Vector Error Correction Model Research Articles

How does energy intensity impact economic growth for the case of a small island country

AbstractIn this article, we explore the relationships between economic growth and energy intensity in Bahrain, and we analyse how energy intensity, population, and other macroeconomic variables are associated with each in the short and long run. In the empirical section we use data span from 1980 to 2019 and we perform a vector error correction model and cointegration technique to detect causality between the variables used in the model. The main findings of this article show that economic growth, population and FDI increased energy intensity in Bahrain in the short run. Therefore, an urgent need to be embedded in the sustainable energy action plan to limit the harmful effects of economic activity on the environmental quality in Bahrain and to ensure environmental sustainability.

Determinan stabilitas perbankan di Indonesia: Pendekatan makro dan mikro prudensial

Banks have a very important role in the economy. Not only as financial intermediaries. They have also played a big role in the effectiveness of monetary policy. Therefore, bank stability is very important. This research aims to determine the influence of micro-prudential variables represented by CAR, NPL, and LDR variables, as well as the influence of macro-prudential variables represented by the Rupiah exchange rate variable against USD, inflation, interest rates, and IHSG, on bank stability in Indonesia, both in the short and long term. Using the vector error correction model (VECM) analysis technique, this research provides results that microprudential variables and macroprudential variables are both proven to have an influence on banking stability in Indonesia. Micro-prudential indicators such as CAR and LDR have been proven to have a positive effect on banking stability. Meanwhile, NPLs have a negative effect on banking stability. Likewise for macro-prudential indicators: the exchange rate and inflation have a negative effect on financial system stability. Meanwhile, interest rates and IHSG have a positive effect on banking stability. The impact of surprises or shocks that occur in micro-prudential and macro-prudential variables on banking stability is permanent. The implication of the findings in this research is that Bank Indonesia and the Financial Services Authority have a very large role in achieving banking stability in Indonesia.

Identifying Interest Rate Transmission Mechanism under a Bayesian Network

This study examines causal relationships among various short- and long-term interest rates in the Korean financial market to identify transmission channels. Monthly time series data from January 2015 to February 2024 were used, covering nine interest rates, including call rates, commercial paper (CP) rates, bank lending rates, and Treasury bond yields of different maturities. The study employs a Bayesian network to identify an acyclic causal structure between interest rates alongside a vector error correction model (VECM) to capture long-term equilibrium relationships and short-term dynamics. The findings reconfirm the traditional call rate transmission mechanism, aligning with conventional monetary policy views, demonstrating the call rate’s significant influence on bank lending rates, which affects corporate bond spreads and CP rates. Additionally, it reveals that 10-year Treasury bond yields form an independent interest rate transmission pathway, a finding not previously identified in the literature. These results underscore the need for coordinated monetary and fiscal policies due to the distinct transmission pathways of Treasury yields for sustainable macroeconomic management and growth.

Analysis of Economic Freedom, Foreign Direct Investment, and Economic Growth

This research analyzes the relationship between economic freedom, foreign direct investment (FDI), and economic growth using the Vector Error Correction (VECM) model and the Granger causality test. Panel data from several free trade agreement countries in the Regional Comprehensive Economic Partnership (RPEC) for 1997 – 2022. VECM captures cointegration relationships and models short-term adjustments toward long-term balance. Meanwhile, the Granger causality test helps identify the direction of the causal relationship between economic freedom, FDI, and economic growth. Empirical results show a long-term but weak cointegration relationship between these variables in the short term. In addition, it was found that there is a two-way causality between economic freedom and economic growth, as well as between FDI and economic growth. These findings imply that policies encouraging economic freedom and attracting foreign investment can increase a country's economic growth. This research provides empirical insights into the important role of economic freedom and FDI in driving economic growth and related policy implications for creating an environment conducive to investment and sustainable economic growth.

Sectoral Composition of Outward FDI and its Impact on Export Diversification in Saudi Arabia

This research explores the relationship between outward foreign direct investment (FDI) and export diversification in emerging economies, with a focus on the case study of Saudi Arabia. Utilizing a multi-equation model and vector autoregression analysis, the study investigates various factors such as the level and sectoral composition of outward FDI, income levels, institutional factors, and regional trade agreements. The findings suggest that while outward FDI can influence export diversification, its impact varies based on factors such as the sectoral distribution of investments, income levels, and institutional quality. Additionally, cointegration and vector error correction models reveal long-term relationships among key variables, highlighting the complex interplay between economic development, governance, and investment patterns. Impulse response analysis sheds light on the dynamic nature of shocks and their effects on the economy over time, emphasizing the interconnectedness of variables. Variance decomposition analysis further elucidates the significance of shocks in explaining fluctuations in model variables, underscoring the systemic interdependencies at play. Overall, the study provides valuable insights into the mechanisms through which outward FDI influences export diversification and economic development in emerging economies like Saudi Arabia and institutional reforms are essential; strengthening institutions and improving regulatory frameworks can amplify the positive effects of outward FDI on export diversification.

Does Political Stability Matter to the Profitability of Banks?

This study examines the impact of net interest margin, non-interest income, non-performing loans, and Political Stability Index on the banks’ profitability regarding return on assets in developing Asian countries, focusing on how political stability affects the bank’s profitability. The secondary data from 14 developing countries used in this study are collected from the World Bank and World Financial Studies Report. The dataset includes 154 data points spanning from 2012 to 2022, focusing on 14 underdeveloped countries of Asia. Exploratory and analytical research designs are utilized. Data are analyzed by using EViews 12. Econometric tools such as descriptive statistics, correlation analysis, panel unit root testing, Fisher-Johnsen combined co-integration test, panel vector error correction model, and Wald test investigate the relationship between response and predictor variables. The net interest margin, non-interest income, non-performing loan, and Political Stability Index are jointly integrated to determine the bank’s profit of developing countries of the Asia continent. Interest margin, non-interest revenue, non-performing loans, and the Political Stability Index all show a 38.6 percent variance in bank profit. It has been discovered that for every unit that rises in net interest margin and Political Stability Index, the bank profitability of developing Asian countries increases by 0.4867 and 0.2221 percent, respectively. Non-interest income has little bearing on the profitability of banks. Meanwhile, non-interest income exhibits minimal influence, suggesting a need for a strategic focus on interest margin enhancement and fostering political stability to optimize banking sector profitability in the region.

The Impact of Islamic Securities Issuances on Domestic Investment: A Case Study of Malaysia

This study aims to analyze the impact of Islamic securities issuance on domestic investment in Malaysia during the period 2005-2019. Malaysia is considered a model, since it is the world's first country in issuing Islamic securities, the most important of which is Islamic Sukuk. This study investigates the efficiency of the Sukuk issuance market in Malaysia and its impact on the investment growth rate in the issuing economic sectors. Finally, it estimates the relationship between Islamic Sukuk issuance and domestic investment using the Cointegration Test and the Vector Error Correction Model (VECM). The results show a high performance of the Islamic Sukuk-market indicators in Malaysia, as well as a long-run equilibrium relationship between the estimated variables. In addition, Sukuk issuance has a significant positive impact on domestic investment in Malaysia.

THE RELATIONSHIP BETWEEN ENERGY CONSUMPTION AND ECONOMIC GROWTH IN TÜRKİYE

The interplay between energy resource distribution and usage is pivotal for sustainable economic growth and development. Addressing global warming and climate change is essential, necessitating a shift towards renewable energy sources and reducing reliance on harmful energy types. Central to this endeavor is producing within the bounds of global steps and measures, fostering a sustainable relationship between humanity and resources, and achieving economic growth without depleting our natural endowments. The industrial sector's reliance on fossil fuels primarily contributes to rising carbon emissions, causing environmental degradation and climate change. This study scrutinizes the dynamics between energy consumption and economic growth in Türkiye from 1980 to 2020. Utilizing the Granger Causality Test, Johansen Cointegration Test, and Vector Error Correction Model, a causal link between energy consumption and economic growth was identified. Based on these findings, policy recommendations have been proposed to guide sustainable energy use and economic expansion.

Tác động của đầu tư công đối với tăng trưởng kinh tế của tỉnh Phú Yên

The purpose of this study is to determine the impact of public investment on the economic growth of Phu Yen province and on that basis, the author recommended some solutions to use this investment more effectively. The study uses the vector error correction model (VECM - Vector Error Correction Model) with data collected from Phu Yen Provincial Statistical Yearbook and related agencies in 27 years, from 1996 to 2022. The research results show that public investment has a positive impact on the economic growth of Phu Yen province in both the short and long term, in which the level of impact in the long term is higher than in the short term. In addition, the research results also show that labor working in the economy also positively impacts long-term and short-term economic growth. For private investment, it has a negative impact on GRDP growth in the short term and a positive impact in the long term. These findings have important implications for public investment management activities in Phu Yen province.

The Influence of Macroeconomic Variables on Non-Performing Loan (NPL) at PT Bank Mandiri (Persero) Tbk

In recent years, Bank Mandiri's non-performing loan (NPL) ratio has been on a relatively stable decline until the COVID-19 pandemic in 2020 quarter I put pressure on the Indonesian economy. Since then, Bank Mandiri's NPL ratio has increased significantly due to the global economic recession that also occurred in Indonesia in 2020 quarter III. This study aims to analyse the effect of macroeconomic variables such as gross domestic product, inflation, interest rates, and exchange rates on non-performing loans (NPL) specifically at Bank Mandiri. This study uses secondary data in the form of historical data of related variables and Vector Error Correction Model (VECM) to estimate the dynamics of long-term and short-term relationships between variables. The results of this study indicate that macroeconomic variables such as BIRATE, INF, and LNPDB significantly affect Bank Mandiri's NPLs in the long-run dynamics, while LNKURS is statistically significant in the short-run dynamics. Keywords: Macroeconomic, Non-Peforming Loan, VECM

Overshoot Nilai Tukar Rupiah Terhadap Us Dollar pada Masa Pandemi Covid-19

This study aims to analyze overshooting exchange rates Rupiah towards US Dollar during the COVID-19 pandemic period. The data used is monthly data from January 2019 to December 2022. Several variabels employed are exchange rate ,interest rate, inflation, Gross Domestic Product and money supply The analysis methods used include unit root test, lag test, stability test, cointegration test, Granger causality test, Vector Error Correction Model (VECM) estimation, Impulse Response Function (IRF), and Variance Decomposition. The results of the research showed that interest rate and JUB affects significant RP/USD in the long term, whereas in the short term JUB had significant, affects on the exchange value of RP/USD. The VECM estimation results show a significant cointegration relationship, and the response of the variables to the shock reveals the presence of overshooting symptoms. The contribution of these variables to the variability of the Rupiah/USD exchange rate is also identified through the Variance Decomposition test. In conclusion, overshooting in Indonesia during pandemic Covid-19 is occur, by characterizing JUB shock in short term.

Determinants of Income Inequality in South Africa: A Vector Error Correction Model Approach

The issue of income disparity has long plagued South Africa because of the political environment that existed before the country’s 1994 democratic transition. Based on the widely used Gini index, which gauges global inequality, the nation routinely has some of the highest rates of income disparity in the world. Income inequality in South Africa keeps rising even after a number of frameworks and policies have been put in place, which has a big influence on society. Thus, it is essential to comprehend the causes of income disparity and put suitable policies in place to remedy it. The purpose of this study is to look into the relationship between South Africa’s income disparity and its determinants. Using the Vector Error Correction Model (VECM) approach, this study empirically examines the effects of government spending on social grants, gross savings, population growth, and economic growth on income inequality from 1975 to 2017. Data on the Gini index are sourced from the Standardized World Income Inequality Database (SWIID). Findings reveal a statistically significant negative correlation between government spending on social grants and income inequality. Moreover, income inequality demonstrates a negative relationship with both gross savings and economic growth. However, population growth exhibits a positive correlation with income inequality. This study highlights the significance of implementing a comprehensive strategy to address income inequality in South Africa. This strategy should involve augmenting government expenditure on social grants, cultivating a savings culture within households, and enacting policies that incentivize job creation, particularly in areas with rapid population growth. In addition to making a substantial contribution to the body of evidence already available on income disparity, this study offers insightful information to policymakers working to improve the socioeconomic climate in South Africa.

China's green energy growth: Economic policies, environmental economics, and strategies for resilience in the global economy

China has become a major global power due to its rapid economic growth, which is being driven by resource-intensive industries but at a considerable environmental cost. This study investigates the intricate relationships that exist between China's mining regulations, resource utilization, and environmentally friendly policies, as well as the overall impacts of these relationships on economic growth. The research uses a rigorous regression analysis approach and data from the Ministry of National Resources and the China Statistical Yearbook from 1986 to 2022. Integrating a Vector Error Correction Model (VECM) enables an investigation of the relationships among debt levels, GDP, and natural financing. Wald test estimates also reveal exact Corporate Social Responsibility (CSR) relationships. The results indicate that while China's economy has significantly benefited from mineral-intensive sectors, green measures are urgently needed to slow environmental deterioration. The focus should be redirected toward encouraging sustainable and ongoing development. These results highlight the critical role that green projects play in fostering economic growth. How China strikes a careful balance between its goals for ecological sustainability and economic growth is crucial for both China and the rest of the world in an era characterized by worries about climate change and resource shortages. The objective of this study is to analyze the complex relationship among China's mining regulations, resource utilization, and environmental policies. It will evaluate the effects of these factors on economic growth, with a particular focus on the necessity of adopting sustainable development practices in the face of environmental challenges and economic expansion. The study's goal is to examine the intricate relationships between China's resource use, environmental policies, and mining restrictions. It focuses on the importance of sustainable development methods in the face of environmental issues and economic growth. This research highlights the essential relationship between environmental stewardship and sustainable economic development, and policymakers, businesses, and environmental activists can all benefit from it.

Investigating Some Trends of the Impact of Digitalisation on the Economy of the Republic of Armenia

Fundamental understanding of the impact of digitalisation in various spheres of public life is essential in the development and implementation of policies aimed at realisation of the justified transformations. Considering the far-reaching effects of innovations and the realities formed through them, it is important to understand how modern trends change themselves or can change the socio-economic sight of the country under consideration, what should be paid attention to and when, showing a cautious approach. However, the possible impact of digitalisation on the economy of the Republic of Armenia has not been studied much. The economic aspects investigated in the professional literature are few, and a significant number of variables considered as indicators of digitalisation stand out for their frequent use. In this study, the value added created in Armenia and the export of telecommunications, computer, and information services from Armenia from the first quarter of 2013 to the third quarter of 2022 inclusive are considered. The purpose of the research is to find out the presence and nature of the possible interaction between those indicators, as well as to forecast the values of the latter for the next 10 quarters. The vector error-correction model is applied, which is due to the non-stationarity of the indicators. The results of the study show that there is a long-term interaction between the observed indicators, as persistent shocks are shown to stabilise at certain levels for the period from the fourth quarter 2022 to the fourth quarter 2028. For the period up to and including the first quarter of 2025, the values of both indicators are forecast.

Modelling Asymmetric Volatility in the Crypto Currency and its Dynamic Relationship with Stock Market

The paper investigates the asymmetric volatility effect of five major cryptocur- rencies and their bilateral linkages with major indices in the Indian stock market. To inves- tigate the bilateral relationship of crypto currency with stock indices, researchers used two major stock indices in the Indian stock market namely, BSE Sensex and NSE Nifty. The study used GARCH, EGARCH and TGARCH models, asymmetric to model the asymmetric volatility effect in the conditional volatility of crypto currencies and stock indices. Johansen’s cointegration and Vector Error Correction Model is used for examining the presence of cointe- gration between selected variables and to analyse the strength of causality among them. The study finds the evidence of cointegration between cryptocurrencies and stock market indices, implying that cryptocurrencies are related to stock indices. Further there is unidirectional relationship among stock and crypto market and crypto currencies having short-lived re- sponse to shocks in stock markets. Even with these currencies’ explosive growth, there are still not many research examining their connection to stock markets. This study will help investor’s those who making investment in currency market or in the stock market to eval- uate the pattern of volatility, interconnection among them, so that they can make crucial investment decisions and diversification strategies. This will help them to gain knowledge about how these two markets move together so they may avoid underestimating risk when building portfolios that contain both kinds of assets.

주택매매소비심리의 변화가 주택매매시장에 미치는 영향에 관한 연구

1. CONTENTS (1) RESEARCH OBJECTIVES The purpose of this study was to analyze the effects of changes in the macroeconomic environment, demographic characteristics, and housing consumer sentiment on housing sales and to present implications. (2) RESEARCH METHOD The analysis method used the Vector Error Correction Model in consideration of the cointegration relationship between the variables as data obtained by time-series observations of macroeconomic characteristic variables, demographic changes, and housing consumer sentiment indices, which are variables used such as housing sales. (3) RESEARCH FINDINGS As a result of analysis, the influence of housing trading volume fluctuations, and housing consumption rate, and housing consumption rate, and housing consumption rate, and housing consumption rate, and economic growth index. 2. RESULTS First, as U.S. inflation has recently shown a downward trend and interest rates are expected to fall, the housing market is expected to recover, mainly in the metropolitan area, where prices have fallen significantly. Second, in the case of Seoul, housing sales are not active except in some areas with favorable development, and the overall downturn in the housing brokerage market is expected to continue. In particular, the outlook for the housing brokerage market will be positive as demand for housing in these regions increases due to the spread of telecommuting due to the transition to the era of the 4th industrial revolution. Third, it is believed that Korea's housing brokerage market, like other advanced countries such as the United States and Australia, needs to develop into a franchise-type comprehensive real estate company that includes real estate management and financial consulting along with housing brokerage.

Contributions of Tax Revenue and Government Expenditure to Sustainable Development Goals in Nigeria

This study empirically examined the effect of tax revenue and government expenditure on sustainable development goals in Nigeria. The ex-post facto research design was adopted using time series data sourced from the Central Bank of Nigeria's statistical bulletin and World Bank database. The study covered 22 years from 2001 to 2021. Descriptive and inferential statistical tools were used in analyzing the data after carrying out unit root tests on the stationarity of the series to avoid obtaining invalid and unauthentic regression estimates. The Vector Error Correction Model (VECM) was applied in analyzing the relationship. The study found that Tax Revenue (TR) exhibited a negative and significant effect on sustainable development goals, while Government expenditure (GEXP) indicated a positive and significant effect on Sustainable Development Goals (SDGIS) in the long run. Furthermore, the study revealed that in the short-run Tax Revenue (TR) and Government expenditure (GEXP) both had a negative effect on the SDGIS in Nigeria. There is need for government to develop strategies to broaden the tax base and bring more entities into the tax net while ensuring equitable contribution. They should also align budget allocations with SDG priorities to ensure tax revenue is directed sustainable development projects. Hence the study recommended that government should channel its resources towards closing up infrastructural deficits while increasing productive units that would enhance the economy and ensure optimal utilization of tax revenue towards sustainable developments in Nigeria especially in the achievement of the Sustainable development goals.

거시경제 및 인구특성의 변화가 수도권 및 비수도권 주택 매매시장에 미치는 영향에 관한 연구

This study attempted to compare and derive the impact on the housing sales market in the metropolitan area and local cities and to present implications in terms of the real estate brokerage market. The Vector Error Correction Model was used as the analysis method in consideration of the time series characteristics and cointegration relationship of the used macroeconomic and demographic variables. The analysis results and implications are summarized as follows. In the case of the metropolitan area model, interest rates, consumer price indices, population growth rates, and fertility rates were the main factors influencing the housing sales market. The five metropolitan city models are the main factors influencing interest rates, economic growth rates, and consumer price indices, while the explanatory power of the fertility rate is very low. Considering these results, housing can be classified as an investment product in the metropolitan area, and local cities can be classified as a housing sales market with strong characteristics as a consumer product. Long-term housing sales are not expected to increase significantly due to the recent decline in investment and real demand due to the stabilization of housing prices due to high-interest rates. The housing brokerage market needs to be developed into a convergence field by combining highly relevant management and consulting.

The Impact of Monetary Policy on Economic Growth in Vietnam

This article focuses on investigating the impact of monetary policy on economic growth in Vietnam in both the short and long term using the Vector Error Correction Model (VECM) over the period from 2005 to 2023. The research results indicate that, in the long term, both M2 money supply and exchange rates have a positive impact on economic growth. Among these, the influence of the M2 money supply on growth is greater than that of exchange rates, suggesting that adjustments in the M2 money supply allow for immediate and comprehensive effects on the economy compared to adjustments in exchange rates. Conversely, real interest rates have an inverse effect on GDP in the long term.

Does digitalisation affect the adoption of electric vehicles? New regional-level evidence from Google Trends data

ABSTRACT Digitalisation is an important dimension that contributes to fostering the adoption of electric mobility. We investigate this unexplored topic by focusing on the regional level of analysis, and presenting new data and evidence for a large number of regions in Europe, Canada and the United States. The empirical analysis makes use of Google Trends data. It constructs new indicators of digitalisation and the adoption of electric vehicles, as measured by Google search queries. The new dataset contains indicators for 182 regions in 15 countries for the period 2010–23. We use this dataset to carry out a time-series analysis (vector error correction (VEC) model) of the relations between digitalisation and electric vehicles in each region. The results show that digitalisation is an important factor that has fostered the adoption of electric vehicles in the last decade. The analysis, though, also points out that there is considerable heterogeneity in the time-series results among regions in our sample. Digitalisation has a more visible effect on electric mobility for regions that have higher gross domestic product per capita, better internet infrastructures, a young and well-educated workforce, and higher population density.