Hsiu-Yun Lee

Are current account deficits sustainable?: Evidence from panel cointegration

Abstract Conventional cointegration tests fail to consider information across countries, which leads to efficiency loss in estimation. In this article we apply panel cointegration tests to examine the cointegration between exports and imports among the G7. Our findings support the sustainability of current accounts among major industrial countries, which lends support to the intertemporal approach to the current account.

Mean Reversion of Inflation Rates: Evidence from 13 OECD Countries

The stationarity of inflation has several important economic implications. This paper applies two recently developed panel unit root tests to re-examine the stationarity of inflation rates in 13 OECD countries. We provide strong empirical evidence to support the mean reversion of inflation rates. Our finding fails to support the accelerationist hypothesis, and it also points out that the conventional cointegration approach in analyzing the Fisher effect and the convergence of inflation rates may not be appropriate.

Convergence of interest rates around the Pacific Rim

This article applies the panel data unit root tests provided by Im, Pesaran and Shin (Discussion paper, 1997) to examine the interest rate convergence of small-open Asian countries with major financial centres. With monthly data from 1988:1 to 1997:6, it was found that the nominal interest rates of these countries converge to the US rates rather than to Japans. This finding is consistent with the view that the monetary authorities of non-Japan Asian economies pegged their exchange rates overwhelmingly to the dollar rather than the yen before the financial crisis of 1997.

Hysteresis in East Asian unemployment

High-performing Asian economies are quite distinctive with efficient, flexible and responsive labour markets. Comparing the persistence of unemployment in East Asian economies to that in Western countries is difficult due to the datas short time spans and possible structural breaks. This article employs advanced unit root tests to deal with these problems and fails to reject ‘hysteresis’ in the unemployment rates of the high-performing Asian countries, even after taking into account structural change. An alternative explanation of different productivity growth for the hysteresis phenomenon of the Asian countries is proposed herein.

Sources of inflation uncertainty and real economic activity

This paper examines the effects of inflation uncertainties on real GDP. We argue that different sources of inflation uncertainty have different impacts on real GDP. The empirical evidence points out that uncertainty arising from changing regression coefficients has negative impacts on real GDP. However, the effect of uncertainty due to heteroscedasticity in disturbances on real GDP is insignificant. Moreover, we find that the survey-based measure of inflation uncertainty appears to be more associated with the uncertainty that arises from changing regression coefficients.

The Political Economy of Exchange Rate Regimes: Evidence from Hong Kong and Taiwan*

This paper investigates whether the macroeconomic performance of a small- open economy depends on the choice of exchange rate regimes. Hong Kong and Taiwan - two economies with many similar macroeconomic characteristics, but different in their choices of exchange rate regimes - provide a good setting to study the relation between the choice of exchange rate regime and macro-economic performance. We examine the basic facts of growth and inflation and the coefficients’ stability of their vector autoregression (VAR), as well as cyclical characters of other aggregate variables in Hong Kong and Taiwan. Our empiric finding indicates that macroeconomic performance is not systematically related to exchange rate regimes.

Rules versus discretion on the choice between exchange-rate-targeting and monetary-aggregate-targeting

This paper compares the performance of inflation and welfare loss between exchange‐rate‐targeting and monetary‐aggregate‐targeting regimes for a small‐open economy characterized by a rational expectations model of the Phillips curve. We also consider rules‐versus‐discretion in policy. We obtain three interesting results. First, both regimes result in the same target rate of inflation and the smallest long‐run welfare loss, if an active contingent rule is credibly followed. Second, when discretion is undertaken, an exchange‐rate‐targeting policy is always superior to a monetary‐aggregate‐targeting one. Third, for a simple fixed rule, Friedman‐type’s monetary‐aggregate‐targeting policy works better than exchange‐rate‐targeting only under specific circumstances.

Solving the real business cycles model of small-open economies by a sample-independent approach

Abstract One hallmark of small-open economy models with a time-separable preference assumption is the non-uniqueness of their steady states. Following King et al. (J. Monetary Econ. 21 (1988) 195–232), most studies compute a log-linear approximation solution to their small-open economies around the sample means of the corresponding variables. The resulting reliance of the outcome on a particular sample may lead to different implications about the business cycles properties of a small-open economy. This paper proposes a sample-independent approach to solving this kind of model and shows its superiority over a sample-dependent method through some simulation results.