What are the driving factors behind the rise of spreads and CDSs of Euro-area sovereign bonds? A FAVAR model for Greece and Ireland

This paper examines the underlying dynamics of selected euro-area sovereign bonds by employing a factor-augmenting vector autoregressive (FAVAR) model for the first time in the literature. This methodology allows for identifying the underlying transmission mechanisms of several factors; in particular, market liquidity and credit risk. Departing from the classical structural vector autoregressive (VAR) models, it allows us to relax limitations regarding the choice of variables that could drive spreads and credit default swaps (CDSs) of euro-area sovereign debts. The results show that liquidity, credit risk, and flight to quality drive both spreads and CDSs of five years’ maturity over swaps for Greece and Ireland in recent years. Greece, in particular, is facing an elastic demand for its sovereign bonds that further stretches liquidity. Moreover, in current illiquid market conditions spreads will continue to follow a steep upward trend, with certain adverse financial stability implications. In addition, we observe a negative feedback effect from counterparty credit risk

Bank Efficiency: Evidence from a Panel of European Banks

The goal of this paper is to investigate the efficiency of the banking systems in eight European countries over the period 1994 to 2008 by using the production frontier methodology. The paper shows that risk factors along with a size variable should be taken into account, otherwise inefficiency tends to be overstated.Bank efficiency, Stochastic frontier, European banks

Housing Prices and Macroeconomic Factors: Prospects within the European Monetary Union

This study analyses the dynamic effects of specific macroeconomic variables (i.e. housing loan rates, inflation and employment) on the price of new houses sold in Greece. An error correction vector autoregressive (ECVAR) model is used to model the impact of the macroeconomic variables on real housing prices. Variance decompositions show that the housing loan rate is the variable with the highest explanatory power over the variation of real housing prices, followed by inflation and employment.Expected Returns, Prepayment

Carbon dioxide emissions intensity convergence: Evidence from central American countries

This paper extends the literature on the convergence of carbon dioxide emissions intensity and its determinants (energy intensity and the carbonization index) for six Central American countries over the period 1971 to 2014. Using the Phillips-Sul club convergence approach, the results indicate two distinct convergence clubs with respect to carbon dioxide emissions intensity and energy intensity with the first convergence club consisting of Costa Rica, El Salvador, Guatemala, and Honduras and the second convergence club consisting of Nicaragua and Panama. However, in the case of the carbonization index, only one convergence club emerges that includes Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua with Panama exhibiting non-convergent behavior.N/

Food Price Volatility and Macroeconomic Factors: Evidence from GARCH and GARCH-X Estimates

This article examines food price volatility in Greece and how it is affected by short-run deviations between food prices and macroeconomic factors. The methodology follows the GARCH and GARCH-X models. The results show that there exists a positive effect between the deviations and food price volatility. The results are highly important for producers and consumers because higher volatility augments the uncertainty in the food markets. Once the participants receive a signal that the food market is volatile, this might lead them to ask for increased government intervention in the allocation of investment resources and this could reduce overall welfare.relative food prices, volatility, macroeconomic factors, GARCH and GARCHX models, Demand and Price Analysis, Marketing, E60, Q10, Q19,

Credit rating changes’ impact on banks: evidence from the US banking industry

This study examines the impact of credit rating upgrades and downgrades on six comprehensive banks’ asset classes, profitability, leverage and size using data from the Federal Deposit Insurance Corporation’s call reports and Bloomberg over the period 1989-2008. In summary, the results suggest that a downgrade has a lasting and relatively more severe impact on banks than an upgrade; however, downgraded banks do not seem to effectively reduce their appetite for risk over a longer horizon. It seems that the role of credit rating agencies as an integral part of banks’ prudential supervision through market discipline is, in a longer horizon, overstated.Credit rating changes; banks; market discipline

Technology, human capital and growth: Further evidence from threshold cointegration

This paper assesses whether the linkages between R&D, human capital and productivity growth in a panel of EU manufacturing industries over the period 1980-2002 are affected by a critical level of human capital. To employ our data in an efficient manner, the study makes use of a dynamic threshold-based analysis, which determines endogenously the sample splitting procedure. The estimates indicate the presence of a threshold level based on the size-level of human capital. Countries with human capital levels above the threshold receive higher productivity growth benefits from higher R&D

Bank efficiency: Evidence from a panel of European banks

The goal of this paper is to investigate the efficiency of the banking systems in eight European countries over the period 1994 to 2008 by using the production frontier methodology. The paper shows that risk factors along with a size variable should be taken into account, otherwise inefficiency tends to be overstated

Convergence in Income Inequality: Further Evidence from the Club Clustering Methodology across States in the U.S.

This paper contributes to the sparse literature on inequality convergence by empirically testing convergence across states in the U.S. This sample period encompasses a series of different periods that the existing literature discusses -- the Great Depression (1929–1944), the Great Compression (1945–1979), the Great Divergence (1980-present), the Great Moderation (1982–2007), and the Great Recession (2007–2009). This paper implements the relatively new method of panel convergence testing, recommended by Phillips and Sul (2007). This method examines the club convergence hypothesis, which argues that certain countries, states, sectors, or regions belong to a club that moves from disequilibrium positions to their club-specific steady-state positions. We find strong support for convergence through the late 1970s and early 1980s, and then evidence of divergence. The divergence, however, moves the dispersion of inequality measures across states only a fraction of the way back to their levels in the early part of the twentieth century

Sensitivity of economic policy uncertainty to investor sentiment

A series of global financial crises in 21st century, steep economic decline and slow recoveries have intensified the concern of regulatory bodies for economic policy certainty. This study explores the effect of investor sentiment on economic policy uncertainty (EPU), spanning the period 1995-2015. The analysis is carried out for Asian, Developed and the European market samples by applying the method of quantile regressions. The findings document the presence of a negative impact of investor sentiment on EPU. Robustness analysis illustrates the validity of the results for the cases of Asian and Developed markets.N/