Mozambique Metical Exchange Rate Dynamics: Evidence of Fractional Co‐Integration in the USA and South African Rates

This paper studies the exchange rate dynamics of the Mozambique metical with respect to the US dollar and the South African rand. However, instead of using standard I(0)/I(1) techniques, we use long memory and fractionally integrated and co‐integrated models. Our results indicate that the two exchange rates are highly persistent, with orders of integration equal to or above 1. They also seem to be co‐integrated, with an order of integration close to albeit above 0 but with an AR coefficient very close to 1. Thus, although the two series seem to be fractionally co‐integrated, shocks in the long‐run relationship between the two variables are persistent and take a long time to disappear.     

A New Approach to the Study of Jobless Recoveries

This article is concerned with the measurement of jobless recoveries and the elements that may explain their emergence. We first introduce a measure that maps the various elements that define a jobless recovery into a single number that we label the jobless recovery depth. We then construct a database of 389 state‐level observations and study the cross‐sectional variations that emerge. We find that jobless recoveries in the United States are not a nation‐wide phenomena, but a local event confined within a cluster of states that expands slowly between 1975 and 2015. We find the state‐level evidence to be consistent with theories that link jobless recoveries to unusually long expansionary periods, less dynamic labor markets, and the advent of the great moderation. The evidence is not consistent with theories that link them to decreases in union power, increases in income inequality, or increases in health care costs.     

Unemployment and Health Behaviors over the Business Cycle: A Longitudinal View

We examine the first-order internal effects of unemployment and nonemployment on a range of health behaviors during the most recent recession using longitudinal data from the Panel Study of Income Dynamics and the National Longitudinal Survey of Youth-1979. Ours is the first study to analyze the effect of own-unemployment on energy intake, energy expenditure, and the net effect (body mass index) using longitudinal records. Exploiting information enveloping the recent steep recession and prolonged recovery is valuable since recent job losers will modify their behavior little if they expect soon to be re-employed, whereas if they expect joblessness to last, they will adjust to a possibly prolonged decline in income and increase in nonwork time. We find that becoming unemployed is associated with a small increase in leisure-time exercise, a moderate decrease in smoking, and a substantial decline in total physical activity. We also find that unemployment and nonemployment are associated with a decline in purchases of fast food. Together, these results imply that both energy consumption and expenditure may decline in the United States during recessions, the net result being essentially no change in body weight. There is considerable heterogeneity in these effects across specific health behaviors, across the intensive and extensive margins, across the outcome distribution, and across gender.     

Persistence in U.S. State Unemployment Rates: Errata and Extensions

Using panel unit root tests allowing for breaking deterministics, 2007 found that many U.S. state unemployment rates were stationary, a result at odds with the traditional view that unemployment rates are path‐dependent and subject to shocks that have permanent effects. 2009 extended the analysis to directly examine whether the series were fractionally integrated and reported that models with two breaks‐in‐mean do suggest many state unemployment rates were mean‐reverting. The purpose of this note is to correct an error contained in 2009 , which when modified, indicates that state unemployment rates were non‐stationary processes well‐characterized by hysteresis.     

Modeling Cyclical Asymmetries in GDP: International Evidence

This paper models asymmetric behavior in GDP growth in the USA, Germany, France, and Japan. It develops smooth transition autoregressive models and interprets nonlinear dynamics in terms of cyclical asymmetries. A procedure for defining data-based, qualitative cyclical regimes from the estimated models is proposed, and generalized impulse response functions are computed to assess to what extent the response to a shock changes over different phases of the cycle.     

Job Search and the Measurement of Unemployment in South Africa

We interrogate the distinction between searching and non‐searching unemployment in South Africa using data from the first national panel survey that tracks the individual. In particular, we test whether the non‐searching unemployed display a weaker commitment to the labour market than the searching unemployed, and we investigate what counts as search activity. We find that over the panel, the search status of the unemployed does not predict their subsequent employment status, a result that is robust also for subsamples that vary by age cohort, gender and location. Moreover, social networks are the most important job‐finding strategy of the employed. These findings challenge the exclusion of the non‐searching unemployed from the measure of “genuine” work seekers.     

Testing the Marshall–Lerner Condition in Kenya

In this paper we examine the Marshall–Lerner (ML) condition for the Kenyan economy. In particular, we use quarterly data on the log of real exchange rates, export/import ratio and relative (US) income for the time period 1996q1‐2011q4, and employ techniques based on the concept of long memory or long‐range dependence. Specifically, we use fractional integration and cointegration methods, which are more general than standard approaches based exclusively on integer degrees of differentiation. The results indicate that there exists a well‐defined, cointegrating relationship linking the balance of payments to the real exchange rate and relative income, and that the ML condition is satisfied in the long run, although the convergence process is relatively slow. They also imply that a moderate depreciation of the Kenyan shilling may have a stabilising influence on the balance of trade through the current account without the need for high interest rates.     

Real wages,investment and employment: New evidence from West German sectoral data

Real Wages, Investment and Employment: New Evidence from West German Sectoral Data. — Non-separable capital adjustment costs imply that investment directly affects the demand for labour and therefore justify not only the lagged dependent variable but also the presence of investment expenditures or Tobin’s valuation ratio Q in labour demand estimation. On this basis, the authors estimate a very parsimonious specification of demand for blue-collar workers in a panel of 32 West German industries. They find much larger short-run real wage employment elasticities than previous research, and robustly significant positive effects of investment or Tobin’s Q on labour demand.     

Eastern Germany and the conflict between wage adjustment,investment, and employment: A numerical analysis

Eastern Germany and the Conflict between Wage Adjustment, Investment, and Employment: A Numerical Analysis. — In this paper, some light is shed on the dynamics of the adjustment process in eastern Germany by studying the linkages between the dynamics of wage adjustment, investment, and employment. An extended dynamic investment model, which includes adjustment costs for capital and revision costs for investment, is presented. This model is specified according to the east German economy and analyzed numerically by an optimization method based on direct collocation. Results are obtained for the time horizon of adjustment and for the implications of different wage strategies on the path of investment and employment.     

Does purchasing power parity survive political shocks in South Africa?

Does Purchasing Power Parity Survive Political Shocks in South Africa? — The objectives of the paper are to examine the Purchasing Power Parity (PPP) hypothesis for the South African economy during the period 1975–1994 using high-frequency data. The analysis is conducted both for the entire period and also for different subperiods in order to take into account possible structural changes. For the rand/ dollar exchange rate, the authors find on the basis of a unique long-run cointegrating relationship that there is significant evidence supporting the PPP hypothesis for the entire period. The use of nonlinear least squares and Johansen-Juselius procedures is made to reach the above conclusion.     

An econometric analysis of the main components of M3 in the Euro area

An Econometric Analysis of the Main Components of M3 in the Euro Area. — The main result is that the four components of M3 in the euro area can be explained in terms of a small set of explanatory variables (nominal GDP and interest rates) for the sample period January 1990 — September 1999 both in terms of levels and as shares of M3. Moreover, overall cointegration tests broadly support the hypothesis of long-run stability of the demand for the components of M3 and for M3 itself in nominal terms. Around the start of Stage Three of Monetary Union significant substitution between the components of M3 is detected. A refinement of the empirical analysis takes into account the correlation of the unexplained movements of the individual components using the SUR technique.     

Economic Fluctuations in the U.S. and Euro Area: Quantifying the Contribution of Technical Change

This article aims at quantifying the contribution of technical change to cyclical fluctuations in the U.S. and euro area. We distinguish technical progress in labor-augmenting and capital-augmenting change. To this end, we derive and estimate a New Keynesian DSGE model embodying a constant elasticity of substitution (CES) production function for both areas. Our main findings are: (i) capital-augmenting progress is the main source of technical change volatility; (ii) labor-augmenting shocks give a negligible contribution to the variance of output; (iii) technical change (of both types) explains more economic fluctuations in the U.S. than in the euro area; and (iv) historical decomposition of GDP growth over our sample period (1980–2008) shows that capital-augmenting progress is one of the key drivers of the business cycle.     

CYCLICAL UNEMPLOYMENT AND CYCLICAL OUTPUT: AN ESTIMATION OF OKUN'S COEFFICIENT FOR SOUTH AFRICA

Persistently high unemployment in South Africa, especially in the face of improved economic conditions since 1994, begs the question: Does unemployment in South Africa respond to changes in output? Okun's law refers to the inverse relationship that exists between cyclical output and cyclical unemployment. This paper estimates Okun's coefficient for the South African economy, using annual data from 1970‐2005. Output and unemployment are decomposed into their trend and cyclical components, using a variety of detrending methods. The presence of structural breaks in Okun's relationship is also investigated, while cointegration analysis was also considered. Evidence of a statistically significant relationship between cyclical output and cyclical unemployment are found in both symmetric (estimates range from ?0.77 to ?0.16) and asymmetric (estimates range from ?0.77 to ?0.18) specifications of Okun's law, irrespective of the detrending technique. However, cyclical unemployment constitutes only a relatively small fraction of total (observed) unemployment, which implies that a more expansionary macroeconomic policy stance might only have a limited impact on total unemployment in South Africa.     

Did the Recent Housing Boom Signal the Global Financial Crisis?

2005 prediction of the current global crisis followed from two key observations: (i) the recent housing booms in the United States and other advanced countries were not explained by economic fundamentals; and (ii) historically similar financial booms eventually collapsed, leading to recession. This article provides an empirical framework linking 2005 observations and crisis prediction. We utilize vector error correction models and panel probit and logit models to show that tracking a single variable, real house prices, was sufficient to predict the current global crisis.     

Innovation in Africa: Why Institutions Matter

Given the role that innovation plays as an engine for economic development, we examined the enabling factor of institutions in Africa. Particularly, attention was given to determining the equivalent effects of institutional development on innovation. A sample of 40 African countries over the period 1996‐2012 was employed, and our baseline equation was estimated using the system generalised method of moments (SGMM) estimation technique. The empirical result reveals that government effectiveness and regulatory quality are two institutional measures that have the most equivalent impact on innovation. The extent of impact is an indication that institutions matter, especially when considering innovation in Africa. Therefore, to advance the rate of innovation in Africa, improving frameworks to drive regulations and enhance government effectiveness is a necessary instrument. Having these in place, Africa will be able to catch up with advanced economies.     

Economic Globalization and Inflation in China: A Multivariate Approach

This paper evaluates whether globalization has increased the role of global factors in driving inflation in China. Unlike other published studies on the relationship between globalization and inflation, which mostly use Phillips curve models, this paper uses multivariate dynamic models to examine the dynamic interactions between globalization and inflation in China. Empirical results with quarterly data spanning from 1995 to 2012 show that the global output gap significantly affects the dynamics of inflation in China. In particular, the global output gap is superior to the domestic output gap in predicting domestic inflation. Impulse response and variance decomposition analyses reinforce this finding. Our results indicate that the central bank of China should take developments in global output into account in its monetary policy‐making process.     

Mechanical refrigeration, seasonality, and the hog-corn cycle in the United States: 1870-1940

This paper examines the role of mechanical refrigeration in seasonality and structural change in the U.S. hog-corn cycle, 1870-1940. This period covers an era in which the widespread adoption of mechanical refrigeration greatly affected the ability to store and transport perishable commodities. These developments in turn altered the seasonal production and price structure for many commodities, including pork. We use a new class of time series models, time-varying smooth transition autoregressions (TV-STARs), to document both the structural change and the nonlinear features observed in seasonal patterns for the U.S. hog-corn price relationship during the late nineteenth and early twentieth centuries.     

A STOCHASTIC ESTIMATION FRAMEWORK FOR COMPONENTS OF THE SOUTH AFRICAN CONSUMER PRICE INDEX

Under inflation targeting in South Africa, it is important to monitor and forecast changes in prices, not only for aggregate measures of the consumer price index, but also its underlying sub-components. Hypotheses about sectoral transmission of policy and shocks are often more specific than hypotheses about overall transmission. This study employs a stochastic framework to estimate richly specified equilibrium correction models, four-quarters-ahead, for the 10 sub-components of the first targeted measure of the consumer price index, CPIX. The stochastic trends are estimated by the Kalman filter, and interpreted as capturing structural breaks and institutional change, a frequent cause of forecast failure. The trends suggest the design of deterministic split trends for use in recursive forecasting models, towards more accurate overall inflation forecasting. This research also has practical use for monetary policy in allowing identification of sectoral sources of inflation.     

Cross-country interdependencies in growth dynamics: A model of output growth in the G7 economies, 1960–1994

Cross-Country Interdependencies in Growth Dynamics: A Model of Output Growth in the G7 Economies, 1960–1994. — Recently developed methods in time series analysis are employed to study output growth across the G7 economies. The methods accommodate the interdependencies that exist between economies’ growth, and provide the means for analyzing the sources of shocks to output growth and for examining the time profiles of the shock effects. Sophisticated dynamic adjustments in output are identified, due to lagged responses to shocks, the feedback of effects across countries, and the differential speeds of response to different types of shock. Among the shocks considered, those to world trade and oil prices are shown to significantly affect many countries’ output levels.     

A Note on the (Continued) Ability of the Yield Curve to Forecast Economic Downturns in South Africa

In 2002‐2003, the South African yield spread falsely signalled a downswing that never materialised. This paper provides two reasons for this false signal. First, while the Reserve Bank never actually officially declared the start of a downswing, by alternative measures a downswing did actually occur. It is this severe weakness in economic activity at that time that the yield curve pointed to. Second, short‐term interest rates in 2003 were higher than they should have been because of a mistake made in measuring consumer price inflation. Because South Africa had recently introduced an inflation‐targeting regime, policy interest rates were, as a result of this error, kept too high for too long. This policy mistake was rectified as soon as the error in the Consumer Price Index was discovered. Thus, the yield curve in 2003 pointed to the reality that short‐term interest rates were too high and risked pushing the economy into full blown recession. This is demonstrated by the fact that it was a fall in long bond interest rates that caused the yield spread to turn negative, indicating expectations that short‐term interest rates would need to be cut – as indeed they were.