Yoshihiko Tsukuda

Estimation of Stochastic Volatility Models: An Approximation to the Nonlinear State Space Representation

ABSTRACT The stochastic volatility (SV) model can be regarded as a nonlinear state space model. This article proposes the Laplace approximation method to the nonlinear state space representation and applies it for estimating the SV models. We examine how the approximation works by simulations as well as various empirical studies. The Monte Carlo experiments for the standard SV model indicate that our method is comparable to the Monte-Calro Likelihood (MCL; Durbin and Koopman, 1997), Maximum Likelihood (Fridman and Harris, 1998), and Markov chain Monte Carlo (MCMC) methods in the sense of mean square error in finite sample. The empirical studies for stock markets reveal that our method provides very similar estimates of coefficients to those of the MCL. We show a relationship of our Laplace approximation method to importance sampling.

The causes of the long stagnation in Japan

The paper investigates whether the Japanese bank lending causes the long stagnation in the 1990s and if so whether this effect on the growth is more persistent than in the 1980s. Applying a VAR model for the annual prefecture panel data, the former can be verified by Granger causality test and the latter by impulse response function. There exists only one way causality from the loan to the GDP in the slump periods, while two way causalities exist in the 1980s. The shock in the loan equation is less persistent than the shock in GDP in the 1980s, but the persistence is reversed in the 1990s.

ECONOMIC GROWTH AND PUBLIC EXPENDITURE COMPOSITION: OPTIMAL ADJUSTMENT USING THE GRADIENT METHOD

Previous studies have looked at how the components of fiscal spending affect economic growth. However, we explicitly enquire into how to adjust the components in order to achieve the highest rate of economic growth starting from the present shares of components, by introducing a gradient method. The resulting optimal adjustment shares are proportional to the deviations from the average over elements of a gradient vector. The optimal adjustment share is completely estimated by using linear regression with any choice of omitted variable. The paper also provides an illustrative example taken from the annual panel data for the Japanese prefectural governments.

An Extensive Analysis on the Japanese Markets via S. Taylor's Model

Applying S. Taylors approach (1986), we make an extensive analysis on the Japanese stock market, foreign exchange market and the Japanese Government Bond Futures market. The purpose of this paper is to empirically reveal the structure of the Japanese markets via Taylors model rather than to propose a new model. For this reason, we include a variety of analyzed data particularly for the Japanese stock market and the foreign exchange market because the results can be used in a different manner. The paper consists of three parts. But each part can be read separately.Part 1: Overshooting hypothesis for Japanese stock pricesPart 2: A trend movement in daily/weekly Yen-Dollar exchange ratesPart 3: Price variations of Japanese Government Futures.In the first part, the stock prices are shown to over-respond to new information, which is different from the behaviors of stock prices in other markets. In Part 2, a trend movement is revealed in Yen-Dollar exchange rates. In Part 3, a strategy in the Japanese Government Bond futures markets is shown to perform better than a buy and hold strategy.

Assessments of the program for financial revival of the Japanese banks

This article assesses the program for Financial Revival (PFR) of the Japanese banks. To achieve the programmes goal of maximizing banks’ profits, the government can inject capital and reduce bad loans of banks subject to the government budget constraint. We conclude that the government can achieve the programmes goal only in areas where the Bank for International Settlements (BIS) capital ratio regulations are binding. The government should restrain to reduce bad loans when the unit price of doing so increases and cannot maximize depositors’ or borrowers’ surpluses together with banks’ profits. The Basel II Framework enhances banks’ profits under the programme. The empirical evidence indicates that the necessary condition for achieving the programmes goal is satisfied.

Granger Causality Between Money and Income for the Japanese Economy in the Presence of a Structural Change

This paper examines Granger causality between money and income in the Japanese economy based upon a bivariate VAR model with a structural change in the trend function. We employ a stratified testing strategy incorporating preliminary tests for a unit root and for the order of cointegration rank. Our study reveals that the choice of either trend stationarity or difference stationarity, as well as the order of cointegration rank, crucially affect the test results for Granger causality. It is found that the causality from money to income was strong before 1980 but weakened or virtually disappeared after 1980; the opposite causality existed weakly before 1980 but not after 1980. The result confirms the claim by the Bank of Japan (1992) and Honda et al. (1995) among others that the role of money as a leading indicator for predicting movements in income has weakened or even disappeared in the 1980s. JEL Classification Numbers: C32, E40

Ancillarity and the Limited Information Maximum-Likelihood Estimation of a Structural Equation in a Simultaneous Equation System

The concepts of the curved exponential family of distributions and ancillarity are applied to estimation problems of a single structural equation in a simultaneous equation model, and the effect of conditioning on ancillary statistics on the limited information maximum-likelihood (LIML) estimator is investigated. The asymptotic conditional covariance matrix of the LIML estimator conditioned on the second-order asymptotic maximal ancillary statistic is shown to be efficiently estimated by Liu and Breens formula. The effect of conditioning on a second-order asymptotic ancillary statistic, i.e., the smallest characteristic root associated with the LIML estimation, is analyzed by means of an asymptotic expansion of the distribution as well as the exact distribution. The smallest root helps to give an intuitively appealing measure of precision of the LIML estimator.

Generalized Nelson-Siegel term structure model: do the second slope and curvature factors improve the in-sample fit and out-of-sample forecasts?

The dynamic Nelson–Siegel (DNS) model and even the Svensson generalization of the model have trouble in fitting the short maturity yields and fail to grasp the characteristics of the Japanese government bonds yield curve, which is flat at the short end and has multiple inflection points. Therefore, a closely related generalized dynamic Nelson–Siegel (GDNS) model that has two slopes and curvatures is considered and compared empirically to the traditional DNS in terms of in-sample fit as well as out-of-sample forecasts. Furthermore, the GDNS with time-varying volatility component, modeled as standard EGARCH process, is also considered to evaluate its performance in relation to the GDNS. The GDNS model unanimously outperforms the DNS in terms of in-sample fit as well as out-of-sample forecasts. Moreover, the extended model that accounts for time-varying volatility outpace the other models for fitting the yield curve and produce relatively more accurate 6- and 12-month ahead forecasts, while the GDNS model comes with more precise forecasts for very short forecast horizons.

The Impacts Of The Imf-Supported Structural Reform Program On Asian Stock Market Efficiency

We investigate the impact of the IMF-supported structural reform program in the 1997 Asian crisis on stock market efficiency using the before–after, with–without and event study approaches by applying a time-varying parameter model to eight Asian stock markets. All the supported countries, including Indonesia and Korea, but not Thailand, experienced significantly improved market efficiency after the implementation of the program, implying a positive effect of the program according to the before–after approach. Among the nonsupported countries, China, Taiwan and Malaysia did not improve efficiency (however, Hong Kong and Singapore did) after the start of the crisis, providing some evidence of a positive effect according to the with–without approach. The Thailand, Indonesia and Korean markets showed positive abnormal returns on the days or days following policy announcements in this IMF-supported program, indicating positive effects of the policy according to the event study approach. These findings suggest that the IMF program was successful during the 1997 Asian financial crisis and that it was helpful in resolving the recent global financial crisis.

An alternative method for predicting technical inefficiency in stochastic frontier models

The median is proposed as an alternative to the expectation of the conditional distribution in order to predict the technical inefficiency in stochastic frontier production models with panel data. Numerical comparison reveals that the two predictors can take different values when the distribution is skewed.