Error Correction Model Analysis Research Articles

Does Monetary Policy Respond to Macroeconomic Shocks? Evidence from Indonesia

The activist policy is believed by policymakers and economists that monetary policy can respond to macroeconomic shocks to stabilize the economy. This study aims to find evidence and discuss the response of monetary policy to macroeconomic shocks. For this reason, the effects of GDP shocks, inflation shocks, and exchange rate shocks on policy interest rates in the implementation of monetary policy are discussed through vector error correction model (VECM) analysis along with policy interest rate responses involving the long-run relationships. The study period 2001Q1 – 2020Q1 is used as the policy implementation period using the policy interest rate. The results of the analysis show that based on the magnitude of the impact and its contribution, inflation shock and exchange rate shock are the most important macroeconomic variable shocks in influencing the monetary policy stance in Indonesia. Inflation shocks and exchange rate shocks need to be a priority focus for monetary policymakers in an economic environment where uncertainty is increasing and rapidly changing. In addition to the interests of the domestic economy, monetary policy also needs to remain focused on considering and adapting to increasingly dynamic global economic and financial developments.

The gold price – Inflation relation in the case of Vietnam: empirical investigation in the presence of structural breaks

Purpose This paper investigates the relationship between domestic gold prices and inflation in Vietnam based on the monthly series of the gold price index and consumer price index over the period of December 2001–July 2020. Design/methodology/approach The co-integration between the domestic gold price and inflation is examined within the autoregressive distributed lag-error correction (ARDL bounds testing) framework. This paper also applies the vector error correction model (VECM) and impulse response function analysis to explore the causal relationship between these two variables. Moreover, since both gold and inflation series are likely to have structural changes over time, a unit root test controlling for significant breaks is employed in this paper. Findings Findings from the ARDL bounds testing model suggest the presence of a co-integration between the underlying variables. The VECM indicates that shocks in inflation lead to a negative response to gold prices in the long run. In the short term, only fluctuations in gold prices impact inflation, and this causality is unidirectional. Research limitations/implications Gold is regarded as a critical financial asset to preserve wealth from inflation pressure in the case of Vietnam. These findings propose implications for both investors and policymakers. Originality/value Empirical results suggest that inflation has a long-term impact on gold prices in the Vietnamese market. In the existence of a permanent inflationary shock, domestic prices of gold respond negatively to this shock; hence, gold can act as a good hedge against inflation in Vietnam.

Government Policy Overview of the Total Unemployment Rate in East Java 2001-2021: Evidence Vector Error Correction Model Approach

This article aims to provide a summary of local governments' strategies as well as long- and short-term perspectives on the effects of East Java Province's population growth rate and Human Development Index on unemployment. This article's technique involves analyzing the impact of the dependent variable on the independent variable using parametric quantitative methodologies. In order to see both the short- and long-term consequences, an analysis of the Vector Error Correction Model is employed as the analytical model. The findings indicate that the Human Development Index and population growth rate have a short-term negative impact on unemployment in the province of East Java. In contrast, population growth in East Java Province has a beneficial effect on the rise in unemployment when considered over the long term. The Millennial Job Center and other programs are a long-term answer to the problem of unemployment in the province of East Java

Mobile money transactions and banking sector performance in Ghana

This study examines the effect of mobile money transactions on banking sector performance in Ghana using monthly data for the period 2015–2020. A composite index of banking sector performance was created from three indicators namely; depth, stability and efficiency of the banking sector. Using the Autoregressive Distributed Lag (ARDL) bounds test for cointegration, the Error Correction Model (ECM) and impulse responses analysis, the findings revealed that mobile money transaction has a detrimental effect on banking sector performance. Findings from the disaggregated components indicate that mobile money transactions hurt banking sector efficiency, while its effect on banking sector depth and stability is insignificant in the long run. It is concluded that the implication varies from one indicator to another concerning the direction and magnitude of the influence. The study, therefore, recommends that banks exercise much caution in their decision to consider adopting mobile money-based services when designing their business models.

Analisis Integrasi Pasar Karet: Pada Delapan Provinsi Produsen Karet Terbesar di Indonesia

Rubber is the country's second largest foreign exchange earner in domestic agricultural products and provides the livelihood for 2.5 million families in Indonesia. Rubber plantations are spread in various provinces of Indonesia which are the second largest rubber producer with the largest plantation area in the world. The purpose of this study is to analyze the integration of the natural rubber market at the producer level and to find out how far changes in prices that occur in one market will cause changes in other markets. The analyzed provinces were eight provinces of Indonesia using the Vector Autoregressive (VAR) and Vector Error Correction Model (VECM) analysis methods using Rstudio and Eviews analysis tools. The price data used is from January 2016 to December 2021. The data obtained are from the SIM of the ministry of agriculture and the plantation service in the eight sample provinces with . The results of this study are that there is a balance and short-term and long-term integration between the largest rubber-producing provinces in Indonesia. Price changes in South Sumatra two months earlier had a negative effect on price changes in North Sumatra Province. Three months earlier, price changes in South Sumatra had a negative relationship with Lampung. This means that the increase in prices in South Sumatra Province in the previous three months led to a decrease in natural rubber prices in Lampung Province this month or vice versa and so on. Lag defined up to lag 3 (three months before) integration analysis supported by Granger causality test supported by IRF and FEVD.

Exchange Rate Analysis: Short-Term and Long-Term Balance

This study aims to analyse how the impact of inflation, money supply, and export to influence the movement of the IDR/USD exchange rate, so it is expected to be used as a basis for determining reduction policy to mountain the IDR/USD exchange rate. The method of analyse used this research is linier regression data time series with Error Correction Model (ECM) analysis method with the help of software E-views 9. The data used in this study are secondary data obtained from IFS and BI. The results of the study show that in the short and long term, inflation and money supply have a positive effect and exports have a negative effect on the IDR/USD exchange rate.

Economic Growth Elasticity of Employment in Kenya: Error Correction Model Analysis

Economic growth elasticity of employment refers to the change in economic growth that is associated with a 1% change in employment. The focus of this study is to establish how employment creation translates to economic growth in Kenya using data from 1997 to 2019. In addition, the study determines the directional relationship of growth employment and growth using Error Correction model (EC). This model is used to capture both the short-run and long-run relationship among variables. Economic growth and employment are measured using rate of per capita GDP and employment ratio respectively. The key findings of this study suggest that, a percentage change in employment is associated with growth of economy in the short-run and a decline of economic growth in the long-run. During the review period, increase in percentage of those employed did not lead to increase in Gross Domestic Product (GDP) per capita in the end.

Venture capital as innovative source of financing equity capital after the financial crisis in Spain

The global financial crisis affected the supply of funds to finance equity capital, thus calling for innovative risk capital financing methods. The paper explores the sources of venture capital (VC henceforth) fundraising and determines the relationship between VC fundraising, stock market returns, and market capitalization in Spain. The study uses time-series data of VC fundraising and stock market variables from 1989 to 2020 in a vector error correction model analysis after performing cointegration. The paper reports short-run and long-run causal relations between VC fundraising, stock market returns, and market capitalization when VC fundraising and stock market returns are used as dependent variables. However, such relations do not exist when the model is dependent on market capitalization. Our results show that the VC market raises funds from diversified (geographical and institutional) sources. Our findings support the risk diversification theory of VC financing. The paper provides implications for using alternative innovative ways of financing equity risk capital to spur economic growth.

The Impact of Investments on Economic Growth: Evidence from Tajikistan

The aim of this paper is to assess the effect of foreign direct investment on economic growth in Tajikistan. Using annual time series data for 2005 to 2021, the study reveals a relationship between foreign direct investment and per capita GDP growth in Tajikistan. Based on the analysis of the Vector Error Correction Model (VECM), it has been found that these variables have a long-term relationship. The residuals of the regressions showed no autocorrelation in the post-estimation diagnostic tests performed to determine the validity of the VECM model. Furthermore, our findings suggest that improving the institutional quality of the country complements the improvement of the investment climate and results in significant increases in foreign direct investment inflows.

GROSS DOMESTIC PRODUCT: Financing & Investment Activities and State Expenditures

The growth of an economy is influenced by many factors, both micro and macro. Directly, economic and financial instruments have a close relationship to the dynamics of GDP, so they receive special attention. In its implementation, economic growth is also influenced by investment activities, banking financing, and state spending. To study this phenomenon, a quantitative method is used with the Vector Error Correction Model analysis technique. In this analysis, attempts to see which model is better in influencing economic growth with realistic data. The results of the study show that, in general estimation models, there is a possibility that economic growth is influenced by state spending, investment activities and bank financing. However, in the long-term model test, the state expenditure factor is the only variable in this study that has a positive trend towards economic growth. Because it has a greater opportunity in moving the economic sector.

The determinants of China’s outward foreign direct investment: a vector error correction model analysis of coastal and landlocked countries

An essential objective of China’s outward foreign direct investment (OFDI) is to expand international trade and access to overseas markets to garner resources and improve transportation routes. This study identifies the determinants of China’s OFDI activities in the short and long term, focusing on 138 countries that are part of China’s Belt and Road Initiative (BRI). It is the first study to evaluate the system’s contribution of location determinants, including the four factors of economy, logistics, energy, and politics, to China’s OFDI by employing a vector error correction model with panel data from 2007 to 2019. In addition, we compare the influence of the variables in coastal and landlocked countries. Panel Granger causality and impulse response tests, variance decomposition, and forecast analysis were conducted to analyze and forecast China’ OFDI. The results show that China’s OFDI in both coastal and landlocked countries is statistically sensitive to the variables of economy, energy, logistics, and politics in host countries engaged in the BRI. It also shows that improving logistics infrastructure and the political investment environment in landlocked countries, this can positively attract China’s OFDI.Supplementary InformationThe online version contains supplementary material available at 10.1007/s10644-022-09407-2.

Impact of Issued Loans on the Economic Growth of Azerbaijan

Financial policy, which is an integral part of economic policy, is subdivided into financial strategy and tactics. This article examines the priorities of the latest credit and financial tactics and strategies of the Republic of Azerbaijan and shows how the country is solving the problem of acquiring financial resources, both for current needs and the economic and social development of society. The authors analyze the dependence of the resulting indicators of Azerbaijan’s economic growth on credit investments. Using a vector error correction model and Granger causality analysis based on monthly data from 2005–2019, they perform correlation and regression analysis to build econometric models that characterize the investigated dependence and provide a selection of significant econometric models, as well as an assessment of the results. The influence of financial progress on monetary development has frequently been a major worry. When financial crises arise, the relationship between financial business areas, financial crises, and monetary activity becomes paramount. The primary reason for this research is to identify the relationship between financial development and monetary advancement in the Azerbaijani economy.

Domestic Savings, Money Supply and Economic Growth In Sri Lanka

This study aims to investigate the impact of money supply, domestic savings and total debt ratio on economic growth.This study uses an annual research period of 48 years from 1972 to 2020 in Sri Lanka to estimate Sri Lanka's economic conditions and the impact of money supply, domestic savings, and debt-to-economy ratios in Sri Lanka. We use the second data in this study which is sourced from the world bank. This study uses the Error Correction Model (ECM) analysis. We found that the domestic saving ratio can encourage economic growth in Sri Lanka in terms of loanable supply where the increase in the amount of savings, the increased loanable supply which has an impact on lowering interest rates so that investment can increase and economic growth can be encouraged to grow.

Perkembangan Makroekonomi Negara Kanada Dengan Analisa Vector Error Correction Model (VECM)

This study aims to analyze the relationship between Gross Domestic Product (GDP), Inflation (INF), Import (IMP) and Unemployment (UEM) that occurred in Canada by using Vector Error Correction Model (VECM) analysis. The data source comes from https://www.imf.org; data taken from 1980 to 2020. The analytical tool used is the Vector Error Correction Model (VECM) which aims to analyze the relationship or causality between variables both in the short and long term, where the results obtained are the relationship between variables more referring to short term causality. And to find out the impact between variables, this study uses an Impulse Response Function (IRF) analysis where the results that have a positive impact during the Covid-19 pandemic are import shocks to GDP in Canada while the results that have a negative impact are import shocks on unemployment and also Canada's unemployment rate against GDP during the COVID-19 pandemic.

Analisis Determinan Impor di Indonesia Periode 2011 - 2020

Imports have the meaning as trade transactions carried out between countries in an effort to meet domestic demand. Imports are not a trade relationship between countries but also an effort to create good relations between countries as an effort to transfer technology from developed countries to countries that are not technologically advanced. Import is one of the efforts made by the state to improve the welfare of its people. Stability between imports and exports is the key in carrying out trade between countries. The main purpose of this study is to determine whether the independent variables used in this study have an effect in the short and long term on imports in Indonesia. The data used in this study is secondary data with a time series period from 2011-2020. The data analysis method used is descriptive quantitative using the Vector Error Correction Model (VECM) analysis tool. The results of this study indicate that in the short term the inflation variable has no significant effect on imports in Indonesia, while the exchange rate variable has a significant effect on imports in the short term. The money supply variable has an effect on imports in the short term and food term, while the interest rate variable has no effect on imports in Indonesia in the short term. In the long terms inflation, the exchange rate and the money supply do not have a significant effect on imports and the interest rate variable has a significant effect on imports in Indonesia.

Islamic Certificate of Bank Indonesia (SBIS)'s Impact on Indonesian Economic Growth

This study aims to determine the effect of monetary policy indicators, particularly Islamic Certificates of Bank Indonesia (SBIS), on economic growth in Indonesia. The dependent variable in this study is economic growth seen from the value of GDP. The independent variables used in this study are the money supply, BI rate, inflation, exchange rate (exchange rate), and Islamic Certificates of Bank Indonesia (SBIS). The type of data used in this study is secondary data in monthly time series (time series) from January 2010 to December 2019 sourced from the Central Statistics Agency (BPS) and Bank Indonesia (BI). This study uses the Vector Error Correction Model (VECM) analysis method. The VECM estimation results show that the effect of the money supply, BI rate, and Islamic Certificates of Bank Indonesia (SBIS) on economic growth in Indonesia in the short term is positive, but in the long term, it has a negative effect. Inflation in the short and long term does not affect economic growth in Indonesia. The exchange rate in the short term does not affect economic growth in Indonesia, while in the long term, it has a positive effect.Keywords: Economic Growth, Money Supply, BI Rate, SBIS, VECM.

Analisis fenomena Kurva J di Indonesia

The free-floating exchange rate system in Indonesia has consequences for fluctuations in the Rupiah exchange rate. In accordance with the J-Curve theory, will the weakening of the Rupiah value have an impact on improving the trade balance in the long term or will it worsen the trade balance condition in the long term. This study will examine how the influence of the Rupiah exchange rate on the trade balance in both the short and long term and whether the J-Curve phenomenon occurs in Indonesia using the Vector Error Correction Model (VECM) analysis technique in the observation period 2015.1-2020.12. The results of this study prove that the J-Curve phenomenon occurs in the Indonesian economy. The findings show that the depreciation of the Rupiah in the short term will cause a trade balance deficit, but in the long term, the depreciation of the Rupiah will cause a trade balance surplus. The results of the variance decomposition show that the exchange rate has a major role in the formation of fluctuations in the trade balance. In addition, shocks that occur in the exchange rate will be responded to by movements in the trade balance position and permanent, namely for the next ten periods. The limitation of this research is that the identification of the existence of the J curve phenomenon is generally carried out on the entire trade balance. Further research is expected to identify the J curve phenomenon specifically in several trading partner countries of Indonesia.

Causality Analysis of the Brent Oil Prices, the Gold Prices and the Exchange Rates (USD/IDR) on Indonesia Composite Index (Empi rical Study January 2016 – April 2021)

Global economic conditions are in turmoil due to the COVID-19 pandemic since 2019. Many policies are implemented to suppress the spread of the virus, which then has an impact on economic activity. It influences investors' attitudes and changes the choices in investing. This study aims to analyze the causal relationship between the Indonesia Composite Index (ICI) and gold prices, oil prices and the exchange rate (USD/IDR). This study used monthly data for the period January 2016 – April 2021 with an analysis of the Vector Error Correction Model (VECM), which is a restricted VAR model with the Eviews 10 tool. The long-term VECM estimation results show that Brent oil prices and gold prices have a negative effect while the exchange rate (USD/USD) IDR) the ICI. The Granger causality test shows that the ICI has a one-way causality relationship with the exchange rate (USD/IDR).

Impilikasi Dana Otsus dalam Mengurangi Kemiskinan di Papua: Dengan Error Correction Model (ECM)

Special Autonomy funds is a special revenue post for the implementation of special autonomy which amount is equivalent to 2% of the ceiling of National General Allocation Fund for 25 years, which is mainly intended for financing education and health. The distribution of special autonomy funds is expected to improve the community's economy in order to realize justice in the concept of regional product management, increase community welfare, and empower human resources. However, practically there are some discrepancies between the expectation and reality Ironically, amid the abundance of Papua Special Autonomy funds in the last two decades, poverty is still the main problem. This study aims to analyze the impact of special autonomy funds on poverty alleviation in Papua, with the assumption that the special autonomy funds are fully distributed using Error Correction Model Analysis. The results showed that the Special autonomy funds significantly reduce the Number of Poverty in short-run and long run.

Implikasi Dana Otsus dalam Mengurangi Kemiskinan di Papua: Dengan Error Correction Model (ECM)

Special Autonomy funds is a special revenue post for the implementation of special autonomy which amount is equivalent to 2% of the ceiling of National General Allocation Fund for 25 years, which is mainly intended for financing education and health. The distribution of special autonomy funds is expected to improve the community's economy in order to realize justice in the concept of regional product management, increase community welfare, and empower human resources. However, practically there are some discrepancies between the expectation and reality Ironically, amid the abundance of Papua Special Autonomy funds in the last two decades, poverty is still the main problem. This study aims to analyze the impact of special autonomy funds on poverty alleviation in Papua, with the assumption that the special autonomy funds are fully distributed using Error Correction Model Analysis. The results showed that the Special autonomy funds significantly reduce the Number of Poverty in short-run and long run.