nep-ets New Economics Papers
on Econometric Time Series
Issue of 2018‒07‒16
seventeen papers chosen by
Jaqueson K. Galimberti
KOF Swiss Economic Institute

  1. Estimation and Inference in Adaptive Learning Models with Slowly Decreasing Gains By Alexander Mayer
  2. Asset price volatility in EU-6 economies: how large is the role played by the ECB? By Alessio Ciarlone; Andrea Colabella
  3. Volatility Spillovers and Causality of Carbon Emissions, Oil and Coal Spot and Futures for the EU and USA By Chang, C-L.; McAleer, M.J.; Zuo, G.
  4. Stochastic volatility models with ARMA innovations: An application to G7 inflation forecasts By Bo Zhang; Joshua C.C. Chan; Jamie L. Cross
  5. Sectoral integration and investment diversification opportunities: evidence from Colombo Stock Exchange By Awais Ahmed; Rizwan Ali; Abdullsh Ejaz; Ishfaq Ahmad
  6. Oil Prices and GCC Stock Markets: New Evidence from Smooth Transition Models By Nidhaleddine Ben Cheikh; Sami Ben Naceur; Oussama Kanaan; Christophe Rault
  7. Formation of Market Beliefs in the Oil Market By Stanislav Anatolyev; Sergei Seleznev; Veronika Selezneva
  8. Comparing hybrid time-varying parameter VARs By Joshua C.C. Chan; Eric Eisenstat
  9. Time-varying cointegrating regression analysis with an application to the long-run interest rate pass-through in the Euro Area By Afonso-Rodríguez, Julio A.; Santana-Gallego, María
  10. Revisiting Finance and Growth in Transition Economies - A Panel Causality Approach By Michael Stemmer
  11. Persistence and Cyclical Dynamics of US and UK House Prices: Evidence from Over 150 Years of Data By Giorgio Canarella; Luis A. Gil-Alana; Rangan Gupta; Stephen M. Miller
  12. Labor market and financial shocks: a time varying analysis By Francesco Corsello; Valerio Nispi Landi
  13. Prospects for a Monetary Union in the East Africa Community: Some Empirical Evidence By Guglielmo Maria Caporale; Hector Carcel; Luis A. Gil-Alana
  14. Is the lead-lag relationship between financial development and economic growth symmetric ? new evidence from Bangladesh based on ARDL ad NARDL By Zahir, Faathih; Masih, Mansur
  15. The determinants of aggregate and disaggregated import demand in Ghana By Vacu, Nomfundo P.; Odhiambo, Nicholas M.
  16. Exchange rate and trade balance linkage: sectoral evidence from Thailand based on nonlinear ARDL By Suwanhirunkul, Suwijak; Masih, Mansur
  17. Globalisation, Economic Growth and Energy Consumption in the BRICS Region: The Importance of Asymmetries By Shahbaz, Muhammad; Shahzad, Syed Jawad Hussain; Alam, Shaista; Apergis, Nicholas

  1. By: Alexander Mayer
    Abstract: This paper develops techniques of estimation and inference in a prototypical macroeconomic adaptive learning model with slowly decreasing gains. A sequential three-step procedure based on a ‘super-consistent’ estimator of the rational expectations equilibrium parameter is proposed. It is shown that this procedure is asymptotically equivalent to first estimating the structural parameters jointly via ordinary least-squares (OLS) and then using the so-obtained estimates to form a plug-in estimator of the rational expectations equilibrium parameter. In spite of failing Grenander’s conditions for well-behaved data, a limiting normal distribution of the estimators centered at the true parameters is derived. Although this distribution is singular, it can nevertheless be used to draw inferences about joint restrictions by applying results from Andrews (1987) to show that Wald-type statistics remain valid when equipped with a pseudo-inverse. Monte-Carlo evidence confirms the accuracy of the asymptotic theory for the finite sample behaviour of estimators and test statistics discussed here.
    Keywords: adaptive learning, rational expectations, singular limiting-distribution, non-stationary regression, generalized Wald statistic, degenerate variances
    JEL: C12 C22 C51 D83
    Date: 2018–07–05
  2. By: Alessio Ciarlone (Banca d'Italia); Andrea Colabella (Banca d'Italia)
    Abstract: In this paper we provide evidence that the effects of the different waves of asset purchase programmes implemented by the ECB from 2009 onwards have spilled over into asset price volatility developments of a group of six Central and Eastern European economies belonging to the EU but not to the euro area. This has partly shielded their financial markets from the negative shocks that have influenced international investors’ degree of risk aversion in recent years. By means of a dynamic conditional correlation multivariate GARCH model, and by resorting to three different proxies to describe the functioning and measure the impact of the ECB’s asset purchase programmes, we show that such non-standard monetary measures have played a significant role in dampening volatility spikes in the financial markets of the countries at stake. This probably reflects how both a ‘risk taking’ and a ‘liquidity’ channel of transmission actually work. The results are generally robust to an extensive series of tests, and to changes made in the estimation methodology.
    Keywords: unconventional monetary policy, ECB, Central and Eastern Europe, international spillovers, asset prices, volatility, GARCH models
    JEL: C32 E52 E58 F3 F4 F16 F37 G1 G11 G14
    Date: 2018–06
  3. By: Chang, C-L.; McAleer, M.J.; Zuo, G.
    Abstract: Recent research shows that efforts to limit climate change should focus on reducing emissions of carbon dioxide over other greenhouse gases or air pollutants. Many countries are paying substantial attention to carbon emissions to improve air quality and public health. The largest source of carbon emissions from human activities in some countries in Europe and elsewhere is from burning fossil fuels for electricity, heat, and transportation. The price of fuel influences carbon emissions, but the price of carbon emissions can also influence the price of fuel. Owing to the importance of carbon emissions and their connection to fossil fuels, and the possibility of Granger (1980) causality in spot and futures prices, returns and volatility of carbon emissions, it is not surprising that crude oil and coal have recently become a very important research topic. For the USA, daily spot and futures prices are available for crude oil and coal, but there are no daily spot or futures prices for carbon emissions. For the EU, there are no daily spot prices for coal or carbon emissions, but there are daily futures prices for crude oil, coal and carbon emissions. For this reason, daily prices will be used to analyse Granger causality and volatility spillovers in spot and futures prices of carbon emissions, crude oil, and coal. A likelihood ratio test is developed to test the multivariate conditional volatility Diagonal BEKK model, which has valid regularity conditions and asymptotic properties, against the alternative Full BEKK model, which has valid regularity conditions and asymptotic properties under the null hypothesis of zero off-diagonal elements. Dynamic hedging strategies using optimal hedge ratios will be suggested to analyse market fluctuations in the spot and futures returns and volatility of carbon emissions, crude oil and coal prices.
    Keywords: Carbon emissions, Fossil fuels, Crude oil, Coal, Low carbon targets, Green energy, Spot and futures prices, Granger causality and volatility spillovers, Likelihood ration test, Diagonal BEKK, Full BEKK, Dynamic hedging
    JEL: C58 L71 O13 P28 Q42
    Date: 2017–05–01
  4. By: Bo Zhang; Joshua C.C. Chan; Jamie L. Cross
    Abstract: We introduce a new class of stochastic volatility models with autoregressive moving average (ARMA) innovations. The conditional mean process has a flexible form that can accommodate both a state space representation and a conventional dynamic regression. The ARMA component introduces serial dependence which renders standard Kalman filter techniques not directly applicable. To overcome this hurdle we develop an efficient posterior simulator that builds on recently developed precision based algorithms. We assess the usefulness of these new models in an inflation forecasting exercise across all G7 economies. We find that the new models generally provide competitive point and density forecasts compared to standard benchmarks, and are especially useful for Canada, France, Italy and the US.
    Keywords: autoregressive moving average errors, stochastic volatility, inflation forecast, state space models, unobserved components model
    JEL: C11 C52 C53 E37
    Date: 2018–06
  5. By: Awais Ahmed (University of Lahore); Rizwan Ali (University of Lahore); Abdullsh Ejaz (University of Lahore); Ishfaq Ahmad (University of Lahore)
    Abstract: This study examined the diversification opportunities within sectors of Colombo Stock Exchange by measuring co-integration among sectors. Those sectors of CSE which are not integrated with others offer good diversification opportunities. Moreover, the study also applies Granger Causality Test to determine which sectors of CSE cause other sectors. This helps an investor informing a diversified portfolio. This study employed daily closing indices of all sectors listed in Colombo Stock Exchange during the period from 1-12-2003 to 31-8-2016. Multivariate Co-integration and Pairwise Co-integration Tests are applied to determine integration among sectors and Granger Causality to determine causal relation among these Sectors of CSE. Stationarity by unit root test revealed that the fourteen sectors are selected for running cointgeration at Level 1. Findings examined that no sector is integrated with other sectors. Thus, CSE provides excellent diversification opportunity to the investors. From an investor point of view, the findings of the study are helpful for a well-diversified portfolio by selecting stocks from those sectors which are not integrated with other sectors and minimize the unsystematic risk. This study significantly contribute the existing literature particularly those investors who want to diversify their portfolios domestically rather internationally.
    Keywords: Colombo Stock Exchange,investment choice, portfolio,sectoral integration,diversification
    Date: 2018–03–30
  6. By: Nidhaleddine Ben Cheikh; Sami Ben Naceur; Oussama Kanaan; Christophe Rault
    Abstract: Our paper examines the effect of oil price changes on Gulf Cooperation Council (GCC) stock markets using nonlinear smooth transition regression (STR) models. Contrary to conventional wisdom, our empirical results reveal that GCC stock markets do not have similar sensitivities to oil price changes. We document the presence of stock market returns’ asymmetric reactions in some GCC countries, but not for others. In Kuwait’s case, negative oil price changes exert larger impacts on stock returns than positive oil price changes. When considering the asymmetry with respect to the magnitude of oil price variation, we find that Oman’s and Qatar’s stock markets are more sensitive to large oil price changes than to small ones. Our results highlight the importance of economic stabilization and reform policies that can potentially reduce the sensitivity of stock returns to oil price changes, especially with regard to the existence of asymmetric behavior.
    Keywords: GCC stock markets, oil prices, smooth transition regression models
    JEL: G12 F30 Q43
    Date: 2018
  7. By: Stanislav Anatolyev; Sergei Seleznev; Veronika Selezneva
    Abstract: We characterize formation of market beliefs in the oil market by providing a complete characterization of the market reaction to oil inventory surprises. We utilize the unique sequential nature of inventory announcements to identify inventory shocks. We estimate an AR-ARCH-MEM model of the joint dynamics of returns, return volatilities and trading volumes around the announcements using high frequency data on oil futures contracts. Our model (i) handles illiquidity of long maturity contracts by accounting for trading inactivity, (ii) captures time varying trading intensity, and (iii) allows for structural changes in the dynamics and responses to news over time. We show (i) uniform formation of expectations across oil futures contracts with different maturities, (ii) a strong negative relation between inventories surprises and returns, (iii) no effect on the term premium, which suggests that inventory shocks are always considered to be permanent, and (iv) differentiation in the reaction of volume by maturity. We demonstrate how our results can be used to test theories of oil price determination and contribute to the debate on the recent oil glut.
    Keywords: oil market; ultra high frequency data; trading intensity; futures returns; return volatility; inventory surprises; expectation formation;
    JEL: C22 C32 C58 G12 G13
    Date: 2018–06
  8. By: Joshua C.C. Chan; Eric Eisenstat
    Abstract: Empirical questions such as whether the Phillips curve or the Okun’s law is stable can often be framed as a model comparison—e.g., comparing a vector autoregression (VAR) in which the coefficients in one equation are constant versus one that has time-varying parameters. We develop Bayesian model comparison methods to compare a class of time-varying parameter VARs we call hybrid TVP-VARs—VARs with time-varying parameters in some equations but constant coefficients in others. Using US data, we find evidence that the VAR coefficients in some, but not all, equations are time varying. Our finding highlights the empirical relevance of these hybrid TVP-VARs.
    Keywords: state space, marginal likelihood, Bayesian model comparison
    JEL: C11 C52 E32 E52
    Date: 2018–06
  9. By: Afonso-Rodríguez, Julio A. (Department of Applied Economics and Quantitative Methods, University of La Laguna); Santana-Gallego, María (Department of Applied Economics, University of the Balearic Islands)
    Abstract: This paper study the mechanism of transmission between the money and the retail credit markets stated in terms of the long-run relationship between the harmonized interest rates for different credit categories and for a subset of countries of the EMU (European Monetary Union). This mechanism, known as the interest rate pass-through (IRPT) phenomenon, has been analyzed in many empirical studies using a variety of econometric techniques, for different samples of countries and periods of time, and the general conclusion is that the pass-through seems to be incomplete in the long-run. Except for a few recent works, the analysis is performed on the basis on a time-invariant long-run relationship which may not be appropriate in this case and could condition this result. To evaluate the robustness of these findings we extend the analysis through a non-linear model for the long-run relationship between the money and the retail markets that incorporates in a very flexible form, and with minimum requirements on tuning parameters, the nonlinearity in the form of time-varying parameters. To that end we follow the approach initiated in Bierens (1997) and also propose some new tools to test for the existence of a stable time-varying cointegration relationship. The results obtained seems to support the former evidence of an incomplete pass-through.
    Keywords: retail interest rates, monetary policy, cointegration analysis, structural instability, time-varying cointegration
    JEL: E52 F36 C22
    Date: 2018–01
  10. By: Michael Stemmer (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: This article provides new evidence on the relationship between financial development and economic growth in 15 Eastern European countries between 1994 and 2014. The analysis employs a panel Granger causality framework that is based on seemingly unrelated regression systems and Wald tests with country-specific bootstrap critical values. By relying on several financial development indicators, we find that finance primarily follows GDP per capita in transition economies, supporting a demand-driven hypothesis. In contrast, financial development in the form of financial monetization and credit extension exerts in the majority of countries a negative impact on economic growth. Moreover, a strong foreign bank presence seems to positively impact growth, presumably driven by more efficiency and prudential lending behavior.
    Keywords: Economic growth,financial development,transition countries,granger causality,bootstrap
    Date: 2017–05
  11. By: Giorgio Canarella (University of Nevada Las Vegas, US); Luis A. Gil-Alana (University of Navarra, Pamplona, Spain); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa); Stephen M. Miller (University of Nevada Las Vegas, US)
    Abstract: We propose a modeling approach for the historical series of real and nominal house prices in the United States and the United Kingdom that permits the simultaneous estimation of persistence at zero frequency (trend) and at frequency away from zero (cycle). We also consider the separate cases of a standard I(d) process, with a pole at the zero frequency, and a cyclical I(d) model that incorporates a singularity at a non-zero frequency. We use annual data from 1830 to 2016 for the United States and 1845 to 2016 for the United Kingdom. We find, in general, that the degree of fractional integration associated with the long run or zero frequency is less than one, but greater than 0.5, while the degree of fractional integration associated with the cyclical frequency is greater than zero and less than 0.5. Thus, the long-run component of house prices is nonstationary but mean reverting, while the cyclical component is stationary. This contrasts with the results of the standard model and much of the empirical literature, where the rejection of the unit root seldom occurs. Some policy implications of the results appear in the conclusion.
    Keywords: Long memory, house prices, fractional integration, cycles
    JEL: C22 H21 H31
    Date: 2018–06
  12. By: Francesco Corsello (Bank of Italy); Valerio Nispi Landi (Bank of Italy)
    Abstract: Motivated by the events of the Great Recession, we estimate a time-varying structural VAR model to analyze the effects of a financial shock on the labor market, focusing on the US. Our results indicate that a tightening of financial conditions is highly detrimental to the labor market. Moreover, we show that financial shocks have affected the unemployment rate asymmetrically in the last three decades, an implication that a standard VAR cannot capture: while negative financial shocks have been responsible for increases in unemployment, our model does not find significant contributions of financial shocks during periods of expansion. The source of this asymmetry is the time-varying standard deviation of the identified shock, which is higher in times of financial distress; on the other hand, we find the transmission mechanism is almost constant over time.
    Keywords: VAR, labor market conditions, financial markets
    JEL: C32 E24 E44
    Date: 2018–06
  13. By: Guglielmo Maria Caporale; Hector Carcel; Luis A. Gil-Alana
    Abstract: This paper examines G-PPP and business cycle synchronization in the East Africa Community with the aim of assessing the prospects for a monetary union. The univariate fractional integration analysis shows that the individual series exhibit unit roots and are highly persistent. The fractional bivariate cointegration tests (see Marinucci and Robinson, 2001) suggest that there exist bivariate fractional cointegrating relationships between the exchange rate of the Tanzanian shilling and those of the other EAC countries, and also between the exchange rates of the Rwandan franc, the Burundian franc and the Ugandan shilling. The FCVAR results (see Johansen and Nielsen, 2012) imply the existence of a single cointegrating relationship between the exchange rates of the EAC countries. On the whole, there is evidence in favour of G-PPP. In addition, there appears to be a high degree of business cycle synchronization between these economies. On both grounds, one can argue that a monetary union should be feasible.
    Keywords: East Africa Community, monetary union, optimal currency areas, fractional integration and cointegration, business cycle synchronization, Hodrick-Prescott filter
    JEL: C22 C32 F33
    Date: 2018
  14. By: Zahir, Faathih; Masih, Mansur
    Abstract: The nexus between financial development and economic growth has been the subject of many literature. Researchers have tried to find if the causality is unidirectional, if so which variable causes the growth of the other or if it was bi-directional. However, the results of these researches have been conflicting and no definitive solution to this has been discovered. The purpose of this paper is to apply time series techniques to investigate this relationship. The focus of this study was based on Bangladesh because it was very recently classified by the UN as a developing country and such a study would help the government with critical information for formulating policies for its development. To the best of our knowledge, Bangladesh has not been the interest of such a study in the past. Time series techniques such as Autoregressive distributed lags (ARDL) and the more recent Non-linear autoregressive distributed lags (NARDL) were used. The results were paired with Variance decomposition techniques to strengthen the results. Annual data from 1972 to 2016 was obtained from the World Bank data bank. This study revealed that there is a strong positive co-integrating relationship between financial development and economic growth in Bangladesh and that the finance variable leads the economic growth variable suggesting a supply-leading hypothesis. Finally, the results revealed only a short run symmetry between the variables.
    Keywords: Financial Development, economic growth, symmetric, ARDL, NARDL
    JEL: C22 C58 G23
    Date: 2018–06–14
  15. By: Vacu, Nomfundo P.; Odhiambo, Nicholas M.
    Abstract: This paper examines the determinants of both aggregate and disaggregated import demand in the case of Ghana for the period from 1985 to 2015. The study employed the newly developed autoregressive distributed lag (ARDL) bounds testing approach. The explanatory variables employed include gross national income, exports of goods and services, consumer spending, government spending, investment spending, relative import price and trade liberalisation policy. The study finds that in the long run, aggregate import demand is positively determined by exports of goods and services and consumer spending. However, it was found to be negatively determined by relative import price, trade liberalisation policy and government spending. The results further confirm that gross national income, exports of goods and services and consumer spending are positive long-run and short-run determinants of import demand for consumer goods. It is found that in the long run, import demand for intermediate goods is positively determined by government spending and consumer spending, but negatively determined by exports of goods and services. Import demand for capital goods is found to be positively determined by gross national income and exports of goods and services, but negatively determined by investment spending in the long run. The short-run findings suggest that aggregate import demand is positively affected by exports of goods and services, investment spending and consumer spending, but negatively affected by relative import price and trade liberalisation policy. Import demand for consumer goods is positively influenced by consumer spending. Finally, import demand for intermediate goods is found to be positively determined by investment spending, government spending and consumer spending, while import demand for capital goods is positively associated with exports of goods and services and investment spending in the previous period, but negatively associated with previous period gross national income, investment spending and government spending.
    Keywords: ARDL Approach, Import demand, Ghana
    Date: 2018–07–10
  16. By: Suwanhirunkul, Suwijak; Masih, Mansur
    Abstract: Exchange rate has been managed to improve trade balance in many countries to increase economic growth. However, the relationship between exchange rate and trade balance is inconclusive both in the long-run and short-run. Thus, to improve trade balance effectively, the relationship needs to be studied. Therefore, this paper will examine the relationship in Thailand by applying novel approach NARDL which would give more robust result than former techniques. The paper finds that relationship exists, and that depreciation improves trade balance for the whole country in the long-run but have mixed results for different sectors due to elasticity of demand for import and export. However, trade balance is worsened in the short-run according to J-curve theory. These results imply that there is a tradeoff of depreciation between short-run and long-run, and between exporting sectors and importing sectors. Policymaker could moderately depreciate the currency to boost trade balance but needs to effectively manage the cost incurred.
    Keywords: exchange rate, trade balance, nonlinear ARDL, Thailand
    JEL: C22 C58 F1 F31
    Date: 2018–06–16
  17. By: Shahbaz, Muhammad; Shahzad, Syed Jawad Hussain; Alam, Shaista; Apergis, Nicholas
    Abstract: This paper examines the asymmetric impact of globalisation and economic growth on energy consumption in BRICS countries, applying the NARDL bounds approach to explore the presence of asymmetric cointegration across variables. The empirical results reveals that energy consumption is positively and negatively affected by the positive and negative globalisation shocks, respectively. A positive shock in economic growth promotes energy consumption, while a negative shock reduces energy consumption.
    Keywords: Globalisation, Growth, Energy
    JEL: A1
    Date: 2018–05–02

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