This paper empirically analyses the substantiation of (PPP) purchasing power parity theory in Pakistan. For finding the associationin exchange rate’sprecariousness and inflation rate’sdisparity between Pakistan and its thirteen major trading partners, study used OLS method, and for long run relationship applied co-integration, error correction model and panel co-integration technique over the time span of 1972Q1- 2012Q3. OLS results are shown very small values of R 2 . But co-integration, Unit root test results and Panel tests’ results revealed the existence of long run equilibrium relationship between Pakistan and sample countries. The error correction terms also exposed and confirmed the speed of adjustment from disequilibrium to long run equilibrium condition at significant level.Panel unit root test and panel co-integration test by Pedroni also revealed that expected inflation rate differential have a positive andsignificant effect on exchange rate change between Pakistan and its trading partners during the sample period. The results also provided thestrong evidence thateconomic integration between foreign exchange markets and commodity markets among the sample countries is very high. For getting the proper fruits of globalization it is required to enhance the canvas of exports quantity and numbers of export items
This document discusses testing the strong and weak forms of purchasing power parity (PPP) between Jordan and its major trading partners (Japan, UK, Turkey, and US) from 2000-2012. It first examines the strong form of PPP by testing if the real exchange rate is stationary, finding it is nonstationary, implying long-run PPP does not hold. It then uses Johansen cointegration tests to examine the weak form of PPP, finding a cointegrating relationship between exchange rates and domestic/foreign price levels, providing evidence that weak PPP holds between Jordan and its trading partners. The document reviews literature on PPP testing and discusses the methodology used, including specifications for testing the strong and weak forms.
American Journal of Multidisciplinary Research and Development is indexed, refereed and peer-reviewed journal, which is designed to publish research articles.
Purchasing power parity a unit root, cointegration and var analysis in emergi...Giwrgos Loukopoulos
The document analyzes the validity of the absolute purchasing power parity (PPP) hypothesis for 4 advanced and 4 emerging countries from 1993 to 2014. It applies unit root tests, cointegration tests, and vector autoregression (VAR) models including impulse response functions and variance decomposition. The main findings are: 1) Unit root tests show PPP may hold for some countries and methods but not others. 2) Cointegration tests do not support PPP for any country. 3) VAR models show real exchange rate shocks take 9.76-77.39 months to halve and half-life estimates vary widely by country.
This document analyzes the relationship between stock market liquidity and stock returns in 27 emerging equity markets from January 1992 to December 1999. It finds that stock returns are positively correlated with measures of market liquidity, including turnover ratio, trading value, and turnover-volatility multiple, in both cross-sectional and time-series analyses. This relationship holds even after controlling for other factors and contrasts with theories supported by studies of developed markets, where liquidity and returns are negatively correlated. The findings suggest emerging markets have a lower degree of integration with the global economy.
This document analyzes the long-run relationship between money supply, income, and price level in Pakistan from 1972 to 2003 using quarterly data. It applies autoregressive distributed lag (ARDL) and error correction model (ECM) techniques to examine this relationship. Previous studies on this topic in Pakistan have limitations like using nominal GDP and separation of East Pakistan. This study aims to add to the literature by using a recent data set and the ARDL approach, which allows for variables of different orders of integration and derives short-run dynamics from the long-run relationship. The results will help policymakers understand the relationship between these key macroeconomic variables and their impact on economic growth in Pakistan.
Reinvestigating sources of movements in real exchange rateAlexander Decker
This document summarizes a study that investigates the sources of movements in real effective exchange rates (REER) for 5 developing countries from 1975-2010. It applies panel cointegration techniques to test if REER is significantly impacted by changes in real variables like terms of trade, government spending, productivity, trade openness, and capital inflows in the long run. The study finds that REER appreciates in response to improvements in terms of trade, productivity, and capital flows. Trade openness is found to depreciate REER. The results support the view that changes in real variables have a significant influence on REER variations.
11.exchange rate volatility and stock market behaviour the nigerian experienceAlexander Decker
The study examines the relationship between exchange rates and stock market performance in Nigeria from 1985 to 2009 using cointegration and causality tests. The results show:
1) Exchange rates and stock market performance are cointegrated, indicating a long-run equilibrium relationship.
2) The long-run relationship between exchange rates and stock market performance is negative - exchange rate fluctuations negatively impact stock market performance.
3) Granger causality tests show exchange rates cause stock market performance in Nigeria, implying exchange rate volatility explains variations in the stock market.
This document discusses testing the strong and weak forms of purchasing power parity (PPP) between Jordan and its major trading partners (Japan, UK, Turkey, and US) from 2000-2012. It first examines the strong form of PPP by testing if the real exchange rate is stationary, finding it is nonstationary, implying long-run PPP does not hold. It then uses Johansen cointegration tests to examine the weak form of PPP, finding a cointegrating relationship between exchange rates and domestic/foreign price levels, providing evidence that weak PPP holds between Jordan and its trading partners. The document reviews literature on PPP testing and discusses the methodology used, including specifications for testing the strong and weak forms.
American Journal of Multidisciplinary Research and Development is indexed, refereed and peer-reviewed journal, which is designed to publish research articles.
Purchasing power parity a unit root, cointegration and var analysis in emergi...Giwrgos Loukopoulos
The document analyzes the validity of the absolute purchasing power parity (PPP) hypothesis for 4 advanced and 4 emerging countries from 1993 to 2014. It applies unit root tests, cointegration tests, and vector autoregression (VAR) models including impulse response functions and variance decomposition. The main findings are: 1) Unit root tests show PPP may hold for some countries and methods but not others. 2) Cointegration tests do not support PPP for any country. 3) VAR models show real exchange rate shocks take 9.76-77.39 months to halve and half-life estimates vary widely by country.
This document analyzes the relationship between stock market liquidity and stock returns in 27 emerging equity markets from January 1992 to December 1999. It finds that stock returns are positively correlated with measures of market liquidity, including turnover ratio, trading value, and turnover-volatility multiple, in both cross-sectional and time-series analyses. This relationship holds even after controlling for other factors and contrasts with theories supported by studies of developed markets, where liquidity and returns are negatively correlated. The findings suggest emerging markets have a lower degree of integration with the global economy.
This document analyzes the long-run relationship between money supply, income, and price level in Pakistan from 1972 to 2003 using quarterly data. It applies autoregressive distributed lag (ARDL) and error correction model (ECM) techniques to examine this relationship. Previous studies on this topic in Pakistan have limitations like using nominal GDP and separation of East Pakistan. This study aims to add to the literature by using a recent data set and the ARDL approach, which allows for variables of different orders of integration and derives short-run dynamics from the long-run relationship. The results will help policymakers understand the relationship between these key macroeconomic variables and their impact on economic growth in Pakistan.
Reinvestigating sources of movements in real exchange rateAlexander Decker
This document summarizes a study that investigates the sources of movements in real effective exchange rates (REER) for 5 developing countries from 1975-2010. It applies panel cointegration techniques to test if REER is significantly impacted by changes in real variables like terms of trade, government spending, productivity, trade openness, and capital inflows in the long run. The study finds that REER appreciates in response to improvements in terms of trade, productivity, and capital flows. Trade openness is found to depreciate REER. The results support the view that changes in real variables have a significant influence on REER variations.
11.exchange rate volatility and stock market behaviour the nigerian experienceAlexander Decker
The study examines the relationship between exchange rates and stock market performance in Nigeria from 1985 to 2009 using cointegration and causality tests. The results show:
1) Exchange rates and stock market performance are cointegrated, indicating a long-run equilibrium relationship.
2) The long-run relationship between exchange rates and stock market performance is negative - exchange rate fluctuations negatively impact stock market performance.
3) Granger causality tests show exchange rates cause stock market performance in Nigeria, implying exchange rate volatility explains variations in the stock market.
An econometric analysis of bombay stock exchangeAlexander Decker
This document summarizes research on analyzing returns and volatility of the Bombay Stock Exchange. It examines the presence of day-of-the-week effects and analyzes annual returns. A number of statistical tests are used to test for differences in mean returns and volatility across days of the week. The results do not support the presence of day-of-the-week effects but do find insignificant daily return volatility. The document also reviews several other studies on stock market returns, volatility, and efficiency in other markets globally and in Africa.
11.[28 38]distribution of risk and return a statistical test of normality on ...Alexander Decker
This document summarizes a research study that examined the normal distribution of risk and return on the Dhaka Stock Exchange in Bangladesh. The study used statistical tests to analyze daily, weekly, and monthly returns calculated from three DSE indices from 2002 to 2010. The results found evidence of skewness and kurtosis in the returns, indicating they were not normally distributed and contradicting the assumption of random walk behavior required for an efficient market. Additionally, inconsistencies were found between daily and weekly risk and return, suggesting higher returns may be possible without higher risk. The study aims to contribute to evaluating market efficiency and the relationship between risk and return in the Bangladesh capital market.
This document summarizes a study that examines the causal relationship between real exchange rate returns and real stock price returns in Nigeria from January 1985 to June 2017. It finds a unidirectional causal relationship running from real exchange rate returns to real stock price returns, indicating that past values of real exchange rates can influence/predict present values of real stock prices. This confirms other similar findings. Tests also show unidirectional causality running from real exchange rate returns to predict future real stock price returns. Therefore, monetary policy that considers exchange rate policy can impact stock market movements in Nigeria.
Shahid, M., & Kamran, F. (2015). Causal Relationship between Macroeconomic Factors and Stock Prices in Pakistan. International Journal Of Management And Commerce Innovations, 3(2), 172-178. Retrieved from http://researchpublish.com/journal/IJMCI/Issue-2-October-2015-March-2016/0
Financial integration between BRICS and developed stock marketsinventionjournals
International Journal of Business and Management Invention (IJBMI) is an international journal intended for professionals and researchers in all fields of Business and Management. IJBMI publishes research articles and reviews within the whole field Business and Management, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online.
This document summarizes a study that investigated the short-run and long-run dynamic relationship between stock prices and exchange rates in Malawi from 1999 to 2010. The study used data on the Malawi stock exchange index, exchange rates, interest rates, and the Johannesburg Stock Exchange index. Statistical analyses found no evidence of cointegration, or a long-run relationship, between the variables. Granger causality tests also found that stock prices and exchange rates did not cause each other during the period analyzed. Additionally, the study found that internal and external macroeconomic shocks did not have an immediate influence on the stock or foreign exchange markets in Malawi.
1. The document discusses the relationship between trading volume, stock returns, and volatility based on an analysis of data from the Pakistan Stock Exchange from 2003-2013. It aims to understand how changes in these variables impact each other.
2. Previous research on the topic in developed markets found a positive relationship between trading volume, returns, and volatility, but little work has been done in Pakistan.
3. The study will analyze daily data from the KSE 100 index and 50 firms using ARCH and GARCH models to explore the explanatory power of past trading volume and returns on current market returns and volatility in Pakistan.
This document examines the effect of macroeconomic variables (exchange rate, treasury bill rate, and inflation rate) on sectoral share price indices in Sri Lanka from 2008 to 2012. Multiple regression analysis found that the macroeconomic variables explained over 50% of the variation in share prices for all sectors except telecom. Exchange rate and inflation rate generally had a significant negative and positive effect respectively on share prices, while treasury bill rate had a mostly negative but weaker effect. Inflation rate tended to be the most influential macroeconomic variable for most sectors.
The causal relationship between exchange rates and stock prices in kenyaAlexander Decker
This study examines the causal relationship between exchange rates and stock prices in Kenya from 1993 to 1999. The empirical results show that exchange rates and stock prices are nonstationary and integrated of order one. Tests also show that the two variables are cointegrated. Error-correction models were used instead of Granger causality tests due to the cointegration. The empirical results indicate that exchange rates Granger-cause stock prices in Kenya, meaning that changes in exchange rates lead to changes in stock prices.
International Journal of Business and Management Invention (IJBMI) is an international journal intended for professionals and researchers in all fields of Business and Management. IJBMI publishes research articles and reviews within the whole field Business and Management, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online.
Macroeconomic Variables on Stock Market Interactions: The Indian ExperienceIOSR Journals
To examine the effect of macroeconomic variables on the stock price movement in Indian Stock Market. Six variables of macro-economy (inflation, exchange rate, Industrial production, MoneySupply, Goldprice, interest rate) are used as independent variables. Sensex, Nifty and BSE 100are indicated as dependent variable. The monthly time series data are gathered from RBI handbook over the period of April 2008 to June 2012. Multiple regression analysis is applied in this paper to construct a quantitative model showing the relationship between macroeconomics and stock price. The result of this paper indicates that significant relationship is occurred between macroeconomics variable’s and stock price in India.
Impact of MacroEconomic Variables on National Stock ExchangeWaquar Khan
- The document is a project guide that analyzes the impact of macroeconomic variables like inflation and exchange rates on India's National Stock Exchange.
- It outlines the profile and purpose of NSE, describes the CNX Nifty index, and explains the research methodology used involving regression analysis.
- The analysis finds that inflation has a negative influence on NSE returns while exchange rates have a positive influence, with R-squared being 43.8%. It concludes there is a significant relationship between macroeconomic factors and stock market performance.
This document analyzes the impact of futures trading on market volatility in the Indian equity market, specifically looking at the S&P CNX IT index. It first reviews previous literature which reports mixed findings on the effect of derivatives introduction on volatility. The document then outlines the GARCH methodology used to model conditional volatility in the index returns series before and after the introduction of futures trading in India. Preliminary results found increased market volatility after futures listing, but sensitivity of returns to domestic and global markets remained unchanged. The nature of volatility also altered, with prices becoming more dependent on recent innovations post-derivatives, indicating improved efficiency.
Inflation is a continual increase in general price level of goods and services in an economy over a period of time. It is caused by many factors, important among them are excess of demand of goods and services over supply, macroeconomic performance, money supply, economic policies implications, environmental factors etc. A number of researchers in the past made attempts to identify determinants of inflation and to investigate the impact of identified variables on inflation in European and also in some Asian economies. But, in context of India, not many studies can be traced in the literature. The purpose of this paper is to shed some light on the impact of selected variables on inflation in India. The paper considers CPI (Consumer Price Index) inflation as dependent variable and a set of independent macroeconomic variables, which includes Gross Domestic Product, Money Supply, Deposit Rate, Prime Lending Rate, Exchange Rate, Trade Volume (Value of Imports and Exports) and Crude Oil Prices. The empirical analysis covers the quarterly data series for ten financial years from 2002Q1 to 2012Q1. The collected data is analyzed using ADF Unit root test, Granger Causality test, and the Ordinary Least Square (OLS) technique.
This study examines how stock returns in the banking and textile industries in Pakistan vary with economic factors using a multifactor model. The results show that while market returns are the main driver of stock price changes, other macroeconomic and industry variables provide additional explanation of returns. Economic exposure is higher at the industry level than the firm level. Stock returns also respond differently to economic conditions depending on the individual firm.
Foreign exchange reserve and its impact on stock market capitalizationAlexander Decker
This document summarizes a research paper that examines the relationship between India's foreign exchange reserves and stock market capitalization on the Bombay Stock Exchange (BSE) from 1990-1991 to 2010-2011. Using regression analysis, unit root tests, and Granger causality tests, the research finds that foreign exchange reserves have a positive impact on BSE market capitalization. The Granger causality test also shows there is unidirectional causality running from foreign exchange reserves to stock market capitalization, but not vice versa. A brief literature review discusses several other studies that have examined relationships between macroeconomic variables like exchange rates, foreign reserves, and stock market prices.
11.foreign exchange reserve and its impact on stock market capitalizationAlexander Decker
This document summarizes a research paper that examines the relationship between India's foreign exchange reserves and stock market capitalization on the Bombay Stock Exchange (BSE) from 1990-1991 to 2010-2011. Using regression analysis, unit root tests, and Granger causality tests, the research finds that foreign exchange reserves have a positive impact on BSE market capitalization. The Granger causality test indicates causality runs unidirectionally from foreign exchange reserves to stock market capitalization, not vice versa. The study aims to provide information to help stock brokers, investors, and policymakers understand how trends in foreign exchange reserves may impact India's stock markets, particularly the BSE.
El documento describe las siete principales etapas del desarrollo humano: prenatal, infancia, niñez, adolescencia, juventud, adultez y ancianidad. Define cada etapa y explica que todas son importantes para el desarrollo de la persona, aunque destaca la infancia y la adolescencia como fases clave debido a los cambios que experimenta el individuo y su efecto en etapas posteriores. El documento también analiza los cambios cognitivos en cada etapa y las características únicas de cada una.
Personalization: The digital customer experience, Glossy Forum, October 20th,...Digiday
SWAT stylists at BaubleBar aim to provide personalized customer service through every interaction by infusing a human element into the shopping experience and using technology to remove friction. Stylists build relationships with customers by sharing their personalities on social media through how-to videos and styling tips. They also engage with customers post-purchase through video chat to co-browse the site and provide a uniquely tailored shopping experience. The goal is to leverage technology to enrich customer relationships and allow the customer-facing team to have a voice by continuously testing new ideas.
An econometric analysis of bombay stock exchangeAlexander Decker
This document summarizes research on analyzing returns and volatility of the Bombay Stock Exchange. It examines the presence of day-of-the-week effects and analyzes annual returns. A number of statistical tests are used to test for differences in mean returns and volatility across days of the week. The results do not support the presence of day-of-the-week effects but do find insignificant daily return volatility. The document also reviews several other studies on stock market returns, volatility, and efficiency in other markets globally and in Africa.
11.[28 38]distribution of risk and return a statistical test of normality on ...Alexander Decker
This document summarizes a research study that examined the normal distribution of risk and return on the Dhaka Stock Exchange in Bangladesh. The study used statistical tests to analyze daily, weekly, and monthly returns calculated from three DSE indices from 2002 to 2010. The results found evidence of skewness and kurtosis in the returns, indicating they were not normally distributed and contradicting the assumption of random walk behavior required for an efficient market. Additionally, inconsistencies were found between daily and weekly risk and return, suggesting higher returns may be possible without higher risk. The study aims to contribute to evaluating market efficiency and the relationship between risk and return in the Bangladesh capital market.
This document summarizes a study that examines the causal relationship between real exchange rate returns and real stock price returns in Nigeria from January 1985 to June 2017. It finds a unidirectional causal relationship running from real exchange rate returns to real stock price returns, indicating that past values of real exchange rates can influence/predict present values of real stock prices. This confirms other similar findings. Tests also show unidirectional causality running from real exchange rate returns to predict future real stock price returns. Therefore, monetary policy that considers exchange rate policy can impact stock market movements in Nigeria.
Shahid, M., & Kamran, F. (2015). Causal Relationship between Macroeconomic Factors and Stock Prices in Pakistan. International Journal Of Management And Commerce Innovations, 3(2), 172-178. Retrieved from http://researchpublish.com/journal/IJMCI/Issue-2-October-2015-March-2016/0
Financial integration between BRICS and developed stock marketsinventionjournals
International Journal of Business and Management Invention (IJBMI) is an international journal intended for professionals and researchers in all fields of Business and Management. IJBMI publishes research articles and reviews within the whole field Business and Management, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online.
This document summarizes a study that investigated the short-run and long-run dynamic relationship between stock prices and exchange rates in Malawi from 1999 to 2010. The study used data on the Malawi stock exchange index, exchange rates, interest rates, and the Johannesburg Stock Exchange index. Statistical analyses found no evidence of cointegration, or a long-run relationship, between the variables. Granger causality tests also found that stock prices and exchange rates did not cause each other during the period analyzed. Additionally, the study found that internal and external macroeconomic shocks did not have an immediate influence on the stock or foreign exchange markets in Malawi.
1. The document discusses the relationship between trading volume, stock returns, and volatility based on an analysis of data from the Pakistan Stock Exchange from 2003-2013. It aims to understand how changes in these variables impact each other.
2. Previous research on the topic in developed markets found a positive relationship between trading volume, returns, and volatility, but little work has been done in Pakistan.
3. The study will analyze daily data from the KSE 100 index and 50 firms using ARCH and GARCH models to explore the explanatory power of past trading volume and returns on current market returns and volatility in Pakistan.
This document examines the effect of macroeconomic variables (exchange rate, treasury bill rate, and inflation rate) on sectoral share price indices in Sri Lanka from 2008 to 2012. Multiple regression analysis found that the macroeconomic variables explained over 50% of the variation in share prices for all sectors except telecom. Exchange rate and inflation rate generally had a significant negative and positive effect respectively on share prices, while treasury bill rate had a mostly negative but weaker effect. Inflation rate tended to be the most influential macroeconomic variable for most sectors.
The causal relationship between exchange rates and stock prices in kenyaAlexander Decker
This study examines the causal relationship between exchange rates and stock prices in Kenya from 1993 to 1999. The empirical results show that exchange rates and stock prices are nonstationary and integrated of order one. Tests also show that the two variables are cointegrated. Error-correction models were used instead of Granger causality tests due to the cointegration. The empirical results indicate that exchange rates Granger-cause stock prices in Kenya, meaning that changes in exchange rates lead to changes in stock prices.
International Journal of Business and Management Invention (IJBMI) is an international journal intended for professionals and researchers in all fields of Business and Management. IJBMI publishes research articles and reviews within the whole field Business and Management, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online.
Macroeconomic Variables on Stock Market Interactions: The Indian ExperienceIOSR Journals
To examine the effect of macroeconomic variables on the stock price movement in Indian Stock Market. Six variables of macro-economy (inflation, exchange rate, Industrial production, MoneySupply, Goldprice, interest rate) are used as independent variables. Sensex, Nifty and BSE 100are indicated as dependent variable. The monthly time series data are gathered from RBI handbook over the period of April 2008 to June 2012. Multiple regression analysis is applied in this paper to construct a quantitative model showing the relationship between macroeconomics and stock price. The result of this paper indicates that significant relationship is occurred between macroeconomics variable’s and stock price in India.
Impact of MacroEconomic Variables on National Stock ExchangeWaquar Khan
- The document is a project guide that analyzes the impact of macroeconomic variables like inflation and exchange rates on India's National Stock Exchange.
- It outlines the profile and purpose of NSE, describes the CNX Nifty index, and explains the research methodology used involving regression analysis.
- The analysis finds that inflation has a negative influence on NSE returns while exchange rates have a positive influence, with R-squared being 43.8%. It concludes there is a significant relationship between macroeconomic factors and stock market performance.
This document analyzes the impact of futures trading on market volatility in the Indian equity market, specifically looking at the S&P CNX IT index. It first reviews previous literature which reports mixed findings on the effect of derivatives introduction on volatility. The document then outlines the GARCH methodology used to model conditional volatility in the index returns series before and after the introduction of futures trading in India. Preliminary results found increased market volatility after futures listing, but sensitivity of returns to domestic and global markets remained unchanged. The nature of volatility also altered, with prices becoming more dependent on recent innovations post-derivatives, indicating improved efficiency.
Inflation is a continual increase in general price level of goods and services in an economy over a period of time. It is caused by many factors, important among them are excess of demand of goods and services over supply, macroeconomic performance, money supply, economic policies implications, environmental factors etc. A number of researchers in the past made attempts to identify determinants of inflation and to investigate the impact of identified variables on inflation in European and also in some Asian economies. But, in context of India, not many studies can be traced in the literature. The purpose of this paper is to shed some light on the impact of selected variables on inflation in India. The paper considers CPI (Consumer Price Index) inflation as dependent variable and a set of independent macroeconomic variables, which includes Gross Domestic Product, Money Supply, Deposit Rate, Prime Lending Rate, Exchange Rate, Trade Volume (Value of Imports and Exports) and Crude Oil Prices. The empirical analysis covers the quarterly data series for ten financial years from 2002Q1 to 2012Q1. The collected data is analyzed using ADF Unit root test, Granger Causality test, and the Ordinary Least Square (OLS) technique.
This study examines how stock returns in the banking and textile industries in Pakistan vary with economic factors using a multifactor model. The results show that while market returns are the main driver of stock price changes, other macroeconomic and industry variables provide additional explanation of returns. Economic exposure is higher at the industry level than the firm level. Stock returns also respond differently to economic conditions depending on the individual firm.
Foreign exchange reserve and its impact on stock market capitalizationAlexander Decker
This document summarizes a research paper that examines the relationship between India's foreign exchange reserves and stock market capitalization on the Bombay Stock Exchange (BSE) from 1990-1991 to 2010-2011. Using regression analysis, unit root tests, and Granger causality tests, the research finds that foreign exchange reserves have a positive impact on BSE market capitalization. The Granger causality test also shows there is unidirectional causality running from foreign exchange reserves to stock market capitalization, but not vice versa. A brief literature review discusses several other studies that have examined relationships between macroeconomic variables like exchange rates, foreign reserves, and stock market prices.
11.foreign exchange reserve and its impact on stock market capitalizationAlexander Decker
This document summarizes a research paper that examines the relationship between India's foreign exchange reserves and stock market capitalization on the Bombay Stock Exchange (BSE) from 1990-1991 to 2010-2011. Using regression analysis, unit root tests, and Granger causality tests, the research finds that foreign exchange reserves have a positive impact on BSE market capitalization. The Granger causality test indicates causality runs unidirectionally from foreign exchange reserves to stock market capitalization, not vice versa. The study aims to provide information to help stock brokers, investors, and policymakers understand how trends in foreign exchange reserves may impact India's stock markets, particularly the BSE.
El documento describe las siete principales etapas del desarrollo humano: prenatal, infancia, niñez, adolescencia, juventud, adultez y ancianidad. Define cada etapa y explica que todas son importantes para el desarrollo de la persona, aunque destaca la infancia y la adolescencia como fases clave debido a los cambios que experimenta el individuo y su efecto en etapas posteriores. El documento también analiza los cambios cognitivos en cada etapa y las características únicas de cada una.
Personalization: The digital customer experience, Glossy Forum, October 20th,...Digiday
SWAT stylists at BaubleBar aim to provide personalized customer service through every interaction by infusing a human element into the shopping experience and using technology to remove friction. Stylists build relationships with customers by sharing their personalities on social media through how-to videos and styling tips. They also engage with customers post-purchase through video chat to co-browse the site and provide a uniquely tailored shopping experience. The goal is to leverage technology to enrich customer relationships and allow the customer-facing team to have a voice by continuously testing new ideas.
Haiti is located on the island of Hispaniola in the Caribbean Sea, sharing the island with the Dominican Republic. It has a total area of 27,750 square kilometers and a population that is mostly dependent on small-scale agriculture. Haiti faces numerous environmental issues such as deforestation, water pollution, and degradation of marine resources. The economy has struggled in recent years due to weather events and political instability but inflation and GDP are slowly improving. However, poverty remains extremely high with over 75% of the population living below the poverty line, especially in rural areas.
Keynote at NEFUS (Danish Network for Research Support services) Workshop on ethics and leadership in the use of bibliometric data. My talk discusses the challenges we face in bibliometric analysis of the individual researcher. The slides are a mixture of English and Danish. The workshop link is here: https://www.dfdf.dk/index.php/arrangementer/details/41-NEFUS?xref=35
El documento describe las diferentes fases de instalación de maquinaria en una industria, incluyendo la recepción de la maquinaria, facilidades para el montaje, descripción de las fases de obra como implantación, demoliciones y movimiento de tierras, y descripción de la maquinaria y medios auxiliares utilizados. Se detallan los principales riesgos en cada fase y las normas y medidas preventivas correspondientes.
Este documento presenta información sobre el diagnóstico de enfermedades profesionales. Explica que un diagnóstico recopila datos como síntomas y signos para analizarlos e identificar una condición de salud. También describe los tipos de diagnóstico clínico y de laboratorio, y los protocolos para notificar un diagnóstico de enfermedad profesional al organismo administrador correspondiente.
Laudo de inspecao_presidio_central_ibape_30_04_2012_versao_revisadaAlmeida Bastos
Este laudo técnico realizou uma inspeção no Presídio Central de Porto Alegre e identificou várias anomalias construtivas e falhas de manutenção. O presídio opera acima da capacidade com 4601 presos, apesar de ter capacidade para apenas 2069. Foram encontrados problemas estruturais, elétricos e hidrossanitários nos pavilhões antigos, enquanto os novos não atendem aos padrões de engenharia prisional.
Pemerintah Indonesia berencana memperluas program vaksinasi COVID-19 ke seluruh provinsi. Target vaksinasi akan dicapai dengan melibatkan tenaga kesehatan dan relawan dari berbagai elemen masyarakat. Program ini diharapkan dapat mempercepat pemulihan ekonomi dan aktivitas masyarakat.
Hp 085217526877 katalog baju muslim qirani terbaruUwaisd
Pemerintah mengumumkan paket stimulus ekonomi baru untuk menyelamatkan bisnis dan pekerjaan. Stimulus ini meliputi insentif pajak, bantuan langsung untuk UMKM, serta subsidi upah bagi perusahaan yang menahan PHK. Langkah ini diharapkan dapat mendorong pertumbuhan kembali dan menekan angka pengangguran.
La cultura maya se desarrolló en Mesoamérica entre el 2000 a.C. y el 250 d.C., ocupando un extenso territorio que incluía el sureste de México, Guatemala, Belice, Honduras y El Salvador. Los mayas tenían una religión politeísta basada en sacrificios de sangre, un sistema numérico avanzado y conocimientos astronómicos y arquitectónicos notables que incluían pirámides y templos.
Este documento resume:
1) Un acuerdo entre el gobierno colombiano y las FARC para garantizar la seguridad y estabilidad jurídica del acuerdo de paz.
2) El uso extendido de redes sociales como Facebook e Instagram entre los jóvenes colombianos.
3) Algunos trastornos alimenticios comunes como la anorexia y la bulimia y sus síntomas.
El documento describe la segunda venida de Cristo desde la perspectiva de una persona que presencia este evento. Describe el sonido de trompetas en el cielo, el ejército de ángeles, los ancianos y las almas adorando a Dios. Luego Jesús aparece sobre una nube, proclamando que él es el Alfa y Omega. Todos se inclinan ante él, reconociendo que nada más importa excepto su presencia.
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monetary policy decisions in Nigeria using quarterly data from 2010 to 2018. The relationship among variables
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Economic Integration of Pakistan: An Empirical Test of Purchasing Power Parity
1. International Journal of Business and Management Invention
ISSN (Online): 2319 – 8028, ISSN (Print): 2319 – 801X
www.ijbmi.org || Volume 5 Issue 7 || July. 2016 || PP—01-08
www.ijbmi.org 1 | Page
Economic Integration of Pakistan: An Empirical Test of
Purchasing Power Parity
Safia Minhaj, Ph.D.1
, Kaneez Fatima, Ph.D.2
1
Assistant Professor, Department Of Economics, University Of Karachi, Karachi, Pakistan
2
Assistant Professor, Department Of Sociology, University Of Karachi, Karachi, Pakistan
ABSTRACT: This paper empirically analyses the substantiation of (PPP) purchasing power parity theory in
Pakistan. For finding the associationin exchange rate’sprecariousness and inflation rate’sdisparity between
Pakistan and its thirteen major trading partners, study used OLS method, and for long run relationship applied
co-integration, error correction model and panel co-integration technique over the time span of 1972Q1-
2012Q3. OLS results are shown very small values of R2
. But co-integration, Unit root test results and Panel
tests’ results revealed the existence of long run equilibrium relationship between Pakistan and sample
countries. The error correction terms also exposed and confirmed the speed of adjustment from disequilibrium
to long run equilibrium condition at significant level.Panel unit root test and panel co-integration test by
Pedroni also revealed that expected inflation rate differential have a positive andsignificant effect on exchange
rate change between Pakistan and its trading partners during the sample period. The results also provided
thestrong evidence thateconomic integration between foreign exchange markets and commodity markets among
the sample countries is very high. For getting the proper fruits of globalization it is required to enhance the
canvas of exports quantity and numbers of export items.
Keywords: Inflation disparity, purchasing power parity, economic integration.
JEL Classification: C32; F31; F36.
I. INTRODUCTION
Economies become too closer after the globalization process and adoption of clean floating exchange rate
system. International institutions are strictly following a free trade concept with zero trade barriers between
countries. World Trade Organization (WTO) is performingprincipalrole in this regard. This paper is an attempt
to gauge the level of integration of Pakistan‟s commodity market with respect to thirteen trading countries‟
commodity markets.This concept is based on the literature known as Purchasing power parity theory.The
awareness about arbitrage opportunities in goods market is useful for empirical evidence of this theory, many
researchers and policy makers‟emphases work on them.
The reminder sections of this paper are as follows: section 2 explains the theory of PPP and its model, section 3
presents literature review, section 4 relates to data and methodology, section 5 displays estimated results and
section 6 explains conclusion.
Theoretical Perspective of Purchasing Power Parity:
This study presents an important part of International finance. In 1916, a Swedish economist Gustav Cassell
introduced the concept of the Purchasing Power Parity. This theory states that arbitrage forces equalize goods
prices internationally when prices are measured in term of one currency. This theory is an application of law of
one price and explains in two forms; one is strict form known as absolute purchasing power parity while the
other is a weaker form termed as relative purchasing power parity.
The absolute version of purchasing power parity states as:
𝐞 =
𝐩 𝐝
𝐩 𝐟
(2.1)
Where e is the exchange rate Pd and Pf are domestic and foreign prices respectively. Absolute version of PPP
describes that specific basket of goods of two countries have same value when they judged in one currency.
Commonly non holding of absolute version of PPP due to the existence of transportation costs, imperfect
information, tariff and non-tariff barriers on trade, productivity differentials and commodities difference.
However weak form of PPP anticipated to hold in the presence of these distortions.
Second version of PPP known as relative PPP states that difference in inflation rates between two countries is
responsible to change the value of currency of both the countries. A rise in general prices of aneconomy
depreciates the value of thateconomy‟s currency in term of other economy.
е𝐭+𝟏 − е𝐭 = 𝛑 𝐝 − 𝛑𝐟 (2.2)
2. Economic Integration Of Pakistan: An Empirical Test Of Purchasing Power Parity
www.ijbmi.org 2 | Page
Where et+1 – et is anticipatedvariation in exchange rate, πd is rate of inflation in home economy and πf is rate of
inflation in external economy, all variables are in log form, the PPP equation in an empirically recognisable
form is
∆е𝐭+𝟏 = 𝛂 + 𝛃 𝛑 𝐝 − 𝛑𝐟 𝐭 + 𝛆𝐭 (2.3)
Left hand term design at esanticipated variation in exchange rate as dependent variable, right hand side defines,α
as constant, as coefficient of dependent variable and (πd − πf )tdifference in inflation between two economies
as independent variable, last term εt shows the error in forecast.
Present study throughout concerned with the relative version of Purchasing Power Parity theory. After the
adoption of flexible exchange rate system in the world economies empirical evaluation of PPP theory got more
attention by researchers. As volume of global trade is rising it is important for each country to find out its degree
of integration which is very important.
II. LITERATURE REVIEW
Existing literature Nelson, 1990; Wu, 1996; Parikh and Williams, 1998; Zyoud, 2015 expressed that empirical
existence of PPP is very weak in the short run as output prices move very slowly as compare to change in
currencies‟ value. On the other hand,long run existence is supported by many economists (Bhatti, 1996; Lothain
and Taylor, 1996 and Shively, 2001) according to them relative prices between two countries move
proportionately to the nominal exchange rate volatility and their real exchange rate (RER) return to its long run
equilibrium position. Shively emphasized that although PPP do not influence real exchange rate but play a
dominant role in the determination of nominal exchange rate. Kanyembo and Sheefeni (2013empirically tested
PPP between Zambia and South Africa their result also supportive and showed the existence of PPP in the long
run.
Qayyum and others (2004) concluded that liberalization policy in trade and exchange rate, made possible the
working of law of one price / absolute version of PPP. They provided supportive evidence of PPP in the long
run but not for short run. Janjua and Ahmed (2006) andMohammad and others (2009) evaluated the technique of
sustainable real effective exchange rate in Pakistan. Janjua and Ahmed tested PPP for four South Asian
countries and verified its existence among these countries. During the study period theyexposedthat there isweak
form of PPP as real exchange rates were remaining highly unstable in Pakistan. Both studies results have same
conclusion about the holdings of PPP.
Many studies have been done to empirically investigate the existence of PPP theory, between developed
economies, between developed and developing economies, emerging and developed economies, emerging and
developing economies. With reference to Pakistan many empirical work has been done but they concentrated to
US, UK and South Asian countries. This study is different from the previous research because its sample
countries are those which contribute almost fifty percent of Pakistan‟s total trade and also the main provider of
worker remittances.
Related literatures provide strong evidence in the support of the PPP theory. This theory keeps significant
inference. If any economy does not effect by any external shock it means it has steady real exchange rate with
floating nominal exchange rate and provide strong evidence of the holding of Purchasing Power
Parity.Forecasting error in expectation about future inflation is responsible for nonconformityof PPP theory.
III. RESEARCH METHODOLOGY
The consistency of Purchasing Power Parity (PPP) theory explains the determinants of exchange rates based on
the arrangements of exchange rate in a long span also evaluated by researchers. Knowledge about arbitrage
movements and real market equilibrium are very important for the researchers and policy makers.
Present research used econometric technique as research methodology to empiricallyanalyse the existence of
Purchasing Power Parity (PPP). This paper is an empirical investigation of such relationship between Pakistan
and its thirteen trading partners. These trading partners are Canada, China, France, Germany, Hong Kong,
Japan, Korea, Kuwait, Malaysia, Saudi Arabia, the United Arab Emirates, the United Kingdom and the United
States of America. Present research employed quarterly data with time span from 1972Q1 to 2012Q3. All these
macroeconomic variables data are collected from the International Financial Statistics (IFS-CD ROM.) which
are published by the International Monetary Fund (IMF).Both series are taken into log form.
OLS regression methodology is used to analyse the relationship between dependent variable (exchange rate
change) and independent variable (inflation rate differentials). The strength of this relationship is determined by
the value of R2
. Values of t show the individual relationship. For empirical existence of the theory coefficients‟
signs and values are helpful to accept or reject the hypothesis.
As many macroeconomics time series are non-stationary at level and become suitably presentable after first
difference. This happened when means and variances of variables change over time and they become as unit
root variables. ADF unit root test is applied for each exchange rate change series and inflation differential series
3. Economic Integration Of Pakistan: An Empirical Test Of Purchasing Power Parity
www.ijbmi.org 3 | Page
for each country-pair, their first differences are used to determine the stationarity of each individual country-
pair. Series become stationary after taking difference, although long-run relationship hypothesized when values
of variables hold at level. Johansen‟s (1991, 1995) co-integration test is mostly used in research to find out long-
run relationship. Johansen‟s test based on two tests, the maximum eigenvalue test and the trace test. The λ-max
test assembled as
𝛌 𝐦𝐚𝐱 𝐇 𝟏 𝐫−𝟏 𝐇 𝟏 𝐫 = −𝐓 𝐥𝐨𝐠 𝟏 − 𝛌 𝐫 (4.1)
For r = 0,1,2,……p – 2, p – 1. Null hypothesis is that r co-integrating vectors are existed against the alternative
hypothesis of r +1 vectors. The trace test is constructed as
𝛌𝐭𝐫𝐚𝐜𝐞 𝐇 𝟏 𝐫 𝐇 𝟎
= −𝐓 𝐥𝐨𝐠
𝐩
𝐢=𝐫+𝟏 𝟏 − 𝛌𝐢 (4.2)
Null hypothesis is that λi = 0, and first r λ-max values are not zero. Trace test is better than Maximum Eigen
value test as it adjusted for degree of freedom. ECMs are a theoretically-driven approach useful for estimating
both short-term and long-term effects of one-time series on another. The term error-correction relates to the fact
that last-periods deviation from a long-run equilibrium, the error, influences its short-run dynamics. Thus ECMs
directly estimate the speed at which a dependent variable returns to equilibrium after a change in other
variables.It is also more vigorous to skewness and excess kurtosis. Decision should be made on trace test. For
more accuracy Panel unit root test and Panel co-integration test are applied which compute several tests.
Paderoni panel co-integration techniques are applied which construct seven statistic tests, four based on within
group and three between groups.
IV. ESTIMATED RESULTS
The empirical evidence of Purchasing Power Parity existed by linking the inflation rates differential between
two countries to the change in the exchange rates and according to the models.
∆℮𝐭 = 𝛗 𝟏 + 𝛗 𝟐 𝛑 𝐝 − 𝛑𝐟 𝐭+ 𝛆𝐭
Where ∆℮ = change in exchange rate
πd − πf= inflation differential
And εt = error term.
Econometrically, co-integration defines the correlation between non-stationary variables by testing for the
existence of a unit root in the residuals εtof equation.
Purchasing Power Parity theory states that there is one to one relationship between changes in the value of
currency in exchange of other foreign currency and expected inflation differential between two countries.
Ordinary Least Square methodology results of this bivariate model are presented in Table 1. Constant‟s value of
each country-pair is zero with positive sign and statistically significant, except Pak-China pair where it is
negative and also insignificant.
Table I Results of purchasing power parity model
Δ℮
Countries Pair
C πd
e
− πf
e
R2
DW
Pak-Canada 0.02
(0.01)
[3.8]
-0.13
(0.23)
[-0.6]
0.002 0.7
Pak-China -0.0005
(0.01)
[-0.9]
1.4
(0.3)
[5.5]
0.29 2.01
Pak-France 0.02
(0.01)
[2.6]
0.3
(0.3)
[1.03]
0.01 0.92
Pak-Germany 0.02
(0.01)
[3.23 ]
0.1
(0.26)
[0.4]
0.001 0.72
Pak-HK 0.012
(0.003)
[4.03]
0.24
(0.16)
[1.5]
0.02 1.2
Pak-Japan 0.003
(0.0013)
[2.18]
0.12
(0.05)
[2.5]
0.04 1.6
Pak-Korea 0.0004 0.0112 0.02 1.5
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(0.0002)
[2.13]
(0.01)
[1.77]
Pak-Kuwait 0.015
(0.002)
[6.5]
-0.01
(0.1)
[-0.1]
0.0001 1.4
Pak-Malaysia 0.013
(0.01)
[2.3]
0.36
(0.25)
[1.44]
0.13 0.7
Pak-Saudi Arabia 0.017
(0.005)
[3.72]
0.16
(0.15)
[1.02]
0.01 0.56
Pak-UAE 0.012
(0.005)
[2.99]
0.4
(0.2)
[2.7]
0.044 0.6
Pak-UK 0.02
(0.01)
[2.8]
0.021
(0.23)
[0.1]
0.0000
5
1.01
Pak-USA 0.02
(0.005)
[3.7]
0.05
(0.22)
[0.224]
0.0003 0.6
Note: - values are given in parenthesis are standard error and in [ ] are t-statistics.
The coefficients‟ values, of exchange rate change variable with respect to the expected inflation differential, are
not according to the theory. Only in the Pak-China pair coefficient value is 1.4 and it is statistically significant
as theory states. In all other countries‟ coefficient values are positive except in Pak-Canada and Pak-Kuwait
pairs where this coefficient values are negative. In Pak-Japan, Pak-Hong Kong, Pak-Korea Pak-Malaysia and
Pak-UAE pairs although the coefficients‟ values are very low but their statistical level of significance is 10 % or
better as compare to other remaining countries‟ pairs. These pairs are Pak-France, Pak-Germany, Pak-Saudi
Arabia, Pak-UK and Pak-US, they do not show the existence of purchasing power parity theory. Because,
instead of one for one relationship between exchange rate and price differential, results present very weak
relationship between these two variables.
These results reveal that the empirical existence of Purchasing Power Parity is very weak. Pakistani exports
consist on primary products and foods items which are non-competitive in the world‟s goods market. Their
demands are inelastic in nature that is why although prices in Pakistan are very low as compare to its trading
countries but there is continuous reduction in the value of Pakistani currency in exchange of foreign currencies.
This is the main reason of non-existence of Purchasing Power Parity theory.
Table II Unit Root Test Results
Country-Pair T Deterministic
Term
Lag Test Statistics
𝛑 𝐝 − 𝛑𝐟
Test Statistics
∆℮
Pak-Canada 154 Constant/1st Diff 6 -8.20 -12.60
Pak-China 73 Constant/1st Diff 4 -3.13 -11.39
Pak-France 154 Constant/1st Diff 6 -8.44 -11.42
Pak-Germany 154 Constant/1st Diff 7 -2.99 -11.71
Pak-H K 119 Constant/1st Diff 6 -8.38 -12.93
Pak-Japan 154 Constant/1st Diff 6 -11.00 -4.74
Pak-Korea 158 Constant/1st Diff 3 -3.66 -10.67
Pak-Kuwait 156 Constant/1st Diff 0 -12.16 -13.77
Pak-Malaysia 158 Constant/1st Diff 3 -4.02 -11.99
Pak-S A 158 Constant/1st Diff 3 -3.52 -13.98
Pak-UAE 153 Constant/1st Diff 6 -8.94 -14.03
Pak-UK 154 Constant/1st Diff 6 -7.46 -12.48
Pak-USA 158 Constant/1st Diff 3 -3.37 -13.67
Critical Test Values at 1%, 5% and 10% levels, -3.45, -2.88 and -2.57 respectively.
Unit root tests results are very important for the co-integration tests procedure. Table 2 presented the results of
ADF test of exchange rates changeand expected inflation rate differentialsbetween Pakistan and other twelve
countries. Augmented Dickey Fuller (1979) unit root test is performed. The ADF test statistics which tests the
5. Economic Integration Of Pakistan: An Empirical Test Of Purchasing Power Parity
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unit root null of stationary, if thesevalues are greater than ADF critical values, do not reject null hypothesis that
is existence of unit root. If ADF critical values are greater than test statistics it rejects the null hypothesis of no
existence of unit root. For applying ADF test time series transform from non-stationary to stationary.
For data with deterministic trend, Trend-Stationary Process (TSP) is used first but results could not reject the
null hypothesis for all countries pair and variables. After that, Difference Stationary Process (DSP) is used. At
first difference all calculated test statistics are smaller than the critical values for the ADF tests, for all countries‟
pairthus null hypothesis is rejected here and alternate hypothesis accepted.Expected inflation rate differential
and change in exchange rate series become stationary at level I (1) with constant. So results reject the null
hypothesis at 5% significant level and accept the alternate.
To check the long-run relationship between these two variables (expected inflation rate differentials and change
in exchange rate), Johanson‟s co-integration technique is used. Co-integration test results are presented for all
country-pair in table 3. This co integration test isbased on Purchasing Power Parity (PPP) model, assuming an
intercept without trend. Null hypothesis for this test is that there is no co-integrating (r = 0) vectors between
these two variables which are considered for this study.
Table 3 Results of co-integration test: Δе, (πd-πf) Trend assumption: linear deterministic trend
Note: Trace Statistics Critical Values at 5%, 15.49471, 3.841466 and Max-Eigen Statistics
Critical Values at 05% 14.26460, 3.841466 are existing to test the null hypotheses of “no co-integrating vectors
(Ho: r=0)”, and “at most one co-integrating vector (Ho: r=1)”. Critical values at 5%significance level are
consistently the same for all. A* denotes rejection of the null hypothesis of r=0 at the 0.05 significant level.
A** denotes rejection r=1 at 0.05 significant level.
Table 3 reports the summary of the results and show that there is strong rejection of null hypothesis of no co-
integration (r = 0) for all the country pairs and acceptance of the alternative hypothesis that there is one co-
integration vector during full sample period. Depending on two possible tests, Trace and Max-Eigen statistics,
these tests statistics values are greater than their critical values. After considering trace λ test, the null of no-co-
integration (r = 0) against the alternative of one or more co-integrating vectors (r > 0) is rejected at 5% level.
The null hypothesis at most one co-integrating vectors (r = 1) is not rejected for all countries‟ pairs except Pak-
Japan pair where these null hypotheses were rejected even at 5 % level against the alternative (r > 1). The max λ
Country Pair No. of Co-
integrating
Vectors
Trace
Statistics
No. of Co-
integrating
Vectors
Max. Eigen
Statistics
Pak-Canada None *
At most 1
53.82
2.06
None *
At most 1
51.76
2.06
Pak-China None *
At most 1
26.33
0.49
None *
At most 1
25.84
0.5
Pak-France None *
At most 1
53.4
2.34
None *
At most 1
51.03
2.34
Pak-Germany None *
At most 1
45.51
1.77
None *
At most 1
45.33
1.77
Pak-Hong Kong None *
At most 1
40.94
2.12
None *
At most 1
38.82
2.12
Pak-Japan None *
At most 1**
33.32
5.19
None *
At most 1**
28.13
5.2
Pak-Korea None *
At most 1
44.91
0.83
None *
At most 1
44.08
0.83
Pak-Kuwait None *
At most 1
34.15
0.22
None *
At most 1
33.96
0.22
Pak-Malaysia None *
At most 1
52.43
1.27
None *
At most 1
51.15
1.27
Pak-Saudi Arabia None *
At most 1
35.78
0.20
None
At most 1
35.57
0.20
Pak-UAE None *
At most 1
42.2
2.08
None *
At most 1
40.16
2.08
Pak-UK None *
At most 1
58.2
1.95
None *
At most 1
56.24
1.95
Pak-USA None *
At most 1
39.56
2.33
None *
At most 1
37.24
2.33
6. Economic Integration Of Pakistan: An Empirical Test Of Purchasing Power Parity
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test helps to clarify the exact value of r. The null of no co-integrating vectors (r = 0) against the specific
alternative (r = 1) is rejected at 5% level for all country-pair. The null of one co-integrating vector (r =1) is not
rejected for all countries pair except Pak-Japan. The both test statistics imply the presence of at least oneco-
integratingequation at 5 % significance level, for both variables in each country-pair.
Trace-test is better than maximum eigenvalue test as trace test adjusted for degree of freedom. So according to
the Trace-test statistics the presence ofoneco-integrating equations implies that both variables are related in long
run between Pakistan and its thirteen major trading partners. Purchasing Power Parity Condition (PPPC)
indicates that expected domestic expected inflation rate and foreign expected inflation rate have an important
role in the determination of the equilibrium exchange rate.
After applying co-integration test error correction technique is used to find out error-correction terms (ECT)as
regressors which reveal long run dynamics and system convergent towards long run equilibrium. The lagged
values‟ coefficients of dependent and independent variables are short run parameters measure the immediate
impact of inflation differentials on the value of currencies.
The error-correction results in Table 4 specified the negatively signed error-correction terms and t- statistics
which confirm significance level at 5 % for each country-pair.These error correction terms expose the speed of
adjustment from disequilibrium to long run equilibrium condition.
Table 4 Results of ECM
Variables C Δe(-1) Δe(-2) Δπ(-1) Δπ(-2) ECT R2
Pak-Canada 0.00
(0.00)
[0.42]
0.20
(0.05)
[ 3.03]
0.04
(0.05)
[ 0.82]
1.16
(0.4)
[3.05]
-0.4
(0.4)
[ -1.01]
-0.84
(0.09)
[-9.02]
0.44
Pak-China -0.00
(0.00)
[0.08]
0.071
(0.165
[ 0.43]
0.07
(0.13)
[ 0.63]
-0,24
(0.46)
[ 0.52]
0.98
(0.45)
[2.20]
-0.976
(0.21)
[-4.63]
0.48
Pak-France 0.00
(0.00)
[0.03]
0.105
(0.07)
[ 1.44]
-0.064
(0.06)
[-1.07]
0.514
(0.71)
[ 0.72]
-0.18
(0.71)
[-0.26]
-0.825
(0.10)
[-7.93]
0.40
Pak-Germany -0.00
(0.01)
[-0.0]
0.07
(0.08)
[0.98]
-0.106
(0.06)
[-1.73]
0.65
(0.65)
[0.99]
-0.25
(0.65)
[-0.38]
-0.85
(0.11)
[-7.86]
0.43
Pak-HK -0.00
(0.00)
[0.30]
0.21
(0.09)
[ 2.23]
0.03
(0.08)
[-0.36]
-0.098
(0.24)
[ -0.4]
-0.12
(0.24)
[-0.49]
-0.76
(0.11)
[-6.94]
0.37
Pak-Japan -0.00
(0.00)
[0.19]
-0.17
(0.09)
[-1.8]
-0.37
(0.07)
[-4.93]
0.21
(0.10)
[ 2.03]
0.27
(0.10)
[2.69]
-0.50
(0.11)
[-4.5]
0.48
Pak-Korea 0.00
(0.00)
[0.22]
0.16
(0.09)
[ 1.6]
-0.06
(0.08)
[-0.76]
0.03
(0.00)
[ 3.06]
0.02
(0.01)
[1.72]
-0.98
(0.13)
[-7.33]
0.46
Pak-Kuwait 0.00
(0.00)
[0.01]
0.09
(0.09)
[ 0.96]
-0.09
(0.08)
[-1.12]
-0.23
(0.07)
[-3.19]
-0.15
(0.06)
[-2.42]
-0.67
(0.10)
[-6.21]
0.35
Pak-Malaysia 0.00
(0.00)
[0.15]
0.08
(0.06)
[ 1.35]
0.01
(0.06)
[ 0.24]
0.55
(0.26)
[2.06]
-0.08
(0.26)
[-0.32]
-0.63
(0.08)
[-7.37]
0.33
Pak-Saudi
Arabia
0.00
(0.00)
[0.13]
0.12
(0.05)
[2.34]
-0.05
(0.05)
[-1.08]
0.02
(0.07)
[0.29]
-0.035
(0.07)
[-0.47]
-0.59
(0.08)
[-7.46]
0.31
Pak-UAE 0.00
(0.00)
[0.07]
0.12
0.05)
[ 2.20]
-0.058
(0.04)
[-1.19]
0.04
(0.08)
[ 0.49]
0.06
(0.08)
[ 0.74]
-0.59
(0.08)
[-7.35]
0.30
Pak-UK 0.00
(0.00)
[0.21]
0.20
(0.07)
[ 2.58]
0.00
(0.06)
[ 0.05]
0.64
(0.32)
[1.99]
0.41
(0.31)
[1.31]
-1.02
(0.11)
[-9.14]
0.45
Pak-USA 0.00
(0.00)
[0.34]
0.21
(0.05)
[3.99]
0.00
(0.05)
[0.08]
0.44
(0.24)
[1.78]
0.23
(0.25)
[0.94]
-0.62
(0.08)
[-7.68]
0.32
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According to the result speed of adjustment of exchange rate change towards eliminating disequilibrium within
a quarter varies among countries. The absolute values of the error correction terms are 85, 97, 82, 85, 76, 50, 98,
67, 63,59,59,102, 62,between Pakistan and Canada, China, France, Germany and Hong Kong, Japan, Korea,
Kuwait, Malaysia,Saudi Arabia, United Kingdom and United States of America respectively. Allestimated
coefficients in percentage revealed adjustment in one quarter due to disequilibrium and designated that any
change in inflation rate differentials between these pairs of countries created disequilibrium will be corrected by
the adjustment in the value of exchange rates in one quarter. Results clearly show that for all countries pair
speed of adjustment is very high and there is quick convergence towards equilibrium. These results also express
that there are close ties between Pakistan and its thirteen main trading partners.
In recent research Panel Data got more attention, as they give more efficient results, suitable to detect and
measure effects and study the dynamics of change and they are time series dimension with that from the cross
section dimension, such that fewer time observations are required for the test to have power.
Current literatures recommend panel unit root tests as compare to tests based on individual time series as panel
has higher power. Four different types of tests commonly known as panel unit root. Levin, Lin and Chu (2002),
on the one hand, have null “unit root, assume common unit root process,on the other hand, Im, Pesaran and Shin
(2003), Fisher-type tests using ADF and PP tests (Maddala and Wu (1999) and Choi (2001), have null “unit
root, assume individual unit root process”.
Table5 Panel Unit Root Test
Variable (Levels, C) LLC IPS ADF PP
Δ℮ -3.38*
(0.00)
-43.75*
(0.00)
1073*
(0.00)
1168*
(0.00)
πd − πf t 4.4
(1.00)
-8.1*
(0.00)
157*
(0.00)
867*
(0.00)
Thus, the evidence recommends that the both variables are progress as non-stationary processes and estimated
results of OLS are biased and unreliable.Therefore, it is required to apply panel co-integration techniques for the
determinationof a long-run equilibrium relationship existence between the non-stationary variables in level
form.
Table 6 Panel Co-Integration Result
Panel Statistics Group Statistics
Variance-Ratio 38.73* (0.00)
Rho-Statistics -56.53* (0.00) -51.97* (0.00)
PP-Statistics -35.81* (0.00) -41.32* (0.00)
ADF-Statistics -36.52* (0.00) -43.41* (0.00)
N=13, T= 2132
Table 6 represented the Pedronico-integration result. Seven out of seven statistics verified the existence of co-
integration in the panel and long run relationship among countries as group. In the case of panel statistics, the
first-order autoregressive term is assumed to be the same across all the cross sections, while in the case of group
panel statistics the parameter is allowed to vary over the cross sections. As autoregressive term is same across
sections in panel statistics and parameter is varying over the cross sections. The null is rejected in the panel case,
and the expected inflation rate differentials are co-integrated for all the countries. On the other hand, the null is
rejected in the group panel, andco-integration betweenthe changeability of exchange rate and expected inflation
rate differential exists for at least one of the country-pair.
V. CONCLUSION
This study is an empirical work to find out the existence of purchasing power parity theory in Pakistan with its
thirteen trading partner countries. Estimated OLS results demonstrate a weak form of existence of the theory.
One reason of deviation from PPP theory is the forecasting error about expected inflation in different
economies. Results indicated that inflation differential does not only the determinant of exchange rate
change.Unit root, co-integration and panel co-integration tests revealed that almost all countries-pair are
integrated andexposed the existence of long run equilibrium relationship between Pakistan and sample
countries. Panel unit root test and Pedronico-integration test results also expressed that expected inflation rate
differential have a positive and significant effect on exchange rate change between Pakistan and its trading
partners during the sample period. The results also provided the strong evidence that economic integration
between foreign exchange markets and commodity markets among the sample countries is very high.
8. Economic Integration Of Pakistan: An Empirical Test Of Purchasing Power Parity
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On the other hand, Pakistan‟s exports and imports demands are less sensitive to the change in prices, asexpected
inflation and deflation rates in Pakistan do not influence trade balance proportionately.
For getting the proper fruits of globalization it is required to enhance the canvas of exports quantity and
numbers of export items. Reliance on traditional export items should be shrink.Policy makers should encourage
investors to invest in (ISI) import substitute industries and provide subsidy to infant industry at certain level. It
is also recommended that there is plenty of rooms in the functioning of commodity markets. More emphasis on
investments in market infrastructure: trekking new destinations for exports and imports, provision of rail and
road transport at domestic level, discontinue supply of power, gas, and water, distributing reliable market
information. Now it is the responsibility of policy makers and implementers to work for the improvement and
easy access of infra-structure for all in general andspecific for private investors.
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