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Book part
Publication date: 13 December 2013

Nikolay Gospodinov, Ana María Herrera and Elena Pesavento

This article investigates the robustness of impulse response estimators to near unit roots and near cointegration in vector autoregressive (VAR) models. We compare…

Abstract

This article investigates the robustness of impulse response estimators to near unit roots and near cointegration in vector autoregressive (VAR) models. We compare estimators based on VAR specifications determined by pretests for unit roots and cointegration as well as unrestricted VAR specifications in levels. Our main finding is that the impulse response estimators obtained from the levels specification tend to be most robust when the magnitude of the roots is not known. The pretest specification works well only when the restrictions imposed by the model are satisfied. Its performance deteriorates even for small deviations from the exact unit root for one or more model variables. We illustrate the practical relevance of our results through simulation examples and an empirical application.

Details

VAR Models in Macroeconomics – New Developments and Applications: Essays in Honor of Christopher A. Sims
Type: Book
ISBN: 978-1-78190-752-8

Keywords

Article
Publication date: 10 July 2017

Amanjot Singh and Manjit Singh

This paper aims to attempt to capture the intertemporal/time-varying risk–return relationship in the Brazil, Russia, India and China (BRIC) equity markets after the global…

Abstract

Purpose

This paper aims to attempt to capture the intertemporal/time-varying risk–return relationship in the Brazil, Russia, India and China (BRIC) equity markets after the global financial crisis (2007-2009), i.e. during a relative calm period. There has been a significant increase in advanced economies’ equity allocations to the emerging markets ever since the financial crisis. So, the present study is an attempt to account for the said relationship, thereby justifying investments made by the international investors.

Methodology

The study uses non-linear models comprising asymmetric component generalised autoregressive conditional heteroskedastic model in mean (CGARCH-M) (1,1) model, generalised impulse response functions under vector autoregressive framework and Markov regime switching in mean and standard deviation model. The span of data ranges from 1 July 2009 to 31 December 2014.

Findings

The ACGARCH-M (1,1) model reports a positive and significant risk-return relationship in the Russian and Chinese equity markets only. There is leverage and volatility feedback effect in the Russian market because falling returns further increase conditional variance making the investors to expect a risk premium in the expected returns. The impulse responses indicate that for all of the BRIC markets, the ex-ante returns respond positively to a shock in the long-term risk component, whereas the response is negative to a shock in the short-term risk component. Finally, the Markov regime switching model confirms the existence of two regimes in all of the BRIC markets, namely, Bull and Bear regimes. Both the regimes exhibit negative relationship between risk and return.

Practical implications

It is an imperative task to comprehend the relationship shared between risk and returns for an investor. The investors in the emerging economies should understand the risk-return dynamics well ahead of time so that the returns justify the investments made under riskier environment.

Originality/value

The present study contributes to the literature in three senses. First, the data relate to a period especially after the global financial crisis (2007-2009). Second, the study has used a relatively newer version of GARCH based model [ACGARCH-M (1,1) model], generalised impulse response functions and Markov regime switching model to account for the relationship between risk and return. Finally, the study provides an insightful understanding of the risk–return relationship in the most promising emerging markets group “BRIC nations”, making the study first of its kind in all the perspectives.

Details

International Journal of Law and Management, vol. 59 no. 4
Type: Research Article
ISSN: 1754-243X

Keywords

Book part
Publication date: 22 November 2012

Anna Kormilitsina and Denis Nekipelov

The Laplace-type estimator (LTE) is a simulation-based alternative to the classical extremum estimator that has gained popularity in applied research. We show that even…

Abstract

The Laplace-type estimator (LTE) is a simulation-based alternative to the classical extremum estimator that has gained popularity in applied research. We show that even though the estimator has desirable asymptotic properties, in small samples the point estimate provided by LTE may not necessarily converge to the extremum of the sample objective function. Furthermore, we suggest a simple test to verify if the estimator converges. We illustrate these results by estimating a prototype dynamic stochastic general equilibrium model widely used in macroeconomics research.

Details

DSGE Models in Macroeconomics: Estimation, Evaluation, and New Developments
Type: Book
ISBN: 978-1-78190-305-6

Keywords

Article
Publication date: 27 September 2011

Matthew Kofi Ocran

This paper aims to examine the effects of fiscal policy associated with increases in government expenditures, tax revenue and budget deficit on the South African economy.

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Abstract

Purpose

This paper aims to examine the effects of fiscal policy associated with increases in government expenditures, tax revenue and budget deficit on the South African economy.

Design/methodology/approach

Structural VARs based on the Blanchard‐Quard decomposition identification scheme were used in the empirical analysis. With the aid of quarterly data covering the period 1990:1 to 2008:4, the identified true models are used to estimate various impulse‐response functions. The impulse‐response functions represent the responses of real output and interest rates to shocks from tax revenue, budget deficit and government consumption and investment expenditures.

Findings

The results suggest that the fiscal policy instruments have varied effects on output and interest rates. The effect of the fiscal policy on output appears to be quite modest but persistent; however, the response from interest rate is temporary and substantial most cases.

Originality/value

The debate on the efficacy of fiscal policy in stimulating growth seems to have assumed new prominence in the wake of the recent global financial crisis. This paper contributes to the discourse from a South African focused empirical effort. Other fiscal policy authorities may find the paper valuable.

Details

Journal of Economic Studies, vol. 38 no. 5
Type: Research Article
ISSN: 0144-3585

Keywords

Article
Publication date: 1 September 1997

Arjan P.J.M. Van Bussel

Analyses the empirical relation between the one‐month interest rate, the long‐term interest rate and the motgage rate in The Netherlands. To study the dynamic interactions…

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Abstract

Analyses the empirical relation between the one‐month interest rate, the long‐term interest rate and the motgage rate in The Netherlands. To study the dynamic interactions between these variables, vector autoregressive techniques are used. Concentrates on the question of whether the mortgage rate dynamics can correctly be described by a one‐factor interest rate model. One‐factor interest rate models allow mathematical derivations of deterministic equations to price interest rate derivatives. Finds, however, that a single factor does not correctly describe the interest rate term structure. Hence, to model the mortgage rate dynamics accurately more factors should be included.

Details

Journal of Property Finance, vol. 8 no. 3
Type: Research Article
ISSN: 0958-868X

Keywords

Article
Publication date: 25 January 2011

Shuddhasattwa Rafiq and Ruhul Salim

The purpose of this paper is to examine the short‐ and long‐run causal relationship between energy consumption and gross domestic product (GDP) of six emerging economies…

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Abstract

Purpose

The purpose of this paper is to examine the short‐ and long‐run causal relationship between energy consumption and gross domestic product (GDP) of six emerging economies of Asia. The importance of identifying the direction of causality emanates from its relevance in national policy‐making issues regarding energy conservation.

Design/methodology/approach

This paper employs co‐integration and vector error correction modeling along with generalized impulse response functions and varience decomposition tests to check the robustness of the findings.

Findings

The empirical results show that there exists unidirectional short‐ and long‐run causality running from energy consumption to GDP for China, uni‐directional short‐run causality from output to energy consumption for India, whilst bi‐directional short‐run causality for Thailand. Neutrality between energy consumption and income is found for Indonesia, Malaysia, and Philippines. Both the generalized variance decompositions and impulse response functions confirm the direction of causality.

Research limitations/implications

These findings have important policy implications for the countries concerned. The results suggest that while India may directly initiate energy conservation measures, China and Thailand may opt for a balanced combination of alternative polices.

Originality/value

Many economists and social scientists are claiming that the increased demand for energy from developing countries like China and India is one of the major reasons for the energy price hikes in recent times. In this backdrop, it is justified to search causal relationship between energy consumption and national output (GDP) of some developing countries from Asia. Since the traditional bivariate approach suffers from omitted variable problems, this paper employs a trivariate demand side approach consisting of energy consumption, income and prices.

Details

International Journal of Emerging Markets, vol. 6 no. 1
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 17 January 2023

Imen Omri

This paper aims to quantify the volatility spillover impact and the directional predictability from stock market indexes to Bitcoin.

Abstract

Purpose

This paper aims to quantify the volatility spillover impact and the directional predictability from stock market indexes to Bitcoin.

Design/methodology/approach

Daily data of 15 developed and 15 emerging stock markets are used for the period March 2017–December 2021.; The author uses vector autoregressive (VAR) model, Granger causality test and impulse response function (IRF) to estimate the results of the study.

Findings

Empirical results show a significant unidirectional volatility spillover impact from emerging markets to Bitcoin and only six stock markets are powerful predictors of Bitcoin return in the short term. Additionally, there is no a difference between developed and developing markets regarding the directional predictability however there is difference in the reaction of Bitcoin return to shocks in the emerging markets compared to developed ones.

Originality/value

The paper proposes different econometric techniques from prior research and presents a comparative analysis between developed and emerging markets.

Article
Publication date: 1 February 1994

L.L. Leachman, Christie H. Paksoy and J.B. Wilkinson

This research applies vector autoregression to estimate a system composed of market share and relative advertising expenditures of the seven major competitors in the U. S…

Abstract

This research applies vector autoregression to estimate a system composed of market share and relative advertising expenditures of the seven major competitors in the U. S. replacement passenger tire market between 1972 and 1983. The results of the study suggest that a company's market share in this market cannot be predicted from its relative advertising expenditures.

Details

Studies in Economics and Finance, vol. 15 no. 2
Type: Research Article
ISSN: 1086-7376

Article
Publication date: 7 September 2015

Masoud Mohammed Albiman, Najat Nassor Suleiman and Hamad Omar Baka

The purpose of this study is to investigate the dynamic relationship that exists between energy consumption, environmental pollution and per capita economic growth in…

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Abstract

Purpose

The purpose of this study is to investigate the dynamic relationship that exists between energy consumption, environmental pollution and per capita economic growth in Tanzania. The energy consumption is represented by electricity usage in kilowatt hours (kWh) per capita, while environmental pollution is represented by carbon emission per metric tons and economic growth by gross domestic product (GDP) per capita.

Design/methodology/approach

This investigation is made based on the Environmental Kuznets Curve using time series annual data from 1975 to 2013 by applying the more robust causality technique of Toda and Yamamoto non-Causality test (1995), Impulse response and Variance Decomposition, Augumented and Dickey–Fueller test and Philips and Perron Test of unit root tests.

Findings

Economic growth rate (LGDP) and energy consumption per capita (LENGY), both being unidirectional, cause environmental pollution through carbon emission (LCO2) in Tanzania. Interestingly, after using impulse response, a significant and positive economic growth (GDP per capita) was found due to shocks from electricity per capita (energy consumption) and carbon emission (LCO2) with time. The Variance Decomposition suggested that the percentage of the variations due to shocks or innovations of economic growth (LGDP) and energy consumption (LENGY) to carbon emission is very high and significant, accounting to 46 and 41 per cent, respectively, in 10 years to come.

Research limitations/implications

The study recommends that, in the future, the relationship be examined using super-exogeneity causality tests that takes into consideration the changes in policy or regime in contrast to Toda and Yamamoto. Furthermore, the addition of other variables such as fixed capital formation and labor force, which were not considered in this study, may result in strong correlation.

Practical implications

The results imply that the government of Tanzania can adopt environment conservation and energy saving policies without affecting its economic growth. As a matter of fact, to put a stop to persistent environmental pollution in Tanzania, the energy saving policy should be put in place rather quickly. It is imperative that the government implements policies and strategies that ensure continuous economic growth without forsaking the environment.

Originality/value

Despite the increase in carbon emissions, energy consumption and economic growth in Tanzania since 2000, to date, no previous work has been done to investigate their multivariate relationship. This is the first study that uses the Toda and Yamamoto non-Causality test, Impulse Response and Variance Decomposition Analysis to investigate a trivariate relationship of the variables mentioned above.

Details

International Journal of Energy Sector Management, vol. 9 no. 3
Type: Research Article
ISSN: 1750-6220

Keywords

Open Access
Article
Publication date: 16 June 2021

Amira Mohamed Emara and Nashwa Mostafa Ali Mohamed

This paper aims to investigate the relationship between global economic fluctuations and human development through four transmission channels (foreign direct investment…

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Abstract

Purpose

This paper aims to investigate the relationship between global economic fluctuations and human development through four transmission channels (foreign direct investment (FDI), official development aid (ODA), remittances and export earnings) in Egypt as an open developing economy, in the period 1990–2015.

Design/methodology/approach

The paper uses a vector autoregressive model, which implies examining the impulse response functions and variance decompositions.

Findings

The results indicate that human development is negatively affected by global economic fluctuations through the four channels, namely, ODA, FDI, export earnings and remittances. In addition, the most effective transmission channels are FDI in the short run and export earnings in the long run.

Originality/value

While a large body of literature addresses the direct impact of business cycles and economic shocks on human development, only some studies focus on the indirect impact. The contribution is to identify the indirect impact of global economic fluctuations on human development in a developing economy, considering four transmission channels and to determine the most important of these channels. Moreover, using the human development index is an addition in this paper as most previous literature depends on other human development indicators such as children’s health, employment and schooling.

Details

Review of Economics and Political Science, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2356-9980

Keywords

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