Predicting Instability

Weshah Razzak

MPRA Paper from University Library of Munich, Germany

Abstract: Unanticipated shocks could lead to instability, which is reflected in statistically significant changes in distributions of independent Gaussian random variables. Changes in the conditional moments of stationary variables are predictable. We provide a framework based on a statistic for the Sample Generalized Variance, which is useful for interrogating real time data and to predicting statistically significant sudden and large shifts in the conditional variance of a vector of correlated macroeconomic variables. Central banks can incorporate the framework in the policy making process.

Keywords: Sample Generalized Variance; Conditional Variance; Sudden and Large Shifts in the Moments (search for similar items in EconPapers)
JEL-codes: C1 C3 E66 (search for similar items in EconPapers)
Date: 2010-05-19
New Economics Papers: this item is included in nep-ban, nep-ecm, nep-for and nep-mac
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Related works:
Working Paper: Predicting Instability (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:22804

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