THE TEMPORAL CAUSALITY BETWEEN FISCAL DEFICITS AND INTEREST RATES

Conventional wisdom suggests that higher government fiscal deficits cause higher (long-term) interest rates. Much empirical work—generally standard ordinary least squares (OLS) regression analysis—has examined this issue and has produced mixed findings. Even if these standard OLS studies conclude that deficits and interest rates are related, they do not answer the question of which came first—the higher deficit or the higher interest rate? A few studies have used Granger causality to consider the question of temporal causality, generally with short-term interest rates. Tliis paper employs the relatively new cointegration and error-correction methodology to reexamine the temporal causality between fiscal deficits and interest rates—both long term and short term. This study finds evidence that federal deficits cause the long-term interest rate.     

Business climate as a leading indicator? An empirical investigation for west Germany from 1978 to 1990

For twenty-five years now, the leading indicator “Business Climate” of the Ifo Institute has been applied in the Federal Republic of Germany. The intent of this note is to provide answers to two questions by means of econometric methods. The first question is: Is the business climate really a leading indicator? The second question is: How much time is the indicator ahead? For verification and in order to respond to both questions, the Granger causality test is used in the version of Hsiao.     

Growth Effects of Fiscal Policy and Debt Sustainability in the EU

In this paper we study the relationship of fiscal policy and economicperformance of some core countries in the EU. Our aim is to find outwhether public deficit and public debt have consequences for real variables in the economies we consider. The background of our empirical study is a growth model that provides us with some predictions on the relationship between fiscal policy and economic growth. In a first step we then use Granger causality tests to analyze empirically whether some of the implications of our model arecompatible with the data. In a second step, we investigate whether the fiscalpolicies of the member states have been sustainable. Given this information,we then pursue the question of whether differences in the fiscal positions ofcountries have consequences as concerns the outcome of our empirical testsof step one. Finally, we study whether the impact of the public deficit ratiodepends on the magnitude of the debt ratio.     

Immigration and Unemployment: New evidence from Australia and New Zealand

This study uses a new Granger no-causality testing procedure developed by Toda &Yamamoto (1995) to contribute to the debate on immigration and unemployment in Australia and New Zealand. It investigates a possible causal linkage between these variables in a six-variable vector autoregression (VAR) model. The research finds no Granger causality between immigration and unemployment. Instead, it finds evidence of Granger causality running from industrial structural changes, measured by the Stoikov and HDB indices, to unemployment, and from several other economic variables to unemployment.     

Determinants of business cycles in small scale macroeconomic models: the German case

We identify measures of shocks to total factor productivity and preferences from two real business cycle models and subject them to Granger causality tests to see whether they can be considered exogenous to other plausible sources of the German business cycle. For West German data from 1960.i to 1989.iv we conclude that our measures of shocks are indeed exogenous. This contrasts with similar studies for other countries that question the exogeneity of either productivity or preference shocks. For the period 70.i to 01.iv we find that M3 Granger causes all of our shock measures. We attribute this to the breaks in our time series associated with the German reunification in 1990 and the European Monetary Union in 1999.Earlier versions of this paper circulate as University of Augsburg economics discussion paper no. 213 and Kiel Institute for World Economics working paper no. 1158, respectively.     

The savings-growth nexus for the Malaysian economy: a view through rolling sub-samples

The purpose of this study is to re-investigate the savings-growth nexus for the Malaysian economy using bounds testing approach to cointegration and Toda and Yamamoto (1995) and Dolado and Lütkepohl (1996) – TYDL Granger causality test. This study covered the sample period from 1971:Q1 to 2008:Q4. The cointegration results suggest that the variables are moving together in the long run and the TYDL Granger causality results indicate that the relationship between savings and economic growth is bilateral. In addition, the rolling sub-samples TYDL Granger causality test exhibited a relatively stable causal relationship running from savings to economic growth in Malaysia particularly before the onset of Asian Financial Crisis in 1997/1998.     

On the Causality Between Exchange Rates and Stock Prices: A Note

This study uses a new Granger non–causality testing procedure developed by Toda and Yamamoto (1995) to contribute to the debate on exchange rates and stock prices in Sweden. It examines a possible causal relation between these variables in a vector autoregression (VAR) model. The results show that Granger causality is unidirectional running from stock prices to effective exchange rates. The results also reveal that an increase in Swedish stock prices is associated with an appreciation of the Swedish krona. Special attention is given to the estimation methodology and the lag choosing process.     

Role of government in trade and investment boom: lessons from East Asia

This paper extends the empirical analysis on Rodrik’s (1995a) domestic investment‐led export growth model for East Asia to nine East Asian countries for a longer time period, 1960 through 2004, and tests whether openness Granger‐caused investment or vice versa. Our results suggest that there can be no single conclusion about the role of investment in East Asia. Causality has also changed for some countries in different time periods. We question the exogeneity of the investment boom in East Asia, a key assumption made by Rodrik. Government’s incentives encouraged investment in export industries through different channels.     

Market efficiency and international diversification: Evidence from India

This study evaluates one of the most important emerging markets, India (Bombay Stock Exchange and Indian National Exchange), for its efficiency and for its potential to offer diversification benefits to international investors. Market-wide tests include; 1) contemporaneous relationship, 2) Granger type causality and 3) day-of-the-week effect. Tests on individual Indian stocks include: 1) panel estimation of Granger causality, 2) stock-by-stock estimation of Granger causality and 3) runs test. In sum, Indian markets are well integrated with the international equity markets, a characteristic that lowers the international diversification benefits. While day-of-the-week effect is an international spillover, it may be possible to predict individual Indian stocks' returns through causality with international equity markets and through momentum trading techniques.     

Exchange rates and fundamentals: A bootstrap panel data analysis

This study attempts to re-examine the Granger non-causality from exchange rates to observed fundamentals based on the present value model of Engel and West (2005). To this end, we employ the bootstrap panel Granger non-causality analysis, which allows us to untangle the causal nexus between exchange rates and fundamentals in panel data. Among the main results, it is found that the null hypothesis of no cross-sectional dependence across the members of the panel is strongly rejected, indicating that the bootstrap critical value is required in conducting the panel Granger non-causality test. The null hypothesis of Granger non-causality running from the fundamentals to exchange rates is significantly rejected, implying that the monetary approach of exchange rate determination is a useful benchmark to understand the evolution of the exchange rate. Empirical evidences also show that exchange rates Granger-case the fundamentals, supporting the view that exchange rates are determined as the present value that depends in part on observed fundamentals.     

Temporal causality and the dynamics of democracy,emigration and real income in Fiji

This study is the first to explore temporal causality between democracy, emigration and real income in Fiji within a multivariate cointegration model. We find three long run relationships between democracy, emigration and real income. In the long run there is evidence that migration and democracy Granger cause real GDP in Fiji; real GDP and democracy Granger cause migration from Fiji and that real GDP and migration Granger cause democracy in Fiji. In the short run we find unidirectional Granger causality running from migration to real GDP and from democracy to real GDP, but neutrality between democracy and migration in the short run. We also extend the analysis to examine the degree of exogeneity of the variables beyond the sample period through considering the decomposition of variance and impulse response functions.     

Causality between foreign investment and spillover efficiency

While there is considerable evidence on the observed linkage between foreign investment and technical efficiency of the developing countries, the question of causality between them has not been investigated. This paper re-examines the relationship between foreign direct investment and technical efficiency in Mexico, Brazil, Chile, Singapore and Zambia using Granger Causality tests. The results suggest that foreign direct investment and labour productivity are causally independent variables. However, capital formation of the host country is found to exert ‘Causal’ influence on foreign investment.     

Causality Between Exports,Imports and Income In Trinidad and Tobago

This study examines the relationship between exports, imports and income in the economy of Trinidad and Tobago, using the methodology of Granger causality and error correction modeling. Our results show that there is unidirectional Granger causation from exports to income (GDP), and bidirectional causation between exports and imports and imports and income. The Economy of Trinidad and Tobago is a petroleum exporting economy where oil-export booms raise income levels, but this is usually followed by a slump. The bivariate models should be interpreted with caution because of the possibility of omitted variable bias. [F14, C22]     

我国碳排放权交易市场与股票市场的关联:基于非线性Granger因果检验与非平衡面板模型的实证分析

碳排放权交易市场作为金融市场的一部分,与股票市场有着一定的联动性.我国在2017年底开启全国性碳排放交易市场,其关联必将引起越来越多的关注.本文一方面通过线性Granger因果检验与非线性Granger因果检验综合检验各碳交易试点地区的碳收益率与股票市场整体的相关性,研究结果发现只有广东、天津的碳收益与深证综指和湖北与上证综指之间存在单向的Granger因果关系,而北京、上海、广东与上证综指、深证综指存在双向或单向的非线性Granger因果关系;另一方面,通过对各碳排放权交易试点地区的价格、收益率与试点区域股票市场的相关性进行非平衡面板数据的实证分析,发现碳排放权交易试点地区与其区域股市在长期、短期上都存在显著的关联性.     

Coal consumption: An alternate energy resource to fuel economic growth in Pakistan

This study is an attempt to revisit the causal relationship between coal consumption and economic growth in case of Pakistan. The present study covers the period of 1974–2010. The direction of causality between the variables is investigated by applying the VECM Granger causality approach. Our findings have exposed that there exists bidirectional Granger causality between economic growth and coal consumption. The Cumulative Sum (CUSUM) and Cumulative Sum of Square (CUSUMSQ) diagrams have not found any structural instability over the period of 1974–2010.     

A revalidation of the savings–growth nexus in Pakistan

The aim of this study is to understand the relationship between savings and economic growth in Pakistan over the period 1971–2011. The cointegration and the Granger causality tests are adopted to examine the relationship between the variables. The results confirm the existence of long-run equilibrium among the variables of interest. Meanwhile, savings have positively affected economic growth in both the short run and long run. The Granger results also show that savings Granger-cause economic growth. Based upon these findings, we confirm that savings is a catalyst of growth for the Pakistani economy. Additionally, our results seem more likely to support the capital fundamentalists because the long run estimation as well as the Granger causality results also indicates that savings growth can effectively spur economic growth in Pakistan.     

The nonlinear dynamic relationship of exchange rates: Parametric and nonparametric causality testing

The present study investigates the linear and nonlinear causal linkages among six currencies denoted relative to United States dollar (USD), namely Euro (EUR), Great Britain Pound (GBP), Japanese Yen (JPY), Swiss Frank (CHF), Australian Dollar (AUD) and Canadian Dollar (CAD). The data spans two periods between 3/20/1991 and 3/20/2007. We apply a new nonparametric test for Granger non-causality by Diks and Panchenko [Diks, C., Panchenko, V., 2005. A note on the Hiemstra–Jones test for Granger noncausality. Studies in Nonlinear Dynamics and Econometrics 9 (art. 4); Diks, C., Panchenko, V., 2006. A new statistic and practical guidelines for nonparametric Granger causality testing. Journal of Economic Dynamics & Control 30, 1647–1669] and the linear Granger test on the return time series. To detect strictly nonlinear causality, we examine the pairwise VAR-filtered residuals as well as in a six-variate formulation. We find remaining significant bi- and uni-directional causal nonlinear relationships in the series. Finally, we investigate causality after controlling for conditional heteroskedasticity using a GARCH–BEKK model. Whilst the nonparametric test statistics are smaller in some cases, significant nonlinear causal linkages persisted even after GARCH filtering during both periods. This indicates that currency returns may exhibit asymmetries and statistically significant higher-order moments.     

Does financial development reduce CO2 emissions in Malaysian economy? A time series analysis

This study deals with the question whether financial development reduces CO₂ emissions or not in case of Malaysia. For this purpose, we apply the bounds testing approach to cointegration between the variables. We establish the presence of significant long-run relationships between CO₂ emissions, financial development, energy consumption and economic growth. The empirical evidence also indicates that financial development reduces CO₂ emissions. Energy consumption and economic growth add in CO₂ emissions. The Granger causality analysis reveals the feedback hypothesis between financial development and CO₂ emissions, energy consumption and CO₂ emissions and, between CO₂ emissions and economic growth.     

Are housing prices improving GDP or vice versa? A cross-regional study of China

This study applies the bootstrap panel Granger causality test to examine the relationship between housing prices (HPs) and GDP across provinces in China. Empirical results show that HPs Granger cause GDP in the eastern region and in most provinces of the central region. Rapid industrialization and urbanization in the eastern region and the low-cost advantages of the central region promote housing investment and significantly affect GDP. However, GDP has no influence on HPs in the eastern region due to insufficient land supply, housing speculation and HPs deviating from the economic fundamentals. HPs do not Granger cause GDP in the western region because it is less attractive for housing investment. Also, GDP Granger causes HPs in the central and western regions that the economy can influence HPs. These findings could help the government formulate reasonable regional policies for the development of the housing market and economic growth.     

Female labour force participation,fertility and infant mortality in Australia: some empirical evidence from Granger causality tests

This study applies Granger causality tests within a multivariate error correction framework to examine the relationship between female participation rates, infant mortality rates and fertility rates for Australia using annual data from 1960 to 2000. Decomposition of variance and impulse response functions are also considered. The main findings are twofold. First, in the short run there is unidirectional Granger causality running from the fertility rate to female labour force participation and from the infant mortality rate to female labour force participation while there is neutrality between the fertility rate and infant mortality rate. Second, in the long run both the fertility rate and infant mortality rate Granger cause female labour participation.