Empirical Economics

Holmes, Mark J.; Otero, Jesús

doi: 10.1007/s00181-021-02097-1pmid: N/A

The novel application of a pairwise autoregressive distributed lag (ARDL) approach provides new insights into the regional wage–unemployment rate relationship. Using this approach, the short- and long-run wage curve slope for each US state is potentially inversely related to the unemployment rate in all other states. In terms of the oft-cited Blanchflower and Oswald elasticity, there is mixed evidence in support of a -0.1\documentclass[12pt]{minimal}\usepackage{amsmath}\usepackage{wasysym}\usepackage{amsfonts}\usepackage{amssymb}\usepackage{amsbsy}\usepackage{mathrsfs}\usepackage{upgreek}\setlength{\oddsidemargin}{-69pt}\begin{document}$$-\,0.1$$\end{document} wage curve slope. We find that the pairwise wage curve slope is driven by factors that include state-level home-ownership and education attainment. Our findings suggest that short-run wage flexibility decreased during the period following the Great Recession.

Kim, Minjung

doi: 10.1007/s00181-021-02096-2pmid: N/A

There exists a theoretically ambiguous relationship between employment volatility and trade. Using a 2006–2015 firm-level unbalanced panel dataset for South Korea, this study investigates whether the globalization of firms transmits foreign shocks to domestic employment volatility and examines how foreign shocks that affect domestic employment are transmitted during both a crisis period and a post-crisis period. My empirical findings show that foreign demand shocks to domestic employment are transmitted through inter-firm exports during a post-crisis period window, while foreign demand and supply shocks on domestic employment are transmitted through intra-firm two-way trade and intra-firm imports during a crisis period window. These results show the asymmetric response of intra-firm trade and inter-firm trade to shocks during the crisis and post-crisis periods. Therefore, these results imply structural changes to the transmission channels of foreign shocks that impact domestic employment volatility after the crisis period. In addition, foreign direct investment has a positive effect on employment volatility. This implies higher employment volatility if a firm has overseas production plants, as presence abroad prompts the firm to substitute foreign workers for domestic workers. These findings may have significant implications for policy makers seeking to identify sources of labor market instability.

Goyal, Ashima; Verma, Akhilesh K.; Sengupta, Rajeswari

doi: 10.1007/s00181-021-02099-zpmid: N/A

We study the relationship between cross-border flows and risks to macroeconomic stability for a sample of ten major emerging market economies (EMEs) from 2000 to 2017 in the presence of external shocks. We examine this relationship with a focus on two key channels of cross-border flows, namely external debt securities (EDS) and cross-border loans (CBLs). Our analysis focuses on the transition in cross-border flows post-global financial crisis 2008 (GFC) termed as the second phase of global liquidity (Shin in Keynote address at Federal Reserve Bank of San Francisco Asia economic policy conference, 2013). Panel vector autoregression estimations show that volatility in global risk perception affects cross-border flows to EMEs more as compared to the effect of the US monetary policy stance. Post-GFC, EDS flows rise with shocks in global risk perception, while CBL flows register a decline. CBL flows are also associated with larger risks post-GFC compared to the pre-GFC period, which is in contrast to the result for EDS flows. Second, a panel threshold estimation confirms a nonlinear association between EDS/CBL flows and macroeconomic risks largely dependent upon global uncertainty. US GDP growth also affects the nonlinearity, but US federal funds rate have insignificant threshold effects. Our results conclude that global uncertainty is a significant driver of cross-border flows to EMEs post-GFC and that it is a strong signal in determining riskiness of EDS flows and CBL flows for EMEs.

Cho, Dooyeon; Rho, Seunghwa

doi: 10.1007/s00181-021-02091-7pmid: N/A

This paper investigates the asymmetric effects of exchange rate volatility in currency markets using high-frequency, intraday data of the most actively traded currencies over 2004–2017. The analysis is conducted by combining the quantile regression model with the heterogeneous autoregressive (HAR) model and its extensions where realized variance is decomposed into positive and negative semivariances. We find that safe haven currencies exhibit behavior different from that of other currencies. For safe haven currencies, negative realized semivariance associated with appreciation plays an important role in explaining the quantile-dependent volatility dynamics. This behavior is more pronounced during high volatility phases. The opposite holds for other currencies, i.e., positive realized semivariance associated with depreciation matters more. The results also reveal that while negative jumps associated with the appreciation of safe haven currencies lead to higher future volatility, positive jumps associated with the depreciation of other currencies lead to higher future volatility, especially during high volatility phases. We formally test whether the volatility dynamics are quantile dependent.

Ayala, Astrid; Blazsek, Szabolcs; Licht, Adrian

doi: 10.1007/s00181-021-02103-6pmid: N/A

In this paper, score-driven time series models are used, in order to provide robust estimates of the seasonal components of Russian rouble (RUB) currency exchange rates for the period of 1999 to 2020. This paper is the first empirical application of score-driven models to the RUB to US dollar (USD) and RUB to Euro (EUR) currency exchange rates in the literature. The model includes score-driven local level, seasonality, and volatility components for a variety of probability distributions: Student’s t distribution, skewed generalized t (Skew-Gen-t) distribution, exponential generalized beta distribution of the second kind (EGB2), normal-inverse Gaussian (NIG) distribution, and Meixner (MXN) distribution. The use of the MXN distribution is new in the literature of score-driven seasonality models. We show that the score-driven models of this paper are robust to changes in the currency exchange rate regimes of the Bank of Russia. We find that the annual seasonality of the RUB is significant, and it is in the range of ±4%\documentclass[12pt]{minimal}\usepackage{amsmath}\usepackage{wasysym}\usepackage{amsfonts}\usepackage{amssymb}\usepackage{amsbsy}\usepackage{mathrsfs}\usepackage{upgreek}\setlength{\oddsidemargin}{-69pt}\begin{document}$$\pm 4\%$$\end{document}. We review the determinants of the RUB seasonality using data on exports, imports, and primary income from the current account of the Russian Federation. The statistical performances of all score-driven models are superior to the statistical performance of the classical multiplicative seasonal autoregressive integrated moving average (ARIMA) model. Our results may motivate the practical use of score-driven models of the RUB exchange rate seasonality for financing, investment, or policy decisions.

Fuertes, Alberto

doi: 10.1007/s00181-021-02101-8pmid: N/A

This paper analyses the behaviour of the external adjustment path for the four main economies in the euro area. I find a structural break in the behaviour of the net external position at the time of the introduction of the euro for France, Italy and Spain, pointing out that the inception of the common currency changed their external adjustment process. Germany does not show this structural break, being its external position more affected by other events such as the country reunification in 1989. I also find that France and Italy will adjust the net external position mainly through the valuation component, while Germany and Spain will restore their external balance mostly through the trade component. The common currency area could have exacerbated Germany’s net creditor position as the evolution of the euro has reacted to the external adjustment needs of debtor countries such as Italy and Spain.

Liang, Chao; Liao, Yin; Ma, Feng; Zhu, Bo

doi: 10.1007/s00181-021-02093-5pmid: N/A

We investigate United States Oil Fund volatility predictions using a mixed data sampling modeling framework. There are several vital findings. First, our in-sample analysis shows that both the leverage effect and intraday jumps have a significant impact on the United States Oil Fund realized volatility. Second, our out-of-sample analyses suggest that incorporating the leverage effect can largely improve the United States Oil Fund realized volatility forecasts. Third, using a portfolio exercise, we show that the improved realized volatility forecasts lead to significantly increased economic values. Our results are confirmed by a wide range of robustness checks.

Chen, Sheng-Hung; Chiou-Wei, Song-Zan; Zhu, Zhen

doi: 10.1007/s00181-021-02094-4pmid: N/A

Many commodity prices exhibit seasonal patterns. Futures prices are based on assumptions about spot prices in many commodity futures pricing models, and existing theories of commodity forward and futures prices assume deterministic seasonality. Therefore, examining the seasonal behavior of spot price is an important first step in ascertaining the characteristics of futures or forward prices. Using the US natural gas price as an example, we find that seasonality in the gas spot price appears to be non-deterministic and non-stationary. In this paper, we also explain the sources of stochastic seasonality in the spot price. After we examine the stochastic nature of the seasonality in the fundamental variables including production, consumption, natural gas underground storage, and weather, we investigate the seasonal cointegration of the spot gas price and these fundamental variables. We find evidence supporting the hypothesis that the stochastic seasonality in the spot price is determined by the stochastic seasonality in the fundamental variables.

Boug, Pål; Cappelen, Ådne

doi: 10.1007/s00181-021-02104-5pmid: N/A

We analyse the behaviour of OPEC as a group by formulating a theoretical model that encompasses the perfect competition model and various forms of the imperfect competition model. By confronting the theoretical model with quarterly data for the period from 1992 to 2013 within the context of a cointegrated vector autoregressive (CVAR) model, we find support for the imperfect competition hypothesis regarding the output decisions of OPEC. We also find that a dynamic equilibrium correction model with imperfect competition is stable in-sample. However, a forecasting exercise for the period from 2014 to 2018 reveals that the model breaks down following the November 2014 meeting at which OPEC decided to keep its supply unchanged despite the huge oil price drop in advance. The model systematically underpredicts OPEC production over the forecast period and by as much as 2.5 million barrels per day at the end of 2016. During 2018, however, the model forecasts OPEC production quite well. Our findings suggest that the behaviour of OPEC did indeed change significantly after the November 2014 meeting.

Feldkircher, Martin; Kakamu, Kazuhiko

doi: 10.1007/s00181-021-02102-7pmid: N/A

We examine the effects of monetary policy on income inequality in Japan. For that purpose, we use a novel Bayesian approach that jointly estimates the Gini coefficient from grouped income data and the dynamics of macroeconomic quantities. Our results indicate different effects on income inequality for different types of households: A monetary tightening decreases inequality when we consider a broad definition of household data that also includes the unemployed and retirees. Higher unemployment and tighter borrowing conditions make the richer (i.e., employed) comparably worse off. The result reverses, if we focus on the subsample of households whose head is employed. Through the same channels, inequality increases if monetary policy is tightened. A counterfactual analysis reveals that indeed the financial channel and the job destruction channel are the most important transmission mechanisms.