Ioannis Pragidis

Are there asymmetries in fiscal policy shocks

Purpose - – The purpose of this paper is to test the effects of unanticipated fiscal policy shocks on the growth rate and the cyclical component of real private output and reveal different types of asymmetries in fiscal policy implementation. Design/methodology/approach - – The authors use two alternative vector autoregressive systems in order to construct the fiscal policy shocks: one with the simple sum monetary aggregate MZM and one with the alternative CFS Divisia MZM aggregate. From each one of these systems we extracted four types of shocks: a negative and a positive government spending shock and a negative and a positive government revenue shock. These eight different types of unanticipated fiscal shocks were used next to empirically examine their effects on the growth rate and cyclical component of real private GNP in two sets of regressions: one that assumes only contemporaneous effects of the shocks on output and one that is augmented with four lags of each fiscal shock. Findings - – The authors come up with three key findings: first, all fiscal multipliers are below unity but with signs as predicted by Keynesian theory. Second, government expenditures have a larger impact as compared to the tax policy and finally, positive government spending shocks are more significant than negative spending shocks. All these results are in line with previous studies and are robust through many tests using structural identification proposed by Blanchard and Perotti (2002). Practical implications - – The empirical findings in this manuscript can be used for conducting a more efficient fiscal policy. The importance of government spending shocks is empirically verified along with the asymmetries related to price stickiness predicted by Keynesian theory. According to the results an efficient fiscal policy would: in terms of an expansionary policy, use government spending as a means to stimulate the economy instead of tax cuts and in the case of a contractionary policy use government revenue (higher taxes) so that the costs of this policy in terms of output lost are lower. Originality/value - – In this study the authors introduce three main innovations: first, to the best of our knowledge the Divisia monetary aggregates have not yet been used to previous research pertaining to fiscal policy. Second, following Cover’s (1992) procedure of identifying monetary policy shocks we extract the unanticipated fiscal policy shocks on government spending and revenue. Finally, the authors explicitly test for the asymmetric effects on the growth rate and the cyclical component of real private GNP of a contractionary and expansionary fiscal policy.

Fiscal Shocks and Asymmetric Effects: A Comparative Analysis

We empirically test the effects of unanticipated fiscal policy shocks on the growth rate and the cyclical component of real private output and reveal different types of asymmetries in fiscal policy implementation. The data used are quarterly U.S. observati ons over the period 1967:1 to 2011:4. In doing so, we use both a vector autoregressive and the novel support vector machines systems in order to extract the fiscal policy shocks series. The latter has never been used before in a similar macroeconomic setting. Within our research framework, in order to test the robustness of our results to alternative aggregate money supply definitions we use two alternative moentary aggregates. These are the commonly reported by central banks and policy makers simple sum monetary aggregates at the MZM level of aggregation and the alternative CFS Divisia MZM aggregate. From each of these four systems we extracted four types of shocks: a negative and a positive government spending shock and a negative and a positive government revenue shock. These eight different types of unanticipated fiscal policy shocks are next used to empirically examine their effects on the growth rate and the cyclical component of real private GNP in two sets of regressions: one that assumes only contemporaneous effects of the shocks on output and one that is augmented with four lags of each fiscal shock.

Asymmetric Effects of Monetary Policy in the U.S. and Brazil

We empirically test the effects of anticipated and unanticipated monetary policy shocks on the growth rate of real industrial production and explicitly test for different types of asymmetries in monetary policy implementation for two major international economies, the U.S. and Brazil. We depart from the conventional method of VAR analysis to estimate unanticipated monetary shocks and instead we use a combination of other methods. We first identify the Taylor rule that best describes the reaction of both central banks and then we test both forward looking linear and nonlinear models concluding that a Logistic Smooth Transition Autoregressive (LSTAR) forward looking model of the Taylor rule best describes the US FED Funds rate while a linear Taylor rule with the inclusion of a dummy variable best describes the reaction of the Central Bank of Brazil (BCB). We then use in-sample forecast errors in order to derive or identify the unexpected monetary shocks for both countries. In line with Cover (1992), we use these shocks to explore any asymmetries in the conduct of monetary policy on the growth rate of real industrial production. We also find asymmetries between anticipated and unanticipated monetary shocks as well as between effects of positive and negative shocks.

The determinants of Greek bond yields: an empirical study before and during the crisis

Purpose - – The purpose of this paper is to uncover the determinants of the ten-year Greek bond yield in both pre- and post-crisis period that caused the unprecedented event, a country member of the Euro area, not to be able to tap the market. In doing so, following the recent literature, the authors employ two major set of variables, market driven and macroeconomic variables and the authors find two classes of results. Among others, debt to GDP ratio, deficit, inflation and unemployment, play a more significant role as determinants of the ten-years Greek bond yield during the crisis and second, the ten-years yield exceeds that fundamentals that price in. Moreover, the authors explicitly test for the impact of speculation on the yield. These results are in line with other empirical studies and shed line to the dramatic evolution of the bond yields in terms of fiscal consolidation era as it is in Greece. Since the Greek debt crisis is ongoing more than five years, policy makers should make substantial changes in their macro projections taking under consideration more the variables of inflation and unemployment, and release a viable concrete plan of debt relief, which among other, secures the success of the macro projections. Design/methodology/approach - – Empirical study on Greek debt crisis applying both macroeconomics and market indicators in separated estimations. Findings - – Debt to GDP ratio, deficit, inflation and unemployment among others, play a more significant role as determinants of the ten-years Greek bond yield during the crisis than had before and second, during the crisis ten-years yield is above the price that fundamentals would imply. Originality/value - – To the best of the authors’ knowledge it is the first time that the authors study the Greek debt crisis applying fundamental and market factors.

Are There Any Contagion Effects from Greek Bonds

Since the onset of the global financial crisis, the sovereign risk premium differential and associated government bond yields have been widening so much as to cause the Eurozone crisis. The stylized facts of the 10-year Greek government bond yield attract much interest since there are deepened fears of this spreading to the government bonds of other European countries. Moreover, the impact of the Greek bond market on other European countries during the crisis period has not been examined adequately in the international literature. By employing a set of wellestablished econometric methods, in which we take into account the presence of heteroskedasticity, we do not find any evidence for the existence of contagious effects stemming from the Greek 10-year government bonds to the government bond markets of other European countries.

Assimilation of Oil News Into Prices

Abstract Do investors quickly and rationally react to the content of oil-related news articles revealing supply and demand information? Our paper creates a novel keyword list of 130 oil-related words and modifiers that enable investors/researchers to measure the information content of oil stories. We find significant short-term overreaction to the text of Dow Jones oil-related news articles. Phrases like output cut, production cut, shortage, and demand up in lagged news articles are associated with lower oil prices the following trading day. The evidence is consistent with the notion that oil traders overreact to the content of widely-read news articles.

The Determinants of Greek Bond Yields: An Empirical Study Before and During the Crisis

In this paper we try to uncover the determinants of the 10-year Greek bond yield in both pre and post crisis period that caused the unprecedented event, in the recent history, a country, member of the Euro area, not to able to tap the market. In doing so, we employ two major set of variables, market driven and macroeconomic variables, following the recent literature. We find two classes of results. First, debt to GDP ratio, deficit, inflation and unemployment among others, play a more significant role as determinants of the 10-year Greek bond yield during the crisis than had before and second, during the crisis 10years yield is above the price that fundamentals would imply. Moreover, we explicitly test for the impact of speculation on the yield. These results are in line with other empirical studies and shed line to the motion of bond yield in an unprecedented in terms of fiscal consolidation era as it is in Greece.