Panel Vector Autoregressive Approach Research Articles

Exchange rate, external reserves and current account balance nexus in oil-dependent countries: A Toda-Yamomoto-based Panel Vector Autoregressive (PVAR) approach

The international monetary authorities have been consistently advising oil-dependent countries to change their exchange rate policy from a fixed to a floating exchange rate regime. While some of these countries including Nigeria have announced their adoption of a free-floating exchange rate system, evidence shows that the majority are suffering from “fear of floating”, hence operating an abridged exchange rate system. This study employs the Toda-Yamomoto-based Panel Vector Autoregressive (PVAR) model to use the causality approach to determine the exchange rate system that best explains the de facto exchange rate policy system operating in these countries. This is explained by the dynamic causality between exchange rates and foreign reserves. The dynamic causality between the exchange rate and current account balance also explains the potential effect of devaluation to improve the external trade balance, which implies the J-curve and Marshall Lerner condition. The results show that there is no significant causality from foreign reserves and trade balance to the exchange rate, suggesting that oil-dependent countries are more aligned to a fixed exchange rate regime than a floating exchange rate regime. We also find significant negative causality from the exchange rate to foreign reserves, while foreign reserves have a positive causal effect on the current account balance. This implies that the expected devaluation gains that may be prompting oil-dependent countries to stick to fixed exchange rate regimes are not there, as currency devaluation tends to worsen trade performance and foreign reserves rather than improve them. While oil-dependent countries are not benefiting much from a fixed exchange rate system, it is recommended that appropriate policy to boost private sector generation of foreign exchange should be put in place before the adoption of a full-fledged floating exchange rate system.

Revisiting the role of climate change on crop production: evidence from Mediterranean countries

AbstractThe Mediterranean region is an important agricultural center and is expected to be most affected by climate change due to its location. In this study, the role of climate change on agriculture is examined for eight South European countries on the Mediterranean coast for the period of 1996–2016. Carbon dioxide emissions, temperature and precipitation values are used as the indicators of climate change while cereal production is taken as a proxy for agricultural production. Results of the panel vector autoregression approach reveal that an increase in the carbon dioxide emissions and temperature have a negative impact on the cereal production. However, this effect is statistically significant only in the initial periods. On the other hand, an increase in rainfall has a statistically significant positive effect on crop production only in one period. However, eventually this effect turns to negative as expected, since excessive rainfall has a negative effect on agriculture as much as drought. In conclusion, the importance of bringing the policies and strategies to the forefront in ensuring the sustainability of agriculture and minimizing the negative effects of climate change in the region are discussed.

The role of environmental tax on the environmental quality in EU counties: evidence from panel vector autoregression approach

This study intends to analyze the influence of environmental taxes on pollution in EU-27 nations. Furthermore, energy from renewable sources consumption and urbanization are employed to clarify CO2 emissions in this study that tests the EKC hypothesis. According to the findings, an increase in environmental taxes reduces CO2 emissions by 0.14%. Also, the data supported the validity of the EKC concept. The findings of the causality test demonstrated that there is a bidirectional causal link between CO2 emissions and environmental taxes. These results reflect that environmental tax revenues contribute to sustainability as an effective policy tool in EU countries. Policies regarding environmental tax enforcement come to the fore in terms of both keeping the balance in economic activities and serving sustainability.

Online reviews, customer Q&As, and product sales: A PVAR approach.

Online reviews and customer Q&As have emerged as two vital forms of electronic word-of-mouth (eWOM) that significantly influence consumer decisions in e-commerce. Yet, a comprehensive understanding of the individual and combined roles of these eWOM types in shaping market dynamics remains elusive. This study addresses this research gap by tracking and analyzing three months of eWOM and sales data for 120 laptops on Amazon, comprising 7,205 online reviews, 6,365 customer Q&A questions, and 7,419 answers. Leveraging the Panel Vector Autoregression (PVAR) model and STATA16.0 software, we unravel the intricate dynamics between online reviews, customer Q&As, and laptop sales. The empirical results reveal distinctive influence mechanisms of online reviews and customer Q&As on product sales, with review volume and answer valence positively affecting sales. Importantly, answer volume was found to stimulate online reviews and enhance their valence. Our study elucidates the interplay among online reviews, customer Q&As, and product sales, underscoring the need for future research on multi-type eWOM. Further, the insights gleaned offer valuable guidance for online platforms and retailers to strategize their eWOM management.

Green bonds and green environment: exploring innovative financing mechanisms for environmental project sustainability.

This study delved into the intricate relationships between green bonds (GB), Environmental National Cap (ENC), the European Commission's green growth metrics (EC), and innovative financial mechanisms (INN_FM). Employing the Pesaran CD test, the research underscored significant cross-sectional dependence among the examined countries. The subsequent unit root tests affirmed the first-order integration of variables, causing the panel vector autoregressive (PVAR) approach for deeper insights. The findings indicated that while GB notably influenced the EC's metrics, and its effect on ENC was relatively subdued. Notably, INN_FM appeared to insignificantly influence the issuance of GB. By leveraging variance decomposition, we discerned that the dynamics between these factors, especially in green economic growth, is complex and can vary across regulatory and national contexts. This research provides an essential foundation for policymakers, regulators, and investors to understand the multifaceted interplays in green finance mechanisms and craft strategies to optimize their impact on sustainability outcomes. Hence, the study provides multiple policy implications for the associated stakeholders.

Banking Transparency, Financial Information and Liquidity Risk Management: Case of Saudi Banks

The article aims to assess the impact of banking transparency on liquidity risk. To do so, we first test the determinants of Liquidity Coverage Ratio (LCR) as well as ensure the resilience of the Saudi banking system over the period from 2014 to 2021. Using System GMM with bank-specific and macroeconomic variables, results show that capital adequacy ratio, SIZE, GDP growth as well as past LCR levels significantly influence the LCR.  Secondly, we adopt the Panel Vector Auto Regression (PVAR) approach to assess the response of the LCR to various shocks. Impulse Response Functions (IRF) and variance decomposition demonstrate that the shocks to past LCR, AQ, CAR and GDP increase future liquidity risk. Thirdly, we prove that Saudi banks implement less than 50% of the transparency dimensions. They mainly disclose financial information and information on information credibility. Barely 18% of information on non-financial components of banking activity is made available to the public. Information on liquidity risk and on the timeliness of information is not available either in annual reports or on the bank's website. On average, the banks in the sample do not give importance to the publication of reports. These results may undermine the effectiveness of the guidelines of the Basel Committee agreements to reduce risk-taking by Saudi banks.

On the Link Between FDI, Political Risk and Economic Growth in Sub-Saharan Africa: A Panel VAR Approach

This study looks at how foreign direct investment from other countries helps grow economies in Sub-Saharan Africa. But it not just about Foreign direct investment; the quality of institution in those countries also play a big role. We're exploring how foreign direct investment, political risks, and economic growth all connect. Using a Panel Vector Auto-Regressive (PVAR) approach with a sample of 28 sub-Saharan African countries over the period 1996–2016, the empirical results reveal that FDI positively relates to internal conflicts and political stability in Sub-Saharan African countries. However, the effects of economic growth and external conflicts are negative and significant. In addition, FDI and internal and external conflicts affect positively and significantly economic growth. However, the effect of political stability on economic growth is negative and significant. On the other hand, the interaction between foreign direct investment and political stability is negative and insignificant. Finally, the internal and external conflicts are negatively affected by foreign direct investment, yet they are positively influenced by political stability. These findings have important policy implications. If Sub-Saharan Africa is to realize its economic growth agenda, policymakers should promote FDI inflows to sub-Saharan African countries by improving their institutional quality by boosting political stability and reducing internal and external conflicts.

Xxx2503

Purpose: This research aims to investigate the presence of monetary policy trilemma in the Middle Eastern region and evaluate the spillover effects of US monetary policy on the region. Theoretical framework: Middle Eastern economies follow the dollar pegged exchange rate policy with open capital account and this poses a question about the autonomy of the monetary policy stance adopted by the regional central banks. In this context, current research considers variables such as domestic interbank interest rate, domestic liquidity, oil price and federal fund rate to test the monetary policy trilemma in the region Design/methodology/approach: To investigate the presence of monetary policy trilemma in the Middle Eastern region, this research employs the time - varying Bayesian panel vector autoregression approach and selects a panel of five Middle Eastern countries which include Saudi Arabia, United Arab Emirates, Qatar, Oman and Kuwait while considering the monthly data for the sample period 2009m10 until 2021m12. Findings: This research finds that a positive shock in US federal fund rate increases the domestic interest rates in the Middle Eastern economies. In addition, this research finds a negative relationship between oil price shocks and domestic interest rates. Whereas a positive shock in US federal fund rates induces a reduction in the oil price. Research, Practical & Social implications: Current research provides insights for policy makers to determine the autonomy of domestic monetary policy stance to achieve its broader macroeconomic objectives. . Originality/value:This research is unique as it examines the monetary policy trilemma while considering oil price as a control variable in the system under a time varying Bayesian panel vector autoregression specification.

Testing Monetary Policy Trilemma for Middle Eastern Economies Under a Bayesian Panel VAR Specification

Purpose: This research aims to investigate the presence of monetary policy trilemma in the Middle Eastern region and evaluate the spillover effects of US monetary policy on the region.
 
 Theoretical framework: Middle Eastern economies follow the dollar pegged exchange rate policy with open capital account and this poses a question about the autonomy of the monetary policy stance adopted by the regional central banks. In this context, current research considers variables such as domestic interbank interest rate, domestic liquidity, oil price and federal fund rate to test the monetary policy trilemma in the region
 
 Design/methodology/approach: To investigate the presence of monetary policy trilemma in the Middle Eastern region, this research employs the time - varying Bayesian panel vector autoregression approach and selects a panel of five Middle Eastern countries which include Saudi Arabia, United Arab Emirates, Qatar, Oman and Kuwait while considering the monthly data for the sample period 2009m10 until 2021m12.
 
 Findings: This research finds that a positive shock in US federal fund rate increases the domestic interest rates in the Middle Eastern economies. In addition, this research finds a negative relationship between oil price shocks and domestic interest rates. Whereas a positive shock in US federal fund rates induces a reduction in the oil price.
 
 Research, Practical & Social implications: Current research provides insights for policy makers to determine the autonomy of domestic monetary policy stance to achieve its broader macroeconomic objectives.
 
 Originality/value: This research is unique as it examines the monetary policy trilemma while considering oil price as a control variable in the system under a time varying Bayesian panel vector autoregression specification.

Is public investment in construction and in R&D, growth enhancing? A PVAR approach

ABSTRACT We study the impacts of public investment, notably in construction and in R&D on economic growth and of crowding-out effects on private investment. For this purpose, we use Panel Vector Autoregression (PVAR) models and the Generalized Method of Moments (GMM) approach for 40 advanced and emerging countries from 1995 to 2019. Our findings are as follows: i) innovations in public investment have more positive effects on GDP growth and private investment in emerging economies; ii) the positive impulse of public investment on private sector is pronounced and significant in emerging economies; iii) government construction investment has a more positive effect on economic growth in emerging economies; iv) innovations in public construction crowd-out private investment spending in advanced countries; v) emerging economies benefit from public R&D investment; vi) the public investment multiplier of the full sample is 1.67, while it is 0.87 for advanced economies and 2.29 for emerging economies.

Epidemic–economic complexity of COVID-19 policies across skill groups and geographies

ABSTRACT The COVID-19 pandemic has threatened public health and socio-economic activities across societal groups and geographies. We analyse the complex interplay between epidemic and economic factors using a structural panel vector autoregressive (PVAR) approach for Danish municipalities. Findings indicate that the pandemic shock and associated public health interventions led to significant increases in unemployment rates. Wage compensations reduce regional unemployment through both a direct local effect and indirect spatial spillovers. Decomposing the unemployment rate by skill, we find that the response to an increase in wage compensations is only significant for low-skilled persons and that it is larger in urban compared with rural settings.

Extended Generativity Theory on Digital Platforms

The assumption that generativity engenders unbounded growth has acquired an almost taken-for-granted position in information systems and management literature. Against this premise, we examine the relationship between generativity and user base growth in the context of a digital platform. To do this, we synthesize the literature on generativity into two views, social interaction (expansion of ecosystem boundaries) and product view (expansion of product boundaries), that jointly and individually relate to user base growth. Both views help us explain how opening a platform relates to the emergence and resolution of conflicting expectations in a platform ecosystem that result in new functions and expanded use. We adopt a panel vector autoregressive approach combining data from six large transaction platforms that engaged with open-source developer communities. We found that the dominant narrative of generativity engendering growth, although generally supported by our analysis, obscures the fact that the inverse is also true; that is, growth can lead to expansion of product boundaries (inverse generativity) and that generativity can be bounded; that is, growth can stabilize ecosystem boundaries (bounded generativity). Against this background, we propose an extended generativity theory that presents generativity and growth in an integrative view and raises awareness about the limitations of the “unbounded growth” claim. We conclude that there is value in separating the two views of generativity conceptually and analytically, along with their relationship to user base growth, and we call for research on the pathways through which generativity produces growth. History: Ola Henfridsson, Senior Editor; Robert Wayne Gregory, Associate Editor.

Inward FDI and the quality of domestic institutions: A cross-country panel VAR analysis

Domestic institutions are recognized as important factors in attracting foreign direct investment (FDI), and spurring economic development in host countries. There is increasing evidence, however, that FDI may in turn affect and shape domestic institutions, and it is generally difficult to disentangle these two effects. The present paper aims to shed light on this issue using extensive data on the quality of institutions and on inward FDI in 102 countries over a period of 25 years. We distinguish between different types of institution, FDI, and country, and we adopt a panel vector autoregression (VAR) approach to identify the direction of causality between the two variables. Our findings suggest that the quality of institutions matters for attracting FDI, but also that higher inflows of FDI have a significant short-term impact on the institutional quality of recipient economies. We also find that such a relationship varies with the type of FDI considered, and differs between transition and developing economies.

Energy resources, tourism development and growth-emission nexus in developing countries

The primary purpose of this research is to evaluate the interrelationship between economic growth, carbon dioxide emissions, fossil fuel resource consumption, renewable energy resource consumption, and the development of the tourism industry. To this end, the panel VAR (Vector Autoregressive) approach is employed to analyze the annual data over 2000–2021 for 40 developing Asian countries. The major findings confirmed the Environmental Kuznets Curve hypothesis only for economic growth in the industry and services sectors. In addition, there are bi-directional linkages between economic growth in all three sectors and tourism development, revealing the existence of both TLGH (the Tourism-led growth hypothesis) and ELTG (Economic Lead Tourism Growth) hypotheses. Regarding the value of the growth rate of CO2 (Carbon dioxide) emissions, the growth rates of all variables in the previous period positively impact it. In contrast, the growth rate of the green energy index negatively affects the value of the growth rate of carbon emissions in the examined Asian developing economies. Developing green financing markets and promoting green culture are two recommended practical policies by this research.

Unemployment and Enterprise Births in European Countries: A Sectoral Approach

Different types of entrepreneurial activities are more or less conducive to socio-economic development. Among others, opportunity entrepreneurs are found to have a greater impact on economic growth, innovation, and employment compared to necessity entrepreneurs (pushed by the risk of being unemployed). In this context, the main goal of the study is to find the answer to the following research question: Which business sectors in European countries are sensitive to the unemployment push effect and thus more prone to necessity entrepreneurship? The paper provides further insight into the unemployment push hypothesis by investigating this issue in the group of 20 European countries across 11 business sectors (NACE Rev. 2 classification): manufacturing, construction, and services of business economies (nine sectors). The issue is examined by analyzing Eurostat and World Bank data for 2004–2020 using the panel vector autoregression (p-VAR) approach. The results confirm the unemployment push effect only in wholesaling, retailing, and repair services. The effect, however, seems to be triggered by entry behaviors in the Central Eastern European countries, which are more active in creating new businesses and more prone to necessity entrepreneurship. In addition, the interplay between unemployment and new enterprise dynamics in wholesaling, retailing, and repair services seems to be relatively more robust to existing heterogeneity within entrepreneurs, countries, and estimation techniques. The implications of the results could assist policymakers responsible for active labor market instruments promoting entrepreneurial attitudes.

Corporate governance, capital structure, and firm performance: a panel VAR approach.

This study aims to examine the interrelationships and interdependencies between corporate governance (CG), capital structure (CS), and firm performance (FP) of companies listed on the Stock Exchange of Mauritius from 2009 to 2019 along with a comparison between financial and non-financial firms. A panel vector autoregression (PVAR) approach is used in this study to determine the relationship dynamics between CG, CS and FP. The findings reveal a positive and significant bidirectional association between CS and FP, supporting the trade-off theory. The results also show that CG and FP jointly help to increase CS while CG and CS jointly boost the profitability of firms. A strong bidirectional relationship with varied signs between CG and CS is found only for financial firms. The results of the forecast error variance decomposition analysis support the selection of FP as the most endogenous variable. Robustness tests also support the findings. This study is the first to examine the dynamic and interdependent relationships using a PVAR model between CG, CS and FP that presents new contributions to the existing CG and CS literature with insights from an emerging economy.

Teknolojik Değişme ve İstihdam Arasındaki Dinamik İlişki: Genç İstihdamı ile Toplam İstihdamın Panel VAR ve Nedensellik Analizleri ile Karşılaştırılması

This study empirically examines the relationship and causality between technological change and employment by comparing youth and total employment. It covers data from 16 OECD economies from 1985 to 2018 and uses multifactor productivity (MFP) as a proxy for technological change. The findings from the general method of moments panel vector autoregression (GMM Panel-VAR) approach indicate significant and positive effects of MFP on youth and total employment, and a significant yet negative impact of youth employment on MFP. According to Panel-VAR-Granger-Causality analysis results, there is a two-way causality between MFP and youth employment and a one-way causality from MFP to total employment. Thus, this study empirically confirms the job-creation effect of technology and finds out that the technological change and employment nexus differs for youth employment compared to that for total employment.

On the persistence and complementarities of design and technological change: a regional perspective

ABSTRACT This paper explores the dynamics between design and technological change for regional innovation. We discuss a framework integrating persistence effects and processes of knowledge recombination that explicitly recognize the role of design as a separated yet synergic element to technological change within the context of regional innovation systems. Using a panel vector autoregressive (PVAR) approach and information on over 900 NUTS-3 regions across 20 countries in Europe for the period 2000–12, we provide novel evidence of evolutionary dynamics for both design and technological change along with simultaneous complementarities expanding the set of combinatorial opportunities for regional innovation.

Democracy, military expenditure and economic growth: A heterogeneous perspective

ABSTRACT Countries with different democratic levels tend to show various degrees of emphasis on military expenditure and a consensus can hardly be reached on the economic effect of democracy and military expenditure. By applying a panel vector autoregressive (PVAR) approach, this article examines the potential dynamic and endogenous relationships among democracy, military expenditure and economic growth of 126 countries from 1990 to 2020. Furthermore, the k-means clustering algorithm is employed to account for the heterogeneous interaction between democracy and military expenditure in different countries. The empirical results reveal that the strong positive impact of democracy and the negative effect of military spending on economic growth exists in the full sample and the cluster of countries with low democratic levels and a high military burden. For democratic countries with low military expenditure, there is a more significant and negative impact both of military expenditure on democracy and vice versa.

Dynamic Shocks of Crude Oil Price and Exchange Rate on Food Prices in Emerging Countries of Southeast Asia: A Panel Vector Autoregression Model

This paper empirically analyzes food price responses to shocks from crude oil price and exchange rate volatility in five emerging Southeast Asian nations between 2000 and 2020 using impulse response functions and variance decomposition analysis of the dynamic panel Vector Autoregression approach. Based on the findings of the impulse response functions analysis, food prices respond positively to both oil price and exchange rate shocks. Meanwhile, the results of variance decomposition analysis show that food prices account for a significant portion of volatility in its own shock. The contribution of oil price shock to food price volatility is found to be greater than the contribution of exchange rate shock. Hence, the study recommends that policymakers in these nations should be vigilant about the impacts of oil price and exchange rate shocks on food prices since these factors may undermine price stability and exacerbate food security.