In this paper we reexamine the current account sustainability under assumptions of smooth break a... more In this paper we reexamine the current account sustainability under assumptions of smooth break and nonlinearity for nine European countries. We test for the null hypothesis of a unit root of the current account–GDP ratio against the alternative hypothesis that encompasses smooth break, size nonlinearity and sign asymmetry at the same time. For this purpose, we propose a battery of new test statistics and provide their critical values via Monte Carlo simulations. Our results show that the breaks alone can account for rejection of the null hypothesis of a unit root, although the evidence in support of the current-account sustainability is not sufficiently strong (only for Australia, the Czech Republic and New Zealand). Moreover, the evidence in favor of the current-account sustainability has been increased (i.e., Australia, Belgium, the Czech Republic, Finland, New Zealand, Norway, Ireland and Portugal) after taking account of size nonlinearity and structural break at the same time. Finally, for Finland, New Zealand and Ireland, the speed of mean reversion of the current account–GDP ratios is dependent not only upon the absolute deviation from the equilibrium, but also upon the sign of the shock.
Using a nonlinear flexible regression model for four economies in east Asia, we re-examine two hy... more Using a nonlinear flexible regression model for four economies in east Asia, we re-examine two hypotheses in light of the causal relationship between inflation and inflation uncertainty. The first, proposed by Friedman . Nobel lecture: Inflation and unemployment. Journal of Political Economy, 85,, postulates that increased inflation raises inflation uncertainty. Conversely, the second, put forth by . a theory of ambiguity, credibility, and inflation under discretion and asymmetric information. Econometrica, 54, 1099-1128], propounds that a high level of inflation uncertainty leads to a higher rate of inflation. Here, except for Hong Kong, overwhelming statistical evidence is found in favor of Friedman's hypothesis. The nonlinearity displays a U-shaped pattern, strongly implying that, indeed, a high rate of inflation or deflation results in high inflation uncertainty. At the same time, however, convincing evidence is found for Cukierman-Meltzer's hypothesis in favor of all four economies. Although Taiwan has an inverted U-shape, Hong Kong, Singapore and South Korea show a positive relation, thus agreeing with Cukierman-Meltzer's hypothesis.
This study presents the nonlinear relationship that exists between financial development and econ... more This study presents the nonlinear relationship that exists between financial development and economic growth. This study applies the flexible nonlinear regression model of Hamilton (Econometrica 69(3):537–573, 2001) because it imposes no specification restrictions. Two empirical results are obtained. First, an inverted U-shaped relation between banking sector development and economic growth is identified. Namely, the two variables are positively linked before the turning point, but negatively linked after it. Second, a positive relationship with asymmetric √-shape between stock market development and economic growth is found.
Using Taiwan data, the study employs Hamilton's (2001) flexible regression model ... more Using Taiwan data, the study employs Hamilton's (2001) flexible regression model to investigate the relationship between inflation and inflation uncertainty. The results convincingly support Friedman's hypothesis that a rise in the inflation rate increases inflation uncertainty. This result, however, holds only in a positive inflation regime. When the inflation rate is in a negative inflation regime, one clearly notes that
In this paper we reexamine the current account sustainability under assumptions of smooth break a... more In this paper we reexamine the current account sustainability under assumptions of smooth break and nonlinearity for nine European countries. We test for the null hypothesis of a unit root of the current account–GDP ratio against the alternative hypothesis that encompasses smooth break, size nonlinearity and sign asymmetry at the same time. For this purpose, we propose a battery of new test statistics and provide their critical values via Monte Carlo simulations. Our results show that the breaks alone can account for rejection of the null hypothesis of a unit root, although the evidence in support of the current-account sustainability is not sufficiently strong (only for Australia, the Czech Republic and New Zealand). Moreover, the evidence in favor of the current-account sustainability has been increased (i.e., Australia, Belgium, the Czech Republic, Finland, New Zealand, Norway, Ireland and Portugal) after taking account of size nonlinearity and structural break at the same time. Finally, for Finland, New Zealand and Ireland, the speed of mean reversion of the current account–GDP ratios is dependent not only upon the absolute deviation from the equilibrium, but also upon the sign of the shock.
Using a nonlinear flexible regression model for four economies in east Asia, we re-examine two hy... more Using a nonlinear flexible regression model for four economies in east Asia, we re-examine two hypotheses in light of the causal relationship between inflation and inflation uncertainty. The first, proposed by Friedman . Nobel lecture: Inflation and unemployment. Journal of Political Economy, 85,, postulates that increased inflation raises inflation uncertainty. Conversely, the second, put forth by . a theory of ambiguity, credibility, and inflation under discretion and asymmetric information. Econometrica, 54, 1099-1128], propounds that a high level of inflation uncertainty leads to a higher rate of inflation. Here, except for Hong Kong, overwhelming statistical evidence is found in favor of Friedman's hypothesis. The nonlinearity displays a U-shaped pattern, strongly implying that, indeed, a high rate of inflation or deflation results in high inflation uncertainty. At the same time, however, convincing evidence is found for Cukierman-Meltzer's hypothesis in favor of all four economies. Although Taiwan has an inverted U-shape, Hong Kong, Singapore and South Korea show a positive relation, thus agreeing with Cukierman-Meltzer's hypothesis.
This study presents the nonlinear relationship that exists between financial development and econ... more This study presents the nonlinear relationship that exists between financial development and economic growth. This study applies the flexible nonlinear regression model of Hamilton (Econometrica 69(3):537–573, 2001) because it imposes no specification restrictions. Two empirical results are obtained. First, an inverted U-shaped relation between banking sector development and economic growth is identified. Namely, the two variables are positively linked before the turning point, but negatively linked after it. Second, a positive relationship with asymmetric √-shape between stock market development and economic growth is found.
Using Taiwan data, the study employs Hamilton's (2001) flexible regression model ... more Using Taiwan data, the study employs Hamilton's (2001) flexible regression model to investigate the relationship between inflation and inflation uncertainty. The results convincingly support Friedman's hypothesis that a rise in the inflation rate increases inflation uncertainty. This result, however, holds only in a positive inflation regime. When the inflation rate is in a negative inflation regime, one clearly notes that
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