the shortterm nominal interest rates, (ii) the longterm real interest rate, and (iii) a longrun demand for broad money M3. There is evidence that the determinants of M3 money demand are weakly exogenous with respect to the longrun parameters. Hence, following a generaltospecific modelling approach, a parsimonious conditional errorcorrection model for M3 money demand is derived which can be interpreted economically. For the conditional model, longand shortrun parameter stability is extensively tested and not rejected. Insights into the dynamics of money demand are gained by means of SVAR techniques exploring the impulse response functions of the cointegrated multivariate system.
Optimal portfolio allocation under higher moments.
 European Financial Management
, 2006
"... Abstract We evaluate how departure from normality may affect the allocation of assets. A Taylor series expansion of the expected utility allows to focus on certain moments and to compute the optimal portfolio allocation numerically. A decisive advantage of this approach is that it remains operation ..."
Abstract

Cited by 55 (6 self)
 Add to MetaCart
(Show Context)
Abstract We evaluate how departure from normality may affect the allocation of assets. A Taylor series expansion of the expected utility allows to focus on certain moments and to compute the optimal portfolio allocation numerically. A decisive advantage of this approach is that it remains operational even for a large number of assets. While the meanvariance criterion provides a good approximation of the expected utility maximisation under moderate nonnormality, it may be ineffective under large departure from normality. In such cases, the threemoment or fourmoment optimisation strategies may provide a good approximation of the expected utility.
Uncertainty, financial frictions and investment dynamics. mimeo
, 2010
"... The canonical framework used to price risky debt implies that the payoff structure of levered equity resembles the payoff of a call option, while the bondholders face a payoff structure that is equivalent to that of an investor writing a put option. As a result, an increase in the payoff uncertainty ..."
Abstract

Cited by 28 (1 self)
 Add to MetaCart
The canonical framework used to price risky debt implies that the payoff structure of levered equity resembles the payoff of a call option, while the bondholders face a payoff structure that is equivalent to that of an investor writing a put option. As a result, an increase in the payoff uncertainty benefits equity holders at the expense of bondholders, a feature of the debt contract with two potentially important implications for real economic activity: First, to the extent that firms face significant frictions in financial markets, an increase in the defaultrisk premium implies a higher cost of capital and hence a decrease in investment. Second, a reduction in the supply of credit stemming from an increase in uncertainty hampers the efficient reallocation of capital and causes an endogenous decline in total factor productivity (TFP) that amplifies the economic downturn. This paper analyzes—both empirically and theoretically—how fluctuations in uncertainty interact with financial market imperfections in determining economic outcomes. Using both aggregate timeseries and firmlevel data, we find strong evidence supporting the notion that financial frictions play a major role in shaping the
Evaluating Density Forecasts: Forecast Combinations, Model Mixtures, Calibration and Sharpness
, 2008
"... In a recent article Gneiting, Balabdaoui and Raftery (JRSSB, 2007) propose the criterion of sharpness for the evaluation of predictive distributions or density forecasts. They motivate their proposal by an example in which standard evaluation procedures based on probability integral transforms cann ..."
Abstract

Cited by 22 (5 self)
 Add to MetaCart
(Show Context)
In a recent article Gneiting, Balabdaoui and Raftery (JRSSB, 2007) propose the criterion of sharpness for the evaluation of predictive distributions or density forecasts. They motivate their proposal by an example in which standard evaluation procedures based on probability integral transforms cannot distinguish between the ideal forecast and several competing forecasts. In this paper we show that their example has some unrealistic features from the perspective of the timeseries forecasting literature, hence it is an insecure foundation for their argument that existing calibration procedures are inadequate in practice. We present an alternative, more realistic example in which relevant statistical methods, including informationbased methods, provide the required discrimination between competing forecasts. We conclude that there is no need for a subsidiary criterion of sharpness.
The SupplySide Determinants of Loan Contract Strictness. Working Paper
"... Using a novel measure of contract strictness based on the exante probability of a covenant violation, I investigate how lenderspecific shocks impact the strictness of the loan contract that a borrower receives. Exploiting betweenbank variation in recent portfolio performance, I find evidence that ..."
Abstract

Cited by 21 (0 self)
 Add to MetaCart
Using a novel measure of contract strictness based on the exante probability of a covenant violation, I investigate how lenderspecific shocks impact the strictness of the loan contract that a borrower receives. Exploiting betweenbank variation in recent portfolio performance, I find evidence that banks write tighter contracts than their peers after suffering payment defaults to their own loan portfolios, even when defaulting borrowers are in different industries and geographic regions than the current borrower. The effects of recent defaults persist after controlling for bank capitalization, although compression in bank equity is also strongly associated with tighter contracts. The evidence is most consistent with lenders using their default experience to make inference about their screening ability and adjusting contracts accordingly. Finally, contract tightening is most pronounced for borrowers who are dependent on a relatively small circle of lenders, with a one standard deviation increase in lender defaults implying covenant tightening nearly equivalent to that of a twonotch downgrade in the borrower’s own credit rating.
Price spread and convenience yield behaviour in the international oil market
 APPLIED FINANCIAL ECONOMICS
, 2001
"... This paper examines the price and volatility behaviour of two similar commodities (Brent Crude Oil and West Texas Intermediate) and attempts to identify the variables that affect their relative price differential. Price spreads and convenience yields are estimated in an effort to test a number of hy ..."
Abstract

Cited by 15 (0 self)
 Add to MetaCart
This paper examines the price and volatility behaviour of two similar commodities (Brent Crude Oil and West Texas Intermediate) and attempts to identify the variables that affect their relative price differential. Price spreads and convenience yields are estimated in an effort to test a number of hypotheses relating to market segmentation, seasonality and maturity effect. Cash and futures price data covering the period 19911995 reveal that: convenience yields are significant and about 2.5 % of cash prices on the average; convenience yields exhibit strong yearly and monthly seasonalities due to supply/demand imbalances; convenience yield is a negative function of the level of stocks and behaves like a call option; as maturity of futures contracts nears, their convenience yields get smaller, an indication that the maturity effect exists in futures prices, and crude oil price spreads are affected by convenience yields which act as surrogates for demand/supply conditions and market price behaviour. The globalization of international financial markets and twentyfour hour trading has changed dramatically the
2004), "Estimation and Testing of Dynamic Models with Generalised Hyperbolic Innovations", CMFI Working Paper
"... We analyse the Generalised Hyperbolic distribution adequacy to model kurtosis and asymmetries in multivariate conditionally heteroskedastic dynamic regression models. We standardise this distribution, obtain analytical expressions for the loglikelihood score, and explain how to evaluate the informa ..."
Abstract

Cited by 14 (2 self)
 Add to MetaCart
We analyse the Generalised Hyperbolic distribution adequacy to model kurtosis and asymmetries in multivariate conditionally heteroskedastic dynamic regression models. We standardise this distribution, obtain analytical expressions for the loglikelihood score, and explain how to evaluate the information matrix. We also derive tests for the null hypotheses of multivariate normal and Student t innovations, and decompose them into skewness and kurtosis components, from which we obtain more powerful onesided versions. Finally, we present an empirical application to five NASDAQ sectorial stock returns that indicates that their conditional distribution is asymmetric and leptokurtic, which can be successfully exploited for risk management purposes.
Inference and Forecasting for ARFIMA Models With an Application to US and UK Inflation
, 2004
"... Practical aspects of likelihoodbased inference and forecasting of series with long memory are considered, based on the arfima(p; d; q) model with deterministic regressors. Sampling characteristics of approximate and exact firstorder asymptotic methods are compared. The analysis is extended using m ..."
Abstract

Cited by 13 (2 self)
 Add to MetaCart
Practical aspects of likelihoodbased inference and forecasting of series with long memory are considered, based on the arfima(p; d; q) model with deterministic regressors. Sampling characteristics of approximate and exact firstorder asymptotic methods are compared. The analysis is extended using modified profile likelihood analysis, which is a higherorder asymptotic method suggested by Cox and Reid (1987). The relevance of the differences between the methods is investigated for models and forecasts of monthly core consumer price inflation in the US and quarterly overall consumer price inflation in the UK.
2006) “The OutofSample Forecasting Performance of Nonlinear Models of Real Exchange Rate Behavior
 International Journal of Forecasting
"... In this paper, we analyze the outofsample forecasting performance of a number of prominent nonlinear models of U.S. dollar real exchange rate behavior from the extant empirical literature. Our analysis entails a comparison of point, interval, and density forecasts generated by nonlinear and linear ..."
Abstract

Cited by 13 (0 self)
 Add to MetaCart
In this paper, we analyze the outofsample forecasting performance of a number of prominent nonlinear models of U.S. dollar real exchange rate behavior from the extant empirical literature. Our analysis entails a comparison of point, interval, and density forecasts generated by nonlinear and linear autoregressive models. Using monthly data from the postBretton Woods period, there is fairly little evidence that favors either bandthreshold or exponential smooth transition autoregressive models over simple linear autoregressive models in terms of outofsample forecasting performance. Most of the evidence in support of nonlinear autoregressive specifications comes from a comparison of interval forecasts. Using a long span of annual data, there is more support for an exponential smooth transition autoregressive model over a linear autoregressive model for the U.K.U.S. real exchange rate. Overall, our results suggest that any nonlinearities in monthly real exchange rate data from the postBretton Woods period are quite “subtle” for bandthreshold and exponential smooth transition autoregressive model specifications. Further evidence of this is provided by insample comparisons of the conditional densities implied by nonlinear
Econometric model selection with more variables than observations. Working paper
"... Preliminary version Several algorithms for indicator saturation are compared and found to have low power when there are multiple breaks. A new algorithm is introduced, based on repeated application of an automatic model selection procedure (Autometrics, see Doornik, 2009) which is based on the gener ..."
Abstract

Cited by 11 (2 self)
 Add to MetaCart
Preliminary version Several algorithms for indicator saturation are compared and found to have low power when there are multiple breaks. A new algorithm is introduced, based on repeated application of an automatic model selection procedure (Autometrics, see Doornik, 2009) which is based on the generaltospecific approach. The new algorithm can also be applied in the general case of more variables than observations. The performance of this new algorithm is investigated through Monte Carlo analysis. The relationship between indicator saturation and robust estimation is explored. Building an the results of Johansen and Nielsen (2009), the asymptotic distribution of multistep indicator saturation is derived, as well as the efficiency of the twostep variance. Next, the asymptotic distribution of multistep robust estimation using two different critical values (a low one at first) is derived. The asymptotic distribution of the fully iterated case is conjectured, as is the asymptotic distribution of reweighted least squares based on least trimmed squares (Rousseeuw, 1984)), called RLTS here. This allows for a comparison of the efficiency of indicator saturation with RLTS. Finally, the performance of several robust estimators and the new approach is studied in the presence of a structural break. When there are many irrelevant regressors in the model, the robust estimators break down while the new algorithm is largely unaffected. 1