This article examines convergence of per capita output for 16 OECD (Organization for Economic Cooperation and Development) countries. Conventional tests on conditional and time series convergence have given mixed results for similar economies. Utilizing the concepts of deterministic and stochastic convergence, we develop techniques which incorporate endogenously determined break points to test the unit root hypothesis in relative per capita income. The tests provide evidence of deterministic convergence for 10, and stochastic convergence for 14, of the 16 OECD countries. Our findings reveal that World War II is the major cause of the structural shifts in relative output.
The convergence hypothesis maintains that an economy whose productivity lags behind other economies has a potential to grow faster. We introduce a procedure for testing this hypothesis and apply it to 24 OECD countries for the period 1950–1990. Our approach is an attempt to capture the economics of the convergence hypothesis, while avoiding the problems associated with two popular tests of convergence, namely β-convergence and σ-convergence. An application of an ARMA process to our sample data finds only modest support for the convergence hypothesis in the OECD during the postwar era. Patterns of investment, government consumption, and exports largely explain the observed convergence in the OECD.
This study examines the impact on per capita real economic growth in the United States of federal budget deficits. The study also includes a variety of other public economic policies. The analysis provides an instrumental variables estimate dealing with quarterly data over the 1955–1992 period. The empirical findings indicate that federal budget deficits, over time, reduce the rate of economic growth. In addition, it is found that the growth rate of per capita real GDP is a decreasing function of federal personal and corporate income tax rates while being an increasing function of expansionary monetary policies in the form of net open market operations.
In this paper we consider the possibility that a linear cointegrated regression model with multiple structural changes would provide a better empirical description of the Spanish term structure of interest rates. Our methodology is based on instability tests recently proposed in Kejriwal and Perron (2008, 2010) as well as the cointegration tests developed in Arai and Kurozumi (2007) and Kejriwal (2008). The results obtained are consistent with the existence of linear cointegration between the long and the short run Spanish interest rates. However, our empirical results also show that the cointegrating relationship has changed over time. In particular, the Kejriwal–Perron tests for testing multiple structural breaks in cointegrated regression models suggest a model of two regimes.
This paper for the first time employs the Time Varying Panel Smooth Transition Regression (TV-PSTR) approach to model the dynamic adjustments of firms and the evolution of industrial structure in the bigger setting of decades against the backdrop of India's dramatic liberalizing reform starting from 1991. Using Indian manufacturing firm data, it finds that the transition of market structure and productivity after liberalization did follow a smooth transition process. Instead of the previously assumed instantaneous [`]big-bang' shift just after reforms, it actually took years for the Indian manufacturing industries start to react to the reforms, and the transitional impact of reforms took approximately four to eight years to complete. There is strong evidence of increased competition after the transition, with shrinked returns to scale (RTS) in most industries except for leather and chemical industries. The results on total factor productivity (TFP) are mixed: most import-competing industries, which suffer most from the shrinking of market size experienced no change or decreasing TFP growth; whereas the export-oriented industry, as the industry which benefits most from economy of scale, enjoyed a huge TFP growth following the reforms.
This paper sheds new light on the causes of the unemployment upsurge in Japan during the “fading 1990s”, an unprecedented period of structural crisis. We estimate a labor market model and identify the main macroeconomic determinants of labor demand and labor supply decisions in the last decades. We then conduct dynamic simulations and assess the relative contribution of these determinants to the evolution of unemployment from 1990 to 2002. Beyond the leading role exerted by the decline in productivity growth, we find the active and expansionary measures undertaken by the government had an overall negative effect on the labor market.
International Review of Economics and Finance (IREF) was founded in 1992 and it has been well received by authors in the US and around the world. Over the 10 years of 1992–2001, the journal has published 281 articles by 418 authors from 265 different institutions in 26 countries. Articles are indexed by Finance Literature Index and are abstracted in EconLit and ABI/INFORM. The distribution of economics/finance articles, theory/empirical articles, geographic characteristics, and authorship characteristics are also presented.
In this paper we analyze the role of fundamentals and self-fulfilling expectations in the crisis episodes of Turkey in 1994 and 2001. The question is how much of the occurrence of a crisis can be attributed to market expectations and how much to fundamentals. The model is estimated using a Markov switching framework in which the devaluation expectations affect crisis probability via three different specifications. Such a framework which allows for sunspots performs better than a purely fundamental-based model. The study shows that besides the fundamentals in the economy, shifts in agents' devaluation expectations have played a crucial role and that a Markov switching model with constant transition probabilities provides better estimates for the Turkish currency crises.
The Asian crisis started on July 2, 1997 and caused turmoil in developed as well as emerging international stock markets. The objective of this paper is to analyse the effects of the crisis on the relationships of the Southeast Asian stock markets with the stock markets of three geographical areas (Europe, North America, and Latin America). We use the Morgan Stanley national and international indexes (MSCI) for two homogeneous and nonoverlapping time intervals. The econometric techniques used in this paper include the cointegration test, vector autoregression analysis, forecast error variance decomposition (FEVD), and impulse–response relationships. Our results show that: (i) there are no multivariate cointegration relationships across markets; (ii) the leadership role played by the US became stronger after the crisis; (iii) the response of Asian markets to external markets is more relevant than vice versa, especially after the crisis; (iv) the degree of integration, in Phylaktis [J. Int. Money Financ. 10 (1999) 561] sense, between Asian and the rest of the international stock markets has increased after the crisis; and, finally, (v) the contagion effect determines significantly the dynamic relationships between international stock markets.
This paper compares implied tree models for KOSPI 200 index options with regards to the pricing and hedging performance. With Cox, Ross, and Rubinstein's [Cox, J., Ross, S., & Rubinsteinm, M., 1979. Option pricing: A simplified approach. Journal of Financial Economics, 7, 229–263] standard binomial tree (SBT) model as a benchmark, we analyzed three models: Rubinstein's [Rubinstein, M., 1994. Implied binomial trees. Journal of Finance, 49, 771–818] implied binomial tree (IBT), Jackwerth's [Jackwerth, J. C., 1997. Generalized binomial trees. Journal of Derivatives, 5, 7–17] generalized binomial tree (GBT), and Derman and Kani's [Derman, E., & Kani, I., 1994. Riding on a smile. Risk, 7, 32–39] implied volatility tree (IVT) models. The SBT model, the simplest, shows the best performance. Moreover, the delta-hedged strategy in all of the binomial models generates, on average, negative gains. This finding, consistent with the findings by Bakshi and Kapadia [Bakshi, G., & Kapadia, N., 2003. Delta-hedged gains and the negative market volatility risk premium. Review of Financial Studies, 16, 527–566], indicates the existence of a negative market volatility risk premium.