Do oil price shocks matter? Evidence for some European countries

This paper analyzes the oil price-macroeconomy relationship by means of analyzing the impact of oil prices on inflation and industrial production indexes for many European countries using quarterly data for the period 1960-1999. First, we test for cointegration allowing for structural breaks among the variables. Second, and in order to account for the possible non-linear relationships, we use different transformation of oil price data. The main results suggest that oil prices have permanent effects on inflation and short run but asymmetric effects on production growth rates. Furthermore, significant differences are found among the responses of the countries to these shocks.oil price shocks, inflation, economic activity

Oil Prices, Economic Activity and Inflation: Evidence for Some Asian Countries

In this paper we study the oil prices-macroeconomy relationship by means of studying the impact of oil price shocks on both economic activity and consumer price indexes for six Asian countries over the period 1975Q1-2002Q2. The results suggest that oil prices have a significant effect on both economic activity and price indexes although the impact is limited to the short-run and more significant when oil price shocks are defined in local currencies. Moreover, we find evidence of asymmetries in the oil prices-macroeconomy relationship for some of the Asian countries.

Stock Market Cycles and Stock Market Development in Spain

In this paper we use Spanish stock market data to identify the bull and bear phases of the market and to analyze its characteristics during the period 1941-2002. We compare these characteristics with those of the US and of two other European countries (Germany and the UK). Our sample is divided in two subperiods in order to account for differences induced by the process of development undergone by Spanish capital markets in the late 1980's and early 1990's. We find that the Spanish stock market has become increasingly more similar to those of the more developed countries, although some differences still persist. Additionally, we show that concordance of the Spanish stock market with other developed markets has increased quite significantly.Stock market cycle; data generating process; financial development

Money Demand Accommodation: Impact on Macro-Dynamics and Policy Consequences

In this paper we account for the U.S. Fed's response to money demand shocks by allowing for less-than-complete accommodation in the estimation of its money supply policy rule. We estimate a significantly lower degree of money accommodation in the 1979-1982 period than before and after. We identify the path of money demand and money supply shocks and show their effects on the money market, output and inflation. Both money demand and money supply shocks have been considerably less destabilizing since 1984. We also find that monetary policy was significantly pro-cyclical in the 70s. Additionally, the price puzzle disappears for two of the three subperiods considered in the study.Money demand shocks, money demand accommodation, monetary policy procedures, macroeconomic dynamics

Stock Market Cycles, Financial Liberalization and Volatility

In this paper we analyze the behavior of stock markets in six emerging countries. More specifically, we describe the bull and bear cycles of four Latin American and two Asian countries, comparing their characteristics during both phases and the degree of concordance of bullish periods. We divide our sample in two subperiods in order to account for differences induced by the financial liberalization processes that these countries went through in the early 1990's. We find that cycles in emerging countries tend to have shorter duration and larger amplitude and volatility than in developed countries. However, after financial liberalization Latin American stock markets have behaved more similarly to stock markets in developed countries whereas Asian countries have become more dissimilar. Concordance of cycles across markets has increased significantly over time, especially for Latin American countries after liberalization.

Structural Changes in Volatility and Stock Market Development: Evidence for Spain

In this paper we review the factors that may lead to structural changes in stock market volatility and present an analysis that assesses whether Spanish stock market volatility has changed significantly over the period 1941-2001. This period corresponds to the years of more profound development of both the financial and the productive sides of the economy in this country. We use alternative methodologies of endogenous breakpoint detection that estimate the dates at which the behavior of stock market volatility changed. The analysis of the Spanish stock market suggests that volatility has behaved in a different manner over the period 1941-2001: From 1972 to 2001, the years of more intense development of the stock market, the Spanish stock market has been characterized by a higher level of volatility and a lower persistence. This effect is partly attributable to the increased growth of trading volume brought about by the economic development process

Exchange rate behavior and exchange rate puzzles: why the 18th century might help

Este artículo analiza el comportamiento de los tipos de cambio entre España y Gran Bretaña durante el siglo XVIII; en concreto, de los tipos de cambio en el mercado de Londres sobre tres ciudades españolas, entre los años 1699 y 1826. Tras una breve exposición del funcionamiento del sistema monetario español y de la determinación de los tipos de cambio, estudiamos hasta qué punto el tipo de cambio respondía a variables fundamentales, utilizando dos modelos teóricos generalmente aceptados. Los resultados sugieren que la paridad de poder adquisitivo se cumplió durante el siglo XVIII, y que el tipo de cambio se movía de forma paralela a los diferenciales de inflación. Al final del siglo aparecen desviaciones de la paridad de poder adquisitivo, que atribuimos a alteraciones en el tipo de cambio real causadas por fluctuaciones en el comercio bilateral entre España y Gran Bretaña y, quizá, a diferenciales de productividad.This article explores the behavior of exchange rates in Spain during the 18th century. We analyze the exchange rates quoted in London on three Spanish cities between 1699 and 1826. After a brief review of how the Spanish monetary system worked and how exchange rates were determined, we assess to which extent the exchange rate responded to market fundamentals by testing two theoretical models of exchange rate determination. The results suggest that purchasing power parity held during the 18th century, with the exchange rate tracking quite closely the behavior of inflation differentials. Deviations from PPP appeared at the end of the century, due mostly to changes in the real exchange rate caused by the bilateral trade between Spain and Great Britain and, maybe, due to productivity differentials

Exchange Rate Behavior and Exchange Rate Puzzles: Why the XVIII Century Might Help

This article explores the behavior of exchange rates in Spain during the XVIII century. We posit that exchange rates were the result of both government intervention over nominal values of currencies and the estimate that the market –of bills of exchange- gave to the value of the currency. We analyze the exchange rates quoted in London on three Spanish cities between 1699 and 1826. After a brief overview of the functioning of the Spanish monetary system and of exchange rate determination, we assess the extent to which the exchange rate responded to market fundamentals by testing some theoretical models of exchange rate determination. The results suggest that purchasing power parity held during the XVIII century, with the exchange rate tracking quite closely the behavior of inflation differentials. Deviations from PPP appeared at the end of the century, due mostly to changes in the real exchange rate caused by the bilateral trade balance between Spain and Great Britain and, maybe, to productivity differentials.

Is the US Fiscal Deficit Sustainable? A Fractionally Integrated and Cointegrated Approach

The sustainability of fiscal deficits has received in recent years increasing attention from economists. Empirical work has concentrated on both the univariate properties of debt and the cointegration properties of public revenues and expenditures. In this paper, we examine if sustainability of the US fiscal deficit holds by means of studying the univariate properties of the difference between public revenues and expenditures. However, instead of using classical approaches based on I(1) or I(0) integration techniques, we use a methodology based on fractional processes. The results show that the public deficit in the US is an I(d) process with d slightly smaller than 1, implying that fiscal deficit is mean reverting, and thus, sustainable, though the adjustment process towards equilibrium will take a very long time.

Additional Empirical Evidence on Real Convergence: A Fractionally Integrated Approach

This article examines the real convergence hypothesis in 15 OECD countries. For this purpose, we examine the order of integration of the real GDP per capita series in these countries as well as their differences with respect to the US which is used as a benchmark country. We use both parametric and semiparametric methods and the results show that convergence is only achieved in half of the countries, namely, Austria, Australia, Canada, Finland, Germany, Japan and the UK. On the contrary, the results for Belgium, Denmark, France, Italy, the Netherlands, Norway and Sweden show strong evidence against this hypothesis.