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Title: Nonlinearities in international macroeconomics : an empirical analysis of advanced economies and emerging markets
Author: Goretti, Manuela
ISNI:       0000 0001 3506 7553
Awarding Body: University of Warwick
Current Institution: University of Warwick
Date of Award: 2007
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The empirical literature in international macroeconomics and finance reveals a growing interest in the use of nonlinear models. Their attractiveness is clear, as these models allow capturing discontinuity in the data-generating process and, by estimating endogenously transition probabilities and variables, avoid the a priori identification of regimes and their timing, thereby enhancing the extent of flexibility in the analysis. This thesis makes use of nonlinear techniques in order to model two different economic issues, which have been at the centre of the economic debate in the last years. The first analysis refers to the issue of debt sustainability and, in particular, tries to test empirically some of the leading interpretations that have been advanced to account for the financial turmoil that characterised the run-up to the Brazilian presidential elections in 2002. We test for financial contagion from the Argentine crisis and the impact of factors including IMF intervention and political uncertainty in raising the probability of crisis. The empirical investigation employs a Markovswitching model with endogenous transition probabilities. The second part of the thesis is devoted to the analysis of current account imbalances in G7 countries. We find evidence of threshold behaviour in current account adjustment, such that the dynamics of adjustment towards equilibrium depend upon whether the current-account/ net-output ratio breaches estimated country specific current account surplus or deficit thresholds. Both the speeds of adjustment and the size of the thresholds are found to differ significantly across countries. We complement the univariate analysis by disentangling the domestic components of the current account according to the national income identity with a view to shed light on the role of savings (both public and private) and investment. Evidence of shifts in means and variances of exchange rate changes - that coincide with the current account adjustment regimes identified by the model - suggest scope for further research on the role of the real exchange rate in determining the nonlinear behaviour of the current account. We extend the threshold methodology to a bivariate context and find evidence of a strict link between current account adjustments and deviations of a country real exchange rate from its long run equilibrium, such that beyond a certain appreciation/depreciation of the real exchange rate, a country CA imbalance would start reverting towards its mean value. Finally, we run a nonlinear test of the present value model of the current account, encouraged by the evidence of nonlinear adjustment in the current account. However, in line with the literature, we reject the test for all countries also in this new nonlinear framework.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available
Keywords: HB Economic Theory ; HF Commerce