Testing the purchasing power parity in panel data

This paper empirically tests the purchasing power parity (PPP) using panel unit root tests. We employ a battery of panel unit root tests: LM-bar statistic [Testing for unit roots in heterogeneous panels, Working paper, University of Cambridge] is employed to account for serially correlated errors. The statistic proposed by Breitung [Adv. Econom. 15 (2000) 161.] and the KPSS-based statistic of Hadri [Econ. J. 3 (2000) 148.] are also used. In addition, we also employ a SUR estimator to account for possible cross-sectional effect. Data of 45 economies from 1980 to 1999 are used to test the PPP hypothesis. We find that these estimators tend to get supportive results when the data frequency becomes lower, which substantially characterizes the long-run property of the PPP hypothesis.     

A generalized method of moments estimator for a spatial model with moving average errors, with application to real estate prices

This paper proposes a new GMM estimator for spatial regression models with moving average errors. Monte Carlo results are given which suggest that the GMM estimates are consistent and robust to non-normality, and the Bootstrap method is suggested as a way of testing the significance of the moving average parameter. The estimator is applied in a model of English real estate prices, in which the concepts of displaced demand and displaced supply are introduced to derive the spatial lag of prices, and the moving average error process represents spatially autocorrelated unmodelled variables.      

Autoregressive conditional durations: An application to the Surinamese dollar versus the US dollar exchange rate

The parallel market nominal exchange rate of the United States dollar vis-à-vis the Surinamese dollar (USD/SRD) exhibited periods of severe volatility which were often followed by episodes of stability, usually at a cost of sharp depreciations. This study seeks to model this exchange rate using autoregressive conditional duration models. These models are suitable for modelling events occurring with irregular intervals. Exchange rates in developing countries have distinct features compared to exchange rates in countries with well-established and accessible financial markets. A key feature is that for these developing countries, exchange rates only occasionally experience jumps. Our findings suggest that past exchange rate changes appear to be a significant driver of future exchange rate jumps. Furthermore, our results show that money, international reserves, and commodity prices can explain jumps in the market USD/SRD exchange rate.     

International trade and factor productivity as determinants of the real effective exchange rate

Using panel time-series models that deal with the problems of potential endogeneity and cross-sectional dependence, while also allowing for cross-country heterogeneity in the parameters of interest, we demonstrate that trade openness produces a depreciation of the real effective exchange rate.     

The long-run effects of the real exchange rate on employment and wages in Canadian manufacturing

ABSTRACT

The literature on real exchange rate effects on the labour market is dominated by short-run analysis showing that there is heterogeneity in the responses of firms or industries to a real exchange rate shock. Analysing data on Canadian manufacturing industries, I conclude that there is a common long-run equilibrium across all manufacturing industries controlling for their openness to trade after varying adjustments to a real exchange rate shock have taken place. This conclusion is important from the perspective of policy making because it helps to form expectations about the effects of a real exchange rate movement on the labour market. The results suggest that real appreciation leads to economically significant reductions in employment in manufacturing in the long run. Real wages decrease in industries that are highly engaged in international trade and somewhat increase in industries that are relatively closed to international trade. Both employment and real wages converge quickly to the long-run equilibrium.     

Capital accumulation and real exchange rate behavior in a small open economy with credit market frictions

Summary. We consider the nature of the relationship between the real exchange rate and capital formation. We present a model of a small open economy that produces and consumes two goods, one tradable and one not. Domestic residents can borrow and lend abroad, and costly state verification (CSV) is a source of frictions in domestic credit markets. The real exchange rate matters for capital accumulation because it affects the␣potential for investors to provide internal finance, which mitigates the CSV problem. We demonstrate that the real exchange rate must monotonically approach its steady state level. However, capital accumulation need not be monotonic and real exchange rate appreciation can be associated with either a rising or a falling capital stock. The relationship between world financial market conditions and the real exchange rate is also investigated. Received: October 3, 1997; revised version: October 23, 1997     

人民币实际有效汇率对地区经济增长差异的影响研究

本文基于凯恩斯宏观经济模型,对人民币实际有效汇率波动对我国各地区经济增长产生的影响进行了实证分析。结果表明:人民币实际有效汇率上升通过影响进出口、外商直接投资和原始货币供应量三个途径,对我国各地区经济增长普遍存在着抑制效应;但对不同地区的影响程度有所差异,其中东部地区最大,西部地区最小;这表明人民币实际有效汇率上升对于缩小近年来不断拉大的地区经济增长差距具有积极作用。虽然缩小地区经济发展差距是现阶段我国构建和谐社会的重要内容,但人民币汇率政策依然应该将实现内外均衡作为自己的核心目标,以避免目标多样化而弱化政策效应。     

Spatial shift-share analysis versus spatial filtering: an application to Spanish employment data

The aim of this work is to analyse the influence of spatial effects in the evolution of regional employment, thus improving the explanation of the existing differences. With this aim, two non-parametric techniques are proposed: spatial shift-share analysis and spatial filtering. Spatial shift-share models based on previously defined spatial weights matrix allow the identification and estimation of the spatial effects. Furthermore, spatial filtering techniques can be used in order to remove the effects of spatial correlation, thus allowing the decomposition of the employment variation into two components, respectively related to the spatial and structural effects. The application of both techniques to the spatial analysis of regional employment in Spain leads to some interesting findings and shows the main advantages and limitations of each of the considered procedures, together with the quantification of their sensitivity with regard to the considered weights matrix.     

Median-unbiased estimation of structural change models: an application to real exchange rate persistence

Measuring deviations from purchasing power parity has been the subject of extensive investigation. The most common practice in empirical research for measuring real exchange rate persistence is to estimate univariate autoregressive (AR) time series models and calculate the half-life, defined as the number of periods for a unit shock to a time series to decay by 50%. In the presence of structural change, there are two potential biases in the parameter estimates of AR models: (1) a downward small sample median-bias and (2) an upward bias, which occurs when structural change is present and ignored. We conduct a variety of Monte Carlo simulations and demonstrate that the existence of structural change causes a substantial increase in the small sample bias documented in Andrews (1993). We then propose an extension of median-unbiased estimation, which explicitly accounts for structural change, and apply these methods to estimate half-lives of several long-horizon real exchange rates analysed by Lothian and Taylor (1996) and Taylor (2002). The upward bias from neglecting structural change dominates the downward median-bias for these real exchange rates. When structural change is present and accounted for, the median-unbiased half-lives towards a changing mean decrease and the confidence intervals tighten.     

Productivity,real exchange rate,and aggregate demand: An empirical exercise applied to Brazil from 1960 to 2011

This research analyzes, from a post Kaleckian perspective, the interactions among the aggregate demand, the real exchange rate, productivity, and real wages in the Brazilian economy from 1960 to 2011. It adopts the longstanding perspective that demand is the driver of capital accumulation and economic growth. The research comprises the following steps: (a) a critical assessment of the growth regime literature, with a particular emphasis on issues related to productivity and the real exchange rate; (b) understanding the relationship between the real exchange rate and the productivity and growth regimes; (c) proposing a theoretical model that relates the real exchange rate, productivity, and the growth regime; and (d) an empirical test of the interaction between the real exchange rate, productivity, and the growth regime. Theoretically the study develops a model showing the interactions between the aggregate demand, the real exchange rate, productivity, and real wages. Furthermore, this research attempts to address the lack of theoretical and empirical studies about the relationship between the aggregate demand, the real exchange rate, productivity and real wages.     

The changing nature of the real exchange rate: The role of central bank preferences

We investigate the sources of real exchange rate fluctuations. We do so, first, in the context of a DSGE model that explicitly considers the central bank's preferences. Then we estimate SVAR models, where shocks are identified by sign restrictions derived from the DSGE model. We perform this exercise for twelve countries, nine of which have adopted inflation targeting during the period analyzed. In sharp contrast to the previous evidence in the literature, we find that exchange rate (country risk premium) shocks have become the main drivers of real exchange rate dynamics, while real shocks play a less important role. Evidence from the DSGE model reveals that, as the central bank becomes more averse to inflation movements, and cares less about nominal exchange rate fluctuations, the impact of nominal shocks on the real exchange rate tends to increase, while the impact of real shocks decreases. Our results suggest that the adoption of inflation targeting, along with a floating exchange rate, contributes to a shift in the relative importance of demand and country risk premium shocks in determining the RER.     

Nonlinearities in the real exchange rates: new evidence from developed and developing countries

This paper investigates nonlinearities in the dynamics of real exchange rates. We use Monte Carlo simulations to establish the size properties of the Teräsvirta-Anderson test, when the dynamics of the real exchange rate is influenced by an exogenous process. In addition, we show that a modified nonlinearity test, which includes additional right-hand-side variables, performs much better than the original in both Monte Carlo exercises and in the actual data on 1431 bilateral real exchange rate series. Finally, we investigate the dynamics of the real exchange rate for both developed and developing countries using the modified test for the recent floating period. In general, the results find a greater incidence of nonlinear dynamics for developing country real exchange rates.     

Exports and growth: Granger causality analysis on OECD countries with a panel data approach

This paper investigates the possibility of Granger causality between the logarithms of real exports and real GDP in twenty-four OECD countries from 1960 to 1997. A new panel data approach is applied which is based on SUR systems and Wald tests with country specific bootstrap critical values. Two different models are used. A bivariate (GDP–exports) model and a trivariate (GDP–exports–openness) model, both without and with a linear time trend. In each case the analysis focusses on direct, one-period-ahead causality between exports and GDP. The results indicate one-way causality from exports to GDP in Belgium, Denmark, Iceland, Ireland, Italy, New Zealand, Spain and Sweden, one-way causality from GDP to exports in Austria, France, Greece, Japan, Mexico, Norway and Portugal, two-way causality between exports and growth in Canada, Finland and the Netherlands, while in the case of Australia, Korea, Luxembourg, Switzerland, the UK and the USA there is no evidence of causality in either direction.     

Oil prices and the real exchange rate in Iran: an ARDL bounds testing approach

This article examines the impact of oil prices on the real exchange rate in Iran during the 1961–2014 period using the autoregressive distributed lag approach to cointegration as the estimation method. We find that higher oil prices lead to appreciation of the real exchange rate. The results reveal that oil prices have both short-run and long-run effects on the real exchange rate.     

The impacts of China’s exchange rate regime reform in 2005: A counterfactual analysis

This paper empirically evaluates the impacts of China’s exchange rate regime reform in 2005 on its macroeconomy. We propose to use a new counterfactual policy evaluation method that is robust to the choice of control group. Using the new method, we find that China’s exchange rate regime reform in 2005 mildly reduces the Consumer Price Index, has a substantial damping effect on export, significantly increases employment, and has negligible impact on industrial production.     

Agricultural productivity,the real effective exchange rate,and structural change: Some evidence from Africa

Agriculture is thought to play a number of roles in the early development process. All of these roles involve fostering non‐agricultural development, in particular manufacturing. It is argued in this paper that agriculture plays a role that has hitherto been ignored. Specifically, if agricultural labor productivity increases faster than manufacturing labor productivity, the real effective exchange rate will depreciate. This depreciation of real effective exchange rate occurs because in very poor countries agriculture makes up the dominant share of both GDP and employment. The depreciation also makes it easier for a country to expand the production of tradables relative to nontradables, with manufacturing being the main tradable. This proposition, which as agricultural labor productivity increases relative to manufacturing labor productivity the real effective exchange rate depreciates, is tested using data drawn from 10 sub‐Saharan African countries.     

The U.S. trade imbalance and real exchange rate: An application of the heterogeneous panel cointegration method

The United States economy suffers from persistent trade deficits, arising from the so-called ‘global external imbalance’. Can the depreciation of the US dollar improve this phenomenon? This study for the first time applies the heterogeneous panel cointegration method to examine the long-run relationship between the real exchange rate and bilateral trade balance of the U.S. and her 97 trading partners for the period 1973–2006. Using new annual data, the empirical results indicate that the devaluation of the US dollar deteriorates her bilateral trade balance with 13 trading partners, but improves it with 37 trading partners, especially for China. In the panel cointegrated framework, a long-run negative relationship between the real exchange rate and the bilateral trade balance exists for the U.S.     

The effects of land market development on economic growth： an empirical analysis based on Chinese panel data, 1999-2005

Optimized land resources allocation is important for economic growth because land is one of the basic elements for economic development. And urban land resources allocation has had an increasingly important influence since the Chinese socialist market economy system was established. This paper estimates the production function of both the secondary and the tertiary industries of China＇s 31 provinces, autonomous regions and municipalities directly under the central government through an analysis of the panel data of the total output value of the secondary and the tertiary industries, invested capital, invested labor jorces and the land market-jeatured management of the above-mentioned regions during the period of 1999-2005. and examines the positive influence of the above- mentioned factors on regional economic output, This study concludes that urban economic output is positively related with the level of urban land resources market-featured management, since the rate of economic growth of those regions approximates 14. 7% under the condition of urban land market running during the period of 1999-2005.     

The demand for money and the real exchange rate misalignments in emerging European countries: A nonlinear approach

This paper investigates the extent to which domestic and foreign money balances in emerging European countries are influenced by foreign exchange considerations. A well-specified and stable relationship between real money demand and the exchange rate can be perceived as an important part of a successful monetary policy. This study examines the long-run determinants of real exchange rates (RERs) associated with the behavioral equilibrium exchange rate (BEER) approach and identifies currency misalignments in these countries. The misalignment is later used to test the nonlinear behavior of the demand for money. The results indicate that the RER misalignments have a significant impact on domestic money demand. When the currencies are overvalued, there is a reduction in domestic money demand, and when they are undervalued, there is an increase in domestic money demand. Furthermore, it can be concluded that overvaluation causes an increase in foreign money demand indicating a shift of preference from domestic to foreign currency.     

Impact of oil price shocks on output,inflation and the real exchange rate: evidence from selected ASEAN countries

This article analyses the impact of oil price shocks on real output, inflation and the real exchange rate in Thailand, Malaysia, Singapore, the Philippines and Indonesia (ASEAN-5) using a Structural VAR model. The cointegration tests indicate that the macroeconomic variables of these countries are cointegrated and share common trends in the long run. The impulse response functions reveal that oil price fluctuations do not impact the ASEAN-5 economies in the long run and much of its effect is absorbed within five to six quarters. The variance decomposition results further assert that with a few exceptions oil price shocks do not explain a significant variation in any of the variables under consideration. We also identify a very unique pattern of response to oil price fluctuations between Malaysia and Singapore and between the Philippines and Thailand. The pairs exhibit a high degree of similarity in their responses; they do not share any commonalities across the group.