Financial development,economic growth and convergence clubs

To study the role of financial development in economic growth, we apply an array of convergence tests designed to capture nonlinear transitional dynamics to real outputs per capita. Strong evidence of multiple convergence clubs is observed, implying that the clubs are formed based on the initial level of real output per capita and average growth rate. Our empirical results show that the stage of economic growth of each country plays an important role for the composition of the convergence clubs. Furthermore, financial development emerges to be a significant determinant, albeit plays differently in the economic growth of each convergence club.     

Dynamic Panel Data Evidence on the Trade-Income Relation

This paper revisits the relationship between a country’s openness and its per capita income. Building on Frankel and Romer, it argues that a dynamic econometric specification similar to the ones used in empirical growth studies better fits the theoretical literature and also resolves some otherwise unresolved inconsistencies. The preferred econometric method is Blundell and Bond’s system-GMM estimator, which allows dealing with measurement error, weak instruments, and time-invariant country-specific effects. The findings confirm the existence of a strong effect of trade on income but fail to find evidence for trade as an independent factor of divergence. JEL no. F43, O40     

含有高阶矩的CAPM模型探讨

现在,资本资产定价模型已经使用得非常广泛了。但是很多研究都表明,CAPM的实证表现不好。本文的主旨就在于探讨CAPM的基本假设,从而得到它实证表现不佳的根本原因,并在CAPM中引入了较高阶矩,发展和推广了CAPM模型。     

Stochastic volatility: A tale of co-jumps,non-normality,GMM and high frequency data

In this article we introduce a linear–quadratic volatility model with co-jumps and show how to calibrate this model to a rich dataset. We apply GMM and more specifically match the moments of realized power and multi-power variations, which are obtained from high-frequency stock market data. Our model incorporates two salient features: the setting of simultaneous jumps in both return process and volatility process and the superposition structure of a continuous linear–quadratic volatility process and a Lévy-driven Ornstein–Uhlenbeck process. We compare the quality of fit for several models, and show that our model outperforms the conventional jump diffusion or Bates model. Besides that, we find evidence that the jump sizes are not normally distributed and that our model performs best when the distribution of jump-sizes is only specified through certain (co-) moment conditions. Monte Carlo experiments are employed to confirm this.     

Foreign direct investment and economic growth: Is more financial development better?

We investigate the extent to which an increase in financial development affects the positive effect of foreign direct investment on economic growth. Although the financial sector is beneficial for economic growth, the effect of further financial development on growth is found to become insignificant. Using a dynamic panel threshold model on 62 middle- and high-income countries spanning the period 1987–2016, we re-examine the possible nonlinearity between finance, foreign direct investment, and growth. Consistent with the “vanishing effect” of financial development, we find significant evidence that foreign direct investment fosters growth in general, but the growth effect of foreign direct investment becomes negligible when the ratio of private sector credit to gross domestic product exceeds 95.6%. This finding is robust to different econometric methods, various subsamples and interaction analyses, and distinct financial development indicators.     

DSGE pileups

The sampling distribution of estimators for DSGE structural parameters tends to be non-normal and/or pile up on the boundary of the theoretically admissible parameter space. This calls into question both the reliability of asymptotic approximations and the presumption of correct specification. This paper seeks to develop a conceptual framework for understanding how these phenomena arise, and to provide pragmatic methods for dealing with them in practice. The results are presented in three examples and a medium scale DSGE model.     

Carry trade strategies based on option-implied information: Evidence from a cross-section of funding currencies

We document carry trade returns based on the moments extracted from options on the underlying currencies. We establish three important results. First, a currency pair is predicted to have greater excess returns if option-implied returns are more volatile, are more left-skewed, and have fatter tails than the returns of other currency pairs. Second, strategies based on option-implied information improve on benchmark strategies based on realized market returns and macroeconomic data. Third, if the option-implied returns of a currency pair are more left-skewed than in the past, anti-carry trades rather than carry trades perform better.     

The role of stochastic volatility and return jumps: reproducing volatility and higher moments in the KOSPI 200 returns dynamics

This paper investigates the role of stochastic volatility and return jumps in reproducing the volatility dynamics and the shape characteristics of the Korean Composite Stock Price Index (KOSPI) 200 returns distribution. Using efficient method of moments and reprojection analysis, we find that stochastic volatility models, both with and without return jumps, capture return dynamics surprisingly well. The stochastic volatility model without return jumps, however, cannot fully reproduce the conditional kurtosis implied by the data. Return jumps successfully complement this gap. We also find that return jumps are essential in capturing the volatility smirk effects observed in short-term options.

Estimating gravity equation models in the presence of sample selection and heteroscedasticity

Gravity models are widely used to explain patterns of trade. However, two stylized features of trade data, sample selection and heteroscedasticity challenge the estimation of gravity models. We propose a two-step method of moments (TS-MM) estimator that deals with both issues. The Monte-Carlo experiments show that the TS-MM estimates are resistant to various combinations of sample selection and heteroscedasticity. Moreover, the TS-MM estimator performs reasonably well even when the data generating process deviates from the TS-MM assumptions. We revisit the world trade in 1990 to illustrate the usefulness of the proposed model, with emphasis on the identification of the extensive margin of trade.     

What determines international tourist arrivals in India?

Using data for 18 major tourist originating countries to India from 2001 to 2015, this study examines the major determinants of international tourist arrivals in India. The results indicate that past experiences of the tourists, per capita income in the tourist originating country, relative costs of living between India and the country of origin, and the level of infrastructure development in India are key determinants of international tourist arrivals in India. Furthermore, both transportation and communication infrastructure are important in attracting tourists to India. In particular, evidence suggests that availability of road and air network and telephone connections has favourable impacts on international tourist arrivals in India. These results are robust to the inclusion of additional variables. These results have important policy implications.