Mélika Ben Salem

Tests for Unit-Root versus Threshold Specification With an Application to the Purchasing Power Parity Relationship

We consider modeling the real exchange rate by a stationary three-regime self-exciting threshold autoregressive (SETAR) model with possibly a unit root in the middle regime. This representation is consistent with purchasing power parity in the presence of trading costs. Our main contribution is to provide statistical tools for testing unit root versus a SETAR. First, we show that a SETAR with a unit root in the middle regime is stationary and mixing under reasonable assumptions. Second, we derive analytically the asymptotic distribution of our unit-root test under the null. Using monthly real exchange rate data, our test rejects the null of unit-root against a threshold process for five European series.

Asymmetries in Monetary Policy Reaction Function: Evidence for U.S. French and German Central Banks

This paper proposes an empirical exploration of the possible asymmetric nature of the preferences of central bankers, with respect to inflation and output targets. The idea underlying this work lies in the widespread belief that central bankers interventions - through changes in a short-term interest rate - are influenced by the state of the current and/or expected state of the business cycle. The GMM estimates of a threshold model support the asymmetric representation of the monetary policy reaction function for recent U.S, French and German data.

Detecting Mean Reversion in Real Exchange Rates from a Multiple Regime STAR Model

Recent studies on general equilibrium models with transaction costs show that the dynamics of the real exchange rate are necessarily nonlinear. Our contribution to the literature on nonlinear price adjustment mechanisms is threefold. First, we model the real exchange rate by a Multi-Regime Logistic Smooth Transition AutoRegression (MR-LSTAR), allowing for both ESTAR-type and SETAR-type dynamics. This choice is motivated by the fact that even the theoretical models, which predict a smooth behavior for the real exchange rate, do not rule out the possibility of a discontinuous adjustment as a limit case. Second, we propose two classes of unit-root tests against this MR- LSTAR alternative, based respectively on the likelihood and on an auxiliary model. Their asymptotic distributions are derived analytically. Third, when applied to 28 bilateral real exchange rates, our tests reject the null hypothesis of a unit root for eleven series bringing evidence in favor of the purchasing power parity.

About the stability of the inventory–sales ratio: an empirical study with US sectoral data

Discusses the inventory sales-ratio during the post-war era in the United States. Studies on the ratio of the variances of inventories and production ; Methods used in measuring inventory ratios; Increasing ratio in trade sector.

Inventory Investment and the Business Cycle: The usual Suspect

Abstract From quarterly postwar US and French data, this paper provides evidence of a bounce-back effect in inventory investment but not in final sales data. Actually, from a bounce-back augmented threshold model, it appears that i) the null hypothesis of no bounce-back effect is strongly rejected by the inventory investment data and ii) the one-step ahead forecasting performances of the models accounting for this bounce-back effect are well improved compared to linear or standard threshold autoregressions. This supports the conventional wisdom that inventory investment exacerbates aggregate fluctuations, in line with the recent theoretical models by, e.g., Wang and Wen (Wang, P., and Y. Wen. 2009. “Inventory Accelerator in General Equilibrium.” Working Paper 010, Federal Reserve Bank of St. Louis) and Wang, Wen and Xu (Wang, P., Y. Wen, and Z. Xu. 2011. “When do Inventories Destabilize the Economy? An Analytical Approach to (s,s) Policies.” Working Paper 014, Federal Reserve Bank of St. Louis) which clearly predict a destabilizing role of inventory investment over the business cycle. By contrast, our empirical findings cast doubt on models based on the stockouts avoidance motive for holding inventories.

Contribution of aggregate and sectoral shocks to the dynamics of inventories : An empirical study with French and American data

The aim of this paper is the identification of structural shocks which affect the dynamics of sectoral inventories, through an analysis of the forecasting error variance decomposition. This identification is achieved using the American and French time series of aggregate production, sectoral production and sectoral inventories. The results are similar for both countries: aggregate production is mainly lead by aggregate shocks. The sources of fluctuations in sectoral time series change with time. First, the idiosyncratic supply shock is dominant in the short run of sectoral production, then aggregate shocks become significant. Conversely, sectoral inventories are influenced in the short run by the idiosyncratic demand shock and in the long run by the supply shock.

Which combination of fiscal and external imbalances to determine the long-run dynamics of sovereign bond yields?

In the aftermath of the crisis, sovereign risk premium differentials have been increasingly widening. Although the perceived risk for core countries remains relatively low, financial markets seem to discriminate among peripheral economies requiring higher risk premia than what is justified by fiscal factors only. Our hypothesis in this study is that in peripheral countries this is not simply the result of fiscal indiscipline but the combination of both internal and external imbalances. We use a yearly post-1980 OECD-country panel data to estimate the joint dynamics of sovereign bond yields and their long-run determinants. We find that a net foreign position that is considered highly deteriorated can be a differentiating factor for investors. Indeed, the existence of a “twin deficit” put substantial upward pressures on sovereign bond yields in many advanced economies over the medium term.