Determinants of Consumer Confidence in Emerging Economies: A Panel Cointegration Analysis

This study aims to analyze the relationship between consumer confidence and economic growth in six emerging economies, namely Brazil, China, Mexico, Poland, South Africa and Turkey. The relationship between consumer confidence and economic activity in developed markets has been well documented (Carroll et al., 1994, Howrey, 2001 and Ludvigson, 2004). However, to our knowledge, there are hardly any studies which assess the validity of this theoretical framework for households in emerging economies. We propose that there are two different variables that could play a significant role on consumer confidence in emerging economies as economic variables that measure production and financial variables that reflect the relationship between consumer confidence and financial markets. This study uses panel data analysis via conducting panel unit root and cointegration tests. Our empirical findings show that consumer confidence, industrial production and stock exchange have a long-run relationship in emerging economies. Moreover, households in emerging and developed markets exhibit similar behavior

Divisia monetary aggregates: An empirical investigation of their usefulness for Turkey

Money plays an important role in the economic health of a nation. The amount of money in the economy matters because it affects real variables (output, employment) and/or nominal variables (price level). Monetarist view suggests that a target growth rate for a narrow definition of money be set so that a stable (and low) rate of inflation could be achieved. This is possible if the demand for money is stable and changes in the monetary base have a predictable impact on money supply. Therefore, the performance of a monetary aggregate is examined through a money demand specification and/or as an effective monetary target in the conduct of monetary policy. Empirical work in the 1970s showed that broad monetary aggregates like M2 were closely correlated with such potential policy target variables as output, unemployment and inflation. Several countries such as Germany, the United Kingdom and the United States declared monetary aggregates as intermediate targets. By mid-1980s however, the stability of money demand relationship was questioned and the target growth rates of monetary aggregates became unpredictable. Monetary authorities were forced to abandon monetary targeting or monitor monetary aggregates as economic policy indicators along with other variables like inflation and interest rates. The poor performance of monetary aggregates and the instability of money demand functions were attributed to financial innovations, inadequate econometric methodology and restrictive conventional framework of the analysis. Under such circumstances, Barnett (1980) suggested the microfoundations approach and his subsequent work has shown that weighted monetary aggregates could outperform simple-sum monetary aggregates. The theoretical framework of the microfoundations approach derives from monetary aggregation theory and statistical index numbers. This approach constructs new monetary aggregates and compares their performance with simple-sum monetary aggregates. This dissertation empirically investigates the microfoundations approach for four of the G-7 countries (Germany, Japan, United Kingdom and United States) and a developing country (Turkey), using, cointegration analysis, stability test and Granger-causality. My results indicate the superiority of microfoundations approach in all of the countries

Divisia monetary aggregates: An empirical investigation of their usefulness for Turkey

Money plays an important role in the economic health of a nation. The amount of money in the economy matters because it affects real variables (output, employment) and/or nominal variables (price level). Monetarist view suggests that a target growth rate for a narrow definition of money be set so that a stable (and low) rate of inflation could be achieved. This is possible if the demand for money is stable and changes in the monetary base have a predictable impact on money supply. Therefore, the performance of a monetary aggregate is examined through a money demand specification and/or as an effective monetary target in the conduct of monetary policy. Empirical work in the 1970s showed that broad monetary aggregates like M2 were closely correlated with such potential policy target variables as output, unemployment and inflation. Several countries such as Germany, the United Kingdom and the United States declared monetary aggregates as intermediate targets. By mid-1980s however, the stability of money demand relationship was questioned and the target growth rates of monetary aggregates became unpredictable. Monetary authorities were forced to abandon monetary targeting or monitor monetary aggregates as economic policy indicators along with other variables like inflation and interest rates. The poor performance of monetary aggregates and the instability of money demand functions were attributed to financial innovations, inadequate econometric methodology and restrictive conventional framework of the analysis. Under such circumstances, Barnett (1980) suggested the microfoundations approach and his subsequent work has shown that weighted monetary aggregates could outperform simple-sum monetary aggregates. The theoretical framework of the microfoundations approach derives from monetary aggregation theory and statistical index numbers. This approach constructs new monetary aggregates and compares their performance with simple-sum monetary aggregates. This dissertation empirically investigates the microfoundations approach for four of the G-7 countries (Germany, Japan, United Kingdom and United States) and a developing country (Turkey), using, cointegration analysis, stability test and Granger-causality. My results indicate the superiority of microfoundations approach in all of the countries