Long-run Asymmetric Relationship Research Articles

Economic Fundamentals and Real Exchange Rate in African Oil Producing Countries: Evidence from Asymmetric Cointegration

The role of exchange rates is very important in the international market and the variability of exchange rates both in the case of appreciation or depreciation is directly connected with the economic performance of a country. Exchange rate variations in oil-producing countries in Africa have been too high resulting in volatilities due to domestic and foreign shocks. High volatility of exchange rate may translate into reduction of trade flows, foreign direct investment, and instability in both interest rates and inflation rates. Several studies on the relationship between economic fundamentals and exchange rates focused more on Africa or country-specific with limited focus on African oil-producing countries using asymmetric cointegration. Therefore, this study examines the relationship between some economic fundamentals and real exchange rates in oil-producing countries in Africa. The dynamics panel non-linear autoregressive distributed lag and linear autoregressive distributed lag were used to investigate the relationship between economic fundamentals and real exchange rate (RER). The NARDL result shows evidence that there exists both short and long-run asymmetric relationship between economic fundamentals and RER. The study recommended that policymakers in these countries pay more attention to their macroeconomic policies to reduce the production and transaction costs of foreign direct investment (FDI).

An Empirical Analysis of Supply Response of Food Grains to Changes in Price: Evidence from India

The issue of food production is very important as it affects growth, food security and poverty. Stable food grain price is also important to have a stable food grain market. This article attempts to study the impact of food price fluctuations on food production based on the annual data from 1962 to 2019 by using Non-linear Auto Regressive Distributed Lag model. The results show that changes in food grain price affects grain production and it is statistically significant. Furthermore, the result of asymmetric cointegration test shows that there is a long-run asymmetric relationship that exists between food production and food grain price. JEL Codes: Q11, C01, C32

Investigating factors affecting global environmental sustainability: evidence from nonlinear ARDL bounds test.

The concept of environmental sustainability formed the basis of the Paris Agreement and the United Nations conference in Rio de Janeiro. Empirically, without environmental sustainability, everything else could fall apart or be aimless. This study investigates factors affecting global environmental sustainability spanning 1966Q1 to 2019Q4. However, there are many micro-/macroeconomic factors engendering the environment, and the absence of robust clarity on whether factors such as economic growth, urbanization, trade openness, and energy consumption matter for global environmental sustainability remains a global academic dilemma in the economics literature. This paper utilized the unrestricted nonlinear autoregressive distributed lag (NARDL) bounds test techniques to model their relationship. Furthermore, the study adopted fully modified ordinary least squares (FMOLS), dynamic ordinary least squares (DOLS), and canonical cointegrating regression (CCR) methods to test the research hypothesis, catering to the problem of endogeneity and serial correlation. Up-to-date of this study, no empirical study has examined the nexus of these variables within the global framework. The outcomes suggested that (i) NARDL bounds test of cointegration confirmed evidence of long-run and short-run relationships among the variables; (ii) long-run asymmetric relationship was affirmed among the variables; and (iii) DOLS, FMOLS, and CCR models demonstrate that economic growth, energy consumption, and trade openness are positively significantly correlated with environmental sustainability except for economic growth which shows negative and insignificant correlation. These findings validate the protracted argument in literature that these estimated variables are significant for global environmental sustainability. This study recommends that environmental policymakers integrate global economic incentives with favorable regulatory changes for achieving the goals of a global sustainable environment in the long-run equilibrium.

An Asymmetric Analysis of the Influence That Economic Policy Uncertainty, Institutional Quality, and Corruption Level Have on India’s Digital Banking Services and Banking Stability

Motivated by the unprecedented high levels of recent economic policy uncertainty, the current study examines the influence of economic policy uncertainty, institutional quality, and corruption level on the Indian banking stability and the growth of digital financial services. Using the Baker et al.’s economic policy uncertainty index and nonlinear autoregressive distribution lag model on the data set of banking variables from 2004 to 2019, we infer the following findings. The unit root and the structural break tests confirm the presence of structural breaks and mixed order of integrations. Besides, the long-run nonlinear autoregressive distribution lag results substantiate a long-run asymmetric relationship between the explanatory variables (economic policy uncertainty, institutional quality, corruption level) and the outcome variables (digital banking services and banking stability). The study reveals that a 1 percent increase in the economic policy uncertainty increases nonperforming loans (proxy to measure banking stability) by 1.48 percent and decreases Z-score (proxy to measure banking stability) by −1.12 percent. Likewise, a 1 percent increase in policy uncertainty reduces the progress of digital financial services by −1.23 percent in India. In addition, the study also depicts a long-run cointegration between the explanatory and the outcome variables. Overall, the study shows significant evidence that policy uncertainty, corruption, and institutional regulation hampers Indian banking stability and digital growth. The study offers several policy implications to understand the adverse effects of economic policy uncertainty on the Indian banking sector.

Does implied volatility (or fear index) affect Islamic stock returns and conventional stock returns differently? Wavelet-based granger-causality, asymmetric quantile regression and NARDL approaches

In this paper, we make an initial attempt to compare the asymmetric reaction of Islamic and conventional stock returns to implied volatility -market fear- using Wavelet-based Granger causality, asymmetric quantile regression model (QRM), and NARDL for the sample period from 2008 to 2019. Our findings are three-fold. First, the causal relationship between implied volatility and stock returns is scale-dependent. To make the analysis more robust, we decomposed the daily data using the wavelet filter to consider the potential of different investment horizons. Second, we observe, using QRM, regardless of Islamic or conventional, stock return increases (decreases) following the negative (positive) innovation in the market fear, and the asymmetry is more pronounced at the lowest and highest return regimes. Using NARDL, we find, there is an evidence of asymmetric cointegration and long-run asymmetric relationship. Third, Islamic stock returns tend to be less exposed to the market fear than conventional stock returns across the return regimes at different investment horizons. This relatively lesser sensitivity level of Islamic stock returns can be attributed to their distinct screening features and Islamic markets being more 'decoupled' from the risks facing conventional markets. The results tend to have substantial policy implications for all the stakeholders.

Asymmetric Linkages of Oil Prices, Money Supply, and TASI on Sectoral Stock Prices in Saudi Arabia: A Non-Linear ARDL Approach

This study examines the asymmetric effects of oil prices, money supply, and the Tadawul All Share Index (TASI) on sectoral stock prices in Saudi Arabia. By applying a nonlinear auto-regressive distributive lag (NARDL) approach to monthly data spanning from January 2007 to December 2016, we found that the positive shocks of oil prices were more than the negative ones in the building and construction, energy and utilities, and petrochemical sectors, while higher oil prices adversely influenced the stock price of the bank and financial service sector. We identified the long-run and short-run asymmetric relationships of the Saudi stock market development on the stock prices of bank and financial services, energy and utilities, and the petrochemical sector and only a long-running asymmetric relationship with the building and construction sector. We also found the absence of long-run and short-run asymmetric impact of money supply on three sectors, namely, building and construction, energy and utilities, and the petrochemical sector except for the bank and financial service sector where only a long-running asymmetric relation was observed. These findings are appropriate for investors and portfolio managers to make judicious investment decisions. Policymakers should diversify their economic sectors apart from the oil dependencies to achieve the Vision 2030.

An Asymmetric Investigation of Remittance and Trade Openness Impact on Inequality: Evidence From Selected South Asian Countries.

This study’s motivation is to explore the relationship pattern between remittance, trade openness, and inequality of selected south Asian countries for the 1976–2018 period. The study performed non-linear tests, including unit root tests, non-linearity applying ordinary least squares (OLS) and BDS tests, non-linear autoregressive distributed lagged (NARDL) tests, and asymmetry causality tests to assess their association. Study findings with non-linear unit root tests suggest that the research variables follow the non-linear process of becoming stationary from non-stationary. The non-linear OLS and BDS test results confirm the existence of non-linearity among research variables, implying rejection of the null hypothesis of “no non-linearity.” Furthermore, the results of the Wald test in NARDL confirm the availability of asymmetric links among variables. Besides this, the results of NARDL confirm the long-run asymmetric relationship between remittances, trade openness, and inequality in all sample nations. Findings suggest that both positive and negative shocks in remittances and trade openness is critical to either instituting or vexing the present state of inequality in the economy in the long term. In the directional relationship with asymmetry causality, the study shows that the feedback hypothesis holds to explain the asymmetric causal effects that are positive shocks in remittances and trade openness toward inequality.

The safe-haven property of precious metal commodities in the COVID-19 era

This paper examines the presence of short- and long-run asymmetric relationships between precious metal commodities and S&P 500 stock market index and explores the safe-haven role of five precious metals (Aluminum, Platinum, Palladium, Copper, Gold) against the S&P 500 market index. We apply the nonlinear ARDL framework on daily data covering the COVID-19 pandemic period from 12/31/2019 to 06/25/2021. The main results highlight that precious metal commodities still impact the S&P 500 stock market index in an asymmetric manner but have lost their safe-haven role against the S&P 500 index. In the short-run, only aluminum has an asymmetric effect on S&P 500. However, Platinum, palladium, copper and gold have a symmetric effect on S&P 500. In the short-term, palladium, copper and gold are safe-haven assets against the S&P 500 stock market index. Furthermore, none of the considered precious metals acts as a safe-haven asset in the long-run. Our results have significant implications for portfolio investment strategies.

Do Tourism and Institutional Quality Asymmetrically Effects on FDI Sustainability in BIMSTEC Countries: An Application of ARDL, CS-ARDL, NARDL, and Asymmetric Causality Test

The motivation of the study is to investigate the nature of the relationship between institutional quality, tourism, and FDI in BIMSTEC nations for the period 1996Q1–2018Q4. Exploring their nature of association, the study performed several panel econometric models, namely Panel ARDL, Nonlinear ARDL, and Toda-Yamamoto causality test, with symmetric and asymmetric effects of institutional quality and tourism. The results of the Wald test confirmed the long-run asymmetric relationship between institutional quality, tourism, and FDI, both in the long-run and short-run. Furthermore, directional casualty established a feedback hypothesis explaining the relationship between institutional quality, tourism, and FDI.

Nexus between remittance, trade openness and inequality in South Asian countries: New evidence from the nonlinear unit root, nonlinear OLS, and NARDL, and asymmetry causality test

This study’s motivation is to explore the pattern of the relationship between Remittance, Trade openness, and Inequality of selected south Asian countries for the 1976-2018 periods. Postulating their relationship, the study performed several nonlinear tests, including unit root tests, nonlinearity applying OLS and test of BDS, nonlinear autoregressive distributed lagged (NARDL), and asymmetry causality test. Study findings with nonlinear unit root tests suggested that the research variables follow the nonlinear process of becoming stationary from nonstationary. The results of Nonlinear OLS and test of BDS confirm the existence of nonlinearity among research variables. The result of the Wald test in NARLD confirms the availability of asymmetric links among variables. Likewise, considering the results of NARDL, it is apparent that there a long-run asymmetric relationship between remittance, trade openness, and inequality. Findings suggest that both positive and negative shocks in remittance and tread openness are critical to either instituting or vexing the present state of the economy in the long term. The results of the directional relationship with asymmetry causality test, we observed that the feedback hypothesis hold in case of positive shocks in remittance and trade openness towards inequality.

Housing price volatility: uncertainty, an asymmetric econometric analysis – some European country experiences

Purpose The purpose of this paper is to examine the asymmetric impact of economic policy uncertainty (EPU) on the volatility of the housing price index (RP) based on quarterly observations from major European countries, namely, France, Germany, Sweden, Greece Italy and the UK. Design/methodology/approach The nonlinear autoregressive distributed lag model method is used to investigate the asymmetric impact of EPU on RP. In addition to considering EPU as the explanatory variable, industrial production (IP) (as a proxy for economic growth), interest rate (I), inflationary tendency (Consumer Price Index) and share prices (S) are included as major control variables. The period of the observations runs from 1996Q1 to 2019Q1. Findings The Wald test confirms the long-run asymmetric relationship for all countries. The alternative specification of the data sets reconfirms the asymmetric impact on RP in the long run, thereby verifying the robustness of the study. Research limitations/implications The study has implications for investors seeking to incorporate housing price behaviour within their portfolio structure. The analysis and findings are constrained by the availability of data. Originality/value This is one of the few studies on housing price dynamics related to the major economies of the European region that explore asymmetries. Additionally, it is the first to explore the asymmetry dynamics using the EPU variable.

Critical assessment of Islamic financial assets pricing in South-East Asia: evidence from NARDL modelling

PurposeThis study aims to critically examine the pricing of Islamic financial assets (Sharīʿah-compliant assets, Sharīʿah-compliant securities, Sharīʿah-compliant financing and Sukuk) in the three South-East Asia countries such as Malaysia, Indonesia and Brunei to provide necessary information to the policymakers and Islamic finance investors for making a sound decision.Design/methodology/approachThis study used secondary data and used the nonlinear autoregressive distributed lags (NARDL) model to estimate the reaction of Islamic financial assets in South-East Asia towards price changes. Wald-test was used to diagnose the final model.FindingsThe result of this study shows that the majority of Islamic financial assets in the three South-East Asia countries exhibit positive and negative long-run effects. The findings reveal a long-run asymmetric relationship that supports rockets and feathers effects. The indication is that Islamic financial assets pricing deviates from weak form EMH. Pricing of Islamic financial assets reveals unfair pricing.Practical implicationsPrice adjustment of Islamic financial assets requires urgent attention of policymakers to prevent Sharīʿah non-compliant risk. Therefore, the Shariah advisory board in those countries, Accounting and Auditing Organization for Islamic Financial Institutions and Islamic Financial Services Board are hereby advised to act on the factors that might enable rockets and feathers effects on the pricing of Islamic financial assets, as the long-run asymmetric relationship is established.Originality/valueThis study is novel as it critically and simultaneously examines the pricing behaviour of Islamic financial assets in the three South-East Asian countries. The findings from the study provide vital information on the pricing behaviour of Islamic financial assets to the policymakers and investors.

Investigating the relationship between changes in oil prices and unemployment rate in Nigeria: linear and nonlinear autoregressive distributed lag approaches

The increasing unemployment in Nigeria has motivated several empirical studies on the causes of the problem in the country. However, attention has not been paid to the contribution of the changes in oil prices to the unemployment problem. As a net exporting oil country, a fluctuation in oil prices in the international market can have impact on economic growth and employment. In the light of this, we investigate the effect of changes in oil prices on unemployment rate in Nigeria, using real oil prices of Brent and West Texas International with linear and nonlinear autoregressive distributed lag (NARDL) estimation methods. Findings from linear ARDL show that changes in oil prices have little or no significant effects on unemployment rate. The NARDL results indicate that an increase and a decrease in oil prices have an insignificant positive effect on unemployment in the short run. However, in the long run, an increase in oil prices worsens unemployment situation, while a decrease has insignificant reducing effect. We also find evidence of a long-run asymmetric relationship between oil prices and unemployment. The need for government to invest oil revenues in generating more electricity or in providing alternative sources of energy with the objective to reduce the costs of production of firms is recommended.

Asymmetric impact of renewable and non-renewable energy on economic growth in Pakistan: New evidence from a nonlinear analysis

This paper explores the asymmetric relationship between renewable energy consumption, non-renewable energy, and terrorism on economic growth of Pakistan. We applied a novel econometric cointegration method known as a nonlinear autoregressive distributed lag modeling (NARDL). Our empirical findings indicate that positive and negative changes have a significant long-run asymmetric relationship between renewable energy, and terrorism on economic growth. We also found a negative and significant effect of non-renewable energy consumption on economic growth. To keep our environment clean and free of emissions, the study specifies policies that rely on renewable energy sources to boost economic growth. However, reduces terrorism has a positive impact on economic growth in the long-run and shows as an influential tool to combat terrorism in Pakistan. These novel results will help policy-makers and government officials to understand better the role of renewable energy and economic growth in Pakistan's development.

The asymmetric relationship between financial development, trade openness, foreign capital flows, and renewable energy consumption: Fresh evidence from panel NARDL investigation

Abstract No substantial evidence available in existing literature regarding the pattern of financial development, trade openness and foreign capital effect on renewable energy consumption. With this study, we tried to fill the gap by figuring out the answer to the question of whether the relationships between financial development, trade openness, capital flows and the renewable energy consumption is symmetric or asymmetric by applying Panel Non-linear Autoregressive Distributed Lagged from 1990 to 2017. Non-linear estimation confirms the long-run asymmetric relationships between financial development, trade openness, capital flows, and renewable energy consumption in the case of all three subsamples namely, low-income countries, middle-income countries, and upper-middle-income panel. Furthermore, in the short-run, the asymmetric relationship also confirms except in Lower-income countries. We, furthermore, investigate the directional causality with System-GMM specification under the error correction model. Findings unveiled the long-run causality in particular when renewable energy consumption treated as a dependent variable in the equation.

Does Asymmetric Relation Exist between Exchange Rate and Foreign Direct Investment in Bangladesh? Evidence from Nonlinear ARDL Analysis

The study aims to investigate the pattern of relationships such as symmetric or asymmetric, between exchange rate and foreign direct investment in Bangladesh by applying Autoregressive Distributed Lagged (ARDL) and nonlinear ARDL. In this study, we employed quarterly data for the period of 1974Q1 to 2016Q4. Data were collected and aggregated from various sources namely, Bangladesh Economic Review published by Ministry of Finance and statistical yearbook published by Bangladesh Bureau of Statistics and an annual report published by Bangladesh Bank. The relationship between exchange rate and FDI inflows attract immense interest in the recent periods, especially for developing countries' perspective. The results of the study ascertain the long run relationship between FDI, exchange rate, monetary policy, and fiscal policy. Considering the asymmetric assumption, the findings from NARDL confirm the existence of a long-run asymmetric relationship in the empirical equation. In the long run, it is observed that positive change that is the appreciation of exchange rate against USD decrease FDI inflows and negative shocks results in grater inflows of FDI, however, the positive shocks produce higher intensity that negative shocks in Exchange rate. For directional causality, the coefficients of error correction term confirm long-run causality, in particular, bidirectional causality unveiled between FDI and exchange rate.

Energy and non-energy commodities: An asymmetric approach towards portfolio diversification in the commodity market

We investigate the presence of short- and long-run asymmetric relationships between energy and non-energy commodities for weekly data from January 2010 to June 2018. Using the non-linear ARDL methodology, we show that oil prices have significant long-run negative effects on the prices of gold and silver, indicating that for both metal commodities, oil price increases lead to more decrease than the subsequent oil prices decrease. Crude oil, among other energy commodities, is found to offer more diversification benefits when combined with gold or silver; however minimal diversification benefits can result from combining crude oil with wheat or platinum. Gas futures, among other energy markets, offer more diversification opportunities when combined with copper, wheat, platinum or palladium, while coal offers maximum diversification benefits when combined with gold, silver or wheat. Our results are robust when NARDL is applied to the daily data and also when the analysis is conducted using the causality-in-quantiles test.

Asymmetric Nonlinear Impact of Oil Prices and Inflation on Residential Property Prices: a Case of US, UK and Canada

This paper examines the nonlinear impact of oil prices and inflation on residential prices in the US, the UK and Canada using quarterly data from 1975 to 2017. The study uses nonlinear autoregressive distributed lag (NARDL) bounds testing approach that allows possible asymmetric effects in both short- and long-run. Our results highlight that oil prices, interest and inflation rates and income have asymmetric relationship with residential prices in US, UK and Canada; however, the extent and magnitude of this relationship varies. Long run coefficients of Inflation rate highlights significance for residential prices in all three economies i.e. US, UK and Canada. For international oil prices however, the asymmetric effect is more pronounced in US as compared with UK and Canada. In case of US, long-run asymmetric relationship of residential prices with inflation and gross domestic product (GDP) per capita is also witnessed however, interest rate seems to influence residential prices in both UK and Canada. Our paper has implications for the investors in residential housing markets and government authorities regulating housing sectors.

Does the inflow of remittances cause environmental degradation? Empirical evidence from China

Remittances inflow plays a significant role in promoting the economic welfare of a country; it has a multidimensional effect on the economy and links with the carbon emissions. This study examines the possible asymmetric transmissions from remittances to carbon dioxide emissions (CO2) in China using time series data from 1980 to 2014. The Non-linear NARDL method is employed to check the longrun asymmetric relationship between remittances inflow and carbon emissions. The findings show that a positive shock in remittances causes an increase in CO2 emissions, while a negative shock in remittances causes a decrease in CO2 emissions. The results support the existence of an asymmetric cointegrating relationship between remittances and CO2 emissions in both short run and the long run. The NARDL dynamic multiplier graph assumes that positive remittances shocks are highe compared to the negative remittances shocks. It suggests that policymakers in China should consider remittances as a policy instrument especially designing strategies and policies related to sustainable environmental quality in the long run.

Asymmetric impact of oil prices, exchange rate, and inflation on tourism demand in Pakistan: new evidence from nonlinear ARDL

ABSTRACTThis study scrutinized the asymmetric impact of oil prices, exchange rate, and inflation on tourism demand in Pakistan using [Shin, Y., Yu, B., & Greenwood-Nimmo, M. (2014) Modelling asymmetric cointegration and dynamic multipliers in a nonlinear ARDL framework. In Festschrift in honor of peter schmidt (pp. 281–314). New York, NY: Springer] nonlinear autoregressive distributed lag (NARDL) model. The NARDL bounds test examined the existence of cointegration in study variables, including CO2 emissions, institutional quality, oil prices, exchange rate, inflation, and tourism demand. The evidence proposes that disregarding the intrinsic nonlinearities may misinform inference. The estimated NARDL model affirmed long-run negative and significant effect of CO2 emissions on tourism demand, while institutional quality was positively associated with tourism demand. Furthermore, the findings of the study also suggested long-run asymmetric relationship between oil prices, exchange rate, inflation, and tourism demand.