Time-spectral density and wavelets approaches. Comparative study. Applications to SP500 returns and US GDP
AbstractVarious forms of instability can be observed in macroeconomic and financial data including changes in variance, changes in cycle properties, or both. Traditional tests do not allow to distinguish between these different cases. This paper proposes and compares two alternative approaches. The comparison is based on Monte Carlo simulations. The first approach is based on windowed-estimate of the time-spectral density, while the second method is the wavelets theory. We show that the wavelets approach is particularly powerful to detect changes in cyclical properties, while the first approach fails in such a case. In contrast, the wavelets method fails to capture time–interaction effects, while the first approach is more powerful regarding this point. Hence the two methods are complementary. A first application on the SP500 returns shows that there are only changes in variance without altering the cyclical properties of the series. A second application on the US growth rate allows to conclude that there are simultaneous changes in the time and frequency domain.
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Bibliographic InfoArticle provided by Elsevier in its journal Economic Modelling.
Volume (Year): 31 (2013)
Issue (Month): C ()
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Web page: http://www.elsevier.com/locate/inca/30411
Time–frequency domain; Time-spectral density; Wavelets; Covariance-stationarity; Monte Carlo simulation;
Find related papers by JEL classification:
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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MIT Press, vol. 87(3), pages 503-522, August.
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