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Yet More on a Stochastic Economic Model: Part 1: Updating and Refitting, 1995 to 2009

Published online by Cambridge University Press:  01 March 2011

A. D. Wilkie ,
Şule Şahin ,
A. J. G. Cairns  and
Torsten Kleinow
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Abstract

In this paper we review the Wilkie asset model for a variety of UK economic indices, including the Retail Prices Index, both without and with an ARCH model, the wages index, share dividend yields, share dividends and share prices, long term bond yields, short term bond yields and index-linked bond yields, in each case by updating the parameters to June 2009. We discuss how the model has performed from 1994 to 2009 and estimate the values of the parameters and their confidence intervals over various sub-periods to study their stability. Our analysis shows that the residuals of many of the series are much fatter-tailed than in a normal distribution. We observe also that besides the stochastic uncertainty built into the model by the random innovations there is also parameter uncertainty arising from the estimated values of the parameters.

Keywords

Wilkie modelPrice inflationWagesShare dividend yieldsShare dividendsShare pricesLong-term bond yieldsShort-term bond yieldsIndex-linked bond yieldsARCH ModelsParameter uncertainty
Type
Papers
Information
Annals of Actuarial Science , Volume 5 , Issue 1 , March 2011 , pp. 53 - 99
Copyright
Copyright © Institute and Faculty of Actuaries 2010

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