This paper is an attempt at re-examining the question of causality between money and prices both in the bivariate and multivariate context of a small developing economy, based on an improved methodology. Pakistan is used as a case study. The study tends to suggest rather strongly that in the case of Pakistan during the period under consideration (1970/71 to 1993/94), contrary to earlier findings, it was price that was the leading variable as the structuralist maintain and not the other way around as the monetarist maintain

Unlike most empirical works on fertility analysis, this study investigates the question as to whether family-planning programs can "cause" a significant fertility decline in a country characterized by very low levels of socioeconomic development. The analysis is based on the application of the following dynamic time-series techniques in a multivariate context: cointegration, vector error-correction modeling, variance decompositions, and impulse response functions. These four dynamic tools are recently developed and hitherto untried in fertility analysis in the context of a poor developing economy such as Bangladesh. Our findings appear to be consistent with the new theoretical view that holds that fertility decline may result from either of two distinct developmental phases, one short-term and the other long-term. According to this view, the second phase (comprising the "sufficient" condition for fertility decline) incorporates the conventional view that in the long term, fertility decline may result from a complex dynamic interaction with organized family planning and significant socioeconomic structural change.

Given the impact of the October 1987 crash pre-empting fears of a deep-seated financial collapse, there is now much scope for assessing its importance quantitatively. In this paper, time series techniques are used to analyse the dynamic linkages and propagation of shocks among five European stock markets. While we do not find any long-run relationship of stock markets over the entire sample ped, evidence is found in support of a unique cointegrating vector over each of the pre- and post-crash samples. Furthermore, the dynamic analysis reveals that the lead-lag relationships changed quite significantly over the sample following the crash.

Our study attempts to discover contagion amongst the Asia-Pacific equity markets (Japan, Hong Kong and Australia) during twelve major crises around the world. We apply both discrete and continuous wavelet decompositions to unveil the multi-horizon nature of co-movement and lead–lag relationship. We find that shocks were transmitted via excessive linkages, with the Asian crisis as the most influential in relation to a sudden stop. We also find that the subprime crisis revealed fundamentals-based contagion, due to the strengthening fundamental linkages, with a dominant role of the Japanese market. Finally, we find low co-movements in the short run, suggesting a partial convergence across the markets

The stock market crash of October 1987 earmarked fears of a deep-seated financial crisis. In recent years, while there has been a number of empirical studies devoted to examinations of the number of common trends in a system of stock price indexes, only a minority has focused on what effect the crash has had on the characteristics [namely, the amount of co-movements amongst markets, their dynamic linkages, and implications for the transmission or propagation mechanism] of major stock markets. In this paper, we demonstrate how the techniques of unit root testing, cointegration, vector error-correction modelling (VECM) and forecast error variance decomposition (VDC) analysis, may be used to shed some light on these concerns in the context of six major international stock markets. Using two non-overlapping samples, we find evidence of a single cointegrating vector (or five common trends) over each of the pre- and post crash samples. A VECM is then constructed in which the temporal causal dynamics are examined, followed by decomposing the total impact of an unanticipated shock to each of the variables beyond the sample period, into proportions attributable to shocks in the other variables including its own. Results tend to broadly indicate: (1) the crash does not appear to have affected the relative leading role played by the US market over other markets; (2) the German and, British markets seem to have become more dependent on other markets over the post-crash era relative to the pre-crash; and (3) provide confirming evidence that, in general, the crash has brought about a greater interaction amongst markets, with a greater role for fluctuations in explaining shocks across markets (including that for the U.S.

This article examines the patterns of dynamic linkages among national stock prices of Australia and four Asian NIC stock markets namely, Taiwan, South Korea, Singapore and Hong Kong. By employing recently developed time-series techniques results seem to consistently suggest the relatively leading role of the Hong Kong market in driving fluctuations in the Australian and other NIC stock markets. In other words, given the generality of the techniques employed, Hong Kong showed up consistently as the initial receptor of exogenous shocks to the (long-term) equilibrium relationship whereas the Australian and the other NIC markets, particularly the Singaporean and Taiwanese markets had to bear most of the brunt of the burden of short-run adjustment to re-establish the long term equilibrium. Furthermore, given the dominance of the Hong Kong market in the region, the study also brings to light the substantial contribution of the Australian market in explaining the fluctuations to the other three markets, particularly Singapore and Taiwan. Finally, in comparison to all other NIC markets, Taiwan and Singapore appear as the most endogenous, with the former providing significant evidence of its short-term vulnerability to shocks from the more established market such as Australia.

Asymmetric theories predict that information will flow from large stock prices to small stock prices. This paper examines whether the multivariate lead-Iag intraday relationship between large, medium and small stocks in Australia changes according to market trading conditions. The analysis applies recent time series techniques of unit root testing, multivariate Johansen-Juselius tests of cointegration, vector error-correction modelling (VECM), and forecast error variance decomposition (VDC). We find that the information environment faced by stock market participants is fluid and related to whether prices are generally rising or falling. During abearprice phase,large stocks provided the dominant price lead in the stock market. In a bull phase, however, the role of small stocks became more powerful, in both the short and long term, and their prices relatively more exogenous. We conclude that the increased independence of small and medium stocks during the bull price phase is related to an increase in information search, by analysts and market traders, induced by more favourable cost-benefit incentives.

The primary aim of this paper is to make an initial attempt to conduct empirical tests in order to discern the dynamic causal chain-in the Granger (temporal) sense rather than in the structural sense-among real output, money, interest rate, inflation, and the exchange rate in the context of two small Southeast Asian developing economies, such as Thailand and Malaysia. The methodology employed uses various unit root tests and Johansen's cointegration test followed by vector error-correction modeling, variance decompositions, and impulse response functions in order to capture both the within-sample and out-of-sample Granger-causal chain among macroeconomic activity. Given the relatively stable macroeconomic environment in these two growth-oriented economies, the results, quite in line with our expectations, tend to suggest that in the Granger-causality sense, money supply (particularly MI) appears to have played the leading role of a policy variable being the most exogenous of all, and the other variables including output, rate of interest, exchange rate, and prices appear to have borne most of the brunt of short-run adjustment endogenously in different proportions in order to re-establish the long-run equilibrium.

This paper applies a relatively new but generalized concept of fractional cointegration to shed some light on the validity of a long-run relationship between monthly black and official US dollar rates ofthe Brazilian cruzeiro. An investigation ofthe stochastic properties of these rates reveals that, while the relationship is not cointegrated in their logs, they appear to be fractionally cointegrated if we allow for mean reverting processes that are C/(l, d) with Q < d <\. The paper demonstrates that relaxing the condition that the residual from the cointegration equation must be a 1(0) process, captures a much wider class of mean-reversion behaviour. Furthermore, an analysis of the short-run dynamics propelling the long-run relationship tends to imply that although the official rate influences the changes in the black rate, this is purely over the short-run. In the longer term, the black rate is found to be the initial receptor of any exogenous shock to the equilibrium and it is the official exchange rate that bears the brunt of short-run adjustment to re-establish the long-run equilibrium relationship. The approach illustrated in this paper is shown to hold enormous potential for tests of mean reversion involving hypotheses popular to economic and financial research in general, where the dynamics of time-series data are under constant scrutiny.

This paper applies a relatively new concept of fractional cointegration to shed some light on the validity of purchasing power parity as a long-run equilibrium condition, using the Taiwan/US dollar exchange rate. Findings suggest that, while standard tests of cointegration fail to support cointegration between nominal exchange rates, domestic and foreign prices, the fractional cointegration analysis permits deviations from equilibrium to follow a fractionally integrated process and hence captures a much wider class of parity or mean-reversion behaviour. The paper concludes by indicating areas in which fractional cointegration will be a particularly appropriate technique to unearth previously unfounded temporal characteristics.

The issue of whether foreign exchange markets process information efficiently (at least in a speculative, weak sense) has been a topic of renewed attention by empirical analysts in the fields of international finance, international economics and futures markets (see, inter alia, Hakkio and Rush, 1989; Macdonald and Taylor, 1989; Copeland, 1991; Lai and Lai, 1991; Tronzano, 1992; and Karfakis and Moschos, 1994) in a bivariate context, and Coleman, 1990; Alexander and Johnson, 1992; Baillie and Bollerslev, 1989; and Karfakis and Parikh, 1994; in a multivariate context). One of the reasons underlying the regeneration of interest in testing the efficient markets hypothesis (EMH) has, to a large extent, been fuelled by the development of sophisticated and practical time-series techniques which essentially aim to uncover important insights into the mechanics of how and to what extent asset prices fully reflect available information or otherwise whether there are untapped profitable opportunities that still remain.

A relatively new but generalized concept of fractional cointegration is applied to shed some light on the validity of purchasing power parity (PPP) as a long-run equilibrium condition, by examining the long-run relationship between quarterly consumer price indices and bilateral exchange rates of the Australian dollar and seven major OECD trading partners, over Australia's recent float. The paper demonstrates that relaxing the condition that the residual from the cointegration equation must be a I(0) process, provides a wide range of cases of parity-reversion with processes that are CI(1,d ) with 0

Recent studies contend that trading volume has predictive power for ex ante stock prices, particularly small stocks that do not react quickly to macroeconomic information. This study postulates that a significant amount of macro-information that flows on to stock markets is derived from derivative markets. We examine the impact of short-term futures trading volume and prices on cash stock prices using a case study of 15-min data from the Australian stock index futures market which reports actual trading volume. After applying vector error correction modelling (VECM), variance decomposition and impulse functions, we conclude that futures prices provide a short-term information lead to stock prices that dominates trading volume effects. We also observe asymmetric changes in the impact of trading volume between bull and bear price momentum phases and after large trading volume shocks. These results suggest that, in future, studies on trading volume should control for the cross-correlation impact from derivative prices and the differential impact of trading phases.

This study is the first attempt at placing the analysis of fertility in a temporal dynamic framework in the case of a developing Asian economy such as Thailand by binding the relationship between fertility and its determinants within a cointegrated system. The analysis is based on the application of the following recently developed dynamic time series techniques: cointegration, vector error-correction modelling, variance decompositions and the impulse response functions. The results tend to indicate that in the complex dynamic interactions, the importance of the conventional `structural' hypothesis as a significant factor in bringing fertility down in the longer term cannot be denied. However, in the short to longer term, our findings, although not fully supportive of any particular hypothesis, appear to be broadly consistent more with the hypothesis emphasising the critical role played by the `ideational' or diffusion forces along with the demographic variables in ensuring `initial' fertility decline than with the conventional `structural' hypothesis emphasising a significant socio-economic structural change as a pre-condition for `initial' fertility decline.

This paper investigates the dynamic causal linkages amongst nine major international stock price indexes. In order to gauge the causal transmission patterns we employ very recent methods of: (i) vector error-correction modeling and (ii) level VAR modeling with possibly integrated and cointegrated processes, advocated by: (i) Toda and Phillips (Econometrica, 61 (1993) 1367) and (ii) Toda and Yamamoto (J. Econometrics, 66 (1995) 225), respectively. The paper illustrates how such methods may be appropriately augmented in a compatible fashion to unearth previously unfounded linkage properties inherent amongst a system of stock price indexes. In particular, we demonstrate that previous research, by using ordinary difference VARs, ignored an important component of linkages displayed purely over the long run. This untapped evidence essentially provides robust and very useful information to international financial analysts and investors. At a substantive level, results of this study tend to support the contention offered by several studies in the literature of significant interdependencies between the established OECD and the Asian markets, and also the leadership of the US and UK markets over the short and long run. The levels VAR, however, illustrate the Japanese market's influence as an additional long run leader. Findings seem to be plausible given that these three markets (US, UK and Japan) have consistently contributed over 75% of global stock market capitalization over the major part of the sample under consideration. At a methodological level, this analysis also provides a primer for the wealth of applied financial econometric research focusing on dynamic causal inference which involve systems containing possibly integrated and cointegrated processes.

The main purpose of this paper is to discern the dynamic causal chain (in the Granger (temporal) sense rather than in the structural sense) among real output, money, interest rate, inflation and the exchange rate in the context of a small Asian developing economy, such as Indonesia. The methodology employed uses various unit root tests and Johansen's cointegration test followed by vector error-correction modelling, variance decompositions, and impulse response functions in order to capture both the within-sample and out-of-sample Granger causal chain among macroeconomic activity. Given the inward-oriented growth strategy of this small developing economy, where the real output was vulnerable to vicissitudes of the agricultural sector and exports (particularly oil), our results are quite in line with our expectations, and tend to suggest that in the Granger-causality sense, output was relatively the leading variable being the most exogenous of all, and all other variables including money supply, rate of interest, exchange rate, and prices had to bear the brunt of adjustment endogenously in different proportions in order to accommodate that real shock. The Granger-causal chain implied by our evidence that real output more often predominantly leads (rather than lags) money supply and the other three endogenous variables, is consistent more with the recent real business cycle (RBC) theory than with the other two major macroeconomic paradigms such as the Keynesian and the monetarist. This finding has clear policy implications for any accommodative and/or excessive monetary expansion since it is likely to be dissipated in terms of relatively higher nominal variables, such as prices, exchange rates or interest rates rather than real output, for a small developing economy like Indonesia in the context of a relatively unstable macroeconomic environment.

Unlike previous studies on the casual relationship between energy consumption and economic growth, this paper illustrates how the finding of cointegration (i.e. long-term equilibrium relationship) between these variables, may be used in testing Granger causality. Based on the most recent Johansen's multiple cointegration tests preceded by various unit root or nonstationarity tests, we test for cointegration between total energy consumption, real income and price level of two Asian LDCs: Thailand and Sri Lanka. Nonrejection of cointegration between variables rules out Granger noncausality and implies at least one way of Granger-causality either unidirectional or bidirectional. Secondly, by using a dynamic vector error-correction model, we then analyse the direction of Granger-causation and hence the within-sample Granger-exogeneity or endogeneity of each of the variables. Thirdly, the relative strength of the causality is gauged (through the dynamic variance decomposition technique) by decomposing the total impact of an unanticipated shock to each of the variables beyond the sample period, into proportions attributable to shocks in the other variables including its own, in the multivariate system. Finally, these response paths of shocks to the system are traced out using impulse response graphs. Results based on these four tools of methodology, broadly indicate that all three variables are cointegrated and exhibit two common trends within each system. Energy consumption seems to be relatively exogenous as neither income nor prices seems to Granger cause this variable via any of the channels where potential casuality may occur. Though, energy consumption itself plays an important role in influencing income and prices by varying degrees of significance for each country. Overall, shocks to the system seemed to have had a more sustained if not pronounced effect in Thailand than in Sri Lanka.

Proposes to re-examine empirically the causal relationship between defence spending and economic growth in mainland China. First, using a VAR modelling technique with suitable diagnostics, e.g. Akaike's FPE statistics and a likelihood ratio test for over and under-fitting the causal model, the results indicate a positive unidirectional causality flowing from defence spending to economic growth. Second, by evaluating a dynamic vector error correction model, variance decomposition and impulse response functions, then analyses the direction, duration and strength of Granger-causality between defence spending and economic growth. The results broadly indicate that defence spending and economic growth did share a common trend over the sample period under analysis, but it was the former which stimulated the latter. Moreover, it is defence spending that has a much more perceptible and prolonged effect on economic growth, giving rise to implications that although expenditure on defence may have been politically motivated, over the long?run this spending did play a significant indirect role in enhancing the growth potential of this, for many years, closed?door economy.

Departing from previous studies on the causal relationship between energy consumption and economic growth, this paper illustrates how the finding of cointegration (i.e., longterm equilibrium relationship) between these variables, may be used in testing Granger causality. Based on the most recent Johansen's multiple cointegration tests preceded by various unit root or nonstationarity tests, we test for cointegration between total energy consumption, real income, and price level of two highly energy dependent East-Asian NICs: Korea and Taiwan. Nonrejection of cointegration between variables rules out Granger noncausality and implies at least one way of Granger causality, either unidirectional or bidirectional. Secondly, by using a dynamic vector error-correction model, we then analyze the direction of Granger causation and hence the within-sample Granger exogeneity or endogeneity of each of the variables. Thirdly, the relative strength of the causality is gauged (through the dynamic variance decomposition technique) by decomposing the total impact of an unanticipated shock to each of the variables beyond the sample period, into proportions attributable to shocks in the other variables, including its own, in the multivariate system. Finally, these response paths of shocks to the system are traced out using impulse response graphs.

The dynamic nature of the price information transfer when stock and futures markets switch between different price trading phases is examined. This is undertaken by decomposing Australian stock indexes and share price index futures contract data into bear- and bull-market phases and analyzing the change in the power of the bidirectional information feedback between the futures market and small, medium, and large stocks. Results support the hypothesis that the nature of the price-discovery process varies with the trading phase. In particular, during the bull phase small stocks show a marked increase in price exogeneity and futures prices contain relatively less price-sensitive fundamental information. We argue that in bull phases, futures trading becomes increasingly associated with noninformation trading such as realizing paper profits, portfolio rebalancing, and increased noise trading.

This paper examines the patterns of dynamic linkages among national stock prices of six major international stock markets with particular reference to what impact the development of global markets (or the globalization phenomenon) had upon the leading stock markets, such as the US, Japan, and UK. In particular, the focus of this paper is in what ways, if any, the role of these leading markets has changed since globalization. The analysis employs recent time series techniques to a data set that consists of two non overlapping samples of monthly prices defining pre globalization (1972:01-1979:12) and post globalization (1984:01-1996:06). Given the generality of applying several techniques, which provide us with an overall assessment of the robustness of results generated, our findings contrast previous research, which discovered a lack of interdependence during the period prior to the 1980s.