The present study investigates the main drivers of the capital flows and explicitly models regional interactions. Using a structural VAR framework, the capital flows are analyzed into global “push” factors and country-specific “pull” factors. Evidence suggests that significant inter-regional as well as intra-regional differences exist in the factors that drive capital flows. In particular, the foreign push factors explain the flow of foreign direct investments to majority of Asia whereas, such flows to Latin American economies are mainly driven by the pull factors. This is in contrast to portfolio flow dynamics. The push factors dominate the portfolio flows to Latin American countries whereas, both the factors are equally important for the Asian portfolio flows. Furthermore, it is found that the Asian capital flows have a positive effect on the flow of capital to Latin American region and they explain large variation in the capital flows to that region but interestingly, the reverse is not the case.
{"title":"The Role of Push and Pull Factors in Driving Global Capital Flows","authors":"H. Marfatia","doi":"10.3790/AEQ.62.2.117","DOIUrl":"https://doi.org/10.3790/AEQ.62.2.117","url":null,"abstract":"The present study investigates the main drivers of the capital flows and explicitly models regional interactions. Using a structural VAR framework, the capital flows are analyzed into global “push” factors and country-specific “pull” factors. Evidence suggests that significant inter-regional as well as intra-regional differences exist in the factors that drive capital flows. In particular, the foreign push factors explain the flow of foreign direct investments to majority of Asia whereas, such flows to Latin American economies are mainly driven by the pull factors. This is in contrast to portfolio flow dynamics. The push factors dominate the portfolio flows to Latin American countries whereas, both the factors are equally important for the Asian portfolio flows. Furthermore, it is found that the Asian capital flows have a positive effect on the flow of capital to Latin American region and they explain large variation in the capital flows to that region but interestingly, the reverse is not the case.","PeriodicalId":36978,"journal":{"name":"Applied Economics Quarterly","volume":"62 1","pages":"117-146"},"PeriodicalIF":0.0,"publicationDate":"2016-12-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"70167440","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Given the significance of being able to obtain early insights into the path of total economic activity, the extraction and use of information out of indicators exhibiting leading properties becomes particularly important. In this article, we construct a composite leading indicator of Greek economic activity using selected individual indicators featuring leading properties, including business expectation indices. We apply a dynamic factor model and investigate the growth forecasting ability of the derived leading indicator within a bivariate VAR specification. We use data covering the January 2000-December 2013 period, and hence, take into account the economic recession the Greek economy is still undergoing. The evidence supports the use of both hard and soft indicators for the construction of the composite leading indicator. The latter appears to possess satisfactory leading properties with regard to forecasting growth, as indicated by in-sample and out-of-sample analysis.
{"title":"Constructing a Composite Leading Indicator of Economic Activity in Greece","authors":"Ekaterini Tsouma","doi":"10.3790/AEQ.62.2.85","DOIUrl":"https://doi.org/10.3790/AEQ.62.2.85","url":null,"abstract":"Given the significance of being able to obtain early insights into the path of total economic activity, the extraction and use of information out of indicators exhibiting leading properties becomes particularly important. In this article, we construct a composite leading indicator of Greek economic activity using selected individual indicators featuring leading properties, including business expectation indices. We apply a dynamic factor model and investigate the growth forecasting ability of the derived leading indicator within a bivariate VAR specification. We use data covering the January 2000-December 2013 period, and hence, take into account the economic recession the Greek economy is still undergoing. The evidence supports the use of both hard and soft indicators for the construction of the composite leading indicator. The latter appears to possess satisfactory leading properties with regard to forecasting growth, as indicated by in-sample and out-of-sample analysis.","PeriodicalId":36978,"journal":{"name":"Applied Economics Quarterly","volume":"62 1","pages":"85-105"},"PeriodicalIF":0.0,"publicationDate":"2016-12-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"70168107","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
A. Stoian, Laura Obreja Brașoveanu, B. Dumitrescu, I. Brașoveanu
The aim of this paper is to study the sources of fiscal vulnerability in the European Union countries. For this purpose, we employ an ordered logistic regression with random effects for a balanced panel comprising of 20 countries using a dataset ranged from 2000 to 2012. The results show that higher overall taxation and especially non-distortionary taxes decrease the probability of fiscal policy to be vulnerable. Total government expenditures, as well as productive an unproductive expenditures contribute to an increase in fiscal vulnerability. Discretionary tight fiscal policy reduces it. Fiscal rule are more efficient in lowering vulnerability when unproductive expenditures are included in the model. Fostering economic growth mitigates the risk of one country to become vulnerable, while large financial sector contributes to the increase in fiscal vulnerability. Government effectiveness lowers vulnerability of fiscal policy. Additionally, we found that Central and Eastern European countries are more exposed to fiscal vulnerability than their advanced counterparts.
{"title":"Fiscal Vulnerability Sources: Empirical Evidence for the European Union","authors":"A. Stoian, Laura Obreja Brașoveanu, B. Dumitrescu, I. Brașoveanu","doi":"10.3790/AEQ.62.4.297","DOIUrl":"https://doi.org/10.3790/AEQ.62.4.297","url":null,"abstract":"The aim of this paper is to study the sources of fiscal vulnerability in the European Union countries. For this purpose, we employ an ordered logistic regression with random effects for a balanced panel comprising of 20 countries using a dataset ranged from 2000 to 2012. The results show that higher overall taxation and especially non-distortionary taxes decrease the probability of fiscal policy to be vulnerable. Total government expenditures, as well as productive an unproductive expenditures contribute to an increase in fiscal vulnerability. Discretionary tight fiscal policy reduces it. Fiscal rule are more efficient in lowering vulnerability when unproductive expenditures are included in the model. Fostering economic growth mitigates the risk of one country to become vulnerable, while large financial sector contributes to the increase in fiscal vulnerability. Government effectiveness lowers vulnerability of fiscal policy. Additionally, we found that Central and Eastern European countries are more exposed to fiscal vulnerability than their advanced counterparts.","PeriodicalId":36978,"journal":{"name":"Applied Economics Quarterly","volume":"62 1","pages":"297-320"},"PeriodicalIF":0.0,"publicationDate":"2016-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"70168092","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Dimitrios Paparas, Christian R. Richter, Hairong Mu
The relationship between budget and trade deficits attracted the interest of many scholars during the last two decades. Many economists linked the large fiscal deficits and public debt with the trade imbalances. In this paper, we apply annual data in order to investigate the twin deficits hypothesis in a small open economy like Greece during the last 6 decades, which has faced many problems with public debt and deficits. We deploy cointegration techniques, as well as, the Granger causality tests in order to identify the direction of causality between the two forms of the deficits. We find that there is a long run relationship between the two variables, while the causality is running from the budget to the current account deficit, which provides support to the twin deficits hypothesis. This is in accordance with the Mundell-Fleming theory which suggests that there should be a causal relationship between the budget and the trade deficit, and moreover, this causality runs primarily from fiscal deficits to the current account deficits.
{"title":"An Econometric Analysis of the Twin Deficits Hypothesis in Greece During the Period 1960 – 2014","authors":"Dimitrios Paparas, Christian R. Richter, Hairong Mu","doi":"10.3790/AEQ.62.4.343","DOIUrl":"https://doi.org/10.3790/AEQ.62.4.343","url":null,"abstract":"The relationship between budget and trade deficits attracted the interest of many scholars during the last two decades. Many economists linked the large fiscal deficits and public debt with the trade imbalances. In this paper, we apply annual data in order to investigate the twin deficits hypothesis in a small open economy like Greece during the last 6 decades, which has faced many problems with public debt and deficits. We deploy cointegration techniques, as well as, the Granger causality tests in order to identify the direction of causality between the two forms of the deficits. We find that there is a long run relationship between the two variables, while the causality is running from the budget to the current account deficit, which provides support to the twin deficits hypothesis. This is in accordance with the Mundell-Fleming theory which suggests that there should be a causal relationship between the budget and the trade deficit, and moreover, this causality runs primarily from fiscal deficits to the current account deficits.","PeriodicalId":36978,"journal":{"name":"Applied Economics Quarterly","volume":"62 1","pages":"343-361"},"PeriodicalIF":0.0,"publicationDate":"2016-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"70168231","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The paper assesses the effect of economic sentiment when combined with the fiscal surplus offered on a Tiebout like migration process, taking place among potential southern European migrants in times of crisis. With an extended sample to incorporate the latest data available and by focusing on the region that was, and still is most heavily affected by the economic crisis, we employ a conditional logit model to find that locational choices are determined by public policies as those are offered to potential migrants in the form of public spending and taxes, the perception of economic opportunities as they are expressed through economic sentiment indicators, while the effect of labor market conditions is consistent and highly relevant. As most of the countries of Southern Europe have entered fiscal adjustment programmes, the discussion becomes particularly relevant as it adds a new dimension to the on-going and heated debate of a significant brain drain from the south to the north of Europe.
{"title":"“Voting with their Feet” in Times of Crisis: The Case of Southern Europe","authors":"Christos Kallandranis, Socrates Karidis","doi":"10.3790/AEQ.62.4.321","DOIUrl":"https://doi.org/10.3790/AEQ.62.4.321","url":null,"abstract":"The paper assesses the effect of economic sentiment when combined with the fiscal surplus offered on a Tiebout like migration process, taking place among potential southern European migrants in times of crisis. With an extended sample to incorporate the latest data available and by focusing on the region that was, and still is most heavily affected by the economic crisis, we employ a conditional logit model to find that locational choices are determined by public policies as those are offered to potential migrants in the form of public spending and taxes, the perception of economic opportunities as they are expressed through economic sentiment indicators, while the effect of labor market conditions is consistent and highly relevant. As most of the countries of Southern Europe have entered fiscal adjustment programmes, the discussion becomes particularly relevant as it adds a new dimension to the on-going and heated debate of a significant brain drain from the south to the north of Europe.","PeriodicalId":36978,"journal":{"name":"Applied Economics Quarterly","volume":"62 1","pages":"321-341"},"PeriodicalIF":0.0,"publicationDate":"2016-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"70168165","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"AEQ Special Issue: What are the Lessons from the Financial Crisis in the Eurozone?","authors":"Christian R. Richter, Socrates Karidis","doi":"10.3790/AEQ.62.4.267","DOIUrl":"https://doi.org/10.3790/AEQ.62.4.267","url":null,"abstract":"","PeriodicalId":36978,"journal":{"name":"Applied Economics Quarterly","volume":"62 1","pages":"267-268"},"PeriodicalIF":0.0,"publicationDate":"2016-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"70168395","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study examines the relationship between the welfare state and aggregate macroeconomic performance for a sample of OECD countries over the period 1980–2013 based on data for social spending and output. We provide a descriptive statistics and econometric analysis of the former relationship in order to investigate the following hypotheses: a) the evolution of public social spending depends on the income level of countries; b) the relationship between social spending and output depends on the size of the welfare state; and c) the relationship is non-linear and depends on the associated welfare state regime. In addition to descriptive statistics based on quantile techniques, econometric methods suitable for the analysis of non-stationary series (DOLS) and a model with thresholds (Hansen, 1999) are applied. The descriptive statistics analysis supports the first two hypotheses for the whole sample of 25 OECD countries and for the groups obtained by dividing the sample according to either output or social expenditures quantiles. This analysis also points to a non-monotonic relationship between social spending and output—positive for the whole sample but negative for high values of output and social expenditures-, although in the latter case applying only to a small number of observations. Accordingly, we next applied econometrics methods suitable for non-stationary series to assess whether the relationship is spurious. The regression results with the DOLS model confirm that there is a positive long-term relationship between output and social expenditures regardless of the distribution considered for the identification of the country groups. Therefore we were not able to provide evidence supporting hypothesis (b). Additionally, we identified three welfare state regimes that have associated a tenuous “law” of diminishing returns to social spending.
{"title":"The Welfare State and Economic Performance: Quantiles and Nonlinearities","authors":"Adelaide Duarte, Marta C. N. Simões, J. Andrade","doi":"10.3790/AEQ.62.4.269","DOIUrl":"https://doi.org/10.3790/AEQ.62.4.269","url":null,"abstract":"This study examines the relationship between the welfare state and aggregate macroeconomic performance for a sample of OECD countries over the period 1980–2013 based on data for social spending and output. We provide a descriptive statistics and econometric analysis of the former relationship in order to investigate the following hypotheses: a) the evolution of public social spending depends on the income level of countries; b) the relationship between social spending and output depends on the size of the welfare state; and c) the relationship is non-linear and depends on the associated welfare state regime. In addition to descriptive statistics based on quantile techniques, econometric methods suitable for the analysis of non-stationary series (DOLS) and a model with thresholds (Hansen, 1999) are applied. The descriptive statistics analysis supports the first two hypotheses for the whole sample of 25 OECD countries and for the groups obtained by dividing the sample according to either output or social expenditures quantiles. This analysis also points to a non-monotonic relationship between social spending and output—positive for the whole sample but negative for high values of output and social expenditures-, although in the latter case applying only to a small number of observations. Accordingly, we next applied econometrics methods suitable for non-stationary series to assess whether the relationship is spurious. The regression results with the DOLS model confirm that there is a positive long-term relationship between output and social expenditures regardless of the distribution considered for the identification of the country groups. Therefore we were not able to provide evidence supporting hypothesis (b). Additionally, we identified three welfare state regimes that have associated a tenuous “law” of diminishing returns to social spending.","PeriodicalId":36978,"journal":{"name":"Applied Economics Quarterly","volume":"62 1","pages":"269-296"},"PeriodicalIF":0.0,"publicationDate":"2016-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"70167944","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The economic development of the European Union is hampered by insufficient private and public long-term investments. This weakness is seen as a rationale for state intervention, and numerous projects are discussed and implemented to find new ways to mobilize private capital for long-term investments. For an economic assessment of this policy approach, the following paper evaluates the role of the state as a financial intermediary. -- However, we cannot establish a dependable link between the ongoing depression of longterm investments in some European countries and a market failure in the market for the financing of such investments. Furthermore, the state can only imperfectly perform the tasks of a financial intermediary. And finally, approaches to mobilize retail investors’ money on the states’ behalf would crowd out the common bank deposits and thereby could lead to a significant increase of systemic risk.
{"title":"The State as a Financial Intermediary to Foster Long-Term Investments","authors":"Hans-Peter Burghof, Carola Müller","doi":"10.3790/AEQ.62.3.205","DOIUrl":"https://doi.org/10.3790/AEQ.62.3.205","url":null,"abstract":"The economic development of the European Union is hampered by insufficient private and public long-term investments. This weakness is seen as a rationale for state intervention, and numerous projects are discussed and implemented to find new ways to mobilize private capital for long-term investments. For an economic assessment of this policy approach, the following paper evaluates the role of the state as a financial intermediary. -- However, we cannot establish a dependable link between the ongoing depression of longterm investments in some European countries and a market failure in the market for the financing of such investments. Furthermore, the state can only imperfectly perform the tasks of a financial intermediary. And finally, approaches to mobilize retail investors’ money on the states’ behalf would crowd out the common bank deposits and thereby could lead to a significant increase of systemic risk.","PeriodicalId":36978,"journal":{"name":"Applied Economics Quarterly","volume":"62 1","pages":"205-230"},"PeriodicalIF":0.0,"publicationDate":"2016-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"70168284","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
East Asian central banks have accumulated large stocks of foreign reserves over the last two decades. Important driving forces were protracted capital inflows that triggered interventions in the foreign exchange market to soften appreciation pressures. The accumulation of foreign reserves created surplus liquidity, which can lead to undue monetary easing and risks to price and financial stability. This resulted in extensive liquidity absorbing measures. Central bank losses will be more likely, if the interest rate differential to the anchor currency country is positive and the exchange rate appreciates. Given that the central banks care about these losses, monetary policy autonomy is limited.
{"title":"Limits of Monetary Policy Autonomy of East Asian Central Banks","authors":"Axel Löffler, G. Schnabl, Franziska Schobert","doi":"10.3790/AEQ.62.3.187","DOIUrl":"https://doi.org/10.3790/AEQ.62.3.187","url":null,"abstract":"East Asian central banks have accumulated large stocks of foreign reserves over the last two decades. Important driving forces were protracted capital inflows that triggered interventions in the foreign exchange market to soften appreciation pressures. The accumulation of foreign reserves created surplus liquidity, which can lead to undue monetary easing and risks to price and financial stability. This resulted in extensive liquidity absorbing measures. Central bank losses will be more likely, if the interest rate differential to the anchor currency country is positive and the exchange rate appreciates. Given that the central banks care about these losses, monetary policy autonomy is limited.","PeriodicalId":36978,"journal":{"name":"Applied Economics Quarterly","volume":"62 1","pages":"187-204"},"PeriodicalIF":0.0,"publicationDate":"2016-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"70168205","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper estimates the funding advantage afforded by the joint liability scheme to German Landesbanken. The advantage is estimated by computing the difference between Moody’s baseline credit assessment (BCA), representing the stand-alone rating, and the adjusted BCA incorporating group support assumptions. This notch advantage is then multiplied by the average time-varying yield spreads between the respective notches and the rating-dependent liabilities. Our methodology estimates the funding advantage that remains when governmental support for banks formerly considered ‘Too Big to Fail’ (TBTF) is substantially reduced or even abolished. We find a substantial monetary funding advantage due to group support assumptions, amounting on average to a multiple of the Landesbanken’s aggregated annual profits. The aggregated observations mask a distinct heterogeneity, with some of the banks being significantly more exposed to the funding advantage than others.
{"title":"The Value of a Joint Liability Scheme: Estimating Group Support for German Landesbanken","authors":"B. Käfer","doi":"10.3790/AEQ.62.3.231","DOIUrl":"https://doi.org/10.3790/AEQ.62.3.231","url":null,"abstract":"This paper estimates the funding advantage afforded by the joint liability scheme to German Landesbanken. The advantage is estimated by computing the difference between Moody’s baseline credit assessment (BCA), representing the stand-alone rating, and the adjusted BCA incorporating group support assumptions. This notch advantage is then multiplied by the average time-varying yield spreads between the respective notches and the rating-dependent liabilities. Our methodology estimates the funding advantage that remains when governmental support for banks formerly considered ‘Too Big to Fail’ (TBTF) is substantially reduced or even abolished. We find a substantial monetary funding advantage due to group support assumptions, amounting on average to a multiple of the Landesbanken’s aggregated annual profits. The aggregated observations mask a distinct heterogeneity, with some of the banks being significantly more exposed to the funding advantage than others.","PeriodicalId":36978,"journal":{"name":"Applied Economics Quarterly","volume":"62 1","pages":"231-265"},"PeriodicalIF":0.0,"publicationDate":"2016-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"70168342","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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