Impulse Response Function Research Articles

The impact of fiscal opacity on business confidence: empirical investigation from an emerging economy

PurposeThe relevance of transparency related to public finances is considered fundamental for good economic policy management. An environment of greater fiscal transparency allows the private sector greater predictability, improving the entrepreneur’s decision-making ability. This study empirically analyzes fiscal opacity’s effect on business confidence in an emerging economy.Design/methodology/approachWe use monthly data from the Brazilian economy from January 2010 to March 2023. Based on Ordinary Least Squares (OLS) and the Generalized Method of Moments (GMM) regressions, we analyze whether fiscal opacity, measured by the signal-to-noise ratio, affects business confidence. Moreover, to evaluate the duration of a shock transmitted by the fiscal opacity on business confidence, we consider an impulse-response function generated by a Vector Auto-Regressive (VAR).FindingsWe found that fiscal opacity resulting from the lack of information to anticipate the budgetary result of the public sector deteriorates business confidence.Practical implicationsWe present robust empirical evidence that allows us to assume that using a strategy to reduce fiscal opacity through mechanisms that provide reliable economic data and fiscal forecasts is essential for fiscal policy to affect business confidence positively. Reducing fiscal opacity provides greater clarity regarding the budget outcome, reduces economic uncertainty and improves the fiscal policy expectation channel.Originality/valueThis paper is the first to analyze how the lack of information for market agents to anticipate the government’s budget execution accurately (fiscal opacity) affects business confidence.

Russian-Chinese financial and economic cooperation: Comparative identification of the impulse response function

Subject. This article discusses the integration of Russia and China and the convergence of the economic systems of the two countries. Objectives. The article aims to identify promising areas of cooperation between Russia and China to create a common financial market and common exchange space, and analyze the impulse responses of the Russian and Chinese economies to various external and internal shocks. Methods. For the study, I used a regression analysis. Results. The article assesses the impulse responses of the Russian and Chinese economies to external shocks and identifies a synergistic effect that makes it possible to increase the validity and effectiveness of economic policies. The article also identifies the most promising areas for the development of relations between the two countries. Conclusions. At the present stage, economic and financial cooperation between Russia and China gets strengthening. In general, the results of empirical analysis correspond to theoretical expectations.

The relationship between digital financial inclusion, gender inequality, and economic growth: dynamics from financial development

PurposeThis article employs a panel vector autoregression (PVAR) model to examine the relationship between digital financial inclusion (DFI), economic growth (EG), and gender equality (GE) across different levels of financial development.Design/methodology/approachBased on the current financial development dynamics, this study applies the PVAR method to two groups of countries: the first group represents the high financial development group, and the second group represents the low financial development group, during the period from 2015 to 2021.FindingsThe findings from impulse response functions reveal that digital financial inclusion fosters economic growth in nations with advanced financial systems, while simultaneously mitigating gender inequality. Conversely, in countries with less developed financial infrastructures, digital financial inclusion stimulates economic growth but exacerbates gender disparities. Moreover, the variance decomposition analysis indicates that the linkage between economic growth, digital financial inclusion, and gender inequality is more intertwined in countries with limited financial development than in those with well-established financial systems.Originality/valueEffective deployment of new technologies relies heavily on technological infrastructure. This policy focuses on constructing and developing information technology infrastructure to create favorable conditions for the implementation of new DFI technologies. This study also emphasizes promoting equitable education and training by ensuring that both women and men have equal opportunities to access quality education and training. This may involve investing in early childhood education, providing access to primary education, and offering scholarships to women in technology, science, and engineering fields.

CAN EXCHANGE RATE CONTROL IN TURKEY HELP THE CENTRAL BANK EVALUATIONS WITHIN THE FRAMEWORK OF THE TAYLOR RULE

This paper tests the validity of the Augmented Taylor rule in the Turkish economy for the period between February 2011 and February 2024 with the structural vector autoregression model. It is found that the central bank did not use the policy rate against deviations from inflation in the relevant period. On the other hand, the policy rate moves within expectations against deviations in the output gap and the real exchange rate. According to the structural impulse-response functions, the output gap and the inflation gap respond positively to a one-unit shock to the policy rate, while the real exchange rate reacts negatively. According to the results of structural variance decomposition, the most influential variable on changes in the policy rate is the real exchange rate deficit. In conclusion, the policy rate in the Turkish economy takes into account the output gap and the real exchange rate gap. However, it ignores the inflation gap.

On the robustness of the relationship between tax progressivity, growth, and inequality in the US

We investigate the impact of a shock in tax progressivity on GDP growth and income inequality in the US between 1969 and 2016. Employing various robustness tests, including different imputation methods for the progressivity index, as well as utilizing Vector Autoregressive and Linear Projection models for estimating impulse response functions, we find that both GDP growth and inequality decline in response to more tax progressivity. Nevertheless, only the effect on inequality remains statistically significant across our battery of robustness exercises, while the negative effect on GDP growth is robustly significant only prior to the Great Recession in 2008.

How does the balance of securities lending affect investors’ sentiment in the securities margin trading market?——An Empirical Study Based on Impulse Response Function

How does the balance of securities lending affect investors’ sentiment in the securities margin trading market?——An Empirical Study Based on Impulse Response Function

Impulsive Response Analysis of Financial Markets in QUAD Economies: A VAR Modelling Approach

Financial market integration remains a key focus in academic finance, especially given how crucial it is to portfolio diversification. The purpose of this research is to investigate a crucial yet underexplored aspect like the cointegration of economies with formal or unofficial military ties, focusing on countries within the Quad strategic forum—India, Japan, Australia, and the United States. The daily closing values of benchmark stock market indices of Quad economies viz. Nikkie 225 for Japan, S&P ASX 200 for Australia, NASDAQ composite for the United States, and S&P Sensex for India were considered. Unit root tests, Johansen Cointegration tests, VAR (Vector Autoregressive) model, and the Granger Causality statistics are computed for data analysis. Additionally, the Impulse response function and variance decomposition are computed for better financial market predictions. The result reveals intriguing dynamics: while the Indian stock market initially responds positively to shocks in the Australian market, this effect diminishes over time. Also, movements in the Australian and United States stock markets significantly contribute to predicting fluctuations in the Indian market, contrasting with the limited predictive power of the Japanese stock market. These findings carry significant practical implications for international investors, offering valuable guidance for optimizing portfolio diversification strategies amidst geopolitical and economic complexities. This paper contributes to academic literature by offering empirical insights into the short-term dynamics and causal relationships of Quad countries’ stock markets, setting a foundation for future studies on long-term trends and market responses to external factors.

Analysis of dynamic relationship between agricultural products circulation service industry and circulation efficiency in less developed regions: based on data from Western China

The market circulation system for agricultural products in less-developed regions lags behind; it fails to meet the requirements for efficient circulation. Therefore, it is crucial to explore the dynamic relationship between the Agricultural Products Circulation (APC) service industry and circulation efficiency. Using panel data from 29 regions in China, the entropy method measured the Development Level (DL) of the APC service industry, while the non-oriented super-efficiency Slacks-Based Measure (SBM) model was employed to assess the APC efficiency. A Panel Vector Autoregressive (PVAR) model was built for estimation. The impulse response function and variance decomposition were utilized to analyze the differences in the DL of the APC service industry, circulation efficiency, and their interaction mechanism across the Western, Central, and Eastern regions of China. The findings indicate that the DL of the APC service industry and APC efficiency in the less-developed regions of the West have a positive driving effect on each other. However, the magnitude of this effect was asymmetric and transient. The APC service industry’s DL and APC efficiency are more dependent on their inertia, and no efficient two-way feedback mechanism has been formed. This study provides a reference for the construction and sustainable development of modernized APC systems in less-developed regions.

Oil prices and developing stock markets: Evidence from East Asia

The COVID-19 pandemic has introduced unprecedented complexity in the relationship between oil prices and stock markets. This work employs a Threshold Auto-Regressive Distributed Lag (ARDL) framework to analyze this relationship, focusing on two distinct periods: pre-mid-June 2020 and post-mid-June 2020, marked by the onset of the second wave of the pandemic. By examining financial variables including stock and bond returns, exchange rates, and WTI crude oil prices, this research identifies significant differences in market dynamics across these periods. The results indicate that the statistical significance and behavior of the WTI index vary, which is particularly evident in China’s stock market. Impulse Response Functions (IRFs) reveal that Region 1 (pre-mid-June 2020) experienced more pronounced market fluctuations in response to shocks, while Region 2 (post-mid-June 2020) demonstrated increased resilience and adaptability. These findings show heightened stock market vulnerability to oil price shocks during periods of economic policy uncertainty. Consequently, policymakers are advised to put forward adaptive approaches to financial regulation and economic policy, emphasizing market flexibility in response to exogenous shocks and tailoring responses to the specific dynamics of each market.

Marginal propensity to import and terms of trade: Panel granger causality evidence from the East African Community (EAC)

Abstract Subject and purpose of work The nexus between the terms of trade and marginal propensity to import and the consequent policy options arising from it among economic blocs is an area that has not been given due attention in the literature. The focus of the current paper is to examine the link between the marginal propensity to import and the terms of trade in the East African Community (EAC). Material and methods The authors discuss and test a panel Granger causality model which is complemented with the test of impulse response function and variance decomposition using data from five EAC countries (Uganda, Tanzania, Rwanda, Kenya and Burundi). Results The long-run result of the study indicated that causality runs from all the variables to the terms of trade. In the short-run, results reveal that both the marginal propensity to import and the export of manufactures Grangercaused terms of trade without a feedback. The results of the impulse response function revealed that the terms of trade responded positively to shocks in the marginal propensity to import only in the first period, but afterwards the response turned negative in all the other periods. The terms of trade were equally found to respond positively to shocks in inflation rate in all the periods. The variance decomposition results indicated that apart from shocks to itself which was 100% in the first period, marginal propensity to import contributed about 0.0458% of shocks to the terms of trade, and this rose continuously in all the periods. Conclusions The analysis shows that both in the long-run and the short-run, marginal propensity to import determines the terms of trade among the EAC countries.

Unveiling interest rates and Islamic banking activity: empirical evidence from Saudi banks

Purpose The purpose of this paper was to explore the impact of interest rate shocks on the deposits and financing of Islamic and conventional banks in Saudi Arabia. Design/methodology/approach The authors use impulse response functions (IRFs) and variance decomposition (VDC) analyses over the period 2008Q1–2020Q2. Findings The IRFs showed that increasing interest rates reduce loans and conventional deposits. For Islamic banks, the deposits are more affected by interest rate changes than the financing. The VDC analysis found that deposits contribute up to 61% of Islamic financing variations, compared to only 25% in conventional lending ones. Originality/value This research contributes to the field of Islamic economics and finance by providing empirical evidence on how interest rates likely impact Islamic and conventional deposits and financing in Saudi banking system.

Navigating Economic Ripples: How Real Exchange Rate Volatility Shapes Real Gross Domestic Product with Evidence from Tanzania

This article aimed at examining the effects of the real exchange rate on real gross domestic product (GDP) in Tanzania using a data set spanning from 1964 to 2019. The Gregory–Hansen test was employed to check the long-run relationship between the real exchange rate and real economic growth. Structural vector autoregressive and vector error correction models were employed to establish the effects of the real exchange rate on real economic growth, while fully modified least-squares and Granger causality tests were used for robustness check and determination of the direction of causality between variables, respectively. Findings show a long-run relationship between the exchange rate and economic growth. In addition, when the Tanzanian shilling appreciates, it significantly and negatively affects real GDP. A 1% appreciation leads to a 0.13% decrease in GDP in the long run and 0.01% in the short run. Merchandise exports had a positive effect, while inflation had a negative effect both in the long and short run. The impulse response function shows that the real exchange rate affects the real GDP through the merchandise export channel and inflation. This implies that the appreciation of the Tanzanian shilling makes merchandise exports more expensive, reduces foreign exchange inflows and thus reduces actual output. Stabilising the exchange rate, targeting inflation, improving productive capacity and promoting export-led growth are important.

Unveiling the mystery of the responsiveness of inbound tourism to economic policy uncertainty: New evidence from Australia

Using a time-varying parameter vector autoregressive (TVP-VAR) model, this study analyzes how inbound tourist arrivals (TOUR) respond to EPU in Australia. Empirical results show that EPU can Granger cause TOUR in most cases before COVID-19, whereas little evidence supports this finding after the pandemic. At the national level, it is found that EPU was the net risk transmitter before COVID-19 but became the net risk receiver after COVID-19, while TOUR was the net risk receiver over March 2007-March 2020 but became the net risk transmitter in the remaining months. The impulse response functions reflect that a 2.81% decline in the total TOUR was observed due to a 1% increase in EPU, which gradually decayed within 9 months for the sub-sample before COVID-19. Similar findings hold at the state/territory level. These findings provide profound evidence for the national and state/territory governments to allocate tourism resources and formulate supportive tourism policies.

Impact of Remittance on Educational Outcomes: Empirical Evidence from Nepal

The remittances are the treasure for irrigating Nepal's economy. Because emigration is increasing, per capita remittance is also increasing in Nepal. However, the question is signaling in its utilization for educational attainment. In this context, the study examines the impact of remittance on educational outcomes in Nepal. The study applied autoregressive distributed lag (ARDL) estimations, Granger causality, forecast error variance decomposition (FEVD) technique, and impulse response functions (IRFs), with time-series data spanning from 1981 to 2021. The overall findings revealed that remittance had a positive impact on educational outcomes in Nepal. In the short run, remittance was found to be crucial for secondary schooling; in the long run, remittance had a significant effect on tertiary schooling in Nepal. The FEVD confirmed that remittance might be the inevitable predictor of educational outcomes in Nepal. The Granger causality also found a unidirectional causality from remittance to educational outcomes. The policymakers and stakeholders, therefore, should focus on funneling remittance toward financing education as well as a productive sector to accelerate per capita GDP and on cropping the demographic dividend in the Nepali economy.

Capital Control Taxes in an Emerging Market Economy

Historically, Emerging Markets (EMs) that own foreign debt and exhibit a high degree of dollarization have demonstrated vulnerability to a range of both real and financial shocks. Governments often use a range of capital control measures, particularly in nations burdened with external debt, with the aim of mitigating sudden swings in both inflows and outflows of capital. These policies are implemented to lessen exchange rate volatility and prevent dollarization. This study employs second moments analysis, impulse response functions and the welfare analysis to investigate the impact of a tax policy that restricts international capital flows on several macroeconomic variables in an emerging economy. A dynamic stochastic general equilibrium (DSGE) model is employed to examine the impact of the tax imposed on foreign borrowing on the economy, including both real shocks such as technology and growth, as well as financial shocks such as country risk premium. The findings of the study indicate that capital control taxes have a diminishing effect on the variability of significant macroeconomic variables, such as investment and consumption, when imposed at lower levels. Conversely, these taxes exhibit a stabilizing impact on the volatility of the trade balance-to-output ratio when implemented at higher levels. Moreover, quantitative evidence reveals that country risk premium shocks exert a substantial influence on variations in both the trade balance-to-output ratio and the level of investment, accounting for around 25% and 50% of the fluctuations, respectively. Finally, the existence of such a taxation enhances the intertemporal utility function at the steady state and reduces its volatility in the case of technology and growth shocks.

IMPACT OF COVID-19 ON THE FINANCIAL STABILITY OF COMMERCIAL BANKS IN KENYA

<p>Countries worldwide were gripped by the COVID-19 pandemic for the greater part of 2020 and 2021. COVID-19 spread to virtually all nations around the globe, causing a contraction of the global economy, and Kenya was no exception. Governments worldwide deployed social distancing, lockdowns, and curfews, which resulted in employee lay-off, business closure, and suppressed demand for commodities and services, eventually trickling down to commercial banks. The Kenyan banking sector experienced deterioration in asset quality which has been worsening since 2014 when it stood at 5.6 percent, reaching an all-time high of 14.5 percent in 2020 whereas Return on Assets which has also been declining since 2014, stood at 4.46 percent dropped to a record low of 2.07 percent in 2020 during the pandemic. This study, therefore, sought to determine how the financial stability of Kenyan commercial banks has been impacted by the COVID-19 shock. The study sought to specifically establish how both Z-score and capital adequacy of Kenyan commercial banks were impacted by the COVID-19 pandemic. Financial intermediation theory, Capital buffer theory, and Financial Instability Hypothesis anchored the study. The research design embraced was non-experimental, while the financial stability proxy was Z-score. The study’s target population was 19 commercial banks in Kenya between the years 2015 and 2022, which had complete data on all the study variables. Annual bank-level data was obtained from Kenya`s Central Bank`s annual supervision reports from 2015-2022. Event study methodology was used while collecting data whereby, the event window was 2020-2021, the period before the event (COVID-19) was 2015-2019, and the period after the event was 2022. The study espoused a panel vector autoregression model in data analysis where the impulse response functions were generated. The researcher discovered that the COVID-19 pandemic adversely impacted Z-score and capital adequacy. Based on the research findings, the Government of Kenya ought to institute non-disruptive pandemic control measures such as proper hygiene and wearing of masks as opposed to quarantines and lockdowns, which are detrimental to commercial banks' operations and other businesses, ultimately leading to a decline in income for commercial banks. Moreover, since capital acts as a shock absorber for banks, Kenyan commercial banks should strive to achieve and maintain the minimum capital adequacy ratios set by the Central Bank of Kenya. This will ensure that commercial banks in Kenya cushion themselves against economic shocks generated by pandemics such as COVID-19.</p><p> </p><p><strong>JEL:</strong> E44, E58, G01, G21, G28, G32</p><p> </p><p><strong> Article visualizations:</strong></p><p><img src="/-counters-/edu/0227/a.php" alt="Hit counter" /></p>

VSG Sequence Impedance Modeling and Stability Analysis of Dead-Beat Control

Virtual Synchronous Generator uses dead-beat predictive control in the voltage and current loop to improve the dynamic response speed of the system, but the presence of zero-order hold and computation time can lead to system instability. To address this issue, this paper adopts an improved dead-beat predictive control strategy for VSG. This is achieved by linear interpolation to forward predict voltage-current reference values to reduce the impact of delay, while introducing error compensation coefficients to enhance the stability of the voltage-current inner loop of VSG. The selection of error compensation coefficients is based on closed-loop impulse response functions. A harmonic linearization method is used to construct a complete sequence impedance model of VSG, and it's stability is analyzed. The results indicate that VSG's negative sequence impedance exhibits instability in the low-frequency range. To address this, a method of introducing a virtual resistor into VSG is proposed to improve stability. By constructing a sequence impedance model of VSG that includes virtual resistance, the variations in system stability under different virtual resistances and grid impedances are analyzed. The effectiveness of the proposed method is verified by building a VSG model.

Analyzing the impact of remittance, FDI and inflation rate on GDP: A comparative study of Bangladesh, Pakistan and Sri-Lanka using VAR and BEKK-GARCH approach

This study examines the impact, conditional correlation and volatility spillover effect of remittances, foreign direct investment and inflation rate on GDP in Bangladesh, Pakistan, and Sri-Lanka, three Asian nations that are particularly vulnerable. While numerous studies have examined the relationship between remittances, FDI and IR on GDP but this paper approaches advanced econometric techniques to capture spillover effect and the dynamic interactions between the variables. For estimation purposes the study employs different econometric techniques such as Augmented Dickey-Fuller (ADF) test, VAR model, Granger causality tests, Impulse Response function, Variance Decomposition and BEKK-GARCH model. Bangladesh and Sri Lanka's REM, FDI and IR have no significant effects on GDP according to the VAR model. BEKK-GARCH demonstrates that three countries have both unidirectional and bidirectional transmissions of volatility, with the exception of Pakistan's REM and Bangladesh's FDI. We find that VAR model may not be adequate in capturing the complex dynamics between variables, which can be better captured by BEKK-GARCH model. Our comparison research shows how these variables affect GDP differently and similarly in each of the three nations, giving policymakers information they can use to create customized policies that encourage economic growth.

The Implementation of Central Bank Policy during the Economic Crisis in Lebanon

During the last four years Lebanon has been facing a severe crisis that have no way out. It has challenged all the potential of the authorities dealing with financial, social and economic sector circumstances. Recently this economic crisis is still going up in higher frequency and more effectively on the Lebanese people. During this crisis central bank of Lebanon implemented its own monetary policy that is represented by expansionary monetary policy. The aim of this paper is to detect the impact of central bank implemented monetary policy during the economic crisis in Lebanon using money supply and open market operations tools in both short and long run on coincident index and consumer price index. In this consideration we perform monthly data covering the period January 2017 to June 2022 by applying VAR model. The empirical results shows that money supply and open market operation have no impact on coincident index and consumer price index in the long run, in addition they do not cause them in the short run. However the impulse response function show some reactions of coincident index and consumer price index to shocks in money supply and open market operations.

Effect of Corporate Environmental Performance on Banks’ Loan Pricing

Effect of Corporate Environmental Performance on Banks’ Loan Pricing