Additional Empirical Evidence on Real Convergence: A Fractionally Integrated Approach

We examine the real convergence hypothesis for 14 OECD countries looking at the fractional order of integration of the differences of real GDP per capita in these countries with respect to the United States. Using parametric procedures, the results vary depending on how we specify the I(0) disturbances. If they are white noise, convergence is achieved for Canada and Australia, and with autocorrelated disturbances, this hypothesis is satisfied for France and the Netherlands. However, allowing for a break at World War II, evidence of convergence is obtained for all countries. JEL no. C32, O41     

Regime-switching purchasing power parity in Latin America: Monte Carlo unit root tests with dynamic conditional score

We suggest a Monte Carlo simulation-based unit root test of the purchasing power parity theory for Latin American countries. Under the null hypothesis, we use a Markov regime-switching (MS) model with unit root in the conditional location and MS volatility dynamics. Under the alternative hypothesis, the proposed test incorporates Markov regime-switching autoregressive moving average (MS-ARMA) plus MS volatility dynamics. Under both the null and alternative hypotheses, one of the volatility models estimated is Beta-t-EGARCH, which is a recent dynamic conditional score volatility model. We use data on real effective exchange rate time series for 14 Latin American countries. For each country, we estimate by Monte Carlo simulation the critical values of the unit root test. We provide an economic discussion of the unit root test results and also study the robustness of MS-ARMA plus MS volatility with respect to smooth transition autoregressive models with Fourier function.     

Oil prices and economic activity: evidence for G-7 economies based on a wavelet approach

This study examines the relationship between oil prices and economic activity in the G-7 economies during the period 1960M1–2014M07 using a wavelet approach. The results show significant differences in the relationship between these two variables depending on the frequencies. Furthermore, we find that oil price shocks affect economic activity at low frequencies (long run) in all G-7 countries, while the effect at high frequencies (short run) is limited to a few countries.     

Sacrifice Ratios: Some lessons from EMU countries, 1960-2001

This paper estimates the sacrifice ratios based on the Phillips curve. Using annual data, we estimate individual and common sacrifice ratios for EMU countries. In addition, we test whether the sacrifice ratio is stable for the whole period, which includes years of both high and low inflation rates, such as those observed after the European integration.     

Is the US fiscal deficit sustainable?: A fractionally integrated approach

In this paper, we examine if sustainability of the US fiscal deficit holds by means of studying the univariate properties of the difference between expenditures and public revenues using a methodology based on fractional processes. Furthermore, we incorporate the possibility of structural breaks in the deficit process. The results show that when allowing for a break in the mid-1970s, the public deficit in the US is an I(d) process with the fractional integration parameter d being slightly less than unity, implying that the fiscal deficit is mean reverting, and thus, sustainable, though the adjustment process towards equilibrium will take a very long time.     

Trade Balance and Exchange Rate: Unit Roots, Co-integration and Long Memory in the US and the UK

This paper deals with the relationship between the balance of trade and the exchange rate in the US/UK case. Many authors have studied this issue for many countries, but despite the intensive research, there is still no agreement about the effectiveness of currency devaluation to increase a country's balance of trade. We first analyse the relationship between the two variables using unit roots and co-integration methods, and the results are ambiguous. We try a new approach based on fractional integration. The unit root hypothesis is rejected in case of the trade balance in favour of smaller orders of integration, while this hypothesis is not rejected for the exchange rate. Thus, the two series do not possess the same order of integration. We sort this problem out by taking the exchange rate as an exogenous variable, and including it in a regression model where the residuals might follow a fractionally integrated model.     

Persistence,Long Memory,and Unit Roots in Commodity Prices

This article investigates the degree of persistence in several weekly and monthly agricultural prices (corn, soybeans, barrow and gilts, and milk) using long memory (fractional integration) techniques. The results indicate mean reversion (i.e., orders of integration smaller than one) in some of the agricultural prices like corn, milk, and barrow and gilts when the disturbances are autocorrelated. Further, we examine the stability across time in the degree of dependence, and the results indicate that the fractional differencing parameters have not remained constant across time. When we take into account a structural break we find that during the first subsamples, the series are stationary though highly persistent, with orders of integration close to 0 and with large autoregressive coefficients. However, for the periods after the break, the series seem to be nonstationary I(1). Dans le présent article, nous avons étudié le degré de persistance des prix hebdomadaires et mensuels de plusieurs produits agricoles (maïs, soja, castrats et cochettes, lait) à l’aide de tests de mémoire longue (intégration fractionnaire). Nos résultats indiquent une stationnarité (c.‐à.‐d. des ordres d’intégration inférieurs à un) des prix de certains produits agricoles, tels que le maïs, le lait, les castrats et cochettes, lorsque les perturbations sont autocorrélées. Nous avons également étudié la stabilité du degré de dépendance à travers le temps, et nos résultats indiquent que les paramètres de différenciation fractionnaire ne sont pas demeurés constants. Lorsque nous avons tenu compte d’une rupture structurelle, nous avons trouvé que dans les premiers sous‐échantillons, les séries étaient stationnaires quoique très persistantes, avec des ordres d’intégration près de 0 et d’importants coefficients d’autorégression. Dans le cas des périodes suivant la rupture, les séries semblaient non stationnaires I(1).     

Real convergence in some Central and Eastern European countries

This article examines the real convergence hypothesis in some Central and East European countries (both towards the German and the US economies) by means of using time series techniques during the period 1950 to 2003. No evidence is found of real convergence for the whole period. However, when one allows for structural breaks, evidence is found of a catch-up process during the 1990s to 2003 period for Poland, the Czech Republic and Hungary towards Germany and only for Poland towards the US economy.