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Multifractal Height Cross-Correlation Analysis
Krištoufek, Ladislav
We introduce a new method for detection of long-range cross- correlations and cross-multifractality – multifractal height cross-correlation analysis (MF-HXA). MF-HXA is a multivariate generalization of the height- height correlation analysis. We show that long-range cross-correlations can be caused by a mixture of the following – long-range dependence of separate processes and additional scaling of covariances between the processes. Simi- lar separation applies for cross-multifractality – standard separation between distributional properties and correlations is enriched by division of correlations between auto-correlations and cross-correlations. We further apply the method on returns and volatility of NASDAQ and S&P500 indices as well as of Crude and Heating Oil futures and uncover some interesting results.
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Elliptical Stable Distributions
Omelchenko, Vadym
The elliptical stable distributions represent a symmetric subfamily of the stable distributions. Their advantage contrary to the general stable distributions consists in their easy-to-use property and the highest resemblance to the normal distribution. They enable an easy representation of the dependence structure of the margins by means of a matrix Q the same as in case of the normal distribution. In general, the dependence structure between margins is given in form of a spectral measure which can be even continuous. The computations and approximations require so much time that it just the fact that many practitioners avoid using general stable distributions. The general stable distributions possess so many additional properties that they barely take after the multivariate normal distribution. But the multi-variate elliptical stable distributions can be easily simulated and the estimation of their parameters can be obtained by methods whose preciseness is almost the same as the one of the maximum likelihood methodology.
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Modeling multivariate volatility using wavelet-based realized covariance estimator
Baruník, Jozef ; Vácha, Lukáš
Abstract. Study of the covariation have become one of the most active and successful areas of research in the time series econometrics and economic forecasting during the recent decades. Our work brings complete theory for the realized covariation estimation generalizing current knowledge and bringing the estimation to the time-frequency domain for the first time. The results generalize the popular realized volatility framework by bringing the robustness to noise as well jumps and ability to measure the realized covariance not only in time but also in frequency domain. Noticeable contribution is brought also by the application of the presented theory. Our time-frequency estimators bring not only more efficient estimates, but decomposes the realized covariation into arbitrarily chosen investment horizons. Results thus bring better understanding of the dynamics of dependence between the stock markets.
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Dynamic Model of Losses of Creditor with a Large Mortgage Portfolio
Šmíd, Martin ; Gapko, Petr
We propose a dynamic model of mortgage credit losses. We assume borrowers to hold assets covering the instalments and to own a real estate which serves as a collateral; both the value of the assets and the price of the estate follow general stochastic processes driven by common and individual factors. We describe the correspondence between the common factors, the percentage of defaults and the loss given default and we suggest a procedure of econometric estimation of the model.
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What the Data Say about the Effects of Fiscal Policy in the Czech Republic?
Baxa, Jaromír
In this paper, we provide the estimates of the fiscal multiplier in the Czech economy, based on the methodology of the fiscal VAR. The basic idea, adding fiscal variables into the macroeconomic VAR model, follows Blanchard and Perotti (2002). For estimation of our model, we utilize the dataset with quarterly data on a sample from the first quarter of 1998 to the second quarter of 2009. Our main results are as follows. Firstly, government expenditures have a positive and significant impact on the GDP. By contrast, a response of GDP on a shock to government revenues is slightly negative and in most specifications not significant. Secondly, these results are robust to various sensitivity checks. Consequently, the restoration of sustainable fiscal policy should focus rather on the revenues side than in the government expenditures, since a significant cut in government spending would probably have slowed down economic growth.
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How Does Monetary Policy Change? Evidence on Inflation Targeting Countries
Baxa, Jaromír ; Horváth, R. ; Vašíček, B.
We examine the evolution of monetary policy rules in a group of inflation targeting countries (Australia, Canada, New Zealand, Sweden and the United Kingdom), applying a moment-based estimator in a time-varying parameter model with endogenous regressors. Using this novel flexible framework, our main findings are threefold. First, monetary policy rules change gradually, pointing to the importance of applying a time-varying estimation framework. Second, the interest rate smoothing parameter is much lower than typically reported by previous time-invariant estimates of policy rules. External factors matter for all countries, although the importance of the exchange rate diminishes after the adoption of inflation targeting. Third, the response of interest rates to inflation is particularly strong during periods when central bankers want to break a record of high inflation, such as in the UK or Australia at the beginning of the 1980s.
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Pexeso ("Concentration game") as an arbiter of bounded-rationality models
Kuběna, Aleš Antonín
Among board games, Pexeso (Concentration game) for two players is a game almost purely output-oriented, i.e. the optimal play is not given by strategic plans with long-term horizon (e.g. no short-term tactical sacrifice is observed). So, the optimal strategy and game dynamics may be calculated almost analytically, assuming a given rationality restrictions of the players. In the paper, the optimal strategy for two players is solved using dynamic programming. Further, it is proved that for rational players, the game would end with ”stalemate” (the game never ends) with a probability close to 1. Further, the game dynamics is described if a rationality restriction is given such that the players perform a random move instead of the optimal one with probabilities P,Q > 0. In this case, the probability of a stalemate is equal to zero.
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