Cointegration Relationship Research Articles

Co-integration and Causal Relationship between Energy Commodities and Energy Stock Index: Empirical Evidence from India

This article's primary objective is to evaluate, within the Indian setting, the degree to which energy commodities and energy stock prices correlate and are causally related. Weekly spot price data has been sourced from the Multi Commodity Exchange and the National Stock Exchange, which spans from January 2007 to December 2021. This study employs Auto-regressive Distributive (ARDL) Bound test along with Johansen co-integration approach to understand the co-integration between the series under study. The findings support the idea that the energy stock index listed on the National Stock Exchange (NSE) and the energy commodities traded on the Multi Commodity Exchange (MCX) do not exhibit any co-integration. Furthermore, to investigate the cause-and-effect connection between the energy stock index and energy commodities, Granger Causality test has been utilised, which was introduced by Toda and Yamamoto. The results demonstrate that there is no causal relationship between MCX energy commodities and the NSE energy stock index. Thus, the nonexistence of cointegration and causality between NSE energy index and energy commodities provides portfolio diversification opportunities for the investors to hedge their risk by investing in both energy commodities and energy stock index. Policymakers need to promote deeper integration among these markets by making more regulatory and accounting changes.

Nexus between economy, renewable energy, population and ecological footprint: empirical evidence using STIRPAT model in Morocco

The present study aims to examine the long run impacts of per capita income, renewable energy consumption, urbanization, trade openness on ecological footprint in Morocco over the period 1980-2021. It also attempts to explore the validity of the Environmental Kuznets Curve (EKC) hypothesis. To achieve this goal, an extended population, affluence, and technology model (STIRPAT) was employed using the Augmented Autoregressive Distributed Lag (AARDL). The findings reveal the existence of a long-term cointegration relationship between the variables and confirm the EKC hypothesis.

Is global climate change affecting intra-industry trade? Econometric evidence for the fisheries sector in Turkey

The main objective of this study was to investigate whether the intraindustrial trade structure of the Turkish fisheries sector has been affected by global climate change. Therefore, the surface temperatures of the Black Sea, Marmara, Mediteranean and Aegean seas and the Grubel-Lloyd index values related to the sector for the period 1985-2017 were used as variables in the study. The Auto-Regressive Distributed Lag (ARDL) bounds test was used to determine the cointegration relationship between variables and to predict longterm coefficients. The Error Correction Model (ECM) method was used to determine the short-term coefficients. According to the results of the analyses: (i) There is a long-term relationship between the variables; (ii) Increases in the surface temperature of the Aegean, Mediterranean and Marmara seas have reduced intra-industrial trade in the long-term; (iii) The increase in the Black Sea surface temperature has increased intra-industry trade in the long-term; (iv) The increase in sea surface temperatures has shown a tendency to increase intraindustry trade from the southern seas towards the northern seas in Turkey. Consequently, global climate change can be considered as a change in intra-industry trade for both the country and the industry.

The effect of health on economic growth: A production function approach for Turkey

Until the Augmented Neo-Classical Growth Model developed by Mankiw, Romer and Weil, growth theories have ignored the human capital factor. This study aims to investigate the impact of health on economic growth in Turkey between 1960-2014 through a production function that includes human capital. Health and education are included in the production function as the two main components of human capital. The Multivariate Auto-Regressive Distributed Lag (ARDL) Bounds Test was conducted for empirical analysis. As a result, a significant long-term cointegration relationship was found between the variables. The results also indicate that a 1% increase in life expectancy at birth leads to a 0.67% increase in GDP, a 1% increase in the number of students per teacher in vocational and technical secondary education leads to a 0.21% decrease in GDP, and a 1% increase in the number of students per teacher in tertiary education leads to a 0.21% increase in GDP.

Testing the EKC hypothesis using ecological footprint by considering biocapacity and human capital in Türkiye: A dynamic analysis

The study aims to investigate the validity of the environmental Kuznets curve (EKC) hypothesis, which asserts the inverted U-shaped relationship between economic growth and environmental pollution. The study uses ecological footprint (EF) as a measure of environmental degradation over the 1970-2017 period in T?rkiye. Unlike the current literature for T?rkiye, this study involves biocapacity and human capital in the growth-environment nexus and utilizes dynamic analysis. In this context, the Bound test, autoregressive distributed lag (ARDL) model, and Kalman filter approach are applied. The result of the Bound test confirms the cointegration relationship between the variables. The findings of the ARDL model indicate that the EKC hypothesis prevails, and biocapacity affects EF positively, whereas human capital mitigates environmental degradation by decreasing EF. The results of the dynamic analysis using the Kalman filter technique also validate the EKC hypothesis and show that the dynamic effect of economic growth on EF is significantly positive and stable for the analyzed period.

The dynamic relationship between foreign direct investment inflows and interest rate in Sri Lanka

Foreign direct investment acts as an engine of rapid growth and development of developing and emerging countries. It helps to promote the host nation’s economic growth, financial inflows and markets, technology, and skills. This study aims to identify the dynamic influence and relationship between Foreign Direct Investment (FDI) and interest rate in Sri Lanka over the period 1978 to 2020. Foreign direct investment inflow has been used as the dependent variable while gross domestic products, interest rate, inflation rate, trade openness and exchange rate are the independent variables. This study used the ARDL model for the analysis. According to the bound test, F statistics is greater than the upper bound value. Therefore, this study confirmed that there is a cointegration relationship between foreign direct investment inflows and other explanatory variables. A negative and significant error correction coefficient of FDI inflows reveals that 128% disequilibrium is corrected each year which implies that FDI moves downward towards long-run equilibrium. This study found that there is no substantial relationship between the interest rate and FDI inflows in the long run and a negative and substantial relationship in the short run. Therefore, this study suggests that the government of Sri Lanka has to reflect on developing a monetary policy and maintaining the balance of interest rate and exchange rate. Because of the currency depreciation, the exchange rate negatively influences FDI.

주택시장과 거시경제변수들 간의 장기적 균형관계 연구

This paper was empirically conducted to compare the explanatory power of the Vector Error Correction Model (VECM) and Vector Autoregressive Model (VAR Model) in predicting the long-term equilibrium relationship between housing prices and macroeconomic variables. The analysis period spans from January 1987 to July 2023. The analysis results are as follows. First, it is found that there exists one cointegration relationship among housing prices, stock prices, liquidity, 5-year yield of government housing bonds, and income. Therefore, the VECM model can be applied to analyze the long- and short-term equilibrium relationship. Secondly, the estimation results of the VECM model revealed the presence of the following long-term relationships: a negative (-) relationship between housing prices and stock prices, a positive (+) relationship with liquidity, a negative (-) relationship with the 5-year yield of government housing bonds, and a positive (+) relationship with income. This aligns with the expected theoretical signs. Thirdly, the Root Mean Square Error (RMSE) and Theil's Inequality Coefficient, which indicate the predictive and explanatory power of the VECM and VAR models, respectively, showed that the VECM model outperformed the VAR model with smaller values for both metrics. Therefore, when a cointegration relationship exists between housing prices and macroeconomic variables, it is necessary to apply the VECM model rather than the VAR model for analysis.

Relationship between organic agriculture and export of olive oil in Tunisia via an ARDL model

This paper aims to study the presence of the relationship between the organic olive-growing area and the export of olive oil in the Tunisian economy; such as the producer price index for the case of olives and the exchange rate. A cointegration approach through an Auto Regressive Distributed Lag model (ARDL model) was mobilized for the period (2001-2021). The test results show the existence of a significant short and long-terms cointegration relationship between the olive area, the exchange rate and the export of olive oil. Similarly, unidirectional causal relationships have also been determined between the producer price index and the olive area on the one hand, a unidirectional causal relationship is caused by the exchange rate on the olive-growing area and this exerts unidirectional causality on the export of olive oil. The promotion of organic farming in Tunisia depends not only on the development of organic areas but also on the economic situation of the country. Thus, it can be concluded that limiting the depreciation of the national currency and improving the producer price index can improve the exchange rate and contribute positively to the development of organic olive areas and the export of olive oil in general

Which Index is More Affected by CDS Premium and VIX Index: BIST-30 or Participation-30?

Purpose: This study aims at determining the existence and, if any, the extent of comparative effects of the CDS premium and the VIX index on the BIST-30 and the Participation-30 indices before and during the pandemic. Methodology: The study explores the relationships of the CDS premium and VIX index to the BIST-30 index and the Participation-30 index for two time periods, as pre-pandemic and pandemic. The date range is set as 02.01.2018-10.03.2020 for the pre-pandemic period and as 11.03.2020-31.12.2021 for the pandemic period. Following the Johansen cointegration and ARDL tests employed to detect the long run relationships between the variables, FMOLS regression tests were used to determine the effect sizes. Results: As a result of the cointegration tests, long-term cointegration relationships of both the BIST-30 and the Participation-30 indices with the variables of the CDS premiums and the VIX index were determined before and during the pandemic period. FMOLS regression results posited that the VIX index had greater effect on the Participation 30 index in both periods. Originality and Practical Implications: The fact that the literature review does not reveal the existence of any study providing the comparative effects of the CDS premiums and the VIX index on both the BIST-30 and Participation-30 indices contributes to the originality of this paper.

Impact of Capital Expenditure on Economic Growth: A Study of Nepal

In countries like Nepal, government spending objectives range from promoting market-driven stability to intervening for alleviating suffering and preventing business loss, reflecting the tension between laissez-faire and interventionist approaches in economic development. The study explores government expenditure's role in Nepal's economic growth using econometric models like the Engle-Granger Cointegration Test and Error Correction Model. Recurrent, capital, and total expenditures are compared with GDP as indicators of Nepal's economic growth, showing significant positive relationships. The Unit Root Test indicates all variables becoming stationary after differencing once. The Johansen Test reveals 2 co-integrating equations, indicating enduring relationships among variables. Co-integrating Relation analysis demonstrates RE, CE, TE, and C's significant impact on GDP, with a low Durbin-Watson statistic suggesting possible autocorrelation. The Error Correction Term analysis highlights the significance of D(RE), D(CE), D(TE), and C, while ECT(-1) is significant at a 10% level. While the model explains a significant portion of GDP variation, additional factors must be considered for policymaking.

Examining the Causality between Financial Instruments in Terms of Portfolio Management

In portfolio theory, the selection of financial instruments to be included in the portfolio is of great importance. For this purpose, the direction and strength of the relationship between the financial instruments to be included in the portfolio have also become important. From this point of view, the main objective of this study is to analyze the interrelationships among financial instruments. In this study, the causality relationship between gold, BIST-100 index, bitcoin and exchange rate was analyzed. The data of the financial instruments used in the study consist of 208 observations as weekly values for the years 2019-2022. Before applying causality analysis, Johensen cointegration test was performed to test whether there is a cointegration relationship between the variables. According to the results of the cointegration test, both the trace statistic and the maximum eigenvalue result indicate that there is one cointegration between the variables. According to the Toda-Yamamoto causality test, it was concluded that there is a bidirectional causality relationship between the exchange rate and bitcoin price and that the exchange rate is the cause of the BIST-100 index.

Evaluating the Nexus between Monetary Sector Variables and Housing Affordability in Malaysia

Housing affordability is a globally recognized and pressing issue that has prompted extensive discussions in the realms of societal discourse, academic research, and policy development. In the context of Malaysia, this issue persists, despite the government implementing a diverse array of initiatives aimed at alleviating housing affordability challenges. This study aims to explore the nexus between housing affordability and key monetary sector variables, including money supply, interest rates, inflation rates, and foreign exchange rates in Malaysia. The study employed Autoregressive Distributed Lag (ARDL) estimation techniques on a dataset comprising 52 quarterly observations from the years 2010 to 2022. The findings demonstrate the existence of a long-term cointegration relationship between money supply, inflation rates, interest rates and housing affordability. Conversely, in the short term, the analysis reveals that only money supply and inflation rates exert a statistically significant influence on housing affordability. The long-term cointegration of money supply and inflation rates with housing affordability, along with their significant short-term relationship, highlights these two monetary variables as primary drivers of housing affordability. These results underscore the critical role of monetary sector variables in determining housing affordability in Malaysia. Consequently, policymakers are encouraged to prioritize the regulation of monetary sector variables, particularly focusing on money supply and inflation rates, to effectively promote housing affordability in Malaysia.

Influence of Ukraine invasion by Russia on Turkish markets

This paper aims to examine the influence of the Ukraine invasion by Russia on Turkish markets, namely the Istanbul stock market index, Turkish real estate market index, Turkish gold market and Turkish foreign exchange market. This study used daily frequency data between February 24 and June 14, 2022. The variables used are BIST100, Turkey real estate index (XGMYO), Turkish gold commodity (XAU/TRY), Turkish foreign currency such as EURO/TRY, GBP/TRY, USD/TRY, TRY/UAH, TRY/RUB, and macro-economic variable RFR/TRY. The study employed Johansen cointegration, Impulse Response Functions and Markov-regime switching for the analysis. The findings established a long-run co-integration relationship among the Turkish markets. The finding also indicated that the shock from the Ukraine invasion by Russia has a positive effect on developed foreign currencies and a negative effect on currencies from emerging countries such as Turkey. The finding revealed that BIST100, XGMYO, and XAU/TRY shifted to regime 2 during the Ukraine invasion by Russia. The lack of need for more commodities such as wheat, gas and oil from the Turkish market prevented focusing on them, which may attract global attention. Despite this, the significance of this finding remains relevant in Turkey. Therefore, future research may focus on other markets with sufficient trading data for wheat and gas in Russia or Ukraine and any other countries of their study. This study established that Ukraine's invasion by Russia has a worldwide impact on the global markets. The effect is felt globally as a consequence, has been experienced across different developed and emerging markets due to the large market share of Russia on essential commodities such as gas and oil. Turkish foreign exchange markets experienced more storms during the Ukraine invasion by Russia even more than it was during the COVID-19 pandemic.

Do political and social globalization promote female labour in Bangladesh? An empirical reassessment

This study unfolds inverted -U nexus between female labour and political globalization through the lens of autoregressive distributed lag bounds test approach based on annual data from 1984 -2019 in Bangladesh. Political globalization initially fosters female workforce and after attaining a maximum threshold level, this slowly declines. This reinforces the evidence that, initially female absorption in labour market ascends via creation of employment opportunities in service sector for educated female labour and in industrial sector for the less educated. Consequently, the demand for female labour reduces significantly as the country becomes reliant more on import- based automated industries. This non- linear quadratic inverted U relation holds in short run and in the long run. This study also divulges that social globalization has negative and significant impact on female labour in the short- run, possibly corroborating persistent gender inequality in ICT for uneducated female labour. This research disentangles that interactive term of political and social globalization has positive and significant impact on female labour in the short- run. This positive effect is strongly significant in long run as well, supporting the fact that political globalization has the moderating role to subside gender disparity in the ICT sector for educated women. This research obtains conclusive evidence for stable long run inverted U relation between female labour and political globalization. This co-integrating relation holds under presumption of endogenous structural break. Findings of this study are important for formulating right policies to promote female labour in Bangladesh.

Unveiling the Environmental–Economic Nexus: Cointegration and Causality Analysis of Air Pollution and Growth in Oman

The complex relationship between environmental degradation—more especially, air pollution—and economic growth in the Sultanate of Oman between 1990 and 2022 is examined in this article. To identify short- and long-term dynamics in the relationship between air pollution and economic growth, we use vector error correction models and cointegration. Additionally, Granger causality analysis is used to look into the causal relationships between these important variables. This dataset includes several control variables as well as environmental quality-related factors. The empirical findings demonstrate that the variables have a consistent long-term cointegration relationship. Furthermore, our results show that energy consumption and economic growth have a statistically significant positive effect on CO2 emissions. Moreover, an annual adjustment of about 14.1% in N2O emission disequilibrium is revealed by the short-term analysis. The Granger causality study shows that there are unidirectional causal linkages between CO2 emissions, economic growth, and N2O emissions. These results have significant policy-related ramifications for Oman. Oman has to implement strong climate change policies in order to effectively cut greenhouse gas emissions. Furthermore, as a potential replacement for conventional oil and gas resources, the government can be a key player in promoting and supporting the use of renewable energy sources like green hydrogen.

Futures Markets and Macroeconomics: Empirical Evidence from China

This paper uses the methods of Granger causality test, cointegration relationship test, error correction model and shock response function in cointegration correlation theory, and uses the monthly data from 2003.1 to 2023.5 to study the role and influence of futures market variables (price index, total turnover, total open interest) on sixteen macroeconomic variables. The results show that the three indicators of the futures market have a guiding effect on industrial added value, net export, fiscal revenue and fiscal expenditure at the same time. The price index and total turnover also have a guiding effect on the interbank 7-day interest rate and the RMB real effective exchange rate index. The total turnover and total open interest also have a strong guiding effect on the total import and export volume, the investment amount of fixed assets, and the total retail sales of social consumer goods. The price index also has a strong guiding effect on the producer price index, total loans, and the exchange rate of the US dollar against the RMB. The total open interest also has a strong guiding effect on the total loan. The cointegration test and error correction model show that in the short and long term, the futures market variables have a strong or weak quantitative impact on twelve macro variables, and the shock response function curve shows that the futures market variables have different impact effects on twelve macro variables. It shows that the futures market has a relatively strong impact on the macroeconomy, but there is still much room for improvement in the scope and depth of influence. It is suggested that the futures market should make efforts in terms of variety expansion, internationalization and supervision to further promote the comprehensive development of the domestic macroeconomy.

Analysis on the Relationship Between China-US Exchange Rate Fluctuations and Short-Term Cross-Border Capital Flows

The exchange rate, as a key indicator of a country's economic health and policy direction, has profound implications for international trade and cross-border investments. This study explores the relationship between the RMB exchange rate and short-term international capital flows (SICF) and employs various economic analysis methods to delve into this issue. The main findings of the study include, firstly, there exists a cointegration relationship between the RMB exchange rate and short-term international capital flows, indicating a long-term equilibrium relationship between them rather than just short-term fluctuations; secondly, Granger causality test results suggest a bi-directional causal relationship between these two variables, with changes in the RMB exchange rate being used to predict changes in international capital flows, and vice versa. Additionally, the estimated results of the VAR model established reveal linear relationships among five key variables and exhibit a high degree of fit. Finally, variance decomposition analysis reveals that the RMB exchange rate gradually becomes an important factor in the volatility of short-term capital flows, while the volatility of short-term capital flows itself gradually decreases.

Application of Bayesian Vector Autoregressive Models in the Analysis of Quasi Money and Money Supply: A Case Study of Nigeria

Aims: The aim of this study is to model the relationship between Nigerian quasi money and money supply using the Bayesian Vector Autoregressive (BVAR) model.
 Study design: The study collected and analyzed monthly data from the Central Bank of Nigeria (CBN) money and credit statistics over an 8-year period (November 2015 to December 2022). The analysis utilized both Vector Autoregressive (VAR) Model and BVAR model to examine the dynamics between these variables and their implications for monetary policy.
 Methodology: The study employed the Bayesian Vector Autoregressive (BVAR) model to analyze the relationship between Nigerian quasi money and money supply. Monthly data from the Central Bank of Nigeria (CBN) over an 8-year period was collected and subjected to both Vector Autoregressive (VAR) Model and BVAR model for analysis.
 Results: The findings indicated that there is no long-run relationship between Nigerian narrow money and quasi money, but quasi money does granger cause changes in narrow money, and vice versa. This suggests a multi-directional effect between the two variables. The BVAR model consistently outperformed the VAR model in terms of higher Adjusted-R² values, indicating its stronger ability to explain the variance in the data. The BVAR model provided a more robust and accurate representation of the relationship between these variables. The model exhibited stability and the absence of heteroscedasticity in the residuals, indicating a stable relationship between the variables. The impulse response function showed an immediate impact of changes in narrow money on the overall money supply in Nigeria.
 Conclusion: This study contributes to existing knowledge by empirically examining the relationship between Nigerian narrow money and quasi money and also concluded that there existed no co-integrating relationship between narrow money and quasi money, which has important implications for effective monetary policy strategies, particularly in Nigeria.

Exports and economic growth: relationships and threshold analysis for the Southern Africa customs union

This study examines the short-run and long-run relationships between exports and economic growth in the Sothern Africa Customs Union (SACU), as well as the corresponding threshold level. The study used panel data covering the period 1980 to 2021 and employed the Autoregressive Distributed Lag (ARDL) Bounds to test for co-integration relationships, and the Generalized Least Squares (GLS) to determine the respective threshold level. Exports positively support economic growth both in the short-run and in the long-run in SACU. There is long-run bidirectional causality between exports and economic growth. The minimum threshold for exports is 59%. That is, exports only start contributing significantly to economic growth when they are above 59% of the Gross Domestic Product (GDP). SACU should put in place economic policies and regulations that are skewed towards the improvement of the competitiveness of its local products on the global market and also strategically consider export-oriented industrialization strategies. Efforts should also be channeled towards the implementation of bilateral and multilateral trade agreements and harnessing the synergic benefits through the adoption of deliberate value chain mechanisms and initiatives.

FinTech and sustainable financing for low carbon energy transitions: A biodiversity and natural resource perspective in BRICS economies

BRICS countries grapple with formidable challenges, declining biodiversity, and energy crises. This study examines the transformative potential of financial technology and sustainable financing in driving low-carbon energy transitions. It aims to achieve two objectives: first, to investigate the effectiveness of FinTech and sustainable financing in driving low-carbon energy transitions; and second, to probe the relationship between these mechanisms and the imperatives of biodiversity and sustainable natural resource utilization in the context of BRICS economies. Through the application of advanced econometric techniques such as fully modified OLS (FMOLS), dynamic OLS (DOLS), fixed effect-OLS (FE-OLS), and Method of Moments Quantile Regression (MMQR), this study investigates the impact of FinTech, sustainable financing, and biodiversity and natural resource utilization on low-carbon energy transitions. Our empirical findings underscore a robust, long-term co-integrating relationship among low-carbon energy advancement, financial technology, financial development, biodiversity preservation, and natural resource utilization. Notably, both FinTech innovations and accessible sustainable financing mechanisms positively influence the adoption of low-carbon energy practices. Moreover, economies rich in biodiversity and with higher income levels exhibit a strong inclination toward low-carbon energy sources. However, overreliance on natural resource extraction hampers the sustained adoption of low-carbon energy practices. This study recommends strategies that leverage FinTech and sustainable financing, while emphasizing the importance of safeguarding natural resources and promoting environmental management. These measures effectively address the energy crisis and foster policies and practices for low-carbon energy transitions.