scholarly journals Are fiscal deficits inflationary in Nigeria? New evidence from bounds testing to cointegration with structural breaks

2021 ◽  
Vol 66 (228) ◽  
pp. 123-147
Author(s):  
Ismail Fasanya ◽  
Ayinke Fajobi ◽  
Abiodun Adetokunbo
Keyword(s):  
Structural Breaks ◽  
Structural Changes ◽  
Annual Data ◽  
Fiscal Deficit ◽  
Bounds Testing ◽  
Fiscal Deficits ◽  
Macroeconomic Factors ◽  
Fiscal Management ◽  
Ardl Approach ◽  
The Relationship

In this paper, we model the relationship between fiscal deficit and inflation for Nigeria using annual data from 1980 to 2016. We employ the linear ARDL approach and account for structural breaks using the Bai and Perron (2003) test that allows for multiple structural changes in regression models. The paper finds that the fiscal deficit is a major determinant of inflation along with other macroeconomic factors considered in the study. However, we observe that it may be necessary to pretest for structural breaks when modelling the relationship between the fiscal deficit and the price level, as it performs better than when structural events are not considered. The results imply that a fiscal management process that does not encourage increased revenue and reduce fiscal deficits will further worsen the level of inflation in the country.

scholarly journals Are Fiscal Deficits Inflationary in Nigeria? Evidence From Cointegration With Structural Breaks

2020 ◽  
Author(s):  
Ismail Fasanya ◽  
Ayinke Fajobi ◽  
Abiodun Adetokunbo
Keyword(s):  
Structural Breaks ◽  
Structural Changes ◽  
Annual Data ◽  
Fiscal Deficit ◽  
Fiscal Deficits ◽  
Macroeconomic Factors ◽  
Fiscal Management ◽  
Ardl Approach ◽  
The Relationship ◽  
Better Than

Abstract In this paper, we model the relationship between fiscal deficit and inflation for Nigeria using annual data from 1980 to 2019. We employ the Linear ARDL approach and also account for structural breaks using the Bai and Perron (2003) test that allows for multiple structural changes in regression models.The paper finds that fiscal deficit is a major determinant of inflation along with other macroeconomic factors considered in the study. However, we observe that it may be necessary to pre-test for structural breaks when modelling the relationship between fiscal deficit and price level as it performs better than when structural events are not considered.The results imply that a fiscal management process that does not encourage increased revenue and reduce fiscal deficits in Nigeria will further worsen the level of inflation in the country.

scholarly journals Macroeconomic Factors and Equity Prices: An Empirical Investigation by Using ARDL Approach

2008 ◽  
Vol 47 (4II) ◽  
pp. 501-513 ◽  
Author(s):  
Arshad Hasan ◽  
Zafar Mueen Nasir
Keyword(s):  
Empirical Studies ◽  
Testing Procedure ◽  
Bounds Testing ◽  
Macroeconomic Factors ◽  
Equity Prices ◽  
Macroeconomic Variables ◽  
Long Run ◽  
Ardl Approach ◽  
The Impact ◽  
The Relationship

The relationship between macroeconomic variables and the equity prices has attracted the curiosity of academicians and practitioners since the publication of seminal paper of Chen, et al. (1986). Many empirical studies those tested the relationship reveal that asset pricing theories do not properly identify macroeconomic factors that influence equity prices [Roll and Ross (1980); Fama (1981); Chen, et al. (1986); Hamao (1986); Faff (1988); Chen (1991); Maysami and Koh (2000) and Paul and Mallik (2001)]. In most of these studies, variable selection and empirical analyses is based on economic rationale, financial theory and investors’ intuition. These studies generally apply Eagle and Granger (1987) procedure or Johanson and Jusilieus (1990, 1991) approach in Vector Auto Regressor (VAR) Framework. In Pakistan, Fazal (2006) and Nishat (2001) explored the relationship between macroeconomic factors and equity prices by using Johanson and Jusilieus (1990, 1991) procedure. The present study tests the relationship between macroeconomic variables such as inflation, industrial production, oil prices, short term interest rate, exchange rates, foreign portfolio investment, money supply and equity prices by using Auto Regressive Distributive Lag (ARDL) bounds testing procedure proposed by Pesaran, Shin, and Smith (1996, 2001). The ARDL approach in an errorcorrection setting has been widely applied to examine the impact of macroeconomic factors on economic growth but it is strongly underutilised in the capital market filament of literature. This methodology has a number of advantages over the other models. First, determining the order of integration of macroeconomic factors and equity market returns is not an important issue here because the Pesaran ARDL approach yields consistent estimates of the long-run coefficients that are asymptotically normal irrespective of whether the underlying regressors are I(0) or I(1) and of the extent of cointegration. Secondly, the ARDL approach allows exploring correct dynamic structure while many econometric procedures do not allow to clearly distinguish between long run and short run relationships.

Testing Structural Break in the Relationship Between Exchange Rate and Macroeconomic Variables

2019 ◽  
Vol 23 (4) ◽  
pp. 442-453 ◽  
Author(s):  
Saidia Jeelani ◽  
Joity Tomar ◽  
Tapas Das ◽  
Seshanwita Das
Keyword(s):  
Exchange Rate ◽  
Structural Breaks ◽  
Time Series Data ◽  
Structural Break ◽  
Series Data ◽  
Ripple Effect ◽  
Macroeconomic Factors ◽  
Parameter Instability ◽  
Macroeconomic Variables ◽  
The Relationship

The article aims to study the relationship between those macroeconomic factors that the affect (INR/USD) exchange rate (ER). Time series data of 40 years on ER, GDP, inflation, interest rate (IR), FDI, money supply, trade balance (TB) and terms of trade (ToT) have been collected from the RBI website. The considered model has suggested that only inflation, TB and ToT have influenced the ER significantly during the study period. Other macroeconomic variables such as GDP, FDI and IR have not significantly influenced the ER during the study period. The model is robust and does not suffer from residual heteroscedasticity, autocorrelation and non-normality. Sometimes the relationship between ER and macroeconomic variables gets affected by major economic events. For example, the Southeast Asian crisis caused by currency depreciation in 1997 and sub-prime loan crisis of 2008 severely strained the national economies. Any global economic turmoil will affect different economic variables through ripple effect and this, in turn, will affect the ER of different economies differently. The article has also diagnosed whether there is any structural break or not in the model by applying Chow’s Breakpoint Test and have obtained multiple breaks between 2003 and 2009. The existence of structural breaks during 2003–2009 is explained by the fact that volume of crude oil imported by India is high and oil price rise led to a deficit in the TB alarmingly, which caused a structural break or parameter instability.

scholarly journals Sugar Prices vs. Financial Market Uncertainty in the Time of Crisis: Does COVID-19 Induce Structural Changes in the Relationship?

Agriculture ◽  
2021 ◽  
Vol 11 (2) ◽  
pp. 93
Author(s):  
Pavel Kotyza ◽  
Katarzyna Czech ◽  
Michał Wielechowski ◽  
Luboš Smutka ◽  
Petr Procházka
Keyword(s):  
Financial Crisis ◽  
Stock Market ◽  
Financial Market ◽  
Structural Breaks ◽  
Structural Changes ◽  
Global Financial Crisis ◽  
Market Uncertainty ◽  
Volatility Index ◽  
The Global Financial Crisis ◽  
The Relationship

Securitization of the agricultural commodity market has accelerated since the beginning of the 21st century, particularly in the times of financial market uncertainty and crisis. Sugar belongs to the group of important agricultural commodities. The global financial crisis and the COVID-19 pandemic has caused a substantial increase in the stock market volatility. Moreover, the novel coronavirus hit both the sugar market’s supply and demand side, resulting in sugar stock changes. The paper aims to assess potential structural changes in the relationship between sugar prices and the financial market uncertainty in a crisis time. In more detail, using sequential Bai–Perron tests for structural breaks, we check whether the global financial crisis and the COVID-19 pandemic have induced structural breaks in that relationship. Sugar prices are represented by the S&P GSCI Sugar Index, while the S&P 500 option-implied volatility index (VIX) is used to show stock market uncertainty. To investigate the changes in the relationship between sugar prices and stock market uncertainty, a regression model with a sequential Bai–Perron test for structural breaks is applied for the daily data from 2000–2020. We reveal the existence of two structural breaks in the analysed relationship. The first breakpoint was linked to the global financial crisis outbreak, and the second occurred in December 2011. Surprisingly, the COVID-19 pandemic has not induced the statistically significant structural change. Based on the regression model with Bai–Perron structural changes, we show that from 2000 until the beginning of the global financial crisis, the relationship between the sugar prices and the financial market uncertainty was insignificant. The global financial crisis led to a structural change in the relationship. Since August 2008, we observe a significant and negative relationship between the S&P GSCI Sugar Index and the S&P 500 option-implied volatility index (VIX). Sensitivity analysis conducted for the different financial market uncertainty measures, i.e., the S&P 500 Realized Volatility Index confirms our findings.

Investigating the Nexus Between FDI and Institutional Quality: Evidence from Morocco

2021 ◽  
pp. 097491012110530
Author(s):  
Hamza Belfqih ◽  
Ahlam Qafas ◽  
Mounir Jerry
Keyword(s):  
Structural Breaks ◽  
Institutional Quality ◽  
Large Set ◽  
Policy Recommendations ◽  
Bounds Testing ◽  
Bounds Testing Approach ◽  
Testing Approach ◽  
The Relationship ◽  
Quality Evidence ◽  
Ardl Bounds Testing Approach

This article investigates the relationship between institutional quality and foreign direct investment (FDI) in Morocco using a large set of institutional quality variables over the period 1970–2016. The study uses ARDL bounds testing approach with structural breaks and Granger causality. The analysis is then extended to the disaggregated sub-components to discern the inherent dynamics of institutional quality. The study finds several relationships between FDI and various aspects of institutional quality. Results from both models conclude with policy recommendations.

scholarly journals Research on Relationship between Financial Inclusion and Economic Growth of Rwanda: Evidence from Commercial Banks with ARDL Approach

2018 ◽  
Vol 4 (1) ◽  
pp. 7-18 ◽  
Author(s):  
Moïse Bigirimana ◽  
Xu Hongyi
Keyword(s):  
Economic Growth ◽  
Commercial Banks ◽  
Financial Inclusion ◽  
Annual Data ◽  
New Approach ◽  
Long Run ◽  
Ardl Approach ◽  
The Relationship

This study examines the relationship between financial inclusion and economic growth of Rwanda using annual data from 2004 to 2016. We used ARDL as it is a new approach to the problem of testing the existence of a level relationship between a dependent variable and a set of regressors, when it is not known with certainty whether the underlying regressors are trend- or first-difference stationary as developed by Pesaran. The results of our study revealed that there is long-run relationship between financial inclusion and economic growth of Rwanda.

Oil Price Shocks and Sectoral Stocks Behaviour in Nigeria: How Relevant is Asymmetry and Structural Breaks?

2020 ◽  
Author(s):  
Ismail Fasanya ◽  
Oluwasegun B. Adekoya ◽  
Temitope F. Odudu
Keyword(s):  
Stock Returns ◽  
Structural Breaks ◽  
Structural Changes ◽  
Global Financial Crisis ◽  
Oil Price ◽  
Jel Codes ◽  
Monthly Data ◽  
The Global Financial Crisis ◽  
The Arab Spring ◽  
The Relationship

Abstract In this paper, we model the relationship between oil price and stock returns for selected sectors in Nigeria using monthly data from January 2007 to December 2016. We employ both the Linear (Symmetric) ARDL by Pesaran et al. (2001) and Nonlinear (Asymmetric) ARDL by Shin et al. (2014) and we also account for structural breaks using the Bai and Perron (2003) test that allows for multiple structural changes in regression models. Our results indicate that the strength of this relationship varies across sectors, albeit asymmetric and breaks. We identify two structural breaks that occur in 2008 and 2010/2011 which coincidentally correspond to the global financial crisis and the Arab spring (Libyan shut-downs), respectively.Moreover, we observe strong supportfor asymmetry and structural breaks for some sectorsin the reaction of sector returns to movement in oil prices.These findings are robust and insensitive when considering different oil proxy.While further extensions can be pursued, the consideration of asymmetric effects as well as structural breaks should not be jettisoned when modelling this nexus.JEL codes: C22; C51; G12; Q43

The nexus between financial development and trade performance

2019 ◽  
Vol 12 (2) ◽  
pp. 279-291
Author(s):  
Puneet Kumar Arora ◽  
Jaydeep Mukherjee
Keyword(s):  
Financial Development ◽  
Structural Breaks ◽  
Positive Impact ◽  
Trade Openness ◽  
Annual Data ◽  
Content Type ◽  
Indian Economy ◽  
Trade Performance ◽  
The Relationship ◽  
Endogenous Structural Breaks

Purpose This study aims to empirically examine the relationship between financial development and trade performance for the Indian economy through a time-series analysis with annual data over the period 1980-2016. Design/methodology/approach The study uses new econometrics techniques such as unit root tests in the presence of endogenous structural breaks and autoregressive-distributed lag bounds test for the analysis. Findings Empirical results reveal that the level of financial development has a significant positive impact on the exports, imports and trade balance of manufactured goods for the Indian economy. Practical implications The findings suggest that the positive effect of financial development on trade performance is a potential mechanism through which the former may affect overall income and growth rates. It also implies that standalone trade liberalisation policies are insufficient to increase Indian exports. Indian policymakers should, therefore, consider the implications of the next set of financial sector reforms on the country’s trade flows, besides their positive impact on the economic performance. The findings are particularly relevant in the present scenario when the export growth is decelerating and there is a marked slowdown in private credit flows because of the problem of non-performing assets. Originality/value This study is the first of its kind which provides a holistic analysis of the relationship between financial development and trade performance for the Indian economy and also investigates the direction of causality between financial development and international trade by considering the possible presence of multiple endogenous structural breaks in the data. Moreover, in contrast to the available literature, the present study focuses on net exports as a key indicator of trade performance rather than trade openness.

scholarly journals Impact on Inclusive Development of Information and Communication Technologies in Turkey

2021 ◽  
Vol 8 (1) ◽  
pp. 39-55
Author(s):  
Huriye Gonca Diler
Keyword(s):  
Information And Communication Technologies ◽  
Communication Technologies ◽  
Inclusive Development ◽  
Annual Data ◽  
Causality Test ◽  
Mobile Cellular ◽  
Ardl Approach ◽  
Information And Communication ◽  
The Impact ◽  
The Relationship

In this study, the impact on inclusive development of information and communication technologies in Turkey’s economy is analyzed. Information and communication technologies are represented by mobile phone penetration measured by mobile cellular subscriptions, and inclusive development is measured by the human development index (IHDI) adapted to inequality. The annual data used in this study covers the period 1990-2019. After examining the stationarity of the series of variables, the cointegration between variables was investigated using the ARDL approach. As a result of the ARDL test, a cointegration between inclusive development and information and communication technologies has been determined. Toda-Yamamoto causality test was conducted to find the direction of the relationship between variables. The findings obtained from the analysis of causality determined that it has an impact on inclusive development of information and communication technologies in Turkey.

scholarly journals GROWTH AND STRUCTURAL CHANGES IN TRANSITION COUNTRIES: THE CHICKEN OR THE EGG?

2018 ◽  
Vol 19 (3) ◽  
pp. 544-565 ◽  
Author(s):  
Magdalena Olczyk ◽  
Aleksandra Kordalska
Keyword(s):  
Structural Changes ◽  
Value Added ◽  
Transition Countries ◽  
Annual Data ◽  
Causality Analysis ◽  
Granger Causality Analysis ◽  
Panel Granger Causality ◽  
Heterogeneous Processes ◽  
Small Countries ◽  
The Relationship

The objective of this study is to test empirically the relationship between structural changes (changes in gross value added and employment) and economic growth. We used a panel Granger-causality analysis based on annual data for eight transition countries, covering the period 1995–2011. The main finding is that the causality relations analysed are heterogeneous processes and are identified more often when we measure structural changes by value added than by changes in employment. Among the countries analysed, we separate a subgroup of economies with very strong bilateral causality (small countries such as Latvia, Lithuania, and Estonia), a subgroup in which no causal relationships are observed (e.g., Hungary in the case of employment), and a group with a one-directional relationship (e.g., Poland, where GDP changes cause employment changes, but not vice versa). The research results point to the necessity of taking into account different relationships, whether one- or two-directional, between growth and structural changes in government economic policy. The paper presents a verifiable methodology, which was originally used to identify the analysed relationship in transition countries.

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