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In this study, we estimate and investigate the evolution of monetary rules in China and the United States during the 21st century. Our aim is to examine whether financial stability has been taken into consideration in practical monetary policy decision making. By proposing a new estimation method that combines the structural break estimation technique with an extended Taylor rule, we can estimate structural breaks and split the entire time period into multiple monetary regimes based on the macroeconomic data for both China and the U.S. Specifically, we in fact estimate an extended Taylor rule with financial stability considerations and its evolution over time. Our findings show that China’s monetary policy emphasized the financial stress of the U.S. in the early years, before and during the 2008 global financial crisis. However, since then, the coefficient for the U.S. financial stress has decreased since then, showing less consideration for the U.S. financial stability and more emphasis on the domestic financial market by Chinese policymakers.

Using unique, hand-collected data, we study the interaction between the legal system and the takeover auction process from 1981 to 2015. We show a structural break in the takeover process in 1989. The strengthening of the property rights of target boards after Time Inc. decision has moved the auction process from public to a behind the scenes process where target boards control both the number of bidders and the flow of information. Target boards are more likely to initiate the auction themselves and the length of the private negotiation process has significantly lengthened. This fundamental change has benefited target shareholders.

We explore the possibilities and limitations of models of the demand for military expenditures, as against additional kinds of cross-country analyses, with an empirical focus on the Indo-Pacific region. Our research bridges a gap between the Defence Economics and International Relations literatures by developing testable security alignment hypotheses and by testing these hypotheses in three ways: with demand modelling on total expenditures, with analyses on estimated stocks of imported armaments, and with qualitative analyses of trends in defence cooperation between states. We find consistent evidence across research methods of an increase in threat perceptions towards China since around 2012 and of balancing behaviour by US allies and by two non-allies. As compared to standard demand modelling, our hypothesis-based mixed methods approach allows for a clearer treatment of samples with mixed and shifting security alignments and of states that stabilise or reduce expenditures in the face of rising threat perceptions.

The present study employed a bivariate GJR-GARCH-MX-t model with a Structural break (SB) to explore the status variation of five financial features in three markets in the United States (US) that arose as a result of the shocks from both the global financial crisis (GFC) and subsequently quantitative easing (QE) policies. The results showed that the GFC and QE first cause a SB at the oil market and the stock market; the SB did not occur in the exchange rate (FX) market. Moreover, before and after the SB, the status of the three types of pairwise markets0 interaction indicators was significantly different, especially for the oil-stock paired market data. However, the status of the two single market indicators was almost the same, especially for the FX market data. In addition, during the two subperiods the stock market and the FX market dominated in the case of the return and volatility spillovers, respectively.

The purpose of this study is to investigate and evaluate the impact of the global Covid-19 crisis on consumer spending tendencies in Turkey. The data of the study, which are weekly data, consists of the "Debit Card and Credit Card Expenditure" amounts of the Central Bank of the Republic of Turkey (CBRT) for the period 6/3/2015–5/8/2022. Changes in consumer expenditures during the Covid-19 pandemic process were examined with the help of structural break tests. The main contribution of this article subsists in an empirical study to examine structural breaks in Turkey using personal debit and credit card disaggregated total expenditure data during the Covid-19 period. According to the research findings; the change observed at the beginning of the Covid-19 period in card expenditures is less than the change observed at the end of the period. With the end of the pandemic, an upward breakout was observed in most of the expenditure items.

Rather than relying on a potentially poor point estimate of a coefficient break date when forecasting, this paper proposes averaging forecasts over sub-samples indicated by a confidence interval or set for the break date. Further, we examine whether explicit consideration of a possible variance break and the use of a two-step methodology improves forecast accuracy compared with using heteroskedasticity robust inference. Our Monte Carlo results and empirical application to US productivity growth show that averaging using the likelihood ratio-based confidence set typically performs well in comparison with other methods, while two-step inference is particularly useful when a variance break occurs concurrently with or after any coefficient break.

The fiscal reaction function (FRF) provides valuable insights into a country’s fiscal sustainability and output stability. However, there is no consensus yet on how to model it. Thus, this study investigates the best functional form for the FRF by adopting a nonlinear autoregressive distributed lag approach that accounts for a potential structural break in the data across periods. We examine the case of Malaysia and address the country’s data by using a break-point of the unit root test. The test results indicate the presence of a structural break in the country’s FRF. Moreover, the primary balance of Malaysia has an asymmetrical reaction to the country’s public debt and the output gap. This result suggests that a nonlinear behavior of FRF with a structural break is an accurate approach for the fiscal authority in Malaysia (for example, the Ministry of Finance) in designing prudent fiscal policy. This study finds that an asymmetric fiscal reaction in Malaysia neither guarantees fiscal sustainability nor supports output stability, thus suggesting the need for an independent fiscal council to promote prudent fiscal policy.

Studies investigating the impact of coronavirus outbreak at the sector (industry) level are scant and focus on the USA market. We examine this issue for the US, UK, and the European stock markets, using endogenous structural break models and factor-augmented event study methodology by identifying the critical events. We find that the impact of coronavirus outbreak to the extent of black swan events is visible in March and, till the end of March 2020, the investors had limited opportunities for investment except for a few sectors in the US, UK, and Europe due to black swan events. Specifically, we find some stocks in consumer staples, healthcare, telecommunications, utilities, and financials were the attention-seekers and different sectors in our sample countries had different reactions to the outbreak. Overall, the analysis provides the reasons for panic buy and sell.

This paper analyzes the behaviour of the external adjustment path for the four main economies in the euro area. I find a structural break in the behaviour of the net external position at the time of the introduction of the euro for France, Italy and Spain, pointing out that the inception of the common currency changed their external adjustment process. Germany does not show this structural break, being its external position more affected by other events such as the country reunification in 1989. I also find that France and Italy will adjust the net external position mainly through the valuation component, while Germany and Spain will restore their external balance mostly through the trade component. The common currency area could have exacerbated Germany’s net creditor position as the evolution of the euro has reacted to the external adjustment needs of debtor countries such as Italy and Spain.

This paper identifies a structural break in exchange rate returns from July 2005 to May 2020 using the iterated cumulative sums of squares (ICSS) algorithm. Then we explore the changing effect of d...

A plethora of studies reveals that tourism development and structural change contribute to the socioeconomic progress of the countries. However, the effects of tourism development and structural change on environmental quality are yet to be explored in detail. Hence, the present work evaluates the dynamics of tourism development and structural change on emissions of CO2 as an environmental quality, representative by endogenizing economic progress, consumption of energy, and structural break in India. Toward the empirical front, this study relies on quarterly time series data for 1995Q1–2016Q4 within an approach of bounds testing for cointegration due to its simulation capacity for integration order of the study variables. The emanated outcomes reveal the long-term association between the variables of interest. After validating the long-term correspondence among the variables, the ARDL-based long-run results show that tourism development worsens the quality of the environment, whereas transition in the structure of the economy cause for improving the quality of the environment and structural break in the series shows an insignificant role in carbon emissions. Moreover, it is revealed that economic growth improves the quality of the environment, and consumption of energy exhibits a deleterious association with environmental quality. These findings’ robustness is confirmed using fully modified/dynamic OLS and canonical cointegrating regression. Therefore, the study suggests that policymakers must ensure a sustainable tourism practice to reap environmental sustainability. Similarly, the government should promote investment in the service sector to maintain a desirable environmental quality.

The concept of time scales is essential for modeling financial decisions. This paper investigates time–frequency relationships across time scales between stock market returns, crude oil prices and exchange rates by applying wavelet analysis technique over the period 1999 to 2021. We find evidence of several strong co-movements between oil price and stock market and between oil price and foreign exchange rate in India. Each of these associations is linked with some important macroeconomic events. This implies economic shocks in developed market have a spillover effect on Indian market. The phase relationships indicate stock returns are in phase with oil prices and exchange rates are in out of phase with oil prices. We find that the impact of volatility at lower scale has a short term effect on the variables. Further, the wavelet coherency at high scale has slower changes with long term effect on the relationship between the variables of our interest. These results are useful for investors aiming specific time horizon of their investment and preferences, for portfolio managers and in risk assessment. Understanding the leading and lagging relationships will also help in business cycle based investing by detecting the subsequent business cycle fluctuations and forecasting the trend.

The paper considers a simple aggregated consumption function for Russian economy in which households consume a constant fraction of a permanent income. The value of this fraction is estimated by households within the framework of the adaptive expectations process based on the dynamics of GDP at constant consumption prices. Testing for a structural break at an unknown date in the parameter of the propensity to consume is performed. The results of econometric estimation, taking into account the presence of an endogeneity in the regression equation, demonstrate that after 2014 there was a structural break, as a result of which the parameter of the propensity to consume of permanent GDP decreased by 6.5—9.2%.

The purchasing power parity (PPP) hypothesizes the real exchange rate to be a stationary process. Since the test results are model-dependent, the hypothesis has long been debated. This paper makes a new contribution to the PPP debate by exploring why the PPP is more robust to model specification in some countries than others. To this end, we adopt a variety of the state-of-the-art unit root tests, which are categorized into four versions of the PPP, according to whether the exchange rate process is level (trend) stationary with temporary (permanent) structural break(s). We then investigate why one or more versions of the PPP hold for specific countries. By using the real effective exchange rates of 23 OECD countries plus the euro area, we find that the size of GDP, the membership of the euro area, and the government debt-to-GDP ratio have significant effects on the validity of the PPP hypothesis.

This paper investigates the association among carbon dioxide emissions, electricity consumption, capital, financial deepening and urbanisation using data from 1968 to 2013 collected from the World Bank for Turkey. Further, this study applies single- and bi-endogenous structural break unit root approach in addition to the Ng and Perron (2001) to explore the integration order of the series. The bounds test is adopted to analyse the long-run connection among the variables. The robustness of the bounds test was further investigated using the Bayer–Hanck (Bayer and Hanck, Journal of Time Series Analysis 34:83–95, 2013) combined cointegration method. The long-run effects identified the evidence of an inverted U-shaped association among carbon dioxide and urbanisation. This suggests that rapid urbanisation increases the levels of pollution in the initial stages of development. However, after reaching a threshold point, urbanisation reduces environmental pollution. Financial development, electricity use and capital affect COE significantly and positively in both the short and long run, while GDP has a positive and insignificant effect. Additionally, the causal relationships among the variables are identified using the symmetric and asymmetric causal techniques. The outcomes of the causal results showed that financial deepening, urbanisation and electricity use are causing environmental pollution in the short run in the symmetric causality, while CO2 is causing financial development based on the asymmetric causality. The findings suggest that green technologies should be adopted. Further, the use of renewable energy must be ensured for generating the electricity as it will facilitate a reduction in the COE.

In an effort to increase agricultural production, promote regional specialization and stabilize domestic food prices, the Tanzanian government has implemented several market-enhancing policies. The...

Given that regime changes may induce new tendencies and behaviours of financial models, we analyse the impact of sentiment variables on stock market returns for time periods before and after Donald...

Since no previous study assesses the relative efficacy of government versus private investment on energy consumption in South Asia under the reform initiatives, in this study, we try to fill this gap in a panel framework over the period 1980–2016. As the panel data shows cross-dependencies across the cross-sections, the Pesaran’s Cross-Sectionally Augmented Dickey–Fuller (CADF) and Cross-Sectionally Augmented IPS (CIPS) tests are used to check the stationary properties. Besides, a structural break augmented panel unit root is also done to find the stationary properties in the presence of structural breaks. The Durbin–Hausman test is further applied to identify the variables’ cointegrating relationship. The Dumitrescu–Hurlin panel causality test finds a one-way causality between energy consumption and private investment but no causality between government investment and energy consumption. According to Pool Mean Group (PMG) Panel Autoregressive-Distributive Lag (ARDL) estimation results, there is no significant linkage between government and private investments and energy consumption in the absence of the reform initiatives. On the contrary, in energy sector reform, private investment efficiently stimulates energy consumption in the selected South Asian countries; however, government investment is ineffective in promoting energy consumption. We recommend that policymakers find an optimal institutional reform policy to improve government investment efficiency in South Asia.

We apply autoregressive distributed lag regression (ARDL) and several methods of structural break analysis on a daily data set between 1995 and 2014 to explore various supply and demand factors as drivers of the price differential between WTI and Brent crude oil. In line with previous literature, we identify a major break in the WTI-Brent spread in December 2010. The ARDL regression reveals that the convenience yield, as a proxy for crude oil inventories, is the most important spread determinant. Moreover, also the trading activity in crude oil paper markets, shipping costs, as well as the stock market development in the US and Europe affect the size of the spread. Unlike other papers, we find that the impact of the spread determinants changed after the break in 2010. Especially, the impact of local WTI inventories as well as the influence of paper markets activity on physical trading in crude oil spot markets have gained in importance. In summary, the rising variability in the spread time series after 2010, which reflects a decoupling process of WTI and Brent, can be explained by an absolute increase in several economic determinants.

This paper has a main ambition. It evaluates the impact of immigration on GDP per worker for ten European countries in order to fill the gap with numerous studies focusing on variables other than g...

The paper considers two types of models for forecasting seasonally adjusted Russian GDP under the structural breaks. Models that allow breaks in a deterministic trend, in which the dates of structural breaks are set exogenously, and more flexible class of models – with a stochastic trend are considered. It is shown that modeling a structural break in a deterministic trend or adding a stochastic trend significantly improves the quality of 3–4 steps ahead forecasts, and sometimes even on shorter horizons, compared to models with a constant trend growth rate.

The rapid pace of change in China’s housing market has called particular attention. This paper studies how the housing boom in China was transmitted via spillovers from one local market to another between 2003 and 2012, an episode during which housing prices increased rapidly. We identify the beginning of housing booms of a focal market as the quarters in which each city experienced a positive and statistically significant structural break in its house price growth series, and find that housing booms start first in the Beijing–Tianjin–Hebei region and the Yangtze River Delta region. Further, regression results show that there exist spatial spillover effects both on the extensive margin and intensive margin from the neighboring markets in China, and that the focal city housing market significantly responds to the housing booms in the two economic regions. Controlling market fundamentals does not vary the spillover patterns identified. We conclude that there is a distinctive dynamic spillover process in China that the metropolitan economic regions experience booms first, and then, the booms are transmitted to the geographically adjacent cities.

This article investigates the degree of persistence in the international monthly tourist time series in Spain using long memory (fractional integration) techniques. Our findings can be summarized as follows. The two standard hypotheses of integer degrees of differentiation, i.e., the I(0) and the I(1) behaviour, are clearly rejected. The series is found to be I(d) with a value of d in the interval (0.421, 0.780) thus implying long memory behaviour and mean reverting behaviour. However, if a structural break is considered, it takes place at May 2007, and then, the two subsamples present orders of integration which are above 1 and thus rejecting the mean reverting hypothesis.

China’s housing sector offers an interesting case study of relationship between government interventions and price dynamics. Frequent and intensive government interventions create a highly fluctuan...

In the present paper, we analyse the effect of a changing in market configuration in the mobile phone market in Italy on the consumers switching choices (churn rate). To this end, we examine a market context characterized by a restricted oligopoly subsequently shaken by a structural break. During the period considered for the analysis (2015–2018) the Italian mobile phone market has experienced significant changes: while, on the one hand, transactions brought to a merger between two of the main operators, on the other hand, the merger was approved under the condition of the entrance of a new operator in the market, in the attempt of preserving the beneficial effects of competition. Such evolution represents the ideal condition to test the impact of structural market changes in the competition game, in terms of features of the players, but not in terms of their number. To examine such scenario, we use data related to two different surveys (before and after M&A and new entry events) in order to empirically assess the effect of such changes on consumers’ (switching) choices. The empirical models consider the impact of individual socio-demographic and economic characteristics as well as a set of variables related to “choice theory” as proxies of transaction costs, information asymmetries, and implied value of service. As a result, it emerges how the change of the typology (but not the number) of the market players alters the nature of the game, so inducing a substantial increase in terms of both consumers and social welfare (with redistributive effects in favour of the most vulnerable subjects).

In this paper, we consider the estimation of break points in high-dimensional factor models where the unobserved factors are estimated by principal component analysis (PCA). The factor loading matrix is assumed to have a structural break at an unknown time. We establish the conditions under which the least squares (LS) estimator is consistent for the break date. Our consistency result holds for both large and small breaks. We also find the LS estimator’s asymptotic distribution. Simulation results confirm that the break date can be accurately estimated by the LS even if the magnitudes of breaks are small. In two empirical applications, we implement the method to estimate break points in the U.S. stock market and U.S. macroeconomy, respectively.

This paper proposes parametric two-step procedures for assessing the stability of cross-sectional dependency measures in the presence of potential breaks in the marginal distributions. The procedures are based on formerly proposed sup-LR tests in which restricted and unrestricted likelihood functions are compared with each other. First, we show theoretically that standard asymptotics do not hold in this situation. We propose a suitable bootstrap scheme and derive test statistics in different commonly used settings. The properties of the test statistics and precision of the associated change-point estimator are analysed and compared with existing non-parametric methods in various Monte Carlo simulations. These studies reveal advantages in test power for higher-dimensional data and an almost uniform superiority of the sup-LR test in terms of precision of the change-point estimator. We then apply this method to equity returns of European banks during the financial crisis of 2008.

This paper investigates the role of financial development in the rapid rise of life expectancy in Bangladesh by using the annual data covering the period of 1972–2013. We examine the unit root properties of the variables employing a structural break unit root test. The combined cointegration and ARDL bounds testing approach confirm the long-run association between financial development and life expectancy in the presence of globalization, income inequality, and economic growth. The long-run elasticities indicate that financial development and globalization (income inequality and economic growth) positively (negatively) affect life expectancy in Bangladesh. The VECM Granger causality analysis indicates that the feedback effect exists between financial development and life expectancy, and income inequality and life expectancy. Economic growth and globalization are also found to Granger cause life expectancy. Our findings offer new insights to policy makers which are crucial to improve life expectancy in Bangladesh.

We formulate a general cointegrated vector autoregressive (CVAR) model that nests both a class of consumption Euler equations and various Keynesian‐type consumption functions. Using likelihood‐based methods and Norwegian data, we find support for cointegration between consumption, income and wealth once a structural break around the time of the financial crisis is allowed for. The fact that consumption cointegrates with both income and wealth and not only with income points to the empirical irrelevance of an Euler equation. Moreover, we find that consumption equilibrium corrects to changes in income and wealth, but not that income equilibrium corrects to changes in consumption, which would follow from an Euler equation. We also find that most of the parameters stemming from the class of Euler equations are not corroborated by the data when conditional expectations of future consumption and income in CVAR models are considered. Only habit formation seems important in explaining Norwegian consumer behaviour. Our estimated conditional Keynesian‐type consumption function implies a first year marginal propensity to consume (MPC) out of income of close to 40%.

A number of researchers have found that the rate of exchange rate pass-through (ERPT) to domestic prices has declined substantially over the last few decades. We revisit this claim of a shrinking exchange rate effect on the Consumer Price Index (CPI) in a vector autoregressive (VAR) model for US macroeconomic data under the current floating exchange rate regime. Our VAR approach nests the conventional single equation method and reveals statistically significant evidence of ERPT to the CPI only during later observations, sharply contrasting with previous findings. After confirming structural breaks in ERPT via statistical tests by Hansen (Journal of Economic Perspectives, 15(4), 117–128, 2001) and Qu and Perron (Econometrica, 75(2), 459–502, 2007), we seek the source with disaggregated level CPIs, and pin down a key role of energy prices. US energy imports increased from the 1990s until the recent recession. This market changes magnify the effects of the exchange rate shocks on domestic energy prices, resulting in greater responses of the total CPI via the energy price channel.

This study analyses the implications of Inflation Targeting (I.T.) for the Exchange Rate Pass-Through (ERPT) to inflation and trade balance by focusing on the first three movers i.e. New Zealand, UK and Canada. Drawing on the monthly data from October 1976 to September 2017, we employ a TVSVAR framework. Our key findings suggest that there is significant evidence of time-variation in the ERPT to inflation and trade balance in all three countries. Contrary to the notion that the ERPT to inflation has decreased under inflation targeting, in fact, there is strong evidence that if there is anything, it is the other way round. The ADF unit root test with a structural break suggests that the oscillations in coefficients for inflation show a decrease and timing corresponds with the start of I.T. However, this coincident cannot lead to infer that the ERPT has lost its significance. There is also a considerable amount of heterogeneity in the ERPT in the under-analysis countries. Specifically, in response to the positive Real Effective Exchange Rate (REER) shock, the inflation fell in the UK and New Zealand whereas, in Canada, it had the opposite effect. On the ERPT to the trade balance, the results on the UK showed clear evidence of J-curve whereas in Canada, the impact was rather instantaneous, and the trade balance quickly deteriorated. In New Zealand, the trade balance also showed deterioration in response to the REER shocks, although comparatively there was milder response than Canada and the UK. Our findings have profound implications for monetary policy formulation under I.T. regimes and the influence of ERPT on price stability and external balance.

This paper analyses the impact of a newspaper-based uncertainty associated with infectious diseases (EMVID) on the level, slope and curvature factors derived from the term structure of interest rates of the US covering maturities from 1 year to 30 years. Results from nonlinearity and structural break tests indicate the misspecification of the linear causality model and point to the suitability of applying a time-varying model. A DCC-MGARCH framework is thus applied and the results indicate significant predictability of the three latent factors from the EMVID index at each point of the entire sample, and also provide evidence of instantaneous spillover. Finally, the results of measuring safe-haven characteristic of the US Treasury market show that US treasuries with long-term maturities as captured by the level factor are consistently negatively correlated with the EMVID index, i.e., they act as a safe-haven, with the slope factor (medium-term maturities) following this trend since 2007, and the slope factor (short-term maturities) also showing signs of a safe-haven since May of 2020. Overall, the findings provide reasonable evidence that US Treasury securities can hedge the risks associated with the financial market in the wake of the current COVID-19 pandemic.

In response to the global crisis, a number of new institutional measures have been introduced in the fiscal framework, both on the EU and on the member states' level, and the question is: Have these measures provided better fiscal sustainability outcomes? We approach this question by looking at the evolution of fiscal sustainability in Poland, which is an interesting case of a member state that without significant market pressure (the only EU country without recession during the crisis) actively promoted several changes in the EU fiscal framework (e.g., six‐pack) and effectively internalized some of these key changes in its domestic fiscal policy, including a domestic expenditure fiscal rule. Our analysis reveals that the fiscal sustainability in Poland has significantly improved in the post‐crisis period of 2009–2017: We detect both improvement of the fiscal sustainability parameters and structural breaks in the fiscal outcomes after the crisis. Namely, in comparison to the whole sample of 2004–2017 the strength of reaction of the primary deficit to a change of the public debt increased in the post‐crisis time by nearly 50%. Importantly, these results are robust with respect to the pension fund reform which led to a one‐off redemption of T‐bonds in amount of 8.5% of GDP. The analysis also reveals a cycle of structural breaks of 2‐and 4 years lags: For the output gap in 2008 Q4, for the primary deficit in 2010 Q4 and for the public debt in 2014 Q1. The case of Poland seems to suggest that the post‐crisis EU fiscal measures can be effectively used to increase fiscal sustainability, if properly approached and internalized into the domestic fiscal framework. More research should be devoted to understanding the political and economic conditions under which such positive outcomes were possible.

In this study, we investigate the sustainability of Turkish current account to GDP ratio in the long run by testing the null hypothesis of a unit root against the alternative of the smooth structural break with sign and/or size nonlinearity. Using nonlinear unit root tests, we find strong evidence in favour of the sustainability of Turkish current account deficit after taking into account both the smooth structural break and asymmetric speed of adjustment towards mean values. The core of our conclusion is twofold: first, we find that current account deficit is sustainable for Turkey in the analysed period; and second, sustainable current account deficit increased to around 5% of GDP in Turkey after the smooth structural break. Our results point out that current account deficits about 5% of GDP are sustainable if current account deficits permit greater FDI inflows and long-term external borrowings that much more oriented towards productive activities in the economy. However, if domestic investments are mainly financed by short-term external borrowings, then running current account deficits around 5% of GDP in the long run may generate inherent problems.

The presence of iron ore spot prices has raised the question whether iron ore spot prices are driven by market fundamentals. We analyse iron ore spot prices over the period 2014–18 while considering a structural break. The results show that China's steel production only affects the volatility of iron ore spot prices. Over the two subsample periods, the mean and volatility of iron ore spot prices are vulnerable to changes in port stock. Overall, in determining iron ore spot prices, the effect of supply fundamentals outweighs that of demand fundamentals. [ABSTRACT FROM AUTHOR]

All tests involving both structural breaks and cointegration are parametric. As a complement to the classical hypothesis testing for empirical researchers, we suggest the use of a one-step model selection approach to simultaneously specifying lag orders, cointegration ranks, and structural breaks. The performances of the four popular information criteria along with a LM-based parametric test are shown in extensive simulation studies. Applying the approach to study linkages in the Eurocurrency interest rates market, we find that six major short-term rates were subject to a structural break and the cointegration rank also changed following the break.

Research in the area of tail dependence between oil prices and the stock market is sparse, particularly at the firm level. This article investigates lower and upper tail dependences between the price of crude oil and China's A‐share market by estimating an empirical copula with a rolling window. Our results show that tail dependence is increasing over time and that there are differences between lower and upper tail dependences in terms of incremental magnitude. We also find that the impulse responses of tail dependences to shocks to variables of interests vary significantly over the sample period. Our results also indicate that lower tail dependence, in particular, is found to have more than one breakpoint, and the break dates are highly associated with financial crises. In addition, we find evidence of asymmetry in tail dependence, which varies across periods. Finally, we find that tail dependence is persistent in the short‐term but deteriorates as the duration increases. These findings have important implications for investors, risk managers and policy makers.

Prior studies have proposed constructing confidence sets for the break date by inverting a sequence of tests for the date of a structural break. In this study, we improve these confidence sets by t...

Structural break time series models, which are commonly used in macroeconomics and finance, capture unknown structural changes by allowing for abrupt changes to model parameters. However, many specifications suffer from an over-parametrization issue, since typically all parameters have to change when a break occurs. We introduce a sparse change-point model to detect which parameters change over time. We propose a shrinkage prior distribution, which controls model parsimony by limiting the number of parameters that change from one structural break to another. We develop a Bayesian sampler for inference on the sparse change-point model. An extensive simulation study based on AR, ARMA and GARCH processes highlights the excellent performance of the sampler. We provide several empirical applications including an out-of-sample forecasting exercise showing that the Sparse change-point framework compares favorably with other recent time-varying parameter processes.

This paper suggests a new testing procedure to systematically examine the middle-income trap (MIT). To empirically demonstrate this procedure, one high income and 14 middle-income countries are examined using newly developed unit root tests — Fourier ADF with structural break (FADF-SB) and Seemingly Unrelated Regressions Fourier ADF (SUR-FADF). The FADF-SB test incorporates unknown nonlinearity and smooth break in the time-series, while the SUR-FADF test accounts for cross-sectional dependency. The empirical findings produced mixed results: 10 countries have a relatively high possibility of facing the MIT problem, while only one country has a relatively low possibility of facing the problem. For the remaining three countries, it is uncertain whether they will face the problem of MIT. These empirical findings have significant policy implications.

Structural break problems in linear regression coefficients are often accompanied by the instabilities of the regressors and/or the serially correlated error term such as structural changes in their marginal distributions. In these circumstances, we find that existing tests as well as Hansen (2000)'s fixed regressor bootstrap have serious size distortions, although the latter is designed to overcome the unstable regressors. To tackle this problem, we propose a method that combines the fixed regressor bootstrap and the sieve wild bootstrap. We show that the sieve wild bootstrap asymptotically replicates a broad set of serially correlated unstable error processes. Using that the fixed regressor bootstrap is designed to capture the instability of the regressors, the mixture of the two is then shown to provide correct asymptotic critical values of the existing tests in various feasible nonstandard cases. Monte Carlo experiments show significant improvements in size and power.

This article tries to understand the economic growth of West Bengal by using the Bai–Perron method of multiple structural break analysis. It is found that between 1960 and 2014, the Bengal economy had witnessed two breaks in its output growth. The first break occurred in 1983 and was influenced by a break in the agrarian sector, an outcome propelled by the shift in the political regime and changes in policy prescriptions. The second break happened in 1993; it was preceded by the break in the service sector and a shift in the policy paradigm within the same political dispensation. This study has further investigated the characteristics of the various growth phases in terms of sectoral composition and policies. It is identified that the West Bengal economy has moved from a low growth phase to a medium or balanced growth phase followed by a high growth phase. The low growth phase had witnessed an agrarian impasse, industrial deceleration and political instability. In contrast, the medium growth phase recorded an unprecedented agrarian growth and political stability. The high growth phase has seen a huge growth in the tertiary sector and political instability during its later half. JEL Classification: R11

For the change-point analysis of a high-dimensional time series, we consider a semiparametric model with dynamic structural break factors. With our model, the observations are described by a few low-dimensional factors with time-invariant loading functions of the covariates. Regarding the structural break, the factors are assumed to be nonstationary and follow a vector autoregression (VAR) process with a change in the parameter values. In addition, to account for the known spatial discrepancies, we introduce discrete loading functions. We study the theoretical properties of the estimates of the loading functions and the factors. Moreover, we provide both the consistency and the asymptotic normality for making an inference on the estimated breakpoint. {Importantly, our results hold for both large and small breaks in the factor dependency structure.} The estimation precision is further illustrated via a simulation study. Finally, we present two empirical applications in modeling the dynamics of the minimum wage policy in China and analyzing a limit order book dataset.

Mean square forecast error loss implies a bias–variance trade-off that suggests that structural breaks of small magnitude should be ignored. In this paper, we provide a test to determine whether modeling a structural break improves forecast accuracy. The test is near optimal even when the date of a local-to-zero break is not consistently estimable. The results extend to forecast combinations that weight the post-break sample and the full sample forecasts by our test statistic. In a large number of macroeconomic time series, we find that structural breaks that are relevant for forecasting occur much less frequently than existing tests indicate.

Energy and energy consumption play an important role in strategies for socio-economic development of the country. In 1995, Vietnam officially entered the 500 kV North-South transmission power line exploits, with a full length of 1,487 km. The purpose of this study is to investigate the breakpoint and the transition effect of energy consumption to economic growth in Vietnam during the period of 1980-1994, and 1995-2016. The Autoregressive Distributed Lag (ARDL) approach and the Bounds test are used to test for the presence of cointegration, whereas the Toda and Yamamoto procedure Granger causality test is used for the direction of causality. The result of the Bounds test validates the existence of cointegration among the included variables. The empirical results provide evidence that energy consumption has a positive impact on the economic growth of Vietnam in the long run. The causality test shows that there is bi-directional causality between energy consumption and economic growth, supported feedback hypothesis. There is a breakpoint in 1995 and the contribution of energy consumption in economic growth in the period of 1995-2016 is lower than the stage 1980-1994. This study suggests Government authorities explore new sources of energy to achieve sustainable economic development in the long run.

This paper proposes efficient tests for quantile parameter instability in parametric and semiparametric setups. In each setup, various types of unstable parameter processes are examined such as single structural break, multiple structural breaks, and random parameters, and the optimal test is suggested for each unstable process. In a parametric model, tick-exponential family of distributions is used to construct the likelihood ratio tests. The suggested tests have the best asymptotic weighted average power if the likelihood function is correctly specified and are asymptotically correct-sized even under misspecification. In a semiparametric setup in which the underlying distribution is unknown but is treated as an infinite-dimensional nuisance parameter, we show that semiparametric efficient tests are adaptive if the error term is conditionally iid. Non-adaptive efficient tests are suggested under weaker conditions as well. Monte Carlo simulation shows that the proposed tests have better finite sample powers than the existing tests under various circumstances.

There is a strong relationship between energy consumption (EC) and economic growth (EG) of a country. However, different sources of energy have different influence on EG of different countries. This paper attempts to identify the source of energy that efficiently spurs EG in Pakistan by exploring the short- and long-run relationship between EC and EG during 1972–2015. Breakpoint unit root test was used to investigate the stationarity properties of the variables along with structural break. Autoregressive distributive lag (ARDL) bound testing approach was used to determine the existence of long-run relationship among variables. The results of the ARDL model confirm the presence of cointegration among the variables. The findings confirm that renewable as well as non-renewable EC enhance EG in Pakistan. However, the magnitude of the coefficients and high significance level confirm that renewable energy (RE) spurs EG more efficiently than non-renewable energy. The study concludes that the government needs to increase investment in the development and exploration of RE resources to ensure sustainable EG in Pakistan.

Whether or not budgetary policies are sustainable and can be conducted without creating the potential for government bankruptcy is a central question for macroeconomic analysis. In this paper, we show that indicators and tests to assess government solvency should not be used alternatively. We lay out a simple and intuitive procedure to integrate simultaneously the results from the two approaches to fiscal sustainability. Indicators are forward looking, for they are based on published forecasts, thus reacting to a set of current and expected future conditions in fiscal-policy making. Tests, by contrast, are backward looking, for they are based on a sample of past data. In the event of conflicting results, indicators may signal the occurrence of a structural change in policy, which may reverse the predictions of tests. Whether the results from indicators or from tests should be given priority in the assessment of the sustainability of public debt will thus depend on the structural stability of the historical data generating process of the primary surplus. Only in the absence of a structural break in the stance of fiscal policy, the potential warning predictions of fiscal indicators should be interpreted as merely reflecting transitory factors to be eventually reversed. An application to U.S. post-World War II historical data, from 1948 to 2016, and forecasts, from 2017 to 2027, demonstrates the empirical relevance of the proposed comprehensive approach and helps add new insights to the evaluation of the U.S. fiscal position. In particular, our results suggest that the potentially unsustainable course of U.S. fiscal policy from 2008 onwards, advocated by the use of fiscal indicators, reflects systematic—not cyclical—factors. The main policy implication is that deficit increases in the U.S. from 2008 onwards cannot be regarded as a transitory phenomenon and hence do entail an urgent need for a structural change in the future stance of budgetary policy.

International audience; In this paper, we evaluate the French balance-of-paymentsconstrained growth rate and we compare it with the effectivegrowth rate. Empirically, we show that France is experiencing,simultaneously to its European integration, a substantial increasein the income elasticity of demand for imports and a collapse in thegrowth rate of its exports. Within the balance-of-paymentsconstrained growth approach, this twofold negative effect is amajor obstacle to true economic recovery and full employment.