Habimana, Olivier (2018): Asymmetry and Multiscale Dynamics in Macroeconomic Time Series Analysis.

PDF
MPRA_paper_87823.pdf Download (233kB)  Preview 
Abstract
This thesis consists of three independent articles preceded by an introductory chapter. The first two articles focus on exchange rate dynamics in emerging market and developing economies, taking into account nonlinearities and asymmetries which are relevant for these countries and are potentially due to (i) transaction costs and other market frictions, and (ii) official intervention in the foreign exchange market. The third article is devoted to the analysis of the effects of monetary policy at different time horizons. The first article evaluates the purchasing power parity (PPP) theory in a panel of SubSaharan African countries. Unit root tests that are based on exponential smooth transition autoregressive (ESTAR) models are applied to account for nonlinearities and asymmetries in real exchange rate adjustment towards its equilibrium (mean) value. The results indicate empirical support for the PPP theory. The second article examines the relationship between current account adjustment and exchange rate flexibility in a panel of emerging market and developing economies. The purpose of this article is to (i) obtain a measure of exchange rate flexibility that considers autoregressive conditional heteroscedasticity and possible asymmetric responses of the exchange rate to shocks, and (ii) apply suitable dynamic panel data estimators to investigate this relationship. The results indicate that more flexible exchange rates are associated with faster current account adjustment. By means of wavelets the third article investigates the liquidity effect and the longrun neutrality of money at detailed timescales using time series data for Sweden and the US. The results indicate a significant liquidity effect at horizons of one to four years, but there is no evidence of monetary neutrality.
Item Type:  MPRA Paper 

Original Title:  Asymmetry and Multiscale Dynamics in Macroeconomic Time Series Analysis 
Language:  English 
Keywords:  asymmetry, multiscale, time series, wavelets 
Subjects:  C  Mathematical and Quantitative Methods > C1  Econometric and Statistical Methods and Methodology: General > C15  Statistical Simulation Methods: General C  Mathematical and Quantitative Methods > C2  Single Equation Models ; Single Variables > C22  TimeSeries Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes C  Mathematical and Quantitative Methods > C2  Single Equation Models ; Single Variables > C23  Panel Data Models ; Spatiotemporal Models E  Macroeconomics and Monetary Economics > E5  Monetary Policy, Central Banking, and the Supply of Money and Credit > E52  Monetary Policy E  Macroeconomics and Monetary Economics > E6  Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook F  International Economics > F4  Macroeconomic Aspects of International Trade and Finance > F41  Open Economy Macroeconomics G  Financial Economics > G1  General Financial Markets 
Item ID:  87823 
Depositing User:  Olivier Habimana 
Date Deposited:  13 Jul 2018 12:53 
Last Modified:  28 Sep 2019 15:03 
References:  Adler, M., & Lehmann, B. (1983). Deviations from purchasing power parity in the long run. The Journal of Finance, 38(5), 14711487. AguiarConraria, L., Azevedo, N., & Soares, M. J. (2008). Using wavelets to decompose the time–frequency effects of monetary policy. Physica A: Statistical Mechanics and its Applications, 387(12), 28632878. Baharumshah A., Liew V., & Chowdhury, I. (2010). Asymmetry dynamics in real exchange rates: New results on East Asian currencies. International Review of Economics and Finance, 19(4), 648661. Bahmani‐Oskooee, M., & Hegerty, S. W. (2009). Purchasing power parity in less‐developed and transition economies: A review paper. Journal of Economic Surveys, 23(4), 617658. Balassa, B. (1964). The purchasing power parity doctrine: A reappraisal. Journal of Political Economy, 72(6), 584–596. Calvo, G. A., & Reinhart, C. M. (2002). Fear of floating. Quarterly Journal of Economics, 117 (2), 379–408. CanalesKriljenko, J. I. (2003). Foreign exchange intervention in developing and transition economies: Results of a survey. IMF Working Paper 03/95. Caporale, G. M., Ciferri, D., & Girardi, A. (2011). Are the Baltic countries ready to adopt the Euro? A generalized purchasing power parity approach. The Manchester School, 79(3), 429454. Cassel, G. (1918). Abnormal deviations in international exchanges. Economic Journal, 28 (112), 413–415. Chinn, M., & Wei, S. J. (2013). A faithbased initiative meets the evidence: Does a flexible exchange rate regime really facilitate current account adjustment? Review of Economic Statistics, 95 (1), 168184. Christiano, L. J. (1991). Modeling the liquidity effect of a money shock. Federal Reserve Bank of Minneapolis Quarterly Review, 15 (1), 1 34. Christiano, L. J., & Ljungqvist, L. (1988). Money does Grangercause output in the bivariate moneyoutput relation. Journal of Monetary Economics, 22(2), 217–235. Crowder, W. J. (2012). The liquidity effect: Evidence from the US. Economics Letters, 117(1), 315317. Crowley, P. M. (2007). A guide to wavelets for economists. Journal of Economic Surveys, 21(2), 207267. Cuestas, J. C., & Regis, P. J. (2013). Purchasing power parity in OECD countries: Nonlinear unit root tests revisited. Economic Modelling, 32, 343346. Daubechies, I. (1988). Orthonormal bases of compactly supported wavelets. Communications on Pure and Applied Mathematics, 41(7), 909996. Daubechies, I. (1992). Ten lectures on wavelets. CBMSNSF Regional Conference Series in Applied Mathematics. SIAM, Philadelphia. Dornbusch, R., & Vogelsang, T. (1991). Real exchange rates and purchasing power parity. In J. de Melo, & A. Sapir (eds.), Trade theory and economic reform—North, South, and East: Essays in honour of Bela Balassa (pp. 3–24). Cambridge, MA: Basil Blackwell. Dutta, J., & Leon, H. (2002). Dread of depreciation: Measuring real exchange intervention. IMF Working Paper 02/63. Eichengreen, B., Hausmann, R. & Panizza, U. (2007). Currency mismatches, debt intolerance, and the original sin: Why they are not the same and why it matters. In Edwards, S. (ed.), Capital controls and capital flows in emerging economies: Policies, practices and consequences (pp. 121170). Chicago: University of Chicago Press. Emirmahmutoglu, F., & Omay, T. (2014). Reexamining the PPP hypothesis: A nonlinear asymmetric heterogeneous panel unit root test. Economic Modelling, 40, 184190. Enders, W., & Hurn, S. (1994). Theory and tests of generalized purchasing‐power parity: Common trends and real exchange rates in the Pacific Rim. Review of International Economics, 2, 179190. Engle, R. F., & Granger, C. W. (1987). Cointegration and error correction: representation, estimation, and testing. Econometrica, 55(2), 251276. Fisher, M. E., & Seater, J. J. (1993). Longrun neutrality and superneutrality in an ARIMA framework. The American Economic Review, 83(3), 402415. Flood, R., & Marion, N. (1999). Perspectives on the recent currency crisis literature. International Journal of Finance & Economics, 4(1), 126. Frenkel, J. A. (1978). Purchasing power parity: Doctrinal perspective and evidence from the 1920s. Journal of International Economics, 8(2), 169191. Frenkel, J. A. (1981). The collapse of purchasing power parities during the 1970s. European Economic Review, 16, 145165. Friedman, M. (1953). The case for flexible exchange rates. In Friedman M (ed.), Essays in positive economics (pp. 157–203). Chicago: University of Chicago Press. Friedman, M. (1957). A theory of the consumption function. Princeton, NJ: Princeton University Press. Friedman, M. (1963). Windfalls, the ‘horizon,’ and related concepts in the permanentincome hypothesis. In Carl Christ, et al. (eds.), Measurement in economics: Studies in mathematical economics and econometrics in memory of Yehuda Grunfeld (pp. 3–28). Stanford: Stanford University Press. Friedman, M. (1968). The role of monetary policy. American Economic Review, 58, 1–17. Froot, K. A., & Rogoff, K. (1995). Perspectives on PPP and longrun real exchange rates. In G. M. Grossman and K. Rogoff (eds.), Handbook of international economics, III (pp.16471688). Amsterdam: Elsevier. Gallegati, M., Gallegati, M., Ramsey, J. B., & Semmler, W. (2011). The US wage Phillips curve across frequencies and over time. Oxford Bulletin of Economics and Statistics, 73(4), 489–508. Gençay, R., Selçuk, F., & Whitcher, B. (2002). An Introduction to Wavelets and Other Filtering Methods in Finance and Economics. New York: Academic Press. Gervais, O., Schembri, L., & Suchanek, L. (2016). Current account dynamics, real exchange rate adjustment, and the exchange rate regime in emergingmarket economies. Journal of Development Economics, 119, 8699. Ghosh, A. R., Qureshi, M. S., & Tsangarides, C. G. (2013). Is the exchange rate regime really irrelevant for external adjustment? Economics Letters, 118(1), 104109. Gourinchas, P. O., & Rey, H. (2007). International Financial Adjustment. Journal of Political Economy, 115(4), 665703. Granger, C. W. (1969). Investigating causal relations by econometric models and crossspectral methods. Econometrica, 37(3), 424438. Granger, C. W., & Newbold, P. (1974). Spurious regressions in econometrics. Journal of econometrics, 2(2), 111120. Haar, A. (1910). Zur Theorie der orthogonalen Funktionensysteme. Mathematische Annalen, 69(3), 331–371. Habimana, O. (2016). Asymmetric nonlinear mean reversion in real effective exchange rates: A Fishertype panel unit root test applied to SubSaharan Africa. The Journal of Economic Asymmetries, 14, 189198. Habimana, O. (2017). Do flexible exchange rates facilitate external adjustment? A dynamic approach with timevarying and asymmetric volatility. International Economics and Economic Policy, 14(4), 625642. Habimana, O. (2017). Wavelet multiresolution analysis of the liquidity effect and monetary neutrality. Computational Economics. https://doi.org/10.1007/s1061401797251 . Habimana, O., Månsson, K., & Sjölander, P. (2018). Testing for nonlinear unit roots in the presence of a structural break with an application to the qualified PPP during the 1997 Asian financial crisis. International Journal of Finance & Economics. https://doi.org/10.1002/ijfe.1613. Hamilton, J. D. (1994). Time series analysis. Princeton, New Jersey: Princeton University Press. Hausmann, R., Panizza, U., & Stein, E. (2001). Why do countries float the way they float? Journal of Development Economics, 66 (2), 387–414. Hegwood, N. D., & Papell, D. H. (1998). Quasi purchasing power parity. International Journal of Finance and Economics, 3(4), 279–289. Kapetanios, G., Shin, Y., & Snell, A. (2003). Testing for a unit root in the nonlinear STAR framework, Journal of Econometrics, 112(2), 359379. Kelly, L. J., Barnett, W. A., & Keating, J. W. (2011). Rethinking the liquidity puzzle: Application of a new measure of the economic money stock. Journal of Banking & Finance, 35(4), 768774. Keynes, J. M. (1936). The general theory of employment, interest and money. London: Macmillan. King, R. G., & Watson, M. W. (1997). Testing longRun neutrality. Federal Reserve Bank of Richmond Economic Quarterly, 83(3), 69101. Krugman, P. R. (1991). Target zones and exchange rate dynamics. The Quarterly Journal of Economics, 106(3), 669682. Leeper, E. M., & Gordon, D. B. (1992). In search of the liquidity effect. Journal of Monetary Economics, 29(3), 341–369. Lucas, R. (1996). Nobel lecture: Monetary neutrality. Journal of Political Economy, 104(4), 661682. Mallat, S. G. (1989). A theory for multiresolution signal decomposition: The wavelet representation. IEEE Transactions on Pattern Analysis and Machine Intelligence, 11(7), 674693. Martin, F. E. (2016). Exchange rate regimes and current account adjustment: An empirical investigation. Journal of international Money and Finance, 65, 6993. McMillan, D. G. (2009). The confusing timeseries behaviour of real exchange rates: Are asymmetries important? Journal of International Financial Markets, Institutions and Money, 19(4), 692711. Melvin, M. (1983). The vanishing liquidity effect of money on interest: Analysis and implications for policy. Economic Inquiry, 21(2), 188202. Mishkin, F. S. (1982). Monetary policy and short term interest rates: An efficient marketsrational expectations approach. Journal of Finance, 37(1), 63–72. Nelson, C. R. and Plosser, C. L. (1982). Trends and random walks in macroeconomic time series: Some evidence and implications. Journal of Monetary Economics, 10(2), 139162. Obstfeld, M., & Rogoff, K. (2009). Global imbalances and the financial crisis: products of common causes. Proceedings, Federal Reserve Bank of San Francisco, October issue, 131172. Papell, D. H., & Prodan, R. (2006). Additional evidence of longrun purchasing power parity with restricted structural change. Journal of Money, Credit, and Banking, 38(5), 13291349. Percival, D. B., & Walden, A. T. (2006). Wavelet methods for time series analysis. Cambridge: Cambridge University Press. Ramsey, J. B. (2014). Functional representation, approximation, bases and wavelets. In Marco Gallegati, Semmler W (eds.), Wavelet applications in economics and finance (pp 1–20). Heidelberg: Springer. Ramsey, J. B., & Lampart, C. (1998). The Decomposition of Economic Relationships by Time Scale Using Wavelets: Expenditure and Income. Studies in Nonlinear Dynamics & Econometrics, 3(1), 2342. Ricardo, D. (1810). The high price of bullion. A proof of the depreciation of bank notes. London: Harding & Wright. Ricardo, D. (1817 [1996]). On the principles of political economy and taxation. New York: Prometheus Books. Rogoff, K. (1996). The purchasing power parity puzzle. Journal of Economic literature, 34(2), 647668. Samuelson, P. (1964). Theoretical notes on trade problems. Review of Economics and Statistics, 46(2), 145154. Sarantis, N. (1999). Modelling nonlinearities in real effective exchange rates. Journal of International Money and Finance, 18(1), 2745. Sarno, L., & Taylor, M. P. (2002). The economics of exchange rates. Cambridge: Cambridge University Press. Schleicher, C. (2002). An introduction to wavelets for economists. Working Paper 2002–3, Bank of Canada, Ottawa, Canada. Serletis, A., & Koustas, Z. (2017). Monetary neutrality. Macroeconomic Dynamics. Advance online publication. doi:10.1017/S1365100517000621. Sjölander, P. (2007). Unreal exchange rates: A simulationbased approach to adjust misleading PPP estimates. Journal of Economic Studies, 34(3), 256288. Sollis, R. (2009). A simple unit root test against asymmetric STAR nonlinearity with an application to real exchange rates in Nordic countries. Economic Modelling, 26, 118–125. Sollis, R., Leybourne, S. J., & Newbold, P. (2002). Tests for symmetric and asymmetric nonlinear mean reversion in real exchange rates. Journal of Money, Credit, and Banking, 34(3), 686–700. Taylor, A. M. (2001). Potential pitfalls for the purchasing power parity puzzle? Sampling and specification biases in mean reversion tests of the law of one price. Econometrica, 69(2), 473498. Taylor, M. P. (2003). Purchasing power parity. Review of International Economics, 11(3), 436452. Taylor, M. P., & Allen, H. (1992). The use of technical analysis in the foreign exchange market. Journal of International Money and Finance, 11(3), 304314. Taylor, M., Peel, D., & Sarno, L. (2001). Nonlinear meanreversion in real exchange rates: Toward a solution to the purchasing power parity puzzles. International Economic Review, 42 (4), 1015–1042. Teräsvirta, T. (2004). Smooth transition regression modelling. In Lutkepohl, H., Krätzig, K. (Eds.), Applied time series econometrics (pp.222242). Cambridge: Cambridge University Press. Westerlund, J., & Costantini, M. (2009). Panel cointegration and the neutrality of money. Empirical Economics, 36(1), 126. Wheatley, J. (1803). Remarks on currency and commerce. London: Burton. Wheatley, J. (1807). An essay on the theory of money and principles of commerce (Vol. 1). London: Cadell and Davies. Wheatley, J. (1819). Report on the reports of the bank committees. Shrewsbury: W. Eddowes. 
URI:  https://mpra.ub.unimuenchen.de/id/eprint/87823 