Ghassen El Montasser

Carbon emissions - income relationships with structural breaks: the case of the Middle East and North African countries

This article revisits the carbon dioxide (CO2) emissions-GDP causal relationships in the Middle Eastern and North African (MENA) countries by employing the Rossi (Economet Theor 21:962–990, 2005) instability-robust causality test. We show evidence of significant causality relationships for all considered countries within the instability context, whereas the standard Granger causality test fails to detect causal links in any direction, except for Egypt, Iran, and Morocco. An important policy implication resulting from this robust analysis is that the income is not affected by the cuts in the CO2 emissions for only two MENA countries, the UAE and Syria.

Causality between US economic policy and equity market uncertainties: Evidence from linear and nonlinear tests

This paper examines the causal relationship between economic policy uncertainty (EPU) and equity market uncertainty (EMU) in the US. We use daily data on the newly developed indexes by Baker et al. (2013a) covering 1985:01:01 to 2013:06:14. Results from the linear causality tests indicate strong bidirectional causality. However, the parameters stability tests show strong evidence of short-run parameter instability, thus invalidating any conclusion from the full sample linear estimations. Therefore we turn to nonlinear tests and observe a stronger predictive power from EMU to EPU than from EPU to EMU. Using sub-sample bootstrap rolling window causality tests to fully account for the existence of structural breaks, we find evidence that EPU can help predict the movements in EMU only around 1993, 2004 and, 2006. However, we find strong evidence that EMU can help predict the movements in EPU throughout the sample period barring around 1998, 2003 and 2005.

Research output and economic growth in G7 countries: new evidence from asymmetric panel causality testing

ABSTRACT Recent studies have shown increasing interest on the relationship between research output and economic growth. The study of such a relationship is not only of theoretical interest, but it can also influence specific policies to improve the quality, and probably the quantity of research output. This article has studied this relationship in G7 countries using the asymmetric panel causality test of Hatemi-J (2011). Our results show that only the UK shows a causal relationship from the output of research to real GDP. However, when the signs of variations are taken into account, there is an asymmetric causality running from negative research output shocks to negative real GDP shocks.

Explosive bubbles in the US–China exchange rate? Evidence from right-tailed unit root tests

In this article we apply novel right-tailed unit root (sup Augmented Dickey-Fuller (SADF) and generalized sup ADF) tests to the China–US exchange rate. The empirical results document that the recent financial crisis in 2008 may be preceded by early warning signs of exuberance. Using the SADF test, evidence of an explosive behavior in the nominal exchange is found from 2005 onwards. This period coincides with both financial reforms in China and early indications of an impending US crisis that both have been reported in the literature. Our findings suggest that such an explosive behavior may be attributable to differences in the relative prices of traded goods. Policy implications are also derived.

The Time-Series Linkages between US Fiscal Policy and Asset Prices

This paper studies the interplay of fiscal policy and asset price returns of the United States in a time-varying-parameter vector autoregressive model. Using annual data from 1890 to 2013, we study the effects of dynamic shocks to both fiscal policy and asset returns on asset returns and fiscal policy. Distinguishing between low volatility (bull market) and high volatility (bear market) regimes together with a time-varying-parameter vector autoregressive model enables us to isolate the different size and sign of responses to shocks during different time periods. The results indicate that increases in the primary deficit to GDP ratio decrease house returns over the entire sample and at each impulse horizon. Unlike the house return response, stock returns only decrease in the first year after the fiscal shock, but then increase for the following eight years. Furthermore, the findings show that asset return movements affect fiscal policy, whereby fiscal policy responds more to equity returns than to house returns. The response of fiscal policy to asset returns proves relatively stable and constant over time while controlling for and identifying various asset return regimes. Asset returns respond uniformly to fiscal policy shocks since the 1900s.

Speculative bubbles or explosive fundamentals in stock prices? New evidence from SADF and GSADF tests

Abstract This paper uses recently developed sequential ADF tests to distinguish between rational speculative bubbles and explosive fundamentals in the US Stock market. The sequential ADF tests are shown to be more sensitive than the conventional ADF test. Results also suggest the more refined GSADF test may deliver more consistent results compared to the SADF test. We find strong evidence of explosive behavior in real stock prices that cannot be attributed to explosive fundamentals. We find renewed evidence of a stock market bubble during the dot com boom but no evidence of a bubble at other times.

AN APPLICATION OF A NEW SEASONAL UNIT ROOT TEST FOR TRENDING AND BREAKING SERIES TO INDUSTRIAL PRODUCTION OF THE BRICS

Seasonality is a quite dominant source of variation in many economic time series. Several empirical studies have shown that seasonality is not a stable component but rather of stochastic nature. In this spirit, literature has seen the development of several seasonal unit root tests by generalizing the frameworks of the conventional (non-seasonal) ones. In general, existing tests for seasonal unit roots are heavily dependent on some restricted specifications for the deterministic component or they are interested in a particular observation frequency. The seasonal unit root test of [HEGY] is the most in empirical works. The strong point of this procedure is that it can distinguish between different seasonal unit roots. However, such a procedure does not take into account the breakpoints characterizing some macroeconomic data. In this study, we investigate the persistence property of the quarterly industrial production of Brazil, Russia, India, China and South Africa, covering the period of early 1990s till the last quarter of 2013, with the industrial production for BRICS characterized by strong seasonality and upward trend. For our purpose, we use the seasonal unit root test developed by , which controls for not only seasonal and trending behavior, but also for a break of unknown timing in seasonal means. Specifically, test is based on an HEGY testing strategy with innovational outliers. It has been shown that this test has a stable size even in the presence of large breaks. Also, it can accurately identify the dates of small breaks. Our results indicate that, while there exist a non-seasonal unit root in the industrial production for Brazil, India and China, there is a strong evidence a seasonal unit root at Nyquist frequency for only China. In addition, there is a strong evidence of rejection of bi-annual unit roots in all BRICS industrial production. Using coefficients for similarities, the greatest ones are recorded for Brazil and South Africa on the one hand, and Russia and South Africa on the other hand. By contrast, Russia and India have no similarity. Accordingly, some policy implications can be formulated for China as it is the only country, among the BRICS, which exhibits a seasonal unit root in its industrial production. Our results therefore, suggest that economists should examine the evolution of industrial production in China not only at the business cycle frequencies but also at the seasonal as well.

The seasonal KPSS test when neglecting seasonal dummies: a Monte Carlo analysis

Abstract This paper shows through a Monte Carlo analysis the effect of neglecting seasonal deterministics on the seasonal KPSS test. We found that the test is most of the time heavily oversized and not convergent in this case. In addition, Bartlett-type non-parametric correction of error variances did not signally change the tests rejection frequencies

The Long Run Dynamic of the Dutch Disease Phenomenon: A SVAR Approach

This paper studies the dynamic effect of oil rents on the industrial added value in a sample of countries with different development levels. Using a structural vector autoregressive (SVAR) model, we tested the effect of a real shock and a nominal shock on the variables of the model. The main obtained results are three. First, we confirmed that the Dutch disease (DD) problem is a short-term phenomenon that takes place each time when there is a shock on oil rents. Second, the ephemeral nature of the phenomenon confirms the neoclassical assumption stating that the effect of nominal shocks on real variables is only short term. Third, the effect of long-term real shock on oil rents is positive for all countries which score interdependence between industry on the one hand and oil rents on the other.