Detection of Lead-Lag Relationships Using Both Time Domain and Time-Frequency Domain; An Application to Wealth-To-Income Ratio

The objective of this paper is the joint application of two different methodological concepts for the detection of lead-lag relationships in economic time-series in order to investigate their consistency and their potential complementarity. The first methodology, a time domain analysis based on vector error correction model, provides evidence about the existence of long-run equilibrium of the time-series and the short-run lead-lag behaviors. The second methodology, a time-frequency concept based on the phase difference of the cross-wavelet coherence, analyzes the lead-lag relationships across various timescales and reveals the altering of leadership over time. The two methods are applied to time-series of wealth-to-income ratio of four developed countries over the period 1970–2010 and analyze the lead-lag relationships of the countries in the long-run and in the short-run. The results show that the two methods are consistent in their major long-run findings, however, they reveal different aspects regarding the short-run dynamics of the lead-lag relationships. Furthermore, the results suggest the complementarity of the two methodologies in the context of a complete framework for the analysis of the lead-lag relationships in non-stationary economic time-series.

Download Full-text

Variable Trends in Economic Time Series

The Journal of Economic Perspectives ◽

10.1257/jep.2.3.147 ◽

1988 ◽

Vol 2 (3) ◽

pp. 147-174 ◽

Cited By ~ 322

Author(s):

James H Stock ◽

Mark W Watson

Keyword(s):

Time Series ◽

Time Series Data ◽

Series Data ◽

Economic Time Series ◽

Growth Trend ◽

Cyclical Fluctuations ◽

Long Run ◽

Stabilization Policies ◽

Economic Time ◽

The 1960S

The two most striking historical features of aggregate output are its sustained long run growth and its recurrent fluctuations around this growth path. Over horizons of a few years, these shorter cyclical swings can be pronounced; for example, the 1953, 1957, and 1974 recessions are evident as substantial temporary declines in aggregate activity. These cyclical fluctuations are, however, dwarfed in magnitude by the secular expansion of output. But just as there are cyclical swings in output, so too are there variations in the growth trend: growth in GNP in the 1960s was much stronger than it was in the 1950s. Thus, changes in long-run patterns of growth are an important feature of postwar aggregate economic activity. In this article, we discuss the implications of changing trends in macroeconomic data from two perspectives. The first perspective is that of a macroeconomist reassessing the conventional dichotomy between growth and stabilization policies. As an empirical matter, does this dichotomy make sense for the postwar United States? What is the relative “importance” of changes in the trend and cyclical swings in explaining the quarterly movements in economic aggregates? We next adopt the perspective of an econometrician interpreting empirical evidence based on data that contain variable trends. The presence of variable trends in time series data can lead one to draw mistaken inferences using conventional econometric techniques. How can these techniques -- or our interpretation of them -- be modified to avoid these mistakes?

Download Full-text

Time–frequency dependency of financial risk and economic risk: evidence from Greece

Journal of Economic Structures ◽

10.1186/s40008-019-0173-z ◽

2019 ◽

Vol 8 (1) ◽

Cited By ~ 12

Author(s):

Dervis Kirikkaleli

Keyword(s):

Financial Risk ◽

Causal Link ◽

Wavelet Coherence ◽

Economic Risk ◽

Frequency Dependency ◽

Time Frequency ◽

Long Run ◽

Short Run ◽

The One ◽

Of Greece

Abstract This study aims to shed some light on the one of the most popular phenomena in the economics and finance literature—nexus between economic growth and financial development—for the case of Greece over 1990Q1 to 2018Q4 within the framework of risk. In other words, this study investigates the causal link between financial risk and economic risk in Greece using wavelet coherence tests while answering the following questions: (i) does financial risk lead to economic risk in Greece and/or does economic risk lead to financial risk in Greece, and (ii) if so, why? The wavelet coherence approach allows the study to capture the long-run and short-run causal linkages among the time series variables since the approach combines time and frequency domain causalities. The findings from wavelet coherence supports the Schumpeter hypothesis since the findings proves that there is unidirectional causality from financial risk to economic risk in Greece (i) between 1995 and 1998; (ii) between 2003 and 2013; (iii) between 2013 and 2017 at different frequency levels. The findings clearly reveal how financial risk is important predictor for economic risk in Greece over the period of 1990–2018.

Download Full-text

Analysis of Wavelet Coherence: Service Sector Index and Economic Growth in an Emerging Market

Sustainability ◽

10.3390/su11236684 ◽

2019 ◽

Vol 11 (23) ◽

pp. 6684 ◽

Cited By ~ 6

Author(s):

Ayhan Orhan ◽

Derviş Kirikkaleli ◽

Fatih Ayhan

Keyword(s):

Economic Growth ◽

Frequency Domain ◽

Time Domain ◽

Service Sector ◽

Emerging Market ◽

Causal Link ◽

Wavelet Coherence ◽

Long Run ◽

Causality Tests ◽

Short Run

The present study aims to shed some light on the causal link between the Service Sector Index in the Turkish stock market and economic growth using a wavelet coherence approach. Thus, the present study determines whether the Service Sector Index leads to economic growth in Turkey and/or vice versa. Based on our aim, we use the wavelet coherence approach, which allows us to capture long-run and short-run causal linkages between the Service Sector Index and economic growth in Turkey, since the approach combines both time domain causality and frequency domain causality tests. The findings from wavelet coherence reveal that there is one-way causality running from the Service Sector Index to economic growth in Turkey at different frequencies and different periods between 1997 and 2017.

Download Full-text