Luís Aguiar-Conraria

Using wavelets to decompose the time–frequency effects of monetary policy ☆

Central banks have different objectives in the short and long run. Governments operate simultaneously at different timescales. Many economic processes are the result of the actions of several agents, who have different term objectives. Therefore, a macroeconomic time series is a combination of components operating on different frequencies. Several questions about economic time series are connected to the understanding of the behavior of key variables at different frequencies over time, but this type of information is difficult to uncover using pure time-domain or pure frequency-domain methods.

The Continuous Wavelet Transform: Moving Beyond Uni‐ and Bivariate Analysis

A body of work using the continuous wavelet transform has been growing. We provide a self-contained summary on its most relevant theoretical results, describe how such transforms can be implemented in practice, and generalize the concept of simple coherency to partial wavelet coherency and multiple wavelet coherency, moving beyond bivariate analysis. We also describe a family of wavelets, which emerges as an alternative to the popular Morlet wavelet, the generalized Morse wavelets. A user-friendly toolbox, with examples, is attached to this paper.

A Note on the Stability Properties of Goodwin's Predator—Prey Model:

Goodwins predator—prey model is structurally unstable, with an equilibrium that is neither stable nor unstable. Ploeg showed that relaxing the hypothesis of fixed proportion technology would stabilize the equilibrium. On the other hand, Goodwin showed that the equilibrium becomes unstable when endogenous productivity growth is considered. I study the consequences of considering both effects and conclude that the stabilizing effect of a flexible technology is much stronger than the destabilizing effect of endogenizing labor productivity.

Oil Dependence and Economic Instability

We show that dependence on foreign energy can increase economic instability by raising the likelihood of equilibrium indeterminacy, hence making fluctuations driven by self-fulfilling expectations easier to occur. This is demonstrated in a standard neoclassical growth model. Calibration exercises, based on the estimated share of imported energy in production for several countries, show that the degree of reliance on foreign energy for many countries can easily make an otherwise determinate and stable economy indeterminate and unstable.

Oil Shocks and the Euro as an Optimum Currency Area

We use wavelet analysis to study the impact of the Euro adoption on the oil price macroeconomy relation in the Euroland. We uncover evidence that the oil-macroeconomy relation changed in the past decades. We show that after the Euro adoption some countries became more similar with respect to how their macroeconomies react to oil shocks. However, we also conclude that the adoption of the common currency did not contribute to a higher degree of synchronization between Portugal, Ireland and Belgium and the rest of the countries in the Euroland. On the contrary, in these countries the macroeconomic reaction to an oil shock became more asymmetric after adopting the Euro.

Convergence of the Economic Sentiment Cycles in the Eurozone: A Time‐Frequency Analysis

In this article, wavelet tools and economic sentiment indicators are used to study the similarity and synchronization of economic cycles in the eurozone. The time‐varying and frequency‐varying patterns of business cycles synchronization are assessed and the impact of the creation of the European monetary union (EMU) in 1999 is tested. Among several results, it is found that: the EMU is associated with a significant increase in the similarity and synchronization of the economic sentiment in the eurozone; and the hard‐peg of its currency to the euro led to a comparable effect on Denmarks economic sentiment after 1999, different from what happened in the United Kingdom.

FOREIGN DIRECT INVESTMENT AND HOME-COUNTRY POLITICAL RISK The Case of Brazil

This article looks into the factors that explain foreign direct investment (FDI) in Brazil by country of origin. We collected a sample of 180 countries with and without FDI in Brazil. We use multiple estimation techniques and controls to isolate the effect of country political risk on outward foreign direct investment and show that countries with lower levels of political risk undertake more FDI in Brazil, and that features of the policy environment of home countries drive the negative relationship between risk and FDI. Furthermore, we show that the aspect of the political and institutional environment that is most likely to drive this negative relation between risk and investment into Brazil is related to the effectiveness of national governments. Our findings broaden the understanding of the puzzling influence of political risk on FDI observed in previous studies, correct for sampling and selection biases, and have substantive implications for policy design to attract FDI.

A Note on Oil Dependence and Economic Instability

We show that dependence on foreign energy can increase economic instability by raising the likelihood of equilibrium indeterminacy, hence making fluctuations driven by self-fulfilling expectations easier to occur. This is demonstrated in a standard neoclassical growth model. Calibration exercises, based on the estimated share of imported energy in production for several countries, show that the degree of reliance on foreign energy for many countries can easily make an otherwise determinate and stable economy indeterminate and unstable.

Energy and carbon prices: a comparison of interactions in the European Union Emissions Trading Scheme and the Western Climate Initiative market

Abstract We provide a comparative analysis of how short-run variations in carbon and energy prices relate to each other in the emerging greenhouse gas market in California (Western Climate Initiative [WCI], and the European Union Emission Trading Scheme [EU ETS]). We characterize the relationship between carbon, gas, coal, electricity and gasoline prices and an indicator for economic activity, and present a first analysis of carbon prices in the WCI. We also provide a comparative analysis of the structures of the two markets. We estimate a vector autoregressive model and the impulse--response functions. Our main findings show a positive impact from a carbon shock toward electricity, in both markets, but larger in the WCI electricity price, indicating more efficiency. We propose that the widening of carbon market sectors, namely fuels transport and electricity imports, may contribute to this result. To conclude, the research shows significant and coherent relations between variables in WCI, which demonstrate some degree of success for a first year in operation. Reversely, the EU ETS should complete its intended market reform, to allow for more impact of the carbon price. Finally, in both markets, there is no evidence of carbon pricing depleting economic activity.

Inflation rate dynamics convergence within the euro

In this paper we use wavelet analysis to address the problem of inflation dynamics convergence in the Euro area. The study is conducted for the 11 countries that first joined the Euro. We use a dissimilarity measure derived in the time-frequency space to estimate the degree of inflation synchronization among these countries. With this measure, we fill a dissimilarity matrix which, with multidimensional scaling, is then used to plot the different countries in a plane. Our results indicate that the degree of inflation cycles synchronization is much stronger before than after the Euro. For example, while before the Euro, Portuguese inflation is synchronized with the inflation in six other countries, after the Euro adoption any statistical evidence of synchronization disappears.