Linearly Transforming Variables in the VAR Model, How Does it Change the Impulse Response?

2017 ◽  
Vol 7 (1) ◽  
Author(s):  
Peter Reusens ◽  
Christophe Croux
Keyword(s):  
Interest Rate ◽  
Impulse Response ◽  
Linear Transformation ◽  
Vector Autoregression ◽  
Impulse Response Function ◽  
Structural Shocks ◽  
Expected Inflation ◽  
Long Run ◽  
Short Run

AbstractThis paper analyzes the impulse response function of vector autoregression models for variables that are linearly transformed. The impulse response is equal to the linear transformation of the original impulse response if and only if the shock is equal to the linear transformation of the original shock. In particular, we consider shocks in one error term only, generalized shocks, structural shocks identified by short-run recursive restrictions and structural shocks identified by long-run recursive restrictions. A vector autoregression model with expected inflation, the overnight rate and a long term ex-ante real interest rate that replaces the corresponding long term nominal interest rate, illustrates our results.

scholarly journals ANALISIS DINAMIS KETERKAITAN VARIABEL YANG MEMPENGARUHI NERACA TRANSAKSI BERJALAN INDONESIA TAHUN 2012

2020 ◽  
Vol 1 (2) ◽  
Author(s):  
Winta Ratna Sari
Keyword(s):  
Interest Rate ◽  
Current Account ◽  
Impulse Response Function ◽  
Secondary Data ◽  
Output Growth ◽  
Current Account Balance ◽  
Long Run ◽  
The Stability ◽  
The Current Account

This study was to analyze the contribution rate (the rupiah against the U.S. dollar), Libor Interest Rate, Inflation and Output Growth (GDP) of the current account balance in Indonesia. The data used in this study secondary data is sourced from Indonesia Financial Statistics. The data used is the data quarterly from the first quarter of 2000 up to 2010 fourth quarter. The results of the estimated Vector Autoregression (VAR) indicates that there is a relationship between the Current Account, Exchange Rate, Libor Interest Rate, Inflation and GDP at lag t-1. Impulse response function of the stability of the first note that all variables are in the long run that is over 5 years and tend to be stable. This means that in the short term variables that are used do not provide a meaningful contribution in the long term but will mutually contribute to each other. Variance Decomposition Based on these results, it is known that all variables contributed to the Current Account, but his greatest contribution is of the variable itself, this means that the current account tends to a variable receiving contributions rather than giving contributions

scholarly journals An econometric modelling of the savings – investments nexus for Ghana

2021 ◽  
Vol 33 (1) ◽  
pp. 40-56
Author(s):  
Samuel Asuamah Yeboah ◽  
◽  
Boateng Kwadwo Prempeh ◽  
Keyword(s):  
Structural Break ◽  
Impulse Response Function ◽  
Policy Formulation ◽  
Predictive Test ◽  
Bounds Testing ◽  
Short Term ◽  
Causality Test ◽  
Long Run ◽  
Short Run

Introduction. The problem under discussion is whether savings are associated with investments in the long-term and whether savings predict investment with feedback or not. Addressing the problem is important since it informs policy formulation in the financial sector in ensuring efficient financial intermediation. The purpose of the article is looks at the savings-investment relationship for Ghana during the period 1960 to 2016. Methodology. Utilizing ARDL (with bounds testing) approach, the Granger predictive test, the Generalised Impulse Response Function, and Variance decomposition function. Results. The results indicate that a 1% increase in savings, GDP and financial development would result in a 0.069%, 0.266% and 0.125% increase respectively in investment in the short-term. It is discovered that savings do not cause investment in the long-run but rather in the short-run. The Granger causality test establishes a unidirectional causality running from savings to investment in the short-run. Discussion and Conclusion. The ramifications of the finding are that there is capital fixed status globally. Future examinations ought to consider structural break(s) issues as well as panel analysis to determine if the findings of the current study would be reproduced.

THE CAUSAL RELATIONSHIP BETWEEN INSURANCE AND ECONOMIC GROWTH IN NIGERIA (1986-2010)

2012 ◽  
Vol 02 (12) ◽  
pp. 49-57
Author(s):  
TAIWO AKINLO
Keyword(s):  
Economic Growth ◽  
Interest Rate ◽  
Causal Relationship ◽  
Causality Test ◽  
Correction Model ◽  
Vector Error Correction ◽  
Vector Error ◽  
Long Run ◽  
Short Run

This study examined the causal relationship between insurance and economic growth in Nigeria over the period 1986-2010. The Vector Error Correction model (VECM) was adopted. The cointegration test shows that GDP, premium, inflation and interest rate are cointegrated when GDP is the edogeneous variable. The granger causality test reveals that there is no causality between economic growth and premium in short run while premum, inflation and interest rate Granger cause GDP in the long run which means there is unidirectional causality running from premium, inflation and interest rate to GDP. This means insurance contributes to economic growth in Nigeria as they provide the necessary long-term fund for investment and absolving risks.

scholarly journals The Ukrainian interest rate pass-through in the post-1999 era and the effectiveness of the countercyclical monetary policy

2019 ◽  
Vol 6 (2) ◽  
pp. 191-204
Author(s):  
Chu V. Nguyen ◽  
Anna Kravchuk
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Test Results ◽  
Sample Period ◽  
Long Run ◽  
Short Run ◽  
National Bank ◽  
Bounds Test ◽  
Pass Through

This study investigates the nature of the Ukraine interest rate pass-through from January 2000 to November 11, 2018-the post-1999 era. The empirical results reveal a relatively high short-run interest pass-through of 0.724100 and a marginally overshooting long-run interest rate pass-through of 1.054309. The bounds test results indicate a strong long-term relationship between countercyclical monetary policy and market rates. These empirical findings suggest that the National Bank of Ukraine has been very effective in formulating and implementing its countercyclical monetary policy, in spite of the pervasive corruption, formidable political and economic challenges faced by the Ukrainian Republic over this sample period, the results are quite surprising.

scholarly journals Interest Rate Pass‐Through: Empirical Evidence from Pakistan

2013 ◽  
Vol 18 (1) ◽  
pp. 39-62
Author(s):  
Sheikh Khurram Fazal ◽  
Muhammad Abdus Salam
Keyword(s):  
Interest Rate ◽  
Error Correction ◽  
Impulse Response Function ◽  
Weighted Average ◽  
Lending Channel ◽  
Long Run ◽  
Error Correction Mechanism ◽  
Short Run ◽  
Pass Through ◽  
The Impact

This article empirically examines the interest rate pass‐through mechanism for Pakistan, using six‐month treasury bills as a proxy for the policy rate (the exogenous variable) and the weighted average lending rate and weighted average deposit rate as endogenous variables representing the lending and deposit channels, respectively. We use data for a six‐year period from June 2005 to May 2011, published by the central monetary authority in Pakistan. The widely accepted error correction mechanism is used to examine the short‐run and longrun pass‐through; a vector error correction mechanism impulse response function helps measure the short‐run speed of the pass‐through. We find that there is an incomplete pass‐through in Pakistan for both the lending and deposit channels. The impact is greater on the lending channel than on the deposit channel in both the short and long run, while the adjustment speed is higher for the lending channel.

scholarly journals Credibility of the Philippine Central Bank: Evidenced by the Interest Rate Pass-Through

2017 ◽  
Vol 3 (1) ◽  
pp. 47-56
Author(s):  
Chu V. Nguyen
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Central Bank ◽  
Empirical Finding ◽  
Policy Makers ◽  
Long Run ◽  
Short Run ◽  
Pass Through ◽  
The Interest Rate

This study investigates the Philippine interest rate pass-through over the December 2001 through January 2016 period. The empirical findings suggest that the Philippine Central Bank has not been very effective in formulating and implementing its countercyclical monetary policy. Specifically, the empirical results reveal very low short-run and long- run interest rate pass-through. The Bounds test results indicate no long-term relationship between countercyclical monetary policy and market rates. Notwithstanding the banking system's remarkable performance in the recent years, amid lingering uncertainties in global financial markets, the Philippine Central Bank lacked the credibility in conducting its countercyclical monetary policy. This empirical finding may not be desirable but it forewarns the monetary policy makers of challenges in formulating and implementing their monetary policy.

scholarly journals Investigating the Relationship between Composite, Islamic, and Conventional Indexes in Indonesia

2021 ◽  
Vol 1 (2) ◽  
pp. 82-101
Author(s):  
Ikram Nur Muharam ◽  
Muhamad Abduh
Keyword(s):  
Financial Markets ◽  
Impulse Response ◽  
Response Function ◽  
Financial Market ◽  
Composite Index ◽  
Impulse Response Function ◽  
Long Run ◽  
Short Run ◽  
The Relationship

Apart from the question of whether all indexes in financial markets are driven by similar factors, this study examines the long and short-run relationships between the composite index (JKSE), Islamic index (JII), and pure non-Islamic index (NST7) in the Indonesia financial market. The results show that there is at least one cointegrated equation among the JKSE, JII, and NST7. Furthermore, the output from VECM shows that only the JII has a significant long-run relationship with the JKSE. In the case of short-run relationships, the JII and NST7 do not significantly affect the JKSE, while the JII was significantly influenced by the JKSE. Otherwise, the Impulse Response Function shows that a shock on the JII will negatively affect both the JKSE and the NST7, while a shock on the NST7 is not very influential on the JKSE or the JII.

scholarly journals The Role Of Interest Rate Reforms In Lesotho: An Empirical Investigation

2011 ◽  
Vol 27 (4) ◽  
pp. 69
Author(s):  
Nicholas M. Odhiambo
Keyword(s):  
Interest Rate ◽  
Foreign Aid ◽  
Financial Deepening ◽  
Bounds Testing ◽  
Critical Question ◽  
Expected Inflation ◽  
Long Run ◽  
Financial Depth ◽  
Short Run ◽  
Positive Effect

<span>This paper examines the efficacy of interest rate reforms in Lesotho during the period 1972-2009. The study attempts to answer one critical question: Does interest rate liberalisation positively or negatively affect financial deepening in Lesotho? The study examines this linkage by regressing the financial depth variable on real income, deposit rate, foreign aid, the expected inflation and the lagged value of financial depth. Using the ARDL-Bounds testing approach, the study finds that there is a positive relationship between interest rate reforms and financial deepening in Lesotho, meaning that interest rate reforms lead to financial deepening in Lesotho. The results apply regardless of whether the financial deepening model is estimated in the short run or in the long run. Other results indicate that: i) An increase in real GDP has a positive effect on financial deepening in Lesotho - both in the short run and in the long run; ii) expected inflation has a positive effect on financial deepening in the short run; and iii) foreign aid has a negative effect on financial deepening in Lesotho in the short run.</span>

Determinants of Inflation in Vietnam: A VECM Approach

2015 ◽  
Vol 22 (04) ◽  
pp. 26-50
Author(s):  
Ngoc Tran Thi Bich ◽  
Huong Pham Hoang Cam
Keyword(s):  
Interest Rate ◽  
Crude Oil ◽  
Error Correction ◽  
Budget Deficit ◽  
Oil Prices ◽  
Crude Oil Prices ◽  
Domestic Credit ◽  
Short Run ◽  
The Impact

This paper aims to examine the main determinants of inflation in Vietnam during the period from 2002Q1 to 2013Q2. The cointegration theory and the Vector Error Correction Model (VECM) approach are used to examine the impact of domestic credit, interest rate, budget deficit, and crude oil prices on inflation in both long and short terms. The results show that while there are long-term relations among inflation and the others, such factors as oil prices, domestic credit, and interest rate, in the short run, have no impact on fluctuations of inflation. Particularly, the budget deficit itself actually has a short-run impact, but its level is fundamentally weak. The cause of the current inflation is mainly due to public's expectations of the inflation in the last period. Although the error correction, from the long-run relationship, has affected inflation in the short run, the coefficient is small and insignificant. In other words, it means that the speed of the adjustment is very low or near zero. This also implies that once the relationship among inflation, domestic credit, interest rate, budget deficit, and crude oil prices deviate from the long-term trend, it will take the economy a lot of time to return to the equilibrium state.

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.

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