Comovement of Chinese provincial business cyclesJournal articleJamel Gatfaoui and Eric Girardin, Economic Modelling, Volume 44, Issue C, pp. 294-306, 2015

In this paper, we establish a turning point chronology for the Chinese provincial deviation cycles during the period 1989–2009. The existing work has exclusively focused on the national business cycle.

The Risk of Individual Stocks' Tail Dependence with the Market and Its Effect on Stock ReturnsJournal articleGuobin Fan, Eric Girardin, Wong K. Wong and Yong Zeng, Discrete Dynamics in Nature and Society, Volume 2015, pp. 1-17, 2015

Traditional beta is only a linear measure of overall market risk and places equal emphasis on upside and downside risks, but actually the latter is always much stronger probably due to the trading mechanism like short-sale constraints. Therefore, this paper employs the nonlinear measure, tail dependence, to measure the extreme downside risks that individual stocks crash together with the whole market and investigates whether such tail dependence risks will affect stock returns. Our empirical evidence based on Shanghai A shares confirms that most stocks display nonnegligible tail dependence with the whole market, and, more importantly, such tail dependence risks can indeed provide additional information beyond beta and other factors for asset pricing. In cross-sectional regression, it is proved that this tail dependence does help to explain monthly returns on Shanghai A shares, whereas the time-series regression further indicates that mimicking portfolio returns for tail dependence can capture strong common variation of Shanghai A stock returns.

Inflation and China's monetary policy reaction function: 2002-2013Book chapterEric Girardin, Sandrine Lunven and Guonan Ma, In: BIS Papers chapters, 2014, Volume 77, pp. 159-170, Bank for International Settlements, 2014

Our paper attempts to enhance the understanding of China’s monetary policy rule, which may help explain the country’s remarkable inflation performance over the past decade, in spite of the absence of explicit inflation targeting. In particular, we aim to shed light on the role of inflation in the conduct of monetary policy by the People’s Bank of China (PBC) in the New Millennium, when both the underlying economy and its monetary policy framework were transformed. We develop a new monetary policy index (MPI) in China by combining quantity, price and administrative instruments and estimate a hybrid (backward- and forward-looking), dynamic, discrete-choice model for the period 2002–13. Three main results arise from the paper. First, the Chinese monetary policy changes under PBC Governor Zhou from 2002 onwards have been relatively hawkish and smoothed. Second, the PBC appears to have built up a monetary policy framework similar to implicit flexible inflation targeting, with a hybrid reaction function, seemingly taking into account the forward-looking aspect of inflation. Third, the PBC’s behaviour post-2002 resembles that of the post-1979 anti-inflation policy of the G3 central banks, albeit with a high output weight typical of emerging economies.(This abstract was borrowed from another version of this item.)

The Chinese electricity industry: supply capacity and its determinants with reference to OECD countriesJournal articleGuy Liu, Liang Zhang and Eric Girardin, Journal of Chinese Economic and Business Studies, Volume 12, Issue 4, pp. 353-382, 2014

This paper takes a two-stage estimation approach to investigate the direct and indirect determinants of the capacity of power supply in China, with reference to the Organization for Economic Cooperation and Development countries. In the first stage we investigate the determinants of demand for electric consumption and in the second stage we test the impact of demand for consumption on capacity. Our study shows that the direct impact on capacity growth is mainly of GDP growth, which is a China-specific effect, and load factor, which is a non-China specific effect. Capacity investment is driven by the demand for power relative to the utilization of existing capacity. Furthermore, power prices and the industrial structure of an economy are the indirect determinants of capacity through their impacts on demand. The industrial structure has a strong influence on the power demand in China, since the country has accelerated its industrialization with more investment in heavy industry that further fuels the demand for power and therefore supply capacity.

An introduction: the challenges of the Chinese electricity industry and its reformJournal articleEric Girardin, Guy Liu and Jinghai Zheng, Journal of Chinese Economic and Business Studies, Volume 12, Issue 4, pp. 333-352, 2014

This introduction is to highlight comprehensively the Chinese electricity industry for issues related to the institutional reform, capacity growth, pricing regime, technology development, supply structure and new investment in upgrading electric power grids. Through reviews of statistics and documentaries, we provide a generally updated understanding of the current development and reform of China's electric power industry, which is one strategic focus of the Chinese Government for its further reform in the energy sector.

Short- and long-run causality between energy consumption and economic growth: Evidence across regions in ChinaJournal articleMaria J. Herrerias, Roselyne Joyeux and Eric Girardin, Applied Energy, Volume 112, Issue C, pp. 1483-1492, 2013

The relationship between energy consumption and economic growth has created a large body of research in the energy-economics literature. In this paper, we investigate such a relation in the case of Chinese regions from 1995 to 2009. The majority of previous studies have ignored the regional dimension and the cross-sectional dependence of provinces. Besides, different energy policies adopted by the government have influenced energy intensity over time, showing improvement in the 1990s and deterioration from 2000 onwards. Thus, it is necessary to examine these two periods separately. Moreover, a detailed disaggregation of total energy consumption into electricity, coal, coke, and crude oil consumption and its linkage with economic growth may provide new insights for the design of energy policy across Chinese regions. We use panel techniques to test the direction of the causality in the long- and short-run between these different types of energy consumption and economic growth. Our results are mixed from 1995 to 2009 due the aforementioned break around 1999. However, in all cases our estimations provide empirical evidence that from 1999 to 2009 there is unidirectional causation from economic growth to energy consumption in the long-run. Therefore, energy-saving policies can be adopted without interrupting the path of growth.

Macro fundamentals as a source of stock market volatility in China: A GARCH-MIDAS approachJournal articleEric Girardin and Roselyne Joyeux, Economic Modelling, Volume 34, Issue C, pp. 59-68, 2013

In order to shed new light on the influence of volume and economic fundamentals on the long-run volatility of the Chinese stock market we follow the methodology introduced by Engle et al. (2009) and Engle and Rangel (2008) to account for the effects of macro fundamentals, and augment it with speculative factors. We show that the Chinese A-share market presented speculative characteristics before WTO entry in late 2001. However, after that date macroeconomic fundamentals and their volatility played an increasing role in the A-share market, especially CPI inflation, at the expense of speculative factors, proxied by volume. The B-share market has shown speculative characteristics since it was opened to domestic investors in 2001. However the disconnect of long-run stock market volatility from real economic activity in China is particularly noteworthy.

Seasonal Patterns of Energy in ChinaJournal articleMaria J. Herrerias and Eric Girardin, The Energy Journal, Volume 34, Issue 2, pp. 169, 2013

This paper provides evidence on the relevance of modeling adequately the seasonal character of coal and electricity production across Chinese regions. Unlike other work, this paper relaxes the assumption of deterministic seasonality, allowing for time and regional variation in this economy. More specifically, we analyze and distinguish the type of seasonality around the year that prevails in the case of coal and electricity production of each individual Chinese province. Our results indicate that for the majority of the provinces seasonality is stochastic in both types of energy considered. Our findings provide new evidence of a Lunar New-Year effect in February and Summer as well as Winter effects in coal and electricity production. However, in terms of seasonal patterns and their evolution over time, there are significant differences between the Northern Southern regions. Besides for each type of energy, regional clusters matter for the appropriate design of energy-development policy.(This abstract was borrowed from another version of this item.)

Quantitative easing works: Lessons from the unique experience in Japan 2001-2006Journal articleEric Girardin and Zakaria Moussa, Journal of International Financial Markets, Institutions and Money, Volume 21, Issue 4, pp. 461-495, 2011

The current financial crisis has now led most major central banks to rely on quantitative easing. The unique Japanese experience of quantitative easing is the only experience which enables us to judge this therapy's effectiveness and the timing of the exit strategy. In this paper, we provide a new empirical framework to examine the effectiveness of Japanese monetary policy during the "lost” decade and quantify the effect of quantitative easing on Japan's activity and prices. We combine advantages of Markov-switching VAR methodology with those of factor analysis to establish two major findings. First, we show that the decisive change in regime occurred in two steps: it crept out from late 1995 and established itself durably in February 1999. Second, we show for the first time that quantitative easing was able not only to prevent further recession and deflation but also to provide considerable stimulation to both output and prices. This positive effect is reached through the interest rate factor. These results remain valid even when fiscal policy is simultaneously taken into account in the analysis. If Japanese experience is any guide the quantitative easing policy must be seen as a symptomatic treatment; it must be accompanied with a dramatic restructuring in the financial framework. The exit from quantitative easing must be postponed and decided within a clear program and according to clear numerical objectives.

The stabilization of foreign bank lending: A neglected benefit of hard pegsJournal articleCaroline Duburcq and Eric Girardin, Economics Bulletin, Volume 31, Issue 2, pp. 1673-1685, 2011

The turmoil in credit markets has brought to the fore again the negative implications of the volatility of foreign bank-intermediated flows to emerging countries. This paper examines whether the adoption of a hard-peg regime can reduce shocks in foreign capital inflows. Using unobserved-components univariate and multivariate models, we separate out the persistent and temporary components of US banking claims to ten Latin American countries during a period ranging from January 1990 to July 2010. Four countries have fixed exchange rates while the other six have flexible rates. Our results vindicate our maintained hypothesis that the adoption of a fixed-exchange-rate regime dampens shocks in foreign capital inflows as far as stocks and flows of US banking claims are concerned. However we cannot attribute this higher stability of US bank lending to hard-peg countries to a higher dependence on US rather than country-specific factors.