Jesús Otero

Testing for cointegration: power versus frequency of observation -- further Monte Carlo results

Abstract This paper studies the effects of increasing the frequency of observation and the data span on the Johansen cointegration tests. The ability of the tests to detect cointegration depends more on the total sample length than the number of observations.

Structural breaks and seasonal integration

Abstract We examine the effects of exogenous changes in the level or seasonal pattern of a series on the HEGY test. These changes bias both unit root and seasonal root tests. New critical values for the HEGY tests are presented.

Testing for stationarity in heterogeneous panel data in the presence of cross-section dependence

The panel variant of the KPSS tests developed by Hadri [Hadri, K., 2000, Testing for stationarity in heterogeneous panels. Econometrics Journal, 3, 148–161] for the null of stationarity suffers from size distortions in the presence of cross-section dependence. However, applying the bootstrap methodology, we find that these tests are approximately correctly sized.

Modelling the spot prices of various coffee types

Abstract We investigate long-run relationships among the spot prices of four coffee types. Two cointegrating vectors emerge: one between the prices of Arabica coffee varieties, and the other one between Unwashed Arabicas and Robusta. A persistence profile analysis shows a more rapid adjustment to equilibrium for the first compared to the second vector due to the fact that the former involves the Arabica coffees, which are more homogeneous. Adjustment is relatively fast, implying that economic forces act rapidly and discrepancies in the equilibrium relationships are short-lived. We also find evidence of non-linear adjustment back to equilibrium; when prices are too high, adjustment takes place at a slower rate than when they are too low.

On the dynamics of lending and deposit interest rates in emerging markets:a non-linear approach

This paper studies the dynamics of lending and deposit rates in two emerging markets in Latin America: Colombia and Mexico. The dynamics of lending (deposit) interest rates are driven by the exogenous interbank interest rate and deviations from the long-run lending-interbank (deposit-interbank) interest rate relationship. Allowing for different interest rate behavior during periods characterized by large and small values of the spread, the non-linear specification proves superior to the linear one.

On the dynamics of unemployment in a developing economy: Colombia

This paper estimates an asymmetric error correction model to analyse the dynamic behaviour of the Colombian unemployment rate. It is found that wages above their long-run equilibrium level do increase unemployment, but wages below this level do not reduce it. This finding provides evidence of the existence of hysteresis in the Colombian unemployment rate.

Smooth transition vector error correction models for the spot prices of coffee

The nonlinear behaviour of four coffee price series is examined, that is, unwashed Arabicas (i.e. coffee from Brazil), Colombian Mild Arabicas (i.e. coffee from Colombia), other Mild Arabicas (i.e. coffee from other Latin American countries), and Robusta coffee (i.e. coffee from Africa and Southeast Asia). First is identified the cointegrating relationships and then that these enter the error correction equations in a nonlinear way is shown. The estimates suggest a rather common pattern of nonlinear adjustment for the same variety Arabica coffees.

Incumbent and entrant response to regulated competition: signaling with accounting costs and market prices2

Abstract Relative prices charged by incumbents have become a strategic issue as competition is introduced into regulated markets which were previously served by a monopoly supplier. We report on the behavior of the incumbent and entrants in the residential UK gas market, where the regulator has made several investigations into whether the incumbent’s relative prices constitute undue discrimination. We identify the regulator’s policy, the strategic use of cost allocation by both the regulator and the incumbent, and the costs implied by entrants’ prices. We deduce that the entrants’ behavior provides support for the incumbent’s cost allocation arguments rather than those of the regulator.

The timing of tariff structure changes in regulated industries: evidence from England and Wales

Abstract In this paper, we investigate the dynamic evolution of tariffs in telecommunications, gas, airports, electricity and water in England and Wales. We carry out a statistical analysis of the tariffs charged by the companies, which have been subject to a price-cap since privatisation. The period covered, between 1976 and 1998, allows us to investigate systematic changes in the tariff structure before and after privatisation. In all the industries, with the exception of gas, we identify changes in the tariff structure immediately before privatisation. Some limited evidence of changes in electricity and gas tariffs before the introduction of competition is also found.

The real exchange rate in Colombia: an analysis using multivariate cointegration

Johansens analysis of cointegrated systems is used to build a model of the Colombian real exchange rate (RER). One cointegrating vector is found, which can be thought of as a long-run RER equation. The deviations of the RER from its long-run equilibrium relationship, after correcting for short-run dynamics, are interpreted as a measure of RER misalignment. The simulation performance of the model during the period of estimation and three years into the future is particularly good, with the simulated RER reproducing the long-run behaviour of the actual series.