Ken Holden

The Asian crisis and calendar effects on stock returns in Thailand

Abstract This paper systematically examines daily returns of the Thai Stock Market Index to determine whether there is evidence of calendar effects due to the day of the week, the month of the year, days before or after holidays and within-month effects. Particular attention is given to the evidence of these anomalies prior to, during and after the Asian crisis. Most of the previous empirical evidence examines each of these effects in isolation. The approach adopted within this paper is to start with a general model, which incorporates a range of different calendar anomalies before estimating the conditional volatility models. Daily data from 3rd January 1995 to 29th December 2000 are used for estimation providing 1473 observations. The final models are tested by comparing their forecast performance for 2001 (244 observations) with various models, which do not include calendar effects. The conclusion is that the inclusion of calendar effects improves the forecast accuracy.

Investment in information technology systems and other determinants of bank profitability in the UK

This paper investigates whether investment in information technology systems affects bank profitability in the UK during the period 1976–1996. The results show that, when the other factors used in the literature are included, the number of automated teller machines installed by a bank has a positive impact on bank profitability.

Evidence on growth and financial development using principal components

In the literature on the growth–financial development relationship, many different measures of financial development have been suggested. These are generally highly correlated and are frequently subject to measurement error. In this article, principal components are used as a means of measuring financial development. Using panel data for 30 developing countries on 10 measures of financial development, the properties of the principal components are discussed and their relationships with growth are examined. Estimation by the general method of moments suggests that principal components have a useful role in examining the links between growth and financial development.

The business cycle in the G-7 economies

Abstract In this paper the Hodrick–Prescott filter is used to decompose real GDP for the G7 countries into cyclical and trend components. The resulting series of cyclical components are then examined for static relationships, using correlations and graphs; long-run relationships using autoregressive-distributed lag models; and short-run relationships, using error–correction models. The main result is that the patterns of cyclical behaviour changed following the oil price shocks in the 1970s. Since 1980, cyclical fluctuations have been smaller as a result of a decline in synchronisation of the cycles in the G7. Two separate cycles seem to be developing since 1990. One is for Germany, Italy and France, whilst the other is for the US, UK and Canada. Within each of these groups there are both long-run and short-run relationships between the cyclical components of GDP.

Does the Ricardian Equivalence Proposition Hold in Less Developed Countries

The objective of this paper is to assess whether the Ricardian Equivalence Proposition (REP) holds in developing countries. Prima facie, since the REP requires a number of assumptions that might not appear to be satisfied in developing countries, it seems that the REP should not hold. However, the empirical evidence provided so far is mixed. In this paper, the validity of the REP will be tested using panel data for ten developing countries: Burundi, El Salvador, Ethiopia, Honduras, India, Morocco, Nigeria, Pakistan, Sri Lanka and Zimbabw1e. The countries were chosen for the availability of data and should reflect the various circumstances of low-income countries. Despite the obvious limitation of the data available and the diversity of the countries, the results provide some tentative support for the REP for developing countries, at least warranting further research.

Combining forecasts, encompassing and the properties of UK macroeconomic forecasts

The idea of combining forecasts is of great interest to forecasters and a linear combination of different forecasts can be more accurate than any individual forecast. For model builders, forecast encompassing is a way of checking whether any extra important information is contained in forecasts from rival models. Efficient forecasts have errors which are unrelated to any information available when they are formed. Combinations of forecasts, forecast encompassing and efficiency tests can all be achieved by a restricted or unrestricted regression of outcomes on the separate forecasts. This paper links these three approaches and examines the implications for recent UK annual forecasts.

Ricardian equivalence, expansionary fiscal contraction and the stock market: a VECM approach

The effect of government taxation on future consumption has been explained in three ways: the Keynesian approach, the Ricardian Equivalence proposition and the German view of Expansionary Fiscal Contraction (EFC). This paper reports empirical evidence on the validity of these explanations by examining the impact of a shock in government taxation upon private consumption, once the effect of the stock market is removed. A vector error-correction model is estimated for the USA, Japan, Germany, France, the UK, Italy and Canada for 1950–1997 and the impulse response functions of a shock in taxation and in expenditure are examined. The responses to an increase in government taxation appear to lend support to the EFC, while the responses to an increase in government expenditure upon consumption suggest that the reaction of private consumption is more in line with the traditional Keynesian approach.

A comparison of forecasts from UK economic models and some Bayesian vector autoregressive models

Analyses and checks the annual forecasts produced each autumn from four prominent UK economic modelling organizations. Compares these forecasts with those of three Bayesian vector‐autoregressive models. Examines the accuracy for each set of forecasts up to four years ahead and for different horizons. Examines the direction of the forecasts and the effect of forming simple combinations of the different forecasts. Finds evidence that while the BVAR forecasts are inferior to those from the economic models, they contain information which could be used in order to improve the other forecasts.

The crisis of the CFA Franc zone: the case of Cote d'Ivoire

Abstract In this model of Cote dIvoire is estimated to assess whether the countrys poor economic performance during the period 1987–1992 was caused by the worsening of the terms of trade or by the deflationary policy implemented by the ‘anchor’ country, France. Equations for demands for money, private investment, private consumption, imports and exports are estimated by means of the ARDL method with instrumental variables. The model then is shocked in accordance with two different scenarios to capture the effects of the worsening of the terms of trade and the tightening of French monetary policy. The results indicate that both external shocks played an important role, but decisive action should have been taken with respect to fiscal policy to reduce arrears of payments to suppliers and capital flight.

On the equilibrium value of the Peseta

This paper empirically analyses the equilibrium value of the peseta in the light of recent contributions in this field of study. Following MacDonald (IMF Working Paper 97/21, 1997), the approach to the long-run relationship between the real effective exchange rate of the peseta and its fundamental determinants focus on the reasons that keep the actual value of the peseta away from that predicted by the theory of PPP. The cointegration method is used to estimate the reduced form of a multilateral model for Spain for the period 1977–1997. As a result, the estimated long-run exchange rate appreciates with positive shocks to differences in productivity, terms of trade and net foreign assets, and depreciates when price differentials increases. The equilibrium correction model helps to explain short-run deviations of the actual from equilibrium exchange rate and to forecast the peseta real effective exchange rate up to the fourth-quarter of 1998.