Vector Error Correction Model Framework Research Articles

Government debt in Greece: An empirical analysis

Greek government debt has been increasing above the percentage stated in the growth and stability path from 112.9% in 2008 to 175.6% in 2013. This paper investigates the determinants of the general government debt in Greek by means of Vector Error Correction Model framework, Variance Decomposition and Generalized Impulse Response Function Analysis. The analysis showed a significant negative relationship between general government debt and government deficit, general government debt and inflation. Shocks to general government and inflation will cause general government debt to increase. Government deficit should be increased since there is gross capital formation included in its calculation which could be invested in income generating projects. The current account balance should be reduced by improving the net trade balance

The Impact of Government Expenditure on the Greek Government Debt: An Econometric Analysis

Sovereign debt crisis in advanced economies keep increasing and its government are implementing fiscal policies to reduce it. Greece is an example of a country whose government debt is a matter of grave concern since it has received the second bailout but still threatens to default. The main aim of this study is determine the impact of government expenditures and government incomes on government debt. This paper estimates the effect of government expenditure on debt in Greece via the vector error correction model framework and granger causality model with annual data from 1976 to 2011 which was collected from the World Development Indicators, European Commission data base and the International Monetary Fund. Vector Error correction Model framework is used to estimate our model and Vector Autoregression Granger causality to determine the direction of causation.The results show a significant negative relationship between gross government debt and gross national income as well as gross government debt and net foreign direct investment. A significant positive relationship is found between gross government debt and gross national expenditure and gross government debt and inflation. The past values of gross national expenditure and gross national income have a predictive ability in determining the present value of gross government debt and not vice versa. Knowing this effects will help policy makers of these countries and the world at larger to revisit its fiscal policy in order to reduce its debt and sustain it. DOI: 10.5901/mjss.2013.v4n3p323

El Niño southern oscillation and its effects on world vegetable oil prices: assessing asymmetries using smooth transition models

In this research, we examine the effects of El Niño southern oscillation (ENSO) on market dynamics of major vegetable oil prices. We adopt a smooth transition vector error correction modelling framework to analyse the impacts ofENSOevents on the vegetable oil prices and, more interestingly, to investigate the asymmetric nature of theENSOdynamics and price responses toENSOshocks. The results confirm self‐exciting type nonlinearities in theENSOdynamics, and presence of the so‐called transactions cost band in the system of vegetable oil prices. These nonlinearities yield the history‐specific asymmetries in the vegetable oil price dynamics, wherein effects ofENSOshocks on theENSOdynamics and the vegetable oil prices vary considerably between differentENSOregimes. In general, positive deviations, El Niño events, result in the vegetable oil price increase, while negative deviations, La Niña events, result in decrease in the prices. We illustrate these effects using generalised impulse‐response functions and the derived asymmetry measures.

Oil prices and the financial crisis

This paper aims to explain crude oil price volatility and its relationship respect to some macroeconomic and financial variables. Finding the main drivers of oil price dynamics is a crucial element for the definition of adequate monetary policies and risk management purposes. The role of macroeconomic and financial variables is analyzed in a Vector Error Correction Model framework, in order to test the existence of a long run equilibrium in the oil price dynamics. We use monthly data for crude oil prices, the Dollar/Euro exchange rate, the US interest rate, the crude oil Futures open interest, the US oil imports and the gold price over the period 1993–2009. One cointegrating relationship is found which allows to identify a long run equilibrium between the variables.

Energy consumption, carbon emissions and economic growth nexus in Bangladesh: Cointegration and dynamic causality analysis

The paper investigates the possible existence of dynamic causality between energy consumption, electricity consumption, carbon emissions and economic growth in Bangladesh. First, we have tested cointegration relationships using the Johansen bi-variate cointegration model. This is complemented with an analysis of an auto-regressive distributed lag model to examine the results' robustness. Then, the Granger short-run, the long-run and strong causality are tested with a vector error correction modelling framework. The results indicate that uni-directional causality exists from energy consumption to economic growth both in the short and the long-run while a bi-directional long-run causality exists between electricity consumption and economic growth but no causal relationship exists in short-run. The strong causality results indicate bi-directional causality for both the cases. A uni-directional causality runs from energy consumption to CO2 emission for the short-run but feedback causality exists in the long-run. CO2 Granger causes economic growth both in the short and in the long-run. An important policy implication is that energy (electricity as well) can be considered as an important factor for the economic growth in Bangladesh. Moreover, as higher energy consumption also means higher pollution in the long-run, policy makers should stimulate alternative energy sources for meeting up the increasing energy demand.

Price transmission and market power in a transition context: evidence from the Polish fluid milk sector

Profound changes have been taking place in the Polish dairy sector since the beginning of transition. Two distinct features have attracted particular attention, namely growing consolidation of the downstream industries and serious farm fragmentation. Consequently, in the debate numerous concerns have been expressed that the sector's restructuring has been proceeding, so to speak, at farmers' expense. Most frequently farmers' relatively weak bargaining position, compared with that of processors and retailers, has been blamed for this state of affairs. Up to now, however, no convincing evidence has been provided that these arguments really hold. This article aims at verifying the above view by examining the mechanism of price transmission. To put the problem in a theoretically consistent, structural equation setting, an approach using exogenous demand and supply shifters is followed. The analysis is couched in a vector error correction model framework. The results suggest that price transmission between farm and retail levels is affected by both short-run and long-run asymmetries. Moreover, behaviour of prices in the fluid milk sector in Poland is consistent with the use of market power by the downstream sector.