Testing PPP hypothesis under temporary structural breaks and asymmetric dynamic adjustments

ABSTRACT

We test the empirical validity of the PPP proposition under temporary structural breaks and dynamic nonlinear adjustments. Although several testing procedures have recently been proposed in the existing literature to investigate stochastic properties of the series under gradual breaks and nonlinear adjustments, none of these tests are compatible with the PPP proposition. Therefore, we propose new testing procedures that restrict the break to be temporary while simultaneously allowing for asymmetric dynamic nonlinear adjustment towards equilibrium. Using these newly proposed tests, we test stationarity of real exchange rate of 24 OECD countries vis-à-vis USA, and find support in favour of PPP proposition in majority of the countries.     

Global Imbalances and Petrodollars

Oil exporters have run large current account surpluses. We explore oil exporters’ role in the global imbalances debate. Current account dynamics are estimated for oil‐exporting countries and the rest of the world. We find that fiscal policy has a much stronger effect on the current account of oil exporters than on current accounts of other countries. The current account adjustment of oil‐exporting countries is also faster. Fiscal policy of oil exporters can have a significant and speedy impact on global imbalances. The impact via the adjustment of exchange rates might not be effective.     

Nonlinearity and structural stability in the Phillips curve: Evidence from Turkey

In this paper, we investigate possible nonlinearities in the inflation–output relationship in Turkey for the 1980–2008 period. We first estimate a linear bivariate model for the inflation rate and output gap, and test for linearity of the estimated model against nonlinear alternatives. Linearity test results suggest that the relationship between the inflation rate and output gap is highly nonlinear. We estimate a bivariate time-varying smooth transition regression model, and compute dynamic effects of one variable on the other by generalized impulse response functions. Computed impulse response functions indicate that inflation–output relationship in Turkey during the analyzed period was regime dependent and varied considerably across time.     

浅议丝绸之路的重建

本文旨在说明如何利用昔日丝绸之路来建立当今世界的国际经济关系.在古代我们的祖先开拓了古老的丝绸之路,成功连接了亚欧及其它各大陆的贸易往来.现今重新审视研究丝绸之路,对于思考如何提高改善亚欧大陆贸易往来,缩短货物运输时间有至关重要的影响.在达成这一目标的道路上仍然存在一些障碍需要面对.     

The asymmetric effects of monetary shocks: the case of Turkey

This paper examines whether there is an asymmetry in the effects of positive versus negative and small versus big money supply shocks, and whether the effects of the shocks on output and prices vary over the business cycles in the case of Turkey. Negative shocks to money are found to have greater output and smaller price effects compared to the effects of positive shocks, irrespective of the initial state of the economy. It is also found that monetary shocks of different size affect output growth and inflation rates proportionately. These findings can be interpreted as evidence for the view that the short run aggragate supply curve is convex in such a country like Turkey.     

Nonlinearities in emerging stock markets: evidence from Europe's two largest emerging markets

Recent developments in time series analysis allow proper modelling of nonlinearities in economic and financial variables. A growing body of research was dedicated to investigation of potential nonlinearities in conditional mean of many economic and financial variables, mainly concentrating in developed economies. However, nonlinearities in financial variables in developing economies have not been fully examined yet. In this article we investigate potential nonlinearity and cyclical behaviour of stock returns in Europe's two largest emerging stock markets, mainly in the Greek and Turkish stock markets. Specifically, we use STAR family models, which allow to model nonlinearities in the conditional mean, for modelling monthly returns on stock exchange indices of the Athens Stock Exchange and Istanbul Stock Exchange. Although we find no nonlinearity in conditional variance, we do find strong evidence in favour of nonlinear adjustment of stock returns. It is found that allowing for nonlinearity in conditional mean results in a superior model and provides good out-of-sample forecasts, which contradicts to efficient market hypothesis.     

Structural break,nonlinearity and asymmetry: a re-examination of PPP proposition

In this study, we examine the validity of the PPP proposition for 28 European countries. For this purpose, we propose a new unit root test procedure that allows for both gradual structural breaks and asymmetric nonlinear adjustment towards the equilibrium level. Small-sample properties of the new tests are examined through Monte-Carlo simulations. The simulation results suggest that the new tests have satisfactory size and power properties. We then apply these new tests along with other unit root tests to examine stationarity properties of real exchange rate series of the sample countries. Our tests reject the null of unit root in more cases when compared to alternative tests. Overall, we find that the PPP proposition holds in majority of the European countries examined in this article.     

Public debt dynamics: the effects of austerity,inflation, and growth shocks

We study the impact of macroeconomic shocks on US public debt dynamics using a VAR with debt feedback. Following a primary balance, or austerity, shock, the debt ratio initially declines but at a cost of lower growth. The debt ratio then rises to its pre-shock path, suggesting the austerity shock could be self-defeating. An inflation shock reduces the debt ratio initially, while a positive growth shock unambiguously lowers debt. Our specification, properly incorporating the debt equation, produces different debt impulse responses and forecasts from VAR models either excluding debt or including debt linearly.     

A note on efficiency of Australian and New Zealand stock markets

Corporate annual financial statements have increased in their extent of disclosure over recent years and this trend likely to continue.The Purpose of the study was to examine whether the amount of disclosure was linked to the assesment of stock market risk. Specially, the level of disclosure was examined to see if it was associated with systematic risk д,unsystematic risk,and variance of return. The results revealed no significant association between the amount of disclosure and the level of stock market risk. Thus, although greater amounts of disclosure may be of use to the users of accounts, it is not because of its ability in assesing current and future levels of systematic risk or others types of security risk.     

Yet Another View on Why a Home Is One's Castle

We compute equity-based real after-tax rates of return for homeowners and landlords in the United States for 1952–2005. The study confirms that a combined aggregate for residential housing provides a high average net return and low volatility, has low correlation with financial assets and can provide hedge against inflation. The efficient frontier analysis shows that the optimal portfolio for a household with a coefficient of relative risk aversion of four to five is one which contains a bit larger amount of housing than stocks, close to what one observes in the real world.