Evidence Of Cointegration Research Articles

Interest Rate Pass-through: Asymmetric Evidence from India

This article analyses interest rate pass-through in India using nonlinear autoregressive distributed lag (NARDL) model. The results suggest the rejection of decoupling hypothesis of interest rates. The results show evidence of cointegration between the policy rates and all other market interest rates. We find evidence of near complete, relatively rapid and asymmetric pass-through from policy rates to the immediate monetary policy target in India, that is, call money rates. However, we find evidence of incomplete, sluggish and asymmetric pass-through from policy rates to both long-term market interest rates and lending rates.

Interaction between equity futures and spot markets during COVID-19 pandemic: a multi-market analysis

Using ABA research design and daily indices from South Africa, Eurozone, Japan and the United States of America, this study evaluates the interaction between equity index futures and spot markets before; during and after the COVID-19 pandemic. The results show evidence of cointegration between the equity futures and spot markets before, during and after the COVID-19 pandemic, a unidirectional causal relationship from the equity spot to the futures markets before and after the COVID-19 era, and bidirectional causality between the equity spot and futures markets during the COVID-19 pandemic, except for the South African markets. The results also show evidence of more spikey volatility during the COVID-19 pandemic era than was the case before and after the pandemic and the existence of bidirectional volatility transmission between the markets. The magnitude of transmission was stronger from the spot to futures markets during the COVID-19 pandemic era. Overall, the results suggest that the interaction between equity futures and spot markets varies according to the prevailing economic condition and the level of development of the markets.

The contribution of green technological innovation, clean energy, and oil rents in improving the load capacity factor and achieving SDG13 in Saudi Arabia

This research aims to assess the effects of green technological innovation, renewable energy sources, and oil rents on the load capacity factor in Saudi Arabia from 1988 to 2021. The primary conclusions can be outlined as follows. The combined cointegration and Saikkonen-Lütkepohl cointegration tests reveal long-run relationships between the load capacity factor and the explanatory variables at the 1% significance level. In comparison, the Phillips-Ouliaris test shows evidence of cointegration only at 10%. Moreover, the quantile regression indicates that oil rents adversely impact environmental quality; however, they remain contingent upon environmental conditions. A 1% increase in oil rents results in a decline in environmental quality by 0.025% under poor conditions, 0.036% under moderate/normal conditions, and 0.108% under good conditions. On the contrary, renewable energy consumption and green technological innovation improve environmental quality, irrespective of the prevailing environmental conditions. However, the environmental impacts of renewable energy consumption exceed those of green technological innovation. Results show that a 1% increase in renewable energy consumption leads to a 0.052-0.253% improvement in environmental quality, whereas a 1% increase in green technological innovation results only in a 0.017-0.047% improvement. Finally, population and GDP per capita exert negative and positive implications on the load capacity factor, respectively, while energy intensity has no significant environmental effects. The research findings provide significant insights and suggest policy recommendations to address climate change and meet the targets set out in SDG13.

Impact of higher education on economic growth: A vector error correction analysis in malawi

This study examined the impact of higher education on economic growth in Malawi from 1995 to 2021. The study contributes to existing literature by providing more recent evidence and as well contributes to the debate on whether higher education has a positive or negative impact on economic growth in a developing country like Malawi. Empirical studies have so far yielded inconclusive results. The time series variables were tested to find out its order of integration using Dickey Fuller and the series were all non-stationary at level but became stationary after first difference. The study employed cointegration and evidence of cointegration of higher education and economic growth was established. However, Vector Error Correction Model estimates showed that there is negative long run relationship between higher education and economic growth. Thus, the government and other relevant education stakeholders should strive to increase enrollment in tertiary institutions so that it yields significant impact on economic output.

Impact of Rapid Economic Development with Rising Carbon Emissions on Public Health And Healthcare Costs in Bangladesh

Background: Bangladesh, a rapidly developing country, is experiencing a critical phase where economic growth and environmental sustainability must be balanced. The swift industrialization and urbanization have led to increased energy consumption and carbon emissions, negatively impacting public health and healthcare expenditures. This study determined the intricate relationships between healthcare expenditure and its determinants—economic growth, CO2 emissions, urbanization, and natural resource use—in Bangladesh. Methods: Utilizing a dataset from 2004 to 2023, this study applies advanced econometric methods, including the dual adjustment approach, spectral causality, fully modified ordinary least squares (FMOLS), dynamic ordinary least squares (DOLS), and canonical cointegrating regression (CCR). Results: Results demonstrate a significant positive correlation between economic growth, urbanization, natural resources, and CO2 emissions on healthcare spending. The findings underscore that CO2 emissions and urbanization are substantial contributors to rising healthcare costs, while natural resources and economic growth present varying impacts based on different econometric models. The dual adjustment approach provides robust evidence of cointegration, revealing the long-term interactions among these variables. Conclusion: In conclusion, the study emphasizes the urgent need for effective national policies to mitigate healthcare costs driven by environmental degradation and economic growth. By understanding these relationships, policymakers can better manage health expenditures while promoting sustainable development in Bangladesh. The research highlights the necessity of integrating environmental and health policies to achieve a balanced growth trajectory.

Modelling Asymmetric Volatility in the Crypto Currency and its Dynamic Relationship with Stock Market

The paper investigates the asymmetric volatility effect of five major cryptocur- rencies and their bilateral linkages with major indices in the Indian stock market. To inves- tigate the bilateral relationship of crypto currency with stock indices, researchers used two major stock indices in the Indian stock market namely, BSE Sensex and NSE Nifty. The study used GARCH, EGARCH and TGARCH models, asymmetric to model the asymmetric volatility effect in the conditional volatility of crypto currencies and stock indices. Johansen’s cointegration and Vector Error Correction Model is used for examining the presence of cointe- gration between selected variables and to analyse the strength of causality among them. The study finds the evidence of cointegration between cryptocurrencies and stock market indices, implying that cryptocurrencies are related to stock indices. Further there is unidirectional relationship among stock and crypto market and crypto currencies having short-lived re- sponse to shocks in stock markets. Even with these currencies’ explosive growth, there are still not many research examining their connection to stock markets. This study will help investor’s those who making investment in currency market or in the stock market to eval- uate the pattern of volatility, interconnection among them, so that they can make crucial investment decisions and diversification strategies. This will help them to gain knowledge about how these two markets move together so they may avoid underestimating risk when building portfolios that contain both kinds of assets.

THE IMPACT OF RENEWABLE AND NON-RENEWABLE ENERGY CONSUMPTION ON ECONOMIC GROWTH IN AZERBAIJAN: FB-ARDL AND A-ARDL COINTEGRATION APPROACHES

The objective of this study is to examine the impact of renewable and non-renewable energy consumption on economic growth in Azerbaijan. It is believed that this study will contribute to the literature by using Fourier ADF, Fourier Bootstrap ARDL and Augmented ARDL methods for the first time in this context. The stationarity of the variables was first tested using ADF, Fractional Fourier ADF, Flexible Fractional Fourier ADF and single structural breakpoint ZA stationarity tests, which revealed different degrees of stationarity of the variables. The cointegration relationship between the variables was first examined using the Fourier Bootstrap ARDL bound test, which found no evidence of cointegration. Subsequently, the Augmented ARDL bounds test was used to examine the cointegration relationship between the variables, which revealed a long-run equilibrium relationship. FMOLS, DOLS and CCR long-run estimation methods were used to examine the impact of renewable and non-renewable energy consumption on economic growth and according to the results of all three methods, both renewable and non-renewable energy consumption contribute to the growth of the Azerbaijani economy. Holding other variables constant, a 1% increase in non-renewable energy consumption leads to a 3.28% increase in economic growth. Holding other variables constant, a 1% increase in renewable energy consumption leads to a 1.29% increase in economic growth. The study concludes with policy recommendations for the Azerbaijani economy based on the econometric results.

Assessing Asymmetry in Okun's Law: A Nonlinear Approach in the Turkish Economy

In this paper, the presence of asymmetric behavior in Okun’s Law for Turkey during the period 2005-2023 is analysed. The relationship between economic growth and the unemployment rate has been assessed in the context of nonlinear time series models. Nonlinear methods are typically favoured in macroeconomic series analyses as they generate more robust findings. In this paper, nonlienear symmetric KSS cointegration and nonlinear asymmetric Hepsağ cointegration tests were used to test for the existence of a long-run relationship between the variables, and the Hatemi-j test was used to test for nonlinear causality. Our findings demonstrate no evidence of co-integration between the variables. Hatemi-j test results, on the other hand, indicate the presence of a causality relationship from negative growth components to positive unemployment components. Specifically, a decrease in the growth was found to be the only one of all the components that was a statistically significant cause of an increase in the unemployment.

Bursting the bitcoin bubble: Do market prices reflect fundamental bitcoin value?

This paper develops a theoretical model of the bitcoin market and demonstrates that the bitcoin’s volatile and explosive price path is a consequence of the Bitcoin protocol’s system of supply management. The model implies that the marginal cost of mining the target supply of bitcoins is the fundamental value of the bitcoin since it corresponds to an equilibrium in the Bitcoin protocol and the rent-seeking tournament among miners. The data provide strong empirical evidence of cointegration between the bitcoin’s price and the marginal cost of mining the target supply of bitcoins, demonstrating the existence of their long-run equilibrium relationship. Current bubble detection techniques indicate that there is no evidence of explosive departures in the price of the bitcoin from its model-implied fundamental value. Since the raw price data exhibit explosive behavior, the apparent bubbles in the price of the bitcoin can be attributed to its nonstationary market fundamentals.

The Role of the National Gas Policy on the Nigerian Electricity Supply Industry and Economic Growth

This study examined the relationship between real GDP, electricity supply, and the National Gas Policy (NGP) in Nigeria, using annual time series data from 1981 to 2019. To achieve its aim, the study explores how the NGP might influence future economic growth, natural gas reserves and electricity supply. Econometric techniques are employed for analysis, where real GDP is dependent variable, and the NGP is the dummy explanatory variable alongside other explanatory variables. The Augmented Dickey-Fuller and Phillip Perron Methods were used for unit root tests. The ARDL bounds tests indicated evidence of co-integration and long-run relationships among the variables. From the results, electricity supply and the NGP have a positive and significant relationship with real GDP. Consumer Price Index (CPI), a control variable, had a negative and significant relationship with real GDP in the short run. Also, the Error Correction Term is -0.2228. Consequently, the speed of adjustment for the model to return to long-run equilibrium after a shock is 22.28%. The study also found that the current two (2) percent annual growth rate of proven NG reserves is inadequate to cater for the rapid growth in the NG sector considering the positive effect of the NGP. The study, therefore, recommends that policymakers should continue to promote the NGP programme because it contributes positively to real GDP. In addition, consideration should be given to a diverse energy mix policy to reduce the over-reliance of electricity generation on NG-fired power plants, consequently, policymakers should promote policies that will lead to the diversification of the energy source for power generation.

Market sentiment in emerging economies: evidence from the South African property market

Purpose Market sentiment has shown to influence housing prices in the global north, but in emerging economies, the nexus is rare to chance on in the current state of science for policy direction. More importantly in the recent decade where policymakers are yet to conclude on the myriad of factors confronting the housing market in sub-Saharan Africa inhibiting affordability. This paper therefore examines the impact of market sentiment on house prices in South Africa. Design/methodology/approach The study used the Autoregressive Distributed Lag (ARDL) approach with quarterly data spanning from 2005Q1 to 2020Q4. Findings In all, it was established that market sentiment plays a minimal role in the property market in South Africa. But there was enough evidence of cointegration from the bound test between sentiment and house prices. Nevertheless, the lag values of sentiment pointed to a rise in house prices. Exchange rate volatilities and inflation had a statistically significant effect on prices in both the long and short term, respectively. Research limitations/implications Policymakers could still monitor market sentiment in the housing market due to the strong chemistry between house prices and sentiment, as evidenced from the bound test, but focus on economic fundamentals as the main policy tool for house price reduction. Originality/value The findings and the creation of the sentiment index make an invaluable contribution to the paper and add to the paucity of literature on the study of market sentiment in the housing market.

Impact of Health Investment on Economic Development in Nigeria

This study examined the impact of health investment on economic development in Nigeria. Using secondary data sourced from Central Bank of Nigeria Statistical Bulletins and World Bank development indicators, World Bank Database for the period of 1981- 2020. It applied Augmented Dickey Fuller (ADF) and Philips-Perron (PP) tests for unit root which indicated that all the variables were stationary at first difference except gross fixed capital formation at level. The mixed order of the unit root tests necessitated the adoption of Autoregressive Distributed Lag (ARDL) bounds Cointegration technique. The study submitted that a strong evidence of cointegration among the variables exist. It prove that health investment variables (recurrent and capital health investment, public education expenditure, gross fixed capital formation and labour participation rate) have positive impacts on economic development in Nigeria except foreign exchange rate which reveals negative impact. The result of Pairwise Granger causality test indicated that there were uni-directional and bidirectional causality among health investment variables and economic development in Nigeria. Therefore, it concluded that health investment variables have positive and significant impacts on economic development in Nigeria except exchange rate. Moreover, this study recommended that health policy should be made by government to increase the budgetary allocation to health sector particularly on recurrent and capital public health investment, improve quality of education through statutory allocation to education sector, provide exchange rate policy that will encourage investment in human capital by individuals and private sector. Finally, the government should expand institutional capacity to produce qualified manpower, improve personnel salaries, wages and working conditions in health and education sectors

Consumer sentiments across G7 and BRICS economies: Are they related?

This paper utilizes fractional integration and cointegration techniques to investigate the stochastic properties of the bilateral linkages between the Consumer Sentiment Index (CSI) of eight developed economies, Australia, Canada, France, Germany, Italy, Japan, the UK and the US and five emerging economies comprising Brazil, Russia, India, China and South Africa, for the time period from 15th January 2010 to 15th July 2019. The univariate results support fractional integration with mean reverting behaviour, with many of the series displaying orders of integration in the interval (0, 1), which connotes that shocks to consumer sentiment have significant long-lasting though reverting effects. From the covariate results and testing for cointegration, we found evidence of cointegration for Australia versus Italy, and France versus Italy. For the BRICS, the only evidence of fractional cointegration is found between Russia and India. Some policy implications of the results obtained are also mentioned at the end of the article.

Do Spanish regions converge? A time-series approach using fractional cointegration

ABSTRACT This article investigates economic convergence in terms of real income per capita between the autonomous regions of Spain over the period 1955–2020. In order to converge, the series should be cointegrated. This necessary condition is checked using two testing strategies recently proposed for fractional cointegration, finding no evidence of cointegration, which rules out the possibility of convergence between all or some of the Spanish regions. As an additional contribution, an extension of the critical values of Nielsen’s (2010) test of fractional cointegration is provided for a different number of variables and sample sizes from those originally provided by the author, fitting those considered in this article.

Examining the Impact of GDP on the Nepalese Stock Market: Insights from Co-integration and Granger Causality Tests

The stock market reflects the national and international economic health. It promotes investment opportunities and the economic growth of the nation. This study examined the long-run relationship between Gross Domestic Product (GDP) fluctuations and the Nepalese Stock Market Index (NEPSE) employing the econometric models. By using the quantitative analysis of data collected from June 2005 to December 2023, this research applied advanced models such as co-integration to explore long-term equilibrium, vectors auto-regression (VAR) to analyze the short-run impact, and Grangers’ causality tests for identifying cause and effect, and variance decomposition for the quantify the impact. Analyzing the unit root tests revealed that GDP growth rates and stock market indices are integrated at the second difference, leading to the application of the Johansen co-integration test. Results showed no evidence of long-term co-integration between GDP and NEPSE. As a result, a Vector Auto-Regression (VAR) model is employed to assess the short-term dynamics. The VAR analysis indicated that lagged values of NEPSE have a significant positive effect on current NEPSE values. Granger causality tests revealed that GDP has a significant causal impact on NEPSE, but NEPSE does not significantly influence GDP. Variance decomposition analysis further demonstrated that NEPSE’s own past values predominantly drove its oscillations, while GDP had minimal impact on the NEPSE.

An Empirical Study of the Impact of the Euro on Cross-Country Diversification

The euro was launched, on 1 January 1999, as a common currency for members of the European Union that complied with the Maastricht Treaty. The Maastricht Treaty calls for the coordination of major macroeconomic policies, such as inflation, budget balance, public debt, and long-term interest rates. Theoretically, the coordination of these policy issues and the launch of a common currency will increase the degree of market integration among member countries. This paper empirically tests the impact of the euro on the degree of market integration by looking at the comovement of the European equity markets and a sample of OECD equity markets. Weekly stock market indices for the period covering seven years before the euro and seven years after the euro was implemented was used. The results show that cross-country divergences in stock markets continued after the euro. There is no evidence of cointegration after the adoption of the euro. Cross-country portfolio diversification continues to be beneficial even among euro countries.

The moderating effect of income inequality on the relationship between economic growth and political economy, human capital, innovation, and saving channels in Ethiopia

BackgroundThis research focuses on examining the relationship between income inequality and economic growth in Ethiopia over the period from 1981 to 2020. The study aims to understand the various channels through which income inequality affects economic growth and explores the role of different factors such as political economy, innovation, human capital, and saving channels.MethodTo analyze the relationship between income inequality and economic growth in Ethiopia, the researchers employ the Autoregressive Distributed Lag (ARDL) model. They also conduct the Bayer Hanck (BH) Cointegration Test using four different methods: Engle-Granger, Johansen, Banerjee, and Boswijk. These techniques help determine whether there is a long-term connection, or cointegration, between the variables under investigation.ResultsThe findings of this study indicate strong evidence of cointegration between income inequality and economic growth in Ethiopia, except in the Engle-Granger test. This suggests a long-term relationship between these variables. The researchers analyze various channels through which income inequality affects economic growth. They discover that income inequality significantly hampers economic growth in Ethiopia. On the other hand, the development of human capital, as measured by school enrollment, has a positive and significant impact on economic growth. However, other channel variables such as gross domestic saving, gross fixed capital formation, high-technology exports, general government revenue, and general government total expenditure do not exert a significant influence on economic growth.ConclusionsBased on the research findings, the study emphasizes the role of government expenditure as a moderating factor that can mitigate the adverse effects of income inequality on economic growth in Ethiopia. It also highlights the importance of savings channels, particularly gross fixed capital formation, in fostering economic growth. Moreover, the study suggests that innovation, represented by high-technology exports, may indirectly influence economic growth by promoting the development of human capital. Overall, this research provides valuable insights into the intricate relationships between income inequality and economic growth in Ethiopia, exploring both direct and moderating effects through various transmission channels.

Mexico: Determinants of the real exchange rate, 2001.01-2022.12.

We estimate the determinants (terms of trade, tradable to non-tradable price differentials, interest rate differentials, forward exchange rate and risk premium) of the Mexican bilateral real exchange rate (q) for the short and long run by using an Autoregressive Distributed Lag model (ARDL, Pesaran and Shin et al. (2001)) for Mexico (2001.01-2022.12). The inclusion of commercial and financial variables and finding empirical evidence of cointegration only for 2009.01-2022.12 are the main contributions. Our results indicate no cointegrating relationship either for the entire sample, or for 2001.01-2008.12. This finding has to do with the increasing international financialization process, after the 2008-2009 Great Financial Crisis. Using a double log model we find that: a) there is a strong short-run autoregressive effect of q of up to 4 lags (0.75), b) that the Balassa-Samuelson Effect is the largest in the model (-0.27 and -1.11 for short and long terms), c) the next most important factor is the terms of trade (-0.126 and -0.51, respectively), d) there are considerable, although lesser, effects of financial variables: forward exchange rate (0.0155 and 0.063, respectively) and risk-premium (0.009 and 0.036, respectively), e) there is a clear long-term trend of real depreciation expressed by the trend of 0.0020, which suggests that the PPP hypothesis applies.

Financial Development and Economic Growth

This paper aims to examine the effect of financial developments and economic growth in Nepal employing Autoregressive Distributed lag Model (ARDL) approach of cointegration using the time series data for the period from 1972-2022. Nepal is a unique country for specific case study as it represents the group of landlocked Developing countries and lagging, behind even having lots of natural beauties, and resources within the country. After a recent, significant political shift, Nepal's stable government is currently actively pursuing significant amounts of foreign direct investment. We develop a model with four proxies of financial development (Broad money, Domestic credit by private sectors, Foreign Direct Investment, Gross Capital formation) and econometrically test their contribution in economic growth. And the long bound test suggests that we can reject the null hypothesis of no co-integration and conclude that the variables are co-integrated at all significance levels. Therefore, based on the F-bound test results, we can conclude that there is evidence of co-integration between the variables in the ARDL model.

Handling asymmetries in the trade balance

The existing literature in the US-Mexico trade balance reports mixed evidence on the effects of exchange rate shocks. In this paper we propose a new approach of studying exchange rate effects that allows for asymmetries in the balance of trade. Our results show that using either linear modelling or non-linear modelling and zero threshold, there is no evidence of co-integration for the US-Mexico trade. However, using a quantile analysis and median threshold, for the first time in the literature on trade balance, we obtain evidence of co-integration. Indeed, our findings show the existence of a long-run relation between the trade balance and its determinants except for periods of significant deficits, where the trade balance is detached from underlying fundamentals and follows a random walk. A USD depreciation, especially a small one, is effective in the short run in improving the trade balance, while in the long run, any depreciation worsens the trade balance. These findings hold due to the complementarity of the US and Mexican economies and the change in the structure of the Mexican economy towards higher value-added products that have led to income effects outweighing in the long run, any intending short-run effects, of exchange rate depreciation.