Productivity Trends in Advanced Countries between 1890 and 2012

In order to examine productivity waves and convergence processes, we study productivity trends, trend breaks, and levels for 13 advanced countries between 1890 and 2012. We highlight two productivity waves, a big one following the second industrial revolution and a smaller one following the ICT revolution. The convergence process has been erratic, halted by inappropriate institutions, technology shocks, financial crises, and above all wars, which led to major productivity level leaps, downwards for countries experiencing war on their soil, and upwards for other countries. Productivity trend breaks have been identified following wars, global financial crises, global supply shocks, and major policy changes. The upward trend break for the U.S. in the mid‐1990s has been confirmed, as has the downward trend break for the euro area in the same period.     

A note on the stability of real interest rates in Australia

The stability (stationarity) of real interest rates and surveys of expected inflation in Australia is analyzed over the period 1993(10) to 2001(10). We find that the real yields on Australian 2-, 5-, and 10-year bonds are stationary in levels whereas the real overnight cash and the bank-accepted bills (BABs) 90-day real rates are stationary subject to structural breaks occurring in September 1994 and October 1994, respectively. These breaks were identified by applying tests proposed by Nunes et al. [Oxf. Bull. Econ. Stat. 59 (1997) 435]. An application of the Nunes test to the surveyed expected inflation series points to a structural break in this series in January 1998.Our results indicate that while real long-term bond yields in Australia are relatively stable, short-term yields and expected inflation are susceptible to domestic policy changes and international influences.     

Granger causality of the inflation–growth mirror in accession countries*

The paper presents a model in which the exogenous money supply causes changes in the inflation rate and the output growth rate. While inflation and growth rate changes occur simultaneously, the inflation acts as a tax on the return to human capital and in this sense induces the growth rate decrease. Shifts in the model's credit sector productivity cause shifts in the income velocity of money that can break the otherwise stable relationship between money, inflation, and output growth. Applied to two accession countries, Hungary and Poland, a VAR system is estimated for each that incorporates endogenously determined multiple structural breaks. Results indicate Granger causality positively from money to inflation and negatively from inflation to growth for both Hungary and Poland, as suggested by the model, although there is some feedback to money for Poland. Three structural breaks are found for each country that are linked to changes in velocity trends, and to the breaks found in the other country.     

Structural breaks in consumption patterns: India 1952-1991

This study improves upon the econometric modelling for testing and incorporating structural breaks for a study on Indian consumption patterns covering a period of four decades and also explores the causes of such breaks. The tests for structural breaks in consumption patterns indicate multiple break points which are not uniform across the population groups and also across commodity groups. Further, the results indicate for the first time, that the breaks could often be induced by the changes in the data collection methodology of the survey and not due to changes in consumer behaviour alone. Apart from this, there is a shift in the consumption pattern during the mid-1980s in both the rural and the urban sectors. For the lowest expenditure class the shift is away from food items with the rural sector showing a change in the price response and the urban sector showing a change in the total expenditure coefficient. For the middle and the upper expenditure classes the shifts are not only from the food items towards non-food items but also from the 'food' group that includes items like cereals, milk and milk products towards the 'other food' group which includes items like vegetables and fruits. Its causes are found to be changes in preferences as well as the income effect.     

Bayesian model averaging and identification of structural breaks in time series

Bayesian Model Averaging (BMA) is used for testing for multiple break points in univariate series using conjugate normal-gamma priors. This approach can test for the number of structural breaks and produce posterior probabilities for a break at each point in time. Results are averaged over specifications including: stationary; stationary around trend and unit root models, each containing different types and number of breaks and different lag lengths. The procedures are used to test for structural breaks on 14 annual macroeconomic series and 11 natural resource price series. The results indicate that there are structural breaks in all of the natural resource series and most of the macroeconomic series. Many of the series had multiple breaks. Our findings regarding the existence of unit roots, having allowed for structural breaks in the data, are largely consistent with previous work.     

Trend breaks and non-stationarity in the Yugoslav black market for dollars, 1974–1987

We estimate a model of the black market premium for dollars in Yugoslavia from 1974 to 1987. Unlike previous applications of the model, our analysis addresses non-stationarity in the underlying data by allowing for trend breaks. Endogenous structural break tests indicate the presence of breaks closely associated with the death of Tito and changes in laws affecting the operation of the black market. After accounting for these breaks, we find strong support for the underlying model. In addition, we find evidence consistent with the era of increased government involvement in the black market leading to greater volatility of the premium following regime change.     

DOES DISAGGREGATION AFFECT THE RELATIONSHIP BETWEEN HEALTH CARE EXPENDITURE AND GDP? AN ANALYSIS USING REGIME SHIFTS*

This paper investigates the impact of policy shifts on disaggregated health expenditure‐GDP relationship in Australia. In contrast to previous studies the disaggregation is at the level of type of service delivered and not at the level of source of expenditure. Our results show that the subcomponents of health expenditure exhibit different patterns of behaviour at both cointegration and unit root stages once policy shifts or structural breaks are allowed in the empirical analysis. When the possibility of structural break is allowed we find a significant long‐run relationship between subcomponents of aggregate health expenditure and GDP that is not observed when break is not allowed. The underlying reasons for the occurrence of breaks and policy lessons are discussed subsequently.     

An analysis of multiple structural breaks in US relative farm prices

The movement of farm prices relative to other commodity prices is analysed for the period 1913:01 to 2003:12, investigating the number and time of structural breaks and discussing likely causes of structural breaks in the relative farm prices. Bai and Perron's (1998, 2003) multiple structural change test with a dynamic programming algorithm is used. This test makes it possible to have an efficient computation of the estimates of the break points as global minimizers of the sum of squared residuals. We find six structural breaks when we consider only the mean process and two breaks when we consider the mean and autoregressive processes. Possible causes for these breaks are discussed.     

Central Bank's interventions and the Fisher hypothesis: a threshold cointegration investigation

The long-run relationship between nominal interest rates and inflation is examined, allowing for structural breaks and asymmetric mean reversion. From a Threshold AutoRegressive (TAR) test applied to the residuals of the cointegration relationship (while allowing for both a break in the mean of the long-run equation and a smooth regime-transition), there is strong evidence for non-linear mean reversion properties for the real interest rates of the US Treasury Bill market. This suggests asymmetric changes to inflation shocks in the Central Bank's reaction function. The existence of different regimes is consistent with some interpretations of the monetary policies run by the Fed, such as credibility and opportunism.     

A finite mixture analysis of structural breaks in the G-7 gross domestic product series

In this paper we apply a clustering procedure to detect trend changes in macroeconomic data, focusing on the GDP time series for the G-7 countries. A finite mixture of regression models is considered to show different patterns and changes in GDP slopes over time in the long-trend component. Two popular trend-cycle decompositions (i.e., Beveridge and Nelson Decomposition and Hodrick and Prescott filter) are considered in a preliminary step of the analysis to stress the differences between the two methods in terms of the inferred clustering, if any. This approach can be used also to detect structural breaks or change points and it is an alternative to existing approaches in a probabilistic framework. We also discuss international changes in the GDP distribution for the G-7 countries, highlighting similarities, e.g., in break dates, aiming at adding more insights on the economic integration among countries. Our findings suggest that by looking at changes in slope over time a mixture of regression models is able to detect change points, also compared with alternative procedures.     

Efficient market hypothesis: evidence from a small open-economy

This article studies the efficient market hypothesis for the Istanbul Stock Exchange National 100 (ISEN 100) price index within the Lumsdaine and Papell two structural breaks unit root test framework. The main finding of the article shows that the ISEN 100 index is characterized by a unit root with two structural breaks, which is consistent with the efficient market hypothesis. In addition, the article applies the augmented Dickey–Fuller test, runs test and the variance-ratio test to test the weak-form efficiency of the ISEN 100. The analyses are repeated for three sub-periods delineated in view of the endogenously determined break points.     

Structural Changes in High Dimensional Factor Models

This paper provides a survey on recent developments in structural changes for high dimensional factor models. Compared with conventional low-dimensional time series, structural changes in factor models are more complicated due to the unobservability of factors and factor loadings. The following topics are covered in this survey: the identification conditions for the structural changes in the factor loadings, different impacts of big and small breaks in factor models, tests for structural changes in the factor loadings of a specific variable, tests for structural changes in the factor loading matrix, joint tests for structural changes in the factor loadings and coefficients in factor-augmented regressions, tests for smooth changes in the factor loadings, estimation of break dates, and model selection in factor models with structural changes via the shrinkage method.     

Unit roots,postwar slowdowns and long-run growth: Evidence from two structural breaks

This paper provides evidence on the unit root hypothesis and long-term growth by allowing for two structural breaks. We reject the unit root hypothesis for three-quarters of the countries – approximately 50% more rejections than in models that allow for only one break. While about half of the countries exhibit slowdowns following their postwar breaks, the others have grown along paths that have become steeper over the past 120 years. The majority of the countries, including most of the slowdown countries, exhibit faster growth after their second breaks than during the decades preceding their first breaks. First version received: May 2001/Final version received: January 2002     

Assessing French inflation persistence with impulse saturation break tests and automatic general-to-specific modelling

This article has three different motivations. Firstly, we wish to contribute to the debate on whether French inflation has been persistent since the mid-eighties. Empirical evidence in this domain has been mixed. We use the standard method of testing for breaks in the mean of the inflation series to conclude whether possible unit root findings are the result of neglected breaks. Then, we build standard autoregressive representations of inflation, using an automatic general-to-specific approach. We conclude against inflation persistence in the sample period, and the point estimates of persistence we obtain are several percentage points below those achieved with other break tests and model selection methods. Moreover, our final model is congruent. Secondly, we provide the first empirical application of the new impulse saturation break test. The resulting estimates of the break dates are in line with other literature findings and have a sound economic meaning, confirming the good performance the test had revealed in theoretical and simulation studies. Finally, we also illustrate the shortcomings of the Bai–Perron test when applied to a small sample with high serial correlation. Indeed, we show the Bai–Perron break dates’ estimates would not allow us to build a congruent autoregressive representation of inflation.     

Intertemporal Consumption Smoothing and Capital Mobility: Evidence from Australia

This paper examines the optimality of international capital flows to Australia, a persistent net importer of capital, during its post‐capital controls period 1984–99. The evolution of Australia’s current account balance is compared against a benchmark derived from an optimising model of intertemporal consumption smoothing. The consumption‐smoothing approach to the determination of the current account implies that international capital flows act as a buffer to smooth aggregate consumption in the face of temporary shocks to the economic fundamentals: changes in national cash flow (that is, changes in the level of output, investment or government spending). It is found that in the early 1990s a structural break occurred in the relationship between consumption and national cash flow, which coincides with a switch from debt‐financing to equity‐financing of the current account deficit. In the decade of the 1990s following this structural break (and unlike the decade of the 1980s which preceded this break), international capital flows to Australia implied a path for consumption which was broadly consistent with expected‐utility maximisation under the consumption‐smoothing model of the current account.     

Structural change and foreign direct investment: globalization and regional economic integration

This paper investigates flows of inward and outward foreign direct investment (FDI) and FDI-to-GDP ratios in a sample of 62 countries over a 30 year time span. Using several endogenous structural break procedures (allowing for one and two break points), we find that: (1) the great majority of the series have structural breaks in the last 15 years, (2) post-break FDI and FDI/GDP ratios are substantially higher than the pre-break values, and (3) most breaks seem to be related to globalization, regional economic integration, economic growth, or political instability. Static and dynamic panel-data analyses accounting for and/or addressing endogeneity, simultaneity, nonstationarity, heterogeneity and cross-sectional dependence show that FDI is negatively related to exchange rate volatility and GDP per capita, but positively related to some regional integration agreements, trade openness, GDP, and GDP growth. Most notably, the European Union is the only regional economic integration unit found to consistently have significant and positive effects on FDI.     

Mortgage‐Backed Securities (MBS): Is It a Curse or a Blessing for the Australian Home Loan Market? A Natural Experiment

The Australian home loan market has seen a significant and persistent boom over more than two decades. The extant literature exploring the underlying factors explaining this boom has predominantly looked at the demand side rather than the supply side. In this paper, we look at a major supply‐side issue, the introduction of mortgage‐backed securities and its likely impact on the home loan market. In doing so, we have developed a mathematical model that theorises this likely relationship. Our mathematical model predicts possible existence of an unstable equilibrium in the home loan market in the presence of mortgage‐backed securities. We have subsequently backed up our theoretical exercise with sound empirical evidence acquired and analysed as a natural experiment in the Australian scenario using quarterly market data on home loans and mortgage‐backed securities data for a 36‐year period from 1976 to 2012. Using unknown structural break tests, we have identified significant breaks around late 1992 to mid‐1995, clearly indicating that there were significant changes in the housing market due to the introduction of mortgage‐backed securities in early 1993. We have also performed a stability test confirming that under certain conditions this market can become unstable.     

The heterogeneous dependence between global crude oil and Chinese commodity futures markets: evidence from quantile regression

This paper explores the dependence between global crude oil and Chinese commodity futures markets across different quantiles of the return distributions. Based on weekly data from 11 June 2004 to 7 July 2017, we address this issue by applying a quantile regression method. This technique provides a more detailed investigation of the dependence. Moreover, considering the structural breaks caused by market turmoil or financial crises, we divide the full period of every commodity sector market into sub-periods based on these break dates to further explore the dependence changes. The empirical results indicate that the dependence between global crude oil and Chinese commodity futures markets is different across quantiles in different commodity sectors. The dependence is significantly positive, except in markets with high expected returns. Additionally, the effects caused by structural breaks are distinctly heterogeneous across quantiles. The effect of the same break on the degree of dependence exhibits an increasing tendency as the quantile level increases, which suggests that markets with high expected returns are more susceptible to crises. Finally, we apply a prediction analysis to further verify the heterogeneity of the commodity sectors, which may be the cause of the heterogeneous dependence.     

Intertemporal sustainability of current account imbalances: New evidence from the OECD countries

This study estimates the intertemporal model for the relationship between exports and imports and examines the sustainability of current account deficits (CADs) and the validity of intertemporal budget constraint for 24 Organisation for Economic Co‐operation and Development countries. The standard ordinary least squares (OLS)‐based two‐step Engle and Granger test, the cointegration regression Durbin–Watson (CRDW) test, and the Stock–Watson test performed on the one‐regime model with time‐invariant parameters and no structural break provide mixed support for the presence of cointegration between exports and imports. The recursive least squares‐based cumulative sum of recursive residuals (CUSUM) and the cumulative sum of squares of recursive residuals (CUSUMSQ) tests and the OLS‐based Andrews‐Quandt (AQ) and Andrews – Ploberger (AP) tests suggest the presence of structural breaks in the long‐run relationship between exports and imports for a number of countries. The end‐of‐sample new cointegration breakdown tests performed on the OLS, fully modified OLS, and full‐information maximum‐likelihood estimates of the model suggest the presence of cointegration between exports and imports for most countries. The dominant support for cointegration between trade flows points toward the sustainability of CADs and the validity of intertemporal budget constraint. The macroeconomic stabilization policies seem to have been effective in correcting the market failures and maintaining the steady‐state equilibrium relationship between trade flows in the sample countries. The findings of this study have important implications for empirical research. The structural breaks in the cointegrating vector could occur even over the short time periods and at any point in time. It is essentially important to assess the sustainability of the external position in the presence of long‐period as well as short‐period breaks in the cointegrating vector.     

The turning black tide: energy prices and the Canadian dollar

Abstract.  This paper revisits the relationship between energy prices and the Canadian dollar, using an equation first developed by Amano and van Norden (1995) . They found evidence of a negative relationship between these two variables, such that higher real energy prices led to a depreciation of the Canadian dollar. Based on structural break tests, we find a break point in the sign of this relationship, which changes from negative to positive in the early 1990s. The timing of the break is consistent with major changes in Canada's energy policies and in energy-related cross-border trade and investment.