Periodic Unobserved Cycles in Seasonal Time Series with an Application to US Unemployment*

We introduce a general class of periodic unobserved component (UC) time series models with stochastic trend and seasonal components and with a novel periodic stochastic cycle component. The general state space formulation of the periodic model allows for exact maximum likelihood estimation, signal extraction and forecasting. The consequences for model‐based seasonal adjustment are discussed. The new periodic model is applied to postwar monthly US unemployment series from which we identify a significant periodic stochastic cycle. A detailed periodic analysis is presented including a comparison between the performances of periodic and non‐periodic UC models.     

Linear prediction of temporal aggregates under model misspecification

This paper aims to demonstrate a possible aggregation gain in predicting future aggregates under a practical assumption of model misspecification. Empirical analysis of a number of economic time series suggests that the use of the disaggregate model is not always preferred over the aggregate model in predicting future aggregates, in terms of an out-of-sample prediction root-mean-square error criterion. One possible justification of this interesting phenomena is model misspecification. In particular, if the model fitted to the disaggregate series is misspecified (i.e., not the true data generating mechanism), then the forecast made by a misspecified model is not always the most efficient. This opens up an opportunity for the aggregate model to perform better. It will be of interest to find out when the aggregate model helps. In this paper, we study a framework where the underlying disaggregate series has a periodic structure. We derive and compare the efficiency loss in linear prediction of future aggregates using the adapted disaggregate model and aggregate model. Some scenarios for aggregation gain to occur are identified. Numerical results show that the aggregate model helps over a fairly large region in the parameter space of the periodic model that we studied.     

MULTIVARIATE VOLATILITY MODELING OF ELECTRICITY FUTURES

We model the dynamic volatility and correlation structure of electricity futures of the European Energy Exchange index. We use a new multiplicative dynamic conditional correlation (mDCC) model to separate long‐run from short‐run components. We allow for smooth changes in the unconditional volatilities and correlations through a multiplicative component that we estimate nonparametrically. For the short‐run dynamics, we use a GJR‐GARCH model for the conditional variances and augmented DCC models for the conditional correlations. We also introduce exogenous variables to account for congestion and delivery date effects in short‐term conditional variances. We find different correlation dynamics for long‐ and short‐term contracts and the new model achieves higher forecasting performance compared \to a standard DCC model. Copyright © 2012 John Wiley & Sons, Ltd.     

Consumer Risk‐reduction Behavior and New Product Purchases

Consumers purchase lower quantities of new products compared with those they have purchased in the past. We explain this observation as a result of risk‐averting behavior by utility‐maximizing consumers. If a new product involves a higher degree of risk that quality expectations will not be met compared with an incumbent product, we show that utility will be more concave for the new product. We test this prediction using a multiple‐discrete/continuous extreme value (MDCEV) model of demand. We show that utility is indeed more concave for new products relative to previously purchased products. Copyright © 2017 John Wiley & Sons, Ltd.     

Transforming New Ideas into Practice: An Activity Based Perspective on the Institutionalization of Practices

We develop an activity‐focused process model of how new ideas can be transformed into front line practice by reviving attention to the importance of habitualization as a key component of institutionalization. In contrast to established models that explain how ideas diffuse or spread from one organization to another, we employ a micro‐level perspective to study the subsequent intra‐organizational processes through which these ideas are transformed into new workplace practices. We followed efforts to transform the organizationally accepted idea of ‘interdisciplinary teamwork’ into new everyday practices in four cases over a six year time period. We contribute to the literature by focusing on de‐habitualizing and re‐habitualizing behaviours that connect micro‐level actions with organizational level theorizing. Our model illuminates three phases that we propose are essential to creating and sustaining this connection: micro‐level theorizing, encouraging trying the new practices, and facilitating collective meaning‐making.     

Evaluating interval forecasts of high‐frequency financial data

A number of methods of evaluating the validity of interval forecasts of financial data are analysed, and illustrated using intraday FTSE100 index futures returns. Some existing interval forecast evaluation techniques, such as the Markov chain approach of Christoffersen ( 1998 ), are shown to be inappropriate in the presence of periodic heteroscedasticity. Instead, we consider a regression‐based test, and a modified version of Christoffersen's Markov chain test for independence, and analyse their properties when the financial time series exhibit periodic volatility. These approaches lead to different conclusions when interval forecasts of FTSE100 index futures returns generated by various GARCH(1,1) and periodic GARCH(1,1) models are evaluated. Copyright © 2003 John Wiley & Sons, Ltd.     

Dynamics and equilibrium in a structural model of wide‐body commercial aircraft markets

This paper develops and estimates a dynamic equilibrium model of the market for new and used commercial aircraft. The model is estimated by maximum simulated likelihood using data on wide‐body aircraft owners and prices for transactions occurring 1978‐1997. The importance of explicitly modeling dynamics and equilibrium in new and used markets for durable goods is illustrated in two counterfactual experiments. Estimates of the structural model are used to show that implementing an investment tax credit not only increases demand for new wide‐body aircraft by the airlines that receive the tax credit, but also increases the number of new wide‐body aircraft owned by airlines not directly affected by the policy. Further, the model indicates that a policy which improves the efficiency of secondary markets for used wide‐body aircraft will also stimulate demand for new wide‐body aircraft. Copyright © 2010 John Wiley & Sons, Ltd.     

System‐Equation ADL Test for Threshold Cointegration with an Application to the Term Structure of Interest Rates

This paper proposes a new system‐equation test for threshold cointegration based on a threshold vector autoregressive distributed lag (ADL) model. The new test can be applied when the cointegrating vector is unknown and when weak exogeneity fails. The asymptotic null distribution of the new test is derived, critical values are tabulated and finite‐sample properties are examined. In particular, the new test is shown to have good size, so the bootstrap is not required. The new test is illustrated using the long‐term and short‐term interest rates. We show that the system‐equation model can shed light on both asymmetric adjustment speeds and asymmetric adjustment roles. The latter is unavailable in the single‐equation testing strategy.     

What does a Monetary Policy Shock Do? An International Analysis with Multiple Filters*

What does a monetary policy shock do? We answer this question by estimating a new‐Keynesian monetary policy dynamic stochastic general equilibrium model for a number of economies with a variety of empirical proxies of the business cycle. The effects of two different policy shocks, an unexpected interest rate hike conditional on a constant inflation target and an unpredicted drift in the inflation target, are scrutinized. Filter‐specific Bayesian impulse responses are contrasted with those obtained by combining multiple business cycle indicators. Our results document the substantial uncertainty surrounding the estimated effects of these two policy shocks across a number of countries.     

GENERALIZED AUTOREGRESSIVE SCORE MODELS WITH APPLICATIONS

We propose a class of observation‐driven time series models referred to as generalized autoregressive score (GAS) models. The mechanism to update the parameters over time is the scaled score of the likelihood function. This new approach provides a unified and consistent framework for introducing time‐varying parameters in a wide class of nonlinear models. The GAS model encompasses other well‐known models such as the generalized autoregressive conditional heteroskedasticity, autoregressive conditional duration, autoregressive conditional intensity, and Poisson count models with time‐varying mean. In addition, our approach can lead to new formulations of observation‐driven models. We illustrate our framework by introducing new model specifications for time‐varying copula functions and for multivariate point processes with time‐varying parameters. We study the models in detail and provide simulation and empirical evidence. Copyright © 2012 John Wiley & Sons, Ltd.     

A discrete‐choice model with social interactions: with an application to high school teen behavior

We develop an empirical discrete‐choice interaction model with a finite number of agents. We characterize its equilibrium properties—in particular the correspondence between interaction strength, number of agents, and the set of equilibria—and propose to estimate the model by means of simulation methods. In an empirical application, we analyze the individual behavior of high school teenagers in almost 500 school classes from 70 schools. In our baseline model endogenous social interaction effects are strong for behavior closely related to school (truancy), somewhat weaker for behavior partly related to school (smoking, cell phone ownership, and moped ownership) and absent for behavior far away from school (asking parents' permission for purchases). Intra‐gender interactions are generally much stronger than cross‐gender interactions. In a model with school‐specific fixed effects social interaction effects are insignificant, with the exception of intra‐gender interactions for truancy. Copyright © 2007 John Wiley & Sons, Ltd.     

Dynamic spatial autoregressive models with autoregressive and heteroskedastic disturbances

We propose a new class of models specifically tailored for spatiotemporal data analysis. To this end, we generalize the spatial autoregressive model with autoregressive and heteroskedastic disturbances, that is, SARAR(1, 1), by exploiting the recent advancements in score‐driven (SD) models typically used in time series econometrics. In particular, we allow for time‐varying spatial autoregressive coefficients as well as time‐varying regressor coefficients and cross‐sectional standard deviations. We report an extensive Monte Carlo simulation study in order to investigate the finite‐sample properties of the maximum likelihood estimator for the new class of models as well as its flexibility in explaining a misspecified dynamic spatial dependence process. The new proposed class of models is found to be economically preferred by rational investors through an application to portfolio optimization.     

Warranties as a device to extract rent from low‐risk users of a product

We develop a simple model that provides a new rationale for why a monopolist should bundle its product with a warranty even when all parties are risk neutral. In our model, a risk‐neutral monopolist faces two types of risk‐neutral consumers—low‐risk users that are unlikely to cause product failure and high‐risk users that are more likely to cause product failure. We find that when the firm fails to provide a warranty, a low‐risk user acquires a strictly positive rent by pretending to be a high‐risk user and receiving a price discount. By imposing a warranty, however, the monopolist can increase the price to high‐risk users, which in turn removes the incentive for a low‐risk user to pretend to be a high‐risk user, and the firm successfully extracts rent from the low‐risk user. Copyright © 2007 John Wiley & Sons, Ltd.     

Forecasting Euro‐Area Macroeconomic Variables Using a Factor Model Approach for Backdating

We suggest to use a factor model based backdating procedure to construct historical Euro‐area macroeconomic time series data for the pre‐Euro period. We argue that this is a useful alternative to standard contemporaneous aggregation methods. The article investigates for a number of Euro‐area variables whether forecasts based on the factor‐backdated data are more precise than those obtained with standard area‐wide data. A recursive pseudo‐out‐of‐sample forecasting experiment using quarterly data is conducted. Our results suggest that some key variables (e.g. real GDP, inflation and long‐term interest rate) can indeed be forecasted more precisely with the factor‐backdated data.     

Inflation Volatility with Regime Switching

This paper presents a new approach to model U.S. inflation dynamics by allowing regime switching in an unobserved components stochastic volatility framework. We use a modified particle filter to construct likelihood and estimate the model using MLE. The number of regimes is determined based on a bootstrap. We find that a model with three regimes and regime‐dependent constant volatilities has superior performance. In addition, we show that since 2000:II, U.S. inflation has entered a regime with moderate volatility where most of the volatility comes from transitory shocks.     

The strategic effect of retailers' in‐store advertising services under product variety competition

We study a retailer service model of in‐store advertising, in which a neutral retailer provides product information to consumers for free but charges manufacturers. Our results show that the retailer's optimal pricing induces the manufacturers to decrease the number of items they offer. Nevertheless, this relaxes the competition between the manufacturers so that they benefit from using the in‐store service, unless the cost of communicating with consumers about the between‐firm products is lower. Furthermore, the service can be made socially beneficial by reducing the inefficiency resulting from an excessive number of items when manufacturers are not well differentiated.     

Showing or telling? Local interaction and organization of behavior

We present a choice model based on agent interaction. Interaction is modeled as face-to-face communication that takes place on a regular periodic lattice with decision-makers exchanging information only with immediate neighbors. We investigate the long-run (equilibrium) behavior of the resulting system and show that for a large range of initial conditions clustering in economic behavior emerges and persists indefinitely. Unlike many models in the literature, our model allows for the analysis of multi-option environments. Therefore, we add to existing results by deriving the equilibrium distribution of option popularity and thus, implicitly, of market shares. Additionally, the model sheds new light on the emergence of the novel behavior in societies.     

‘Stop Being a Tourist!’ New Dynamics of Urban Tourism in Berlin‐Kreuzberg

Berlin is witnessing a massive tourism boom, and parts of it can be described as ‘new urban tourism’, which shows a preference for off the beaten track areas and ‘authentic’ experiences of the city. This form of tourism seems especially salient in Kreuzberg. It is here that an openly articulated critique of tourism attracted national attention in 2011 and has not ceased to do so since. This article aims to better understand the conflictive potential of (new urban) tourism in Kreuzberg. We argue that the readily expressed negative attitudes against tourists and the easily accepted link between tourism and gentrification have to be explained against the backdrop of certain housing‐market dynamics. Rising rents and a diminution in the number of flats available for rent are fuelling fears of gentrification in Kreuzberg, while the interest shown in new urban tourism and the comparatively low‐priced real‐estate market in Berlin result in a growing number of holiday flats. Although adding only slightly to the tightening of the housing market, holiday flats render complex processes of neighborhood change visible and further sustain an already prevalent tourism critique.     

The Identification of a Mixture of First‐Order Binary Markov Chains*

Let S be the number of components in a finite discrete mixing distribution. We prove that the number of waves of panel being greater than or equal to 2S is a sufficient condition for global identification of a dynamic binary choice model in which all the parameters are heterogeneous. This model results in a mixture of S binary first‐order Markov Chains.     

The regulation of health and safety in Britain: from old Labour to new Labour

The Health and Safety at Work Act (HSWA 1974), passed twenty‐five years ago, has been hailed as a significant advance for organised labour and a model for modern work‐place regulation. This article argues that, contrary to conventional interpretations, the making of the Act was dominated by business interests. We suggest that the Act’s emphasis on self‐regulation and goal‐setting made it vulnerable to deregu‐latory initiatives, which are unlikely to be reversed by new Labour in the foreseeable future.