Stable non-Gaussian random processes , by G. Samorodnitsky and M. S. Taqqu. Pp. 632. £49.50. 1994. ISBN 0-412-05171-0 (Chapman and Hall).

Utilizing time series methods and data from five developed economies, we examine the relationship between stock market development and economic growth, controlling for the effects of the banking system and stock market volatility. Our results support the view that, although both banks and stock markets may be able to promote economic growth, the erects of the former are more powerful. They also suggest that the contribution of stock markets on economic growth may have been exaggerated by studies that utilize cross-country growth regressions.

/pdf/financial-development-and-economic-growth-the-role-of-stock-1ahs71m2sd.pdf

Financial Development and Economic Growth: The Role of Stock Markets

This chapter is concerned with methodological issues related to estimation, testing and computation in the context of structural changes in the linear models. A central theme of the review is the interplay between structural change and unit root and on methods to distinguish between the two. The topics covered are: methods related to estimation and inference about break dates for single equations with or without restrictions, with extensions to multi-equations systems where allowance is also made for changes in the variability of the shocks; tests for structural changes including tests for a single or multiple changes and tests valid with unit root or trending regressors, and tests for changes in the trend function of a series that can be integrated or trendstationary; testing for a unit root versus trend-stationarity in the presence of structural changes in the trend function; testing for cointegration in the presence of structural changes; and issues related to long memory and level shifts. Our focus is on the conceptual issues about the frameworks adopted and the assumptions imposed as they relate to potential applicability. We also highlight the potential problems that can occur with methods that are commonly used and recent work that has been done to overcome them.

/pdf/dealing-with-structural-breaks-58hiovnjl0.pdf

Dealing with Structural Breaks

On generalise l'estimateur bien connu de Hill de l'indice d'une fonction de reparatition avec queue de variation reguliere a une estimation de l'indice d'une loi de valeurs extremes. On demontre la convergence et la normalite asymptotique. On utilise l'estimateur pour certaines estimations comme celle d'une quantile elevee et d'un point d'extremite

A moment estimator for the index of an extreme-value distribution

Some methods for the evaluation of parameter constancy in cointegrated vectorautoregressive (VAR) models are discussed. Two different ways of re-estimating the VAR-model are proposed; one in which all parameters are estimated recursively based upon the likelihood function for the first observations, and another in which the cointegrating relations are estimated recursively from a likelihood function, where the short-run parameters have been concentrated out. We suggest graphical procedures based on recursively estimated eigenvalues to evaluate the constancy of the long-run parameters in the model. Specifically,we look at the time paths of the eigenvalues using a new result on the asymptotic distribution of the estimated eigenvalues. Furthermore, we show that the fluctuation test by Ploberger et al. (1989) and the Lagrange multiplier (LM) type test for constancy of parameters by Nyblom (1989) can be applied to test the constancy of the long-run parameters in the cointegrated VAR-model. All results are illustrated using a model for the term structure of interest rates on US Treasury securities.

Some tests for parameter constancy in cointegrated VAR-models

This article discusses the condition for deficit sustainability and searches for shifts in the structure of U.S. deficit policy. I show that, contrary to the current literature, cointegration between revenues and expenditures inclusive of debt payment is not a necessary but a sufficient condition for a strict interpretation of deficit sustainability. The necessary condition requires that debt grow slower than the borrowing rate. For tests on structural shifts, I use a test for structural change that searches for shifts in the rank of the cointegrating matrix. I find that there is a shift in deficit policy in the early 80s so that cointegration between revenue and expenditure inclusive of interest payments holds only up to 1980. I show, however, that the deficit process is still sustainable despite the failure of cointegration in the 80s. The finding of shifts in the deficit process is more uncertain when I normalize by gross national product or population, but the deficit is shown to be sustainable regard...

https://www.jstor.org/stable/pdfplus/1392386.pdf

Sustainability of the Deficit Process With Structural Shifts

This paper explores tests of the hypothesis that the tail thickness of a distribution is constant over time. Using Hill's conditional maximum likelihood estimator for the tail index of a distribution, tests of tail shape constancy are constructed that allow for an unknown breakpoint. The recursive test IS shown to be inconsistent in one direction, and only a one-sided test isrecommended. Specifically, the test can be used when the alternative hypothesis is that the tail index decreases over time. A rolling and sequential version of the test is consistent in both directions.The methods are illustrated on recent stock price data for Thailand, Malaysia and Indonesia. The period covers the recent Asian financial crisis and enables us to assess whether break points in domestic asset return distributions are related to known changes in institutional arrangements in the foreign currency markets of these countries.

https://papers.ssrn.com/sol3/Delivery.cfm/2451_14784.pdf?abstractid=1290962&mirid=4

Structural Change Tests in Tail Behaviour and the Asian Crisis

This paper explores tests of the hypothesis that the tail thickness of a distribution is constant over time. Using Hill's conditional maximum likelihood estimator for the tail index of a distribution, tests of tail shape constancy are constructed that allow for an unknown breakpoint. The recursive test is shown to be inconsistent in one direction, and only a one-sided test is recommended. Specifically, the test can be used when the alternative hypothesis is that the tail index decreases over time. A rolling and sequential version of the test is consistent in both directions. The methods are illustrated on recent stock price data for Thailand, Malaysia and Indonesia. The period covers the recent Asian financial crisis and enables us to assess whether breakpoints in domestic asset return distributions are related to known changes in institutional arrangements in the foreign currency markets of these countries.

Stability tests in error correction models

The likelihood ratio (LR) test for ranks is commonly used to test for the number of cointegrating relationships among multivariate time series. The distribution of the LR test in partially nonstationary models is nonstandard and contains nuisance parameters in the presence of non-iid errors and misspecified lags. In contrast, I show that under less-restrictive assumptions on the errors, the fully modified (FM) vector autoregressive (VAR) rank test has a chi-squared distribution for the null of cointegration but is degenerate for the null of no cointegration, unlike its LR counterpart, which is well defined for both nulls. It turns out that augmenting the VAR by an exogenous I(0) variable solves the degeneracy problem. The procedure can also be applied to testing for Granger causality and is in fact a generalization of Toda-Yamamoto's procedure of augmenting the VAR with additional lagged I(1) variables. Unlike the LR test for ranks or Toda-Yamamoto's test for causality, the FM tests do not requir...

Carmela Quintos

Papers

Sustainability of the Deficit Process With Structural Shifts

Structural Change Tests in Tail Behaviour and the Asian Crisis

Structural Change Tests in Tail Behaviour and the Asian Crisis

Stability tests in error correction models

Fully Modified Vector Autoregressive Inference in Partially Nonstationary Models