business cycle analysis with a markov switching model this article explores the hamilton markov switching model through an analysis of the business cycles of eight developed market economies forecasting and specification tests suggest only marginal improvements over linear autoregressive models yet filtered and smoothed conditional probabilities indicate turning points in business cycles that closely correlate with turning points from traditional methods tests regarding the asymmetry of business cycles reject the null of symmetry for most countries

forecasting turning points abstract two state models of the commerce department s leading and coincident indexes appear to be misspecified cyclical peaks in these indexes are more rounded than are cyclical troughs further the variability of changes in the indexes is unusually high near cyclical troughs

effects of speculation and interest rates in a carry trade model of commodity prices abstract the paper presents and estimates a model of the prices of oil and other storable commodities a model that can be characterized as reflecting the carry trade it focuses on speculative factors here defined as the trade off between interest rates on the one hand and market participants expectations of future price changes on the other hand it goes beyond past research by bringing to bear new data sources survey data to measure expectations of future changes in commodity prices and options data to measure perceptions of risk some evidence is found of a negative effect of interest rates on the demand for inventories and thereby on commodity prices and positive effects of expected future price gains on inventory demand and thereby on today s commodity prices

do central bank forecasts influence private agents forecasting performance versus signals focusing on a set of central banks that publish their internal macroeconomic forecasts in real time enables one to shed light on the expectations channel of monetary policy the main contribution of this paper is to assess whether central bank forecasts influence private forecasts the response is positive for inflation forecasts in sweden the uk and japan to disentangle the sources of influence of central banks two concepts are proposed endogenous influence which is due to more accurate central bank forecasts and exogenous influence which is due to central bank signals on either future policy decisions or private information original empirical evidence on the central bank forecasting performance relative to private agents is provided and estimates show that in sweden more accurate inflation forecasts generate specific central bank influence that is different from the influence from signals the publication of forecasts may therefore refer to two central banking strategies that aim to shape private expectations forecasting or policymaking

a comparison of petroleum futures versus spot prices as predictors of prices in the future abstract even though studies have indicated that the futures market leads the spot market in price discovery this paper hypothesizes that the predictive significance of each should be the same a number of different statistical tests are presented to test this hypothesis when deseasonalized data is employed the predictive significance of each series is found to be the same but when actual prices are employed futures prices did correctly anticipate the observed seasonal pattern

price movements and price discovery in futures and cash markets r isk transfer and price discovery are two of the major contributions of futures markets to the organization of economic activity working 1962 evans 1978 p 80 and silber 1981 risk transfer refers to hedgers using futures contracts to shift price risk to others price discovery refers to the use of futures prices for pricing cash market transactions working 1948 wiese 1978 p 87 and lake 1978 p 161 the significance of both contributions depends upon a close relationship between the prices of futures contracts and cash commodities this paper examines the characteristics of price movements in cash or spot markets and futures markets for storable commodities section ii presents an analytical model of simultaneous price dynamics which suggests that over short intervals of time the correlation of price changes is a function of the elasticity of arbitrage between the physical commodity and its counterpart futures contract greater elasticity fosters more highly correlated price changes and thereby facilitates the risk transfer function the elasticity of supply of arbitrage services is constrained by among other things storage and transaction costs thus futures contracts will not in general provide perfect risk transfer facilities over short time horizons the essence of the price discovery function of futures markets hinges on whether new information is reflected first in changed futures prices or in changed cash prices hoffman 1932 pp 258259 the model in section ii provides a framework for analyzing whether one market is dominant in terms of information flows and price discovery in section iii we develop a model based on section ii which is appropriate for estimating the lead lag relationship between cash prices and futures prices section iv presents empirical estimates of the parameters of the model for seven different storable commodities wheat corn oats frozen orange juice concentrates copper gold and silver the cost of arbitrage between cash and futures differs across these commodities for this reason we are not surprised to find inter commodity differences in the correlation of short run price changes and in the substitutability of futures contracts for cash market positions with respect to the price discovery function of futures markets we find that while futures markets dominate cash markets cash prices do not merely echo futures prices there are reverse information flows from cash markets to futures markets as well

does oil move equity prices a global view many studies indicate that oil price shocks have an adverse effect on real output and hence an adverse effect on corporate profits where oil is used as a key input the present study examines whether and to what extent the adverse effect of oil price shocks impacts stock market returns to this end we analyse 35 datastream global industry indices for the period from april 1983 to september 2005 our findings indicate that oil price rises have a negative impact on equity returns for all sectors except mining and oil and gas industries generally these results are consistent with economic theory and evidence provided by previous empirical studies little evidence of any asymmetry is detected in the oil price sensitivities in light of our findings we recommend that international portfolio investors consider hedging oil price risk

the index of leading indicators measurement without theory twenty five years later if the success of a specific approach to economic analysis can be measured by its longevity and continued popularity under a variety of environments then the use in business cycle forecasting of leading economic indicators as originally developed by wesley mitchell and arthur burns 1938 at the national bureau of economic research must stand near the top one might say peak of such successes this is rather remarkable in light of the criticism it has faced continually since koopmans 1947 in a review of burns and mitchell 1946 first decried the lack of any theory behind the nber business cycle methodology since its introduction the composite index of leading indicators now published monthly by the u s bureau of economic analysis bea has been widely monitored as a guide to future economic performance the use of leading indicators survived the period of advancement and demise of the structural approach to econometric forecasting and if anything has enjoyed a resurgence in recent years as more sophisticated time series techniques of measurement without theory have been developed in fact the relationship between the leading indicator approach and general time series methods of the type described by box and jenkins 1970 was formalized by sargent and sims 1977 who pointed out that forecasting with a composite index may be seen as the imposition of a specific set of restrictions on the vector autoregression containing the individual series included in the index from this standpoint it is possible to evaluate formally the index of leading indicators as a tool for prediction and such is the purpose of this paper there are two main questions to be answered

what do the leading indicators lead the authors find that the composite leading index cli is useful for forecasting gross national product gnp both in sample and in an out of sample real time exercise they propose a nonlinear specification in which cyclical shifts of the cli precede those in gnp however the authors find that better forecasts are provided by a simple linear relation between current gnp growth and the growth rate of the cli during the previous quarter along with an error correction term corresponding to the previous quarter s logarithmic difference between the level of the cli and the level of gnp copyright 1996 by university of chicago press

business cycle non linearities in uk consumption and production this paper develops non linear smooth transition autoregressive star models with two additive smooth transition components to capture the business cycle characteristics of uk real consumers expenditure and industrial production the results indicate consumption has essentially two business cycle regimes recession and expansion industrial production however is characterized by the three regimes of recession normal growth and high growth the transitions describing recovery from recession are very similar for the two variables stochastic simulations illustrate the dynamic responses of these models and emphasize that they are locally linear our results also indicate that the two transition star models have some forecast advantages over other specifications for periods of contraction copyright 2000 john wiley sons ltd

predicting u s business cycle regimes this article examines the use of logistic classification methods for the identification and prediction of postwar u s business cycle expansion and contraction regimes as defined by the national bureau of economic research nber reference turning point dates we present a coherent theoretical framework for this task using measures of discriminatory information the analysis encompasses model selection parameter estimation and classification decision rules we examine the performance of logistic procedures in reproducing the nber regime classifications and in predicting one and three months ahead using leading indicator variables our models are shown to provide substantially more accurate business cycle regime predictions than markov switching specifications

incentives to cultivate favored minorities under alternative electoral systems a simple model is used to compare under different electoral systems the incentives for candidates to create inequalities among otherwise homogeneous voters by making campaign promises that favor small groups rather than appealing equally to all voters in this game model each candidate generates offers for voters independently out of a distribution that is chosen by the candidate subject only to the constraints that offers must be nonnegative and have mean 1 symmetric equilibria with sincere voting are analyzed for two candidate elections and for multicandidate elections under rank scoring rules approval voting and single transferable vote voting rules that can guarantee representation for minorities in multiseat elections generate in this model the most severely unequal campaign promises

sources of panics evidence from the weekly data abstract we use weekly data 1867 1933 to investigate the sources of banking and financial panics we find that while a panic s exact starting date is unpredictable one can identify environments conducive to panics a lack of liquidity in financial markets seems to be a key source results also reveal the effectiveness of the aldrich vreeland act inelastizing the money supply and shortening the panic of 1914 and suggest that the panic of 1933 may have been caused by a speculative attack on the gold backed us dollar via the banks as opposed to a run on the banks directly

a bargaining model of collective choice we present a general model of legislative bargaining in which the status quo is an arbitrary point in a multidimensional policy space in contrast to other bargaining models the status quo is not assumed to be bad and delay may be pareto efficient we prove existence of stationary equilibria the possibility of equilibrium delay depends on four factors risk aversion of the legislators the dimensionality of the policy space the voting rule and the possibility of transfers across districts if legislators are risk averse if there is more than one policy dimension and if voting is by majority rule for example then delay will almost never occur in one dimension delay is possible if and only if the status quo lies in the core of the voting rule and then it is the only possible outcome this core selection result yields a game theoretic foundation for the well known median voter theorem our comparative statics analysis yield two noteworthy insights i if the status quo is close to the core t hen equilibrium policy outcomes will also be close to the core a moderate status quo produces moderate policy outcomes and ii if legislators are patient then equilibrium proposals will be close to the core legislative patience leads to policy moderation

price discovery in energy markets abstract in this study we empirically analyze the price discovery process in the futures and spot markets for crude oil heating oil and natural gas using daily closing prices we use two different information share measures that are based on the methods proposed by gonzalo and granger 1995 and lien and shrestha 2014 both measures indicate that almost all the price discovery takes place in the futures markets for the heating oil and natural gas however for the crude oil the price discovery takes place both in the futures and spot markets as a whole our study indicates that futures markets play an important role in the price discovery process

covering dominance and institution free properties of social change this paper shows that different institutional structures for aggregation of preferences under majority rule may generate social choices that are quite similar so that the actual social choice may be rather insensitive to the choice of institutional rules specifically in a multidimensional setting where all voters have strictly quasi concave preferences it is shown that the uncovered set contains the outcomes that would arise from equilibrium behavior under three different institutional settings the three institutional settings are two candidate competition in a large electorate cooperative behavior in small committees and sophisticated voting behavior in a legislative environment where the agenda is determined endogenously because of its apparent institution free properties the uncovered set may provide a useful generalization of the core when a core does not exist a general existence theorem for the uncovered set is proven and for the downsian case bounds for the uncovered set are computed these bounds show that the uncovered set is centered around a generalized median set whose size is a measure of the degree of symmetry of the voter ideal points

purification of bayes nash equilibrium with correlated types and interdependent payoffs abstract we establish purification results for bayes nash equilibrium in a large class of bayesian games with finite sets of pure actions we allow for correlated types and interdependent payoffs and for type dependent feasible action sets the latter feature allows us to prove existence and purification results for pure bayes nash equilibria in undominated strategies we give applications to auctions global games and voting to illustrate the usefulness of our results

nonlinear autoregressive leading indicator models of output in g 7 countries this paper studies linear and nonlinear autoregressive leading indicator models of business cycles in g 7 countries our models use the spread between short term and long term interest rates as leading indicators for gdp we examine data admissibility by determining whether these models have the ability to produce time series with classical cycles that resemble the observed classical cycles in the data and then we ask whether this data admissibility lends itself to better predictions of the probability of recession copyright 2007 john wiley sons ltd

regulation versus taxation abstract we study which policy tool and at what level a majority chooses in order to reduce activities with negative externalities we consider three instruments a rule that sets an upper limit to the activity which produces the negative externality a quota that forces a proportional reduction of the activity and a proportional tax on it for all instruments the majority chooses levels which are too restrictive when the activity is performed mainly by a small fraction of the population and when costs for reducing activities or paying taxes are sufficiently convex also a majority may prefer an instrument different than what a social planner would choose for instance a rule when the social planner would choose a tax

testing the rationality of doe s energy price forecasts under asymmetric loss preferences this paper examines the rationality of the price forecasts for energy commodities of the united states department of energy s doe departing from the common assumption in the literature that doe s forecasts are based on a symmetric underlying loss function with respect to positive vs negative forecast errors instead we opt for the methodology of elliott et al 2005 that allows testing the joint hypothesis of an asymmetric loss function and rationality and reveals the underlying preferences of the forecaster results indicate the existence of asymmetries in the shape of the loss function for most energy categories with preferences leaning towards optimism moreover we also examine whether there is a structural break in those preferences over the examined period 1997 2012

estimating and forecasting the real prices of crude oil a data rich model using a dynamic model averaging dma approach given that oil price fluctuations have been of great interest for macroeconomics in the recent years due to its important implications for future inflation economic growth and policy making the aim of this paper is to estimate and forecast west texas intermediate wti crude oil prices using a large monthly dataset that covers the period from march 1983 to december 2011 to achieve this aim forecasting with factor models offers a usual approach that utilizes large datasets however a forecasting model which simply includes all factors in state space equation and does not allow for time varying may be not suitable with a highly volatile market such as oil market to overcome these limitations an approach that accounts both for parameter and model uncertainty is employed in particular this study uses the dynamic model averaging dma approach suggested by koop and korobilis 2012 the key element of the dma approach is that it allows both for model and parameter to vary at each point of time by doing so the dma is robust to structural breaks empirical findings show that dma approach outperforms any other alternative model used in the forecasting exercise results also show that there is model but not parameter variation in this oil price forecasting exercise finally the findings suggest that the dma approach provides a better proxy of expected spot prices than future prices

multiple regimes in the us inventory time series a disaggregate analysis abstract switching models have been used previously to document the presence of multiple regimes in the growth rate of the us gdp as fluctuations in inventory investment are known to play a major role in business cycles it is likely that inventory growth patterns are also subject to alternating regimes in the present paper simple and markov switching models are applied to inventory series at different levels of manufacturing and trade with a view to discovering the presence of multiple regimes the findings suggest that the growth rate of retail inventories contains significant regime switches and that these corresponds in all cases with switches in the gdp growth rate regime though some extra switches are noted in the retail inventory series

are economic time series asymmetric over the business cycle it has long been argued that major cyclical variables such as the unemployment rate display an asymmetric behavior over various phases of the business cycle the paper provides a statistical test for this hypothesis using the framework of finite state markov processes i implement a test to see if the behavior of the unemployment rate is characterized by sudden jumps and slower drops it is argued that the framework provided in the paper can also be used to test other sample path properties of economic time series

are there asymmetries of nonlinearities in uk output this paper investigates whether quarterly post war uk output growth contains either asymmetries or nonlinearities through subjecting the series to a variety of diagnostic testa and by fiting various nonlinear business cycle models no evidence is uncovered of any form of asymetric or nonlinear departure from the pure random walk with drift model of output

social choice and electoral competition in the general spatial model this paper extends the theory of the core the uncovered set and the related undominated set to a general set of alternatives and an arbitrary measure space of voters we investigate the properties of social preferences generated by simple games we extend results on generic emptiness of the core we prove the general nonemptiness of the uncovered and undominated sets and we prove the upper hemicontinuity of these correspondences when the voters preferences are such that the core is nonempty and externally stable finally we give conditions under which the undominated set is lower hemicontinuous

the behaviour of futures prices over time 1985 the behaviour of futures prices over time applied economics vol 17 no 4 pp 713 734

on the predictive accuracy of crude oil futures prices abstract this paper evaluates the predictive accuracy of 1 3 6 9 and 12 month ahead crude oil futures prices for 1991 01 2001 12 in addition to testing for unbiasedness a naive forecasting model is constructed to generate comparable forecasts as benchmarks our empirical findings reveal that futures prices and naive forecasts are unbiased at all forecast horizons however the 1 and 12 month ahead futures prices are the only forecasts outperforming the naive suggesting their potential usefulness in policy making continuing political instability of the middle east and the inability of opec to offset market sentiment among other factors may in the future adversely affect the predictive accuracy of the 1 and 12 month ahead futures prices accordingly caution must be exercised when utilizing such prices as a forecasting tool

unbiasedness and time varying risk premia in the crude oil futures market abstract this paper presents some empirical evidence on market efficiency and unbiasedness in the crude oil futures market and some related issues on the basis of monthly observations on spot and futures prices of the west texas intermediate wti crude oil several tests are carried out on the relevant hypotheses the evidence suggests that futures prices are neither unbiased nor efficient forecasters of spot prices furthermore a garch m 1 1 model reveals the existence of a time varying risk premium

rational expectations econometric analysis of changes in regime an investigation of the term structure of interest rates abstract this paper is of interest both for its methodological contribution of new tools for analyzing rational expectations models and for its substantive conclusions concerning the term structure of interest rates during the monetary experiment of october 1979 the paper studies systems subject to changes in regime interpreted here as occasional discrete shifts in the parameters governing the time series behavior of exogenous economic variables the specification is shown to be quite tractable both theoretically and empirically the technique is used to analyze yields on three month treasury bills and ten year treasury bonds during 1962 to 1987 a constant parameter linear model for short term rates is shown to be inconsistent both with the univariate time series properties of short rates and with the observed bivariate relation between long and short rates under the expectations hypothesis of the term structure an alternative nonlinear model that admits the possibility of changes in regime affords a much better description of the univariate process for short rates moreover the cross equation restrictions implied by the expectations hypothesis of the term structure are consistent with the nonlinear specification indeed the residuals of the restricted relation have a standard error of only 0 8 basis points this is a third less than that of a completely unrestricted linear regression of long rates on short rates and compares with an unconditional standard deviation of long rates of 142 basis points i conclude that once the recognition by bond traders of changes in regime is taken into account the expectations hypothesis of the term structure of interest rates holds up fairly well for these data

multidimensional electoral competition between differentiated candidates it is known that multidimensional downsian competition fails to admit an equilibrium in pure strategies unless very stringent conditions on the distribution of voters bliss points are imposed plott 1967 this paper revisits this problem considering that the two vote share maximizing candidates are dierentiated that is candidates strategically decide po sitions only in some of the n dimensions while in the rest their positions are assumed to be xed these xed dimensions may be viewed as candidates immutable characteristics race religion culture etc we nd that if candidates are su ciently dierentiated if in the xed dimensions their positions are su ciently dierent then a unique nash equilibrium in pure strategies is guaranteed to exist for any distribution of voters bliss points perhaps more importantly we show that this is true even if there exists a unique xed dimension and candidates instrumentally decide their positions in all other n 1 dimensions

interrelafionships between spot and futures markets some implications of rational expectations the view that futures contract prices for storable agricultural commodities are rationally held expectations of subsequent cash prices has been widely accepted since holbrook working first explained commodity market intertemporal price behavior in these terms in 1958 subsequent analyses by brennan weymar tomek and gray and others adopted and extended working s interpretation yet despite its acceptance implications of the rational expectations view have been all but ignored in econometric modeling efforts directed at explaining and predicting intertemporal price relations the purpose of this paper is a to propose an econometric modeling approach that recognizes the role of rational expectation formation in joint determination of commodity cash and futures prices and b to explore the implications of such an approach for the following issues i the direction and magnitude of changes in cash and futures prices occurring in response to changes in economic information and the direction of causality between cash and futures prices and ii the function of futures markets as agencies for forecasting price and the probable forecasting performance of futures contract prices some issues addressed here have implications for all futures traded commodities the arguments presented however relate most clearly to storable continuously inventoried commodities the nature of storage behavior and thus the relation between cash and futures prices for some commodities livestock in particular has not yet been resolved satisfactorily but these issues are not addressed here working s theory of anticipatory prices 1958 asserts that decisions on cash and futures prices take into account all available and relevant information concerning historical relationships as well as current and expected supply demand conditions according to this theory the current period futures price for a contract maturing in time t t is the current market expectation of the subsequent cash market price in t t with only slight modification this interpretation can be considered equivalent to the more current rational expectations or equally redundant efficient market hypothesis formally stated the rational expectations hypothesis muth s extended version asserts that expectations of individual market participants the subjective probability distribution of price outcomes tend to be distributed for the same information set about the predictions of the theory the objective probability distribution of price outcomes in another interpretation it is simply asserted that economic agents use the appropriate economic model in forming their expectations of future prices if valid this latter interpretation has clear implications for the construction of econometric models of futures traded commodities to explore these implications we posit a model which assumes rational expectation formation

on 64 majority rule introduction d une definition de consensus social base sur deux restrictions une sur les preferences individuelles et l autre sur la distribution des preferences dans ce cas de consensus une regle de majorite a 64 presente de nombreuses proprietes interessantes par opposition aux regles de super majorite possedant des proprietes paradoxales comme les regles electorales americaines

evaluating information in multiple horizon forecasts the doe s energy price forecasts abstract the united states department of energy s doe quarterly price forecasts for energy commodities are examined to determine the incremental information provided at the one through four quarter forecast horizons a direct test for determining information content at alternative forecast horizons developed by vuchelen and gutierrez vuchelen j and gutierrez m i a direct test of the information content of the oecd growth forecasts international journal of forecasting 21 2005 103 117 is used the results suggest that the doe s price forecasts for crude oil gasoline and diesel fuel do indeed provide incremental information out to three quarters ahead while natural gas and electricity forecasts are informative out to the four quarter horizon in contrast the doe s coal price forecasts at two three and four quarters ahead provide no incremental information beyond that provided for the one quarter horizon recommendations of how to use these results for making forecast adjustments is also provided

optimal prediction of cyclical downturns abstract in the conventional way of visualizing economic time series the prediction problem does not dichotomize into predicting turning points and predicting conditional means yet the prediction of turning points has always been considered a separate issue in business cycle literature the paper first discusses these issues and then describes a model where the prediction of turning points does separate from the prediction of conditional means using the model an optimal way of predicting turning points is derived and applied to u s data the paper uses time series methodology and the theory of optimal stopping times

a new turning point signalling system using the markov switching model with application to japan the usa and australia a new business cycle turning point signalling system is proposed and examined by using japanese us and australian composite indexes of economic activity time varying transition probabilities in a markov regime switching model are used as the basis of the signalling system the performance of the system is satisfactory though its reliability varies between peaks and troughs and across countries based on data up until may 1998 the system suggests the absence of turning points in any of the three countries in 1998

the causal nexus between oil prices and equity market in the u s a regime switching model abstract the aim of this paper is to analyse the causal link between monthly oil futures price changes and a sub grouping of s p 500 stock index changes the causal linkage between oil and stock markets is modelled using a vector autoregressive model with time varying parameters so as to reflect changes in granger causality over time a markov switching vector autoregressive ms var model in which causal link between the series is stochastic and governed by an unobservable markov chain is used for inferring time varying causality although we do not find any lead lag type granger causality the results based on the ms var model clearly show that oil futures price has strong regime prediction power for a sub grouping of s p 500 stock index during various sub periods in the sample while there is a weak evidence for the regime prediction power of a sub grouping of s p 500 stock indexes the regime prediction non causality tests on the ms var model show that both variables are useful for making inference about the regime process and that the evidence on regime prediction causality is primarily found in the equation describing a sub grouping of s p 500 stock market returns the evidence from the conditional non causality tests shows that past information on the other series fails to improve the one step ahead prediction for both oil futures and stock returns

the role of inventory investment as a leading indicator of the us business cycle abstract this article compares several time series of inventory investment as they relate to overall economic fluctuations inventory investment is shown to provide a consistent lead particularly ahead of downturns in overall business activity a case is made for retaining changes in inventories on hand as part of the u s composite index of leading indicators the predictive power of inventory investment in the context of a recursive downturn probability model is measured and the computational program used for the related calculations is described