Structural Break Models Research Articles

Türkiye'de orta gelir tuzağı sorununun ampirik analizi ve karşılaştırmalı değerlendirmesi

This study aims to determine the status of Türkiye's middle-income trap, which is classified as an upper-middle-income country according to The World Bank's income classification. Based on the approach of Robertson and Ye (2013), the United States is used as the reference country, and econometric analyses are conducted on Türkiye's per capita income levels from 1960 to 2021, using unit root tests that include both traditional and structural break models, following the study of Soreg (2017). The analyses conclude that, according to the method of Robertson and Ye (2013), Türkiye is not in a middle-income trap. In this approach, tests conducted with developed countries like the United States as a reference reveal that Türkiye is outside of this trap. However, an alternative method based on the global average per capita income indicates that Türkiye is in a middle-income trap. This result highlights that the evaluation model considering the global average per capita income offers a different perspective on whether Türkiye is in a middle-income trap.

Herding Behaviour in Investors: A Study of Tadawul Financial Market

Purpose: The study investigates herding behaviour in the Tadawul stock exchange based on daily data between the years 1999 to 2019 .
 
 Theoretical framework: Existence of uncertain situations affect the confidence level of the investor. This leads to investors changing their approach from rational to behavioural wherein they prefer to follow the judgements of others, thus engaging in herding behaviour. Several factors such as institutional investment, external factors and fundamental factors impact herding behaviour.
 
 Methodology: The study uses OLS regression approach and accounts for the various factors such as institutional investment (percentage ownership in a stock, institutional ownership type, nationality) , external factors (global financial crisis, political instability, oil market volatility) and fundamental factors (P/E ratio, Share Turnover, Market Capitalization, Market Liquidity).
 
 Findings: The empirical results indicate that herding is not present during the period of study. External factors and fundamental factors do not significantly impact the Cross-Sectional Absolute Deviation (CSAD) and there is no evidence of herding when accounting for these variables. However, CSAD is significantly impacted with the percentage of institutional investment, ownership and the nationality of institutional investors and there is evidence of herding when accounting for these variables.
 
 Research Implications: As further scope the study proposes that the length of the time period may affect the findings and more robust analysis can be conducted by structural break models to understand the relative significance of the factors that may lead to herding during different time periods.
 
 Originality: Institutional investment related factors have a significant impact on Herding behaviour of investors in the Tadawul stock exchange.

Herding Behaviour in Investors: A Study of Tadawul Financial Market

Purpose: The study investigates herding behaviour in the Tadawul stock exchange based on daily data between the years 1999 to 2019 .
 
 Theoretical framework: Existence of uncertain situations affect the confidence level of the investor. This leads to investors changing their approach from rational to behavioural wherein they prefer to follow the judgements of others, thus engaging in herding behaviour. Several factors such as institutional investment, external factors and fundamental factors impact herding behaviour.
 
 Methodology: The study uses OLS regression approach and accounts for the various factors such as institutional investment (percentage ownership in a stock, institutional ownership type, nationality) , external factors (global financial crisis, political instability, oil market volatility) and fundamental factors (P/E ratio, Share Turnover, Market Capitalization, Market Liquidity).
 
 Findings: The empirical results indicate that herding is not present during the period of study. External factors and fundamental factors do not significantly impact the Cross-Sectional Absolute Deviation (CSAD) and there is no evidence of herding when accounting for these variables. However, CSAD is significantly impacted with the percentage of institutional investment, ownership and the nationality of institutional investors and there is evidence of herding when accounting for these variables.
 
 Research Implications: As further scope the study proposes that the length of the time period may affect the findings and more robust analysis can be conducted by structural break models to understand the relative significance of the factors that may lead to herding during different time periods.
 
 Originality: Institutional investment related factors have a significant impact on Herding behaviour of investors in the Tadawul stock exchange.

Bank crisis resolution in India

PurposeThe academic literature has examined why bank runs happen based on the work of 2022 Nobel Prize-winning economists Diamond and Dybvig. They have found the source of banking/financial crisis in terms of mismatch between liabilities (deposits being short term and savers wanting to short-term access to their money) and assets (long term and illiquid). The Lakshmi Vilas Bank (LVB) crisis intensified when it came under Prompt Corrective Action (PCA) of the Reserve Bank of India (RBI). This situation provides the opportunity to study whether the elements embodied in the theoretical models like Diamond and Dybvig hold true for LVB crisis. This study aims to examine the reasons for the demise of LVB in India using DuPont financial model, peer group analysis and time series structural break in crucial financial parameters.Design/methodology/approachThe study examines the reason for insolvency of LVB using financial ratios, financial models (DuPont), financial distress model (Z-score) and asset-liability management. The study also adopts univariate structural break models using quarterly financial data covering the key financial measures used in the RBI’s PCA framework.FindingsLVB crisis is like Diamond–Dybvig model, in the sense, savers requiring short-term access to their money (liquidity for their deposits) on the information of high non-performing assets, which further deteriorates the illiquid nature of loan portfolio (assets) of banks. The study finds its profit margin (net interest margin and non-interest margin) and managerial efficiency had started deteriorating since 2018. The study finds that LVB’s main weakness lies in its limited credit appraisal ability, its monitoring and weak internal controls. Lending to sensitive sectors (like real estate, capital markets and commodities) and exposure to large business groups also contributed to its weakness. The study also finds huge, elevated asset-liability mismatch, especially in the short-term maturity buckets. Using univariate econometric time series model, the study also confirms financial weakness being evident much earlier than the time when resolution was undertaken by the RBI through PCA.Research limitations/implicationsThe study has implications for analysing and monitoring financial distress of banks. The study also has implications for devising banking regulation and supervision.Originality/valueThe study brings in a perspective of the banking regulations using the application of PCA framework on a listed private sector bank. The authors combine an accounting ratio model and combine risk measures that could identify the incipient risks in a bank. The authors believe this will help in refinement of banking regulations and better monitoring mechanisms.

Real output, fossil fuels, clean fuels and trade dynamics: New insights from structural break models in China

There are dire concerns of clean and green energy development with a sustainable economic growth in China. The present study aims to gauge the short term and long term relationship among the real economic output, labor, capital, energy and trade considering global financial crunch of 2008. There are two different models estimated in the production framework with fossil fuels and clean fuels in the economy of China. Specifically, there is indication of a long run association with convergence dynamics among real economic output, labor, capital, fossil fuel and trade before 2008 but not vice versa. The coefficient of fossil fuel with a greater magnitude is indicative of its huge role for higher real output growth, ceteris paribus. Likely, the findings turn out to be significant for real output, labor, capital, clean fuels and trade while long run elasticities corroborate that labor, capital, clean fuels and trade have a positive and significant impact on economic output. The sign and magnitude of the estimate of clean fuels is much higher than before crisis period indicating a paradigm shift in energy mix therein economic output growth. It is recommended that clean fuels should be promoted as their role is non trivial for economic-environmental sustainability in China.

The Stochastic Model of Technical Change and Profit Rates: Korean Economy (Manufacturing Sector: 1970–2015)

This article aims to reconstruct major macroeconomic variables, including the profit rate in the Korean economy, by using the stochastic model of technical change. This model needs no a priori technological patterns concerning available technologies, such as the neoclassical production function or fixed coefficient technologies. This article provides a summary of the rate of profit, the productivity of capital, and labor productivity in the Korean manufacturing sector between 1970 and 2015. A multiple structural break model detects possible regime changes in the growth rate of each type of productivity. The innovation sets for the simulation are created based on this test. Furthermore, the article reconstructs the rate of profit, the productivity of capital, and labor productivity in Korea’s manufacturing sector and discusses a catching-up process by Korea with the United States, which the model reproduces. JEL Classification: E11, E17, O14, O33

TESTING FOR HOMOGENEOUS THRESHOLDS IN THRESHOLD REGRESSION MODELS

This paper develops a test for homogeneity of the threshold parameter in threshold regression models. The test has a natural interpretation from time series perspectives and can also be applied to test for additional change points in the structural break models. The limiting distribution of the test statistic is derived, and the finite sample properties are studied in Monte Carlo simulations. We apply the new test to the tipping point problem studied by Card, Mas, and Rothstein (2008, Quarterly Journal of Economics 123, 177–218) and statistically justify that the location of the tipping point varies across tracts.

Forecasting variance swap payoffs

AbstractWe investigate the predictability of payoffs from selling variance swaps on the S&P500, US 10‐year treasuries, gold, and crude oil. In‐sample analysis shows that structural breaks are an important feature when modeling payoffs, and hence the ex post variance risk premium. Out‐of‐sample tests, on the other hand, reveal that structural break models do not improve forecast performance relative to simpler linear (or state invariant) models. We show that a host of variables that had previously been shown to forecast excess returns for the four asset classes, contain predictive power for ex post realizations of the respective variance risk premia as well. We also find that models fit directly to payoffs perform as well or better than models that combine the current variance swap rate with a realized variance forecast. These novel findings have important implications for variance swap sellers, and investors seeking to include volatility as an asset in their portfolio.

Financial Deepening and Income Inequality in Nigeria: Evidence from Zivot-Andrews and Gregory-Hansen Structural Break Analyses

Aligning with the Sustainable Development Goal (SDG) 10 agenda, this paper undertakes a structural break analysis on the effects of financial deepening on income inequality in Nigeria using annual data from 1980 to 2015 and error correction approach within the framework of the autoregressive distributed lags (ARDL) model. Major findings are as follows: (1) in the long-run, financial deepening and per capita income have equalising impact on income inequality; (2) an equalising effect of financial deepening is observed at the turn of a break point; (3) surprisingly, in the short-run, financial deepening aggravates inequality, and (4) the equalising effects of these variables are robust to the choice of financial deepening variables, the different structural break points and model specifications. These results suggest that income inequality depends on financial deepening and per capita income and that not controlling for structural breaks may lead to wrong inferences when making decisions on issues related to reducing income inequality in Nigeria.

Structural Breaks in U.S. Macroeconomic Time Series: A Bayesian Model Averaging Approach

AbstractWe investigate the evidence for structural breaks in autoregressive models of U.S. macroeconomic time series. There is substantial model uncertainty associated with such models, including uncertainty related to lag selection, the number of structural breaks, and the specific parameters that break. We develop a feasible approach to Bayesian model averaging, where the model space encompasses these sources of uncertainty. We find pervasive evidence for breaks in variance parameters, and for price inflation series, we find strong evidence of changes in persistence. We also find evidence for reductions in trend growth rates of production series. For most series, there is substantial model uncertainty, calling into question the common practice of basing inference on one selected structural break model.

Is inflation persistent? Evidence from a time-varying unit root model

In this paper, we examine the time-varying persistency of inflation for 36 Asian economies. We extend the Narayan and Popp (2010) unit root model with two endogenous structural breaks to a time-varying structural break model. Our study provides strong evidence of time-varying persistency for all Asian economies. The structural break dates are found to be statistically significant. We also document that the break dates coincide with changes in the monetary policy frameworks of the respective Asian economies, as well as with the global financial crisis.

Black swan events and COVID-19 outbreak: Sector level evidence from the US, UK, and European stock markets

Studies investigating the impact of coronavirus outbreak at the sector (industry) level are scant and focus on the USA market. We examine this issue for the US, UK, and the European stock markets, using endogenous structural break models and factor-augmented event study methodology by identifying the critical events. We find that the impact of coronavirus outbreak to the extent of black swan events is visible in March and, till the end of March 2020, the investors had limited opportunities for investment except for a few sectors in the US, UK, and Europe due to black swan events. Specifically, we find some stocks in consumer staples, healthcare, telecommunications, utilities, and financials were the attention-seekers and different sectors in our sample countries had different reactions to the outbreak. Overall, the analysis provides the reasons for panic buy and sell.

Strukturni prekidi, Twiter i likvidnost akcija internet Dot-com kompanije - dokazi američkih kompanija

The goal of this paper is to explore relationship between Twitter and stock liquidity of some large US internet Dot-com companies in the presence of unknown structural breaks for the period from September 2019 to April 2020. Using the Andrews-Ploberger and Andrews-Quandt structural break models, we identify the major structural breakpoints in the stock liquidity and find that most of these structural changes are significantly perceived. When we examined the sub periods as well as the full sample, Tweets and likes from most numbers of companies were found not to have links with stock liquidity. These results provide crucial insight into portfolio strategy to both international and local investors.

Price dynamics of China’s housing market and government intervention

ABSTRACT China’s housing sector offers an interesting case study of relationship between government interventions and price dynamics. Frequent and intensive government interventions create a highly fluctuant housing market in China. This paper applies a structural break model to investigate the dynamics in the evolution of China’s housing price between 1998 and 2016. Results show that the development of China’s real estate market exhibits much richer characteristics of structural changes rather than simple switching between boom and burst. Further studies indicate that government interventions is the most important source of structural changes in the dynamics of China’s housing market because of the inherent conflict between policy aims of market stability and rapid economic development mainly backed up by the housing sector.

Economic output, export, fossil fuels, non-fossil fuels and energy conservation: evidence from structural break models with VECMs in South Asia.

The study aims to examine the energy-GDP-exports nexus employing structural break models after testing for co-integration in the form of total/aggregate annual time series data of South Asia region. The novelty of the study rests in dividing the aggregate energy into fossil fuel- and non-fossil fuel-based energy consumptionswith structural break at 2008 considering the global financial crisis into the aggregate production function framework with labor, capital stock, and exports, ceteris paribus. The findings corroborate that in all the three models estimated with aggregate energy, fossil fuel-based energy, and non-fossil fuel-based energy consumptions respectively, there is evidence of long-run linkages among the selected variables. The analyses of long run elasticities estimated demonstrate that labor and capital have positive and significant impact on the real economic output before the break date in all the three models. It is however intriguing that aggregate energy use remains positive before and after the break date while fossil fuel-based energy becomes insignificant after 2008. Likely, non-fossil fuel-based energy corroborates insignificant impact on real economic output after 2008. These findings have important bearings for the energy conservation options in the region of South Asia especially for changing/reducing the fossil fuel share with the non-fossil fuels, ceteris paribus.

Inference after estimation of breaks

In an important class of econometric problems, researchers select a target parameter by maximizing the Euclidean norm of a data-dependent vector. Examples that can be cast into this frame include threshold regression models with estimated thresholds and structural break models with estimated break dates. Estimation and inference procedures that ignore the randomness of the target parameter can be severely biased and misleading when this randomness is non-negligible. This paper studies conditional and unconditional inference in such settings, accounting for the data-dependent choice of target parameters. We detail the construction of quantile-unbiased estimators and confidence sets with correct coverage, and prove their asymptotic validity under data generating process such that the target parameter remains random in the limit. We also provide a novel sample splitting approach that improves on conventional split-sample inference.

Stock Daily Price Regime Model Detection using Markov Switching Model

Changes in stock prices randomly occur due to market forces with reoccurrencepossibilities. This process, also known as the structural break model, is captured throughchanges in the linear model parameters among periods with the Markov Switching Model(MSwM) used for detection. Furthermore, using the smallest Akaike Information Criterion(AIC) value on all feasible MSwM alternatives formed for a daily stock price, the completeMSwM model with its Markov transition is determined. This method has been tested andapplied to daily stock price data in several sectors. The result showed that the number ofregime models coupled with its transition probability helped investors make investmentdecisions.

Determinants of Dollarization of Savings in the Turkish Economy

This study aims to analyze the nature of the dollarization that takes place in the Turkish economy and to decompose the factors that have contributed to its increase in recent years. With this purpose, we first identify the events that have significantly affected the dollarization trend in Turkey using the Iterative Cumulative Sum of Squares (ICSS) and Markov Switching Dynamic Regression (MS-Dynamic) structural break models. Then, we proceed to analyze the relationship between the percentage of Forex deposits of the residents over total deposits of the residents and the TRY/USD exchange rate using the Johansen cointegration test. USD, EUR, and TRY interest rates are also added to the model as independent variables to account for the effects of the difference between exchange rates. Long-term and short-term effects are tested with the Vector Error Correction Model, and causality is tested using the Granger causality test. The results of the study indicate that speculative trading is not the cause of the dollarization of deposits in Turkey. Additionally, results suggest that the political events have a stronger influence over dollarization compared to economic events. Collectively, our findings suggest that domestic citizens dollarize their deposits with the motivation to protect against political ambiguity rather than economic volatility. The results of the study are in line with the literature in the sense that they support the claim that dollarization can be averted in the short run with an increase in interest rates.

Kristalina Georgieva-led IMF Prediction, Shocks, and Stability in the West African Monetary Zone

Two compelling structural break models that deal with a known break (Bai 1997, 2010) and unknown common break (Pesaran, 2006) exist in the literature. However, the methodological framework underpinning structural breaks have enjoyed robust attention and filed with highly technical papers. This study considered the Pesaran CD test for cross-section dependence test, Least Squares Dummy Variable (LSDV) to determine heterogeneity in WAMZ, and Panel-ARDL (PMG) with a dummy variable-calibrated known break date to measure the statistical significance of DUM_FDI, DUM_ODA, DUM_IBRD, and Panel ARDL (PMG) without structural dummy-variable breaks. The motivating question becomes how Kristalina Georgieva-led IMF prediction consequently cascades into an intractable long-run effect on the WAMZ system. Due to the demand shocks from COVID-19 pandemic and supply shocks-supply glut from a price war between Saudi Arabia-Russia which has put the global economy into recession. The stability of the global economy is threatened, thus, since FDI, ODA is an integral part of global reinvested earnings (UNCTAD, 2020), hence this study is apt to unravel the impact of structural breaks in WAMZ arising from prior shocks between 1970-2017 from data sourced from World Development Indicators. This study measured how dummy variable (0, 1) structural breaks in foreign capital inflows (proxy by FDI, ODA, and IBRD) have long-term impacts in stimulating instability in WAMZ. We represented the dummy variable values 0 and 1; where 1 is structural breakpoints dates and afterward and 0 is used to denote before the structural breakpoints date. From the study, we observed that there exists cross-dependence in WAMZ at 1% LOS, heterogeneity also exists in WAMZ. Also, the impacts of structural breakpoints on selected macroeconomic indicators are mixed. The study found that the statistical significance of structural breakpoint at 5% LOS traces the susceptibility WAMZ to the rampaging health-related demand shocks and supply shocks in the long-run. Hence, a recession is likely in WAMZ. The study recommends that the regional government should undertake reforms to consciously diversify their economies and create market fundamental buffers, stimulate productivity and competitive supply frontier with a view to jump-start WAMZ economies from the impact of shocks and disturbances. In addition, provide stabilization funds to mitigate the adverse impact of shock-structural breaks on WAMZ economies.

The temporal evolution of a far-right forum

The increased threat of right-wing extremist violence necessitates a better understanding of online extremism. Radical message boards, small-scale social media platforms, and other internet fringes have been reported to fuel hatred. The current paper examines data from the right-wing forum Stormfront between 2001 and 2015. We specifically aim to understand the development of user activity and the use of extremist language. Various time-series models depict posting frequency and the prevalence and intensity of extremist language. Individual user analyses examine whether some super users dominate the forum. The results suggest that structural break models capture the forum evolution better than stationary or linear change models. We observed an increase of forum engagement followed by a decrease towards the end of the time range. However, the proportion of extremist language on the forum increased in a step-wise matter until the early summer of 2011, followed by a decrease. This temporal development suggests that forum rhetoric did not necessarily become more extreme over time. Individual user analysis revealed that super forum users accounted for the vast majority of posts and of extremist language. These users differed from normal users in their evolution of forum engagement.