Results Of Variance Decomposition Research Articles

Relationship between Real Exchange Rate and Economic Growth: the case of South Africa

The objective of this study was to investigate the relationship between real exchange rate and economic growth in South Africa. Using time series data, the period from 1980 to 2015 was covered in the study. Data was collected from the South African Reserve Bank, the International Monetary Fund and International Financial Statistics. The Johansen cointegration and the Vector Error Correction Model estimation techniques were employed in the study, followed by VEC Granger causality test, variance decomposition and impulse response function. The long-run results revealed a negative and significant relationship between real exchange rate with export and economic growth. On the other hand, money supply and foreign direct investment have a positive and significant relationship with real exchange rate. Only export was significant and positively related to real exchange rate in the short-run. Results of granger causality showed that only export granger causes real exchange rate thus, a unidirectional causality exists between export and real exchange rate. Results of variance decomposition revealed that the real exchange rate is highly affected by shocks from economic growth. The impulse response functions showed that real exchange rate responds positively to shocks from real exchange rate and money supply. On the contrary, real exchange rate responds negatively to a shock from economic growth. There is, therefore, a need to increase exports, money supply, foreign direct investment and economic growth as these would lead to an increase in the Rand and consequently, appreciation of the Rand.

Effects of grazing disturbance on plant diversity, community structure and direction of succession in an alpine meadow on Tibet Plateau, China

To elucidate the effects of grazing intensity and grazing time on plant diversity and community structure, as well as the successional differentiation in an alpine meadow, a controlled grazing trial, with six grazing intensities on an alpine meadow was conducted in the eastern Qilian Mountain region for four years. Using species accumulation curves, RDA ordination and variance decomposition, we analyzed the changes in proportion of dominant species, richness, abundance, as well as the life forms of plant communities under grazing disturbance. Both the grazing intensity and grazing time had a significant effect on these dominant species, richness, abundance, as well as the life forms in the plant community (P<0.01). More detailed results showed that: (1) The richness and abundance of plant species were highest in the light grazing plot, and these increased as time passed. In the heavy grazing plot, the abundance of plant species decreased as time passed, but the richness of these species did not change significantly. (2) The abundance of Gramineae and Umbelliferae were negatively and significantly correlated with the duration of grazing treatments, whereas Plantaginaceae and Geraniaceae were positively and significantly correlated with the grazing intensity. Over time, the abundance of bunch-type plants decreased and other life forms of plants have increased. With the increase in grazing intensity, the plants' abundance with the rosette type did not change, but other life forms of plants decreased. The results of variance decomposition indicated that grazing disturbance has had greater effects on life forms and plant populations, followed by the changes in the dominant species and their abundance, with lesser effects on the richness of the species. Grazing intensity had a greater effect than the duration of the grazing treatment had. The results of PCA showed that the climax community in both the lowest and the highest grazing intensity plots had changed over time. In the sample plots with light grazing intensity, the plant community changed to an Elymus nutans+Poa crymophila community, but later changed to a Melilotoides ruthenicus+Kobresia humilis community under heavy grazing.

Agricultural Productivity and CO2 Emission in Pakistan: An Econometric Analysis

Absract: This paper inspects association between carbon dioxide emission and agricultural productivity in Pakistan. The time series data from (1966-2014) has been taken for analysis. Kendrick’s model is used to determine total agricultural productivity (AGP) and optimization is found with the help tool of the Langrage Multiplier. The order of integration is decided by Ng-Perron test. This test points out that both variables are integrated of order one 1(1). The short run impact of CO 2 emission on AGP is found by using the technique of the vector autoregressive regressive (VAR). Jhonson Cointegration technique (JCT) was used to detect long- term connection between variables. The results show there is no short- term and long- term co-relationship between the CO 2 emission and AGP. The results of the impulse response functions show behavior of influence of the both variables. The results of variance decomposition show the variation in AGP and carbon dioxide emission (CDE). The findings of Granger causality test indicate that there is not a unidirectional causality from CDE to AGP.

Financial Development And Economic Growth Dynamics In South Asian Region

This study investigates the relationship between financial development and economic growth in the context of five South Asian countries for the period 1985-2014. Pedroni, Johansen co-integration, and panel based Granger causality tests are employed to examine the long and short run relationship dynamics between economic growth and other instrumental variables estimated in this paper. A vector autoregressive model (VAR) is a constructive method of analyzing the impact of a given variable on itself and all other variables by using variance decompositions (VDCs) and impulse response functions (IRFs). To check the robustness of this study, fully modified least square (FMOLS) has been conducted. The results of Pedroni and Johansen co-integration tests confirm that the indicators of financial development have a co-integration relationship with economic growth in the long run. Granger causality test shows that bidirectional causality between economic growth to M2 and also real interest rate and domestic credit to private sector in the short run. Moreover, unidirectional causality exists among the total value of stock traded variable to economic growth, M2 to domestic credit to private sector and M2 to real interest rate in the short run. This paper also documents shocks in stock traded total value has strongly positive response to economic growth. Shocks to domestic credit to private sector, trade openness, M2 have positive response with economic growth but not very strong. The shocks response function of real interest rate to economic growth is negative and quickly returns to the equilibrium. The results of variance decomposition confirm that shocks in the variables of M2 and stock traded total value shock have more impact on economic growth in the long run. FMOLS is employed to check the robustness and shows that financial development and economic growth are holding same relationship except the real interest rate. Policy makers should take immediate steps to minimize the interest rate spread in the south Asian countries. An optimum real interest rate spread will spur the growth process in the south Asian region. The policy makers also should think for transformation of the financial system through upgrading and strictly imposing the financial rules and regulations. The financial institutions must be monitored closely and the policy makers should pay more attention on that issue.

Does female human capital contribute to economic growth in India?: an empirical investigation

PurposeThe purpose of this paper is to examine the impact of female human capital on economic growth in the Indian economy during 1970-2014.Design/methodology/approachThe paper employs Ng-Perron unit root test to check the order of integration of the variables. The study also used ARDL-bounds testing approach and the unrestricted error-correction model to investigate co-integration in the long run and short run; Granger’s causality test to investigate the direction of the causality; and variance decomposition test to capture the influence of each variable on economic growth.FindingsThe study constructed a composite index for both male and female human capitals by taking education and health as a proxy for human capital. The empirical findings reveal that female human capital is significant and positively related to economic growth in both short run and long run, while male human capital is positive but insignificant to the economic growth; same is the case for physical capital, it implies that such investment regarding female human capital needs to be reinforced. Further, there is an evidence of a long-run causal relationship from female human capital, male human capital and physical capital to economic growth variable. The results of variance decomposition show the importance of the female human capital variable is increasing over the time and it exerts the largest influence in change in economic growth.Research limitations/implicationsThe empirical findings suggest that the Indian economy has to pay attention equally on the development of female human capital for short-run as well as long-run growth of the economy. This implies that the policy makers should divert more expenditure for developing support for female education and health.Originality/valueTo the best of authors’ knowledge, this is the first attempt to study the relationship between female human capital and economic growth in the context of the Indian economy.

The Effect of Trade Openness and Terms of Trade on External Debt: An Econometric Analysis for Turkey

In this study the effects of trade openness and terms of trade in Turkey’s external debt are examined by vector autoregressive (VAR) analysis for the period 1998:Q1-2012:Q1. According to the results of variance decomposition, the source of prediction error variance of all variables is mainly from their own shocks. The share of trade openness and terms of trade in the distribution of variance of external debt realized about 9.56% and 9.34% respectively in the thirtieth period. External debt has been influenced by the almost same rate both trade openness and terms of trade which occurs with the effect of this process. The reactions of other variables to a standard-incorrect generalized contractionary effect which occurred in error terms of external debt are analyzed by action reaction function and examined that other variables react contrariwise.

Monetary policy implications of short-term capital flows in Turkey

The advent of global financial crisis in 2008, unleashed volatile short term capital flows to the emerging markets. This has forced many central banks in the developing world to adopt innovative policy measures to address concerns related to financial instability caused by the volatile nature of capital flows. In 2010 Turkish Central Bank included financial stability in addition to price stability as one of primary goals of its monetary policy. Several macro-prudential measures had been taken and ‘corridor system’ of setting the short-term policy rates had been introduced. In this paper, we have estimated an extended Taylor rule, using error correction model, to examine the impact of global financial factors in impacting the setting up of the policy rate in the pre and post 2010 periods in Turkey. It has been found that in the post-2010 period, global financial factors and monetary policy stance of the core economy, USA, have become major factor(s) in shaping up the monetary policy. Particularly our results of variance decomposition show that global financial indicators such as, VIX and EMBI have taken prominence in the setting of the short-term policy rate. This has not only made the domestic monetary more dependent on external factors but has also made pro-cyclical in nature.

ESTIMATION OF LONG-RUN RELATIONSHIP OF INFLATION (CPI &amp; WPI), AND OIL PRICES WITH KSE-100 INDEX: EVIDENCE FROM JOHANSEN MULTIVARIATE COINTEGRATION APPROACH

This research is an attempt to framework the applied strides to evaluate the long run relationship among commonly used inflation proxies induces such as, wholesale price index (WPI) and consumer price index (CPI), and crude oil price (COP) with KSE100 index returns. In this research we used monthly data for the time period from July 1995 to June 2016, and thus, in this way total 252 observations have been considered. Time series have been made stationary by applying ADF and PP tests at first difference. Johansen multivariate conintegration approach was used to test the long-term association amongst the considered macroeconomic variables. The results indicated that CPI and COP significantly affect KSE100 index returns that indicated CPI along with COP have foreseen power to impact KSE100 index. In contrary, the results of WPI and COP do not have long run relationship with KSE100 index in case of Pakistani economy. Results of variance decomposition exhibited that the index of LKSE100 was realistically rarer exogenous in connection to distinctive factors, as around 92.31% of its variation was explained due to its own specific shocks. It is concluded that CPI and COP can impact the KSE100 index returns. It is confirmed by the results of impulse response function that there is a positive and long run relationship between KSE100 returns and consumer price index (proxy of inflation) and international crude oil prices.

Relationship Between Electricity Consumption, Manufacturing Output and Financial Development: A New Evidence from Nigeria

Electricity is regarded as sine quo non for any meaningful social, economic and modern scientific advancement of any country in the world. It is regarded as a force and engine room of the industrial sector. However, in Nigeria, instability in power supply is negatively affecting manufacturing efficiency. Time series data for 1981 until 2015 was used to examine the symmetric relationship between the electric consumption, manufacturing output and financial development in Nigeria.? The result indicates the co-movement in the variable over long time horizon, meaning that any inefficiency in electricity supply would impedes industrial output. Moreover, the Granger causality test based on vector error correction framework shows the presence of causality between power utilization of manufacturing firms and economic growth without feedback. In this sense it can be stress that stable electricity consumption is important factor for Nigeria?s manufacturing sector. The result of variance decomposition further indicates that the variation in the industrial output responds more to shocks in the electricity supply than its own shock. This finding suggests that energy is the engine of manufacturing sector in Nigeria.

Portfolio diversification opportunities across stock markets of Asian tigers, Thailand and India: a vector autoregression approach

This paper explores the possibility of the creation of a collective investment vehicle that replicates the equity indices of South Korea, Taiwan, Hong Kong, Singapore, Thailand and India. To begin with, a portfolio of these indices was created using the mean variance theory. Thereafter vector autoregression was applied to examine the dynamic linkages among these markets. Since the trading hours of these markets overlap and there is no a priori for specifying how shock transmits among them, Granger causality test was applied to ascertain which markets are influential to decide the ordering of the VAR approach. The results of variance decomposition show that the impact of these markets on each other is not much and is limited to a range of 5-6%. Impulse response graphs confirm no clear leading markets among the chosen six and the transmission of shock from one market to other disappears in 2-3 days.

Portfolio diversification opportunities across stock markets of Asian tigers, Thailand and India: a vector autoregression approach

This paper explores the possibility of the creation of a collective investment vehicle that replicates the equity indices of South Korea, Taiwan, Hong Kong, Singapore, Thailand and India. To begin with, a portfolio of these indices was created using the mean variance theory. Thereafter vector autoregression was applied to examine the dynamic linkages among these markets. Since the trading hours of these markets overlap and there is no a priori for specifying how shock transmits among them, Granger causality test was applied to ascertain which markets are influential to decide the ordering of the VAR approach. The results of variance decomposition show that the impact of these markets on each other is not much and is limited to a range of 5-6%. Impulse response graphs confirm no clear leading markets among the chosen six and the transmission of shock from one market to other disappears in 2-3 days.

Modelling beef consumption in Turkey: the ARDL/bounds test approach

The study aimed to examine the short-run and long-run relationship between beef consumption and beef prices, chicken meat prices, and per capita income for the period of 1994?2014 in Turkey by employing the ARDL/bounds test approach. After deciding on the presence of cointegration between the related variables, a parsimonious VECM model was estimated to conduct the structural analyses of the impulse response function and variance decomposition. The results of the bounds test suggest a long-run equilibrium relationship between beef consumption and its selected determinants. In addition, the empirical findings indicate that chicken meat prices and per capita income level have a positive effect on beef consumption. The results of variance decomposition reveal that the portion of beef prices in explaining beef consumption is large, whereas chicken meat prices have decreasing impact and income level has increasing impact on beef consumption in the long run. The results of the impulse response function are also consistent with the theory. The findings suggest that beef consumption is sensitive to beef prices and responds negatively to a shock in beef prices.

Global Patents on 3D Printing: Revelations Based on Vector Autoregression Analysis for Three Decades

Engineers and designers from automotive and aerospace sectors have been using 3D printing (3DP) for decades to build prototypes. However, 3DP became popular only recently. This paper is divided into three sections. Section 1 is introductory in nature, which deals with current trends, the modeling process of printing and deliberation on different categories of 3DP. Section 2 deals with the research methodology. An exquisite technique to study innovation dealing with time series data, called the vector autoregression (VAR), is performed to analyze the world patent data on 3DP, based on the information provided by the Government of UK and the International Monetary Fund (IMF). Section 3 attempts to forecast future trends on 3DP by using two techniques viz. impulse response function and variance decomposition. The VAR analysis performed revealed that GDP is not directly instrumental in the advancement in patenting of 3DP technology. Results captured by way of impulse response function suggest that when a shock is given to PR itself, it decreases sharply, whereas when a shock is given to investment, PR undergoes a steady decline. Thus, if there is any adverse shock imparted on investments, it directly reduces the patent ratio. Lastly, when an impulse is given to GDP, PR continuously increases, which implies that increase in GDP causes hike in investment which ultimately increases PR. The results of variance decomposition indicate that in the initial periods, PR itself explains the maximum variance, followed by the GDP and to the least by investment. The changes observed with the trend of explanatory character of variance imply that more investments in technology are instrumental in increasing patent ratio in the G7 countries as per the vector error correction (VEC) model developed here. Though during the nascent stage of emerging technologies investment in technology may not necessarily increase the patent ratio, the result obtained brings to light interesting insights.

Influence of Uncertainty in Financial Markets on Import and Consumption

Objectives: This study has analyzed the influence of changes in financial market in Korea on the import and consumption as an object economic index. Methods/Statistical Analysis: Financial market has measured the historical changes on bond, foreign currency and stock market. On the other hand, import and consumption were calculated by using the changes in log value from final consumption of households and import amount of each service and goods. Findings: According to the result of analyzing the causal relationship by using the Granger causality test, volatility in financial market turned out to significantly influence on the import and consumption. As for bond market, a result has been derived that there was an opposite influence. As for impulse response function based on VAR model, it represents the influence of volatility in financial market on import and consumption in dynamic manner. In addition, variance decomposition of forecast error compares the relative explanatory power of volatility in financial market that accounts for distribution of import and consumption. Improvements/Applications: As for Korea, volatility in financial market turned out to be negative in import and consumption. According to the result of variance decomposition of forecast error, volatility in foreign currency market turned out to have the highest level of explanatory power on import and consumption.

PERAN ASPEK SOSIAL-EKONOMI DAN PEMBIAYAAN SYARIAH TERHADAP USAHA MIKRO KECIL DAN MENENGAH (UMKM)

MSME's contribution not only to employment, but also to GDP above 50 percent above. This large contribution has not been matched by the ease in generating funds from financial institutions, so the journey of UMKM in increasing the GDP needs to be questioned its optimality, including supported by social and economic aspects. Therefore, further research is intended to reflect the role of Social-Economy and Shari'ah Financing to Gross Domestic Product (GDP) of Micro, Small and Medium Enterprises (MSME) in a circle. In the 2007.1-2016.5 observation period, some variables became proxies for economic and social aspects. The level of variables is the level of Mudharabah and Musyarakah Profit Loss Sharing, the interest rate of Bank Indonesia Sharia Certificates (SBIS) and sharia financing as a proxy of economic aspects. To answer that objective, the analytical tool used is Vector Autoregressive which gives the result (1) on the model of MSME’s GDP in the short term is significantly related by the change of variable of MSMEworkforce since last two months, then there is increasing of accuracy with the increase of manpower and level education, (2) on financing model of SMEs Islamic banks, borne by workers of MSME, PLS mudharabah, PLS musyarakah and high school education in the short term. (4) Result of Impulse Response Function (IRF) shows independent shock variable to MSME PDB variable, non-fluctuate and increasing MSME labor force change to MSME’s GDP, and (5)) The result of Variance Decomposition shows the variability to MSME's GDP by the variability of MSME's GDP, since since the first variability of MSME's GDP has got the work force from MSME's.

Emerging Stock Market Integration in the Post Financial Crises Era: An Empirical Analysis of the Short-term and Long-term Linkages

In the backdrop of the recent global financial crises in 2008, this article attempts to assess the linkage among Brazil, Russia, India, China and South Korea. For this purpose, we adopted a variety of ways. First, long-run and short-run linkages among emerging market indices were investigated by using Johansen’s co-integration method and Sim’s vector autoregression model. Second, to analyze the issue in detail, we examined the causal relationship and impact of shocks by using Toda and Yamamoto (1995) version of Ganger noncausality test and forecasted error variance decomposition along with the impulse response function. We have investigated short-run causal relationship among the emerging market indices and showed how much of the forecast error variance of NIFTY market returns can be explained by exogenous shocks to the other emerging markets. The results of noncausality test among emerging stock markets indicated that Brazilian market has a unidirectional causality with Indian stock market, and Indian stock market has a unidirectional causality with South Korean market. Finally, the results of variance decomposition and impulse response function suggest that return in Indian stock market (NIFTY) is largely affected by its own shocks, whereas shocks in return of other emerging stock markets do not dominate in case of return in Indian stock market (NIFTY).

Kondisi Variabel Makro Ekonomi Islam Ditinjau Dari Pengaruh Kebijakan Moneter Studi Kasus : Indonesia Periode Tahun 2010-2014

This study raised the issue of how Islamic macroeconomic conditions in Indonesia is affected by the role of Bank Indonesia. This study aims to determine whether monetary policy implemented BI is able to influence the Islamic macro-economic conditions. Variables used in this study is inflation and profit sharing ratio as variables describing Islamic macroeconomic conditions.The data used in this research is secondary data taken from the official website of Bank Indonesia in the form of time series from January 2010 until December 2014.This study uses eviews 8 to process the data with Based on the results of IRF and statistical analysis showed that the variables of monetary policy and macroeconomic variables Islam shows long-term relationship. From the results of variance decomposition shows that each variable represents a contribution on other variables with a composition of no more than 35%.

Sources of Fluctuations in Islamic, U.S., EU, and Asia Equity Markets: The Roles of Economic Uncertainty, Interest Rates, and Stock Indexes

ABSTRACTThis article analyzes the economic and financial sources of fluctuations among the U.S. federal funds rates, the U.S. economic policy uncertainty, and the indices of the U.S., European, Asian, and Islamic stock markets. The impulse response analysis shows that the U.S. economic policy uncertainty shocks have significant and negative effects unanimously on the U.S., European, Asian, and Islamic stock markets. A contractionary monetary policy shock, in terms of a higher federal funds rate, has also a statistically significant and negative effect on all of the stock markets. The variance decomposition results indicate that the Islamic stock index is mainly affected by the U.S. stock index shock, thus negating its dichotomy hypothesis. The U.S. economic uncertainty shock explains an important portion of fluctuations for all four stock indices. The degree of synchronization between the EU stock market and other markets has weakened after the U.S. financial crisis.

The Impact of Macroeconomic Condition on The Banks Performance in Indonesia

This paper analyzes the impact of macroeconomic indicator (including the production index, inflation, Bank Indonesia rate, Jakarta stock index, exchange rate and the crude oil price) on the state owned banks’ performance. We apply the Vector Error Correction Model (VECM) on the banking data ranging from 2006-2013, and provide us several findings. First, the impulse response function shows the largest response of the bank overhead cost (BOPO) due to the macroeconomic shock; we argue the volatility of this bank efficiency indicator, reflects the inefficiency of the banks in Indonesian. Second, the amount of loan and the lending to deposit ratio (LDR) provide the weakest response due to the macroeconomic shock. This is in line with the result of variance decomposition, where the macroeconomic variable explains the least of the NPL variation. Third, from all macroeconomic variables we observe, the shock of Bank Indonesia’s rate generally provides the largest response of most of the bank performance indicators; which supports the use of the Bank Indonesia’s rate as effective monetary instrument.

A VAR Model of Stimulating Economic Growth in the Guangdong Province, P.R. China

The authors calculate the long-term predictability of GDP, domestic demand, investment, and net exports for Guangdong province, P.R. China from 2000 to 2013. A vector autoregressive (VAR) model with quarterly data for this period is first co-integrated then the Granger causality test is applied to empirically assess the relationships among gross domestic product (GDP), consumption, investment, and net exports. There is a strong causality effect between investment and net exports in Guangdong province. However, the variance decomposition results indicate that exports respond to foreign shocks rather than domestic ones, making their impact on the Guangdong economy to predict. Results show the stimulating effect of domestic demand on GDP is larger than the stimulating effect of net exports and much larger than even the stimulating effect of investment. The analysis suggests that there are dynamic influences with various levels of persistence between GDP, consumption, investment, and net exports. Macroeconomic policy adjustments are urgently required to expand domestic demand and thereby stimulate economic growth in Guangdong province.