an empirical exploration of the world oil price under the target zone model abstract this paper investigates the behavior of the world oil price based on the first generation target zone model using anecdotal data during the period of 1988 1999 we found that opec has tried to maintain a weak target zone regime for the oil price our econometric tests suggest that the movement of the oil price is not only manipulated by actual and substantial interventions by opec but also tempered by market participants expectations of interventions as a consequence the non linear model based on the target zone theory has very good forecasting ability when the oil price approaches the upper or lower limit of the band

conditional dependence structure between oil prices and exchange rates a copula garch approach abstract we study the conditional dependence structure between crude oil prices and u s dollar exchange rates using a copula garch approach various copula functions of the elliptical archimedean and quadratic families are used to model the underlying dependence structure in both bearish and bullish market phases over the 2000 2011 period we find evidence of significant and symmetric dependence for almost all the oil exchange rate pairs considered the rise in the price of oil is found to be associated with the depreciation of the dollar moreover we show that student t copulas best capture the extreme dependence and that taking the extreme comovement into account leads to improve the accuracy of var forecasts our main results remain unchanged when considering alternative garch type specifications and the crisis period but are sensitive to the use of raw returns

modelling the relationship between future energy intraday volatility and trading volume with wavelet abstractalthough the energy and stock markets are both characterized by volatility and liquidity and there has been substantial research to explore the relationship between volatility and trading volume tv in stock markets few researchers have investigated this relationship in energy markets moreover studies that have explored this association within energy markets did not describe its nature or impetus to redress this oversight we investigate this relationship using intraday data from the oil and gas markets the most liquid energy markets in the world in this way the current article extends the previous studies through the use of a frequency approach to propose an original analysis of the relationship between volume and volatility more specifically we employ a continuous wavelet transform to identify the lead lag phase between volatility and volume this framework supplants usual time series modelling as it uses a measure of coherence for different frequencies and time scales to capture fu

structural breaks dynamic correlations asymmetric volatility transmission and hedging strategies for petroleum prices and usd exchange rate abstract this paper investigates the influence of structural changes on the asymmetry of volatility spillovers asset allocation and portfolio diversification between the usd euro exchange market and each of six major spot petroleum markets including wti europe brent kerosene gasoline and propane using the bivariate dcc egarch model with and without structural change dummies the results provide evidence of significant asymmetric volatility spillovers between the u s dollar exchange rate and the petroleum markets moreover the model with the structural breaks reduces the degree of volatility persistence and leads to more appropriate hedging and asset allocation strategies for all pairs considered thus the findings have important implications for financial risk management

volatility forecasting with range based egarch models we provide a simple yet highly effective framework for forecasting return volatility by combining exponential generalized autoregressive conditional heteroscedasticity models with data on the range using standard and poor s 500 index data for 1983 2004 we demonstrate the importance of a long memory specification based on either a two factor structure or fractional integration that allows for some asymmetry between market returns and volatility innovations out of sample forecasts reinforce the value of both this specification and the use of range data in the estimation we find substantial forecastability of volatility as far as 1 year from the end of the estimation period contradicting the return based conclusions of west and cho and of christoffersen and diebold that predicting volatility is possible only for short horizons

investment in u s agriculture resource adjustment problems in u s agriculture are motivated against the background of the farm problem the adjustment cost hypothesis is invoked to specify and estimate consistently a system of dynamic investment demand and output supply equations by utilizing recent advances in dynamic duality theory the investment demand equations assume the form of a multivariate flexible accelerator results indicate that labor capital services and land exhibited quasi fixity while intermediate materials were a variable factor this can be construed as a form of asset fixity within aggregate u s agriculture the univariate flexible accelerator hypothesis is rejected

financial market integration and macroeconomic volatility the process of financial market integration is modeled in an intertemporal general equilibrium framework as the elimination of trading frictions between financial markets in different countries goods markets are assumed to be imperfectly competitive and goods prices are subject to sluggish adjustment simulation experiments show that increasing financial market integration increases the volatility of a number of variables when shocks originate from the money market but decreases the volatility of most variables when shocks originate from real demand or supply copyright 1996 by the editors of the scandinavian journal of economics

oil prices and the rise and fall of the us real exchange rate abstract questions of the relative importance of real vs monetary shocks in explaining exchange rate movements still have no widely accepted answer despite their importance both for the research agenda and for policy questions we examine this issue using a variety of empirical techniques for the us effective exchange rate we find that a stable link exists between oil price shocks and the us real effective exchange rate over the post bretton woods period the results suggest that oil prices may have been the dominant source of persistent real exchange rate shocks and that energy prices may have important implications for future work on exchange rate behavior

the extreme value in crude oil and us dollar markets abstract this study constructs a flexible range based volatility model by considering extreme value information to explore the volatility and dependence structures between the oil price and the us dollar exchange rate an asset allocation strategy is implemented to evaluate the economic value and confirm the efficiency of this model the empirical results indicate that the use of extreme value information can not only enhance the explanatory power of volatility structures but also sort out the asymmetric volatility effect in the oil market besides investors can obtain extra benefits of between 72 and 713 annualized basis points by incorporating extreme value information into their asset allocation strategies less risk averse investors can generate higher benefits the empirical results have potentially important implications for asset allocation and risk management

structural breaks in volatility evidence for the oecd and non oecd real exchange rates abstract this paper attempts to determine whether or not nominal exchange rate regimes affect the volatility of bilateral and effective real exchange rates to that end we examine the real exchange rate behaviour for a set of oecd and non oecd countries during the 1960 2006 period therefore covering both the bretton woods system of fixed exchange rates and the adoption of generalised floating exchange rates from 1973 we make use of an econometric methodology based on the hansen s hansen b e 1997 approximate asymptotic p values for structural change tests journal of business and economic statistics 15 1 60 67 approximation to the p values of the supreme exponential and average statistics developed by andrews andrews d 1993 test for parameter instability and structural change with unknown change point econometrica 61 4 821 856 and andrews and ploberger andrews d ploberger w 1994 optimal tests when a nuisance parameter is present only under the alternative econometrica 62 6 1383 1414 this methodology allows us to obtain a profile of p values and to delimit periods of stability and instability in the variance of real exchange rates results suggest that there is clear evidence in favour of the non neutrality of nominal exchange rate regime regarding real exchange rate volatility for developed countries but not in the case of developing or emerging countries

crude oil price fluctuations and saudi arabia s behaviour this study attempts to explain why crude oil prices fluctuate the main cause being the quota regime which characterises the opec agreements given that the saudi oil supply is inelastic in the short term a shock in the oil market is accommodated by an immediate price change by contrast a dominant firm behaviour in the long term causes an output change which is accompanied by a smaller price change this explains why oil prices overshoot the results of a general equilibrium model applied to saudi arabia support this analysis they also indicate that saudi arabia does not have any incentive for altering the crude oil market equilibrium with either positive or negative supply shocks as its welfare declines and that it has an incentive disincentive for intervening if a negative positive demand shock hits the crude oil market a second set of simulations is designed to understand what kind of oecd policy might help to bring down prices a tax cut would worsen the situation whereas policies that can increase the price elasticity of demand seem to be very effective

technical change and applications of dynamic duality to agriculture reply larson has made three basic points in his comment on the incorporation of technical change in dynamic duality models a appending a time trend onto the empirical model to account for technical change is inconsistent with an autonomous theoretical model b a current value function v discounted to time to 0 to t should not be confused with a value function j discounted to time t 0 and c the firm s expectations of embodied technical change should be explicitly formulated in the theoretical model the first issue focused on the vasavada and chambers paper and the last two issues were addressed to the howard and shumway paper we will respond to each of these points in order first larson is correct that vasavada and chambers and several other dynamic duality studies have maintained an autonomous theoretical model but estimated a nonautonomous empirical model the bridge between the two models is the assumption of static ex ante technology expectations on the part of producers with ex post awareness of technical change on the part of the analyst while this assumption has seldom been made explicit in research reports and may appear inconsistent its practical importance is often minor for example although we reported results in our ajae article only for the nonautonomous theoretical and empirical model we also estimated the parameters for the autonomous theoretical nonautonomous empirical model there were no differences between the two models in any of the test conclusions and only minor differences in the estimated rateof adjustment parameters second larson s equation 11 is essentially the same as our equation 3 except that he defines a current value function v discounted to time to o to 0 while we define an initial value function j discounted to time t 0 larson alleges that the discounting period alters the interpretation of the parameter estimates however the output supply variable input demand and investment equations are all unaffected by the discounting period thus the interpretation of the estimated output supply and variable input demand equations the rate ofadjustment parameters and associated marginal values of investment in quasi fixed inputs are the same whether one assumes the decision maker acts at time t 0 or t to o to oo finally larson correctly notes that we did not explicitly discuss how embodied technical change was included in our theoretical model the implicitly maintained assumption was larson s third alternative i e that firms have static embodied technology expectations although this assumption may seem counterintuitive given our maintained hypothesis of nonstatic disembodied technology expectations larson s other alternatives also carry their own dilemmas his first alternative was that firms could forecast future embodied technical change with perfect accuracy an impossibility and his second was that firms expect disembodied technical change but actually experience embodied technical change each alternative maintains some conceptual baggage the implications and empirical seriousness of which have not been fully explored we are appreciative of larson s identification of these issues and for the opportunity to enter into a dialogue on some of their theoretical and practical aspects we would also note a printing error of some consequence near the bottom of the second column of p 838 of our paper it should read f4 0

dualism and macroeconomic volatility this paper develops a simple macroeconomic model that shows that combining capital market imperfections together with unequal access to investment opportunities across individuals can generate endogenous and permanent euctuations in aggregate gdp investment and interest rates reducing inequality of access may be a necessary condition for macroeconomic stabilization moreover countercyclical escal policies have a role to play in our model savings are underutilized in slumps because of the limited debt capacity of potential investors therefore the government should issue public debt during recessions in order to absorb those idle savings and enance investment subsidies or tax cuts for investors the most important single fact about saving and investment activities is that in our industrial society they are generally done by different people and for different reasons for years there might tend to be too little investment leading to deeation losses excess capacity and unemployment for other years there might tend to be too much investment leading to periods of chronic ineation unless prudent and proper public policies in the escal and monetary eelds are followed paul a samuelson economics 8th edition 1970 pp 196 198

forecasting financial volatilities with extreme values the conditional autoregressive range carr model we propose a dynamic model for the high low range of asset prices within fixed time intervals the conditional autoregressive range model henceforth carr the evolution of the conditional range is specified in a fashion similar to the conditional variance models as in garch and is very similar to the autoregressive conditional duration acd model of engle and russell 1998 extreme value theories imply that the range is an efficient estimator of the local volatility e g parkinson 1980 hence carr can be viewed as a model of volatility out of sample volatility forecasts using the s p500 index data show that the carr model does provide sharper volatility estimates compared with a standard garch model

finance and consumption volatility evidence from india abstract the main objective of this paper is to explore the determinants of private consumption growth volatility in india focusing on the role of financial sector policies using data for india over the period 1950 2005 the results show that the implementation of financial repressionist policies is strongly associated with lower consumption volatility the results remain robust after controlling for a wide range of macroeconomic shocks and variables the presence of a threshold effect implies that the benefits of financial reforms in reducing consumption volatility can only be reaped when the financial system becomes sufficiently liberalized the results also indicate that the presence of a more open financial system may serve to dampen fluctuations in private consumption

dynamics of oil price precious metal prices and exchange rate this study examines the co movements and information transmission among the spot prices of four precious metals gold silver platinum and palladium oil price and the us dollar euro exchange rate we find evidence of a weak long run equilibrium relationship but strong feedbacks in the short run the spot precious metal markets respond significantly but temporarily to a shock in any of the prices of the other metal prices and the exchange rate furthermore we discover some evidence of market overreactions in the palladium and platinum cases as well as in the exchange rate market in conclusion whether there are overreactions and re adjustments or not investors may diversify at least a portion of the risk away by investing in precious metals oil and the euro policy implications are provided

the empirical role of the exchange rate on the crude oil price formation this paper adopts a novel empirical approach to the crude oil price formation for the purpose of understanding the price reactions of opec member countries to changes in the exchange rate of the us dollar against other major currencies and prices of other members the results are broadly consistent with the view of the absence of a unified opec determined price in the international crude market literature in addition the results also highlight a cross regional dimension of the crude oil market

do capital market imperfections exacerbate output fluctuations abstract we develop a dynamic general equilibrium macroeconomic model where a proportion of firms are credit constrained due to asymmetric information in general a macroeconomic shock has additional effects created by a reallocation of funds between credit constrained and unconstrained firms as they have different marginal productivities we show however that the output response to shocks is not necessarily amplified and can be dampened by the presence of asymmetric information this depends on the impact of the shock on the composition of external and internal funds for credit constrained firms

oil price fluctuations and u s dollar exchange rates adding oil prices to the monetary model of exchange rates we find that oil prices significantly explain movements in the value of the u s dollar usd against major currencies from the 1970s to 2008 our long run and forecasting results are remarkably consistent with an oil exchange rate relationship increases in real oil prices lead to a significant depreciation of the usd against net oil exporter currencies such as canada mexico and russia on the other hand the currencies of oil importers such as japan depreciate relative to the usd when the real oil price goes up

the copula garch model of conditional dependencies an international stock market application abstract modeling the dependency between stock market returns is a difficult task when returns follow a complicated dynamics when returns are non normal it is often simply impossible to specify the multivariate distribution relating two or more return series in this context we propose a new methodology based on copula functions which consists in estimating first the univariate distributions and then the joining distribution in such a context the dependency parameter can easily be rendered conditional and time varying we apply this methodology to the daily returns of four major stock markets our results suggest that conditional dependency depends on past realizations for european market pairs only for these markets dependency is found to be more widely affected when returns move in the same direction than when they move in opposite directions modeling the dynamics of the dependency parameter also suggests that dependency is higher and more persistent between european stock markets

dependence structure between the equity market and the foreign exchange market a copula approach abstract this paper investigates the dependence structure between the equity market and the foreign exchange market by using copulas in particular several copulas with different dependence structure are compared and used to directly model the underlying dependence structure we find that there exists significant symmetric upper and lower tail dependence between the two financial markets and the dependence remains significant but weaker after the launch of the euro our findings have important implications for both global investment risk management and international asset pricing by taking into account joint tail risk

does the u s economic policy uncertainty connect financial markets evidence from oil and commodity currencies abstract we provide novel insight to the emerging literature on the role of u s monetary policy as a driver of a global financial cycle by examining the possible causal effect of u s economic policy uncertainty on the connectedness of crude oil and currency markets using a sample of commodity currencies from advanced and emerging nations a battery of linear and nonlinear granger based causality tests indicate the presence of a causal relationship between economic policy uncertainty and the connectedness of oil and currency markets particularly at low frequencies and more significantly after the outburst of the global financial crisis while crude oil generally serves as a net transmitter of shocks to currencies across all frequency bands the spillover effects from oil are largely concentrated towards the g10 currencies of australian and new zealand dollar that are often used as investment currencies in global carry trade strategies overall our findings suggest the presence of a significant pass through effect of economic policy uncertainty via oil prices spilling over to the currency market in line with the emerging evidence that the monetary policy by the u s fed serves as a major driver of a global financial cycle that describes patterns in global capital flows credit activity and asset prices across financial markets

oil prices exchange rates and emerging stock markets abstract while two different streams of literature exist investigating 1 the relationship between oil prices and emerging market stock prices and 2 the relationship between oil prices and exchange rates relatively little is known about the dynamic relationship between oil prices exchange rates and emerging market stock prices this paper proposes and estimates a structural vector autoregression model to investigate the dynamic relationship between these variables impulse responses are calculated in two ways standard and the recently developed projection based methods the model supports stylized facts in particular positive shocks to oil prices tend to depress emerging market stock prices and us dollar exchange rates in the short run the model also captures stylized facts regarding movements in oil prices a positive oil production shock lowers oil prices while a positive shock to real economic activity increases oil prices there is also evidence that increases in emerging market stock prices increase oil prices

dynamic adjustment in the u s dairy industry a dual model is used to examine the dynamic structure of the u s dairy industry properties implied by the theory of the competitive firm and independent adjustment of two quasi fixed inputs labor and herd size are tested and not rejected instantaneous adjustment however is soundly rejected for each quasi fixed input input adjustment to optimal levels is estimated to take about two years for labor and ten for cows quality adjustments of the labor and cow series do not fully embody the technological change that has occurred in this industry over the study period

the economic value of co movement between oil price and exchange rate using copula based garch models article i nfo the us dollar is used as the primary currency of international crude oil trading as such the recent substantial depreciation in the us dollar has resulted in a corresponding increase in crude oil prices in addition oil price and exchange rate returns have been shown to be skewed and leptokurtic and to exhibit an asymmetric or tail dependence structure therefore this study proposes dynamic copula based garch models to explore the dependence structure between the oil price and the us dollar exchange rate more importantly an asset allocation strategy is implemented to evaluate economic value and confirm the efficiency of the copula based garch models in terms of out of sample forecasting performance a dynamic strategy based on the cgarch model with the student t copula exhibits greater economic benefits than static and other dynamic strategies in addition the positive feedback trading activities are statistically significant within the oil market but this information does not enhance the economic benefits from the perspective of an asset allocation decision finally a more risk averse investor generates a higher fee for switching from a static strategy to a dynamic strategy based on copula based garch models

explaining credit default swap spreads by means of realized jumps and volatilities in the energy market abstract this paper studies the relationship between credit default swap cds spreads for the energy sector and oil futures dynamics using data on light sweet crude oil futures from 2004 to 2013 which contains a crisis period we examine the importance of volatility and jumps extracted from the futures in explaining cds spread changes the analysis is performed at an index level and by rating group as well as for the pre crisis crisis and post crisis periods our findings are consistent with merton s theoretical framework at an index level futures jumps are important when explaining cds spread changes with negative jumps having higher impact during the crisis the continuous volatility part is significant and positive indicating that futures volatility conveys relevant information for the cds market as for the analysis per rating group negative jumps have an increasing importance as the credit rating deteriorates and during the crisis period while the results for positive jumps and futures volatility are mixed overall the relation between the cds market and the futures market is stronger during volatile periods and strengthened after the global financial crisis

macroeconomic volatility and welfare in developing countries an introduction macroeconomic volatility both a source and a reflection of underdevelopment is a fundamental concern for developing countries their high aggregate instability results from a combination of large external shocks volatile macroeconomic policies microeconomic rigidities and weak institutions volatility entails a direct welfare cost for risk averse individuals as well as an indirect one through its adverse effect on income growth and development this article provides a brief overview of the recent literature on macroeconomic volatility in developing countries highlighting its causes consequences and possible remedies it then introduces the contributions of a recent conference on the subject sponsored by the world bank and pompeu fabra university barcelona

finance and inequality the case of india although theory emphasizes the role of financial market frictions in explaining income inequality there is little empirical research exploring how financial development and financial sector reforms influence the evolution of income inequality this article examines how finance impacts income inequality in india using annual time series data for over half a century the results indicate that while financial development helps reduce income inequality financial liberalization seems to exacerbate it the results are robust to the use of different measures for financial development and financial liberalization although the relationship between financial development and economic growth has been extensively studied in the literature see for example king and levine 1993 demetriades and hussein 1996 arestis and demetriades 1997 levine loayza and beck 2000 bell and rousseau 2001 ang and mckibbin 2007 little is known about how finance impacts income inequality the importance of the finance inequality relationship has recently been highlighted in an insightful survey article by claessens and perotti 2007 they indicate that while financial development can help reduce income inequality financial liberalization captured by established interests may do the opposite the theoretical predictions of the effects of finance on income inequality are controversial rajan and zingales 2003b argue that improvements in the formal financial sector primarily benefit the rich greenwood and jovanovic 1990 predict a nonlinear relationship between financial development and income inequality where it is hypothesized that income inequality first increases with the degree of sophistication in the financial systems then stabilizes and eventually declines others propose that the presence of financial market imperfections deters the poor from borrowing adequately to invest in human and physical capital implying that financial development helps alleviate income inequality banerjee and newman 1993 galor and zeira 1993 aghion and bolton 1997 mookherjee and ray 2003 2006 given that theories provide ambiguous predictions regarding the effects of finance on the distribution of income it is useful to approach the issue at the empirical level this could facilitate our understanding of the relationship between finance and inequality and help us to assess the validity of each theoretical model despite the important role of financial market frictions in the theories of poverty and income inequality researchers so far have not adequately addressed whether financial

the empirical relationship between energy futures prices and exchange rates abstract this paper investigates the interaction between energy futures prices and exchange rates results are presented to show that futures prices for crude oil heating oil and unleaded gasoline are co integrated with a trade weighted index of exchange rates this is important because it means that there exists a long run equilibrium relationship between these four variables granger causality results for both the long and short run are presented evidence is also presented that suggests exchange rates transmit exogenous shocks to energy futures prices

financial development and the instability of open economies this paper introduces a framework for analyzing the role of financial factors as a source of instability in small open economies our basic model is a dynamic open economy model with a tradeable good produced with capital and a country specific factor we also assume that firms face credit constraints with the constraint being tighter at a lower level of financial development a basic implication of this model is that economies at an intermediate level of financial development are more unstable than either very developed or very underdeveloped economies this is true both in the sense that temporary shocks have large and persistent effects and also in the sense that these economies can exhibit cycles thus countries that are going through a phase of financial development may become more unstable in the short run similarly full capital account liberalization may destabilize the economy in economies at an intermediate level of financial development phases of growth with capital inflows are followed by collapse with capital outflows on the other hand foreign direct investment does not destabilize

oil prices speculation and fundamentals interpreting causal relations among spot and futures prices abstract a consensus that the world oil market is unified begs the question where do innovations in oil prices enter the market here we investigate where changes in the price of crude oil originate and how they spread by examining causal relationships among prices for crude oils from north america europe africa and the middle east on both spot and futures markets results indicate that innovations first appear in spot prices for dubai fateh and spread to other spot and futures prices while other innovations first appear in the far month contract for west texas intermediate and spread to other exchanges and contracts links between spot and futures markets are relatively weak and this may have allowed the long run relationship between spot and future prices to change after september 2004 together these results suggest that market fundamentals initiated a long term increase in oil prices that was exacerbated by speculators who recognized an increase in the probability that oil prices would rise over time

commodity prices interest rates and the dollar this paper sheds light on recent fluctuations in commodity prices we investigate whether a decline in real interest rates and the us dollar contributes to higher commodity prices and whether commodity prices display overshooting behavior in response to changes in real interest rates we analyze the behavior of real prices of crude oil food metals and industrial raw materials the analysis is based on structural var models estimated on quarterly data over the period 1990q1 2007q4 our results suggest that commodity prices increase significantly in response to reductions in real interest rates moreover oil prices and prices of industrial raw materials tend to display overshooting behavior in response to such interest rate changes the evidence also suggests that a weaker dollar leads to higher commodity prices shocks to interest rates and the dollar are found to account for substantial shares of fluctuations in commodity prices

modelling systemic risk and dependence structure between the prices of crude oil and exchange rates in brics economies evidence using quantile coherency and ngcovar approaches abstract in this study we examine the dependence structure and systemic risk between return series of the prices of crude oil and the brics exchange rates to us using the quantile coherency methods of barunik and kley 2015 and the nonparametric conditional value at risk granger causality test hereafter ngcovar of diks and wolski 2018 over the period 2005 2017 further we use the hiemstra and jones 1994 hereafter hj and diks and panchenko 2005 hereafter dp tests for comparison purposes our findings indicate that all countries reveal significant negative dependence in the long run dynamics between oil prices and brazilian indian and south african currencies hj and dp tests suggest that lagged crude oil prices have predictive power for the brazilian and russian exchange rates furthermore a robust unidirectional lagged dependence exists from the brazilian exchange rate to crude oil prices concerning the chinese indian and south african currencies we find no contagion effects from to those countries to the oil market for russia there is limited evidence of contagion effects these findings provide insights for regulators and international investors

oil prices and exchange rates the quotations show a sharply divergent pattern in the response of the foreign exchange market to announcements of oil price increases during the first oil shock news about oil price rises led to a strengthening of the dollar whereas during the i979 surge of oil prices the reverse was generally true when the news was not so bad as feared the dollar fell back in i974 but rose in i979 in 1980 the pattern shifted once again back to dollar appreciation is there a rational fundamental explanation for the behaviour of the foreign exchange market or is it a matter of traders responding to what other traders arbitrarily think it is difficult to resolve this question but some insight can be provided through an analytical examination of the relationship between oil price increases and exchange rates the paper begins with a theoretical framework for analysing the relation between oil prices and exchange rates and then uses the theory to explain the behaviour of the foreign exchange market

oil price dynamics and speculation a multivariate financial approach abstract this paper assesses empirically whether speculation affects oil price dynamics the growing presence of financial operators in the oil markets has led to the diffusion of trading techniques based on extrapolative expectations strategies of this kind foster feedback trading that may cause considerable departures of prices from their fundamental values we investigate this hypothesis using a modified capm following shiller 1984 and sentana and wadhwani 1992 first a univariate garch 1 1 m is estimated assuming the risk premium to be a function of the conditional oil price volatility the single factor model however is outperformed by the multifactor icapm merton 1973 which takes into account a larger investment opportunity set analysis is then carried out using a trivariate ccc garch m model with complex nonlinear conditional mean equations where oil price dynamics are associated with both stock market and exchange rate behavior we find strong evidence that oil price shifts are negatively related to stock price and exchange rate changes and that a complex web of time varying first and second order conditional moment interactions affects both the capm and feedback trading components of the model despite the difficulties we identify a significant role played by speculation in the oil market which is consistent with the observed large daily upward and downward shifts in prices a clear evidence that it is not a fundamental driven market thus from a policy point of view given the impact of volatile oil prices on global inflation and growth actions that monitor speculative activities on commodity markets more effectively are to be welcomed

the euro and european financial market dependence a time varying copula model is used to investigate the impact of the introduction of the euro on the dependence between 17 european stock markets during the period 1994 2003 the model is implemented with a gjr garch ma t model for the marginal distributions and the gaussian copula for the joint distribution which allows capturing time varying non linear relationships the results show that within the euro area market dependence increased after the introduction of the common currency only for large equity markets such as in france germany italy the netherlands and spain structural break tests indicate that the increase in financial market dependence started around the beginning of 1998 when euro membership was determined and the relevant information was announced the uk and sweden but not other european countries outside the euro area are found to exhibit an increase in equity market co movement which is consistent with the interpretation that these countries may be expected to join the euro in the future

persistence in variance structural change and the garch model this article examines the persistence of the variance as measured by the generalized autoregressive conditional heteroskedasticity garch model in stock return data in particular we investigate the extent to which persistence in variance may be overstated because of the existence of and failure to take account of deterministic structural shifts in the model both an analysis of daily stock return data and a monte carlo simulation experiment confirm the hypothesis that garch measures of persistence in variance are sensitive to this type of model misspecification

financial intermediary development and growth volatility do intermediaries dampen or magnify shocks the authors extend the recent literature on the link between financial development and economic volatility by focusing on the channels through which the development of financial intermediaries affects economic volatility their theoretical model predicts that well developed financial intermediaries dampen the effect of real sector shocks on the volatility of growth while magnifying the effect of monetary shocks suggesting that overall financial intermediaries have no unambiguous effect on growth volatility the authors test these predictions in a panel data set covering 63 countries over the period 1960 97 using the volatility of terms of trade to proxy for real volatility and the volatility of inflation to proxy for monetary volatility they find no robust relationship between the development of financial intermediaries and growth volatility weak evidence that financial intermediaries dampen the effect of terms of trade volatility and evidence that financial intermediaries magnify the impact of inflation volatility in low and middle income countries

financial liberalization financial sector development and growth evidence from malaysia abstract the objective of this paper is to examine whether financial development leads to economic growth or vice versa in the small open economy of malaysia using time series data from 1960 to 2001 we conduct cointegration and causality tests to assess the finance growth link by taking the real interest rate and financial repression into account the empirical evidence suggests that financial liberalization through removing the repressionist policies has a favorable effect in stimulating financial sector development financial depth and economic development are positively related but contrary to the conventional findings our results support robinson s view that output growth leads to higher financial depth in the long run

growth volatility and financial liberalization we examine the effects of both equity market liberalization and capital account openness on real consumption growth variability we show that financial liberalization is mostly associated with lower consumption growth volatility our results are robust surviving controls for business cycle effects economic and financial development the quality of institutions and other variables countries that have more open capital accounts experience a greater reduction in consumption growth volatility after equity market openings we also find that financial liberalizations are associated with declines in the ratio of consumption growth volatility to gdp growth volatility suggesting improved risk sharing our results are weaker for liberalizing emerging markets but we never observe a significant increase in real volatility moreover we demonstrate significant differences in the volatility response depending on the size of the banking and government sectors and certain institutional factors

macroeconomic volatility trade and financial liberalization in africa this paper examines the effects of financial and trade liberalization on growth volatility of real output and consumption in africa our results suggest trade liberalization is associated with greater output and consumption growth volatility while financial liberalization increases the efficacy of consumption smoothing and stabilizes income and consumption growth in addition we find financial market depth and institutional quality operate jointly with trade and financial openness to reduce volatility in output and consumption growth there is also evidence that good institutions which foster low inflation levels and volatility promote consumption and output growth stability