The first essay introduces a Bayesian logistic smooth transition vector autoregression (LSTVAR) approach to investigating the impact of international business cycles on the UK economy. We find that the British business cycle is asymmetrically influenced by growth in the US, France and Germany. Overall, positive and negative shocks generating in the US or France affect the UK in the same directions as the shock. However, a shock emanating from Germany always exerts negative cumulative effects on the UK. Further, a positive shock arising from Germany adversely affects the UK output growth more than a negative shock of the same size.\ud The second essay proposes a Bayesian method to investigating the purchasing power parity (PPP) utilizing an exponential smooth transition vector error correction model (ESTVECM). Employing a simple Gibbs sampler, we jointly estimate the cointegrating relationship along with the nonlinearities caused by the departures from the long run equilibrium. By allowing for symmetric regime changes, we provide strong evidence that PPP holds between the US and each of the remaining G7 countries. The model we employed implies that the dynamics of the PPP deviations can be rather complex, which is attested to by the impulse response analysis.\ud The final essay proposes a Bayesian approach to exploring money-output causality within a logistic smooth transition vector error correction framework (LSTVECM). Our empirical results provide substantial evidence that the postwar US money-output relationship is nonlinear, with regime changes mainly governed by the lagged inflation rates. More importantly, we obtain strong support for long-run non-causality and nonlinear Granger-causality from money to output. Furthermore, our impulse response analysis reveals that a shock to money appears to have a negative aggregate impact on real output over the next fifty years, which calls for more caution when using money as a policy instrument
To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.