The inflation-output nexus:empirical evidence from India, Brazil and South Africa

In this paper we study the relationship between output and inflation for India, Brazil, and South Africa using the EGARCH model. For India and South Africa, we find evidence for: (1) the Cukierman and Meltzer hypothesis that inflation volatility raises inflation; (2) the Friedman hypothesis that inflation raises inflation volatility; and (3) the Black hypothesis that output volatility raises output growth, and that output volatility reduces inflation. For Brazil, we do not find any evidence of a systematic relationship between inflation and output growth.Output, inflation, EGARCH model, volatility

Did the US macroeconomic conditions affect Asian stock markets?

The aim of this paper is to examine the impact of US macroeconomic conditions—namely, exchange rate and short-term interest rate—on the stocks of seven Asian countries (China,India, the Philippines, Malaysia, Singapore, Thailand, and South Korea). Using daily data for the period 2000 to 2010, we divide the sample into pre-crisis period (pre-August 2007) and crisis period (post-August 2007) we find that in the short-run interest rate has a statistically insignificant effect on returns for all countries except the Philippines in the crisis period,while except for China, regardless of the crisis, depreciation had a statistically significant negative effect on returns. When the long-run relationship among the variables is considered,for four of the seven countries (India, Malaysia, Philippines, Singapore, and Thailand) while there was cointegration in the pre-crisis period, in the crisis period there was no such relationship, implying that the financial crisis has actually weakened the link between stock prices and economic fundamentals.Interest Rate; Exchange Rate; Financial Crisis; Depreciation

Has the structural break slowed down growth rates of stock markets?

In this paper, we use the common structural break test suggested by Bai et al. (1998) to test for a common structural break in the stock prices of the US, the UK, and Japan. On the basis of the structural break, we divide each country‟s stock price series into sub-samples and investigate whether or not the structural break had slowed down the growth of stock markets. Our main findings are that when stock markets are modeled in a trivariate sense the common structural break turns out to be 1990:02, with the confidence interval including several episodes, such as the asset price bubble when housing prices and stock prices in Japan reached a peak in 1988/1989, the early 1990s recession in the UK, the business cycle peak of July 1990, the August 1990 Iraqi invasion of Kuwait and the March 1991 business cycle trough. Annual average growth rates suggest that the structural break has slowed down the growth rate of the US, UK and Japanese stock markets.Common Structural Break Test, Stock Markets

The importance of real and nominal shocks on the UK housing market

The goal of this paper is to examine the responsiveness of the UK housing market to real and nominal shocks. To achieve this goal, we use a structural VAR model, based on quarterly data for the period 1957:1-2009:4. We find that in response to an interest rate shock, house prices (aggregate house price and modern house price) fall sharply over the first 4 years and do not recover to their pre-shock level. In response to a real GDP shock, both house prices react in a positive inverted U-shaped manner. Finally, we find that an inflation shock has a U-shaped negative impact on aggregate and modern house prices in the UK.real shock, nominal shock, UK housing market, VAR model

DOES DEMOCRACY FACILITATE ECONOMIC GROWTH OR DOES ECONOMIC GROWTH FACILITATE DEMOCRACY? AN EMPIRICAL STUDY OF SUB-SAHARAN AFRICA

This paper examines the relationship between democracy and economic growth in 30 Sub-Saharan African countries. As our proxy for democracy we first use the democracy index constructed by Freedom House and then check the sensitivity of our findings using, as an alternative proxy for democracy, the Legislative Index of Electoral Competitiveness (LIEC). We find support for the Lipset hypothesis - in the long run, real GDP Granger causes democracy and an increase in GDP results in an improvement in democracy – in Botswana and Niger with both datasets, for Chad with the Freedom House data only and for Cote d’Ivoire and Gabon with the LIEC data only. Support for the compatibility hypothesis - in the long run democracy Granger causes real income and an increase in democracy has a positive effect on real income - is found for Botswana with the Freedom House data and for Madagascar, Rwanda, South Africa and Swaziland with the LIEC data. Support for the conflict hypothesis - in the long run democracy Granger causes real income and an increase in democracy has a negative effect on real income - is found for Gabon with the Freedom House data and Sierra Leone with the LIEC data.Causality, Democracy, Economic Growth, Sub-Saharan Africa.

Investigating the Relationship between Health and Economic Growth: Empirical Evidence from a Panel of 5 Asian Countries

In this paper, we investigate the relationship between health and economic growth through including investment, exports, imports, and research and development (R&D), for 5 Asian countries using panel unit root, panel cointegration with structural breaks and panel long-run estimator for the period 1974-2007. We model this relationship within the production function framework, and unravel two important results. First, we find that in three variants of the growth model, variables share a long-run relationship; that is, they are cointegrated. Second, we find that in the long-run, while health, investment, exports, and R&D have contributed positively to economic growth, imports have had a statistically significant negative effect while education has had an insignificant effect. We draw important policy implications from these findings.Health; Economic Growth; Panel Unit Root; Panel Cointegration.

Understanding Fiji's declining foreign reserves position

This article examines the volatility in Fiji's foreign reserves, in particular, whether shocks have an asymmetrical effect on volatility and whether shocks have a persistent impact on volatility. In the pre-coup period (1975-86), shocks had a temporary effect on volatility; in the coup period (1987-2006), shocks had a more lasting impact. In the pre-coup period, negative shocks contributed more to foreign reserves volatility than positive shocks; but in the period including the coups, positive shocks increased the volatility of foreign reserves more than negative shocks. The reasons for, and the policy implications of, this asymmetrical behaviour are explored

ASIAN CURRENT ACCOUNT BALANCES AND SPILLOVERS FROM A FOREIGN COUNTRY, A REGION AND THE UNITED STATES

This paper provides an overall picture on the influence of domestic and foreign shocks on the current account of selected Asian countries over the period 1978 to 2012. The present value model of the current account theory states that forward looking and consumption smoothing behaviour of economic agents can promote sustainable current account balances, as long as these are maintained by transitory unanticipated shocks to the current account. The unexpected transitory domestic and foreign shocks are sourced, respectively, from the domestic and foreign current account. Foreign shocks are developed from an Asian country, a region, and the US. Our empirical analysis of the impact of foreign and domestic current account shocks shows that unexpected domestic shocks, rather than unexpected foreign shocks, matter for the current accounts of Asian countries.This paper provides an overall picture on the influence of domestic and foreign shocks on the current account of selected Asian countries over the period 1978 to 2012. The present value model of the current account theory states that forward looking and consumption smoothing behaviour of economic agents can promote sustainable current account balances, as long as these are maintained by transitory unanticipatedshocks to the current account. The unexpected transitory domestic and foreign shocks are sourced, respectively, from the domestic and foreign current account. Foreign shocks are developed from an Asian country, a region, and the US. Our empirical analysis of the impact of foreign and domestic current account shocks shows that unexpected domestic shocks, rather than unexpected foreign shocks, matter for the current accounts of Asian countries

DOES FINTECH MATTER FOR INDONESIA’S ECONOMIC GROWTH?

This paper investigates the role of financial technology (FinTech) in propelling economic growth in Indonesia from 1998 to 2018. The FinTech industry employs a technology-based business model to provide financial services, including lending, payment, investment, and financing services. The study is motivated by endogenous growth theory, which seeks to explain technology as the most important driver of economic growth. The study finds that FinTech startups are positively correlated with Indonesia’s economic growth. FinTech firms in their first year are found to be disruptive, but they fail to have serious consequences on Indonesia’s economic growth; however, they seem to significantly encourage economic growth in their second year. These findings are derived after accounting for other important growth determinants, namely, capital per labor, foreign direct investment (FDI), stock market development, and trade openness.This paper investigates the role of financial technology (FinTech) in propelling economic growth in Indonesia from 1998 to 2018. The FinTech industry employs a technology-based business model to provide financial services, including lending, payment, investment, and financing services. The study is motivated by endogenous growth theory, which seeks to explain technology as the most important driver of economic growth. The study finds that FinTech startups are positively correlated with Indonesia’s economic growth. FinTech firms in their first year are found to be disruptive, but they fail to have serious consequences on Indonesia’s economic growth; however, they seem to significantly encourage economic growth in their second year. These findings are derived after accounting for other important growth determinants, namely, capital per labor, foreign direct investment (FDI), stock market development, and trade openness

HAS FINTECH INFLUENCED INDONESIA’S EXCHANGE RATE AND INFLATION?

The digital financial services industry or financial technology (FinTech) has emerged in Indonesia in recent years. The FinTech industry, although disruptive, promises among other things to reduce costs of, and improve access to, financial services. This paper investigates the macroeconomic implications of FinTech companies in Indonesia over the period 1998-2017. In particular, we investigate the impact of FinTech on the Indonesian exchange rate (Rupiah vis-a-vis the US dollar) and the inflation rate. Our results suggest that FinTech is able to reduce inflation and lead to a real appreciation of the Rupiah against the US dollar, although its effect on the exchange rate is delayed. We explain our results and discuss future research directions in the paper