The effect of oil prices on stock prices: fresh evidence from asymmetric causality tests

This article investigates the causal impact of oil prices on stock prices in each G7 market as well as in the world market. An asymmetric causality test developed by Hatemi-J is used for this purpose. Since the underlying data appears to be non-normal with time-varying volatility, we use bootstrap simulations with leverage adjustments in order to produce more reliable critical values than the asymptotic ones. Based on symmetric causality tests, we find no causal effect of oil prices on the stock prices of the world market or any of the G7 countries. However, when we apply an asymmetric causality test, we find that increasing oil prices cause stock prices to rise in the world, the U.S. and Japan while decreasing oil prices cause stock prices to fall in Germany. This may imply that the world, the U.S. and Japanese stock markets consider increases in oil prices as an indicator of good news as this may mean that there is an increase in oil demand due to an expected growth in the economy while the German stock market treats decreasing oil prices as a signal of an expected contraction in the economy.     

The causal relationship between natural gas consumption and economic growth: evidence from the G7 countries

This article re-examines the nature of the causality between natural gas consumption and economic growth in G7 countries over the period from 1965 to 2011. We employ the Granger causality procedure proposed by Emirmahmutoglu and Kose (2011) which takes into account cross-sectional dependency and heterogeneity across countries. Our overall empirical results support the neutrality hypothesis for the panel while the individual country results confirm the same result with the exception of the case of UK, where the conservation hypothesis is confirmed, showing that GDP causes natural gas consumption in the country. These results make policies that promote the consumption of natural gas risk-free with regard to their effects to the economic growth and development levels.     

The relationship between Turkey’s foreign debt and economic growth: an asymmetric causality analysis

Tackling foreign debt that arises as a result of limited and ineffective use of resources is an item that remains on the agenda particularly for developing countries. In this study, we examine the foreign debt debates to date in terms of economic growth and using the time series for the period 2003Q1 to 2017Q1. We used unit root tests to determine the maximum integration degree of series, and we conducted causality analysis. We found a causality relationship between net foreign debt stock and economic growth in causality analyses performed for Turkey. The empirical results of this study indicate that there is a causality relationship, including both positive and negative aspects, between net foreign debt stock and economic growth. The results of our testing showed a significant causal relationship between the variables.     

Government expenditure and economic growth: evidence from G7 countries

This paper examines Wagner's Law of Public Expenditure, which emphasizes economic growth as the fundamental determinant of public sector growth, using time series data drawn from the G7 industrialized countries over the sample period 1960 1993. It presents evidence on both the short- and long-run effects of growth in national income on government expenditure by resorting to recent developments in the theory of cointegrated processes. An attempt is also made in this study to examine if Wagner's Law holds between certain key components of government expenditure and income.     

The impact of output and exchange rate volatility on fixed private investment: evidence from selected G7 countries

This study examines the impact of shocks to exchange rate and output uncertainty (volatility) on real private fixed investment (FI) in Canada, Germany, the United Kingdom and the United States. The analysis is conducted using vector autoregressive models that contain the price level, real output, the volatility of real output, the real exchange rate, the volatility of the real exchange rate, an interest rate and FI. The results yield important public policy implications with regard to the impact of output volatility of FI. Our analysis indicates that volatility shocks, measured as output volatility or exchange rate volatility, do not have a significant impact on FI for any country in our study.     

On the asymmetric effects of the real exchange rate on domestic investment in G7 countries

Two studies have assessed the symmetric and asymmetric effects of exchange rate changes on domestic investment. One included six emerging countries and the other one, 18 African nations. Both revealed that using nonlinear models to assess the asymmetric effects yield a more significant outcome compared to symmetric and linear models. We add to this small literature by showing the same using quarterly data from each of the G7 countries. Indeed, nonlinear models produced relatively more short-run and long-run effects of changes in the real effective exchange rate on domestic investment, though in an asymmetric manner.     

Forecasting output gaps in the G-7 countries: the role of correlated innovations and structural breaks

Trend GDP and output gaps play an important role in fiscal and monetary policy formulation, often including the need for forecasts. In this article, we focus on forecasting trend GDP and output gaps with Beveridge-Nelson trend-cycle decompositions trend-cycle decompositions and investigate how these are affected by assumptions concerning correlated innovations and structural breaks. We evaluate expanding window, one-step-ahead forecasts indirectly for the G-7 countries on the basis of real GDP growth rate forecasts. We find that correlated innovations affect real GDP growth rate forecasts positively, while allowing for structural breaks works for some countries but not for all. In the face of uncertainty, the evidence supports that in making forecasts of trends and output gap policy-makers should focus on allowing for the correlation of shocks as an order of priority higher than unknown structural breaks.     

Economic growth drag in the Central China: evidence from a panel analysis

This article employs recently developed panel methods to test for unit roots, cointegration and Granger causality to justify and estimate the drag induced by resource constraint and environmental pollution for the Central China. The results of the panel cointegration test show that there is a stable long run relationship amongst total output, capital, labour, land, water and SO₂ when total output is the dependent variable. The results of the causality test with Error Correction Model (ECM) analysis suggest that the available water resource and environmental pollutant have no impacts on total output temporarily, but in the long‐run there is a Granger causality running from these variables to total output, indicating the economic growth drag induced by the natural resource and environmental pollution can be further estimated. Given the stable cointegration and significant Granger causality being, the study shows that the drag on the total output reduces annual economic growth rate by about 1.1 percentage points for the Central China as a whole and there is a significant difference on the aggregated and disaggregated drags for the six provinces, which indicates that natural resource and environmental constraints so far incorporated into production probably have a modest effect over the past 31 years for the Central China.     

Broadband penetration and economic growth nexus: evidence from cross-country panel data

This article investigates whether there are Granger causal relationships between broadband penetration, degree of urbanization, foreign direct investment and economic growth using a panel data set covering the G-20 countries for the period 1998–2011. Using our multivariate framework, we first find that all of the variables are cointegrated. Our findings further reveal a network of causal connections between the variables including short-run bidirectional causality between broadband penetration and economic growth among the more developed countries within the G-20. On the other hand, for the developing countries within the G-20, there is evidence of unidirectional causality from economic growth to broadband penetration.     

Multi-scale causality between saving and growth: evidence from China

In this article, we use a wavelet-based Granger causality approach to examine the multi-scale causality between saving and growth for China. We show that significant causality runs from saving to growth for most timescales, whereas multi-scale causality from growth to saving is not statistically significant. Our subsample results suggest that economic systems have remarkable effects on the multi-scale causality. Overall, our study provides a novel perspective to deeply explore the relationships between macroeconomic variables.     

Local banking and local economic growth in Italy: some panel evidence

This article provides new evidence on the contribution of local banking to local economic growth (i.e. at county level – the Italian ‘province’) in Italy. A comprehensive data set is used, which includes control variables for social capital and human capital as well as indicators of the quality of local infrastructures and the production structure of the local economy. A linear within-estimator technique with fixed effects is applied to a modified version of the so-called Barro regression in order to address the well-known econometric issues of reverse causality and estimation bias resulting from unobserved district-specific influences.     

On the relationship between female labour force participation and fertility in G7 countries: evidence from panel cointegration and Granger causality

This article examines the relationship between the female labour force participation rate and total fertility rate for the G7 countries from 1960 to 2006 using panel unit root, panel cointegration, Granger causality and long-run structural estimation. The article’s main findings are that the female labour force participation rate and total fertility rate are cointegrated for the panel of G7 countries; that long-run Granger causality runs from the total fertility rate to the female labour force participation rate and that a 1% increase in the total fertility rate results in a 0.4% decrease in the female labour force participation rate for the G7 countries.     

The hydroelectricity consumption and economic growth in Asian countries - evidence using an asymmetric cointegration approach

ABSTRACT

This study examines the four commonly tested hypotheses in hydroelectricity consumption – economic growth literature for 12 Asian countries. Our results from a recently developed hidden cointegration technique uncover rich and significant relationships between negative and positive components of the variables under consideration. In particular, we find evidence to support the neutrality hypothesis in five countries (Bangladesh, Indonesia, Pakistan, Philippines, and Thailand), the growth hypothesis in four countries (India, Japan, South Korea and Taiwan), and both growth and conservation hypotheses in three countries (China, Malaysia, and New Zealand). These findings suggest that appropriate economic policies should be elaborated on the basis of the country’s specific hydroelectricity consumption–growth nexus. Finally, our new evidence suggests that the lack of stable relationship between hydroelectricity consumption and economic growth documented in previous studies for some of these countries could be due to the failure to properly account for the nonlinearity property in the data.     

Economic policy uncertainty and real output: evidence from the G7 countries

We use economic policy uncertainty index, and impulse response based test to assess the impact of economic policy-related uncertainty on real economic activity. We use monthly data, over the period from 1985:1 to 2015:3, and impulse response functions to investigate how the economies of the G7 countries respond to positive and negative economic policy uncertainty shocks of different magnitudes. We find that economic policy uncertainty is countercyclical, that the effects of uncertainty shocks increase with size and that the responses of real output to positive and negative economic policy uncertainty shocks are country specific. Our research is important for policymaking and in favour of policies that remove economic uncertainty and its negative effects on the economy. We argue that some control over yellow journalism, a transparent tax system and a set of predictable fiscal and monetary policies can minimize the social costs of economic policy uncertainty.     

Migration and labour markets in OECD countries: a panel cointegration approach

This article examines the interaction between immigration and the host labour market of 14 Organization for Economic Co-operation and Development (OECD) countries using nonstationary panel data methodology. We estimate a trivariate Vector Error Correction Model (VECM) and derive causality tests to simultaneously assess the long- and short-term macroeconomic impact of newcomers on wages and unemployment levels in the host country. The results suggest that an increase of migrants is likely to increase wages in the destination countries in the short run but to increase them in the long run. There is no evidence of adverse effects on unemployment due to immigration in short and long-term except for Anglo-Saxon countries in the short term. Our findings also show that immigration is conditioned by levels of unemployment and wages especially in Anglo-Saxon countries.     

Correlates of economic growth in developing countries: a panel cointegration approach

The inflow of foreign direct investment (FDI) has been found to play a crucial role in the economic growth of receiving countries. Using panel cointegration techniques, this perception was found to be mitigated by an empirical approach that yields different results from previous studies. While the growth in real FDI has an influence on real GDP growth across developing countries in the short-run, year-to-year periods, it does not explain real GDP in the long-run. Rather, it appears to be the economic factors internal to a country that have the most influence on real GDP over time: human capital (measured by literacy rates), export trade, and monetary and fiscal policy.     

Impact of oil price shocks on output,inflation and the real exchange rate: evidence from selected ASEAN countries

This article analyses the impact of oil price shocks on real output, inflation and the real exchange rate in Thailand, Malaysia, Singapore, the Philippines and Indonesia (ASEAN-5) using a Structural VAR model. The cointegration tests indicate that the macroeconomic variables of these countries are cointegrated and share common trends in the long run. The impulse response functions reveal that oil price fluctuations do not impact the ASEAN-5 economies in the long run and much of its effect is absorbed within five to six quarters. The variance decomposition results further assert that with a few exceptions oil price shocks do not explain a significant variation in any of the variables under consideration. We also identify a very unique pattern of response to oil price fluctuations between Malaysia and Singapore and between the Philippines and Thailand. The pairs exhibit a high degree of similarity in their responses; they do not share any commonalities across the group.     

Financial development and economic growth nexus in the MENA countries: Bootstrap panel granger causality analysis

This paper investigates the direction of causality between financial development and economic growth in the Middle East and North African (MENA) countries. The panel causality testing approach, developed by Kónya (2006) [Kónya, L. (2006), exports and growth: Granger causality analysis on OECD countries with a panel data approach, Economic Modelling, 23, 978–992], based on the Seemingly Unrelated Regressions and Wald tests with the country specific bootstrap critical values, is applied to the panel of fifteen MENA countries for the period 1980–2007. In order to capture the different aspects of financial development, six different indicators are used. Empirical results show that there is no clear consensus on the direction of causality between financial development and economic growth for all measurements of financial development and it is also observed that the findings are country specific.     

Financial development,trade openness and economic growth in African countries: New insights from a panel causality approach

This paper examines the causal relationship between financial development and economic growth for 21 African countries within a framework which also accounts for international trade. We develop a financial development index based on four different financial development indicators and apply the panel bootstrapped approach to Granger causality. The empirical results show limited support for the finance-led growth and the trade-led growth hypotheses. The results imply that recent attempts at financial development and trade liberalization do not seem to have made a significant impact on growth.