Sarantis Kalyvitis

On the macroeconomic implications of maintenance in public capital

Abstract An infrastructure-led growth model is constructed where the durability of public capital is endogenous and varies according to its usage and the level of maintenance expenditure. Policy changes in total expenditures and the maintenance share are shown to be important for the steady state and the dynamic behavior of the economy. The optimal (growth-maximizing) taxation burden which goes to both ‘new’ investment and maintenance expenditure is, in contrast to standard results from other growth models, larger than the elasticity of infrastructure in the production function. The optimal shares of maintenance expenditure and investment in ‘new’ capital, that ensure maximum utilization of public resources, are calculated.

Investigating The Links Between Growth And Real Stock Price Changes With Empirical Evidence From The G-7 Economies

This paper investigates the link between real stock price changes and economic growth. We develop a simple growth model, which presents the relationship between real stock prices and output. Evidence from the G-7 economies by use of the VAR methodology shows that real stock price changes and output growth are strongly related, as predicted by the theoretical model. The bivariate framework also provides useful information for understanding the response of economic growth and real stock prices to external shocks.

Cointegration and joint efficiency of international commodity markets

Abstract This paper investigates the semi-strong efficiency hypothesis in the international commodity markets of four industrialized countries, using vector autoregression (VAR) and cointegration techniques. Efficiency in these markets requires the corresponding real exchange rates to be martingales with respect to any information set available in the public domain. In the context of a VAR consisting only of real exchange rates, we show that necessary and sufficient conditions for joint efficiency of all the markets under consideration amount to the VAR being of order one (Markovness) and non-cointegrated. On the contrary, in a VAR extended by other potentially “relevant” variables, such as the corresponding real interest rates, non-cointegration and Markovness are only sufficient conditions for the same commodity markets to be characterized as jointly efficient. We also suggest methods for efficiency testing in each individual market within a cointegrated VAR and, finally, we discuss possible long-run linkages among the real exchange rates and real interest rates in association with efficiency in the commodity markets. JEL Classification Number: F31

When Does More Aid Imply Less Democracy? An Empirical Examination

Foreign aid flows have increased considerably during the last decades, targeting, apart from development objectives, goals related to democracy. In this paper we investigate whether aid has affected the political regime of recipient countries. To this end, we use annual data on Net Official Development Assistance covering 64 aid-recipients. Because of data limitations, we cover the 1967–2002 period. We find that aid flows decreased the likelihood of observing a democratic regime in a recipient country. This effect is sensitive to economic and social conditions. The negative relation between aid and democracy is moderated when aid flows are preceded by economic liberalization. Aid from the U.S. has a non-significant effect on the political regime of recipients.

Democratic Aid and the Democratization of Recipients

We investigate whether democracy aid flows, which are directed towards the democratization of recipients by covering democracy-related programs and government and civil society activities, affect the future political regime of recipient countries. We introduce a multinomial multivariate logit model and we use 5-year averaged data covering the period 1972-2004 for 59 democracy-aid recipient countries categorized into three broad classes according to the prevalent political regime. We find strong evidence that democracy aid flows are positively associated with the likelihood of observing a partly-democratic or a fully-democratic political regime in recipient countries and that this result is robust to the potential endogeneity of democracy assistance. We also find some evidence that democracy aid works better jointly with economic liberalization.

Forecasting energy consumption and energy related CO2 emissions in Greece: An evaluation of the consequences of the Community Support Framework II and natural gas penetration

Abstract This study seeks to assess the future demand for energy and the trajectory of CO2 emissions level in Greece, taking into account the impact of the Community Support Framework (CSF) II on the development process and the penetration of natural gas, which is one of the major CSF II interventions, in the energy system. Demand equations for each sector of economic activity (traded, non-traded, public and agricultural sector) and for each type of energy (oil, electricity and solid fuels) are derived. The energy system is integrated into a fully developed macroeconometric model, so that all interactions between energy, prices and production factors are properly taken into account. Energy CO2 forecasts are then derived based on alternative scenarios for the prospects of the Greek economy. According to the main findings of the paper the growth pattern of forecast total energy consumption closely follows that of forecast output showing no signs of decoupling. As regards CO2 emissions, they are expected to increase with an annual average rate, which is higher than world forecasts.

Testing for PPP and UIP in an FIML framework: Some evidence for Germany and Japan

Abstract This paper argues that international parity conditions should be tested using an econometric approach, which allows for possible interactions in the determination of prices, interest rates, and exchange rates, and also for different short- and long-run dynamics. Failure to do so might account for the apparent lack of empirical success of exchange rate models based on the purchasing power parity (PPP) and uncovered interest rate parity (UIP) hypotheses. By focusing on the German mark and the Japanese yen (both nominal effective rates and bilateral rates vis-a-vis the U.S. dollar), we show that empirical support for PPP and UIP can be found within a full-information maximum-likelihood (FIML) framework. This confirms that such structural hypotheses are to be tested in a multivariate cointegration system in order to draw valid inference.

A four-sector macroeconometric model for Greece and the evaluation of the community support framework 1994-1999

Abstract This paper describes a macroeconometric model for Greece and its use for the evaluation of the effects that investment inflows from European Union in the form of the Community Support Framework (CSF) might have on the economy. The model consists of four sectors of economic activity, namely those of traded and non-traded goods, the public and agricultural sectors, and includes a detailed system of price formation, wage setting and public finances. The model is subjected to a number of stylised shocks in domestic and international variables, so that the dynamic properties and multipliers can be analysed. The evaluation of likely CSF effects is conducted by first constructing a benchmark forecast until 2010 and then assess the impact of CSF actions. CSF flows cause both a rise in total demand and in domestic supply through positive supply-side externalities and the evaluation distinguishes between a very low and a full degree of utilising the plausible opportunities. The universal conclusion is that, in the absence of externalities, CSF actions produce only a temporary rise in activity and employment. After the period of inflows expires, the economy will return to the course that would have been the case without the funds. However, if externalities are assumed to operate even at a moderate scale, the picture changes starkly: output, productivity, employment and the exporting capacity of the country improve significantly.

New evidence on the effects of US monetary policy on exchange rates

Abstract We examine the impact of US monetary policy shocks on exchange rates using the monetary policy indicator proposed by Bernanke and Mihov [Quarterly Journal of Economics, 113 (1998) 869–902]. We find evidence for instantaneous, rather than delayed, US dollar overshooting after a monetary shock when relative output and relative prices are included in the VAR specification. The forward premium puzzle persists due to the interest rate differential response.

Interest rate convergence, capital controls, risk premia and foreign exchange market efficiency in the EMS

Abstract This paper examines interest rate convergence between Germany and the other EMS countries. We argue that earlier tests of convergence based on cointegration are not informative, because cointegration only implies that a linear combination of interest rates is stationary. We show that a conclusive judgment about convergence can be made if interest rate differentials exhibit a trend towards zero during the period when convergence occurred, and if the cointegrating vector has unit coefficients. We then establish that convergence has taken place in the “hard” EMS period. We also attempt to identify the sources of nonstationarities in interest differentials by examining the existence of stochastic or deterministic trends in the expected rate of depreciation and in the risk premium. Finally, the possibility of market inefficiencies is discussed.