On the Dynamics of Unemployment in a Developing Economy: Colombia

This paper estimates an asymmetric error correction model to analyse the dynamic behaviour of the Colombian unemployment rate. We find evidence that wages above their long- run equilibrium level do increase unemployment, but wages below this level do not reduce it.Unemployment, wage disequilibrium, labour market,cointegration, non-linearties, Colombia.

Testing the law of one price in food markets: evidence for Colombia using disaggregated data

This paper applies stationarity tests to examine evidence of market integration for a relatively large sample of food products in Colombia. We fi�nd little support for market integration when using the univariate KPSS tests for stationarity. However, within a panel context and after allowing for cross sectional dependence, the Hadri tests provide much more evidence supporting the view that food markets are integrated or, in other words, that the law of one price holds for most products.Law of one price; panel stationarity test; disaggregated pricedata, cross section dependence; Colombia.

Testing for stock market integration in a developing economy: Colombia

This paper examines the linkage between two parallel stock exchanges trading the same shares in Colombia, namely the Bogotá Stock Exchange and the Medellín Stock Exchange. We provide empirical evidence to support the hypothesis that these two markets can be best described as fully integrated over a period of almost four decades, which is consistent with the view that arbitrage opportunities are only possible in the short but not in the long run. In addition, we find evidence that the location of a company´s headquarters appears to matter in stock price formation.Stock market, cointegration, arbitrage, Colombia

Modeling the monetary policy reaction function of the colombian central bank

This paper proposes a simple Ordered Probit model to analyse the monetary policy reactionfunction of the Colombian Central Bank. There is evidence that the reaction function isasymmetric, in the sense that the Bank increases the Bank rate when the gap between observedinflation and the inflation target (lagged once) is positive, but it does not reduce the Bank rate whenthe gap is negative. This behaviour suggests that the Bank is more interested in fulfilling theannounced inflation target rather than in reducing inflation excessively. The forecasting performanceof the model, both within and beyond the estimation period, appears to be particularly good.Monetary policy reaction function, Ordered Probit model, Central Bank independence, Colombia

Testing for unit roots in three-dimensional heterogeneous panels in the presence of cross-sectional dependence

This paper extends the cross-sectionally augmented IPS (CIPS) test of Pesaran (2006) to a three-dimensional (3D) panel. This 3D-CIPS test is correctly sized in the presence of cross-sectional dependency. Comparing its power performance to that of a bootstrapped IPS (BIPS) test, we find that the BIPS test invariably dominates, although for high levels of cross-sectional dependency the 3D-CIPS test can out-perform the BIPS test.Heterogeneous dynamic panels ; Monte Carlo ; unit roots ; cross-sectional dependence

Testing for seasonal unit roots in heterogeneous panels using monthly data in the presence of cross sectional dependence

This paper generalises the monthly seasonal unit root tests of Franses (1991) for a heterogeneous panel following the work of Im, Pesaran, and Shin (2003), which we refer to as the F-IPS tests. The paper presents the mean and variance necessary to yield a standard normal distribution for the tests, for different number of time observations, T, and lag lengths. However, these tests are only applicable in the absence of cross-sectional dependence. Two alternative methods for modifying these F-IPS tests in the presence of cross-sectional dependency are presented : the first is the cross-sectionally augmented test,denoted CF-IPS, following Pesaran (2007), the other is a bootstap method, denoted BF-IPS. In general, the BF-IPS tests have greater power than the CF-IPS tests, although for large T and high degree of cross-sectional dependency the CF-IPS test dominates the BF-IPS test.Panel unit root tests ; seasonal unit roots ; monthly data ; cross sectional dependence ; Monte Carlo

The Term Structure of Interest Rates, the Expectations Hypothesis and International Financial Integration: Evidence from Asian Economies

The validity of the expectations hypothesis of the term structure is examined for a sample of Asian countries. A panel stationarity testing procedure is employed that addresses both structural breaks and cross-sectional dependence. Asian term structures are found to be stationary and supportive of the expectations hypothesis. Further analysis suggests that international financial integration is associated with interdependencies between domestic and foreign term structures insofar as cross-term structures based on differentials between domestic (foreign) short- and foreign (domestic) long-rates are also stationary.Correlation, Heterogeneous dynamic panels, term structure, mean reversion, panel stationarity test

ARE EU BUDGET DEFICITS STATIONARY?

In this paper, we test for the stationarity of European Union budget deficits over the period 1971 to 2006, using a panel of thirteen member countries. Our testing strategy addresses two key concerns with regard to unit root panel data testing, namely (i) the presence of cross-sectional dependence among the countries in the panel and (ii) the identification of potential structural breaks that might have occurred at different points in time. To address these concerns, we employ an AR-based bootstrap approach that allows us to test the null hypothesis of joint stationarity with endogenously determined structural breaks. In contrast to the existing literature, we find that the EU countries considered are characterised by fiscal stationarity over the full sample period irrespective of us allowing for structural breaks. This conclusion also holds when analysing sub-periods based on before and after the Maastricht treaty.Heterogeneous dynamic panels, fiscal sustainability, mean reversion, panel stationarity test.

Real Interest Parity: A Note on Asian Countries Using Panel Stationarity Tests

Existing panel data studies of real interest parity are either unable to identify which panel members are characterised by stationary real interest differentials, or are subject to size distortion resulting from the presence of structural breaks and cross-sectional dependencies. Using a panel stationarity testing procedure recently advocated by Hadri and Rao (2008) that allows for structural breaks and cross-sectional dependency, we are unable to reject the stationarity of Asian real interest rate differentials.Heterogeneous dynamic panels, real interest parity, mean reversion, panel stationarity test.

Statistical inference for testing gini coefficients: an application for Colombia

This paper uses Colombian household survey data collected over the period 1984-2005 to estimate Gini coeficients along with their corresponding standard errors. We �find a statistically signi�cant increase in wage income inequality following the adoption of the liberalisation measures of the early 1990s, and mixed evidence during the recovery years that followed the economic recession of the late 1990s. We also �nd that in several cases the observed diferences in the Gini coeficients across cities have not been statistically signi�cant.Inequality, Gini coe¢ cient, bootstrap, Colombia.