The objective of this study is to propose an economic model of the nominal money balances and reserves in the Turkish economy during the period 1960‐1988. As most of the variables…
Abstract
The objective of this study is to propose an economic model of the nominal money balances and reserves in the Turkish economy during the period 1960‐1988. As most of the variables show unit root non‐stationarity, an approach based on the error correction system (Phillips, 1991) is adopted. The estimated parameters of the long‐run money balance relationship based on this error correction system are very close to the Johansen‐Juselius (1990) vector autoregressive modelling approach. An error correction system and the vector autoregressive modelling approaches are alternative representations of the cointegrated systems. This study empirically demonstrates the closeness of the two systems using the data from the Turkish monetary sector. The econometric estimates of the elasticities are plausible. In small samples, both approaches may not yield almost identical estimates since the theory underlying these approaches is asymptotic.
Details
Keywords
Sadia Shafiq, Saiqa Saddiqa Qureshi and Muhammad Akbar
This paper aims to examine whether the volatility of returns in commodity (gold, oil), bond and forex markets is related over time to the volatility of returns in equity markets…
Abstract
Purpose
This paper aims to examine whether the volatility of returns in commodity (gold, oil), bond and forex markets is related over time to the volatility of returns in equity markets of Bangladesh, Indonesia, Pakistan, Philippines, Turkey and Vietnam. In addition, the authors analyze the integration of the commodity, bond, forex and equity markets across these markets.
Design/methodology/approach
The dynamic conditional correlation GARCH (DCC-GARCH) model is used to capture the time-varying conditional correlation among markets. The authors use daily data of stock prices, oil prices, gold prices, exchange rates and 10 years' bond yields of the six countries from Datastream and investing.com from January 2001 to April 2021.
Findings
Findings reveal that the parameters of dynamic correlation are statistically significant which indicates the importance of time-varying co-movements. Estimation of the DCC-GARCH model suggests that the stock market is significantly correlated with bond, forex, gold and oil markets in all six countries.
Practical implications
This study has practical implications for policymakers and investment professionals. A better understanding of dynamic linkages among the markets would help in constructing effective hedging and portfolio diversification strategies. Policy makers can get insight to build proper strategies in order to insulate the economy from factors that cause volatility.
Originality/value
Several studies have investigated the linkage between commodity and stock markets and the volatility spillover effect, but very little attention is given to study the interrelationship between groups of market segments of different economies. No study has comparatively examined the dynamic relationship of multiple markets of a group of emerging countries simultaneously.
Details
Keywords
This chapter explains dollarization process in Turkey by an extended portfolio model where dollarization is determined by the relative rates of return of domestic and foreign…
Abstract
This chapter explains dollarization process in Turkey by an extended portfolio model where dollarization is determined by the relative rates of return of domestic and foreign currencies denominated assets, expected change in the exchange rate, exchange rate risk, and credibility of current economic policies. The econometrics results are in line with the intuitive predictions of the model. We have found that interest rate differential and the expected exchange rates are the dominant variables in determining dollarization. This chapter also provides evidence of inertia in the process of dollarization in Turkey.
This paper investigates the empirical relationship between money, real income, interest rates, inflation and expected exchange rate, and examines the constancy of this…
Abstract
This paper investigates the empirical relationship between money, real income, interest rates, inflation and expected exchange rate, and examines the constancy of this relationship, especially in the light of financial reform, deregulation of financial markets and financial crises in Turkey. The estimation results show that expected exchange rate is statistically significant in the money demand function, indicating existence of currency substitution in Turkey. The dynamics of money demand is important, the inflation and income effects are much smaller in the short‐run than long‐run. The results also reveal that the demand for money in Turkey is stable, despite the economic reforms and financial crises.
Details
Keywords
The purpose of this paper is to empirically investigate the money demand function for five Southeast Asian countries, viz. Malaysia, Thailand, Singapore, the Philippines, and…
Abstract
Purpose
The purpose of this paper is to empirically investigate the money demand function for five Southeast Asian countries, viz. Malaysia, Thailand, Singapore, the Philippines, and Indonesia.
Design/methodology/approach
The ARDL modeling approach is employed because of its ability to incorporate both I(0) and I(1) regressors.
Findings
The results reveal that real M2 aggregate, real expenditure components, exchange rate, and inflation rate are cointegrated for Malaysia, the Philippines, and Singapore. The statistical significance of real income components suggests the bias of using single real income variable in money demand (M2 aggregate) specification of both short‐ and long‐run. The CUSUM and CUSUMSQ tests show that the estimated parameters are stable for the five Southeast Asian economies, except for Indonesia which is based on short‐run specification.
Practical implications
These findings are important for policy makers in formulating monetary policy.
Originality/value
Besides conventional determinants of money demand such as exchange rate and interest rate variables, this study considers the major components of final expenditure (GDP) – final consumption expenditures (private and government sectors), expenditures on investment goods, and exports as scale variables.
Details
Keywords
Fahim Afzal, Tonmoy Toufic Choudhury and Muhammad Kamran
Because of the growing financial market integration, China’s stock market’s volatility spillover effect has gradually increased. Traditional strategies do not capture stock…
Abstract
Purpose
Because of the growing financial market integration, China’s stock market’s volatility spillover effect has gradually increased. Traditional strategies do not capture stock volatility in dependence and dynamic conditions. Therefore, this study aims to find an effective stochastic model to predict the volatility spillover effect in the dynamic stock markets.
Design/methodology/approach
To assess the time-varying dynamics and volatility spillover, this study has used an integrated approach of dynamic conditional correlation model, copula and extreme-value theory. A daily log-returns of three leading indices of Pakistan Stock Exchange (PSX) and Shanghai Stock Exchange (SSE) from the period of 2009 to 2019 is used in the modeling of value-at-risk (VaR) for volatility estimation. The Student’s t copula has been selected based on maximum likelihood estimation and Akaike’s information criteria values of all the copulas using the goodness-of-fit test.
Findings
The model results show stronger dependency between all major portfolios of PSX and SSE, with the parametric value of 0.98. Subsequently, the results of dependence structure positively estimate the spillover effect of SSE over PSX. Furthermore, the back-testing results show that the VaR model performs well at 99% and 95% levels of confidence and gives more accurate estimates upon the maximum level of confidence.
Practical implications
This study is helpful for the investment managers to manage the risk associated to portfolios under dependence conditions. Moreover, this study is also helpful for the researchers in the field of financial risk management who are trying to improve the returns by addressing the issues of volatility estimations.
Originality/value
This study contributes to the body of knowledge by providing a practical model to manage the volatility spillover effect in dependence conditions between as well as across the financial markets.
Details
Keywords
Abdulla Hil Mamun, Harun Bal and Shahanara Basher
The study mainly aims to examine the currency misalignment of Turkish lira and evaluate if it has an impact on economic growth of Turkey.
Abstract
Purpose
The study mainly aims to examine the currency misalignment of Turkish lira and evaluate if it has an impact on economic growth of Turkey.
Design/methodology/approach
It relies on Johansen cointegration technique for measuring currency misalignment relying on single-equation approach and the autoregressive distributed lag (ARDL) approach to evaluate how misalignment affects economic growth. The sample period covers from 1980 to 2016.
Findings
The study identifies that terms of trade, relative productivity differences, net foreign asset, investment and trade openness determine the equilibrium REER of Turkey, and the degree of currency misalignment is observed at a substantial level. The outcome of the ARDL approach suggests that higher currency misalignment reduces economic growth. Turning to the separate impacts of undervaluation and overvaluation, while the former falters economic growth, the later promotes it, a finding contrary to the conventional expectation. Therefore, the use of exchange rate as a policy variable is a critical concern to avoid misalignment for sustained economic growth.
Practical implications
The anti-growth effect of undervaluation and misalignment is an indication of redistribution of income which could be verified by examining the aggregate consumption behavior of the economy in response to RER movements.
Originality/value
The impacts of currency undervaluation and overvaluation on economic growth of Turkey have been studied in a number of time-series studies. But there is no documented study on the role of currency misalignment on Turkish economic growth. This study is the first that examines how the economic growth of Turkey is influenced by currency misalignment together with the impact of undervaluation and overvaluation.
Details
Keywords
K. Azim Özdemir and Mesut Saygılı
The purpose of this paper is to investigate whether the inclusion of uncertainty variables in the demand for money function can produce a stable relationship in Turkey.
Abstract
Purpose
The purpose of this paper is to investigate whether the inclusion of uncertainty variables in the demand for money function can produce a stable relationship in Turkey.
Design/methodology/approach
The stability of a money demand function is studied by testing parameter constancy of long‐run money demand function. To this end, the authors perform Nymblom type tests in the context of the Coingtegrated VAR methodology.
Findings
The findings show that inclusion of appropriate measure of uncertainty is necessary to estimate a stable and consistent money demand function for Turkey.
Originality/value
The empirical application of Nymblom type stability tests on cointegrated VAR money demand systems is very recent and to the authors' knowledge there has been no application of this methodology on emerging market economies. Therefore, this paper extends the literature to the emerging market economies.
Details
Keywords
This paper aims to estimate a set of welfare weights for Turkey, based on per capita regional incomes, and to present them for possible policy consideration by the government.
Abstract
Purpose
This paper aims to estimate a set of welfare weights for Turkey, based on per capita regional incomes, and to present them for possible policy consideration by the government.
Design/methodology/approach
An important component of the regional welfare weight measure is the elasticity of marginal utility of income (e), and it is estimated using a tax‐based method incorporating the principle of equal absolute sacrifice of satisfaction.
Findings
The estimated measure of e for Turkey is 1.25, and this value, in combination with per capita income levels, produces measured regional welfare weights for the poorest provinces that are over ten times as high as those for the richest provinces.
Research limitations/implications
A lack of suitable data makes it difficult to use alternative approaches to the tax‐based method for the purpose of cross checking results for e. Results based on these other approaches involving behavioural evidence are presented for some other countries for comparison purposes.
Originality/value
This paper presents estimates of regional welfare weights for Turkey based on sound economic principles. It will be of interest to academics who are concerned with issues relating to cost‐benefit analysis as well as practitioners who are involved in the allocation of public funds to different regions in Turkey.
Imran Yousaf, Hasan Hanif, Shoaib Ali and Syed Moudud-Ul-Huq
The authors aim to examine the mean and volatility linkages between the gold market and the Latin American equity markets in the entire sample period and two crises periods…
Abstract
Purpose
The authors aim to examine the mean and volatility linkages between the gold market and the Latin American equity markets in the entire sample period and two crises periods, namely the US financial crisis and the Chinese crash.
Design/methodology/approach
To examine the return and volatility spillovers, the authors employ VAR-BEKK-GARCH model on the daily data of four emerging Latin American equity markets which include Peru, Chile, Brazil and Mexico, which ranges from January 2000 to June 2018.
Findings
The results show that the return transmissions vary across the stock markets and the crises periods. The volatility transmission is found to be bidirectional between the gold and stock markets of Brazil and Chile during the US financial crisis. Furthermore, the volatility spillover is unidirectional from Brazil to gold and from gold to Peru stock market during the Chinese crash. We also calculate the optimal weights hedge ratios for gold and stock portfolio. The result suggests that portfolio managers need to increase the weight of gold for the equity portfolios of Peru and Mexico during the US financial crisis. Furthermore, during the Chinese crisis, investors may raise the investment in gold for the equity portfolios of Brazil and Chile. Finally, the cheapest hedging strategy is CHIL/GOLD during the US financial crisis, whereas MEXI/GOLD during the Chinese crash.
Practical implications
These findings have useful insights for portfolio diversification, asset pricing and risk management.
Originality/value
The study's outcome provides policymakers and investors with in-depth insights regarding hedging, risk management and portfolio management.