A variable threshold band approach to measuring market linkages

Uncertain and changing economic conditions can have substantial effects on price relationships in spatially separated, linked markets. Although numerous studies have analysed price relationships to characterize market linkage structures, most assume that the relationships and associated linkages are time invariant. This study extends the literature by modelling and estimating time-dependent market linkages that are conditional on changes in exogenous factors. The methodology is used to investigate price relationships in North Carolina (NC) corn and soya bean markets. Empirical results indicate that generalized market-linkage models provide a better representation of price relationships over time, improving the understanding of price discovery dynamics and marketing strategies.     

Looking far in the past: revisiting the growth-returns nexus with non-parametric tests

In this paper, we reexamine the linkages between output growth and real stock price changes for the G7 countries using non-parametric procedures to account for the impact of long-lagged observations. We find that correlation between growth and returns is detected at larger horizons than those typically employed in parametric studies. The major feedbacks emerge from stock price changes to growth within the first 6–12 months, but we show that significant feedbacks may last for up to 2 or 3 years. Our evidence also suggests that the correlation patterns differ substantially between the countries at hand when the sectoral share indices are considered.     

Dumping in a Linder Model of Trade with Multiple Retail Channels

The last decade has witnessed an accelerating adoption of AD laws by LDCs and their increasing usage against developed countries. Our model of third degree price discrimination with heterogenous consumers that have differing preferences for quality in the two countries suggests that this is likely to continue. Duopolistic interaction may yield bilateral dumping, or unilateral dumping in either direction, under free trade. Even when dumping is unidirectional, there is a compelling basis for the introduction of AD laws by both governments. This mitigates competition, which is beneficial for both firms, and portends pessimism for an abatement of this recent proliferation of AD laws and complaints.     

Nominal rigidities and retail price dispersion in Canada over the twentieth century

Abstract We introduce a new data set on over 230,000 monthly prices for 10 goods in 50 Canadian cities over the 40‐year period from 1910 to 1950. This information, coupled with previously published price information from the late twentieth century, allows us to present one of the first comprehensive views of nominal rigidities and retail price dispersion over the past 100 years. We find that nominal rigidities have been conditioned upon prevailing rates of inflation with a greater frequency of price changes occurring in the 1920s and the 1970s. Additionally, the process of retail market integration has followed a U‐shaped trajectory with many domestic markets being better integrated – as measured by the average dispersion of retail prices – at mid‐century than in the 1990s. We also consider the linkages between nominal rigidities and price dispersion, finding results consistent with present‐day data.     

The impact of oil price changes on Spanish and euro area consumer price inflation

This paper assesses the impact of oil price changes on Spanish and euro area consumer price inflation. We find that the inflationary effect of oil price changes in both economies is limited, even though crude oil price fluctuations are a major driver of inflation variability. The impact on Spanish inflation is found to be somewhat higher than in the euro area. In both economies, direct effects have increased in the last decade, reflecting the higher expenditure share of households on refined oil products, whereas indirect and second-round effects seem to be losing importance.     

Do net positions in the futures market cause spot prices of crude oil?

The last decade has witnessed sharp increases in the price of crude oil. There are two possible explanations for these increases: dramatic increases in financial firms' position in the oil futures market and recent increases in oil prices from changes in economic fundamentals. This paper examines the causal relationship between the net financial position and the crude oil price by using three types of Granger non-causality tests: the classical Granger non-causality test, a robust Granger non-causality test and a Granger non-causality test in quantiles. The empirical results provide some evidence of causality from the net financial position to the spot price of crude oil. In addition, futures prices serve as a transmission mechanism underlying the causal relationship between the net financial position and the crude oil price.     

Financial constraints and the balance sheet channel: a re-interpretation

Aggregate demand models extending IS/LM fixed price framework yield an enhancement mechanism of the traditional monetary transmission mechanism, the credit channel, which, according to the credit view, works through the ‘balance sheet channel’ and the ‘bank lending channel’. In this paper the augmented IS/LM model is modified assuming that investments may be financed by both internal and external sources of funds. The inclusion of internal funds in the augmented IS/LM fixed price model suggests a different interpretation of the ‘balance sheet channel’ as an enhancement mechanism amplifying monetary policy effects through the quantity rather than the cost of borrowing. Thus, changes in borrowers’ net worth over the cycle can amplify and propagate output fluctuations directly rather than indirectly as in the traditional interpretation of the balance sheet channel. The empirical analysis of the monetary transmission mechanism for Italy in the last decade accords with the interpretation of the balance sheet channel proposed in this paper.     

Interest rate pass-through in Morocco: Evidence from bank-level survey data

We investigate the relationship between banks’ marginal cost and retail lending rates in Morocco. The data covers the rates of new business loans for four market segments broken down by institutional sector between 2006Q2 and 2016Q4. We examine the pass-through mechanism using recently developed heterogeneous panel cointegration framework. Our findings suggest that there is a high degree of pass-through heterogeneity over bank products. The weak adjustment for short-term credit facilities and consumption loans can be explained by credit risk compensation allowing banks to reduce their exposition to systemic risks. Corporate loans are priced more competitive than household and individual entrepreneur products, suggesting that negotiation power or the competition from the borrower side matters. Overall, our results indicate that banking market contestability has improved during the last decade.     

Energy dependence,oil prices and exchange rates: the Dominican economy since 1990

This paper studies the impact that oil prices have had on the floating exchange rate (ER) of the Dominican peso during the 1990–2008 period. The existing empirical literature has documented a link between these two variables for large developed economies and oil-producing countries, always including the 1970s oil crises in their sample periods. Few authors analyze the case of small open economies dependent on oil imports. Since the acceleration of economic growth in the Dominican Republic during the last decade has greatly increased its degree of external energy dependence, this country’s experience presents an ideal case study. We estimate the influence that changes in international gasoline prices have on the real exchange rate between the Dominican peso and the United States dollar. The cointegrated nature of the gasoline price and ER time series are tested and a vector error correction model is developed. Our results indicate that a 10% rise in the price of gas coincides with a 1.2% depreciation of the peso in the long run and that the causality runs from gas prices to the peso.     

Offshoring,Sourcing Substitution Bias,and the Measurement of Growth in U.S. Gross Domestic Product and Productivity

The decade before the financial crisis of 2008 was a time of large changes in sourcing patterns for manufactured goods, particularly after China's entry into the WTO in 2001. Sourcing substitution reduced the prices paid by wholesale level buyers of these goods, but these price reductions were mostly not captured in the U.S. import price indexes and the U.S. GDP deflator. To find plausible values for sourcing bias we first use data on changes in sourcing patterns over 1997–2007 to predict the effect of the reported price discount from the new emerging market suppliers. Next, we compare adjusted import price indexes for products used for household consumption with consumer price indexes. In the GDP deflator for apparel imports, sourcing bias is found to average 0.6 percent per year, and for durable goods it averages 1 percent per year. During the decade of rapidly changing sourcing patterns, a tenth of the reported speedup in multifactor productivity growth of the U.S. private business sector may have come from sourcing bias in the deflators for imports.     

Exchange market pressure,stock prices,and commodity prices in West Africa

As Africa continues its decade of rapid economic growth, the continent also faces the risk of becoming more susceptible to financial ‘contagion.’ Capital flows and trade linkages might cause one country’s currency market to influence those of its neighbors. Likewise, shocks to global commodity or asset markets might induce a crisis in one or more countries in the region. This study generates monthly measures of exchange market pressure (EMP) for four individual West African countries, as well as for the WAEMU franc zone, from 2002 to 2012. Vector Autoregressive (VAR) methods are then used to test for linkages among them, as well as to analyze the effects of various external price shocks. A number of spillovers are uncovered. More importantly, local connections dominate global ones in the case of stock- and commodity-price declines. Ghana, for example, is shown to be a ‘commodity currency’ when West African commodity prices are included in the VAR, but not when a global index is used.     

CONTRADICTORY TRENDS IN GLOBAL INCOME INEQUALITY: A TALE OF TWO BIASES

Did global income inequality rise or fall over the last decades of the twentieth century? The answer depends on how cross‐country income comparisons are made. Exchange rate comparisons suggest that inequality rose whilst the purchasing power comparisons of the Penn World Table suggest it fell. We show that both measures of real incomes lead to biased international income comparisons. Exchange rate comparisons ignore the relative price of non‐tradables, whilst the fixed price method underlying the Penn World Table is subject to substitution bias. The contradictory trends are due to growing dissimilarity between national price structures increasing the degree of bias in each method. When we correct the income data to eliminate bias we find no compelling evidence of a significant change in world inequality.     

Regulatory reform and productivity growth in the UK's public utilities

The reforms in the regulation of the UK'nationalised industries over the last decade are examined and the extent to which they have been successful in achieving one of their declared aims – that of increasing the efficiency of the enterprises' operations – is considered. To achieve this the productivity performance of nine of the largest enterprises over the last twenty years was analysed. The results show that the rate of productivity growth has been significantly higher during the 1980s, compared with the preceeding decade. It is concluded that a large part of the observed upturn in productivity is a result of changes in efficiency.     

Liquidity and crude oil prices: China's influence over 1996–2011

Movement in China's money supply is shown to drive the movement in world money supply over the last fifteen years. Structural shocks to G3 (U.S., Eurozone and Japan) real M2 and to China's real M2 are both large over 1996:1–2011:12. The cumulative impact of real G3 M2 shocks on real oil prices is small and statistically insignificant. In contrast, the cumulative impact of China's real M2 on the real price of crude oil is large and statistically significant. Following a sharp fall in real oil price in the last half of 2008, the cumulative impact of China's real M2 on the real price of crude oil is particularly substantial in the recovery of oil price during 2009 from a low of $41.68 for January 2009. The analysis sheds light on the causes of movement in oil prices over the last fifteen years and in assessing the relative importance of China in the upsurge of the real price of crude oil.     

Spillover effects and conditional dependence

A better understanding of cross-market linkages and interactions would help to better manage international financial exposure. So far, no attempt has been made to investigate the degree of price and volatility spillovers in a non-Gaussian conditional framework. We present a new model for these transmission mechanisms that relies on asymmetric-t marginal distributions and a copula function to characterize the conditional dependence. Rendering the dependence parameter time varying, we investigate how the dependence structure is affected by stock return innovations.     

What happens during recessions, crunches and busts?

We provide a comprehensive empirical characterization of the linkages between key macroeconomic and financial variables around business and financial cycles, for 21 OECD countries over the period 1960–2007. In particular, we analyse the implications of 122 recessions, 113 (28) credit contraction (crunch) episodes, 114 (28) episodes of house price declines (busts), 245 (61) episodes of equity price declines (busts), and their various overlaps in these countries, over the sample period. Our results indicate that the interactions between macroeconomic and financial variables can play a major role in determining the severity and duration of a recession. Specifically, we find evidence that recessions associated with credit crunches and house price busts tend to be deeper and longer than other recessions.
— Stijn Claessens, M. Ayhan Kose and Marco E. Terrones     

Modeling Price Volatility Linkages between Corn and Wheat: A Multivariate GARCH Estimation

The present paper attempts an empirical investigation on price volatility linkages between two important agricultural commodities: corn and wheat, by using a multivariate GARCH-BEKK model. Evidence of bidirectional linkages were found between corn and wheat in terms of returns and volatility. Multivariate conditional Student’s-t distribution results show a unidirectional volatility transmission from corn to wheat. Diagnostic tests reveal that the Student’s-t distribution will better model the volatility of returns when compared to the Gaussian distribution. Overall, the results show that the conditional variances and covariances between agricultural commodity market returns exhibit significant changes over time.     

Analysing convergence in Europe using the non-linear single factor model

We investigate convergence in European price level, unit labour cost, income and productivity data over the period of 1960–2006 using the non-linear time-varying coefficients factor model proposed by Philips and Sul (2007 Econometrica 75:1771–1855). This approach is extremely flexible in order to model a large number of transition paths to convergence. We find regional clusters in consumer price level data. GDP deflator data and unit labor cost data are far less clustered than CPI data. Income per capita data indicate the existence of three convergence clubs without strong regional linkages; Italy and Germany are not converging to any of those clubs. Total factor productivity data indicate the existence of a small club including fast-growing countries and a club consisting of all other countries.     

The Baby Boom and the Stock Market Boom*

This paper addresses two issues. The first is whether demographic change was plausibly responsible for the run‐up in stock prices over the last decade, and whether an attempt by the baby boom cohort to cash out of its investments in the period 2010–2030 might lead to an “asset meltdown”. The second issue is whether the rise in dependency that will accompany the retirement of the baby‐boom cohort calls for an increase in national saving. We analyze these issues using a forward‐looking macro‐demographic model, and show that they are related via the existence of installation costs for capital. If such costs are sufficiently large, then demographics do have the power to affect stock prices, but “saving for America's old age” is less optimal. However, conventional estimates of capital installation costs are not large enough to explain large stock price movements in response to actual demographic change.     

Wealth Effects and Consumption: A Panel VAR Approach

We provide new evidence on the comparison between the stock and housing wealth effects on consumption. Using a panel VAR approach applied to OECD data, we find evidence that the stock market wealth effect is generally the larger. However, with regard to the evolution of asset wealth effects over time, our findings show that the housing wealth effect has outweighed the share market wealth effect in the last decade. We further find that asset wealth has asymmetric effects on consumption, with stronger and more persistent effects from positive asset wealth shocks. Our results have important monetary policy implications for both stock and real estate markets, and offer timely insights into the desirability of current proposals to reduce house price volatility, such as through macro prudential regulations.