scholarly journals Testing monetary exchange rate models with the Westerlund panel cointegration test

Economica ◽  
2020 ◽  
Vol 7 (2) ◽  
pp. 172-179
Author(s):  
Andrea Szabó
Keyword(s):  
Time Series ◽  
Exchange Rate ◽  
Empirical Support ◽  
Panel Cointegration ◽  
Empirical Literature ◽  
Long Run ◽  
Cointegration Tests ◽  
Panel Cointegration Test ◽  
Exchange Rate Models ◽  
Monetary Models

Time series testing of long-run monetary models of exchange rate determination in most cases fails to support the conjectures of the theory. The empirical literature increasingly uses the panel technique when testing monetary exchange rate models because the power of the panel unit root and panel cointegration tests seems higher than the pure time series tests. In this paper we examine the validity of the monetary exchange rate models over the period 1996Q1-2011Q4 for US dollar exchange rates of 15 OECD countries using Westerlund’s 2007 panel cointegration tests. We found moderate empirical support for monetary exchange rate models.

scholarly journals The Corruption-Terrorism Nexus: A Panel Data Approach

2016 ◽  
Vol 8 (11) ◽  
pp. 111 ◽  
Author(s):  
Nahil Boussiga ◽  
Malek Ghdamsi
Keyword(s):  
Panel Cointegration ◽  
Political Stability ◽  
Cointegration Test ◽  
Correction Model ◽  
Major Threat ◽  
Long Run ◽  
Cointegration Tests ◽  
Panel Cointegration Test ◽  
The Relationship ◽  
Control Of Corruption

<p>Corruption has been increasingly recognized as the major threat to economic development, political stability and peace. It is also acknowledged by international community as the breeding ground for terrorism. This paper examines the relationship between corruption and terrorism in the long run. Previous studies examining the link between these two phenomena used only time series cointegration tests. In this paper, we make use of a dataset for a panel of 123 developed and developing countries over the period 2003-2014. We use Pedroni’s residual-based panel cointegration test and the error correction model-based panel cointegration test developed by Westerlund. In order to obtain more robust results, we use two different measures of corruption which are Corruption Perceptions Index (CPI) and Worldwide Control of Corruption Indicator (CC). The results of both tests reject the null hypothesis of no cointegration. we conclude that corruption and terrorism converge. Our findings corroborate results of previous studies.</p>

scholarly journals Revisiting Banking Stability Using a New Panel Cointegration Test

2021 ◽  
Vol 9 (2) ◽  
pp. 21
Author(s):  
Hassan B. Ghassan ◽  
Zakaria Boulanouar ◽  
Kabir M. Hassan
Keyword(s):  
Cross Section ◽  
Serial Correlation ◽  
Panel Cointegration ◽  
Cointegration Test ◽  
Current Version ◽  
Medium Term ◽  
Long Run ◽  
Panel Cointegration Test ◽  
Banking Stability ◽  
Score Index

Using a new panel cointegration test that considers serial correlation and cross-section dependence on a mixed and heterogenous sample of Saudi banks, we revisit the cointegrating equation of the z-score index of banking stability. Our results show that even when we consider the cross-section dependency and serial correlation of the errors, there is a possibility of a long-run relationship, which holds in our sample of banks. Furthermore, in the medium term, we found some banks to be integrated, whereas others were non-cointegrated. We interpret this to suggest that some banks contribute to banking stability, whereas others do not. In other words, there exists at least one bank that acts as a destabilizer and the challenge for financial regulators is to identify which banks these are. However, the current version of the Hadri et al. test does not allow for the identification of the non-cointegrated banks. If the test was able to do that, the regulatory authorities would be able to develop corrective policies/measures specifically tailored to the non-cointegrated units.

scholarly journals Trade Balance and Exchange Rate in Thailand & the Implications for Vietnam: An Application using Instrumental Variable and the Heterogeneous Panel Cointegration Methods

2016 ◽  
Vol 23 (01) ◽  
pp. 137-160
Author(s):  
Anh Vo The ◽  
Duc Vo Hong
Keyword(s):  
Exchange Rate ◽  
Trade Balance ◽  
Panel Cointegration ◽  
Least Square ◽  
Monetary Policies ◽  
Ordinary Least Square ◽  
Long Run ◽  
Trading Partners ◽  
The Exchange Rate ◽  
Heterogeneous Panel

This study aims to investigate the link of trade balance and exchange rate for the case of Thailand in different aspects by initially attempting to examine what factors determine the trade balance in Thailand and then to test the long-run relationship between the exchange rate and Thailand’s trade balance. The empirical findings indicate that the exchange rate and relative growth rate of income play central roles in explaining Thailand’s trade balance, and fiscal and monetary policies are beneficial in some cases. Additionally, panel fully modified ordinary least square (FMOLS) estimations illustrate that a devaluation of Thailand Baht offers a significantly positive improvement on its trade balance in the long run, especially for the groups of countries with upper middle and high income in America and Europe. Individual FMOLS regressions of Thailand’s trade balance and each of its 62 trading partners suggest that a devaluation of Thailand’s currency would stimulate Thailand’s trade performance with over 20 trading partners, but hurt its performance with the other 10 countries and be inconclusive to the others.

The long-run effects of geopolitical risk on foreign exchange markets: evidence from some ASEAN countries

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Hon Chung Hui
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Foreign Exchange ◽  
Risk Index ◽  
Foreign Exchange Markets ◽  
Content Type ◽  
Long Run ◽  
Exchange Markets ◽  
Exchange Rate Models ◽  
Asean Countries

PurposeThe purpose of this paper is to analyse the long-run relationship between geopolitical risk and exchange rates in four ASEAN countries.Design/methodology/approachWe augment theoretical nominal exchange rate models available in the literature with the geopolitical risk index developed by Caldara and Iacoviello (2019), and then estimate these models using the ARDL approach to Cointegration.FindingsOur analysis uncovers evidence of Cointegration in the exchange rate models when the MYR-USD, IDR-USD, THB-USD and PHP-USD exchange rates are used as dependent variable. Next, geopolitical risk is a significant long-run driver for these exchange rates. Third, in all countries higher geopolitical risk leads to a depreciation of domestic currency.Research limitations/implicationsThere are implications for entrepreneurs, central banks, portfolio managers and arbitrageurs who actively trade in financial markets. Financial market players can benefit from a better understanding of how geopolitical events affect the portfolio of financial assets across various countries, while entrepreneurs can work out hedging strategies.Originality/valueThis is a contribution to the study of interlinkages between political risk and foreign exchange markets. It is the first study to adopt the geopolitical risk index of Caldara and Iacoviello (2019) to the study the foreign exchange markets of ASEAN countries.

Re-examining the twin deficit hypothesis for major South Asian economies

2019 ◽  
Vol 12 (3) ◽  
pp. 265-287
Author(s):  
Shruti Shastri
Keyword(s):  
Time Series ◽  
Exchange Rate ◽  
Interest Rate ◽  
Sri Lanka ◽  
South Asian ◽  
Current Account ◽  
Transmission Mechanism ◽  
Asian Countries ◽  
Content Type ◽  
Long Run

Purpose The purpose of this study is to revisit the twin deficit hypothesis (TDH) and provide insights into the transmission mechanism connecting budget deficits and current account deficits for five major South Asian countries, namely, India, Bangladesh, Pakistan Sri Lanka and Nepal for the period 1985-2016. Design/methodology/approach This study uses a multivariate framework including real interest rate, real exchange rate and real gross domestic product to avoid the possibility of incorrect inferences caused by omission of relevant mediating variables. The long-run relationship and causality are investigated through the autoregressive distributed lag bounds testing approach and Toda Yamamoto approach, respectively, for each individual country. The robustness of the results is assessed with the help of Westerlund’s cointegration test and group mean fully modified ordinary least squares (GM-FMOLS), group mean dynamic ordinary least square (GM-DOLS) and common correlated effect mean group (CCEMG) estimators in the panel framework. Findings Both time series and panel evidences indicate long-run relationship between budget balance (BB) and current account balance (CAB) together with the mediating variables. The results indicate bi-directional causation between the two balances for India and Bangladesh, TDH for Pakistan and Sri Lanka and the reverse causation from CAB to BB for Nepal. Regarding the transmission mechanism, the results indicate the absence of the causal chain postulated by Mundell–Fleming, which predicts that BB causes CAB via interest rate and exchange rate. A CCEMG estimate of the import demand function reveals a positive government spending elasticity of imports suggesting that BB affects CAB by direct impact through demand. Originality/value This study augments the twin deficit literature on South Asian countries by providing insights into the transmission mechanism connecting the BB and CAB. Moreover, the study provides robust evidences on the TDH by using both time series and panel data techniques.

scholarly journals DOES THE BALASSA–SAMUELSON THEORY EXPLAIN THE LINK BETWEEN RELATIVE POPULATION GROWTH AND PURCHASING POWER PARITY?

2013 ◽  
Vol 58 (01) ◽  
pp. 1350007 ◽  
Author(s):  
A. F. M. KAMRUL HASSAN ◽  
RUHUL SALIM
Keyword(s):  
Exchange Rate ◽  
Population Growth ◽  
Purchasing Power Parity ◽  
Panel Cointegration ◽  
Least Square ◽  
Power Parity ◽  
Relative Population ◽  
Relative Prices ◽  
Stable Relationship ◽  
Long Run

Relative population growth affects relative prices through the so-called Balassa–Samuelson (BS) mechanism and that in turn impacts PPP. This paper empirically investigates the relationship between the PPP exchange rate and relative population growth in a panel of 80 selected countries. Following the BS hypothesis, this paper argues that relative population growth affects nominal wages that impact price levels and thereby impacts PPP. Using panel cointegration and fully modified ordinary least square (FMOLS), the empirical results show that there is a stable relationship between PPP exchange rate and relative population growth in the long run. These empirical findings suggest that population growth have an important role in exchange rate determination through PPP.

Panel Data Analysis of Financial Development, Trade Openness, and Economic Growth: Evidence from BRICS Countries

2018 ◽  
Vol 4 (1) ◽  
pp. 1-18 ◽  
Author(s):  
Ritu Rani ◽  
Naresh Kumar
Keyword(s):  
Economic Growth ◽  
Trade Openness ◽  
Panel Cointegration ◽  
Least Square ◽  
Cointegration Test ◽  
Ordinary Least Square ◽  
Brics Countries ◽  
Long Run ◽  
Panel Granger Causality ◽  
Panel Cointegration Test

The purpose of this article is to investigate the possible cointegration and direction of causality between foreign direct investment (FDI) inflow, trade openness, and economic growth in BRICS countries using panel data from 1993 to 2015. Besides these variables, money supply and domestic credit (DC) to private players are also added in the model to examine the impact of financial openness on economic growth. The Pedroni’s panel cointegration test is used to examine the existence of long-run relationship, and coefficients of cointegration are examined by fully modified ordinary least square (FMOLS) and dynamic ordinary least square (DOLS). Further panel Granger causality test is used to examine the direction of causality among the competing variables. The results of Pedroni’s panel cointegration test indicate that there exists a long-run relationship among the variables under considerations in BRICS countries. The coefficient of FMOLS and DOLS indicates that trade openness has a positive impact on economic growth in BRICS countries while FDI inflow has a negative impact in these nations. In addition, the results of panel Granger causality confirmed bidirectional causality between FDI inflow and economic growth in the short run. The study recommends that BRICS countries should liberalize trade openness as it strengthens the position of member countries in the world economy.

scholarly journals A Multidude of Econometric Tests: Forecasting the Dutsch Guilder

2017 ◽  
Vol 9 (9) ◽  
pp. 94
Author(s):  
Augustine C. Arize ◽  
Ioannis N. Kallianiotis ◽  
Ebere Eme Kalu ◽  
John Malindretos ◽  
Moschos Scoullis
Keyword(s):  
Exchange Rate ◽  
Error Correction ◽  
Forecast Error ◽  
Predictive Performance ◽  
Mean Square ◽  
Rate Model ◽  
Long Run ◽  
Exchange Rate Models ◽  
Econometric Tests ◽  
Nonparametric Techniques

This paper studies a diversity of exchange rate models, applies both parametric and nonparametric techniques to them, and examines said models’ collective predictive performance. We shall choose the forecasting predictor with the smallest root mean square forecast error (RMSE); the empirical evidence for a better type of exchange rate model is in equation (34), although none of our evidence gives an optimal forecast. At the end, these models’ error correction versions will be fit so that plausible long-run elasticities can be imposed on each model’s fundamental variables.

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