Long-Run Relatinship Between Interest Rates and Inflation: An Error Correction Model

2005 ◽  
Author(s):  
Thenmozhi M. ◽  
S. Radha
Keyword(s):  
Interest Rates ◽  
Error Correction ◽  
Error Correction Model ◽  
Correction Model ◽  
Long Run

scholarly journals ANALISIS FAKTOR-FAKTOR YANG MEMPENGARUHI UTANG LUAR NEGERI DI INDONESIA

Jurnal Ecogen ◽  
2019 ◽  
Vol 1 (3) ◽  
pp. 482
Author(s):  
Defrizal Saputra ◽  
Hasdi Aimon ◽  
Melti Roza Adry
Keyword(s):  
Economic Growth ◽  
Interest Rates ◽  
Error Correction ◽  
Foreign Debt ◽  
Secondary Data ◽  
Error Correction Model ◽  
Short Term ◽  
Correction Model ◽  
Descriptive Research ◽  
Long Run

This study aims to determine and analyze the factors that influence foreign debt in Indonesia with variables that effect economic growth, inflation, and foreign interest rates. This type of research is associative descriptive research, where the data used is secondary data from 1970 to 2017 obtained from institutions and related institutions, which are analyzed using the Error Correction Model (ECM) method. This study initially used the Ordinary Lest Square (OLS) method to see long-term, and used ECM because it wanted to see short-term at the same time. The findings of this study indicate that economic growth and inflation have a significant effect in the long run, but the interest rates have no significant effect, and in the short term all have a significant effect on foreign debt in Indonesia. Keywords: foreign debt, economic growth, inflation, interest rates and error correction model (ECM)

scholarly journals Money Demand in Korea: A Cointegration Analysis, 1973-2014

2016 ◽  
Vol 6 (1) ◽  
pp. 96 ◽  
Author(s):  
Hyungsun Chloe Cho ◽  
Miguel D. Ramirez
Keyword(s):  
Interest Rates ◽  
Error Correction ◽  
Money Demand ◽  
Error Correction Model ◽  
Cointegration Analysis ◽  
Impulse Response Functions ◽  
Stable Model ◽  
Correction Model ◽  
Long Run

<p class="ber">This paper estimates the demand for real money in Korea over the 1973Q3 to 2014Q4 period via unit root and cointegration methods. Utilizing the Johansen cointegration methodology and the Pantula principle, it establishes that a long-term relationship exists among the included variables. The paper also estimates an error correction model (ECM) as well as a vector error correction model (VECM), extending previous analyses by performing forecasts and testing for Granger causality among the variables. It finds that the broader definition of money, M2, serves as a relatively better measure of the money aggregate than M1 when evaluating the stability of the real demand for money. The long-term interest (LR) rate also seems to provide better results than the short-term rate (SR), which is consistent with economic theory given that it refers to a long-run equilibrium relationship. Both the ECM and VECM estimates showed the expected (and significant) signs on the coefficients; LM2 (LM1) and LGDP were positively related and LM2 (LM1) and LR (SR) were negatively related. Granger block causality tests and impulse response functions together seem to suggest that the traditional money demand function which places M as its ‘dependent’ variable, while including income and interest rates as its regressors, was a robust and stable model in the case of Korea.</p>

The Methodology of Cointegration

1992 ◽  
Vol 4 ◽  
pp. 237-247 ◽  
Author(s):  
Nathaniel Beck
Keyword(s):  
Error Correction ◽  
Political Attitudes ◽  
Error Correction Model ◽  
Correction Model ◽  
Long Run ◽  
Economic Circumstance ◽  
Economics Department ◽  
Technical Area

It is hardly surprising that I applaud the fine work of both Durr and Ostrom and Smith. I am on record in favor of the utility of the error correction model (e.g., Beck 1985) and it is impossible to obtain a visa to visit the economics department at UCSD without swearing an oath of loyalty to the methodology of cointegration. The two works here are notable for their methodological sophistication, their exposition of a relatively unknown and highly technical area, and, most important, their substantive contributions. Both articles show that political attitudes (approval and policy mood) adjust, in the long run, to changes in objective and subjective economic circumstance. Both articles are good examples of the synergy of methods and theory, since it is the methodology of cointegration that leads to this type of theorizing, and this type of theorizing can most easily be tested in the context of cointegration or error correction.

scholarly journals An application of the error correction model in analyzing the long run equilibrium between Ghana’s exports and imports

2015 ◽  
Vol 9 (3) ◽  
pp. 57-62
Author(s):  
Henry de-Graft Acquah ◽  
Joyce De-Graft Acquah
Keyword(s):  
Error Correction ◽  
Trade Deficit ◽  
Error Correction Model ◽  
Correction Coefficient ◽  
Equilibrium Relation ◽  
Macroeconomic Policies ◽  
Correction Model ◽  
Long Run ◽  
Step Procedure ◽  
Long Run Equilibrium

This study investigates the long-run relationship between Ghana’s exports and imports for the period of 1948 to 2012. Using the Engle Granger two-step procedure we find that Ghana’s exports and imports are cointegrated. However, the slope coefficients from the cointegration equations were not statistically equal to 1. Furthermore, application of the error correction model reveals that 1% increase in the imports will significantly result in 0.56% increase in exports, suggesting that the exports’ responsiveness to imports is low. The estimated error correction coefficient suggests that 32% of the deviation from the long run equilibrium relation is eliminated, leaving 68% to persist into the next period. These results suggest persistence in the trade deficit and an option of curbing the deficit is to re-order the relationship between imports and exports with a view to reducing imports demand. These results imply that though Ghana’s past macroeconomic policies have been effective in bringing its imports and exports into a long run equilibrium, it is yet to satisfy the sufficient condition for sustainability of foreign deficit.

scholarly journals The dynamic effect of exchange-rate volatility on Turkish exports: Parsimonious error-correction model approach

2015 ◽  
Vol 62 (4) ◽  
pp. 429-451 ◽  
Author(s):  
Erdal Demirhan ◽  
Banu Demirhan
Keyword(s):  
Exchange Rate ◽  
Error Correction ◽  
Exchange Rate Volatility ◽  
Dynamic Effect ◽  
Error Correction Model ◽  
Impulse Response Functions ◽  
Correction Model ◽  
Long Run ◽  
Export Volume ◽  
Short Run

This paper aims to investigate the effect of exchange-rate stability on real export volume in Turkey, using monthly data for the period February 2001 to January 2010. The Johansen multivariate cointegration method and the parsimonious error-correction model are applied to determine long-run and short-run relationships between real export volume and its determinants. In this study, the conditional variance of the GARCH (1, 1) model is taken as a proxy for exchange-rate stability, and generalized impulse-response functions and variance-decomposition analyses are applied to analyze the dynamic effects of variables on real export volume. The empirical findings suggest that exchangerate stability has a significant positive effect on real export volume, both in the short and the long run.

scholarly journals Price Transmission and Factors Influencing the Price of Onions in Tanzania

2020 ◽  
pp. 67-76
Author(s):  
Yohana James Mgale
Keyword(s):  
Error Correction ◽  
Error Correction Model ◽  
Price Transmission ◽  
Adjustment Cost ◽  
Producer Price ◽  
Correction Model ◽  
Factors Affecting ◽  
Long Run ◽  
Short Run ◽  
The Impact

This article analyzes the transmission of prices between marketing agents and the factors affecting onion prices at the consumer level. The Error Correction Model-Engle Granger (ECM-EG) was used to test the price transmission by including the impact of the rise and fall of producer, wholesale and retail prices in past periods. The Error Correction Model (ECM) was applied to the factors affecting onion prices. The test results showed that price transmission was asymmetrical in the short and long-run. With regard to factors, the results show that consumer price in the short-run was influenced by wholesale prices, producer prices and the price of fuel while in the long-run it was influenced by wholesale prices, producer price, price of fuel and consumer prices in the previous period (t-1). These results suggest the existence of a short-term adjustment cost and a long-term market power which distorts price transmission.

Exports, financial development and economic growth in Pakistan

2014 ◽  
Vol 13 (2) ◽  
pp. 155-170 ◽  
Author(s):  
Muhammad Shahbaz ◽  
Mohammad Mafizur Rahman
Keyword(s):  
Economic Growth ◽  
Error Correction ◽  
Financial Development ◽  
Error Correction Model ◽  
Causality Analysis ◽  
Bounds Testing ◽  
Causality Test ◽  
Correction Model ◽  
Content Type ◽  
Long Run

Purpose – This paper aims to explore the relationship between exports, financial development and economic growth in case of Pakistan. Design/methodology/approach – The autoregressive distributed lag bounds testing approach to cointegration and error correction model are applied to test the long-run and short-run relationships, respectively. The direction of causality between the variables is investigated by the vector error correction model Granger causality test and robustness of causality analysis is tested by applying innovative accounting approach. Findings – The analysis confirms cointegration for the long-run relation between exports, economic growth and financial development in case of Pakistan. The results indicate that economic growth and financial development spur exports growth in Pakistan. The causality analysis reveals feedback hypothesis that exists between financial development and economic growth, financial development and exports, and, exports and economic growth. Originality/value – This study provides new insights for policy makers to sustain exports growth by stimulating economic growth and developing financial sector in Pakistan.

scholarly journals Money Demand in Rwanda: A Cointegration Analysis 2008Q3-2015Q4

2016 ◽  
Vol 2 (2) ◽  
pp. 46 ◽  
Author(s):  
Fabrice Nkurunziza
Keyword(s):  
Interest Rates ◽  
Error Correction ◽  
Money Demand ◽  
Error Correction Model ◽  
Cointegration Analysis ◽  
Impulse Response Functions ◽  
Correction Model ◽  
Narrow Definition ◽  
Definition Of

This paper estimates the demand for money in Rwanda over the 2008Q3 to 2015Q4 period via unit root and cointegration methods. Utilizing the Johansen cointegration methodology, it establishes that a long-term relationship exists among the included variables. The paper also estimates an error correction model (ECM) as well as a vector error correction model (VECM), extending previous analyses by testing for Granger causality among the variables. It finds that the narrow definition of money, M1, serves as a relatively better measure of the money aggregate than M2, and M3. The long-term interest rate (LKRR) also seems to provide relatively better results than the short-term rate (LRR, and LTR) when we use broad money definition, M2. Both the ECM and VECM for M1, narrow definition of money estimates showed the expected signs, in the ECM model as expected LM1 and LGDP were positively related while LM1 and LKRR, LRR, and LTR were negatively related. The adjustment coefficient in the ECM showed that about 79.75 % of disequilibrium is corrected in each quarter. Impulse response functions suggest that the traditional money demand function, which places LM1 as its ‘dependent’ variable while including income and interest rates as its regressors, was stable with little responses in the specific case of Rwanda over the period under review.

scholarly journals Integration Rice Price And Farmers Welfare With Error Correction Model Analysis

2019 ◽  
Vol 7 (9) ◽  
pp. 221-228
Author(s):  
Yogi Makbul
Keyword(s):  
Error Correction ◽  
Error Correction Model ◽  
Policy Intervention ◽  
Correction Model ◽  
Long Run ◽  
Short Run ◽  
Short And Long Term ◽  
Rice Prices ◽  
Support Policy

This research analyzes the short- and long-term influence of rice prices on the welfare of Indonesian farmers using an error correction model. Drawing upon data from Indonesia's Central Bureau of Statistics, it reveals that rice prices exert significant positive short-run effects and no significant long-run influence on farmers' welfare. These findings extend or refine results from earlier studies that lack the time series perspective of our research. They also support policy intervention by the Indonesian government to increase farmers' welfare and assure food supply.  

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