Results Of Error Correction Model Research Articles

INVESTIGATING THE RELATIONS BETWEEN COFFEE PRICES AND THE GROWTH OF SELECTED COFFEE EXPORTING COUNTRIES

Coffee, one of the most important commodities traded in the world, is mainly grown in Latin America and Africa under certain altitudes and climatic conditions. In this study, causality relationships between world coffee prices and GDPs of four coffee producer countries, two from Latin America (Brazil and Colombia) and two from Africa (Kenya and Ethiopia), were tested. Using the series from 1981-2021, the relationships were investigated empirically with Engle-Granger cointegration analysis, error correction model, and Toda-Yamamoto causality methods. According to the analysis, while unidirectional causality between GDP and world coffee price was found for Brazil, Colombia, and Kenya, there was no causality for Ethiopia. As a result of the Engle-Granger cointegration analysis, which tests the long-term relationship, a significant relationship has been found between GDP and coffee prices for all selected countries. According to the results of the error correction model results model that tests the short-term relationship, the relationship between GDP and world coffee price is obtained for Brazil and Colombia. However, such a relationship could not be found in Kenya and Ethiopia.

The Role of Currency Fluctuations in Shaping Kenya’s Export Performance

This study explores the impact of exchange rates on Kenya’s export performance from 1990 to 2022. The study utilizes a causal research design and time series data to assess the influence of exchange rate fluctuations, volatility, and relative price levels on export volumes and their contribution to GDP. Descriptive statistics reveal considerable variability, with exports displaying slight positive skewness and exchange rates exhibiting a slightly left-skewed distribution. Unit root tests confirm non-stationarity in the level forms of exports, exchange rates, the export unit value index, and the price level ratio, which become stationary after first differencing, thus suitable for econometric modeling. The Vector Error Correction Model results indicate insignificant long-run effects of exchange rates, export unit value index, andprice level ratio on exports, despite significant short-run adjustments correcting deviations from the long-run equilibrium by approximately 73.4% per period. Short-run analyses show insignificant effects of lagged exchange rate andexport unit value index differences on exports, while price level ratio exhibits a marginally significant negative effect. The research emphasizes the necessity for stable exchange rates to foster a predictable export environment, crucial for attracting investments and sustaining economic growth. The study recommends diversification of Kenya’s export base, enhanced competitiveness through technological advancements and skill development, and creation of financial instruments to mitigate exchange rate risks. Strengthening export promotion initiatives and improving data collection and research are also advocated to support informed policymaking. The study’s findings are pertinent to policymakers, investors, and researchers, highlighting how currency fluctuations affect economic stability, job creation, and living standards.

EFFECTS OF CORONAVIRUS PANDEMIC ON STOCK MARKETS IN THE EUROPEAN UNION

The world is undergoing one of the biggest economic crises since the 1929 Great Depression with the coronavirus pandemic. The emergence of the COVID pandemic, before the effects of the 2008 global economic crisis have not evaded, triggered the dynamics of the economic crisis again. The European Union (EU) economy is also deeply affected by the crisis. This paper explores the relationship between the number of coronavirus disease 2019 (COVID-19) cases and Europe's most important stock market indices by using time series analysis. While performing the analysis, three different models were created. In this context, the number of cases of COVID-19 has been used as independent variables, while DAX Index, CAC 40 Index, and Euronext 100 Index have been tested as dependent variables, respectively. The analysis results prove that there is a long-run cointegration relationship between variables. We also found that the Error Correction Model results are statistically significant. Consequently, the results of the estimator determine that the COVID-19 negatively affected the European stock markets.

Research on the correlation between offshore and onshore RMB spot exchange rates based on VAR-ECM model

This paper selects the daily data of offshore and onshore RMB spot exchange rates from 2012 to 2022 to establish a first-order VAR model to study the correlation between offshore and onshore RMB spot exchange rates. On this basis, an ECM model is established to further analyze the error correction term of the previous period and the impact of the fluctuation of the other party in the same period.Through empirical research, it is found that there is a cointegration relationship between the spot exchange rate of offshore RMB and onshore RMB and they are Granger causality. On the whole,there is a positive relationship between them. Specifically, the offshore and onshore RMB spot exchange rates have a certain time lag in the transmission of market information, which will lead to the emergence of arbitrage opportunities. Through the analysis of variance decomposition and error correction model results, it is found that the impact of the onshore RMB market on the offshore RMB spot exchange rate fluctuation is close to 50%, while the offshore impact on the onshore RMB exchange rate fluctuation is less than 30%, indicating that the onshore RMB is currently in the dominant positionthe of exchange rate influence mechanism.Based on this conclusion, it is suggested that government pay attention to the impact of onshore RMB market, continuously improve the order of the onshore RMB market, promote the healthy development of offshore and onshore RMB markets, thus promoting the internationalization of the RMB.

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

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

The Justices’ Words: The Relationship between Majority and Separate Opinions

Majority and separate opinions reflect the justices’ deliberations and strategic decision-making. As justices try to shape the legal outcome, private disagreements during the opinion-writing process spill out into the open, becoming the written words of majority and separate opinions. In this article, I ask how justices use separate opinions to shape the law. I argue that the length of an opinion provides a reasonable proxy of the law and the Court’s decision-making at work. Using time series techniques on the number of words in majority and separate opinions from 1953–2009, I examine whether there is a relationship between the number of words in majority and separate opinions. I demonstrate there is a fractional cointegration relationship between majority and separate opinion length. The majority and separate opinion relationship means there will not be a time in which the Court produces incredibly long separate opinions and succinct majority opinions, or lengthy majority opinions and brief separate opinions. I also find that separate opinion length causes the majority opinion to be shorter or longer. Error correction model results indicate that discussions that occur in one term do not conclude when the Court’s term ends, the effects continue in subsequent terms and cases. The law, as the Court generates it in its majority opinions, is shaped by separate opinions.

Application of Error Correction model with monetary function factors in the return of bitcoin

Bitcoin is a kind of virtual currency based on block chain technology. In many scenarios, it shows the function of currency to a certain extent. However, many believe that the value of Bitcoin is hollow, speculative and unable to undertake monetary functions, which prevents it to circulate as a real currency. This paper assumes that Bitcoin can undertake monetary functions, which can verify the relationship between monetary functions and Bitcoin earnings. According to the availability of the data and the previous research results, the monthly value of the indexes to measure the monetary function from 2010 to 2020 are selected to form a regression equation with the monthly return data of Bitcoin in the corresponding period. ADF test shows that the explained variable is a first-order simple integer, and the explanatory variables have both first-order simple integer and stationary sequence, and there is a cointegration relationship between them. The result of error correction model shows that the relationship between Bitcoin rate of return and the relevant indicators to measure monetary function is not significant, which rejects the original assumption that Bitcoin can assume monetary function, indicating that Bitcoin does not have the ability and potential to assume monetary function. This may be due to the speculative nature of Bitcoin and the lack of powerful credit support. Therefore, investment in Bitcoin needs to be cautiously thought, but the blockchain technology used in Bitcoin needs to be vigorously developed, which could lead to a technological revolution; in addition, it is momentous for countries to develop digital currencies of central bank to meet the challenge.

Domestic demand, export and economic growth in Sri Lanka

Export and domestic demands are both important for economic growth and economic growth has a significant impact on export and domestic demand. The main objective of the study is to identify the impact of domestic demand and export on economic growth in Sri Lanka during the period from 1977-2019. To accomplish the objective, the Johansen co-integrated test is used to investigate the long-run relationship and the Granger causality test is used to identify the direction of flow between variables. Household final consumption, Government final consumption and Gross fixed capital formation variables were used as the domestic demand variables; the value of exports is treated as export demand for national goods and services and economic growth proxied by gross domestic product. The result of Johansen co-integration test indicated the existence of the long run relationship among the variables. The results of Error correction model indicated that household final consumption, gross fixed capital formation and export have positive and statistically significant impact on economic growth in the long-run. Moreover, no independent variable in the model affected gross domestic product in the short-run. However, general government final consumption expenditure has a negative impact on economic growth in the long- run. The Granger causality test result shows a dynamic relationship between domestic demand and economic growth and between export and economic growth in Sri Lanka.

Role of social distancing in tackling COVID-19 during the first wave of pandemic in Nordic region: Evidence from daily deaths, infections and needed hospital resources

ObjectivesTo measure the effect of social distancing on reducing daily deaths, infections and hospital resources needed for coronavirus disease 2019 (COVID-19) patients during the first wave of the pandemic in Nordic countries. MethodsThe observations of social distancing, daily deaths, infections along with the needed hospital resources for COVID-19 patient hospitalizations including the numbers of all hospital beds, beds needed in ICUs and infection wards, nursing staffs needed in ICUs and infection wards were collected from the Institute for Health Metrics and Evaluation (IHME) by the University of Washington. The observations of social distancing were based on the reduction in human contact relative to background levels for each location quantified by cell phone mobility data collected from IHME. The weighted data per 100,000 population gathered in a 40-day period of the first wave of the pandemic in Denmark, Finland, Iceland, Norway and Sweden. Statistical technique of panel data analysis is used to measure the associations between social distancing and COVID-19 indicators in long-run. ResultsResults of dynamic long-run models confirm that a 1% rise in social distancing by reducing human contacts may decline daily deaths, daily infections, all hospital beds needed, beds/nurses needed in ICUs and beds/nurses needed in infection wards due COVID-19 pandemic by 1.13%, 15.26%, 1.10%, 1.17% and 1.89%, respectively. Moreover, results of error correction models verify that if the equilibriums between these series are disrupted by a sudden change in social distancing, the lengths of restoring back to equilibrium are 67, 62, 40, 22 and 49 days for daily deaths, daily infections, all hospital beds needed, nurses/beds needed in ICUs and nurses/beds needed in infection wards, respectively. ConclusionProper social distancing was a successful policy for tackling COVID-19 with falling mortality and infection rates as well as the needed hospital resources for patient hospitalizations in Nordic countries. The results alert governments of the need for continuously implementing social distancing policies while using vaccines to prevent national lockdowns and reduce the burden of patient hospitalizations.

A technological innovation and economic progress enhancement: an assessment of sustainable economic and environmental management.

This study examines the role of technological innovation and economic progress on environmental pollution by using STRIPAT and EKC theoretical frameworks in 25 developing Asian countries from the period 1998 to 2019. For technological advancement, the energy intensity has been used to gauge how much of the quantity of energy is employed to produce the additional unit of gross domestic product at domestic level. Therefore, the volume of the energy used in the production process is highly important as it is documented through the energy intensity. To capture the impact of innovation, the sum of total patent applications and trademark applications for the sampled countries has been used. This study applied second-generation unit root and panel cointegration techniques to estimate the results. To estimate the long-run relationship of variables and the cross-sectional interdependence, Pedroni Residual and Westerlund Cointegration tests are applied. Further, the Hausman-Taylor-type test has been used to check the efficiency of the pool mean group (PMG). The results of PMG regression confirm the existence of EKC in the developing Asian countries. The results of this study showed that technological development, innovations, and economic progress have the potential to reduce carbon emission and to protect the environment in developing Asian economies. Moreover, the results of error correction model indicate that in case of any external shock, this model will converge towards equilibrium within 64.6 years. The study proposed that a policy framework related to technological innovations should be sustained and the advancement of human capital and research and development should be the primary focus of the developing nations to mitigate the environmental challenges.

WILL THE HOUSING WEALTH EFFECT COMPENSATE THE MACRO-ECONOMY? EVIDENCE FROM TAIWAN’S DOMESTIC CONSUMPTION

This paper examines the relationship between the escalation in housing prices and categories of Taiwan’s domestic consumption. While disposable income remains constant, a rapid escalation in housing prices should have a negative impact on unaffordability within society. However, under the hypothesis of the housing wealth effect, an increase in housing values should compensate the macro-economy by increasing consumption in the GDP calculation. Taiwanese data from 2007Q1 to 2018Q1 were adopted as the sample. From the vector error correction model results, it was found that over the course of the long-run equilibrium relationship, there was a statistically significant positive relationship that the society consumes more on durable goods of communication-related nature, as well as on non-durable goods such as personal clothing and accessories and leisure/cultural tourism. As for the short-run dynamic adjustment, there was a statistically significant positive relationship that the society consumes more in the durable goods component categories. It was identified that transportationrelated consumption accounted for the major part of the durable goods component. Therefore, with the rapid escalation in housing prices, it was observed that these consumption would compensate the consumption figures in the GDP calculation in Taiwan, thereby providing evidence that housing prices were related to macroeconomic performance.

Natural Disasters in Nigeria: An Econometric Model

This paper models and estimates the occurrence of natural disaster in Nigeria using the residual-based test for cointegration within an autoregressive distributed lag (ARDL) framework and error correction specification between the period 1970 and 2016, the results from the estimated static model shows that DLOG(TEM), LOG(GDPC) and LOG(URB) are long-run determinants of natural disasters in Nigeria. The short run error correction model results revealed that the coefficients of DLOG(CO2), DLOG(WIS), LOG(GDPC), LOG(URB), DLOG(GDPC(-2)) and LOG(URB(-1))seem to be significant and helpful in explaining the occurrence of natural disaster (NAD)in Nigeria. The error correction term shows that speed of adjustment of disequilibrium in natural disaster (NAD) in the previous year which is corrected in the current year is about 44.3 percent. Therefore, Nigerian government should among other recommendations embark on reducing urbanization growth by making sure that industries which forge linkages with rural occupations should be promoted to mitigate a high rural-urban migration. Establishing of very effective early warning systems for meteorological, geophysical, biological, social and industrial hazards should be ensured.

Identifying relationship between macroeconomic and fiscal policy variables for EU countries and Turkey

Following the 2008 global financial crisis, the European Debt Crisis has affected the world economy more than any other event. The member states of the European Monetary Union have deviated from the Maastricht Convergence Criteria (MCC) and this has led to the European Debt Crisis. We have used the 2000 Q1–2011 Q4 data and multivariate time series and panel data analysis for determining the relationship among the variables that establish the MCC comprising inflation, burden of net public debt, interest rate, budget deficit and exchange rate. The vector autoregression model/vector error correction model results have showed that there is an interaction between the variables. However, the panel cointegration results have confirmed increases in budget deficits and interest rates will increase the burden of net public debt and inflation will decrease it.

Are Bank Credit Risks Linked to Sovereign Credit Risks? Evidence from the Euro Area

We study the link of sovereign and bank credit risks in the euro area by extracting default information from the most liquid 5Y CDS spreads over the period 2010-2014. Using German CDS spread and iTraxx financials index as proxies for systemic default risk of sovereigns and banks, we estimate the systemic credit risk and idiosyncratic credit risk of each sovereign and bank. We find that after controlling for both global macroeconomic shocks and country-specific risks, idiosyncratic sovereign credit risk change can explain bank credit risk change. We also find that co-integration between sovereign and bank only exists in Belgium and Greece. Results of error correction model reveal that credit risk of Belgian bank Granger-causes sovereign credit risk due to the massive government bail-out while in Greece this is not found since the crisis is rooted in the high fiscal deficit of Greek government.

Capital Flight and Foreign Direct Investment

To systematically study the relationship between foreign direct investment inflow (FDI inflow) and capital flight, this chapter uses yearly-data in 1984-2012 in China, sets up two propositions and applies our model to explore the micro-relation and macro-relation between FDI inflow and capital flight.At proposition (4-1), we can find that the estimated values of long-term foreign direct investment inflow (FDI inflow) and long-term capital flight are significant correlation. Then, under Augmented Dickey-Fuller test (ADF test) or Philips-Perron test (PP test), the residuals reject the null hypothesis with statistical significant at 5% level, which implies that the result is stable. Causal test also shows that the relation between FDI inflow and capital flight is Granger causal. Besides, results of error correction model (ECM) show that FDI inflow and capital flight, they are not only have the long-term positive relation, but also have short-term dynamic relationship. So we can find the proposition (4-1) is true.At proposition (4-2), at first, we can find that the estimated values of long-term FDI inflow and long-term export are obviously correlated with statistical significant at 1% level, the R square value reaches highly level at 0.9, and they imply the model is good to fit. Next, results of error correction model show that FDI inflow and export, they are not only have the long-term positive relation, but also have short-term dynamic relationship. So we can find the first part of proposition (4-2) is true, which means that if FDI inflow increases, export will grows, too.Finally, for the remainder of proposition (4-2), at first, we can find that the estimated values of long-term capital flight and long-term export are obviously correlated. Then, under ADF test or PP test, we can find the remainder of proposition (4-2) is true, which means that if export grows up, capital flight will increase, too. In short, FDI inflow increase, export will grows apparently, capital flight will increase obviously which will attract more FDI inflow.

Unionization and the partisan effect on income inequality

Does partisanship matter for income inequality? The empirical evidence is notably mixed. I argue that these inconsistent findings are partly the result of scholars not (properly) modeling the relationship between unionization and the partisan composition of government. If we accept that union members favor greater government intervention to reduce economic inequalities than non-union members, politicians desire to hold elected office and be popular but also to implement particular public policies, and left party politicians share union members’ policy preferences to a greater extent than center and right party politicians, then partisan differences should be greatest at moderate levels of unionization, a condition that allows all politicians to pursue their policy preferences while maintaining electoral viability. The empirical analysis examines 16 wealthy democracies between 1970 and 2010. The results of error-correction models confirm the theoretical expectation and hold regardless of whether there is a majoritarian or proportional representation electoral system.

The Relationship between Stock Return and Monetary Variables: A Case Study for Iran

The purpose of this study is to investigate the effects of interest rate, inflation, money supply and exchange rate on the stock market index in Iran over the period 2001–2013. A vector error correction model (VECM) approach to cointegration analysis is used to study both the short-run and long-run movements of Tehran stock market. The results show that the value of interest rate, inflation and exchange rate have significant negative effects on the stock index in Iran. The results also indicate that the money supply has a significant positive effect. The result of error correction model indicates that 0.28 percent of the deviation of the stock index from its equilibrium path is corrected in each period.

The Causal Relationship among Foreign Direct Investment, Domestic Saving and Economic Growth in Jordan during the Period (1975–2013)

The research aims at analyzing the causal relationship among Foreign Direct Investment, Domestic saving and Economic Growth in Jordan during the period (1975–2013).The Co-integration Test of Johansen shows that foreign direct investment and domestic saving are in the long run relationship with real income growth in Jordan. Whereas, the impact of foreign direct investment on economic growth is statically significant while the impact of domestic saving is not statistically significant on economic growth in the long run in Jordan.The results of error correction model show that: ECT (Error Correction Term) is 5.5619%, negative and statistically significant at ?= 1% which means that the short run values of GDP converge it's long run equilibrium level by 5.5619% speed of adjustment every year by contribution of Foreign Direct Investment (FDI) and Domestic saving (DS) in Jordan.Granger Causality Test show that foreign direct investment in Jordan is output and saving driven which means that if income and saving increases, Jordan will attract more foreign direct investment.

An Empirical Analysis of Stock Market Performance and Economic Growth: Evidence from India

This study aims to investigate whether the stock market performance leads to economic growth or vice versa; study also examines short-run and long-run dynamics of the stock market. We use of monthly Index of Industrial Production (IIP) and quarterly Gross Domestic Production (GDP) data for the time span of April, 1996 to March, 2009. This provides rich data for the empirical analysis. We undertake; Unit root (ADF, PP and KPSS) tests, Granger Causality test, Engle-Granger Cointegration test and Error Correction Model. The monthly results of Granger causality test suggest that there is a bidirectional relationship between IIP and Stock prices (BSE and NSE) and quarterly results reveal that there is no relationship between GDP and BSE but in the case of NSE and GDP there is a unidirectional relationship and that runs from GDP to NSE. The Engle-Granger residual based cointegration test suggests that there is a long-run relationship between the stock market performance and economic growth. Similarly, the results of error correction model reveal that when the long-run equilibrium deviates then the economic growth adjusts to restore equilibrium by rectifying the disequilibrium. This study provides evidence in favor of ‘demand following’ hypothesis in the short-run. Main contribution of the study is in identifying the role of economic growth in stock market development.

Determinants of household saving: Cointegrated evidence from Pakistan (1975–2011)

The purpose of this study is two-fold: firstly, to analyze the long run relationship between household saving and various socio-economic and demographic variables and secondly, to determine the short run and the long run impact of various socio-economic and demographic variables on the household saving rate in Pakistan. The relationship between household saving and various socio-economic and demographic variables is analyzed by applying Johansen cointegration analysis. Furthermore, Error Correction Model is also estimated in order to find out the convergence of the model towards equilibrium. The results show that there exists a long run relationship between household saving and the variables used in the study, while the result of Error Correction Model reveals that about 45% convergence towards equilibrium takes place every year.