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Growth and welfare effects of monetary volatility
No full textIn this paper we use a continuous-time, stochastic, dynamic general equilibrium model to provide estimates of the growth and welfare effects of monetary volatility. Our primary concern is to highlight the long-run consequences of different monetary environments in a small open economy. Using UK-relevant data to set key parameter values in the model, we carry out three policy experiments. We find that (i) eliminating monetary growth shocks and (ii) reducing the infation rate can each generate positive growth and welfare effects, while (iii) reducing the interest rate depresses growth and is welfare deteriorating. However, these results are sensitive to the values set for the risk aversion and intertemporal substitution parameters. Most notably, in some cases, high degrees of risk aversion are suffcient to change the direction of the infuence of volatility on growth and welfare an issue currently challenging the profession
Some issues of bay' al-'inah in Malaysian Islamic financial markets
No full textThe contract of bay' al-'inah normally involves a sale of an asset or property by a first party to a second party for immediate or spot payment followed by an immediate sale of the same asset by the second party to the first party for a higher amount on deferred payments. The asset is by no means useful to both parties either for consumption purposes or derivation of usufruct (manfaah). Apparently this device is used to bypass the Quranic prohibition of interest as riba since the main objective of the contract involvess two consenting parties both of whom are willing to pay and receive a contractual rate of return on a loan
A comparison of transactions in conventional and Islamic economies
No full textThis paper compares the transactions costs in two economies, one conventional, the other Islamic. The conventional economy is characterized by borrowing to finance some current purchases, while the Islamic economy disallows interest-based lending and operates on the basis of universal banking that mixes commerce and commercial and investment banking. To finance current purchases, it provides customers with credit purchase agreements, which entail that the bank buy the commodities and assets from suppliers and resell them on credit to customers satisfying conditions of creditworthiness similar to those that conventional banks require for borrowers. The paper uses simple calculations to compare transactions costs in both economies. It argues that under competitive competition, credit purchase arrangements occasion lower transactions costs than borrow-and-purchase arrangements in the conventional economy. The most important implication is that a policy that lifts entry barriers in the Islamic banking market and allows banks to combine commerce with banking activities contributes to social welfare. The paper concludes with suggestions for further points of research
A reassessment of long-run elasticities of Japanese import demand
No full textUnlike the findings of Mah (1994) [Mah, J.S. (1994) Japanese Import Demand Behaviour: The Cointegration Approach. Journal of Policy Modeling 16:291-298] who, based on the Engle-Granger test of cointegration, fails to find evidence of a long-run relationship among variables associated with an import demand function for Japan, in this analysis the Johansen's MLE multivariate cointegration procedure reveals that such variables seem to be cointegrated, and thus share a long-run equilibrium relationship. Furthermore, the recently prescribed Stock and Watson (1993) Dynamic OLS (DOLS) procedure, which, apart from being superior to a number of alternative estimators, is robust to small sample and simultaneity bias as well as being able to accommodate higher orders of integration, is employed to derive long-run import price and income elasticity estimates. Results reveal that both price and income variables do affect import demand significantly, and more interestingly, contrary to previous findings, play an important role in explaining Japanese import demand, at least over the long run. This finding is quite intuitive in that, although nonmarket forces did play a role in destablilizing Japanese import demand, this was most likely a short-run phenomena. Over the long term, however, such theoretically postulated economic influences outweighed short-run disturbances in achieving an equilibrium relationship. Finally, the innovative analytical techniques used in this study have a far-reaching potential for use in future applied research in a variety of fields
The dynamics of fertility, family planning and female education in a developing economy
No full textUnlike most empirical works on fertility analysis, this study is the first attempt to analyse the dynamics of fertility and its determinants with a particular focus on the role played by female education and family planning programmes in the context of a traditional society. The analysis is based on the application of the following dynamic time-series techniques in a multivariate context: cointegration, vector error-correction modelling and variance decompositions. These `dynamic' tools are recently developed and hitherto untried in fertility analysis in the context of a poor developing economy, such as India. The results based on the above most recently developed methodology, broadly indicate that in the complex dynamic interactions, the importance of conventional `structural - hypothesis as a `Granger-causal' factor in bringing fertility down in the longer term cannot be denied. However, overall, in the short to long term, the findings appear to be more consistent with the recent `ideational' hypothesis (emphasizing the critical role played by the two policy variables in the analysis - i.e. changes in the female secondary enrolment ratios, and family planning programmes to ensure `initial' fertility decline) than with the conventional `structural' hypothesis (emphasizing a signifcant socio-economic structural change as a pre-condition for `initial' fertility decline)
Dynamic price relationship between small and large stocks
No full textAsymmetric 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
Is a significant socio-economic structural change a pre-requisite for `initial' fertility decline in the LDCs? Evidence from Thailand based on a multivariate cointegration/vector error correction modelling approach
No full textThis 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
Are Asian stock market fluctuations due mainly to intra-regional contagion effects? Evidence based on Asian emerging stock markets
No full textThe main purpose of the study is: i. to examine the long- and short-term dynamic linkages among international and Asian emerging stock markets and then ii. try to quantify the extent of the Asian stock market fluctuations which are explained by intra-regional contagion effect. The study, therefore, proceeds first by examining the dynamic causal
linkages among eight national daily stock price indices four major established markets and four Asian emerging markets. and then quantifying the extent of their dynamic interdependencies through the application of recent time-series econometric techniques a. vector error-correction model Toda and Phillips, 1993. and b. level VAR model containing integrated and cointegrated processes of arbitrary orders Toda and Yamamoto, 1995. At the global level, the findings tend to confirm the widely-held view of the leadership of the US over both the short- and long-term and the existence of a significant short- and long-term relationship between the established OECD and the emerging Asian market
Al-bay' bithaman ajil financing: impacts on Islamic banking performance
No full textThe dual-banking system in Malaysia is expected to put Islamic banks at a disadvantage due to the latter's over-dependency on fixed rate asset financing such as al-bay' bithaman qjil and murabuhah. When interest rates are rising, rational product choice among non-Muslim customers is expected to produce a shifting effect that may frustrate deposit mobilization and at the same time able deplete an Islamic bank's earnings. The shifting effect occurs when NMC either transfer deposits from Islamic banks to conventional banks, or, in a period of declining interest rates, opt for loans rather than for deferred sale financing. These shifts occur solely due to pecuniary incentives sought by NMC as the suppliers of deposits or demanders of funds. During an economic slowdown normally accompanied by falling interest rates, the shifting effect is expected to increase idle balances as the demand for fixed rate asset financing declines. Thus, in the choice of banking products, it is argued that NMCs will be the main beneficiaries of the dual-banking system since they are open to more options than the Muslim customers (MC). Consistent with these expectations, we find that profit margins of Bank Islam Malaysia suffered a decline between the 1996-1997 period of rising interest rates while interest margins of conventional banks showed a rising trend
The application of bay' al-'inah and bay' al-dayn in Malaysian Islamic bonds: an Islamic analysis
No full textFinancial contracts involving use of bay' al-inah and bay' al-dayn have been extensively used in design of Malaysian Islamic bonds. This paper argues that both these mechanisms have been found unacceptable by the majority of Islamic scholars and proposes the use of financing based on Muqarada and Musharaka principles as genuine alternatives to interest-bearing financial instruments