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The purpose of the paper is to test and analyze the equilibrium economic relationships of the East Africa Community (EAC).
Abstract
Purpose
The purpose of the paper is to test and analyze the equilibrium economic relationships of the East Africa Community (EAC).
Design/methodology/approach
To attain the study's purpose the authors applied the Johansen cointegration test, including long-run structural modeling (LRSM), vector-error-correlation-model (VECM) and variance-decomposition (VDC).
Findings
At I(1), both Philips‐Peron (PP) and Kwiatkowski–Phillips–Schmidt–Shin (KPSS) tests show that the East Africa member states' economies are cointegrated. The result was further substantiated by the tests based on Johansen cointegration and VECM procedures, showing significant long-run and short-run economic relations. The result further reveals that despite some uncommon issues among member states such as Tanzania and Kenya, however, their economic relationships remain significant though it is negative. Moreover, the finding revealed positive and significant short-run economic relationships between Kenya, Burundi and Rwanda.
Originality/value
The paper applies the cointegration techniques in the context of EAC. The result is likely to be adding value to the policymaker and also to the existing literature on the subject. This may trigger policy implications and open new research direction within the region and out.
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The purpose of this study is to explore the role of gold as a hedge against inflation in the case of the United Arab Emirates.
Abstract
Purpose
The purpose of this study is to explore the role of gold as a hedge against inflation in the case of the United Arab Emirates.
Design/methodology/approach
The study utilizes monthly data on the local sharia-compliant spot gold contract traded on the Dubai Gold and Commodity Exchange (DGCX) and the corresponding consumer price index series over the period December 2015 to January 2021. The econometric approach employed by the study involves a unit root testing procedure that allows the timing of significant breaks to be estimated. A cointegration analysis is then conducted using a nonlinear autoregressive distributed lag (NARDL) model, taking into consideration the presence of structural breaks in addition to short- and long-run asymmetries.
Findings
The results reveal that consumer and gold prices are cointegrated, which implies that investing in gold can hedge against inflation in the long run. No sufficient evidence, nonetheless, is found in support of the ability of gold to serve as a hedge against inflation in the short run.
Originality/value
The findings have several important policy implications for policymakers and investors that are further discussed in the study.
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This paper aims to assess the long-run drivers and short-term dynamics of real house prices in Sweden for 1986Q1 to 2016Q4. More specifically, the author examines the extent to…
Abstract
Purpose
This paper aims to assess the long-run drivers and short-term dynamics of real house prices in Sweden for 1986Q1 to 2016Q4. More specifically, the author examines the extent to which real house prices are determined by affordability, demographics and asset price factors.
Design/methodology/approach
The author conducts a cointegration analysis and applies a vector autoregression model to examine the long- and short-run responsiveness of Swedish real house prices to a number of key categories of fundamental variables.
Findings
The empirical results indicate that house prices will increase in the long run by 1.04 per cent in response to a 1 per cent increase in household real disposable income, whereas real after-tax mortgage interest and real effective exchange rates show average long-term effects of approximately – 8 and – 0.7 per cent, respectively. In addition, the results show that the growth of real house prices is affected by growth in mortgage credit, real after-tax mortgage interest rates and disposable incomes in the short run, whereas the real effective exchange rate is the most significant determinant of Swedish real house appreciation.
Originality/value
The impact of the two lending restrictions been implemented after the financial crisis – the mortgage cap in October 2010 and the amortization requirement in June 2016 – are ineffective to stabilize the housing market. This suggests that macroprudential measures designed to ease pressure on housing prices and reduce risks to financial stability need to focus on these fundamentals and address the issues of tax deductibility on mortgage rates and the gradual implementation of debt-to-income limits to contain mortgage demand and improve households’ resilience to shocks.
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Michael O'Neill and Gulasekaran Rajaguru
The authors analyse six actively traded VIX Exchange Traded Products (ETPs) including 1x long, −1x inverse and 2x leveraged products. The authors assess their impact on the VIX…
Abstract
Purpose
The authors analyse six actively traded VIX Exchange Traded Products (ETPs) including 1x long, −1x inverse and 2x leveraged products. The authors assess their impact on the VIX Futures index benchmark.
Design/methodology/approach
Long-run causal relations between daily price movements in ETPs and futures are established, and the impact of rebalancing activity of leveraged and inverse ETPs evidenced through causal relations in the last 30 min of daily trading.
Findings
High frequency lead lag relations are observed, demonstrating opportunities for arbitrage, although these tend to be short-lived and only material in times of market dislocation.
Originality/value
The causal relations between VXX and VIX Futures are well established with leads and lags generally found to be short-lived and arbitrage relations holding. The authors go further to capture 1x long, −1x inverse as well as 2x leveraged ETNs and the corresponding ETFs, to give a broad representation across the ETP market. The authors establish causal relations between inverse and leveraged products where causal relations are not yet documented.
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The author analyzes households' inflation expectations data for India, collected quarterly by the RBI for more than a decade. The contribution of this paper lies in two folds…
Abstract
Purpose
The author analyzes households' inflation expectations data for India, collected quarterly by the RBI for more than a decade. The contribution of this paper lies in two folds. First, this study examines the relationship between relatively recent inflation expectations survey of households (IESH) and the actual inflation for India. Secondly, the author employs a structural VAR with the time period 2006 Q2 to 2020 Q2 on inflation expectation survey data of India. A short-term non-recursive restriction is imposed in the model in order to capture the simultaneous co-dependence causal effect of inflation expectation and realized inflation.
Design/methodology/approach
This paper studies the dynamic behavior of inflation expectations survey data in two folds. First, the author analyzes the time series property of the survey data. The author begins with testing the stationarity property of the series, followed by the casual relationship between the expected and actual inflation. The author further examines the short-run and long-run behavior of the IESH with actual inflation. Employing autoregressive distributed lag and Johansen co-integration, the author tested if a long-run relationship exists between the variables. In the second approach, the author investigates the determinants of inflation expectations by employing a non-recursive SVAR model.
Findings
The preliminary explanatory test reveals that inflation expectation is a policy variable and should be used in monetary policy as an instrument variable. The model identifies the price puzzle for India. The author finds that the response of inflation to a monetary policy shock is neutral. The results also indicate that the expectations of the general public are self-fulfilling.
Originality/value
IESH has only commenced from September 2005, hence is relatively new as compared to other survey in developed countries. Being a new data set so far, the author could not locate any study devoted in analyzing the behavior of the data with other macroeconomic variables.
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Globalization occupies a central research activity and remains an increasingly controversial phenomenon in economics. This phenomenon corresponds to a subject that can be…
Abstract
Purpose
Globalization occupies a central research activity and remains an increasingly controversial phenomenon in economics. This phenomenon corresponds to a subject that can be criticized through its impact on national economies. On the other hand, the world economy is evolving in a liberalized environment in which foreign direct investment plays a fundamental role in the economic development of each country. The advent of financial flows – foreign direct investment, remittances and official development assistance – can be a key factor in the development of the economy. The purpose of this study is to analyze the effect of financial flows on economic growth in developing countries. Empirically, different approaches have been used. As part of this study, an attempt was made to use a combined autoregressive distributed lag (ARDL) panel approach to study the short-term and long-run effects of financial flows on economic growth. The results indicate ambiguous effects. Economically, the effect of financial flows on economic growth depends on the investor’s expectations.
Design/methodology/approach
To study the short-run and long-run effects of financial flows on economic growth, this paper considers an empirical approach based on the panel ARDL. This model makes it possible to distinguish between the short-run effect and the long-run one. This type of model is based on three estimators, namely, mean group, pooled mean group (PMG) and dynamic fixed effect.
Findings
Results confirm the existence of a long-run relationship because the adjustment coefficient (error correction parameter) is negative and statistically significant. This paper finds that the PMG estimator is more consistent and more efficient. In the short-run, foreign direct investment do negatively affect economic growth, the effect is no significant in the long-run. On the other hand, the effect of remittances on economic growth is significant in the short-run. However, it is no significant in the long-run. Finally, the results suggest that the effect of official development assistance on economic growth is insignificant; both in the long-run and in the short-run.
Originality/value
To study the interaction between financial flows and economic growth, some empirical methodology are used such as the dynamic panel data and the autoregressive vector (VAR) model. In this study, we apply the panel ARDL model to analyze the short-run and the long-run effect for each financial flow on economic growth. The objective is to study the heterogeneity on dynamic adjustment in the short-term and long-term.
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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.
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Tamoor Khan, Jiangtao Qiu, Ameen Banjar, Riad Alharbey, Ahmed Omar Alzahrani and Rashid Mehmood
The purpose of this paper is to assess the impacts on production of five fruit crops from 1961 to 2018 of energy use, CO2 emissions, farming areas and the labor force in China.
Abstract
Purpose
The purpose of this paper is to assess the impacts on production of five fruit crops from 1961 to 2018 of energy use, CO2 emissions, farming areas and the labor force in China.
Design/methodology/approach
This analysis applied the autoregressive distributed lag-bound testing (ARDL) approach, Granger causality method and Johansen co-integration test to predict long-term co-integration and relation between variables. Four machine learning methods are used for prediction of the accuracy of climate effect on fruit production.
Findings
The Johansen test findings have shown that the fruit crop growth, energy use, CO2 emissions, harvested land and labor force have a long-term co-integration relation. The outcome of the long-term use of CO2 emission and rural population has a negative influence on fruit crops. The energy consumption, harvested area, total fruit yield and agriculture labor force have a positive influence on six fruit crops. The long-run relationships reveal that a 1% increase in rural population and CO2 will decrease fruit crop production by −0.59 and −1.97. The energy consumption, fruit harvested area, total fruit yield and agriculture labor force will increase fruit crop production by 0.17%, 1.52%, 1.80% and 4.33%, respectively. Furthermore, uni-directional causality is correlated with the growth of fruit crops and energy consumption. Also, the results indicate that the bi-directional causality impact varies from CO2 emissions to agricultural areas to fruit crops.
Originality/value
This study also fills the literature gap in implementing ARDL for agricultural fruits of China, used machine learning methods to examine the impact of climate change and to explore this important issue.
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Aiza Shabbir, Shazia Kousar and Syeda Azra Batool
The purpose of the study is to find out the impact of gold and oil prices on the stock market.
Abstract
Purpose
The purpose of the study is to find out the impact of gold and oil prices on the stock market.
Design/methodology/approach
This study uses the data on gold prices, stock exchange and oil prices for the period 1991–2016. This study applied descriptive statistics, augmented Dickey–Fuller test, correlation and autoregressive distributed lag test.
Findings
The data analysis results showed that gold and oil prices have a significant impact on the stock market.
Research limitations/implications
Following empirical evidence of this study, the authors recommend that investors should invest in gold because the main reason is that hike in inflation reduces the real value of money, and people seek to invest in alternative investment avenues like gold to preserve the value of their assets and earn additional returns. This suggests that investment in gold can be used as a tool to decline inflation pressure to a sustainable level. This study was restricted to use small sample data owing to the availability of data from 1991 to 2017 and could not use structural break unit root tests with two structural break and structural break cointegration approach, as these tests require high-frequency data set.
Originality/value
This study provides information to the investors who want to get the benefit of diversification by investing in gold, oil and stock market. In the current era, gold prices and oil prices are fluctuating day by day, and investors think that stock returns may or may not be affected by these fluctuations. This study is unique because it focusses on current issues and takes the current data in this research to help investment institutions or portfolio managers.
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This study aims to examine the influence of socioeconomic development on inflation in South Asia using the foreign exchange rate and money supply as control variables.
Abstract
Purpose
This study aims to examine the influence of socioeconomic development on inflation in South Asia using the foreign exchange rate and money supply as control variables.
Design/methodology/approach
The study uses annual panel data for five South Asian economies, namely, Bangladesh, India, Nepal, Pakistan and Sri Lanka over the period 1990–2018, applies cointegrating regression techniques, namely, the panel dynamic ordinary least square (OLS) and fully modified OLS estimators to examine the long-run relations and conducts the Toda-Yamamoto Granger causality test to detect the direction of causality among variables.
Findings
The cointegrating regression estimations have documented that the socioeconomic development proxied by the human development index (HDI) has no significant impact on inflation. Although economic development represented by gross domestic product (GDP) growth causes inflation, socioeconomic development represented by HDI has no impact on inflation and has demonstrated as a better macroeconomic indicator, and thus creates no inflationary pressure in the economy. The foreign exchange rate has a positive impact on inflation. The broad money supply has the usual positive effect on domestic inflation that endorses the monetarist view about prices. The Toda-Yamamoto Granger causality test has confirmed several unidirectional causalities: inflation causes HDI, money supply causes both inflation and HDI and the foreign exchange rate causes HDI.
Practical implications
The study has practical implications for policymakers in South Asia, to improve HDI, particularly GDP per capita, education and health-care facilities to realize continuous socioeconomic development, which will take care of inflation. Moreover, these counties may follow a conservative monetary policy to control inflationary pressure in their economies.
Originality/value
The study is original and claims to be the first to examine the impact of socioeconomic development on inflation. The findings have socioeconomic values regarding controlling inflation in South Asia.
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