This study explores the time-varying correlations among the bank industry Credit Default Swap (CDS) indices for the EU, the UK and the US, using the asymmetric Dynamic Conditional Correlation (DCC) model developed by Cappiello et al. (2006). The main findings of the study include: (i) The correlations between each pair of bank CDS indices vary substantially over time. (ii) There is evidence of asymmetric dynamic correlations between the EU and the UK bank CDS indices. The correlations between them tend to be higher when responding to joint downward shocks. (iii) The conditional correlations between the US bank CDS and the UK and the EU bank CDS, respectively, exhibited significant drops immediately after the collapse of Lehman Brothers during the global financial crisis. (iv) The sovereign debt crisis dummy in Autoregressive (AR) models, applied to the estimated DCCs, is significantly positive for the UK and US bank CDSs, as shown by the increased correlations after the onset of the debt crisis.
The Lucas-Cukierman model is modified to allow for agents' imperfect knowledge of the key money supply parameter and to make the extent of information acquisition by agents endogenous. A Bayesian framework is used and the effectiveness of monetary policy during the learning process is also examined.
This paper empirically analyses the long-run relationship among the variables in the aggregate import demand functions of Madagascar and Mauritius in order to evaluate the appropriateness and effectiveness of the structural adjustment programmes (SAPs). Given the small sample size, we use the recently developed UECM-based `bounds test` to investigate cointegration. The study confirms the existence of cointegration relationship. The long-run income and price elasticities are, respectively, 0.855 and -0.487 for Madagascar and 0.671 and -0.644 for Mauritius. The stabilisation and devaluation policies under the SAPs can be effective in reducing import demand. Export demand functions are also estimated. The Marshall-Lerner condition is fully met for Mauritius but unequivocal inference cannot be drawn for Madagascar. While both countries achieved lower external deficits, their economies have shown dissimilar growth performance, with remarkable expansion in Mauritius versus mitigated growth in Madagascar. Hence, the ultimate policy objective should not be confined in containing imports, but should seek to simultaneously improve external balance and economic growth.
This paper empirically analyses the stability of the aggregate import demand function for G7 countries. The standard cointegration test and a test developed by Gregory and Hansen are performed. The results of standard cointegration tests suggest that there is no stable cointegrating relation between real import, real GDP and relative import price for all G7 countries. The cointegrating relation is empirically supported for France and Germany if structural change for cointegrating vector is explicitly taken into consideration. The cointegrating relation is empirically rejected for Canada, Italy, Japan, the UK and the USA. Thus, the stimulation of domestic business conditions will not necessarily link the quantity of imports for these five countries.
This paper empirically analyzes the long-run equilibrium between trade balances and the terms of trade using the nonstationary panel data analysis. Empirical results indicate that trade balances and the terms of trade do not have cointegrating relation for G-7 countries. This implies that the deterioration in the terms of trade will not necessarily improve a country's trade balance in the long-run.
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