Empirical Economics

Camarero, Mariam; Carrion-i-Silvestre, Josep Lluís; Tamarit, Cecilio

doi: 10.1007/s00181-024-02686-wpmid: N/A

This paper investigates the determinants of external imbalances for a group of 26 developed and emerging countries over the period 1972–2021. In addition to traditional factors, the model incorporates the impact of external imbalances in third countries. The empirical evidence highlights the importance of accounting for parameter instabilities in modeling external imbalances, with countries exhibiting heterogeneous behavior in terms of the estimated break dates. The results underscore the critical role of external drivers, such as oil shocks, and the growing influence of third-country imbalances in an increasingly globalized world. Additionally, demographic trends emerge as a significant long-run internal driver. Finally, the paper calculates regime-specific short-run multipliers.

Zhou, Tianbao; Liu, Zhixin; Xu, Yingying

doi: 10.1007/s00181-024-02685-xpmid: N/A

Based on the quarterly data from 26 advanced economies (AEs) and 18 emerging market economies (EMs) over the past two decades, this paper estimates the short- and medium-term impacts of financial cycles on the duration and amplitude of public debt cycles. The results indicate that public debt expansions are larger than their contractions in duration and amplitude, aligning with the "deficit bias hypothesis" and being more pronounced in EMs than in AEs. The impacts of various financial cycles are different. Specifically, credit cycles in EMs significantly impact the duration and amplitude of public debt cycles. Notably, short- and medium-term credit booms in EMs shorten the duration of public debt contractions and reduce the amplitude. Fast credit growth in AEs and low house price growth in the short term prolong the duration of public debt expansions and increase the amplitude. However, credit cycles in AEs show no significant impact. For house price cycles, the overall impact is stronger in EMs than in AEs, differing between short- and medium-term cycles. Finally, the impact of equity price cycles is significant in the short term, but not in the medium term. Equity price busts are more likely to prolong the expansion of public debt in EMs while increasing the amplitude of public debt contractions in AEs. Uncovering the impacts of multiple financial cycles on public debt cycles provides implications for better debt policies under different financial conditions.

Kwak, Jun Hee

doi: 10.1007/s00181-024-02683-zpmid: N/A

This study shows that corporate debt accumulation during credit booms can explain increases in sovereign risk during stress periods. Using detailed firm-level database across six Eurozone countries, I construct granular instruments for aggregate corporate leverage. Instrumental variable regressions indicate that rising corporate leverage causally increases sovereign spreads in Eurozone countries during the debt crisis period of 2010-2012. This result provides the first empirical evidence on the causal link between corporate debt and sovereign debt crises. Additionally, firm-level evidence suggests that highly leveraged firms are likely to pay fewer taxes to the government, contributing to the rise in sovereign risk. (JEL F34, F41, G32, L11)

Edvinsson, Rodney; Karlsson, Sune; Österholm, Pär

doi: 10.1007/s00181-024-02684-ypmid: N/A

In this paper, we add new evidence to a long-debated macroeconomic question, namely, whether money growth has predictive power for inflation or put differently, whether money growth Granger causes inflation. We use a historical dataset—consisting of annual Swedish data on money growth and inflation ranging from 1620 to 2021—and employ state-of-the-art Bayesian estimation methods. Specifically, we employ VAR models with drifting parameters and stochastic volatility which are used to conduct analysis both within- and out-of-sample. Our results indicate that the within-sample analysis—based on marginal likelihoods—provides strong evidence in favour of money growth Granger causing inflation. This strong evidence is, however, not reflected in our out-of-sample analysis, as it does not translate into a corresponding improvement in forecast accuracy.

Williams, Corey J. M.

doi: 10.1007/s00181-024-02689-7pmid: N/A

This study investigates the dynamics of producer price inflation, and its role in predicting future consumer prices. Despite recognized stylized facts, recent empirical assessments of producer price inflation, a valid proxy for supply chain volatility, yield conflicting conclusions regarding the presence of pass-through. To address this gap, we use monthly data from January, 2002 through December, 2021, and employ a heterogeneous agent vector autoregressive model to disaggregate the producer price index into its fifteen weighted commodity groups and quantify short-run pass-through, identify causal direction, construct impulse-response functions, and conduct forecast error variance decompositions. In contrast to conventional measures, many disaggregated producer price series exhibit significantly stronger magnitudes, and statistical significance in both impulse-response functions and pass-through coefficients. Notably, consumer price responses to disaggregated producer price shocks demonstrate heightened significance relative to the aggregate producer price series. More interestingly, unlike, the aggregate producer price series, we identify several weighted disaggregated series that unidirectionally influence or “cause” consumer price inflation providing valuable information for forecasters and policymakers. Finally, we ascertain that three specific disaggregated producer price indices alone account for approximately two-thirds of the variation in consumer price inflation forecasts. These findings underscore the importance of disaggregation in macroeconomic reduced-form modeling, and the potential for aggregation bias in highly aggregated series to mute key variation in underling disaggregated components.

Jiang, Zhe; Lu, Yunguo; Zhang, Lin

doi: 10.1007/s00181-024-02678-wpmid: N/A

This paper incorporates investor sentiment indexes into the traditional standard heterogeneous autoregressive (HAR) model to improve its power on predicting crude oil futures risk. Using the 5-min high-frequency trading data to construct the daily realized volatility, the original and revised HAR models are used for in-sample regression and out-of-sample forecasting on a daily, weekly, and monthly basis. The results show that the sentiment indexes and the search trend contain incremental information for forecasting the realized volatility of INE crude oil futures in the short and medium term. The search volume is the best indicator for weekly risk forecasting of INE crude oil futures. No robust index can improve the performance of HAR-type model on long-term risk prediction. This paper thus highlights that market participants should select appropriate strategies to minimize risk when volatility is at stake for their decisions.

Lai, Xiaobing; Quan, Lei; Guo, Chong; Zhang, Fan

doi: 10.1007/s00181-024-02691-zpmid: N/A

Companies maintain cash reserves primarily for transactional and preventive needs, yet excessive cash reserves may foster managerial agency problems. Against the backdrop of heightened attention to corporate environmental, social, and governance (ESG) performance, whether ESG can serve as a mechanism to mediate the conflict between motives for holding cash necessitates further exploration. This paper focuses on the relationship between ESG performance and corporate cash reserves, uncovering a negative association between them. This conclusion persists across a series of robustness checks. Other tests indicate that ESG reduces corporate cash holdings by decreasing information asymmetry, default risk, and agency motives, affirming ESG’s positive role in alleviating conflicts in cash holding motives. Our heterogeneity analysis shows that the negative correlation between ESG and corporate cash holdings is more pronounced in private companies, non-highly polluting companies, and companies with lower degrees of capital market liberalization. Furthermore, the economic consequences demonstrate that the cash savings brought about by ESG performance significantly propel corporate growth. Our research offers beneficial insights for companies in emerging nations to alleviate the pressure of cash holdings.

Coda Moscarola, Flavia; Figari, Francesco

doi: 10.1007/s00181-024-02687-9pmid: N/A

The paper utilizes unique and previously unexplored SHARE data to examine preferences for inter-generational redistribution favoring the younger generations. It investigates whether individuals who support reducing the generosity of the pension system are more inclined to transfer resources to the young through: (a) backing reforms that prioritize policies benefiting the young, such as active labor market policies, and (b) making inter vivos transfers to younger cohorts. The empirical analysis focuses on Belgium, Italy, and Spain, three countries with relatively unbalanced pension systems. We find that preferences for actuarially fair pension rules are correlated with the willingness of individuals to transfer to younger generations both by supporting reforms targeting the young and making intra-household inter vivos transfers. People who believe themselves to be poorer than they actually are, ceteris paribus, are transferring less. inter vivos transfers are also positively related to having been obliged to postpone retirement, altruism, and reciprocity.

Musolesi, Antonio; Nosvelli, Mario

doi: 10.1007/s00181-024-02681-1pmid: N/A

We study the relationship between technology and labour regulation using rich annual country-level large panel data. We depart from previous studies by questioning the assumptions of linearity and cross-sectional independence and exploit recent advancements in semi-nonparametric panel data econometric methods. Alternative proxies for technology as well as various measures of labour regulation are considered. This work refines previous results by showing threshold effects, nonlinearities and complex interaction effects that are obscured in parametric specifications and that have relevant implications for policy. Our findings also highlight that standard approaches that adopt parametric formulations or do not consider cross-sectional dependence are seriously biased.

Dieppe, Alistair; Matsuoka, Hideaki

doi: 10.1007/s00181-024-02692-ypmid: N/A

This paper investigates how the sector-specific source or the changing sectoral composition of labor productivity has contributed to β\documentclass[12pt]{minimal}\usepackage{amsmath}\usepackage{wasysym}\usepackage{amsfonts}\usepackage{amssymb}\usepackage{amsbsy}\usepackage{mathrsfs}\usepackage{upgreek}\setlength{\oddsidemargin}{-69pt}\begin{document}$$\beta $$\end{document}-convergence, using a newly constructed eight-sector database. Compared with the literature decomposing convergence, it employs a large and diverse sample of countries. The main findings are twofold. First, both sector-specific and sectoral reallocation have become important drivers of β\documentclass[12pt]{minimal}\usepackage{amsmath}\usepackage{wasysym}\usepackage{amsfonts}\usepackage{amssymb}\usepackage{amsbsy}\usepackage{mathrsfs}\usepackage{upgreek}\setlength{\oddsidemargin}{-69pt}\begin{document}$$\beta $$\end{document}-convergence in labor productivity. Second, looking across the sectors, agricultural productivity growth has been a significant contributor to β\documentclass[12pt]{minimal}\usepackage{amsmath}\usepackage{wasysym}\usepackage{amsfonts}\usepackage{amssymb}\usepackage{amsbsy}\usepackage{mathrsfs}\usepackage{upgreek}\setlength{\oddsidemargin}{-69pt}\begin{document}$$\beta $$\end{document}-convergence, whereas most other sectors have not contributed to overall convergence. Our result is in line with the literature that illustrates that the increase in agricultural productivity has a larger poverty-reduction effect than increases in other sectors.