A multivariate time series analysis of the United States aggregate production function

This study examines the effects of hours of work per unit of private sector capital, the relative price of energy, government capital per unit of private sector capital, and inflation on private sector output per unit of capital in the U.S. over the period 1952–90. A small vector autoregressive model that comprises the variables typically employed in single-equation estimates of the aggregate production function is used. Variance decompositions and cumulative impulse response functions indicate that hours of work per unit of private sector capital, the relative price of energy, and the inflation rate have significant effects on private sector output per unit of capital over the 1952–90 period. However, there is no evidence of a significant effect for government capital per unit of private capital. An historical decomposition that begins in 1973 with the emergence of a “productivity slump” and continues through 1990 indicates that shocks to hours of work per unit of capital, the relative price of oil, and inflation appear important in explaining output per unit of capital but shocks to government capital are not important.     

An asymmetric analysis of the relationship between oil prices and output: The case of Turkey

In this paper we analyze the asymmetric impact of oil price changes on the economic activity in Turkey. In contrast to previous studies on Turkey, the existence of an asymmetric relationship between economic activity and oil prices is investigated by regime-dependent impulse response functions and forecast error variance decompositions based on a multivariate two-regime Threshold VAR (TVAR) model. Our analysis suggests that the relationship between oil prices and macroeconomic activity is nonlinear and exhibits an asymmetric pattern: oil price changes have a significant effect on inflation and output when the change exceeds a certain threshold level. The lower response of macroeconomic variables to oil price shocks in the low oil price change regime also indicates that only the shocks exceeding the optimal threshold level are able to create a contraction in the economic activity.     

Structural VAR models for Malaysian monetary policy analysis during the pre- and post-1997 Asian crisis periods

This article conducts an in-depth investigation into building a Structural Vector Autoregression (SVAR) model and analysing the Malaysian monetary policy. Considerable attention is paid to: (i) the selection of foreign, policy and target variables; (ii) establish identifying restrictions and improve the estimates of impulse response functions; (iii) assess the importance of intermediate channels in transmitting monetary policy mechanism; and (iv) the way in which the 1997 Asian financial crisis affected the working of monetary policy. Malaysia is an interesting small open economy to study because, following this crisis, the government imposed capital and exchange rate control measures. The overall results suggest that the crisis and the subsequent major shift in the exchange rate regime have significantly affected the Malaysian ‘Black Box’. In the pre-crisis period, domestic variables appear to be more vulnerable to foreign monetary shocks. Further, the exchange rate played a significant role in transmitting the interest rate shocks, whereas credit and asset prices helped to propagate the money shock. In the post-crisis period however, asset prices play a more domineering role in intensifying the effects of both interest rate and money shocks on output, and the economy was insulated from foreign shocks.     

Impact of oil price shocks on output,inflation and the real exchange rate: evidence from selected ASEAN countries

This article analyses the impact of oil price shocks on real output, inflation and the real exchange rate in Thailand, Malaysia, Singapore, the Philippines and Indonesia (ASEAN-5) using a Structural VAR model. The cointegration tests indicate that the macroeconomic variables of these countries are cointegrated and share common trends in the long run. The impulse response functions reveal that oil price fluctuations do not impact the ASEAN-5 economies in the long run and much of its effect is absorbed within five to six quarters. The variance decomposition results further assert that with a few exceptions oil price shocks do not explain a significant variation in any of the variables under consideration. We also identify a very unique pattern of response to oil price fluctuations between Malaysia and Singapore and between the Philippines and Thailand. The pairs exhibit a high degree of similarity in their responses; they do not share any commonalities across the group.     

Productivity Shocks and Monetary Policy in a Two-Country Model

In this paper, we examine the effects of foreign productivity shocks on monetary policy in a symmetric open economy. Our two-country model incorporates the New Keynesian features of price stickiness and monopolistic competition based on the cost channel of Ravenna and Walsh (2006). In particular, in response to asymmetric productivity shocks, firms in one country achieve a more efficient level of production than those in another economy. Because the terms of trade are directly affected by changes in both economies’ output levels, international trade creates a transmission channel for inflation dynamics in which a deflationary spiral in foreign producer prices reduces domestic output. When there is a decline in economic activity, the monetary authority should react to this adverse situation by lowering the key interest rate. The impulse response function from the model shows that a productivity shock can cause a real depreciation of the exchange rate when economies are closely integrated through international trade.     

External Shocks,Bank Lending Spreads,and Output Fluctuations*

This paper studies the effects of external shocks on bank lending spreads and output fluctuations in Argentina during the early 1990s. The first part presents the analytical framework. The second presents a VAR model that relates bank lending spreads, the cyclical component of output, the real lending rate, and the external interest rate spread. Impulse response functions show that a positive shock in external spreads leads to higher domestic spreads and lower output. Historical decompositions show that shocks to external spreads in the immediate aftermath of the Mexican peso crisis had a sizable effect on movements in output and domestic spreads.     

Monetary policy in a dual currency environment

We develop a small open economy general equilibrium model with sticky prices and partial dollarization – a situation where both domestic and foreign currencies coexist. We derive a tractable representation of the model in terms of domestic inflation and the output gap in which a trade-off, which depends on the degree of dollarization, arises endogenously due to the presence of foreign interest rate shocks. We use this framework to show analytically how higher degrees of dollarization induce larger volatilities of the output gap and inflation, thus hampering a central bank’s effectiveness to stabilize the economy. Our impulse response functions show that the transmission of such shocks has a positive (negative) effect on inflation and negative (positive) effect on the output gap when money aggregates and consumption are complements (substitutes).     

Shocking the eurozone

In this paper, the monetary transmission mechanism within the European Monetary Union is investigated. The impulse response functions and forecast error variance decompositions of a structural vector error correction model (SVECM) are compared with those of a New Keynesian theoretical model. The identifying restrictions of the SVECM are directly derived from the theoretical model. Two permanent shocks are identified, one having only nominal, and one having only real effects. The three transitory shocks comprise a short-term interest-rate shock, an aggregate demand shock and a money demand shock. The main conclusions are that permanently reducing the inflation objective depresses output in the first year, but has no real effects in the long run. Regarding output variability, the results indicate that aggregate demand shocks are most important during the first year, after which aggregate supply shocks dominate.     

我国国际收支对货币政策独立性的冲击

随着我国经济对外开放程度的日益提高,货币政策的传导机制已经不完全取决于国内的经济变量,因此,研究来自外部经济因素的影响就越发显得重要.本文通过Granger影响关系、VAR模型的冲击反应和误差方差分解方法证实了,在开放经济条件下我国国际收支状况的变化引致通货膨胀和国内生产总值的变动,继而揭示了外部冲击对我国货币政策独立性具有影响.     

Fishing effort validation and substitution possibilities among components: the case study of the VIII division European anchovy fishery

This paper re-examines the export-led growth hypothesis using provincial data. Unlike other studies that concentrate on country-level data, this study investigates the validity of the hypothesis for four largest provinces in Korea: Seoul, Kyunggee, Kyungnam, and Pusan. The causal implication of the export-led growth hypothesis is generally supported for all provinces in the sample. The framework of analysis is two- and four-variable autoregressive models that include provincial exports, provincial output, terms of trade, and national output shocks. Granger causal orderings from exports to output growth are generally supported in bivariate causal models. In multivariate models, variance decompositions and impulse response functions further indicate that export growth has a significant impact on output growth for all provinces although a feedback effect from output to export growth appears in Seoul and the Kyungnam province.     

Can openness be an engine of sustained high growth rates and inflation?: Evidence from Japan and Korea

The effects of increasing openness on the growth rates of output and of the price level are examined for Japan and Korea. The framework of analysis is a seven-variable vector autoregressive (VAR) model, and the effects of changes in openness are evaluated by computing impulse response functions (IRFs). For both countries, shocks to trade openness are found to have significant, negative effects on economic growth and inflation in the short run, but no longer-run effects. Openness measures in financial markets also have negative effects on economic growth and inflation in Korea, whereas the effects are not significant in Japan. The findings appear consistent with some models in which a domestic economy may suffer a loss due to increased openness of an economy.     

Determinants of housing price volatility in Canada: a dynamic analysis

This article tries to identify the determinants of housing price volatility and to examine the dynamic effects of these determinants on volatility using quarterly data for Canada. The Generalized Autoregressive Conditional Heteroskedastic (GARCH) and the Vector Autoregressive (VAR) models have been employed to analyse possible time variation of the housing price volatility and the interactions between the volatility and the key macroeconomic variables. We find the evidence of time varying housing price volatility for Canada. Our VAR, Granger causality and variance decomposition (VDC) analyses demonstrate that housing price volatility is affected significantly by gross domestic product (GDP) growth rate, housing price appreciation rate and inflation. On the other hand, volatility affects GDP growth rate, housing price appreciation and volatility itself. The impulse response analysis reveals the asymmetric of the positive and negative shocks. The findings of this article have important implications, particularly for those seeking to develop derivatives for housing market prices.     

Analysis of shock transmissions to a small open emerging economy using a SVARMA model

Using a parsimonious structural vector autoregressive moving average (SVARMA) model, we analyse the transmission of foreign and domestic shocks to a small open emerging economy under different policy regimes. Narrower confidence bands around the SVARMA responses compared to the SVAR responses, advocate the suitability of this framework for analysing the propagation of economic shocks over time. Malaysia is an interesting small open economy that has experienced an ongoing process of economic transition and development. The Malaysian government imposed exchange rate and capital control measures following the 1997 Asian financial crisis. Historical decomposition and variance decomposition allow contrast of shocks propagating under different policy regimes. Malaysia is highly exposed to foreign shocks, particularly under the managed float exchange rate system. During the pegged exchange rate period, Malaysian monetary policymakers experienced some breathing space to focus on maintaining price and output stability. In the post-pegged period, Malaysia's exposure to foreign shocks increased and in recent times are largely driven by world commodity price and global activity shocks.     

The effects of oil shocks on government expenditures and government revenues nexus (with an application to Iran's sanctions)

The main purpose of this study is to investigate the dynamic relationship between government revenues and government expenditures in Iran as a developing oil export based economy. Moreover, I want to know how oil price (revenue) shocks can affect this relationship. The results of the impulse response functions and variance decomposition analysis indicate that the contribution of oil revenue shocks in explaining the government expenditures is stronger than the contribution of oil price shocks. Moreover the results of the vector autoregression (VAR) and vector error correction (VEC) models show that the strong causality is running from government revenues to government expenditures (both current and capital) in Iranian economy while the evidence for the reverse causality is very weak. Overall the results support the revenue–spending hypothesis for Iran. My results imply that those sanctions aiming to restrict the Iranian government's oil export revenues, potentially can affect the government total expenditures as an important engine for developing the Iranian economy.     

REAL BALANCES, RELATIVE PRICES AND AN OPEN MODEL TEMPORARY EQUILIBRIUM WITH RATIONING THE MARSHALL-LERNER CONDITIONS IN

The model is of an open economy producing a single output, the demand for which depends on its price, the price of foreign output, real incomes and government spending. We thereby extend the rationed equilibrium model of Malinvaud to the simplest open economy. Residents hold foreign assets as well as domestic assets, hence exchange rate movements have real balance effects as well as relative price effects. The Marshall Lerner conditions are sufficient, but not necessary, for either an exchange rate depreciation or a fall in the domestic price level, to increase demand for domestic output. They are necessary, but not sufficient, for a depreciation or fall in the domestic price level, to improve the trade balance under Keynesian Unemployment.     

Trend productivity growth and the government spending multiplier

The paper analyzes the effects of government spending shocks under alternative rates of trend growth in a New-Keynesian model characterized by price and wage rigidity. We show that the presence of trend growth makes the impact on output and consumption of government spending shocks smaller but more persistent with a hump shaped impulse response. Our results imply that the impact government spending multiplier decreases while the cumulative multiplier increases with trend growth.     

The interactions among foreign direct investment,economic growth,degree of openness and unemployment in Taiwan

The vector autoregression method of variance decomposition and impulse response function analysis are applied to analyse various relationships among foreign direct investment (FDI), economic growth, unemployment and degree of openness in Taiwan. The analysis results show that these five variables have a long-run equilibrium relationship; however, unemployment rate and FDI outflow have weak exogeneity. We also found that there exist three unidirectional causalities from FDI outflow to FDI inflow, from economic growth to degree of openness, and from economic growth to unemployment in short-run. Furthermore, the shocks of economic growth and degree of openness have positive effects on FDI inflow. On the contrary, the shocks in economic growth and FDI inflow have negative effects on unemployment rate.     

Estimating DSGE models across time and frequency

Using a wavelet-based decomposition, this paper exploits the information in the data usually employed in the estimation of DSGE models. A simple New Keynesian model featuring price and wage rigidities is estimated for the United States across different frequencies. The estimations indicate that most structural parameters exhibit a frequency-dependent behavior. The impulse response functions also indicate frequency-dependent responses of output to the exogenous shocks. For lower frequencies, there are more persistent effects, especially for preference and technology shocks.     

Structural fiscal balances of the UK: a state-space DSGE approach

This article proposes a new framework to estimate and analyse structural fiscal balances of the UK, by combining the state-space modelling with the Bayesian DSGE modelling. In this way, trends and cycles of aggregate variables can be extracted from data consistently with the macroeconomic theory. A setting of an integrated random walk for the underlying stochastic trends fits the data best. An expansion in government spending can increase nominal fiscal revenue to a certain degree, but the effect is not persistent due to two kinds of crowd-out effects: it crowds out domestic investment; and it pushes up the price of domestic goods and simultaneously crowds out the foreign demand. The shocks to the nominal interest rate, foreign output and the government spending are the three major contributors to the variation of the fiscal revenue cycle.     

Do sticky prices increase real exchange rate volatility at the sector level?

We introduce the real exchange rate volatility curve as a useful device to understand the relationship between price stickiness and the fluctuations in Law of One Price deviations. In the presence of both nominal and real shocks, the theory predicts that the real exchange rate volatility curve is a U-shaped function of the degree of price stickiness. Using sector-level US–European real exchange rate data and frequency of price changes, we estimate the volatility curve and find the predominance of real effects over nominal effects. Good-by-good variance decompositions show that the relative contribution of nominal shocks is smaller at the sector level than what previous studies have found at the aggregate level, consistent with significant averaging out of good-specific real microeconomic shocks.