Advanced Search
MyIDEAS: Login to save this paper or follow this series

The Dependence Structure of Macroeconomic Variables in the US

Contents:

Author Info

  • Chollete, Loran

    ()
    (University of Stavanger)

  • Ning, Cathy

    (Ryerson University)

Abstract

A central role for economic policy involves reducing the incidence of systemic downturns, when key economic variables experience joint extreme events. In this paper, we empirically analyze such dependence using two approaches, correlations and copulas. We document four findings. First, linear correlations and copulas disagree substantially about the nation’s dependence structure, indicating correlation complexity in the US economy. Second, GDP exhibits linear dependence with interest rates and prices, but no extreme dependence with the latter. This is consistent with the existence of liquidity traps. Third, GDP exhibits asymmetric extreme dependence with employment, consumption and investment, with relatively greater dependence during downturns. Fourth, money is neutral, especially during extreme economic conditions.

(This abstract was borrowed from another version of this item.)

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www1.uis.no/ansatt/odegaard/uis_wps_econ_fin/uis_wps_2009_31_chollete_ning.pdf
Download Restriction: no

Bibliographic Info

Paper provided by University of Stavanger in its series UiS Working Papers in Economics and Finance with number 2009/31.

as in new window
Length: 38 pages
Date of creation: 14 Sep 2009
Date of revision:
Handle: RePEc:hhs:stavef:2009_031

Contact details of provider:
Postal: University of Stavanger, NO-4036 Stavanger, Norway
Web page: http://www.uis.no/research/economics_and_finance
More information through EDIRC

Related research

Keywords: Asymmetric dependence; copula; correlation complexity; extreme event; economic policy; money neutrality; systemic downturn;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Rodriguez, Juan Carlos, 2007. "Measuring financial contagion: A Copula approach," Journal of Empirical Finance, Elsevier, Elsevier, vol. 14(3), pages 401-423, June.
  2. Laura Veldkamp & Justin Wolfers, 2006. "Aggregate Shocks or Aggregate Information? Costly Information and Business Cycle Comovement," NBER Working Papers 12557, National Bureau of Economic Research, Inc.
  3. Gary Hansen, 2010. "Indivisible Labor and the Business Cycle," Levine's Working Paper Archive 233, David K. Levine.
  4. Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(2), pages 228-48, April.
  5. Dwight M. Jaffee & Thomas Russell, 1996. "Catastrophe Insurance, Capital Markets and Uninsurable Risks," Center for Financial Institutions Working Papers, Wharton School Center for Financial Institutions, University of Pennsylvania 96-12, Wharton School Center for Financial Institutions, University of Pennsylvania.
  6. Xavier Vives, 2007. "Information and Learning in Markets," Levine's Bibliography 122247000000001520, UCLA Department of Economics.
  7. Ricardo J. Caballero & Arvind Krishnamurthy, 2007. "Collective Risk Management in a Flight to Quality Episode," NBER Working Papers 12896, National Bureau of Economic Research, Inc.
  8. Valery Polkovnichenko, 2005. "Household Portfolio Diversification: A Case for Rank-Dependent Preferences," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 18(4), pages 1467-1502.
  9. Ser-Huang Poon, 2004. "Extreme Value Dependence in Financial Markets: Diagnostics, Models, and Financial Implications," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 17(2), pages 581-610.
  10. Reinhart, Carmen, 2008. "Eight Hundred Years of Financial Folly," MPRA Paper 11864, University Library of Munich, Germany.
  11. Martin Feldstein & Charles Horioka, 1979. "Domestic Savings and International Capital Flows," NBER Working Papers 0310, National Bureau of Economic Research, Inc.
  12. Gary Solon & Robert Barsky & Jonathan A. Parker, 1992. "Measuring the Cyclicality of Real Wages: How Important is Composition Bias," NBER Working Papers 4202, National Bureau of Economic Research, Inc.
  13. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, Econometric Society, vol. 47(2), pages 263-91, March.
  14. Fabio Busetti & Andrew Harvey, 2011. "When is a Copula Constant? A Test for Changing Relationships," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 9(1), pages 106-131, Winter.
  15. Reinhart, Carmen M. & Rogoff, Kenneth S., 2009. "The Aftermath of Financial Crises," Scholarly Articles 11129155, Harvard University Department of Economics.
  16. Andrew Patton, 2004. "Modelling Asymmetric Exchange Rate Dependence," Working Papers, Warwick Business School, Finance Group wp04-04, Warwick Business School, Finance Group.
  17. Okimoto, Tatsuyoshi, 2008. "New Evidence of Asymmetric Dependence Structures in International Equity Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 43(03), pages 787-815, September.
  18. repec:sae:ecolab:v:16:y:2006:i:2:p:1-2 is not listed on IDEAS
  19. Lucas, Robert E, Jr, 1975. "An Equilibrium Model of the Business Cycle," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 83(6), pages 1113-44, December.
  20. De Rossi, Giuliano & Harvey, Andrew, 2009. "Quantiles, expectiles and splines," Journal of Econometrics, Elsevier, Elsevier, vol. 152(2), pages 179-185, October.
  21. Robert J. Hodrick & Edward Prescott, 1981. "Post-War U.S. Business Cycles: An Empirical Investigation," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 451, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  22. Granger, Clive W.J., 2001. "Overview Of Nonlinear Macroeconometric Empirical Models," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 5(04), pages 466-481, September.
  23. Ang, Andrew & Chen, Joseph, 2002. "Asymmetric correlations of equity portfolios," Journal of Financial Economics, Elsevier, Elsevier, vol. 63(3), pages 443-494, March.
  24. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, Elsevier, vol. 4(2), pages 103-124, April.
  25. Benoit Mandelbrot, 1963. "The Variation of Certain Speculative Prices," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 36, pages 394.
  26. Andrew J. Patton, 2004. "On the Out-of-Sample Importance of Skewness and Asymmetric Dependence for Asset Allocation," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 2(1), pages 130-168.
  27. Rosenberg, Joshua V. & Schuermann, Til, 2006. "A general approach to integrated risk management with skewed, fat-tailed risks," Journal of Financial Economics, Elsevier, Elsevier, vol. 79(3), pages 569-614, March.
  28. Chollete, Lorán & Heinen, Andréas & Valdesogo, Alfonso, 2008. "Modeling International Financial Returns with a Multivariate Regime Switching Copula," Discussion Papers, Department of Business and Management Science, Norwegian School of Economics 2008/3, Department of Business and Management Science, Norwegian School of Economics.
  29. Chen, Xiaohong & Fan, Yanqin, 2006. "Estimation and model selection of semiparametric copula-based multivariate dynamic models under copula misspecification," Journal of Econometrics, Elsevier, Elsevier, vol. 135(1-2), pages 125-154.
  30. Benartzi, Shlomo & Thaler, Richard H, 1995. "Myopic Loss Aversion and the Equity Premium Puzzle," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 110(1), pages 73-92, February.
  31. Hamilton, James D, 2001. "A Parametric Approach to Flexible Nonlinear Inference," Econometrica, Econometric Society, Econometric Society, vol. 69(3), pages 537-73, May.
  32. Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, American Economic Association, vol. 63(3), pages 326-34, June.
  33. Markus K. Brunnermeier, 2008. "Deciphering the Liquidity and Credit Crunch 2007-08," NBER Working Papers 14612, National Bureau of Economic Research, Inc.
  34. Edmund S. Phelps, 1968. "Money-Wage Dynamics and Labor-Market Equilibrium," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 76, pages 678.
  35. Harvey, Campbell R. & Siddique, Akhtar, 1999. "Autoregressive Conditional Skewness," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 34(04), pages 465-487, December.
  36. King, Robert G & Plosser, Charles I, 1984. "Money, Credit, and Prices in a Real Business Cycle," American Economic Review, American Economic Association, American Economic Association, vol. 74(3), pages 363-80, June.
  37. Van Nieuwerburgh, Stijn & Veldkamp, Laura, 2006. "Learning asymmetries in real business cycles," Journal of Monetary Economics, Elsevier, Elsevier, vol. 53(4), pages 753-772, May.
  38. Andrew Ang & Geert Bekaert, 2002. "International Asset Allocation With Regime Shifts," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 15(4), pages 1137-1187.
  39. Lucas, Robert E., 1977. "Understanding business cycles," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 5(1), pages 7-29, January.
  40. Hall, Robert E, 1988. "Intertemporal Substitution in Consumption," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 96(2), pages 339-57, April.
  41. Laxton, Douglas & Rose, David & Tambakis, Demosthenes, 1999. "The U.S. Phillips curve: The case for asymmetry," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 23(9-10), pages 1459-1485, September.
  42. Phelps, Edmund S., 2006. "Macroeconomics for a Modern Economy," Nobel Prize in Economics documents, Nobel Prize Committee 2006-4, Nobel Prize Committee.
  43. Jaffee, Dwight M & Russell, Thomas, 1976. "Imperfect Information, Uncertainty, and Credit Rationing," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 90(4), pages 651-66, November.
  44. Rothman, Philip & van Dijk, Dick & null, Philip Hans, 2001. "Multivariate Star Analysis Of Money Output Relationship," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 5(04), pages 506-532, September.
  45. Cathy Ning, 2009. "Extreme Dependence in International Stock Markets," Working Papers, Ryerson University, Department of Economics 008, Ryerson University, Department of Economics.
  46. Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 2010. "A theory of Fads, Fashion, Custom and cultural change as informational Cascades," Levine's Working Paper Archive 1193, David K. Levine.
  47. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 39(1), pages 195-214, December.
  48. Horst, Ulrich & Scheinkman, Jose A., 2006. "Equilibria in systems of social interactions," Journal of Economic Theory, Elsevier, Elsevier, vol. 130(1), pages 44-77, September.
  49. Satyajit Chatterjee & Dean Corbae, 2006. "On the aggregate welfare cost of Great Depression unemployment," Working Papers 06-18, Federal Reserve Bank of Philadelphia.
  50. Dwight Jaffee, 2006. "Monoline Restrictions, with Applications to Mortgage Insurance and Title Insurance," Review of Industrial Organization, Springer, Springer, vol. 28(2), pages 83-108, 03.
  51. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, American Economic Association, vol. 71(3), pages 393-410, June.
  52. Paul Embrechts, 2009. "Copulas: A Personal View," Journal of Risk & Insurance, The American Risk and Insurance Association, The American Risk and Insurance Association, vol. 76(3), pages 639-650.
  53. Long, John B, Jr & Plosser, Charles I, 1983. "Real Business Cycles," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(1), pages 39-69, February.
  54. Andrew J. Patton, 2008. "Copula-Based Models for Financial Time Series," Economics Series Working Papers, University of Oxford, Department of Economics 2008fe21, University of Oxford, Department of Economics.
  55. Jondeau, Eric & Rockinger, Michael, 2006. "The Copula-GARCH model of conditional dependencies: An international stock market application," Journal of International Money and Finance, Elsevier, Elsevier, vol. 25(5), pages 827-853, August.
  56. Kristin Forbes & Roberto Rigobon, 1999. "No Contagion, Only Interdependence: Measuring Stock Market Co-movements," NBER Working Papers 7267, National Bureau of Economic Research, Inc.
  57. Ning, Cathy, 2010. "Dependence structure between the equity market and the foreign exchange market-A copula approach," Journal of International Money and Finance, Elsevier, Elsevier, vol. 29(5), pages 743-759, September.
  58. Sheppard, Kevin & Cappiello, Lorenzo & Engle, Robert F., 2003. "Asymmetric dynamics in the correlations of global equity and bond returns," Working Paper Series, European Central Bank 0204, European Central Bank.
  59. Jean-David FERMANIAN & Olivier SCAILLET, 2003. "Nonparametric Estimation of Copulas for Time Series," FAME Research Paper Series, International Center for Financial Asset Management and Engineering rp57, International Center for Financial Asset Management and Engineering.
  60. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, Econometric Society, vol. 50(6), pages 1345-70, November.
  61. Nicholas Barberis & Ming Huang & Tano Santos, 2001. "Prospect Theory And Asset Prices," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 116(1), pages 1-53, February.
  62. Samuelson, Paul A., 1967. "General Proof that Diversification Pays," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 2(01), pages 1-13, March.
  63. Lucas, Robert E, Jr & Rapping, Leonard A, 1969. "Real Wages, Employment, and Inflation," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 77(5), pages 721-54, Sept./Oct.
  64. Jean-Pierre Zigrand & Hyun Song Shin & Jon Danielsson, 2010. "Risk Appetite and Endogenous Risk," FMG Discussion Papers, Financial Markets Group dp647, Financial Markets Group.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:hhs:stavef:2009_031. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bernt Arne Odegaard).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.