Search results

1 – 10 of 86
To view the access options for this content please click here
Article
Publication date: 16 July 2021

Muhammad AsadUllah, Muhammad Adnan Bashir and Abdur Rahman Aleemi

The purpose of this study is to examine the accuracy of combined models with the individual models in terms of forecasting Euro against US dollar during COVID-19 era…

Abstract

Purpose

The purpose of this study is to examine the accuracy of combined models with the individual models in terms of forecasting Euro against US dollar during COVID-19 era. During COVID, the euro shows sharp fluctuation in upward and downward trend; therefore, this study is keen to find out the best-fitted model which forecasts more accurately during the pandemic.

Design/methodology/approach

The descriptive design has been adopted in this research. The three univariate models, i.e. autoregressive integrated moving averages (ARIMA), Naïve, exponential smoothing (ES) model, and one multivariate model, i.e. nonlinear autoregressive distributive lags (NARDL), are selected to forecast the exchange rate of Euro against the US dollar during the COVID. The above models are combined via equal weights and var-cor methods to find out the accuracy of forecasting as Poon and Granger (2003) showed that combined models can forecast better than individual models.

Findings

NARDL outperforms all remaining individual models, i.e. ARIMA, Naïve and ES. By applying a combination of different models via different techniques, the combination of NARDL and Naïve models outperforms all combination of models by scoring the least mean absolute percentage error value, i.e. 1.588. The combined forecasting of NARDL and Naïve techniques under var-cor method also outperforms the forecasting accuracy of individual models other than NARDL. It means the euro exchange rate against the US dollar which is dependent upon the macroeconomic fundamentals and recent observations of the time series.

Practical implications

The findings could help the FOREX market, hedgers, traders, businessmen, policymakers, economists, financial managers, etc., to minimize the risk indulged in global trade. It also helps to produce more accurate results in different financial models, i.e. capital asset pricing model and arbitrage pricing theory, because their findings may not be useful if exchange rate fluctuations do not trace effectively.

Originality/value

The NARDL models have been applied previously in different time series and only limited to the asymmetric or symmetric relationships. This study is using it for the forecasting exchange rate which is almost abandoned in earlier literature. Furthermore, this study combined the NARDL with univariate models to produce the accuracy which itself is a novelty. Moreover, the findings help to enhance the effectiveness of different financial theories as well.

Details

foresight, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1463-6689

Keywords

To view the access options for this content please click here
Article
Publication date: 10 August 2018

Somesh K. Mathur and Abhishek Shekhawat

This paper aims to investigate the determinants of bilateral exports of India to the USA by taking the non-linearity issue in export demand equations which is neglected so…

Abstract

Purpose

This paper aims to investigate the determinants of bilateral exports of India to the USA by taking the non-linearity issue in export demand equations which is neglected so far in the empirical work. The study tries to know the reaction of change in exports to exchange rate changes in a non-liner fashion. For this purpose, non-linear autoregressive distributed lag (NARDL) bounds testing approach of Shin et al. (2011) has been used. This approach allows testing for non-linearities both in the short and long run, which might give indications of strategic pricing and non-linearities in exchange rate. The empirical analysis is carried out for bilateral export demand relationships of India with the USA for the period from January 1993 until December 2013. The overall results show that exports are determined in the long run by foreign demand, exchange rates and relative prices. The assumed linearity in export demand functions might be too restrictive. Thereby, the one threshold model that distinguishes exchange rate effects between appreciations and depreciations delivers plausible results. If exchange rate non-linearities are detected, it would seem that exports respond stronger to appreciations than to depreciations. A reason for this might be that firms perform strategic pricing in international trade to gain or maintain market shares.

Design/methodology/approach

The paper uses the newly developed non-linear ARDL framework of Shin et al. (2011) to investigate whether there are non-linearities with respect to the exchange rate for India’s exports to the USA. One of the important features of this framework is that it is free from unit root pre-testing and can be applied regardless of whether variables are I(0) or I(1). In addition, ARDL and NARDL technique efficiently determines the cointegrating relation in small sample. The short-run and long-run parameters with appropriate asymptotic inferences can be obtained by applying OLS to NARDL with an appropriate lag length. Following is the NARDL representation of equation 4(a) and 4(b). For brevity, this is illustrated for 4(a) only, where is the first difference operator, P is the drift component and it is the white noise residual, the coefficients ?_1 to ?_4 represent the long-run relationship, whereas remaining expressions with summation sign represent the short-term dynamics of the model. This equation nests the linear ARDL model presented in Pesarean et al. (2001) for the case of d_k^+=d_k^-and ?_2=?_3for all k. Thus, equation is less restrictive than a linear model. For this test, as its distribution is non-standard, Pesarean et al. (2001) tabulate the critical values. The bound test is used to examine the existence of the long-run relationship among the variables in the system. This test is based on Wald/F-statistic and follows a non-standard distribution. To check whether a cointegrating relationship exists, one has to test the null hypothesis ?_1=?_2=?_3=?_4 = 0 in the equation. Pesarean et al. (2001) provide two sets of critical values in which lower critical bound assumes that all the variables in the ARDL are I(0) and upper critical bound assumes I(1). The null hypothesis of cointegration is rejected if the calculated F-statistics is greater than the upper bound critical values. If the F-statistics is below than the lower critical bound, then null hypothesis cannot be rejected; this indicates no cointegration among the variables. If it lies within the lower and upper bounds, the result is inconclusive. After examining the cointegration, long-run coefficients are calculated by estimating the model with the appropriate lag orders based on the Schwarz Information Criteria (SIC). Further, the short-run dynamics of the model is also analyzed by using unrestricted error correction model based on the assumption made by Pesarean et al. (2001). Thus, the error correction version of the NARDL model pertaining to the central export equation can be expressed as: 10; 10, where ? is the speed of adjustment parameter, and EC is the residuals that are obtained from the estimated cointegration model of equation 4(a). The EC term is expressed as 10; 10, where are the OLS estimators obtained from the equation (5a). The coefficients of the lagged variables provide the short-run dynamics of the model covering the equilibrium path. The error correction coefficient ( ) is expected to be less than zero, and its significant value implies the cointegration relation among the variables. Finally, various tests such as serial correlation, functional form, normality and heteroskedasticity have been conducted to check the performance of the model.

Findings

Many empirical studies have estimated the elasticities of different final export demand components with respect to the exports because of their importance in trade policy formulation. But all the work has accounted only linearity in the exchange rate in export demand equation. Hence, in this paper, we tried to estimate non-linearities in export demand equation. The study fills the gap in the literature by improving on existing literature with the incorporation of the newly developed NARDL approach of Shin et al. (2011). This approach allows testing for non-linearities both in the short- and in the long run which might give indications of strategic pricing and non-linearities in exchange rate. The empirical analysis is carried out for bilateral export demand relationships of India with the USA for the period from January 1993 until December 2013. The bound test shows that there exists cointegration among the variables. Results show that exports are determined in the long run by foreign demand, exchange rates and relative prices. The long-run coefficients have got the expected sign and are of reasonable magnitude and statistically significant. Regarding non-linearities, the results show that assuming linearity in export demand functions might be too restrictive. Thereby, the one threshold model that distinguishes exchange rate effects between appreciations and depreciations deliver plausible results. If exchange rate non-linearities are detected, it seems that exports respond stronger to appreciations than to depreciations. A reason for this might be that firms perform strategic pricing in international trade to gain or maintain market shares.

Originality/value

The originality of this paper lies in the fact that it applies NARDL approach to Indian trade data (export demand) and analyzes the asymmetrical and non-linear impact of exchange rate changes on Indian exports.

Details

Studies in Economics and Finance, vol. 38 no. 1
Type: Research Article
ISSN: 1086-7376

Keywords

Content available
Article
Publication date: 2 November 2021

Mesbah Fathy Sharaf

Within a multivariate framework, this study examines the asymmetric and threshold impact of external debt on economic growth in Egypt during the period 1980–2019.

Abstract

Purpose

Within a multivariate framework, this study examines the asymmetric and threshold impact of external debt on economic growth in Egypt during the period 1980–2019.

Design/methodology/approach

The paper uses a nonlinear autoregressive distributed lag (NARDL) bounds testing approach to cointegration and a vector error-correction model to estimate the short- and long-run parameters of equilibrium dynamics. A multiple structural breaks model is estimated to test nonlinearity in the relationship between external debt and economic growth.

Findings

Results of the NARDL model show a robust statistically significant negative long-run impact on economic growth stemming from both positive and negative external-debt-induced shocks. In terms of magnitude, on the one hand, the impact of external-debt-induced negative shocks exceeds that of the positive. In the short and long run, on the other hand, the growth impact of external debt in Egypt is symmetric. There is also support for the nonlinearity hypothesis in which a negative impact on growth of external debt obtains once the threshold level of external debt-to-GDP ratio equals or exceeds 96.7%.

Practical implications

Identifying the threshold level after which external debt becomes harmful to economic growth would help inform policymakers in Egypt about maximum external debt levels that can be sustained without impairing economic growth.

Originality/value

The current study makes a substantial contribution to the extant literature on the debt-growth tradeoffs. It breaks ground by being the first tract that examines, using a NARDL model, asymmetry and nonlinearity of debt-growth tradeoffs in Egypt.

Details

Journal of Business and Socio-economic Development, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2635-1374

Keywords

To view the access options for this content please click here
Article
Publication date: 4 November 2021

Asim Rafiq, Ameer Muhammad Aamir and Muhammad Nadeem

The aim of the paper is to determine the asymmetric impact of tourism on the deficit in the balance of payments (BOPs).

Abstract

Purpose

The aim of the paper is to determine the asymmetric impact of tourism on the deficit in the balance of payments (BOPs).

Design/methodology/approach

The research uses the non-linear autoregressive distributed lag (ARDL) model to investigate the asymmetric impact of tourism on Pakistan's BOPs deficit using quarterly data from 1995 to 2019.

Findings

The finding reveals that due to the positive change in tourism, the BOPs deficit decreases by 27%, although due to the negative change in tourism, the BOPs deficit rises by 2.3%. In addition, the significance of F-statistics (10.609) confirms the existence of co-integration between tourism and the deficit in the BOPs. The Wald test confirms the asymmetric association between tourism and the deficit in the BOPs over the long term.

Research limitations/implications

In order to improve tourism in Pakistan, policymakers must consider the following implications. First, there is a need for an adequate infrastructure that can help the tourist. Second, the Government must maintain a stable law and order situation as a whole and particularly at tourist destinations. Finally, the Government should develop tourism-friendly policies in order to boost tourism in Pakistan.

Originality/value

The research provides new evidence of the impact of tourism on the BOPs using the novel non-linear ARDL (NARDL) technique. The evidence will help policymakers to develop policies to improve tourism in order to reduce the BOPs deficit.

Details

Journal of Economic and Administrative Sciences, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1026-4116

Keywords

To view the access options for this content please click here
Article
Publication date: 31 August 2021

Donghui Liu, Lingjie Meng and Yudong Wang

Oil is crucial for industrial development. This paper investigates the impacts of oil price changes on China's industrial growth and examines whether the impacts are…

Abstract

Purpose

Oil is crucial for industrial development. This paper investigates the impacts of oil price changes on China's industrial growth and examines whether the impacts are asymmetric. The estimations can help determine how oil price shocks are transmitted throughout the economy.

Design/methodology/approach

This paper adopts West Texas Intermediate (WTI) crude oil price and industrial sector output and uses monthly data. The recently developed nonlinear autoregressive distributed lag (NARDL) model is employed to illustrate the effects in both the short term and long term. Importantly, under NARDL framework, this paper examines whether the impacts are asymmetric by decomposing oil price shocks into their positive and negative partial sums.

Findings

The empirical results prove clear evidence of asymmetries in the short term, long term or both terms. Specifically, some sectors benefit from, rather than suffer from higher oil prices, even some energy-intensive sectors, i.e. C31 (Smelting and Pressing of Ferrous Metals) and C32 (Smelting and Pressing of Non-ferrous Metals). However, the effects on some other energy-intensive sectors appear insignificant. Additionally, the results prove significantly negative responses in some sectors in the long term, and most of these sectors are in the top half of the ranking by energy consumptions.

Originality/value

This paper studies the economic responses at a disaggregated level by employing industry-level data. NARDL method is used to decompose oil price changes into their increases and decreases and investigate the asymmetries in the impacts of oil price changes.

Details

Kybernetes, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0368-492X

Keywords

To view the access options for this content please click here
Article
Publication date: 13 August 2021

Bongumusa Prince Makhoba, Irrshad Kaseeram and Lorraine Greyling

The primary purpose of the study is to analyse the asymmetric effects of public debt on economic growth, using secondary data over the period 1980–2018 in South Africa.

Abstract

Purpose

The primary purpose of the study is to analyse the asymmetric effects of public debt on economic growth, using secondary data over the period 1980–2018 in South Africa.

Design/methodology/approach

This study estimated a Smooth Transition Regression (STAR) and Nonlinear Autoregressive Distributed Lag (NARDL) approach, using time series data to analyse the asymmetric effect of public debt on economic growth in South Africa.

Findings

The findings revealed a significant nonlinear relationship between public debt and economic growth in South Africa. The results showed an inverted U-Shape relationship, implying a significant positive influence of public debt on economic growth during the low-debt regime. While during a high-debt regime, public debt exerted a significant negative effect on economic growth. The study proposes that policymakers ought to consider targeting a sustainable debt threshold that would enhance efficient use of public finances consistent with long-term economic prosperity.

Originality/value

This paper asymmetries and threshold effects between public debt and economic growth in South Africa, through the application of dynamic nonlinear models namely, Smooth Transition Regression (STAR) and Nonlinear Autoregressive Distributed Lag (NARDL) approach. Studies on the relationship under examination have predominantly been confined in advanced economies. This study provides rigorous empirical evidence from the South African perspective.

Details

African Journal of Economic and Management Studies, vol. 12 no. 3
Type: Research Article
ISSN: 2040-0705

Keywords

Content available
Article
Publication date: 10 August 2021

Christina Anderl and Guglielmo Maria Caporale

This paper aims to explain real exchange rate fluctuations by means of a model including both standard fundamentals and two alternative measures of inflation expectations…

Abstract

Purpose

This paper aims to explain real exchange rate fluctuations by means of a model including both standard fundamentals and two alternative measures of inflation expectations for five inflation targeting countries (the UK, Canada, Australia, New Zealand and Sweden) over the period January 1993–July 2019.

Design/methodology/approach

Both a benchmark linear autoregressive distributed lag (ARDL) model and a nonlinear autoregressive distributed lag (NARDL) specification are considered.

Findings

The results suggest that the nonlinear framework is more appropriate to capture the behaviour of real exchange rates given the presence of asymmetries both in the long and short run. In particular, the speed of adjustment towards the purchasing power parity (PPP) implied long-run equilibrium is three times faster in a nonlinear framework, which provides much stronger evidence in support of PPP. Moreover, inflation expectations play an important role, with survey-based ones having a more sizable effect than market-based ones.

Originality/value

The focus on linearities and the estimation of a NARDL model, which is shown to outperform the linear ARDL model both within sample and out of sample, is an important contribution to the existing literature which has rarely applied this type of framework; the choice of an appropriate econometric method also makes the policy implications of the analysis more reliable; in particular, monetary authorities should aim to achieve a high degree of credibility to manage them and thus currency fluctuations effectively; the inflation targeting framework might be especially appropriate for this purpose.

Details

Journal of Economic Studies, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0144-3585

Keywords

To view the access options for this content please click here
Article
Publication date: 13 January 2021

Monsurat Ayojimi Salami

This study aims to critically examine the pricing of Islamic financial assets (Sharīʿah-compliant assets, Sharīʿah-compliant securities, Sharīʿah-compliant financing and…

Abstract

Purpose

This study aims to critically examine the pricing of Islamic financial assets (Sharīʿah-compliant assets, Sharīʿah-compliant securities, Sharīʿah-compliant financing and Sukuk) in the three South-East Asia countries such as Malaysia, Indonesia and Brunei to provide necessary information to the policymakers and Islamic finance investors for making a sound decision.

Design/methodology/approach

This study used secondary data and used the nonlinear autoregressive distributed lags (NARDL) model to estimate the reaction of Islamic financial assets in South-East Asia towards price changes. Wald-test was used to diagnose the final model.

Findings

The result of this study shows that the majority of Islamic financial assets in the three South-East Asia countries exhibit positive and negative long-run effects. The findings reveal a long-run asymmetric relationship that supports rockets and feathers effects. The indication is that Islamic financial assets pricing deviates from weak form EMH. Pricing of Islamic financial assets reveals unfair pricing.

Practical implications

Price adjustment of Islamic financial assets requires urgent attention of policymakers to prevent Sharīʿah non-compliant risk. Therefore, the Shariah advisory board in those countries, Accounting and Auditing Organization for Islamic Financial Institutions and Islamic Financial Services Board are hereby advised to act on the factors that might enable rockets and feathers effects on the pricing of Islamic financial assets, as the long-run asymmetric relationship is established.

Originality/value

This study is novel as it critically and simultaneously examines the pricing behaviour of Islamic financial assets in the three South-East Asian countries. The findings from the study provide vital information on the pricing behaviour of Islamic financial assets to the policymakers and investors.

Details

Journal of Financial Reporting and Accounting, vol. 19 no. 3
Type: Research Article
ISSN: 1985-2517

Keywords

To view the access options for this content please click here
Article
Publication date: 14 August 2021

Patrick Onodje, Temitope Ahmdalat Oke, Oluwatimilehin Aina and Nazeer Ahmed

The purpose of this paper is to examine the effect of crude oil prices on the Nigerian exchange rate with emphasis on discriminating between the effects of positive and…

Abstract

Purpose

The purpose of this paper is to examine the effect of crude oil prices on the Nigerian exchange rate with emphasis on discriminating between the effects of positive and negative changes in oil price on exchange rate.

Design/methodology/approach

The authors used monthly time series data from 1996:1 to 2019:6 and adopted two oil price measures, namely, Brent crude and West Texas Intermediary prices. For analysis, the authors used stepwise least squares to estimate a non-linear ARDL (NARDL) model and Wald tests to determine cointegration and the presence of asymmetric effects.

Findings

The findings showed that positive and negative Brent crude price changes significantly affect exchange rates differently in nominal terms, both in the long-run and short-run. However, the differences were purely in terms of effect size because the exchange rate decreased for both negative and positive oil price changes.

Originality/value

Whilst empirical research on asymmetries in the effect of oil price on exchange rate abounds, little evidence exists in Nigeria’s case. Although some studies previously tested for asymmetric oil price effects on the Nigerian currency, the approach used did not estimate long and short-run effects or test of long-run and short-run asymmetries. This paper fills this methodological gap using monthly using the NARDL approach. The NARDL approach provided the advantage of estimating effects for the long-run and short-run and testing for asymmetries in both time spans.

Details

International Journal of Energy Sector Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1750-6220

Keywords

To view the access options for this content please click here
Book part
Publication date: 21 May 2021

Aamir Aijaz Syed

The objective of this chapter is to study the symmetric and asymmetric impact of macroeconomic variables on the Indian stock prices (SPs) of the Bombay Stock Exchange…

Abstract

The objective of this chapter is to study the symmetric and asymmetric impact of macroeconomic variables on the Indian stock prices (SPs) of the Bombay Stock Exchange index. This chapter further investigates whether the asymmetric impact of macroeconomic variables on SP is due to the impact of any tail events like the global financial recession. An autoregressive distribution lag and non-autoregressive distribution lag approach is used for the full sample covering the period from January 2000 to June 2019 and later this sample is further subdivided into before and after the crisis period to study the variations in result. The findings show that macroeconomic variables and SP have a symmetric relation in the long run whereas an asymmetric relationship in the short run when the whole sample is analyzed. However when data are segregated into “before and after” crisis period this relationship turns to be asymmetric in long run too, meaning that in the long run, the negative and positive changes in a macroeconomic variable do not affect SPs similarly.

Details

New Challenges for Future Sustainability and Wellbeing
Type: Book
ISBN: 978-1-80043-969-6

Keywords

1 – 10 of 86