The Dynamics Between Inflation and Inflation Uncertainty: Evidence from India

This study examines the causal nexus between inflation and inflation uncertainty. In this regard, conventional Generalized Autoregressive Conditional Heteroskedasticity (GARCH) models and Stochastic Volatility (SV) models are used to measure inflation uncertainty and Bai and Perron (Econometrica 66:47–78, 1998; J Appl Econom 18:1–22, 2003) test is used to identify structural breaks in inflation. The empirical evidence derived from the monthly data for the period from June 1961 to April 2011 suggests that the measure of inflation uncertainty obtained from SV model is more reliable than the measure obtained from GARCH model and also the causal nexus between inflation and inflation uncertainty seems to be significantly conditional upon the measure of uncertainty used. The structural break test identifies four episodes of inflation during the sample period, and the causality between inflation and its variability varies across different episodes. The inflation and its variance seem to be independent of each other during the first two regimes that cover the period from 1960 to 1980 and on the contrary, during the later period largely bidirectional causality is observed. Further, inflation seems to exert positive impact on inflation uncertainty, whereas inflation uncertainty has negative impact on inflation.

     

Assessing French inflation persistence with impulse saturation break tests and automatic general-to-specific modelling

This article has three different motivations. Firstly, we wish to contribute to the debate on whether French inflation has been persistent since the mid-eighties. Empirical evidence in this domain has been mixed. We use the standard method of testing for breaks in the mean of the inflation series to conclude whether possible unit root findings are the result of neglected breaks. Then, we build standard autoregressive representations of inflation, using an automatic general-to-specific approach. We conclude against inflation persistence in the sample period, and the point estimates of persistence we obtain are several percentage points below those achieved with other break tests and model selection methods. Moreover, our final model is congruent. Secondly, we provide the first empirical application of the new impulse saturation break test. The resulting estimates of the break dates are in line with other literature findings and have a sound economic meaning, confirming the good performance the test had revealed in theoretical and simulation studies. Finally, we also illustrate the shortcomings of the Bai–Perron test when applied to a small sample with high serial correlation. Indeed, we show the Bai–Perron break dates’ estimates would not allow us to build a congruent autoregressive representation of inflation.     

INTERNATIONAL LABOUR FORCE PARTICIPATION RATES BY GENDER: UNIT ROOT OR STRUCTURAL BREAKS?

This paper examines the possibility of unit roots in the presence of endogenously determined multiple structural breaks in the total, female and male labour force participation rates (LFPR) for Australia, Canada and the USA. We extend the procedure of Gil‐Alana for a single structural break to the case of multiple structural breaks at endogenously determined dates using the principles suggested by Bai and Perron. We use the Robinson LM test to determine the fractional order of integration. We find that endogenously determined structural breaks render the total, female and male LFPR series stationary or at best mean‐reverting.     

Detecting multiple breaks in long memory the case of U.S. inflation

Multiple structural change tests by Bai and Perron (Econometrica 66:47–78, 1998) are applied to the regression by Demetrescu et al. (Econ Theory 24:176–215, 2008) in order to detect breaks in the order of fractional integration. With this instrument we tackle time-varying inflation persistence as an important issue for monetary policy. We determine not only the location and significance of breaks in persistence, but also the number of breaks. Only one significant break in U.S. inflation persistence (measured by the long-memory parameter) is found to have taken place in 1973, while a second break in 1980 is not significant.     

Modelling inbound international tourism demand in small Pacific Island countries

ABSTRACT

In this study, we estimate inbound international tourism demand models at the individual source market-destination and overall destination levels for Fiji, Cook Islands, Tonga and Vanuatu from 2002Q1 to 2016Q2 and Samoa from 2002Q4 to 2015Q3. Tourism demand is measured by visitor arrivals, tourism prices, the source country’s real GDP, tourism prices in substitute destinations, seasonality and structural breaks, all of which are considered plausible determinants. The models are estimated using the ARDL-bounds approach, structural breaks are identified using the Bai and Perron break test, and seasonality is tested using the US Census Bureau’s X-13 ARIMA-SEATS methodology. The study is important because it presents new evidence on price, income, and substitute price sensitivity, word of mouth, seasonality, and structural-breaks effects in Pacific island destinations.     

The Feldstein–Horioka Puzzle and structural breaks: Evidence from EU members

The purpose of this paper is to investigate the level of capital mobility in European Union members using the Feldstein–Horioka puzzle proposed by Feldstein and Horioka (1980) in order to investigate relations between saving and investment flows. In this paper, data for 23 European countries were used over the period of 1995–2009 on the quarterly basis. Two different tests were used to estimate the stationarity of the model variables, which are the Ng and Perron (2001) unit root test procedure and approach proposed by Zivot and Andrews (1992) for unit root test allowing for a structural shift. Then the Kejriwal and Perron (2008, 2010) structural break test was applied to determine the presence of structural breaks in series. In most countries except Belgium and Finland UDmax and WDmax tests rejected the hypothesis of no breaks. To test the cointegration relationships between investment and saving flows of European Union members three different cointegration techniques were applied to the data. Firstly, the Johansen (1988) cointegration approach was used for the case of no cointegration shifts, then the Gregory and Hansen (1996) cointegration test was applied, which allows for one structural shift. Finally, again the Johansen' cointegration approach was used; however, this time with the inclusion of dummy variables related to earlier selected structural break locations. The empirical results provided stronger evidence of cointegration between investment and saving variables in the case of structural break accommodation compared to the case where the presence of structural breaks was ignored. The estimated saving retention coefficient in the presence of structural breaks using the Kejriwal and Perron (2008, 2010) approach appeared relatively low in many cases, illustrating by this the openness of estimated countries. In general, world and European countries with time have a tendency to a higher level of their capital market openness. Estimations of a saving retention coefficient in the presence of structural changes do not support the existence of the Feldstein–Horioka Puzzle in the considered EU countries, except Belgium.     

我国宏观经济和金融总量增长路径的结构变化研究

运用Perron和Yabu(2009)提出的拟可行广义最小二乘法(Quasi-FGLS),对我国有代表性的宏观经济和金融总量的增长路径是否存在结构变化进行检验。实证表明,除银行贷款外,其余9个总量(储蓄存款余额、固定资产投资GDP、人均GDP、就业、消费、进出口、名义工资总额和实际工资总额)的增长路径均发生结构变化,潜在增长率在结构断点前后明显改变,但这种变动有增有减,其中就业和居民消费的变化表现出明显的同步性。区别于以往检验方法,Quasi-FGLS结构变化检验结果不受残差平稳性影响,因此结论更加稳健。     

Growth in India’s Service Sector: Implications of Structural Breaks

The paper is an attempt to identify the multiple structural breaks in India’s GDP, as well as its main growth enhancing sector i.e., services and its components and subsequently calculate the growth rate in different regimes. The paper uses the Bai-Perron (Econom 66(1), 1998, J Appl Econom 18(1), 2003) methodology of estimating multiple endogenous structural breaks (both pure and partial) in India’s service sector and its components and GDP during 1950–2010. Further, the paper uses the Boyce (Oxf Bull Econ Stat 48:385–391, 1986) methodology of estimating kinked exponential model of the growth rate, and further uses the Banerjee, Lumsdaine and Stock (J Business Econ Stat 10:271–287, 1992) test and the Lumsdaine and Pappel (Rev Econ Stat 79:212–218, 1997) test to check for the stationarity in the presence of structural breaks. The data used in this paper are the components of subsectors of services GDP and GDP at factor cost (with 2004–2005 as base). It is found that there is very little difference between the estimation of pure and partial structural break dates in India’s services GDP and its subsectors and four such breaks have been identified with help of Bai-Perron (Econom 66(1), 1998, J Appl Econom 18(1), 2003) methodology. The Boyce methodology of estimation of growth rates finds that mainly in the third and fourth regimes, the growth rates are highest in the subsectoral as well as at the aggregate levels of services GDP. The Banerjee, Lumsdaine and Stock test (J Business Econ Stat 10:271–287, 1992) and the extended Lumsdaine and Pappel test (Rev Econ Stat 79:212–218, 1997) cannot negate the presence of unit root in the data, irrespective of the presence of multiple structural breaks. The paper concludes with the identification of four broad regimes of growth of India’s services GDP and in the subsectors with possible explanations thereof.

     

Analysing the effects of labour standards on US export performance. A time series approach with structural change

The empirical effects of different measures of labour standards on the export performance of the United States are analysed using annual data for the period 1950–1998, applying a time series approach based on the structural change literature. Hence, a model with endogenous breaks is estimated following the methodology proposed by Bai and Perron (Econometrica, 66, 47–78, 1998). The results show that the labour standards, represented by the number of hours worked, the rate of occupational injuries and the unionization rate, are all very important to explain the behaviour of exports for the United States. In particular, it is found that low labour standards may both improve or lead to a deterioration in export performance.     

An analysis of multiple structural breaks in US relative farm prices

The movement of farm prices relative to other commodity prices is analysed for the period 1913:01 to 2003:12, investigating the number and time of structural breaks and discussing likely causes of structural breaks in the relative farm prices. Bai and Perron's (1998, 2003) multiple structural change test with a dynamic programming algorithm is used. This test makes it possible to have an efficient computation of the estimates of the break points as global minimizers of the sum of squared residuals. We find six structural breaks when we consider only the mean process and two breaks when we consider the mean and autoregressive processes. Possible causes for these breaks are discussed.     

Modelling the Equity Beta Risk of Australian Financial Sector Companies

In this paper we apply the generalised auto-regressive conditional heteroskedasticity (GARCH) and Kalman Filter approaches to modelling the equity beta risk of a sample of fifteen Australian financial sector companies. A de-regulated environment in which strong competitive forces are at play typifies the period of investigation. Consistent with the existing literature, we find that these modelling techniques perform well and, in particular, that the Kalman Filter approach is preferred. Further, we find that considerable variability of risk occurs throughout the sample period. Thus, extending the evidence of Harper and Scheit (1992); Brooks and Faff (1995) and Brooks, Faff and McKenzie (1997), we find evidence consistent with the hypothesis that deregulation has impacted the risk of banking sector stocks.     

Banking sector depth and economic growth nexus: a comparative study between the natural resource-based and the rest of the world’s economies

This paper investigates the relationship between banking sector depth and long-term economic growth in the natural resource-based economies vis-à-vis economies that are not dependent on natural resources. For the empirical investigation, a Generalised Method of Moments estimator for dynamic panel data models is adopted for 194 countries spanning the period 1964–2013. Using different measures of banking sector depth and economic growth, the investigation yields three key findings. First, the banking–growth relationship is non-linear and positive within certain levels of banking sector depth in both country groups. Second, the time lag between the change in the level of banking sector depth and the effect on economic growth is shorter in the natural resource-based countries than in the other countries. Finally, the total effect of banking sector deepening on long-term economic growth is weaker in economies with abundant natural resources than in the rest of the world.     

Testing the balanced growth hypothesis: evidence from China

We investigate whether China’s experience during 1952–2004 supports the balanced growth entailment of the neoclassical growth model. Estimation of long-run relations among output, consumption and investment for the full period reject the balanced growth hypothesis for both the national and regional economies. When the economic reforms of the late 1970s are modelled as a structural break by the methods of Johansen et al. (Economet J 3(2):216–249, 2000) and Perron (Econometrica 57(6):1361–1401, 1989), we find some evidence of balanced growth in the pre-break period but in the post-break period the ‘great ratios’ are trend-stationary, precluding fully balanced growth, though permitting a common (stochastic) productivity trend.      

Was the Argentine corralito an efficient measure?: A note

Theoretical banking literature has largely explored the role of financial intermediaries in the economy, market failures (banking panics) in the banking sector and the need for bank regulation. However, most models of banking panics and regulation have not been empirically tested.The Argentine 2001 crisis, with a large deposit withdrawal and the regulation introduced (suspension of convertibility) constitutes a scenario in order to apply some of the theoretical predictions.In particular, the paper applies Samartín [Samartín, M. (2002). Suspension of convertibility vesus deposit insurance: A welfare comparison. European Finance Review, 6(2), 223–244] to the particular case of Argentina. After the estimation of the most important parameters, the model predicts that suspension of convertibility seems to have been the most efficient intervention measure to stop the massive deposit withdrawals.     

Re-examining the financial development and economic growth nexus in Kenya

This paper re-examines the causal relationship between financial development and economic growth in Kenya for the period 1966–2005 within a quadvariate vector autoregressive (VAR) framework by including exports and imports as additional variables to the finance–economic growth nexus. We use four conventionally accepted proxies for financial development, namely money supply (M2), liquid liabilities (M3), domestic bank credit to the private sector and total domestic credit provided by the banking sector (all percent of GDP). Applying a modified version of the Granger causality test due to Toda and Yamamoto [Toda, H.Y. and Yamamoto, T., Statistical inference in vector autoregressions with possibly integrated process. Journal of Econometrics 1995; 66; 225–250], our empirical results suggest that in three out of the four measures of financial development we found evidence of a two-way Granger causality: (1) between domestic credit provided by the banking sector and economic growth; (2) between total domestic credit provided by the banking sector and economic growth, and (3) between liquid liabilities and economic growth. This implies that neither the supply-leading nor the demand-following hypotheses are supported in Kenya and that economic growth and financial development are jointly determined, or they complement each other. A major implication of our finding is that financial development promotes economic growth in Kenya and that policies at enhancing the development of the financial sector can help to spur economic growth.     

The effect of financial liberalization on banking sector stability

Several studies indicate that financial liberalization increases likelihood of a financial crisis without distinguishing between a normal period, unstable period preceding the onset of banking panics and crisis/post period. We explain in this paper the relationship between financial liberalization and banking sector vulnerability. Then, we argue that banking sector turmoil is most likely to occur after an intermediate degree of liberalization. Using a recently updated dataset for financial reforms, we find an inverted U-shaped relationship between liberalization and the likelihood of banking crisis for a sample of 49 countries between 1980 and 2010. We used a multinomial logit model in order to take into account what is called the ‘post crisis bias’. We ask whether the relationship remains when institutional characteristics of countries and dynamic effects of liberalization are considered. The empirical results indicate that the relationship between liberalization and banking sector stability depends strongly on the strength of capital regulation and supervision. With very weak regulation and supervision, the probability of banking crises is increasing with liberalization but this relationship is reversed as regulation and supervision become significant. The most important type of liberalization in relation to banking crises seems to be operational. A policy implication is that positive growth effects of liberalization can be achieved without increasing the risk of a banking fragility if appropriate institutions are developed.     

Monetary policy and systemic risk-taking in the euro area banking sector

Available empirical evidence on the significance of the (micro) risk-taking channel of monetary policy is not enough to indicate a threat to financial stability. Evidence of risk-taking with systemic risk implications is necessary. Statistical measures that capture systemic risk in all its forms within a structural factor-augmented vector autoregressive model suggest that conventional and unconventional monetary policies have resulted in systemic risk-taking in the euro area banking sector. Systemic risk has taken the form of an increase in the banking sector’s vulnerability via contagion and interconnectedness. Banks’ balance sheets, however, do not account for the full transmission from (micro) risk taking to systemic risk-taking. The main policy implication is that a persistently accommodative monetary policy may drive a monetary authority with a price stability mandate to consider a possible trade-off with financial stability. At a minimum, coordination between monetary and macro-prudential policies requires serious consideration.     

Has the structural break slowed down growth rates of stock markets?

In this paper, we use the common structural break test suggested by Bai et al. (1998) to test for a common structural break in the stock prices of the US, the UK, and Japan. On the basis of the structural break, we divide each country's stock price series into sub-samples and investigate whether or not the structural break had slowed down the growth of stock markets. Our main findings are that when stock markets are modelled in a trivariate sense the common structural break turns out to be 1990:02, with the confidence interval including several episodes, such as the asset price bubble when housing prices and stock prices in Japan reached a peak in 1988/1989, the early 1990s recession in the UK, the business cycle peak of July 1990, the August 1990 Iraqi invasion of Kuwait and the March 1991 business cycle trough. Annual average growth rates suggest that the structural break has slowed down the growth rate of the US, the UK and Japanese stock markets.     

Desperately seeking cash: Evidence from bank output measurement

We examine the impact of a “near-zero” interest rate policy on bank output. Specifically, we document the existence of negative banking output on deposits for French banks from 2009. We show a structural break in banks' long run interest rate pass-through that explains this change in their business model during the 2003–2012 period. Since the crisis, banks are desperately seeking cash, and deposits have become a cost center. This is due to the new monetary policy and reveals banks' adaptation to the new banking regulation on liquidity. This new environment raises questions about banks' increasing exposure to interest rate risk and shows the necessity of coordinating monetary and regulatory policies.     

Fundamentals and Oil Price Behaviour: New Evidence from Co‐integration Tests with Structural Breaks and Granger Causality Tests

As the world economy has undergone various changes and shocks, the oil market went through significant fluctuations during the period 1994–2015. This study focuses on discussing the possible factors that determine crude oil prices, which include world economic growth, market power of Organization of the Petroleum Exporting Countries (OPEC), non‐OPEC supply and the value of dollar, taking into account the structural changes that influence the study period, which is quarterly data for the period of 1994.Q1–2015.Q3. For time series stationarity tests, Zivot and Andrews (1992) and Perron (1997) unit root test with structural break is used. To test the existence of a long relationship in the presence of structural changes, the Gregory and Hansen (1996a, 1996b) method of co‐integration is used. For long‐run coefficient, we proceed to estimate fully modified least squares. The result shows a significant influence of non‐OPEC supply, the dollar appreciation and world gross domestic product growth, but OPEC did not have a significant effect on the price of oil, which is indicated by the structural break for OPEC capacity utilisation at 2002.Q1, that indicates the starting point of the loss of OPEC power. Establishing the presence of co‐integration, we apply the evaluation of Granger causality for co‐integrated data, using vector error‐correction model.