Johansen-Juselius Cointegration Test Research Articles

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

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

Foreign Direct Investment and Economic Growth in Malaysia -- Re-examining Key Economic Fundamental

The sustainable growth of Malaysia’s economy is important to ensure full employment and efficient allocation of national resources. This empirical study is motivation driven to ascertain the relevant economic dynamics that can significantly affect national gross domestic product (GDP). Using quarterly secondary data from 2015 to 2022, we employed the Johansen-Juselius cointegration test as an estimation tool. The results revealed that net foreign direct investment (NFDI) is a significant economic factor that influences national income over, both, short- and long-run. As such, this external economic factor is one of the key determinants in underpinning the effectiveness of Malaysian government’s fiscal policy. This paper analyzes Malaysian economic activities from the fiscal perspective over the past eight years. Keywords: gross domestic products, total government revenue, net export, net FDI

Does capital efficiency influence economic growth in Bangladesh? Application of the Harrod-Domar model

PurposeThe main purpose of this paper is to analyse the influence of capital efficiency on the economic growth of Bangladesh using the Harrod-Domar (H-D) model.Design/methodology/approachWe use annual data from 1980 to 2019 for this paper. Three steps are taken in the data analysis. First, to check the existence of a unit root, we use the augmented Dickey-Fuller (ADF) test and to determine co-integration among the variables, we use the Johansen-Juselius co-integration test. Next, for long-run estimation, we use the dynamic ordinary least square (DOLS) estimator. The sensitivity of the long-run estimations is further checked by the fully modified OLS (FMOLS) and autoregressive distributed lag (ARDL) estimators. Lastly, we use the Granger causality test to determine the long-run causality among the variables.FindingsThe long-run co-integration test validates the co-integrating relationship among the variables. DOLS estimations reveal that the economic growth of Bangladesh is negatively associated with the incremental capital output ratio (ICOR), validating the notion that capital efficiency matters for achieving higher economic growth. On average, an increase in ICOR by a unit tends to reduce economic growth in the long term by 0.75 percent. Our results also reveal no significant relationship between savings and economic growth when the model is extended. Finally, causality results indicate unidirectional causality between ICOR and economic growth.Practical implicationsBased on the results obtained, we argue that the enhancement of capital productivity could bring efficiency because ICOR is an inverse of capital productivity. Since Bangladesh’s capital productivity is considerably low compared with other neighbouring countries, it is suggested that firms should gradually move towards technological advancement and enhance economies of scale, etc. in the long run. Moreover, policies in favour of continuous skill development programmes could be highly effective in increasing capital productivity given that capital follows a vintage structure.Originality/valueThis is the first paper to analyse the economic growth pattern of Bangladesh using the traditional H-D model by incorporating variables such as savings and ICOR and also by relaxing the assumption of time-invariant (i.e. fixed) data of the variables. Moreover, this paper extends the traditional H-D empirical model by introducing key indicators and time breaks for Bangladesh’s economy through a stepwise regression process.

Examining the Associations Between Employment, Unemployment, Government Expenditure on Education, Human Capital Index, Foreign Direct Investment and Economic Growth: Experience of Malaysia and Singapore

Reducing unemployment and achieving rapid economic growth are two major economic goals for every nation. Using annual time series data from January 1980 to December 2022, this study examines related human resource and other macroeconomic issues like employment, unemployment, human capital index, government education spending, and foreign direct investment, which are important for economic growth for both countries. The vector autoregressive (VAR) model can be successfully identified using the Akaike information criterion (AIC), and Vector Error Correction Model (VECM) has at least one cointegration link. All variables are integrated at the first difference I(1), according to the test results. Additionally, according to the Johansen Juselius co-integration test, a long-term association is found in Malaysia and Singapore. In conclusion, economic growth is significantly impacted by employment, unemployment, the human capital index, government spending on education, and foreign direct investment.

Investigating Asymmetric Effects of Electronic Payment on Money Supply for India using Non-linear ARDL Model

Money supply in India is analysed using a non-linear autoregressive distributed lag (NARDL) model to see how several factors, such as electronic payments, exchange rate, interest rates and inflation, affect the money supply. The Augmented Dickey–Fuller unit root test and the Phillips–Perron unit root test are utilized to confirm that the variables are stationary. In the bounds test of the NARDL as well as Johansen–Juselius cointegration test, this study finds evidence of cointegration amongst variable used in the study. NARDL testing model is employed to investigate the dissimilar influences on variables with short- and long-run dynamics. Short-term estimates suggest that the money supply ( M1) is most responsive to positive shocks involving retail payments, the exchange rate and interest rates, but negative shocks involving card payment and prepaid payment instruments. A reduction in card payment, as well as a positive increase in retail payment, the prepaid payment instrument, the exchange rate and the interest rate, would all have major effects on M3 in short run. In addition, a long-term finding demonstrates that all of the variables have a significant influence on the money supply ( M1) in its mixed form while all of the factors, with the exception of the one involving card payments, have a considerable impact on the money supply ( M3). Wald test results confirm the existence of asymmetric influences which can have significant lessons for policymakers.

"The Study on the Impact of Capital Market on Economic Growth in Sri Lanka "

Stock market is an indicator of an economy financial health. It indicates the mood of investors in a country. As such, stock market development is an important ingredient for economic growth. The stock market is a common feature of a modern economy and is expected to promote economic growth and development of an economy. This paper examines the impact of stock market development on Economic growth in Sri Lanka using data over the period 2009 – 2013 monthly data (60 months data). The main objective of this study is to examine the impact of stock market development on Economic growth in Sri Lanka. Towards achieving the objective of this paper, the data on market capitalization, All Share Price Index and Turnover ratio are collected from the CSE Data Library; while that of GDP information has been compiled from the CBSL annual reports and publications. Where Capital Market is the independent variable and Economic growth is the dependent variable. The studies on the relationship between stock market development and economic growth have generally taken the market capitalization (MKT), All Share Price Index (ASPI), turnover ratio (TRN) representing the stock market development and gross domestic product (GDP) as an proxy for economic growth and it has generally examined the relationship between stock market development and economic growth by using Johansen-Juselius cointegration test, maximum eigen test and multiple regression. As the data was gathered, it was entered and used to EViews statistical package to analyses the data. This study found that stock market development has a positive effect on economic growth.

Does Indian Commodity Futures Markets Exhibit Price Discovery? An Empirical Analysis

Price discovery function analyses the dynamics of futures and spot price behavior in an asset’s intertemporal dimensions. The present study examines the price discovery function of the bullion, metal, and energy commodity futures and spot prices through the Granger causality and Johansen–Juselius cointegration tests. The Granger causality test results show bidirectional causality between the spot and futures returns for gold, silver, aluminum, lead, nickel, and zinc. The Johansen cointegration test shows that spot and futures prices are in the long‐run equilibrium path for silver, aluminum, lead, nickel, zinc, crude oil, and natural gas. The vector error correction model results suggest that both the spot and futures markets are equally efficient in price discovery for the nickel. The spot market leads the futures market in price discovery for copper and zinc. However, the futures market leads the spot market in price discovery for silver, aluminum, and lead. The findings of the study suggest the market participants for implementing hedging and arbitrage strategies. It also helps the market regulators to examine the stability of these rapidly growing commodity futures markets in India.

Impact of Money Supply on Inflation Rate in Egypt: A VECM Approach

Abstract In this work, the research team employed a VECM regression model to evaluate the relationship between money supply and inflation rate (INF) in Egypt from 1990 to 2019. The model includes four independent variables: money supply (MS), imports (IMP), Gross Domestic Product (GDP), and exchange rate (EXCH). A Johansen-Juselius co-integration test and a Vector Error Correction Model were used to determine the existence of long-term and short-term links between the variables. The results demonstrated the existence of co-integrating links between the variables. Aside from the effects of GDP, all independent factors had a positive effect on the inflation rate. Depending on the results, the money supply is the primary long-term predictor of the inflation rate in Egypt.

The relationship between petroleum price and real exchange rate: an example of Iraq

Petroleum is one of the world's most important economic products. It is widely accepted that petroleum is not only an energy product, but also a financial asset. Therefore, it is important to understand the dependence of petroleum prices on economic conditions and financial markets and how they can affect the world economy. The fluctuations in world petroleum prices affect the economies of petroleum importing countries through different channels. One of the most important of these influence channels is the exchange rate. Because changes in exchange rates cause different economic problems in fragile economies. Changes in petroleum prices affect the economic performance of any country through various channels. One of the channels of influence is exchange rates. Petroleum prices affect the transfer of income from petroleum exporting countries to petroleum importing countries through trade and thus determine the exchange rate. In this study, the Relationship between Petroleum Price and Real Exchange Rate in Iraq was examined by ADF unit root test, Johansen-Juselius cointegration test and Granger causality analysis. For the analysis, the Petroleum Price and Real Exchange Rate data of Iraq were taken from the official website of the World Bank and transferred to the Eviews 10 program and necessary analyzes were made. The results of the analysis were analyzed and interpreted in tables.

DYNAMICS AND CAUSALITY AMONG ECONOMIC GROWTH, FINANCIAL DEVELOPMENT AND BUDGETARY ALLOCATION TO THE TOURISM SECTOR OF BANGLADESH

Tourism contributes to economic growth and financial development in many countries around the world. The aim of the study is to examine the cause and effect relationship between economic growth, financial development and budgetary allocation to the Bangladesh tourism industry during 2000-2019. Several methods such as Augmented Dickey-Fuller (ADF), Phillips-Perron (PP), Johansen-Juselius Cointegration, and Granger Causality tests have been applied to measure the associations between the variables. The results show that there is a cause and effect relationship between the budgetary allocations and economic growth and budgetary allocation also causes of financial development.

Insurance and economic growth in Ghana

PurposeThe Ghanaian insurance industry has been transformed significantly from state-led to a market-driven one over the past decades. The empirical literature on the causal relationship between insurance and economic growth has been mixed, but little study on this has been done in Ghana. This study therefore empirically examines the effect of the growing insurance industry on the economic growth in Ghana.Design/methodology/approachQuantitative research design was deployed in the study. The study used Johansen–Juselius cointegration test and vector error correction model. The study deployed quarterly data from the first quarter of 2006 to the second quarter of 2018 sourced from the World Bank (World Development Indicators), National Insurance Commission, Ghana Statistical Service and Bank of Ghana.FindingsFindings revealed that there is a significant and positive short and long-run relationship between insurance and economic growth in Ghana, bidirectional causality between insurance and economic growth and also a long-run effect of innovations (shocks) in insurance on economic growth.Research limitations/implicationsOne of the limitations of the study is the unavailability of quarterly data of some of the variables.Practical implicationsThe study recommends the development and implementation of policies that promote an increase in coverage and access to insurance products to enhance economic growth.Originality/valueThe study finds a bidirectional causality running from insurance premium to economic growth and from economic growth to insurance which is consistent with the feedback hypothesis in the case of Ghana. Impulse response functions and the variance decompositions revealed that innovation (shock) in the insurance industry has a positive impact on economic growth.

Assessing the Dynamic Relationship Between Macroeconomic Factors and Stock Market Movement: Evidence from China

This paper examines short-run and long-run dynamic relationships between selected macroeconomic variables and stock prices in the China Stock Exchange proxy by Shanghai Composite Index. The data is restricted to the period for which quarterly data are available from 1992 Q1 to 2019 Q4 (112 observations) retrieved from the Federal Reserve Bank of Saint Louis, GTA-CSMAR database, and CEIC Database. The study employs unit root test, cointegration test, vector error correction estimates, and Innovation Accounting (impulse response test). A Johansen-Juselius cointegration test indicates a positive long run relationship between the Chinese stock price index and exchange rate, and a negative long run relationship with the gross domestic product, and M2 money supply. An estimated vector error correction model (VECM) suggests significant unidirectional short run causal relationships between Chinese stock market returns and money supply but not for inflation. The VECM also finds a significant long run causal relationship among the macroeconomic variables in the system. The estimated speed of adjustment indicates that the Chinese stock market converges to the equilibrium within half a year. Impulse response function analysis shows no significant relationship between China stock market returns and the macroeconomic variables. Forecast error variance decompositions suggest that 76% of the variation in Chinese stock market returns is attributable to its own shock, which implies that Chinese stock market returns are relatively independent of the macroeconomic variables in the system. Keywords: Stock Prices, Macroeconomic Variables, Cointegration, Innovation Accounting, China. JEL Classification : G15, E44, C58, O53 DOI: 10.7176/RJFA/12-6-02 Publication date: March 31 st 2021

An Empirical Analysis of the Environmental Kuznets Curve: the Case of Cameroon

This study investigates the association between financial development, trade openness, economic growth (GDP), and environmental quality (CO2) in Cameroon from 1980-2016. To examine the relevance of the Environmental Kuznets Curve (EKC), the squared of GDP is included in the model. The Johansen-Juselius co-integration tests demonstrate that a robust long-run relationship exists between the variables. Specifically, GDP influences carbon dioxide emissions negatively, while GDP squares positively. The Granger causality tests further indicate that the GDP and GDP squared caused CO2 emissions uni-directionally in the short-run with no feedback. The findings settled that the EKC, with a U-shape relationship, is relevant in Cameroon. Therefore, it is recommended that the government focus on implementing policies that raise growth with minimal emissions of pollution.

The Long-Term determinants of the Real Exchange Rate in Egypt over the period 2002-2019

Real exchange rate is determined by number of factors which are dynamic and country specific. In Egypt, shifts in the exchange rate systems have been taking place since the fifties of the last century as a result of altering economic transition times. The purpose of this paper is to describe and investigate the factors which determine the long-term determinants of the foreign exchange rate in the Egyptian economy over the period 2002-2019, using the Johansen-Juselius co-integration test. The study concludes that the real exchange rate of the Egyptian pound is appreciated by governmental consumption, international reserves and workers’ remittances, while GDP growth rates depreciate the real exchange rate of the Egyptian pound in the long run. Added to that, the study has found that the degree of openness and terms of trade do not have a significant effect on the real exchange rate of the Egyptian pound over the long run.

Dynamic Relationship Between Real Export, Real Import, Real Exchange Rate, Labor Force and Real Gross Domestic Product in Malaysia

This study examined short run and long run relationship between endogenous and exogenous variables. Specifically, it studied the relationship between real export, real import, labor force participation and real effective exchange rate (REER) and real GDP in Malaysia from 1988 to 2017. These variables were tested in various tests, namely, unit root test, granger causality test, vector autoregressive (VAR), Johansen Juselius test and Error Correction Term (ECT). The result revealed that all variables were non-stationary at the level form and stationary at first difference in ADF unit root test. The findings also exhibited the existence of bilateral relationships between real export and real GDP, real import and real GDP, as well as labor and real GDP. Nonetheless, there were no relationship found between REER and real GDP. On the other hand, in VAR, the lag optimum was lag 10 because it indicated the smallest value of AIC. Moreover, for Johansen Juselius cointegration test, it showed two cointegrated vector at both, 5% and 1%, level in trace test. In addition, Max-Eigen value test indicated two cointegrated vector at 0.05 and one cointegrated vector at 0.01. As for the Wald test, there were long run cointegration relationship between real GDP and its determinants, namely real export, real import, labor and REER. Apparently, Malaysia, as a small open economy, has relied heavily on foreign trade. Consequently, our domestic economic performance is susceptible to the changes in international markets and exchange rate. Therefore, suitable international policy implementation is vital to ensure Malaysian economy will be able to adjust to current global changes.

A Study on Causal Relationship Between Sugar Beet Supply and Sugar Price - Sustainability Issues and Opportunities

Sugar Beet is one of the essential sources of energy. However, most of the division in Iran supply sugar beet through domestic production. The present study is going to investigate the causal relationship between sugar beet supply and sugar price in Iran between the year 1995 to 2016. By Applying the Johansen-Juselius cointegration method along with Granger causality test. Besides, this research going to analyse the causal relationship between sugar beet supply and sugar price by considering the sustainability issues and opportunities. However, The result of the Johansen-Juselius cointegration test shows that there is a positive long-term co-integration relationship between variables. Although According to the GC test, there is a causal relationship between sugar beet supply and sugar price. Also result of the vector error correction model represents that sugar price has a significant impact on sugar beet supply which indicates that every increase and decrease in sugar price reflect on sugar beet production. Therefore, the necessity of an appropriate policy-making and proper planning for sugar beet production has been bolded.

The impact of cryptocurrencies market development on banks’ deposits variability in the GCC region

PurposeWith the continuing development of the financial technology revolution, a better understanding of bank deposits variability has become necessary for bank management and policymakers, especially central banks. This is because the novel innovations of cryptocurrencies operate beyond the realm of the banking system, which may impact the performance of banks and their deposits variability. This study aims to investigate the long- and short-run effects of cryptocurrencies’ market capitalization development on the banks’ deposit variability in the Gulf Cooperation Council (GCC) region.Design/methodology/approachIn this study, the Johansen–Juselius (1990) cointegration test with vector error correction model was applied to examine the long-run relationships, while the Engle and Granger (1987) and the Granger (1969) causality tests were used to detect causal relationships in the short term.FindingsThe findings of Johansen–Juselius cointegration test indicate that the banks’ deposits variability in all six states of the Gulf region share negative long-run equilibrium association with the development of global cryptocurrencies market capitalization, but with different statistically significant levels. For the short-run analysis, the study found that the development of cryptocurrencies market capitalization has significant unidirectional causal effects on bank deposits variabilities in only four states, namely, UAE, Qatar, Kuwait and Bahrain. The findings of the study therefore suggest that to eradicate the effects of cryptocurrencies industry and its threats to the banking industry, banks in GCC region are encouraged to either consider cryptocurrencies as an alternative investment asset for their portfolio investment diversification strategies or adopt the blockchain technology in their operation system to facilitate their customers with low transaction cost, high level of security and ease of use and real-time settlement.Research limitations/implicationsThe empirical findings of the study will provide valuable input for policymakers, especially central banks and bank managements, to evaluate the current situation and the threats of the cryptocurrencies market growth and its effect on the banking industry’s performance, future survival and their deposits variability for better regulation and policy planning and investment strategies.Originality/valueThis is a pioneering study that empirically explores the phenomenon of bank deposits variability as a consequence of expansion in cryptocurrencies market capitalization, where the findings proved evidence of a drastic decline in banks’ deposits size due to the substantial growth in cryptocurrencies market capitalization.

The Effects of Relative Strength of USD and Overnight Policy Rate on Performance of Malaysian Stock Market – Evidence from 1980 through 2015

The study is carried out with the objective of testing the efficient market hypothesis (EMH) at the semistrong form level. As such, the study employs two publicly available data variables – the exchange rate (RM/USD) and short-term interest rate as proxied by the overnight policy rate (OPR). The extent to which these variables influenced the performance of Bursa Malaysia (KLCI) over the past 35 years, from January 1980 to June 2015, is examined. Using monthly data, the entire study period is divided into three subperiods – the full sample period, the sample period that excludes the duration of capital control and the sample period of FBMKLCI (from July 2009 to June 2015). Deploying the Johansen-Juselius cointegration test, the study shows the presence of a long-run equilibrium relationship between KLCI and the two control variables over the full sample period and sample period, excluding the period of capital control. From the long-run regression, the effect of OPR on Bursa Malaysia is consistent over all three subperiods. This is a clear indication that the interest rate regime has a significant influence on Bursa Malaysia. Interestingly, there is no equilibrium relationship, and dynamic relationships exist between FBMKLCI and the two explanatory variables over the FBMKLCI sample period. These findings support our notion that Bursa Malaysia is unquestionably semistrong form efficient. It is now evident that FBMKLCI is the most exogenous variable of all.

Renewable Energy Production, Energy Consumption and Sustainable Economic Growth in Turkey: A VECM Approach

There exists a highly interrelated relationship between energy, the environment and growth where the efficient management of this nexus is not only a must for sustainable development and human wellbeing but is also a basis for formulating sound economic policies harnessed with energy and environmental policies. Thus, this paper aims at investigating the causal relationships among renewable energy production, total energy consumption and economic growth for Turkey both in the long and short runs. The analyses are conducted by using the Johansen–Juselius co-integration test, the vector error correction model, Granger causality, impulse-response functions and variance decomposition for the period 1980–2016. Our findings obtained for the causal relationship between renewable energy and economic growth points to a bidirectional relationship both in the short and in long runs that promote feedback hypothesis, and it also reports a causal relationship running from energy consumption to economic growth both in the short and long runs, supporting the growth hypothesis. However, no consistent result could be obtained for the short run relationship from economic growth to energy consumption. These results indicate that increased renewable energy production and decreased energy consumption are vital for Turkey’s sustainable development.

Macroeconomic Impact on Stock Market Returns and Volatility: Evidence from Sri Lanka

This paper examines the relationship between stock market returns and selected macroeconomic variables and examine the impact of macroeconomic uncertainty on stock market volatility in Sri Lankan stock market. Interest rate, inflation, money supply and exchange rate are selected as a set of exogenous variables to represent the macroeconomic factors that influence the stock market, returns and volatility. The sample includes monthly stock market index and macroeconomics data from 1998 to 2016 covering 228 data points. In achieving research objectives, Vector Error Correction Model (VECM) and Exponential Generalized Autoregressive Conditional Heteroskedasticity (EGARCH) models are specified and estimated. The results of Johansen Juselius cointegration test indicate a long run relationship between macroeconomic variables and stock returns. Particularly, the results of cointegration test suggest that there is a significant negative effect of Treasury bill Rate (TBR) and Exchange Rate (EXR) on stock returns while significant positive long run effect of Money Supply (MSI) / Inflation (INF) on stock returns. The Error Correction Term (ECM) in the VECM model indicates only 4.1 percent of the long run shock adjusted in the short run period and supports the argument of weak form of market efficiency in the Colombo Stock Exchange (CSE), Sri Lanka. Further, the results of the EGARCH model evidence the presence of asymmetric volatility in the monthly stock returns which suggest that the bad news in the CSE has larger effect on the volatility of the stock market than the good news. Similarly, the model establishes that interest rate and money supply create macroeconomic risk to the volatility of the stock market returns in Sri Lankan context. Accordingly, this paper, as a whole, conclusively establishes that the stock returns and market volatility are dependent on macroeconomic variables. These findings hold managerial and policy implication at least to the Sri Lankan policy makers, market regulators, investors and market analysts. The test results suggest the information inefficiency in the Colombo stock market. Further, Investors in the market should look at the systematic risks revealed by the money supply and short term interest rates when structuring portfolios and diversification strategies. Policymakers may need to take these macroeconomic variables into account when formulating economic and financial policies.