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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.

Details

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

Keywords

Book part
Publication date: 24 April 2023

Lutz Kilian and Xiaoqing Zhou

Oil market VAR models have become the standard tool for understanding the evolution of the real price of oil and its impact on the macro economy. As this literature has expanded…

Abstract

Oil market VAR models have become the standard tool for understanding the evolution of the real price of oil and its impact on the macro economy. As this literature has expanded at a rapid pace, it has become increasingly difficult for mainstream economists to understand the differences between alternative oil market models, let alone the basis for the sometimes divergent conclusions reached in the literature. The purpose of this survey is to provide a guide to this literature. Our focus is on the econometric foundations of the analysis of oil market models with special attention to the identifying assumptions and methods of inference.

Details

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

Keywords

Article
Publication date: 29 September 2023

Xingrui Zhang, Eunhwa Yang and Yunpeng Wang

Private residential construction spending (PRRESCON) is an important indicator for assessing housing supply/demand and economic strength. Currently, there are no comprehensive…

Abstract

Purpose

Private residential construction spending (PRRESCON) is an important indicator for assessing housing supply/demand and economic strength. Currently, there are no comprehensive studies on PRRESCON forecasting. This study aims to address the gap in knowledge by conducting a comprehensive exploration of indicators for PRRESCON using time series methods.

Design/methodology/approach

Granger causality test trials were conducted between PRRESCON and all of its potential indicators before the vector autoregression model was implemented. Extensive effort was exerted toward model interpretation in the form of impulse–response functions.

Findings

Impulse–response functions indicated that the escalation of labor supply, material/construction costs and issued building permits at any given time consistently had a positive impact on PRRESCON 10–11 months later, with a 95% confidence interval. Conversely, the unemployment rate and housing value escalations at any given time were found to have a negative impact on PRRESCON 10–11 months later in more than 95% of the instances. Furthermore, material/construction cost escalations at any given time were shown to have a negative impact on PRRESCON 7 months later in more than 95% of the instances.

Originality/value

Current forecasting literature on construction spending focuses exclusively on the parameter’s relationship with gross domestic product and the architectural billing index. This study reveals many additional indicators, many of which are directly related to the implementation of housing development projects. The paper is also the first in the body of forecasting literature, to the best of the authors’ knowledge, to conduct impulse–response analysis on residential construction spending.

Details

International Journal of Housing Markets and Analysis, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1753-8270

Keywords

Book part
Publication date: 22 November 2012

Anna Kormilitsina and Denis Nekipelov

The Laplace-type estimator (LTE) is a simulation-based alternative to the classical extremum estimator that has gained popularity in applied research. We show that even though the…

Abstract

The Laplace-type estimator (LTE) is a simulation-based alternative to the classical extremum estimator that has gained popularity in applied research. We show that even though the estimator has desirable asymptotic properties, in small samples the point estimate provided by LTE may not necessarily converge to the extremum of the sample objective function. Furthermore, we suggest a simple test to verify if the estimator converges. We illustrate these results by estimating a prototype dynamic stochastic general equilibrium model widely used in macroeconomics research.

Details

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

Keywords

Article
Publication date: 10 July 2017

Amanjot Singh and Manjit Singh

This paper aims to attempt to capture the intertemporal/time-varying risk–return relationship in the Brazil, Russia, India and China (BRIC) equity markets after the global…

Abstract

Purpose

This paper aims to attempt to capture the intertemporal/time-varying risk–return relationship in the Brazil, Russia, India and China (BRIC) equity markets after the global financial crisis (2007-2009), i.e. during a relative calm period. There has been a significant increase in advanced economies’ equity allocations to the emerging markets ever since the financial crisis. So, the present study is an attempt to account for the said relationship, thereby justifying investments made by the international investors.

Methodology

The study uses non-linear models comprising asymmetric component generalised autoregressive conditional heteroskedastic model in mean (CGARCH-M) (1,1) model, generalised impulse response functions under vector autoregressive framework and Markov regime switching in mean and standard deviation model. The span of data ranges from 1 July 2009 to 31 December 2014.

Findings

The ACGARCH-M (1,1) model reports a positive and significant risk-return relationship in the Russian and Chinese equity markets only. There is leverage and volatility feedback effect in the Russian market because falling returns further increase conditional variance making the investors to expect a risk premium in the expected returns. The impulse responses indicate that for all of the BRIC markets, the ex-ante returns respond positively to a shock in the long-term risk component, whereas the response is negative to a shock in the short-term risk component. Finally, the Markov regime switching model confirms the existence of two regimes in all of the BRIC markets, namely, Bull and Bear regimes. Both the regimes exhibit negative relationship between risk and return.

Practical implications

It is an imperative task to comprehend the relationship shared between risk and returns for an investor. The investors in the emerging economies should understand the risk-return dynamics well ahead of time so that the returns justify the investments made under riskier environment.

Originality/value

The present study contributes to the literature in three senses. First, the data relate to a period especially after the global financial crisis (2007-2009). Second, the study has used a relatively newer version of GARCH based model [ACGARCH-M (1,1) model], generalised impulse response functions and Markov regime switching model to account for the relationship between risk and return. Finally, the study provides an insightful understanding of the risk–return relationship in the most promising emerging markets group “BRIC nations”, making the study first of its kind in all the perspectives.

Details

International Journal of Law and Management, vol. 59 no. 4
Type: Research Article
ISSN: 1754-243X

Keywords

Article
Publication date: 27 September 2011

Matthew Kofi Ocran

This paper aims to examine the effects of fiscal policy associated with increases in government expenditures, tax revenue and budget deficit on the South African economy.

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Abstract

Purpose

This paper aims to examine the effects of fiscal policy associated with increases in government expenditures, tax revenue and budget deficit on the South African economy.

Design/methodology/approach

Structural VARs based on the Blanchard‐Quard decomposition identification scheme were used in the empirical analysis. With the aid of quarterly data covering the period 1990:1 to 2008:4, the identified true models are used to estimate various impulse‐response functions. The impulse‐response functions represent the responses of real output and interest rates to shocks from tax revenue, budget deficit and government consumption and investment expenditures.

Findings

The results suggest that the fiscal policy instruments have varied effects on output and interest rates. The effect of the fiscal policy on output appears to be quite modest but persistent; however, the response from interest rate is temporary and substantial most cases.

Originality/value

The debate on the efficacy of fiscal policy in stimulating growth seems to have assumed new prominence in the wake of the recent global financial crisis. This paper contributes to the discourse from a South African focused empirical effort. Other fiscal policy authorities may find the paper valuable.

Details

Journal of Economic Studies, vol. 38 no. 5
Type: Research Article
ISSN: 0144-3585

Keywords

Article
Publication date: 1 September 1997

Arjan P.J.M. Van Bussel

Analyses the empirical relation between the one‐month interest rate, the long‐term interest rate and the motgage rate in The Netherlands. To study the dynamic interactions between…

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Abstract

Analyses the empirical relation between the one‐month interest rate, the long‐term interest rate and the motgage rate in The Netherlands. To study the dynamic interactions between these variables, vector autoregressive techniques are used. Concentrates on the question of whether the mortgage rate dynamics can correctly be described by a one‐factor interest rate model. One‐factor interest rate models allow mathematical derivations of deterministic equations to price interest rate derivatives. Finds, however, that a single factor does not correctly describe the interest rate term structure. Hence, to model the mortgage rate dynamics accurately more factors should be included.

Details

Journal of Property Finance, vol. 8 no. 3
Type: Research Article
ISSN: 0958-868X

Keywords

Article
Publication date: 25 January 2011

Shuddhasattwa Rafiq and Ruhul Salim

The purpose of this paper is to examine the short‐ and long‐run causal relationship between energy consumption and gross domestic product (GDP) of six emerging economies of Asia…

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Abstract

Purpose

The purpose of this paper is to examine the short‐ and long‐run causal relationship between energy consumption and gross domestic product (GDP) of six emerging economies of Asia. The importance of identifying the direction of causality emanates from its relevance in national policy‐making issues regarding energy conservation.

Design/methodology/approach

This paper employs co‐integration and vector error correction modeling along with generalized impulse response functions and varience decomposition tests to check the robustness of the findings.

Findings

The empirical results show that there exists unidirectional short‐ and long‐run causality running from energy consumption to GDP for China, uni‐directional short‐run causality from output to energy consumption for India, whilst bi‐directional short‐run causality for Thailand. Neutrality between energy consumption and income is found for Indonesia, Malaysia, and Philippines. Both the generalized variance decompositions and impulse response functions confirm the direction of causality.

Research limitations/implications

These findings have important policy implications for the countries concerned. The results suggest that while India may directly initiate energy conservation measures, China and Thailand may opt for a balanced combination of alternative polices.

Originality/value

Many economists and social scientists are claiming that the increased demand for energy from developing countries like China and India is one of the major reasons for the energy price hikes in recent times. In this backdrop, it is justified to search causal relationship between energy consumption and national output (GDP) of some developing countries from Asia. Since the traditional bivariate approach suffers from omitted variable problems, this paper employs a trivariate demand side approach consisting of energy consumption, income and prices.

Details

International Journal of Emerging Markets, vol. 6 no. 1
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 4 December 2023

Yahuza Abdul Rahman, Anthony Kofi Osei-Fosu and Daniel Sakyi

This paper examines correlations of the underlying structural shocks and the degree of synchronization in the impulse responses of output, inflation and trade to a one standard…

Abstract

Purpose

This paper examines correlations of the underlying structural shocks and the degree of synchronization in the impulse responses of output, inflation and trade to a one standard deviation shock to non-oil commodities price index and exchange rates within the West African Monetary Zone (WAMZ) countries from 1990q1 to 2020q1.

Design/methodology/approach

This paper uses the structural vector autoregressive model to isolate the underlying structural shocks and compares them with the West African Monetary Union (WAEMU) countries.

Findings

Findings from the study suggest that correlations of underlying structural shocks are more profound in the WAEMU than in the WAMZ. Impulse responses of output to price and exchange rate shocks are more symmetric in the WAEMU than in the WAMZ. However, impulse responses of inflation to price and exchange rate shocks are symmetric in the WAMZ than in the WAEMU and responses of trade in both sub-groups are not uniform.

Practical implications

The paper concludes that the WAMZ does not constitute an Optimum Currency Area concerning the correlations of the structural shocks and output. However, it has achieved convergence in inflation and there are adequate adjustment mechanisms to shocks in the WAMZ than in the WAEMU. Therefore, the WAMZ may not suffer from joining the monetary union. Thus, economic Community of West African States may take steps to roll out the monetary union.

Originality/value

The paper examines correlations of the underlying structural shocks, impulse responses of output and inflation to shocks to commodities price and exchange rates in the WAMZ and compares them with the WAEMU.

Details

African Journal of Economic and Management Studies, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2040-0705

Keywords

Article
Publication date: 17 January 2023

Imen Omri

This paper aims to quantify the volatility spillover impact and the directional predictability from stock market indexes to Bitcoin.

Abstract

Purpose

This paper aims to quantify the volatility spillover impact and the directional predictability from stock market indexes to Bitcoin.

Design/methodology/approach

Daily data of 15 developed and 15 emerging stock markets are used for the period March 2017–December 2021.; The author uses vector autoregressive (VAR) model, Granger causality test and impulse response function (IRF) to estimate the results of the study.

Findings

Empirical results show a significant unidirectional volatility spillover impact from emerging markets to Bitcoin and only six stock markets are powerful predictors of Bitcoin return in the short term. Additionally, there is no a difference between developed and developing markets regarding the directional predictability however there is difference in the reaction of Bitcoin return to shocks in the emerging markets compared to developed ones.

Originality/value

The paper proposes different econometric techniques from prior research and presents a comparative analysis between developed and emerging markets.

1 – 10 of over 1000