International Macroeconomics Division
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75049 Paris cedex 01, France
Time Series Econometrics
Ball, C., Lopez, C. and J. Reyes, Remittances, Inflation and Exchange Rate Regimes in Small Open Economies, The World Economy, forthcoming
Kejriwal, M. and C. Lopez, Unit Roots, Level Shifts and Trend Breaks in Per Capita Output: A Robust Evaluation, Econometric Reviews, forthcoming
Lopez, C. Murray C.J., and D.H. Papell (2013), Median-Unbiased Estimation in DF-GLS Regressions and the PPP Puzzle, Applied Economics, 45(4), 455-464
Lopez, C. and D.H. Papell (2012), Convergence of Euro Area Inflation Rates, Journal of International Money and Finance, 31(6), 1440-1458
Hoarau, J.F., C. Lopez and M. Paul (2010), Short Note on the Unemployment Rate of the “French Overseas Region, Economics Bulletin, 30(3):2321-29
Lopez, C. (2009), GLS-detrending and Regime-wise Stationarity Testing in Small Samples, Economics Letters, 104(2): 99-101
Lopez, C. and J. Reyes (2009), Real Interest Rate Stationarity and Consumption Growth Rate, Applied Economics, 41(13):1643 – 1651
Lopez, C., (2009), Euro-zone Inflation Rates: Stationary or Regime-wise Stationary Processes, Economics Bulletin, 29(1): 238-243
Lopez, C., (2009) Panel Unit Root with Good Power in Small Samples, Econometric Reviews, 28(4): 295-313
Lopez, C., (2008), Evidence of Purchasing Power Parity for the Floating Regime Period, Journal of International Money and Finance, 27(1): 156-164
Lopez, C. and D.H. Papell, (2007), Convergence to Purchasing Power Parity at the Commencement of the Euro, with D.H. Papell, Review of International Economics, 15(1): 1–16
Lopez, C., Murray C.J., and D.H. Papell, (2005), State of the Art Unit Root Tests and Purchasing Power Parity, Journal of Money Credit and Banking, 37: 361-369
While currency crises have been extensively studied, the opposite phenomenon, large appreciations, has been far less researched. We fill this gap by providing an empirical exploration of historical episodes of large real exchange rate appreciations, using a sample of 28 advanced and 25 emerging market economies, with annual data going back to 1970. We focus on the impact of large appreciations on output growth. Our first finding is that countries experiencing large real exchange rate appreciations display distinct patterns: large appreciations significantly lower export growth and boost import growth on impact. Strikingly, however, output growth is higher, on average, despite the adverse impact on exports. Our second finding is that these aggregate numbers hide substantial heterogeneity, which we link to the nature of the shocks that cause the appreciation. In particular, appreciations associated with so-called “capital flow bonanzas” have a marked downward effect on growth. This pattern is consistent with the insights from a simple model that contrasts the impact of productivity shocks with that of capital inflows shocks. Higher productivity in the traded sector leads to a boom in traded output and a current account surplus, while higher foreign lending leads to a boom in non-traded output and an external deficit as traded output falls and consumption increases.
In this paper, we propose to identify the dependence structure existing between the returns of equity and commodity futures and its evolution through the past 20 years. The key point is that we do not do not impose the dependence structure but let the data select it. To do so, we model the dependence between commodity (metal, agriculture and energy) and stock markets using a flexible approach that allows us to investigate whether the co-movement is : (i) symmetric and occurring most of the time, (ii) symmetric and occurring mostly during extreme events and (iii) asymmetric and occurring mostly during extreme events. We also allow for this dependence to be time-varying from January 1990 to February 2012. Our analysis uncovers three major stylized facts. First, we find that the dependence between commodity and stock markets is time varying, symmetric and occurs most of the time (as opposed to mostly in extreme events). Second, not allowing for time-varying parameters in the dependence distribution generates a bias toward evidence of tail dependence. Similarly, considering only tail dependence may lead to wrong evidence of asymmetry. Third, a growing comovement between industrial metals and equity markets is identified as early as in 2003, a comovement that spreads to all commodity classes and becomes unambiguously stronger with the global financial crisis after Fall 2008.
Remittances are private monetary transfers across borders and thus, often, involve different currencies. Yet the rapidly growing literature on the subject often ignores the role that exchange rate regimes play in determining the effect foreign-currency remittances have on a recipient economy. This paper uses a theoretical model and panel vector autoregression techniques to understand the effect of remittances on GDP, inflation, real exchange rate and money supply, depending on the exchange rate regimes. Furthermore, it allows a more detailed description of the short-run dynamics as it considers yearly but also quarterly data for 21 emerging countries. Our theoretical model predicts that remittances should temporarily increase inflation, GDP, the domestic money supply and appreciate the real exchange rate under a fixed regime, but temporarily decrease inflation, increase GDP, appreciate the real exchange rate and generate no change in the money supply under a flexible regime. These differences are largely borne out in the data. This adds to our understanding of the true effect of remittances on economies by showing that exchange rate regimes matter for the effects of remittances, especially in the short run for monetary conditions in an economy, and suggests that other results in the literature that do not control for regimes may be biased.
Determining whether per capita output can be characterized by a stochastic trend is complicated by the fact that infrequent breaks in trend can bias standard unit root tests towards non-rejection of the unit root hypothesis. The bulk of the existing literature has focused on the application of unit root tests allowing for structural breaks in the trend function under the trend stationary alternative but not under the unit root null. These tests, however, provide little information regarding the existence and number of trend breaks. Moreover, these tests suffer from serious power and size distortions due to the asymmetric treatment of breaks under the null and alternative hypotheses. This paper estimates the number of breaks in trend employing procedures that are robust to the unit root/stationarity properties of the data. Our analysis of the per-capita GDP for OECD countries thereby permits a robust classification of countries according to the "growth shift", "level shift" and "linear trend" hypotheses. In contrast to the extant literature, unit root tests conditional on the presence or absence of breaks do not provide evidence against the unit root hypothesis.
We study the behavior of inflation rates among the 12 initial Euro countries in order to test whether and when the group convergence initially dictated by the Maastricht treaty and now by the ECB, occurs. We also assess the impact of events such as the advent of the Euro and the 2008 financial crisis. Due to the small size of the estimation sample, we propose a new procedure that increases the power of panel unit root tests when used to study group-wise convergence. Applying this new procedure to Euro area inflation, we find strong and lasting evidence of convergence among the inflation rates soon after the implementation of the Maastricht treaty and a dramatic decrease in the persistence of the differential after the occurrence of the single currency. After the 2008 crisis, Euro area inflation rates follow the ECB's price stability benchmark, although Greece reports relatively higher inflation.
Using median-unbiased estimation, recent research has questioned the validity of Rogoff’s “remarkable consensus” of 3-5 year half-lives of deviations from PPP. These half-life estimates, however, are based on estimates from regressions where the resulting unit root test has low power. We extend median-unbiased estimation to the DF-GLS regression of Elliott, Rothenberg, and Stock (1996). We find that median-unbiased estimation based on this regression has the potential to tighten confidence intervals for half-lives. Using long horizon real exchange rate data, we find that the typical lower bound of the confidence intervals for median-unbiased half-lives is just under 3 years. Thus, while previous confidence intervals for half-lives are consistent with virtually anything, our tighter confidence intervals now rule out economic models with nominal rigidities as candidates for explaining the observed behavior of real exchange rates. Therefore, while we obtain more information using efficient unit root tests on longer term data, this information moves us away from solving the PPP puzzle.
C. Durand and C. Lopez (2012), Taux de change d'equilibre et mesure de la competitivite au sein de la zone euro, Bulletin de la Banque de France, 190 : 125-134.
Report (2011), The impact of the earthquake of March 11th on the Japanese economy and the rest of the world, Bulletin de la Banque de France, 21: 5-25.
Financial Econometrics (France)
Applied Economic Practicum (USA)
Applied Economic Forecasting (USA)
Macroeconomic Theory (USA)
Statistics for Economists (USA)
Intermediate Macroeconomics (USA)
Principles of Macroeconomics (USA)