Results Of Variance Decomposition Research Articles

The relationship between Sukuk market and economic growth: panel causality analysis

Purpose- The aim of this study is to examine the relationship between countries' Sukuk market development and economic growth. Panel VAR analysis was applied to investigate whether there is a realtionship between these two factors. Methodology- In the analysis of the research, quarterly data of 2014Q1-2019Q2 period is used. Turkey, Kuwait, Malaysia, Pakistan, Saudi Arabian, Sudan, United Arab and Indonesia countries are included in the analysis. In the study, Dumitrescu Hurlin panel causality test was applied as a method. Sukuk and economic growth rates of the countries are used as a variable. Findings- According to the findings obtained as a result of the analysis, a one-way causality relationship is observed from the economic growth to the Sukuk growth rate. Conclusion- When the Sukuk and economic growth results are analyzed, there is no causality relationship from Sukuk growth rate to economic growth. However, a causality relationship has been identified from economic growth to Sukuk growth rate. When the economic growth variance decomposition results are analyzed, in the first period, the change in economic growth is fully explained by itself. When the Sukuk variance decomposition results are analyzed, 99.6% of the change in Sukuk in the first period is announced by itself. Keywords: Economic growth, Sukuk, panel causality, response analysis

Assessing human health risk of groundwater DNAPL contamination by quantifying the model structure uncertainty

The contamination of groundwater with dense non-aqueous phase liquids (DNAPL) can pose long-term risks to human health. Due to the complexity of geological environments and the properties of DNAPL, a key step in human health risk (HHR) assessment is the establishment of a reliable DNAPL transport model. In this study, we evaluate the impact of the model structure uncertainty on DNAPL transport modeling for HHR assessment. First, Gaussian process regression (GPR) was used to learn the structure error of the DNAPL transport model through statistical simulations, and then, Markov chain Monte Carlo (MCMC) simulation was used to calibrate the parameters of the physical model and GPR. On the basis of two case studies, namely, a sandbox experiment and a synthetic DNAPL transport model investigation, the results demonstrated that ignoring the model structure error will lead to deviations during parameter calibrations and model predictions. This is because the model parameters could be overfitted to compensate for the model structure error during the calibration process. Results of variance decomposition verified that the model structure error was the main uncertainty source in DNAPL transport modeling for both of the case studies. The DNAPL transport modeling and HHR assessment conducted by quantifying the uncertainties of the model parameters and structure simultaneously was found to be more reliable than that by calibrating only the model parameters. In addition, the HHR assessment of groundwater DNAPL contamination without considering the model structure error could lead to misleading depictions of the key risk zone. We propose that GPR is an effective technique to quantitatively describe the structure error of DNAPL transport models.

The relationships between time deposit rates, real rates, inflation and risk premium

PurposeThe purpose of this paper is to investigate the influence of the real interest rates, inflation and risk premium on the time deposit rates of banks in the dual banking system in Malaysia.Design/methodology/approachThe data consists of 1-, 6- and 12-month average time deposit rates of conventional and Islamic banks over the period of January 2000 to June 2017. The cointegration methodologies are used to explore links between the time deposit rates, real rates, inflation and risk premium. The causality tests to test causality linkages between pairs of variables are also applied. The generalised forecast error variance decomposition based on the error correction model is conducted to analyse the impact of variables variation on the deposit rates.FindingsThe results show the presence of two cointegration vectors in the deposit rates, real rates, inflation and risk premium, for both conventional and Islamic bank rates. Causality tests reveal that deposit rates are caused by inflation and risk premium in a one-way causality. The results of variance decomposition highlight the importance of inflation and risk premium in explaining the variations in the bank deposit rates. For the conventional bank, inflation shocks play the most important role in explaining the movements of the deposit rates. In Islamic banks, the major determinant’s largest influence is the risk premium. Between the two bank rates, Islamic bank rates receive more influence from the explanatory variables in the long-run compared to conventional bank rates. The real rates have no noticeable effect on the variance of time deposit rates for both banks.Originality/valueThis study presents new evidence on the relationship between time deposit rates and the three explanatory variables, which are the real interest rates, inflation and risk premium, for both conventional and Islamic banks in Malaysia. The dual banking system allows exploring the similarities and differences between conventional and Islamic banks in Malaysia in terms of the linkages between the variables.

Research on the Relationship between Structural Change and Economic Growth in Guangzhou——An Empirical Analysis Based on VAR Model

High-quality development is an active choice for socialism with Chinese characteristics to enter a new era. As one of the four first-tier cities, Guangzhou should set an example in promoting high-quality economic development. Based on the structural factors of economic development, this paper uses vector autoregressive model (VAR) to empirically analyze the dynamic relationship between consumption structure, industrial structure, ownership structure change and economic growth in Guangzhou from 1985 to 2017. The results show that there is a two-way Granger causality between Guangzhou’s consumption structure, industrial structure, ownership structure and economic growth. The two-way causal relationship between industrial structure change and economic growth is the most significant. From the results of variance decomposition, the consumption structure changes have the highest contribution to the trend of economic growth fluctuations.

TÜRKİYE’DE DOLARİZASYON VE ENFLASYON İLİŞKİSİ

1980 öncesi dönemde Türkiye’de, bireylerin yabancı para kullanımı sınırlı olduğundan dolarizasyon, önemli bir sorun teşkil etmiyordu. 24 Ocak 1980 kararları sonrasında, kambiyo rejimindeki düzenleme yabancı paranın, farklı amaçlarla talep edilmesine zemin hazırlamıştır. Enflasyon, iktisadi ajanların hem satın alma güçlerini hem de ulusal para cinsinden tutulan nakit varlıkların miktarını azaltmaktadır. Enflasyonist dönemlerde bireyler varlıklarını, gayrimenkul, altın ve döviz gibi yatırım araçlarına yatırarak, değersizleşen ülke parasından kaçmak isterler. Uzun yıllardır yüksek enflasyonun gözlendiği Türkiye, bu dolarizasyon sürecini deneyimleyen ülkeler arasındadır. Türkiye’de dolarizasyon ve enflasyon ilişkisinin araştırıldığı bu çalışmada, ekonometrik yöntem olarak Vektör Otoregresif Modeli (VAR) kullanılmıştır. Varyans ayrıştırma sonuçları neticesinde, 10. dönemde enflasyon oranında meydana gelen %1’lik bir değişmenin %0,63’ü dolarizasyon oranı tarafından açıklanırken; aynı dönemde, dolarizasyon oranında meydana gelen %1’lik değişmenin %5,32’i enflasyon oranı tarafından açıklanmaktadır. Değişkenler arasındaki ilişki Johansen Eşbütünleşme Testi ile araştırılmış ve iki değişken arasında uzun dönemli bir ilişkiye rastlanmamıştır. Granger Nedensellik bulgularına göre ise %10 anlamlılık düzeyinde, dolarizasyon oranı enflasyon oranının nedeni olduğu belirlenmiştir.

The impact of oil price shocks on stock exchanges in Caspian Basin countries

In this work, the impact of oil price shocks on the stock exchanges of three countries in the Caspian Basin − Iran, Kazakhstan and Russia − was examined through a structural vector autoregression (SVAR) model. For the research, monthly data from the stock exchanges, the oil price, inflation, industrial production and exchange rates were collected between March 2005 and June 2018. According to the results of variance decomposition, in these three countries, the impact of negative oil price shocks on the stock exchanges was stronger than that of positive shocks, and constituted the largest source of changes in the three stock exchanges. In addition, according to the results of impulse response functions, the response of the stock exchanges in the three countries to negative oil shocks was highly significant. Consequently, these countries should avoid macroeconomic imbalances and falls in their stock exchanges due to the negative impact of the oil price, and should instead focus on industrial production that will contribute to exports. In this way, they can avoid the negative impact of oil price shocks on their stock exchanges.

Interactive Relationship among Urban Expansion, Economic Development, and Population Growth since the Reform and Opening up in China: An Analysis Based on a Vector Error Correction Model

Based on cointegration analysis, a vector error correction model (VECM), and the impulse response function method, this paper empirically analyses the interaction among urban expansion, economic development, and population growth in China from 1980 to 2016. The results show that (I) there is a long-term equilibrium relationship among urban expansion, economic development and population growth, but there is an imbalance in the short term. When urban expansion deviates from the long-term equilibrium, it cannot be restored to equilibrium in the short term. However, when economic development and population growth deviate from equilibrium, they will adjust back to equilibrium with strengths of −0.1770 and −0.0217, respectively. (II) From the results of the impulse response, there is an interactive statistical relationship between urban expansion, economic development, and population growth; In the short term, both economic development and population growth will cause urban expansion. In the long term, economic development will inhibit urban expansion, and economic development will be less dependent on land. Also, population growth has a long-lasting positive effect on urban expansion. (III) The results of variance decomposition show that urban expansion and economic development were most affected by the structural impact of population growth, and the relative variance contribution (RVC) rate was stable at 29.2% and 42%, respectively. However, economic development contributes the least to the RVC of urban expansion and population growth, and only stabilizes at 12.3% and 8.0% after 30 periods. Finally, the paper proposes that the Chinese government should maintain stable and healthy economic growth and promote sustainable land use in terms of improving land use efficiency, improving human capital levels, and promoting industrial structure.

Impact of high technology export on economic growth: an analysis on Turkey

Purpose- High-technology exports, with their high added value, are considered as one of the determinants of growth in recent years. The increasing competitiveness of developing countries in international markets depends on the country's capacity to produce and export high-tech products. Therefore, the export of high technology products is especially important for the economic growth and development of the countries. In this study, the effects of the causality analysis on the economic growth of high-technology exports in Turkey has been investigated. Methodology- Granger Causality Analysis was used to determine the direction of the relationship and the results of the variance decomposition were evaluated. VAR model is primarily applied in the model in order to determine the short-term causality relationship between the variables while the analysis is performed with the Granger causality, impulse-response and variance decomposition methods. Findings- After 1980, Turkey has transitioned from import substitution to export-oriented industrialization strategies and largely completed the liberalization process during 1990s. Important policies for industrialization have been implemented by improving the export structure within the scope of competitive advantages. When the impulse-response and variance decomposition results are evaluated together, the outcome is consistent with the Granger Causality Test results where high-technology export is effective on GDP. Conclusion- In conclusion, it was found out that high technology exports affect economic growth. Therefore, Turkey has to put more emphasis to increase high technology shares in its exports and incentivize high technology production.

Profitability Variables and Bank Size Effects on Corporate Zakat: Evidence from Indonesian Islamic Banks

Islamic banks carry out their operational activities based on Islamic principles. Thus, they are not only required to pay taxes but also zakat of 2.5 percent with several conditions. Theoretically, zakat has an impact on Islamic banks larger expenditures compared to conventional banks which are not obliged to. This research examines and analyzes the extent to which profitability variables which are ROA, ROE, and BOPO, and bank size which is represented by total assets, can affect corporate zakat expenditure by Islamic Commercial Banks (BUS) in Indonesia. To do so, the Panel Vector Error Correction Model (PVECM) is used to analyze the subject matters which the period covers from 2012 to 2017. This work finds that in the short-run, all the independent variables were insignificant. However, in the long-run only ROE and BOPO which were significant. The results of the Impulse Response Function (IRF) analysis showed that the dependent variable responds to the shock of its independent variables with fluctuating and even negative trend. In addition, the results of Variance Decomposition (VDC) analysis showed that the contribution of profitability variables and bank size tended to decrease toward the formation of corporate zakat expenditure by BUS until the end of the research period.
 Keywords: Corporate Zakat Expenditure, Islamic Banks, Profitability, Bank Size, PVECM

Equity Trading Activity and Credit Spread Shock

This study investigates how equity trading activity dynamically responds to credit spread shock. Based on the analysis of monthly data from 1925M1 to 2013M7, equity trading activity, using share volume turnover as a proxy, significantly drops following the shock to credit spread. The results from the Granger-causality test show that credit spread Granger-causes equity trading activity to drop. The variance decomposition results indicate that credit spread forecasts about 1.77%, 2.25% and 4.22% of equity trading activity at the 3-month, 6-month and 12-month horizons, respectively.

Do economic activities cause air pollution? Evidence from China’s major cities

In China, smog pollution has become an increasingly serious environmental issue that seriously threatens its sustainable economic development. Given that smog pollution usually becomes more prominent as economic activities increase, this study investigates the causal relationship between the two. Using panel data of 73 key cities in China during 2013–2017, this research employs the VECM, impulse response function, and variance decomposition to conduct empirical estimations. The results indicate that there is a unidirectional causality between PM2.5 and economic growth, Foreign Direct Investment (FDI), and industrial structure in the long-term, while there is bilateral causality between the Air Quality Index and the other variables. This suggests that, in the short term, there is a one-way causality from foreign trade, economic growth, and industrial structure to air pollution. There is also evidence for the existence of inverted U-shaped relationship between smog pollution and economic growth. The responses of smog pollution to the ratio of secondary industry to is positive, suggesting that the increase in the proportion of the secondary industry would increase smog concentrations. The results of variance decomposition suggest that foreign trade contributes the most to air pollution, followed by economic growth, industrial structure, and FDI.

An Analysis of Factors Influencing Rice Export in Egypt Based on Vector Autoregressive Model

Vector Autoregressive Model (VAR) lead to the integration of production and export decisions of rice. The main objective of the study is to determine the main factors influencing Egypt’s rice exports. This model can also be used to study the prospects of Egyptian rice exports. The results of variance decomposition confirm that the most important variables influence the value of Egyptian rice exports is Egyptian export price, and the empirical analysis of Vector Error Correction Model relieves the possibility of improving the competitiveness of Egyptian exports of rice in global markets in the forecast period (2015:2025).

Does Financial Development Promote Industrial Production in Pakistan? Evidence from Combined Cointegration and Causality Approach

This study investigates the impact of financial development on industrial production from 1972 to 2014 in Pakistan. We use the Bayer and Hanck (2013, Journal of Time Series Analysis 34(1), 83–95,) combined cointegration technique to predict the long-run relationship between financial development, saving and industrial production. The results predict three cointegration vectors which confirm the existence of a long-run relationship between underlying variables. The empirical evidence shows a positive impact of financial development and savings on industrial growth in the long run as well as in the short run. The result of the VECM (Vector Error Correction Model) Granger causality confirms the bidirectional causality between financial development and industrial production in the long run. The variance decomposition approach shows that financial development has major contributions in explaining industrial production. The impulse response function also confirms the results of variance decomposition. This research opens new insights for policymaking.

An Analysis of Factors Influencing Rice Export in Egypt Based on Vector Autoregressive Model.

Vector Autoregressive Model (VAR) lead to the integration of production and export decisions of rice. The main objective of the study is to determine the main factors influencing Egypt’s rice exports. This model can also be used to study the prospects of Egyptian rice exports. The results of variance decomposition confirm that the most important variables influence the value of Egyptian rice exports is Egyptian export price, and the empirical analysis of Vector Error Correction Model relieves the possibility of improving the competitiveness of Egyptian exports of rice in global markets in the forecast period (2015:2025).

Asset Price, the Exchange Rate, and Trade Balances in China: A Sign Restriction VAR Approach

Although asset price is an important factor in determining changes in external balances, no studies have investigated it from the Chinese perspective. In this study, I empirically examine the underlying driving forces of China’s trade balances, particularly the role of asset price and the real exchange rate. To this end, I estimate a sign-restricted structural vector autoregressive model with quarterly time series data for China, using the Bayesian method. The results show that changes in asset price affect China’s trade balances through private consumption and investment. Also, an appreciation of the real exchange rate tends to deteriorate trade balances in China. Furthermore, forecast error variance decomposition results indicate that changes in asset price (stock price and housing price) explain about 20% variability of trade balances, while changes in the real exchange rate can explain about 10%.

Asset Price, the Exchange Rate, and Trade Balances in China: A Sign Restriction VAR Approach

Although asset price is an important factor in determining changes in external balances, no studies have investigated it from the Chinese perspective. In this study, I empirically examine the underlying driving forces of China’s trade balances, particularly the role of asset price and the real exchange rate. To this end, I estimate a sign-restricted structural vector autoregressive model with quarterly time series data for China, using the Bayesian method. The results show that changes in asset price affect China’s trade balances through private consumption and investment. Also, an appreciation of the real exchange rate tends to deteriorate trade balances in China. Furthermore, forecast error variance decomposition results indicate that changes in asset price (stock price and housing price) explain about 20% variability of trade balances, while changes in the real exchange rate can explain about 10%.

Dynamic Decomposition Analysis and Forecasting of Energy Consumption in Shanxi Province Based on VAR and GM (1, 1) Models

Environmental issues caused by energy consumption have attracted increasing attention recently. Shanxi Province, a typical energy-dominated region in China, has long-term dependency on coal industry generating extensive economic growth, which is detrimental to green development. Distinguished from previous studies ignoring driving factors of energy consumption, this paper establishes a vector autoregression (VAR) model to dynamically identify the drivers of energy consumption based on STIRPAT model in Shanxi Province from 1990 to 2015. It can be obtained from the impulse response analysis that a positive shock in population, GDP, and urbanization level, respectively, positively affect energy consumption, and a positive change in technology negatively affects energy consumption in the long run. The variance decomposition results indicate that fluctuation in energy consumption explained by the innovation of the urbanization level accounts for 23.18%, which plays a prevailing role in increasing energy consumption. Meanwhile, the forecasting results of GM (1,1) model manifest that energy consumption in Shanxi Province generally has an increasing trend from 2016 to 2025. Consequently, Shanxi can achieve green development through optimizing energy structure, promoting the transformation of resource-based cities, and promoting low-carbon technological innovation. This paper can be available for other resource-based regions analogous to Shanxi.

Policy Recommendations to Improve Trade Balance in Vietnam: An Empirical Study of Relationship between Exchange Rate and Trade Balance

This research aims to analyze the effect of the real effective exchange rate on the trade balance in Vietnam using Vector Autor Regressive (VAR) model applying for quarterly data from 2000 to 2016. The tests of the impulse response function investigate that there exists a J-curve for Vietnam. The J-curve effect lasts about six quarters, which implies that the trade balance needs at least six quarters to improve after real depreciation of the domestic currency. The results of variance decomposition also show that real effective exchange rate plays the most critical role in the trade balance fluctuation since the fifth quarter till the long run, whereas, consumer price index has the second impact on the trade balance, foreign direct investment and gross domestic product seem not to much effect on the trade balance. Based on the results, the author gives some policy recommendations on improving the trade balance, including moving to a flexible exchange rate and coordinating between exchange rate policy and other macro policies.

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.

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.