An alternative approach for testing for linear association for two independent stationary AR(1) processes

Spurious correlations occur when two independent time series are found to be correlated according to the typical statistical procedure for testing the null hypothesis of zero correlation in the population. Using a Monte Carlo analysis, this study examines the spurious correlation phenomenon for two independent stationary AR(1) processes and it finds that if an alternative testing procedure is applied, spurious behaviour is eliminated using the variance of the sample correlation coefficient of these two series, suggested by Bartlett (1935).     

Efficiency,technical change,and returns to scale in large US banks: Panel data evidence from an output distance function satisfying theoretical regularity

This paper provides parametric estimates of technical change, efficiency change, economies of scale, and total factor productivity growth for large banks (those with assets in excess of $1 billion) in the United States, over the period from 2000 to 2005. This is done by estimating an output distance function subject to theoretical regularity within a Bayesian framework. We find that failure to incorporate theoretical regularity conditions results in mismeasured shadow revenue and/or cost shares, which in turn leads to perverse conclusions regarding productivity growth. Our results from the regularity-constrained model show that total factor productivity of the large US banks grew at an average rate of 1.98% over the sample period. However, our estimates also show a clear downward trend in the growth rate of total factor productivity and our decomposition of the primal Divisia total factor productivity growth index into its three components – technical change, efficiency change, and economies of scale – indicates that technical change is the driving force behind this decline.     

International Monetary Policy Spillovers

Open Economies Review - This paper explores for spillovers from monetary policy in the United States to a number of advanced countries, namely Canada, Denmark, the Eurozone, Japan, Sweden,...     

Parameter uncertainty in portfolio selection: Shrinking the inverse covariance matrix

The estimation of the inverse covariance matrix plays a crucial role in optimal portfolio choice. We propose a new estimation framework that focuses on enhancing portfolio performance. The framework applies the statistical methodology of shrinkage directly to the inverse covariance matrix using two non-parametric methods. The first minimises the out-of-sample portfolio variance while the second aims to increase out-of-sample risk-adjusted returns. We apply the resulting estimators to compute the minimum variance portfolio weights and obtain a set of new portfolio strategies. These strategies have an intuitive form which allows us to extend our framework to account for short-sale constraints, transaction costs and singular covariance matrices. A comparative empirical analysis against several strategies from the literature shows that the new strategies often offer higher risk-adjusted returns and lower levels of risk.     

Markov Switching Oil Price Uncertainty

We investigate whether the United States economy responds negatively to oil price uncertainty and whether oil price shocks exert asymmetric effects on economic activity. In doing so, we relax the assumption in the existing literature that the data are governed by a single process, modifying the Elder and Serletis (2010) bivariate structural GARCH‐in‐Mean VAR to accommodate Markov regime switching in order to account for changing oil price dynamics over the sample period. We find evidence of asymmetries, against those macroeconomic theories that predict symmetries in the relationship between real aggregate economic activity and the real price of oil.     

The demand for divisia M1, M2, and M3 in the United States

This paper analyzes the demand for broad money measures and estimates the degree of substitution between Divisia money, defined from narrow to broad, and the “nested like assets” at different levels of aggregation. The analysis is conducted within a microtheoretical framework-utilizing the demand-system approach- and makes use of the Strotz-Gorman multistage optimization framework. Another pleasing feature of our approach is the systematic testing for the appropriateness of the weak separability (aggregation) conditions at the various levels of aggregation.     

Privatizing the statutory auditing services in Greece

This paper examines the historical process of privatizing the Greek auditing profession in the context of contemporaneous political and economic developments that date from the inception of the profession in 1955. The paper focuses on the successive attempts to implement the EEC's Eighth Company Law Directive that led to the abolition of the Body of Sworn-in Accountants - the state-sponsored institute and at the same time a practising firm. Furthermore, the changing expectations about the auditor's role as reflected in the privatization discussions over time are explored.     

Broker-dealer Leverage and the Stock Market

This paper employs linear and nonlinear causality tests to examine (for the first time) the dynamic relation between broker-dealer leverage and the stock market in the United States, using quarterly data since 1967. We find significant linear causality from the stock market to broker-dealer leverage and a nonlinear feedback from broker-dealer leverage to the stock market, supporting the view that the macro economy is highly nonlinear. This bidirectional causality shows that a stock market crash might happen long before a fall in fundamental asset values.     

The Output Effects of Money Growth Uncertainty: Evidence from a Multivariate GARCH-in-Mean VAR

In this paper we extend the work in Serletis and Shahmoradi (Macroecon Dyn 10:652–666, 2006) by investigating the effects of money growth uncertainty on real economic activity, in the context of a multivariate framework in which a structural vector autoregression is modified to accommodate multivariate GARCH-in-Mean errors, as in Elder (J Money, Credit Bank 36:912–928, 2004). The model uses a recursive identification scheme, takes into account the possible interaction between conditional means and variances, isolates the effects of money growth volatility on output growth, and is able to explicitly model heteroskedasticity. We use quarterly data for the United States over the period from 1959:1 to 2005:4, provide a comparison among simple-sum, Divisia, and currency equivalent monetary aggregation procedures at each of the four levels of monetary aggregation—M1, M2, M3, and MZM—and find evidence that money growth volatility has significant negative effects on output growth. Issues of structural stability are addressed and sub-sample analysis is performed. Moreover, the robustness of the results to alternative identification schemes, alternative measures of the level of economic activity, and to the use of monthly observations is also investigated.     

Consumer preferences and demand systems

This paper is an up-to-date survey of the state-of-the-art in consumer demand modelling. We review and evaluate advances in a number of related areas, including different approaches to empirical demand analysis, such as the differential approach, the locally flexible functional forms approach, the semi-non-parametric approach, and a non-parametric approach. We also address estimation issues, including sampling theoretic and Bayesian estimation methods, and discuss the limitations of the currently common approaches. We also highlight the challenge inherent in achieving economic regularity, for consistency with the assumptions of the underlying neoclassical economic theory, as well as econometric regularity, when variables are nonstationary.