Globalisation effect measure via hierarchical dynamic factor modelling
DOI:
https://doi.org/10.12775/EQUIL.2015.029Keywords:
leading indicator, hierarchical dynamic factor model, globalisation, economic growthAbstract
In this paper the issue of globalisation and deteriorating precision of domestically oriented frameworks is addressed. A hypothesis that the effect of international trends on the growth of economy is increasing over time is formed. In order to validate this, a method of composing foreign series with local indicators in a hierarchical dynamic factor model is presented. The novelty of this approach is that globalisation effect is measured focusing on prediction rather than similarity. This way the measure presents the country's sensitivity to global shocks and reveals how much focal country's economy is intertwined with global economy. The application was performed on the basis of Lithuanian data and the hypothesis was validated. The results indicate that globalisation effect has an increasing effect over time.
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References
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Moench, E., Ng, S., & Potter, S. (2009). Dynamic Hierarchical Factor Models (Report No. 412), Federal Reserve Bank of New York.
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Stock, J. H., & Watson, M. W. (2002). Macroeconomic forecasting Using Diffusion Indexes, Journal of Business and Economic Statistics, 20(2). http://dx.doi.org/10.1198/073500102317351921.
Villaverde, J., & Maza, A. (2011). Globalisation, growth and convergence. World Economy, 34(6). http://dx.doi.org/10.1111/j.1467-9701.2011.01359.x.
Andersen, T.M., & Herbertsson, T. T. (2005). Quantifying Globalization, Applied economics, 37(10). http://dx.doi.org/10.1080/00036840500118200.
Carter, C. K., & Kohn, R. (1994). On Gibbs Sampling for State Space Models, Biometrica, 81(3). doi:10.1093/biomet/81.3.541.
Castelli, M. (2008). Measuring? What? Notes on some Globalization indices, Globalizations, 5(3). http://dx.doi.org/10.1080/14747730802252529.
Cubadda, G., Guardabascio, B., & Hecq, A. (2012). A General to Specific Approach for Constructing Composite Business Cycle Indicators (Working Paper No. 224), CEIS.
Drechsel K., & Scheufele, R. (2010). Should we trust in leading indicators? Evidence from the recent recession (Discussion paper No. 10), IWH.
Dreher, A. (2006). Does globalization affect growth? Evidence from a new index of globalization. Applied Economics, 38(10). http://dx.doi.org/10.1080/000 36840500392078.
Dreher, A., Gaston, N. & Martens, P. (2008). Measuring Globalisation? Gauging Its Consequence. New York: Springer Science.
Fichtner, F., Rueffer, R., & Schnatz, B. (2009). Leading indicators in a globalised world (Working paper No. 1125), European Central Bank.
Gaudreault, C. , Lamy, R. & Liu, Y. (2003). New Coincident, Leading and Recession Indexes for the Canadian Economy: An Application of the Stock and Watson Methodology (Working paper No. 12), Department of Finance, Canada.
Heshmati, A. (2006). Measurement of a Multidimensional Index of Globalization. Global Economy Journal, 6(2). http://dx.doi.org/10.2202/1524-5861.1117.
Kearney, A. T. (2004). Globalisation Index. Foreign Policy.
Kim, S. & Shin, E.-H. (2002). A Longitudinal Analysis of Globalization and Regionalization in International Trade: A Social Network Approach. Social Forces, 81(2). http://dx.doi.org/10.1353/sof.2003.0014.
Lockwood, B. (2004). How robust is the Foreign Policy/Kearney index of globalisation?. World Economy, 27(4). http://dx.doi.org/10.1111/j.0378-5920.2004. 00611.x.
Martens, P. and Zywietz, D. (2006), Rethinking globalization: a modified globalization index. Journal of International Development, 18(3). doi: 10.1002/jid.1223.
Maslov, S. (2001). Measures of globalization based on cross-correlations of world financial indices. Physica A: Statistical Mechanics and its Applications, 301(1-4). http://dx.doi.org/10.1016/S0378-4371(01)00370-3
Moench, E., Ng, S., & Potter, S. (2009). Dynamic Hierarchical Factor Models (Report No. 412), Federal Reserve Bank of New York.
Naghshpour S. & Sergi, B. (2009). World trade indicators and a new approach to measure globalisation and countries' openness. International Journal of Trade and Global Markets. http://dx.doi.org/10.1504/IJTGM.2009.02303.
Petris, G. (2010). An R Package for Dynamic Linear Models. Journal of Statistical Software, 36(12).
Quinn, D. & Toyoda A. (2008). Does capital account liberalization lead to growth? Review of Financial Studies, 21(3). http://dx.doi.org/10.1093/rfs/hhn034.
Reklaite, A. (2011). Coincident, Leading and Recession Indexes for the Lithuanian Economy. Baltic Journal of Economics, 11(1). http://dx.doi.org/10.1080/1406 099X.2011.10840492.
Stock, J. H., & Watson, M. W. (2002). Macroeconomic forecasting Using Diffusion Indexes, Journal of Business and Economic Statistics, 20(2). http://dx.doi.org/10.1198/073500102317351921.
Villaverde, J., & Maza, A. (2011). Globalisation, growth and convergence. World Economy, 34(6). http://dx.doi.org/10.1111/j.1467-9701.2011.01359.x.
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Published
2015-09-30
How to Cite
Reklaite, A. (2015). Globalisation effect measure via hierarchical dynamic factor modelling. Equilibrium. Quarterly Journal of Economics and Economic Policy, 10(3), 139–149. https://doi.org/10.12775/EQUIL.2015.029
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Section
International economics: determinants of trade and capital flows
