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Econometrics
Research Area and Mission
We focus on three themes:
(1) Development of dynamic econometric models with nonlinearities in the model specification and plausible restrictions in the parameter space.
(2) Advanced computational techniques that can handle such nonlinearities and restrictions in an efficient and reliable way.
(3) Discrete choice analysis at an individual level.
The aim of this programme is to provide econometric tools that lead to efficient forecasting of the level and risk of economic activities in macroeconomics and finance and lead to improvements in individual economic decision making in the field of marketing and finance.
Phase of development
Since the inception of this programme, effort has been made to establish a permanent unit of high econometric quality that undergoes periodic stages in which substantial renewals take place with regard to methodology and the field of applications. In the period between 2001-2007 the areas of nonlinear dynamic econometric models, structural inference, modern computational econometric techniques and individual decision-making were of import and the cross-fertilization between these areas was emphasized. Applications exist in fields where substantial amounts of data are becoming available, for example, in (international) macroeconomics, empirical finance and marketing. Examples include hedging strategies for currency risk, optimal investment plans for pension funds; direct mailing strategies by charities and business cycle analysis for the prediction of recessions.
Strategy and Policy
The strategy and policy of this research group are characterized by the style of leadership and plans for future research.
We focus on three themes where cross-fertilization plays an important role:
(1) Development of dynamic econometric models with nonlinearities in the model specification and plausible restrictions in the parameter space.
(2) Advanced computational techniques that can handle such nonlinearities and restrictions in an efficient and reliable way.
(3) Discrete choice analysis at an individual level.
The motivation to focus on these three themes follows from changes that occurred over the past thirty years. One such change is the deregulation of many economic systems (in Eastern Europe in particular). The second change is the technological advancement in financial products, systems and services. As a consequence of these two changes, one observes more shocks to economic processes and more nontrivial dynamic behaviour in important economic variables. For instance, the processing of information moves at a much greater speed than in the past. This has had a substantial effect on the level of volatility of financial processes. The third important change is the enormous increase in the availability of large data sets: high frequency data in the financial sector and scanner data in the marketing sector.
Nontrivial dynamic behaviour and the availability of large data sets has led to our investigation of nonlinear structures in dynamic models like threshold processes and to the investigation of time varying volatility. Equally important were plausible restrictions in the parameter space such as reduced rank restrictions due to structural information, co integration and common factors. In this context, macro-economic and financial processes are studied.
The increased availability of large scanner panel data sets in marketing led to the study of dynamic behaviour of individuals and the analysis of behaviour of micro-economic variables like prices and quantities of individual products.
The knowledge obtained during the construction, estimation and forecasting of macroeconomic and financial variables is usefully applied in the field of marketing. An interesting observation is that research results in dynamic macroeconomic modelling can be used for the analysis of individual decision-making processes in a dynamic context. This cross-fertilization of macro- and micro-econometrics has produced a considerable number of new insights and has led to an increased output of high-quality papers that have appeared in top journals.
Alongside this development, the ‘Computational Revolution’ took place in several fields of scientific activity including psychology, physics, chemistry and biology. Nonlinear, partially observed processes where simulation techniques are used are also becoming increasingly important in Economics. In the present programme, a major research topic is the development of simulation-based inferential techniques that are used in a Bayesian and/or likelihood analysis of econometric models in macroeconomics, finance and marketing. The architecture of constructing effective Markov Chain Monte Carlo methods for several alternative model structures is actively pursued with considerable success. Another topic of importance is advanced computational techniques for non-parametric statistics, and the development of such techniques for visualization models. The latter area is becoming increasingly important in many scientific fields. In this present research programme, such techniques perform well in areas such as prediction of macroeconomic time series and in the context of market share attraction models.
Relationship with teaching
Members of this programme contribute to teaching activities of the ESE at the bachelor and master level, to the MPhil programmes of the Tinbergen Institute and ERIM, and to courses at the Duisenberg School of Finance. The group provides basic courses in statistics and econometrics for the economic programmes and advanced courses in statistics, econometrics, financial econometrics, marketing econometrics and computational techniques in the econometrics programmes. The contents of the advanced courses follow the latest interests from academia and business. Own research topics are often used during lectures.
Processes in Research
Seminars
The Econometric Seminars are organized on a regular basis. In the fall and in the spring there are usually a total of twenty seminars. These seminars are attended by staff and Ph.D. students in econometrics. Further information is available on the Econometric Institute website: www.econometric-institute.org/seminars.
Special lectures organisation:
P.H.B.F. Franses and H.K. van Dijk have organised the Econometric Institute Lecture Series in cooperation with Princeton University Press from 2003 to the present.
Research cooperation
Members of this research group are also active in the group Finance and International Markets and in the group Marketing. This cooperative research has been very productive during the evaluation period. Members also cooperate on an individual basis with many national and international fellow researchers outside the Econometric Institute and the ESE. Research visits and the arrival of visiting research staff take place on a frequent basis. Similarly, several Postdoctoral Fellows and advanced Ph.D. students visit the Institute on a regular basis to explore joint research with staff members.
Conference organisation
Members of the research group organize or co-organize or are members of scientific programme committees in many conferences.
Analysis, Perspectives and Expectations for the Research Programme
There has been a substantial increase in the number of publications in top international journals authored by members of this research group. Also, the active participation of researchers in other groups has led to a sizable increase in top publications there. In the immediate future it is expected that this positive trend will continue. There is considerable interest from national and international Ph.D. candidates and Postdoctoral Fellows in participating in this group.
In terms of research topics, the group intends to pursue topics such as:
In Finance, International and Macroeconomics: Volatility modelling and forecasting; high-frequency data analysis; asset return predictability; business cycle analysis, efficient option pricing, risk analysis. In Marketing: Discrete dynamic choice modelling and duration analysis, nonlinear panels. In Econometric Methods: Bayesian simulation based inference using Markov Chain methods and Importance Sampling for dynamic models with emphasis on sequential importance sampling and particle filtering methods using flexible classes of approximating functions. Such methods are useful for the analysis of the dynamic models mentioned above. Time (in-) stability is a key topic in this research agenda.
A separate topic is visualisation, multidimensional scaling, classification, majorization, and their applications in economics and business. Members of this group receive invitations for invited and key note lectures on a regular basis. This poses a challenge for excellence in research in the near future. The quality of the published papers, the acquired reputation of several members, and the active participation of junior researchers is an indication that this group is one of the leading research groups in Europe in the field of theoretical and applied econometrics.
