NONLINEARITIES IN THE DYNAMICS OF THE EURO AREA DEMAND FOR M1

2009 ◽  
Vol 13 (1) ◽  
pp. 1-19 ◽  
Author(s):  
Alessandro Calza ◽  
Andrea Zaghini
Keyword(s):  
Error Correction ◽  
Euro Area ◽  
Money Demand ◽  
The United States ◽  
Error Correction Model ◽  
Correction Model ◽  
The Past ◽  
Long Run ◽  
Theoretical Predictions ◽  
The Relationship

This paper finds evidence of nonlinearities in the dynamics of the euro area demand for the narrow aggregate M1. A long-run money demand relationship is first estimated over a sample period covering the past three decades. Although the parameters of the relationship are jointly stable, there are indications of nonlinearity in the residuals of the error-correction model. This nonlinearity is explicitly modeled using a fairly general Markov switching error-correction model with satisfactory results. The empirical findings of the paper are consistent with theoretical predictions of nonlinearities in the dynamics of adjustment to equilibrium stemming from “buffer stock” and “target-threshold” models and with analogous empirical evidence for European countries and the United States.

scholarly journals REAL STOCK PRICES AND THE LONG-RUN MONEY DEMAND FUNCTION IN MALAYSIA: Evidence from Error Correction Model

2004 ◽  
Vol 6 (2) ◽  
pp. 293
Author(s):  
Naziruddin Abdullah ◽  
M. Shabri Abd. Majid
Keyword(s):  
Error Correction ◽  
Money Demand ◽  
Stock Prices ◽  
Positive Association ◽  
Error Correction Model ◽  
Money Market ◽  
Correction Model ◽  
Long Run ◽  
One Year

This study adopts the error correction model to empirically investigate the role of real stock prices in the long run-money demand in the Malaysian financial or money market for the period 1977: Q1-1997: Q2. Specifically, an attempt is made to check whether the real narrow money (M1/P) is cointegrated with the selected variables like industrial production index (IPI), one-year T-Bill rates (TB12), and real stock prices (RSP). If a cointegration between the variables, i.e., the dependent and independent variables, is found to be the case, it may imply that there exists a long-run co-movement among these variables in the Malaysian money market. From the empirical results it is found that the cointegration between money demand and real stock prices (RSP) is positive, implying that in the long run there is a positive association between real stock prices (RSP) and demand for real narrow money (M1/P). The policy implication that can be extracted from this study is that an increase in stock prices is likely to necessitate an expansionary monetary policy to prevent nominal income or inflation target from undershooting.

scholarly journals Money Demand in Korea: A Cointegration Analysis, 1973-2014

2016 ◽  
Vol 6 (1) ◽  
pp. 96 ◽  
Author(s):  
Hyungsun Chloe Cho ◽  
Miguel D. Ramirez
Keyword(s):  
Interest Rates ◽  
Error Correction ◽  
Money Demand ◽  
Error Correction Model ◽  
Cointegration Analysis ◽  
Impulse Response Functions ◽  
Stable Model ◽  
Correction Model ◽  
Long Run

<p class="ber">This paper estimates the demand for real money in Korea over the 1973Q3 to 2014Q4 period via unit root and cointegration methods. Utilizing the Johansen cointegration methodology and the Pantula principle, it establishes that a long-term relationship exists among the included variables. The paper also estimates an error correction model (ECM) as well as a vector error correction model (VECM), extending previous analyses by performing forecasts and testing for Granger causality among the variables. It finds that the broader definition of money, M2, serves as a relatively better measure of the money aggregate than M1 when evaluating the stability of the real demand for money. The long-term interest (LR) rate also seems to provide better results than the short-term rate (SR), which is consistent with economic theory given that it refers to a long-run equilibrium relationship. Both the ECM and VECM estimates showed the expected (and significant) signs on the coefficients; LM2 (LM1) and LGDP were positively related and LM2 (LM1) and LR (SR) were negatively related. Granger block causality tests and impulse response functions together seem to suggest that the traditional money demand function which places M as its ‘dependent’ variable, while including income and interest rates as its regressors, was a robust and stable model in the case of Korea.</p>

scholarly journals Analysis of the relationship between the unemployment rate and the contribution of the productive sectors to GDP in Sudan: using ARDL: تحليل العلاقة بين معدل البطالة ومساهمة القطاعات الإنتاجية بالناتج المحلي الإجمالي في السودان: باستخدام نماذج الانحدار الذاتي للإبطاء الموزع ARDL

2019 ◽  
Vol 3 (11) ◽  
Author(s):  
Yousif Saeed Ahmed Amin ,  Suha Seifeldin Noureldaim Ahmed
Keyword(s):  
Time Series ◽  
Gross Domestic Product ◽  
Error Correction ◽  
Unemployment Rate ◽  
Error Correction Model ◽  
Correction Model ◽  
Industrial Sectors ◽  
Long Run ◽  
Augmented Dickey Fuller ◽  
The Relationship

The study aims to examine the relationship between the unemployment rate and the contribution of the productive sectors to gross domestic product (GDP) in Sudan. It is assumed that there is statistically significant relationship between the unemployment rate and the contribution of the agricultural, industrial and service sectors in the GDP. The variables were subjected to several econometrics tests, such as Augmented Dickey–Fuller test (ADF), Autoregressive Distributed- lagged (ARDL) and the Error Correction Model (ECM) to test the short- and long- term relationship between study variables. The results of the descriptive analysis indicate that the average of unemployment rate is (17.7%) exceeds the average growth rate (4.9%) more than three times. While the results of the econometrics tests, including Augmented Dickey–Fuller, confirmed that the time series of the contribution of the agricultural and the industrial sectors are integrated from the degree one, while the time series of the unemployment rate is stationary at the level. The bounds test for co- integration within the Autoregressive Distributed- lagged methodology results provided evidence of a long- run equilibrium relationship between the unemployment rate and the share of productive sectors in GDP. While the estimation results of the long- run parameters of the ARDL the model showed a negative correlation between the unemployment rate and the share of the industrial sectors in the gross domestic product, with a time lag of (4) time periods. While the results of the error correction model confirmed that the unemployment rate is adjusted to its equilibrium value in each time period by 4.4% of the remaining balance of the period with onetime lag.  According to the results, the study recommended restructuring the productive sectors of the Sudanese economy, increasing the investments directed towards them, developing them, raising their efficiency, absorptive and operational capacity through multiple strategies that seek to increase employment opportunities. In addition to improve the efficiency of Sudanese labor through the development of educational curricula, training programs and professional to improve the efficiency of the supply of labor and increasing the demand for them in a way that absorbs the increasing numbers in the workforce. In addition to adopts strategies that focus on transformational training in line with current and future markets need.

scholarly journals A Comparative Analysis of Exchange Rate Pass-Through in China, Eurozone and the U.S.: A Vector Error Correction Model

2017 ◽  
Vol 9 (8) ◽  
pp. 51
Author(s):  
Sheng Xu ◽  
Hailun Zhang ◽  
Said Atri
Keyword(s):  
United States ◽  
Exchange Rate ◽  
Error Correction ◽  
The United States ◽  
Error Correction Model ◽  
Correction Model ◽  
Long Run ◽  
The Exchange Rate ◽  
Pass Through ◽  
The U.S

This study examines the pass-through effect of fluctuations in the exchange rate on inflation in China in comparison with similar effects in the Eurozone and the United States. Using a set of monthly data covering the period 1999 through 2015 for each case, we constructed a Vector Auto Regressive (VAR) model as well as an Error Correction model (VECM) to estimate the pass-through effects in the three cases. In addition, to ensure that our results are statistically unbiased we also tested the stationarity of the variables of the model. Moreover, to distinguish between the short-run and long-run pass-through effects, we made use of a series of co-integration tests. Our results indicate that the pass-through effect of changes in the exchange rate in China is much weaker than it is in the Eurozone and the United States. We found this effect in the U.S. to be both more notable and longer-lasting.

scholarly journals Cointegration Analysis and Forecasting of the Export Function of Bangladesh Using the Error Correction Model

2020 ◽  
Author(s):  
K M Saemon Islam ◽  
Gautam Kumar Biswas
Keyword(s):  
United States ◽  
Gross Domestic Product ◽  
Error Correction ◽  
Correction Term ◽  
The United States ◽  
Error Correction Model ◽  
Cointegration Analysis ◽  
Domestic Product ◽  
Correction Model ◽  
The Relationship

Abstract In this paper, we examined the relationship between the growth of the Gross Domestic Product of the United States, the export value index, and the export of Bangladesh over 37 years between 1980 and 2016. The results of our preliminary tests showed that there was indeed a long-run relationship between these variables. Based on our preliminary analysis, we employed an error-correction model to identify the relationship between the variables. The error-correction term with the expected negative sign was statistically significant, and it confirmed that in the case of disequilibrium, the convergence towards the equilibrium happened in the subsequent periods. Additionally, the econometric estimates exhibited that the two-period lagged values of the growth in export of Bangladesh and the growth of the Gross Domestic Product of the United States were also statistically significant.JEL Classification: C22, C5, F41

scholarly journals The Effect of Cultivated Area and the Prices of Buying the Rice on Its Production in AL- Qadisiyah Province-Iraq During (1990-2014) by Using VECM

2018 ◽  
Vol 7 (1) ◽  
pp. 102-113
Author(s):  
Hayder Abbas Drebee
Keyword(s):  
Error Correction ◽  
Error Correction Model ◽  
Vector Error Correction Model ◽  
Purchase Price ◽  
Correction Model ◽  
Vector Error Correction ◽  
Vector Error ◽  
Long Run ◽  
The Relationship

The study aims to determine the effect of the cultivated area and the purchase price on the production of rice in the province of Al-Qadissiya - Iraq for the period (1990-2014). Johansen and Juseliusmethod is used to test the co-integration between the variables. Vector Error Correction Model (VECM) is employed to determine the direction of the causality between production and priceof rice, as well as between the production of rice and the  area cultivated in the short and long run. The analysis of the results shows that there is a co-integration among the variables, and the direction of the relationship is a directional move from cultivated area to production of rice, and from price to production of rice in the short and long run. The study recommends to expand the cultivated area along with maintaining the farm and not to converted to other crops, in addition of determining the purchase price of the crop at the beginning of the agricultural season to ensure a good income for farmers in order to motivate them to increase production.

The Methodology of Cointegration

1992 ◽  
Vol 4 ◽  
pp. 237-247 ◽  
Author(s):  
Nathaniel Beck
Keyword(s):  
Error Correction ◽  
Political Attitudes ◽  
Error Correction Model ◽  
Correction Model ◽  
Long Run ◽  
Economic Circumstance ◽  
Economics Department ◽  
Technical Area

It is hardly surprising that I applaud the fine work of both Durr and Ostrom and Smith. I am on record in favor of the utility of the error correction model (e.g., Beck 1985) and it is impossible to obtain a visa to visit the economics department at UCSD without swearing an oath of loyalty to the methodology of cointegration. The two works here are notable for their methodological sophistication, their exposition of a relatively unknown and highly technical area, and, most important, their substantive contributions. Both articles show that political attitudes (approval and policy mood) adjust, in the long run, to changes in objective and subjective economic circumstance. Both articles are good examples of the synergy of methods and theory, since it is the methodology of cointegration that leads to this type of theorizing, and this type of theorizing can most easily be tested in the context of cointegration or error correction.

scholarly journals An application of the error correction model in analyzing the long run equilibrium between Ghana’s exports and imports

2015 ◽  
Vol 9 (3) ◽  
pp. 57-62
Author(s):  
Henry de-Graft Acquah ◽  
Joyce De-Graft Acquah
Keyword(s):  
Error Correction ◽  
Trade Deficit ◽  
Error Correction Model ◽  
Correction Coefficient ◽  
Equilibrium Relation ◽  
Macroeconomic Policies ◽  
Correction Model ◽  
Long Run ◽  
Step Procedure ◽  
Long Run Equilibrium

This study investigates the long-run relationship between Ghana’s exports and imports for the period of 1948 to 2012. Using the Engle Granger two-step procedure we find that Ghana’s exports and imports are cointegrated. However, the slope coefficients from the cointegration equations were not statistically equal to 1. Furthermore, application of the error correction model reveals that 1% increase in the imports will significantly result in 0.56% increase in exports, suggesting that the exports’ responsiveness to imports is low. The estimated error correction coefficient suggests that 32% of the deviation from the long run equilibrium relation is eliminated, leaving 68% to persist into the next period. These results suggest persistence in the trade deficit and an option of curbing the deficit is to re-order the relationship between imports and exports with a view to reducing imports demand. These results imply that though Ghana’s past macroeconomic policies have been effective in bringing its imports and exports into a long run equilibrium, it is yet to satisfy the sufficient condition for sustainability of foreign deficit.

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