Worker heterogeneity and labor market volatility in matching models

Shimer demonstrated that aggregate productivity shocks in a standard matching model cause fluctuations in key labor market statistics—such as the job-finding rate, the vacancy/unemployment ratio, and the unemployment rate—that are too small by an order of magnitude [Shimer, R., 2005. The cyclical behavior of equilibrium unemployment and vacancies. American Economic Review 95 (1) 25–49]. This paper shows that when the standard model is extended to allow for worker heterogeneity, it exhibits considerably greater volatility. In the model, marginal workers, whose productivity only slightly exceeds the value of their alternative use of time, constitute a disproportionate share of unemployment on average, and that share rises when aggregate conditions deteriorate. These composition effects cause firms to open fewer vacancies during downturns.     

Forecasting the aggregate stock market volatility in a data-rich world

ABSTRACT

In this article, we utilize the basic lasso and elastic net models to revisit the predictive performance of aggregate stock market volatility in a data-rich world. Motivated by the existing literature, we determine several candidate predictors that have 22 technical indicators and 14 macroeconomic and financial variables. Our out-of-sample results reveal several noteworthy findings. First, few macroeconomic and financial variables and most of technical indicators have superior performance relative to the benchmark model. Second, combination forecasts are able to significantly beat the benchmark and some signal predictors Third, the lasso and elastic models with all predictors can generate more accurate forecasts than the benchmark and some other predictors in both the statistical and economic sense. Fourth, the lasso and elastic models exhibit higher forecast accuracy during periods of expansions and recessions. Finally, our findings are robust to several tests, such as different forecasting windows, forecasting models, and forecasting evaluations.     

An econometric analysis of the effects of market liberalization on price dynamics and price volatility

The paper investigates price dynamics under market liberalization, with a focus on the effects of lowering price floors. We analyze price dynamics by specifying and estimating a dynamic Tobit model under time-varying volatility, where the market price is censored by a government-set support price. The model is applied to the U.S. butter market over the last three decades. The econometric results show how the price support program affects both expected prices and the volatility of prices. It is found that the censoring effects of a price support program can be significant and large even if the price support is set relatively low.

Economic policy uncertainty and the Chinese stock market volatility: new evidence

This study investigates the impacts of the economic policy uncertainty (EPU) indexes of China and the G7 countries on Chinese stock market volatility and further constructs a new diffusion index based on these indexes using principal component analysis (PCA) to achieve enhanced predictive ability. The in-sample results indicate that the EPU indexes of China and some of the G7 countries show a significantly negative impact on future volatility. Moreover, our constructed diffusion index also has a significantly negative impact. Furthermore, the out-of-sample results show that this diffusion index exhibits a significantly higher forecast accuracy than the EPU itself and combination forecasts. Finally, various robustness checks are consistent with our main conclusions. Overall, we construct a new and useful indicator that can substantially increase forecast accuracy with respect to the Chinese stock market.     

Linear and non-linear transmission of equity return volatility: evidence from the US, Japan and Australia

This paper models the transmission of shocks between the US, Japanese and Australian equity markets. Tests for the existence of linear and non-linear transmission of volatility across the markets are performed using parametric and non-parametric techniques. In particular the size and sign of return innovations are important factors in determining the degree of spillovers in volatility. It is found that a multivariate asymmetric GARCH formulation can explain almost all of the non-linear causality between markets. These results have important implications for the construction of models and forecasts of international equity returns.     

A spatial econometric analysis of the regional growth and volatility in Europe

Based on a sample of 1,084 European regions (EU15) from 1995 to 2004, we estimate the relationship between the average growth rate of GDP per capita and the volatility of the growth rate allowing for spatial effects. The spatial lag and spatial error models show that the regional per capita growth rate and volatility are significantly positively related on average. However, the inclusion of country interaction terms reveals that the volatility impact is not uniform across countries. In particular, the relationship between growth and volatility is significantly positive for the majority of countries but significantly negative for three countries (namely Finland, Italy, and Ireland).

Modelling the volatility of the tanker freight market based on improved empirical mode decomposition

In this article, a method based on empirical mode decomposition (EMD) and BEKK–Multivariate GARCH (MVGARCH) is developed to analyse the volatility of the tanker freight market. First, the initial time series of tanker freight rates is decomposed into several independent intrinsic mode functions (IMFs). Next, the IMFs are composed as three components by an improved EMD: the long-term trend time series that represents the benchmark freight rates of the tanker freight market, the high-frequency time series that reflects the short-term supply–demand relation and the low-frequency time series caused by extreme events. Based on the results of EMD, the volatility spillover effects between the freight rates of Aframax, Suezmax and Very Large Crude Carrier (VLCC) markets are tested by the BEKK–MVGARCH model. The results indicate that there are volatility spillover effects between the reconstructed components, although the volatility spillover effects between the original freight series are not significant. The improved EMD method contributes to the retention of the economic characteristics of the original time series, thereby providing a vital approach for tanker freight market analysis. Furthermore, the potential volatility spillover among different sub-markets can be investigated through the integration of EMD and the BEKK–MVGARCH.     

Introducing the mini-futures contract on Ibex 35: implications for price discovery and volatility transmission

This paper analyzes the effects of the introduction of the mini-futures contract in the Spanish stock index futures market. The objective of the paper is twofold: (a) to analyze the potential destabilizing effect of the mini futures trading activity on the distribution of spot returns, and (b) to test whether the mini futures contract significantly contributes to the price discovery process. A non-parametric approach is used to estimate the density function of spot return conditional to both spot and futures trading volume. Empirical findings using 15-min intraday data reveal that the mini futures trading activity enhances the price discovery function of the derivative market and does not destabilize spot prices. A preliminary version of this paper has been previously published as a working paper of the Instituto Valenciano de Investigaciones Económicas, WP-EC 2004-13. M. Illueca and Juan A. Lafuente acknowledge financial support from Spanish ministry of Science and Technology through grants SEJ-2005-02776, and both SEJ2006-14354 and BEC-2003-03965, respectively.     

Using threshold cointegration to estimate asymmetric price transmission in the Swiss pork market

This paper employs threshold cointegration tests that allow for asymmetric adjustment towards a long-run equilibrium relationship to examine the relationship between producer and retail pork prices in Switzerland. The short-run adjustments are also examined with asymmetric error correction models that are compared to the conventional symmetric error correction models. The results indicate that price transmission between the producer and retail levels is asymmetric, in the sense that increases in producer prices that lead to declines in marketing margins are passed on more quickly to retail prices than decreases in producer prices that result in increases in the marketing margins.     

Monetary policy, oil shocks, and TFP: Accounting for the decline in US volatility

An equilibrium model is used to assess the quantitative importance of monetary policy for the post-1984 decline in US inflation and output volatility. The principal finding is that monetary policy played a substantial role in reducing inflation volatility, but a small role in reducing real output volatility. The model attributes much of the decline in real output volatility to smaller TFP shocks. We also investigate the pattern of output and inflation volatility under an optimal monetary policy counterfactual. We find that real output volatility would have been somewhat lower, and inflation volatility substantially lower, had monetary policy been set optimally.     

Modelling price competition across many markets (An application to the Spanish loans market)

The purpose of this work is the structural modelling of price competition in a product-differentiated industry in which many firms of varying size compete across many independent small markets, with the target of identifying price behaviour. We apply it to model competition among the more than 79 banks that were active in the Spanish loans market during the period 1983-1991, using micropanel data. A model in which national banks (as opposed to regional and local banks) fully internalize their cross-rate effects in pricing is selected as the model that best fits the data. Our framework allows us to estimate the dead-weight loss due to market power, and to decompose it assessing the part attributable to price coordination.     

The role of permanent and transitory components in business cycle volatility moderation

The paper examines the processes underlying economic fluctuations by investigating the volatility moderation of U.S. economy in the early 1980s. We decompose the volatility decline using a dynamic factor framework into a common stochastic trend, common transitory component and idiosyncratic components. We find that the moderation of business cycle was a result of the moderation in transitory and idiosyncratic components. Our results suggest that important part of stochastic process that drives economy is transitory. The paper investigates the role of oil prices, monetary and financial market factors. Proposed economic factors do not have a significant relationship to either transitory or permanent components. In addition, we find that transitory shocks are as common during the 1980s and 1990s as they were during the 1960s and 1970s.

Interest rate dispersion and volatility in the market for daily funds

The purpose of this paper is to study the determinants of equilibrium in the market for daily funds. We use the EONIA panel database which includes daily information on the lending rates applied by contributing commercial banks. The data clearly show an increase in both the time series volatility and the cross-section dispersion of rates towards the end of the reserve maintenance period. These increases are highly correlated. We design a model to account for these empirical facts. Our theoretical model shows how the operational framework of monetary policy causes a reduction in the elasticity of the supply of funds by banks throughout the reserve maintenance period. This reduction in the elasticity together with market segmentation and heterogeneity is able to generate distributions for the interest rates and quantities traded with the same properties as in the data. We also investigate the effects of the changes in the Eurosystem's operational framework, enacted on March 2004, for interest rate behaviour.     

Price discovery and volatility spillover in spot and futures markets: evidences from steel-related commodities in China

The price discovery and spillover effect are significant indicators in futures markets. This study examines the price discovery and spillover effects using vector error correction model and generalized autoregressive conditional heteroskedastic for seven types of steel products in Chinese spot and futures markets. The results show that the price discovery exists in all of steel futures market. It is also confirmed that futures prices in all items are mainly leading spot prices via permanent-transitory and information share. In the results of spillover effects, it is found that wire rod, coking coal, coke and silico-manganese have the effects between spot and futures market. In rebar market, there is the spillover effect from spot to futures. This information about futures prices can help the market participants to make decisions when they predict the spot prices.     

我国粮食生产的波动性及增长趋势:基于H-P滤波法的实证研究

实现粮食持续增产对保障我国粮食安全战略具有重要意义。本文采用H-P滤波法实证分析了1978—2007年我国粮食生产的波动性及其增长趋势问题,研究结果表明:我国粮食生产具有明显的波动中增长的特征,在品种结构、区域分布和影响因素等方面,粮食生产波动均具有非对称特征。粮食产量波动对稻米产量波动最为敏感,对东部地区(特别是江苏、浙江、河北)的粮食生产波动最为敏感,对粮食单产水平波动最为敏感。未来我国粮食生产仍将保持增长趋势,但粮食单产以及由此决定的粮食总产量与目标值相比仍存在一定的差距。依据结论,可以给出我国实现粮食持续增产的若干政策含义。     

人民币与欧元、美元、日元之间的汇率联动分析

利用向量自回归模型和多变量GARCH模型,对人民币汇率改革以来人民币、欧元、美元和日元之间的收益溢出效应和波动溢出效应进行了研究。结果显示欧元、美元和日元对人民币存在显著的收益溢出效应和波动溢出效应,但是人民币对其他几种货币的收益溢出效应和波动溢出效应并不显著。研究结果表明,人民币汇率形成机制改革以来,人民币汇率正在融入世界主要货币汇率市场,但是人民币汇率市场尚不成熟,目前我国仍然应该实行有管理的浮动汇率制度。     

Exploring the interaction between stock price index and exchange rates: an asymmetric threshold approach

This article examines the impact of stock market news on the foreign exchange markets of USA, Canada and UK, employing an innovative extension of the asymmetric threshold model of Apergis and Miller (2006). Under this framework we can disentangle the reaction of foreign exchange market to bad or good news and small or large news of stock returns. Our comprehensive daily data-set spans the period from January 1990 to June 2014. Using a cointegration and error correction model, we document the existence of a causal relationship between stock market and foreign exchange markets. Most interestingly, our results derived from the asymmetric threshold model confirm that the relationship between stock and foreign exchange markets is sensitive to short-term good or bad news and short-term small or large news. Our findings entail significant implications for policymakers, governments, risk managers and international investors.     

Forecasting the realized volatility in the Chinese stock market: further evidence

In this study, the impact of noise and jump on the forecasting ability of volatility models with high-frequency data is investigated. A signed jump variation is added as an additional explanatory variable in the volatility equation according to the sign of return. These forecasting performances of models with jumps are compared with those without jumps. Being applied to the Chinese stock market, we find that the jump variation has a significant in-sample predictive power to volatility and the predictive power of the negative one is greater than the positive one. Furthermore, out-of-sample evidence based on the fresh model confidence set (MCS) test indicates that the incorporation of singed jumps in volatility models can significantly improve their forecasting ability. In particular, among the realized variance (RV)-based volatility models and generalized autoregressive conditional heteroscedasticity (GARCH) class models, the heterogeneous autoregressive model of realized volatility (HAR-RV) model with the jump test and a decomposed signed jump variation have better out-of-sample forecasting performance. Finally, the use of the decomposed signed jump variations in predictive regressions can improve the economic value of realized volatility forecasts.