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Book part
Publication date: 13 December 2013

Nikolay Gospodinov, Ana María Herrera and Elena Pesavento

This article investigates the robustness of impulse response estimators to near unit roots and near cointegration in vector autoregressive (VAR) models. We compare estimators…

Abstract

This article investigates the robustness of impulse response estimators to near unit roots and near cointegration in vector autoregressive (VAR) models. We compare estimators based on VAR specifications determined by pretests for unit roots and cointegration as well as unrestricted VAR specifications in levels. Our main finding is that the impulse response estimators obtained from the levels specification tend to be most robust when the magnitude of the roots is not known. The pretest specification works well only when the restrictions imposed by the model are satisfied. Its performance deteriorates even for small deviations from the exact unit root for one or more model variables. We illustrate the practical relevance of our results through simulation examples and an empirical application.

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VAR Models in Macroeconomics – New Developments and Applications: Essays in Honor of Christopher A. Sims
Type: Book
ISBN: 978-1-78190-752-8

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Book part
Publication date: 1 July 2015

Nidhaleddine Ben Cheikh and Waël Louhichi

This chapter analyzes the exchange rate pass-through (ERPT) into different prices for 12 euro area (EA) countries. We provide new up-to-date estimates of ERPT by paying attention…

Abstract

This chapter analyzes the exchange rate pass-through (ERPT) into different prices for 12 euro area (EA) countries. We provide new up-to-date estimates of ERPT by paying attention to either the time-series properties of data and variables endogeneity. Using VECM framework, we examine the pass-through at different stages along the distribution chain, that is, import prices, producer prices, and consumer prices. When carrying out impulse response functions analysis, we find a higher pass-through to import prices with a complete pass-through (after one year) detected for roughly half of EA countries. These estimates are relatively large compared to single-equation literature. We denote that the magnitude of the pass-through of exchange rate shocks declines along the distribution chain of pricing, with the modest effect recorded for consumer prices. When assessing for the determinant of cross-country differences in the ERPT, we find that inflation level, inflation volatility, and exchange rate persistence are the main macroeconomic factors influencing the pass-through almost along the pricing chain. Thereafter, we have tested for the decline of the response of consumer prices across EA countries. According to multivariate time-series Chow test, the stability of ERPT coefficients was rejected, and the impulse responses of consumer prices over 1990–2010 provide an evidence of general decline in rates of pass-through in most of the EA countries. Finally, using the historical decompositions, our results reveal that external factors, that is, exchange rate and import prices shocks, have had important inflationary impacts on inflation since 1999 compared to the pre-EMU period.

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Monetary Policy in the Context of the Financial Crisis: New Challenges and Lessons
Type: Book
ISBN: 978-1-78441-779-6

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Abstract

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Dynamics of Financial Stress and Economic Performance
Type: Book
ISBN: 978-1-78754-783-4

Article
Publication date: 1 August 2016

Jonas Hahn, Verena Keil, Thomas Wiegelmann and Sven Bienert

The purpose of this paper is to estimate the impact of changes in macro-economic conditions going forward, focusing on a change in interest policy, with regard to office letting…

Abstract

Purpose

The purpose of this paper is to estimate the impact of changes in macro-economic conditions going forward, focusing on a change in interest policy, with regard to office letting and investment markets.

Design/methodology/approach

For this analysis, the authors constructed two vector-autoregressive models, measuring the response of office rents and capital values in Germany to economic impulses. The authors isolated effects of unique exogenous positive shocks (such as economic growth or interest leaps) on the basis of impulse-response functions in order to understand the complex dynamic interdependence between several economic factors and office performance changes.

Findings

The authors initially find a moderately positive development of both office performance components even although supposing an increase in interest level. In terms of capital values, the authors find that they do not drop before 1.5 years after the interest impulse and the negative effect peaks after approximately nine quarters. Furthermore, the reaction to a change in GDP is significantly lower than a reaction to the interest rate, but impulses in other macro-economic factors provoke stronger reactions. Finally, the authors find that a positive interest shock leads to a comparably robust development and economic sustainability in office rents throughout a consideration horizon of 24 quarters.

Research limitations/implications

Estimations are based on observations from a time period containing two rather extraordinary market phases. As they included bubble growth and the low-interest environment, the authors find that certain patterns in both phases neutralize each other when looking at the total time frame. The authors constructed sub-samples to compensate for this. However, the research does not provide to what extent the measured impulse-responses stay forecast-proof, if the market moves into a phase of short-term normalization.

Practical implications

This paper provides insights into estimated impulse-response patterns on a hypothetical sudden increase of several macro-economic determinants. On this basis, the probable reaction to an increase in, for example, the interest rate level can be approximated. Also, the paper provides a fundamental understanding of the economic sustainability of German office properties in terms of their value and rent performance in the case of exogenous shocks.

Originality/value

This paper contains the first vector-autoregressive, impulse-response analysis of office markets in Germany in the context of several macro-economic drivers, including the interest level. It delivers insights into market reaction patterns on the basis of simulated one standard deviation shocks in all included variables.

Details

Journal of Property Investment & Finance, vol. 34 no. 5
Type: Research Article
ISSN: 1463-578X

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Book part
Publication date: 22 November 2012

Eric R. Sims

A state space representation of a linearized DSGE model implies a VAR in terms of observable variables. The model is said be non-invertible if there exists no linear rotation of…

Abstract

A state space representation of a linearized DSGE model implies a VAR in terms of observable variables. The model is said be non-invertible if there exists no linear rotation of the VAR innovations which can recover the economic shocks. Non-invertibility arises when the observed variables fail to perfectly reveal the state variables of the model. The imperfect observation of the state drives a wedge between the VAR innovations and the deep shocks, potentially invalidating conclusions drawn from structural impulse response analysis in the VAR. The principal contribution of this chapter is to show that non-invertibility should not be thought of as an “either/or” proposition – even when a model has a non-invertibility, the wedge between VAR innovations and economic shocks may be small, and structural VARs may nonetheless perform reliably. As an increasingly popular example, so-called “news shocks” generate foresight about changes in future fundamentals – such as productivity, taxes, or government spending – and lead to an unassailable missing state variable problem and hence non-invertible VAR representations. Simulation evidence from a medium scale DSGE model augmented with news shocks about future productivity reveals that structural VAR methods often perform well in practice, in spite of a known non-invertibility. Impulse responses obtained from VARs closely correspond to the theoretical responses from the model, and the estimated VAR responses are successful in discriminating between alternative, nested specifications of the underlying DSGE model. Since the non-invertibility problem is, at its core, one of missing information, conditioning on more information, for example through factor augmented VARs, is shown to either ameliorate or eliminate invertibility problems altogether.

Details

DSGE Models in Macroeconomics: Estimation, Evaluation, and New Developments
Type: Book
ISBN: 978-1-78190-305-6

Keywords

Abstract

Details

New Directions in Macromodelling
Type: Book
ISBN: 978-1-84950-830-8

Article
Publication date: 3 January 2024

Thi Thanh Xuan Pham and Thi Thanh Trang Chu

This study undertakes a comprehensive investigation into the far-reaching repercussions of Covid-19 stimulus packages and containment policies on stock returns, meticulously…

Abstract

Purpose

This study undertakes a comprehensive investigation into the far-reaching repercussions of Covid-19 stimulus packages and containment policies on stock returns, meticulously examining a diverse array of 14 distinct markets.

Design/methodology/approach

This study employed the Panel SVAR model to analyze the relationships between various policies and stock market performance during the Covid-19 outbreak. The sample comprises 5432 daily observations spanning from December 2020 to January 2022 for the 14 selected markets, with missing data excluded.

Findings

The findings reveal three consistent impacts across all 14 markets. Firstly, stock returns immediately reversed and decreased within a day when Governments tightened containment policies. Secondly, economic stimulus packages led to a fall in stock returns. Thirdly, an increasing death rate caused the stock return to decrease in the following two days. These findings are supported by the uniform impulse responses in all three shocks, including common, composite and idiosyncratic shocks. Furthermore, all inverse root tests satisfy the stability conditions, indicating the stability and reliability of Panel SVAR estimations.

Practical implications

One vital implication is that all government decisions and measures taken against the shock of Covid-19 must consider economic impacts to avoid unnecessary financial losses and support the effective functioning of stock markets during similar shocks. Secondly, investors should view the decline in stock returns due to Covid-19 effects as temporary, resulting from anxiety about the outbreak. The study highlights the importance of monitoring the impact of policies on financial markets and the broader economy during crises. Overall, these insights can prove helpful for investment decisions and policymaking during future crises.

Originality/value

This study constitutes a noteworthy addition to the literature on behavioural finance and the efficient market hypothesis, offering a meticulous analysis of the multifaceted repercussions of Covid-19 on market interactions. In particular, it unveils the magnitude, duration and intricate patterns of market volatilities linked to significant shock events, encompassing a comprehensive dataset spanning 14 distinct markets.

Details

The Journal of Risk Finance, vol. 25 no. 1
Type: Research Article
ISSN: 1526-5943

Keywords

Abstract

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New Directions in Macromodelling
Type: Book
ISBN: 978-1-84950-830-8

Book part
Publication date: 30 September 2021

Zhiming Long and Rémy Herrera

This study first calculates a profit rate for China’s economy over the period 1952–2014; the rate shows a downward trend in the long term but also exhibits cyclical fluctuations…

Abstract

This study first calculates a profit rate for China’s economy over the period 1952–2014; the rate shows a downward trend in the long term but also exhibits cyclical fluctuations. Then, structural vector autoregressive models are used to examine the Chinese economic structure and, thanks to impulse response functions, the role of the profit rate in investment, capital accumulation, and GDP growth rates. Then, based on a priori constraints relative to this structure, the study tests whether these assumptions are verified over the period studied in the context of the transformations of China. The impulse response functions are further examined by using Bayesian analysis. Finally, the authors conclude that the period from 1952 to 2014 should be divided into several sub-periods with distinct structural characteristics.

Details

Imperialism and Transitions to Socialism
Type: Book
ISBN: 978-1-80043-705-0

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Book part
Publication date: 24 April 2023

Whayoung Jung and Ji Hyung Lee

This chapter studies the dynamic responses of the conditional quantiles and their applications in macroeconomics and finance. The authors build a multi-equation autoregressive…

Abstract

This chapter studies the dynamic responses of the conditional quantiles and their applications in macroeconomics and finance. The authors build a multi-equation autoregressive conditional quantile model and propose a new construction of quantile impulse response functions (QIRFs). The tool set of QIRFs provides detailed distributional evolution of an outcome variable to economic shocks. The authors show the left tail of economic activity is the most responsive to monetary policy and financial shocks. The impacts of the shocks on Growth-at-Risk (the 5% quantile of economic activity) during the Global Financial Crisis are assessed. The authors also examine how the economy responds to a hypothetical financial distress scenario.

Details

Essays in Honor of Joon Y. Park: Econometric Methodology in Empirical Applications
Type: Book
ISBN: 978-1-83753-212-4

Keywords

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