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1 – 10 of over 3000This study aims to investigate the cointegration and causality relationships between Hong Kong’s residential property price and stock price, using quarterly data, from the 1st…
Abstract
Purpose
This study aims to investigate the cointegration and causality relationships between Hong Kong’s residential property price and stock price, using quarterly data, from the 1st quarter of 1980 to the 3rd quarter of 2015.
Design/methodology/approach
In contrast to other studies, the cointegration test used is the autoregressive distributed lag (ARDL) cointegration (bounds testing) approach of Pesaran et al. (2001) that based on the estimation of an unrestricted error correction model and the causality test is based on non-causality test of Granger et al. (2000). Moreover, this research employs recursive least square procedures and Chow (1960) breakpoint test to detect unknown structural break and variation of relationships between residential property and stock price over the whole sample period.
Findings
The results of ARDL cointegration tests running from stock to residential property markets provide strong evidence to support the hypothesis that the stock and residential properties are cointegrated. The results of Granger et al. (2000) non-causality test support the view of wealth effect that stock price has an important causal effect on residential property price in Hong Kong but not vice versa. In addition, the results of recursive ordinary least squares coefficients estimates and Chow (1960) test (breakpoint test) for structural instability confirm the variation of the relationships between stock and residential property markets over the sample period.
Research limitations/implications
The empirical results from cointegration and causality tests suggest that the residential asset returns are better predicted by including the lagged difference values of stock price.
Originality/value
This is the pioneering study to examine the cointegration and causality study of stock and residential property price in Hong Kong by employing Pesaran ARDL cointegration approach and Granger non-causality approach. Investors are able to perform an effective evaluation to assist in allocating investment funds, and the government bodies can implement supplement housing policy in response to the public needs.
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This study reexamines fiscal deficit sustainability in South Africa.
Abstract
Purpose
This study reexamines fiscal deficit sustainability in South Africa.
Design/methodology/approach
The study applies three cointegration testing approaches, namely testing for multiple structural changes in a cointegrated regression model, time-varying cointegration test and asymmetric cointegration test.
Findings
The results point to the existence of a level relationship between government revenue and spending. In addition, the long-run equilibrium relationship between government revenue and spending in South Africa is found to be characterized by breaks. As such, assuming a constant cointegrating slope may be misleading. Results from time-varying cointegration and an estimation of a cointegrated two-break model indicate that cointegrating coefficient has been time-varying but has remained less than 1 for the entire study period, indicating that fiscal deficits have been weakly sustainable. This finding is also confirmed by the results from an estimated asymmetric error correction model.
Practical implications
In view of the findings, authorities should put in place policies to improve the fiscal budgetary stance and reinforce the sustainability of the fiscal deficits in South Africa. Among other things, South Africa could undertake reforms to state-owned companies to reduce their reliance on public funds, slow down the pace of the public sector wage growth and devise effective economic measures to boost long-term growth. In addition, tax compliance and other revenue collection measures should be enhanced for additional tax revenue.
Originality/value
The contribution of this study is twofold; first, the study uses a long series of annual data spanning over a century, from 1913 to 2020. Indeed, cointegration is better modeled using long spans of time series data. Second, to examine the existence of a level relationship between spending and revenue, the study uses cointegration tests which allow capturing time-variation in the cointegrating slope coefficient, and accounting for asymmetries in the relationship between government spending and revenue. It is important to allow for time-variation in the cointegrating slope coefficient, especially when it has been hardly treated in the empirical literature on fiscal deficit sustainability. Allowing for time-variation in the cointegrating slope coefficient helps us to analyze fiscal deficit sustainability by periods of time. Indeed, the degree of fiscal sustainability can change from one time period to another.
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Pham Dinh Long, Bui Quang Hien and Pham Thi Bich Ngoc
The paper aims to shed light on the effects of inflation on gold price and exchange rate in Vietnam by using time-varying cointegration.
Abstract
Purpose
The paper aims to shed light on the effects of inflation on gold price and exchange rate in Vietnam by using time-varying cointegration.
Design/methodology/approach
Using cointegration techniques with fixed coefficient and time-varying coefficient, the study exams the impacts of inflation in models and compares the results through coefficient estimates.
Findings
A significant inflation impacts are found with the time-varying cointegration but not with the fixed coefficient cointegration models. Moreover, monetary policy affects exchange rate not only directly via its instruments as money supply and interest rate but indirectly via inflation. Also, interest rate is one of the determinants of gold price.
Originality/value
To the best of our knowledge, this paper is the first to use time-varying cointegration to analyze the impact of inflation on the gold price and exchange rate in Vietnam. Gold price and exchange rate fluctuations are always the essential and striking issues, which have been emphasized by economists and policymakers. In macroeconometric researches, cointegration models are often used to analyze the long-term relations between variables. Attentionally, applied models show a limitation when estimating coefficients are fixed. This characteristic might not really match with the data properties and the variation of the economy. Currently, time-varying cointegration models are emerging method to solve the above issue.
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Yazdan Gudarzi Farahani and Masood Dastan
This paper seeks to use empirical evidence to examine the role of Islamic banks' financing on economic performance of selected countries (Malaysia, Indonesia, Bahrain, UAE, Saudi…
Abstract
Purpose
This paper seeks to use empirical evidence to examine the role of Islamic banks' financing on economic performance of selected countries (Malaysia, Indonesia, Bahrain, UAE, Saudi Arabia, Egypt, Kuwait, Qatar and Yemen).
Design/methodology/approach
Using quarterly data (2000:1‐2010:4), this paper utilizes the panel cointegration approach models framework.
Findings
The results generally signify that, in the long run, Islamic banks' financing is positive and significantly correlated with economic growth and capital accumulation in these countries. The results obtained from the Granger causality test reveal a positive and statistically significant relationship between economic growth and Islamic banks' financing in the short run and in the long run. It also found that the long run relationship is stronger than the short run relationship.
Originality/value
This paper uses empirical evidence to show the effect of Islamic banks' financing on economic growth of selected Islamic countries. To the best of the authors' knowledge, most of the studies in this field have applied the bound testing approach of cointegration, error correction models (ECMs), Auto Regressive Distributed lag (ARDL) and Vector Autoregressive Model (VAR), and the coefficients obtained by these models cannot be deemed as a general finding applicable for other countries. The superiority of this article is in applying the FMOLS model, which has stable and consistent coefficients and is also a dynamic model.
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Reetu Verma and Ali Salman Saleh
This paper examines the long‐term relationship between saving and investment as a criterion for assessing international capital mobility for the case of Saudi Arabia, the largest…
Abstract
Purpose
This paper examines the long‐term relationship between saving and investment as a criterion for assessing international capital mobility for the case of Saudi Arabia, the largest economy among the Middle Eastern and Arab nations.
Design/methodology/approach
The approach is modeled on Feldstein and Horioka covering the period 1963‐2007 for Saudi Arabia. We use the bounds testing approach and the Gregory and Hansen cointegration methods to test for the long‐run relationship between saving and investment. Additionally, before testing for this relationship, we conduct unit root tests, including the additive outlier model developed by Perron with an endogenously determined structural break.
Findings
The study finds no evidence of a long‐run relationship between saving and investment and therefore concludes that capital is highly mobile in Saudi Arabia. This finding is plausible given the economic and financial reforms which have occurred in Saudi Arabia along with increased capital inflows into the country in the last few decades.
Originality/value
Of the limited studies so far on developing countries, none has considered the capital mobility issue for an oil‐dependent country.
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Abbas Ali Chandio, Yuansheng Jiang and Abdul Rehman
This study aims to empirically examine the relationship between energy consumption and agricultural economic growth in Pakistan over the period from 1984 to 2016.
Abstract
Purpose
This study aims to empirically examine the relationship between energy consumption and agricultural economic growth in Pakistan over the period from 1984 to 2016.
Design/methodology/approach
This study used the autoregressive distributed lag (ARDL) bounds testing approach to cointegration to investigate the long-run and short-run determinants of agricultural economic growth in Pakistan.
Findings
The results of the ARDL bounds testing approach to cointegration revealed that long-run linkage exists among the study variables. The findings of this paper showed that agricultural economic growth is positively affected by gas consumption and electricity consumption both in the long-run and short run. The long-run and short-run coefficients of gas consumption and electricity consumption were estimated to be 0.906, 0.421, 0.595 and 0.276, respectively. The estimated equation remains stable during the period from 1984 to 2016 as analyzed by the stability tests.
Originality/value
This study considers the relationship between energy consumption and agricultural economic growth in Pakistan by using an ARDL bounds testing approach to cointegration. The study has three contributions to economic literature:this study used different unit root tests to test stationarity of the variables such as ADF unit root test by Dicky and Fuller and P-P unit root test by Philip and Perron; the ARDL bounds testing approach to cointegration is applied to test the existence of long-run analysis between energy consumption and agricultural economic growth; and to check the robustness, the authors used the Johansen cointegration test to examine the long-run relationship between dependent and independent variables.
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Dinabandhu Sethi and Susanta Kumar Sethy
The purpose of this paper is to examine the relationship between financial inclusion (FI) and economic growth in India.
Abstract
Purpose
The purpose of this paper is to examine the relationship between financial inclusion (FI) and economic growth in India.
Design/methodology/approach
To measure FI, a multidimensional time-varying index is proposed following the Human Development Index method. The long-run relationship between FI and economic growth is examined by using the autoregressive distributed lag (ARDL) approach to cointegration and nonlinear ARDL approach. Further, the direction of causality is investigated by employing the Toda–Yamamoto Granger causality test.
Findings
The linear cointegration test confirms a long-run relationship between FI and economic growth for India. The improvement in both demand-side and supply-side financial services has a positive impact on economic growth. These results suggest that India can attain long-run economic growth by improving the coverage of FI. However, there is no evidence of nonlinear cointegration, indicating that there is no asymmetric effect of FI on economic growth. Further, the causality test shows that FI granger causes economic growth but not vice versa.
Research limitations/implications
The major limitation of the study is the availability of time series data for all important variables. The index for both demand- and supply-side indicators can be extended with several other important variables in later date once the data are available for those variables.
Practical implications
As the study confirms that FI is one of the main drivers of economic growth, it is suggested that the policy maker emphasizing on financial sector reforms can enjoy economic growth in the long run, especially in developing countries. Therefore, the government and policy makers need to address the issues involved in access to financial services to spur economic growth.
Originality/value
The study examines the long-run relationship between FI and economic growth employing ARDL bound testing approach and nonlinear ARDL approach, separately for demand-side and supply-side indicators. Further, the study uses the Toda–Yamamoto granger causality to find the direction of causal flow between FI and economic growth.
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Ferda Halicioglu and Natalya Ketenci
The purpose of this paper is to empirically test the validity of the productivity bias hypothesis (PBH) in 18 Middle East countries.
Abstract
Purpose
The purpose of this paper is to empirically test the validity of the productivity bias hypothesis (PBH) in 18 Middle East countries.
Design/methodology/approach
The paper employs autoregressive-distributed lag approach to cointegration approach and stability tests.
Findings
The empirical results suggest the existence of the PBH only in the case of Bahrain, Kuwait and Saudi Arabia.
Practical implications
Conclusions drawn from this research could be useful for the policy-makers of governments and practitioners in international trade organizations.
Originality/value
This study extends the existing literature by providing initial empirical time series evidence of the PBH for the entire Middle East countries.
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The purpose of this paper is to analyze cointegration and causality relationships between spot and futures markets in Turkish foreign‐exchange markets.
Abstract
Purpose
The purpose of this paper is to analyze cointegration and causality relationships between spot and futures markets in Turkish foreign‐exchange markets.
Design/methodology/approach
The research employs Bounds cointegration test and Toda‐Yamamoto causality test to detect a possible risk transmission between spot and futures markets. Time series of Turkish spot and futures foreign‐exchange markets from January 2, 2006 to March 25, 2008 on a daily basis are used for empirical analysis.
Findings
The empirical tests suggest that there is unidirectional causality running from future exchange‐rate market to spot market implying that foreign‐exchange markets have informational efficiency in Turkey.
Originality/value
The paper has originality in both employing Bounds test and Toda‐Yamamoto test to examine the relationship between spots and derivative markets, and in being one of the first empirical papers examining Turkish futures markets. In addition, the paper presents a guide on how Bounds and Toda‐Yamamoto tests can be applied to detect interactions among markets without data stationarity.
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Angela J. Black, David G. McMillan and Fiona J. McMillan
This paper aims to empirically test for multiple cointegrating vectors in a holistic manner. Theoretical developments imply bivariate cointegration among stock prices, dividends…
Abstract
Purpose
This paper aims to empirically test for multiple cointegrating vectors in a holistic manner. Theoretical developments imply bivariate cointegration among stock prices, dividends, output and consumption where independent models identify key theoretical cointegration vectors.
Design/methodology/approach
This paper considers both Johansen and Horvath–Watson testing approaches for cointegration. This paper also examines the forecasting power of these cointegrating relationships against alternate forecast variables.
Findings
The results suggest evidence of a long-run cointegrating relationship between stock prices, dividends, output and consumption, although not necessarily linked by a single common stochastic trend; each series responds to disequilibrium with greater evidence of a reaction from dividends and consumption – of note, output responds to changes in stock market equilibrium; and there is forecast power from the joint stock market–macro cointegrating vector for stocks returns and consumption growth over the historical average. Of particular note, other forecast models that include consumption perform well and suggest a key role for this variable in stock return and consumption growth forecasts.
Originality/value
This is the first paper to combine the cointegrating relationships between stocks, dividends, output and consumption. Thus, the empirical validity of stated theoretical hypotheses can be analysed. The forecast results also demonstrate the usefulness of this. They also show that forecast models that include consumption perform well and suggest a key role for this variable in stock return and consumption growth forecasts.
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