Analysis of Non-Stationary Dynamics in the Financial System

12 Pages Posted: 20 Jul 2014

See all articles by Samar Guharay

Samar Guharay

MITRE Corporation

Gaurav Thakur

MITRE Corporation

Fred Goodman

MITRE Corporation

Scott Rosen

MITRE Corporation

Daniel Houser

George Mason University - Department of Economics; Interdisciplinary Center for Economic Science; George Mason University - Mercatus Center

Date Written: December 1, 2013

Abstract

Novel data-driven analyses, appropriate for detecting economic instability in non-stationary time series, are developed using functional principal component analysis (fPCA) and Synchrosqueezing. fPCA is applied in a new way, aggregating multiple financial time series to identify periods of macroeconomic instability. Synchrosqueezing, a technique which generates a time-series’ time-dependent spectral decomposition, is modified to develop a new quantitative measure of local dynamic changes and structural breaks. The merit of this integrated technique is demonstrated by analyzing financial data from 1986 to 2012 that includes equity indices, securities and commodities, and foreign exchange. Both procedures successfully detect key historic periods of instability. Moreover, the results reveal distinctions between periods of longterm gradual change in addition to structural breaks. These tools offer new insights in the analysis of financial instability.

Keywords: non-stationary time series; functional PCA; Synchrosqueezing; multi-time scale characteristics; detection of macroeconomic instability

Suggested Citation

Guharay, Samar and Thakur, Gaurav and Goodman, Fred and Rosen, Scott and Houser, Daniel, Analysis of Non-Stationary Dynamics in the Financial System (December 1, 2013). Economics Letters, Vol. 131, No. 3, 2013, Available at SSRN: https://ssrn.com/abstract=2467927

Samar Guharay (Contact Author)

MITRE Corporation ( email )

202 Burlington Road
Bedford, MA 01730
United States

Gaurav Thakur

MITRE Corporation ( email )

202 Burlington Road
Bedford, MA 01730
United States

Fred Goodman

MITRE Corporation ( email )

202 Burlington Road
Bedford, MA 01730
United States

Scott Rosen

MITRE Corporation ( email )

202 Burlington Road
Bedford, MA 01730
United States

Daniel Houser

George Mason University - Department of Economics ( email )

4400 University Drive
Fairfax, VA 22030
United States

Interdisciplinary Center for Economic Science ( email )

5th Floor, Vernon Smith Hall
George Mason University
Arlington, VA 22201
United States
7039934856 (Phone)

HOME PAGE: http://mason.gmu.edu/~dhouser/

George Mason University - Mercatus Center ( email )

3434 Washington Blvd., 4th Floor
Arlington, VA 22201
United States

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