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Abstract:
This paper modifies an ad hoc index originated by Eichengreen et al (1995,1996), which is often used to document financial crises in emerging markets. By assuming nonlinear dynamics in a system of financial data, we successfully develop an alternative approach that not only captures the essence of the conventional index but also offers an indicator that leads the crises in-sample. This is very important for policy markers of transitional economies like Macedonia, for which the historical macroeconomic data are often inadequate for existing "early warning sign" systems of potential crises.

Currency crisis, exchange rates, forecasting, smooth transition autoregressive model, transitional economies

Abstract:
By using a block-exogenous vector autoregressive model and the data of a small open economy under a currency board, this paper gains several advantages in examining the empirical relevance of open economy macroeconomic theories regarding international monetary policy transmission. The results support that the interest rate channel is more significant than the trade balance channel. In response to a U.S. contractionary monetary shock, the interest rate of the small economy overshoots in the short run and deflates the economy so excessively that domestic currency depreciates and net exports revive, and that, in turn, eases the negative impact on domestic output.

Currency Board,Hong Kong,International Monetary Policy Transmission, VAR

Abstract:
This paper examines U.S. per capita income convergence in 1929-2002 using a panel approach based on the assumptions of multiple aggregate structural breaks and growth clubs. One novelty is that our specification explicitly allows for regional conditional convergence to the nation, while at the same time allowing for regional-growth clubs in which states conditionally converge to their regional average. In general, the results support those who argue the entire cross-section of growth dynamics should be examined. In particular, the estimates of convergence speed from previous studies are strongly affected by a post-1982 divergence and a club-growth pattern, which are ignored under simpler econometric specifications.

Convergence, growth clubs, panel time series models, structural changes

Abstract:
This paper adopts a general approach to investigate asymmetry in the leading explanatory power of interest-rate-based indicators of monetary policy for U.S. output. The purpose is to provide robust results by utilizing a model that does not pre-specify a particular condition under which asymmetry arises. In particular, we augment an unobserved-components decomposition of real output into permanent and transitory components with monetary policy indicators. Asymmetry is captured by allowing the coefficients on the policy variables to undergo regime switching. This framework produces a latent state variable that documents when policy actions have led output. In a second stage, we use the estimated latent state variable to jointly evaluate the evidence for three specific types of asymmetry. We find that policy actions taken during periods of cyclical downturn in the economy are more likely to lead output than those taken during cyclical expansions. We also find that during periods of cyclical downturn, large policy actions and contractionary policy actions are more likely to lead output than those that are small or expansionary.

Asymmetry, Business Cycles, Regime Switching, Monetary Policy

Abstract:
Recent research has generated support to the notion that the real exchange rate adjustment is nonlinear and that the PPP half-life is faster than the puzzling 3 to 5 years based on linear models. While different nonlinear models survive the specification tests against linear ones, there is little consensus on which specific threshold-type model outperforms the others in the family. In this paper, a Monte Carlo study is designed to address the issue and the findings support that the MR-LSTAR process is the most likely suspect that generates the puzzle.

Generalized Impulse Response Functions, Monte Carlo, Nonlinear Autoregressive Model, Purchasing Power Parity, Real Exchange Rates