Short-run Analysis Research Articles

CO2 Emission, Energy Consumption, and Economic Growth for Turkey: Evidence from a Cointegration Test With a Structural Break

In this study, the existence of a long-run relationship among per capita CO2 emission, per capita income, and per capita energy consumption is examined over the period from 1960 to 2007 in order to test the validity of the environmental Kuznets curve. To this end, beside the Johansen cointegration test, the Gregory and Hansen cointegration test which allows for a structural break was used. The results of the Johansen cointegration test shows there is a long-run relationship among per capita CO2 emission, per capita income, and per capita energy consumption. According to the Gregory-Hansen test, the existence of a structural break in 1979 together with the long-run relationship cannot be denied. Thus, long-run and short-run analyses were performed for two different regimes: 1960 to 1978 and 1979 to 2007. The results have revealed that in the long-run, the Environmental Kuznets Curve Hypothesis is valid for both periods.

The twin deficits hypothesis and reverse causality: A short-run analysis of Peru

This study examines causation between the current account and the fiscal surplus and fiscal spending for a commodity-based economy, Peru. Using quarterly data for the open economy, the outcomes reject the twin deficits hypothesis. Instead, the evidence points strongly to reverse causality, that is, the current account causes the fiscal account. However, unlike previous empirical evidence on this subject, for a year, the reverse causality indicates a negative causation because the fiscal consumption is not smoothed when positive permanent shocks to the current account occur. In the short run, the fiscal policy has no effect on the current account, but improvements in the current account increase the probability of attaining a lower bounded fiscal deficit. This evidence is consistent with a small open commodity-based economy that is highly exposed and sensitive to external price shocks.

The Economics of Solar Electricity

The benefits and costs of increasing solar electricity generation depend on the scale of the increase and on the time frame over which it occurs. Short-run analyses focus on the cost-effectiveness of incremental increases in solar capacity, holding the rest of the power system fixed. Solar’s variability adds value if its power occurs at high-demand times and displaces relatively carbon-intensive generation. Medium-run analyses consider the implications of nonincremental changes in solar capacity. The cost of each installation may fall through experience effects, but the cost of grid integration increases when solar requires ancillary services and fails to displace investment in other types of generation. Long-run analyses consider the role of solar in reaching twenty-first-century carbon targets. Solar’s contribution depends on the representation of grid integration costs, on the availability of other low-carbon technologies, and on the potential for technological advances. By surveying analyses for different time horizons, this article begins to connect and integrate a fairly disjointed literature on the economics of solar energy.

English

Twenty years have passed since the breakdown of the Soviet Union, and it is time to draw a concluding line for monetary policy efficiency in the Commonwealth of Independent States (CIS). We propose a comprehensive treatment of the subject for nine members of the CIS for the period of 2000-2009. Four transmission channels are investigated: interest rate channel, exchange rate channel, bank lending channel, and monetary channel. First, we design a Vector Auto Regression framework for each CIS member-state and investigate the short-run dynamics of the impact of each of the four transmission channels on domestic output and inflation. Second, we construct Auto Regressive Distributed Lag Models (ARDL) in order to study the country-wise efficiency of transmission channels in the long run. Finally, we employ a panel data fixed effects method to show how the CIS behaves as a region. Our short-run individual country analysis yields highly heterogeneous results. In the long run, however, it’s apparent that broad monetary base (M2) is the most influential determinant of aggregate output. Inflation is affected the most by the refinancing rate and the flow of remittances. For both output and inflation, exchange rate plays a role of a supporting channel.

Long-Run Effects of Tax Policies in a Mixed Market

The purpose of this paper is to provide a systematic treatment of tax policies in mixed markets with endogenous entry. We consider three types of tax-subsidy policies: a simple unit subsidy, an entry-license tax, and a policy mixture of the two instruments. Under the unit-subsidy policy, in contrast to the results of the short-run analysis with exogenous entry, the optimal subsidy level in a mixed market is not higher than that in a private market, and privatization affects welfare. Under the entry-license-tax policy, the optimal entry-tax level in a mixed market is lower than that in a private market. Finally, we show that the privatization neutrality theorem holds under a two-part tax-subsidy policy: the first-best outcome is achieved in both mixed and private markets, and the optimal tax-subsidy rate is the same across the two regimes.

TOURISM AND ECONOMIC GROWTH LINKAGES IN MALAYSIA

This study attempts to test a hypothesis of the relationship between the tourism sector and economic growth in Malaysia. Although a large number of literatures indicate that there is strong correlation between the tourism industry and economic growth, not much is known on the dynamic inter-relationship between these variables. This study employs recently developed ARDL bounds testing approach to cointegration. The estimated result based on the long run time series behaviour for the number of tourist arrival and economic growth indicator shows that these variables are not cointegrated. In the short run analysis, we found that economic growth has unidirectional Granger caused to the tourism activities. Recognition of the existence of a causal relationship between international tourism and economic growth has important implications for the development of different tourism activities and policy decisions. In order to attract tourism activities, effort must be taken to promote stability as well as sustainability of the economy of this country.

Short-Run Underpricing and Its Determinants: New Evidence from Australian IPOs

To find out whether the Australian IPOs are underpriced, this study investigates the short-run market performance of 254 IPOs by industry, listing year and issue year over the period 2006 to 2011.To measure the short-run performance, the first listing day returns are divided into the primary market which is calculated based on the first day beginning prices and issue prices, the secondary market which is estimated based on the first day closing and opening prices and total market which is calculated based on the first day closing prices and issue prices. Then it is extended to the post-day listing analysis which includes returns up to 10 days. To find out the determinants of underpricing, this study estimates binary and multiple regression models with the offer, firm and market characteristics. The marginal probability analysis was also carried out to estimate the associated probability of each determinant under the binary model. The study found that overall the Australian IPOs are underpriced by 25.47% based on the average abnormal return in the primary market and it is statistically significant at 1% level. However, the secondary market analysis indicates that the Australian IPOs are overpriced by 1.55% on the abnormal return which is statistically significant at 5% level. Total market analysis also shows that IPOs are underpriced at 23.11% on the average abnormal return and it is statistically significant at 5% level. The examination of post listing returns shows that Australian IPOs are underpriced based on the average cumulative abnormal returns (CARs) in the 3rd, 6th and 10th days by 24.63%, 24.06% and 23.34% respectively. The primary, total and post listing analysis shows that the industrial sector IPOs are more attractive to investors whereas the chemical and material sector IPOs are less attractive compared to other sectors. As far as the investors’ wealth is concerned, the study shows that the short-run market performance analysis should consider both the first day and post-day returns.The issue and market characteristics are significant explanatory variables of the short-run IPO market in Australia. The IPO period, time to listing, listing delays, total net proceeds ratio, issue price, attached share option and the market volatility are the main determinants for the observed underpricing. The marginal probability analysis also shows that market volatility and total net proceeds ratio have a significant impact on the level of underpricing.

Is transaction price more value relevant compared to accounting information? An investigation of a time-series approach

The current literature on the value relevance of accounting information primarily proxies for stock values using transaction prices, a practice that some believe may mislead value relevance research conclusions. Without assuming that prices are equivalent to intrinsic values, this paper assesses the information content found in equity prices in addition to that in book values and reported earnings. We obtain two cointegration relations from the residual income valuation model and estimate trivariate error-correction models with aggregate stock market data from Taiwan. The long-run causality and common factor analyses reveal that prices have lesser fundamental information content than book values, indicating that the quarterly prices may contain sizable noise trading elements. The short-run analysis conversely suggests that prices exert a stronger causal influence compared to book values. Such a short-run misjudgment of the information role of price versus book value appears consistent with the literature indicating that investors are overconfident about their private information but underplay the value relevance of public information.

Benefits to Society from Health Care Expenses: Do We Get More for Higher Spending?

This article is motivated by the recent health care reform and the general debate on the issues facing the industry, in the wake of the upcoming Supreme Court decision on the matter. It has been argued that the United States spends more on health care as a percentage of its GDP than any other industrialized country, and that presumably is inherently bad. In order to test this presumption, I put forward two simple international comparisons to study whether more spending in health care is correlated with higher benefits across multiple countries.The results confirm that to be the case. I further argue that much of the debate over health care reform in the United States has been focused solely on short-run (even static) analysis without consideration for longer-term efficiencies. It is important to keep in mind that it is today’s costly innovation which allows for better quality health care tomorrow. Imposing policies which punish innovation as a way to reduce costs can lead to lower costs today, but it may not be true that they will lead to lower costs tomorrow – particularly if cost is measured in units of quality care. Indeed, I argue that “total health care expenditures” is not the relevant metric for policymakers, but rather that the price of one unit of constant quality health care is a more appropriate concept. Unfortunately to my knowledge such measures have yet to be appropriately developed.

Demographic transition, education and economic growth in Tunisia

This paper provides empirical evidence supporting the interaction between fertility, education and economic growth through the underlying mechanism behind that correlation in accordance with Becker's theory. In consistency with the theory, the key explanatory variables in Tunisia's fertility model are real GDP per capita, infant mortality, contraceptive use ratio, and education. As opposed to most empirical works, the present study takes into consideration three educational levels, i.e., primary, secondary and higher. Also unlike most empirical research, this study attempts to analyse the impact of fertility transition on education and economic growth. To deal with too little or incomplete data, time series data for Tunisia are computed over 45 years. A multivariate cointegration analysis is carried out and shows that a long-term triangular relationship exists. A short dynamic run analysis based on the vector correction error model displays results in coherence with and close to those of the long term. Among our key results, education is found to trigger fertility transition both in the short and long run. In addition, education has relatively fostered economic growth but hardly boosted it through its dynamic interaction with fertility. Furthermore, the variance decomposition and the impulse function show that the fertility transition has produced a feedback effect on both education and economic growth.

Structural transformation in China and India: A note on macroeconomic policies

This paper explores macroeconomic policies that can sustain structural change in China and India. A two-sector open-economy model with endogenous productivity growth, demand driven output and income distribution as an important determinant of economic activity is calibrated to a 2000 SAM for China and a 1999/2000 SAM for India. Short-run analysis concerns temporary equilibria for output, productivity and employment growth rates in the formal sector. In the long-run, the model allows for multiple equilibria which can describe cases of (a) underdevelopment and structural heterogeneity or (b) sustained growth and development. Several simulation exercises are conducted. Specifically, we consider how changes in investment, wages, labor productivity trend and a depreciation of currency affect the macroeconomy and job creation in the formal sector.

Impact of human capital on economic growth with emphasis on intermediary role of technology: Time series evidence from Pakistan

This study examines the impact of education sector of Pakistan on economic growth for the recent data. We have taken technology as dynamic variable, instead of taking it as exogenous to study the impact of human capital on economic growth through technology. So, impact of human capital is studied in detail with technology, both as exogenous and endogenously taken into account. Johansen co-integration test establishes a long run relationship between human capital and economic growth, followed by error correction model (ECM) for short run analysis. Key words: Human capital, technology, economic growth.

Optimal Tariff Rate When Domestic Firms Can DecideLocation of Industries

There is vast literature on the theory of optimal tariffs to maximize the economic welfare of a home country. The optimal tariff rate is positive in large countries, but the rate is zero in small countries. However, little attention, has been paid to the market structure in the concerned industries. Most of the literature focuses on a short run analysis or a long run analysis. In this paper, we present another concept of period, the intermediate run. In an intermediate run, each firm freely moves among industries, while the total number of firms in an economy is fixed.To address this issue, we developed an international trade model suitable for explaining the intermediate run. A fixed number of oligopolistic firms operate and each firm can locate (operate) either in an importing industry or a non-traded industry. The two industries have an identical market size, each domestic and foreign firm has the same cost function and each industry engages in Cournot competition.In this intermediate run model, the profit of each domestic firm is equalized in the two industries because each firm moves among industries to seek a higher profit. When free trade prevails in the importing country, domestic firms insufficiently locate in the importing industry from the economic welfare viewpoint. By imposing a tariff, more domestic firms locate in the importing industry in equilibrium, the resulting industry structure of the economy becomes more efficient and economic welfare is improved. Owing to this inter-industry movement of oligopolistic firms, observed only in the intermediate run, the optimal tariff rate becomes higher in the intermediate run equilibrium than in the short run equilibrium when the number of firms is fixed in each industry, that is, the short run.JEL Classification: F12, F13, L13

On Intergenerational Transmission of Reading Habits in Italy: Is a Good Example the Best Sermon?

The intergenerational transmission of preference and attitudes has been less investigated in the literature than the intergenerational transmission of education and income. Using the Italian Time Use Survey (2002-2003) conducted by ISTAT, we analyse the intergenerational transmission of reading habits: are children more likely to allocate time to studying and reading when they observe their parents doing the same activity? The intergeneration transmission of attitudes towards studying and reading can be explained by both cultural and educational transmission from parents to children and by imitating behaviours. The latter channel is of particular interest, since it entails a direct influence parents may have on child's preference formation through their role model, and it opens the scope for active policies aimed at promoting good parents' behaviours. We follow two fundamental approaches to estimation: a model, consisting of OLS intergenerational type regressions for the reading habit, and household fixed effect models, where we aim at identifying the impact of the role model exerted by parents, exploiting different exposure of sibling to parents' example within the same household. Our long run results show that children are more likely to read and study when they live with parents that are used to read. Mothers seem to be more important than fathers in this type of intergenerational transmission. Moreover, the short run analysis shows that there is an imitation effect: in the day of the survey children are more likely to read after they saw either the mother or the father reading.

Short-Run Assessment of French Economic Activity Using Optim

This paper describes a short-term projection model for French economic activity, OPTIM, the aim of which is twofold. First it gives an early estimate of real GDP growth for the previous quarter, when no figure has yet been released by Insee, the French National Statistical Institute, along with flash estimates for main GDP components (consumption, investment, inventories and external trade) together with a breakdown by sectors (services, manufacturing, construction, equipment, agri-food). This appears particularly useful for the short-run analysis. In this respect OPTIM may be considered as a traditional bridge equation model since it links a particular indicator available generally ahead of the release of the quarterly national accounts with a quarterly aggregate like GDP, consumption… Second, this tool supplies also estimates for GDP growth and its main components for the current quarter and for the next quarter (i.e two and three quarters respectively following the latest reference period of Insee's GDP data release). A pool of (mainly) monthly variables is used, which are, sometimes, directly introduced in the specification but, more often, summarised by the implementation of a principal component analysis (PCA). The largest part of the set of indicators comprises survey data together with monthly traditional indicators (industrial production, consumption in manufactured goods…). But other data (in particular financial data) are also introduced. The outcomes of OPTIM rely on a relatively complex procedure involving about twenty equations and mixing two alternative approaches: a supply approach consisting in a direct modelling of GDP and a demand approach where GDP is the sum of consumption, investment, changes in stocks and net trade (exports minus imports). The discrepancy between these two estimates is distributed according to an original method, yielding a unique GDP estimation. The paper is organised as follows. Section 1 presents the main features of OPTIM. Section 2 deals with data description while section 3 addresses the data assessment's issue. In section 4, the main equations are described. Section 5 presents a general assessment of OPTIM in terms of forecasting record. Finally section 6 concludes and proposes some avenues for further developments.

Dynamic Interactions Between Private and Public Real Estate Markets: Some International Evidence

This study evaluates long-run relationships and short-run linkages between the private (unsecuritized) and the public (securitized) real estate markets of Australia, Netherlands, United Kingdom and the United States. Results indicate the existence of long-run relationships between the public and private real estate markets of each of the countries under consideration. This implies that for all countries, investors would not have realized long-term portfolio diversification benefits from allocating funds in both the private and public real estate markets since these assets are substitutable over the long run. Short-run analyses also reveal significant causal relationships between private and public markets of all countries under consideration. As expected, it was found that price discovery occurred in the public real estate market in that it leads but is not led by its private real estate market counterpart.

Infraestrutura e produtividade no Brasil

This article analyses the relationship between infrastructure and total factor productivity (TFP) in Brazil during the second half of the twenty century. Public capital is used as a proxy for infrastructure capital. The hypothesis to be tested is that an increase in infrastructure — more than than a rise in the private capital stock— has a positive effect on productivity on the long run. In that sense, it was used the Johansen methodology for testing the cointegration between TFP and the public/private capital ratio. In fact, it was found that this complementary relation (public-private) helps in explanning TFP’s path from 1950 to 2000. The results were robust to different measures of productivity and the public/private ratio. In addition, the short (medium) run analysis has indicated that shocks in this ratio have a significant effect over the TFP, but the opposite is not true. Therefore, the cuts in infrastructure investment could be a possible explanation for the TFP’s fall during the 70’s and 80’s. JEL Classification: O11; O47; O54.

Determinants of Foreign Direct Investment Flows to Pakistan

This paper investigates the determinants of foreign direct investment (FDI) flows in dynamic econometric model on Pakistan economy data set (1970-2007). VAR, VEC, generalized impulse response functions, Granger causality, forecasting, three stage least square econometric techniques are used in empirical analysis. Results suggest cost related, macroeconomic factors and cumulative risk index variables are the major determinants emerged in short-run analysis. The results also suggest long run relationships among FDI, openness and macro economic factors consistently. Openness emerges as dominant factor in long run dynamics. Evidence suggests that determinant variables that exhibit short run dynamics may also exhibit long run dynamics and vice versa. The country requires to maintain macroeconomic stability and continuity in openness policies of reform processes of the last 20 years, along with maintaining cost advantage by controlling the level of prices, wage rate, cost of doing business and investment friendly environment. This implies continuity of sustained stable macro economic policies, improvement in country's risk profile followed by cost related and investment environment improving factors.

Exchange rate (volatility) and bilateral agricultural trade: Turkey vs. her major trading partners

The purpose of this study is to analyse the sensitivity of Turkish bilateral agricultural trade flows to exchange rate and its volatility. To this end, we estimate the bilateral export, import and trade balance equations between Turkey and her 16 major trading partners for the period of 1987:q1-;2007:q4 by utilising the Vector Error Correction Modelling (VECM) framework. The short-run analysis based on the Impulse?Response Functions (IRFs) provides evidence that the pattern of Turkish agricultural trade balance with respect to exchange rate changes does not follow the J-curve hypothesis. The long-run analysis based on the Johansen cointegration approach, on the other hand, shows that the exchange rate and its volatility are important factors determining the dynamic of Turkish agricultural trade flows.

A Centre–Periphery Framework on Kaldorian Lines

This paper develops the seminal ideas of Nicholas Kaldor into a Centre–Periphery framework of the world economy, where the Centre faces the problem of surplus capacity and effective demand and the Periphery faces a capacity constraint. In such a framework, a Harrod-type ‘foreign trade multiplier’ works in a short-run partial equilibrium analysis: a rise in the Periphery's output increases demand for output of the Centre. There is some ambiguity in the short-run effect of the peripheral terms of trade on the output of the Centre. In the long-run equilibrium growth of the whole framework, the ‘foreign trade multiplier’ does not work. A rise in factor productivity or the growth rate in the Periphery leads to a fall in its terms of trade while the Centre remains unaffected. A rise in the productivity in the Centre affects its factor income, not its terms of trade.