George B. Tawadros

The predictive power of the monetary model of exchange rate determination

This study examines the predictive power of the monetary model of exchange rate determination for the Australian dollar vis-à-vis the US dollar exchange rate. Using a cointegration-based error-correction model, it is found that an unrestricted dynamic monetary model outperforms the random walk model at all forecasting horizons, with the degree of improvement increasing as the forecasting horizon is extended.

Testing the impact of inflation targeting on inflation

Purpose - The purpose of this paper is to examine the impact of inflation targeting on inflation for 27 countries that have adopted an inflation-targeting regime. Design/methodology/approach - The paper uses intervention analysis in Harveys structural time series model to analyse the impact of inflation targeting on inflation, using quarterly observations. This approach provides the most useful framework for separating changes that occur to a series ordinarily over time from those happening due to exogenous events identified a priori, such as inflation targeting. Findings - The empirical evidence suggests that almost all of the central banks that have pursued this strategy have been unsuccessful at controlling inflation, with the results indicating that the adoption of an inflation-targeting regime has had the perverse effect on inflation for almost every country. Practical implications - The implication of the finding is that central banks which have adopted an inflation-targeting regime do not appear to have been particularly successful in reducing inflation in any significant way, as is regularly claimed in the extant literature. Originality/value - The paper provides further evidence against the adoption of an inflation-targeting regime using an unconventional approach for 27 countries that are regarded as “fully-fledged” inflation-targeting countries.

Purchasing power parity in the long-run: evidence from Australia's recent float

This paper examines the properties of proportionality, symmetry and exclusiveness in long-run purchasing power parity (PPP) using monthly observations covering Australias recent experience with floating exchange rates. Using monthly data over the period 1985–1996, strong evidence is found to support the hypothesis that long-run PPP holds between Australia vis-à-vis the USA, UK and Japan. However, strong evidence against the properties of symmetry and proportionality is found. Furthermore, the results show that the property of exclusiveness cannot be rejected for all three currencies.

Testing the hypothesis of long‐run money neutrality in the Middle East

Purpose - The purpose of this paper is to test the hypothesis of long-run money neutrality for Egypt, Jordan and Morocco using seasonal cointegration techniques. Design/methodology/approach - The paper uses seasonal integration and cointegration techniques to test the neutrality of money hypothesis for three Middle Eastern economies, using quarterly data on money, prices and real income. The benefit of using this technique lies in its ability to distinguish between cointegration at different frequencies. Findings - The empirical results show that money is cointegrated with prices, but not with output at the zero frequency for Egypt, Jordan and Morocco. This suggests that money affects nominal but not real variables in the long run, implying that money is neutral in these three Middle Eastern economies. Practical implications - The implication of this finding for policy analysis suggests that the anti-inflationary policy prescription espoused by the monetarist school should be followed in these three Middle Eastern countries, in order to curb inflation. Originality/value - The paper provides further evidence in support of money neutrality using an unconventional approach for three developing Middle Eastern economies.

The effectiveness of international diversification: whole markets versus sectors

A hedging approach is used to examine the effect of sectoral factors on the effectiveness of international diversification. By using data covering seven countries and various sectors, we find that international diversification is more effective when assets from developed markets only are used and when multiasset portfolios are used instead two-asset portfolios. The results also reveal that international diversification across whole markets is more effective than diversification across sectors. These results reflect the pattern of return correlation.

The endogeneity of the optimum currency area criteria: an application to ASEAN

In this paper, the endogeneity hypothesis of the optimum currency area criteria is tested for seven economies who are members of the Association of South East Asian Nations (ASEAN). The empirical evidence presented shows that greater trade flows between these countries will lead to increased specialisation according to their comparative advantage, resulting in more divergent business cycles across ASEAN. As such, the endogeneity hypothesis of the optimum currency area criteria is rejected. This finding suggests that the ASEAN economies have not yet achieved a sufficient degree of harmonisation and convergence in their business cycles through trade, implying that these countries are not yet synchronised enough to enjoy the benefits of monetary unification.

A structural time series test of the P-star model: evidence from the middle east

In this article, a structural time series test of the P-star model is conducted using quarterly data for the Middle Eastern countries of Egypt, Jordan and Morocco. The conventional P-star model is altered to obtain an equation for the price level that consists of a stochastic trend and the actual levels of output and velocity. The empirical results obtained are highly supportive of the model and show the perils of modelling output and velocity as deterministic rather than stochastic trends. Estimates of the dynamic relationship between the price gap and the inflation rate are also highly supportive of the adjustment mechanism inherent in the P-star model, producing a large and significant coefficient of adjustment for each country.

¡Fútbol!: Is There a Latin American Bias in the European Champions League?

This article takes a novel approach to the study of discrimination in sports by looking at minutes played by strikers in the Union of European Football Associations Champions League over 1991-2011. We compare differences in minutes played between five ethnic groups: White Europeans, Black Europeans, Africans, White Latin Americans, and Black Latin Americans. We find evidence that White Latin Americans enjoy significantly less game time than White Europeans, while the opposite is true for Black Latin Americans. However, the inclusion of player fixed effects reveals that, after controlling for player ability, there is no evidence of discrimination in this competition.This article takes a novel approach to the study of discrimination in sports by looking at minutes played by strikers in the Union of European Football Associations Champions League over 1991-2011. We compare differences in minutes played between five ethnic groups: White Europeans, Black Europeans, Africans, White Latin Americans, and Black Latin Americans. We find evidence that White Latin Americans enjoy significantly less game time than White Europeans, while the opposite is true for Black Latin Americans. However, the inclusion of player fixed effects reveals that, after controlling for player ability, there is no evidence of discrimination in this competition.

The cyclicality of the demand for crude oil: evidence from the OECD

Purpose – The purpose of this paper is to analyse the cyclical relationship between the demand for crude oil and real output for the OECD. Design/methodology/approach – The paper employs Harveys structural time series model to analyse the contemporaneous and non-contemporaneous cyclical co-movement of the demand for crude oil with real output, using quarterly observations for the period 1984:1-2010:4. Findings – The empirical evidence suggests that a strong and positive cyclical relationship between the two variables exists, with the demand for crude oil being procyclically contemporaneous. Practical implications – The implication of this finding suggests that consuming countries cannot stockpile oil reserves to guard against the cyclical nature of demand, while producing countries face weak and bearish oil markets during economic recessions, because oil consuming countries cannot smooth out their demand for oil on an intertemporal basis. Originality/value – The paper provides further evidence supporting the procyclically contemporaneous relationship between the demand for crude oil and real output for the OECD.

Revisiting the exchange rate disconnect puzzle

ABSTRACT One of the major anomalies in International Macroeconomics is the persistent finding that the exchange rate has no empirical relationship with a variety of macroeconomic fundamentals. Dubbed the ‘exchange rate disconnect puzzle’, this article examines this issue for five Australian dollar bilateral exchange rates, using quarterly data for the period 1984:1–2015:4. A novel feature of this article is that it departs from the extant literature by using a different approach to testing for cointegration. The results show that the exchange rates and fundamentals move together in the long run. Furthermore, the results show that fundamentals Granger cause exchange rates, both in the short run and the long run.