Thesis Abstract
Title of Thesis ESSAYS IN APPLIED ECONOMETRICS
Author
Name NGUYEN BA TRUNG
Supervisor BAAK SAANG JOON, YOSHIAKI OGURA Abstract (within 1,500 words):
This dissertation consists of three chapters, mainly focusing on applied econometrics.
After the 2007-2008 global financial crisis and the great depression, the central banks of leading economies have conducted various unconventional macroeconomic policies to accelerate the recovery of the economy. Consequently, economic policy uncertainty has significantly increased and driven the business cycles of the global economy. Much of policy uncertainty has stemmed from the US economy. The world economy has increasingly integrated through trades and financial flows. Therefore, uncertainty in a leading economy is not only confined within its borders, but also spreads across the world. For this reason, in the first chapter, we investigate the spillover effects of US policy uncertainty on emerging economics in a panel VAR model. We find that US uncertainty shocks are the
risks, and hence drop the capital inflow, investment, consumption, export, and output of emerging economies. This also induces the currency depreciation and a fall in short-term interest rate of emerging economies. Our findings partly help explain the slow recovery of the world economy after the 2007 2008 global financial crisis. This chapter is an outgrowth of Trung, N. B. (2019). The spillover effect of the US uncertainty on emerging economies: a panel VAR approach.
Applied Economics Letters, 26(3), 210 216.
https://doi.org/10.1080/13504851.2018.1458183.
In the first chapter, we have employed a panel VAR model to study the spillover effects of US policy uncertainty on emerging economies. However, this model has some disadvantages. First, this model does not allow examining separately the spillover effects of uncertainty for each country. Second, it does not account for the multilateral nature of international linkages among countries and regions. As a result, this can lead to weak robustness of empirical testing. Third, this model is unable to explain why some countries are more vulnerable to US policy uncertainty than others. Therefore, in chapter 2, we employed a Global VAR model to address these shortcomings. Estimating a global VAR model for 32 countries, we find that US policy uncertainty shocks are significant in driving the business cycle fluctuations of the world economy. However, the spillovers are
small and heterogeneous across countries, which are determined by the different types of US policy uncertainty (e.g., monetary policy uncertainty versus fiscal
development, trade and financial openness, and quality of institutions). The empirical results offer crucial policy implications for both advanced and developing economies. Improving trade and financial openness and institutional quality can help them to mitigate their vulnerability to US policy uncertainty shock. This chapter is an outgrowth of Trung, N. B. (2019). The spillover effects of US economic policy uncertainty on the global economy: A global VAR approach.
The North American Journal of Economics and Finance, 48, 90 110.
https://doi.org/10.1016/j.najef.2019.01.017.
As shown in chapter 2, the different types of policy uncertainty shock will generate different outcomes. The current literature has remarked that monetary policy uncertainty is one of the most dominant sources of policy uncertainty shock. For this reason, in chapter 3, we propose a simple econometric method to measure monetary policy uncertainty. Our main approach is that monetary policy is more uncertain when monetary policy is less predictable, which are represented by error forecasts of actual interest rate from its optimal target.
After the 2007-2008 global financial crisis, the central banks in many leading
economies have implemented various unconventional monetary policies. The interest rate volatility does not enough capture all the dimensions of monetary policy uncertainty. Therefore, we further use two extra auxiliary sources in measuring monetary policy uncertainty. First, to deal with the great depression, central banks have implemented quantitative easing policies, which have large impacts on financial markets and economic activities. We, therefore, use money growth volatility (M) as an extra auxiliary source for measuring monetary policy uncertainty. Second, during the great depression, central banks have inhibited monetary policy uncertainty by increasing public communication via forward guidance. However, the central bank holds private information about problems of the economy, and thus release of such information can be potential harmful.
Furthermore, communication and forward
guidance can increase uncertainty about monetary policy. We therefore, use the newspaper coverage of monetary policy uncertainty (HRS index) proposed by Husted, Rogers, and Sun (2017) to capture this kind of uncertainty. We then combine these sources to create a measurement for monetary policy uncertainty based on an univariate GARCH(1,1) with principle component analysis. We then illustrate our methodology for the US economy, and find that our monetary policy uncertainty index is well fitted with the experience of US monetary shocks,
spiking near tight to the Early 1990 recession, the 2007-2008 financial crisis, quantitative easing policy, zero low bound interest rate policy, and the recent interest rate hike. Finally, we build a VAR model for quantifying the effects of monetary policy uncertainty on real economic activities. We figure out that monetary policy uncertainty shocks are harmful to real economic activities. This effect is more sizeable and persistent during the great depression. Our findings partly help explain the slow recovery of the world economy after the 2007-2008 global financial crisis. This chapter is an outgrowth of Trung, N. B. (2019).
Monetary policy uncertainty and economic fluctuations, which is under review of Journal of Applied Econometrics.
