Money Supply and Equity Price Movements During the Liberalized Period in India

2018 ◽  
Vol 21 (1) ◽  
pp. 108-123
Author(s):  
Tarak Nath Sahu ◽  
Krishna Dayal Pandey
Keyword(s):  
Error Correction ◽  
Money Supply ◽  
Stock Prices ◽  
Function Analysis ◽  
Correction Term ◽  
Impulse Response Function ◽  
Decomposition Analysis ◽  
Causality Test ◽  
Long Run ◽  
Short Run

This study attempts to contribute towards the prevalent understanding and the extant literatures on the effect of changes in money supply as an important monetary policy shock on the stock prices of India by using a time-varying parameter models with vector autoregressive specification during the period 1996 to 2016. The result of Johansen’s cointegration test suggests a significantly positive long-run co-movement between the growth of money supply and stock prices in India but the result of vector error correction model (VECM) does not exhibit any significant relationship in short run. Further, the error correction term of the VECM reveals a long-run unidirectional causality from money supply to stock prices. However, the Granger causality test confirms that the growth rate of money supply does not cause the stock market movement in India in short run. Finally, the variance decomposition analysis reveals that both the Indian stock markets are strongly exogenous in the sense that shocks to money supply explain only a small portion of the forecast variance error of the market indices. Again, the impulse response function analysis indicates that a positive shock in money supply has a small but persistently positive effect on stock prices in India.

scholarly journals The Integration of Conventional Equity Indices with Environmental, Social, and Governance Indices: Evidence from Emerging Economies

2021 ◽  
Vol 13 (2) ◽  
pp. 676
Author(s):  
Ramiz ur Rehman ◽  
Muhammad Zain ul Abidin ◽  
Rizwan Ali ◽  
Safwan Mohd Nor ◽  
Muhammad Akram Naseem ◽  
...  
Keyword(s):  
South Africa ◽  
Function Analysis ◽  
Impulse Response Function ◽  
Decomposition Analysis ◽  
Individual Country ◽  
Brics Countries ◽  
Long Run ◽  
Integration Test ◽  
Short Run ◽  
Equity Indices

This study investigates the integration of environmental, social, and governance (ESG) equity indices with conventional indices in Brazil, Russia, India, China, and South Africa (BRICS) individually and across all BRICS countries to better understand regional economic cooperation. Accordingly, we look at daily returns from 13 July 2013 to 28 February 2018 for the Morgan Stanley Capital International (MSCI) ESG indices and MSCI composite indices of the respective countries. To analyze the integration between the ESG equity indices of the sampled countries with their regional and across regional conventional counterparts, the Johansen Co-integration test is employed in this study. Further, the vector error correction model (VECM) is applied to test the causality between the sampled time-series. The impulse response function analysis further explains the impulse responses of each country’s MSCI ESG returns to one standard deviation of innovations to MSCI composite returns of the same country and across countries. Finally, the extent of the MSCI composite returns’ impact on the MSCI ESG returns in the same country indices, and cross-regional indices is examined with variance decomposition analysis. The results suggest that all ESG equity indices are integrated with conventional indices in all BRICS countries. Furthermore, there is a short-or long-run causality between MSCI ESG and MSCI composite equity indices of China and South Africa. Moreover, the study finds only short-run causality between conventional and non-conventional equity indices of Brazil and Russia, whereas we find only long-run causality between India’s non-conventional and conventional equity indices. Finally, the study finds that the all-individual country MSCI ESG equity indices shows a long-run causality with MSCI composite equity indices of all other BRICS countries. The findings also confirm the economic and financial cooperation between the BRICS countries.

The Linkage between Chittagong Stock Market and Dhaka Stock Market

2021 ◽  
Vol 1 (1) ◽  
Author(s):  
Muhammad Shahidullah Tasfiq ◽  
◽  
Nasrin Jahan
Keyword(s):  
Stock Market ◽  
Stock Markets ◽  
Stock Price ◽  
Impulse Response Function ◽  
Decomposition Analysis ◽  
Variance Decomposition ◽  
Causality Test ◽  
Long Run ◽  
Short Run ◽  
Variance Decomposition Analysis

This paper aims at determining the relationship between the two domestic stock markets of Bangladesh – the Chittagong Stock Market (CSE) and the Dhaka Stock Market (DSE). The daily stock price indices that represent the performance of the two stock markets are collected. In order to find out the interdependent relationship, the Engle-Granger Cointegration test, Granger Causality test, Impulse Response Function, and Variance Decomposition Analysis are employed in this paper. The main finding of this study is that both the stock markets are related in the long run. However, there is a one-way short-run effect from the DSE on the CSE market. The CSE market quickly responds to the shock in the DSE market. But, the DSE market is not responsive to the CSE market. The variance decomposition analysis shows that most of the shocks in the CSE market are explained by its own market. On the other hand, a small number of shocks in the DSE market are explained by the CSE market as well as its own market.

scholarly journals Testing the Validity of the Long Run Neutrality of Money in Nigeria

2021 ◽  
Vol 21 (2) ◽  
pp. 148-167
Author(s):  
Ephraim Ugwu ◽  
Christopher Ehinomen ◽  
Philip Nwosa ◽  
Olubunmi Efuntade
Keyword(s):  
Error Correction ◽  
Money Supply ◽  
Phillips Curve ◽  
Correction Term ◽  
Negative Sign ◽  
Fine Tuning ◽  
Annual Data ◽  
Long Run ◽  
Effect Model ◽  
Short Run

Abstract Research background: There is no consensus among scholars on the interaction effect between money supply, price, and wages despite various studies conducted to that effect. Purpose: This study investigates whether the neutrality of money assumption holds in the long run in Nigeria, using annual data from 1970 to 2018. Research methodology: The study utilized the Johansen cointegration test and the Vector Error Correction (VECM) approach for estimation. Results: The results from the Phillips curve model contradict the classical school of economics assumption that money is neutral in the long run. This implies that in the Nigerian economy, money is not neutral in the long run. The long run Fishers’ effect model shows that the coefficient of LOG (CPI) exhibits a negative sign and is statistically significant at a 5% significant level, thus contradicting the hypothesis which states that a one percent increase in consumer prices will lead to an increase in the rate of interest by one percent. The coefficient of nominal money supply indicates a negative sign and insignificant statistically on the interest rate. The Short-run estimated results showed that the coefficient of the error correction term ECM (–1) indicates a negative sign and is significant statistically in the Fishers’ effect model. The result shows the actual and equilibrium values are corrected with adjustment speeds equal to 31% yearly. Novelty: The study recommends that the Central Bank of Nigeria should ensure an effective implementation of monetary targeting measures in fine-tuning the economy and curbing inflationary pressures.

scholarly journals Money Supply and Stock Prices – A Case Study of Nigeria

2021 ◽  
Vol 04 (10) ◽  
Author(s):  
Dr. Ogbonna Udochukwu Godfrey ◽  
Keyword(s):  
Money Supply ◽  
Stock Prices ◽  
Stock Exchange ◽  
Market Price ◽  
Unit Root Test ◽  
Causality Test ◽  
Long Run ◽  
Augmented Dickey Fuller ◽  
Short Run ◽  
The Relationship

This study examined the relationship between money supply and stock prices, using E-view version 10. The empirical results of the Augmented Dickey Fuller (ADF) unit root test at 5 percent critical levels indicates that all the variables (M2 and MCAP) were not stationary at levels. However, all the variables became stationary after first differencing. Hence, the variables are of the same order of integration I (1). A cointegration test tells us that there exists a long run relationship between or among the variables and that they will not wander far apart away even though on the short run they exhibit random walk behavior. The Vector Error Correction test shows that Money supply (M2) has a significant relationship with market capitalization of the Nigerian stock exchange. The value of the Adjusted R-Squared of 0.726710 implies that Money supply (M2) explained about 72.67% systematic variations in the dependent variable (MCAP) over the observed years while the remaining 27.33% variations are explained by other determining variables outside the model. In order to further establish the relationship between money supply and stock market price, a granger causality test was carried out and it was established that there is a bi-directional causality between money supply and stock prices. The researcher therefore recommends that there should be collaboration among agencies of government in charge of money supply and stock exchange in order to make sure that sound policies are made to achieve the objective of government. Furthermore, that there should be a deliberate and concerted policy and effort to improve the Nigerian stock exchange market in line with other stock exchanges of the world, since stock prices cause money supply and vice versa.

Growth in Foreign Trade in Liberalized India: The Relevance of FDI

2020 ◽  
pp. 097215092093698
Author(s):  
Shib Sankar Jana ◽  
Tarak Nath Sahu ◽  
Krishna Dayal Pandey
Keyword(s):  
Foreign Trade ◽  
Service Sector ◽  
Function Analysis ◽  
Export Performance ◽  
Impulse Response Function ◽  
Decomposition Analysis ◽  
Causality Test ◽  
Long Run ◽  
Integration Test ◽  
Positive Shock

Driven by the need of an economic model that can explain the foreign direct investment (FDI)–export relationship, especially in post-liberalized context, we make a special inquiry on whether FDI has a significant export-promoting impact in India under a time-varying parameter model with vector autoregressive specification. The Johansen’s co-integration test suggests a significant and positive long-run co-movement between FDI and export. The vector error correction model (VECM) confirms a unidirectional long-run causality from export to FDI. However, the Granger causality test establishes a bi-directional causal relationship between these variables in short run. Further, the foreign trade (FT) is found to be a strongly exogenous variable as per the variance decomposition analysis. Again, the impulse response function analysis suggests that the responses generated from a positive shock of FT to FDI and vice versa are small and initially negative, afterward remain steadily positive at a constant level. The study finally recommends the policymakers to channelize the inward-FDI into tradable goods industries rather than only linking it to service sector growth to reap the long-term benefit. In this regard, China’s effort to channelize inward-FDI into manufacturing sectors and the resultant momentous success in export performance can be taken as a classic example for FDI-led foreign trade promotion.

A Sectoral Analysis of the Role of Stock Market Development on Economic Growth: Empirical Evidence from Indian Economy

2017 ◽  
Vol 18 (4) ◽  
pp. 911-923 ◽  
Author(s):  
Madhu Sehrawat ◽  
A.K. Giri
Keyword(s):  
Economic Growth ◽  
Stock Market ◽  
Stock Prices ◽  
Stock Price ◽  
Time Series Data ◽  
Trade Openness ◽  
Series Data ◽  
Causality Test ◽  
Long Run ◽  
Short Run

The present study examines the relationship between Indian stock market and economic growth from a sectoral perspective using quarterly time-series data from 2003:Q4 to 2014:Q4. The results of the autoregressive distributed lag (ARDL) approach bounds test confirm the existence of a cointegrating relationship between sector-specific gross domestic product (GDP) and sector-specific stock indices. The empirical results reveal that sector-specific economic growth are significantly influenced by changes in the respective sector-specific stock price indices in the long run as well as in the short run. Apart from that, the control variables, such as trade openness and inflation, act as the instrument variables in explaining the variations in the sector-specific GDP of the economy. The results of Granger causality test demonstrate unidirectional long-run as well as short-run causality running from sector specific stock prices to respective sector GDP. The findings suggest that economic growth of the country is sensitive to respective sub-sector stock market investments. The findings highlight the reasons for cyclical and counter-cyclical business phase for the overall economy.

Money Supply-Economic Growth Nexus: Evidence from a Landlocked Country

2020 ◽  
Vol 2 (1) ◽  
pp. 106-115
Author(s):  
Tilak Singh Mahara
Keyword(s):  
Economic Growth ◽  
Money Supply ◽  
Correction Term ◽  
Policy Instruments ◽  
Special Role ◽  
Real Gdp ◽  
Long Run ◽  
Ardl Approach ◽  
Short Run ◽  
The Impact

Background: There is special role of money in the economy due to its astonishing importance as change in the amount of it can have a significant effect on the major macroeconomic variables. Money supply is generally considered as policy-determined phenomenon. Like in all the nations, macroeconomic stability of Nepal also depends on the variation in the quantity of money. Objective: The principle objective of the study is to examine the impact of money supply on the economic growth of Nepal. Methodology: This study applies the ARDL approach to cointegration. Bounds test (F-version) has been carried out to determine the existence of long-run relationship between variables. Results: The empirical results pointed out that there is positive and significant long-term relationship between money supply and real economic growth in Nepal. Causality result reveals that there is unidirectional causality from money supply (M2) to Real GDP. The error correction term is found negative and statistically significant suggesting a correction of short-run disequilibrium within two and a half years. Conclusions: The study concludes that increase in the money supply helps to increase the real economic growth in Nepal. So, money supply and real GDP are associated in the long-run.  Implications: The implication of the study is that, real economic growth in Nepal can be achieved if Nepal Rastra Bank emphasized on monetary policy instruments which help to increase the flow of money supply both in the short and long run.

scholarly journals DETERMINAN TRANSAKSI NONTUNAI DI INDONESIA DENGAN PENDEKATAN ERROR CORRECTION MECHANISM (ECM) MODEL

2019 ◽  
Vol 3 (1) ◽  
pp. 62-77 ◽  
Author(s):  
Zulfa Nur Fajri Ramadhani ◽  
Siskarossa Ika Oktora ◽  
Indonesian Journal of Statistics and Its Applications IJSA
Keyword(s):  
Error Correction ◽  
Money Supply ◽  
Secondary Data ◽  
Long Run ◽  
Error Correction Mechanism ◽  
Short Run ◽  
Cash Transaction ◽  
Monthly Period ◽  
Private Savings ◽  
Positive Effect

Consumption is an activity that must be done by everyone. In order to consume something, a transaction is needed to get the goods or services desired. One kind of transaction that is used by many people nowadays is non-cash transaction. Since Bank Indonesia established Gerakan Nasional Non Tunai (GNNT) in August 2014, the value of non-cash transactions exceeds the value of cash transactions. It happenned because people prefer non-cash to cash transaction which is easier, safer, more practical, and more economical. Besides, an increase in non-cash transactions can also be influenced by other factors. Therefore, a study is conducted to analyze the determinants of non-cash transactions from the macro side by using Error Correction Mechanism (ECM). The data used in this study are secondary data from Bank Indonesia and Badan Pusat Statistik with monthly period from January 2010 until December 2017. The results showed that in the long run, private savings and BI rate have positive effect on non-cash transactions. In the short run, private savings and money supply have positive effect on non-cash transactions. While inflation does not affect non-cash transactions, both in the short and long run.

scholarly journals Analysis of Indonesian Tax Revenue

2017 ◽  
Vol 1 (01) ◽  
pp. 71
Author(s):  
Amalia Wijayanti ◽  
Firmansyah Firmansyah
Keyword(s):  
Exchange Rate ◽  
Error Correction ◽  
Government Spending ◽  
Inflation Rate ◽  
Correction Term ◽  
Error Correction Model ◽  
Tax Revenue ◽  
Correction Model ◽  
Long Run ◽  
Short Run

<p>This study analyzes the long-run and short-run effect of macroeconomic factors, such as real Gross Domestic Product (GDP), inflation rate, exchange rate and government spending on Indonesia’s tax revenue during 1976-2013, by utilizing the Error Correction Model (ECM). The finding of the study demontrates that in the long-run; the real GDP, exchange rate, and government spending affect Indonesia’s tax revenue, except the inflation rate. In short-run, Indonesia’s tax revenue statisically affected by government spending, while others variable do not influence Indonesia’s tax revenue. Error Correction Term (ECT) coefficient is 0.221, explains incompatibility tax revenue occur in long-run is corrected of 22 percent in one period.</p><p><br />JEL Classification: E01, E20, H20<br />Keywords: Error Correction Model, Macroeconomic, Tax revenue</p>

scholarly journals The impact of Indonesian oil price (CPI) and macroeconomics on investments in the manufacturing sector in Indonesia

F1000Research ◽  
2021 ◽  
Vol 10 ◽  
pp. 338
Author(s):  
Handri Handri ◽  
Hendrati Dwi Mulyaningsih ◽  
Achmad Kemal Hidayat ◽  
Rudi Kurniawan ◽  
Ani Wahyu Rachmawati
Keyword(s):  
Energy Source ◽  
Stock Prices ◽  
Manufacturing Sector ◽  
Granger Causality Test ◽  
Oil Price ◽  
Causality Test ◽  
Long Run ◽  
Short Run ◽  
The Impact

Background: Indonesia consumes oil as the main energy source in the production process and as a result of the development of the manufacturing industry. Thus, investment in manufacturing stocks will be affected by oil price fluctuations and macroeconomic conditions. Changes in oil prices will affect the performance of the manufacturing sector which in turn affects manufacturing stock prices. This paper aims to examine the impact of Indonesia's oil price shocks and macroeconomic factors on stock price movements in the manufacturing sector. Methods: This study uses monthly data for the 2009-2016 period in the manufacturing sector, and 67 stocks were selected on the basis consistently available in the period of the research. The cointegration and causality technique was used in this paper; firstly we applied a unit-panel root test, Secondly, we performed a residual test to indicate whether there was cointegration among variables in the long run equilibrium, and short the short run, we used a Granger causality test. Results: The panel unit root test (both Shin and Fisher) and the Pedroni cointegration residual test show that the data is stationary at 1%  level of significance, thus all variables simultaneously achieve long-run equilibrium, and in the short run, the Granger causality test shows that there is one way direction causality Conclusions: For long-term investment in manufacturing stocks, investors must consider the exchange rate, as it is also as a determining factor in influencing the movement of manufacturing stock prices, inflation, and the production index. Meanwhile, weakening of the rupiah in the short run will also determine investment conditions due to the dependency on raw materials for production from foreign sources. The price of oil as an energy source in the manufacturing sector does not have a long-term relationship with other variables.

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