Vector Autoregressive Approach Research Articles

Responsiveness of Headline Inflation to the Dynamics of Monetary Aggregates in Nigeria: A Structural Vector Autoregressive (SVAR) Approach

This paper contributes to the literature on the monetary transmission mechanism by using monthly data (January 2001 to December 2022) from the Central Bank of Nigeria (CBN) Statistical Bulletin to investigate how headline inflation responds to changes in monetary aggregates in Nigeria. The structural vector auto regression (SVAR) method by which the impulse response functions (IRF) and variance decomposition were used to examine the response of inflation to changes in narrow money (M1), M2, M3, and the interbank call rate In deviation from economic theory, the study found that positive shocks to M1 and M2 caused inflation to decline insignificantly. Positive shocks to M3 had an insignificant positive impact on inflation both in the short- and long run. This finding highlights that shocks to M3 are not a significant source of inflation pressure, and its control may not be a useful tool for the CBN to tame inflation in Nigeria. The study found that inflation declined insignificantly in response to positive shocks to the interbank call rate. This finding suggests that hiking interest rates have not been effective in addressing the problem of inflation in Nigeria. Overall, the results showed that using M1, M2, and M3 and interbank call rates is less potent in controlling inflation in Nigeria. Hence, this paper recommends reducing the number of financially excluded Nigerians by encouraging banking habits among Nigerians, especially those in un served and underserved rural areas.

The Fiscal Transmission Mechanism of Inflation

The link between money creation and inflation has been theoretically demonstrated, but different inflation responses to Federal Reserve activity after the Great Recession and COVID recession showed the incomplete nature of the theory. We model a “fiscal transmission mechanism” whereby Federal Reserve purchases of Treasury securities lead to inflation as new dollars flow through fiscal deficits into the economy. In our model, other Federal Reserve activity generally lacks inflationary effects. Using a nonstructural vector autoregression approach, we test for the presence of this mechanism and offer near perfect predictions of the 2022 inflation rate using a time series extending back half a century. We explain the fiscal transmission mechanism and the reasons why other Federal Reserve activity lacks the same effects, and we propose an emphasis on controlling the money supply by limiting Federal Reserve purchases of Treasury securities as a better way to control inflation than setting an interest rate target.

Understanding the role of supply and demand factors in the global wheat market: a Structural Vector Autoregressive approach

Understanding the role of supply and demand factors in the global wheat market: a Structural Vector Autoregressive approach

An Empirical Analysis of the Effects of Energy Price Shocks for Sustainable Energy on the Macro-Economy of South Asian Countries

Energy prices (EPs) play an imperative role in South Asian Country (SAC) Gross Domestic Product (GDP). This research empirically examines the influence of sustainable energy price shocks (EPSs) on macroeconomic indicators. The study is to forecast the impact of EPS on macroeconomic indicators from 1980 to 2020. The analysis is carried out by employing the Vector Auto-Regression (VAR) approach. Impulse Response Functions (IRFs) results indicate that EPS decreases Gross Domestic Product (GDP). They exist in the short run and the long run. This research study’s overall findings suggest that high EPSs have a negative impact on GDP. The study implies that policymakers should develop, adopt, and initiate some imperatives to control the unanticipated volatility and movements in EP. The study highlights that policy should be designed to prevent fluctuations in sustainable EP and plan conservative energy policies that motivate discovering alternative energy sources to meet increasing energy demand and improve economic growth.

The dynamic complementarity of renewable energy sources: A Bayesian vector autoregressive approach

ABSTRACT The climate factors are the main driving forces of variability of renewable energy sources. In facing the safety challenges of the large-scale grid integration of renewable energy, it is important to understand the effects of climate shocks on the generation of the renewables as well as if the complementarity among different types of renewable energy exist and could be employed to smooth out the production and better match with the load. We employ a Bayesian vector autoregressive (BVAR) model along with impulse response function and forecast error variance decomposition to investigate the dynamic complementarity among renewable energy in the face of different climate shocks. The proposed methodology is applied over Qinghai employing the power generation data as well as meteorological data. The results show that there is greater general complementarity between solar power and hydropower. Wind power and solar power, and wind power and hydropower, exhibit dynamic complementarity when there are fluctuations in precipitation and wind speed, respectively. China should make efficient use of the natural complementarity advantages between renewable energy sources, carry out joint optimal dispatching, and accelerate the construction of a clean, low-carbon, safe and efficient energy system.

The Impact of Public Investment on Economic Growth in Pakistan

This paper explores the role of public investment in the process of economic growth, in the context of Pakistan’s economy, using the vector autoregressive approach (VAR). Based on theoretical considerations, the model also includes private investment and public consumption besides public investment. The results show that growth is largely driven by private investment and that no strong inference can be drawn from the effects of public investment and public consumption on economic growth. JEL Classification: E2, 04. Keywords: Public Investment, Economic Growth.

Corporate governance, capital structure, and firm performance: a panel VAR approach.

This study aims to examine the interrelationships and interdependencies between corporate governance (CG), capital structure (CS), and firm performance (FP) of companies listed on the Stock Exchange of Mauritius from 2009 to 2019 along with a comparison between financial and non-financial firms. A panel vector autoregression (PVAR) approach is used in this study to determine the relationship dynamics between CG, CS and FP. The findings reveal a positive and significant bidirectional association between CS and FP, supporting the trade-off theory. The results also show that CG and FP jointly help to increase CS while CG and CS jointly boost the profitability of firms. A strong bidirectional relationship with varied signs between CG and CS is found only for financial firms. The results of the forecast error variance decomposition analysis support the selection of FP as the most endogenous variable. Robustness tests also support the findings. This study is the first to examine the dynamic and interdependent relationships using a PVAR model between CG, CS and FP that presents new contributions to the existing CG and CS literature with insights from an emerging economy.

Does Kyrgyz banking system liquidity provide economic growth?

The relationship between the liquidity ratio, the economy and the banking system of a country is a popular subject among academics. This research aims to understand this connection for Kyrgyzstan, a developing economy. The Vector Auto Regression approach was used to trace the association of liquidity ratio to loan and deposit volumes, interest income, net interest income, treasury bill volume, and gross domestic product based on the quarterly data. The data was obtained from various publications of the National Bank of the Kyrgyz Republic. The primary literature indicates that bank liquidity has an inverse correlation not only with bank profitability but also with economic growth. The findings confirm a similar relationship for Kyrgyzstan. Furthermore, liquidity has a positive relationship to treasury bills volume, but a negative correlation to economic growth. However, there was no significant correlation between the liquidity ratio and deposit volumes. Therefore, this paper found that high liquidity ratio of the Kyrgyz banking system negatively effects both the profitability of the banks and economic growth.

Revisit economic growth and CO2 emission nexus in G7 countries: mixed frequency VAR model.

Applying a mixed frequency vector autoregressive (MF-VAR) approach, we examine relationships between CO2 emissions and economic growth from 1970Q1 to 2019Q4 among G7 countries. We incorporate primary energy consumption as a control variable, to avoid any bias from an omitted variable. Our empirical results, using forecast error variance decomposition and a Granger causality check, suggest that MF-VAR exhibits better explanatory ability over the more commonly used VAR model employing single frequency data. Results from LF-VAR exhibit a feedback loop connecting economic expansion and emissions of CO2 with one-way Granger causality from primary energy consumption to growth of the economies studied. MF-VAR model results also indicate that, in G7 countries, economic expansion exhibits a one-way causal link to CO2 emissions in Canada, UK, and US cases. Interestingly, MF-VAR shows feedback between economic expansion and primary energy use in Germany, while LF-VAR quantifies the link from economic growth to CO2 emissions in Canada and from CO2 to economic growth in the UK. Results raise implications for the G7 samples' policymakers.

Effect of International Commodity Price Shocks on Public Finances in Africa

This paper empirically investigates the macroeconomic responses to commodity price shocks with a focus on fiscal variables in a sample of thirty-three African commodity-dependent countries. Using the heterogeneous panel structural vector autoregressive (SVAR) approach developed by Pedroni, we find that government revenues as well as government expenditures react to commodity export prices shock. However, there is a large degree of heterogeneity across countries. Following country characteristics, we find that the response of fiscal variables is higher for countries dependent on extractive commodities than those dependent on agricultural ones. We also highlight the benefits of flexible exchange rate regimes for accommodating external shocks and ensuring macroeconomic stability, which in turn is beneficial to government revenue mobilization. Our results suggest that the African government should seize commodities as an opportunity and increase their efforts in revenue mobilization during price booms and make a productive investment to isolate their finances from commodity price collapses.

Money Demand in Indonesia: Does Economic Uncertainty Matter?

Since the global financial crisis of 2008, there has been a rise in economic uncertainty and money demand research. The money demand is vital in monetary policy, which has implications for the regional economy. This study aims to analyse the money demand in Indonesia in the middle of global economic uncertainty, as well as the contribution of the study, which includes the economic and monetary policy uncertainty in a separate model for an enhanced money demand function. The study used a structural vector autoregressive (SVAR) approach. The results indicate that monetary demand is negatively affected by economic uncertainty. With the development of the financial sector, the impact of economic uncertainty and the unpredictability of US monetary policy drives people to be more cautious, resulting in a movement of "wealth" to other instruments. The current study implies that the monetary policy in the form of interest rates as the response to the global condition should consider monetary aggregates in terms of money demand as a precautionary measure to maintain money demand. The study revealed that stable money demand suggests inflation targeting as a monetary policy that can enhance monetary policy in the face of rising economic uncertainty.

Modelling CESEE Countries Export Dynamics: Global Vector Autoregressive Approach

Abstract One of the main aspects of the transition process in Central, Eastern and Southeastern European (CESEE) countries was the trade liberalisation. As their financial systems are still underdeveloped and the trade channel is the dominant shock transmitter, this paper focuses on export dynamics for a selected set of CESEE countries. The employed methodology, Global Vector Autoregressive (GVAR) approach, allows modelling interactions and spillovers among countries. Furthermore, it enables joint modelling of exports and imports. This is of particular importance as the opening of new markets enabled astonishing export growth, but also opened the CESEE markets to foreign products. The empirical analysis reveals that a shock in German imports has a larger impact on CESEE countries’ exports than a shock in German output. Moreover, the results indicate that the role of the real exchange rate is less pronounced in comparison to previous similar research.

The macroeconomic impacts of the mobile money: empirical evidence from EVC plus in Somalia

PurposeThe purpose of this study was to examine the macroeconomic impact of mobile money in Somalia using quarterly data from 2010 to 2020.Design/methodology/approachThis study applied the structural vector autoregressive approach to examine the response of the macroeconomic variables to the mobile money shocks.FindingsThe results show that mobile money increases consumer spending by reducing transaction costs and enhancing access to finance, which promotes the expansion of aggregate output. This study also finds that mobile money helps exchange rate stability and price level maintenance, boosting trade openness. Moreover, mobile money is linked to the rise in real income due to productivity improvement and price stability. The results of this study indicated that mobile money has a short-run relationship with aggregate output, household consumption, price level, trade openness and real income. Through the Granger causality test, this study finds that mobile money has a unidirectional relationship with the exchange rate, price level, household consumption and trade openness.Originality/valueThe empirical findings of this study imply that mobile money can create a wide range of financial services to improve the financial system in rural and urban areas; hence, it enables poor and rural members of society to make payments and receive-and-transfer money using their mobiles.

Estimating Inclusiveness of Growth in Sub-Sahara African Countries: a VAR Approach

The study examined the interaction among income inequality, economic growth, and poverty with a view of assessing the extent of inclusiveness of growth in selected African countries. Using a dataset from World Development Indicators (WDI) and Standardized World Income Inequality Dataset (SWIID), the study adopted Vector AutoRegression (VAR) method in its econometric analysis. Its findings show that only "West" African countries exhibit partial traits of inclusiveness of growth. Thus, the study recommends the provision and implementation of distributional and growth-oriented macroeconomic policies, as well as investment in public infrastructure to spread the benefits of growth to all in African countries.

Teknolojik Değişme ve İstihdam Arasındaki Dinamik İlişki: Genç İstihdamı ile Toplam İstihdamın Panel VAR ve Nedensellik Analizleri ile Karşılaştırılması

This study empirically examines the relationship and causality between technological change and employment by comparing youth and total employment. It covers data from 16 OECD economies from 1985 to 2018 and uses multifactor productivity (MFP) as a proxy for technological change. The findings from the general method of moments panel vector autoregression (GMM Panel-VAR) approach indicate significant and positive effects of MFP on youth and total employment, and a significant yet negative impact of youth employment on MFP. According to Panel-VAR-Granger-Causality analysis results, there is a two-way causality between MFP and youth employment and a one-way causality from MFP to total employment. Thus, this study empirically confirms the job-creation effect of technology and finds out that the technological change and employment nexus differs for youth employment compared to that for total employment.

On the persistence and complementarities of design and technological change: a regional perspective

ABSTRACT This paper explores the dynamics between design and technological change for regional innovation. We discuss a framework integrating persistence effects and processes of knowledge recombination that explicitly recognize the role of design as a separated yet synergic element to technological change within the context of regional innovation systems. Using a panel vector autoregressive (PVAR) approach and information on over 900 NUTS-3 regions across 20 countries in Europe for the period 2000–12, we provide novel evidence of evolutionary dynamics for both design and technological change along with simultaneous complementarities expanding the set of combinatorial opportunities for regional innovation.

Democracy, military expenditure and economic growth: A heterogeneous perspective

ABSTRACT Countries with different democratic levels tend to show various degrees of emphasis on military expenditure and a consensus can hardly be reached on the economic effect of democracy and military expenditure. By applying a panel vector autoregressive (PVAR) approach, this article examines the potential dynamic and endogenous relationships among democracy, military expenditure and economic growth of 126 countries from 1990 to 2020. Furthermore, the k-means clustering algorithm is employed to account for the heterogeneous interaction between democracy and military expenditure in different countries. The empirical results reveal that the strong positive impact of democracy and the negative effect of military spending on economic growth exists in the full sample and the cluster of countries with low democratic levels and a high military burden. For democratic countries with low military expenditure, there is a more significant and negative impact both of military expenditure on democracy and vice versa.

The analysis of relationship between financial markets' illiquidity shocks and macroeconomic dynamics: Time-varying parameter vector autoregression (TVP-VAR) approach in Iran

تحقیقات اخیر نشان داده است که نقدشوندگی بازار‌های مالی عمده جهان در طول زمان متفاوت بوده و غیرقابل‌پیش‌بینی بودن نقدشوندگی این بازار‌ها منبع مهمی از ریسک برای سرمایه‌گذاران می‌باشد. این شوک نقدشوندگی بازار‌های مالی بر اقتصاد کلان تأثیرگذار است. در این تحقیق به تحلیل ارتباط شوک‌های عدم نقدشوندگی بازار مالی و پویایی‌های اقتصاد کلان با رویکرد خود رگرسیون برداری با ضرایب متغیر در زمان (TVP-VAR) در ایران پرداخته شده است. نتایج مطالعه با به‌کارگیری داده‌های سری زمانی فصلی طی سال‌های 1387:3 تا 1399:4 نشان می‌دهد که واکنش رشد تولید در دوره‌های مورد مطالعه به شوک عدم ‌نقدشوندگی منفی و کاهشی می‌باشد. همچنین شوک‌های عدم نقدشوندگی دارای اثرگذاری فزاینده بر تورم بوده اثرگذاری رشد حجم نقدینگی به این شوک‌ها نیز در دوره مورد مطالعه با افزایش نسبی همراه بوده است. سرانجام اثرگذاری شوک عدم نقدشوندگی بازار سهام بر نرخ بیکاری در ابتدا دوره‌ و سال‌های مورد بررسی افزایش بوده و در ادامه و انتهای سال‌ها و دوره‌ها این اثر کاهش یافته است.

Risk and return in the foreign exchange market: Measurement without VARs

This paper offers a detailed investigation of the foreign-exchange risk premium using a structural relationship in the inflation-index bond market, first introduced by Clarida. Unlike the conventional vector autoregressive (VAR) approach, this approach estimates risk premium through the non-arbitrage relationship between investing in inflation-indexed bonds from two countries and works in the market information set. A rise in the estimated foreign-currency risk premium helps to forecast dollar depreciation in subsequent periods. And the forecasting power is stronger than that of the other existing VAR approaches.

Do Innovation in Environmental-Related Technologies and Renewable Energies Mitigate the Transport-Based CO2 Emissions in Turkey?

Given the unprecedented level of air pollution in urban areas, green transport systems has been a subject to an important debate in academic and policymaking circles. Despite the considerable outputs of the attendant literature, most of empirical studies to date have relied on conventional econometric models in which structural shocks are not controlled. This study, therefore, aims to offer a new perceptive of the dynamic connection between renewable energy, environment-related technological innovation, and transport-based CO2 emissions in Turkey during 1990Q1 to 2014Q1 by applying the Structural Vector Autoregressive approach (SVAR). Furthermore, to explore the co-movements and the lead-lag interrelations among the study variables, the wavelet coherence technique was used. The wavelet coherence technique circumvents the other traditional causality approaches by detecting the causal interrelation between the underlying series at different frequencies. The findings disclose that environment-related technological innovation has no reliable power to explain the variation in CO2 emissions from the transport sector. Solar energy is found to impact the CO2 emissions positively in the long run, while biofuels hold the same effect in short run. Moreover, per capita GDP and urbanization significantly impact the carbon emissions from the transport system in the long run with a negative sign. The wavelet analysis reveals that renewables and environmental-related technological innovation lead the transport-based CO2 emissions. The fourth and 16th periods are the most dominant frequencies. Accordingly, the study suggests that innovation in environment-related technologies is not enough to mitigate the pollution that stemming from the transport system in Turkey, it should be accompanied by strong and effective environmental measures. These policies might include environmental taxations, carbon pricing and trading schemes, which aim not only to prevent the pollution and over-extraction of resources, but also to promote the public revenues from different activities that related to environmental purposes and other applications such as energy product and vehicle fuels. In addition, it is suggested to strengthening the transportation system through the deployment of renewables and high-tech eco-friendly modes of transportation.