Provided by the author(s) and University College Dublin Library in accordance with publisher policies. Please cite the published version when available. Title Quantitative studies in Irish financial and macroeconomic history Authors(s) Stuart, Rebecca Publication date 2016 Publisher University College Dublin. School of Economics Link to online version http://dissertations.umi.com/ucd:10113 Item record/more information http://hdl.handle.net/10197/8590 Downloaded 2021-09-30T23:43:57Z The UCD community has made this article openly available. Please share how this access benefits you. Your story matters! (@ucd_oa) © Some rights reserved. For more information, please see the item record link above. Quantitative Studies in Irish Financial and Macroeconomic History by Rebecca Stuart UCD Student Number: 00324990 This thesis is submitted to University College Dublin in fulfilment of the requirements for the degree of Doctor of Philosophy School of Economics Head of School: Professor Karl Whelan Supervisor: Professor Morgan Kelly Doctoral Studies Panel: Professor (Emeritus) Cormac Ó Gráda Professor John Fitzgerald July 2016 In memory of my grandmother, Kathleen Stuart. ii Acknowledgements I would like to express my gratitude to my supervisors, Professor Morgan Kelly and Professor Cormac Ó Gráda, for taking me on as a student, for helping me to join the world of economic history, and for their generosity with their time and ideas throughout my PhD. My thanks also to John Fitzgerald, who agreed to join my doctoral panel without hesitation, and whose enthusiasm and knowledge has been an inspiration. The Central Bank of Ireland generously funded this PhD and accommodated me using annual leave to complete it. Particular thanks also to Dónal McSweeney and the Library team at the Bank for their patience and enthusiasm in dealing with my various requests. Furthermore, I am grateful to various colleagues who have supported me as I have worked on this project. Richard Grossman, Peter Kugler and John Turner were always very kind in providing suggestions and comments when I sent them queries and papers. Ronan Lyons very generously provided me with a number of data series from his own work. Reamonn Lydon and Vincent O’Sullivan were always interested in, and supportive of, my PhD, even before I started it. Thomas Conefrey gave me some very helpful practical advice, at just the right moment. Many thanks also to Stefan Gerlach, who first suggested that I choose economic history as a PhD topic, and whose comments and ideas at various stages were invaluable. Finally, I would like to thank my parents for all that they have done for me, and for being proud of me every day. iii Contents 1. Introduction ................................................................................................................................. 1 2. UK equity returns and international stock price movements, 1871-1939 ........................ 5 2.1 Introduction............................................................................................................................ 5 2.2 Co-movements in stock returns ......................................................................................... 8 2.2.1 Why might there be co-movements in international equities .................................. 8 2.2.2 Measuring stock market co-movements ................................................................... 10 2.3 The data ................................................................................................................................ 11 2.3.1 Data sources .................................................................................................................. 11 2.3.2 Evolution of the series over the sample period........................................................ 14 2.3.3 Descriptive statistics .................................................................................................... 16 2.4 Estimating the role of UK equities in other markets ...................................................... 18 2.4.1 Testing for ARCH effects ............................................................................................ 18 2.4.2 The GARCH framework ............................................................................................. 18 2.4.3 Results of the mean equation ...................................................................................... 20 2.4.4 Estimated variances and correlations ........................................................................ 21 2.4.5 The role of the exchange rate ...................................................................................... 22 2.4.6 Weighting of the indices .............................................................................................. 22 2.5 Conclusion ............................................................................................................................ 23 3. International stock market co-movements during the Gold Standard .......................... 37 3.1 Introduction.......................................................................................................................... 37 3.2 Co-movements of stock returns ........................................................................................ 40 3.2.1 Dividend discount model ........................................................................................... 40 3.2.2 Causes of co-movements in stocks ........................................................................... 41 3.2.3 How can stock market co-movement be measured ................................................ 43 3.3 The data ................................................................................................................................ 44 3.3.1 Background ................................................................................................................... 44 3.3.2 Data sources .................................................................................................................. 46 3.3.3 Descriptive statistics .................................................................................................... 48 3.3.4 Correlations ................................................................................................................... 49 iv 3.4 Global shocks and national equity returns ...................................................................... 50 3.4.1 Unit root tests ................................................................................................................ 50 3.4.2 Principal component analysis ..................................................................................... 51 3.4.3 Risk and return ............................................................................................................. 52 3.4.4 VAR analysis ................................................................................................................. 53 3.4.5 Parameter stability ....................................................................................................... 54 3.4.6 Sub-sample estimates .................................................................................................. 55 3.5 Conclusions .......................................................................................................................... 55 4. UK shocks and Irish business cycles, 1922-1979 ................................................................. 73 4.1 Introduction.......................................................................................................................... 73 4.2 Post-colonial influence on economic outcomes .............................................................. 75 4.3 The role of the UK business cycle in Irish economic developments, 1922-1979 ......... 77 4.4 Data description ................................................................................................................... 81 4.5 Econometric analysis .......................................................................................................... 83 4.5.1 Unit root tests ................................................................................................................ 83 4.5.2 Testing for cointegration ............................................................................................. 84 4.5.3 SVAR specification ....................................................................................................... 84 4.5.4 Identification of the shocks ......................................................................................... 85 4.6 UK aggregate supply and demand shocks, Irish business cycles ................................ 86 4.6.1 Aggregate supply and demand shocks ..................................................................... 87 4.6.2 Impact of shocks ........................................................................................................... 89 4.6.3 Historical decomposition ............................................................................................ 90 4.6.4 Robustness checks ........................................................................................................ 92 4.7 Conclusions .......................................................................................................................... 94 5. 70 years of personal disposable income and consumption in Ireland ......................... 113 5.1 Introduction.......................................................................................................................