Stats Chat

Producing plausible but newsworthy predictions can be hard. It’s especially hard in areas where there are constraints that the predictions should really satisfy.

In the NZ$ Herald,

Professor Tim Congdon from the Institute for International Monetary Research said it is extremely unlikely that the excess money will be sucked out of the system again. He warned US inflation could explode to double-digit levels before the end of next year.

“The likelihood of US inflation exceeding 3 per cent is very, very high. In my view, it is more likely to be 5pc to 10pc when it peaks, probably before mid-2022,” he said. Such an outcome would turn the global financial system upside and have dramatic ramifications for asset prices of all kinds.

One constraint here is the that the US Treasury sells both ordinary bonds and inflation-protected bonds. The ordinary bonds pay ordinary interest; the inflation-protected ‘TIPS’ pay out interest plus inflation-adjustment.  So, if you expect inflation to be 2%, you will be willing to accept 2% lower interest on the inflation-protected bonds.   The gap between TIPS and ordinary bonds tells us about the market’s expectations of inflation

Here’s a graph from FRED, the wonderful economic stats website of the Federal Reserve Bank of St Louis, showing the five-year-average inflation rate at which you’d break even by buying TIPS.

The breakeven inflation rate has been rising, but it’s still only about 2%.  If inflation is going to average 2% over five years, it’s not going to hit 5% next year and 10% in 2022.

Now, the US financial markets aren’t infallible. You could tell a coherent story about how the US financial markets are wrong, and how there is some good reason to expect inflation that they don’t know about or don’t believe. Perhaps the M2 money supply indicator is much more important than anyone except this guy realises. I’m not an economist; I wouldn’t know.  But that’s not the story that’s being told.

There’s increasing consensus that the new B 1.1.7 variants^* of the Covid virus really are importantly more transmissible than the previous versions, which then raises the question of whether NZ-style lockdowns will still work.  You’ll see people trying to do simple arithmetic on the basic reproduction number, R, to work this out, but it’s more complicated than that.

In a very simple epidemic model, the number of people infected by a case is the number of people they come into contact with, multiplied by the probability that they infect each one.  You would think of interventions such as lockdown as affecting the first factor and differences in the virus as affecting the second. In this model, if a new variant has R about 1.3 times higher than the existing virus, for the same contact rate, it is increasing the infection probability by 30%.  If lockdown decreases R for the old virus from, say, 2.5 to 0.8, then it would decrease it from 2.5×1.3 to 0.8×1.3 for the new virus. That’s not a completely useless way to think, but it’s nowhere near good enough for government work.

The issue is that interventions don’t affect all transmission equally.  Imagine we had the impossible perfect lockdown, so you only came into contact with people in your bubble — any essential shopping was done by perfect zero-contact delivery or something. Obviously, the virus would not spread between bubbles; that’s exactly what we’re assuming. However, the effective reproduction number would still be greater than 1 initially, because the virus would spread within bubbles.  A combination of testing and isolation and just running out of susceptible people in affected bubbles would get the effective reproduction number down near zero eventually, but there would never have been any between-bubble spread.

In the real world, or even in New Zealand, we won’t have the impossible perfect lockdown. But back in April alert level 4 reduced between-bubble transmission a lot, and it will be combined with now knowing about masks and airborne transmission plus now having much more testing capacity than in April plus now having faster tracing than in April.  Is that enough? Well, you need a more sophisticated model to tell you, one that’s between our two simple extremes of no population structure and perfect lockdown.  We have those models, and what I’m hearing is that level 4 lockdown would work, but it’s not clear that level 3 would work.

There are other related questions where you need a model rather than simple intuition. For example, is the new variant more likely than the old ones to appear with no obvious contact to the border (as in August), making a lockdown more likely? Apparently, the answer is “yes, much more likely”.

It’s amazing how far you can get with unstructured differential-equation models for epidemics, and they are still valuable, but for some questions you need to model something closer to the real population, and it’s harder and takes longer and the results don’t necessarily have a simple intuitive explanation.

^* if you don’t say “China virus”, you probably shouldn’t be saying “UK strain”

Team Ratings for Round 15

The basic method is described on my Department home page.
Here are the team ratings prior to this week’s games, along with the ratings at the start of the season.

Performance So Far

So far there have been 90 matches played, 60 of which were correctly predicted, a success rate of 66.7%.
Here are the predictions for last week’s games.

Predictions for Round 15

Here are the predictions for Round 15. The prediction is my estimated expected points difference with a positive margin being a win to the home team, and a negative margin a win to the away team.

Team Ratings for Round 7

The basic method is described on my Department home page.
Here are the team ratings prior to this week’s games, along with the ratings at the start of the season.

Performance So Far

So far there have been 31 matches played, 17 of which were correctly predicted, a success rate of 54.8%.
Here are the predictions for last week’s games.

Predictions for Round 7

Here are the predictions for Round 7. The prediction is my estimated expected points difference with a positive margin being a win to the home team, and a negative margin a win to the away team.

Team Ratings for Postponed Matches

The basic method is described on my Department home page.
Here are the team ratings prior to this week’s games, along with the ratings at the start of the season.

Performance So Far

So far there have been 57 matches played, 38 of which were correctly predicted, a success rate of 66.7%.
Here are the predictions for last week’s games.

Predictions for Postponed Matches

Here are the predictions for Postponed Matches. The prediction is my estimated expected points difference with a positive margin being a win to the home team, and a negative margin a win to the away team.

Team Ratings for Round 11

The basic method is described on my Department home page.
Here are the team ratings prior to this week’s games, along with the ratings at the start of the season.

Performance So Far

So far there have been 53 matches played, 35 of which were correctly predicted, a success rate of 66%.
Here are the predictions for last week’s games.

Predictions for Round 11

Here are the predictions for Round 11. The prediction is my estimated expected points difference with a positive margin being a win to the home team, and a negative margin a win to the away team.

Team Ratings for the SemiFinals

The basic method is described on my Department home page.
Here are the team ratings prior to this week’s games, along with the ratings at the start of the season.

Performance So Far

So far there have been 19 matches played, 15 of which were correctly predicted, a success rate of 78.9%.
Here are the predictions for last week’s games.

Predictions for the SemiFinals

Here are the predictions for the SemiFinals. The prediction is my estimated expected points difference with a positive margin being a win to the home team, and a negative margin a win to the away team.

Team Ratings for Postponed Matches

Another last minute change that I just picked up. This is a postponed game from Round 9. There are now 2 postponed games from Round 11. I can see the logic that both these teams are now free to play and are both in Italy; it is just a nightmare to keep up with all the changes. I don’t need to modify my predictions for the other Round 11 games, they are as before but I will do a forecast after the result of this game to report the result of my forecast.

The basic method is described on my Department home page.
Here are the team ratings prior to this week’s games, along with the ratings at the start of the season.

Performance So Far

So far there have been 52 matches played, 35 of which were correctly predicted, a success rate of 67.3%.
Here are the predictions for last week’s games.

Predictions for Postponed Matches

Here are the predictions for Postponed Matches. The prediction is my estimated expected points difference with a positive margin being a win to the home team, and a negative margin a win to the away team.

Team Ratings for Round 14

As I previously foreshadowed, here are my updated predictions for Round 14 after the Lyon versus Montpellier game. Montpellier actually did better than predicted against Lyon so improved their ranking and that changed the prediction for their game against Brive. Note that my forecast doesn’t take into account the fact that Montpellier is having to play three games in a bit over a week. Likewise Lyon.

The basic method is described on my Department home page.
Here are the team ratings prior to this week’s games, along with the ratings at the start of the season.

Performance So Far

So far there have been 84 matches played, 57 of which were correctly predicted, a success rate of 67.9%.
Here are the predictions for last week’s games.

Predictions for Round 14

Here are the predictions for Round 14. The prediction is my estimated expected points difference with a positive margin being a win to the home team, and a negative margin a win to the away team.

Team Ratings for Round 7

OK, this is getting really frustrating. So I now see that the postponed game Bulls versus Lions was played today: I can’t keep up with these crazy schedules. I haven’t posted my prediction for that game but you can see the results below. It does mean I need to update my Round 7 predictions though, so here they are.

The basic method is described on my Department home page.
Here are the team ratings prior to this week’s games, along with the ratings at the start of the season.

Performance So Far

So far there have been 17 matches played, 14 of which were correctly predicted, a success rate of 82.4%.
Here are the predictions for last week’s games.

Predictions for Round 7

Here are the predictions for Round 7. The prediction is my estimated expected points difference with a positive margin being a win to the home team, and a negative margin a win to the away team.