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1 A small open economy model for Nigeria: A DSGE framework, Olayeni Olaolu Richard, Olabode Philip Olofin
We estimate a small open economy (SOE) model for Nigeria with a view to understanding how the Nigerian economy should be managed in the face of business cycle such as the recent global meltdown. Our SOE model is used to generate dummy observation priors for the VAR in line with the BVAR-DSGE technique. We consider four monetary policy rules and estimate each of the resulting models using DYNARE platform. We find that the Central Bank of Nigeria (CBN) places little weight on the exchange rate behaviour in reacting to the cycles, resulting in overshooting and persistence in the exchange rate but strongly reacts to the behaviour of inflation and, to a lesser degree, of output, output gap or its growth following the shocks. We conclude that it will be important for the CBN to pursue a guided exchange rate policy by actively responding to the exchange rate movement to avoid overshooting and persistence, that the terms of trade should be endogenized and that there is scope for the CBN to learn from past policy outcome by building a much stronger feedback.
2 Asymmetric causality between futures contracts and the return volatility of their underlying assets on Euronext.liffe , Claudiu T. Albulescu, Aviral Kumar Tiwari
The present paper analyzes the relationship between the volume of transactions with equity index futures and the return volatility of their underlying assets. The study addresses the case of five stock markets, members of the Euronext.liffe, namely: Amsterdam,Brussels, Lisbon, London and Paris. The novelty of our paper is the use of the hidden cointegration technique to highlight the asymmetric relationship between derivatives and financial volatility. For this purpose we determine both the historical and conditional volatility of stock index returns. The results show that, in general, the hidden cointegration can be observed in case of small stock markets as Brussels and Lisbon, where both speculative and hedging activitiesare present. In case of the largest stock markets, the hidden cointegration is less obvious and the strategic investments prevail. In addition, the existence of hidden cointegration relationships is better revealed when we consider the historical volatility. However, our results are sensitive to the methodology of computing the financial volatility or to the approach of assessing the hidden cointegration.
3 Output synchronization at Business, Juglar and Kuznet’s intermediate Cycles- Evidence from G-7 Countries, Arif Billah Dar, Niyati Bhanja
In this paper the output of G7 countries is approximately decomposed into Business, Juglar and Kuznet’s intermediate Cycles using the methodology of wavelets. We then assess how this output is synchronized at these cycles using multiple-correlation and crosscorrelation. Our results indicate that output is highly synchronized at Business cycles and almost perfectly synchronized at Juglar and Kuznet’s intermediate cycles.
4 Unit root with structural breaks in Macroeconomic time series: Evidence from Pakistan, Aviral Kumar Tiwari, Niyati Bhanja, Arif Billah Dar
The stationarity property of 32 Macroeconomic annual time series for Pakistan are tested by using both simple ADF and Lee and Strazicich (2003, 2004) Lagrange Multiplier (LM) unit root test. The conventional ADF test detects all variables except five to be stationary. However, the LM test based Lee and Strazicich unit root accommodating upto two endogenously determined structural breaks rejects the null of unit root at 5 percent level of significance or better, across four models for ten to eleven macroeconomic time series. Moreover, the significant break points are observed mostly clustered around important events like Indo-Pak border conflicts (1971, 1999), Military Coups (1977, 1999) and natural disasters, such as, drought (2000) and Kashmir earthquake (2005). The study thus concludes structural break unit root test as a better framework for the analysis of time series properties of macroeconomic variables.
5 An examination of the remittance, financial development,and economic growth in developing countries, Phouphet Kyophilavong, Gazi Salah Uddin, Bo Sjö
In this paper, we examine the causal relations between remittance, financial development, and economic growth in developing countries during the period of 1971–2010. We apply new methods based on simulations. Our ARDL-ECM estimation results disclose that the relations between remittance, financial development, and economic growth are country specific. Long-run bidirectional causality exists between remittance and economic growth in Bangladesh. Short-run unidirectional causality between economic growth and remittance exists in India. Reverse causality exists for Mexico and the Philippines. Remittance can play an important impact on the economic and financial development of the recipient countries.
6 Efficiency of emerging stock markets: Evidences from “BRICS” stock indices data using nonlinear panel unit root test, Suresh K.G., Anto Joseph, Garima Sisodia
Any signals of informational inefficiency in the stock market could help the investors to get large economic gain. In this study we analyze the mean reversion properties of the stock indices of emerging BRICS (Brazil, Russia, India, China and South Africa) countries for the period 2000M1 to 2010M12 using nonlinear panel unit root tests recently developed by Ucar and Omay (2009). The results indicate that these emerging stock indices have a nonlinear data generating process and are stationary. This provides evidences for that the emerging stock markets are not weak form efficient.
7 Relevance of the inflation targeting policy, FTITI Zied, ESAADI Esahbi
The main of this paper is to check whether the inflation targeting policy (ITP) had a significant impact on the change of the inflation path for four industrial inflation-targeting countries. We use the evolutionary spectral analysis, as defined by Priestley (1965- 196). Then, we use a test that can detect many break points on the time series. We show the existence of a common consensus that monetary policy should target price stabilty as its primary goal through the identification of common break in 3rd quarter 198. This break is the result of the disinflationary environment made by these countries to prepare the implementation of the ITP. Secondly, we identifed two types of countries acording to the maner to make this disinflationary environment. Some of them, like New Zealand Canada and Sweden, prepare an environment to implement the inflation targeting policy and made some action to raise credibilty and transparency of the policies-makers. The other kinds, such the United-kingdom, adopted inflation targeting policy without any actions to raise credibilty and didn’t satisfy the inflation targeting conditions like central Bank independence. We explain this for the first kind of countries by the high and volatile experience of inflation level.
8 Investment opportunity set, corporate accounting policy and discretionary accruals , Hasna Chaibi,Samir Trabelsi, Abdelwahed Omri
This study analyses the effect of the investment opportunity set (IOS) on management use of discretionary accruals. Firms with high IOS have greater information asymmetry. Given the information asymmetry between managers and stockholders, managers of firms with high IOS may engage in income-increasing earnings management to signal firm performance or to achieve personal gains. Our results show that firms with more investment opportunities are more likely to use discretionary accruals to maximize reported earnings. These findings are robust to various discretionary accruals models.
9 Cyclical components and dual long memory in the foreign exchange rate dynamics: The Tunisian case, Rania Jammazi, Aloui Chaker
The purpose of this paper is to question the traditional conventional view on the exchange rate targeting that real shocks have permanent effect on exchange rates (FX) however nominal shocks are not. Thus, an empirical approach is proposed in order to analyze the transitory component dynamics of some major Tunisian interbank FX rates for the period 199-205. Our results reveal that the use of the Guy and Amant’s (205) method allows us to select the Hodrick Prescot with two powers as an optimal filter for extracting the daily interbank FX rates’ cyclical components. More importantly, the joint estimations of an ARFIMA model in the mean equation and various long-memory GARCH-type models in the variance equations reveal that cyclical components seem to be well described by dual long memory models. On the practical side, our findings provide important evidence that transitory trend fluctuations are not quickly trend– reverting but they are rather dominated by permanent deviations from the equilibrium values. Accordingly, contrary to policy makers’ ambitions for the Tunisian dinar, our study appears to confirm the view that monetary shocks may also (as for real shocks) be a difficult task of stabilization policy. This result may have several important implications for monetary policy in most developing countries.
10 The effectiveness of central bank intervention through the noise trading channel: Evidence from the Reserve Bank of Australia , Fatnassi Ibrahim, Ben Maatoug Abderrazek
This paper attempts to shed light on the effectiveness of central bank intervention through the noise trading channel. This channel suggests that central banks should intervene in highly volatile market periods and keep their interventions secret. The following paper is an empirical study carried out on behalf the Reserve Bank of Australia. This investigation concerns the period extended from December 12, 1983 to April 30, 2008. Our findings support the noise trading channel and therefore secret intervention.
11 A value or a growth strategy? Empirical evidence from a panel of Greek listed firms , Nicholas Apergis, Sofia Eleftheriou
This paper aims at verifying the presence of value versus growth hypothesis and identifying the variables that best explain their impact on Greek stock profits. This is implemented by categorizing stocks into value and growth stocks as well as by using the fundamental analysis approach with panel data, in order to find stocks that will outperform the market. To this end, we investigate the role of determinants as book-to market, price earnings and price-to-cash flow variables. All of them are considered to indicate a value stock if the ratio is low. By contrast, if the ratio is high, then the stock is considered to be a growth stock instead. The sample is made up of firms with shares listed on the Athens stock market spanning the period 2000 -2013. The results indicate the presence of an association between the variables used and the value and growth strategies. Growth stocks present higher profits than value stocks. Furthermore, in firms with investment strategies and greater profits, the empirical findings document that the variable that identifies growth stocks is the book-to market ratio.
12 Scale specific volatility and co-movement behaviour of Asian and US stock markets: Is this time different? , Aviral Kumar Tiwari, Arif Billah Dar, Niyati Bhanja
This paper analyzes the volatility and co-movement behaviour of stock returns among selected Asian stock markets and their co-movement with the US stock market during the recent sub-prime crisis period together with pre- and post-crisis periods. Using the methodology of wavelets, we demonstrate that stock markets of all these countries have become more volatile during the crisis period. However, this increase in volatility during the crisis period has no significant impact on the co-movement of stock returns. It is also found that the co-movement among the Asian stock markets and their co-movement with the US stock market is stronger at lower frequencies (longer horizons), implying greater benefits of diversification from Asian stock markets in the short run relative to the long run. The Chinese and the US stock market co-movement in particular are relatively lower than that of all Asian stock markets, reflecting higher diversification opportunities between these markets.
13 Assessing financial development in India and its relation with economic growth: An empirical analysis, Dogga Satyanarayana Murthy, Amaresh Samantaraya
It has been widely believed and empirically established that financial development and economic activity across the economies have strong inter-linkages. In the literature analyzing above relationship, the assessment of financial development has been challenging. Different indicators representing financial development in terms of financial intermediation, capital market development, debt market development etc. are widely used. A couple of studies have developed indices of financial development to use as a summary measure of overall financial development. In the Indian case also a couple of studies have used financial indices mainly covering financial intermediation and size of the financial markets. The present study attempts to develop a summary index for financial development in India by incorporating efficiency parameters of financial development to the above, using principal components analysis. Subsequently, using this index as a proxy for financial development, formal econometric tools such as co-integration and causality tests are applied to analyze the inter-linkages between financial development and economic activity in India. Our results based on Granger causality approach using VECM confirm the one way causality running from economic activity to financial development in India during the post-reform period, supporting demand following hypothesis of financial development.
14 Multiple Directorships of Board Members and Earnings Management: An Empirical Evidence From French Listed Companies , Samir Baccouche, Abdelwehed Omri
The aim of this research is to study the impact of multiple directorships of board directors on earnings management. Precisely, we empirically investigate the relationship between the number of outside directorships held by board members and the degree of earnings management of listed French companies. The research sample is composed of 90 non financial French listed firms that belong to the SBF 120 index, for the financial year 2008. The findings indicate, therefore, that the accumulation of many outside directorships by board members may lead to a higher level of earnings management, as measured by the magnitude of discretionary accruals. Thus, our results prove that board of directors cannot deter earnings management effectively when its members held several additional outside directorships.
15 Early Warning Index for Macroeconomic Vulnerability in Kenya, Lydia Ndirangu, Njuguna Ndung’u, Conrado Garcia, Esman Nyamongo, Ciliaka Gitau
The recent episodes of crisis and shocks make it imperative for countries to develop early warning systems and mitigation measures to enhance their resilience. Many countries, especially developing ones, are yet to develop effective formal frameworks for providing early warning for macroeconomic vulnerability. Kenya is no exception. Monetary authorities often implement expost measures to maintain stability. Such measures can be expensive. The objective of this paper is to develop an instrument that can help to identify situations in which crisis are more likely to occur, and thus aid in design of preemptive measures. The paper develops two indices: an index of speculative pressure and an index of macroeconomic vulnerability. The former is used to identify retrospectively, periods of unusual market volatility, while the latter is an ex-ante measure for macroeconomic fragility. To generate signals, thresholds are obtained using: (i) mean plus 1.5 standard deviations, and (ii) the self-exciting threshold autoregressive techniques. A contingency table is used to assess the validity of the “signals approach”. The findings are that the framework performs well in predicting periods of macroeconomic vulnerability in Kenya. The real effective exchange rate appears to be the main driver of the macroeconomic vulnerability index.
16 Exchange Rate Transmission into Sectoral Consumer Price Inflation in Ethiopia-SVAR Approach , Wondemhunegn Ezezew Melesse
This paper employs recursive structural vector autoregression (SVAR) to study exchange rate pass-through into domestic consumer price inflation in Ethiopia. The study utilizes quarterly data spanning out the period from 1997.3 to 2011.4. Innovation accounting from the resulting SVAR was performed to trace out the impact of a one-time unit shock in one variable on the trajectory of other variables over time. The impulse response function analysis indicates that nominal effective exchange rate plays an important but short-lived role in affecting consumer price developments in Ethiopia. In particular, a unit change in the trade weighted exchange rate (appreciation) caused the consumer price inflation to fall by about 0.01 after four quarters (or an accumulated response of about 0.11 after 14 quarters). As a result, exchange rate pass-through into domestic prices in Ethiopia is incomplete and inconsequential. The forecast error variance decomposition exercise shows own shock explains about 63 percent of the forecast error variability of inflation followed by world oil price (20 percent) and exchange rate (13 percent). Monetary aggregate has triavial effect for all horizons considered.Regarding the components of CPI, sectors which have higher import content exhibit relatively stronger pass-through effects.
17 What We Learned about the Relationship between Transport System, Economic and Population Growth in the case of Landlocked Country?, Riadh HARIZI, Rafaa M’RAÏHI
The aim of this paper is to model and quantify the interactions between transport, economic and population growth. To do this, we have used an econometric analysis based on the Vector autoregressive (VAR) and Vector error coorections (VEC) models. This paper highlights two aspects of transport sector: i) the systemic and historical aspect of transport and ii) the implications for public finances. The used techniques provided us detailed results about the causality quantification between transport system, economy and society. This paper proposes the quantification of the interactions which can helps decisions made in public-transport investment in the medium and long term, especially in a landlocked country. Many interactions between GDP, transport system and population have been found for the case of Burkina Faso during the 1960-2008 periods. Results show that interactions in the medium and long term are conducted as a phenomenon of "snowball".