ISSN: 2056-3736 (Online Version) | 2056-3728 (Print Version)

Optimal Budgetary Policies in New-Keynesian Models: Can they help when the Zero Lower Bound is binding?

Séverine Menguy

Correspondence: Séverine Menguy,

Université Paris Descartes, France

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In case of productivity or taxation rates shocks, monetary policy can perfectly stabilize average variables in all the monetary union when the Zero Lower Bound is not binding. So, the national budgetary policy should only stabilize asymmetric shocks and the differential of these idiosyncratic shocks with their average values in all the monetary union. On the contrary, when the ZLB is binding, monetary policy loses its efficiency to stabilize average shocks in all the monetary union. Budgetary policies should then be expansionary, in order to reduce the recessionary and deflationary tensions due to symmetric positive productivity shocks or to declines in average taxation rates in all member countries. The national budgetary policy should be more active, in order to stabilize not only differentials in the persistence of shocks between the national country and the rest of the monetary union, but also average global shocks. Therefore, budgetary policies could be more useful in a ZLB framework, provided they are not constrained by the fiscal situation and the indebtedness level of the national country.


  New-Keynesian models, budgetary policy, monetary policy, Zero Lower Bound, monetary union


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The Resource Curse Hypothesis Revisited: Evidence from Asian Economies

Hiroyuki Taguchi and Ni Lar

Correspondence: Hiroyuki Taguchi,

Saitama University, Japan

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This article examines the applicability of resource curse hypothesis focusing on Asian economies for two different phases for 1980-1995 and for 1995-2014. Its analytical contribution is to trace two kinds of crowding-out logics behind the resource curse: the Dutch Disease logic for resource abundance to crowd out manufacturing activities, and the non-Hartwick-rule logic to crowd out savings and investment, by conducting the statistical tests of Granger causality and impulse responses under vector auto-regression estimation. The empirical outcomes identified the existence of the Dutch Disease in 1980- 1995, but not in 1995-2014, and also represented some approach toward the Hartwickrule in 1995-2014, but not in 1980-1995. Thus, the resource curse hypothesis does not fit with the recent Asian economies. One of the interpretations on the transformation of the resource effects from a curse to a blessing could come from the improvement of institutional quality and the progress in policy efforts in the recent Asian economies.


  Resource curse, Asian economies, crowding-out, Dutch Disease, Hartwick rule and institutional quality.


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Testing Exchange Rate Models in a Small Open Economy: an SVR Approach

Theophilos Papadimitriou, Periklis Gogas and Vasilios Plakandaras

Correspondence: Vasilios Plakandaras,

Department of Economics, Democritus University of Thrace, Greece

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We empirically test the validity of four popular monetary exchange rate models under five alternative inflation expectation approximations using the NOK/USD exchange rate. The selection of Norway seems appropriate as it is a small open economy that does not participate in most economic or political organizations and uses the Government Pension Fund as a tool to dampen external shocks to the domestic economy. The main innovation of the paper is that in addition to a standard VECM model used in the literature, we employ a two-step procedure for the first time in this setting; first, we train a Support Vector Regression (SVR) model and then we extract the coefficients through a Dynamic Evolving Neural Fuzzy Inference System (DENFIS). The best overall model in terms of fitting the phenomenon is an SVR one with autoregressive inflation expectations that exclude energy prices, exhibiting four times lower forecasting error than the best VECM model. The estimated coefficients of the VECM are not statistically significant, while the ones from the SVR-DENFIS model show that the sign of the coefficient on the interest rate differential corroborates only with the model proposed by Bilson (1978), while we detect a significant inflation rate differential. We conclude that fundamentals possess adequate forecasting ability when used in exchange rate forecasting but none of the tested monetary exchange rate models can explicitly describe the evolution path of the exchange rate. Nevertheless, the proposed machine learning methodology moves one step further than the econometric approach in tackling the exchange rate disconnect puzzle.


  Exchange Rate, Forecasting, Foreign Exchange Market, Support Vector Regression, Monetary exchange rate models.


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Gini Coefficients of Education for 146 Countries, 1950-2010

Thomas Ziesemer

Correspondence: Thomas Ziesemer,

Department of Economics, Maastricht University, The Netherlands

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We provide Gini coefficients of education based on data from Barro and Lee (2010) for 146 countries for the years 1950-2010. We compare them to an earlier data set and run some related loess fit regressions on average years of schooling and GDP per capita, both showing negative slopes, and among the latter two variables. Tertiary education is shown to reduce education inequality. A growth regression shows that tertiary education increases growth, Gini coefficients of education have a u-shaped impact on growth and labour force growth has an inverted u-shape effect on growth.


  Human capital distribution, education inequality, growth, new data


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Wail, Benaabdelaali, Hanchane Said, Kamal Abdelhak (2011). A New Data Set of Educational Inequality in the World, 1950–2010: Gini Index of Education by Age Group. From Published as Chapter 13 ‘Educational Inequality in the World, 1950–2010: Estimates from a New Dataset’, in John A. Bishop, Rafael Salas (ed.) Inequality, Mobility and Segregation: Essays in Honor of Jacques Silber (Research on Economic Inequality, Volume 20), Emer.

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Statistical Industry Classification

Zura Kakushadze and Willie Yu

Correspondence: Zura Kakushadze ,

Quantigic Solutions LLC, USA

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We give complete algorithms and source code for constructing (multilevel) statistical industry classifications, including methods for fixing the number of clusters at each level (and the number of levels). Under the hood there are clustering algorithms (e.g., k-means). However, what should we cluster? Correlations? Returns? The answer turns out to be neither and our backtests suggest that these details make a sizable difference. We also give an algorithm and source code for building "hybrid" industry classifications by improving off-the-shelf "fundamental" industry classifications by applying our statistical industry classification methods to them. The presentation is intended to be pedagogical and geared toward practical applications in quantitative trading.


  Ιndustry classification, clustering, cluster numbers, machine learning, statistical risk models, industry risk factors, optimization, regression, mean-reversion, correlation matrix, factor loadings, principal components, hierarchical agglomerative clustering, k-means, statistical methods, multilevel.


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The contagious effects analysis of Chinese Equity Market to South Asia’s emerging financial markets

Lianqian Yin and Yaqiong Li

Correspondence: Lianqian Yin,

Finance Department of International Business School, Jinan University, China

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To study the contagious effects of financial risks in South Asia’s emerging stock markets, the main stock indexes from China, Thailand, India, Vietnam and Malaysia are chosen during the period from 2006 and 2014. The paper used the dynamic conditional correlation GARCH model to examine the dynamic relevance, and introduced the dummy variable in order to test whether the structure change had occurred after the global financial crisis. The results showed that the degree of relevance of China, Thailand, India and Malaysia stayed in the high level. However, the Vietnam hardly had a dynamic relevance with other emerging markets. This indicated that the Vietnam stock market has apparent market segmentation with other markets, no matter which aspects we considered the dynamic correlation or the financial crisis contagion. At last we build models to analyze the relations between the dynamic conditional correlation of BSE & SSEC and macro-economic. The main reason is to understand which aspects may impact correlation. From the test results, we realize the India GDP and total export-import volume has a positive relation with the correlation, while China’s corresponding indexes has a negative impact on it. In the end, according to the results we got, the investors should pay more attention to the relevance between emerging countries, so that the idiosyncratic risks can be avoided. As for the supervision department, they should reinforce the stock market which has a higher correlation in order to guarantee the stable development of financial markets.


  Emerging markets; Risk contagion; Equity indexes


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Hong Yongmiao, Cheng Siwei, Liu Yanhui. The big risk spillover effect of China's stock market and other stock markets.[J]. economics, 2004,3 (3): 703-725.Juan Carlos Rodriguez. Measuring financial contagion: A Copula approach[J]. Journal of Empirical Finance 14(2007) 401-423.Liu Ping, Du Xiaorong. A comparative study of the effects of the financial crisis on the contagion effect - Based on the analysis of the static and dynamic Copula functions. Economic latitude and longitude.2011,3:132-136.Manolis N. Syllignakis and Georgios P. Kouretas. Dynamic correlation analysis of financial contagion:Evidence from the central and Eastern European markets[J]. International Review of Economics and Finance 20(2011) 717-732.Riadh Aloui, Mohamed Safouane Ben. Global financial crisis,extreme interdependences, and contagion effects: the role of economic structure[J]. Journal of banking & finance 35(2011) 130-141.Robert F. Engle and kevin Sheppard. Theoretical and empirical properties if dynamic conditional correlation multivariate Garch[J]. National Bureau of Economic Research. 2001,10(32), 1-44.Wang Yuanlin. The empirical study on the co-movement effect between Chinese stock market and major international stock market.[J]. Journal of Dezhou University, 2011,27 (6): 5-11.Y Hamao, RW Masulis and V Ng. Correlations in price changes and volatility across international stock markets[J]. Rev. Fin. Stud. 1990,3(2):281-307.Zhao Hua. Study on regional risk contagion of international stock market.[J]. Journal of Xiamen University, 2009,5 (195): 106-113.Zhou Yunfan. The study of the co-movement effects of the major stock markets in East Asia - Analysis of the sample before and after the large-scale outbreak of the financial crisis. Journal of Harbin Financial college,.2011102 (2): 1-6.

Robustness of Optimal Interest Rate Rules in an Open Economy

Li Qin and Moïse Sidiropoulos

Correspondence: Li Qin,

EDAM - École de Design de l'Art et de Management, France

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This paper studies optimal interest-rate rules that are robust with respect to exogenous shocks in open economies. When derived from closed economy optimization models, theoretical interest-rate rules tend to be more aggressive than empirical rules. We show that accounting for openness in an economy results in optimal rules that correspond more closely to the rules used in practice: the robustly optimal rules derived in an open-economy model exhibit less inertia and sensitivity to variations in macroeconomic variables.


  robustness, optimal interest-rate rule, degree of openness


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Modeling Energy Prices with a Markov-Switching dynamic regression model: 2005-2015

Georgios Galyfianakis, Evagelos Drimbetas and Nikolaos Sariannidis

Correspondence: Georgios Galyfianakis,

Technological Education Institute of Crete, Department of Accounting and Finance, Greece.

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In this paper we employ a Markov-switching dynamic regression (MS-DR) model for a period before and after the financial crisis of 2008. Using data from 2005 to 2015, we examine the behavior of five energy prices series (Crude oil WTI, Heating oil, Unleaded gasoline, Diesel and Jet kerosine). The results reveal and confirm the existence of 2 distinct regimes. The first corresponds to a tranquil (calm) regime and the other to a crisis (turbulence) regime. Furthermore, we find robust evidence for the existence of several "recessions" in energy market prices. Given the relevance of the energy prices for the real economy, but also for monetary policy and stock markets, our findings are helpful to financial managers and energy analysts. We prove the undeniable need for more energy policy and regulation in order to help investors and market participants.


  Energy Market, Crude Oil, Petroleum products, Markov-Switching Dynamic Regression, Regimes


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Is Real Depreciation Expansionary? The Case of Ireland

Yu Hsing

Correspondence: Yu Hsing,

Department of Management & Business Administration, Southeastern Louisiana University, USA

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Applying aggregate demand and aggregate supply model and based on a quarterly sample during 2003.Q1 – 2015.Q1, this paper finds that Ireland’s aggregate output is positively associated with real appreciation, German real GDP, the real stock price and labor productivity and negatively influenced by government debt as a percent of GDP, the real lending rate and the expected inflation rate. The insignificant coefficient of the real oil price indicates that Ireland is energy efficient and that a higher real oil price would not impact its aggregate output negatively. Recent euro depreciation would not help Ireland’s aggregate output, and recent decrease in government debt as a percent of GDP would help increase aggregate output.


  Exchange rates; Government debt; Oil prices; Stock prices; Productivity


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