In this paper, we have applied spectral and cross spectral analysis techniques as an alternative approach to characterize the Tunisian business cycle and measure the degree of its international synchronization. As a robustness check, we have applied these techniques to the industrial production (overall and manufacturing IPI) as well as two synthetic indexes: a dynamic factor and a diffusion index. We found the presence of two types of cycles: a minor cycle of 12.5 quarters (3.1 years) detected in Tunisia and in all its European trade partners and a major cycle of 33.3 quarters (8.3 years) observed in the majority of the cycles studied. The cross–spectral analysis provides a strong evidence of synchronization of the Business cycle in Tunisia and its European partners, particularly at high frequencies. The volatility of the Tunisian business cycle is generally lower than that of the European cycle. It is even lower for longer cycles. The transmission of cyclical shocks from the Euro Area to Tunisia is instantaneous for short cycles. The delays are much longer for the major cycles. They can reach 5 to 6 quarters.
This paper analyses monetary transmission mechanism in Vietnam by using a Vector Autoregression (VAR), focusing especially on how the economy dynamically responds money demand, interest rate, exchange rate, and asset price shocks. In this paper, we establish identification conditions to uncover the dynamic effects of monetary policy shocks. By using quarterly data over the period 1995-2010, a VAR model is developed to analyze various channels of monetary policy mechanism in a country with a large open and small economy like Vietnam. The empirical results show money demand and interest rates account for a major part of variations in output. And output is affected by monetary tightening in some lags, bottoming out after 5-6 quarters.
In this paper, we study the role of institutional quality in the cyclicality of macroeconomic policies of transition economies. Using annual data over 1996-2013, we find that the quality of institutions play a significant role in their ability to carry out counter-cyclical macroeconomic policy. This paper also analyzes the effects of monetary and fiscal shocks on output. Dividing the countries into two groups, namely CIS and non-CIS, we find that median impulse response of CIS countries’ GDP to monetary shock is negative, while in non-CIS countries this effect is close to zero. However, we find negative effect of fiscal shock on CIS countries’ GDP while the median effect of fiscal shock on GDP is very close to zero in non-CIS countries.
This paper empirically investigates the determinants of current accounts for a sample of 11 Central and East European Countries outside the Euro area. To this end we rely on the estimation of a panel VAR model with fixed effects over the period Q1 2005 to Q42014. Consistent with existing literature, we show that domestic GDP, the fiscal deficit, and the real effective exchange rate are key determinants of the current accounts of these countries. The dynamic relationships revealed in the paper complement the empirical literature on several fronts by providing new evidence from these emerging market economies.
Do incidents of ethnic polarization influence voter behavior? I address this question through the case study of India, the world’s largest functional democracy. Specifically, I test whether prior events of Hindu-Muslim riots electorally benefit Bharatiya Janta Party (BJP), a prominent Hindu nationalist party? The paper contributes to the literature by being the first to establish a causal relationship between Hindu-Muslim riots and BJP’s electoral performance. Results show that riots have a positive and significant effect on BJP’s vote share and are robust to our instrumentation strategy. The party vote share increases between 2.9 to 4.4 percent in response to different riot outcomes. Results seem to back the theory of electoral incentives i.e. parties representing elites among ethnic groups may have an incentive to instigate ethnic conflict to influence the marginal voter.
We examine the effectiveness of monetary policy transmission mechanism in Ghana using several of statistical and econometric techniques for the period 2002M1 – 2014M12. We find monetary policy rate (MPR) to be quite effective in signaling the money market interest rates in both the short run and long run, as the effect is incomplete (that is, not one-to-one). In addition, a hierarchy of short-term money market rates in Ghana is identified as follows: Monetary Policy Rate, Treasury bill rate, Interbank rate and retail rates (preferably, lending rate), accentuating the large role played by Treasury bill interest rate in the interest rate transmission channel in Ghana. Essentially, monetary authority responds positively and contemporaneously to output and inflationary pressures. Inflation is mostly driven by interest rate shock over the medium to long term, pointing to an impact of monetary policy. In the short term, however, exchange rate shock has relatively larger influence on inflation than that emanating from interest rate. In contrast, output is largely driven by credit and assets prices shocks. This suggests that agents’ knowledge about future output prospects are immediately reflected in assets prices before impacting on output. The paper therefore supports policies that would promote strong financial and macroeconomic stability to help inure effective monetary policy transmission in Ghana.
While there is considerable literature attempting to model current account, there are not many studies to forecast current account balance. This study gives a comprehensive way to model and predict current account deficit (CAD) by evaluating the forecasting performance of direct and indirect approach. At the disaggregated level, I use two variants to model current account components; in the first alternative I apply different ARIMA models with exogenous variables (ARIMA-X) to account for the pattern of the data and exogenous factors. In the second alternative, I integrate the cointegration relationship between exports and imports with ARIMA-X models. With respect to the direct approach, I use error correction model to allow for dynamics in current account. The data used spans from January 2000 to December 2014 and comes from the Central Bank of Tunisia, the Tunisian National Institute of Statistics, and the OECD database. I find that for one-step ahead forecast, both ARIMA-X and reduced form model produce accurate forecast. However, with respect to dynamic forecasts, direct method is more accurate when compared to ARIMA-X. When cointegrating relationship between exports and imports is combined with ARIMA-X models, the indirect approach outperforms the direct approach. I also show that, as volatility of underlying components increase disaggregate approach using time series models become less reliable. In addition, I found that current account is mainly affected by domestic GDP, trade openness, fiscal deficit, exchange rate, credit to the private sector and partner GDP. Estimation of ECM indicates that persistent effect is high and can take more than three quarters to die out. In addition I assess the performance of direct and indirect approach over time using naïve approach as benchmark. It appears that the MSE of naïve approach lies between direct and indirect approach in average up to horizon 12, but then worsen.
The paper investigates transmission of different foreign and domestic shocks to bank lending activity in Bosnia and Herzegovina through the bank lending channel. The bank lending channel is analyzed in a time series cross sectional data framework for the period 2006q1- 2014q1, investigating reactions of small vs. large banks to those shocks. First, the evidence has been found that both groups of banks decreased their lending activity in the aftermath of the crisis. There is some evidence that liquidity shock after the onset of the crisis is mainly transmitted through large banks that are affiliates of the large Western European banking groups. Second, strong evidence is found that loosening of domestic monetary conditions through required reserves rate change had a positive effect on lending supply, especially for small banks operating in the country.
This paper uses a two-step procedure to analyze the long-run dynamics between real house prices and their fundamentals in Lima, Peru. In this framework, first a hedonic price index is calculated, and then used for estimating a quarterly vector error correction model over the period 1998-2014. The price determinants considered in this application are: real mortgage interest rate, real gross domestic product, and trading volume. The reduced form of the model is employed for generating alternative price forecasts. In addition, a structural decomposition of the system allows us to identify and give an economic interpretation to the permanent and transitory shocks. Finally, this analysis is also applied to different tranches of the price distribution to assess if the interrelationships in the system vary across them. Results imply that income and trading volume shocks contribute the most at explaining the dynamics in prices. Also, under reasonable assumptions for the modeled fundamentals, predictions suggest that real house prices would undergo an important deceleration during the following years. Some signs of differenced behavior throughout the price distribution in the housing market cannot be ruled out in this analysis.
This paper evaluates the importance of building a composite metric of financial soundness for the private corporate sector in Colombia. Instead of relying on the individual and sometimes restrictive financial ratio analysis approach, the purpose of this document is to provide a single metric aimed at measuring the financial health of firms. Said metric, the financial soundness index, is derived by employing the cross-section approach of principal component analysis. For the time period of 2000-2013, the results allow to identify which industries have a weak, strong or similar balance sheet performance relative to that observed for the private corporate sector as a whole. Furthermore, validation tests on the index confirm the apparent relationship between accounting data of private firms that are debtors of the Colombian financial system and the credit risk perception of and materialization for financial intermediaries.
