the impact of the euro area macroeconomy on …...conference chairs cobanoglu, cihan, ph.d, chtl,...

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Conference Chairs Cobanoglu, Cihan, Ph.D, CHTL, University of South Florida Sarasota-Manatee, USA Ongan, Serdar, Ph.D, CHTL, University of South Florida Sarasota-Manatee, USA

Scientific Committee: Agarwal, Anurag, Ph.D,College of Business,University of South Florida Sarasota-Manatee,

USA Arlt, Wolfgang G., Ph.D, Faculty of Economics, Westküste University, Germany Cetin, Tamer, Ph.D, Department of Economics,Yildiz Technical University,Turkey Clark, Ephraim, Ph.D, School of Business, Middlesex University, UK Cockshott, William, Ph.D, School of Computing Science, University of Glasgow, UK Cláudia Custódio, Ph.D., W. P. Carey School of Business, Arizona State University, USA Dallari, Fiorella, Ph.D, Department of Political and Economic Geography, University of

Bologna, Italy Dwyer, Larry, Ph.D, Australian School of Business, University of New South

Wales, Australia Gill, Grandon, Ph.D, College of Business, University of South Florida-Tampa,USA Department of Economics, Yeditepe University, Turkey Harrolle, Michelle, Ph.D, College of Business, University of South Florida, USA Hji-Avgoustis, Sotiris, Ph.D, Department of Family and Consumer Sciences, Ball State

University, USA Holecek, Don, Ph.D, Department of Community Sustainability, Michigan State University,

USA Incekara, Ahmet, Ph.D. Department of Economics, Istanbul University, Turkey Kaplanidou, Kyriaki, Ph.D, College of Health and Human Performance, University of

Florida, USA Kizildag, Murat, PhD, Rosen College of Hospitality Management, University of Central

Florida, USA Li, Robert, Ph.D, School of Hotel, Restaurant, and Tourism Man., University of South

Carolina, USA Lianos, Theodoros, Ph.D, College of Economics and Business, Athens, University, Greece Mahony, Daniel, Ph.D, College of Education, Health and Human Services, Kent State

University, USA Martin, Rand D., Ph.D, Department of Finance, Bloomsburg University of Pennsylvania,

USA Ph.D, College of Human Ecology, East Carolina University, USA Okumus, Fevzi, Ph.D, Rosen College of Hospitality Management, University of Central

Florida, USA Pennington-Gray, Lori, Ph.D, College of Health and Human Performance, University of

Florida, USA Rascher, Daniel A., Ph.D, Department of Sport Management, University of San Francisco,

USA Riordan, James, Ph.D, College of Business, Florida Atlantic University, USA Serra, Francisco, Ph.D, School of Management, University of the Algarve, Portugal Shu, Tao, Ph.D, Department of Banking and Finance, University of Georgia, USA Song, Haiyan, Ph.D, SHTM, Hong Kong Polytechnic University, Hong Kong Tingle, Jacob, Ph.D, Department of Business Administration, Trinity University, USA Tuna, Muharrem, PhD, Faculty of Tourism, Gazi University, Turkey

Scientific Relations Coordinator:

-Manatee, USA

PREFACE

SPONSORS

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Table of Contents

An Empirical Analysis of the Role of Import Percentage in Merger Activities in International Capital

Market: A Study of the Policy Implications ................................................................................................ 8

David Chih-Hsiang Chen ............................................................................................................................ 8

Term Structure of Russian Credit Rates and Arbitrage Theory ............................................................ 13

Victor Chetverikova, Vadim Ajevskyb and Mariya Bondarevaa ................................................................. 13

The Impact of the Euro Area Macroeconomy on Global Commodity Prices ........................................ 23

a, Slawomir Smiechb and Marek A. Dabrowskic ................................................................ 23

Determinants of FDI into the Central and Eastern European Countries: A Componentwise Study .. 34

Burcak Polat ............................................................................................................................................. 34

The Impact of Increase of Tourist Shoppers on the Pricing of Street Level Retail Shops in Hong

Kong ............................................................................................................................................................. 47

Yan Liua and K. W. Chaua ......................................................................................................................... 47

Content Analysis: Application of E-Business among SMEs .................................................................... 48

Sushma Kumari a and Steve McGuireb ...................................................................................................... 48

udy on

Egyptian Stock Exchange ........................................................................................................................... 56

Sarah Ali Elkholy ...................................................................................................................................... 56

The Quick Way to Search for Worldwide M&A (Mergers & Acquisitions) Target: The Concept of

one M&A Computer Software Patent ....................................................................................................... 67

David Chih-Hsiang Chen .......................................................................................................................... 67

The Status of Trade between Jordan and Palestine from the Perspective the Palestinian Business

People, Importers and Exporters ............................................................................................................... 73

Khalid Mohammed Sweis and aAhmed "Mohammed Akram" Shwaikab ................................................... 73

Competition and Risk Management Practices in the Bulgarian Banking System ................................. 89

Andrey Gurova and Didar Erdinc ............................................................................................................. 89

Revisiting Chaotic Interest Rate Rules ...................................................................................................... 90

Vivaldo M. Mendesa, and Diana Aldea Mendesb ...................................................................................... 90

The Distribution of ISE-

..................................................................................................................................................... 91

Amir Hossein Seyyedi ............................................................................................................................... 91

The Interrelation among Faithful Representation (Reliability), Corruption and IFRS Adoption: An

Empirical Investigation ............................................................................................................................... 92

Alexios Kythreotis ..................................................................................................................................... 92

Abolition of Regional Development Agencies and its Impact on Tourism in England ....................... 102

Emma Wong ............................................................................................................................................ 102

Types of Asymmetries in Exporter-Importer Relationships and Alignment Behaviour .................... 103

2

Cagri Talaya and Dianne Deanb ............................................................................................................. 103

Institutitonalization and Myths ................................................................................................................ 114

Nevra Baker ............................................................................................................................................ 114

............................. 115

Pedro Letai ............................................................................................................................................. 115

.............................................................................................. 129

Nektaria Tzioraa, Charalabos Panagiotis Papacharalabousb ................................................................ 129

Knowledge Management and Employee Perception .............................................................................. 138

Parag Sanghani ...................................................................................................................................... 138

Factors Effecting the Development of Islamic Finance in Turkey ........................................................ 139

Suna Akten Curuk ................................................................................................................................... 139

Benefits and Value of Investments in Information Systems: The Case of Enterprise Resource

Planning (ERP) Systems in the Hospitality Industry ............................................................................. 148

Paula Serdeira Azevedoa, Carlos Azevedoa, Mario Romaob ................................................................... 148

An Empirical Study of the Relationship between Store Access Convenience, Customer Satisfaction

and Word of Mouth ................................................................................................................................... 156

Yasser Mahfooz ....................................................................................................................................... 156

Does control-ownership disparity matter to foreign investors in Korea? ............................................ 166

Yoo Kyung Leea and Myeong Hyeon Choa .............................................................................................. 166

On Competitive and Comparative Advantage: Towards a Unified Theory of International Trade . 177

Bernard C. Beaudreau ............................................................................................................................ 177

The Feasibility of Voice Controlled Guide Phone for Senior Tourists ................................................. 178

Kun I Chiu ............................................................................................................................................... 178

Does industry illiquidity matter for IPO underpricing? Evidence from China ................................... 179

Sibo Liu ................................................................................................................................................... 179

the Australian Consumer Law (Australia) .............................................................................................. 180

Andrew Coleman and Mark Bender ........................................................................................................ 180

Government Stability, Accession to EU and Foreign Direct Investment in Turkey: A GMM

Approach .................................................................................................................................................... 181

Bulent Esiyok .......................................................................................................................................... 181

Analysis of Online Customer Complaints on Travel Trade .................................................................. 182

Sehnaz Demirkola, Dilbar Guliyevab and Gurel Cetinc ........................................................................... 182

A Catastrophic Failure of Risk Management: The Case of BP Oil Spill .............................................. 183

Sevim Oztimurlenk .................................................................................................................................. 183

Forecasting the Iberian Electricity Market Demand by Using Nonlinear Time Series Tools ............ 184

3

Diana Aldea Mendesa, and Vivaldo M. Mendesb .................................................................................... 184

........................................................ 185

Peter Schuwalowa, Lionel Frostb and Luc Borrowmanc ......................................................................... 185

The Relationship between Mobbing and Job Satisfaction in Workplace ............................................. 186

Meltem Uygun ......................................................................................................................................... 186

Wealth Accumulation by Means of Homeownership and Its Effects on Housing Prices in Urban

China .......................................................................................................................................................... 195

Zheng Linzi ............................................................................................................................................. 195

Corporate Governance and Returns on Investments of Pakistani Listed Companies ........................ 212

Nouman Afgana, Klaus Guglerb and Robert Kunstc ................................................................................ 212

The New Net Generation and Social Media: How Do the Youth Use Twitter in Turkey ................... 229

Mihalis Kuyucu ....................................................................................................................................... 229

A Reconsideration of the Inflation and Inflation Uncertainty Relationship for the Turkish Economy:

New Evidence from the 2003-2014 Period ............................................................................................... 241

Pelin Karatay Gogula and Levent Korapb ............................................................................................... 241

The Role of Meeting Space Capacity on the Hotel Performance Measures ......................................... 250

Ozgur Ozdemira and Melih Madanoglub ................................................................................................. 250

Individual and Organizational Antecedents of Safety Behaviors and their Relationships with

Occupational Accidents: An Empirical Research on Blue-Collar Workers ........................................ 251

Pelin Kanten ........................................................................................................................................... 251

Business ...................................................................................................................................................... 261

Eunji Leea, Joohyun Jungb, Sanghee Parkc, Insin Kimd and Sunghyup Sean Hyune ............................... 261

Saudia Arabia Internet Banking: A Conceptual Framework of the Relationship between E-Banking

Service Quality and E-Customer Satisfaction ......................................................................................... 270

Muslim Amin ........................................................................................................................................... 270

Comparison of Ethical and Conventional Portfolios with Second-Order Stochastic Dominance

Efficiency Test ........................................................................................................................................... 276

Murat Isikera, Oktay Tasb, Kaya Tokmakciogluc and Umut Ugurlud ...................................................... 276

................................ 288

Gonul Cifci .............................................................................................................................................. 288

Quality of Accounting Profession In Accordance With International Standards ............................... 289

Hatice Illeeza and Saban Uzayb............................................................................................................... 289

Analysis of Tourism Development in Adiyaman: Social Approach ...................................................... 295

Abdulkadir Corbacia and Caner Caliskanb ............................................................................................. 295

............................ 298

Wei Li ...................................................................................................................................................... 298

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The Effect of Social Media on Buying Decision Process of Tourists ..................................................... 299

Onder Yaylaa, Mustafa Sandikcib and Muhittin Cavusogluc ................................................................... 299

.................... 306

Mehmet Ergula and Saadet Ebru Ergul b ................................................................................................. 306

The Link between Internal and Financial Brand Performance in Hotel Industry: The Role of Brand

Affiliation ................................................................................................................................................... 308

Ezgi Erkmen ............................................................................................................................................ 308

Electronic Business Models, Adopted by the Hospitality Industry in Bulgaria ................................... 311

Silvena Dencheva .................................................................................................................................... 311

Followership Qualities and Models .......................................................................................................... 317

Silvena Dencheva .................................................................................................................................... 317

The Impact of Brand Personality on Brand Experience: A Comparison between the Perceptions of

Facebook, Twitter and Instagram Users ................................................................................................. 323

Oylum Korkut Altuna .............................................................................................................................. 323

The Impact of Social Media on Hotels in Bulgaria ................................................................................. 338

Elena Zheynova ....................................................................................................................................... 338

The Impact of Foreign Direct Investment on Economic Growth .......................................................... 344

Noha Emaraa, Orhan Coskunb and Faraz Soomroc ................................................................................ 344

Gauging the Ethicality of Students in Turkish Institutions of Higher Education ............................... 352

Rafik I. Beekuna, Nihat Alayoglub, Ali Osman Ozturkc and Mehmet Babacand ...................................... 352

Impact of Cash Conversion Cycle on Corporate Performance ............................................................. 366

Baijun Lianga and Xia Panb .................................................................................................................... 366

Transgenerational Entrepreneurship through Knowledge Transfer in Family Business Context .... 374

Ascension Barroso Martineza and Ramon Sanguino Galvanb ................................................................ 374

.................................................................................... 385

Chien-Wen Tsaia and Chung-Kai, Leeb ................................................................................................... 385

Inappropriate Recreational Behaviors of Visitors at Leisure Farms ................................................... 389

Chien-Wen Tsaia and Chung-Kai, Lee b .................................................................................................. 389

Ethnocentricity and Consumer Animosity: How different are consumers in the Middle East? ........ 397

Selima Ben Mrada, Laura Kozloski Hartb and Jana Rutherfordc ............................................................ 397

A Study on Reporting Comprehensive Income in Performance-Based Financial Statements and Its

Usefulness ................................................................................................................................................... 398

Hikmet Ulusana, Murat Kocsoyb and Mehmet Emin Karabayirc ............................................................ 398

Microenterprises Innovation in Baja California, Mexico: A Case of Study in Mexicali Valley ......... 411

Roberto Burgueno Romeroa, Ana Maria Vazquez Espinozab and Griselda Guillen Ojedac ................... 411

5

The Effects of Transformational Leadership Behaviors on Organizational Identification: An

Application in Hotel Enterprises .............................................................................................................. 418

Ahmet Baytoka, Hasan Huseyin Soybalib, Sabri Celikc, Ozcan Zorlud and Cezzim Ozdemire ................. 418

The Impact of Digital Advertising on Consumer Purchase Decisions .................................................. 432

Ebru Enginkayaa and Dilaysu Cinarb ..................................................................................................... 432

Effects of Corporate Entrepreneurship Orientation on Export Performance: Three Cases from a

Traditional Turkish Company ................................................................................................................. 442

Nevra Saniye Gul and Ahu Tugba Karabulut ......................................................................................... 442

The Regulatory, Logistical and Economical Impacts of International Ballast Water Policies ........... 452

Sharon Roya and Curt Weberb ................................................................................................................. 452

Innovative Subjective Evidence-Ba

Case of Wine .............................................................................................................................................. 453

Philippe Fauquet-Alekhinea, Elena Fauquet-Alekhine-Pavlovskayab and Andrea Gobboc .................... 453

Profiling the Turkish Anti-Consumers .................................................................................................... 459

Elif Yolbulan Okana, Cem Ozaykunb and Senem Gol Beserc................................................................... 459

Tourism ...................................................................................................................................................... 467

Caroline S.L. Tan .................................................................................................................................... 467

Quality Improvement of Hair Mask Product Using Quality Method at Home Industry in Bandung

Regency ...................................................................................................................................................... 476

Dinar Imansaria, Juli Trisna Aisyah Sinagab, Syahrul Mubarokc and Arga Nur Pratamad .................... 476

................................................. 477

Syahrul Mubarok .................................................................................................................................... 477

Online Marketing Using Data Mining Based Website to Learn the Food Tastes Telkom University

Students Based Time Ordering ................................................................................................................ 478

Arga Nur Pratamaa Dinar Imansarib, Juli Trisna Aisyah Sinagac and Syahrul Mubarokd ..................... 478

Long-Term Capital Market Effects of Strategic Divestments ............................................................... 479

Visar Krasniqia, Jurgen Weigandb and Lutz Kaufmannc ......................................................................... 479

Education System Seen as an Organization ............................................................................................ 491

Ana Maria Restrepoa, Maria Camila Herrerab, Yaromir Munozc ........................................................... 491

Effective Supply Chain Management: A Review of Wal-Mart ............................................................. 501

Meltem Uygun ......................................................................................................................................... 501

On the Optimal Selection Problems with Monotone Thresholds .......................................................... 509

Mitsushi Tamaki ...................................................................................................................................... 509

The Influence of Emotional Intelligence on the Adjustment and Performance of Exchange Students

..................................................................................................................................................................... 510

Brandon William Soltwischa, Vish Iyerb and Yuliya Frolovac ................................................................. 510

6

Global Readymade Garment Supplier Selection Practice: A Cloud Computing Technology Based

Framework ................................................................................................................................................. 511

Md. Mamoon Al Bashira and Nishikant Mishrab ..................................................................................... 511

The Mediating Effects of Career Satisfaction in Relationship between Work Family-Family Work

Conflict and Life Satisfaction: Research on Employees Working in Turkish Travel Agencies ......... 518

Guney Cetin Gurkana, Hakki Aktasb ....................................................................................................... 518

Impact and Red Flags in Fraud in Inventories Applicable to Small and Medium Manufacturing

Enterprises in Colombia ........................................................................................................................... 525

Maria Victoria Uribe Bohorqueza and Natalia Andrea Baracaldo Lozanob .......................................... 525

The Evaluation of Onboard Advertising as an Outdoor Advertising Media in Turkey ..................... 526

Mihalis Kuyucu ...................................................................................................................................... 526

Developing New Market Entry for ABOFARM SMEs (Small and Medium Enterprises) in Indonesia

..................................................................................................................................................................... 541

Juli Trisna Aisyaha and Husni Amani ..................................................................................................... 541

How do different kinds of personal goods on the dest influence perceptual competency

characteristics? .......................................................................................................................................... 542

Chien-Huang Lina and Hsiao-Mei Chungb ............................................................................................. 542

..................................... 543

Ziyad Guliyeva and Dilbar Guliyevab ..................................................................................................... 543

An approach to Inequalities beyond Gini Coefficients in Case of Turkey ........................................... 545

Emine Tahsin .......................................................................................................................................... 545

Storytelling in Tourism: Opportunities for the Marketing and Branding of Adana Destination ...... 557

Mehmet Cihan Yavuz .............................................................................................................................. 557

Businesss................. 558

Eunji Leea, Joohyun Jungb, Sang Hee Parkc, Insin Kimd and Sunghyup Sean Hyune .............................. 558

How do income elasticities of exports and imports explain trade performance? A Panel Data Analysis

for Turkish Manufacturing Industry ...................................................................................................... 559

Nurtac Yildirima and Ferda Karagozb .................................................................................................... 559

Does the euro really need political union to survive? ............................................................................. 560

Secil Suner Cecan ................................................................................................................................... 560

Analyzing Tourism Investment Incentives in Turkey: Strategies and New Incentive Framework ... 568

Destan Kirimhan ..................................................................................................................................... 568

Determinants of Official Development Assistance in Lebanon: a Pre- and Post-War Assessment .... 573

Roula Al Daiaa, Irna Van Der Molenb, and Manal Naderc ..................................................................... 573

Collaborative Consumption: Definition and Dimensions of Interactional / Relational / Social Analysis

..................................................................................................................................................................... 581

Beatriz G. Matosa, Maria De Lourdes De Azevedo Barbosab and Celiane Camargo-Borgesc ............... 581

7

The Role of Visit Duration on the Satisfaction and Customer Behavioral Intentions of Repeat

Festival Attendees ...................................................................................................................................... 587

Manuel Riveraa and Mathilda van Niekerkb ........................................................................................... 587

The Macro-Effectiveness of Unconventional Monetary Policy: Comparing FED, ECB, BoE and BoJ

..................................................................................................................................................................... 588

Emin Erturka, Derya Yilmazb and Isin Cetinc .......................................................................................... 588

23

The Impact of the Euro Area Macroeconomy on Global Commodity

Prices

a, Slawomir Smiechb and Marek A. Dabrowskic

Department of Statistics Cracow University of Economics, Poland

[email protected] [email protected]

cDepartment of Macroeconomics

Cracow University of Economics, Poland [email protected]

Abstract

The aim of the paper is the analysis of the links between the real and financial processes in the euro area and energy and non-energy commodity prices. Monthly data spanning from 1997:1 to 2013:12 and the structural VAR model are used to analyse the relations between global commodity prices and the euro area economy. The analysis is performed for three sub-periods in order to capture potential changes in these relations in time. The main finding of the study reveals that commodity prices in the euro area do not respond to impulses from production (the economic activity), while commodity prices strongly react to impulses from financial processes, that is, the interest rates in the euro area and the dollar exchange rate to the euro (especially in the period before the global financial crisis). The study also indicates tightening the relations between energy and non-energy commodity prices.

Keywords: Commodity Prices, Real Economy, Financial Market, SVAR

Introduction

Prices of energy and non-energy sources play a key role in the economic development. High commodity prices can make production unprofitable and lead the economy to a crisis. This threat is particularly acute in countries and regions which have to import raw materials, because they do not have their own resources. The problem is deepened because commodity prices tend to co-move. Many theories and hypotheses explaining the co-movement of commodity prices have been put forward. The most general interpretation of this phenomenon is that they response to certain common and global macroeconomics shocks. The problem is that fluctuations of commodity prices are too large in comparison to what can be expected from fundamental variables. Pindyck and Rotemberg (1990) explain this excess co-movement by herd behaviours of investors, which means that the change in the overall price indexes could trigger a move in the price of any particular commodity because traders could be either in long or short position on all commodities. Lescaroux (2009) extends the studies by taking into account inventory levels (which are available for investigated oil and metal prices). Frankel and Rose (2010) refer to four plausible theories of commodity price co-movement, which cover: a strong global growth, especially in China and India (oil prices are studied in this context by Kilian, 2008, 2009a, 2009b); Hamilton, 2009; Kaufmann, 2011), easy monetary policy and low real interest rates (Frankel, 2008; Kilian, 2010), a speculation (exam

point out that oil and precious metals are denominated in US dollars, and thus co-move. A negative relationship between the value of the dollar and dollar denominated commodities follows from the law of one price for tradable goods. Another reason appears during an expected inflation period, when investors prefer to stay long in raw materials rather than assets. Similar conclusion came from Akram (2009), who also finds evidence that weaker dollar leads to higher commodity prices, and that the reduction of interest rates causes an excessive increase in prices of oil and industrial raw materials. Different results are obtained by Frankel and Rose (2010) and Alquist et al. (2011), as they do not find statistically significant relationships between real interest rates and oil prices.

The aim of this study is to examine whether commodity prices are related to real and financial processes in the Euro area macroeconomy. There are several reasons for choosing the euro area economy. Firstly, the euro

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area is the second largest economy worldwide, with GDP of 12,715,823 million USD in 2013 (GDP in the USA in the same year equalled 16,803,000 M.$). Secondly, euro area countries do not have sufficient supplies of energy resources, and that is why the share of import of fossil fuels in the total energy consumption is so high (60% for the EU in 2009) and still growing. Thirdly, to the best of the author s knowledge, the relations between the Euro area macroeconomy and commodity prices have not been addressed in any other study.

The analysis is based on monthly data from the period from 1997:1 to 2013:12. The real processes of the euro area are represented by the industrial production, and the financial conditions are represented by the interest rates. Bearing in mind a significant role of the American dollar, we took into account the dollar exchange rate to the euro. Commodity prices are represented by the energy price index and the non-energy price index published by the World Bank database. The structural VAR model is used to investigate the relations, as it allows for their interpretation in economic terms. In order to identify structural shocks we use

following Akram (2009) a standard recursive structure obtained by a Choleski decomposition. The analysis is conducted in three separate sub-periods: the first one covers the time 1997:1-2002:12, the second one - 2003:1-2008:12, and the third one 2009:1-2013:912. The division of the whole sample period into three sub-periods allows for the verification of the stability of the relations investigated and the influence of particular areas of euro economy on commodity prices. Additionally, such division allows for checking the changes in relations between energy and non-energy commodity prices, taking into consideration a growing share of biofuels (which are and element of the non-energy index) in energy consumption in the euro area.

The main outcome of the study is the finding that commodity prices in the euro area do not respond to impulses from production (economic activity). At the same time, commodity prices strongly react to impulses from financial processes, that is, the interest rates in the euro area and the dollar exchange rate to the euro (especially in the period before the global financial crisis). The study also reveals tightening the relations between energy and non-energy commodity prices.

The rest of the paper is organized as follows. Section 2 briefly presents the methodology used in the study, the description of the data can be found in Section 3, and Section 4 contains the empirical results. Final conclusions are presented in the last section.

Methodology

The empirical analysis is based on structural vector autoregression (SVAR) models proposed by Sims (1980). Two types of SVAR models are developed. The first one comes from Blanchared-Quah (1989) (BQ) model and assumes long-term restrictions to model innovations using the economic theory. The second one is called AB model (Breitung et al., 2004) and deals with short-term restrictions. In the study the latter is used:

tptpttt ByAyAyAAy ...2211 (1)

where: ty contains the vector of variables, ),0(~ kt I , A is kk invertible matrix of structural

coefficients, which describes contemporaneous relationship among the variables in ty , piAi ,...,2,1 are

kk coefficient matrices describing dynamic interactions between the k-variables, and B is ( kk ) matrix

of structural coefficients representing the effects of k structural shocks. The reduced form of equation (1) can be obtained by premultiplying with the inverse of A:

tptpttt uyAyAyAy *...** 2211 (2)

where: ii AAA 1* . tt BAu 1, and ),0(~ utu is the symmetric variance-covariance matrix of the

reduced form consisting of 2/)1(kk elements.

Without making reference to a specific economic structure, the reduced form model is difficult to understand, and its parameters have no economic interpretations. In case of structural model, identification focuses on the (orthogonal) errors of the system, which are interpreted as exogenous shocks. Structural VAR model can be estimated on the basis of the reduced form model (2), which has, however, fewer parameters. Thus, in

order to identify model (1), at least 2/)1(2kkk restrictions of the matrices A and B have to be imposed

(Breitung et al., 2004). Therefore, most applications consider special cases with kIA (B models) or

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kIB (A-models). Necessary restrictions can be obtained from the economic theory, or some atheoretical

To analyze the dynamic interactions between the endogenous variables of VAR (p) models, impulse response

analysis can be used. Assuming that model (1) represents stationary (I (0)) process ty , it has a Wold's moving

average (MA) representation:

....,22110 tttt uuuy (3)

where KI0 and s are computed recursively. The ji, element of the matrix s , considered as a

function of s, measures the expected response of stiy , to a unit change in innovations tju , . Another useful

interpretation of SVAR model is forecast error variance decompositions. To obtain it, it is enough to notice,

using (3), that forecast variance sTy is expressed as:

m

s

m

msTs yVar ')(

1

0

(4)

The diagonal element of s describes variance of forecast error as a sum of errors resulting from individual

structural shocks.

Data

To explore the relationships between commodity prices, real economy and financial indicators in the euro area, we use monthly data from the period 1997:1 to 2013:12. The analysis is based on 5 series of variables. The first one is the industrial production index (IP) in the euro area, which describes real economy in Europe. The second one is the 3-month interest rate in the euro area (IR), which describes financial economy. The data for both variables are taken from Eurostat database. The next variable is the real exchange rate (REX). The remaining two variables are the commodity price indexes, that is the energy price index (PEN) and the non-energy commodity price index (PNEN). The data for these variables are taken from the World Bank database. The energy price index (world trade-base weights) consists of crude oil (84.6%), natural gas (10.8%) and coal (4.6%). The non-energy price index consists of metals (31.6%), fertilizers (3.6%), and agriculture (64.8%). A detailed description of variables is provided in Table 1, and basic descriptive statistics can be found in Table 2. Next, all series are expressed as indices with their average values in 2010 equalling 100, seasonally adjusted and specified in natural logarithms.

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Table 1. The dataset Variable description.

Variable Full name Description Source

IP The industrial production index in the euro area

Euro area 17 (fixed composition) - Industrial Production Index, Total Industry (excluding construction) - NACE Rev2; Eurostat; Working day and seasonally adjusted

Eurostat

IR The 3-month interest rate in the euro area

Nominal interest rate (NIR) minus HICP inflation:

12lnln1ln100 ttt HICPHICPNIREurostat

REX The real exchange rate

Index of nominal exchange rate (end of month), NER, adjusted by consumer price indexes in the US and euro area:

EAUS HICPCPINER100 , 2010=100

Eurostat, Federal Reserve Bank of St. Louis

PEN The energy price index

Monthly index based on nominal US dollars deflated with CPIUS, 2010=100

World Bank, Federal Reserve Bank of St. Louis

PNEN The non-energy price index

Monthly index based on nominal US dollars deflated with CPIUS, 2010=100

World Bank, Federal Reserve Bank of St. Louis

Table 2. Descriptive statistics.

IP IR REX PEN PNEN

Mean 100.60 0.73 109.60 75.20 77.65

Median 100.46 0.93 104.84 70.01 73.38

Maximum 114.68 2.99 152.58 175.64 127.20

Minimum 87.45 -2.32 83.77 20.16 47.54

Std. Dev. 5.79 1.42 16.34 37.05 22.05

Skewness 0.29 -0.31 0.99 0.35 0.47

Kurtosis 2.97 2.01 3.14 2.05 1.99

The whole sample period is divided into three sub-periods: 1997:1-2002:12, 2003:1-2008:12, and 2009:3-2013:12. The first sub-period from January 1997 to December 2002 contains 72 observations. The industrial production index is the lowest in this period, which indicates the lowest activity of the euro area economy (the mean value of this index is 96.41). The prices of energy and non-energy sources are also the lowest in this period, while interest rates are the highest with the mean 1.99, and the median 2.20. In the first sub-period the energy price index increases by 5.5 %, while the non-energy price index decreases by 29.2%.

The second sub-period form January 2003 to December 2008 contains 72 observations. The energy price index increases at that time by 28.5%, and non-energy price index increases by 32.2%. The euro zone economy is the most active in this period, which is indicated by the highest values of the industrial production index (the mean value of this index is 105.68). The interest rates are lower than before with the mean 0.72 and the median 0.36.

In the last sub-period, from January 2009 to September 2013, the mean and the median of the real interest rates are negative, and equalled, respectively, -0.84 and -1.05. The industrial production index displays only slightly higher values than in the first sub-period, which are, however, much lower than in the second sub-period (the mean value of this index is 99.55). In the last period the energy price index increases by 78.4%, while non-energy price index increases by 16.5%.

Empirical Results

Time Series Properties of the Data

A preliminary analysis of the series is carried out before estimating the main model. The standard augmented Dickey Fuller (ADF) (Dickey and Fuller, 1979)) unit root tests for both the intercept and the trends specifications demonstrate that all variables have unit roots for each analysed sub-period. The number of lags in the test is established using AIC criterion. The test results are presented in Table 3. The ADF unit root test

27

confirmed that all variables were integrated of order one, i.e., I(1), thus making the test for cointegration justified.

Next, the presence of long-term relationship between integrated variables is investigated. The trace test statistic proposed by Johansen and Juselius (1990) is used.. If the variables are co-integrated, the VAR in first difference would not be correctly specified, and the long-term result would be very helpful in exploring the efficient parameters of short-term dynamics. Table 4 presents the results of Johanson co-integration test. Johanson maximum likelihood approach was used to test cointegration, and it employed both maximum eigenvalue and trace statistics. According to trace test statistics and maximum eigenvalue test, there is no cointegration at 5 percent level in the first and third sub-periods. Test results demonstrate some evidence of the presence of cointegration only in the second sub-period. Trace test indicates one cointegrating equation at the 0.05 level. In contrast, maximum eigenvalue test indicates no cointegration at the 0.05 level1. Since the results of cointegration tests are at best ambiguous (if not suggesting the lack of cointegration), and the variables used are I (1), we use a VAR for the first differences in our five variables.

For each sub-period a number of lags for VAR was established using AIC criterion - the lag length is one for the first and second sub-periods and two for the third sub-period.

Table 3. Unit root tests results for each sub-period.

Sub-period

Level First difference

intercept intercept and

trend intercept

intercept and

trend

1997:1 2002:12

IP -2.7232 -1.6266 -11.6381*** -12.1336***

IR -0.6207 -2.5671 -7.3601*** -7.3496***

REX -1.4755 -0.1782 -7.0423*** -7.2472***

PEN -1.3676 -1.5073 -6.0474*** -5.9651***

PNEN -0.9121 -1.3533 -7.4002*** -7.3506***

2003:1 2008:12

IP -1.1568 -1.0029 -11.9064*** -11.9143***

IR -1.0186 -1.8155 -7.4128*** -7.3509***

REX -2.3057 -2.4251 -8.4422*** -8.4539***

PEN -1.1136 -2.0591 -8.4195*** -8.3045***

PNEN -0.5708 -2.7851 -8.6750*** -8.5870***

2009:1 2013:12

IP -2.3250 -2.3984 -4.1896*** -4.0177***

IR -2.4061 -1.0401 -6.9393*** -7.4423***

REX -2.5147 -2.7323 -8.5349*** -8.4427***

PEN -2.2888 -1.3825 -12.8698*** -13.1621***

PNEN -2.2941 -0.5975 -11.2026*** -12.2130***

Note: All variables in natural logs, lag lengths are determined via AIC, (***) indicates the rejection of unit root at 1 percent.

1 Since the length of the sample is not long, and there are four series in a vector of interests, a Monte Carlo experiment is performed and the empirical critical values of trace test are determined. We find that in such case null hypothesis of no cointegration is rejected too often.

28

Table 4. Test for cointegration (with intercept in the CE) for each sub-period.

Sub-period Hypothesized

no. of CE(s)

Trace statistic Max-Eigen statistic

Test

Statistic

Critical value

0.05

Test

Statistic

Critical value

0.05

1997:1 2002:12

None 68.040 69.819 26.663 33.877

At most 1 41.377 47.856 19.853 27.584

At most 2 21.523 29.797 16.327 21.132

At most 3 5.196 15.495 3.927 14.265

At most 4 1.269 3.841 1.269 3.841

2003:1 2008:12

None 70.654** 69.819 33.429 33.877

At most 1 37.224 47.856 19.530 27.584

At most 2 17.694 29.797 9.473 21.132

At most 3 8.221 15.495 7.321 14.265

At most 4 0.899 3.841 0.899 3.841

2009:1 2013:12

None 69.481 69.819 27.062 33.877

At most 1 42.418 47.856 21.293 27.584

At most 2 21.125 29.797 12.239 21.132

At most 3 8.886 15.495 8.740 14.265

At most 4 0.147 3.841 0.147 3.841

Structural Impulse Response Analysis

In order to identify SVAR model, we use the Choleski decomposition of the reduced form and assume that A is an identity matrix, while B is a lower triangular matrix. To identify the shocks, we order the variables in

the VAR models, and, thereby, the corresponding shocks, as ',,,, PNENPENREXIRIP

PNEN

PEN

REX

IR

IP

B

*****

0****

00***

000**

0000*

where: B is a lower diagonal matrix consistent with the Choleski decomrepresent unrestricted parameter values, and the zeros suggest that the associated fundamental shock does not contemporaneously affect the corresponding endogenous variable.

A five-variable VAR is estimated with chan-energy price index

the economic theory. Thus, in order to allow for reactions of commodity prices to all other variables, which is the subject matter of this paper, they are placed at the end. A similar ordering is also applied by Akram (2009). The industrial production is supposed to be the least responsive variable (its adjustment to shocks is sluggish), and that is why it is the first variable in the VAR. The ordering of the interest rate before the exchange rate is of secondary importance since the focus falls on commodity prices. Nevertheless, it is in line with the ordering applied by Arora and Tanner (2013).

The impulse-responses results for structural one standard deviation innovations in the industrial production index, the real interest rate, the real exchange rate, the energy price index and the non-energy price index are illustrated in Fig. 2 4 for each sub-period respectively. For instance, the impulse response of each variable in the system to an innovation in the industrial production index in the first sub-period is shown in the first column of Fig. 2 with a solid line. The dashed lines correspond to plus/minus two standard errors around the impulse responses.

29

-.005

.000

.005

.010

2 4 6 8 10

Response of D(IP) to Shock1

-.005

.000

.005

.010

2 4 6 8 10


-.005

.000

.005

.010

2 4 6 8 10


-.005

.000

.005

.010

2 4 6 8 10


-.005

.000

.005

.010

2 4 6 8 10


-.001

.000

.001

.002

.003

2 4 6 8 10

Response of D(IR) to Shock1

-.001

.000

.001

.002

.003

2 4 6 8 10


-.001

.000

.001

.002

.003

2 4 6 8 10


-.001

.000

.001

.002

.003

2 4 6 8 10


-.001

.000

.001

.002

.003

2 4 6 8 10


-.02

-.01

.00

.01

.02

.03

.04

2 4 6 8 10

Response of D(REX) to Shock1

-.02

-.01

.00

.01

.02

.03

.04

2 4 6 8 10


-.02

-.01

.00

.01

.02

.03

.04

2 4 6 8 10


-.02

-.01

.00

.01

.02

.03

.04

2 4 6 8 10


-.02

-.01

.00

.01

.02

.03

.04

2 4 6 8 10


-.04

.00

.04

.08

2 4 6 8 10

Response of D(PEND) to Shock1

-.04

.00

.04

.08

2 4 6 8 10


-.04

.00

.04

.08

2 4 6 8 10


-.04

.00

.04

.08

2 4 6 8 10


-.04

.00

.04

.08

2 4 6 8 10


-.01

.00

.01

.02

2 4 6 8 10

Response of D(PNEND) to Shock1

-.01

.00

.01

.02

2 4 6 8 10


-.01

.00

.01

.02

2 4 6 8 10


-.01

.00

.01

.02

2 4 6 8 10


-.01

.00

.01

.02

2 4 6 8 10


Response to Structural One S.D. Innovations 2 S.E.

Fig. 2. The impulse-responses results in the sub-period 1997:1-2002:12.

-.010

-.005

.000

.005

.010

2 4 6 8 10


-.010

-.005

.000

.005

.010

2 4 6 8 10


-.010

-.005

.000

.005

.010

2 4 6 8 10


-.010

-.005

.000

.005

.010

2 4 6 8 10


-.010

-.005

.000

.005

.010

2 4 6 8 10


-.002

-.001

.000

.001

.002

.003

2 4 6 8 10


-.002

-.001

.000

.001

.002

.003

2 4 6 8 10


-.002

-.001

.000

.001

.002

.003

2 4 6 8 10


-.002

-.001

.000

.001

.002

.003

2 4 6 8 10


-.002

-.001

.000

.001

.002

.003

2 4 6 8 10


-.02

-.01

.00

.01

.02

.03

2 4 6 8 10


-.02

-.01

.00

.01

.02

.03

2 4 6 8 10


-.02

-.01

.00

.01

.02

.03

2 4 6 8 10


-.02

-.01

.00

.01

.02

.03

2 4 6 8 10


-.02

-.01

.00

.01

.02

.03

2 4 6 8 10


-.08

-.04

.00

.04

.08

2 4 6 8 10


-.08

-.04

.00

.04

.08

2 4 6 8 10


-.08

-.04

.00

.04

.08

2 4 6 8 10


-.08

-.04

.00

.04

.08

2 4 6 8 10


-.08

-.04

.00

.04

.08

2 4 6 8 10


-.02

-.01

.00

.01

.02

.03

2 4 6 8 10


-.02

-.01

.00

.01

.02

.03

2 4 6 8 10


-.02

-.01

.00

.01

.02

.03

2 4 6 8 10


-.02

-.01

.00

.01

.02

.03

2 4 6 8 10


-.02

-.01

.00

.01

.02

.03

2 4 6 8 10



Fig. 3. The impulse-responses results in the sub-period 2003:1 2008:12.

30

-.004

.000

.004

.008

.012

2 4 6 8 10


-.004

.000

.004

.008

.012

2 4 6 8 10


-.004

.000

.004

.008

.012

2 4 6 8 10


-.004

.000

.004

.008

.012

2 4 6 8 10


-.004

.000

.004

.008

.012

2 4 6 8 10


-.001

.000

.001

.002

.003

.004

2 4 6 8 10


-.001

.000

.001

.002

.003

.004

2 4 6 8 10


-.001

.000

.001

.002

.003

.004

2 4 6 8 10


-.001

.000

.001

.002

.003

.004

2 4 6 8 10


-.001

.000

.001

.002

.003

.004

2 4 6 8 10


-.02

-.01

.00

.01

.02

.03

.04

2 4 6 8 10


-.02

-.01

.00

.01

.02

.03

.04

2 4 6 8 10


-.02

-.01

.00

.01

.02

.03

.04

2 4 6 8 10


-.02

-.01

.00

.01

.02

.03

.04

2 4 6 8 10


-.02

-.01

.00

.01

.02

.03

.04

2 4 6 8 10


-.04

-.02

.00

.02

.04

.06

2 4 6 8 10


-.04

-.02

.00

.02

.04

.06

2 4 6 8 10


-.04

-.02

.00

.02

.04

.06

2 4 6 8 10


-.04

-.02

.00

.02

.04

.06

2 4 6 8 10


-.04

-.02

.00

.02

.04

.06

2 4 6 8 10


-.02

-.01

.00

.01

.02

.03

2 4 6 8 10


-.02

-.01

.00

.01

.02

.03

2 4 6 8 10


-.02

-.01

.00

.01

.02

.03

2 4 6 8 10


-.02

-.01

.00

.01

.02

.03

2 4 6 8 10


-.02

-.01

.00

.01

.02

.03

2 4 6 8 10



Fig. 4. The impulse-responses results in the sub-period 2009:1 - 2013:12.

In the sub-period 1997:1-2002:12 output shocks were rather neutral for all other variables except the real interest rate. The response of the latter was consistent with intuition: as economy expanded due to positive production shock, the rate of interest increased. It could also be coupled with changes in the policy rate: after all, a positive shock could trigger inflation.

which states that the gain from storing a commodity should be equal to the interest rate. The gain includes a revaluation gain and a convenience yield and is adjusted downwards by storage cost and risk premium (see

them similar to asset prices (Svensson, 2008).

The US dollar real depreciation exerts a positive impact on both commodity prices. Such a link was identified by other researchers as well (see e.g. Akram, 2009). It could be explained as follows: commodity prices are quoted in US dollars. As the US dollar depreciates, commodity prices become lower when they are expressed in other currencies. Thus, the demand for commodities increases, which results in a higher dollar price of commodities and some reversal of the initial depreciation of the US dollar.

The reaction of non-energy price index to shocks in energy prices is a significant one. It is positive, thus both commodities could be seen as related to one another. In other words and less formally, non-energy prices could not deviate too much from energy prices.

Fig. 3 illustrates impulse response functions for the sub-period 2003:1-2008:12. When they are compared with responses in the first sub-period, two differences are visible. First, interest rate shocks are much more important not only for energy prices but also for non-energy prices. It seems that commodity prices became more like price assets in the run-up to the global financial crisis. At the same time, a link running from real exchange to the energy prices rate and from industrial production to the real interest rate ceased to be significant, suggesting that the financial processes decoupled from the real economy. Second, the response of exchange rate to shocks in the interest rate is positive. It looks as an anomaly: a higher interest rate in the euro area should make the euro stronger and the US dollar weaker (a negative response), whereas the response functions suggests the opposite.

31

The last sub-period of 2009:1-2013:12 is a mixture of the previous two sub-periods. The interest rate is still unrelated to output shocks like in the middle sub-period, but there is no anomalous behaviour of the real exchange rate to interest rate shocks. Both commodity prices respond to interest rate shocks and exchange rate shocks as suggested by the theory. It is interesting to observe that the reaction of non-energy prices to shocks in energy prices is stronger than in the other two sub-periods.

Variance Decomposition

Forecast error variance decompositions of changes in commodity price indexes at three time horizons (1, 3, 6 and 12 months) and across three sub-periods are presented in Tables 5a and 5b.2 For both commodity price indexes own shocks account for 50-85 per cent of the forecast error variance though their contribution decrease over time.

Interest rate and exchange rate shocks make higher contributions to fluctuations in the energy price index than output shocks in the first sub-period. This dominance is even stronger in the middle sub-period when the link to interest rate clearly prevails. The contributions are more balanced in the last sub-period and a slight dominance of exchange rate shocks.

Forecast error variance decompositions of changes in non-energy price index show that the importance of all shocks has increased over time. This is especially true for interest rate shocks: their contribution was initially less than one per cent and has increased to more than 10 per cent.

One more observation refers to the fact that links between commodity prices have become tighter over time: non-4 percent. The contribution of energy price shocks to variance of non-energy price index has increased from 7 to 17 percent. This tighter link can possibly be connected with the rising importance of biofuels in the non-energy price index (see Demirbas, 2011) or/and heightened interest of investors in financial markets of non-energy commodities. The former makes non-energy commodities similar to energy, while the latter makes them similar to financial assets.

Table 5a. -period.

Sub-period Month Shock in:

IP IR REX PEN PNEN

1997:1 2002:12

1 1.99 5.01 6.39 86.61 0.00

3 3.05 5.16 7.92 83.68 0.18

6 3.06 5.18 7.96 83.60 0.20

12 3.06 5.18 7.96 83.59 0.20

2003:1 2008:12

1 0.06 22.88 0.21 76.85 0.00

3 0.14 21.20 4.63 72.09 1.93

6 0.15 21.08 4.73 71.74 2.31

12 0.15 21.07 4.73 71.73 2.32

2009:1 2013:12

1 3.78 8.97 9.30 77.96 0.00

3 5.41 7.76 15.07 67.93 3.82

6 5.44 8.56 15.55 66.26 4.18

12 5.48 8.56 15.55 66.23 4.19

2

32

Table 5b. Variance decomposition of the non- -period.

Sub-period Month Shock in:

IP IR REX PEN PNEN

1997:1 2002:12

1 0.05 0.00 6.54 6.96 86.44

3 0.39 0.28 7.26 6.76 85.31

6 0.40 0.32 7.30 6.77 85.21

12 0.40 0.32 7.30 6.77 85.21

2003:1 2008:12

1 0.61 4.62 6.22 5.95 82.59

3 0.77 3.04 16.98 5.30 73.91

6 0.77 2.95 17.23 5.40 73.65

12 0.77 2.94 17.24 5.40 73.64

2009:1 2013:12

1 0.16 12.89 8.22 21.30 57.44

3 1.70 10.38 17.52 17.79 52.61

6 1.76 11.54 17.57 17.36 51.77

12 1.84 11.55 17.56 17.34 51.70

Conclusion

The euro area is a large open economy and, therefore, its real and financial developments can potentially exert certain impact on commodity prices. In order to check whether such relations hold, the structural VAR model for three sub-periods has been used. The main findings are threefold. First, economic activity in the euro area turned out to be rather neutral for commodity prices.

Second, this cannot be said about the real interest rate and the exchange rate. Energy and non-energy prices respond to shocks in the real interest rate in all sub-periods, and the link has become particularly strong in the run-up to the global financial crisis. Real exchange rate shocks have gained in their importance after the initial stage of the crisis, i.e. in the last sub-period. Even though these relations are in line with the standard coitself does not imply that financial factors should dominate over real processes. This, however, was the case in the run-up to the global financial crisis.

Third, interrelations between energy and non-energy commodity prices have become stronger over time, particularly the one running from energy to non-energy commodity prices. It seems that non-energy commodities have become similar to financial assets: they are more sensitive to changes in the interest rate and energy prices.

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Acknowledgements

Supported by the grant No. 2012/07/B/HS4/00700 of the Polish National Science Centre.

the impact of the euro area macroeconomy on …...conference chairs cobanoglu, cihan, ph.d, chtl,...

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