An empirical analysis of the nexus between external balance and government budget balance: The case of the GIIPS countries

The present study investigates the causality relationship between the external (trade and current account) balance and government budget balance for five countries of the euro area's Mezzogiorno, namely Greece, Ireland, Italy, Portugal, and Spain. These countries, due to their weak economic and financial performances, have been labelled the GIIPS group. The analysis is implemented using two methodologies: the traditional Granger test and the approach developed by Toda–Yamamoto. The results reveal homogeneity in using both approaches and give support to the Ricardian theory, according to which there is no clear nexus between budget-current account balances and budget-trade balances. This implies that fiscal austerity could help the five peripheral countries to conform to the budget deficit criteria as established by the Stability and Growth Pact, but would not be effective in restraining external deficits.     

Determinants of the real effective exchange rate in the Russian Federation

This article examines the main determinants of the Russian real effective exchange rate (REX) movements over the transition period started in the early 1990s. To understand the forces that drive exchange rate dynamics, five strands of the empirical literature have been combined ina time series dimension. The results suggest a positive long-run cointegration relationship between the REX, oil price, productivity and government financial position and a negative relation with international reserves. Managing international reserves and fiscal policies have therefore, the effect of mitigating the impact of oil/terms of trade and productivity shocks on the REX.     

Drivers of Export Demand: A Focus on the GIIPS Countries

This study investigates the drivers of export demand in the peripheral economies of the Euro Area, namely Greece, Ireland, Italy, Portugal, and Spain (GIIPS), for the period between 1980 and 2012. Recently, several authors have pointed out that changes in trade export shares are not associated with major terms of trade disturbances; rather, they are the result of other underlying factors commonly defined as ‘non‐price competitiveness’. Starting from this premise, the study extends the traditional imperfect substitute trade model to include a measure of non‐price competitiveness: real capital stock. The latter is a measure of a country's total resource base and captures the presence of product differentiation and product innovation. The results show a significant link between export demand and cumulative investments. In the short‐term, GIIPS exports are dominated by the movements of worldwide real income, while changes in price and non‐competitiveness take longer to affect export performance. In the long‐run, all three variables play a significant role in pushing exports.     

Modelling export equations using an unobserved component model: the case of the Euro Area and its competitors

This article analyses developments in the external sector for the Euro Area and its major competitors and quantifies the dynamic contributions of the key determinants of trade to export volume behaviour. In addition to the traditional variables affecting export volumes, price and foreign demand, an unobserved component in the form of a time-varying trend enters the export equations to capture underlying non-price competitiveness. The structural modelling approach used within an error correction framework allows isolating the different sources of trade fluctuations and to better assess the contribution of each set of variables to export flows. The findings confirm that stochastic trends are present as a result of technical change and other exogenous factors driving export flows, and that a failure to account for these trends will lead to biased estimates of long-run price elasticities.     

Patterns of Current Account Adjustment��Insights from Past Experience

Theoretical models on trade balance adjustment make a distinction between adjustment led by relative quantities (expenditure reduction) and adjustment led by relative prices (expenditure switching). Using cluster analysis on a set of over 70 current account adjustment episodes, we confirm the empirical relevance of this theoretical distinction, as quantity and price-driven adjustment cases can be distinguished in a statistically meaningful sense. We also identify a group of mixed cases, where both quantities and prices played a significant role in adjustment. Multinomial logit results suggest that economic fundamentals and business cycle positions prior to the adjustment have predictive power over the type of adjustment, i.e. whether the adjustment is quantity?C or price-driven. The exchange rate regime and the level of economic development (emerging market versus advanced status) do not have significant predictive power.     

Price shock transmission: evidence from the wheat‐bread market value chain in Ethiopia

This study assesses the degree of vertical price transmission along the wheat‐bread value chain in Ethiopia. This is pursued by applying a vector error correction model and an impulse response analysis using monthly price data for the period 2000–2015. Our analysis considers transmission of price shocks across different market levels, including from the international and domestic wheat grain markets at the upstream to the domestic wheat bread market at the downstream of the value chain. The empirical findings indicate that significant cointegration exists across prices of the different market stages. There is a transmission from international prices to domestic prices at downstream markets, in particular to flour and bread prices. Prices at upstream markets are largely influenced by the domestic wholesale market. In general, the speed of adjustment is quite slow with a half‐life of about one year for restoring the equilibrium price relationship. As price margins between the different market stages in the value chain have substantially decreased in the last 15 years, higher transmission, and thus exposure to international market shocks, can be expected in the future. The results also show that causal relationships exist between prices at different market stages—with the wholesale market identified as the key market level where prices and price expectations are formed.     

Conditional price volatility,speculation, and excessive speculation in commodity markets: sheep or shepherd behaviour?

The present study aims to investigate the dynamics of primary commodity spot prices and the role of speculation for the period 1995–2012. Using a linear and nonlinear Granger causality analysis, the relationship between speculation and GARCH conditional price volatility on the one side, and the linkage between excessive speculation and GARCH conditional price volatility on the other side, is carefully examined with the scope to establish whether volatility drives speculation or speculation drives price volatility, or whether there are no linkages between the two variables. The results show that excessive speculation leads conditional price volatility, and that bilateral relationships often exist between price volatility and speculation. In addition, the lead-lag relationships are not found for the entire sample period, but rather when small sub-periods are taken into account. It turns out, in fact, that excessive speculation has driven price volatility for maize, rice, soybeans, and wheat in particular time frames, but the relationships are not always overlapping for all considered commodities. Generally, the results under linear causality tests are in agreement with those obtained under nonlinear counterparts.     

A roller coaster ride: an empirical investigation of the main drivers of the international wheat price

Over the last decade, commodity prices have registered substantial booms and busts marked by extreme volatility. Wheat in particular, one of the main nonoil commodities, has registered a roller coaster in price levels which seems to be inconsistent with supply and demand fundamentals. To acutely investigate the drivers of wheat prices and quantify their impact, a vector error correction model (VECM) has been used. The exogenous variables have been distinguished into four groups: market‐specific factors, broad macroeconomic determinants, speculative components, and weather variables. The quadriangulation of the determinants will enable us to better understand the movements in wheat price and identify the specific role of each component. The results show that a mix of factors are contributing to wheat price movements, including speculation, global demand, and real effective exchange rate.     

International tourism specialisation of small countries

International tourism has expanded enormously over recent decades, fuelled by changing consumer tastes, advances in transport and new holiday destinations. The present study aims at analysing the linkages between economic growth and tourism‐based economies. An econometric model for a selected number of small countries has been implemented to investigate the nature, magnitude and overall significance of the demand for tourism. Countries were selected to capture regional diversity, differences in market orientation and a range of experiences, from emerging to long‐standing industries. The results show that tourism can be a significant engine of economic growth, when the elasticity of substitution between manufacturing goods and tourism services is < 1. Finally two stylised facts emerged, namely: (i) countries specialised in tourism register good economic performances; (ii) these same countries have small dimensions as defined by international trade theory. Copyright © 2006 John Wiley & Sons, Ltd.