Sustained endogenous growth with decreasing returns and heterogeneous capital

The possibility of sustained long-run growth is typically associated with the presence of some endogenous `engine of growth'. It may allow the economy to grow without bound despite the use of some non-reproducible resources. Such situations can lead to dynamic models combining the features of sustainable growth and decreasing returns. One-sector models of this kind have recently attracted much attention in macroeconomics applications. Their approximate linearity for the purposes of long-run analysis has been noted. This paper is aimed at establishing the general fact: dynamic models (one- or multi-sector) which are characterized by sustained endogenous growth with non-increasing returns display the patterns of optimal growth asymptotically equivalent to those generated by models with linear technology. I consider a neoclassical growth model with heterogeneous capital, develop its linear counterpart, and prove their asymptotic equivalence in terms of long-run optimal growth rates and cross-sectoral profiles of consumption, real interest rates and relative prices. This result also implies the `non-substitution' theorem for the neoclassical dynamic model of sustained growth: optimal input profiles, relative prices, and interest rates are asymptotically independent of intertemporal preferences.     

Stock prices and domestic and international macroeconomic activity: a cointegration approach

This paper supports the existence of a significant, long-run relationship between stock prices and domestic and international economic activity in six European economies. Johansen Cointegration tests demonstrate that stock price levels are significantly related to industrial production, business surveys of manufacturing orders, short- and long-term interest rates as well as foreign stock prices, short-term interest rates and production. Variance decomposition methods support the strong explanatory power of macroeconomic variables in contributing to the forecast variance of stock prices. Hence, stock prices are determined by macroeconomic activity.     

Reviewing the literature on non-parametric dynamic efficiency measurement: state-of-the-art

Much of the literature on static efficiency measurement models assumes that the inputs are fully used for producing outputs in the same period, with the result that no time interdependence exists between the input utilization and output realizations for a production unit in consecutive periods. A review of the literature on non-parametric dynamic efficiency models identifies five key factors of the inter-temporal dependence between input and output levels over different periods: (i) production delays; (ii) inventories (inventories of exogenous inputs or inventories of intermediate and final products); (iii) capital or generally quasi-fixed factors (and associated embodied technological change, vintage specific capital); (iv) adjustment costs; and (v) incremental improvement and learning models (disembodied technological change). This paper reviews the literature and finds that the dynamic issues associated with adjustment costs and capital have received considerable attention in the literature, whereas the dynamic issues associated with inventories have received less attention. The paper concludes with suggestions for future research such as relaxing the perfect anticipation/knowledge assumption for future variables, prices, and states. Moreover, Dynamic Network Data Envelopment Analysis has provided a unifying framework for some dynamic factors, but further development of these models is necessary including meaningful applications.     

Monetary policy,global liquidity and commodity price dynamics

This paper examines the interactions between money, interest rates, goods and commodity prices at a global level. Aggregated data for major OECD countries are therefore analysed in a cointegrated VAR framework. Our empirical results for the period ranging from the 1970s to 2008 support the view that, when controlling for interest rate changes and thus different monetary policy stances, money (defined as a global liquidity aggregate) is still a key factor to determine the long-run homogeneity of commodity and goods prices movements.     

Hedging inflation with individual US stocks: A long-run portfolio analysis

This paper examines whether individual stocks can act as inflation hedgers. We focus on longer investment horizons and construct in- and out-of-sample portfolios based on the long-run relationship (cointegration) of stock prices with respect to consumer prices. Empirical evidence suggests that investors are better off by holding a portfolio of stocks with higher long-run betas as part of asset selection and allocation strategy. Stocks that outperform inflation tend to be drawn from the Energy and Industrial sectors. Finally, we observe that the companies average inflation hedging ability declined steadily over the past ten years, while the number of firms that hedge inflation has decreased considerably after the recent downturn of the US economy.     

PRICE AND QUANTITY RESPONSES TO COST AND DEMAND SHOCKS*

ABSTRACT When prices are inflexible, real variables like production and inventories must bear the brunt of responding to cost and demand shocks. In these circumstances, one expects to observe rather more variation in quantities than in prices, and that is, in fact, what we observe in the data. To explain this observation, one must explain why prices are inflexible. Our goal in this paper is to ascertain whether it is selectivity in response to demand shocks or just a more extensive smoothing of prices than quantities which accounts for the relatively higher variation in quantities which we observe. We conclude that selectivity in response is clearly evident in the data: demand shocks have only very weak effects on prices, but they have substantial (if rather transitory) effects on quantities.     

Predicting housing prices in China based on modified Holt's exponential smoothing incorporating whale optimization algorithm

The forecast of the real estate market is an important part of studying the Chinese economic market. Most existing methods have strict requirements on input variables and are complex in parameter estimation. To obtain better prediction results, a modified Holt's exponential smoothing (MHES) method was proposed to predict the housing price by using historical data. Unlike the traditional exponential smoothing models, MHES sets different weights on historical data and the smoothing parameters depend on the sample size. Meanwhile, the proposed MHES incorporates the whale optimization algorithm (WOA) to obtain the optimal parameters. Housing price data from Kunming, Changchun, Xuzhou and Handan were used to test the performance of the model. The housing prices results of four cities indicate that the proposed method has a smaller prediction error and shorter computation time than that of other traditional models. Therefore, WOA-MHES can be applied efficiently to housing price forecasting and can be a reliable tool for market investors and policy makers.     

Taxation and Housing Tenure Choice: The Case for Moderate-Income Homeownership

This study explores the financial value of homeownership for households in the 15% Federal tax bracket. Earlier studies concluded homeownership was only for households with high marginal tax rates, but they neglected how vacancy and turnover rates factor into rental prices. Principal innovations here include deriving long-run equilibrium rent-to-value ratios for the rental market and contrasting investor holding periods with lengths of household tenures. Tax regime simulations are performed for homeowner deductions and investor capital gains tax rates.     

Tests on the validity of static equilibrium models

This paper provides a framework to test the validity of static cost minimizing equilibrium assumptions that form the basis for much of the empirical literature on industrial production. The point of departure in our model is to allow the observed technology to be at a short-run equilibrium where firms minimize variable costs while being constrained by the utilization levels of quasi-fixed factors. The long-run equilibrium is then inferred by minimizing total costs with the optimal adjustment of quasi-fixed factor levels.We use results from the optimization problem to form tests with respect to quantities and prices. In the quantity space version, departures between the actual and the optimal long-run levels of quasi-fixed factors are tested for statistical significance. A significant non-zero departure implies the rejection of a static equilibrium specification. In the price space version, the test is cast as a comparison of the market price and the long-run shadow value of a quasi-fixed factor. Although the two versions would give identical results in the non-stochastic case, the rejection powers of these two tests are found to depend on the particular functional form chosen to represent the production process (i.e. cost function).In an application based on aggregate U.S. manufacturing where capital is taken to be quasi-fixed, we were able to reject the static equilibrium specification. These results cast doubt on the validity of a number of previous empirical studies.     

Time-frequency co-movements between oil prices and interest rates: Evidence from a wavelet-based approach

This paper investigates time–frequency co-movements between crude oil prices and interest rates. To test this relationship, the study applied a continuous wavelet and cross wavelet approaches to data from West Texas Intermediate (WTI) crude oil prices and interest rates in the United States (U.S.). Results from the sample period revealed significant relationships, in the intermediate term, between WTI crude oil prices and U.S. interest rates. Moreover, co-movements between oil price and interest rate variables were especially sensitive during abnormal political events and periods of financial ‘meltdown’. We further use Partial Wavelet Coherence (PWC) and Multiple Wavelet Coherence (MWC) methods to investigate the impacts of five major control variables namely GDP growth, unemployment, three-month Treasury bill, CPI index and industrial production index. The results show a powerful impact of control variables on oil-interest rates co-movements under different frequencies. Finally, we show evidence of co-integrating long run relationship between oil markets and control variables. These results have important implications for energy investors and policy makers.     

Testing the Stability of a Production Function with Urbanization as a Shift Factor

Urban economists have long sought to explain the relationship between urbanization levels and output. In this paper we revisit this question and test the long-run stability of a production function including urbanization using non-stationary panel data techniques. Our results show that a long-run relationship between urbanization, output per worker and capital per worker cannot be rejected for either our sample of 30 developing countries or our sample of 22 developed countries. We do find, however, that the sign and magnitude of the impact of urbanization varies considerably across the countries. In addition, we estimate the long-run average effects on GDPW of urbanization and capital. These results offer new insights and potential for dynamic urban models rather than the simple cross-section approach.     

Forecasting using a periodic transfer function: with an application to the UK price of ferrous scrap

The familiar concept of cointegration enables us to determine whether or not there is a long-run relationship between two integrated time series. However, this may not capture short-run effects such as seasonality. Two series which display different seasonal effects can still be cointegrated. Seasonality may arise independently of the long-run relationship between two time series or, indeed, the long-run relationship may itself be seasonal. The market for recycled ferrous scrap displays these features: the US and UK scrap prices are cointegrated, yet the local markets exhibit different forms of seasonality. The paper addresses the problem of using both cointegrating and seasonal relationships in forecasting time series through the use of periodic transfer function models. We consider the problems of testing for cointegration between series with differing seasonal patterns and develop a periodic transfer function model for the US and UK scrap markets. Forecast comparisons with other time series models suggest that forecasting efficiency may be improved by allowing for periodicity but that such improvement is by no means guaranteed. The correct specification of the periodic component of the model is critical for forecast accuracy.     

Estimating total factor productivity using parametric,nonstochastic cost frontiers

The standard approach to measuring total factor productivity can produce biased results if the data are drawn from a market that is not in long-run competititve equilibrium. This article presents a methodology for adjusting data on output and variable inputs to the values they would have if the market were in long-run competitive equilibrium, given the fixed inputs and input prices. The method uses nonstochastic, parametric translog cost frontiers and calculates equilibrium values for output and varible inputs using an iterative linear programming procedure. Data from seven industries for 1970–1979 are used to illustrate the methodology.The editor for this paper was William H. Greene.     

The stability of money demand in China: Evidence from the ARDL model

This study examines the demand for broad money (M2) in China using the autoregressive distributed lag (ARDL) cointegration framework. The results based on the bounds testing procedure confirm that a stable, long-run relationship exists between M2 and its determinants: real income, inflation, foreign interest rates and stock prices. Importantly, our results reveal that stock prices have a significant wealth effect on long- and short-run broad money demand; its omission can lead to serious misspecifications in the money demand function (MDF). This finding is consistent with the notion that asset inflation (deflation) has systematic influence on the pattern of monetary aggregates.     

Measuring the Impact of Price-Induced Innovation on Technological Progress: Application to the U.S. Food Processing and Distribution Sector

A model of price-induced innovation is presented incorporating long-run prices as arguments in the production function serving the role of stimulating firms to seek innovations. The empirical application examines the production structure and technological progress of the U.S. food processing and distribution sector for the period 1948–1991. The empirical model separates scarcity, innovation, and exogenous technical change responses in analyzing the Morishima elasticities for input combinations and multifactor input biases. The results suggest significant structural changes occurring in the food processing and distribution sector since 1980. Focusing on multifactor input bias, results suggest that there are no wide changes in technical change patterns over the last forty years. However, Morishima elasticity results suggest a more varied pattern of technical change between inputs. The price-induced technical progress has a dominant contribution on input decisions compared with the exogenous technical change.     

What determines the long-term correlation between oil prices and exchange rates?

In this study, we obtain the long-term correlation between oil prices and exchange rates by employing the dynamic conditional correlation-mixed data sampling (DCC-MIDAS) model. We then identify the factors that influence the long-term correlation using panel data analysis. We find that the long-run correlations between oil prices and exchange rates are negative for all oil-exchange rate markets except Japan. We also find that both inflation and term spread have negative effects, while the risk-free interest rate has a positive effect on the long-term correlation between oil prices and exchange rates. Importantly, the empirical results show that an increase in inflation will significantly damage the real value of the currency itself.     

An examination of the equilibrium specification and structure of production for Canadian telecommunications

Multiple-output models of Canadian telecommunications production are estimated under different production equilibria. A specification test is conducted between the short- and long-run equilibrium models and the long-run equilibrium is rejected. In order to capture the nature of the disequilibrium, a dynamic cost of adjustment model is estimated for Bell Canada. There are significant adjustment costs and it is estimated that for $1.00 of marginal capital costs the carrier must incur an additional cost of $0.30 to install the new capital into the production process.     

New insights into the role of global factors in BRICS stock markets: A quantile cointegration approach

Because of the acceleration in marketization and globalization, stock markets in the BRICS (Brazil, Russia, India, China, and South Africa) countries are affected by various global factors, for example, oil prices, gold prices, global stock market volatility, global economic policy uncertainty, financial stress, and investor sentiment. This paper offers new insights into the short- and long-run linkages between global factors and BRICS stock markets by applying the quantile autoregressive distributed lags (QARDL) approach. This novel methodology enables us to test short- and long-run linkages accounting for distributional asymmetry. That is, the nonlinear dynamic relationship between the global factors and BRICS stock prices depends on market conditions. Our empirical results show that the effects of gold prices and global stock market volatility on BRICS stock prices are more significant in the long run than in the short run. A decrease in global stock market volatility is associated with higher stock prices, while gold prices demonstrate upward co-movement in dynamic correlations with stock markets. Irrational factors, such as economic policy uncertainty, financial stress, and investor sentiment, play a critical role in the short term, and negative interdependence is dominant. Finally, the rolling-window estimation technique is used to examine time-varying patterns between major global factors and BRICS stock markets.