Changes In Macroeconomic Variables Research Articles

Statistical Thermodynamics of Economic Systems

We formulate the thermodynamics of economic systems in terms of an arbitrary probability distribution for a conserved economic quantity. As in statistical physics, thermodynamic macroeconomic variables emerge as the mean value of microeconomic variables, and their determination is reduced to the computation of the partition function, starting from an arbitrary function. Explicit hypothetical examples are given which include linear and nonlinear economic systems as well as multiplicative systems such as those dominated by a Pareto law distribution. It is shown that the macroeconomic variables can be drastically changed by choosing the microeconomic variables in an appropriate manner. We propose to use the formalism of phase transitions to study severe changes of macroeconomic variables.

MACROECONOMIC UNCERTAINTY AND CONDITIONAL STOCK MARKET VOLATILITY IN SOUTH AFRICA*

AbstractThis paper analyses how systematic risk emanating from the macroeconomy is transmitted into stock market volatility using augmented autoregressive Generalised Autoregressive Conditional Heteroscedastic (AR‐GARCH) and vector autoregression (VAR) models. Also examined is whether the relationship between the two is bidirectional. By imposing dummies for the 1997‐1998 Asian and the 2007‐2009 sub‐prime financial crises, the study further analyses whether financial crises affect the relationship between macroeconomic uncertainty and stock market volatility. The findings show that macroeconomic uncertainty significantly influences stock market volatility. Although volatilities in inflation, the gold price and the oil price seem to play a role, it is found that volatility in short‐term interest rates and exchange rates are the most important, suggesting that South African domestic financial markets are increasingly becoming interdependent. Finally, the results show that financial crises increase volatility in the stock market and in most macroeconomic variables, and, by so doing, strengthen the effects of changes in macroeconomic variables on the stock market.

Time-Varying Inflation Expectations and Economic Fluctuations in the United Kingdom: A Structural VAR Analysis

This paper examines how the interaction between inflation expectations and nominal and real macroeconomic variables has evolved for the United Kingdom over the post-WWII period until 2007. We model time-variation through a Markov-switching structural vector autoregressive framework with variants of the sign restriction identification scheme to back out the time-varying effect of different structural shocks. We investigate the following questions: (i) How has the impact of the mix of real and nominal shocks on the UK economy evolved over time and did this have a specific impact on UK inflation expectations? and (ii) Has there been an autonomous impact of inflation expectations on the UK economy and has it changed over time? Our results suggest that shocks to inflation expectations had important effects on actual inflation in the 1970s, but this impact had significantly declined towards the end of our sample. This seems to be mainly due to a relatively slower response of monetary policy to these shocks in the 1970s compared to later years. Similarly, oil price shocks and real demand shocks led to important changes in macroeconomic variables in the 1970s. Beyond that period and up to the end of our sample oil price shocks became less significant for the dynamics of actual inflation and output growth. However real demand shocks became a relatively more important determinant for fluctuations in those series during the 1990s and the beginning of the 2000s. The changing response of monetary policy to this type of shock appears to be crucial for this result.

On the Dynamic Relationship between U.S. Farm Income and Macroeconomic Variables

This study examines the short- and long-run effects of changes in macroeconomic variables—agricultural commodity prices, interest rates and exchange rates—on the U.S. farm income. For this purpose, we adopt an autoregressive distributed lag (ARDL) approach to cointegration with quarterly data for 1989–2008. Results show that the exchange rate plays a crucial role in determining the long-ran behavior of U.S. farm income, but has little effect in the short-run. We also find that the commodity price and interest rate have been significant determinants of U.S. farm income in both the short- and long-run over the past two decades.

Macroeconomics and agriculture in Tunisia

This article aims to analyse the impact of changes in the monetary policy and the exchange rate on agricultural supply, prices and exports. The methodology used is based on the multivariate cointegration approach. Ten variables are considered – interest and exchange rates, money supply, inflation, agricultural output and input prices, agricultural supply and exports, income and the rate of commercial openness. The sample period covers annual data from 1967 to 2002. Due to the short sample period, two subsystems are considered. First, long-run relationships are identified in each subsystem. Second, both subsystems are merged in order to calculate the short-run dynamics. The results indicate that changes in macroeconomic variables have an effect on the agricultural sector, but the reverse effect does not hold.

Linear-quadratic term structure models – Toward the understanding of jumps in interest rates

We study linear-quadratic term structure models with random jumps in the short rate process where the jump arrival rate follows a stochastic process. Empirical results based on the US data show that incorporating stochastic jump intensity significantly improves model fit to the dynamics of both interest rate and volatility term structure. Our results also show that jump intensity is negatively correlated with interest rate changes and the average size is larger on the downside than upside. Examining the relation between jump intensity and macroeconomic shocks, we find that at monthly frequency, jumps are neither triggered by nor predictive of changes in macroeconomic variables. At daily frequency, however, we document interesting patterns for jumps associated with information shocks.

Information sharing and credit: Firm-level evidence from transition countries

We investigate whether information sharing among banks has affected credit market performance in the transition countries of Eastern Europe and the former Soviet Union, using a large sample of firm-level data. Our estimates show that information sharing is associated with improved availability and lower cost of credit to firms. This correlation is stronger for opaque firms than transparent ones and stronger in countries with weak legal environments than in those with strong legal environments. In cross-sectional estimates, we control for variation in country-level aggregate variables that may affect credit, by examining the differential impact of information sharing across firm types. In panel estimates, we also control for the presence of unobserved heterogeneity at the firm level, as well as for changes in macroeconomic variables and the legal environment.

Information Sharing and Credit: Firm-Level Evidence from Transition Countries

We investigate whether information sharing among banks has affected credit market performance in the transition countries of Eastern Europe and the former Soviet Union, using a large sample of firm-level data. Our estimates show that information sharing is associated with improved availability and lower cost of credit to firms. This correlation is stronger for opaque firms than transparent ones and stronger in countries with weak legal environments than in those with strong legal environments. In cross-sectional estimates, we control for variation in country-level aggregate variables that may affect credit, by examining the differential impact of information sharing across firm types. In panel estimates, we also control for the presence of unobserved heterogeneity at the firm level, as well as for changes in macroeconomic variables and the legal environment.

Asymmetric conditional volatility in international stock markets

Recent studies show that a negative shock in stock prices will generate more volatility than a positive shock of similar magnitude. The aim of this paper is to appraise the hypothesis under which the conditional mean and the conditional variance of stock returns are asymmetric functions of past information. We compare the results for the Portuguese Stock Market Index PSI 20 with six other Stock Market Indices, namely the SP 500, FTSE 100, DAX 30, CAC 40, ASE 20, and IBEX 35. In order to assess asymmetric volatility we use autoregressive conditional heteroskedasticity specifications known as TARCH and EGARCH. We also test for asymmetry after controlling for the effect of macroeconomic factors on stock market returns using TAR and M-TAR specifications within a VAR framework. Our results show that the conditional variance is an asymmetric function of past innovations raising proportionately more during market declines, a phenomenon known as the leverage effect. However, when we control for the effect of changes in macroeconomic variables, we find no significant evidence of asymmetric behaviour of the stock market returns. There are some signs that the Portuguese Stock Market tends to show somewhat less market efficiency than other markets since the effect of the shocks appear to take a longer time to dissipate.

Incentives in Competitive Search Equilibrium and Wage Rigidity

This paper examines the competitive search equilibrium when the workers' effort choice and type are private information. We derive a modified Hosios rule determining the allocation of resources and analyze how private information influences the responsiveness of the unemployment rate to changes in macroeconomic variables. Most importantly, private information increases the responsiveness of the unemployment rate to changes in the general (type and effort independent) productivity level. If the changes also affect the information structure, the responsiveness of the unemployment rate may be large even if the changes in expected productivity are small.

Affine-Quadratic Term Structure Models - Toward the Understanding of Jumps in Interest Rate

In this paper, we propose a unifying class of affine-quadratic term structure models (AQTSMs) in the general jump-diffusion framework. Extending existing term structure models, the AQTSMs incorporate random jumps of stochastic intensity in the short rate process. Using information from the Treasury futures market, we propose a GMM approach for the estimation of the risk-neutral process. A distinguishing feature of the approach is that the time series estimates of stochastic volatility and jump intensity are obtained, together with model parameter estimates. Our empirical results suggest that stochastic jump intensity significantly improves the model fit to the term structure dynamics. We identify a stochastic jump intensity process that is negatively correlated with interest rate changes. Overall, negative jumps tend to have a larger size than positive ones. Our empirical results also suggest that, at monthly frequency, while stochastic volatility has certain predictive power of inflation, jumps are neither triggered by nor predictive of changes in macroeconomic variables. At daily frequency, however, we document interesting patterns for jumps associated with informational shocks in the financial market.

Comparison between Antidumping and Countervailing Duties: The Case of the United States International Trade Commission, 1995-1999

This study compares the determinants of antidumping duties with those of countervailing duties using data for the U.S. ITC under the World Trade Organization system. The empirical evidences show that the commissioners are responsive to changes in trade balances and unemployment rate. Their decisions in case of antidumping duties are revealed to be less responsive to changes in macroeconomic variables than those relating to countervailing duties. The Democrat Commissioners are revealed to be more responsive to macroeconomic variables than the Republican Commissioners in the case of countervailing duties-related decisions.

CREDIBILITY, MACROECONOMIC FUNDAMENTALS AND MARKOV REGIME SWITCHES IN THE EMS

AbstractThe main objective of this paper is to use the Markov regime‐switching modelling framework to describe and analyse the credibility of a number of countries participating in the European Monetary System during 1980–1998. Our credibility indicator, based on Hughes Hallet et al.'s (1997) methodology, is subject to discrete regime shifts and is made dependent on macroeconomic fundamentals. We carry out extensive testing to assess the specification of the Markov regime‐switching model and the potential existence of permanent breaks. A contribution of our paper is the specification of a multivariate Markov switching model that allows us to examine whether macroeconomic variables have asymmetric effects on credibility. Another contribution is the specification of a regime‐switching model with time‐varying transition probabilities, which enables us to determine whether changes in macroeconomic variables can trigger switches between the low and high credibility regimes. We find strong evidence of regime switching behaviour in all countries. Both the level of credibility and the transition probabilities display an asymmetric response to changes in macroeconomic variables, with the stance of fiscal policy exerting the most systematic influence in all countries.

Return momentum and global portfolio allocations

Abstract In this paper, we report the first empirical tests concerning the international investment strategies of a panel of investment houses from 1982 through 1999. The previously untapped data for this study comes from surveys published in the Financial Report , a confidential newsletter purchased by The Economist Newspaper , in 1989. In the surveys, the investment houses recommend portfolio allocations among equity, bonds, and cash, as well as equity holdings across six country categories. We test whether changes in these portfolio weights are consistent with the notion of momentum trading. That is, we test whether the recommended weights change in response to relative asset return performance in previous periods. We find evidence of momentum trading for strategic asset allocations to equities and cash as well as evidence of momentum trading for country-specific, or tactical, equity allocations. In addition, we find the results differ conditional upon the recommended weights to bonds. Specifically, investment houses that recommend a lower percentage to bonds, on average, are more likely to engage in momentum trading for equities. We find no evidence that changes in portfolio weights are consistent with changes in value-investing variables or with changes in macroeconomic variables.

Een halve eeuw vakbondslidmaatschap : Een verkennende longitudinale studie naar enkele cyclische determinanten voor de ledenontwikkeling van de Belgische vakbonden, 1946-1995

This article explains the ebb and flow in Belgian trade union membership from 1946 to 1995 by replicating the econometric model by Bain and Elsheikhn in which changes in macro-economic variables are highly significant. Since the automatic indexation of wages and the extension of collective labour agreements invite free riding, the relevance of the change in inflation and real wage is quite striking. However, the free riding-effect is slowed down by the institutionalised presence of the trade unions on the work floor. The Ghent system explains the positive impact of the unemployment rate . The model is furthermore improved by the trade union density as a structural variable. The linear form reflects the enforcement effect, while the quadratic form mirrors the saturation effect on the trade union membership. Mainly due to the 'Allgemeinkoalitionsfähighkeit' of the Belgian government system, the impact of left parties on union growth and decline is not significant in a quantitative framework. With only four explanatory variables the model clarifies more than 75% of the fluctuations in Belgian trade union membership.

The Linkage of REIT Income- and Price-Returns with Fundamental Economic Variables

This article examines the relation between changes in macroeconomic variables and returns of Real Estate Investment Trusts (REITs). Previous studies show that stock prices quickly absorb news from changes in macro-economic variables. This study examines the components of REIT total returns, income- and pricereturns, to gain a more detailed understanding of how macroeconomic variables affect the movement of these returns. Results using monthly data show that changes in macroeconomic variables have a significant impact on the volatility of the income portion of REIT returns and the news shocks from these variables impact income return volatility for more than one month in duration. These findings may assist REIT investors in their approaches to risk-management.

Return Momentum and Global Portfolio Allocations

In this paper, we report the first empirical tests concerning the international investment strategies of a panel of investment houses from 1982 through 1999. The previously untapped data for this study comes from surveys published in the Financial Report, a confidential newsletter purchased by The Economist Newspaper, Ltd., in 1989. In the surveys, the investment houses recommend portfolio allocations among equity, bonds, and cash, as well as equity holdings across six country categories. We test whether changes in these portfolio weights are consistent with the notion of momentum trading. That is, we test whether the recommended weights change in response to relative asset return performance in previous periods. We find strong evidence of momentum trading for strategic asset allocations to equities and cash as well as strong evidence of momentum trading for country-specific, or tactical, equity allocations. In addition, we find the results differ conditional upon the recommended weights to bonds. Specifically, investment houses that recommend a lower percentage to bonds, on average, appear to be more likely to engage in momentum trading for equities. We also test whether changes in portfolio weights are consistent with the notion of two alternate investment strategies. We find no evidence that changes in portfolio weights are consistent with changes in value investing variables or with changes in macroeconomic variables.

Modeling the United States Housing Sector

Abstract New residential construction and improvement of existing housing account for most of the solid wood products consumption in the United States. It is important for forest policy analysts and those interested in wood products markets to understand the implications of changes in macroeconomic variables on housing markets and, hence, on wood products markets and forests. In past studies of U.S. housing markets used for long-run forest policy analysis, the time series properties of the macroeconomic data used to estimate the models were ignored. To the extent that estimation results are sensitive to those properties, the resulting model forecasts may be misleading. This study reports a structural model of the housing sector in the United States estimated using five alternative specifications to account for the time series properties of the data. Estimation results were compared, and model forecast performance was evaluated. Several stable estimation results emerged. However, further investigation is indicated for some potentially important relationships that were sensitive to model specification. FOR. SCI. 47(3):371–389.

The World Meat Market and the Brazilian Economy: An Econometric Input-Output Analysis

This chapter analyzes how changes in domestic and foreign macroeconomic variables can affect Brazilian meat exports and consequently the Brazilian economy, and how changes in the production process in the animal-raising sector, and the slaughter and meat processing industries affect their share in the Brazilian economy as well as those of other economic sectors. The analysis is conducted in two stages: initially, a vector auto-regression (VAR) model is used to evaluate the impact of changes in the domestic and foreign macroeconomic variables on Brazilian meat exports. Thereafter, the results obtained in the VAR model are applied in an input-output model to evaluate the changes in the levels of importance of the different production sectors, and especially in the animal-raising sectors and slaughter and meat processing industries. The results indicate that changes in macroeconomic variables can cause significant impacts on Brazilian meat exports, that, in turn, can affect the Brazilian economy mainly in the following sectors, corn farming, cattle, poultry and other animal-raising sectors, other farm products, chemistry, pharmacy and veterinary, plastic goods, beef, poultry and other meat process industries, other food products, commerce and transport, public utilities and services. Finally, changes in the production processes of the animal-raising sectors and slaughter and meat preparation industries do not affect their share in the Brazilian economy.

TIME‐TO‐BUILD EFFECTS AND THE TERM STRUCTURE

AbstractThis paper shows that real macroeconomic variables have power to predict movements in the term structure of interest rates. This complements recent evidence that links the term structure to expected stock returns. We find that up to 86 percent of the variation in the term premia are due to the changes in macroeconomic variables. The predictive power can be attributed to the time‐to‐build effect of investments.