Bootstrap Panel Granger Causality Approach Research Articles

Unraveling the causal relationship between inflation uncertainty and rates of inflation in GCC countries: Evidence from a mixture of causal (linear) relationships models, and (causal inference with panel data)

This study investigates the links between rising inflationary pressures and monetary policy uncertainty (Inflation Uncertainty) in the GCC economies. After discovering cross-sectional dependency among the countries as an index of their reciprocal developmental traits, we used the bootstrap panel Granger causality approach. Individual nation research reveals that only KSA has a bidirectional correlation between high global inflation rate pressures and economic policy uncertainty, whereas Bahrain has no causality. The United Arab Emirates and Qatar exhibit bidirectional causality between high global inflation rate pressures and domestic economic policy uncertainties. Domestic economic policy uncertainty has no bearing on KSA's high global inflation rate pressures; thus, there is a one-way causality from high global inflation rate pressures to domestic economic policy uncertainty in KSA. Overall, economic policy uncertainty influences high global inflation rate pressures in these nations, while high global inflation rate pressures and domestic economic policy uncertainty mutually impact each other. Overall, the GCC countries would benefit from an augmented Taylor rule that includes financial stability as an extra monetary policy aim. It is necessary to make a more general adjustment in the model dynamics underlying the shock transmission mechanism. JEL Classification Code: ECM, PNARDL, PVAR, Eviews12, ARDL, NCSS12

Informality and Taxation: Evidence from Seven Latin American Countries

This study examines the impact of the shadow economy on taxation in seven Latin American countries between 1993 and 2018. The technique is built using a MIMIC model and a bootstrap panel Granger causality approach. The results show that the variables are related causally, with the shadow economy having a detrimental impact on tax revenues. Governments are advised to embark on labor market and institutional reforms, reduce barriers to firm entry, provide a reliable and sufficient regulatory environment, and provide employee social protection as ways to reduce the informal economy.

Relationship Between Energy Security and Economic Growth: A Bootstrap Panel Granger Causality Analysis

This study is aimed to examine the relationship causality between energy security and growth for a total of 74 countries including 39 high-income countries, 23 upper-middle-income countries, and 12 lower-middle-income countries by using the Kónya´s (Kónya, 2006) Bootstrap Panel Granger Causality approach. According to the results obtained, it has been determined unidirectional causality relationship from energy security risk level to GDP for 14 countries and from GDP to energy security risk level for 20 countries. On the other hand, there is bidirectional causality between energy security risk level and GDP for 22 countries, while there is no causality between energy security risk level and GDP for 18 countries. Moreover, the results are also demonstrated that the rate of detection of a causality relationship increases as one moves from high-income group countries to lower-middle-income group countries. The results, which evidence the existence of a relationship between energy security risk level and economic growth for many countries, reveal the importance of the policies to be implemented in this direction.

Industrial growth versus agricultural growth in eight post-communist countries

Several theories of regional economic development and structural economic transformation have emphasized the important role of agricultural development in industrialization and vice versa. In the view of Benjamin Franklin, the agricultural and nonagricultural sectors are competitive, whereas in Alexander Hamilton's opinion the two sectors are complementary. Does agricultural growth support or compete with industrial growth? To address this question, we examine the causal relationship between the sectoral output in agriculture and manufacturing in eight post-communist countries. The bootstrap panel Granger causality approach is utilized to detect the direction of causality. The findings show that the growth complementarity hypothesis is confirmed in five out of eight countries under review. Policy implications are discussed.

Credit Composition and Economic Growth: Households versus Enterprises

Although numerous studies have been carried out on economic growth and credit expansion, very few studies have examined direct causality between growth and credit market composition. Furthermore, with a few exceptions, most previous studies have tested how credit market development affects macroeconomic variables by using aggregate data. The purpose of this paper is to examine empirically the causal nexus between enterprise credit, household credit, and economic growth by using a sample of six OECD countries. The bootstrap panel Granger causality approach is utilized to detect the direction of causality. The results show that there is a unidirectional causality running from credit to economic growth in the case of the household sector and unidirectional causality running from economic growth to credit in the case of the enterprise sector in the most countries under review. The policy implication of the findings is that credits offered to households contribute to a greater extent to economic growth than credits offered to enterprises.

FDI and financial development: evidence from eight post-communist countries

This paper empirically examines the effects that host countries’ financial development (FD) has on foreign direct investment (FDI). The departure from earlier studies of the role of FD in attracting FDI is in the multidimensional FD index. Thus, this paper investigates the causal relationship between FDI and FD in eight post-communist countries. The bootstrap panel Granger causality approach is utilized to detect the direction of causality. The findings show that there is only a unidirectional causality running from FD to FDI in six countries out of eight under review. The policy implication of the findings is that countries wishing to attract more FDI should implement measures to improve access to external finance and this should be accompanied by a well-functioning and adequately regulated financial system.

The causality between house prices and stock prices: evidence from seven European countries

PurposeThis paper aims to examine whether there exists a long-run causal relationship between the prices of households’ two major assets: stocks and houses over the period 1975Q1–2017Q1 for seven major European countries.Design/methodology/approachThe paper uses the bootstrap panel Granger causality approach to determine the causal structure, focusing on cross-sectional dependence, slope heterogeneity and structural breaks.FindingsThe findings show that, in most cases, there is a unidirectional causality running from stock price to house price but the converse is not true. This confirms a strong wealth effect in housing markets. The findings are important for not only households but also policymakers concerned with financial stability and housing prices.Originality/valueFirst, the methodology used here devotes full attention to dynamic co-movement between housing and stock markets. Second, this study uses a rather long quarterly data, which implies that the findings could be robust. Third, the study uses real personal disposable income as a control variable to remove the effects of economic growth. Fourth, most of the previous studies do not consider the presence of structural breaks and this makes the result of causality invalid and biased. Fifth, most of the previous studies on housing and stock markets concentrated on the US and non-European countries such as China, Korea and Singapore.

The Government Revenue–Expenditure Nexus in Southeast Europe: A Bootstrap Panel Granger-Causality Approach

ABSTRACT This article presents one of the first attempts to explore the relationship between government revenues and government expenditures in six Southeast European countries for the period 1999–2015, employing a bootstrap panel Granger-causality approach, which provides insight into the nature and direction of their relationship in each country. The empirical results indicate a unidirectional relationship from government revenues to government expenditures in five countries (Albania, Bulgaria, Croatia, Serbia, and Slovenia), confirming the revenue-expenditure or tax-spend hypothesis. The findings offer support for the fiscal synchronization hypothesis only in Macedonia, where bidirectional causality between government revenues and government expenditures was found.

On the causality between energy efficiency and technological innovations: limitations and implications

ABSTRACTAlthough evidence of technological efficiency effect on decreasing energy intensity is documented in a number of studies, there has been a very few detailed investigations of the causality between the variables. Thus, this paper examines the causal relationship between energy efficiency and technological innovations in nine EU countries during 1980–2013. Using the bootstrap panel Granger causality approach, the study finds evidence of a bidirectional causality in Germany, unidirectional causality running from technological innovations to energy efficiency in Denmark, Sweden, France and Austria, and from energy efficiency to technological innovation in Belgium. No causality at any direction is found in the Netherlands, the UK, and Italy. The lack of causality maybe due to a “rebound” effect”, reducing the energy savings from the efficiency improvement. To achieve the global goal of energy intensity, the policy implication of our results suggests that enhancing technological innovations and energy efficiency must be accompanied by taxation and regulations or followed by alternative energy sources such as solar or wind energy generated power in achieving optimal climate benefits.

Market Power and Efficiency in the Iranian Banking Industry

ABSTRACT This paper explores the nature of the causal relationship between market power and cost efficiency for a sample of banks operating in the Iranian banking industry over the period 2002–2014. In particular, a bootstrap panel Granger causality approach is used to test the “quiet life”, “banking specificities”, and “efficient-structure” hypotheses, accounting for both slope heterogeneity and cross-sectional dependence. The results indicate that, on average, banks’ market power (measured by the efficiency-adjusted Lerner index) has steadily declined over the study period, while cost efficiency (measured by the SFA approach) has improved over the period. Furthermore, the results of the causality analysis suggest that there is a negative unidirectional causality running from market power to cost efficiency for 56.25% of banks, providing evidence to support the “quiet life” hypothesis, according to which banks with greater market power would be less cost-efficient. Such a result clearly rejects the “banking specificities” and “efficient-structure” hypotheses which predict a positive Granger causality in the same and opposite directions, respectively. These results are robust to the use of an alternative Granger non-causality procedure.

Wagner on government spending and national income: A new look at an old relationship

The validity of “augmented” Wagner’s Law is evaluated using a sample of twelve OECD countries over the period of 1995–2015. The bootstrap panel Granger causality approach is utilized to detect the direction of causality between government spending and GDP, focusing on cross-sectional dependence, slope heterogeneity, and structural breaks. The results show a causal relationship in favor of Wagner’s Law in seven countries, thus GDP is long-run forcing to government expenditures and that the causality runs from the former to the latter variable. The policy implication of the findings is that the upholding of Wagner’s Law in the presence of aging population growth and increasing demand for welfare services may force policy makers to raise taxes or it leads to excessive borrowing which might affect sustainability of public finances.

House prices and unemployment: an empirical analysis of causality

PurposeThis paper aims to examine whether there exists a long-run causal relationship between house prices and unemployment rates for eight major European countries.Design/methodology/approachThe bootstrap panel Granger causality approach that accounts for cross-sectional dependence, slope heterogeneity and structural breaks is used to detect the direction of causality.FindingsThe empirical findings for the overall panel support the presence of unidirectional causality running from house prices to unemployment.Practical implicationsThe findings are not only important for households but also for policymakers concerned with economic and financial stability.Originality/valueThere are only a limited number of studies that have investigated the direct link between house prices and employment or unemployment. Given the increased importance of labor market variables, particularly the choice of the unemployment rate as a key indicator in designing forward guidance and the increased financial stability concerns regarding house price dynamics, it is important to better understand the causal linkages between house prices and unemployment rates. To the best of the author’s knowledge, this paper is the first to apply the bootstrap panel Granger causality approach to examine the relationship between house prices and unemployment rates.

Innovations and renewables in the Nordic countries: A panel causality approach

Most studies on the relationship between technological innovations and renewable energy consumption have focused on the role of technological innovations in the link between energy consumption and economic growth, with no deep analysis of direct causality between renewable energy and technological innovation. This study examines the direct causal relationship between technological innovation and renewables in the four Nordic countries by using the bootstrap panel Granger causality approach that accounts for both cross-sectional dependence and slope heterogeneity across countries. The results show a unidirectional causality running from technological innovations to renewable energy in Denmark and Norway, and a unidirectional causality running from renewables to innovations in Sweden and Finland. The main reasons of the divergent results could be energy mix, role of nuclear energy, the different economic structures, and role of policies. The policy implications are that technological innovations play an effective role in renewable energy consumption and renewable energy itself spurs innovations. Thus, speeding up the transition to renewable energy requires investment in technological innovations.

Saving and investment causality: implications for financial integration in transition countries of Eastern Europe

Numerous studies have been devoted to the Feldstein-Horioka puzzle. However, no consensus has been reached in the literature. This paper examines the causal relationship between domestic saving and investment rates in six transition economies (Estonia, Latvia, Lithuania, Ukraine, Belarus, and Russian Federation). Theoretically, the presence of any type of causal structure between these two series in a country implies that national capital markets are not open; hence capital flows are impeded. Therefore, the paper employs the bootstrap panel Granger causality approach that accounts for both cross-sectional dependence and slope heterogeneity across countries to determine the causal structure. The findings show that there is a causality between the series, thereby implying that capital is not perfectly mobile internationally in any of the countries under review, but it is more mobile in Estonia, Russian Federation, and Latvia than Lithuania, Belarus, and Ukraine. The underdevelopment of financial markets in these countries as well as the demand for foreign capital to finance domestic investment projects and the lack of adequate economic and financial reforms might have driven these results.

Militarism and globalization: Is there an empirical link?

Despite the fact that previous studies have extensively investigated the causal nexus between military expenditure and economic growth in both developed and developing countries, those studies have not considered the role of globalization. The aim of this study is to examine the relationship between militarism and globalization for the top 15 military expenditure spenders over the period 1990–2012. The bootstrap panel Granger causality approach is utilized to detect the direction of causality. The results show that military expenditure and overall globalization are causally related in most of the countries under review. This implies that countries experiencing greater globalization have relatively large increases in militarization over the past 20 years. The policy implication of the findings is that greater military spending by a country increases the likelihood of military conflict in the future, the anticipation of which discourages globalization.

Metal prices and stock market performance: Is there an empirical link?

Most studies have focused on the role of oil and gold prices in the link between commodity prices and stock prices. This paper investigates the causal linkage between metal prices and share values for 10 European countries over the period of January 2011 to September 2016. On the basis of the bootstrap panel granger causality approach, the results show that the metal price index and stock price index are not causally related. The policy implication of this empirical finding is that the financial markets are informationally efficient in the sample countries' equity markets. Thus, the information contained in the metal price index cannot be used to predict the future values of the equity indexes.

Government Revenues and Expenditures in the East European Economies: A Bootstrap Panel Granger Causality Approach

Using a bootstrap panel Granger causality approach, this article investigates the causality between government revenues and government spending from 1995 to 2012 for ten East European economies that are members of the European Union. It finds unidirectional causality from public expenditures to revenues in Bulgaria. For the Czech Republic, Hungary, and Slovenia, government revenues explain expenditures, and a two-way causality exists for the Slovak Republic. No Granger causality is found for Estonia, Latvia, Lithuania, Poland, and Romania.

Is corruption bad for economic growth? Evidence from Asia-Pacific countries

This study utilizes the bootstrap panel Granger causality approach, which incorporates both cross-sectional dependence and heterogeneity across countries, to investigate whether corruption negatively impacts economic growth in thirteen Asia-Pacific countries over the 1997–2013 period. The empirical results show that there is a significantly positive causality running from corruption to economic growth in South Korea, a significantly positive causality running from economic growth to corruption in China and no significant causality between corruption and economic growth for the remaining countries. According to the empirical results, we do not support the common perception that corruption is bad for economic growth for all thirteen Asia-Pacific. On the contrary, results of this study suggest that the “grease the wheels” hypothesis is supported for South Korea. Additionally, results of this study indicate that for most Asia-Pacific countries, policy makers’ use of anti-corruption policies to promote a country's economic development may not be effective. Finally, results of this study also suggest that for China, increase in economic growth leads to an increase in corruption.

Causal Relationship between Asset Prices and Output in the United States: Evidence from the State-Level Panel Granger Causality Test

Emirmahmutoglu F., Balcilar M., Apergis N., Simo-Kengne B. D., Chang T. and Gupta R. Causal relationship between asset prices and output in the United States: evidence from the state-level panel Granger causality test, Regional Studies. This paper investigates the causal relationship between asset prices and output across US states using a bootstrap panel Granger causality approach which allows not only for heterogeneity and cross-sectional dependence to be accounted for but also interdependency between asset markets. Empirical results from a trivariate vector autoregression (VAR) comprising real house prices, real stock prices and real per capita personal income over 1975–2012 reveal the existence of a unidirectional causality running from both asset prices to output. This confirms the leading indicator property of asset prices for the real economy, while also substantiating the wealth and/or collateral transmission mechanism.

The Interactions of Stock Prices and Exchange Rates in the ASEAN-5 Countries: New Evidence Using a Bootstrap Panel Granger Causality Approach

Using a data-set from the ASEAN-5 countries over the January 2000–August 2013 period, this paper revisits the Granger causal nexus between the equity and foreign exchange markets by employing the bootstrap panel Granger causality approach developed by Kònya, which allows for both cross-sectional dependency and heterogeneity across countries. The results indicate a unidirectional causality from stock prices to exchange rates in Malaysia, the Philippines and Thailand and from exchange rates to stock prices in Indonesia. These findings have important implications for policy-makers and institutional investors who should rigidly monitor the dynamic linkages between stock price and exchange rate movements across the ASEAN-5 financial markets when making policy decisions and investing in these countries.