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1 – 10 of over 3000Renuka Mahadevan and Sandy Suardi
This paper seeks to revisit the highly debated trade‐growth hypothesis by considering the effects of trade and output volatility on the relationship between trade and economic…
Abstract
Purpose
This paper seeks to revisit the highly debated trade‐growth hypothesis by considering the effects of trade and output volatility on the relationship between trade and economic growth.
Design/methodology/approach
The relationship is modeled by testing for the existence of output and trade (export and imports separately) using the conditional variances of the variables and then specifying an autoregressive conditional heteroskedastic (ARCH) process in a vector error correction model.
Findings
Using Singapore as a case study, the paper finds the two‐way relationship between export growth and trade‐adjusted GDP growth is robust even after controlling for the effects of income and export volatility. In addition, neither trade nor GDP volatility bears any impact on the bi‐directional causality between imports and unadjusted GDP growth thereby highlighting the crucial role of imports as intermediate inputs and embodying foreign technology in promoting economic growth. There is also evidence that output volatility impedes output and trade growth, while trade volatility exerts a negative influence on the trade‐adjusted income growth.
Practical implications
Ignoring the presence of trade and output volatility in modeling the trade‐growth relationship provides biased empirical results which have serious implications for trade‐oriented growth strategies that policy makers cannot afford to ignore.
Originality/value
This is the first attempt to explicitly model output, export and import volatility in empirically testing the trade‐growth hypothesis. Second, the robustness of the hypothesis is also tested by considering GDP and non‐trade GDP as it has been argued that use of GDP may lead to the problems of simultaneity and specification bias since exports and imports are themselves a component of GDP.
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The purpose of this paper is to predict real gross domestic product (GDP) growth and business cycles by using information from both liquidity and volatility measures.
Abstract
Purpose
The purpose of this paper is to predict real gross domestic product (GDP) growth and business cycles by using information from both liquidity and volatility measures.
Design/methodology/approach
The paper estimates liquidity and volatility measures from over 5,000 NYSE rms and extracts a common factor, which the paper calls uncertainty. In-sample and out-of-sample forecasting tests are used to determine the ability of the uncertainty factor to predict growth in real GDP, industrial production, consumer price index, real consumption and changes in real investment.
Findings
The paper finds that on average, positive shocks to the uncertainty factor occur in the quarters preceding and at the beginning of a recession. During the quarters toward the end of recessions, there are negative shocks to uncertainty on average.
Originality/value
Previous research has explored using either liquidity or volatility to forecast economic activity. The paper bridges the two branches of research and finds a link to real GDP growth and business cycles.
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Teresia Kaulihowa and Katrina Kamati
This paper aims to test the volatility and analyses the macroeconomic determinants of house price volatility in Namibia over the period 2007 Quarter 1 to 2017 Quarter 2. It…
Abstract
Purpose
This paper aims to test the volatility and analyses the macroeconomic determinants of house price volatility in Namibia over the period 2007 Quarter 1 to 2017 Quarter 2. It further explores the causal relations between house price volatility and its determinants.
Design/methodology/approach
The study used autoregressive conditional heteroskedastic and generalized autoregressive conditional heteroskedastic models to test for volatility. The vector error correction model was used to analyse the determinants and causal relations.
Findings
The results support the hypothesis that house prices in Namibia exhibits persistent volatility. It was further established that past period volatility’ GDP and mortgage loans are the key determinants of house price volatility. Additionally’ there exists unidirectional causality from GDP and mortgage loans to house price volatility.
Practical implications
Policy implications emanating from the study implies that macroeconomic fundamentals should be monitored closely to mitigate the issues of house price volatility.
Originality/value
The study is the first of its kind in Namibia to address the pertinent issues of ever increasing housing prices.
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This paper aims to examine the relationship between the conditional variance of the factors from the Fama–French three‐factor model and macroeconomic risk, where macroeconomic…
Abstract
Purpose
This paper aims to examine the relationship between the conditional variance of the factors from the Fama–French three‐factor model and macroeconomic risk, where macroeconomic risk is proxied by the conditional variance for a default risk premium and real gross domestic product (GDP) growth.
Design/methodology/approach
A generalised autoregressive conditional heteroscedastic model is used to generate the conditional volatilities and bivariate Granger causality tests are used to examine the empirical relationship between the risk measures.
Findings
Past values of the conditional variance for a default risk premium have information that is precedent to the conditional volatility for value premium and the small stock risk premium, and the conditional variance for the market risk premium has information about the future volatility of macroeconomic risk, as proxied by the conditional variance for GDP growth.
Research limitations/implications
The implications are that conditional volatility associated with default is related to current and future volatility in value premium; however, volatility associated with the market risk premium appears to be a predictor of future macroeconomic risk. A caveat is that the results are dependent on the proxies used for macroeconomic risk and more refined measures of macroeconomic risk may yield different results.
Practical implications
This paper suggests that examination of the relationship between the volatility of macroeconomic factors and the explanatory factors in asset‐pricing models will help to further understanding of the relationship between risk and expected return.
Originality/value
This paper focuses directly on the links between risk associated with the Fama–French factors and macroeconomic risk. This added knowledge is beneficial to practitioners and academics whose interest lies in asset price modelling.
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Mamdouh Abdelmoula Mohamed Abdelsalam
This paper aims to explore the extreme effect of crude oil price fluctuations and its volatility on the economic growth of Middle East and North Africa (MENA) countries. It also…
Abstract
Purpose
This paper aims to explore the extreme effect of crude oil price fluctuations and its volatility on the economic growth of Middle East and North Africa (MENA) countries. It also investigates the asymmetric and dynamic relationship between oil price and economic growth. Further, a separate analysis for each MENA oil-export and oil-import countries is conducted. Furthermore, it studies to what extent the quality of institutions will change the effect of oil price fluctuations on economic growth.
Design/methodology/approach
As the effect of oil price fluctuations is not the same over different business cycles or oil price levels, the paper uses a panel quantile regression approach with other linear models such as fixed effects, random effects and panel generalized method of moments. The panel quantile methodology is an extension of traditional linear models and it has the advantage of exploring the relationship over the different quantiles of the whole distribution.
Findings
The paper can summarize results as following: changes in oil price and its volatility have an opposite effect for each oil-export and oil-import countries; for the former, changes in oil prices have a positive impact but the volatility a negative effect. While for the latter, changes in oil prices have a negative effect but volatility a positive effect. Further, the impact of oil price changes and their uncertainty are different across different quantiles. Furthermore, there is evidence about the asymmetric effect of the oil price changes on economic growth. Finally, accounting for institutional quality led to a reduction in the impact of oil price changes on economic growth.
Originality/value
The study concludes more detailed results on the impact of oil prices on gross domestic product growth. Thus, it can be used as a decision-support tool for policymakers.
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Dimitar Eftimoski and Dushko Josheski
The impact of remittances on household consumption stability and economic growth is not quite clear. This paper attempts to reopen the debate on the relationship among these three…
Abstract
Purpose
The impact of remittances on household consumption stability and economic growth is not quite clear. This paper attempts to reopen the debate on the relationship among these three variables. The current remittance literature suggests that a decrease in household consumption volatility, induced by remittances, automatically leads to economic growth. This paper challenges these arguments by stating that, under certain circumstances, there is no automatic relationship among remittances, household consumption stability and growth.
Design/methodology/approach
The authors approach the question from the perspective of emerging Central, Eastern and Southeastern European (CESEE) countries. The authors use the two-step system generalized method of moments (GMM) estimator with the Windmeijer (2005) finite-sample correction. To test the existence of the possible non-linear effects of remittances on household consumption stability and economic growth, the authors use threshold regressions.
Findings
The authors find that remittances significantly reduce household consumption volatility. They exhibit a consumption-smoothing effect on recipient households. This stabilizing effect happens not through the preventive role of remittances, but rather through their compensatory role. Remittances produce a weaker stabilizing effect on household consumption when the remittance to GDP ratio of the recipient country is above the estimated threshold level of 4.5%. The authors also find that there is a negatively significant and linear impact of remittances on growth. There is no evidence to suggest that remittances can foster productive investment and therefore promote economic growth in CESEE countries, which means that: (1) the remittances cannot be treated as a source of funds to invest in human and physical capital and (2) the remittances are compensatory rather than profit-oriented.
Originality/value
As far as the authors are aware, this is the first study that investigates the impact of remittances on both household consumption stability and economic growth simultaneously.
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Roland Craigwell, Mahalia Jackman and Winston Moore
Remittances are the fastest growing source of foreign exchange earnings for developing countries. The purpose of this paper is to assess the impact of remittances on economic…
Abstract
Purpose
Remittances are the fastest growing source of foreign exchange earnings for developing countries. The purpose of this paper is to assess the impact of remittances on economic volatility of the receiving country.
Design/methodology/approach
A panel of 95 countries over the period 1970‐2005 is employed in the analysis. To assess the impact of remittances on volatility a multivariate model is estimated using a panel fixed effects approach with cross‐section weights.
Findings
The study reports that remittances can play a key role in mitigating the effect of adverse output shocks but exert no significant influence on consumption and investment volatility. Moreover, important differential impacts exist across the various country groupings.
Practical implications
Countries that are dependent on remittances may have to monitor and forecast future remittance flows and take these projections into account when making changes to either their monetary or fiscal policy stance.
Originality/value
The findings provided in this paper should be of use to policymakers in developing countries.
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Mahalia Jackman, Roland Craigwell and Winston Moore
The purpose of this paper is to investigate the potential link between remittances and economic volatility in small island developing states.
Abstract
Purpose
The purpose of this paper is to investigate the potential link between remittances and economic volatility in small island developing states.
Design/methodology/approach
The paper estimates a panel data model using a database containing 20 small island developing states (SIDS) observed over annual intervals between 1986 and 2005.
Findings
The results suggest that, in general, remittance flows have a stabilising influence on output and investment volatility. However, given the importance of these flows to SIDS, the volatility of remittances also has a significant and positive impact on both investment and consumption volatility.
Practical implications
The policy implications of the study's findings is that SIDS (similar to how oil‐producing nations take oil price fluctuations into account when considering policy changes) may have to monitor and forecast future remittance flows and take these projections into account when making changes to either their monetary or fiscal policy stance.
Originality/value
Workers' remittances have grown dramatically worldwide, particularly in SIDS, where they constitute one of the main sources of foreign exchange. Given the importance of these flows to economic growth and development in these countries, this study examines the potential link between remittances and economic volatility.
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This paper aims to examine how the volatility of foreign direct investment (FDI) inflows affects the volatility of corporate income tax revenue.
Abstract
Purpose
This paper aims to examine how the volatility of foreign direct investment (FDI) inflows affects the volatility of corporate income tax revenue.
Design/methodology/approach
The study has used an unbalanced panel data set of 129 countries over the period 1981–2016 and the two-step system generalized methods of moment approach to perform the empirical analysis.
Findings
The main findings are that FDI volatility enhances the volatility of corporate income tax revenue in less advanced economies, but reduces it in relatively advanced countries. The positive corporate income tax revenue volatility effect of FDI inflows is far higher in non-tax haven countries than in tax haven countries. Additionally, FDI volatility exerts a higher positive effect on corporate income tax revenue volatility as countries experience greater dependence on natural resources. Finally, the positive effect of FDI volatility on corporate income tax revenue volatility is further amplified by higher FDI volatility.
Research limitations/implications
One important limitation of the present analysis is the use of aggregate FDI inflows because of the lack of data over a long period on greenfield FDI inflows and cross-border mergers and acquisitions FDI inflows. Therefore, an avenue for future research could be to explore separately the effect of the volatility greenfield FDI inflows and the volatility of cross-border mergers and acquisitions FDI inflows on the volatility of corporate income tax revenue, when long-time series data (covering many countries) would be available.
Practical implications
These outcomes particularly shed light on the role of FDI volatility on the volatility of corporate income tax revenue, particularly in countries that are highly dependent on natural resources. Foreign capital flows, notably FDI flows, play an essential role for countries’ economic development through, inter alia, technology transfer, jobs creation and economic growth. Policymakers should aim to attract FDI, while also reducing their volatility, by designing and implementing policies and measures (such as those in favor of business environment improvement, property rights enforcement and political stability) that would assure foreign investors of the continuous high returns of their investments.
Originality/value
To the best of the author’s knowledge, this is the first time this topic is being addressed empirically in the literature.
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Marek Antosiewicz and Piotr Lewandowski
The purpose of this paper is to identify factors behind cyclical fluctuations and differences in adjustments to shocks in Greece, Italy, Portugal and Spain (GIPS) and a reference…
Abstract
Purpose
The purpose of this paper is to identify factors behind cyclical fluctuations and differences in adjustments to shocks in Greece, Italy, Portugal and Spain (GIPS) and a reference country – Germany. The authors try to answer the question whether the GIPS countries could have fared differently in the Great Recession if they reacted to shocks affecting them like a resilient German economy would have.
Design/methodology/approach
The authors use a DSGE model of real open economy with search and matching on the labour market and endogenous job destruction, estimated separately for each country. The authors calculate impulse response functions, historical decompositions and perform counterfactual simulations of the response of the German model to the sequence of shocks identified for each of GIPS.
Findings
The authors find that all GIPS countries were more vulnerable to productivity and foreign demand shocks than Germany. They would have experienced lower macroeconomic volatility if they reacted to their shocks like Germany. Employment (unemployment) rates in GIPS would have been less volatile and higher (lower) during the Great Recession, especially in Spain and Greece. Real wage volatility would have been higher, especially in Spain and Portugal.
Originality/value
The trade-off between unemployment and wage adjustments vis-à-vis Germany was the largest in Spain, which also would have experienced lower variability of job separations and hirings. The evolution of the labour market in Greece and Portugal was driven rather by its higher responsiveness to GDP fluctuations than in Germany, whereas Italy emerges as the least responsive labour market within GIPS.
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