SVAR Model Research Articles

Dynamic Interactions between Intraday Returns and Trading Volume on the CSI 300 Index Futures: An Application of an SVAR Model

The results of data description using ten samples of high-frequency data to describe the intraday characteristics of the CSI 300 index futures show that there is no significant summit and fat tail phenomenon. The Granger causality test shows that there is not only a two-way Granger causality between returns and trading volume but also an instantaneous causality relationship. Therefore, the A-type SVAR models are identified and estimated after setting up constraints, and all the models are tested stable. Subsequent variance decomposition results show that the residual disturbance of returns can be explained more than 99.9% by its lagged terms; the residual disturbance of trading volume explained by its lagged terms and returns is quite different, and the range of interpretation is very wide. The impulse response results show that the market responds very quickly to new information. When a shock is reached, the market can reach a new equilibrium point after about three observation time periods. This shows that the market is able to digest new information quickly, and arbitrage trading becomes very difficult in this market.

Monetary policy and macroeconomic responses: non-recursive SVAR study of Egypt

Purpose This paper aims to examine the effects of monetary policy and foreign shocks on output, inflation and exchange rate in Egypt. Design/methodology/approach This paper studies the effects of monetary policy and foreign shocks on output, inflation and exchange rate by using non-recursive SVAR model and quarterly data. Findings First, the empirical results reveal that monetary policy shocks, through changes in interest rate or money supply, have a significant effect on output, inflation and exchange rate in Egypt. Second, the world oil prices and foreign output have significant impacts on output, inflation and exchange rate in Egypt, while foreign interest rate has a significant effect on domestic output and inflation. Research limitations/implications The limitation of the study is examining one country only. Practical implications The Central Bank of Egypt (CBE) should adjust interest rate to stabilize inflation, output and exchange rate. By stabilizing inflation, output and exchange rate, the CBE would be able to achieve the ultimate targets of monetary policy, namely, price stability and economic growth. Social implications It is important for the CBE because it shows the significant effect of monetary policy on macroeconomic variables in Egypt. Also, it is important for people because it shows the important role for the CBE. Originality/value It is important for the CBE because it examines the effect of monetary policy and foreign shocks on macroeconomic variables.

Implications of Partial Information for Econometric Modeling of Macroeconomic Systems

Representative models of the macroeconomy (RMs), such as DSGE models, frequently contain unobserved variables. A finite-order VAR representation in the observed variables may not exist, and therefore the impulse responses of the RMs and SVAR models may differ. We demonstrate this divergence often is: (i) not substantial; (ii) reflects the omission of stock variables from the VAR; and (iii) when the RM features I (1) variables can be ameliorated by estimating a latent-variable VECM. We show that DSGE models utilize identifying restrictions stemming from common factor dynamics reflecting statistical, not economic, assumptions. We analyze the use of measurement error, and demonstrate that it may result in unintended consequences, particularly in models featuring I (1) variables.

Entrepreneurshp at the labour market: a case of precariat and informal employment

The concept of precariat is becoming the increasingly important subject of interdisciplinary research that involves both qualitative and quantitative approaches. The formation of the precariat is associated with the neoliberal reforms carried out in the last decades, as well as significant institutional and technological changes. The process of precarisation is accompanied by an increase in insecurity, instability, and flexibility, which is most characteristic of informal and precarious work. Our paper analyzes the relationship between informal employment as a proxy precariat and unemployment rates, industrial production index and real wages using the structural VAR approach for monthly data in the period 2010-2018. The relationship between the variables is checked by imposing restrictions on the recursive scheme (Cholesky identification) as well as the recursive identification scheme (Cholesky decomposition) in the SVAR model. Our analysis of the impulse response caused by the positive shock of informal employment confirmed that in the short term, the increase in the share of people employed in the informal sector causes, above all, a decline in real wages. There are weak responses from the industrial production index, which leads to the conclusion about the leveling effect of institutions and institutions. In addition, the paper employs the process of modeling the development of informal employment using the ARIMA model. Our results showing the trends in the development of informal employment demonstrate the existence of cyclical resilience which negatively affects economic development and requires structural reforms.

Oil prices, unemployment and the financial crisis in oil-importing countries: The case of Spain

The aim of this paper is to analyse the effect of oil price shocks on unemployment in an oil-importing country such as Spain to determine whether they affect unemployment differently in times of financial distress. In order to do so, we use Bayesian methods to estimate a SVAR model with endogenous oil shocks. According to our results, the response of unemployment to oil shocks is clearly different in the pre-crisis compared to the crisis period. Asymmetries are also an important feature of the data: positive oil shocks contributed negatively to the evolution of employment in Spain after the outbreak of the crisis, while any decreases had less of an effect in terms of a recovery in the employment rate.

Income distribution, structural competitiveness and financial fragility of the Greek economy

ABSTRACTThe aim of this paper is to examine the growth prospects of the Greek economy, after the implementation of the Economic Adjustment Programs (EAPs). The main focus is on the impact of investment, and the structural competitiveness of the productive sector, on effective demand and the financial fragility of corporations. For this purpose, a Post-Keynesian SVAR model is developed which connects functional income distribution and the regime of accumulation, with the structural competitiveness and the non-performing loans of corporations. The findings indicate that the distribution of income and fiscal consolidation as established after the implementation of the EAPs have destabilized the economy both in macroeconomic and financial terms. The structural competitiveness of the Greek economy is particularly weak, the regime of accumulation is not profit-led, while the non-performing loans are in a negative relation with the capacity utilization ratio. In this respect, policies that aim to increase the capacity utilization ratio will determine the sustainability of the macro-financial system of Greece.

Is the empirical relationship between hours and productivity effected by corporate profits?

This paper studies the behaviour of hours-worked in the event of positive technology shock first in the closed economy DSGE model and second by adding a corporate profits in a bivariate SVAR model. Our analytical results show that in the presence of sticky prices, hours decrease in the event of a shock. However, in case of flexible prices or when central bank systematically respond to technology shocks, hours increase. Results based on SVAR model show that the inclusion of profits change the result of Gali (1999) by showing that hours increase at the aggregate level. However, sectoral analysis reveals different picture. Out of four only one sector is consistent with aggregate findings.

Dynamic linkages between strategic commodities and stock market in Turkey: Evidence from SVAR-DCC-GARCH model

After the financial liberalization in the emerging economies, their stock markets have grown very rapidly in terms of value and volumes. However, a sharp increase in the prices of strategic commodities like oil and gold can have negative effects on the macroeconomics of the emerging economies and their stock markets. This study analyses the dynamic relationship between oil, gold and stock market returns in Turkey. It particularly investigates volatility spillover from oil and gold to the Borsa Istanbul Stock Exchange Index after the global financial crises. Movement of the BIST index with the international oil and gold prices are examined by using different versions of the SVAR-DCC-GARCH framework. The bootstrap causality test which accounts for the non-normal distribution of errors is utilized to specify the SVAR model. Our results support the presence of time-varying co-movement and volatility spillover from gold and oil to the Turkish stock market. Volatilities are high, and gold has stronger impact on the stock market than oil; therefore, gold cannot be used as a safe haven against volatility risk. The results imply that Turkey needs dynamic macroeconomic policies to manage the spillover effects of volatility after the global crisis.

Monetary Policy Uncertainty, Credit Risk and China's Macroeconomic Fluctuations

This paper examines the effects of monetary policy uncertainty (MPU) on China's banks' credit risks and China's macroeconomic fluctuations. By incorporating the stochastic volatility into the quantity-based monetary policy rule, we provide a specific measure for China's MPU through Bayesian MCMC method. The bank-level evidences show that an increase of China's MPU could bring about the rise of non-performing loan ratio and thus exacerbate banks' credit risks. The historical decompositions from the Bayesian SVAR model reveal that the dramatic increase of China's MPU after 2008 financial crisis brought about -0.75% output growth rate loss in 2009 Q1. And our nonlinear VAR model shows that the negative impacts of MPU on economic activities are much stronger and more persistent when the economy enters the high credit risk regime.Simulations from the nonlinear DSGE model featuring credit risk and uncertainty shock confirm that banks' credit risks might be potential transmission channel through which China's monetary policy uncertainty shock affect its real economy.

Transmission of a Resource Boom: The Case of Australia

This paper presents evidence on the macroeconomic adjustment of a resource-rich country to a resource boom using the effects of Chinese industrialisation on Australia from 1988 to 2016. An SVAR model is specified, incorporating a proxy for Chinese resource demand and commodity prices to identify the effects of commodity supply and demand shocks on the Australian macroeconomy. We develop a multivariate historical decomposition to show how resource sector shocks lead the economy to deviate from a long-run projection. The paper identifies four phases of the transmission of the resource boom before its conclusion in 2015.

Fiscal Multipliers in Brazil: A Sensitivity Analysis on the Structural Identification Procedure

The present study measured the effectiveness of Brazilian fiscal policy (the effects of fiscal shocks on output) through several specifications of SVAR models. The focus was on the impact of tax shocks on output, but spending shocks effects were also estimated. Two databases for fiscal variables were used: the official data from National Treasury and a set of alternative data by Gobetti and Orair [1]. The tax multiplier depends on the assumption about the sensitivity of government’s revenue to output: the greater the sensitivity, the greater is the tax multiplier. The preferred estimates of tax multipliers in this paper are higher than other estimates in the Brazilian literature. In most identifications both spending and tax (impact) multipliers are below unit.

Money supply, output gap and economic fluctuations: evidence from quarterly data in China

Considering the endogenous structure of the aggregate supply curve, Okun's law, and the monetary output effect, this paper calculates the Chinese quarterly output gap between 1995Q4 and 2017Q2 using an SVAR model based on the inflation rate, real output, the unemployment rate and M2. Then, we reveal the influence of the time-varying characteristic on the real output using a TVP-SVAR-SV model. First, China's economy has experienced four rounds of fluctuations since 1995, and the fluctuations became stationary after 2011Q1, which is consistent with the main feature of 'great moderation'. Second, there was an asymmetric relationship between the volatility of output and money supply after 2000Q4, and the anti-Tobin effect became obvious after 2003. The shock of inflation aggravated the negative impact on output. Third, the output effect of easy monetary policy sharply decreased, and the response cycle shortened following the global financial crisis. Therefore, stimulus policy should be implemented cautiously.

Money supply, output gap and economic fluctuations: evidence from quarterly data in China

Considering the endogenous structure of the aggregate supply curve, Okun's law, and the monetary output effect, this paper calculates the Chinese quarterly output gap between 1995Q4 and 2017Q2 using an SVAR model based on the inflation rate, real output, the unemployment rate and M2. Then, we reveal the influence of the time-varying characteristic on the real output using a TVP-SVAR-SV model. First, China's economy has experienced four rounds of fluctuations since 1995, and the fluctuations became stationary after 2011Q1, which is consistent with the main feature of 'great moderation'. Second, there was an asymmetric relationship between the volatility of output and money supply after 2000Q4, and the anti-Tobin effect became obvious after 2003. The shock of inflation aggravated the negative impact on output. Third, the output effect of easy monetary policy sharply decreased, and the response cycle shortened following the global financial crisis. Therefore, stimulus policy should be implemented cautiously.

Capital flows in Montenegro: SVAR model

Analysing push and pull determinants of capital flows has become increasingly important with global financial crisis. Namely, global financial crisis has shown that large and volatile capital flows can pose risks, especially, for small and open economies. In this paper we are particularly interested to analyse the vulnerability of capital flows in country with limited monetary policy. We are focused on Montenegro, the country that unilaterally adopted euro in 2002 and regained independence in 2006. Since then, Montenegro has become very attractive for investments and has received significant amounts of foreign capital. Thus, in this paper we are assessing how global shocks could be dangerous for such a small open economy. In addition, we are interested in investigating whether domestic factors can influence capital flows due to the full euroization. In order to answer these questions, we have applied structural vector autoregressive model of the determinants of two main components of capital flows, foreign direct investments and portfolio investments separately, using quarterly data from 2005 to 2017. We provide evidence that mainly push factors, such as foreign output, interest rates and euro area risk sentiment, significantly explain the variation of capital flows. Furthermore, domestic factors are found to play little role for capital flow developments in Montenegro.

SPATIAL INTEGRATION OF VEGETABLE WHOLESALE MARKETS IN POLAND ON THE SELECTED EXAMPLE

This article attempts to verify the phenomenon of price transmission between wholesale markets of carrots in Poland. Determining the level of spatial integration of markets will indicate their efficiency and thus can make it easier for producers to take decisions about where to sell their products. The empirical data includes daily quotations of carrot prices on fruit and vegetable wholesale markets in Bronisze, Kalisz, Poznań, Radom and Sandomierz. The time range of the studies covered the years 2011–2016. This research is based on dynamic econometric methods (sVAR model) and the Granger causality tests. The research carried out using dynamic econometric methods has shown that despite the occurrence of significant variation in the level of carrot prices in the examined markets, their interaction was observed. Moreover, the results of the sVAR model estimation indicate that the changes in carrot prices on a particular market are stronger influenced by the price changes from the same market. This is an autoregressive effect. It also means that the carrot price information coming from other wholesale markets (price transmission effect) has a much weaker effect.

Industrial transmission effect of international metal price shocks in perspective of industry chain

Based on a new perspective of industry chain and selecting monthly data from February 2006 to December 2015, this paper chooses eight Chinese industrial sectors to construct a SVAR model reflecting internal relationships among metal chains, analyzes the direct effects and indirect effects of international metal prices on output of various links in metal chains, then it investigates the main transmission path of international metal price shocks through decomposing the inflation pressure sources in metal chains. The results show that international metal price shocks not only affect industrial output in a direct way, but also indirectly affect the growth of output through the increased pressure on industrial inflation and then triggering a tightening of monetary policy implementation. Affected by factors such as the lack of market demand and the price transmission mechanism blocking, the direct effects of international metal price shocks mainly impact the upstream and midstream industry, while the downstream industry is mainly affected by indirect effects; in addition, the international metal price shocks have spillover effects on the industrial inflation, and transmit along the industry chain from upstream to downstream, and their strength weakens in sequence.

Taylor rule and monetary policy transmission mechanism in a new keynesian economy

This paper estimates two SVAR models to assess Mexican Monetary policy rate for the period 2000-2015, which are recursively identifid according to Gali and Monacelli (2005) model. This paper shows that monetary policy rate responds to GDP, infltion and exchange rate as Taylor’s Rule predicts. When controlling for General Consumer’s Price Index infltion, monetary policy barely affcts aggregate demand even if exchange rate appreciates, nevertheless GDP diminish after contractive monetary policy takes place. Infltion rate lightly increases after interest rate rises, which does not coincide with New Keynesian predictions. A second model is estimated controlling for underlying infltion. Its results exhibit more interest rate sensitive consumption and net exports, while real exchange rate and GDP change as New Keynesian model predicts. Infltion decreases after monetary policy rise but its flctuations are close to zero. According to Gali (2008) such small changes indicate nominal rigidities existence.

Russian budget structure efficiency: Empirical study

This paper investigates the economic efficiency of Russian public expenditures in 2002–2016 by estimation of their multiplicative impact on the GDP level and economic growth. We use the empirical methodology based on Corsetti et al. (2012). We estimate a number of fiscal multipliers: on national security, law-enforcement activity, national defense, education, health care and sport and road infrastructure. For assessing the influence of budget structure on long-term economic growth rates, we estimate the SVAR model in which GDP growth is a structural variable. The research shows a positive influence of budgetary resources redistribution from non-productive government expenditures to productive ones on economic development.

Transmission of the European Central Bank Monetary Policy Across Regional Stocks Markets

In this paper we estimate the transmission of common euro area monetary policy shocks across the euro area main stock markets. To do so, we develop global SVAR models in which the ECB monetary policy is modeled as a function of euro area aggregate variables and the US variables that define the FED monetary policy shocks. Our results suggest, in line with economic theory, that the transmission of monetary policy across Eurozone stocks markets displays heterogeneity driven by differences in the listed firms’ characteristics but also by the distance between the actual ECB stance and the obtained by applying a Taylor rule implied in the ECB policy to country-specific macroeconomic data. These results highlight the need for a corrective fiscal policy on the undesirable effects of the common monetary policy and may allow policymakers to check the effects of their fiscal policies when any.

The Action Mechanism Between Government Debt and Financial Market In China: Analysis of China's Twenty Year History Data Combined With DAG and SVAR

This paper uses the sample data of financial market, economic prosperity and government debt related indicators from 1997 to 2017 in China, and uses DAG and SVAR models to study the linkage mechanism among macroeconomic variables. The results show that there is a causal relationship between financial market, economic prosperity and government debt, and the former two are the transmitter of volatility factors, the latter is the receiver. In the long run, the impact of global economic and capital market volatility on China’s government debt risk is significantly higher than the real estate industry and price level and other domestic factors. Active fiscal policy will make the risk of government debt show a rising trend, it is worth noting that the development of financial markets and economic prosperity can reduce the impact of fiscal policy on the economy, thereby alleviating the risk of government debt.