Demetrios Moschos

The information content of the yield curve in Australia

This paper examines the expectation theory of the term structure of interest rates in Australia by looking at the information content of the yield curve. Cointegration results provide evidence that the slope coefficient of the yield curve is unity. Bivariate vector autoregressive analysis (VAR) indicates that the spread between the long term and the short term rates is informative about changes in the short rate. In addition, the spread between the short term rate and the official cash rate has predictive power for changes in the cash rate. These findings imply that the Reserve Bank of Australia could influence the long term rate by intervening on the official cash rate. Finally, the efficient market restrictions were tested and accepted by the data.

Financial Development and Economic Activity in Advanced and Developing Open Economies: Evidence from Panel Cointegration

This study considers the effects of financial development on output in a panel cointegration framework, focusing on the implications of trade and financial openness. Our analysis indicates that after controlling for cross-sectional dependence, the typical relationship between finance and output does not hold in the long run. This relationship, however, is re-established once we account for economic openness. While trade openness emerges as more important for developing countries, financial openness is more important for advanced economies. In the long run, causality runs from financial development to output in the advanced economies, while in developing economies causality is bidirectional. There is no short-run causality between financial development and output, however.

Domestic and foreign price links in an aggregate supply framework: The case of Greece

Abstract Using price and wage equations, an aggregate supply relationship is derived, which relates domestic to foreign prices and output. It is shown that, among all parameters, only the degree of wage indexation matters to the question of whether the nominal exchange rate can affect competitiveness. Cointegration results support the existence of a long-run relationship among the variables of the model which is in conformity with the relationship derived in the theoretical part of the paper. Empirical analysis (a) does not confirm relative Purchase Power Parity for Greek wholesale price indices, and (b) does not contradict the hypothesis that Greek producer prices are homogeneous of degree one in foreign prices.

Searching for Indicators of Foreign Exchange Market Pressure: Evidence from Greece

This paper uses vector autoregressive (VAR) techniques to examine the indicator properties of a number of macroeconomic variables with respect to foreign exchange (FX) market pressure in Greece during the period 1975-95. The framework of analysis is also used to assess the relative importance of the associated shocks as sources of fluctuations in the FX market pressure index (FXI). The Granger causality results show that the real overvaluation of the drachma, the reserves adequacy ratio, the current account balance and the net capital movements have predictive power with respect to the FX market pressure. The results of variance and historical decompositions show that shocks attributable to real overvaluation, the reserve adequacy ratio and the net capital movements are the dominant sources of volatility in the FXI. Copyright @ 1999 by John Wiley & Sons, Ltd. All rights reserved.

Tests for efficiency in the forward eurodrachma market

Restrictions on short-term capital movements limit the openness of the Greek financial system. Non-overlapping data from the forward eurodrachma market are used to test the market-efficiency hypothesis. The combined use of unit-root and stationarity tests provide some evidence that the forward and the one-period ahead spot rates are cointegrated with a coefficient of unity, as required by the efficiency hypothesis. However, the cointegrating combination is serially correlated. This finding contradicts the market-efficiency hypothesis.