A four-sector macroeconometric model for Greece and the evaluation of the community support framework 1994–1999

This paper describes a macroeconometric model for Greece and its use for the evaluation of the effects that investment inflows from European Union in the form of the Community Support Framework (CSF) might have on the economy. The model consists of four sectors of economic activity, namely those of traded and non-traded goods, the public and agricultural sectors, and includes a detailed system of price formation, wage setting and public finances. The model is subjected to a number of stylised shocks in domestic and international variables, so that the dynamic properties and multipliers can be analysed. The evaluation of likely CSF effects is conducted by first constructing a benchmark forecast until 2010 and then assess the impact of CSF actions. CSF flows cause both a rise in total demand and in domestic supply through positive supply-side externalities and the evaluation distinguishes between a very low and a full degree of utilising the plausible opportunities. The universal conclusion is that, in the absence of externalities, CSF actions produce only a temporary rise in activity and employment. After the period of inflows expires, the economy will return to the course that would have been the case without the funds. However, if externalities are assumed to operate even at a moderate scale, the picture changes starkly: output, productivity, employment and the exporting capacity of the country improve significantly.     

The Australian Economy in 2019–20: Slower Growth,Record Low Interest Rates and a Changing Housing Landscape

Economic activity in Australia slowed considerably in 2018–19, with domestic demand growth halving and unemployment rising. Consistent with the slowdown, both consumer and wage inflation have remained weak. A synchronised growth slow-down was observed across major economies, to some extent underpinned by the on-going US–China trade war. Central banks have responded to weak growth by cutting rates. The US Federal Reserve cut its target for the federal funds rate three times in 2019, as did Australia. To date, record low Australian interest rates have been associated with additional housing-related debt and asset price appreciation.     

Information flows and stock market volatility

This study examines how news is distributed across stocks. A model is developed that categorizes a stock's latent news into normal and nonnormal news, and allows both types of news to be filtered through to other stocks. This is achieved by formulating a model that jointly incorporates a multivariate lognormal‐Poisson jump process (for nonnormal news) and a multivariate GARCH process (for normal news), in addition to a news (or shock) transmission mechanism that allows the shocks from both processes to impact intertemporally on all stocks in the system. The relationship between news and the expected volatility surface is explored and a unique news impact surface is derived that depends on time, news magnitude, and news type. We find that the effect of nonnormal news on volatility expectations typically builds up before dissipating, with the news transmission mechanism effectively crowding‐out normal news and crowding‐in nonnormal news. Moreover, in contrast to the standard approach for measuring leverage effects using asymmetric generalized autoregressive conditional heteroskedasticity models, we find that leverage effects stem predominantly from nonnormal news. Finally, we find that the capacity to identify positively or negatively correlated stock returns is ambiguous in the short term, and depends heavily on the behavior of the nonnormal news component.     

When does more aid imply less democracy? An empirical examination

Foreign aid flows have increased considerably during the last decades, targeting, apart from development objectives, goals related to democracy. In this paper we investigate whether aid has affected the political regime of recipient countries. To this end, we use annual data on Net Official Development Assistance covering 64 aid-recipients. Because of data limitations, we cover the 1967-2002 period. We find that aid flows decreased the likelihood of observing a democratic regime in a recipient country. This effect is sensitive to economic and social conditions. The negative relation between aid and democracy is moderated when aid flows are preceded by economic liberalization. Aid from the U.S. has a non-significant effect on the political regime of recipients.     

Predicting economic contractions and expansions with the aid of professional forecasts

Traditional econometric models of economic contractions typically perform poorly in forecasting exercises. This criticism is also frequently levelled at professional forecast probabilities of contractions. This paper addresses the problem of incorporating the entire distribution of professional forecasts into an econometric model for forecasting contractions and expansions. A new augmented probit approach is proposed, involving the transformation of the distribution of professional forecasts into a ‘professional forecast’ prior for the economic data underlying the probit model. Since the object of interest is the relationship between the distribution of professional forecasts and the probit model’s economic-data dependent parameters, the solution avoids criticisms levelled at the accuracy of professional forecast based point estimates of contractions. An application to US real GDP data shows that the model yields significant forecast improvements relative to alternative approaches.     

Liquidity constraints, precautionary saving and aggregate consumption: an international comparison

This paper has three objectives. First, to expand Hall's [J. Polit. Econ. 86 (1978) 971] rational expectations permanent income/life cycle hypotheses (REPIH/RELCH) representative agent model to allow for current income consumers, the durable component of total consumer expenditures and for intertemporal substitution, which are often cited as the main reasons for the rejection of Hall's model. Second, to apply this modified model to 20 OECD countries over the post-World War II period. The GMM estimation method is employed. Third, to examine the relative influence of liquidity constraints and precautionary saving on the cross-country variation in the proportion of current income consumers, using cross-country regressions and a non-linear model of panel data. The presence of current income consumers, which is primarily due to liquidity constraints and to a lesser extent to precautionary saving, is the major factor for the rejection of the basic REPIH/RELCH model in all OECD countries.     

Can exchange rate volatility explain persistence in the forward premium?

The persistence of the forward premium has been cited both as evidence of the failure of the unbiasedness hypothesis and as rationale for the forward premium anomaly. This paper examines the recent proposition that forward premium persistence can be explained solely by the conditional variance of the spot rate. We provide theoretical and empirical evidence to challenge this proposition. Our empirical results are shown to be robust to the presence of structural breaks. A corollary of the results is that the ‘true’ risk premium contains a long memory component. This is non-standard and has implications for the construction of rational expectations models of the foreign exchange market.     

Assessing competitive conditions in the Greek banking system

This paper uses the Rosse-Panzar statistic to assess empirically competitive conditions in the Greek banking system over the period 1993–1995. The competitiveness of the banking system is evaluated using a non-structural estimation technique. The results indicate that bank revenues were earned as if under conditions of monopolistic competition. The gradual elimination of exchange controls, the capital movement liberalisation, the enactment of the Second Banking Directive of the European Union and the supervisory arrangements have been related to the competitive conditions of the Greek banking system.     

Looking far in the past: revisiting the growth-returns nexus with non-parametric tests

In this paper, we reexamine the linkages between output growth and real stock price changes for the G7 countries using non-parametric procedures to account for the impact of long-lagged observations. We find that correlation between growth and returns is detected at larger horizons than those typically employed in parametric studies. The major feedbacks emerge from stock price changes to growth within the first 6–12 months, but we show that significant feedbacks may last for up to 2 or 3 years. Our evidence also suggests that the correlation patterns differ substantially between the countries at hand when the sectoral share indices are considered.