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.

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 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>

Corporate Taxes and Foreign Direct Investment: An Impact Analysis

2020 ◽  
Vol 5 (2) ◽  
pp. 28-43
Author(s):  
Onome Christopher Edo ◽  
Anthony Okafor ◽  
Akhigbodemhe Emmanuel Justice
Keyword(s):  
Foreign Direct Investment ◽  
Error Correction ◽  
Direct Investment ◽  
Impact Analysis ◽  
Negative Relationship ◽  
Value Added ◽  
Positive Association ◽  
Error Correction Model ◽  
Corporate Taxes ◽  
Correction Model

Objective – The purpose of this study is to investigate the effect of corporate taxes on the flow of Foreign Direct Investment (FDI) in Nigeria between 1983 and 2017. Methodology/Technique – This study adopts an ex-post facto research design. Secondary data was sourced from the World Bank Development Indicator, the Central Bank of Nigeria database, and the Federal Inland Revenue database. The research data was analyzed using the Error Correction Model (ECM). Findings – The coefficient of determination (R2) shows that approximately 77% of systematic changes in FDI are attributed to the combined effect of all of the explanatory variables used in this study. Specifically, the study concludes that Company Income Tax, Value Added Tax, and Custom and Excise Duties have a significant but negative relationship with FDI. In contrast, Tertiary Education Tax has a positive association with FDI. Further, Exchange Rate has a negative but significant relationship with FDI, Inflation had an insignificant but positive association with FDI, and GDP growth Rate and Trade Openness demonstrate a positive and significant association with FDI. Novelty – The findings of this study are distinguishable from previous studies, as it uncovers new evidence that higher Education Tax Rates influences FDI and emerging evidence on the effect of non-tax variables on FDI inflow. Type of Paper: Empirical. JEL Classification: E22, F21, H2, P33. Keywords: Corporate Taxes; Foreign Direct Investment; Error Correction Model; Nigeria; Non-Tax Variables. Reference to this paper should be made as follows: Edo, O.C; Okafor, A; Justice, A.E. 2020. Corporate Taxes and Foreign Direct Investment: An Impact Analysis, Acc. Fin. Review 5 (2): 28 – 43. https://doi.org/10.35609/afr.2020.5.2(1)

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.

scholarly journals The dynamic effect of exchange-rate volatility on Turkish exports: Parsimonious error-correction model approach

2015 ◽  
Vol 62 (4) ◽  
pp. 429-451 ◽  
Author(s):  
Erdal Demirhan ◽  
Banu Demirhan
Keyword(s):  
Exchange Rate ◽  
Error Correction ◽  
Exchange Rate Volatility ◽  
Dynamic Effect ◽  
Error Correction Model ◽  
Impulse Response Functions ◽  
Correction Model ◽  
Long Run ◽  
Export Volume ◽  
Short Run

This paper aims to investigate the effect of exchange-rate stability on real export volume in Turkey, using monthly data for the period February 2001 to January 2010. The Johansen multivariate cointegration method and the parsimonious error-correction model are applied to determine long-run and short-run relationships between real export volume and its determinants. In this study, the conditional variance of the GARCH (1, 1) model is taken as a proxy for exchange-rate stability, and generalized impulse-response functions and variance-decomposition analyses are applied to analyze the dynamic effects of variables on real export volume. The empirical findings suggest that exchangerate stability has a significant positive effect on real export volume, both in the short and the long run.

scholarly journals ANALISIS FAKTOR - FAKTOR YANG MEMPENGARUHI PERMINTAAN UANG DI INDONESIA PERIODE 2001-2015 DENGAN PENDEKATAN ERROR CORRECTION MODEL (ECM)

2018 ◽  
Vol 1 (2) ◽  
pp. 65-72
Author(s):  
Saparuddin Mukhtar
Keyword(s):  
Interest Rate ◽  
Error Correction ◽  
Money Demand ◽  
Error Correction Model ◽  
Correction Model

Penelitian ini bertujuan untu mengetahui pengaruh inflasi, produk domestik bruto, dan suku bunga terhadap permintaan uang di Indonesia. Untuk menganalisa faktor-faktor yang mempengaruhi permintaan uang di Indonesia menggunakan Error Correction Model. Berdasaran hasil analisis data menunjukan bahwa Hasil estimasi dalam jangka pendek variabel inflasi berpengaruh positif dan signifikan terhadap permintaan uang. Sehingga perubahan inflasi 1% akan menyebabkan perubahan permintaan uang sebesar 0,2504%. Variabel suku bunga berpengaruh negatif dan tidak signifikan terhadap permintaan uang. Sama halnya variabel PDB yang juga tidak berpengaruh signifikan terhadap permintaan uang. Dalam jangka panjang variabel inflasi bepengaruh positif dan signifikan terhadap permintaan uang. Perubahan yang terjadi pada variabel inflasi sebesar 1% akan mengakibatkan kenaikan permintaan uang sebesar 0,3276%. Variabel suku bunga berpengaruh negatif dan signifikan dimana setiap perubahan suku bunga sebesar 1% akan berdampak pada perubahan permintaan uang sebesar 2,8632%. Dan untuk variabel PDB berpengaruh signifikan juga terhadap permintaan uang, dimana setiap perubahan PDB sebesar 1% akan berdampak pula terhadap permintaan uang sebesar 1,4285%. Keywords : Money demand, inflation, GDP, Interest Rate

scholarly journals Price Transmission and Factors Influencing the Price of Onions in Tanzania

2020 ◽  
pp. 67-76
Author(s):  
Yohana James Mgale
Keyword(s):  
Error Correction ◽  
Error Correction Model ◽  
Price Transmission ◽  
Adjustment Cost ◽  
Producer Price ◽  
Correction Model ◽  
Factors Affecting ◽  
Long Run ◽  
Short Run ◽  
The Impact

This article analyzes the transmission of prices between marketing agents and the factors affecting onion prices at the consumer level. The Error Correction Model-Engle Granger (ECM-EG) was used to test the price transmission by including the impact of the rise and fall of producer, wholesale and retail prices in past periods. The Error Correction Model (ECM) was applied to the factors affecting onion prices. The test results showed that price transmission was asymmetrical in the short and long-run. With regard to factors, the results show that consumer price in the short-run was influenced by wholesale prices, producer prices and the price of fuel while in the long-run it was influenced by wholesale prices, producer price, price of fuel and consumer prices in the previous period (t-1). These results suggest the existence of a short-term adjustment cost and a long-term market power which distorts price transmission.

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