presentation coidine 2012 cesar sobrino
TRANSCRIPT
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The Codependent Cycle between the US and Puerto Rico
By César R. Sobrino - Universidad del
Turabo& Ellis Heath – Valdosta University
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Motivation
• According to Mundell (1961), for optimum currency areas, economies should have synchronized common cycles.
• According to Frankel and Rose (1997;1998), trade intensity and synchronicity of business cycles are endogenous.
• This statement raises the issue whether currency areas lead to synchronized business cycles. – Data of Puerto Rico is relevant.– Puerto Rico belongs the US currency area.
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Objectives
• Find a common cycle between US output and PR output.– A sychronized common business cycle.– A non-synchronized common business
cycle.– Using Vahid and Engle’s (1997) test
• Policy implications about findings.
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Previous literature
• Frankel and Rose (1997, 1998), Calderon, Chong and Stein (2007); Artis, Chouliarakis, Harischandr (2011); Bordo and Hiebling (2011); Artis and Okubo (2011); Inklaar, Jo-A-ping and de Haan (2008); Shin and Wang (2003); Rose (2008) for EMU; and, De Pace (2011).
• Herrera (2003)Mexico and US share a common trend and common cycles since NAFTA adoptionVahid and Engle (1993)
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Common feature literature
• For stationary series– Engle & Kozicki (1993)
• For non-stationary seriesConditional to cointegration– Vahid & Engle (1993)-Common cycle– Vahid & Engle (1997)- Codependent
cycle
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Methodology & Data
• VECM• Vahid and Engle’s (1997) statistic• Data:
– Fed St. Louis, US RGDP (annual)– Conference Board: US CEI (quarterly)– Junta de Planificacion: RGDP (annual),
CEI (quarterly).– Bureau of Labor Service (BLS): both
unemployment rates- quarterly series
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Real GDPs
20
21
22
23
24
28.0
28.5
29.0
29.5
30.0
30.5
50 55 60 65 70 75 80 85 90 95 00 05
US RGDP in logs (right-hand side)PR RGDP in logs (left-hand side)
Shortcoming: Annual and fiscal year
1947-2009
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CEIs and U. Rates
3.8
4.0
4.2
4.4
4.6
4.8
5.0
1970 1975 1980 1985 1990 1995 2000 2005
Log of CEIUS Log of CEIPR
2
4
6
8
10
12
8
12
16
20
24
28
1980 1985 1990 1995 2000 2005 2010
URATEUS URATEPR
Coincident Economic Indexes (1992=100)
(1970q1-2007q2)
Unemployment rates(1976q1-2012q2)
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Unit root tests
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Cointegration test
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Vahid and Engle’s (1997) test
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Robustness
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Codependent vectors
Notes: Standard errors in parentheses.
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Conclusions
• US and Puerto Rico outputs share a non synchronized common cycle. Codependency at one quarter.
• Compared to Mexico, PR is less integrated to the US in the short run.– Merchant Act (Jones Act)
• Look for some monetary mechanism with NY Fed for smoothing GDP falls (countercyclical monetary policies).
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References
• Frankel, J.A., Rose, A.K., 1997. Is EMU more justifiable ex post than ex ante? European Economic Review, 41, 753-760
• Frankel, J.A., Rose, A.K., 1998. The Endogeneity of the Optimum Currency Area Criteria, The Economic Journal, 108, 1009-1025.
• Engle, R. and S. Kozicki (1993) “Testing for Common Features”, Journal of Business and Economic Statistics 11: pp. 369-396.
• Herrera, Jorge (2004) Business Cycles in Mexico and The United States: Do They share common movements? Journal of Applied Economics, Vol. VII, No. 2, 303-323
• Mundell, R. (1961) Optimun currency areas, American Economic Review, 51, 667-655.
• Vahid, F & Engle, R. (1993). "Common Trends and Common Cycles," Journal of Applied Econometrics, vol. 8(4), pages 341-60,
• Vahid, F. and R. Engle (1997), “Codependent Cycles”, Journal of Econometrics 80: 199-221.