Error Correction Models (error + correction_models)

Distribution by Scientific Domains
Distribution within Business, Economics, Finance and Accounting


Selected Abstracts


Interest rate transmission in the UK: a comparative analysis across financial firms and products

INTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 1 2009
Ana-Maria Fuertes
Abstract This paper differentiates itself from the existing literature by testing for heterogeneities in the interest rate transmission mechanism using a large sample of 662 monthly retail rate histories (1993,2004) on seven key deposit and loan products. Error correction models are estimated to analyse the long-run pass-through, the long-run mark-up and the short-run speed of adjustment. The prediction that the official and retail rates move together in the long run is supported by the data. The evidence suggests weak between-product heterogeneity but notable differences were found between financial firms in the way they adjust their rates, which could hinder the achievement of monetary policy objectives. Consumer responses to official rate changes could therefore be more phased and intricate than hitherto believed. Heterogeneity in adjustment is found to be linked to menu costs and key financial ratios under managerial control. Copyright © 2008 John Wiley & Sons, Ltd. [source]


Price Dynamics in the International Wheat Market: Modeling with Error Correction and Directed Acyclic Graphs

JOURNAL OF REGIONAL SCIENCE, Issue 1 2003
David A Bessler
In this paper we examine dynamic relationships among wheat prices from five countries for the years 1981,1999. Error correction models and directed acyclic graphs are employed with observational data to sort,out the dynamic causal relationships among prices from major wheat producing regions: Canada, the European Union, Argentina, Australia, and the United States. An ambiguity related to the cyclic or acyclic flow of information between Canada and Australia is uncovered. We condition our analysis on the assumption that information flow is acyclic. The empirical results show that Canada and the U.S. are leaders in the pricing of wheat in these markets. The U.S. has a significant effect on three markets excluding Canada. [source]


IS TIGHTER FISCAL POLICY EXPANSIONARY UNDER FISCAL DOMINANCE?: HYPERCROWDING OUT IN LATIN AMERICA

CONTEMPORARY ECONOMIC POLICY, Issue 2 2010
WILLIAM C. GRUBEN
Hypercrowding out occurs when fiscally dominated governments' domestic credit demands are so intrusive to a nation's financial system that a move toward fiscal surplus lowers interest rates and increases growth. We sample nine Latin American countries to test for these relationships. The impulse-response results of vector error correction models, six nations test positive for these two connections, suggesting market concern despite recent efforts toward fiscal balance. (JEL E430, E620, O230, O540) [source]


ECONOMETRIC MODELS OF ASYMMETRIC PRICE TRANSMISSION

JOURNAL OF ECONOMIC SURVEYS, Issue 2 2007
Giliola Frey
Abstract In this paper, we review the existing empirical literature on price asymmetries in commodities, providing a way to classify and compare different studies that are highly heterogeneous in terms of econometric models, type of asymmetries and empirical findings. Relative to the previous literature, this paper is novel in several respects. First, it presents a detailed and updated survey of the existing empirical contributions on price asymmetries in the transmission mechanism linking input prices to output prices. Second, this paper presents an extension of the traditional distinction between long-run and short-run asymmetries to new categories of asymmetries, such as: contemporaneous impact, distributed lag effect, cumulated impact, reaction time, equilibrium and momentum equilibrium adjustment path, regime effect, regime equilibrium adjustment path. Each empirical study is then critically discussed in the light of this new classification of asymmetries. Third, this paper evaluates the relative merits of the most popular econometric models for price asymmetries, namely autoregressive distributed lags, partial adjustments, error correction models, regime switching and vector autoregressive models. Finally, we use the meta-regression analysis to investigate whether the results of asymmetry tests are not model-invariant and find which additional factors systematically influence the rejection of the null hypothesis of symmetric price adjustment. The main results of our survey can be summarized as follows: (i) each econometric model is specialized to capture a subset of asymmetries; (ii) each asymmetry is better investigated by a subset of econometric models; (iii) the general significance of the F test for asymmetric price transmission depends mainly on characteristics of the data, dynamic specification of the econometric model, and market characteristics. Overall, our empirical findings confirm that asymmetry, in all its forms, is very likely to occur in a wide range of markets and econometric models. [source]


Price relationships in the Queensland barley market

AGRIBUSINESS : AN INTERNATIONAL JOURNAL, Issue 2 2002
V. Jyothi Gali
Barley can be differentiated into feed and malting barley based on its end-use markets. Substitutability both in supply and in demand complicates analysis of price information in the barley market. This article examines the price linkages between feed and malting barley in the Queensland barley market using cointegration and error correction models. Malting barley prices respond to restore equilibrium relationships with corresponding feed barley prices in the long run, but not vice versa. Thus feed barley prices appear to be a leading indicator of malting barley prices. [JEL codes: L100, C22, N57.] © 2002 Wiley Periodicals, Inc. [source]


Can consumer sentiment and its components forecast Australian GDP and consumption?

JOURNAL OF FORECASTING, Issue 8 2009
Chew Lian Chua
Abstract This paper examines whether the disaggregation of consumer sentiment data into its sub-components improves the real-time capacity to forecast GDP and consumption. A Bayesian error correction approach augmented with the consumer sentiment index and permutations of the consumer sentiment sub-indices is used to evaluate forecasting power. The forecasts are benchmarked against both composite forecasts and forecasts from standard error correction models. Using Australian data, we find that consumer sentiment data increase the accuracy of GDP and consumption forecasts, with certain components of consumer sentiment consistently providing better forecasts than aggregate consumer sentiment data. Copyright © 2009 John Wiley & Sons, Ltd. [source]


An error correction almost ideal demand system for meat in Greece

AGRICULTURAL ECONOMICS, Issue 1 2000
G. Karagiannis
Abstract This paper represents a dynamic specification of the Almost Ideal Demand System (AIDS) based on recent developments on cointegration techniques and error correction models. Based on Greek meat consumption data over the period 1958,1993, it was found that the proposed formulation performs well on both theoretical and statistical grounds, as the theoretical properties of homogeneity and symmetry are supported by the data and the LeChatelier principle holds. Regardless of the time horizon, beef and chicken may be considered as luxuries while mutton-lamb and pork as necessities. In the short-run, beef was found to have price elastic demand, pork an almost unitary elasticity, whereas mutton-lamb, chicken and sausages had inelastic demands; in the long-run, beef, and pork were found to have a demand elasticity greater than one, whereas mutton-lamb, chicken, and sausages still had inelastic demands. All meat items are found to be substitutes to each other except chicken and mutton-lamb, and pork and chicken. [source]


Nonlinear Cointegration Relationships Between Non-Life Insurance Premiums and Financial Markets

JOURNAL OF RISK AND INSURANCE, Issue 3 2009
Fredj Jawadi
The aim of this article is to study the adjustment dynamics of the non-life insurance premium (NLIP) and test its dependence to the financial markets in five countries (Canada, France, Japan, the United Kingdom, and the United States). First, we justify the linkage between the insurance and the financial markets by the underwriting cycle theory and financial models of insurance pricing. Second, we examine the relationship between the NLIP, the interest rate, and the stock price using the recent developments of nonlinear econometrics. We use threshold cointegration models: the switching transition error correction models (STECM). We show that STECM perform better than a linear error correction model (LECM) to reproduce the NLIP dynamics. Our empirical results show that the adjustment of the NLIP in France, Japan, and the United States is rather discontinuous, asymmetrical, and nonlinear. Moreover, we suggest a strong evidence of significant linkages between insurance and financial markets, show two regimes for the NLIP, and find that the NLIP adjustment toward equilibrium is time varying with a convergence speed that varies according to the insurance disequilibrium size. [source]


Nonlinear error correction models

JOURNAL OF TIME SERIES ANALYSIS, Issue 5 2002
ALVARO ESCRIBANO
The relationship between cointegration and error correction (EC) models is well characterized in a linear context, but the extension to the nonlinear context is still a challenge. Few extensions of the linear framework have been done in the context of nonlinear error correction (NEC) or asymmetric and time varying error correction models. In this paper, we propose a theoretical framework based on the concept of near epoch dependence (NED) that allows us to formally address these issues. In particular, we partially extend the Granger Representation Theorem to the nonlinear case. [source]


Political Choice, Public Policy, and Distributional Outcomes

AMERICAN JOURNAL OF POLITICAL SCIENCE, Issue 4 2005
Nathan J. Kelly
I address the functioning of the U.S. governing system by analyzing distributional outcomes from 1947 to 2000. The key question is whether public policy influences distributional outcomes. The macropolitics model and power resource theory suggest that left policies should equalize the distribution of income. I utilize single equation error correction models to assess the impact of policy on income inequality through two mechanisms,market conditioning and redistribution. Since nearly every government action influences markets in some way, I examine policy in the aggregate rather than focusing only on policies explicitly designed to redistribute income. The analysis indicates that policy influences inequality through both mechanisms, with left policy producing more equality. The results are consistent with power resource theory and strongly support the macropolitics model. Furthermore, I find that market conditioning is as important as, and works in tandem with, explicit redistribution. [source]


Monetary Policy Impulses and Retail Interest Rate Pass-Through in Asian Banking Markets

ASIAN ECONOMIC JOURNAL, Issue 3 2010
Kuan-Min Wang
C23; E43; E52; E58; F36 This paper considers the integration of financial markets and mutual influences of monetary policies in the USA and Asia based on monthly data from 1994 to 2007. We used panel-type and time-series and quantile panel-type error correction models to test the influences of expected and unexpected monetary policy impulses on the interest rate pass-through mechanism in the financial markets of 9 Asian countries and the USA. The empirics show that if interest rate integration exists in the financial markets, the following effects are observed: (i) positive impulses of unexpected monetary policy will lead to an increase in the long-run multiplier of the retail interest rate; (ii) the adjustment of retail interest rates with short-run disequilibrium will lead to an increase in the long-run markup; and (iii) the empirical results of quantile regression prove that when the interest variation is greater than the 0.5th quantile and unexpected monetary policy impulses are greater than the expected monetary policy impulses, the short-run interest rate pass-through mechanism becomes more unstable. [source]