Search results
11 – 20 of over 5000Palamalai Srinivasan, M. Kalaivani and P. Ibrahim
This paper aims to investigate the causal nexus between foreign direct investment (FDI) and economic growth in SAARC countries.
Abstract
Purpose
This paper aims to investigate the causal nexus between foreign direct investment (FDI) and economic growth in SAARC countries.
Design/methodology/approach
Johansen's cointegration test was employed to examine the long‐run relationship between foreign direct investment and economic growth in SAARC countries. Besides, the vector error correction model (VECM) was employed to examine the causal nexus between foreign direct investment and economic growth in SAARC countries for the years 1970‐2007. Finally, the impulse response function (IRF) has been employed to investigate the time paths of log of foreign direct investment (LFDI) in response to one‐unit shock to the log of gross domestic product (LGDP) and vice versa.
Findings
The Johansen cointegration result establishes a long‐run relationship between foreign direct investment and gross domestic product (GDP) for the sample of SAARC nations, namely, Bangladesh, India, Maldives, Nepal, Pakistan and Sri Lanka. The empirical results of the vector error correction model exhibit a long‐run bidirectional causal link between GDP and FDI for the selected SAARC nations except India. The test results show that there is a one‐way long‐run causal link from GDP to FDI for India.
Research limitations/implications
This paper employed annual data to examine the causal nexus between FDI and economic growth. Therefore, researchers are encouraged to test the FDI‐growth relationship further by using quarterly data.
Practical implications
The SAARC nations should adopt effective policy measures that would substantially enlarge and diversify their economic base, improve local skills and build up a stock of human capital recourses capabilities, enhance economic stability and liberalise their market in order to attract as well as benefit from long‐term FDI inflows.
Originality/value
This paper would be immensely helpful to the policy makers of SAARC countries to plan their FDI policies in a way that would enhance growth and development of their respective economies.
Details
Keywords
Christos Floros and Dimitrios V. Vougas
The paper's objectives are: to address the issue of cointegration (efficient market hypothesis) between Greek spot and futures markets over the period of the crisis, 1999‐2001; to…
Abstract
Purpose
The paper's objectives are: to address the issue of cointegration (efficient market hypothesis) between Greek spot and futures markets over the period of the crisis, 1999‐2001; to investigate the short‐run and long‐run efficiency of the FTSE/ASE‐20 stock index futures contract and FTSE/ASE Mid 40 stock index futures contract traded on the Athens Derivatives Exchange (ADEX).
Design/methodology/approach
This paper examines efficiency of the Greek stock index futures market from 1999 to 2001. A variety of econometric models are employed to test for cointegration between prices. The paper uses daily data from the Athens Stock Exchanges (ASEs) and the ADEX. A more detailed discussion on the causal relationship between spot and futures price in ADEX is obtained by using the impulse response functions of the vector error‐correction model (to study the behaviour of series from real shocks).
Findings
The results show that the Greek futures and spot prices form a stable long‐run relationship. For both FTSE/ASE‐20 and FTSE/ASE Mid 40, futures markets play a price discovery role, implying that futures prices contain useful information about spot prices. Futures markets are informationally more efficient than underlying stock markets in Greece.
Practical implications
The results have important implications for both traders and speculators. The findings are strongly recommended to financial managers dealing with Greek stock index futures.
Originality/value
The contribution of this paper is to provide evidence using data from the early stage of the ADEX (started its official operation on 27 August 1999). It also investigates whether the hypotheses exist after the dramatic rise of ASE stock prices.
Details
Keywords
Le Ma and Chunlu Liu
A panel error correction model has been developed to investigate the spatial correlation patterns among house prices. This paper aims to identify a dominant housing market in the…
Abstract
Purpose
A panel error correction model has been developed to investigate the spatial correlation patterns among house prices. This paper aims to identify a dominant housing market in the ripple down process.
Design/methodology/approach
Seemingly unrelated regression estimators are adapted to deal with the contemporary correlations and heterogeneity across cities. Impulse response functions are subsequently implemented to simulate the spatial correlation patterns. The newly developed approach is then applied to the Australian capital city house price indices.
Findings
The results suggest that Melbourne should be recognised as the dominant housing market. Four levels were classified within the Australian house price interconnections, namely: Melbourne; Adelaide, Canberra, Perth and Sydney; Brisbane and Hobart; and Darwin.
Originality/value
This research develops a panel regression framework in addressing the spatial correlation patterns of house prices across cities. The ripple-down process of house price dynamics across cities was explored by capturing both the contemporary correlations and heterogeneity, and by identifying the dominant housing market.
Details
Keywords
Panayiotis F. Diamandis, Anastassios A. Drakos and Georgios P. Kouretas
The purpose of this paper is to provide an extensive review of the monetary model of exchange rate determination which is the main theoretical framework on analyzing exchange rate…
Abstract
Purpose
The purpose of this paper is to provide an extensive review of the monetary model of exchange rate determination which is the main theoretical framework on analyzing exchange rate behavior over the last 40 years. Furthermore, we test the flexible price monetarist variant and the sticky price Keynesian variant of the monetary model. We conduct our analysis employing a sample of 14 advanced economies using annual data spanning the period 1880–2012.
Design/methodology/approach
The theoretical background of the paper relies on the monetary model to the exchange rate determination. We provide a thorough econometric analysis using a battery of unit root and cointegration testing techniques. We test the price-flexible monetarist version and the sticky-price version of the model using annual data from 1880 to 2012 for a group of industrialized countries.
Findings
We provide strong evidence of the existence of a nonlinear relationship between exchange rates and fundamentals. Therefore, we model the time-varying nature of this relationship by allowing for Markov regime switches for the exchange rate regimes. Modeling exchange rates within this context can be motivated by the fact that the change in regime should be considered as a random event and not predictable. These results show that linearity is rejected in favor of an MS-VECM specification which forms statistically an adequate representation of the data. Two regimes are implied by the model; the one of the estimated regimes describes the monetary model whereas the other matches in most cases the constant coefficient model with wrong signs. Furthermore it is shown that depending on the nominal exchange rate regime in operation, the adjustment to the long run implied by the monetary model of the exchange rate determination came either from the exchange rate or from the monetary fundamentals. Moreover, based on a Regime Classification Measure, we showed that our chosen Markov-switching specification performed well in distinguishing between the two regimes for all cases. Finally, it is shown that fundamentals are not only significant within each regime but are also significant for the switches between the two regimes.
Practical implications
The results are of interest to practitioners and policy makers since understanding the evolution and determination of exchange rates is of crucial importance. Furthermore, our results are linked to forecasting performance of exchange rate models.
Originality/value
The present analysis extends previous analyses on exchange rate determination and it provides further support in favor of the monetary model as a long-run framework to understand the evolution of exchange rates.
Details
Keywords
Are share markets too volatile? While it is difficult to ignore share market volatility it is important to determine whether volatility is excessive. This paper replicates the…
Abstract
Are share markets too volatile? While it is difficult to ignore share market volatility it is important to determine whether volatility is excessive. This paper replicates the Shiller (1981) test as well as applying standard time series analysis to annual Australian stock market data for the period 1883 to 1999. While Shiller’s test suggests the possibility of excess volatility, time series analysis identifies a long‐run relationship between share market value and dividends, consistent with the share market reverting to its fundamental discounted cash flow value over time.
Details
Keywords
T.J. Brailsford, J.H.W. Penm and R.D. Terrell
Vector error-correction models (VECMs) have become increasingly important in their application to financial markets. Standard full-order VECM models assume non-zero entries in all…
Abstract
Vector error-correction models (VECMs) have become increasingly important in their application to financial markets. Standard full-order VECM models assume non-zero entries in all their coefficient matrices. However, applications of VECM models to financial market data have revealed that zero entries are often a necessary part of efficient modelling. In such cases, the use of full-order VECM models may lead to incorrect inferences. Specifically, if indirect causality or Granger non-causality exists among the variables, the use of over-parameterised full-order VECM models may weaken the power of statistical inference. In this paper, it is argued that the zero–non-zero (ZNZ) patterned VECM is a more straightforward and effective means of testing for both indirect causality and Granger non-causality. For a ZNZ patterned VECM framework for time series of integrated order two, we provide a new algorithm to select cointegrating and loading vectors that can contain zero entries. Two case studies are used to demonstrate the usefulness of the algorithm in tests of purchasing power parity and a three-variable system involving the stock market.
Examines the causality issue, in a Granger‐temporal causal sense, between price level and productivity in a bivariate and multivariate context in Greece over the period 1962‐1997…
Abstract
Examines the causality issue, in a Granger‐temporal causal sense, between price level and productivity in a bivariate and multivariate context in Greece over the period 1962‐1997. The empirical analysis employs various time‐series techniques such as unit‐root testing, bivariate and multivariate cointegration and procedures in vector error‐correction modeling (VECM). The empirical results suggest that a bivariate relationship between inflation and productivity is spurious, as the unit root pre‐tests that account for oil shock episodes show that inflation and productivity are integrated of a different order. When we control for fluctuations of overall economic activity and monetary policy on the bivariate relationship between price level and productivity, the evidence suggests that Granger‐causation must exist in at least one direction. VECM estimation showed that productivity growth and inflation are an econometrically endogenous variable and this suggests that bi‐directional causality from inflation to productivity growth and vice versa exists.
Details
Keywords
Joseph Mawejje and Musa Mayanja Lwanga
The purpose of this paper is to develop an empirical model for inflation in Uganda, highlighting the role of supply side factors in the domestic agricultural sector.
Abstract
Purpose
The purpose of this paper is to develop an empirical model for inflation in Uganda, highlighting the role of supply side factors in the domestic agricultural sector.
Design/methodology/approach
The adopted empirical analysis is based on a single equation model that exploits cointegration techniques and general-to-specific modeling. The analysis controls for historical, seasonal as well as policy factors such as the effects of the global financial crisis, change in monetary policy regime to inflation targeting and monthly seasonal effects.
Findings
Results indicate that disequilibrium in the money, external and agricultural sectors feed into the Ugandan inflation process in the long run. However, the external and monetary sectors have larger long-run effects on inflation than the agricultural sector. Other factors that influence inflation in the short run include: inflation inertia, real output, money supply, exchange rate movements, foreign prices, monetary policy instruments and seasonal factors. In addition, the paper shows that the inflation-targeting policy has been successful in containing inflationary pressures.
Practical implications
These findings suggest that in the long-run monetary policy will continue to play an important role in managing Ugandan inflation through money demand management. The inflationary effects of agricultural supply shocks could be mitigated with appropriate domestic actions. In particular, fiscal policy that targets increased productivity and efficiency in agriculture through increased focus on production, irrigation, storage and transportation could reduce the effects of agricultural supply variability on inflation. In addition, policies intended to improve economic growth by expanding total output, control money supply growth and maintaining stability in the foreign exchange markets will help to reduce inflation.
Social implications
Studies of inflation and its determinants have dominated macroeconomic debates in the past decades because of the importance of price stability in economic growth and household welfare. The major conclusions from those studies are that: high inflation is detrimental to investment and growth; erodes the purchasing power; reduces household welfare; and exacerbates income inequality. Moreover there is a growing strand of literature establishing a causal link between inflation and conflict. Particularly for agricultural households, the effects of inflation are usually felt through the increase in food prices with implications for consumption and food security. These findings indicate the important macro and social implications of inflation. By focusing on the importance of agricultural supply shocks, the paper contributes to a better understanding of the drivers of inflation and how the macro and social effects can be addressed.
Originality/value
The major contribution of this paper is to try and model an equilibrium relationship in the domestic agricultural sector rather than using proxies such as an output gap measure or rainfall.
Details
Keywords
Syed Alamdar Ali Shah, Raditya Sukmana and Bayu Arie Fianto
The purpose of this study is to develop, test and examine econometric methodology for Sharīʿah-compliant duration models of Islamic banks.
Abstract
Purpose
The purpose of this study is to develop, test and examine econometric methodology for Sharīʿah-compliant duration models of Islamic banks.
Design/methodology/approach
The research evaluates all existing duration models from Sharīʿah’s perspective and develops a four-stage framework for testing Sharīʿah-compliant duration models. The econometric methodology consists of multiple regression, Johansen co-integration, error correction model, vector error correction model (VECM) and threshold vector error models (TVECM).
Findings
Regressions analysis suggests that returns on earning assets and interbank offered rates are significant factors for calculating the duration of earning assets, whereas returns paid on return bearing liabilities and average interbank rates of deposits are significant factors for duration of return bearing liabilities. VECM suggests that short run duration converges into long run duration and TVECM suggests that management of assets and liabilities also plays a significant role that can bring about a change of about 15% in respective durations.
Practical implications
Sharīʿah-compliant duration models will improve risk and Sharīʿah efficiency, which will ultimately improve market capitalization and returns stability of Islamic banks in the long run.
Originality/value
Sharīʿah-compliant duration models testing provides insight into how various factors, namely, rates of return, benchmark rates and managerial skills of Islamic bank risk managers impact durations of assets and liabilities. It also explains the future course of action for Sharīʿah-compliant duration model testing.
Details
Keywords
This paper explores the evidence of a long-run co-movement between aggregate unemployment insurance spending and the labor force participation rate in the USA. The unemployment…
Abstract
Purpose
This paper explores the evidence of a long-run co-movement between aggregate unemployment insurance spending and the labor force participation rate in the USA. The unemployment insurance (UI) program tends to expand during an economic downturn and contract during an expansion. UI may incentivize unemployment and may also facilitate better matching in the labor market. Statistical evidence of the presence of a co-movement will thus shed new light on their dynamics.
Design/methodology/approach
This research applies time-series econometric approach using monthly data from 1959:1 to 2020:3 to test threshold cointegration and estimate a threshold vector error-correction (TVEC) model. The estimates from the TVEC model investigating the nature of short-run dynamics.
Findings
The Enders and Siklos (2001) test find evidence of threshold cointegration between the two indicating the presence of long-run co-movement. The estimates from the TVEC model investigating the nature of short-run dynamics find evidence that the growth in aggregate UI spending and the growth in labor force participation rate adjust simultaneously to maintain the long-run co-movement above the threshold in the short run. The author also observes the same short-run dynamics for the growth in aggregate UI spending and the growth in the labor force participation rate for females.
Research limitations/implications
This model is bi-variate by construction and does not address causality.
Practical implications
The author argues that the UI program positively impacts the female labor market outcomes, for example, better matching. This finding may explain the upward trend in the labor force participation rate for females in the USA.
Social implications
The research findings may justify the transfer programs for minority and immigrants.
Originality/value
This is first research that analyzes the UI programs impact on the labor force participation using a macroeconometric approach. To the best of the author's knowledge, this is the first study in this genre.
Details