Claudiu Tiberiu Albulescu

Contagion and Dynamic Correlation of the Main European Stock Index Futures Markets: A Time-frequency Approach☆

In this paper, we examine the financial contagion and dynamic correlation between three European stock index futures, namely FTSE 100, DAX 30 and CAC 40. For this purpose we resort to a continuous wavelet transform framework and we cover the aftermath of the sovereign debt crisis period. More precisely, we analyze the power spectrum of the series, the wavelet coherency and the average dynamic correlation before and after turbulence episodes occurred after the outburst of the sovereign debt crisis. Our results show that the stock index futures are highly correlated and this correlation increases around financial distress episodes. The contagion phenomenon, associated with a high-frequency correlation, manifested especially after the additional rescue package awarded to Greece. All in all, the dynamic correlation is influenced by the frequency decomposition level and fluctuates considerably in the very long-run.

Stock prices, inflation and inflation uncertainty in the U.S.: testing the long-run relationship considering Dow Jones sector indexes

ABSTRACT We test for the long-run relationship between stock prices, inflation and its uncertainty for different U.S. sector stock indexes, over the period 2002M7–2015M10. For this purpose we use a cointegration analysis with one structural break to capture the crisis effect, and we assess the inflation uncertainty based on a time-varying unobserved component model. In line with recent empirical studies we discover that in the long run, the inflation and its uncertainty negatively impact the stock prices, opposed to the well-known Fisher effect. In addition we show that for several sector stock indexes the negative effect of inflation and its uncertainty vanishes after the crisis outburst. However, in the short run the results provide evidence in favour of a negative impact of uncertainty, while the inflation has no significant influence on stock prices, except for the consumption indexes. The consideration of business cycle effects confirms our findings, which proves that the results are robust, both for long- and short-run relationships.

Time-frequency relationship between U.S. output with commodity and asset prices

ABSTRACT Commodity and asset prices have a well-documented effect on economic growth as manifested through various channels. At the same time, the business cycle influences the commodity and asset prices. Whereas empirical evidence on the effect of commodity and asset prices on the long-run economic growth is ambiguous, most of the previous researches highlight a positive correlation in the short run. The aim of this article is to disentangle the short- and long-run co-movements between US historical business cycles and commodity and asset prices over the period 1859–2013. For this purpose, we use a time–frequency approach and we test the historical influence of oil, gold, housing and stock prices over the output growth. In contrast to other studies, we control for the effect of other prices and monetary conditions, using the wavelet partial coherency. In line with the previous works, we discover that co-movements between economic growth and commodity and assets prices manifest especially in the short run. We also find that stock returns and housing prices have a more powerful effect on the US economic growth rate than the oil and gold prices. The long-run co-movements are documented especially around the World War II. Finally, when controlling for the influence of the interest rate, inflation and other commodity and asset prices, co-movements become weaker in the short run. In general, the oil and housing prices lead the GDP growth, the US output leads the gold prices, while there is no clear causality direction between business cycle and stock prices.

Do Foreign Direct and Portfolio Investments Affect Long-term Economic Growth in Central and Eastern Europe?☆

Abstract This paper contributes to the literature which investigates the impact of foreign investment on the host country economic growth. More precisely, we test the effect of the foreign direct investment (FDI) and of the foreign portfolio investment (FPI) on the long-term economic growth in Central and Eastern European (CEE) countries, in a panel framework. For this purpose, we resort to a system-GMM approach, which corrects the endogeneity issues between growth and investment, and we employ a large set of control variables, as the interest rate, the CPI inflation, the unemployment rate, the money in circulation, the exchange rate, the primary energy consumption and the level of education. The analyzed time-span is 2005-2012 and the sample includes 13 CEE countries, namely Bulgaria, Croatia, Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Romania, the Slovak Republic and Slovenia. We find that both direct and portfolio investments exert an influence on the long-term economic growth, when we consider equity and investment funds instruments. Our results show that incentive packages should be oriented toward both types of investments. These findings are documented both in the case of inwards and outwards investments.

Banks’ Profitability and Financial Soundness Indicators: A Macro-level Investigation in Emerging Countries☆

Abstract The banking sector profitability has shrunk considerably after the setup of the global financial crisis, both in developed and emerging countries. The non-sustainable credit policies practiced by banks before the crisis have largely contributed to this distress. In particular in emerging markets, an easy access to credits has generated, after the financial turbulences, a considerable amount of non-performing loans which have subsequently affected the banks’ profitability. In addition, the need for an increased capitalization is also susceptible of negatively influencing the profitability in the short-run. Against this background, we test the influence of financial soundness indicators on the banks’ profitability, at the macro-level, in a set of emerging countries. Different from previous studies which assess the impact of the banking sector characteristics and of the macroeconomic context on the profitability, we focus on the internal conditions of banks. Using the IMF monthly data for the period 2005-2013 and a panel data approach, we discover that non-performing loans have a negative impact on banks’ profitability under the fixed effect model. While the level of liquidity has a mixed influence, the capitalization and the interest rate margins positively affect the banks’ profitability. As expected, the non-interest expenses negatively impact the profitability. The results prove robust either if we use the return on assets or the return on equity indicator to measure the level of profitability.

Unemployment persistence in EU countries: new evidence using bounded unit root tests

ABSTRACT We apply a series of bounded unit root tests to revisit the unemployment persistence in eight European Union (EU) countries. We find strong evidence in favour of the hysteresis hypothesis in all the cases. This result can be explained by a reduced labour mobility, a decreasing wage inflation and a high uncertainty regarding the future level of unemployment in the EU countries.

UK business cycle synchronization with Germany and the US: New evidence from time–frequency domain and structure of economic growth

ABSTRACT This article uses a time–space approach to check the UK business cycle synchronization with Germany and the US. As a novelty, we consider the co-movements in terms of economic growth rate structure. In line with the existing studies, we discover that the UK business cycle is more synchronized with the US then with Germany, and that the co-movements have intensified lately. We also show that co-movements are reduced in terms of business cycle structure and are time–frequency-dependent. Finally, we point out that the UK business cycle became more synchronized with the US cycle given the contribution of investments and external balance to the real growth rate.

Time-Frequency Relationship between Inflation and Inflation Uncertainty for the U.S.: Evidence from Historical Data

We provide new evidence on the relationship between inflation and its uncertainty in the U.S. on an historical basis, covering the period 1775-2014. First, we use a bounded approach for measuring inflation uncertainty, as proposed by Chan et al. (2013), and we compare the results with the Stock and Watson (2007) method. Second, we employ the wavelet methodology to analyze the co-movements and causal effects between the two series. Our results provide evidence of a relationship between inflation and its uncertainty that varies across time and frequency. First, we show that in the medium- and long-runs, the Freidman–Ball hypothesis holds when the measure of uncertainty is unbounded, while if the opposite applies, the Cukierman–Meltzer reasoning prevails. Second, we discover mixed evidence about the inflation–uncertainty nexus in the short-run, findings which explain the mixed results reported to date in the empirical literature.

Firms’ Financial Performance and Investment: A Panel Data Analysis Applied to the Wine Industry of CEE Countries

The Central and Eastern European (CEE) wine industry is reduced as compared to that of the largest European Union (EU) producers such as Italy, France or Spain, but it has a high development potential. Countries like Romania and Hungary are nowadays well placed in the EU ranking in terms of wine production. However, after the outburst of the recent economic crisis, the level of wine production has considerably fluctuated in the CEE countries, and the same happened with the investment in this industry. We may think that the poor financial management performances of these firms have triggered these fluctuations. Against this background, the present paper attempts to investigate the impact of companies’ financial performances, assessed through capitalization, liquidity and profitability, on their investment dynamics. Applying a panel data analysis for 106 firms, over the time-span 2007 to 2014, and using AMADEUS statistics for the selected CEE countries, we show that the level of capitalization negatively influences the wine industry investment, although this result lacks in robustness. Moreover, the profitability has a positive influence on investment, while the level of liquidity has no significant influence. Our findings may be explained by the fact that in post-crisis periods, firms are tempted to increase their capitalization ratio in order to prevent the manifestation of financial risks.

Oil price–inflation pass-through in Romania during the inflation targeting regime

ABSTRACT In the wake of the inflation-targeting strategy in Romania, we estimate the impact of international oil prices upon the consumer price index (CPI) and core inflation. The inflation target was systematically missed by the monetary authorities who explain this failure by exogenous factors. Using a frequency domain framework, we show that the oil price–inflation pass-through can be observed only for those components of inflation which include volatile prices and only in the medium run. Our results put forward that the constant missing of the target cannot be explained by the oil price–inflation pass-through and the credibility of the strategy is put into question.