In this book, Andrew Harvey sets out to provide a unified and comprehensive theory of structural time series models. Unlike the traditional ARIMA models, structural time series models consist explicitly of unobserved components, such as trends and seasonals, which have a direct interpretation. As a result the model selection methodology associated with structural models is much closer to econometric methodology. The link with econometrics is made even closer by the natural way in which the models can be extended to include explanatory variables and to cope with multivariate time series. From the technical point of view, state space models and the Kalman filter play a key role in the statistical treatment of structural time series models. The book includes a detailed treatment of the Kalman filter. This technique was originally developed in control engineering, but is becoming increasingly important in fields such as economics and operations research. This book is concerned primarily with modelling economic and social time series, and with addressing the special problems which the treatment of such series poses. The properties of the models and the methodological techniques used to select them are illustrated with various applications. These range from the modellling of trends and cycles in US macroeconomic time series to to an evaluation of the effects of seat belt legislation in the UK.

Forecasting, Structural Time Series Models and the Kalman Filter

We investigate conditions sufficient for identification of average treatment effects using instrumental variables. First we show that the existence of valid instruments is not sufficient to identify any meaningful average treatment effect. We then establish that the combination of an instrument and a condition on the relation between the instrument and the participation status is sufficient for identification of a local average treatment effect for those who can be induced to change their participation status by changing the value of the instrument. Finally we derive the probability limit of the standard IV estimator under these conditions. It is seen to be a weighted average of local average treatment effects.

Evolution and Rationality Some Recent Game-Theoretic Results. Identification and Estimation of Local Average Treatment Effects

Handbook of the Economics of Finance

Manias, Panics, and Crashes. A History of Financial Crises

What is wrong with today's banking system? The past few years have shown that risks in banking can impose significant costs on the economy. Many claim, however, that a safer banking system would require sacrificing lending and economic growth. The Bankers' New Clothes examines this claim and the narratives used by bankers, politicians, and regulators to rationalize the lack of reform, exposing them as invalid. Admati and Hellwig argue we can have a safer and healthier banking system without sacrificing any of the benefits of the system, and at essentially no cost to society. They show that banks are as fragile as they are not because they must be, but because they want to be--and they get away with it. Whereas this situation benefits bankers, it distorts the economy and exposes the public to unnecessary risks. Weak regulation and ineffective enforcement allowed the buildup of risks that ushered in the financial crisis of 2007-2009. Much can be done to create a better system and prevent crises. Yet the lessons from the crisis have not been learned. Admati and Hellwig seek to engage the broader public in the debate by cutting through the jargon of banking, clearing the fog of confusion, and presenting the issues in simple and accessible terms. The Bankers' New Clothes calls for ambitious reform and outlines specific and highly beneficial steps that can be taken immediately.

The Bankers' New Clothes: What's Wrong with Banking and What to Do about It

https://dspace.stir.ac.uk/bitstream/1893/3013/1/Carbon%20trading%20thickness%20and%20market%20efficiency.pdf

Carbon trading thickness and market efficiency

In 1833 the price of gold was $20.65 per ounce, about $415 in 2005 terms, while in 2005 the actual price of gold was $445 - a very small change in the real price of gold over a period of one hundred and seventy two years. Despite this apparent constancy in real terms over the long run, it is also true that, outside of periods when the gold price was fixed through various iterations of the gold standard, it has fluctuated significantly in the shorter term, sometimes for years at a time. Can these two apparently contradictory realities be reconciled? And can one be sure that the long run positive relationship between gold and inflation has persisted beyond the era of Bretton Woods? Indeed, is there any credence to the claim that gold can be used as a long-run hedge against inflation? The results reported in this paper provide some answers to these questions that are so central to the gold market and its many participants around the world. We also address the inflation hedging properties of gold in the currencies of the major gold-consuming countries outside of the USA, taking into account both the domestic exchange rate relative to the dollar and domestic consumer price index movements. Real gold prices denominated in the home currency of investors outside of the USA also deviate in the short-run from their home country inflation hedge price and there is also a long-run tendency for gold prices to revert to the long-run hedge price. The major gold consuming countries outside of the USA, that is, India, China, Turkey, Saudi Arabia and Indonesia were rational to purchase gold in that it proved more than adequate as an inflation hedge. For these countries the actual USA dollar gold price between 1976 and 2005 far exceeded the dollar gold price required to provide an inflation hedge after taking account of exchange rates between the US dollar and the home country and the home country consumer price index movements.

Short-run and long-run determinants of the price of gold

This paper examines the impact of anticipated and unanticipated interest rate changes on aggregate and sectoral stock returns in the United Kingdom. The monetary policy shock is generated from the change in the 3-month sterling LIBOR futures contract. Results from time-series and panel analysis indicate an important structural break in the relationship between stock returns and monetary policy shifts. Specifically, whereas before the credit crunch, the stock market response to both expected and unexpected interest rate changes is negative and significant; the relationship becomes positive during the credit crisis. The latter finding highlights the inability, so far, of monetary policymakers to reverse, via interest rate cuts, the negative trend observed in stock prices since the onset of the credit crisis.

/pdf/monetary-policy-shocks-and-stock-returns-evidence-from-the-2ojjk1ocp8.pdf

Monetary policy shocks and stock returns: evidence from the British market

Unemployment and inflation lower well-being. The macroeconomist Arthur Okun characterized the negative effects of unemployment and inflation by the misery index—the sum of the unemployment and inflation rates. This paper makes use of a large European data set, covering the period 1975–2013, to estimate happiness equations in which an individual subjective measure of life satisfaction is regressed against unemployment and inflation rate (controlling for personal characteristics, country, and year fixed effects). We find, conventionally, that both higher unemployment and higher inflation lower well-being. We also discover that unemployment depresses well-being more than inflation. We characterize this well-being trade-off between unemployment and inflation using what we describe as the misery ratio. Our estimates with European data imply that a 1 percentage point increase in the unemployment rate lowers well-being by more than five times as much as a 1 percentage point increase in the inflation rate.

/pdf/the-happiness-trade-off-between-unemployment-and-inflation-1b2eyp3787.pdf

The Happiness Trade‐Off between Unemployment and Inflation

This paper examines the impact of demographic change on the housing market. More specifically, a difference-in-differences methodology is used to explore the effect of population decline and population ageing on house prices in Scotland and England/Wales. The analysis suggests that population decline and population ageing put downward pressure on prices. Therefore, the long-run trend of rising real house prices can not be assumed to continue into the future, particularly in Scotland.

Alberto Montagnoli

Papers

Carbon trading thickness and market efficiency

Short-run and long-run determinants of the price of gold

Monetary policy shocks and stock returns: evidence from the British market

The Happiness Trade‐Off between Unemployment and Inflation

Demographic Change and the Housing Market: Evidence from a Comparison of Scotland and England