Rodolfo Cermeño

Conditional heteroskedasticity and cross-sectional dependence in panel data: An empirical study of inflation uncertainty in the G7 countries

Despite the significant growth of macroeconomic and financial empirical panel studies the modeling of time dependent variance–covariance processes has not yet been addressed in the panel data literature. In this paper we specify a model that accounts for conditional heteroskedasticity and cross-sectional dependence within a typical panel data framework. We apply the model to a panel of monthly inflation rates of the G7 countries over the period 1978.2–2003.9 and find significant and quite persistent patterns of volatility and cross-sectional dependence. We then use the model to test two hypotheses about the interrelationship between inflation and inflation uncertainty, finding no support for the hypothesis that higher inflation uncertainty produces higher average inflation rates and strong support for the hypothesis that higher inflation is less predictable.

Modeling Technology as a Dynamic Error Components Process: The Case of the Inter‐country Agricultural Production Function

Abstract In this paper, we propose a dynamic error‐components model to represent the unobserved level of technology. This specification implies a well‐defined common factor dynamic model for per capita output that can be tested explicitly. The model is applied to data on aggregates of agricultural inputs and outputs for groups of countries from the OECD, Africa (AF), Latin America (LA) as well as centrally planned countries, over a period of 31 years. We find that the proposed model fits the data better than alternative static specifications and satisfies the implied common factor restrictions in two of the samples. The results suggest that although technological change seems to have been a faster process for less developed countries relative to the OECD countries, it has not been fast enough to reduce appreciably the enormous differences in average technological levels that still persist between them. †Dedicated to the memory of G. S. Maddala.

Monetary Policy Rules in a Small Open Economy: An Application to Mexico

We estimate a small-scale macro model for the Mexican economy under the New Keynesian (NK) framework and alternative interest rate rules for Mexico. With these results we evaluate the performance of the Bank of Mexico against a set of optimality principles derived in the NK literature. Our system estimation results show that the Bank of Mexico holds a preference for stabilizing not only inflation around target, but also acts to achieve an output gap close to zero. Furthermore, we find that the central bank responds non-linearly to real exchange rate depreciations. We also find that the central bank has actively attempted to neutralize demand and supply shocks through monetary policy that is consistent with the Taylor principle.

Are Flexible Exchange Rate Regimes More Volatile? Panel GARCH Evidence for the G7 and Latin America

This paper investigates empirically the relationship between exchange rate (ER) regimes and volatility of real exchange rate depreciation (RERD), comparing the G7 and 17 Latin American (LA17) countries, during 1970–2010. We estimate a panel autoregressive model with generalized autoregressive conditional heteroskedasticity (GARCH) errors and regime-specific effects on both the conditional mean and conditional variance. For the G7, we find that, relative to the fixed ER regime, only the freely floating regime shows higher RERD volatility; under the managed floating regime the RERD is equally volatile and under the crawling peg it is actually less volatile. Instead, in the case of the LA17, more flexible ER regimes are associated with more volatile RERD rates, with higher volatility under the managed floating regime than under the crawling peg and with extremely high volatility under the “freely falling” ER regime.

Technological Backwardness in Agriculture: Is it Due to Lack of R&D, Human Capital, and Openness to International Trade?

This paper investigates the relationship between the agricultural technological level and R&D expenditures, human capital, and openness to international trade using cross-country information for a sample of 104 countries and various subsamples over the period 1961–91. The unobservable technological level is modeled as a dynamic process in the context of a general translog production function. The results suggest that the technological gap between developed and less developed countries in agriculture increased considerably over this period of time. Overall, the technological levels are directly related to R&D expenditures, human capital, and openness, although this relationship is not robust across different groups of countries.