Empirical Regularities of Financial Market Volatility and Good Modelling Process: Developing Countries’ Exchange Rate Markets Perspective

A survey of contemporary literature suggests that empirical studies on developing economies are few or almost non-existent. Engle and Patton (2001, What good is a volatility model. Quantitative Finance, 1, 237–245) as well as Poon (2005, A Practical Guide to Forecasting Financial Market Volatility. New Jersey: Wiley.) suggest that a good volatility model is one that utilizes the empirical regularities of financial market volatility (of which most were observed on industrialized economies markets). This paper uses exchange rate series from Ghana, Mozambique and Tanzania to show that;

1. they are not different from other financial markets as they exhibit most of the empirical regularities including volatility sign asymmetry, non-normal distribution and volatility clustering. It is however observed that the three exchange rate series are very volatile, with induced volatile shocks highly persistent and asymmetric, and extreme prices commonplace;

2. the ARCH technique (which has been well documented to capture these empirical regularities and produce good forecasts) generally produced a good fit to the three exchange rate series when compared with volatility forecasts generated using the EWMA technique. In the simple analysis of a day-ahead volatility forecast abilities of estimated models, it was observed that best fit does not necessarily ensure best forecast.

     

Deceiving Our Minds: A Qualitative Exploration of the Money Illusion in Post-redenomination Ghana

The current study is a qualitative exploration of the presence of the money illusion in the lived experiences of Ghanaian adult consumers after a currency redenomination. The results indicated that a switch from the old currency to the new currency had implications for self-worth determination, trivialization of price increases, changes in spending behaviour, and changes in the extent of benevolence. All these changes were related to the tendency to make judgments based on the nominal value of an amount of money, rather than its real value; the judgment bias is known as the money illusion.     

Monetary policy credibility and macrodynamics: evidence from Ghana

We compute a time-varying metric of monetary policy credibility based on Ghana’s experience, using both symmetric and asymmetric approaches. We then follow-up with some empirical evidence to address the linkages between macroeconomic developments and central bank credibility. The empirical results reveal high and low credibility cycles with an average duration of 2 years over the study period. Particularly, higher levels of credibility were associated with stable domestic currency and lower nominal interest rates. This reinforces the notion that efficient monetary policy delivers higher central bank credibility with better outcomes for macroeconomic variables. In contrast, the level of credibility tends to worsen in the wake of weakening macro fundamentals which are not adequately countered by monetary policy decisions. There is therefore the need for efficient monetary policy formulation to achieve a stable macroeconomic environment in Ghana. This will in the long-run build policy credibility towards attaining the central bank’s medium-term inflation target.     

Generation and distribution of the total factor productivity gains in US industries

This study estimates productivity gains and their distribution among inputs and outputs for 63 American industries over the period 1987–2012. Using the traditional surplus accounting method, the Total Factor Productivity (TFP) growth rates are divided into their price change components in order to determine the stakeholders who do or do not receive price advantages.

An initial analysis showed that TFP of US industries increased at an average trend of 0.8% and established that remunerations to employees and firms’ profitability constituted 49% and 39%, respectively, of the accumulated economic surplus from the productivity gains. Suppliers of intermediate inputs retained 12.1% of the surplus. Finally, customers, equipment and structure providers were the losers in the distribution of economic surplus via, respectively, a significant growth of relative final demand prices and a substantial price decrease of these assets.

A second step analysis underlined that industries with high TFP growth rates mainly benefited customers and firms via output price decreases and profitability improvements while industries with low or negative TFP changes hurt customers through significant output price increases. The sectoral level analysis also showed that employees’ remunerations depend only slightly on productivity gains produced within their industrial sectors.     

The contest for mineral wealth: an economic analysis of conflicts in Ghanaian mining communities

The paper uses survey data from 1458 households in 60 communities from 24 districts in 5 regions of Ghana and logistic regression to examine conflicts as a contest for mineral wealth in mining communities, estimates the determinants of conflicts in these mining communities and examines how these contests could erode and/or enhance Ghana’s gains from mining. The paper finds that the likelihood of a conflict occurring in a mining area is about 56.7%. Village effect was found to be a significant positive predictor of mining conflict. Also, improvement in primary education, employment opportunities to community members of ages 25–50, the strength of institutions and the absence of small-scale miners in a mining community reduces the probability of conflicts occurring by 12.8, 35.8, 6.57 and 17.7%, respectively. While an increase in pollution levels increases the likelihood of conflicts occurring by 7.1%, primary occupation in manufacturing and services, and increase in household monthly expenditure significantly increases the likelihood of conflicts within the mining communities as the cost of living increases.     

economic freedom for africa

Why have freedom and the liberal economy declined in Africa since independence? Charles Mensah of the independent Institute of Economic Affairs in Ghana offers an economic explanation.     

Adjusted accounting beta,operating leverage and financial leverage as determinants of market beta: A synthesis and empirical evaluation

This article reexamines and synthesizes two streams of research dealing with the relationship between market beta and accounting risk measures. It is shown that, with some minor rearrangement the Mandelker and Rhee (1984) model can be shown to be as a decomposition of the familiar accounting beta (Beaver, Kettler and Scholes 1970) into operating leverage, financial leverage, and an adjusted accounting beta. The adjusted accounting beta can be further decomposed into productivity gains and the relative cyclical sensitivity of the accounting flows of the firm. Empirical estimates of this extension made using three accounting flow measures in addition to earnings show that the intrinsic business risk factor not identified in the original Mandelker and Rhee model is the most significant explanatory factor related to market beta.     

Effect of financial development on international trade in Africa: Does measure of finance matter?

Although improving international trade on the back of financial sector development is one of the preoccupations of countries in Africa, empirical literature on financial development-trade nexus has not been rigorous in examining how finance shapes trade. In this study, we examine the effect of financial development on international trade in Africa relying on data for 46 countries over the period 1980–2015. Results from our system generalized method of moments reveal differential effects of finance on trade. In particular, we notice that, private credit does not promote trade while domestic credit positively affects trade. These effects are robust to measures of trade. Thus, improving the level of private (domestic) credit dampens (amplifies) exports and trade openness. However, we also find a U-shaped relationship between private credit and trade measures suggesting that financial sector development may be detrimental (helpful) to trade for economies with low (high) level of private credit.