Presence Of Unit Root Research Articles

Predicting NEPSE Index: An ARIMA-Based Model

Purpose: This research aims to employ the Auto Regressive Integrated Moving Average (ARIMA) approach to forecast the Nepal Stock Exchange (NEPSE) index.Methods: Daily univariate time series data were taken from the NEPSE website and other sources for 27 years for a total 6143 daily time series data starting in 1997. The presence of unit roots was identified through an Augmented Dickey-Fuller (ADF) test, which ensures stationarity in data. Thereafter, estimation and evaluation of AR (autoregressive), MA (moving average), and ARIMA models were carried out.Results: The study reveals that the ARIMA (2,1,1) model is well fitted in predicting the NEPSE index, indicating its ability to capture temporal dependence and trends that exist within the data.Conclusion: It concludes the temporal dynamics of series highlighting both the short-term impacts of past shocks and longer-term adjustment towards equilibrium. The research work supports the efficacy of model in capturing and predicting the behaviour of NEPSE index, thereby adding in informed decision making and future projections based on proposed statistical foundations.

The sustainable development goals: Theory and a holistic evidence from the USA

This study emphasizes a crucial consideration for policymakers working towards the United Nations Sustainable Development Goals, such as social welfare, environmental sustainability, democratic governance, fair income distribution, and other related goals. Policymakers need to account for the characteristics of series associated with these goals, specifically their stationarity or the presence of unit roots; the reason is that these characteristics have a significant impact on the success of the policies. Notably, policies relying on unit root series may result in costly and time-consuming efforts to achieve the targeted SDGs. This study investigates interactions between seventeen SDGs for the USA with a holistic approach between 1960–2022. This investigation employs the FWADF, FWKSS, and Bai-Perron tests for seventeen selected representative variables (series) of the SDGs. Finally, it presents and discusses the main policy implications of the empirical findings for seven series (variables) containing unit roots. The findings of this study have necessary implications for policymakers and the achievement of the USA’s SDGs. One of the empirical findings of this study is that the Energy Policy Act enacted in 2003 encouraged more significant development and use of clean and renewable energy, denoting SDG7 in the USA. Another finding is that contrary to expectations, there was no significant increase in the number of patents denoting SDG9 after the America Invents Act came into force in 2013.

A Time Series Analysis of Noninterest to Interest-Earning Dynamics Between 1984 to 2023 in the US Commercial Banking Sector

Both interest and noninterest earnings form the two critical components of the income stream of commercial banks. While interest earnings are tied to the lending volume and prevailing interest rates primarily dictated by the monetary policy and central bank interventions, noninterest earnings can come from diversified sources like income from fiduciary activities, trading revenue, service charges on deposit accounts, fee income, etc. Noninterest earnings can be unrelated to lending volume and prevailing interest rates and possibly uncorrelated with the monetary policies. Noninterest earnings may be a more robust source of income, especially during the low-interest rate regimes. Managing the noninterest to interest earnings is a critical component of income smoothing used by the banks. Noninterest earnings have become a significant component of banks’ overall earnings in the last four decades, and the ratio of noninterest to interest earnings has also grown significantly, raising questions about the primary role of the banking sector in financial intermediation as defined by the collection and disbursement of loanable funds throughout the economy. The rise in noninterest earnings also raises questions about the potential conflict of interest especially if banks earn significant consulting income from the same entities that borrow heavily from the banks. In this paper, I look at the time series dynamics of the ratio of noninterest-to-interest earnings spanning nearly four decades from 1984:Q1 to 2023:Q3 for the USA’s FDIC-insured commercial banking sector. Although the ratio has fluctuated over the period and risen from the baseline, it does not exhibit any non-stationarity. The presence of unit root cannot be found during the time period studied. In other words, the ratio of noninterest-to-interest earnings in the US commercial banking sector does not show any explosive and unstainable growth. In a nutshell, the rise in the ratio seems to be an outcome of the broader income diversification strategy used by the banks and not necessarily a dramatic change in the business model of US commercial banking industry.

Sample size simulation for unit root, structural break and regime shifts

Unit root test is an important means to determine the integration order of a variable which has involved different methods of testing for stationarity. Simulation method is adopted in this study to verify whether unit root, structural breaks and regime shifts exist in the sample considered. For sample sizes of 20 and 50 as small, 100 and 250 as medium, and 2500 and 5000 as large, the enhanced Dickey-Fuller test and Zivot-Andrews test were used. The experiment was conducted 5000 times for each sample size, and the results demonstrated that there is presence of unit root at level for all sample sizes taken into consideration, but they were integrated of order 1. This implies that they are stationary at first difference. The results also showed that there are structural breaks at various levels depending on sample size, but it was noted that the breaks remained stable regardless of size when the sample size was large. The MSVAR results demonstrated that regime 1 is more resilient than regime 2, and that regime 1 is projected to last longer than regime 2. As a result, we draw the conclusion that simulation can be utilized to verify a real-world situation.

Projecting wheat demand in China and India for 2030 and 2050: Implications for food security.

The combined populations of China and India were 2.78 billion in 2020, representing 36% of the world population (7.75 billion). Wheat is the second most important staple grain in both China and India. In 2019, the aggregate wheat consumption in China was 96.4 million ton and in India it was 82.5 million ton, together it was more than 35% of the world's wheat that year. In China, in 2050, the projected population will be 1294-1515 million, and in India, it is projected to be 14.89-1793 million, under the low and high-fertility rate assumptions. A question arises as to, what will be aggregate demand for wheat in China and India in 2030 and 2050? Applying the Vector Error Correction model estimation process in the time series econometric estimation setting, this study projected the per capita and annual aggregate wheat consumptions of China and India during 2019-2050. In the process, this study relies on agricultural data sourced from the Food and Agriculture Organization of the United States (FAO) database (FAOSTAT), as well as the World Bank's World Development Indicators (WDI) data catalog. The presence of unit root in the data series are tested by applying the augmented Dickey-Fuller test; Philips-Perron unit root test; Kwiatkowski-Phillips-Schmidt-Shin test, and Zivot-Andrews Unit Root test allowing for a single break in intercept and/or trend. The test statistics suggest that a natural log transformation and with the first difference of the variables provides stationarity of the data series for both China and India. The Zivot-Andrews Unit Root test, however, suggested that there is a structural break in urban population share and GDP per capita. To tackle the issue, we have included a year dummy and two multiplicative dummies in our model. Furthermore, the Johansen cointegration test suggests that at least one variable in both data series were cointegrated. These tests enable us to apply Vector Error Correction (VEC) model estimation procedure. In estimation the model, the appropriate number of lags of the variables is confirmed by applying the "varsoc" command in Stata 17 software interface. The estimated yearly per capita wheat consumption in 2030 and 2050 from the VEC model, are multiplied by the projected population in 2030 and 2050 to calculate the projected aggregate wheat demand in China and India in 2030 and 2050. After projecting the yearly per capita wheat consumption (KG), we multiply with the projected population to get the expected consumption demand. This study found that the yearly per capita wheat consumption of China will increase from 65.8 kg in 2019 to 76 kg in 2030, and 95 kg in 2050. In India, the yearly per capita wheat consumption will increase to 74 kg in 2030 and 94 kg in 2050 from 60.4 kg in 2019. Considering the projected population growth rates under low-fertility assumptions, aggregate wheat consumption of China will increase by more than 13% in 2030 and by 28% in 2050. Under the high-fertility rate assumption, however the aggregate wheat consumption of China will increase by 18% in 2030 and nearly 50% in 2050. In the case of India, under both low and high-fertility rate assumptions, aggregate wheat demand in India will increase by 32-38% in 2030 and by 70-104% in 2050 compared to 2019 level of consumption. Our results underline the importance of wheat in both countries, which are the world's top wheat producers and consumers, and suggest the importance of research and development investments to maintain sufficient national wheat grain production levels to meet China and India's domestic demand. This is critical both to ensure the food security of this large segment of the world populace, which also includes 23% of the total population of the world who live on less than US $1.90/day, as well as to avoid potential grain market destabilization and price hikes that arise in the event of large import demands.

Crowding-in or Crowding-out? Modelling the Relationship between Public and Private Fixed Capital Formation Using Co-integration Analysis: The Case of Pakistan 1964-2000

This paper uses the Co-integrating VAR’s [Johansen (1988); Ericsson, et al. (1998)] to examine the relationship between economic growth, public investment, and private investment in the presence of unit roots. Exogeneity is not implicitly assumed but explicitly tested for, and evidence of co-integration and feedback between public and private investment leads to a model in the form of a parsimonious VAR. The analysis is conducted using 37 years of annual data for Pakistan. The analysis suggests that public investment has a positive impact on private investment, and that economic growth drives both private and public investment as predicted by the accelerator-based models.

Overhead Costs and Financial Performance of Selected Deposit Money Banks in Nigeria

The study empirically evaluated the sensitivity of financial performance to overhead cost of deposit money banks in Nigeria. It adopted the ex post facto research design as secondary data were used. It spanned a 12 year period (i.e. 2009 to 2020). Specifically, it attempted to ascertain the extent and nature of the relation between the predictors (audit fees, director’s remunerations and salaries and wages) and return on equity. Diagnostic tests carried out indicated presence of unit roots and heteroskedasticity. Panel least squares regression analysis (Random Effects GLS Regression) showcased the statistical relevance of these associations. While audit fees and natural logarithm of total assets positively exerted very strong and insignificant impacts on return on equity, salaries and wages and director’s remunerations negatively exerted very strong and insignificant impacts on return on equity. Financial firms’ profits are highly influenced by these overhead expenses as they mimic heavy personnel and other costs culture of governments locally. Various components of overhead costs including audit fees, director’s remunerations and salaries and wages incurred in the banking system should be given due priority so as to achieve the desired financial performance.

Does freight and passenger transportation industries are sustainable in BRICS countries? Evidence from advance panel estimations

Freight and passenger transportation profoundly impacts environmental degradation due to the higher fossil fuel consumption and respective emissions. Therefore, this study explores the impact of freight and passenger transportation on environmental pollution (particulate matter 2.5(PM 2.5)) in BRICS countries using annual data from 1990 to 2018. We employed various advanced econometric approaches to handle issues arising from panel data, such as the presence of unit root, cross-sectional dependency, structural break, and parameters heterogeneity. The overall results show that freight and passenger transportation significantly contribute to a higher concentration of PM 2.5; however, the impact of freight transportation is almost double that of passenger transportation. Similarly, economic growth also caused higher environmental pollution. Moreover, this study confirms the presence of the Environmental Kuznets Curve hypothesis in the long run. These results provide valuable suggestions to achieve a sustainable environment.

Dynamic of Risk Management and Intermediate Functions of Commercial Banks: The Supply Side Evidence from Nigeria

This study investigated the relationship between risk management and financial intermediation of quoted commercial banks in Nigeria. Panel data were sourced from the Nigeria Stock Exchange for a period that spans 2009 to 2018. Financial intermediation was measured domestic credit of the commercial banks. Domestic credit was modelled as the function of Risk diversification, Basel compliance, risk transfer, credit securitization and risk retention and risk evaluation. Multiple regressions were formulated to ascertain the relationship between risk management and capital investment decision of commercial banks. Panel Unit root test was utilised to establish the stationarity of the data. Panel cointegration, and granger causality test analyse the data. The panel unit root test proved presence of unit root at first difference and concluded that the variables were integrated in the order of 1(I). The study found that, there is a significant relationship between risk management and domestic credit decision, of the quoted commercial banks. The panel cointegrations show the presence of long run relationship between the endogenous variables and the exogenous variables while the granger causality test found uni-directional causality among the variables. From the findings, the study concludes that risk management have significant relationship with domestic credit decisions of the commercial banks. The study recommends that to mitigate the riskiness of banking operations, more avenues for risk diversification should be explored. Although Basel compliance enhances domestic credit decision, its implementation should be done cautiously and in consideration of the intricacies and peculiarities of the Nigerian banking space, as it impinges on most domestic credit decisions.

Impact of Export and Import on 40 years Economic Growth in the Philippines

The Philippine economy, as a newly industrialized country, remained to be resilient and competitive enough to be one of the five growth performers in the region. As the country grows, it faces greater challenges towards its aim for development. Same way as other developing nations, the Philippines still experience a trade deficit. This situation in the economy must take into consideration seeing that the balance of trade is considered as one of the key components in measuring the relative strength of the country’s economy.
 This research investigates the association between export, imports, and economic growth in the Philippines. The study collected trade balance indicators and economic output for the period of 1978 to 2017. The unit root test was employed to test the presence of unit root at level and first difference. Vector Autoregression analysis was used to the relationship exist among variables. The result determined that the past value of imports have a significant impact on the Economic Output measured in terms of GDP. On the export side, the Wald test statistics showed that the previous values of export jointly could influence the Gross Domestic Output. These results provide evidence that exports and imports can influence economic growth in the Philippines.

Unit roots in real primary commodity prices? A meta-analysis of the Grilli and Yang data set

The long-run behavior of real primary commodity prices, especially whether these series are trend stationary or contain a unit root, has been a topic of major debate in applied economics. In this paper, I perform a meta-analysis and combine the evidence of 12 representative studies on the subject in order to reach a unified conclusion about the presence of unit roots in these prices. The studies use different testing procedures, but share the common null hypothesis of a difference stationary process. Also, they use the individual price indices from the Grilli and Yang data set that is arguably one the most popular sources of long-term data on commodity prices. The combined evidence against unit roots in real primary commodity prices is strong: out of 24 cases, the unit root is not rejected in at most four. This rate means that real primary commodity prices are mean reverting and thus, to some degree, forecastable.

Tourism demand from Europe to Mexico, 2005-2018: A cointegration analysis

This paper analyzes tourism demand in the countries of Europe for Mexico from 2005 to 2018. Unit root and cointegration tests in panel data are applied. Results indicate that there is presence of unit roots in the variables. A long-term equilibrium relationship was found among tourism demand, real exchange rate, and income, and also there are bidirectional causality relationships between these variables. The positive relationship among the variables implies that a depreciation of the domestic currency and a higher level of income of the releasing countries would generate greater tourism demand in Mexico.

Bayesian Unit Root Test for AR(1) Model with Trend Approximated

The objective of present study is to develop a time series model for handling the non-linear trend process using a spline function. Spline function is a piecewise polynomial segment concerning the time component. The main advantage of spline function is the approximation, non linear time trend, but linear time trend between the consecutive join points. A unit root hypothesis is projected to test the non stationarity due to presence of unit root in the proposed model. In the autoregressive model with linear trend, the time trend vanishes under the unit root case. However, when non-linear trend is present and approximated by the linear spline function, through the trend component is absent under the unit root case, but the intercept term makes a shift with r knots. For decision making under the Bayesian perspective, the posterior odds ratio is used for hypothesis testing problems. We have derived the posterior probability for the assumed hypotheses under appropriate prior information. A simulation study and an empirical application are presented to examine the performance of theoretical outcomes.

Trade Openness for Developing Nations: A Charade or Desideratum for Viable Commodity Export Performance

Openness to trade is one basic factor spotted as major determinant of whether a country is prone to sudden stops in capital inflow, product glut, or severe economic recession. To some researchers, trade openness raises vulnerability to sudden shocks and creates difficult economic scenario; to others, it makes adjustment to crises less painful and stimulates effective economic performance. It is on the premise of the foregoing arguments that this study sought to evaluate the effect of trade openness on primary commodity export trade. To achieve this, the study utilized disaggregated oil and nonoil primary commodity export data and Gross Domestic Product (GDP) from Nigeria for a period of 30 years (1989-2018). Data were first subjected to diagnostic tests aided by STATA econometric to check the presence of unit root, multicollinearity and autocorrelation. Cointegration analysis was performed using Johanson and Juselius maximum likelihood estimation. Diagnosed data were regressed to generate optimal multivariate estimators of the cointegrating parameters at 95% level of confidence. Trade openness was negative but not significant on nonoil export. It was however positive but not significant on oil export. The paper concludes that while trade openness could be permissible on oil export in Nigeria, it is a charade on nonoil export. The study therefore recommends among other things the adoption of partial openness policy in developing nations especially Nigeria such that will involve the employment of liberal trade in the oil export subsector and trade protection in the nonoil subsector respectively.

Exploring the Cointegration Relation among Top Eight Asian Stock Markets

Asian stock market faces many favorable and unfavorable incidents of collapsing internal market in last decades. The local investors are interested especially in the countries like China, Malaysia, UAE and Bangladesh which are politically, geographically and strategically important as investment portfolio point of view. The investors have experience of moving many markets together in long run which is a bad news for investors to diversify their investment in different markets. Therefore, the objectives of the study is to find the direction and short and long run association among top eight Asian stock Markets by applying Johansen cointegration test and Granger Causality Test. The augmented unit root test and Phillips-Peron proved the presence of unit root in data at level. The cointegration analysis test based on trace statistics shows five cointegrating equation, while the maximum eigen valve test indicates two cointegrating equation at 5 percent significant level. Results imply that these markets are strongly cointegrated in long term which can diversify local and foreigner investors. The Granger Causality shows that 13 pairs of markets are bidirectional while 12 pairs are unidirectional and 3 pairs have no causality. From the result it is obtained that integrated markets are useful for decreasing the chances of financial stability and asymmetric shocks, which can strengthen the capability of the economy to absorb the shocks and adequate the risk of international financial contagion. It is concluded that for investor views there are still possibilities for efficient portfolio diversification across these markets. In addition further study should be carried out to find the reason of cointegration.

Persistence of the Misery Index in African Countries

This paper deals with the analysis of the misery index in a group of 55 African countries by using fractional integration or I(d) techniques. In doing so, we can measure the degree of persistence of the index in a more flexible way than with other methods that simply use integer degrees of differentiation (zero or one). Our results indicate a large degree of heterogeneity across the countries, with some showing short memory behaviour (d = 0); others long memory mean reverting behaviour (0 < d < 1) and others indicating the presence of unit roots (d = 1). Thus, shocks will have different effects depending on the country examined. Generally, we also find a positive relationship between the levels of persistence and income.

Are regional crime rates in India natural?

Crime has been around for as long as the human society. The present study examines whether there is a natural rate of crime in India at both national and state-level using annual data for aggregate and specific crime types. The presence of unit root in crime rate series has been investigated by accommodating endogenously determined structural break point. The empirical analysis indicates that most of the regional crime rates series are stationary which implies the existence of natural rate of crime in India. Based on our findings it is suggested that India should focus on improving the socioeconomic status of the general masses instead of devoting more resources to short-term measures of reducing crime rates. In addition, the state-level social profiles should be taken into consideration for articulating crime-fighting policies.

The Nexus between Export and Economic Growth in Tanzania

This study explored the causal relationship between exports and economic growth in Tanzania. It analyzed time series data for the period of 1980 to 2015. Economic growth is measured in terms of growth per cent while exports are measured in percentage change of goods and services sold abroad. Econometrics analysis was employed in the due course. Such procedures as testing for the presence of unit root, co-integration and causality were done. Furthermore, the Johansen co-integration and Granger causality tests were employed to examine the long-run relationship among variables. The results of co-integration indicate the existence of one co-integrating equation. The causality test results exhibited causality which runs from economic growth to exports. The results conclude that, in the long run, there is a relationship between exports and economic growth in Tanzania. This study recommends the Government to make efforts to improve exports and eventually, in the long-run, rejuvenating the economy.

Modeling the Impact of Foreign Equity, Foreign Debt and FDI on Indian Economic Growth Through VECM Approach

Foreign portfolio investment and foreign direct investment are the backbone of any economy as well as contributing to the growth of all developing economies. Herein, it motivated to do the study by investigating the causality between foreign investment and economic growth in India. To find out the exact causation effectively, we have employed a vector error correction model method of causality. The testing time series data period is from 1993 to 2017. Here, in this study, we converted annual gross domestic product and foreign direct investment data into monthly figures. For this we used econometric disaggregation techniques know as linear spline interpolation method for monthly data conversion. ADF unit root test confirms the presence of unit root at level and stationary at first difference. Johansen co-integration test is done after achieving the stationarity and it shows those variables are co-integrated. Whereas Granger causality test results show no-causality exists between (i) FDI and GDP (ii) GDP and FDI (iii) FE and GDP (iv) FD and GDP (v) FE and FDI (vi) FD and FDI (vii) FE and FD and uni-directional causality exist between GDP and FE (ii) GDP and FD (ii) FDI and FE (iv) FDI and FD (v) FD and FE. The results advocates that FDI, FE, FD boost the economic growth of India.

RELATIONSHIP BETWEEN BOARD CHARACTERISTICS AND FIRM FINANCIAL DIVERSIFICATION (GEOGRAPHIC SALES) AMONG LISTED FIRMS ON NAIROBI SECURITIES EXCHANGE, KENYA: STATIC PANEL APPROACH

Purpose: The purpose of the study was to determine the relationship between board characteristics and firm financial diversification (geographic sales) among listed firms on Nairobi securities exchange, Kenya: static panel approach.Methodology: Fisher and Levin-Lin-Chu tests were used to test the presence of unit root in the series under study. Hadri residual-based Lagrange multiplier test was used to determine the feasible model.Results: Results revealed existence of positive and significant relationship between interlock directorship and geographic diversification as positive and significant directors' remuneration had a negative and significant effect on firm's geographic sales, while operational risk negatively varied with geographic sales Agency Theory, free cash flow hypothesis Resource Based view theory provided theoretical framework. Directors' remuneration negatively impacted geographic sales but did not explain diversification in relation to national sales. This study affirmed the managerial heuristics as determinant of firm financial diversification providing support to the convectional financial dimensions of firm performance particularly ROE, ROI and EPS.Unique contribution to theory, practice and policy: The Government of Kenya and Capital Market regulator should enact and implement legislations that guides on interlock directorship, directors remuneration diversity and tolerable operational risks as determinants of diversification