Pairwise Granger Causality Test Research Articles

Does Oil Price Uncertainty Transmit to the Thai Stock Market?

This study investigates the impact of oil price volatility (uncertainty) on the Stock Exchange of Thailand. Monthly data from May 1987 to December 2013 are applied to the two-stage procedure. In the first step, a bivariate generalized autoregressive conditional heteroskedastic (GARCH) model is estimated to obtain the volatility series of stock market index and oil price. In the second step, the pairwise Granger causality tests are performed to .determine the direction of volatility transmission between oil to stock markets. It is found that movement in real oil price does not adversely affect real stock market return, but stock price volatility does affect real stock return. In addition, there exists a positive one-directional volatility transmission running from oil to stock market. It is also found that oil price movement and its uncertainty adversely affect two main sub-index returns. These important findings give some implications for risk management and policy measures.

TESTING THE CONVERGENCE AND RIPPLE EFFECTS OF REGIONAL HOUSE PRICES IN CHINA

ABSTRACT This paper investigates the convergence and ripple effects of regional house prices in China over 1998 to 2010 by using 35 main capital cities’ house price indexes, by developing some innovative econometrical approaches—the pairwise Granger causality tests and the panel regression models. One of this paper’s originalities is the first attempt to apply above approaches into the study of regional house prices in China; and the other originality is to add the distance factors into the house price convergence study. Generally, the empirical results suggest that there is some evidence of ripple effects but not convergence between regional house prices in China; and house price shocks in some core cities ‘ripple out’ to other cities, wherein Beijing, Hangzhou, Guangzhou and Shenzhen are original regions of nationwide house price swings. Keywords Convergence, Ripple Effects, Pairwise Granger Causality test, Panel Regression Model, Regional House Prices

English

  A strong and an efficient agricultural sector would enable a country to feed its growing population, generate employment, earn foreign exchange and provide raw materials for industries. This study makes a modest contribution to the debates by empirically analyzing the relationship between Nigeria government expenditure on the agricultural sector and its contribution to economic growth, using time series data from 1980 to 2011, obtained from the Central Bank of Nigeria Annual Report and Statement of Account, Journal of Food Research and Federal Office of Statistics. It employs the Engle-Granger two step modeling (EGM) procedure to co-integration based on unrestricted Error Correction Model and Pair wise Granger Causality tests.  From the analysis, our findings indicate that agricultural contribution to GDP (Gross domestic product) and total government expenditure on agriculture are cointegrated in this study. The speed of adjustment to equilibrium is 88% within a year when the variables wander away from their equilibrium values. Based on the result of granger causality, the paper concludes that a very weak causality exist between the two variables used in this study. Therefore, the policy implication of these findings is that any reduction in government expenditure on agriculture would have a negative repercussion on economic growth in Nigeria.   Key words: Agriculture, causality, gross domestic product, total expenditure.

The Influence of Oil Prices on Stock Market Returns: Empirical Evidence from Oil Exporting and Oil Importing Countries

The aim of this paper is to study the impact of oil price fluctuations on the stock markets and the interest ratesfrom oil importing and oil exporting countries. To this end, Vector Autoregressive (VAR) models are estimatedand pairwise Granger Causality tests are performed to the stationary series in order to analyse the short-termrelationships among the variables. Also, the Johansen approach for multiple equations is carried out in order totest for cointegration among the series. Finally, the existence of cointegration set the estimation of VectorError-Correction Models (VECMs) to investigate the long-term links between the financial variables and the oilprices. The major findings of this paper include: first, the interaction between the oil prices and the stockmarkets is much stronger than with the interest rates in the short and in the long-run. Second, the impact on oilimporting countries is more significant than on oil exporting countries. Finally, it might be possible that thefluctuations in oil prices have different effects on developed and developing countries.

Shift in tax burden and its impact on economic growth in the European Union

This article deals with a tax burden in the European Union in as financial and economic crisis has impacted also on tax systems in the European Union. Governments’ tax measure aims to consolidate public finance and promote an economic growth. The article provides empirical evidence on a shift in a tax burden and its structure and analyzes the effects of shift in tax burden on economic growth in the EU. It is used the Eurostat definition to categorize tax burden by economic functions and implicit rates of consumption, labour and capital are investigated. The analysis is based on annual data of the EU member states in a period 1995–2010. On average, labour taxes have decreased by 1.9 p.p., capital taxes have also decreased – by 2.1 p.p., but consumption taxes have mildly increased by 0.4 p.p. in the European Union in a period 1995–2010. Pairwise Granger Causality Test was used for examining relations between economic growth and tax burden by economic functions in short-term. Results confirm that there is two-way causality between change of implicit tax rate of consumption and GDP growth; and also GDP growth Granger-causes change of implicit tax rate of capital and implicit tax rate of labour through one-way causality.

Revenue Allocation and Economic Development in Nigeria

This study empirically examines the impact of revenue allocation on economic development in Nigeria. Specifically, the study looks at how the various revenue allocations to the three tiers of government affect real gross domestic product (RGDP) in Nigeria using time series data for the period 1993 to 2012. Error correction model (ECM) and Pairwise Granger Causality test are used in analyzing the data. The study carries out test of stationarity of the variables using Augmented Dickey–Fuller unit root test and test of long-run relationship among the variables using Johansen Cointegration test. The study’s findings show that revenue allocations have significant causal relationship with economic development in Nigeria, with only revenue allocation to states having significant negative relationship. Unidirectional causality runs from revenue allocations to real GDP in Nigeria. All variables of the study are cointegrated and have a long-run relationship that 87.62% of the short-run disequilibrium is corrected yearly. The study recommends among others that more financial control and value for money audit should be carried out to minimize wastages and corruption in the states of the federation, so as to change the direction of influence of states’ revenue allocation on economic development.

Does Output Gap, Labour's Share or Unemployment Rate Drive Inflation?

AbstractWe propose a new methodology for ranking in probability the commonly proposed drivers of inflation in the new Keynesian model. The approach is based on Bayesian model selection among restricted vector autoregressive (VAR) models, each of which embodies only one or none of the candidate variables as the driver. Simulation experiments suggest that our procedure is superior to the previously used conventional pairwise Granger causality tests in detecting the true driver. Empirical results lend little support to labour share, output gap or unemployment rate as the driver of US inflation.

Does Finance Promote Growth In Botswana?

The discourse on the finance-growth connection is yet to be laid to rest. This paper contributes to the discourse by analyzing data (1981-2010) from Botswana. The paper uses Fully Modified Ordinary Least Squares regression technique and Pairwise Granger Causality for analysis. The results show that when domestic credit to the private sector as a share of GDP is used to proxy financial development, there is a negative, significant relationship between financial development and economic growth in Botswana. However, when the ratio of liquid liabilities (M3) to GDP is used to measure financial development, a positive, significant relationship is found. Pairwise Granger Causality test results reveal that economic growth Granger-causes a reduction in financial development when domestic credit to GDP ratio is used to proxy financial development. On the other hand, when M3 to GDP is used to proxy financial development, finance precedes growth. The paper, therefore, argues that finance may promote growth in Botswana via the expansion of the size of the financial intermediary sector.

Is Inflation in South Africa a Structural or Monetary Phenomenon?

Aim: The aim of the study is to investigate whether or not inflation in South Africa is a structural or monetary phenomenon. Study Design: Case Study. Place and Duration of Study: South Africa. Time series data ranging from 1965 to 2006. Methodology: The study employs unit root testing, co-integration analysis, Fully Modified Ordinary Least Squares (FMOLS) regression, Two-Stage Least Squares (2SLS) regression, Error Correction Model and pair wise Granger Causality Test technique to analyze annual time series data from South Africa. Results: The findings suggest that in the short run, openness of the South African economy, nominal interest rate, inflation in USA, broad money supply and government spending are not likely to influence prices in South Africa. Instead, the paper finds GDP as a significant determinant of prices in South Africa in the short run. In the long run without controlling for structural breaks, openness of the South African economy to the rest of the world, inflation in the USA, GDP, broad money supply and size of government are significant determinants of inflation in South Africa. However, when we control for the Asian stock market crash and the collapse of the apartheid system, only openness of the South African economy to the rest of the world and broad money supply are the significant determinants of inflation. Nominal interest rate is not a significant determinant of inflation in South Africa. Granger Causality Tests reveal that there is uni-directional causality from inflation in the USA and GDP to inflation in South Africa as well as from inflation to broad Research Article British Journal of Economics, Management & Trade, 3(1): 60-72, 2013 61 money supply in South Africa. Conclusion: The study contends that inflation in South Africa is a structural as well as monetary phenomenon. To the extent that inflation in the USA as well as openness of the South African economy to the rest of the world demonstrates robust influence on inflation in South Africa, it is submitted that policy makers in South Africa could moderate inflation by strengthening international competitiveness of the South African economy.

Budget Deficits, Money Supply and Inflation in Tanzania: A Multivariate Granger Causality Test, 1967–2010

This paper investigates empirically the nexus between budget deficits, money supply and inflation in Tanzania by employing data for the period 1967–2010. Pair-wise Granger causality test established a one-way causal effect, running from inflation to budget deficit and the monetary base. These findings were supported by results from the Vector Error correction model (VECM) estimated. It is shown that there exist a significant inflation inertia and causal effect on budget deficit over the short-run. The VECM results showed that shift in monetary policy regime exerted a significant effect on inflation and budget deficits. Innovation of the ratio of budget deficit to money balances as alternatives for the traditional budget deficit to income ratio was found to lack significant effect on the results. Results are very indicative but highlight the importance of containing inflation to check its effect on budget deficits over the short-to long-run periods. The results also suggest that robust econometric results can be obtained by deflating budget deficits by monetary aggregates or income.

An empirical proposal on power, knowledge and truth of correlations among the minimum wage, foreign direct investment in the industrial sector and export

This research showed the correlations among the minimum wage, foreign direct investment in the industrial sector, and export. These entities were criticized severely by the authorities on the Pua Thai Party's policy announcement on the guarantee oflabors' minimum wage of300 baht/day. The present research then employed an advanced quantitative methodology, analyzing time-series data ofthe minimum wage,foreign direct investment in the industrial sector, and export by regression, the Johansen Cointegration Test, and the Pairwise Granger Causality Test.

Financial Development and Economic Growth: Is Schumpeter Right?

Aim: The aim of the study is to test the validity of Schumpeter’s prediction that finance promotes growth using annual time series data from South Africa. Study Design: Case Study Place and Duration of Study: South Africa. Time series data ranging from 1965 to 2010. Methodology: The study employs unit root testing, co-integration analysis, Fully Modified Ordinary Least Squares (FMOLS) regression, Two-Stage Least Squares (2SLS) regression, Error Correction Model and Pairwise Granger Causality test technique to analyze annual time series data from South Africa. Two measures of financial development are used: domestic credit as a share of GDP measuring the degree of financial intermediary services; and broad money supply as a share of GDP measuring the overall size of the financial intermediary sector. Control variables included in the model are inflation, size of government, openness of the South African economy, and a dummy variable accounting for financial reforms that began in South Africa in the 1980s. Results: Contrary to the prediction of Schumpeter that finance promotes growth, the empirical results suggest that financial development does not promote economic growth both in the short run and in the long run. The Pairwise Granger Causality test result supports the assertion that there is a unidirectional causality from financial development to economic growth in South Africa. Conclusion: The paper concludes that Schumpeter may not be right in theorizing that finance promotes economic growth. Case Study

Lead - lag relationship between the futures and spot prices

This paper examined the relationship between the futures market and spot market for the lean hogs and pork bellies markets during the sample period January 2001 through May 2010 and quantifies the price discovery function of commodity futures prices in relation to spot prices of the sample markets. The econometric tools like Unit root tests and Pairwise Granger Causality tests were employed in the study. The Augmented Dickey Fuller tests and Phillips-Perron tests employed in the study proved that both the selected markets were stationary series and the Granger Causality test proved bi-causality relationships among these markets. Hence, it was concluded that the profitable arbitrage does not exist in both of these markets and they are said to be in perfect equilibrium. Key words: Price discovery, causality, lean hogs and pork bellies

Nigeria’s External Debt and Economic Growth: An Error Correction Approach

This study investigates the relationship between Nigeria’s external debt and economic growth, between 1975 and2006. The choice of period was guided by data availability and the the escalation of Nigeria’s external debt.Econometric evidence revealed stationarity of the variables at their first difference while the Johansencointegration approach also confirms the existence of one cointegrating relationship at the 1 percent and 5percent level of significance. In addition, error correction estimates revealed that external debt has negativerelationship with economic growth in Nigeria. For example, a one per cent increase in external debt resulted in adecrease of 0.027 per cent in Gross Domestic Product, while a 1 per cent increase in total debt service resulted to0.034 per cent (decrease) in Gross Domestic Product. These relationships were both found to be significant at theten per cent level. In addition, the pairwise Granger Causality test revealed that uni-directional causality existsbetween external debt service payment and economic growth at the 10 percent level of significance. Also,external debt was found to granger cause external debt service payment at the 1 percent level of significance.Statistical interdependence was however found between external debt and economic growth. In order toameliorate the negative influence of external debt on economic growth, debt accumulation for projects must bematched with the timing of repayment. Nigeria must be concerned about the absorptive capacity. Considerationabout low debt to GDP, low debt service/GDP capacity ratios should guide future debt negotiations. Finally theportfolio of debt must be diversified in terms of sources and types to avoid harmful concentration and areoccurrence to the past.

Determination of Exchange Rate under Flexible Exchange Rate Regime in India: An Analysis Using ARDL Model

Since March 1993, the Indian economy has accepted the flexible exchange rate regime in which the rates are determined by the market. In this flexible exchange rate regime, the degree of volatility has been observed to be comparatively high, and it affects the economy in many different ways. The present paper is an attempt to examine and explain these variations in exchange rate through the theory of purchasing power parity. The primary purpose of this study is to develop an empirical framework to estimate the determinants of exchange rate by employing a time series data of exchange rate and gross domestic product measured at purchasing power parity, and for this, the data used have been for the period 1994 to 2013. In the present paper, the statistical tools such as Pair wise Granger Causality Tests, Breakpoint Unit Root Test, Cointegration Test and finally ARDL model have been applied to develop a viable relationship between regressor and regressand. The result of this endeavor has revealed that there is a definite causal relationship between exchange rate and gross domestic product expressed at purchasing power parity, but the larger variation in the exchange rate is explained by the lag value exchange rate.

Twin deficits phenomenon in small islands: an empirical investigation by panel data analysis

This article empirically investigates the direction of causality between current account balance and the overall budget balance of a selected 24 small island state economies by conducting panel data econometric techniques. The results of both bivariate and pairwise Granger causality tests suggest that there is unidirectional causation which runs from current account balance to the overall budget balance. On the other hand, no evidence has been obtained on the causation which runs from budget balance to current account balance in small island states.

The causality between energy consumption and economic growth in Turkey

This paper applies the causality test to examine the causal relationship between primary energy consumption (EC) and real Gross National Product (GNP) for Turkey during 1970–2006. We employ unit root tests, the augmented Dickey–Fuller (ADF) and the Philips–Perron (PP), Johansen cointegration test, and Pair-wise Granger causality test to examine relation between EC and GNP. Our empirical results indicate that the two series are found to be non-stationary. However, first differences of these series lead to stationarity. Further, the results indicate that EC and GNP are cointegrated and there is bidirectional causality running from EC to GNP and vice versa. This means that an increase in EC directly affects economic growth and that economic growth also stimulates further EC. This bidirectional causality relationship between EC and GNP determined for Turkey at 1970–2006 period is in accordance with the ones in literature reported for similar countries. Consequently, we conclude that energy is a limiting factor to economic growth in Turkey and, hence, shocks to energy supply will have a negative impact on economic growth.

MONEY SUPPLY VARIABILITY AND INTEREST RATE SPREAD IN DEVELOPING ECONOMIES: THE CASE OF NIGERIA

This paper applies cointegration technique to investigate the long‐run equilibrium relationship between money supply variability and interest rate spread in Nigeria subsequent to the introduction of a structural adjustment program. The results imply no long‐run equilibrium relationship between money growth variability and interest rate spread between 1985 and 1992. Furthermore, we found evidence from the Pairwise Granger Causality test that supports Friedman's hypothesis that money growth variability impacts the term structure of interest rates. These results have implications for developing economies, especially those that share characteristics similar to Nigeria's.