The Spot-Forward Exchange Rate Relation in Indian Foreign Exchange Market An Analysis

Forward exchange rate bias explanation generally falls into two categories – assumption of rational expectation resulting in a risk premium and expectation errors which is systematic. The paper tests the bias in the Indian forward exchange markets using one-month and three month forward contracts. The study finds that the three month contracts have larger prediction errors than the one-month contracts. The also paper finds that the prediction errors have information content which leads to assume the presence of risk premium. The study also finds that risk one-month contracts have lesser variability vis-à-vis the three month contracts

Persistence and non-linearity in US unemployment: A regime-switching approach

This article examines persistence and nonlinearity in the US unemployment rate in the post-war period by using a regime-switching unit root test. The empirical results indicate that a regime-switching unit root test outperforms conventional unit root tests and describes unemployment behavior better over the business cycle in the sample. While shocks to US unemployment dissipate in expansions, shocks to the unemployment rate seem to be persistent in recessions, supporting the hysteresis hypothesis. This is consistent with the usual explanation of hysteresis that workers may lose valuable job skills in protracted recessions. © 2012 Elsevier B.V

Asymmetry in the unemployment-output relationship over the business cycle: Evidence from transition economies

This study examines the presence of asymmetry in Okun's law for nine transition economies by means of a Markov regime-switching model. We examine the relationship between unemployment and real GDP to ascertain whether such changes are substantially different in downswing versus upswing regimes. The nonlinear model outperforms the linear model in all transition economies in the sample except for Slovenia. There is evidence that the Okun coefficients vary across regimes and countries. In most countries, cyclical unemployment is more sensitive to cyclical output in downswing regimzes than upswing regimes. We also find recoveries entail poor job growth in most transition economies. © 2013 ACES

Measuring financial stress in transition economies

This study constructs a financial stress index for Bulgaria, the Czech Republic, Hungary, Poland, and Russia and examines the relationship between financial stress and economic activity. The financial stress index incorporates banking sector fragility, time varying stock market return volatility, sovereign debt spreads, an exchange market pressure index, and trade credit. These variables seem to capture key aspects of financial stress in sample countries as the index peaks at known financial crises in these countries. We then examine the relationship between financial stress and economic activity. Impulse response functions based on bivariate VARs show a significant relationship between financial stress and some measures of economic activity. Overall, the constructed financial stress index provides valuable information on the state of the economy and economic activity. © 2012 Elsevier B.V

Real and financial sector studies in central and Eastern Europe: A review

This survey focuses broadly on real and financial sector studies in former transition economies of Central and Eastern Europe. The survey shows that in the real sector there has been considerable trade and global integration in the post-transition period. More- over, there is no uniform evidence regarding convergence or divergence from the sur- veyed empirical studies regarding business cycles in Central and Eastern Europe. Financial sector studies show that foreign bank ownership is associated with higher banking efficiency than in the case of domestic bank ownership and significant return and volatility transmission also from core European financial markets. However, the recent global financial crisis significantly affected these patterns. Finally, central bank communication seems to have significant wealth effects in financial markets and tends to reduce financial market uncertainty. © 2016, Faculty of Social Sciences. All rights reserved

Monetary and fiscal policy interactions: Evidence from emerging European economies

This paper examines the interactions between fiscal and monetary policy for some former transition, emerging European economies over the 1995Q1-2010Q4 period by using a Markov regime-switching model. We consider the monetary policy rule proposed by Taylor (1993) and the fiscal policy rule suggested by Davig and Leeper (2007) in accounting for monetary and fiscal policy interactions. Empirical results suggest that monetary and fiscal policy rules exhibit switching properties between active and passive regimes and all countries followed both active and passive monetary policies. As for fiscal policy, the Czech Republic, Estonia, Hungary, and Slovenia seem to have alternated between active and passive fiscal regimes while fiscal policies of Poland and the Slovak Republic can be characterized by a single fiscal regime. Although the policy mix and the interactions between monetary and fiscal policy point a diverse picture in our sample countries, the monetary policy seems to be passive in all countries after 2000. This finding is consistent with the constraints imposed by European Union enlargement on monetary policy. © 2014 Association for Comparative Economic Studies

Measuring financial stress in Turkey

This study examines episodes of financial stress and develops a financial stress index for the Turkish economy for the 1997-2010 period. We consider various variables that summarize different aspects of financial conditions in the economy to gauge financial stress. We construct the index and show that financial stress affects economic activity significantly. Specifically, the index is a leading indicator of economic activity in Turkey. We then discuss how information provided by the financial stress index can be used to fine tune macroeconomic policy. © 2012 Society for Policy Modeling