Reneé Van Eyden | University of Pretoria (original) (raw)

articles by Reneé Van Eyden

Abstract This study investigates the asymmetric and time-varying causalities between inflation an... more Abstract This study investigates the asymmetric and time-varying causalities between inflation and inflation uncertainty in South Africa within a conditional Gaussian Markov switching vector autoregressive (MS-VAR) model framework. The MS-VAR model is capable of determining both the sign and direction of causality. We account for the nonlinear, long memory and seasonal features of the inflation series simultaneously by measuring inflation uncertainty as the conditional variance of inflation generated by recursive estimation of a Seasonal Fractionally Integrated Smooth Transition Autoregressive Asymmetric Power \{GARCH\} (SEA-FISTAR-APGARCH) model using monthly data for the period 1921:01 to 2012:12. The recursive, rather than full-sample, estimation allows us to obtain a time-varying measure of uncertainty and better mimics the real-time scenario faced by economic agents and/or policy makers. The inferred probabilities from the four-state MS-VAR model show evidence of a time-varying relationship. The conditional (i.e. lead–lag) and regime-prediction Granger causality provide evidence in favor of Friedman's hypothesis. This implies that past information on inflation can help improve the one-step-ahead prediction of inflation uncertainty but not vice versa. Our results have some important policy implications.

Papers by Reneé Van Eyden

This paper explores the fundamental or deep causes of poverty persistence, which remains a centra... more This paper explores the fundamental or deep causes of poverty persistence, which remains a central challenge of the modern world. In theory, rising political participation in a democracy operationalises checks on state predation and cultivates development-enabling state capacity. This did not materialise in post-colonial subSaharan Africa. The theoretical foundation of this premise is further brought into question by the development achievements of strong, capable non-democracies like Singapore and Hong Kong. This study uses a dynamic panel-data model specification and General Methods of Moments for a sample of 105 countries over the period 1981 to 2015 to explore a probabilistic development hypothesis that fuses broad institutionalism with modernisation and human empowerment. In this model, regime-independent state capacity is relied on to trigger the transformational impetus associated with rising existential security, autonomy and individual agency. Ensuing shifts in societal val...

In this paper, we analyze the predictive role of firm-level business expectations and uncertainti... more In this paper, we analyze the predictive role of firm-level business expectations and uncertainties derived from a panel survey of U.S. 1,750 business executives from 50 states for the realized variance (sum of daily squared log-returns over a month) of the S&P500 over the monthly period of September, 2016 to July, 2021. Unlike standard models, our predictive framework adopts a timevarying approach due to the existence of multiple structural breaks in the relationship between volatility and the predictors in the model, which in turn leads to statistically insignificant causal effects in a constant parameter setup. Our time-varying results reveal the predictive power of firm-level business uncertainty is concentrated during the early part of the sample associated with the U.S.-China trade war, and towards the end of our data coverage in the wake of the outbreak of the COVID-19 pandemic. Since, in-sample predictability does not guarantee the same over an out-sample, we also conducted a full-fledged forecasting exercise to show that subjective expectations and uncertainties associated with sales growth rates and employment produces statistically significant predictability gains over January, 2020 to July, 2021, given an in-sample of September, 2016 to December, 2019. Our results suggest that subjective measures of business uncertainty at the firm-level indeed captures predictive information regarding aggregate stock market uncertainty which has important implications for investors and economic projections at the policy level.

Emerging Markets Review, 2015

This study investigates the asymmetric and time-varying causality between inflation and inflation... more This study investigates the asymmetric and time-varying causality between inflation and inflation uncertainty in South Africa within a conditional Gaussian Markov switching vector autoregressive (MS-VAR) model framework. The MS-VAR model is capable of determining both the sign and direction of causality. We account for the nonlinear, long memory and seasonal features of inflation series simultaneously by measuring inflation uncertainty as the conditional variance of inflation generated by recursive estimation of a Seasonal Fractionally Integrated Smooth Transition Autoregressive Asymmetric Power GARCH (SEA-FISTAR-APGARCH) model using monthly data for the period 1921:01 to 2012:12. The recursive, rather than a full-sample, estimation allows us to obtain a time-varying measure of uncertainty and better mimics the real-time scenario faced by economic agents and/or policy makers. The inferred probabilities from the four-state MS-VAR model show evidence of a time-varying relationship. The conditional (i.e. lead-lag) and regime-prediction Granger causality provide evidence in favour of Friedman's hypothesis. This implies that past information on inflation can help improve the one-step-ahead prediction of inflation uncertainty but not vice versa. Our results have some important policy implications.

The global financial crisis that began in 2007-08 demonstrated how severe the impact of financial... more The global financial crisis that began in 2007-08 demonstrated how severe the impact of financial markets' stress on real economic activity can be. In the wake of the financial crisis policy-makers and decision-makers across the world identified the critical need for a better understanding of financial conditions, and more importantly, their impact on the real economy. To this end, we have constructed a financial conditions index (FCI) for the South African economy, to enable the gauging of financial conditions and to better understand the macro-financial linkages in the country. The FCI is constructed using monthly data over the period 1966 to 2011, and is based on a set of sixteen financial variables, which include variables that define the state of international financial markets, asset prices, interest rate spreads, stock market yields and volatility, bond market volatility and monetary aggregates. We explore different methodologies for constructing the FCI, and find that recursive principal components analysis (PCA) yields the best result. We furthermore investigate whether it is beneficial to purge the FCI of the real effects of inflation, economic growth and interest rates, and use the identified FCI in causality testing with three macroeconomic variables.

Economic Modelling, 2011

The causal link between tourism receipts and GDP has recently become a major focus in the tourism... more The causal link between tourism receipts and GDP has recently become a major focus in the tourism economics literature. Results obtained in recent studies about the causal link appear to be sensitive with respect to the countries analysed, sample period and methodology employed. Considering the sensitivity of the causal link, we use rolling window and time-varying coefficient estimation methods to analyse the parameter stability and Granger causality based on a vector error correction model (VECM). When applied to South Africa for the 1960-2011 period, the findings are as follows: results from the full sample VECM indicate that there is no Granger-causality between tourism receipts and GDP, while the findings from the time-varying coefficients model based on the state-space representation show that tourism receipts have positive-predictive content for GDP for the entire period, with the exception of the period between 1985 and 1990. Full sample time varying causality tests show bidirectional strong causality between tourism receipts and GDP.

Supplemental material, sj-pdf-1-eea-10.1177_0144598721993227 for Impact of oil price volatility o... more Supplemental material, sj-pdf-1-eea-10.1177_0144598721993227 for Impact of oil price volatility on state-level consumption of the United States: The role of oil dependence by Reneé van Eyden, Rangan Gupta, Xin Sheng and Mark E Wohar in Energy Exploration & Exploitation

Energy Exploration & Exploitation

In this study, we analyse the impact of oil price uncertainty (as measured by an observable measu... more In this study, we analyse the impact of oil price uncertainty (as measured by an observable measure of oil price volatility, i.e. realised volatility) on United States state-level real consumption by accounting for oil dependency. We account for both the long- and short-run dynamics of the state-level consumption function using the panel Pooled Mean Group estimator. The analysis makes use of a novel dataset including housing and stock market wealth at the state level covering the quarterly period 1975:Q1 to 2012:Q2, supplemented with an annual dataset up to 2018. We simultaneously estimate the long-run relationship and short-run impact of oil price volatility at the state-level conditional upon their oil dependency. We find that the negative impact of volatility is most severe for the states of Wyoming, Alaska and New Mexico, while the negative impact is least for Illinois, New York and Nebraska. States with lower per capita income and consumption expenditure, notably in the Southea...

Energy Exploitation and Exploration, 2022

The Quarterly Review of Economics and Finance

In this paper we test the forecasting ability of three estimated financial conditions indices (FC... more In this paper we test the forecasting ability of three estimated financial conditions indices (FCIs) with respect to key macroeconomic variables of output growth, inflation and interest rates. We do this by forecasting the aforementioned macroeconomic variables based on the information contained in the three alternative FCIs using a Bayesian VAR (BVAR), nonlinear logistic vector smooth transition autoregression (VSTAR) and nonparametric (NP) and semi-parametric (SP) regressions, and compare the results with the standard benchmarks of random-walk, univariate autoregressive and classical VAR models. The three FCIs are constructed using rolling-window principal component analysis (PCA), dynamic model averaging (DMA) in the context of a time-varying parameter factor-augmented vector autoregressive (TVP-FAVAR) model, and a time-varying parameter vector autoregressive (TVP-VAR) model with constant factor loadings. Our results suggest that the VSTAR model performs best in the case of forecasting manufacturing production and inflation, while a SP specification proves to be the best for forecasting the interest rate. More importantly, statistics testing for significant differences in forecast errors across models corroborate the finding of superior predictive ability of the nonlinear models.

Applied Energy

In this paper we make use of a number of different panel data estimators, including fixed effects... more In this paper we make use of a number of different panel data estimators, including fixed effects, biascorrected least squares dummy variables (LSDVC), generalised methods of moments (GMM), feasible generalised least squares (FGLS), and random coefficients (RC) to analyse the impact of real oil price volatility on the growth in real GDP per capita for 17 member countries of the Organisation for Economic Cooperation and Development (OECD), over a 144-year time period from 1870 to 2013. Our main findings can be summarised as follows: overall, oil price volatility has a negative and statistically significant impact on economic growth of OECD countries in our sample. In addition, when allowing for slope heterogeneity, oil producing countries are significantly negatively impacted by oil price uncertainty, most notably Norway and Canada.

Contemporary Economics

This paper investigates the effect of remittance inflows on real exchange rates in sub-Saharan Af... more This paper investigates the effect of remittance inflows on real exchange rates in sub-Saharan Africa (SSA) using annual data from 1980 to 2008 for 34 countries, the method of moments estimator developed by Arellano and Bover (1995) and the feasible generalized least squares estimator developed by Parks (1967) and Kmenta (1986). We find that when cross-sectional dependence and individual effects are controlled for, remittances to sub-Saharan Africa as a whole increase the underlying real exchange rates of recipient countries. However, this real exchange rate appreciation is mitigated by monetary policy interventions and the direction of fiscal expenditures towards tradable goods. Thus, the real exchange rate appreciation does not lead to the loss of export competitiveness or a worsening of the trade deficit in the countries in the panel. Research has demonstrated that significant increases in foreign inflows such as remittances could cause the underlying real exchange rate of the recipient economy to appreciate, adversely affecting export competitiveness and, consequently, the trade deficit (Corden and Neary, 1982). This would further result in the contraction of the tradable sector of the recipient economy, leading to a decline in the manufacturing and production of other tradable goods. Additionally, an increase in remittances-ceteris paribus-increases the disposable incomes of recipient households, leading to

African Development Review

One characteristic of many macroeconomic and financial time series is their asymmetric behaviour ... more One characteristic of many macroeconomic and financial time series is their asymmetric behaviour during different phases of a business cycle. Oil price shocks have been amongst those economic variables that have been identified in theoretical and empirical literature to predict the phases of business cycles. However, the role of oil price shocks to determine business cycle fluctuations has received less attention in emerging and developing economies. The aim of this study is to investigate the role of oil price shocks in predicting the phases of the South African business cycle associated with higher and lower growth regimes. By adopting a regime dependent analysis, we investigate the impact of oil price shocks under two phases of the business cycle, namely high and low growth regimes. As a net importer of oil, South Africa is expected to be vulnerable to oil price shocks irrespective of the phase of the business cycle. Using a Bayesian Markov switching vector autoregressive (MS-VAR) model and data for the period 1960Q2 to 2013Q3, we found the oil price to have predictive content for real output growth under the low growth regime. The results also show the low growth state to be shorter-lived compared to the higher growth state.

Journal of Policy Modeling

This paper examines the role of U.S. economic policy uncertainty on the effectiveness of monetary... more This paper examines the role of U.S. economic policy uncertainty on the effectiveness of monetary policy in the Euro area. Using a structural Interacted Vector Autoregressive (IVAR) model conditional on high and low levels of U.S. economic policy uncertainty, we find that uncertainty regarding policy changes in the U.S. dampens the effect of monetary policy shocks in the Euro area, with both price and output reacting more significantly to monetary policy shocks when the level of U.S. policy uncertainty is low. We argue that the U.S. government's actions regarding policy changes in the U.S. is a source of uncertainty for Euro area investors and high levels of policy uncertainty that spill over from the U.S. drive Euro area investors to adopt a wait-and-see approach, leading to a relatively weaker (and sometimes insignificant) response of price and output to monetary tightening in the Euro area. The findings underscore the importance of market integration and coordination of economic policy changes on the effectiveness of monetary policy on the macroeconomy on both sides of the Atlantic. Our results thus, provide evidence in favour of the policy ineffectiveness hypothesis in the Euro area contingent on the economic policy uncertainty of the U.S.

Empirical Economics, 2017

This paper analyses the empirical relationship between inflation and growth using a panel data es... more This paper analyses the empirical relationship between inflation and growth using a panel data estimation technique, Multiple Regime Panel Smooth Transition Regression (MR-PSTR), which takes into account the nonlinearities in the data. By using a panel data set for 10 countries in the Southern African Development Community (SADC) permit us to control for unobserved heterogeneity at both country and time levels, we find that a statistically significant negative relationship exists between inflation and growth for inflation rates above the critical threshold levels of 12% and 32% which are endogenously determined. Furthermore, we remedy the cross section dependence with the Common

Journal of International Financial Markets, Institutions and Money, 2016

The negative consequences of financial instability for the world economy during the recent financ... more The negative consequences of financial instability for the world economy during the recent financial crisis have highlighted the need for a better understanding of financial conditions. We use a financial conditions index (FCI) for South Africa previously constructed from 16 financial variables to test whether the South African economy responds in a nonlinear and asymmetric way to unexpected changes in financial conditions. To this end, we make use of a nonlinear logistic smooth transition vector autoregressive model (LSTVAR), which allows for a smooth evolution of the economy, governed by a chosen switching variable between periods of high and low financial volatility. We find that the South African economy responds nonlinearly to financial shocks, and that manufacturing output growth and Treasury Bill rates are more affected by financial shocks during upswings. Inflation responds significantly more to financial changes during recessions.

Emerging Markets Finance and Trade, 2016

The substantial change in South Africa's trade patterns over the past two decades has affected th... more The substantial change in South Africa's trade patterns over the past two decades has affected the impact of economic shocks in major world economies on South Africa. To investigate the effect, we use a global vector autoregression (GVAR) model with time-varying trade weights to account for changing international trade linkages. We show that the long-term impact of a shock to Chinese GDP on South African GDP is much stronger in 2009 than in 1995, due to the substantial increase in South Africa's trade with China since the mid-1990s. At the same time, the importance of the US economy to South Africa diminished considerably. The results indicate one of the possible reasons why the recent global crisis did not affect South Africa as much as it affected developed economies. It also stresses the increased risk, to the South African and other economies, should China experience slower GDP growth.

Emerging Markets Finance and Trade, 2015

Traditionally, the literature on forecasting exchange rates with many potential predictors have p... more Traditionally, the literature on forecasting exchange rates with many potential predictors have primarily only accounted for parameter uncertainty using Bayesian Model Averaging (BMA). Though BMA-based models of exchange rates tend to outperform the random walk model, we show that when accounting for model uncertainty over and above parameter uncertainty through the use of Dynamic model Averaging (DMA), the gains relative to the random walk model are even bigger. That is, DMA models outperform not only the random walk model, but also the BMA model of exchange rates. We obtain these results based on fifteen potential predictors used to forecast two South African Rand-based exchange rates. In the process, we also unveil variables, which tends to vary over time, that are good predictors of the Rand-Dollar and Rand-Pound exchange rates at different forecasting horizons.

Emerging Markets Review, 2015

Economic Modelling, 2011

Energy Exploration & Exploitation

Energy Exploitation and Exploration, 2022

The Quarterly Review of Economics and Finance

Applied Energy

Contemporary Economics

African Development Review

Journal of Policy Modeling

Empirical Economics, 2017

Journal of International Financial Markets, Institutions and Money, 2016

Emerging Markets Finance and Trade, 2016

Emerging Markets Finance and Trade, 2015

The importance of financial instability for the world economy has been severely demonstrated sinc... more The importance of financial instability for the world economy has been severely demonstrated since the 2007/08 global financial crisis, highlighting the need for a better understanding of financial conditions. We consider a financial conditions index (FCI) for South Africa which is constructed from 16 financial variables and test whether the FCI does better than its individual financial components in forecasting the key macroeconomic variables of output growth, inflation and interest rates. Two sets of out-of-sample forecasts are obtained-one from a benchmark AR model and one from a nested ARDL model which includes one financial variable at a time. This concept of forecast encompassing is used to examine the out-of-sample forecasting ability of these financial variables as well as of the FCI, while also controlling for data-mining. We find that the FCI has good out-of-sample forecasting ability with respect to manufacturing output growth at the one, three and six month horizons, but has no forecasting ability with respect to inflation and interest rates 1 .