Re-examining the exchange rate pass-through into import prices using non-linear estimation techniques: Threshold cointegration

We document a significant threshold cointegrating relationship among effective nominal exchange rates and import prices. Using quarterly data for five industries of 16 OECD countries, we find that the degree of pass-through improves dramatically from the 50% average documented in the literature once threshold effects are recognized. The results of our threshold cointegration model show that import prices respond faster and by a larger extent to nominal exchange rate shocks than is the case for more conventional models. These findings give empirical support to the hypothesis that an equilibrium rate of pass-through exists (e.g. [Bacchetta, P., & Van Wincoop, E. (2005). A Theory of the currency denomination of international trade, Journal of International Economics 67, 295–319; Devereux, M., Engel, C., & Storgaard, P. (2004). Endogenous exchange rate pass-through when nominal prices are set in advance, Journal of International Economics 63(2), 263–291]).     

Discrimination and consumer credit

The problem of credit discrimination surfaced during the public hearings of the National Commissionon Consumer Finance in the late 60's. Higher labor force participation accompanied by raising income expectations led to an increased demand for credit by women. To empirically investigate credit discrimination, a survey of consumers provided data and the average amount of     

Investigating the solvency of brazilian credit unions using a proportional hazard model

Abstract ** : Due to high interest rates and bank spreads, the number of credit unions in Brazil has increased over recent years. As financial institutions, these cooperatives need tools to signal impending financial problems. This paper focuses on one tool that can be used to evaluate credit union solvency: the Cox Proportional Hazards Model. A sample of 80 credit unions from the Brazilian state of Minas Gerais was selected to supply data. The analysis period is between December 2001 and June 2003. The results indicate that the relevant indicators for insolvency prediction are, in descending order of predictive ability, General Liquidity, Salary and Benefit Expenses, and the Loan/Equity Ratio. In general, results produced using the delineated theoretical model were in consonance with international literature .     

An empirical examination of long-run purchasing power parity using cointegration techniques

This paper presents an empirical analysis of long-run purchasing power parity (PPP) for five major exchange rates using recently developed econometric techniques on the cointegration of economic time series. Our empirical results are extremely unfavourable to the PPP hypothesis as a long-run equilibrium condition, even with an allowance made for measurement error and/or tranportation costs. In particular, we are unable to reject the hypothesis of non-cointegration of the exchange rate and relative prices for any of the countries concerned. Far from finding a stable, long-run proportionality between exchange rates and relative prices, our results therefore suggest that they tend to drift apart without bound.     

Threshold cointegration between inflation and US capacity utilization

An analogue to the Phillips curve shows a positive relationship between inflation and capacity utilization. Some recent empirical work has shown that this relationship has broken down when using data after the mid-1980s. We empirically investigate this issue using several threshold error correction models. We find, in the long run, a 1% increase in the rate of inflation leads to approximately a 0.0046% increase in capacity utilization. The asymmetric error correction structure shows that changes in capacity utilization show significant corrective measures only during booms while changes in inflation correct during both phases of the business cycle with the corrections being stronger during recessions. We also find that, in the short run, changes in the inflation rate do Granger cause capacity utilization while changes in capacity utilization do not Granger cause inflation. The Granger causality from inflation to capacity utilization can be interpreted as supporting recent calls made in the popular press by some economists that it may be desirable for the Federal Reserve Bank to try to induce some inflation. However, it is also possible to interpret these Granger causality results as arising because both variables respond to some more fundamental set of variables with the inflation rate simply responding sooner. The lack of Granger causality from capacity utilization to inflation casts doubt on the older view that capacity utilization could be a leading indicator for future inflation.     

Estimation of the effects of price on apartment water demand using cointegration and error correction techniques

Water price is a key instrument in regulating water demand in the residential sector. Many empirical studies have assessed the effects of price through quantifying the price elasticity of water demand. However, most of these studies have mainly focused on the single-family housing rather the multifamily housing. An in-depth understanding of the price elasticity of multifamily housing water demand is paramount for water planners in order to properly manage water use in the fast growing intensive housing developments in urban areas. This study investigates both the long-term and short-term price elasticities of water demand in the residential apartments in Auckland central city. Using 6 years of monthly time series data, the price elasticities were estimated through cointegration and error correction methods. The results showed that the price elasticities of water demand were ?0.14 and ?0.12 in the short term and the long term, respectively. The price is inelastic yet negative and statistically significant, thus it can play a role in demand management.     

Fractional integration and cointegration in US financial time series data

This paper examines several US monthly financial time series using fractional integration and cointegration techniques. The univariate analysis based on fractional integration aims to determine whether the series are I(1) (in which case markets might be efficient) or alternatively I(d) with \(d < 1\) , which implies mean reversion. The multivariate framework exploiting recent developments in fractional cointegration allows to investigate in greater depth the relationships between financial series. We show that there might exist many (fractionally) cointegrated bivariate relationships among the variables examined, for some of which only standard cointegration tests had previously been carried out.     

Spillover across Eurozone credit market sectors and determinants

We examine spillover and its determinants among Eurozone sector level credit markets using time and frequency domain spillover approaches. Based on network theory and connectedness analysis, we identify the sectors that are major transmitters and receivers of spillover during normal and crisis periods. The rolling window analysis shows that short-run spillover among credit market sectors intensifies during global and Eurozone crisis periods. Further, using Bayesian model averaging, we find that overall financial conditions and stock market volatility are the main drivers of total and sector-level spillover. Our findings have important implications for policymakers and investors interested in Euro-area credit risk at the sector level.     

Industry-level determinants of the linkage between credit and stock markets

This paper examines the relationship between US credit default swaps (CDS) and stock returns on an industry-wide basis across a number of investment horizons, with particular focus on the major determinants of such a relationship. Wavelet analysis is first applied to extract the CDS–stock wavelet correlation for each US industry. Then, Bayesian Model Averaging is employed to identify the key driving factors of the industry CDS–stock wavelet correlations at short- and long-term horizons. The empirical results indicate that the wavelet correlations between the industry CDS and stock returns are primarily negative over time and across time scales. Moreover, the CDS–stock correlation at longer horizons exhibits a much more stable pattern than its counterpart at shorter time frames. The results also demonstrate that the volatility of US Treasury and stock markets, as measured by the MOVE and VIX indices, respectively, the volatility of volatility, as captured by the VVIX index, and US economic policy uncertainty, as measured by the EPU index, are the most robust determinants of the correlation between CDS and stock returns at shorter and longer horizons for most US industries. In contrast, the Fama–French systematic equity factors exhibit a practically negligible explanatory power on the CDS–stock link.     

Explaining changes in the US credit card market: Lenders are using more information

We examine two changes in the cross-sectional distribution of credit card contracts over time: the increasing variance in interest rates and the increasing variance in credit limits, using data from the 1989–2013 Survey of Consumer Finances. Within this dataset, we show that financial institutions seem to be collecting and using more consumer information when extending credit. We then develop a life-cycle model of lending using a novel contract structure reflecting modern credit cards, where interest rates and credit limits are jointly determined before actual borrowing takes place. Within the model, giving lenders more information on consumers generates realistic results along several dimensions. More information leads to better pricing, moving the market from a ‘pooling’ to a ‘separating’ equilibrium, generating the observed increase in variances, with the gains primarily going to young agents.     

Persistent misalignments of the European exchange rates: some evidence from non-linear cointegration

The asymmetric and persistent adjustment of the European real exchange rates is investigated using the framework of non-linear cointegration. The episodes of slow mean-reversion dynamics over the period from 1979 to 1999 are explained. A test of unit root against STAR cointegration is proposed and some complete estimations and stochastic simulations of ESTAR models are presented. The presence of effective non-linear adjustment during the moving of the currencies to their long-run fundamental equilibrium exchange rate value is discussed.     

Price behaviour in the US sweetener market: a cointegration approach

The sweetener market in the United States is complicated because of the substitution possibilities between high fructose corn syrup (HFCS) and sugar. This study focuses on the relationship between raw sugar prices and the prices for high fructose corn syrup. Sugar and HFCS are imperfect substitutes for several industrial uses. Sugar can be used for all industrial uses, but HFCS has limited uses. This study uses cointegration analysis to examine the relationship between sugar and HFCS prices as well as the relationship between raw and refined sugar prices over time. The results indicate that sugar and HFCS prices move together for the 1983–1996 period. However, after this time period HFCS prices no longer follow sugar prices.     

A cointegration study of the efficiency of the US Treasury STRIPS market

One theoretical implication of cointegration, according to Granger (1986 Granger, CWJ. 1986. Developments in the study of cointegrated economic variables. Oxford Bulletin of Economics and Statistics, 48: 213–28.  ), is that asset prices in an efficient market cannot be cointegrated. Using price data on US Treasury STRIPS with maturities from 2/15/1997 to 8/15/2015, it is found that a set of three STRIPS series is often cointegrated. In addition, by setting up a costless hedge portfolio from three STRIPS with three different maturities, it is found that the hedge portfolio is often stationary and thus arbitrage opportunities are likely to occur. That is, because the hedge portfolio is costless and stationary, cash in can be done when the value of the hedge portfolio is either positive or negative. However, when taking liquidity, tax effects, and transaction costs into consideration, these arbitrage profits would be unlikely. Hence, it is concluded that the US Treasury STRIPS market is efficient.     

Fractional integration and cointegration in merger and acquisitions in the US petroleum industry

This article employs methodologies based on fractional integration and cointegration to analyse the time-series properties of merger and acquisitions (M&A) activity and crude oil prices in the US from 1980 to 2012. Our results indicate that an increase in the crude oil price produces a significant increase in the M&A data between 2 and 3 months after the initial shock.     

A test for inflation persistence in Nigeria using fractional integration & fractional cointegration techniques

This study seeks to test for inflation persistence in Nigeria using the recently developed fractional cointegration VAR model by Johansen and Nielsen (2012) and complemented with univariate fractional integration techniques. The empirical results suggest evidence of high inflation persistence in Nigeria albeit with a lower trend after the global financial crisis. Also, the major classes of inflation – headline, core and food inflation rates, share long run properties regardless of the sample used. This suggests that any policy action directed at a particular class of inflation will have a spill-over effect on the other classes given the strong association among them. The ability to also exploit the fractional cointegration in a multivariate set-up when modeling inflation is a major contribution of this study and ignoring same may lead to wrong conclusions. However, the results are sensitive to the choice of data frequency.     

Investigating geography and institutions as determinants of foreign direct investment in Africa using panel data

This article uses a cross-country econometric approach to identify the determinants for foreign direct investment (FDI) in Africa. The contribution is 3-fold. Firstly, we recognize that the estimation techniques used elsewhere, such as ordinary least squares, may be flawed. We therefore use a dynamic one-step generalized method of moments (GMM) estimator due to Arellano and Bond (1991 Arellano, M and Bond, S. 1991. Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Review of Economic Studies, 58: 277–97. [Crossref], [Web of Science ®] , [Google Scholar]). The GMM-estimates identified a number of robust determinants of FDI, namely government consumption, inflation rate, investment, governance (political stability, accountability, regulatory burden, rule of law) and initial literacy. It is concluded that geography does not seem to have a direct influence on FDI flows to Africa. Neither market-seeking nor re-exporting motives of FDI seem to dominate, with different policy instruments being significant in the different specifications. This does not discount the importance of good policies, but probably indicates the importance of good policies made by good institutions. Institutions, in the form of political stability showed up as a significant determinant of FDI.     

On the specification of granger-causality tests using the cointegration methodology

The application of Granger-causality tests to macroeconomic time series frequently necessitates filtering the data to induce stationarity. If the relevant variables are cointegrated, Granger-causality tests are misspecified if applied in standard vector autoregressive format to differenced data. A common application is illustrated.     

Stock and credit market expansion and economic development in emerging markets: further evidence utilizing cointegration analysis

This paper empirically investigates the relationship between equity and credit market development and economic growth, in a sample of five very important ‘emerging’ markets. In particular, employing a multivariate time-series methodology to test for long-run trends and causality between variables that proxy for stock market development, credit market development and economic development. The results seem to suggest that equity markets have a role to play only in relatively liberalized economies, like Chile and Mexico. In financially repressed economies, like India, the equity market does not affect real sector growth. Furthermore, the banking crises in the 1980s and 1990s in Chile and Mexico resulted in a negative relation between economic growth and the credit market. In South Korea, equity and credit markets both affect economic growth, but not vice versa. In countries where the nature of the stock market has been speculative, like Taiwan, a negative relationship is detected between equity market development and economic development.     

关于拓展我国农村消费信贷的思考

拓展农村消费信贷是建立现代农村金融制度的客观需要,约束我国农村消费信贷发展的因素主要是消费信贷的配套服务机制缺失、农村金融业不发达、农民收入不稳定等。因此,转变消费观念、改善消费信贷环境、增加消费信贷品种、健全社会保障制度、建立现代农村金融制度是拓展我国农村消费信贷的有效对策。     

Analysing the determinants of US direct investment in Mexico

In this paper a simple model of foreign direct investment is developed and tested on investment flows from the USA to Mexico between 1967 and 1994 using cointegration analysis. Domestic demand and relative factor costs are found to influence direct investment flows, suggesting support for both the ‘cheap labour’ and ‘market size’ hypotheses. The short-run dynamics of the model indicate that exchange rate movements have an effect on the timing of the investment decision.