This paper considers unit root regressions in data having simultaneously extensive cross-section and time-series variation. The standard least-squares estimators in such data structures turn out to have an asymptotic distribution that is neither Op(T-1) Dickey-Fuller, nor Op(N-?) normal and asymptotically unbiased. Instead, the estimator turns out to be consistent and asymptotically normal, but has a non-vanishing bias in its asymptotic distribution.

Exploiting Cross Section Variation for Unit Root Inference in Dynamic Data (Now published in Economics Letters 44 (1), 1994, pp.9-19.)

This paper provides new estimates of the macroeconomic effects of tax changes using a new narrative dataset for the United Kingdom. Identification is achieved by isolating “exogenous” tax policy changes using the Romer and Romer narrative strategy. I find that a 1 percent cut in taxes increases GDP by 0.6 percent on impact and 2.5 percent over three years. The findings are remarkably similar to Romer and Romer narrative estimates for the United States, reinforcing the view that tax changes have powerful and persistent effects. “Exogenous” tax changes are also shown to have contributed to important episodes in the UK business cycle. (JEL E23, E32, E62, H20, H61)

/pdf/discretionary-tax-changes-and-the-macroeconomy-new-narrative-l3kqeyowxg.pdf

Discretionary Tax Changes and the Macroeconomy: New Narrative Evidence from the United Kingdom †

In this paper, the authors simulated the ADF unit root test of finite-sample time series with GJR-GARCH error. The sample length, existence of high-order moment in disturbance, fat-tailedness and levelage effects were analyzed, which shows that the Fuller critical values of z, statistics directly under GED and t conditional distribution of the error term can be used.

Testing for a Unit Root in Time Series with GJR-GARCH Errors

Are business cycles different according to the exchange rate regime? Baxter & Stockman have inconclusive results We reinvestigate this question with more recent data and a different methodology and find evidence, for some aggregates, that their business cycle behavior has changed We then try to replicate this change with an international real business cycle model with exchange rate shocks

Business Cycles and Exchange Rate Regimes

The nexus between oil price and Russia's real exchange rate: Better paths via unconditional vs conditional analysis

This paper investigates the long run behavior of real exchange rates in nineteen countries of Latin America over the period 1970 - 2006. Our data does not support the Purchasing Power Parity (PPP) hypothesis, implying that real shocks tend to have permanent effects on Latin America's real exchange rates. By exploiting the advantage of non stationary panel econometrics, we are able to determinate factors that drive real exchanges rate in the long run : the Balassa-Samuelson effect, government spending, the terms of trade, the openness degree, foreign capital flows and the de facto nominal exchange regime. The latter effect has policy implications since we find that a fixed regime tends to appreciate the real exchange rate. This finding shows the non neutrality of exchange rate regime regarding its effects on real exchange rates. We also run estimations for country subgroups (South America versus Caribbean and Central America). Regional results highlight that several real exchange rates determinants are specific to one geographic zone. Finally, we compute equilibrium real exchange rate estimations. Two main results are derived from the investigation of misalignments, [i ] eight real exchange rates are quite close to their equilibrium level in 2006, and [ii ] our model shows that a part of currencies crises that arose in Latin America was preceded by a real exchange rate overvaluation.

https://halshs.archives-ouvertes.fr/halshs-00276402/document

Long Run Determinants of Real Exchange Rates in Latin America

https://sites.uclouvain.be/econ/DP/IRES/2013002.pdf

Imperfect Mobility of Labor across Sectors:A Reappraisal of the Balassa-Samuelson Effect

This paper investigates the long run behavior of real exchange rates in nineteen countries of Latin America over the period 1970 - 2006. Our data does not support the Purchasing Power Parity (PPP) hypothesis, implying that real shocks tend to have permanent effects on Latin America’s real exchange rates. By exploiting the advantage of non stationary panel econometrics, we are able to determinate factors that drive real exchanges rate in the long run : the Balassa-Samuelson effect, government spending, the terms of trade, the openness degree, foreign capital flows and the de facto nominal exchange regime. The latter effect has policy implications since we find that a fixed regime tends to appreciate the real exchange rate. This finding shows the non neutrality of exchange rate regime regarding its effects on real exchange rates. We also run estimations for country subgroups (South America versus Caribbean and Central America). Regional results highlight that several real exchange rates determinants are specific to one geographic zone. Finally, we compute equilibrium real exchange rate estimations. Two main results are derived from the investigation of misalignments, [i ] eight real exchange rates are quite close to their equilibrium level in 2006, and [ii ] our model shows that a part of currencies crises that arose in Latin America was preceded by a real exchange rate overvaluation.

We use a two-sector neoclassical open economy model with traded and non-traded goods and endogenous markups to investigate the effects of temporary fiscal shocks. One central finding is that theory can be reconciled with evidence once we allow for endogenous markups and assume that the traded sector is more capital intensive than the non-traded sector. More precisely, while both ingredients are essential to produce the real exchange rate depreciation, only the second ingredient is necessary to account for the simultaneous decline in investment and the current account, in line with the evidence.

/pdf/fiscal-shocks-in-a-two-sector-open-economy-with-endogenous-aihimcizl2.pdf

Fiscal Shocks in a Two-Sector Open Economy with Endogenous Markups

This paper investigates the relative price and relative wage effects of a higher productivity in the traded sector compared with the non traded sector in a two-sector open economy model with imperfect substitutability in hours worked across sectors. The Balassa- Samuelson model predicts that a rise in the sectoral productivity ratio by 1% raises the relative price of non tradables by 1% while leaving unchanged the non traded wage-traded wage ratio. Applying cointegration methods to a panel of fourteen OECD countries over the period 1970-2007, our estimates show that the relative price rises by only 0.78% while the relative wage falls by 0.27%. Hence, our first set of empirical ¯ndings cast doubt on the quantitative predictions of the Balassa-Samuelson model. A second set of empirical findings highlights the role of imperfect labor mobility: interacting the ratio of sectoral labor share-adjusted total factor productivities with an index of labor mobility across sectors, we find that the relative price responds more to a productivity differential between tradables and non tradables while the reaction of the relative wage is more muted as the degree of labor mobility increases. We show that the ability of the two-sector model to account for our evidence quantitatively relies upon two ingredients: i) imperfect mobility of labor across sectors, and ii) physical capital accumulation. Finally, our numerical results are robust to the introduction of i) non-separability in preferences between consumption and labor, and ii) traded investment.

Romain Restout

Papers

Long Run Determinants of Real Exchange Rates in Latin America

Imperfect Mobility of Labor across Sectors:A Reappraisal of the Balassa-Samuelson Effect

Long Run Determinants of Real Exchange Rates in Latin America

Fiscal Shocks in a Two-Sector Open Economy with Endogenous Markups

Imperfect Mobility of Labor across Sectors: a Reappraisal of the Balassa-Samuelson Effect