How did the Financial Crisis affect the Real Interest Rate Dynamics in Europe?

We investigate the effects of the financial crisis on the stationarity of real interest rates in the Euro Area. We use a new unit root test developed by Peseran et al. (2013) that allows for multiple unobserved factors in a panel set up. Our results suggest that while short-term and long-term real interest rates were stationary before the financial crisis, they became nonstationary during the crisis period likely due to persistent risk that characterized financial markets during that time. JEL codes: E43, C23. Keywords: Real interest rates, Euro Area, financial crisis, panel unit root tests, cross-sectional dependence.

Further evidence on the statistical properties of real GNP

The well-known lack of power of unit root tests has often been attributed to the shortlength of macroeconomic variables and also to DGP s that depart from the I(1)-I(0)alternatives. This paper shows that by using long spans of annual real GNP and GNPper capita (133 years) high power can be achieved, leading to the rejection of both theunit root and the trend-stationary hypothesis. This suggests that possibly neither modelprovides a good characterization of these data. Next, more flexible representations areconsidered, namely, processes containing structural breaks (SB) and fractional ordersof integration (FI). Economic justification for the presence of these features in GNP isprovided. It is shown that the latter models (FI and SB) are in general preferred to theARIMA (I(1) or I(0)) ones. As a novelty in this literature, new techniques are appliedto discriminate between FI and SB models. It turns out that the FI specification ispreferred, implying that GNP and GNP per capita are non-stationary, highly persistentbut mean-reverting series. Finally, it is shown that the results are robust when breaksin the deterministic component are allowed for in the FI model. Some macroeconomicimplications of these findings are also discussed.

Optimal taxation without state-contingent debt

To recover a version of Barro's (1979) `random walk'tax smoothing outcome, we modify Lucas and Stokey's (1983) economyto permit only risk--free debt. This imparts near unit root like behaviorto government debt, independently of the government expenditureprocess, a realistic outcome in the spirit of Barro's. We showhow the risk--free--debt--only economy confronts the Ramsey plannerwith additional constraints on equilibrium allocations thattake the form of a sequence of measurability conditions.We solve the Ramsey problem by formulating it in terms of a Lagrangian,and applying a Parameterized Expectations Algorithm tothe associated first--order conditions. The first--order conditions andnumerical impulse response functions partially affirmBarro's random walk outcome. Though the behaviors oftax rates, government surpluses, and government debts differ, allocationsare very close for computed Ramsey policies across incomplete and completemarkets economies.

What is what?: A simple time-domain test of long-memory vs. structural breaks

This paper proposes a new time-domain test of a process being I(d), 0 < d = 1, under the null, against the alternative of being I(0) with deterministic components subject to structural breaks at known or unknown dates, with the goal of disentangling the existing identification issue between long-memory and structural breaks. Denoting by AB(t) the different types of structural breaks in the deterministic components of a time series considered by Perron (1989), the test statistic proposed here is based on the t-ratio (or the infimum of a sequence of t-ratios) of the estimated coefficient on yt-1 in an OLS regression of ?dyt on a simple transformation of the above-mentioned deterministic components and yt-1, possibly augmented by a suitable number of lags of ?dyt to account for serial correlation in the error terms. The case where d = 1 coincides with the Perron (1989) or the Zivot and Andrews (1992) approaches if the break date is known or unknown, respectively. The statistic is labelled as the SB-FDF (Structural Break-Fractional Dickey- Fuller) test, since it is based on the same principles as the well-known Dickey-Fuller unit root test. Both its asymptotic behavior and finite sample properties are analyzed, and two empirical applications are provided.

Fluctuaciones cíclicas y raíces unitarias en la economia española, 1850-1990

En este artículo se analiza el grado de persistencia de las fluctuaciones cíclicas en la economía española. En concreto, se estudia si el PIB y el PIB por capita de esta economía presentan una raíz unitaria. Con el fin de evitar el sesgo a aceptar raíces unitarias cuando se producen cambios en la función de tendencia, como el originado por la Guerra Civil española (1936-1939), se han aplicado varios contrastes que tienen en cuenta los cambios en la función de tendencia. Los resultados obtenidos muestran que existe una importante evidencia en el sentido que el logaritmo del PIB presenta una raíz unitaria. La principal implicación de este resultado es que los shocks sobre el producto tienen efectos permanentes en el nivel del PIB de la economía española, aun cuando esta hipótesis es más difícil de aceptar por el PIB por capita vista la evidencia contradictoria encontrada a favor de la misma.

Unemployment dynamics and NAIRU estimates for CEECs : a univariate approach

In this paper we test for the hysteresis versus the natural rate hypothesis on the unemployment rates of the EU new members using unit root tests that account for the presence of level shifts. As a by product, the analysis proceeds to the estimation of a NAIRU measure from a univariate point of view. The paper also focuses on the precision of these NAIRU estimates studying the two sources of inaccuracy that derive from the break points estimation and the autoregressive parameters estimation. The results point to the existence of up to four structural breaks in the transition countries NAIRU that can be associated with institutional changes implementing market-oriented reforms. Moreover, the degree of persistence in unemployment varies dramatically among the individual countries depending on the stage reached in the transition process

Fluctuaciones cíclicas y raíces unitarias en la economia española, 1850-1990

En este artículo se analiza el grado de persistencia de las fluctuaciones cíclicas en la economía española. En concreto, se estudia si el PIB y el PIB por capita de esta economía presentan una raíz unitaria. Con el fin de evitar el sesgo a aceptar raíces unitarias cuando se producen cambios en la función de tendencia, como el originado por la Guerra Civil española (1936-1939), se han aplicado varios contrastes que tienen en cuenta los cambios en la función de tendencia. Los resultados obtenidos muestran que existe una importante evidencia en el sentido que el logaritmo del PIB presenta una raíz unitaria. La principal implicación de este resultado es que los shocks sobre el producto tienen efectos permanentes en el nivel del PIB de la economía española, aun cuando esta hipótesis es más difícil de aceptar por el PIB por capita vista la evidencia contradictoria encontrada a favor de la misma.

Unemployment dynamics and NAIRU estimates for CEECs : a univariate approach

In this paper we test for the hysteresis versus the natural rate hypothesis on the unemployment rates of the EU new members using unit root tests that account for the presence of level shifts. As a by product, the analysis proceeds to the estimation of a NAIRU measure from a univariate point of view. The paper also focuses on the precision of these NAIRU estimates studying the two sources of inaccuracy that derive from the break points estimation and the autoregressive parameters estimation. The results point to the existence of up to four structural breaks in the transition countries NAIRU that can be associated with institutional changes implementing market-oriented reforms. Moreover, the degree of persistence in unemployment varies dramatically among the individual countries depending on the stage reached in the transition process

Testing Weak-Form Efficiency of the Chinese Stock Market

Tämän tutkielman tavoitteena on tarkastella Kiinan osakemarkkinoiden tehokkuutta ja random walk -hypoteesin voimassaoloa. Tavoitteena on myös selvittää esiintyykö viikonpäiväanomalia Kiinan osakemarkkinoilla. Tutkimusaineistona käytetään Shanghain osakepörssin A-sarjan,B-sarjan ja yhdistelmä-sarjan ja Shenzhenin yhdistelmä-sarjan indeksien päivittäisiä logaritmisoituja tuottoja ajalta 21.2.1992-30.12.2005 sekä Shenzhenin osakepörssin A-sarjan ja B-sarjan indeksien päivittäisiä logaritmisoituja tuottoja ajalta 5.10.1992-30.12.2005. Tutkimusmenetelminä käytetään neljä tilastollista menetelmää, mukaan lukien autokorrelaatiotestiä, epäparametrista runs-testiä, varianssisuhdetestiä sekä Augmented Dickey-Fullerin yksikköjuuritestiä. Viikonpäiväanomalian esiintymistä tutkitaan käyttämällä pienimmän neliösumman menetelmää (OLS). Testejä tehdään sekä koko aineistolla että kolmella erillisellä ajanjaksolla. Tämän tutkielman empiiriset tulokset tukevat aikaisempia tutkimuksia Kiinan osakemarkkinoiden tehottomuudesta. Lukuun ottamatta yksikköjuuritestien saatuja tuloksia, autokorrelaatio-, runs- ja varianssisuhdetestien perusteella random walk-hypoteesi hylättiin molempien Kiinan osakemarkkinoiden kohdalla. Tutkimustulokset osoittavat, että molemmilla osakepörssillä B-sarjan indeksien käyttäytyminenon ollut huomattavasti enemmän random walk -hypoteesin vastainen kuin A-sarjan indeksit. Paitsi B-sarjan markkinat, molempien Kiinan osakemarkkinoiden tehokkuus näytti myös paranevan vuoden 2001 markkinabuumin jälkeen. Tutkimustulokset osoittavat myös viikonpäiväanomalian esiintyvän Shanghain osakepörssillä, muttei kuitenkaan Shenzhenin osakepörssillä koko tarkasteluajanjaksolla.

Testing the Random Walk Hypothesis on the Baltic Stock Markets

The purpose of the thesis is to analyze whether the returns of general stock market indices of Estonia, Latvia and Lithuania follow the random walk hypothesis (RWH), and in addition, whether they are consistent with the weak-form efficiency criterion. Also the existence of the day-of-the-week anomaly is examined in the same regional markets. The data consists of daily closing quotes of the OMX Tallinn, Riga and Vilnius total return indices for the sample period from January 3, 2000 to August 28, 2009. Moreover, the full sample period is also divided into two sub-periods. The RWH is tested by applying three quantitative methods (i.e. the Augmented Dickey-Fuller unit root test, serial correlation test and non-parametric runs test). Ordinary Least Squares (OLS) regression with dummy variables is employed to detect the day-of-the-week anomalies. The random walk hypothesis (RWH) is rejected in the Estonian and Lithuanian stock markets. The Latvian stock market exhibits more efficient behaviour, although some evidence of inefficiency is also found, mostly during the first sub-period from 2000 to 2004. Day-of-the-week anomalies are detected on every stock market examined, though no longer during the later sub-period.

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.

A DYNAMIC FRAMEWORK FOR THE RELATIONS BETWEEN FOREIGN EXCHANGE RATES, SAVINGS AND INVESTMENTS

The Meese-Rogoff forecasting puzzle states that foreign exchange (FX) rates are unpredictable. Since one country’s macroeconomic conditions could affect the price of its national currency, we study the dynamic relations between the FX rates and some macroeconomic accounts. Our research tests whether the predictability of the FX rates could be improved through the advanced econometrics. Improving the predictability of the FX rates has important implications for various groups including investors, business entities and the government. The present thesis examines the dynamic relations between the FX rates, savings and investments for a sample of 25 countries from the Organization for Economic Cooperation and Development. We apply quarterly data of FX rates, macroeconomic indices and accounts including the savings and the investments over three decades. Through preliminary Augmented Dickey-Fuller unit root tests and Johansen cointegration tests, we found that the savings rate and the investment rate are cointegrated with the vector (1,-1). This result is consistent with many previous studies on the savings-investment relations and therefore confirms the validity of the Feldstein-Horioka puzzle. Because of the special cointegrating relation between the savings rate and investment rate, we introduce the savings-investment rate differential (SID). Investigating each country through a vector autoregression (VAR) model, we observe extremely insignificant coefficient estimates of the historical SIDs upon the present FX rates. We also report similar findings through the panel VAR approach. We thus conclude that the historical SIDs are useless in forecasting the FX rate. Nonetheless, the coefficients of the past FX rates upon the current SIDs for both the country-specific and the panel VAR models are statistically significant. Therefore, we conclude that the historical FX rates can conversely predict the SID to some degree. Specifically, depreciation in the domestic currency would cause the increase in the SID.

Logique et tests d'hypotheses: reflexions sur les problemes mal poses en econometrie

Dans ce texte, nous analysons les développements récents de l’économétrie à la lumière de la théorie des tests statistiques. Nous revoyons d’abord quelques principes fondamentaux de philosophie des sciences et de théorie statistique, en mettant l’accent sur la parcimonie et la falsifiabilité comme critères d’évaluation des modèles, sur le rôle de la théorie des tests comme formalisation du principe de falsification de modèles probabilistes, ainsi que sur la justification logique des notions de base de la théorie des tests (tel le niveau d’un test). Nous montrons ensuite que certaines des méthodes statistiques et économétriques les plus utilisées sont fondamentalement inappropriées pour les problèmes et modèles considérés, tandis que de nombreuses hypothèses, pour lesquelles des procédures de test sont communément proposées, ne sont en fait pas du tout testables. De telles situations conduisent à des problèmes statistiques mal posés. Nous analysons quelques cas particuliers de tels problèmes : (1) la construction d’intervalles de confiance dans le cadre de modèles structurels qui posent des problèmes d’identification; (2) la construction de tests pour des hypothèses non paramétriques, incluant la construction de procédures robustes à l’hétéroscédasticité, à la non-normalité ou à la spécification dynamique. Nous indiquons que ces difficultés proviennent souvent de l’ambition d’affaiblir les conditions de régularité nécessaires à toute analyse statistique ainsi que d’une utilisation inappropriée de résultats de théorie distributionnelle asymptotique. Enfin, nous soulignons l’importance de formuler des hypothèses et modèles testables, et de proposer des techniques économétriques dont les propriétés sont démontrables dans les échantillons finis.

Identification, Weak Instruments and Statistical Inference in Econometrics

We discuss statistical inference problems associated with identification and testability in econometrics, and we emphasize the common nature of the two issues. After reviewing the relevant statistical notions, we consider in turn inference in nonparametric models and recent developments on weakly identified models (or weak instruments). We point out that many hypotheses, for which test procedures are commonly proposed, are not testable at all, while some frequently used econometric methods are fundamentally inappropriate for the models considered. Such situations lead to ill-defined statistical problems and are often associated with a misguided use of asymptotic distributional results. Concerning nonparametric hypotheses, we discuss three basic problems for which such difficulties occur: (1) testing a mean (or a moment) under (too) weak distributional assumptions; (2) inference under heteroskedasticity of unknown form; (3) inference in dynamic models with an unlimited number of parameters. Concerning weakly identified models, we stress that valid inference should be based on proper pivotal functions —a condition not satisfied by standard Wald-type methods based on standard errors — and we discuss recent developments in this field, mainly from the viewpoint of building valid tests and confidence sets. The techniques discussed include alternative proposed statistics, bounds, projection, split-sampling, conditioning, Monte Carlo tests. The possibility of deriving a finite-sample distributional theory, robustness to the presence of weak instruments, and robustness to the specification of a model for endogenous explanatory variables are stressed as important criteria assessing alternative procedures.