Long run macroeconomic relations in the global economy

Arbeitspapier

This paper focuses on testing long run macroeconomic relations for interest rates, equity, prices and exchange rates within a model of the global economy. It considers a number of plausible long run relationships suggested by arbitrage in financial and goods markets, and uses the global vector autoregressive (GVAR) model developed in Dees, di Mauro, Pesaran and Smith (2007) to test for long run restrictions in each country/region conditioning on the rest of the world. Bootstrapping is used to compute both the empirical distribution of the impulse responses and the log-likelihood ratio statistic for over-identifying restrictions. The paper also examines the speed with which adjustments to the long run relations take place via the persistence profiles. We find strong evidence in favour of the uncovered interest parity and to a lesser extent the Fisher equation across a number of countries, but our results for the PPP are much weaker. Also as to be expected, the transmission of shocks and subsequent adjustments in financial markets are much faster than those in goods markets.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 1904

Classification and Topics

• Classification: Wirtschaft ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models ; General Aggregative Models: Forecasting and Simulation: Models and Applications ; Macroeconomic Aspects of International Trade and Finance: Forecasting and Simulation: Models and Applications ; Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
• Subject: Zinsparität ; Kaufkraftparität ; Wechselkurs ; Fisher-Effekt ; VAR-Modell ; Makroökonomik

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Dees, Stephane ; Holly, Sean ; Pesaran, Mohammad Hashem ; Smith, L. Vanessa
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2007

Further information

• Handle: http://hdl.handle.net/10419/25949
• Last update: 10.03.2025, 11:45 AM CET