Arabinda Basistha

Macroeconomic cycles and the stock market's reaction to monetary policy

This paper examines cyclical variation in the effect of Fed policy on the stock market. We find a much stronger response of stock returns to unexpected changes in the federal funds target rate in recession and in tight credit market conditions. Using firm-level data, we also show that firms that face financial constraints are more affected by monetary shocks in tight credit conditions than the relatively unconstrained firms. Overall, the results are consistent with the credit channel of monetary policy transmission.

Trend-Cycle Correlation, Drift Break and the Estimation of Trend and Cycle in Canadian GDP

A process for treating filamentary products, such as yarn, includes advancing the yarn in a groove, which has orifices opening in the bottom thereof, and which communicate with a channel through which a fluid is expelled. The fluid supports the strand so that the yarn does not touch the groove. In addition, the fluid treats the yarn and helps to advance the yarn.

Foreign Aid and Export Performance: A Panel Data Analysis of Developing Countries

The effect of foreign aid on economic activity of a country can be dampened due to potentially adverse effects on exports through a real exchange rate appreciation. In this study we examine the long-term relationship between export performance and foreign aid in developing countries while accounting for other factors. The estimates of direct effect of foreign aid on exports are imprecise. However, the effect of the quadratic term of foreign aid on exports is negative and precise. This implies large amount of foreign aid does adversely affect export performance. The results are robust to the use of two different export performance measures and different sub-samples.

The Impact of Monetary Policy Surprises on Energy Prices

This paper examines the effect of monetary policy surprises on energy prices at intraday, daily, and monthly frequencies. We measure monetary policy shocks using changes in interest rate futures prices that capture unexpected changes in the fed funds target rate. We find a significant response of energy prices to surprise changes in the fed funds target rate in an intraday window immediately following the monetary announcement. However, the accumulated responses of energy prices to monetary shocks over a period of several days after the announcement are statistically insignificant. We also use fed funds futures data to identify the contemporaneous impact of monetary policy shocks on oil prices in a monthly structural vector autoregressive (VAR) setup. We find no statistically significant effect of federal funds rate shocks on oil prices. The VAR estimates support the assumption of no contemporaneous feedback from monetary policy to energy prices.

Chapter 21 Foreign Aid and Export Performance: A Panel Data Analysis of Developing Countries

The effect of foreign aid on economic activity of a country can be dampened due to potentially adverse effects on exports through a real exchange rate appreciation. In this study we examine the long-term relationship between export performance and foreign aid in developing countries while accounting for other factors. The estimates of direct effect of foreign aid on exports are imprecise. However, the effect of the quadratic term of foreign aid on exports is negative and precise. This implies large amount of foreign aid does adversely affect export performance. The results are robust to the use of two different export performance measures and different sub-samples.

Volatility Forecasting: The Role of Internet Search Activity and Implied Volatility

Growing literature has documented that Internet search activity is associated with volatility in the financial and commodity markets. We reexamine the role of the Internet search activity in the context of volatility prediction in these markets. We broaden the scope by including three traditional predictors (returns, trading volume and implied volatility) and by using not only in-sample but also out-of-sample analysis. We find that implied volatility plays a crucial role in evaluating the contribution of Internet search activity data. Our results show that the predictive role of the Internet search activity data disappears in the stock index and foreign exchange markets and substantially declines in the commodity markets once implied volatility is included in the benchmark model. This finding contributes to our understanding of what informational content is captured by the Internet search activity data. It appears to capture similar information as implied volatility.

Estimating earnings trend using unobserved components framework

Regressions for predicting long-term stock returns often use moving averages of earnings as the earnings trend. We show that the earnings trend can be directly estimated using unobserved components models. The estimated trends improve the fit of predictive regressions.