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Abstract: The paper forecasts conditional correlations between three classes of international financial assets, namely stock, bond and foreign exchange. Two countries are considered, namely Australia and New Zealand. Forecasting will be conducted using three multivariate GARCH models, namely the CCC model [T. Bollerslev, Modelling the coherence in short-run nominal exchange rates: a multivariate generalized ARCH model, Rev. Econ. Stat. 72 (1990) 498–505], VARMA-GARCH model [S. Ling, M. McAleer, Asymptotic theory for a vector ARMA-GARCH model, Econometric Theory 19 (2003) 280–310], and VARMA-AGARCH model [M. McAleer, S. Hoti, F. Chan, Structure and asymptotic theory for multivariate asymmetric volatility, Econometric Rev., in press]. A rolling window technique is used to forecast 1-day ahead conditional correlations. To evaluate the impact of model specification on conditional correlations forecasts, this paper calculates and compares the correlations between conditional correlations forecasts resulted from the three models. The paper finds the evidence of volatility spillovers and asymmetric effect of negative and positive shock on the conditional variance in most pairs of series. However, it suggests that incorporating volatility spillovers and asymmetric do not contribute to better conditional correlations forecasts. [Copyright &y& Elsevier]

This paper examines the issue of the generation of optimal control policies where there are explicit constraints upon the control values and there is limited knowledge of the complex economic system. The paper develops a methodology where the constrained optimal control is based upon a separate model that predicts the policy targets for the economic system. The methodology as applied to a small calibrated macroeconomic model of Australia. [Copyright &y& Elsevier]

Abstract: These days spatial microsimulation modelling plays a vital role in policy analysis for small areas. Most developed countries are using these tools in ways to make knowledgeable decisions on major policy issues at local levels. However, building an appropriate model is very difficult for many reasons. For example, the creation of reliable spatial microdata is still challenging. In addition there has not been much research on testing statistical significance of the model outputs yet, and deriving estimates of how reliable these outputs may be. This paper deals with the spatial microsimulation model building procedure for simulating synthetic spatial microdata, and then estimating small area housing stress in Australia. Geographic maps for small area housing stress estimates are illustrated. The research also demonstrates a new system to test the statistical significance of the model estimates. [Copyright &y& Elsevier]

Abstract: In many applications, there are multiple time series that are hierarchically organized and can be aggregated at several different levels in groups based on products, geography or some other features. We call these “hierarchical time series”. They are commonly forecast using either a “bottom-up” or a “top-down” method. In this paper we propose a new approach to hierarchical forecasting which provides optimal forecasts that are better than forecasts produced by either a top-down or a bottom-up approach. Our method is based on independently forecasting all series at all levels of the hierarchy and then using a regression model to optimally combine and reconcile these forecasts. The resulting revised forecasts add up appropriately across the hierarchy, are unbiased and have minimum variance amongst all combination forecasts under some simple assumptions. We show in a simulation study that our method performs well compared to the top-down approach and the bottom-up method. We demonstrate our proposed method by forecasting Australian tourism demand where the data are disaggregated by purpose of travel and geographical region. [Copyright &y& Elsevier]

Abstract: Old-age mortality for populations of developed countries has been improving rapidly since the 1950s. This phenomenon, which is often referred to as ‘rectangularization’ of mortality, implies an increased survival at advanced ages. With this increase comes different challenges to actuaries, economists and policy planners. A reliable estimate of old-age mortality would definitely help them develop various demographic and financial projections. Unfortunately, data quality issues have made the modeling of old-age mortality difficult and we need a method that can extrapolate a survival distribution to extreme ages without requiring accurate mortality data for the centenarian population. In this paper, we focus on a method called the threshold life table which systematically integrates extreme value theory to the parametric modeling of mortality. We apply the threshold life table to model the most recent period (static) mortality rates for the populations of Australia and New Zealand. We observe a good fit to the raw data for both populations. We then extend the model to predict the highest attained age, which is commonly referred to as ‘omega’ or in the actuarial literature, for the populations of Australia and New Zealand. On the basis of the threshold life table, the central estimates of for Australia and New Zealand are 112.20 and 109.43, respectively. Our estimates of are reasonably consistent with the validated supercentenarian in these countries. [Copyright &y& Elsevier]

Abstract: In the tourism demand literature, much of the research focuses on income and price variables as demand determinants for travel. Nevertheless, the literature has neglected other possible indicators such as consumers’ perceptions of the future course of the economy, household debt and the number of hours worked in paid jobs. In fact, several studies found that these indicators could influence consumers in making decisions to travel. In this paper, we examine whether there are other indicators that can influence future Australian domestic tourism demand. The econometric model used in this study is a panel three-stage least squares (3SLS) model. Using the data on Australian domestic tourism demand, the empirical results reveal several points: first, it is found that the consumer sentiment index has significant impacts on VFR, but not on holiday tourism. Furthermore, the business confidence index has no influence on business tourism demand. The study also finds that an increase in household debt could encourage more Australians to travel domestically, indicating that Australians may consider increasing debt as their confidence to spend increases. Lastly, working hours have a statistically significant effect in the case of holiday tourism data. [Copyright &y& Elsevier]

Abstract: We consider the problem of incrementally computing a minimal dominating set of a directed graph after the insertion or deletion of a set of arcs. Earlier results have either focused on the study of the properties that minimum (not minimal) dominating sets preserved or lacked to investigate which update affects a minimal dominating set and in what ways. In this paper, we first show how to incrementally compute a minimal dominating set on arc insertions. We then reduce the case of computing a minimal dominating set on arc deletions to the case of insertions. Some properties on minimal dominating sets are provided to support the incremental strategy. Lastly, we give a new bound on the size of minimum dominating sets based on those results. [Copyright &y& Elsevier]

Abstract: The growing realisation that groundwater and surface water systems are components of connected hydrologic system has in recent years sparked the development of integrated surface–ground water models. In this paper, a version of the IHACRES rainfall-runoff model is presented, in which the CMD module for calculating effective rainfall is coupled to a streamflow-groundwater module, and applied to the Coxs Creek catchment, a variably gaining-losing stream system in Australia. The aim is to determine the capacity for the coupled model to capture the switching off–on behaviour evident in the observed flow record. Model performance can be improved in terms of event prediction, volume of baseflow and the percentile of flow cessation, through manipulation of CMD parameters, however, improvements in some performance criteria come at the expense of performance in others. An analysis of the input rainfall time-series, generated using a standard weighted Thiessen polygon approach, reveals mismatches between observed streamflow events and the occurrence of rainfall, which impose major limits on model performance. The challenge is to develop a simple lumped rainfall-runoff model that has the potential to improve system understanding and allow for meaningful exploration of alternate climate, groundwater extraction and land use change scenarios, given a situation of data poor catchments in many parts of Australia. [Copyright &y& Elsevier]

Abstract: The observed difference between the swap rate and the government bond yield of corresponding maturity is known as the swap spread. The swap spread reflects the risk premium that is involved in a swap transaction instead of holding risk-free government bonds. It is primarily composed of the liquidity risk premium and the credit risk premium. In recent years there has been growing interest in modelling swap spreads because the swap spread is the key pricing variable for the swap rate. The Australian interest rate swap market is the most important over-the-counter (OTC) derivative market in Australia. In this paper we apply the class of mixture autoregressive conditional heteroscedastic (MARCH) models to three (3-year, 5-year and 10-year) swap spread series in Australia. The MARCH model is able to capture both of the stylised characteristics of the observed changes of the swap spread series: volatility persistence and the dependence of volatility on the level of the data. The proposed MARCH model also allows for regime switches in the swap spreads. [Copyright &y& Elsevier]

Abstract: Interstate tourism is an important component of the domestic tourism business in Australia. However, empirical analyses of interstate tourism demand have not been previously undertaken. The motivation for this paper is to investigate the short- and long-run causal relationships between economic factors and interstate tourism demand in Australia. Using a cointegration approach, this study discovers two distinct results. First, Australian household income, accommodation prices, prices of recreation and restaurants, and domestic airfares have significant impacts on the demand in the short-run. Second, some of the long-run economic coefficients show incorrect signs, which contradict the theory of consumer demand. [Copyright &y& Elsevier]

Abstract: Unsealed roads and tracks are potentially significant sources of diffuse pollutants, particularly sediment. This paper describes the application and development of a road erosion and sediment transport model in the Moruya-Deua and Tuross River catchments of southeast Australia. An empirical model based on the Washington Road Surface Erosion Model (WARSEM) is applied using typically widely available spatial data sets and field-collected data. The results suggest that approximately 21kt and 35kt of sediment respectively are produced annually from road erosion in the Moruya-Deua and Tuross River catchments, but that less than 10% of the sediment is delivered to streams. Surprisingly, about half of the delivered sediment is derived from only 4% of the total road network. Testing of the model shows that the model outputs are likely to overestimate road erosion rates. To address this problem, catchment-specific testing of the factors of the model and improving knowledge of the processes of road to stream sediment transport are required. [Copyright &y& Elsevier]

Abstract: In this paper a number of alternative autoregressive conditional duration (ACD) models are compared using a sample of data for three major companies traded on the Australian Stock Exchange. The comparison is performed by employing the methodology for evaluating density and interval forecasts, developed by Diebold et al. [F. Diebold, A. Gunther, S. Tay, Evaluating density forecasts with applications to financial risk management, International Economic Review 39 (1998) 863–883] and Christoffersen [P. Christoffersen, Evaluating interval forecasts, International Economic Review 39 (1998) 841–862], respectively. Our main finding is that the generalized gamma and log-normal distributions for the error terms have similar performance and perform better that the exponential and Weibull distributions. Additionally, there seems to be no substantial difference between the standard ACD specification of Engle and Russel [R. Engle, J. Russell, Autoregressive conditional duration: a new model for irregularly-spaced transaction data, Econometrica 66 (1998) 1127–1162] and the log-ACD specification of Bauwens and Giot [L. Bauwens, P. Giot, The logarithmic ACD model: an application to the bid-ask quote process of three NYSE stocks, Annales d’Economie et de Statistique 60 (2000) 117–150]. [Copyright &y& Elsevier]

The aims of the paper are two-fold, namely to analyse the seasonal patterns of tourist arrivals from South Korea to Australia, and to use econometric time series modelling to quantify the factors affecting the flow of international tourists between Australia and Korea. Estimates of the effects of changes in income, relative prices, exchange rates, seasonality and other factors are provided, and the significance of these explanatory variables is tested. Adequate seasonally unadjusted quarterly time series data are required for extended periods to generate more accurate estimates of the range of explanatory variables, and to examine seasonal variations in international tourism demand. Since international tourist flows from South Korea have become an important source of the inbound tourist market, such information is vital to the Australian tourist industry, governments and tourism commissions, which need reliable estimates in order to take effective measures to stimulate tourism. [Copyright &y& Elsevier]

There has been a rapid increase in the number of corporate bonds issued in Australia since the middle of 1998. This increase has stimulated interest in characterising the yield curves and the factors that determine changes in these spreads. The focus of this paper is on measuring any impact of stock market volatility on spreads using two different measures. One measure is based on volatility implied from options prices while the other is derived from a conditional heteroscedastic volatility model of changes in a stock market index. It is found that the former has no significant impact on spreads but the latter is both significant and stable over time. This impact is estimated to be negative implying that an increase in volatility cause a decrease in corporate bond spreads. [Copyright &y& Elsevier]

This paper investigates the long-run relationship between the demand for international travel to Australia from Malaysia and a group of leading macroeconomic variables, including Malaysian income, tourism prices in Australia, transportation costs between Malaysia and Australia, and the exchange rate between the two countries. The Augmented Dickey–Fuller (ADF) procedure is used to test for unit roots, while Johansen’s maximum likelihood procedure is used to test for cointegration and to estimate the number of cointegrating vectors. A single cointegrating relationship is found among the set of non-stationary macroeconomic variables, and is compared with the ordinary least squares estimates. It is found that lagged changes in real airfares, and the extent to which the system is out of equilibrium, are statistically significant. Surprisingly, real income does not seem to have a significant effect on tourism demand from Malaysia to Australia when the cointegration technique is used. However, real income (as measured by the logarithm of real private consumption expenditures per capita) is significant when ordinary least squares estimation is used. [Copyright &y& Elsevier]