Long-run Phenomenon Research Articles

Weather, Salience of Climate Change and Congressional Voting

Climate is a complex long-run phenomenon. The speed and severity with which it is occurring is difficult to observe, complicating the formation of beliefs for individuals. We use Google Insights search intensity data as a proxy for the salience of and examine how search patterns vary with unusual local weather. We fi nd that searches for climate change and global warming increase with extreme temperatures and unusual lack of snow. The responsiveness to weather shocks is greater in states that are more reliant on climate-sensitive industries and that elect more environmentally-favorable congressional delegations. Furthermore, we demonstrate that e ffects of abnormal weather extend beyond search behavior to observable action on environmental issues. We examine the voting records of members of the U.S. Congress from 2004 to 2011 and find that members are more likely to take a pro-environment stance on votes when their home-state experiences unusual weather.

Recent hikes in oil-equity market correlations: Transitory or permanent?

This paper empirically examines the long-run behavior of eight oil-equity correlations based on the ADCC (asymmetric dynamic conditional correlation) model and a novel decomposing approach. We select equity price indexes from three developed countries (the US, the UK and Germany) and five BRICS member countries (Brazil, Russia, India, China and South Africa) and consider ten economic/financial events for investigation. Seven correlations exhibit a positively sloped trend, and one exhibits a horizontal trend. All of these trends have undergone one or two structural breaks, which moved the corresponding correlations to their highest-ever evolutionary paths. These structural breaks are associated with one or more of the ten episodes considered, and a common event impacting all eight of the correlation trends is detected to be the 2008 adverse oil shock. The broken trends explain why the correlations were low in the early years and high in the recent years. Our findings indicate that recent hikes in the oil-equity correlations are a long-run phenomenon.

The role of the wage-productivity gap in economic activity

This paper argues that wages lagging behind productivity is a long-run structural phenomenon due to the interplay of wage dynamics and productivity growth. We call this interplay frictional growth, a term that can only be nullified in the utopian case of zero growth and/or no dynamics. In that vein, we challenge the prevailing view of the neutrality of the labour income share and investigate its impact on the evolution of employment. We thus estimate wage setting and labour demand equation systems – for France, Germany, Italy, Japan, Spain, the UK, and the US over the 1960–2008 period – and find that the labour share is negatively associated with employment even when the conventional assumption of a unitary long-run elasticity of wages with respect to productivity holds. Acknowledging the presence of the wage-productivity gap in both the short and long run, this work stands as the building block for assessing the effect of the falling labour share on economic activity. As recent work has shown that the widening wage gap is also an important factor prompting inequality, it can be argued that by supporting employment the falling labour share ‘sweetens’ the impact of rising income inequality, and, as such, deserves the attention of policy makers.

Non-Homothetic Preferences and Industry Directed Technical Change

Sectoral data features (i) changing relative expenditures of different sectors, (ii) non-constancy in relative prices and (iii) long-run trends in relative TFP growth rates across sectors. We provide a tractable theory of industry directed technical change, which is able to reconcile these findings. In doing so, this paper emphasizes the importance of directed technical change, nonhomotheticity of preferences and structural change as a long-run phenomenon. Using the input-output tables of the U.S., our theory helps us to reconstruct how structural change in terms of final consumption affects the market size of industry value-added. Arguing that the structural change across broad categories of final consumption is exogenous from the perspective of an individual firm, this gives us an instrument for the industrial market size (at the valueadded level). We then empirically test for the market size effect of induced innovation. Our findings suggest that a 1 percent increase in an industry’s market size (relative to GDP) leads to an increase in the TFP growth rate of about 0.3 percentage points over five years.

Global Equity-Commodity Market Correlations: Financial Crises and Broken Trends

We show 90 equity-commodity market correlations around the world have fluctuated about their respective broken trends since the early 1990s. Each of past eight major financial crises has precipitated breaks in the levels/slopes of some correlation trends, and each correlation trend has been broken by at least one of the eight crises. Recent financial crises display greater and wider trend-breaking impacts than early financial crises, notably in a way of uplifting the trends drastically. Most correlation trends exhibit positive slopes throughout, and some over the late sample period. Our results constitute compelling evidence that high equity-commodity market correlations can be a long-run phenomenon and will persist until next, yet rare, downward trend-breaking shocks originate.

Short-Run and Long-Run Performance of IPOs: Evidence from Taiwan Stock Market

This paper studies the aftermarket stock performance of IPOs in short-run and long-run, and examines whether the long-run underperformance exists in Taiwan stock market. This paper applies the measure of expected skewness to verify that the highly expected skewed IPO firms are overpriced and experience the long–run underperformance. We find that IPO firms are underpriced 48.54% and severely underperform from three to five years in comparison to the reference portfolios. Skewness is reported to be positively related with the underpricing level of the first day. However, our findings suggest that this skewness measure can’t explain for the long-run phenomenon of IPOs.

Correlation in Commodity Futures and Equity Markets Around the World: Long-Run Trend and Short-Run Fluctuation

Addressing the view that recent hikes in the commodity-equity correlation will only be temporary, this paper differentiates itself from previous studies in two aspects: It examines the long-run trends and the short-run fluctuations of the commodity-equity correlation, and it does so to indices from 45 equity markets. Of them, 32 demonstrate an upward long-run trend in their correlations with the commodity futures market throughout the last decade, and 43 have had their correlation trends upswing sharply during the recent financial/economic turmoil. Conditional correlations of 39 equity markets with the commodity futures market move towards or above their long-run trends when volatilities of these equity markets increase. Our results constitute compelling evidence that the attenuating diversification benefits of commodity futures are a long-run and world-wide phenomenon.

Export Led Growth vs. Growth Led Exports: LDCs Experience

Previous studies that investigated the export led growth hypothesis, relied upon Granger or Sims causality detection approach. Since these approaches employ first differenced variables, any inference could be short-run in nature. In this paper we consider the relation between exports and economic growth to be a long-run phenomenon. After applying Johansen's cointegration technique to establish the long-run relationship between exports and output (in presence of other factors), we rely upon weak exogeneity tests proposed by Johansen to establish exogeneity of exports or output. Annual data over 1960-99 period from 61 countries are used for analysis. The results are country specific and there is no uniform pattern.

Cross-border regional enlargement in Øresund

Cross-border regional enlargement entails complex dynamics. The integration process at the maritime border between Sweden and Denmark illustrates this. Physical infrastructure has been improved by national governments and intranational and supranational institutions have added to the instrumentation as a precondition for social interaction and integration. The outcome of these efforts is here tested under a hypothesis that in spite of this forceful cocktail of policy instruments, the cross-border regionalization process is at best a long-run phenomenon in the Oresund Region. The point of departure is the stepwise procedure for the formation of binational cities suggested in Ehlers (2001, GeoJournal 54: 21–32). Social interaction is identified as the pivotal factor in the present state of integration of the Oresund Region using Bucken-Knapp (2001, GeoJournal 54: 51–60). A benchmarking method is proposed for testing social interaction in the labour market, where cross-border dynamics are benchmarked against national dynamics. The cross-border regional enlargement process is still in its very infancy and a continued focus on policies to promote cross-border social interaction is required. The present governance without government approach to cross-border cooperation in the Oresund Region is in that respect challenged by a reform of the Danish geo-administrative system.

Career Prospects of Overeducated Workers in West Germany

Individual dynamics of overeducation are analysed for vocationally trained workers using work history data from the German Life History Study (GLHS). The primary focus of interest is whether overeducation is a persistent or a temporary phenomenon for the affected workers. To analyse this question, we compare the career patterns of vocationally trained overeducated workers with those of their unskilled co-workers with respect to upward mobility to higher skilled jobs, horizontal mobility to subsequent unskilled jobs and downward mobility to unemployment. Our results from parametric hazard models suggest that for workers who have completed initial vocational training of intermediate or high quality, overeducation is not a persistent labour market status. These workers have significantly better career prospects than their unskilled co-workers. In contrast, the career chances of overeducated workers with low-quality initial vocational training and unskilled workers are similar. Thus, for the former, overeducation proves to be a long-run phenomenon.

Fractional cointegration, low frequency dynamics and long-run purchasing power parity: an analysis of the Australian dollar over its recent float

A relatively new but generalized concept of fractional cointegration is applied to shed some light on the validity of purchasing power parity (PPP) as a long-run equilibrium condition, by examining the long-run relationship between quarterly consumer price indices and bilateral exchange rates of the Australian dollar and seven major OECD trading partners, over Australia's recent float. The paper demonstrates that relaxing the condition that the residual from the cointegration equation must be a I(0) process, provides a wide range of cases of parity-reversion with processes that are CI(1,d) with 0 < d < 1. Findings tend to suggest that, while standard tests of cointegration fail to support cointegration between nominal exchange rates, domestic and foreign prices, and thus the empirical favour for PPP as a long-run phenomenon, the fractional cointegration analysis permits deviations from equilibrium to follow a fractionally integrated process and hence captures a much wider class of parity or mean-reversion behaviour. Results are mainly supportive of long-run PPP. Furthermore, an analysis of the short-run dynamics propelling the long-run relationship (through a VECM) reveals that domestic prices are consistently the initial receptor of an exogenous shock to the equilibrium and the long-run equilibrium is restored through the short-run adjustment of the nominal exchange rates. These findings are shown to hold clear policy implications.

Potential Impacts of the SARS Outbreak on Taiwan's Economy

In addition to describing the history of severe acute respiratory syndrome (SARS) in Taiwan, the government's measures to contain the outbreak, and the actual economic impacts of SARS on Taiwan's economy, this paper presents the results of a multiregional computable general equilibrium model (Global Trade Analysis Project model version 6.2) that predicts the outbreak's consequences to 31 service and manufacturing sectors in Taiwan and to the GDP of 16 regions. The results of a short-term outbreak (less than 1 year), taking into account capital accumulation, are compared with those of a longer outbreak (more than 1 year). The losses to GDP are also predicted for the cases in which (1) China provides complete information on its SARS cases and (2) it fails to fully disclose the progress of the outbreak there to the international community. For a short-term outbreak, the simulation predicts losses to GDP of the service and manufacturing sectors of 0.67 percent in Taiwan, 0.20 percent in mainland China, and 1.56 percent in Hong Kong. If SARS is a long-run phenomenon, a lack of transparent disclosure about the progress of SARS on the part of the Chinese authorities could cause an additional 1.6 percent decline in China's GDP, according to the simulation.

Is Pricing to Market Behavior a Long-Run Phenomenon? A Non-Stationary Panel Analysis

This paper examines how the Swedish imports prices react to exchange ratechanges in the long run. It finds, through non-stationary panel analysis, thatthe Swedish import prices (for the majority of industries) change but not inproportion to exchange rate changes. The evidence from panel cointegrationalso shows that pricing behavior of the Swedish imports varies across industriesand such variations could be related to industry-specific characteristics.

Overeducation: a short or long run phenomenon for individuals?

Analyzing a large data set from the 1990s, this paper attempts to gain insights on the time horizon of overeducation. Overeducation could be a short-run phenomenon for individuals if it occurs as a temporary form of employment; perhaps allowing workers to develop career opportunities or gain experience. However, overeducation may be a way for workers to compensate for weaknesses in other areas of human capital (school quality, experience, etc.), thus a long-run phenomenon for other individuals. Currently one in five overeducated individuals are able to remain employed and exit the category within a year. Additionally, approximately 3% of just-educated individuals enter the overeducated category the following year. The findings are robust, occurring for a variety of demographic groups during different stages in the business cycle.

The impact of inflationary news on money market yields and volatilities

This study investigates the impact of surprises in hourly wages, non-farm payroll, unemployment rate, and producer price index on the yields and volatilities of money market securities. The methodology is conducted in a framework that preserves the strong substitutability among the instruments. We find first the short-term interest rate nexus is inherently a steady state long-run phenomenon. Second, yield variability is fundamentally linked to the release of macroeconomic news that conveys important information on inflation. Third, results from the equality of variance tests suggest that volatilities on announcement days are significantly higher than non-announcement day volatilities across all securities.

The Phillips curve as a long-run phenomenon in a macroeconomic model with complex dynamics

In this paper we derive a Phillips curve as the image of a chaotic attractor of the state variables of a non-linear dynamical system describing the evolution of an economy. This has two important consequences: the Phillips curve in our model is a true long-run phenomenon, but to exploit the apparent unemployment-inflation trade-off may require unrealistically complex policy measures. The model is based on an overlapping-generations non-tâtonnement approach involving temporary equilibria with stochastic rationing in each period and price adjustment between successive periods. In this way we are able to obtain complex sequences of consistent allocations allowing for recurrent unemployment and inflation.

International linkage of interest rates: Evidence from the emerging economies of Asia

This article employs monthly short-term interest rate data over the 1980–1999 period to investigate the intermarket interest rate linkages across seven newly industrialized markets in Asia, and the influence that Japan and the US exert on interest rates in the region. In an attempt to isolate the impact of the liberalization process from the Asian financial crisis on interest rate transmission mechanisms, the sample period is broken down into two equally divided subperiods (1980 through 1989 and 1990 through 1999). The results from the study indicate that (a) the national short-term interest rate nexus is inherently a steady-state, long-run phenomenon, in that they are found to be cointegrated; (b) there is a pronounced increase in the cross-country interest rate linkages during the 1990s; (c) Hong Kong and Singapore play an important, but not dominant, role in the Asian region, and serve to integrate the regional economies and mediate the short-run linkages between the regional and the world financial markets; and (d) while Japan played an influential role during the 1980s, the US supplants Japan's role during the 1990s. Several policy implications are derived.

The Emergence of the Phillips Curve as an Attractor

In this paper the Phillips curve is derived as the image of a chaotic attractor of the state variables of a non-linear dynamical system describing the evolution of an economy. This has two important consequences: the Phillips curve in the model is a true long-run phenomenon and it cannot be used for policy purposes. The model is based on an overlapping-generations non-tâtonnement approach involving temporary equilibria with stochastic rationing in each period and price adjustment between successive periods. In this way it is possible to obtain complex sequences of consistent allocations allowing for recurrent unemployment and inflation.

The monetary exchange rate model as a long-run phenomenon

Pure time series-based tests fail to find empirical support for monetary exchange rate models. In this paper we apply pooled time series estimation on a forward-looking monetary model, resulting in parameter estimates which are in compliance with the underlying theory. Based on a panel version of the Engle and Granger [Engle, R.F., Granger, C.W.J., 1987. Co-integration and error correction: representation, estimation and testing, Econometrica 55, 251–276] two-step procedure we find that the residuals of the panel-based estimated monetary model are stationary. This indicates that on a pooled time series level there is cointegration between the exchange rate and the macroeconomic fundamentals of this monetary model.

Financial intermediation and economic growth in Southern Africa

Using various indicators of financial development, this paper investigates the role of financial intermediation in stimulating economic growth in Southern Africa. The results lend some support to the hypothesis that financial development is positively correlated with the growth rate of real per capita GDP. This relationship is more evident in regressions that use pooled data (5-year cross-sections) than those using annual data. This finding suggests that the finance-growth nexus is a long-run phenomenon. The data indicate that while Botswana and Mauritius are catching up with South Africa towards a high-income steady state, the rest of the countries are stagnating to low income levels and low growth rates.