scholarly journals Sources of economic fuctuations in France: A structural VAR model

2012 ◽  
Vol 1 (1) ◽  
pp. 66
Author(s):  
Nabil Ben Arfa
Keyword(s):  
Open Economy ◽  
Trade Balance ◽  
Dynamic Properties ◽  
Structural Var ◽  
Impulse Response Functions ◽  
External Shocks ◽  
Structural Shocks ◽  
Vector Autoregressive ◽  
French Economy ◽  
Long Run

This paper studies the economic fluctuations of an open economy such as the French economy. A system of variables containing output, price level, trade balance, real exchange rate and oil prices is analyzed by applying the structural vector autoregressive (SVAR) methodology initiated by Sims (1980). This set of variables allows to evaluate the main sources of impulses of the French economy fluctuations. The results show that five structural shocks are identified using the long-run constraints implemented by Blanchard and Quah (1989). From the SVAR dynamic properties, impulse response functions and variance decomposition, the French economy is shown to be particularly vulnerable to supply and oil price shocks, where these two shocks respectively contribute to 40% and 35% of the economic disturbance. France is also hit by important external shocks which damage its trade balance position. Finally, it is found that shocks related to economic policy (demand shocks) have a quite limited impact on the economic activity.

Structural Vector Autoregressive Models

2020 ◽  
Author(s):  
Luca Gambetti
Keyword(s):  
Linear Functions ◽  
Impulse Response Functions ◽  
Vector Autoregressions ◽  
Structural Shocks ◽  
Vector Autoregressive ◽  
Varying Coefficients ◽  
Macroeconomic Analysis ◽  
Long Run ◽  
Time Varying Coefficients ◽  
Structural Vector

Structural vector autoregressions (SVARs) represent a prominent class of time series models used for macroeconomic analysis. The model consists of a set of multivariate linear autoregressive equations characterizing the joint dynamics of economic variables. The residuals of these equations are combinations of the underlying structural economic shocks, assumed to be orthogonal to each other. Using a minimal set of restrictions, these relations can be estimated—the so-called shock identification—and the variables can be expressed as linear functions of current and past structural shocks. The coefficients of these equations, called impulse response functions, represent the dynamic response of model variables to shocks. Several ways of identifying structural shocks have been proposed in the literature: short-run restrictions, long-run restrictions, and sign restrictions, to mention a few. SVAR models have been extensively employed to study the transmission mechanisms of macroeconomic shocks and test economic theories. Special attention has been paid to monetary and fiscal policy shocks as well as other nonpolicy shocks like technology and financial shocks. In recent years, many advances have been made both in terms of theory and empirical strategies. Several works have contributed to extend the standard model in order to incorporate new features like large information sets, nonlinearities, and time-varying coefficients. New strategies to identify structural shocks have been designed, and new methods to do inference have been introduced.

Multivariate Markov-switching score-driven models: an application to the global crude oil market

2021 ◽  
Vol 0 (0) ◽  
Author(s):  
Szabolcs Blazsek ◽  
Alvaro Escribano ◽  
Adrian Licht
Keyword(s):  
Crude Oil ◽  
Moving Average ◽  
Local Level ◽  
Markov Switching ◽  
Impulse Response Functions ◽  
Common Trends ◽  
Vector Autoregressive ◽  
Oil Market ◽  
Long Run ◽  
Special Cases

Abstract A new class of multivariate nonlinear quasi-vector autoregressive (QVAR) models is introduced. It is a Markov switching score-driven model with stochastic seasonality for the multivariate t-distribution (MS-Seasonal-t-QVAR). As an extension, we allow for the possibility of having common-trends and nonlinear co-integration. Score-driven nonlinear updates of local level and seasonality are used, which are robust to outliers within each regime. We show that VAR integrated moving average (VARIMA) type filters are special cases of QVAR filters. Using exclusion, sign, and elasticity identification restrictions in MS-Seasonal-t-QVAR with common-trends, we provide short-run and long-run impulse response functions for the global crude oil market.

scholarly journals Co-integration with score-driven models: an application to US real GDP growth, US inflation rate, and effective federal funds rate

2021 ◽  
pp. 1-21
Author(s):  
Szabolcs Blazsek ◽  
Alvaro Escribano ◽  
Adrian Licht
Keyword(s):  
Inflation Rate ◽  
Predictive Accuracy ◽  
Moving Average ◽  
Impulse Response Functions ◽  
Federal Funds ◽  
Federal Funds Rate ◽  
Vector Autoregressive ◽  
Autoregressive Moving Average Model ◽  
Long Run ◽  
The Us

Abstract Nonlinear co-integration is studied for score-driven models, using a new multivariate dynamic conditional score/generalized autoregressive score model. The model is named t-QVARMA (quasi-vector autoregressive moving average model), which is a location model for the multivariate t-distribution. In t-QVARMA, I(0) and co-integrated I(1) components of the dependent variables are included. For t-QVARMA, the conditions of the maximum likelihood estimator and impulse response functions (IRFs) are presented. A limiting special case of t-QVARMA, named Gaussian-QVARMA, is a Gaussian-VARMA specification with I(0) and I(1) components. As an empirical application, the US real gross domestic product growth, US inflation rate, and effective federal funds rate are studied for the period of 1954 Q3 to 2020 Q2. Statistical performance and predictive accuracy of t-QVARMA are superior to those of Gaussian-VAR. Estimates of the short-run IRF, long-run IRF, and total IRF impacts for the US data are reported.

scholarly journals The Determinants of Pakistan’s Trade Balance: An ARDL Cointegration Approach

2010 ◽  
Vol 15 (1) ◽  
pp. 1-26 ◽  
Author(s):  
Waliullah Waliullah ◽  
Mehmood Khan Kakar ◽  
Rehmatullah Kakar ◽  
Wakeel Khan
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Money Supply ◽  
Trade Balance ◽  
Exchange Rate Regime ◽  
Annual Data ◽  
Impulse Response Functions ◽  
Bounds Testing ◽  
Distributed Lag ◽  
Long Run

This article is an attempt to examine the short and long-run relationship between the trade balance, income, money supply, and real exchange rate in the case of Pakistan’s economy. Income and money variables are included in the model in order to examine the monetary and absorption approaches to the balance of payments, while the real exchange rate is used to evaluate the conventional approach of elasticities (Marshall Lerner condition). The bounds testing approach to cointegration and error correction models, developed within an autoregressive distributed lag (ARDL) framework is applied to annual data for the period 1970 to 2005 in order to investigate whether a long-run equilibrium relationship exists between the trade balance and its determinants. Additionally, variance decompositions (VDCs) and impulse response functions (IRFs) are used to draw further inferences. The result of the bounds test indicates that there is a stable long-run relationship between the trade balance and income, money supply, and exchange rate variables. The estimated results show that exchange rate depreciation is positively related to the trade balance in the long and short run, consistent with the Marshall Lerner condition. The results provide strong evidence that money supply and income play a strong role in determining the behavior of the trade balance. The exchange rate regime can help improve the trade balance but will have a weaker influence than growth and monetary policy.

scholarly journals Unemployment rate dynamics in small open economy: The case of Serbia

Industrija ◽  
2020 ◽  
Vol 48 (4) ◽  
pp. 7-22
Author(s):  
Aleksandra Anić ◽  
Zorica Mladenović
Keyword(s):  
Unemployment Rate ◽  
Open Economy ◽  
Small Open Economy ◽  
Dynamic Modelling ◽  
Real Effective Exchange Rate ◽  
Real Wages ◽  
Vector Autoregressive ◽  
The Great Recession ◽  
Dynamic Relationship ◽  
Long Run

Dynamic relationship among unemployment rate and key macroeconomic variables is explored for the Serbian economy that has been characterized by high unemployment rates since the outcome of the Great Recession. This analysis reveals how effective policy measures can be in reducing unemployment rate. Cointegrated vector autoregressive model is employed for the period 2014-2019. Prior to multivariate dynamic modelling, the validity of hysteresis hypothesis for unemployment rate is assessed. Obtained results show significant negative long-run effect of real wages on unemployment rate, and positive long-run effect of real effective exchange rate appreciation on real wages. For further reduction of unemployment rate demand-side measures should be employed.

ASSESSING CHINA'S RENMINBI PEG TO THE U.S. DOLLAR: THE CASE FOR GREATER RMB EXCHANGE RATE FLEXIBILITY

2012 ◽  
Vol 57 (01) ◽  
pp. 1250003 ◽  
Author(s):  
WEI SUN ◽  
LIAN AN
Keyword(s):  
Open Economy ◽  
Small Open Economy ◽  
Structural Var ◽  
Var Model ◽  
Unique Contribution ◽  
Asymmetric Shocks ◽  
Output Fluctuations ◽  
Long Run ◽  
Optimum Currency ◽  
The U.S

This paper assesses China's Renminbi peg to the U.S. dollar using a structural VAR model. One unique contribution of the paper is that we model China as a large open economy in one structural VAR model with the U.S. by utilizing combinations of short- and long-run identification restrictions and relax the small open economy assumption usually imposed on China. Using monthly data for the period of 1990:4 to 2007:12, we find the following. First, U.S. shocks do not explain much of the output fluctuations in China, indicating that the two economies are subject to asymmetric shocks. Optimum currency area theory suggests that more flexibility of the RMB relative to the dollar may be desirable. Second, U.S. shocks explain little of the fluctuations in China's CPI, suggesting that the benefits of importing inflation from the U.S. by pegging to the dollar are minimal, thus more flexibility in the RMB relative to the dollar is feasible. Third, U.S. shocks do not influence China's international competitiveness (REER) to a noticeable extent, suggesting that moving toward more flexibility relative to the dollar may be in China's interest.

scholarly journals THE TRANSITIONAL DYNAMICS OF FISCAL POLICY IN SMALL OPEN ECONOMIES

2009 ◽  
Vol 14 (1) ◽  
pp. 1-28 ◽  
Author(s):  
Ben J. Heijdra ◽  
Jenny E. Ligthart
Keyword(s):  
Fiscal Policy ◽  
Open Economy ◽  
Monopolistic Competition ◽  
Infinite Horizon ◽  
Small Open Economy ◽  
Impulse Response Functions ◽  
Lump Sum ◽  
Long Run ◽  
Goods Market ◽  
Fiscal Shocks

We study the dynamic macroeconomic effects of fiscal shocks under lump-sum tax financing. To this end, we develop an intertemporal macroeconomic model for a small open economy, featuring monopolistic competition in the intermediate goods market, endogenous (intertemporal) labor supply, and finitely lived households. Fiscal shocks are shown to yield endogenously determined (dampened) cycles for a realistic calibration of the model. Impulse response functions of fiscal policy shocks in the finite-horizon model differ substantially from those resulting from an infinitely lived representative agent model. This can be explained by the presence of Ethier-productivity effects, which increase the size of long-run output multipliers to a greater extent in the infinite-horizon model.

The Growth Effects of Financial Development Over Economic Cycle in South Africa

2021 ◽  
pp. 109-125
Author(s):  
Naser Yenus Nuru ◽  
Hayelom Yrgaw Gereziher
Keyword(s):  
South Africa ◽  
Standard Deviation ◽  
Financial Development ◽  
Open Economy ◽  
Output Growth ◽  
Impulse Response Functions ◽  
Vector Autoregressive ◽  
Local Projection ◽  
Domestic Credit ◽  
Short Run

This study examines the effects of financial development, proxied by domestic credit, on growth for South Africa across the states of the economy over the sample period 1970Q1-2019Q3. To address this point, the authors use Jorda's local projection method to generate impulse response functions for this small developing open economy. The shocks, however, are identified by applying short-run contemporaneous restrictions in a vector autoregressive model based on Cholesky identification scheme. The states of the economy are determined by a threshold variable, namely output growth. The results indicate that one standard deviation shock in domestic credit leads to a significant increment in output in this economy. This effect, though, is a bit pronounced in recession than the expansion state. One standard deviation shock in domestic credit leads to around 0.8 and 0.5% increment in output in recession and expansion states at the fourth quarter and on impact, respectively. The results are also robust to an alternative proxy variable of financial development.

Study of Short-Run Grain Movements on the Inland Waterway System

2005 ◽  
Vol 1909 (1) ◽  
pp. 8-16 ◽  
Author(s):  
Mark A. Thoma ◽  
Wesley W. Wilson
Keyword(s):  
Time Series ◽  
Impulse Response ◽  
Important Variable ◽  
Impulse Response Functions ◽  
Response Functions ◽  
Vector Autoregressive ◽  
Planning Models ◽  
Long Run ◽  
Short Run ◽  
Variance Decompositions

Time series techniques—particularly impulse–response functions and variance decompositions—are used to characterize the short-run relationships between 17 variables in a vector autoregressive model designed to trace the short-run interconnections among variables affecting lockages on the Mississippi and Illinois Rivers. The model contains five categories of variables: lockages, barge rates, grain bids, rail rates, and rail deliveries. Variance decompositions are constructed that identify barge rates as the most important variable affecting lockages at both short and long horizons. Barge rates are, in turn, explained largely by lockages and rail rates, indicating two-way feedback or bidirectional causality between lockages and barge rates. Impulse–response functions are also examined. The variance decompositions indicate that barge rates are important in explaining lockages, and the impulse–response functions show how lockages and other variables respond to such shocks. In general, there is a substitution away from barge transportation and toward rail transportation when barge rates increase. The results are useful for illuminating the causal relationships among variables in the model and for understanding behavioral relationships present in the data and can be used to guide short- and long-run planning models. For example, many planning models assume that barge traffic does not respond significantly to changes in barge rates; however, results obtained here imply that barge traffic and rail deliveries do respond to such changes. This potentially important implication illustrates the usefulness of the time series techniques used.

scholarly journals The Relation between Monetary Policy and the Stock Market in Europe

Econometrics ◽  
2018 ◽  
Vol 6 (3) ◽  
pp. 36 ◽  
Author(s):  
Helmut Lütkepohl ◽  
Aleksei Netšunajev
Keyword(s):  
Monetary Policy ◽  
Stock Market ◽  
Stock Prices ◽  
Causal Relation ◽  
Order Moment ◽  
Monetary Policy Shocks ◽  
Structural Shocks ◽  
Vector Autoregressive ◽  
Long Run ◽  
Policy Shocks

We use a cointegrated structural vector autoregressive model to investigate the relation between monetary policy in the euro area and the stock market. Since there may be an instantaneous causal relation, we consider long-run identifying restrictions for the structural shocks and also used (conditional) heteroscedasticity in the residuals for identification purposes. Heteroscedasticity is modelled by a Markov-switching mechanism. We find a plausible identification scheme for stock market and monetary policy shocks which is consistent with the second-order moment structure of the variables. The model indicates that contractionary monetary policy shocks lead to a long-lasting downturn of real stock prices.

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