Hector Carcel

Modelling African inflation rates: nonlinear deterministic terms and long-range dependence

This article estimates a fractional integration model with nonlinear deterministic trends for the inflation rates of five African countries. The results indicate that nonlinearities are present in the case of Angola and Lesotho, but not in the case of Botswana, Namibia and South Africa. Moreover, the degrees of differentiation are higher in the latter group of countries.

Application of local projections in the monetary policy in Brazil

ABSTRACT This article examines the relationship between selected monetary aggregates and inflation and output in Brazil. Impulse responses under VAR and local projections were used to discover the leading or lagging role of the monetary aggregates. In addition, the information provided by the monetary aggregates as predictors of output and inflation was examined. This was assessed by examining their predictive power for subsequent observations on an in-sample basis. Overall, the results indicate that in order to control inflation rates, Brazilian authorities should focus on restricting money supply rather than increasing interest rates.

Inflation Convergence in the East African Community: A Fractional Integration and Cointegration Study

Abstract In this study we have examined the inflation convergence hypothesis in the five countries that belong to the East African Community and which recently signed a protocol outlining their plans for launching a monetary union within ten years. We check for common patterns in the persistence in the inflation levels. As it is argued in the literature, countries hoping to form a monetary union should present similar inflation patterns. Our study shows that the inflation rates in these countries present orders of integration equal to higher than one in all cases, confirming that shocks will most certainly not recover in the long run. Moreover, fractional cointegration relationships are also found across all the countries with the exception of Tanzania, suggesting that this country displays a different pattern compared to the remaining four, presenting also some evidence of a break in the data.

Exchange Rate Dynamics and Monetary Unions in Africa: A Fractional Integration and Cointegration Analysis

This paper uses fractional integration and cointegration techniques to analyze nominal exchange rate dynamics in three groups of African countries aiming to form currency unions in the near future. The proposed unions are the WAMZ (West African Monetary Zone), the EAC (East African Community), and the SADC (South African Development Community). The univariate results indicate that in all but three countries (Democratic Republic of Congo, Mauritius and Madagascar) the nominal exchange rate series exhibit a unit root. Concerning the multivariate results, for the WAMZ cointegration is only found in the case of Ghana with both Gambia and Guinea; for the EAC for Rwanda with Burundi, and Tanzania with both Rwanda and Uganda. Finally, for the SADC, cointegration is found in only 15 out of 66 cases, including Swaziland with South Africa, Zambia with Malawi, and Mozambique with both Lesotho and Tanzania. The policy implications of these findings are also discussed.

Term Premium and Quantitative Easing in a Fractionally Cointegrated Yield Curve

The co-movement of US sovereign rates suggests a long-run common stochastic trend. Traditional cointegrated systems need to assume that interest rates are unit roots and thus imply non-stationary and non-mean-reverting dynamics. Based on recent econometric developments, we postulate and estimate a fractional cointegrated model (FCVAR) which allows for a mean-reverting stochastic trend. Our results point to the presence of such mean-reverting fractional cointegration among sovereign rates. The implied term premium is less volatile than the classic I(0) stationary and I(1) unit root models. Our analysis highlights the role of real factors (but not inflation) in shaping term premium dynamics. We further identify the dynamic effects of quantitative easing policies on our identified term premium. In contrast to the stationary-implied term premium, we find a significant term premium decline following these large-scale asset purchase programs. JEL Classification: C2, C3, E4, G1The co-movement of US sovereign rates suggests a long-run common stochastic trend. Traditional cointegrated systems need to assume that interest rates are unit roots and thus imply non-stationary and non-mean-reverting dynamics. Based on recent econometric developments, we postulate and estimate a fractional cointegrated model (FCVAR) which allows for a mean-reverting stochastic trend. Our results point to the presence of such mean-reverting fractional cointegration among sovereign rates. The implied term premium is less volatile than the classic I(0) stationary and I(1) unit root models. Our analysis highlights the role of real factors (but not in flation) in shaping term premium dynamics. We further identify the dynamic effects of quantitative easing policies on our identified term premium. In contrast to the stationary-implied term premium, we find a significant term premium decline following these large-scale asset purchase programs.

Fractional integration and nonlinear deterministic trends in the analysis of time series data

ABSTRACT This article examines the interaction between fractional integration and nonlinear structures by using for the latter the Chebyshev polynomials in time that can be taken as an alternative, less abrupt way of modelling breaks in time series data. A Lagrange multiplier test, developed for testing the order of integration in the context of nonlinear deterministic trends, is implemented in three well-known and previously studied time series data: the Nile river data, the temperatures in the Northern hemisphere and CO2 emissions in the US. The results suggest that the second and especially the third time series display nonlinear behaviour still with fractional degrees of differentiation.

Currency Union in the East African Community: A Fractional Integration Approach

This study examines inflation rates in the five countries that belong to the East African Community (EAC) and which recently signed a protocol outlining their plans for launching a monetary union within 10 years. Its aim is to examine the persistence in inflation levels. As literature argues about monetary unions, countries hoping to form a union should present similar inflation patterns. Our study shows that the countries present non-mean reversion, confirming that shocks will not recover in the long run. Moreover, fractional co-integration relationships are found between all countries with the exception of Tanzania.

Climate Warming: Is There Evidence in Africa?

We have examined the temperature time series across several locations in Africa. In particular, we focus on three countries, South Africa, Kenya, and Cote d’Ivoire, examining the monthly averaged temperatures from three weather stations at different locations in each country. We examine the presence of deterministic trends in the series in order to check if the hypothesis of warming trends for these countries holds; however, instead of using conventional approaches based on stationary errors, we allow for fractional integration, which seems to be a more plausible approach in this context. Our results indicate that temperatures have only significantly increased during the last 30 years for the case of Kenya.