Bilateral Linkages Research Articles

Oil, gold, US dollar and stock market interdependencies: a global analytical insight

Purpose The purpose of this paper is to examine, in a global perspective, the oil, gold, US dollar and stock prices interdependencies and to identify instantaneously direct and indirect linkages among them. Design/methodology/approach A methodology based on simultaneous equations system was used to identify direct and indirect linkages for the period 1995-2015. The authors try initially to find theoretical answers to main question of the study by discussing causal bilateral relationships while focusing on multilateral interactions. Findings The results show significant interactions between all markets. The authors found a negative relation between oil and stock prices but oil price is significantly and positively affected by gold and USD. Oil price is also affected by oil futures prices and by Chinese oil gross imports. Gold rate is concerned by changes in oil, USD and stock markets. The US dollar is negatively affected by stock market and significantly by oil and gold price. Indirect effects always exist which confirm the presence of global interdependencies and involve the financialization process of commodity markets. Originality/value Motivation of this research paper is the substantial implications of price movements on real economy and financial markets. Understanding that co-movement has great value for investors, policy makers and portfolio managers. This paper differs from previous studies in several aspects. First, most of the research papers focus on bilateral linkages solely, while the authors’ investigation was implemented on all the four markets simultaneously. Second, the study was developed in a global framework using international data. The global analysis allows avoiding country specific effects.

Offshore renminbi trading: Findings from the 2013 Triennial Central Bank Survey

Using foreign exchange transaction data reported in the Triennial Central Bank Survey by the Bank for International Settlements, we find that offshore renminbi (RMB) trading activity is affected by both the host economy's characteristics and links with China. For instance, the occurrence of offshore RMB trading is determined by the economy's GDP, stage of financial development, equity market capitalization and free trade agreement with China. When an economy hosts offshore RMB trading, the trading volume is affected by the size of its foreign exchange market, equity market capitalization, as well as the bilateral link with China through FDI flows.

A Structural Model of Homophily and Clustering in Social Networks

Social networks display homophily and clustering, and are usually sparse. I develop and estimate a structural model of strategic network formation with heterogeneous players and latent community structure, whose equilibrium networks are sparse and exhibit homophily and clustering. Each player belongs to a community unobserved by the econometrician. Players' payoffs vary by community and depend on the composition of direct links and common neighbors, allowing preferences to have a bias for similar people. Players meet sequentially and decide whether to form bilateral links, after receiving a random matching shock. The probability of meeting people in different communities is smaller than the probability of meeting people in the same community, and it decreases with the size of the network. The model converges to an exponential family random graph, with weak dependence among links. As a consequence the equilibrium networks are sparse and the sufficient statistics of the network are asymptotically normal. The posterior distribution of structural parameters and unobserved heterogeneity is estimated with school friendship network data from Add Health, using a Bayesian exchange algorithm. The estimates detect high levels of racial homophily, and heterogeneity in both costs of links and payoffs from common friends. The posterior predictions show that the model is able to replicate the homophily levels and the aggregate clustering of the observed network, in contrast with standard exponential family network models.

The effect of privacy concerns on social network formation

We study the impact of revealing personal information on the selection of partners when forming individual networks. In our experiment, a “contribution phase” is followed by a “network phase”: individuals first decide whether to contribute and then decide with whom to form a link. An exchange of contributions between individuals occurs only if a bilateral link is established. We identify the effect of revealing one's name on the probability of link formation by letting individuals choose to signal – at the linking stage – their willingness to later reveal their name. Our results indicate that this decision significantly affects partner selection and the consequent structure of the network. Individuals who reveal their name build up smaller individual networks but attain higher profits. Incurring privacy costs by revealing personal information is compensated with a higher probability to establish mutual links with contributors.

The Pitfalls of Musical Translation

This paper focuses on the triangular links between a text in a given source language, its “translation” into music and an eventual retranslation into another language. As everybody knows, music is a language per se, with all the characteristics of an articulated language, its own syntax, grammar, even its own dialects and “regionalisms.” The bilateral link between a language and music is rather simple and can be summarized in the following principle: when a composer sets a text to music, it is always a one-way-only “translation”; this text cannot and should not eventually be retranslated into another language, there is no going back because music is the most constricting of all languages. Between two “normal” languages, like English or French for instance, solutions can always be found, even deficient ones if necessary, arrangements that are more or less satisfactory, one can compromise, adapt. It is not desirable to translate a text from Chinese into English and then from English into French but it can be done. However, once music has imposed its rules on a text, it becomes the main source language, with which it is impossible to cheat; everything must be literally respected: the musical words and sentences, the general form, the rhythm, the styles, the melodic, harmonic, tonal aspects… There are no possible arrangements or compromises, music comes first and dictates its rules, there are no choices other than to respect, literally, what the music says and hope that it will work or, if it does not, which is most often the case, abandon. And yet in some cases it is necessary to find a way to retranslate the same text. This is when translators are faced with real, at times unsolvable, problems because they are dealing with two source languages, one of which being Music that prevents any continuation to full triangulation. In this article, I will first analyze a few examples to show some of the main difficulties and then propose the solutions that allowed me to solve these problems in a satisfactory fashion.

Central bank policy rates: Are they cointegrated?

This paper analyses the stochastic properties of the bilateral linkages between the central bank policy rates of the US, the Eurozone, Australia, Canada, Japan and the UK using fractional integration and cointegration techniques respectively. The univariate analysis suggests a high degree of persistence in all cases: the fractional integration parameter d is estimated to be above 1, ranging from 1.26 (US) to 1.48 (UK), with the single exception of Japan, for which the unit root null cannot be rejected. Concerning the bivariate results, Australian interest rates are found to be cointegrated with the Eurozone and UK ones, Canadian rates with the UK and US ones, and Japanese rates with the UK ones. The increasing degree of integration of international financial markets and the coordinated monetary policy responses following the global financial crisis might both account for such linkages.

The dynamic impact of bilateral trade linkages on stock market correlations of Australia and China

ABSTRACTThis article aims to examine the long-run equilibrium relationship between bilateral trade linkages and stock market correlations of Australia and China using quarterly data from 1993 to 2015. Further, this study explores the impact of trade intensity on stock market correlations using OLS, Dynamic OLS (DOLS) and Fully Modified OLS (FMOLS) models. The empirical results confirm that there is a significant long-run relationship among the variables. In addition, our results, based on OLS, DOLS and FMOLS, show that increasing trade intensity between Australia and China has a significant and positive impact on their stock market correlations. The Global Financial Crisis also contributed for their stock market interdependence. Our results therefore suggest that the bilateral trade relations between Australia and China have brought their stock markets together over time. The findings of this study offer significant policy and practical implications. The policymakers need to be aware of the economic changes in those countries as they will immediately reflect on their stock market performance and relationship. Similarly, the global investors need to be aware of the fact that the diversification opportunities between Australia and China have considerably declined over time as their markets became more interdependent in the recent past.

Central Bank Policy Rates: Are They Cointegrated?

This paper analyses the stochastic properties of and the bilateral linkages between the central bank policy rates of the US, the Eurozone, Australia, Canada, Japan and the UK using fractional integration and cointegration techniques respectively. The univariate analysis suggests a high degree of persistence in all cases: the fractional integration parameter d is estimated to be above 1, ranging from 1.26 (US) to 1.48 (UK), with the single exception of Japan, for which the unit root null cannot be rejected. Concerning the bivariate results, Australian interest rates are found to be cointegrated with the Eurozone and UK ones, Canadian rates with the UK and US ones, and Japanese rates with the UK ones. The increasing degree of integration of international financial markets and the coordinated monetary policy responses following the global financial crisis might both account for such linkages.

Central Bank Policy Rates: Are They Cointegrated?

This paper analyses the stochastic properties of and the bilateral linkages between the central bank policy rates of the US, the Eurozone, Australia, Canada, Japan and the UK using fractional integration and cointegration techniques respectively. The univariate analysis suggests a high degree of persistence in all cases: the fractional integration parameter d is estimated to be above 1, ranging from 1.26 (US) to 1.48 (UK), with the single exception of Japan, for which the unit root null cannot be rejected. Concerning the bivariate results, Australian interest rates are found to be cointegrated with the Eurozone and UK ones, Canadian rates with the UK and US ones, and Japanese rates with the UK ones. The increasing degree of integration of international financial markets and the coordinated monetary policy responses following the global financial crisis might both account for such linkages.

Cross-Country Spillovers of Fiscal Consolidations in the Euro Area

This paper revisits the issue of cross-country spillovers from fiscal consolidations using an innovative empirical methodology. We find evidence in support of fiscal spillovers in 10 euro area countries. Fiscal consolidation in one country not only reduces domestic output (direct effect), but also the output of other member countries (indirect/spillover effect). Fiscal spillovers are larger for: (i) more closely located and economically integrated countries, and (ii) fiscal shocks originating from relatively larger countries. On average, 1 percent of GDP fiscal consolidation in 10 euro area countries reduces the combined output by 0.6 percent on impact, out of which half is driven by indirect effects from fiscal spillovers. The impact peters out and becomes insignificant over the medium-term. It is largely driven by tax measures, which have a relatively stronger effect on output compared to expenditure measures. The results are robust to alternative measures of bilateral links across countries.

Cross-Country Spillovers of Fiscal Consolidations in the Euro Area

This paper revisits the issue of cross-country spillovers from fiscal consolidations using an innovative empirical methodology. We find evidence in support of fiscal spillovers in 10 euro area countries. Fiscal consolidation in one country not only reduces domestic output (direct effect), but also the output of other member countries (indirect/spillover effect). Fiscal spillovers are larger for: (i) more closely located and economically integrated countries, and (ii) fiscal shocks originating from relatively larger countries. On average, 1 percent of GDP fiscal consolidation in 10 euro area countries reduces the combined output by 0.6 percent on impact, out of which half is driven by indirect effects from fiscal spillovers. The impact peters out and becomes insignificant over the medium-term. It is largely driven by tax measures, which have a relatively stronger effect on output compared to expenditure measures. The results are robust to alternative measures of bilateral links across countries.

THE RESEARCH ON INTERFACE BETWEEN LITHUANIAN DIRECT INVESTMENT ABROAD AND FOREIGN TRADE FLOWS

The scientific research results related to foreign trade and direct investment abroad (DIA) are discussed in the article. The relation of the direct investment abroad and foreign trade is still under the discussion as there is no clear answer whether foreign trade is supplemented or replaced by the direct investment abroad. Since 1997 the flows of the direct investment abroad increased greately in Lithuania. Consequently, it is important to define the link between the DIA and foreign trade considering each country separately. Direct investment abroad and trade links in Lithuania in 1997–2014 are analyzed in the article. The research analysis involves Lithuanian direct investments in the developed countries except some countries, such as Belorus, Russia and Ukraine. It is defined that there is a positive bilateral link between Lithuanian direct investment abroad and foreign trade. It is also observed the impact of general development of Lithuanian direct investment abroad (considering certain countries) on the countries economy itself – imports can exceed exports. Engle-Granger causality test is applied in the research paper for the purpose of defining the impact of the DIA on the import and export range.

Anglo-Cuban Diplomacy: The Economic and Political Links with Britain (1945–60)

Following the Second World War, after a period when European markets were disrupted and Anglo-Cuban bilateral links had stagnated, Cuban diplomacy engaged in a diplomatic offensive aimed at regaining this market. This article starts by showing how the thinking of the ruling elite of the island was guided by a proactive foreign policy implemented at two interdependent levels: using normal diplomatic channels combined with economic and trade missions. In the second part, the stage immediately following the victory of the revolutionary forces in Cuba will be evaluated, during which time policy making was dominated by commonly held ideas about the importance of commercial and economic links. Finally, the combination of factors that interacted to upset this dynamic will be evaluated: US pressure, British promises to the American government and the growing close relationship between Cuba and the Soviet Bloc.

Trade and Investment Linkages and Stock Market Long-Run Relationship

This paper aims to examine whether the intensity of trade and investment linkages among the countries matter for their stock market long-run relationship. To achieve this, we classify Australia's bilateral trade and investment partners into major, medium and minor. Empirical findings of an asymmetric generalised dynamic conditional correlation generalised autoregressive conditional heteroskedasticity model show that correlations are time varying and increased significantly during the global financial crisis (GFC). Results of multivariate cointegration test confirm the long-run equilibrium relationship between the stock markets of Australia and its major partners in the pre-GFC and during GFC. Based on the full-sample results, it indicates that the GFC has segmented the stock markets from the long-run equilibrium relationship. Granger non-causality test results on full sample show that Australian stock market causes only the New Zealand market while the USA, the UK, Germany, Canada, Switzerland and Italy drives the Australian market. Our results therefore suggest that the intensity of bilateral trade and investment linkages among the countries matter for their stock markets' long-term relationship.

Understanding foreign direct investment in Indonesia

Purpose This paper aims to examine the dynamics of foreign direct investment (FDI) inflows into Indonesia. It is interested specifically in analysing and deliberating on two important policy questions: First, are all kinds of FDI useful from a policy perspective and what does the existing data on FDI reveal about the type of FDI inflows into Indonesia? Second, does the existing data help understand the extent of de facto bilateral linkages between Indonesia and other countries? Design/methodology/approach The paper offers an in-depth case study of Indonesia using extensive exploratory data analysis on FDI inflows into Indonesia. As discussed in the paper, the data investigation uses and reconciles available FDI data both from national and international sources to understand the usefulness of such data for policy analysis. Findings A data investigation of the trends in different types of FDI flows reveals a discernible downward trend in the ratio of mergers and acquisitions (M&A)–FDI ratio over the years. The paper argues that from a sequencing perspective, while a medium-to-long-term framework encouraging both domestic and foreign Greenfield investments could help Indonesia regain its growth luster, in the near term much more attention needs to be paid to FDI inflows in the form of M&As. Further, reconciling FDI and M&A data might help identify the original sources of FDI flows because existing data are based on flow of funds rather than ultimate ownership. Practical implications Since the Asian financial crisis, Indonesia has successfully embarked on a phase of economic and political transition post-Suharto, with the cornerstones of such a strategy being a process of greater democratisation and decentralisation. However, there have been growing concerns of economic growth stagnation in recent years. One of the policies to revive the economy’s lustre adopted by the government has been to attract greater FDI inflows. In this light, this paper examines the dynamics of FDI into Indonesia and deliberates on what kinds of FDI policymakers should focus on attracting to restore the country’s growth lustre. Originality/value The question of whether a policy to attract FDI should be careful in distinguishing the kind of FDI it wants to attract has not been sufficiently addressed in the related literature. This paper provides a framework to understand the different macroeconomic policy implications of types of FDI and provides extensive data analysis to not only understand the types of FDI but also sources of bilateral FDI inflows to Indonesia by reconciling FDI and M&A data.

Offshore Renminbi Trading: Findings from the 2013 Triennial Central Bank Survey

Using foreign exchange transaction data reported in the Triennial Central Bank Survey by the Bank for International Settlements, we find that offshore renminbi (RMB) trading activity is affected by both the host economy’s characteristics and its link with China. For instance, the occurrence of offshore RMB trading is determined by the economy’s GDP, stage of financial development and free trade agreement with China. When an economy hosts offshore RMB trading, the trading volume is affected by the size of its foreign exchange market, equity market capitalisation, as well as the bilateral link with China through foreign direct investment flows.

Depression and epilepsy: comorbidities, pathogenesis, principles of therapy

Numerous trials of last years confirm the bilateral link between depression and epilepsy with mutual complication of both diseases. Depression increases the risk of the first unprovoked paroxysm, worsens the compliance of epileptic patients, leads to decrease of the response both to therapeutic and surgical treatment and to increase of side effects of antiepileptic drugs. Depression is associated with high risk of suicidal behavior and reduces the quality of life level. Depression in epileptic patients is characterized by atypical clinical course in most cases what makes its diagnostics difficult and becomes the reason of the absence of the necessary pharmacologic and psychotherapeutic treatment. All of the above creates significant economical burden for the community because the epileptic patient with comorbid depression visits the physicians 2-4 times more often.

The corporate brand and strategic direction: Senior business school managers’ cognitions of corporate brand building and management

This revelatory study focusses on top Financial Times (FT)-ranked British business school managers’ cognitions of corporate brand building and management. The study insinuates that there is a prima facie bilateral link between corporate branding and strategic direction. The data revealed that, among this genus of business schools, corporate brand building entailed an ongoing concern along with strategic management, stakeholder management, corporate communications, service focus, leadership and commitment. These empirical findings chime with the early conceptual scholarship on corporate brand management dating back to the mid-1990s. These foundational articles stressed the multi-disciplinary and strategic nature of corporate brand management and stressed the significant role of the CEO. As such, this research adds further credence to the above in terms of best practice vis-a-vis corporate brand management. Curiously, although senior managers espouse a corporate brand orientation, corporate brand management is seemingly not accorded a similar status in the curriculum. Drawing on a general embedded case study methodological approach, data was collected from eight leading (FT-ranked) business schools in Great Britain at Oxford, Cambridge, Durham, Bradford, Cranfield, Warwick, Lancaster and City (London) Universities. Each of these eight British business schools can be deemed ‘top’ business schools by virtue of their inclusion in the influential FT worldwide list of top business schools. The primary mode of qualitative data collection comprised the 37 in-depth interviews with business school Deans, Associate Deans and other senior faculty members and other managers.

Experience with linking greenhouse gas emissions trading systems

Two emissions trading systems (ETS) are linked if a participant in one system can use an allowance or a credit issued by either system for compliance. Linking ETS offers a number of potential benefits including, lower overall compliance cost, price protection, greater liquidity in the allowance market, and reduced emissions leakage. It is useful to distinguish: (a) A unilateral link—one ETS accepts the allowances of another ETS for compliance purposes, but not vice versa. Any link to an offset system, such as the Clean Development Mechanism (CDM), is a unilateral link for the ETS that accepts those credits. (b) A bilateral link—each ETS accepts the allowances of the other ETS for compliance purposes. Another way to implement a bilateral link is to adopt a common compliance instrument. The European Union ETS (EU ETS) has a single compliance instrument—the EU allowance—that is used in all 31 participating countries. Several national and subnational jurisdictions have established an ETS for one or more greenhouse gases (GHGs). Some of these ETS also issue offset credits for GHG emission reductions achieved by specified sources. In addition, the international CDM and Joint Implementation (JI) mechanisms issue offset credits for GHG emission reductions. Most ETS have established unilateral links, mainly to the CDM and JI, but also to other ETS. Apart from the systems that are part of the EU ETS and Regional Greenhouse Gas Initiative (RGGI) only one bilateral link, between the California and Quebec ETS, has been established. This study summarizes the experience with linking GHG ETS. WIREs Energy Environ 2016, 5:246–260. doi: 10.1002/wene.191This article is categorized under: Energy and Climate > Economics and Policy Energy and Climate > Systems and Infrastructure Energy Policy and Planning > Climate and Environment

The stability and efficiency of direct and star networks in a loan game

We analyze a loan game where identical lenders and identical borrowers first form a loan network by creating bilateral links and then trade in this network. To predict the outcome of the loan game, we make two important assumptions: (i) players trade and split the surplus according to the Myerson value in any given loan network, and (ii) certain networks–networks that are pairwise stable and/or efficient under the Myerson value–are more likely to be formed. Two basic network structures, direct networks and star networks, are common in reality and sometimes coexist in a loan market. We explain these phenomena by showing that, if the link cost of each trade is small enough, these two networks are both efficient and internally stable, but they are not necessarily externally stable.