Do the most frequently used dynamic panel data estimators have the best performance in a small sample? A Monte Carlo comparison

Differenced GMM and system GMM estimators are the two most frequently used dynamic panel estimators. Regardless the fact that both estimators are proposed for samples with a large N and short T, both of them are frequently used for small samples. Therefore, this paper compares the small sample properties of these two estimators with standard dynamic LSDV and LSDV bias-corrected estimators to examine the justification of their frequent use. Data set dimensions are formed considering dimensions of previous empirical studies that use dynamic panel data on small samples. The results show that LSDV bias-corrected estimator has the smallest RMSE in almost every design while in terms of bias, the results are mixed. LSDV bias-corrected outperforms both GMM estimators in terms of bias in design when the number of individuals is 10 and the number of time periods is 30. GMM estimators show somewhat better properties in terms of bias in design when the number of individuals is 30 and the number of time periods is 10

Behavioural antecedents of Bitcoin trading volume: A panel Granger causality test

This paper aims to examine the behavioural determinants of Bitcoin trading volume within a cross-country framework of 14 world economies plus the Eurozone. We introduce a basic taxonomy of behavioural indicators, distinguishing between consumer confidence, economic policy uncertainty (EPU), and indicators of financial volatility. Our estimations reveal that the Bitcoin trading volume can be predicted more accurately by EPU than by any other class of indicators. Finally, we identify the COVID-19 shock as a catalyst for a psychologically-driven Bitcoin market and find evidence that Bitcoin was a macro hedging instrument in the pandemic. To obtain our results, we conducted a panel Granger causality test, employing the Least Squares Dummy Variables (LSDV) estimator. Contrary to previous research, we found that market fundamentals (industrial production and equity market volume) became significant drivers of Bitcoin trading during the pandemic. This conclusion was preserved when we used the LSDV corrected estimator, which is more suitable for panels with a smaller time dimension. Apart from the practical implications for traders, this paper provides researchers with detailed steps for applying Granger causality testing in panel data settings

On the leading properties of Business and Consumer Surveys: new evidence from EU countries

Ever since their initiation 60 years ago, the harmonized European Business and Consumer Surveys (BCS) have risen to the challenge of performing as a solid data pillar for quantifying leading indicators of economic activity. However, mainstream research mainly focuses on publicly available composite BCS confidence indicators and inspects their predictive accuracy. We depart from this stance by considering a battery of novel techniques for quantifying BCS-based leading indicators. We build upon the recently established weighted balance method, forecast disagreement, and surprise index. Additionally, we differ from the standpoint of rational expectations by introducing indicators of irrational sentiment and adaptive expectations, which have not previously been used in BCS studies of this sort. Our analysis in industry, consumer, and retail trade sectors of 28 European economies reveals that most of these novel techniques (especially irrational sentiment and adaptive expectations) produce more accurate predictions of economic activity than standard BCS benchmarks. These results are robust to several panel estimation procedures (heterogeneous panel Granger causality test and panel vector autoregressions, in particular)

Role of tourism and hotel accommodation in house prices

This paper investigates the influence of tourism and hotel accommodation on housing prices in 27 EU countries over the period from 2005 to 2018. The results of dynamic panel data confirmed the significant influence of standard housing prices determinants: economic growth, unemployment and credit to the private sector, whilst the population does not play a significant role. Our results empirically confirmed that tourism significantly increases housing prices regardless of used indicators. However, our main finding was that hotel accommodation plays a role as a buffer of the growth in housing prices caused by tourism. Obtained results provided evidence of interconnections among tourism, hotel accommodation and housing prices at a national level

Determinants of manufacturing industry exports in European Union member states: a panel data analysis

This paper aims to provide analysis on the determinants of export performance on the extensive data-set of the 27 European Union member states’ total manufacturing and high tech manufacturing industry. Hence, this paper adds to the existing empirical work by specifying an export performance equation not only as a function of income and price, as is traditionally done, but also industrial production and labour cost. For that purpose, dynamic panel data models are estimated by utilising the system GMM estimator for the period from 2000 to 2011. The obtained results indicate that both industrial production and domestic demand have a positive and statistically significant impact on total and high tech manufacturing exports. On the other hand, it is proven that foreign demand also has an impact on total manufacturing exports. Thus, the paper’s contribution is reflected in the acknowledgement that a stable macroeconomic environment (contained in the significance of a dummy variable for the economic crisis in both models), boosting production capacity and domestic demand, is essential for better export performance and the competitiveness of the manufacturing industry in an increasingly competitive global economic climate. Finally, from the perspective of policy-making, the paper concludes that recovery in the manufacturing industry could be the much needed push from crisis to economic development

DETERMINANTS OF BANK PROFITABILITY IN CROATIA

The research objective of this study is twofold. It aims to provide a synthesis of relevant empirical researches on the determinants of commercial banks’ profitability and to establish empirical verification of profitability determinants of banks in the Republic of Croatia using an econometric method of dynamic panel analysis. The empirical analysis is carried out on a data sample of 28 commercial banks in the period 2003-2008 which continuously refers to more than 95 % of assets of the overall banking intermediation. Return on assets (ROA) is profitability indicator used in the analysis. The presented research results and their economic interpretation may serve as a valuable foundation for the general assessment of commercial bank management in Croatia as well as for identifying several sources of potential improvement and impairment of their financial performance in the future. Thus, corrective actions could be planned and implemented in advance

Derivatives Markets Development and Country Political Risk

This paper investigates the impact of country political risk on currency derivatives market turnover for 19 countries. Previous empirical literature has confirmed the role that political risk has on financial institutions and the stock market development, whereas the relationship between currency derivatives and political risk has not been empirically investigated Therefore, taking into account the heterogeneity of the selected currency derivatives markets and a possible heterogeneity in the relationship between derivatives turnover and political risk, heterogeneous non-causality test in panels are employed. This method successfully deals with both types of heterogeneity. The results have confirmed the heterogeneous causality of political risk on currency derivatives markets. Moreover, political risk has a more significant effect on currency derivatives turnover in countries with a less developed financial system

Derivatives Markets Development and Country Political Risk

This paper investigates the impact of country political risk on currency derivatives market turnover for 19 countries. Previous empirical literature has confirmed the role that political risk has on financial institutions and the stock market development, whereas the relationship between currency derivatives and political risk has not been empirically investigated Therefore, taking into account the heterogeneity of the selected currency derivatives markets and a possible heterogeneity in the relationship between derivatives turnover and political risk, heterogeneous non-causality test in panels are employed. This method successfully deals with both types of heterogeneity. The results have confirmed the heterogeneous causality of political risk on currency derivatives markets. Moreover, political risk has a more significant effect on currency derivatives turnover in countries with a less developed financial system