Short-run Instability Research Articles

Price Appreciation and Roughness Duality in Bitcoin: A Multifractal Analysis

Since its launch in 2009, bitcoin has thrived, attracting the attention of investors, regulators, academia, and the public in general. Its price dynamics, characterized by extreme volatility, severe jumps, and impressive long-term appreciation, suggest that bitcoin is a new digital asset. This study presents a comprehensive overview of the fractality of bitcoin in a high-frequency framework, namely by applying Multifractal Detrended Fluctuation Analysis (MF-DFA) and a Multifractal Regime Detecting Method (MRDM) to Bitstamp 1 min bitcoin returns from January 2013 to July 2020. The results suggest that bitcoin is multifractal, with smaller and larger fluctuations being persistent and anti-persistent, respectively. Multifractality comes from significant long-range correlations, which cast some doubts on the informational efficiency at this frequency, but mainly comes from fat-tails, which highlights the significant risks undertaken by investors in this market. Our most important result is that the degree and richness of multifractality is time-varying and increased after 2017, when volumes and prices experienced an explosive behaviour. This complexity puts into perspective the duality of bitcoin: while it is characterized by long-run attractiveness and increasing valuation, it also has a high short-run instability. Hence, this study provides some empirical evidence supporting the relationship between these two observable features.

The stability of learning prior to an anticipated change in the target inflation rate

I examine the stability of least-squares learning in a flexible-price endowment economy when there is an anticipated change in the inflation target. Monetary policy follows a Taylor rule and a change in the target is announced several periods in advance. I show that highly plausible parameter values may lead to short-run instability and that the conditions for the stability of learning are more demanding soon after the policy change is announced. Also, the farther in advance the change is announced the narrower is the range of policy parameters that generate stability. This is because with a long transition, any estimation error is projected farther into the future and its effects are therefore magnified. These results suggest that advance communication of a change in the inflation target may destabilise inflation in the short run; when the central bank changes its inflation target, a brief transition may be preferable.

New Empirical Evidence for the Fisher Relation: Integration and Short-run Instability

The Fisher relation is a key theoretical relation that underlies many important results in economics and finance. Alhough the Fisher relation is apparently simple in theory, empirical analyses of the relation have mixed and weak results. We consider the possibility that weakness of the evidence is due to short-run instability in the relation, which is sufficiently strong to dominate the whole sample. We analyze this possibility based on the following two approaches. First, we apply partial-sample instability tests of Andrews and Kim (2006) to detect such short-run instability. Our result shows clear evidence for the existence of such short-run instability. Second, we examine how much the partial-sample instability affects the longmemory property of the real interest rate based on the concept of fractional integration. Our result indicates that the short-run instability causes a substantial increase in the coefficient of fractional integration, which implies an increase in the tendency of nonstationarity.

Explaining US employment growth after the great recession: The role of output–employment non-linearities

We investigate the relationship between employment and GDP in the United States. We disentangle trend and cyclical employment components by estimating a non-linear smooth transition error-correction model that simultaneously accounts for long-term relationships between growth and employment and short-run instability over the business cycle. Based on out-of-sample conditional forecasts, we conclude that, since the end of the 2008–09 recession, US employment is on average around 1% below the level implied by the long run output–employment relationship, meaning that about 1.2million of the trend employment loss cannot be attributed to the identified cyclical factors.

Instability of Money Demand: Recent Evidence for Thailand

This study examines the short-run and long-run stability properties of money demand in Thailand using the monetary aggregates M1, M2 and M3, for the period from 1993Q1 to 2012Q4. We use the dynamic OLS specification of Stock and Watson (1993) and Ball (2001), and the estimation technique of the Johansen cointegration test to determine the stability of money demand. The results from the Johansen cointegration test reveal that there is only a long-run relationship between M1 money demand and real GDP (a proxy for real income) and interest rate. In the short run, only a change in real GDP affects M1 money holdings. In the long-run both real GDP and an interest rate determine money demand. The short-run instability of M1 money demand makes it difficult for the monetary authorities to use M1 as an intermediate target to control intermediate-run and long-run inflation.

The Oil Price-Microeconomy Relationship is Alive and Well

This paper analyzes the oil price-macroeconomy relationship using a model that aims at taking into account all the sources of instability highlighted by previous studies. Mainly, we adopt a sectoral approach and weight oil prices by sectoral energy intensities. Further, inspired by Alfred Marshall’s treatment of time, we also put forward a new approach to model short-term interactions between economic variables that relies on an error-correcting mechanism depending on cumulative errors. Applied to the U.S. economy, our model enables us to estimate stable relationships between oil prices and sectoral economic indicators. Further, it explains both the long-run weakening of the relationship between oil prices and aggregate economic activity and its short-run instability. We show that the oil price-macroeconomy relationship is fading but the oil price-microeconomy relationship is alive and well.

Instability, investment, disasters, and demography: natural disasters and fertility in Italy (1820–1962) and Japan (1671–1965)

This article examines whether natural disasters affect fertility—a topic little explored but of policy importance given relevance to policies regarding disaster insurance, foreign aid, and the environment. The identification strategy uses historic regional data to exploit natural variation within each of two countries: one European country—Italy (1820–1962), and one Asian country—Japan (1671–1965). The choice of study settings allows consideration of Jones’ (The European miracle, Cambridge University Press, Cambridge, 1981) theory that preindustrial differences in income and population between Asia and Europe resulted from the fertility response to different environmental risk profiles. According to the results, short-run instability, particularly that arising from the natural environment, appears to be associated with a decrease in fertility—thereby suggesting that environmental shocks and economic volatility are associated with a decrease in investment in the population size of future generations. The results also show that, contrary to Jones’ (The European miracle, Cambridge University Press, Cambridge, 1981) theory, differences in fertility between Italy and Japan cannot be explained away by disaster proneness alone. Research on the effects of natural disasters may enable social scientists and environmentalists alike to better predict the potential effects of the increase in natural disasters that may result from global climate change.

Rural Research and Policy

Farming has been regarded as the basic sector of rural economies. As a major source of both shortrun instability and long-run structural change, it has been the focus of many policy initiatives. However it is well recognized that sectoral interdependences mean that variation in the basic sector will spread to other sectors of the rural economy and that changes in non-farm sectors also affect the farm sector. Analysis of the economic structure of rural economies and of significant linkages among key sectors is needed to be able to direct policies that are effective in meeting rural economy objectives in terms of economic stabilization, job provision, the use and provision of infrastructure and services, and so on. The objectives and knowledge of intersectoral linkages will most likely indicate that the traditional policy response of providing support to the farm sector and relying on ‘trickle down’ effects to solve the rest of the problems will be inadequate.

Short-Run Instability and Long-Run Trends in the Yugoslav Economy’s Development

Short-Run Instability and Long-Run Trends in the Yugoslav Economy’s Development

Short-Run Instability in Single-Family Housing Starts

Abstract This article provides a statistical analysis of an inventory-theoretic approach to the study of the speculative sector of the single-family housing starts. Seen as a source of supply of new housing units the speculative housing starts are found to be heavily affected by the short-term interest rate and the monetary base.

Short-Run Instability in Single-Family Housing Starts

Abstract This article provides a statistical analysis of an inventory-theoretic approach to the study of the speculative sector of the single-family housing starts. Seen as a source of supply of new housing units the speculative housing starts are found to be heavily affected by the short-term interest rate and the monetary base.

Facteurs monétaires et stabilité économique

Monetary factors affecting economic stability The criteria of economic growth and the meaning of stability are defined. The connections between stability and growth are then examined. It is noted that two schools of thought exist in this matter : one refuses all short-run instability, the other finds that instability and growth are part of the same process and inseparable. As regards the monetary aspects of short-run fluctuations it is significant that fluctuations in real magnitudes and in money flows occur together and that most economists agree that the proximate causes of fluctuations are to be found in expenditure changes. This does not mean , of course , that monetary factors alone can avoid fluctuations. This point of view is illustrated by an analysis of the «real» and «monetary » factors in instability and of their interactions. The latter point has tended to be neglected in much modern work on the cycle. For example, the role of monetary factors in depressions is highly important. The influence of credit expansion during the up-swing is also fundamental. It is main¬ tained that the elimination of monetary factors in the trade cycle would in fact remove most of the causes of instability. Unfortunately, their elimination is not likely to be complete and the cycle will therefore remain. In the international sphere in particular the importance of monetary causes of instability cannot be stressed too much.