Theses and Dissertations - Department of Economics, Finance & Legal Studies

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Browsing Theses and Dissertations - Department of Economics, Finance & Legal Studies by Author "Arcabic, Vladimir"

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    Cointegration tests with smooth breaks and co-movements of international reserves
    (University of Alabama Libraries, 2019) Banerjee, Piyali; Lee, Junsoo; University of Alabama Tuscaloosa
    In the first essay, we propose a new Autoregressive Distributive Lag (ADL) cointegration test in the presence of structural breaks approximated by a Fourier function. The test offers a simple way to capture a smooth structural change in time series data. Exact break dates are not required, and the suggested methodology can accommodate various types of models with an unknown number and form of gradual structural changes. An empirical example of real oil prices, oil production, and real economic activity using the new test shows that these variables are cointegrated, while a conventional ADL test ignoring structural breaks yields an opposite result. In the second essay, we develop a new Fourier Engle-Granger (FEG2) co-integration test to approximate structural breaks in time-series. We note that a common-factor-restriction (CFR) is imposed in the Engle-Granger (EG) test. The restriction implies the identical long-run and short-run dynamics in the relationship among the variables of interest. This chapter develops a new Engle-Granger (FEG2) co-integration test that not only prevents the power loss issue from the existing EG test but also accommodates underlying nonlinearity in the data through a Fourier transformation. We allow for different long-run and short-run dynamics of the variables. The new EG2 co-integration test with a Fourier approximation detects the co-integration relationship among the crude oil price, crude oil production, and real economic activity even when the data is subject to higher frequencies. In contrast, the conventional EG test with a Fourier function fails to detect the co-integration in a similar situation due to the restrictive assumption of the CFR. In the third and final essay, we examine global co-movements of international reserves (IR) and their effects on the variations of IR holding in each country. To begin with, we evaluate how pervasive global co-movements of international reserves are. For this, we estimate the global, regional and country-specific factors of international reserves by using a dynamic factor model with time-varying factor loadings and stochastic volatility. We find that a global factor is a dominant component and it causes co-movements among international reserves in the world. Then the degree of association of each country’s reserve holding with the common global factor is analyzed. Results show that after the great financial crisis (GFC) the correlation of each country with the global factor drops remarkably compared to the pre-crisis period. Following the fact, we examine the driving forces of the IR through the estimated global factors of key macro-economic variables and notice that the dynamics of the driving forces become opposite after the financial crisis. Lastly, we examine the inter-temporal effects of the global factor of IR with the global factors of the key control variables by using a VAR model.
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    Essays in global comovements
    (University of Alabama Libraries, 2020-12) Isomitdinov, Hasan; Lee, Junsoo; University of Alabama Tuscaloosa
    This dissertation looks into comovements in the global macroeconomic aggregates across countries by applying Bayesian econometric models. The first essay provides new results on the significance and relative importance of global and regional comovements in sovereign credit risk. I employ a dynamic factor model with time-varying stochastic volatility to examine the time-varying effects of global comovements. I find that the effects of the global comovements on individual countries are smaller than commonly perceived, especially after the end of the Eurozone debt crisis. Moreover, contrary to previous findings, I find that the net effects of the global and regional factors are greater than those of global macroeconomic variables. The second essay provides evidence of significant international co-movements of public debt in the form of the common global and regional factors. International events such as the global financial crisis and Eurozone sovereign debt crisis suggest the existence of global and regional factors that can generate synchronizations of public debt across countries. In contrast with previous studies that are focused mostly on domestic economic fundamentals in explaining public debt, I find distinct global factors in the public debt-to-GDP ratio, from both principal components analysis and the Bayesian dynamic factor model. I show that the global factor accounts for a significant fraction of the variation of public debt often more substantial than those explained by domestic variables in many countries. In the third and final essay, I develop a new panel cointegration model based on the well-known autoregressive distributed lag (ADL) models. I adopt the generalized method of moments procedure of Arellano and Bond, noticing that the ADL cointegration model is a special case of dynamic panel data models. The suggested procedure can overcome the difficulties found in the studies based on the panel vector auto-regressive models, which can be biased in the presence of cointegration. I apply the suggested procedure to the issue of defense-growth relationship, while capturing the inter-temporal dynamic relation between military spending and economic growth. The results reveal that there are multiple cointegrating vectors in the relationship of military spending and growth.
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    Three essays: cointegration tests and empirical studies using the dynamic factor models
    (University of Alabama Libraries, 2020-05) Lu, Yan; Lee, Junsoo; University of Alabama Tuscaloosa
    The first essay extends the pioneering cointegration test of Johansen (1991) to allow for structural breaks in a cointegration system. Instead of using usual dummy variables, we utilize a Fourier function to control for an unknown number of multiple breaks in the cointegration system. When we use dummy variables, we need to determine the number of breaks and their locations a priori in each of the equations in the system. However, this challenging task is converted to a simpler task of determining the number of a few cumulative frequencies when we use a Fourier function. The number of parameters to estimate is reduced significantly, which can lead to a good performance of the tests. We also recommend using a fixed value of cumulative frequencies. We provide the limiting distribution of the Johansen-Fourier tests and the corresponding critical values. Monte Carlo simulations show that the new tests display good size and power properties. An empirical application to the Kilian (2009) dataset shows the result of cointegration, while the conventional Johansen cointegration tests indicate no cointegration. The second essay follows the extensive studies on the similarity and synchronization of member states’ economic fundamentals and conditions triggered by the formation of the Economic and monetary union in Europe. Similar institutional and economic conditions are considered essential characteristics, implicit targets, and preferred prerequisite qualifications for the Eurozone members, as the optimal currency area theory indicates. This paper analyzes synchronization in five major macroeconomic variables in the European Union using the dynamic factor model. We do not find significant evidence of synchronization in the Eurozone or EU countries. The degree of synchronization in the Eurozone countries is not greater than that in other countries. Also, we find no significant evidence to show that the EU or Eurozone membership has increased synchronization or similarity within the group over time. Instead, we find that synchronization effects are time-dependent; they are more significant during the financial crisis period. The third and final essay analyzes the co-movements of US housing prices using the state level and metropolitan statistical areas (MSA) data. The objective of the study is to examine the significance and time-varying nature of the co-movements from macroeconomic aspects and determine major factors that drive the movements of the housing prices. Dynamic factor models with time-varying loadings and stochastic volatility (DFM-TV-SV) are employed to estimate the national, regional, and state factors. The results show that the national factor is dominant in explaining the movement of housing prices. On average, the national factor accounts for 79 percent of the variation of housing prices, while its significance is the highest during the housing boom and bust periods in many regions and states. Overall, the significance of each factor varies significantly over time and in different regions. The synchronization effects are also time varying and heterogeneous over different regions and states.