Testing for Contagion in International Financial Markets: Which Way to Go?

This paper tests for the existence of contagion during the 1997/98 Asian crisis. We interpret contagion as a significant change in the way that country-specific shocks are transmitted across international stock markets. Using the full-information framework of Favero and Giavazzi (2002) we find that the null hypothesis of no contagion is widely rejected. We also uncover evidence of an asymmetric transmission of shocks. Since our results contrast with those obtained by Rigobon (2001, 2002) using a limited-information methodology we present Monte Carlo simulations which show that certain necessary conditions must be satisfied for this method to have power. For parameter values in line with our econometric estimations we conclude that the power of the limited-information approach remains relatively low.Contagion; nonlinearities; international financial markets; Asian crisis; simultaneous equation models

The duration of fixed exchange rate regimes

This paper studies the survival of fixed exchange rate regimes. The probability of an exit from a fixed exchange rate regime depends on the time spent within this regime. In such a context durations models are appropriate, in particular because of the possible non-monotonic pattern of duration dependence. Non-parametric estimates show that the pattern of duration dependence exhibits non-monotonic behaviour and that it differs across types of economies. This behaviour persists when we control for time-varying covariates in a proportional hazard specification. We conclude that how long a regime has lasted will affect the probability that it will end, in a non-monotonic fashion.Exchange rate regime, currency crisis, regime transition, duration models, survival analysis.

No decoupling, more interdependence: business cycle comovements between advanced and emerging economies

The decoupling hypothesis is the idea that business cycles in emerging market economies have become more independent from business cycles in advanced economies in recent years. Decoupling essentially amounts to a structural break in the degree of business cycle interdependence between the two groups of economies, and it can be tested as such. We develop an innovative measure of business cycle interdependence based on the Euclidean distance, available at the annual frequency, which allows for a proper test for a structural break in a graphical setup. We also make use of a standard econometric test. Both approaches point to the same conclusion: there has been no decoupling in recent years. In fact, the degree of business cycle interdependence has become stronger.business cycle; synchronisation; globalisation; decoupling; emerging markets

The duration of fixed exchange rate regimes

This paper studies the survival of fixed exchange rate regimes. The probability of an exit from a fixed exchange rate regime depends on the time spent within this regime. In such a context durations models are appropriate, in particular because of the possible non-monotonic pattern of duration dependence. Non-parametric estimates show that the pattern of duration dependence exhibits non-monotonic behaviour and that it differs across types of economies. This behaviour persists when we control for time-varying covariates in a proportional hazard specification. We conclude that how long a regime has lasted will affect the probability that it will end, in a non-monotonic fashion.

Business cycle synchronicity, amplitude and the euro: one size does not yet fit all

This paper focuses on the impact of the euro on the degree of business cycle synchronisation between nineteen advanced economies over the period 1980-2008. In contrast with the existing evidence based on correlation coefficients, we assess the impact of the euro on the synchronicity and the relative amplitude of business cycles separately. We find that although the introduction of the euro has raised the likelihood of business cycle synchronicity, it has not affected the relative amplitude of business cycles. Hence, the common monetary policy has become increasingly suitable for members in terms of the needed direction of policy moves, but not in terms of the required magnitude of these moves.euro; monetary union; business cycle; synchronisation; probit

Testing for contagion in international financial markets: which way to go?

This paper tests for the existence of contagion during the 1997/98 Asian crisis. We interpret contagion as a significant change in the way that country-specific shocks are transmitted across international financial markets. Using the full-information framework of Favero and Giavazzi (2002) we find that the null hypothesis of no contagion is widely rejected. We also uncover evidence of an asymmetric transmission of shocks. Since our results contrast with those obtained by Rigobon (2001, 2002) using a limited-information methodology we present Monte Carlo simulations which show that certain necessary conditions must be satisfied for this method to have power. For parameter values in line with our econometric estimations we conclude that the power of the limited-information approach remains relatively low.Contagion; Nonlinearities; International financial markets; Asian crisis; Simultaneous equations models

Enfranchisement and budget deficits: a theoretical note

If women make different economic decisions than men on average, then an increase in women's influence in the political and economic spheres of society might change economic outcomes. In this note, we focus on the impact of female enfranchisement on fiscal policy outcomes. We present a simple median voter model and show that if women have different economic preferences than men, then female enfranchisement leads to a change in government budget deficits..Fiscal policy, budget deficit, enfranchisement, median voter, gender

Women and Budget Deficits

If women have different economic preferences than men, then female economic and political empowerment is likely to change policy and household decisions, and in turn macroeconomic outcomes. We test the hypothesis that female enfranchisement leads to lower government budget deficits due gender differences in preferences over fiscal outcomes. Estimating the impact of women's vote on budget deficits in a differences-in-differences regression for Swiss cantonal panel data, we find that including women in the electorate reduces average per capita budget deficits by a statistically significant amount.Budget deficits; Economics-of-gender; enfranchisement; fiscal policy; women; time preference; altruism

Women and budget deficits

If women have different economic preferences than men, then female economic and political empowerment is likely to change policy and household decisions, and in turn macroeconomic outcomes. We test the hypothesis that female enfranchisement leads to lower government budget deficits due gender differences in preferences over fiscal outcomes. Estimating the impact of women’s vote on budget deficits in a differences-in-differences regression for Swiss cantonal panel data, we find that including women in the electorate reduces average per capita budget deficits by a statistically significant amount.Fiscal policy, budget deficit, enfranchisement, median voter, gender

Do fiscal rules cause budgetary outcomes?

This paper focuses on the observed empirical relationship between fiscal rules and budget deficits, and examines whether this correlation is driven by an omitted variable, namely voter preferences. We make use of two different estimation methods to capture voter preferences in a panel of Swiss sub-federal jurisdictions. First, we include a recently constructed measure of fiscal preferences. Second, we capture preferences through fixed effects with a structural break as women are enfranchised. We find that fiscal rules continue to have a significant impact on real budget balances.Fiscal policy, fiscal rules, fiscal institutions, budget deficits, fiscal preferences, endogeneity