Cointegration Research Articles

Copula-based trading of cointegrated cryptocurrency Pairs

This study introduces a novel pairs trading strategy based on copulas for cointegrated pairs of cryptocurrencies. To identify the most suitable pairs and generate trading signals formulated from a reference asset for analyzing the mispricing index, the study employs linear and nonlinear cointegration tests, a correlation coefficient measure, and fits different copula families, respectively. The strategy’s performance is then evaluated by conducting back-testing for various triggers of opening positions, assessing its returns and risks. The findings indicate that the proposed method outperforms previously examined trading strategies of pairs based on cointegration or copulas in terms of profitability and risk-adjusted returns.

Exports and Economic Growth long Run Relation in Africa Countries

The aim of this study is to analyze the effect of export economic growth in long run for Africa countries, controlling for foreign direct investment and gross fixed capital formation using panel cointgeration framework. The panel unit root test showed a mixture of integration order, which implies panel ARDL cointgeration test is the appropriate technique for cointegration test. The seven panel cointegration test indicates the presence of a cointgeration relationship in the panel. Generalized method of moments (GMM) technique indicates error correction term being negative and significant in 16 countries at 5% and 10%. In the long run, export and gross fixed capital formation have a positive effect on economic growth while foreign direct investment has a negative effect. The panel causality test shows the existence of a bi- directional causal flow in the following relations; economic growth-export, export-foreign direct investment, foreign direct investment- gross fixed capital formation, gross fixed capital formation-export. Economic growth does not granger cause foreign direct investments and gross fixed capital formation. African countries need to formulate policies that will enhance international trade specifically exports, either within the continent and worldwide. At the same time, support to African countries from developed economies and international institutions should aim to maximize the potential in export trade.

Revealing the Role of Technological Innovation, Institutional Quality and Foreign Direct Investment in Impacting Human Development in Developing Countries: Insights from FGLS and PCSE Models

The study reveals how technological innovation, institutional quality, and foreign direct investment drive sustainable human development, providing strategies for policymakers to address inequalities and enhance well-being in developing countries. For this purpose, the data from 53 developing countries from 2002 to 2021 is used in the study. Different econometric techniques are used for data estimation including cross-sectional dependence test, slope homogeneity test, CIPS and CADF tests of unit root, panel cointegration test, FGLS model for parameter estimations, PCSE model for robustness estimation and Granger causality test. The findings show that foreign direct investment, institutional quality, technological innovation and number of physicians are positively and significantly while total population is negatively and significantly related to the HDI in developing countries. On the other hand, educational expenditures are positively but insignificantly related to the HDI. The impact of the interaction terms IQ*TI and IQ*FDI on HDI is positive and statistically insignificant. In contrast, FDI*TI is found to be positively and significantly related to the HDI. The panel Granger causality test results show that there is a unidirectional causality between IQ and HDI, and TI and HDI. In addition, bidirectional causality is found between PHY and HDI. Lastly, no causality is observed between EDUE and HDI. Therefore, keeping in view the findings, it is concluded that FDI, technological innovation and institutional quality are imperative to improve the HDI in developing countries.

Utilizing the Error Correction Model to Investigate the Impact of Fluctuations in Bank Deposits on the Money Supply

This paper assesses the impact of changes and fluctuations in bank deposits on the money supply in Iraq. Employing the research constructs an Error Correction Model (ECM) using monthly time series data from 2010 to 2015. The analysis begins with the Phillips-Perron unit root test to ascertain the stationarity of the time series and the Engle and Granger cointegration test to examine the existence of a long-term relationship. Nonparametric regression functions are estimated using two methods: Smoothing Spline and M-smoothing. The results indicate that the M-smoothing approach is the most effective, achieving the shortest adjustment period and the highest adjustment ratio for short-term disturbances, thereby facilitating a return to the long-term equilibrium.

THE EFFECT OF REAL EFFECTIVE EXCHANGE RATE ON IMPORTS AND EXPORTS: AN APPLICATION ON TÜRKIYE

The trade balance, which represents the difference between a country's export and import values, plays a crucial role in determining its economic health. Exchange rates, defined as the prices at which one currency can be exchanged for another, have a significant impact on a country's trade balance. Fluctuations in exchange rates can influence the competitiveness of exports and imports and, consequently, the trade balance. One of the most notable studies in this context is the Marshall-Lerner condition, which states that if the sum of the price elasticities of demand for a country's exports and imports exceeds one, a devaluation (or depreciation) of the country's currency will improve its trade balance. In simpler terms, if the combined response of export and import volumes to changes in prices is sufficiently high, a devaluation of the currency can lead to an improvement in the trade balance. The relationship between exchange rates and the trade balance is complex and depends on numerous factors, such as the exchange rate regime, demand elasticities, and time lags. Therefore, a depreciation in a country's currency does not always lead to an improvement in the trade balance. This study examines the impact of Turkey's real effective exchange rate on imports and exports between 2018 and 2024. To investigate the long-term relationship, the Bayer-Hanck (2013) Cointegration Analysis was employed, while the Error Correction Model was applied to explore short-term relationships. The result of the analysis; The Bayer-Hanck cointegration test results indicated long-term relationships between the real exchange rate (REDK) and exports (IHR) and imports (ITH). However, FMOLS estimates revealed that these relationships are not statistically significant for the analyzed period. The VECM results failed to establish any statistically significant short-term relationships between REDK and the dependent variables, indicating the absence of significant short-term dynamics.

Does United Kingdom’s focus on Climate Technologies, Municipal Waste Treatment, and Economic Development aligns with its 2030 Nationally Determined Contributions (NDCs)?

The study uses a Vector Error Correction Model (VECM) to examine the dynamic impacts of municipal waste recycling, climate technologies, and economic growth on greenhouse gas emissions in the United Kingdom using data collected in time series from 1995 to 2020. We ran tests for impulse response, variance decomposition, stationarity, cointegration, and residuals. Greenhouse gas emissions in the United Kingdom, economic growth, climate technology, and municipal waste recycling, are all found to be cointegrated. The previous year’s deviation from long run equilibrium is corrected in the current period at an adjustment speed of 80%. Consequently, it takes around 1 year and 5 months to reach a stable condition. Municipal waste recycling and climate technologies has been found to promote reduction of greenhouse gas emissions in the United Kingdom in both short-run and long-run. However, climate technology is more effective at lowering emissions of greenhouse gases. Greenhouse gas emissions do go down in the long run, even though they go up at initial stages due to economic growth. Majority of the fluctuation in greenhouse gas emissions over both the short and long durations is explained by greenhouse gas emissions own shocks or innovations, rather than any external factors. Among the predictor variables, greenhouse gas variations in the short and long run are mostly attributable to changes in gross domestic product, with climate technology and municipal waste recycling following closely behind. The empirical analysis supports policy recommendations that the government and other stakeholders should improve their governing policies and methods on these variables to further succeed in regulating environmental pollution. Greenhouse gas emissions tend to rise in tandem with expanding economies, leading to substantial long-term volatility. Therefore, the economic management team of the United Kingdom government should establish legislation to limit economic activity that contributes to greenhouse gas emissions and instead provide support and funding for projects that are green and low-carbon. They want to cut emissions by 68% by 2030 as part of their National Determined Contribution (NDC), and this will get them there.

Entrepreneurial Environment and Cross-Cultural Management: A Road Map for Sustaining Nigerian Development

This study was conducted to examine entrepreneurial environment and cross-cultural management: A road map for sustaining Nigerian development. Two specific objectives guided the study and it adopted an ex-post research design. Secondary data on human development index, cultural diversity index, ease of doing business and institutional quality, covering the period of 2005 to 2022, sourced from World Bank database were used for the study. The method of data analysis ranged from Argumented Dickey- Fuller unit root test, Johansen co-integration test and multiple regression method, among others. The findings revealed that ease of doing business (a proxy for entrepreneurial environment) has positive impact on sustainable development in Nigeria, among others. The study concluded that cross-cultural management and improved entrepreneurial environment can help unlock the full potential embedded in the country. This would lead to a more inclusive, stable and economically vibrant society that foster sustainable development. Based on the findings, the study recommended among others that Nigeria, being a country with diverse culture, needs to remain united and prioritize achieving common goal of sustainable development.

Navigating the nexus: Macroeconomic drivers and ESG variables in ASEAN Countries

Abstract In this increasingly complex modern era, sustainability and social responsibility have become crucial elements in assessing the success of a country. The social and environmental roles also define the country’s representation, thus the existence of the Environmental, Social, and Governance (ESG) concept becomes important. This research is conducted to investigate the effect of ESG variables towards economic growth among ASEAN countries from 2002-2020. The macroeconomic variables include Inflation, FDI, and GDP growth; CO2 Emissions as the environment indicator; Human Development Index (HDI) and Labor Force Participation Rate as the social indicators; and government indicator explained by Government Effectiveness Index. This paper considers the regional clusterization of 10 countries in ASEAN to recognize the pattern of those macroeconomic variables along with ESG variables. In order to achieve our aims, this research applies Vector Error Correction Model (VECM). The VECM is particularly suitable for this study due to its ability to handle non-stationary time series data while allowing for the exploration of both short-term and long-term dynamics between the variables. By including macroeconomic indicators, we can better isolate the specific effects of ESG variables on growth. The results from the VECM will be interpreted to understand both the immediate and gradual impacts of ESG initiatives on economic development in ASEAN countries. The analysis begins with unit root tests to confirm the stationarity of the data, followed by cointegration tests to establish long-term relationships among the variables. Finally, the VECM will be estimated to quantify the impact of ESG factors on economic growth with controlling for macroeconomic variables. Model quantitative research with secondary data from 2002-2020. The empirical results indicate that in the long term, CO2 emissions positively affect GDP, while FDI, the Government Effectiveness Index, Inflation, and Labor Force Participation Rate have negative effects, though HDI’s positive effect on GDP is statistically insignificant. In the short term, significant influences on GDP include its values from the previous two periods and HDI from one period ago.

Impact of Digital Currency on Deposit Money Bank in Nigeria

This study investigates the impact of digital currency on deposit money banks in Nigeria from 2010 to 2023. Employing a quantitative approach, the study utilizes econometric analysis, specifically the Ordinary Least Squares (OLS) method, to examine the relationship between digital currency transactions, money supply, interest rates, and deposit money bank performance. The study addresses the stationarity of time series variables through unit root tests and employs the Johansen cointegration test to determine long-term equilibrium relationships. The Error Correction Mechanism (ECM) model is then estimated to analyze the dynamic adjustment process. The findings reveal a significant negative impact of digital currency transactions on deposit money, while money supply and interest rates exhibit positive correlations. The study concludes with policy recommendations for navigating the evolving landscape of digital finance in Nigeria.

Migration and Economic Development in Nigeria

The study investigated the effect of migration on economic development in Nigeria from 1981 to 2021. The study used poverty (PVT) to proxy economic development as the dependent variable while net migration rate (NMG), international migration stock (IMG) and rural-urban migration (RBM) were used as the explanatory variables. Descriptive statistics, unit root test, bound cointegration test, as well as Autoregressive distributed lag (ARDL) were employed to analyse the data. The study reveals that both in the short run and long run, net migration (NMG) had a negatively insignificant impact on economic development; in the short run and long run international migrant stock (IMG) had a positive and insignificant impact on economic development. Also, in the short run, rural-urban migration (RBM) had a positive and insignificant impact on economic development in Nigeria while it had a negative and insignificant impact on economic development over the data period. The study thus concluded that migration did not promote economic development in Nigeria within the period under review. The study recommends that The Nigerian government should handle the migration crisis promptly, contribute to job creation, and improve the environment to discourage people from moving, as well as encourage its skilled workforce overseas to come home to aid in national development.

Is export diversification detrimental to environmental quality? An examination of the roles of green innovation and environmental taxation

Abstract The primary objective of this study is to assess the environmental impact of various factors, including export diversification and GDP, as well as elements believed to facilitate this assessment process, such as green innovation and environmental taxes. The study aims to identify factors that contribute to the reduction of CO2 emissions. It analyzes data from 21 European Union (EU) member states for the period from 1995 to 2020, employing the FFFFF panel cointegration test. The findings indicate that export diversification (EXD), environmental taxes (ET), and economic growth (GDP) have a positive effect on CO2 emissions, whereas green innovation (GI) and GDP squared (GDP2) exert a negative influence. These results indicate that export diversification is detrimental to environmental quality. Another significant finding of the study is the validation of the Environmental Kuznets Curve (EKC) hypothesis. Finally, one of the most critical conclusions of the study is the negative impact of green innovation on the volume of CO2 emissions.

거시경제변수가 수도권 및 비수도권 주택가격에 미치는 요인분석

Korea's real estate policy has been preparing real estate measures only with supply and demand. It is necessary to study the changes in real estate prices of macroscopic economic variables. This is because the real estate market is complex and affected by various external factors. Unlike previous studies, this study analyzed the effects of macroeconomic variables on apartment houses in the metropolitan area and apartment houses in the non-metropolitan area, and the results of the study using the cointegration test, Granger causal variables, and impact response analysis are as follows. In the case of houses in the metropolitan and non-metropolitan areas, the amount of money and the housing jeonse price index, which are macroscopic economic variables, are commonly affected, but there is a difference in the magnitude and timing of their influence. Mortgage interest rates and loan amounts initially had a negative effect, but it was concluded that even if interest rates and loan amounts increased over time, the actual transaction price index of houses in the metropolitan area rose. The real transaction price index of houses in the non-metropolitan area was also found to have a close effect on the mortgage interest rate and average income per household.

The financial crisis, economic development and business management in Pakistan: An Evidence through time-series data analysis in Pakistan

The aim of this research work is to analyze the causal linkage among Pakistan's economic development and the three main financial crisis indicators—interest rates, inflation, and the amount of foreign debt. Additionally, this analysis emphasizes how consistently financial crisis indicators and economic growth. The analysis makes use of sample size covering data from 2000 to 2024. The convergence of equilibrium for series utilized in the work is examined using Johansen's co-integration test. The findings show that the three elements of Pakistan's financial crisis and economic growth have overall causal relationship. The business, economic and each financial crisis indicator taken into consideration in this study have a bidirectional causal relationship, according to estimations based on the pair-wise Granger Causality test. Whereas, the management of economy is determined on the economic and business parameters as analyzed on data which provides a sometimes unidirectional or bidirectional indication for solution of economic crisis and way for economic development

Women's Empowerment and Vulnerability to Climate Change: An Econometric Analysis of South Asian Countries

This research paper analyzes the impact of women’s empowerment (WE) on vulnerability to climate change (VCC) in South Asian countries from 1995-2023. To the best of our knowledge, no study has empirically examined the importance of WE in resilience strategies following a climate shock. This article contributes to the literature by employing the second-generation econometric analysis of the gender-climate nexus and exploring the significance of gender in adaptive policy. We use a Cross-sectional Autoregressive Distributed Lag (CS-ARDL) model’s co-integration technique which shows; (i) WE along with its components (women’s civil empowerment, social empowerment, political empowerment, and economic empowerment) reduces VCC by the inclusion of women in climate leadership and decision-making processes. (ii) Gender intersectionality significantly impacts the relationship between WE and VCC in climate adaptation through the transmission channels of human resource development, governance, and social and economic resilience. The robustness of these findings has been tested through the Wester Lund cointegration test, and the Dumitrescu Hurlin Granger causality test has been used to explore causality among the variables. The study highlights the significance of institutional resilience and Gender-responsive climate policies. Furthermore, the participation of women in civil, economic, political, and administrative decisions may improves adaptation to climate change.

COVID-19 확진자 사망률에 따른 동태적 변화가 아파트 매매가격에 미치는 영향에 관한 연구

This study examines the impact of an increasing COVID-19 death rate on apartment sales prices. Using monthly time-series data from January 2020 to August 2023 and employing a cointegration test and a Vector Error Correction (VEC) model, the results reveal that while a rising death rate initially exerted a negative influence on apartment sales prices, policy measures aimed at stimulating the economy—namely, expanding the money supply and lowering interest rates—ultimately led to a long-term increase in prices. Subsequently, the surge in inflation and the accompanying interest rate hikes following the Russia-Ukraine war resulted in a downturn in apartment sales prices. In other words, changes in monetary policy driven by the pandemic, coupled with external shocks, collectively induced both upward and downward fluctuations in apartment prices. By shedding light on the interplay between monetary policy and the housing market amid infectious disease crises, this study enhances our understanding of these dynamics and provides valuable insights for future policy formulation.

Testing the neutrality of money, labor, and capital in Pakistan's agriculture sector

This study investigates the neutrality of money in Pakistan's agriculture sector by analyzing semi-annual data from 1991S1 to 2019S2. We employ the impulse response function, variance decomposition, Johansen cointegration, VECM, and the Granger causality test. The Johansen cointegration approach demonstrates a continuous relationship between the variables over time. The Granger causality test indicates no short-term causal relationship between agricultural productivity and the broad money supply. On the other hand, agricultural production has a short-term causal relationship with inflation and capital. Long-term outcomes corroborate the empirical findings of the cointegration test, suggesting the existence of a cointegration connection. The impulse-response and variance decomposition tests indicate that the broad money supply has a statistically significant positive effect on short- and long-term agricultural productivity. On the other hand, inflation has both short-term and long-term detrimental effects on agricultural productivity. Meanwhile, short-term and long-term labor and capital shocks symmetrically affect agricultural productivity. Consequently, our results refute the long-term money neutrality hypothesis. The results of this paper will assist policymakers and researchers in gaining a more comprehensive understanding of the impact of inflation, labor, capital, and the broad money supply on Pakistan's emerging economy.

Relationship between Governance and Economic Growth

Governance and economic growth are interconnected with each other. A sound understanding of good governance and economic growth plays a critical role in solving the existing debatable issues of whether economic growth drives good governance or good governance drives economic growth. The study employed the co-integration test and Granger causality test to examine the relationship between governance indicators, developed by the World Bank, through the government efficiency index (GEI) and real gross domestic product using time series data for the period 2002–2022. The VECM results showed that there exists a long-run relationship between CIM and real GDP. Based on VECM test results, the study concluded that all the explanatory variables have a short-run relationship with economic growth at a 1 percent level of significance. The Granger causality test result indicates that causality runs from the government effective index as well as government expenditure to real GDP in the short run. The study recommended that governments or policymakers should widen their focus on integration between institutional factors and economic variables that affect economic growth.

Analysis of Lending/Financing Rates and Profit Motive among Islamic Banking Customers

This study investigates the relationship between four terms with respect to Islamic financing, including Islamic financing / conventional loan amounts, base lending, and base financing rates. Theoretically, changes in interest rate would lead profit-motivated customers into substituting Islamic financing for conventional bank loans and vice versa. This study is conducted to identify the co-integrating and causality relationship between conventional loans, base lending rates and base financing rates on Islamic financing. This study also predicts whether there is any form of profit motive among Islamic financing customers. The data used were taken from Bank Negara Malaysia (BNM) from 2014 to 2019 on a monthly basis. To confirm that unit root is absent, a stationarity test employing the Augmented Dickey-Fuller (ADF) test was implemented. This then proceeded with various methods such as the Johansen-Juselius cointegration test, Granger Causality test, Vector Error Correction Model (VECM), as well as Impulse Response Function (IRF). This study comes to the conclusion that Islamic bank customers are possibly profit-driven and that the movement of interest rates will have an impact on their Islamic financing decision.

Long-run Relationship Between Türkiye and SHANGHAI Cooperation Organization Stock Markets: Cointegration Analysis

This study investigates the presence of long-run cointegration relationships between the Turkish Stock Market and the stock markets of the Shanghai Cooperation Organisation (SCO) member countries. In a period of stagnation in the EU membership negotiations, Türkiye's shift towards Eastern markets is noteworthy. Using a dataset covering the period from January 2014 to December 2023, this research applies various econometric analysis techniques such as Augmented Dickey-Fuller test, Johansen Cointegration Test and Granger Causality Test to examine the dynamic relationships between these markets. The findings from these analyses indicate that there is a significant long-run cointegration relationship between Borsa Istanbul and Moscow and Shanghai Stock Exchanges. This highlights the opportunities for strategic investment and portfolio diversification in these regions

Bridging Growth and Investment: The Interaction of FDI, Institutions and Financial Development in China

Over the last 30 years, China has experienced outstanding economic growth along with significant transformation in its financial system and institutional environment. It has also emerged as the primary destination for substantial foreign direct investment (FDI). Therefore, numerous studies have focused on the roles of FDI, financial development and institutional quality in stimulating the Chinese economy. However, existing literature primarily addresses the direct linear impact on economic growth, neglecting potential non-linear relationships and the roles of institutions and financial development in moderating the FDI–growth nexus. This study employs unit root and Johansen’s cointegration tests to examine the roles of FDI, institutional quality and financial development in explaining economic growth in China from 1985 to 2020. Our results show that FDI, institutions, financial development and growth are cointegrated, with non-linear effects of institutional quality and financial development on growth. Furthermore, the impact of FDI on growth decreases when financial development is high (0.627%–0.517%), but increases with improved institutional quality (0.921%–1.158%). Hence, continuous improvements in institutional quality and the financial system do not uniformly affect economic growth, but significantly influence the contribution of FDI to economic growth in China.