Roselyne Joyeux

Testing market efficiency in the EU carbon futures market

We use the cost-of-carry model to investigate the extent of market efficiency in the EU futures market for carbon dioxide allowances over the period of June 2005 to December 2007. We reject the cost-of-carry hypothesis for the entire data sample, but find some evidence of improvement in market efficiency over the period. Recursive estimates of some cost-of-carry model parameters start approaching their theoretical values when estimated on progressively smaller and more recent sub-samples.

International Natural Gas market Integration

We explore the relationships among the North American, European and Asian natural gas markets for evidence of convergence and integration for the January 1997 through May 2011 period. The analyses are conducted under a multivariate framework, so the dynamics among the prices can be captured without the necessity of identifying an anchor price series. We find evidence of convergence among the Japanese, Korean, Taiwanese and UK prices. The North American price displays behaviour that is distinct from this group of prices. We conclude that there is not a fully integrated international natural gas market. The integration between European (represented by NBP) and Asian geographic regions appears to be due primarily to underlying contractual mechanisms specifically linking natural gas prices to oil prices rather than the result of market supply and demand interactions. We also find that the relationship among the Asian markets has evolved with Japanese prices adjusting to changes in South Korean and Taiwanese prices.

New development: Smoke and mirrors--fallacies in the New South Wales government's views on local government financial capacity

As many readers of Public Money & Management know, the New South Wales (NSW) government is planning large amalgamations of councils, especially within metropolitan Sydney, motivated in large part by a quest for financial savings. The historically weak financial results of many councils in Sydney have been largely a function of the regulatory environment, notably rate-pegging, and reflect recent changes in financial accounting benchmarks. More fundamentally, the financial capacity of local councils is a function of the income level of the local community and not of its size or population. In this paper, the authors explain differences in expenditure per capita by differences in income and services. Larger councils will not improve financial capacity.

Modelling House Prices across Sydney

This article models median house prices in 626 suburbs across Sydney, using three spatial hedonic models, and obtains high overall levels of explanation. Access to the central business district and the coast, as well as house and lot sizes, are predictably positive factors. Violent crime significantly depresses house values. Access to rail and high‐frequency bus services is weakly significant only when access is generally poor. However, neither access to a sub‐centre nor housing density was found to have a separate impact on house prices. Research using unit record data could refine the findings of this suburb‐level analysis.

Did bubbles migrate from the stock to the housing market in China between 2005 and 2010

The speculative nature of both stock and housing markets in China has attracted the attention of observers. However, while stock market data are easily available, the low frequency and low quality of publicly available housing price data hampers the study of the relationship between the two markets. We use original hedonic weekly resale housing prices of a major Chinese housing market and study them in conjunction with Shanghais stock market index in the second half of the 2000s. The use of the Phillips et al. (2015 a,b) recursive explosive-root test enables us to detect and date speculative episodes in both markets. We then implement the Greenaway-McGrevy and Phillips (2016) methodology to detect the presence of migration between the two types of bubbles. We detect significant migration from the stock to the housing market bubble in 2009 and a temporary spillover in 2007.

Speculative bubbles, financial crises and convergence in global real estate investment trusts

We test for price bubbles in fourteen national REIT markets and examine the extent of convergence toward a common trend between the REITs of these countries. Our methodology consists of the recently developed test of Phillips, Shi and Yu (2012) for mildly explosive processes, and the Phillips and Sul (2007) method for modelling convergence between random variables. We find evidence of explosive behaviour in index levels of eleven of the fourteen markets. In contrast explosive dynamics are found in only four of the fourteen price/dividend ratios, suggesting that the explosive behaviours found may be due to the explosive nature of the dividends. All of the episodes of explosive behaviour, with the exception of Japan, are date-stamped to periods prior to the 2007-2009 financial crisis. Testing for convergence between the REIT indices and price/dividend ratios we find a number of periods over which the markets converge towards a common trend. Interestingly, all of the convergence intervals coincide with either periods of crises, or periods of market exuberance (bubbles). For instance, the crises periods correspond with the 2000 dot-com crash, the 2007-2009 crisis period and the 2010-2013 European sovereign debt crisis suggesting that increases in REIT comovements occur during intervals of financial turbulence, and lending support for the contagion hypothesis. The bubble periods of 2004-2005 are also associated with convergence towards a common trend in the EU markets.

An introduction to long-memory time series models and fractional differencing

The idea of fractional differencing is introduced in terms of the infinite filter that corresponds to the expansion of (1 - B)d. When the filter is applied to white noise, a class of time series is generated with distinctive properties, particularly in the very low frequencies and provides potentially useful long-memory forecasting properties. Such models are shown possibly to arise from aggregation of independent components. Generation and estimation of these models are considered and applications on generated and real data presented.

Price and exchange rate determination between the Mekong river economies of Cambodia and Thailand

Abstract The authors use cointegration techniques to test for: (i) purchasing power parity (PPP) on the bilateral exchange rate between Cambodia and Thailand; and (ii) the existence of a long‐run equilibrium relationship between the official and parallel market exchange rates. The period under study is the phase of economic transition in Cambodia from central planning to a market economy during which inflation accelerated and then decelerated. The findings for the first test support the relative version of the PPP hypothesis. The second test draws on portfolio balance theory in the context of a dual exchange rate system. The findings indicate that parallel and official exchange rates are cointegrated, implying that during the period of monetary adjustment official and parallel market exchange rates depreciated in the same proportion over the long run.

Interest linkages between the US, UK and German interest rates: should the UK join the European Monetary Union?

In light of continuing mixed results in the literature, this paper re‐examines the German Dominance Hypothesis (GDH) and considers whether the UK should join the Eurozone. For this purpose, short‐term interest rate relationships between the UK, Germany, the Eurozone and the USA, for the period January 1982 to June 2007, are studied. The policy implication of a loss of monetary autonomy for the UK in favour of Germany or the European Central Bank (ECB) would give support to the UK joining the EMU as an economic response. From the early 1980s the Bundesbank’s responsibility was to use money growth targets to keep average inflation rate down in the long run. This long run objective suggests that an appropriate methodology for testing the GDH is to test whether the German stochastic trend is a driving stochastic trend. In other words we determine whether a permanent shock to the German interest rate has a permanent effect on the UK interest rate. To this end the structural shocks in a VECM are identified by imposing long‐run restrictions of the type developed in King et al. (1991). We apply the same techniques to testing whether the UK has suffered a loss of monetary autonomy in favour of the ECB.

Regional Electricity Consumption and Economic Growth in China

The success of economic reforms in China, initiated at the end of the 1970s, as measured by economic growth, was driven mainly by the promotion of capital accumulation and openness (Herrerias and Orts, 2011). In recent years, while the majority of Occidental economies were suffering the consequences of the global crisis, the Chinese economy grew 10.3 per cent in 2010 and, on average, 10.92 per cent from 2003 to 2010, making a significant and steady contribution to the dynamism of world economic activity (see Figure 8.1(a) and 8.1(b)). However, at the same time economists have questioned the sustainability of this fast economic growth, the growth model promoted by the government and the possible consequences. The strong dependence upon external demand, income inequalities, and environmental damage are almost ignored and left unresolved by the government. While it is true that some efforts have been made, with little success, in terms of the promotion of internal demand and inequality, energy and environmental policies were totally forgotten until the 11th Five-Year Plan (2006–10). In this plan, China, committed to achieve a green economy, aimed to increase consumption of renewable energy sources and prevent environmental pollution by increasing environmental investment by 1.33 per cent of GDP by 2009.