Economic Models - Convex Optimization

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Credit and Income 205 My data is obtained on line from the Federal Reserve Bank of Saint Louis, Missouri, through their open source database. 7 Researchers usually employ some measure of the stock of money over GNP, as a proxy for the size of the “financial depth” (see for instance, Goldsmith, 1969; Mckinnon, 1973). This type of financial indicator does not inform us as to whether the liabilities are those of the central banks, commercial banks, or other financial intermediaries. In this way, the creditchannel issue cannot be analyzed, and the significant role of credit cannot be isolated. Moreover, this type of financial indicator is mainly applicable to the developing countries, since the financing of the economy is to a great extent carried out by the public sector and controlled mainly by its central bank. An advanced economy such as the United States, with a fully liberalized banking and financial system, provides an excellent case for testing the modern credit view such that the commercial bank credit itself has to be modeled as a fundamental, financial, and an independent monetary variable that affects money income, and hence the economic performance, in the long run. Based on the cited references, we would accept the value of commercial bank credit to the private sector, as a measure of the ability of the banking system to provide finance-led income growth. The extent to which money income growth is associated with the credit provision from the financial sector is examined through the use of contemporary co-integration methods and system stability analysis. Initially, the order of integration of the two variables is investigated using standard unit root tests (Dickey and Fuller, 1979; Harris, 1995). The next step is the computation of co-integration vectors by applying the maximum likelihood (ML) approach considering the error-correction representation of the VAR model (Harris, 1995; Johansen and Juselius, 1990). We transformed the initial VAR to an equivalent first-order dynamic system to perform the proper stability analysis, which revealed that the system under consideration is stable. It should be re-called that stability is of vital importance for obtaining consistent forecasts, and this issue is stressed appropriately in Sections 4 (4.2 and 4.6) and 5. I proceed with the utilization of the vector error-correction modeling following Engle and Granger (1987), and testing for the short-run dynamic relationship on causality effects between money and income. 7 And, we are deeply thankful for this.
206 Athanasios Athanasenas I end up by applying a dynamic forecasting technique with the estimated ECVAR. The very low value of Theil’s inequality coefficient U, provides a concrete evidence that I have formulated the suitable ECVAR obtaining, thus, robust results. Our particular emphasis on the system stability is evident and it is clarified in detail in the following section. 4. Co-Integration Considering the series {Y i }, {W i } and applying the Dickey–Fuller (DA/ADF) tests (Dickey and Fuller, 1979; 1981; Harris, 1995, pp. 28–47), I found that both series are not stationary, but they are integrated of order 1, that is I(1). This implies that by differentiating the initial series, we get stationary ones. In other words, the series Y i = Y i − Y i−1 and W i = W i − W i−1 are stationary, that is I(0). This can be easily verified from Fig. 1, where the non-stationary series {Y i }, {W i } are also presented. Y i W i ∆Y i ∆W i Figure 1. The I(1) series {Y i }, {W i } and the stationary ones {Y i }, {W i }.
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ECONOMIC MODELS Methods, Theory and
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ECONOMIC MODELS Methods, Theory and
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This Volume is Dedicated to the Mem
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Contents Tom Oskar Martin Kronsjo:
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Tom Oskar Martin Kronsjo: A Profile
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Tom Oskar Martin Kronsjo students t
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About the Editor Prof. Dipak Basu i
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Contributors Athanasios Athanasenas
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Contributors Victoria Miroshnik, is
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xx Introduction type of model is ve
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4 Olav Bjerkholt Among these was al
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6 Olav Bjerkholt method, searching
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10 Olav Bjerkholt be modified in th
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12 Olav Bjerkholt through a number
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18 Olav Bjerkholt References Arrow,
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24 Alexis Lazaridis A straightforwa
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26 Alexis Lazaridis where ⎛ ⎞ j
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28 Alexis Lazaridis Estimating the
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30 Alexis Lazaridis 5.1. Testing fo
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32 Alexis Lazaridis by applying the
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34 Alexis Lazaridis Nevertheless, t
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36 Alexis Lazaridis Table 2. Residu
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38 Alexis Lazaridis Table 3. Critic
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40 Alexis Lazaridis Figure 4. The s
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42 Alexis Lazaridis Perron, P and T
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152 Anna-Maria Mouza of salaries of
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Page 197 and 198: 174 Fabrizio Iacone and Renzo Orsi
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Economic Models - Convex Optimization

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