Long-run purchasing power parity with asymmetric adjustment: Further evidence from nine transition countries

In this study, we applied a threshold cointegration test to investigate the properties of asymmetric adjustment on long-run purchasing power parity (PPP) in nine transition countries between January 1995 and December 2008. Although there was strong evidence of long-run PPP for these nine transition countries (i.e., Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, and Russia), the adjustment mechanism was asymmetric. These results have important policy implications for the nine transition countries included in the study.     

Comovements among U.S. state housing prices: Evidence from fractional cointegration

This study investigates the relationship between U.S. state housing prices and overall U.S. housing prices as well as the relationship among state housing prices using fractional integration and cointegration techniques. The results based on parametric and semiparametric estimators reveal that some states contain unit roots though we fail to find cointegrating relations between U.S. states housing prices and the overall U.S. housing prices as well as among state housing prices. The results raise doubts regarding the long-run convergence in U.S. state housing prices and the presence of the ripple effect.     

The forward premium anomaly: statistical artefact or economic puzzle? New evidence from robust tests

Abstract .  Recent literature has questioned statistical inference in predictive regression with persistent regressors, suggesting a possible explanation for puzzles such as the forward premium anomaly. We therefore revisit this puzzle using three alternative econometric methods known to provide reliable inference in the presence of persistent conditioning variables. While they provide less evidence against forward rate unbiasedness than traditional predictive regression tests, we still reject using at least one method for all six currencies. Thus, while the econometric problems inherent in predictive regression likely play a role in this anomaly, we are left with an economic puzzle even after accounting for their influence.     

Revisiting residential demand for electricity in Greece: new evidence from the ARDL approach to cointegration analysis

This article re-examines the long-run and short-run determinants of the aggregate residential demand for electricity in Greece using data spanning the period 1964–2006 and the recently advanced ARDL cointegrating method (Pesaran, J Appl Econ 16:289–326, 2001) that has not been hitherto applied to Greek data. The results of the ARDL method combined with the (Johansen, J Econ Dyn Control 12:231–254, 1988) cointegration method show the presence of an equilibrium relationship among the variables involved. These findings may shed new light on the contemplation of more effective energy policies with respect to electricity.     

Producer price adjustment to commodity price shocks: An application of threshold cointegration

During the 1980s and 1990s, most developing countries in Sub-Saharan Africa and Latin America implemented structural adjustment reforms, which included the liberalization of export crop markets and the abolition of marketing boards. The emergence of new marketing systems may have altered price transmission mechanisms, especially if collusion behaviors have appeared among domestic stakeholders along the marketing chain. I use threshold cointegration tools to analyze the dynamics of world price transmission to coffee growers in three deregulated markets. The methods I use allow me to test the presence of a threshold in both the cointegrating relationship and its corresponding error correction model. Over the pre-reform period, I detect asymmetric price adjustments that appear favorable to producers - deviations from the long-run equilibrium resulting from largest increases in world prices being eliminated relatively quickly - and disappear in the post-reform period. On the contrary over the post-reform period, the results suggest that largest decreases in world prices may be transmitted relatively quickly to growers. These results can be seen as expressions of a favorable pricing policy over the pre-reform period and an unfavorable influence of new private agents over the post-reform period, meaning that in some cases reforms may have failed to create competitive market structures.     

What drives the nonlinearity of time series: A frequency perspective

It is well-known that economic and financial time series are characterized by nonlinearities. The literature does not agree, however, on the actual causes of such nonlinearities. In this paper, I investigate whether dynamics at different frequencies present different degree of nonlinearity, and how much they may influence any nonlinearity in the aggregate original series. This paper finds strong evidence in support of the idea that nonlinearities are mostly found at high frequencies.     

Modeling male and female employment policy in Greece from local data

The article analyzes the population shares of employed, unemployed and other men and women by utilizing the 2001 Greek Census data collected at the municipal level. It departs from other studies on the subject by (a) considering not one but all economic activities simultaneously, (b) trying to ameliorate through space the common, yet often overlooked, regression misspecification problem, and (c) resorting to the use of fresh spatial arguments, as opposed to conventional regional or sub-regional regressors. In particular, the demographic, educational, and other conventional, available independent variables are supplemented with territorial arguments constructed from the inter-municipal functional linkages and the patterns of the residuals. By isolating the effects of the spatial and non-spatial factors driving economic activity, the article brings to light sub-regional and cross-regional patterns that might otherwise go undetected, and provides a better understanding of the internal heterogeneity of the country. This facilitates the formulation of (i) better-targeted employment and unemployment policy interventions aiming to treat disparities at the local and micro-regional level, alongside (ii) broader, nation-wide interventions.     

An in-sample and out-of-sample empirical investigation of the nonlinearity in house prices of South Africa

This paper tests whether housing prices in the five segments of the South African housing market, namely large-middle, medium-middle, small-middle, luxury and affordable, exhibit non-linearity based on smooth transition autoregressive (STAR) models estimated using quarterly data from 1970:Q2 to 2009:Q3. Findings point to an overwhelming evidence of non-linearity in these five segments based on in-sample evaluation of the linear and non-linear models. We next provide further support for non-linearity by comparing one- to four-quarters-ahead out-of-sample forecasts of the non-linear time series model with those of the classical and Bayesian versions of the linear autoregressive (AR) models for each of these segments, for the out-of-sample horizon 2001:Q1 to 2009:Q3, using the in-sample period 1970:Q2 to 2000:Q4. Our results indicate that barring the one-, two and four-step(s)-ahead forecasts of the small segment, the non-linear model always outperforms the linear models. In addition, given the existence of strong causal relationship amongst the house prices of the five segments, the multivariate versions of the linear (classical and Bayesian) and STAR (MSTAR) models were also estimated. The MSTAR always outperformed the best performing univariate and multivariate linear models. Thus, our results highlight the importance of accounting for non-linearity, as well as the possible interrelationship amongst the variables under consideration, especially for forecasting.     

Forecasting the US real house price index: Structural and non-structural models with and without fundamentals

We employ a 10-variable dynamic structural general equilibrium model to forecast the US real house price index as well as its downturn in 2006:Q2. We also examine various Bayesian and classical time-series models in our forecasting exercise to compare to the dynamic stochastic general equilibrium model, estimated using Bayesian methods. In addition to standard vector-autoregressive and Bayesian vector autoregressive models, we also include the information content of either 10 or 120 quarterly series in some models to capture the influence of fundamentals. We consider two approaches for including information from large data sets — extracting common factors (principle components) in factor-augmented vector autoregressive or Bayesian factor-augmented vector autoregressive models as well as Bayesian shrinkage in a large-scale Bayesian vector autoregressive model. We compare the out-of-sample forecast performance of the alternative models, using the average root mean squared error for the forecasts. We find that the small-scale Bayesian-shrinkage model (10 variables) outperforms the other models, including the large-scale Bayesian-shrinkage model (120 variables). In addition, when we use simple average forecast combinations, the combination forecast using the 10 best atheoretical models produces the minimum RMSEs compared to each of the individual models, followed closely by the combination forecast using the 10 atheoretical models and the DSGE model. Finally, we use each model to forecast the downturn point in 2006:Q2, using the estimated model through 2005:Q2. Only the dynamic stochastic general equilibrium model actually forecasts a downturn with any accuracy, suggesting that forward-looking microfounded dynamic stochastic general equilibrium models of the housing market may prove crucial in forecasting turning points.     

Volatility spill-overs in commodity spot prices: New empirical results

The classical rational expectations model of commodity markets implies that expected spot price risk is an explanatory variable in spot price regressions; and also that inventory carryover, which is reduced by a larger price variance, creates autoregressive conditional heteroscedastic processes in spot prices. In order to falsify/verify this theory, it has typically been assumed that the square root of the conditional variance of spot prices, a proxy for spot price risk, enters the conditional mean function of spot prices. Based on this simple representation, a typical but counter intuitive outcome has been that spot price risk has an insignificant impact on spot prices, see, e.g., Beck (Beck, S., 1993. A Rational Expectations Model of Time Varying Risk Premia in Commodities Futures Markets: Theory and Evidence. International Economic Review 34, 149–168, Beck, S., 2001. Autoregressive Conditional Heteroskedasticity in Commodity Spot Prices. Journal of Applied Econometrics 16, 115–132). In this paper, we propose an alternative functional relationship (from GARCH(1,1) to GARCH(1,1)-AR(m)) between spot price risk and spot prices that is fully supported by the classical rational expectations model, and based on this new representation we are able to provide stronger empirical support for Muth's rational expectation theory.     

The persistence in real exchange rate: Evidence from East Asian countries

In this article, we examine the degree of persistence in monthly real exchange rate of six East Asian countries in relation to their two major trading partners, the United States and Japan, to study the validity of PPP for the 1976:01–2009:03 period. To investigate the persistency in real exchange rate series, we use sum of the autoregressive (AR) coefficients and the confidence interval for it using grid-bootstrap procedure recently developed by Hansen (1999). We have two findings: first, we find evidence for high persistency in real exchange rate in terms of the Japanese yen for five countries and for four countries in terms of the US dollar the for the full and pre-crisis sample periods. Second, for the post-crisis period, the presence of low persistency in real exchange rate supports PPP for three countries in terms of the Japanese yen and five countries in terms of the US dollar. These findings indicate that real exchange rate series of five East Asian countries are mean-revert based on their exchange rate policies and East Asian countries can form a currency union.     

International macroeconomic dynamics: A factor vector autoregressive approach

In this paper international comovements among a set of key real and nominal macroeconomic variables in the US, UK, Canada, Japan and the Euro area have been investigated for the 1980–2005 period, using a factor vector autoregressive approach. We present evidence that comovements in macroeconomic variables do not concern only real activity, but are an important feature also of stock market returns, inflation rates, interest rates and, to a smaller extent, monetary aggregates. Both common sources of shocks and similar transmission mechanisms explain international comovements, with the only exception of Japan, where the idiosyncratic features seem to dominate. Finally, concerning the origin of global shocks, evidence of both global supply-side and demand-side disturbances is found.     

Modeling nonlinear Granger causality between the oil price and U.S. dollar: A wavelet based approach

In this paper, we use a wavelet approach to study the linear and nonlinear Granger causality between the real oil price and the real effective U.S. Dollar exchange rate. Instead of analyzing the time series at their original level, as it is usually done, we first decompose the two macroeconomic variables at various scales of resolution using wavelet decomposition and then we study the relationships among the decomposed series on a scale by scale basis. A major finding of this paper is that the linear and nonlinear causal relationships between the real oil price and the real effective U.S. Dollar exchange rate vary over frequency bands as it depends on the time scales. Indeed, there is a strong bidirectional causal relationship between the real oil price and the real dollar exchange rate for large time horizons, i.e. corresponding to fundamentalist traders, especially fund managers and institutional investors. But, for the first frequency band which corresponds to a class of traders whom investment horizon is about 3-months and whom trading is principally speculative (noise traders), the causality runs only from the real oil prices to real effective U.S dollar exchange rate.     

Collective management of residential housing in Russia: The importance of being social

Homeowners associations (HOAs) implement collective management in residential housing. We assess the performance of such associations in Russia by using the stochastic frontier technique. Cultural traits enabling tenants to make proper use of the HOA decision-making procedures are essential for resolving the collective action problem and ensure accountability of governing bodies and outside contractors. Such “technical civic competence” has a stronger impact on HOA performance than more conventional forms of social capital which rise in their significance when HOA governance breaks down and informal grassroots alternatives are mobilized instead. Massive and indiscriminate “supply-led” introduction of collective management in residential housing without matching cultural and institutional prerequisites could be counterproductive. Flexibility, freedom of choice, and market development are required to avert the failures of HOAs commonly observed in Russia.     

Estimating Housing Price: Kriging the Mean

The price of houses and its evolution in recent years is one of the issues that citizens and, of course, political and economic authorities are worried about. In most of the developed countries the mean price (per square meter) of houses in an area is estimated by a simple average of single prices from a sample of houses that does not take into account the spatial correlation among the prices. As an alternative to this classic procedure, in this paper we propose a linear estimator of the mean price of houses, using the kriging estimator, which has been specially designed for the case of spatially correlated data in a given domain. This estimator is the best unbiased linear one and provides a more realistic estimate of the mean price of houses in the urban area we are interested in. Obviously, the modelling of the variogram function is a central point in the global estimation process.     

Thai inflation dynamics: A view from disaggregated price data

This paper utilizes disaggregated prices at the micro level to examine the patterns of price adjustment in Thailand. Among the key stylized facts, we found that the frequency of price changes are generally low, prices decreases are common, the size of price changes are large relative to the inflation rate, and there is significant dispersion in price levels as well as in the synchronicity of price changes across regions. To better understand the underlying sources of heterogeneous price dynamics, we conduct dynamic factor analyses and highlight the importance of relative price changes in driving the bulk of overall CPI movements. This suggests an important role of non-monetary factors in driving inflation. A significant Phillips curve relation is detected once idiosyncratic price changes are filtered out, reinforcing the importance of disaggregated analysis of price trends in the conduct of monetary policy.     

Chaos in German stock returns — New evidence from the 0-1 test

This paper applies the 0-1 test for chaos to returns from the German stock market, providing empirical evidence of chaotic structures in the returns of all DAX members. For noise reduction purposes, wavelet denoising is employed prior to the application of the 0-1 test.     

Spatial dynamics and convergence: The spatial AK model

We study the optimal dynamics of an AK economy where population is uniformly distributed along the unit circle. Locations only differ in initial capital endowments. Spatio-temporal capital dynamics are described by a parabolic partial differential equation. The application of the maximum principle leads to necessary but non-sufficient first-order conditions. Thanks to the linearity of the production technology and the special spatial setting considered, the value function of the problem is found explicitly, and the (unique) optimal control is identified in feedback form. Despite constant returns to capital, we prove that the spatio-temporal dynamics, induced by the willingness of the planner to give the same (detrended) consumption over space and time, lead to convergence in the level of capital across locations in the long-run.     

Natural capital, subjective well-being, and the new welfare economics of sustainability: Some evidence from cross-country regressions

The measurement of natural capital and its management during the economic development process are important aspects of the capital approach to sustainable development. However, the assessment of social welfare in terms of genuine savings (or changes in total wealth per capita) is arguably too limited. This paper tries to make a case for the incorporation of subjective well-being measures in debates about sustainable development by exploring the macro-level relationship between subjective well-being and natural capital in a cross-country setting. It is tested whether natural capital per capita is correlated with subjective well-being in a sample of fifty-eight developed and developing countries, using natural capital data from the World Bank's Millennium Capital Assessment. Bivariate regressions indicate that it is. When multiple regression models are estimated that include (a) major country-level determinants of subjective well-being (GNI per capita, social capital, income distribution, unemployment, inflation), and (b) regional dummy variables for ex-Soviet Union and Latin American countries, the positive correlation remains. The role of data outliers is carefully explored, and the sensitivity of the results to the use of alternative subjective well-being measures (i.e. life satisfaction, happiness, and a combined life satisfaction and happiness index) is investigated. This does not change the nature of the results. The findings arguably strengthen the case for a ‘new welfare economics of sustainability’ that takes subjective well-being measures into account.     

Modeling asymmetric price transmission in the European food market

In this study, we employ a multivariate panel error correction model (PVECM) to investigate asymmetric price transmission among the farm, processor, and retail segments of the European food supply chain for the 2005–2016 period. The results indicate that, in both the long- and short-run, retail prices respond more strongly to processor price increases than decreases and the same occurs for processor prices due to farm price changes. Thus, the findings demonstrate the presence of positive asymmetric price transmission in the European food supply chain. Finally, the results of the present study indicate that the food price pass-through varies greatly across product category and across countries, and that the pass-through to producer prices is greater than that to consumer prices.