The effectiveness of monetary policy and output fluctuations: An asymmetric analysis

Previous studies have investigated asymmetries in the effects of monetary policy on the real economic activity by using either vector autoregressive (VAR)-based regime-switching models with smooth transition technique or Gaussian functions to parameterise the dynamic effects of structural shocks on the economy. These kinds of VAR models assume asymmetry as a short-run relationship between the series since the long-run neutrality hypothesis of money states that monetary policy can only affect productive capacity of the economy in the short run, but not in the long run. The recent theoretical literature shows that this hypothesis is not quite right. Thus, this paper examines the extent to which monetary policy has a long-run asymmetric effect on output in a number of Organisation for Economic Co-operation and Development countries by using a nonlinear hidden cointegration analysis within a likelihood-based panel framework. The findings indicate that there is a long-run relationship between the real interest rate as an indicator of monetary policy and the growth rate of real output in five countries out of nine under review. This gives support for the view that output has responded asymmetrically to the real interest rate changes. The economic implication of our results is that monetary policy affects positive and negative output fluctuations differently.     

The Global Financial Crises of 2007–2010 and the future of capitalism

This paper presents an analysis of the 2007-2010 Global Financial Crisis which started with the sub-prime crisis in the U.S. and became global very fast. It argues that the financial system in the United States is a complex interlocking structure of markets, institutions and regulators. The causes and culprits of the crisis, the misaligned incentives of participants and exogenous events such as the wars in Afghanistan and Iraq, precipitated failure in key markets: commodities, sub-prime housing, equities, and credit. One of the strategic consequences of this crisis is that the US will lose its dominance in world power, the frequent crises and vulnerabilities of the Neoliberalism and examines the future of capitalism. Of the alternatives to economic system, the capitalism is the most viable economic system. However, it must adopt real and efficient allocation of resources to maximize welfare of all parties and seriously address the income inequality. It must reject crony capitalism, enact true financial regulation of institutions and markets, end corporate socialism and address the system’s structural deficiencies.     

EXCHANGE RATE PASS-THROUGH IN THE AUTOMOBILE INDUSTRY

This article examines empirically the exchange rate pass-through of car manufacturers on the Swedish market. It first analyzes the changes in prices by supplying countries during the period 1976 - 1996. In a second stage, the relationship between price-level adjusted exchange rates and quality-adjusted prices is investigated. Although there exist significant differences across countries, the evidence shows that actual price adjustments are associated with stabilization of local currency prices. The policy implication of the results is that the use of an exchange rate policy in the case of external imbalances should therefore be reconsidered within the broader context of how market structure and conduct influence the optimal pricing of traded goods.     

Time-series evidence for Balassa’s export-led growth hypothesis

This paper investigates Balassa’s export-led growth hypothesis for Greece, Ireland, Mexico, Portugal and Turkey by constructing a vector autoregression (VAR) model. On the basis of the Granger non-causality procedure developed by Toda and Yamamoto (1995), the results show that export and output are causally related in the long run for Ireland, Mexico and Portugal. Our findings cannot offer support for the causality link between export and output for Greece and Turkey. Granger-causality is uni-directional, running from export growth to economic growth in Ireland and Mexico, and running from economic growth to export growth in Portugal.     

PRICING NIKKEI PUT WARRANTS: SOME EMPIRICAL EVIDENCE

The newly created Nikkei put warrants represent a recent innovation in security development. These privately issued puts enable investors to hedge or speculate on price movements in the Japanese market. Understanding the pricing behavior of these new securities provides U.S. investors and issuers with valuable information to assess potential benefits and costs. In this research two alternative pricing models are used to explain the observed prices of several privately issued Nikkei put warrants. While results from the two models indicate some pricing biases, pricing errors are very small overall.     

An empirical analysis of market performance in the car industry

This article focuses on the determinants of market performance in the car industry. Trade and market patterns are studied using firm-level international data. Econometric models are developed and evaluated for a sample of firms from the major producing countries for the period 1970–1985. Among the factors responsible for the market shares of the different firms are international differences in unit labor costs, income levels, the European Community (EC) and locally based production scales, and transaction costs in the form of trade barriers.     

Saving behaviour under terms-of-trade uncertainty: evidence from hidden cointegration approach

There are very few studies on the asymmetric relationship between private saving (PS) and terms-of-trade uncertainty. This paper examines the extent to which terms-of-trade shocks have an asymmetric effect on PSs in 18 Latin American countries (LACs) over the period 1970–2012. By using the recently developed hidden cointegration analysis within a likelihood-based panel framework and panel-error–correction technique, the results indicate that there exists a long-run relationship between PS and terms-of-trade volatility. It has found some support for the view that the PS ratios have responded asymmetrically to the terms-of-trade variability as an indicator of risk and income uncertainty. The findings of this study confirm that behavioural factors, particularly loss aversion as developed through prospect theory, influence PS patterns.     

Is Pricing to Market Behavior a Long-Run Phenomenon? A Non-Stationary Panel Analysis

This paper examines how the Swedish imports prices react to exchange ratechanges in the long run. It finds, through non-stationary panel analysis, thatthe Swedish import prices (for the majority of industries) change but not inproportion to exchange rate changes. The evidence from panel cointegrationalso shows that pricing behavior of the Swedish imports varies across industriesand such variations could be related to industry-specific characteristics.     

The dynamic interaction between volatility and returns in the US stock market using leveraged bootstrap simulations

One of the most important stylized facts in finance is that stock index returns are inversely related to volatility. The theoretical rationale behind the proposition is still controversial. The causal relationship between returns and volatility is investigated in the US stock market over the period 2004-2009 using daily data. We apply a bootstrap test with leveraged adjustments that is robust to non-normality and ARCH. We find that the volatility causes returns negatively and returns cause volatility positively. The policy implications of our findings are discussed in the main text.     

The Behavior of the Current Account in Response to Unobservable and Observable Shocks

The intertemporal approach to the balance of payments states that non-stationary flows in the current account will cointegrate or cotrend, unless there are permanent productivity shocks or long-run policy distortions. This paper examines the dynamics of the current account for a small open economy, using data from Sweden. The results show borderline cointegration for the current account. Recursive estimates disclose that there is no stable tendency towards finding cointegration. Cointegration is found for the first part of the sample, but from 1990 the cointegration test performs badly until speculative attacks force Sweden to give up the peg of the krona in 1992. In terms of the intertemporal approach, policy could be creating the imbalance, solved with the depreciation in 1992, after which the external accounts gradually move back to long-run equilibrium. [F31, F32, F41]