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Testing the Prebisch-Singer Hypothesis since 1650
In this paper, we re-examine two important aspects of the dynamics of relative primary commodity prices, namely the secular trend and the short run volatility. To do so, we employ 25 series, some of them starting as far back as 1650 and powerful panel data stationarity tests that allow for endogenous multiple structural breaks. Results show that all the series are stationary after allowing for endogeneous multiple breaks. Test results on the Prebisch-Singer hypothesis, which states that relative commodity prices follow a downward secular trend, are mixed but with a majority of series showing negative trends. We also make a first attempt at identifying the potential drivers of the structural breaks. We end by investigating the dynamics of the volatility of the 25 relative primary commodity prices also allowing for endogenous multiple breaks. We describe the often time-varying volatility in commodity prices and show that it has increased in recent years.
Econometric Methods and Their Applications in Finance, Macro and Related Fields
The volume aims at providing an outlet for some of the best papers presented at the 15th Annual Conference of the African Econometric Society, which is one of the OC chaptersOCO of the International Econometric Society. Many of these papers represent the state of the art in financial econometrics and applied econometric modeling, and some also provide useful simulations that shed light on the models'' ability to generate meaningful scenarios for forecasting and policy analysis. Contents: Financial Econometrics and International Finance: Modeling Interest Rates Using Reducible Stochastic Differential Equations: A Copula-Based Multivariate Approach (Ruijun Bu, Ludovic Giet, Kaddour Hadri and M...
The Relative Volatility of Commodity Prices
This paper studies the volatility of commodity prices on the basis of a large dataset of monthly prices observed in international trade data from the United States over the period 2002 to 2011. The conventional wisdom in academia and policy circles is that primary commodity prices are more volatile than those of manufactured products, even though most of the existing evidence does not actually attempt to measure the volatility of prices of individual goods or commodities. Rather the literature tends to focus on trends in the evolution and volatility of ratios of price indexes composed of multiple commodities and products. This approach can be misleading. Indeed, the evidence presented in this paper suggests that on average prices of individual primary commodities may be less volatile than those of individual manufactured goods.
Oil Prices and Inflation Dynamics: Evidence from Advanced and Developing Economies
We study the impact of fluctuations in global oil prices on domestic inflation using an unbalanced panel of 72 advanced and developing economies over the period from 1970 to 2015. We find that a 10 percent increase in global oil inflation increases, on average, domestic inflation by about 0.4 percentage point on impact, with the effect vanishing after two years and being similar between advanced and developing economies. We also find that the effect is asymmetric, with positive oil price shocks having a larger effect than negative ones. The impact of oil price shocks, however, has declined over time due in large part to a better conduct of monetary policy. We further examine the transmission channels of oil price shocks on domestic inflation during the recent decades, by making use of a monthly dataset from 2000 to 2015. The results suggest that the share of transport in the CPI basket and energy subsidies are the most robust factors in explaining cross-country variations in the effects of oil price shocks during the this period.
Stochastic Trends, Debt Sustainability and Fiscal Policy
We study empirically the reaction of fiscal policy to changes in the permanent and transitory components of GDP in a panel of countries. We find evidence that government spending tends to be counter-cyclical conditional on temporary shocks and pro-cyclical conditional on permanent shocks. We also find no evidence that developing countries are systematically different from developed ones in terms of fiscal policy. We present a theory featuring a fiscal reaction function to the output gap and a measure of debt sustainability. The fiscal impulse response to a permanent (temporary) shock to GDP is positive (negative) as the effect on debt sustainability (current output gap) dominates. The results are mostly sensitive to the relative weight of debt sustainability in the fiscal reaction function as well as to the extent of real rigidities in the economy.
Fiscal Implications of Government Wage Bill Spending
This paper discusses the short- and medium-term fiscal implications of government wage bill spending. Working with a sample of 137 advanced, emerging and low-income countries, we use a panel VAR approach to identify differences in the dynamic behavior of revenues, nonwage expenditures, and the overall fiscal balance in response to changes in the wage bill. We show that the interaction between wage bill changes and these three fiscal items is alike and varies overtime. Higher wage bill spending does not revert in the medium term, but the initial worsening of the fiscal balance associated with it, though it persists, eventually halves as revenues increase while non-wage spending remains broadly unchanged. We also show that countries differ in how these three fiscal variables behave following wage bill changes and seek to explain this variation by a set of country characteristics, including the level of development, access to natural resources and public indebtedness levels.
