Unrestricted Vector Autoregression Research Articles

The Effects of Government Borrowing to Investment Growth of the Country

Government borrowing has emerged as one significant method that helps in mobilization of resources for economic growth especially in emerging economics. Most governments in developing economies resort to borrowing as a way of financing budget deficit. This paper identifies the effects of government borrowing to investment growth in the Philippines. Specifically, it presented the trend of gross domestic product, internal debt, and external debt from 1990-2020. The study used Johansen Co-integration, Granger Causality, and Vector Autoregression (VAR) models to analyze this study. Johansen’s Co-integration analysis revealed that the gross domestic product (GDP), internal debt (ID), and external debt (ED) are rejected at a 5% significant level and showing that all relevant variables have a long-term relationship and the data are co-integrated. On the other hand, unrestricted VAR model, there exist a relationship between gross domestic product (GDP), internal debt (ID), and external debt (ED). The Granger Causality test result revealed the direction of the causal relationship between independent and dependent variables; gross domestic product, internal debt, and external debt at the 5% significant level.

Spillover effects and transmission of shocks in Visegrad equity markets

PurposePaper aims to investigate the interdependencies and spillover effects that the Visegrad (V4 hereafter) Equity Markets hold on each other. The V4 group stands for the political alliance of four Central European countries: Poland, the Czech Republic, Hungary and Slovakia.Design/methodology/approachThe study uses Wavelet coherence, dynamic conditional correlation GARCH (1, 1) and unrestricted vector autoregression (VAR) methodologies. Daily data series (covering the period from January 2, 2006, to February 2, 2023) are analyzed to assess coherence, time-varying conditional correlation and shock transmission among the V4 Equity Markets.FindingsWavelet analysis reveals that the Slovak equity market does not maintain coherence with three other equity markets. The time-varying conditional correlation documents for the high interdependence during the COVID-19 outbreak of the four indexes. The VAR estimates reveal that shocks in the Warsaw equity market are easily transmitted in Prague and Budapest exchanges but not in Bratislava. The results show that the Slovak equity market tends to be isolated from the influence of other three V4 exchanges. This isolation is attributed to its size, limited volume and adoption of the euro in 2009. The study emphasizes the Slovak financial system’s gravitation toward the Eurozone after euro adoption.Originality/valueNotably, the findings provide important signals for local and international investors as the results cover four significant international shocks. The global meltdown of 2008/09, the Greek debt crisis of 2010/11, the COVID-19 pandemic and the Russia-Ukraine war.

Financial development and non-resource economic growth: Empirical evidence from Azerbaijan

Most research on financial development and non-resource economic growth presents a wide range and, in some cases, even conflicting results. Evidence from emerging and resource-rich countries may enrich the scientific discourse with new empirical evidence. Therefore, the study aims to assess the mutual impact of financial development and non-resource economic growth in Azerbaijan. The growth rate of real non-oil gross domestic product (GDP), the share of loans in non-oil GDP, and the share of the broad money in GDP were taken as variables for the model. Monthly variable data from 2005–2022 were processed using the unrestricted vector autoregression model. The study’s results did not provide evidence for long-run causality between the finance sector and non-oil growth. But there are short-run and unidirectional causal relationships – from loans to non-oil growth and from broad money to loans. The results also showed that the increase in loans does not support broad money growth. Policymakers are encouraged to increase incentives for lending to the non-oil sector. Supporting money supply growth through increased deposits and non-cash money could also positively impact non-oil growth through loan channels. The development of the securities market could also open up additional financing opportunities for entrepreneurs in the non-oil sector. AcknowledgmentsAcknowledgments are expressed to all the scientists whose works have become a theoretical and methodological foundation for the study. It is also necessary to note the Central Bank of the Republic of Azerbaijan, which provides open access to the use of an extensive information base.

An Analysis of the Effect of Naira Devaluation on Nigerian Balance Of Trade

This study investigates the effect of naira devaluation on Nigerian balance of trade using time series data from 1986 to 2021. The study examined the long run and short-run equilibrium relationship between devaluation and trade balance over the study period. The study used unrestricted Vector Auto Regression (VAR), Co-integration and Vector Error Correction Mechanism (VECM) technique in the analysis of data. The variables currency devaluation (CDV), Export rate (EXPT), Import rate (IMPT) and Trade balance are found to be 1(1) variables, while Interest rate (INTR) is found to be 1(0) variables. Based on the VAR Co- integration test result, it indicates long-run equilibrium relationship among the variables. The error correction term was correctly signed and statistically significant. The estimates from the VAR model showed both positive and negative shocks running from naira devaluation to trade balance, export rate, import rate and currency devaluation based on the past and current values. The study concluded that, naira devaluation have positive and significant impact on trade balance of Nigeria. The study recommended that, Government should improve this indigenous innovation to meet up with international standard as a means to reduce dependence on import and encourage production of competitive goods and services, as export becomes cheaper after devaluation, it is expected that Nigeria as a country will immensely improve on its exported goods and increase the output of exportable goods which will leads to favorable balance of trade among others.

Analysis of the Impact of Remittance Inflows on Economic Growth: Evidence from Nigeria

This study investigated the impact of remittances on economic growth of Nigeria using time series data from 1986 to 2018 by examining the long -run and short-run equilibrium relationship between remittances and economic growth. The study used unrestricted Vector Auto regression (VAR), granger causality, Auto regressive distributive lag (ARDL), impulse response function and variance decomposition. The result of ARDL bound test, indicates the existence of long-run equilibrium relationship between remittance inflows and economic growth in Nigeria. The impulse response function, as well as variance decomposition result shows the mixture of both positive and negative shocks from GDP per capita to remittance, household consumption expenditure, foreign direct investment and official development assistance based on the past and current values. The study found the existence of unidirectional causality running from GDP per capita to remittances and foreign direct investment. The study recommends that, government should expand and improve the financial sector and make the process of transfer of remittance much easier and less expensive. This will enable the economy to capture remittance inflows that comes in through informal channels which are usually difficult to capture officially, and also remittances inflows need to be invested into productive sector. This is because without such investment the inflows cannot play any significant role in the economy particularly households that do receive remittance.

Road safety and road infrastructure expenditure: A bivariate analysis

A considerable body of earlier literature has analysed the determinants of road safety outcomes at the aggregate level. A sub-set of that literature has sought to assess the effect of road expenditure, both investment and maintenance spending, on road safety. The results have been inconclusive and, in part, counterintuitive. To clarify that relationship, this paper undertakes a bivariate analysis using European panel data. Three main results emerge. First, there is only limited evidence of longer-term relationships (common stochastic trends) among different measures of the variables. Second, causality tests on stationary variables suggest that the direction of causality depends on how the variables are measured. Third, unrestricted Vector Autoregression (VAR) analyses suggest that there is a positive relationship from some measures of road safety outcomes to road infrastructure investment, and that an increase in one real measure of road infrastructure investment reduces fatalities permanently, if with a lag. While not modelling the true and complex data generating processes, these bivariate analyses help address the salient empirical issues emerging from earlier literature, and the results provide a detailed description of the relationship between road safety and infrastructure expenditure.

The impact of bitcoin on gold, the volatility index (VIX), and dollar index (USDX): analysis based on VAR, SVAR, and wavelet coherence

Purpose Since 2008, bitcoin has continued to attract investors due to its growing capitalization and opportunity for speculation. The purpose of this paper is to analyze the impact of bitcoin (BTC) on gold, the volatility index (VIX) and the dollar index (USDX). Design/methodology/approach The series used are weekly and cover the period from January 2016 to November 2022. To generate the results, the unrestricted vector autoregression (VAR), structural vector autoregression (SVAR) and wavelet coherence were performed. Findings The findings are mixed as not all tests show the exact effects of BTC in the three asset classes. However, common to all the tests is the significant influence that BTC maintains on gold and vice versa. The positive shock in BTC significantly increases the gold prices, confirmed in three different tests. The effects on the VIX and USDX are still being determined, where in some tests, it appears to be influential while in others not. Originality/value BTC’s diversification potential with equity stocks and USDX makes it a valuable security for portfolio managers. Furthermore, regulatory authorities should consider that BTC is not an isolated phenomenon and can significantly influence other asset classes such as gold.

Powering Ghana’s future: unraveling the dynamics of electricity generation and the path to sustainable energy

This study investigates powering Ghana’s future: unraveling the dynamics of electricity generation and the path to sustainable energy by estimating endogenous parameters and employing an unrestricted Vector Autoregression (VAR) model. The model examines the linear lead–lag relationships between variables in the Ghanaian electricity sector and power consumption, using data from 2002 to 2021. The results reveal structural long-and-short-run headwinds for the unrestricted models and indicate that the growth rate of the Gross Domestic Product (GDP) and electricity from fossil fuels are directly correlated. Granger causality analysis highlights a feedback relationship between GDP growth rate and electricity from fossil fuel sources. The impulse response function reveals that the GDP growth rate is sensitive to exogenous shocks with lasting effects. Variance decomposition results show that renewable energy without hydropower explains a minimal variance due to shocks, while total global greenhouse emissions account for a significant proportion of the variance due to headwinds. Electricity from fossil fuel sources explains a substantial part of the variance due to headwinds, suggesting Ghana’s overreliance on conventional energy sources. The study forecasts that installed renewable energy capacity will experience considerable growth by 2036, accounting for most of the energy mix. To promote a sustainable energy future, the study recommends implementing fiscal instruments that incentivize renewable energy consumption, gradually diversifying the energy mix towards natural gas as a medium-term transition fuel for grid electricity generation and shifting entirely to renewables in the long time. This research contributes valuable insights into the dynamics of electricity generation in Ghana and provides policy recommendations for sustainable energy development.

DETERMINANTS OF BALANCE OF PAYMENT FLUCTUATIONS IN THE PHILIPPINES: 1981-2019

<p>This paper identifies the determinants of the balance of payments fluctuations in the Philippines. Specifically, it presented the trends and movements of a balance of payments, interest rate, inflation rate, gross domestic product growth rate, and real exchange from 1981 to 2019. The study used Johansen Co-integration, Granger Causality, and Vector Autoregression (VAR) models to analyze this study. Johansen's Co-integration analysis revealed that the determinants of the balance of payments interest rate (IR), inflation rate (INF), an exchange rate (EX), and real GDP are rejected at a 5% significant level. On the other hand, unrestricted VAR model, there exists a relationship between the balance of payments (BOP), interest rate (IR), and inflation rate (INF). Granger causality test results revealed that BOP does not Granger cause IR and INF does not Granger cause BOP are rejected at the 5% significant level because the causality test results are significant. BOP and IR have a unidirectional relationship. Moreover, results show that there is unidirectional causality generally running from the balance of payment (BOP) to the interest rate (IR) and inflation rate (INF) to the balance of payment (BOP).</p><p><br /><strong>JEL:</strong> H10; H20; H30</p>

Does the House Hold Consumption Expenditure and Government Expenditure Influences the Economic Growth in Tanzania? Unrestricted Vector Autoregressive Analysis

This study investigates the contribution of the house hold consumption expenditure and government expenditure on economic growth in Tanzania employing unrestricted vector autoregressive (URVAR) model. Unit root and cointegration analysis determined using Augmented Dicker Fuller (ADF) and Johansen cointegration tests. The findings show that all the variables are non-stationary at level and stationary at first difference as well as all variables are not cointegrated as such unrestricted vector autoregressive is inevitable in this paper. If the variables are cointegrated then the study would employ the vector error correction model (VECM). Also, Wald coefficient test conducted to determine jointly how these variables influences the economic growth in Tanzania. UNVAR model analysis in system of equation indicates that some variables have significant influence on economic growth that is house hold consumptions expenditure and government expenditure whereas other variables have no significant influence. Generally, in the first system of equation shows that jointly gross domestic product and house hold consumptions of the previous year’s influences the gross domestic product in current year while jointly government expenditures in previous years have on influence on economic growth in current year in Tanzania. In the second system of equation of UNVAR finds only jointly gross domestic product of the previous year’s influences the house hold consumption while other variables jointly are not influencing house hold consumptions in Tanzania. In the third system of equation of UNVAR analysis all the variables jointly influence the government expenditures in current year in Tanzania. Therefore, the empirical results suggest the deliberately government efforts to support these variables in order to boost the economic growth in Tanzania.

The Determinants of Inward FDI in Bangladesh: Evidence from Unrestricted Vector Autoregressive Modeling

The Determinants of Inward FDI in Bangladesh: Evidence from Unrestricted Vector Autoregressive Modeling

Nexus between Public Debts, Poverty and Unemployment Rates in Nigeria: A Vector AutoRegression (VAR) Approach

Notwithstanding the upsurge in public debts, it is absurd and worrisome to note that socioeconomic indicators like poverty and unemployment have shown gloomy pictures in Nigeria. The absurd situation makes it unclear on the precise nexus between public debts and unemployment rate on the one hand and poverty rate on the other hand. Consequently, this paper analysed the nexus between public debts, poverty and unemployment in Nigeria. Secondary data of public debts (measured by internal and external debts), poverty and unemployment rates were obtained from the Central Bank of Nigeria statistical bulletin and National Bureau of Statistics during the period 1981-2021. Using an unrestricted vector auto-regression model, the study indicated that neither internal nor external debts had any significant impact on poverty; however, they influence the level of unemployment rates in Nigeria. Impliedly, most of the public debts incurred within the period of investigation were not growth-oriented and could partly be explained by the fact that most of the borrowings were mainly to finance trade deficits, which were mainly consumable goods. The paper recommended that the current debt-togross domestic product ratio of less than 20 percent should be sustained to ensure that debt remains within the internationally recommended threshold for developing economies like Nigeria. Also, future public borrowings should be targeted at specified productive sectors of the economy that would engender growth in the long-run in terms of job creation and poverty alleviation; this can be achieved via the procedure of tying every public borrowing to specific growth-driving project that are oriented towards job creation and alleviation of poverty

Forecasting with Bayesian vector autoregressive models: comparison of direct and iterated multistep methods

PurposeThe paper compares multi-period forecasting performances by direct and iterated method using Bayesian vector autoregressive (VAR) models.Design/methodology/approachThe paper adopts Bayesian VAR models with three different priors – independent Normal-Wishart prior, the Minnesota prior and the stochastic search variable selection (SSVS). Monte Carlo simulations are conducted to compare forecasting performances. An empirical study using US macroeconomic data are shown as an illustration.FindingsIn theory direct forecasts are more efficient asymptotically and more robust to model misspecification than iterated forecasts, and iterated forecasts tend to bias but more efficient if the one-period ahead model is correctly specified. From the results of the Monte Carlo simulations, iterated forecasts tend to outperform direct forecasts, particularly with longer lag model and with longer forecast horizons. Implementing SSVS prior generally improves forecasting performance over unrestricted VAR model for either nonstationary or stationary data.Originality/valueThe paper finds that iterated forecasts using model with the SSVS prior generally best outperform, suggesting that the SSVS restrictions on insignificant parameters alleviates over-parameterized problem of VAR in one-step ahead forecast and thus offers an appreciable improvement in forecast performance of iterated forecasts.

Interdependence between WTI Crude Oil Prices and the US Equity Market

The author checks the cointegration between WTI oil market and the US market of stocks represented by the S&P index. As it turns out not to exist, short-term relations are investigated. The study confirms that crude oil market significantly influences the stock market in the short run, however it does not give an unambigous answer if this impact is made by oil itself or together with the GBP/USD currency rate. Furthermore, the relation does not go in another direction which means that the stock market has no impact on the oil market. The Unrestricted Vector Autoregression model is built. The author uses weekly data and the research period is from April 1990 to May 2021. The study implies that stable crude oil prices are desirable in order not to destabilize stock markets whose instability threatens the real economy. Conclusions are vital for a wide group of entities such as policy makers, authorities, institutional and individual investors, as well as other financial market participants.

IMPACT OF CAPITAL FLIGHT ON ECONOMIC DEVELOPMENT IN NIGERIA

Capital flight has continued to generate debate across the world. Most developing countries Nigeria in particular are having their own share of the problem. This are burning issues regarding its actual measurement and direction of flow. This study is set to examine the effect of capital flight on economic development in Nigeria from 1980 to 2020. Due to the stochastic nature of time series data, diagnostic tests were conducted to ascertain the behavior of the series. The Augmented Dickey Fuller (ADF) and Philips Perron (PP) test results are reported. Based on these tests, the all the variables in the model became stationary after first differencing, that is, they are integrated of order one I(1). Because of this order of integration, the Johansen co-integration test was conducted to check for possible long run relationship. Due to the absence of long-run relationship, unrestricted Vector Autoregressive (VAR) model was specified and used for the estimation. Results from the VAR estimation reveal that Poverty is an increasing function of poverty. There is a negative impact of capital flight on economic development in Nigeria over the period of study. External debt is detrimental to economic development if mismanaged. Floating exchange rate where multiple rates are charged in different markets is detrimental to economic development in Nigeria over the period of study. This paper recommended that training in skill acquisition should be encouraged in Nigeria in order to alleviate poverty. Capital flight should be checked with serious penalties on the perpetrators. In addition, external debt should be channel to economic uses. And finally floating exchange rates where different rates are charged in different markets is should be abolished in Nigeria.

Investigating the relationship between CO2 emission and industrial production of bangladesh through the unrestricted vector auto regression methods

Industrial production units discharge large amounts of CO2 as manufacturing facilities directly use fossil fuels and more electricity than any other sector. Although the per capita emissions in the industrialized countries are typically as much as ten times the average in the developing countries, this study is aimed at analyzing the long-run association between CO2 emissions and industrial production in Bangladesh using an Unrestricted Vector Auto Regression approach. For this purpose, the study uses secondary data for the periods of 1960 to 2016 from world development indicators. The variables of interest are co2 emission and industrial production. In general CO2 data are measured in metric tons per capita and the industrial production index is used as the proxy of industrial production. Other econometric techniques, such as unit root test-ADF, Johanson Co-integration test, and OLS techniques are also applied. Firstly, a descriptive analysis finds that there has been a rapid fall in industrial output and co2 emission in 1971 which can be denoted as an adverse effect of the Independence war of Bangladesh. Despite that, industrial production and co2 emission are intended to increase at a positive slope till 2016. But the increasing rate of industrial production is significantly higher than the increasing rate of co2 emission in Bangladesh. Secondly, the Johanson Co-integration test results reveal that there is no long-run relationship between industrial production and CO2 emission in Bangladesh. But the results from Unrestricted VAR and Ordinary Least Square estimation confirm that CO2 emission one period lag has a negative and significant impact on the industrial production of Bangladesh, where the value of the coefficient is -16.01059. This means that if in the last year, co2 emission increased by 1 metric ton per capita, industrial production will be decreased by 16% in the current period. The study concludes that Bangladesh is running conscious industrial production considering energy conservation policies.

Is There a J-Curve Effect in Sierra Leone? An Empirical Analysis with VECM

This paper examines the relationship between exchange rate and trade balance in determining whether the J-Curve phenomenon holds in the short and long-run for Sierra Leone during the period 2002Q2-2019Q4. The econometric technique commenced with an assessment of unit root to ascertain the order of Unit Root and followed by an Unrestricted Vector Autoregressive (VAR) estimation. The procedure leading to using Vector Error Correction Model (VECM) was confirmed through Johansen Cointegration test. The result suggests long-run relationship running between exchange rate and trade balance for all three model equations, but weakly for the Trade Balance Model, which is also attested in the impulse response shock for trade balance and real effective exchange rate. The Marshall-Lerner (ML) condition was also satisfied, with the joint elasticity for Export and Import summing up to more than one. The short-run dynamic situation for Sierra Leone was not satisfied with the Wald Tests for all three models—this could be due to internal macroeconomic bottlenecks associated with weaknesses in the real sector. The findings for this study are relevant for Central Bank policy formulation and fiscal consolidation efforts. It is highly recommended that domestic production is boosted to ascertain macroeconomic stability in the economy.

Corona Virus Disease (COVID-19) and Other External Factors as Determinants of Accommodation and Restaurant Services in Kenya

Aim: The aim of this study is to investigate the influence of corona virus disease and other external factors on growth of accommodation and restaurant services (ARS) in Kenya.
 Study Design: The study employed quantitative research design involving quarterly time series data from quarter 1 of 2014 to quarter 1 of 2020. The data set was obtained from Kenya National Bureau of Statistics (KNBS).
 Methodology: The study employed unrestricted vector autoregression to investigate the changes in the growth of accommodation and restaurant services.
 Results: Results indicated that COVID-19, professional, administrative and support services, construction and past ARS growth at 1 to 3 lags influences growth of ARS in Kenya negatively. On the other hand, real estate growth, time trend, tax on products, other services, education, manufacturing, information and communication and past growth in ARS at lag 4 influences growth in ARS sector positively. It was also noted that growth in agriculture and transport and storage do not influence growth of ARS in Kenya.
 Conclusion: In conclusion, COVID-19, professional, administrative and support services, construction and past ARS growth, real estate growth, time trend, tax on products, other services, education, manufacturing, information and communication are the main determinants for the growth of ARS in Kenya.

Adoption of Inflation Targeting in Sierra Leone: An Empirical Discourse

The main research question of this paper is to assess Sierra Leone’s preparedness for adopting a fully-fledged or lite Inflation Targeting (IT) framework amid macroeconomic and structural bottlenecks experienced in the domestic economy. Several theoretical and empirical perspectives were reviewed to bring out cogent insights on the subject matter. With the use of the Unrestricted Vector Autoregression (VAR) model, relevant macroeconomic variables ranging from 2010Q2 to 2019Q4 were utilised to assess plausible outcomes, aided with some iterative shock impulses, variance decomposition, and historical decomposition, to explain the reaction of inflation to specific factors in Sierra Leone. The study outcome suggests that Sierra Leone as a supply-driven economy is inducing a high level of inflation on account of the pass-through effect of high prices to consumers in the domestic economy. This to a greater extent is undermining monetary policy management, which gives credence to the fact that authorities at the Bank of Sierra Leone should not switch to inflation targeting in the short and medium-term on the basis that monetary policy actions could instigate further price increases of goods and services, underpinned by weak real sector operations and a somewhat dollarized domestic market. At best, there is a need for BSL to continue its current policy methodology, while working in ensuring monetary policy actions are transparent and well communicated at all times to getting inflation to a single-digit.

Fiscal Deficit, Government Debt and Interest Rate: An Empirical Analysis for Sri Lanka

The study attempts to examine the effect of fiscal deficit and government debt on interest rates in Sri Lanka over the period of 1977–2018 by using Unrestricted Vector Auto Regression (UVAR) Analysis. The results reveal that there is no significant effect of fiscal deficit and government debt on interest rates. The study suggests that minimizing the intervention in determining interest rates through administrative arrangements and other controls which were exercised in the past and adopting corrective measures to develop a competitive and diversified government securities market, facilitates to identify significant relationship among aforementioned variables as the theory explains. The study can be further developed by eliminating the existing limitations of insufficient time series data to reflect actual behavior of both short term and long-term interest rate structure of the government securities market in Sri Lanka.