Essays in Macroeconomics

The dissertation consists of four papers that aim at providing new contributions in the field of macroeconomics, monetary policy and financial stability. The first paper proposes a new Dynamic Stochastic General Equilibrium (DSGE) model with credit frictions and a banking sector to study the pro-cyclicality of credit and the role of different prudential regulatory frameworks in affecting business cycle fluctuations and in restoring macroeconomic and financial stability. The second paper develops a simple DSGE model capable of evaluating the effects of large purchases of treasuries by central banks. This theoretical framework is employed to evaluate the impact on yields and the macroeconomy of large purchases of medium- and long-term government bonds recently implemented in the US and UK. The third paper studies the effects of ECB communications about unconventional monetary policy operations on the perceived sovereign risk of Italy over the last five years. The empirical results are derived from both an event-study analysis and a GARCH model, which uses Italian long-term bond futures to disentangle expected from unexpected policy actions. The fourth paper proposes a DSGE model with an endogenous term structure of interest rates, which is able to replicate the stylized facts regarding the yield curve and the term premium in the US over the period 1987:3-2011:3, without compromising its ability to match macro dynamics.

EmsB, a tandem repeated multi-loci microsatellite, new tool to investigate the genetic diversity of Echinococcus multilocularis

In order to explore the genetic diversity within Echinococcus multilocularis (E. multilocularis), the cestode responsible for the alveolar echinococcosis (AE) in humans, a microsatellite, composed of (CA) and (GA) repeats and designated EmsB, was isolated and characterized in view of its nature and potential field application. PCR-amplification with specific primers exhibited a high degree of size polymorphism between E. multilocularis and Echinococcus granulosus sheep (G1) and camel (G6) strains. Fluorescent-PCR was subsequently performed on a panel of E. multilocularis isolates to assess intra-species polymorphism level. EmsB provided a multi-peak profile, characterized by tandemly repeated microsatellite sequences in the E. multilocularis genome. This "repetition of repeats" feature provided to EmsB a high discriminatory power in that eight clusters, supported by bootstrap p-values larger than 95%, could be defined among the tested E. multilocularis samples. We were able to differentiate not only the Alaskan from the European samples, but also to detect different European isolate clusters. In total, 25 genotypes were defined within 37 E. multilocularis samples. Despite its complexity, this tandem repeated multi-loci microsatellite possesses the three important features for a molecular marker, i.e. sensitivity, repetitiveness and discriminatory power. It will permit assessing the genetic polymorphism of E. multilocularis and to investigate its spatial distribution in detail.

The Great Moderation and the Relationship between Output Growth and Its Volatility

This study examines the effect of the Great Moderation on the relationship between U.S. output growth and its volatility over the period 1947 to 2006. First, we consider the possible effects of structural change in the volatility process. In so doing, we employ GARCH-M and ARCH-M specifications of the process describing output growth rate and its volatility with and without a one-time structural break in volatility. Second, our data analyses and empirical results suggest no significant relationship between the output growth rate and its volatility, favoring the traditional wisdom of dichotomy in macroeconomics. Moreover, the evidence shows that the time-varying variance falls sharply or even disappears once we incorporate a one-time structural break in the unconditional variance of output starting 1982 or 1984. That is, the integrated GARCH effect proves spurious. Finally, a joint test of a trend change and a one-time shift in the volatility process finds that the one-time shift dominates.

Modeling the Volatility of Real GDP Growth: The Case of Japan Revisited

Previous studies (e.g., Hamori, 2000; Ho and Tsui, 2003; Fountas et al., 2004) find high volatility persistence of economic growth rates using generalized autoregressive conditional heteroskedasticity (GARCH) specifications. This paper reexamines the Japanese case, using the same approach and showing that this finding of high volatility persistence reflects the Great Moderation, which features a sharp decline in the variance as well as two falls in the mean of the growth rates identified by Bai and Perronâs (1998, 2003) multiple structural change test. Our empirical results provide new evidence. First, excess kurtosis drops substantially or disappears in the GARCH or exponential GARCH model that corrects for an additive outlier. Second, using the outlier-corrected data, the integrated GARCH effect or high volatility persistence remains in the specification once we introduce intercept-shift dummies into the mean equation. Third, the time-varying variance falls sharply, only when we incorporate the break in the variance equation. Fourth, the ARCH in mean model finds no effects of our more correct measure of output volatility on output growth or of output growth on its volatility.

Does Exchange Rate Risk Affect Exports Asymmetrically? Asian Evidence

The effects of exchange rate risk have interested researchers, since the collapse of fixed exchange rates. Little consensus exists, however, regarding its effect on exports. Previous studies implicitly assume symmetry. This paper tests the hypothesis of asymmetric effects of exchange rate risk with a dynamic conditional correlation bivariate GARCH(1,1)-M model. The asymmetry means that exchange rate risk (volatility) affects exports differently during appreciations and depreciations of the exchange rate. The data include bilateral exports from eight Asian countries to the US. The empirical results show that real exchange rate risk significantly affects exports for all countries, negative or positive, in periods of depreciation or appreciation. For five of the eight countries, the effects of exchange risk are asymmetric. Thus, policy makers can consider the stability of the exchange rate in addition to its depreciation as a method of stimulating export growth.

Export Promotion through Exchange Rate Policy: Exchange Rate Depreciation or Stabilization?

Exchange rate movements affect exports in two ways -- its depreciation and its variability (risk). A depreciation raises exports, but the associated exchange rate risk could offset that positive effect. The present paper investigates the net effect for eight Asian countries using a dynamic conditional correlation bivariate GARCH-M model that simultaneously estimates time varying correlation and exchange rate risk. Depreciation encourages exports, as expected, for most countries, but its contribution to export growth is weak. Exchange rate risk contributes to export growth in Malaysia and the Philippines, leading to positive net effects. Exchange rate risk generates a negative effect for six of the countries, resulting in a negative net effect in Indonesia, Japan, Singapore, Taiwan and a zero net effect in Korea and Thailand. Since the negative effect of exchange rate risk may offset, or even dominate, positive contributions from depreciation, policy makers need to reduce exchange rate fluctuation along with and possibly before efforts to depreciate the currency.

Dynamic Effects of Currency Depreciation on Stock Market Returns during the Asian Financial Crisis

The current international integration of financial markets provides a channel for currency depreciation to affect stock prices. Moreover, the recent financial crisis in Asia with its accompanying exchange rate volatility affords a case study to examine that channel. This paper applies a bivariate GARCH-M model of the reduced form of stock market returns to investigate empirically the effects of daily currency depreciation on stock market returns for five newly emerging East Asian stock markets during the Asian financial crisis. The evidence shows that the conditional variances of stock market returns and depreciation rates exhibit time-varying characteristics for all countries. Domestic currency depreciation and its uncertainty adversely affects stock market returns across countries. The significant effects of foreign exchange market events on stock market returns suggest that international fund managers who invest in the newly emerging East Asian stock markets must evaluate the value and stability of the domestic currency as a part of their stock market investment decisions.

Testing for Balance Sheet Effects in Emerging Market Countries

This paper tests the presence of balance sheets effects and analyzes the implications for exchange rate policies in emerging markets. The results reveal that the emerging market bond index (EMBI) is negatively related to the banks' foreign currency leverage, and that these banks' foreign currency exposures are relatively unhedged. Panel SVAR methods using EMBI instead of advanced country lending rates find, contrary to the literature, that the amplitude of output responses to foreign interest rate shocks are smaller under relatively fixed regimes. The findings are robust to the local projections method of obtaining impulse responses, using country specific and GARCH-SVAR models.

Total Factor Productivity and Monetary Policy: Evidence from Conditional Volatility

This paper empirically assesses whether monetary policy affects real economic activity through its affect on the aggregate supply side of the macroeconomy. Analysts typically argue that monetary policy either does not affect the real economy, the classical dichotomy, or only affects the real economy in the short run through aggregate demand new Keynesian or new classical theories. Real business cycle theorists try to explain the business cycle with supply-side productivity shocks. We provide some preliminary evidence about how monetary policy affects the aggregate supply side of the macroeconomy through its affect on total factor productivity, an important measure of supply-side performance. The results show that monetary policy exerts a positive and statistically significant effect on the supply-side of the macroeconomy. Moreover, the findings buttress the importance of countercyclical monetary policy as well as support the adoption of an optimal money supply rule. Our results also prove consistent with the effective role of monetary policy in the Great Moderation as well as the more recent rise in productivity growth.

Exchange rate depreciation and exports: The case of Singapore revisited

This paper revisits the weak relationship between exchange rate depreciation and exports for Singapore, using a bivariate GARCH-M model that simultaneously estimates time-varying risk. The evidence shows that depreciation does not significantly improve exports, but that exchange rate risk significantly impedes exports. In sum, Singaporean policy makers can better promote export growth by stabilizing the exchange rate rather than generating its depreciation.

The Great Moderation Flattens Fat Tails: Disappearing Leptokurtosis

Recently, Fagiolo et al. (2008) find fat tails of economic growth rates after adjusting outliers, autocorrelation and heteroskedasticity. This paper employs US quarterly real output growth, showing that this finding of fat tails may reflect the Great Moderation. That is, leptokurtosis disappears after GARCH adjustment once we incorporate the break in the variance equation.

Dynamic Stock Market Interactions between the Canadian, Mexican, and the United States Markets: The NAFTA Experience

This paper explores the dynamic linkages that portray different facets of the joint probability distribution of stock market returns in NAFTA (i.e., Canada, Mexico, and the US). Our examination of interactions of the NAFTA stock markets considers three issues. First, we examine the long-run relationship between the three markets, using cointegration techniques. Second, we evaluate the dynamic relationships between the three markets, using impulse-response analysis. Finally, we explore the volatility transmission process between the three markets, using a variety of multivariate GARCH models. Our results also exhibit significant volatility transmission between the second moments of the NAFTA stock markets, albeit not homogenous. The magnitude and trend of the conditional correlations indicate that in the last few years, the Mexican stock market exhibited a tendency toward increased integration with the US market. Finally, we do note that evidence exists that the Peso and Asian financial crises as well as the stock-market crash in the US affect the return and volatility time-series relationships.

Increasing Derivatives Market Activity in Emerging Markets and Exchange Rate Exposure

Understanding the effects of off-balance sheet transactions on interest and exchange rate exposures has become more important for emerging market countries that are experiencing remarkable growth in derivatives markets. Using firm level data, we report a significant fall in exposure over the past 10 years and relate this to higher derivatives market participation. Our methodology is composed of a three stage approach: First, we measure foreign exchange exposures using the Adler-Dumas (1984) model. Next, we follow an indirect approach to infer derivatives market participation at the firm level. Finally, we study the relationship between exchange rate exposure and derivatives market participation. Our results show that foreign exchange exposure is negatively related to derivatives market participation, and support the hedging explanation of the exchange rate exposure puzzle. This decline is especially salient in the financial sector, for bigger firms, and over longer time periods. Results are robust to using different exchange rates, a GARCH-SVAR approach to measure exchange rate exposure, and different return horizons.

An exploratory analysis of variance and volatility in epileptic electroencephalograms

The electroencephalogram (EEG) is a physiological time series that measures electrical activity at different locations in the brain, and plays an important role in epilepsy research. Exploring the variance and/or volatility may yield insights for seizure prediction, seizure detection and seizure propagation/dynamics.^ Maximal Overlap Discrete Wavelet Transforms (MODWTs) and ARMA-GARCH models were used to determine variance and volatility characteristics of 66 channels for different states of an epileptic EEG – sleep, awake, sleep-to-awake and seizure. The wavelet variances, changes in wavelet variances and volatility half-lives for the four states were compared for possible differences between seizure and non-seizure channels.^ The half-lives of two of the three seizure channels were found to be shorter than all of the non-seizure channels, based on 95% CIs for the pre-seizure and awake signals. No discernible patterns were found the wavelet variances of the change points for the different signals. ^

アフリカにおける株式市場の発展とその経済効果

本稿では、アフリカにおいて発展しつつある株式市場が、アフリカの各国経済に与える影響を分析する。最初に、アフリカの株式市場が、世界と比較すれば金額では小さいものの、アフリカの中ですでに活用されており、国際投資家からも注目されているという現実を明らかにする。次に、Sugimoto, Matsuki and Yoshida［2014］を概説し、アフリカ主要7カ国の株式市場のリターン（収益率）は、2004年以降、グローバル市場の動きから最も影響を受けており、世界金融危機などの際には平時よりも大きなグローバルショックを受けていたことを示す。最後に、アフリカ16カ国における株式市場の域内相互依存度を、固定相関係数（CCC-GARCH）モデルを用いて比較し、2012年以降、各地域共通の証券取引所創設にむけて積極的に連携姿勢を示すアフリカ諸国の間で、株式市場の地域的な連動性が高まってきていることを確認する。