Anthony P. Rodrigues

How stable is the predictive power of the yield curve? evidence from Germany and the United States

Empirical research over the last decade has uncovered predictive relationships between the slope of the yield curve and subsequent real activity and inflation. Some of these relationships are highly significant, but their theoretical motivations suggest that they may not be stable over time. We use recent econometric techniques for break testing to examine whether the empirical relationships are in fact stable. We consider continuous models, which predict either economic growth or inflation, and binary models, which predict either recessions or inflationary pressure. In each case, we draw on evidence from Germany and the United States. Models that predict real activity are more stable than those that predict inflation, and binary models are more stable than continuous models. The model that predicts recessions is stable over our full sample period in both Germany and the United States.

How Stable is the Predictive Power of the Yield Curve? Evidence from Germany and the United States

Empirical research over the last decade has uncovered predictive relationships between the slope of the yield curve and subsequent real activity and inflation. Some of these relationships are highly significant, but their theoretical motivations suggest that they may not be stable over time. We use recent econometric techniques for break testing to examine whether the empirical relationships are in fact stable. We consider continuous models, which predict either economic growth or inflation, and binary models, which predict either recessions or inflationary pressure. In each case, we draw on evidence from Germany and the United States. Models that predict real activity are somewhat more stable than those that predict inflation, and binary models are more stable than continuous models. The model that predicts recessions is stable over our full sample period in both Germany and the United States.

Consistent Covariance Matrix Estimation in Probit Models with Autocorrelated Errors

Some recent time-series applications use probit models to measure the forecasting power of a set of variables. Correct inferences about the significance of the variables requires a consistent estimator of the covariance matrix of the estimated model coefficients. A potential source of inconsistency in maximum likelihood standard errors is serial correlation in the underlying disturbances, which may arise, for example, from overlapping forecasts. We discuss several practical methods for constructing probit autocorrelation-consistent standard errors, drawing on the generalized method of moments techniques of Hansen (1982), Newey-West (1987) and others, and we provide simulation evidence that these methods can work well.

Tests of conditional mean-variance efficiency of the U.S. stock market

Abstract We test the mean-variance efficiency (MVE) hypothesis using a method that allows conditional expected returns to vary in relatively unrestricted ways. The method takes advantage of the predictability of conditional variances. The data estimate reasonably the price of risk, and the MVE model is valuable in explaining expected equity returns. Nevertheless, we reject the restrictions imposed by MVE on the alternative hypothesis. Unlike with most tests of MVE, we can put an explicit interpretation on the alternative hypothesis — a general linear Tobin portfolio choice model.

Is Aggregate Consumer Borrowing Consistent with the Permanent Income Hypothesis

Using US data covering from 1959 to 1994, we examine the consistency of aggregate consumer borrowing with the permanent income/life-cycle hypothesis (PI/LCH) and the predictive power of consumer borrowing. The PI/LCH implies that consumer borrowing should be an increasing function of the gap between permanent and current income. In addition, if consumers accurately estimate permanent income, large borrowing should be associated with rapid income growth in the future. Our empirical results support the PI/LCH; consumer borrowing increases with the estimate of permanent income and decreases with current income. The predictive power of consumer borrowing, however, is marginal; lagged consumer borrowing explains only a small portion of income growth and does not Granger-cause income growth. Copyright 2000 by Blackwell Publishers Ltd and The Victoria University of Manchester

One-sided test for an unknown breakpoint: theory, computation, and application to monetary theory

The econometrics literature contains a variety of two-sided tests for unknown breakpoints in time-series models with one or more parameters. This paper derives an analogous one-sided test that takes into account the direction of the change for a single parameter. In particular, we propose a sup t statistic, which is distributed as a normalized Brownian bridge. The method is illustrated by testing whether the reaction of monetary policy to inflation has increased since 1959.