The threshold effect of longevity: life expectancy and economic growth

Differing from the nonlinear effect of life expectancy (LE) estimated by previous empirical studies based on a quadratic equation which may be inapplicable for asymmetric nonlinear relationships, this note uses dynamic threshold model to investigate the asymmetric threshold effect of LE. The results show that the significant positive effect of LE on income per capita can only be realized above the threshold, whereas there is an insignificant linkage between LE and economic growth below the threshold level when inflation is eliminated.     

Does asymmetry in price transmission exist in the rice market in Sri Lanka?

This study analyses asymmetry in price transmission between wholesale and retail rice markets in Sri Lanka, using the threshold autoregressive model. We found that the wholesale and the retail rice markets in Sri Lanka are integrated, with price changes moving from the wholesale to the retail market. However, the price transmission process is asymmetric. In particular, price increases at the wholesale market transmit immediately to the retail market while price decreases transmit more slowly. Parameter stability test and follow-up analysis indicated that the price transmission process is asymmetric only during periods of price surges, suggesting that the rice market is not efficient during these periods.     

中国货币政策的非对称效应研究*——基于ESTSVAR模型的估计

为刻画中国经济高速增长的特征,本文引入指数平滑跃迁函数对STVAR模型进行拓展,就货币政策对产出和物价水平进行了脉冲响应分析。研究发现,在对产出的影响方面,当处于低增长区制时,利率、汇率以及货币供给对产出的影响是非对称的;当处于高增长区制时,只有利率对产出的非对称效应是明显的。在对物价水平的影响方面,在低增长区制,利率对物价的影响并不显著,但在高增长区制下,利率对物价存在显著的非对称影响。此外,本文还通过非对称格兰杰因果检验说明结论具有稳健性。     

Are crude oil spot and futures prices cointegrated? Not always!

In previous studies, the cointegration relationships between crude oil spot and futures prices are confirmed based on Johansen (1988) test and vector error correction model (VECM). These conventional methods assume that the process of long-run equilibrium adjustment is linear. This paper revisits this topic employing nonlinear threshold VECM to take into account the nonlinear dynamics of equilibrium adjustment. Our results show that crude oil spot and futures prices are cointegrated only when the price differentials are larger than the threshold value. Moreover, we use a multi-frequency analysis based on low-pass filtering with different cut-off frequencies. The main findings indicate that the relationships between spot and futures prices are different between in the short-term and in the long-term. In the short-term, futures price plays the major role in the formation of long-run equilibrium (error correction mechanism). In the long-term, both spot and futures prices contribute to the dynamics of long-run equilibrium.     

Testing for Temporal Asymmetry in the Price‐Volume Relationship

This paper presents some evidence for the presence of temporal asymmetry in the price-volume relationship in the crude oil futures market. By using threshold models we show that there is bidirectional causality between volume and prices, whereas the conventional model that assumes symmetry can only detect unidirectional causality. The results also show that the price-volume relationship is asymmetric, in the sense that negative price and volume changes have stronger effects (on each other) than positive changes. Some explanations for asymmetry in the price-volume relationship are suggested.     

The multi-market analysis of a housing price transmission model

In this article, we examine dynamic relationships among housing prices from four first-tier cities in China from December 2000 to May 2010 and present an equilibrium model of housing price in multi-markets. By explicitly incorporating and modelling endogenous price series in competing housing markets, our empirical model is able to capture the existence of long-run equilibrium relationships and important short-run dynamics and price structures such as price leadership, price transmission lag and asymmetric price responses. Such multi-market analysis has generalized implications and can easily be applied to analyse the pricing dynamics among other real estate markets in the world. Our major contribution lies in two aspects. First, we employ an Error-Correction Model (ECM) with Directed Acyclic Graphs (DAG) to study the price dynamics in the four largest and key housing markets in China. Second, we uncover a price transmission among these housing markets in China and provide an insightful understanding of price adjustment across markets. The revealed effective price transmission and high correlation among these different markets actually is not a good thing for a stable financial system and for the defence against price bubbles in the housing market.     

Exploring the interaction between stock price index and exchange rates: an asymmetric threshold approach

This article examines the impact of stock market news on the foreign exchange markets of USA, Canada and UK, employing an innovative extension of the asymmetric threshold model of Apergis and Miller (2006). Under this framework we can disentangle the reaction of foreign exchange market to bad or good news and small or large news of stock returns. Our comprehensive daily data-set spans the period from January 1990 to June 2014. Using a cointegration and error correction model, we document the existence of a causal relationship between stock market and foreign exchange markets. Most interestingly, our results derived from the asymmetric threshold model confirm that the relationship between stock and foreign exchange markets is sensitive to short-term good or bad news and short-term small or large news. Our findings entail significant implications for policymakers, governments, risk managers and international investors.     

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.     

食品与非食品价格的长期均衡关系与短期非线性调整——基于两区制门槛协整模型的实证研究

食品通胀率与非食品通胀率之间的测量缺口近期持续扩大,引起了市场广泛关注。文章根据1994年1月至2010年8月的食品价格与非食品价格数据,运用两区制门槛误差修正模型研究两者的长期均衡关系和短期价格调整以及传导机制中的非线性特征。结果发现,食品通胀率与非食品通胀率存在门槛协整关系,而且估计缺口稳定,这表明测量缺口夸大了两者的真实偏离。文章还发现了食品价格传导的新信息内涵,即食品价格对非食品价格具有非线性的价格传导性:短期内偏离主要是食品价格上升造成,尤其是在高通货膨胀区制,偏离速度有加快趋势。两区制的Granger因果关系检验发现,在极端区制,食品价格通胀与非食品价格通胀具有双向的短期Granger原因,即两者相互领先;而在正常区制,食品价格通胀与非食品价格通胀具有双向的长期Granger原因。     

On the upsurge of U.S. food prices revisited

The objective of this study is to empirically examine the effects of changes in exchange rate, commodity price and energy price on five U.S. food prices — cereal/bakery, meats, dairy, fruits/vegetables and beverages. The Johansen cointegration analysis and a vector error-correction (VEC) model are applied to monthly data for the 2001–2010 period. Results show the existence of stable long-run relationships among the selected variables. We also find that energy and commodity prices have influenced U.S. food prices mainly through changes in prices of cereal/bakery, meats and dairy. Finally, exchange rate is found to have been a significant factor influencing U.S. food prices. The Energy Independence and Security Act of 2007 is one of main driving forces for the recent food price inflation, which has affected negatively consumers, especially low income households, in the United States.     

Index arbitrage and dynamics between REIT index futures and spot prices

This article contributes to the real estate literature by investigating the pricing relationship between REIT index futures and spot. Based on the cost-of-carry model, we first show that there exist three arbitrage regimes in Australia’s REIT spot-futures price dynamics. Further analysis indicates that the two thresholds, which separate the regimes, are largely consistent with the level dictated by transaction costs. We then estimate a threshold vector error correction model (TVECM). The results show that mean reversion of the mispricing error only takes place in the two outer regimes. Furthermore, we find evidence that REIT spot market is more informationally efficient than the futures market. Given its short history, it will take time for REIT index futures market to mature. Finally, we find that we can enhance hedging performance by accommodating the feature of threshold cointegration displayed by the data. As the futures-spot relationship differs across regimes, we can develop a hedging strategy by adjusting the hedge ratio based on arbitrage regimes. It leads to a greater variance reduction for the hedged portfolio than some conventional methods examined in the existing real estate literature.     

Price transmission in the international skim milk powder markets

This article investigates the strength and the pattern of spatial price linkages in skimmed milk powder markets using monthly wholesale price data from three major producers and exporters (the U.S.A., the E.U., and Oceania) and the nonlinear autoregressive distributed lag model. The results suggest that prices in the three regions considered are linked with stable long-run relationships. The law of one price, however, does not hold. The dominant pattern of transmission in the long run is asymmetric involving positive price stocks to be transmitted with higher intensity compared to negative prices shocks; asymmetries in price transmission exist in the short run as well.     

Effects of the US monetary policy shocks during financial crises – a threshold vector autoregression approach

This article analyzes the impact of monetary policy during periods of low and high financial stress in the US economy using a threshold vector autoregression model. There is evidence that expansionary monetary policy is effective during periods of high financial stress with larger responses having a higher proportionate effect on output. The existence of a cost channel effect during periods of high financial stress implies the existence of a short run output-inflation trade off during financial crises. Large expansionary monetary shocks also increase the likelihood of moving the economy out of a high financial stress regime.     

Rockets and feathers meet markup margins: Applications to the oil and gasoline industry

This article investigates the existence of asymmetric price transmission between crude oil, rack (wholesale) and retail gasoline prices. A threshold cointegration technique is used, with regime switches being triggered by the size of the markup margin. There is consistent evidence of band‐TAR in which the crude, rack and retail prices are free to diverge until the markup margin is squeezed or stretched beyond a lower or upper critical threshold. This finding indicates that abnormally high markup margins cannot be sustained, which provides evidence against market power exertion. The threshold error correction models indicate that there is no systematic relationship between the speed of adjustment back to the long‐run relationship and the markup margin, which rules out the existence of “rockets and feathers.”     

我国农资价格、粮食价格和农村CPI之间传导机制分析——基于农业产业链视角

从农业产业链的视角,运用向量误差修正模型实证分析了农资价格指数、粮食价格指数和农村居民消费价格指数之间的传导机制。得出以下结论:从长期来看,农资价格指数、粮食价格指数和农村居民消费价格指数之间存在协整关系;从短期来看,农业产业链的价格传导以需求推动为主、以成本推动为辅。     

Analysis of threshold cointegration with asymmetric adjustments in the Hong Kong grocery industry

High market concentration in the Hong Kong grocery industry has been prevalent over many years with the domination of a few large supermarket chains. However, no research has been conducted on the price dynamics between the supermarket and non-supermarket sectors to investigate whether the non-supermarket sector can impose competitive discipline on the dominating supermarket chains. We argue that standard cointegration tests cannot allow for transaction costs and distinguish whether the price co-movement is attributable to price competition or collusion. Our study therefore fills this research gap by adopting the threshold cointegration tests in a three-regime threshold vector error-correction model to account for the asymmetric price adjustment dynamics between supermarket and non-supermarket sectors of Hong Kong and evaluate the market power of the supermarket sectors in the presence of transaction costs. Our results favour the presence of cointegration between the supermarket and non-supermarket price indices with asymmetric adjustment dynamics. We interpret the results of statistically significant downward price adjustments in the outer-band regimes as the evidence of mutual price competition. Nevertheless, the supermarket sector has stronger market power than the non-supermarket sector, and therefore can sustain higher price level without inducing substantial competition pressures inside the neutral band.     

An investigation into the dynamic relationship between international and China’s crude oil prices

This article studies the dynamic relationship between international (WTI, Brent and Dubai) and domestic (Da Qing) crude oil prices in China using threshold cointegration method. We find evidence of a long-run equilibrium relationship between each pair of international and Da Qing oil prices, favouring the market integration hypothesis. We also estimate asymmetric adjustments under the momentum threshold autoregressive (M-TAR) specification in a TVECM, and the results show that adjustments to eliminate disequilibrium happen faster when oil price spread increases than when it decreases. The long-run and short-run Granger causality tests support the notion that China has influence on the international oil markets. The results imply that China should open up its domestic and imported oil markets, and also establish a well-functioning crude oil futures market, as they are essential for arbitrage and hedging strategies.     

Using threshold cointegration to estimate asymmetric price transmission in the Swiss pork market

This paper employs threshold cointegration tests that allow for asymmetric adjustment towards a long-run equilibrium relationship to examine the relationship between producer and retail pork prices in Switzerland. The short-run adjustments are also examined with asymmetric error correction models that are compared to the conventional symmetric error correction models. The results indicate that price transmission between the producer and retail levels is asymmetric, in the sense that increases in producer prices that lead to declines in marketing margins are passed on more quickly to retail prices than decreases in producer prices that result in increases in the marketing margins.     

Extreme dependence in price transmission analysis

We propose a generalized procedure that combines conventional price transmission analysis with copula-based dynamic tail dependence, to examine price relationships under extreme conditions. This approach is used to examine Ukrainian wheat markets where export restrictions combined with price surges, 2006–2008 and 2010–2012, have contributed to a turbulent market. The results indicate that domestic prices were effectively insulated from world price shocks, but that a ‘rocket and feathers’ price relation held between domestic flour and wheat prices. These asymmetric price co-movements changed with the degree of restrictiveness of the export prohibitions.     

Adjustment costs and threshold effects in factor demand relationships

It has been recently argued that producers may not respond to every input price change in the way that a linear factor demand model would predict. This lumpy response is due to adjustment costs that are inherent in the act of adjusting the mix of inputs applied in the underlying production technologies. This study aims to provide a solid conceptual framework for these nonlinearities in factor demand relationships. Industry-specific implications of convex and non-convex adjustment costs for the linearity of the factor demand relationships as well as price and substitution elasticities are explored. A two-regime threshold system of factor demand equations is estimated for several manufacturing industries in the United States. Empirical results suggest significant threshold effects in the factor demand relationships in most nondurable goods sectors. The size and the nature of thresholds depend upon industry characteristics, including input composition and (non)convexity of underlying adjustment costs. Complete matrices of price and substitution elasticities for each industry are derived using estimates of threshold factor demand systems. Discussion of two contrasting cases in greater detail sheds light on how the effect of price shocks on factor demand relationships varies across industries with different adjustment cost structures.