Meet the Researchers I
Testing for Martingale Property in the Egyptian Exchange: Do Regulatory Policies and Size Matter?
Amira Akl Ahmed, University of Leicester
The paper is interested in testing for weak-form efficiency in the Egyptian Exchange (EGX) during 1997-2008, which is divided into two sub-periods 1997-July 2002 and August 2002 -December, 2008 to capture the effect of the change of regulatory policies (widening the symmetric daily price limits from 5% to 20% coupled with trading halt for around 45 minutes at most). Weekly data of eight indexes (four local and four international) tracking the performance of different equity groups (e.g. small and large-capitalized firms and newly privatised companies) have been used. This enables testing the claim that large-cap firm tend to follow martingale property while small-cap ones do not. Conventional variance ratio tests (e.g. that of Lo and MacKinlay (1988)) and sophisticated ones introduced very recently (e.g. Joint ranks and sign tests) are applied; thereby it is possible to compare their inferential outcomes.
Results indicate the EGX was inefficient in pricing securities, including those of large firms, in the first sub-period whereas it was found efficient, except for small-cap firms, in the second sub-period. The misleading nature of Lo and MacKinlay (1988) tests in testing for martingale has been highlighted and joint sign test has been found more reliable in the presents of extreme outliers.
Should Egypt shift to Inflation Targeting: Evidence Using Monetary Velocity and Money Multiplier
Doaa Akl Ahmed University of Leicester
The paper aimed at investigating the appropriateness of monetary targeting regime in Egypt by addressing the following question; should the Central Bank of Egypt (CBE) move to inflation targeting framework or continue with the current applied monetary targeting regime. The basic conditions to successfully conduct a monetary policy under monetary targeting are the stability or at least predictability of velocity of circulation and money multiplier. If these requirements are violated, then the CBE is unable to achieve the price stability using the underlying regime and therefore, it is recommended to move towards IT framework. Using quarterly data for the period (1991:1-2009:2) for M1 and M2 velocities and the period (2001:4-2009:2) for the money multiplier of M2, their structure behaviour is investigated using the variance ratio tests of LO and McKinley (1988) and (1989), Chow and Denning (1993), and wild bootstrap of Kim (2006). The results indicate that the three variables are generated by random walk process. Thus, these variables are unpredictable random sequences and the CBE cannot achieve price stability under the currently applied monetary targeting framework. Accordingly, the CBE should take steps toward adopting IT.
Are Oil Revenue Funds effective in oil rich countries?
Dina Azhgaliyeva, University of Essex.
It has recently become very popular among oil rich countries to establish Oil Revenue Funds (Funds). It is believed that such funds can help avoid real appreciation of domestic currency and thus Dutch disease. The existing empirical literature tested the effect of the existence of Oil Revenue Funds and provides controversial results. The current paper tests hypothesis that not just the existence of Funds matters but the rules they follow. In this paper are presented a simple theoretical and an empirical model to show the effect of Oil Revenue Funds on correlation between oil revenue and exchange rates. The theoretical model shows how different rules of Oil Revenue Funds affect correlation between oil share in exports and real exchange rates. Empirical regressions using monthly panel data of 28 countries with and without Oil Revenue Funds over period January 1957 – December 2010 show that just an existence of the fund does not guarantee stabilisation of real exchange rates. Empirical results support the theoretical model and provide a list of rules of Oil Revenue Funds which make them efficient: revenue based accumulation rule and percent of oil revenue which accumulates funds.
The curse of tourism?
Thaana Ghalia, Brunel University
The purpose of this paper is twofold; firstly, to determine whether tourism leads to economic growth. Secondly, to investigate if tourism causes Dutch disease . Our analysis covers a sample of 133 countries, including 32 countries highly dependent on tourism, over the period 1995-2007. Next, we test if Dutch Disease prevails in the countries whose exports are dominated by tourism. The empirical results show that the tourism specialization has no significant effects on economic growth. However, countries that are both highly dependent on trade and on tourism tend show a negative effect on growth. This is consistent with tourism causing Dutch Disease in countries that heavily rely on revenue from tourism and are also highly open to trade.
Impact of Green Energy Policies on Electricity Market: An Econometric Analysis
Julia Gutierrez, University of Leicester
Moving to a low-carbon economy is currently among the forefront objectives of most of the countries around the world. Governments have accordingly acted proactively by creating policy support mechanisms to foster greener energy technologies and thus, reduce the CO2 emissions. Europe has been a main driver of this climate change commitment, setting achievable targets regarding energy consumption from renewable sources and CO2 emissions reduction. This study aims to examine the impact of Green energy policies on wholesale electricity prices.
The research analyses the wide European Union Climate Change Plan as the policy framework for local green energy regulatory interventions specifically in the UK. By using a monthly time series model from 2001 to 2011, the study makes an econometric assessment of the introduction of Renewable Obligation scheme and European Union Emission Trading System in UK wholesale electricity prices.
The findings suggest that the effect of Green Energy policies on wholesale electricity prices is mixed, in the sense that some policy mechanisms have an increasing effect while others have decreasing effects on prices. Therefore, the results imply that the extent to which the policies have been able to modify the electricity sector CO2 emitter’s behaviour is not reflected through the wholesale prices. This fact might become a relevant point in government’s assessment of green policies performance.
Cyclical Behaviour of Government Expenditure, Monetary Policy and capital Flows: A Study of Asian Countries
Nazmus Sadat Khan, Queen Mary, University of London
This paper addresses the topic of cyclicality in fiscal policy and monetary policy for 28 Asian countries and explains the cyclicality of fiscal policy by considering the effect of corruption and democracy. Managing the fiscal policy has been a major challenge for the public sector in Asian economies. It has been seen in the past that maintaining a procyclical fiscal policy was responsible for many economic crisis in emerging economies. This paper tries to find out what kind of macroeconomic policies Asian countries are taking and what are the reasons behind it. This analysis is important for pursuing effective public sector policy in the current economic downturn. Using different measurement techniques, it documents four key stylized facts. First, fiscal policy and capital flows are mostly procyclical in lower income countries and acyclical (or slightly countercyclical) in higher income countries. Second, monetary policy is mostly acyclical (or slightly procyclical) in lower income countries and countercyclical in higher income countries. Third, emerging East Asian countries show more procyclical fiscal policy than South Asian and Middle East countries. Fourth, countries with more corrupt public sector follow more procyclical policy.
Growth, Trade Openness and Remittances: Lessons for Developing Countries
M Tariq Majeed, University of Glasgow.
This study analytically explores and empirically tests the relationship between economic growth and openness to trade with special focus on the role of income distribution and remittances in shaping the linkage, using a panel data set for 65 developing countries over the period 1965-2007. The study contributes in the existing literature on trade and growth by answering the question why growth effects of trade vary across developing countries. This study finds out positive relationship between trade and growth in both short run as well as long run. However, this relationship is substantially influenced by the domestic context in terms of prevalence of high income inequalities. The study identifies high income inequalities in developing countries as the likely reason for a strong negative relationship between openness to trade and economic growth. Finally, the study analyses the importance and role of international remittances in shaping the relationship between growth and trade.
Openness, Economic Growth, and Human Development: Evidence from South Asia
Ghulam Mustafa, Middlesex University
We investigate the relationships between openness, economic growth and human development in a panel of South Asian countries over 1980-2009 period. A structural model is estimated using Three Stages Least Squares (3sls) to account for endogeneity of variables. The paper follows emerging endogenous growth theory in taking a stance that trade policies can affect economic growth as technological change is endogenous and has a long run growth effect. The results suggest that in South Asia (a) openness has a strong positive impact on both economic growth and human development, (b) human capital has a strong positive effect on economic growth and human development, and (c) military expenditures derail growth and human development. On one side our findings confirm the success of trade liberalisation policies in the region but on the other side these results highlight huge military expenditures as an obstacle in the way of growth and human development.
The effects of exchange rate volatility on exports: Some new evidences for ASEAN
Author: Norimah Ramli, University of Southampton
Co-Author: Jan M. Podivinsky, University of Southampton
The paper investigates empirically the impact of bilateral exchange rate volatility on the export flow of five regional ASEAN countries, namely Malaysia, Singapore, the Philippines, Indonesia and Thailand, to the United States, over the period January, 1990 to December, 2010. Estimates of the cointegration relations are obtained using methods proposed by Johansen and Juselius (1990). Furthermore, the short-run and long-run dynamic relationships between the variables are obtained for each country utilizing error correction modelling. In general, the real bilateral exchange rate volatility has a significant impact on exports at least for all the countries considered in our sample, and the impact overall is negative except for Indonesia.
Understanding the world economy using Principal Global Indicators
Gareth McGuinness, IMF Statistics Department
In 2009, following the onset of the global financial crisis, the international economic statistics community agreed on the need to close 20 pressing information gaps. Item number 20 on the list, which cut across all the other issues, was to “improve the communication of official statistics, as in some instances users were not fully aware of the available data series to address critical policy issues.” 1
In order to help close this gap, the Principal Global Indicators dataset was created, to provide internationally comparable data for the Group of 20 economies (G-20) and the five members of the Financial Stability Board that are not part of the G-20 to facilitate the monitoring of economic and financial developments for these jurisdictions. Hosted by the IMF, it is a joint undertaking of the Inter-Agency Group on Economic and Financial Statistics (IAG).
This presentation, given using the PGI Data Explorer iPad app, will show the benefit of using the Principal Global Indicators dataset to help understand the world economy.
Meet the Researcher II
The Yield Curve as a Predictor of Economic Performance in Asia
Dr Sylvia Gottschalk, Middlesex University Business School.
This paper estimates the link between the yield curve and economic activity in nine Asian countries, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore, Taiwan, and Thailand. Our main objective is to forecast the economic growth of these Asian countries with the help of slope of yield curve. We found evidence that the yield spread constitutes a good predictor of future economic growth in all countries, except in China, Japan, Malaysia and Taiwan. The out-of-sample forecasting performance of the yield spread is greater than that of alternative models, a VAR and an inflation-based model.
The Effects of Economic Reforms on Manufacturing Dualism: Evidence from India
Professor Kunal Sen, University of Manchester.
Dualism is a pervasive feature of the manufacturing sectors of less-developed countries, with large differences in productivity between the informal and the formal sectors. Policy distortions are viewed as an important factor behind the prevalence of manufacturing dualism. We examine whether tariff reforms, industrial de-licensing and the withdrawal of reservation of products for small firms implemented since the mid-1980s have had any effects on efficiency differentials between informal and formal firms in Indian manufacturing. We find strong evidence that economic reforms have exacerbated dualism by increasing the productivity differentials between the more efficient formal firms and the less efficient informal firms, and widening within industry efficiency differentials in both formal and informal firms.
Electricity Co-operation and Decarbonisation: The Role of Import and Export in CO2 Reduction
Kwanruetai Boonyasana, University of Leicester.
Since 1990, growth in world net electricity generation has outpaced growth in total world electricity consumption, and this surplus is expected to account for one third of electricity generation by 2035. This suggests that international trade in electricity could prove beneficial by increasing efficiency of electricity markets as well as decreasing levels of carbon dioxide (CO2) emissions from electricity generation. The study examines whether international co-operation regarding electricity import and export can reduce CO2emission levels. Panel data analysis determines parameters of the CO2emission function, followed by comparison of the coefficient of electricity generation and the coefficients of electricity import and export, using 130 countries' yearly data from 1971-2007. The world result shows that electricity co-operation is highly significant in decreasing CO2emissions. At the continent level, North America shows the highest CO2 decrease from electricity trade, with the lowest decrease being for Asia due to the high proportion of flue sources used in electricity generation. Such international trade in electricity can have a positive impact on efficient management of decarbonisation of energy supply and be instrumental for governments in the fight against global warming.
A Comparison of the EU-15 Countries Based on the Stiglitz Report’s Recommendations
Dr Giuseppina Madonia, University of Greenwich.
An examination of the evolution of wider well-being among the EU-15 countries through an analysis of a large set of economic and social variables for 1999, 2005 and 2010. The variables are taken from Eurostat, accessed via ESDS International, and are selected to be as consistent as possible with the recommendations of the recent Report by the Commission on the Measurement of Economic Performance and Social Progress (the so-called Stiglitz Report). Following the spirit of the Report, I look at the multidimensional aspects of well-being, highlighting differences across countries and over time, and contrasting different measures of well-being with GDP per capita.