Determinants of Portuguese external imbalances

A Work Project, presented as part of the requirements for the Award of a Masters Degree in Economics from the NOVA – School of Business and Economics

Oil price shocks and the Portuguese economy since the 1970s

This paper assesses empirically the effect of oil price shocks on Portuguese aggregate economic activity, industrial production and price level. We take the usual multivariate VAR methodology to investigate the magnitude and stability of this relationship. In doing so, we follow the approach presented in the recent literature and adopt different oil price specifications. We conclude that, as for most industrialized countries, the nature of this relationship changed in the mid-1980s. Furthermore, we show that the main Portuguese macroeconomic variables have become progressively less responsive to oil shocks and the adjustment towards equilibrium has become increasingly faster.

Model-Free Reconstruction of Excitatory Neuronal Connectivity from Calcium Imaging Signals

A systematic assessment of global neural network connectivity through direct electrophysiological assays has remained technically infeasible, even in simpler systems like dissociated neuronal cultures. We introduce an improved algorithmic approach based on Transfer Entropy to reconstruct structural connectivity from network activity monitored through calcium imaging. We focus in this study on the inference of excitatory synaptic links. Based on information theory, our method requires no prior assumptions on the statistics of neuronal firing and neuronal connections. The performance of our algorithm is benchmarked on surrogate time series of calcium fluorescence generated by the simulated dynamics of a network with known ground-truth topology. We find that the functional network topology revealed by Transfer Entropy depends qualitatively on the time-dependent dynamic state of the network (bursting or non-bursting). Thus by conditioning with respect to the global mean activity, we improve the performance of our method. This allows us to focus the analysis to specific dynamical regimes of the network in which the inferred functional connectivity is shaped by monosynaptic excitatory connections, rather than by collective synchrony. Our method can discriminate between actual causal influences between neurons and spurious non-causal correlations due to light scattering artifacts, which inherently affect the quality of fluorescence imaging. Compared to other reconstruction strategies such as cross-correlation or Granger Causality methods, our method based on improved Transfer Entropy is remarkably more accurate. In particular, it provides a good estimation of the excitatory network clustering coefficient, allowing for discrimination between weakly and strongly clustered topologies. Finally, we demonstrate the applicability of our method to analyses of real recordings of in vitro disinhibited cortical cultures where we suggest that excitatory connections are characterized by an elevated level of clustering compared to a random graph (although not extreme) and can be markedly non-local.

GDP and life expectancy in Italy and Spain over the long-run (1861-2008): insights from a timeseries approach

The article presents and discusses long-run series of per capita GDP and life expectancy for Italy and Spain (1861-2008). After refining the available estimates in order to make them comparable and with the avail of the most up-to-date researches, the main changes in the international economy and in technological and sociobiological regimes are used as analytical frameworks to re-assess the performances of the two countries; then structural breaks are searched for and Granger causality between the two variables is investigated. The long-run convergence notwithstanding, significant cyclical differences between the two countries can be detected: Spain began to modernize later in GDP, with higher volatility in life expectancy until recent decades; by contrast, Italy showed a more stable pattern of life expectancy, following early breaks in per capita GDP, but also a negative GDP break in the last decades. Our series confirm that, whereas at the early stages of development differences in GDP tend to mirror those in life expectancy, this is no longer true at later stages of development, when, if any, there seems to be a negative correlation between GDP and life expectancy: this finding is in line with the thesis of a non-monotonic relation between life expectancy and GDP and is supported by tests of Granger causality.

Diagnosis of Alzheimer’s Disease from EEG by Means of Synchrony Measures in Optimized Frequency Bands

Several clinical studies have reported that EEG synchrony is affected by Alzheimer’s disease (AD). In this paper a frequency band analysis of AD EEG signals is presented, with the aim of improving the diagnosis of AD using EEG signals. In this paper, multiple synchrony measures are assessed through statistical tests (Mann–Whitney U test), including correlation, phase synchrony and Granger causality measures. Moreover, linear discriminant analysis (LDA) is conducted with those synchrony measures as features. For the data set at hand, the frequency range (5-6Hz) yields the best accuracy for diagnosing AD, which lies within the classical theta band (4-8Hz). The corresponding classification error is 4.88% for directed transfer function (DTF) Granger causality measure. Interestingly, results show that EEG of AD patients is more synchronous than in healthy subjects within the optimized range 5-6Hz, which is in sharp contrast with the loss of synchrony in AD EEG reported in many earlier studies. This new finding may provide new insights about the neurophysiology of AD. Additional testing on larger AD datasets is required to verify the effectiveness of the proposed approach.

On the dynamics of exports and FDI: The Spanish Internationalization Process

This paper provides further insights into the dynamics of exports and outward foreign direct investment (FDI) flows in Spain from a time-series approach. The contribution of the paper is twofold: 1) the existence of either substitution or a complementary relationship between Spanish outward investments and exports is empirically tested using a multivariate cointegrated model (VECM). The evolution in exchange flows (1993-2008) and country-specific variables (such as world demand - including Spain’s main recently growing foreign markets - for trade flows and the relative price of exports in order to proxy new global competitors) are taken into account for the first time. And 2) the growth in the trade of services in recent decades leads us to test a specific causality relationship by disaggregating between goods and services flows. Our results provide evidence of a positive (Granger) causality relationship running from FDI to exports of goods (stronger) and to exports of services (weaker) in the long run, the complementarity relation of which is consistent with vertical FDI strategies. In the short run, however, only exports of goods are affected (positively) by FDIs.

Sovereigns and banks in the euro area : a tale of two crises

This study attempts to identify and trace inter-linkages between sovereign and banking risk in the euro area. To this end, we use an indicator of banking risk in each country based on the Contingent Claim Analysis literature, and 10-year government yield spreads over Germany as a measure of sovereign risk. We apply a dynamic approach to testing for Granger causality between the two measures of risk in 10 euro area countries, allowing us to check for contagion in the form of a significant and abrupt increase in short-run causal linkages. The empirical results indicate that episodes of contagion vary considerably in both directions over time and within the different EMU countries. Significantly, we find that causal linkages tend to strengthen particularly at the time of major financial crises. The empirical evidence suggests the presence of contagion, mainly from banks to sovereigns.

Tourism and Exports as a means of Growth

This study expands existing research by considering both exports and tourism as potential influencing factors for economic growth. While trade of goods has been proven as a means of growth for countries, inbound tourism as non-traditional exports, has been scarcely examined in the literature. Using data for Italy and Spain over the period 1954-2000 and 1964-2000 respectively, both exports of goods and tourism exports are included in the same model. Standard cointegration and Granger causality techniques are applied. The main results reveal the significance of both exports and tourism towards longterm growth with some peculiarities for each country.

The Fed Model: International Analysis

The Fed model is a widely used market valuation model. It is often used only on market analysis of the S&P 500 index as a shorthand measure for the attractiveness of equity, and as a timing device for allocating funds between equity and bonds. The Fed model assumes a fixed relationship between bond yield and earnings yield. This relationship is often assumed to be true in market valuation. In this paper we test the Fed model from historical perspective on the European markets. The markets of the United States are also includedfor comparison. The purpose of the tests is to determine if the Fed model and the underlying assumptions come true on different markets. The various tests are made on time-series data ranging from the year 1973 to the end of the year 2008. The statistical methods used are regressions analysis, cointegration analysis and Granger causality. The empirical results do not give strong support for the Fed model. The underlying relationships assumed by the Fed model are statistically not valid in most of the markets examined and therefore the model is not valid in valuation purposes generally. The results vary between the different markets which gives reason to suspect the general use of the Fed model in different market conditions and in different markets.

Osakkeiden hintojen muutokset makrotalouden muuttujia ennakoivina tekijöinä 2001-2011: BRIC-maat , euroalue, Japani ja USA.

The aim of this thesis is to examine stock returns as predictive indicators to macroeconomic variables in BRIC-countries, Japan, USA and euro area. We picked to represent macroeconomic variables interest rate, inflation, currency, gross domestic product and industrial production. For the beginning we examined previous studies and theory about the subject. Hypothesis of this thesis were derived from the previous studies. To conduct the results we used tests such augmented Dickey-Fuller, Engle-Granger co-integration, Granger causality and lagged distribution model. According to results stock returns do predictive macroeconomic variables and specifically changes of GDP and industrial production. There were few evidences of stock returns predictive power of inflation.

The us subprime crisis and stock market integration: evidence from the BRICS

The aim of this study is to examine the level of stock market co-movement in the BRICS countries and three major industrialized countries (Japan, UK and USA). While analyzing the interdependence and integration of markets, two subsets are examined: before (2000 – 2007) and during the global financial crisis (2007-2011). Generally, interdependence across markets is likely to increase during a highly volatile period. This is problematic because if it were true, the main benefit of international diversification would be reduced at times when it is most needed. The results reveal the dominant role of the US financial markets over the examined time period. Empirical studies of this research paper indicate that cross-market linkages have become slightly stronger during the ongoing subprime crisis than before crisis. However, results also show that an investor may obtain some international diversification benefits by investing especially in the BRICS countries despite the fact of unstable economic condition and growing globalization.

Modelling Long-Run Relationship between Spot and Future Prices of Different Commodities

The purpose of this study is to investigate whether there exists any kind of relationship between the spot and future prices of the different commodities or not. Commodities like cocoa, coffee, crude oil, gold, natural gas and silver are considered from January 3, 2000 to December 31, 2012. For this purpose, ADF test and KPSS test are used in testing the stationarity whereas Johansen Cointegration test is used in testing the long-run relationship. Johansen co-integration test exhibits that there at least 5 co-integrating pairs out of 6 except crude oil. Moreover, the result of Granger Causality supports the fact that if two or more than two time series tend to be co-integrated there exists either uni-directional or bi-directional relationship. However, our results reveled that although there exists the co-integration between the variable, one might not granger causes another .VAR model is also used to measure the proportion of effects. These findings will help the derivative market and arbitragers in developing the strategies to gain the maximum profit in the financial market.

Dynamic linkages of real estate and stock markets in Finland

Traditionally real estate has been seen as a good diversification tool for a stock portfolio due to the lower return and volatility characteristics of real estate investments. However, the diversification benefits of a multi-asset portfolio depend on how the different asset classes co-move in the short- and long-run. As the asset classes are affected by the same macroeconomic factors, interrelationships limiting the diversification benefits could exist. This master’s thesis aims to identify such dynamic linkages in the Finnish real estate and stock markets. The results are beneficial for portfolio optimization tasks as well as for policy-making. The real estate industry can be divided into direct and securitized markets. In this thesis the direct market is depicted by the Finnish housing market index. The securitized market is proxied by the Finnish all-sectors securitized real estate index and by a European residential Real Estate Investment Trust index. The stock market is depicted by OMX Helsinki Cap index. Several macroeconomic variables are incorporated as well. The methodology of this thesis is based on the Vector Autoregressive (VAR) models. The long-run dynamic linkages are studied with Johansen’s cointegration tests and the short-run interrelationships are examined with Granger-causality tests. In addition, impulse response functions and forecast error variance decomposition analyses are used for robustness checks. The results show that long-run co-movement, or cointegration, did not exist between the housing and stock markets during the sample period. This indicates diversification benefits in the long-run. However, cointegration between the stock and securitized real estate markets was identified. This indicates limited diversification benefits and shows that the listed real estate market in Finland is not matured enough to be considered a separate market from the general stock market. Moreover, while securitized real estate was shown to cointegrate with the housing market in the long-run, the two markets are still too different in their characteristics to be used as substitutes in a multi-asset portfolio. This implies that the capital intensiveness of housing investments cannot be circumvented by investing in securitized real estate.

Foreign Direct Investment, Clean Development Mechanism, and Environmental Management: A case of Sub-Saharan Africa

This doctoral dissertation explores the contribution of environmental management practices, the so-called clean development mechanism (CDM) projects, and foreign direct investment (FDI) in achieving sustainable development in developing countries, particularly in Sub- Saharan Africa. Because the climate change caused by greenhouse gas emissions is one of the most serious global environmental challenges, the main focus is on the causal links between carbon dioxide (CO2) emissions, energy consumption, and economic development in Sub-Saharan Africa. In addition, the dissertation investigates the factors that have affected the distribution of CDM projects in developing countries and the relationships between FDI and other macroeconomic variables of interest. The main contribution of the dissertation is empirical. One of the publications uses crosssectional data and Tobit and Poisson regressions. Three of the studies use time-series data and vector autoregressive and vector error correction models, while two publications use panel data and panel data estimation methods. One of the publications uses thus both timeseries and panel data. The concept of Granger causality is utilized in four of the publications. The results indicate that there are significant differences in the Granger causality relationships between CO2 emissions, energy consumption, economic growth, and FDI in different countries. It appears also that the causality relationships change over time. Furthermore, the results support the environmental Kuznets curve hypothesis but only for some of the countries. As to CDM activities, past emission levels, institutional quality, and the size of the host country appear to be among the significant determinants of the distribution of CDM projects. FDI and exports are also found to be significant determinants of economic growth.