scholarly journals Does Financial Deepening Cause Liquidity Problems for Banks? Evidence from Nigeria

2021 ◽  
pp. 242-257
Author(s):  
Kayode, Peter Akinyemi ◽  
Ajayi, David Adelagun ◽  
Awosusi, Charles Temitope
Keyword(s):  
Error Correction ◽  
Banking System ◽  
Analytical Techniques ◽  
Financial Deepening ◽  
Monetary Policies ◽  
Vector Autoregressive ◽  
Vector Error Correction ◽  
Vector Error ◽  
Long Run ◽  
Short Run

Attempt to facilitate economic growth makes the Central Banks to formulate monetary policies that seek to deepen the provision of financial resources to target sectors. Since Banks are the main channels through which monetary policies are executed, we attempted to examine whether financial deepening cause liquidity problem among Nigerian banks in this study. We employed time series analytical techniques to analyze selected financial deepening indicators and data for banking system liquidity between 1981 and 2019. The financial deepening variables used include of broad money to the gross domestic product (GDP) ratio; credit to private sector to the GDP ratio; ratio of commercial banks liabilities to the GDP; financial sector contribution to the GDP and ratio of market capitalization to the GDP. On the other hand, the liquidity of the banking system is proxy by its loan/deposit ratio for the period under study. We estimated the statistical properties of the variables examined and conducted some pre-estimation tests (stationarity and co-integration) to ascertain choice estimation techniques. We used a vector error correction mechanism to investigate long and short-run effects of financial deepening on Nigerian banking system liquidity. Both the long run vector autoregressive (VAR) and the short run and vector error correction (VEC) models results showed that there is a positive but statistically insignificant relationship between banking system liquidity and financial deepening variables. In addition, the results of the Granger causality between the dependent and independent variables revealed that there exists no causal relationship between the liquidity of the banking system and financial deepening. These findings imply that financial deepening did not impair banks’ liquidity position in Nigeria during the years under review. The study concluded that financial deepening does not cause liquidity problem for banks in Nigeria; rather, if well managed, can have positive effect on it. In the light of this, the study recommends that banks should re-strategize in the implementation of financial deepening policies that are liquidity friendly and that the Central Bank of Nigeria, should formulate policies that will not only focus on credit and loan beneficiaries, but also on the banks.

scholarly journals Analysis of Internal and External Determinant Variables towards Profitability of Islamic Banking in Indonesia (2014-2020)

2021 ◽  
Vol 4 (1) ◽  
pp. 18-34
Author(s):  
Febri Ramadhani ◽  
Muhammad Rizkan
Keyword(s):  
Negative Relationship ◽  
Banking System ◽  
Islamic Banking ◽  
Correction Model ◽  
Factors Affecting ◽  
Vector Error Correction ◽  
Vector Error ◽  
Long Run ◽  
Short Run ◽  
Relationship Of

Indonesia is a country that adheres to a dual banking system, namely conventional and Islamic Banking. The growth rate of Islamic banking in the last three years is higher than conventional banking. However, in total assets, Islamic banking is still far behind conventional banking. Therefore, it is necessary to study further the performance of Islamic banking reflected in its profitability. So, it becomes an alternative input in determining Islamic banking policies. This study aims to know the factors affecting the profitability (ROA) of Islamic Banking in Indonesia. The data used are the 2014-2020 monthly data in the amount of 79 data. The method used in this study is a Vector Error Correction Model (VECM) to determine the effect of long-run and short-run relationships. The results of the study showed that the long-run relationship of the NPF variable affected and was significant positive toward ROA, CAR affected and was significant negative toward ROA, while the inflation variable had a negative relationship and not significant toward ROA. The results of the short-run relationships showed that the NPF and CAR variables positively affected ROA, while the inflation variable did not significantly affect the ROA.

scholarly journals Do Diaspora Remittances Guarantee Food Security in Nigeria?

2021 ◽  
pp. 36-53
Author(s):  
Onime, Bright Enakhe ◽  
E. Kalu, Ijeoma
Keyword(s):  
Food Security ◽  
Error Correction ◽  
Correction Term ◽  
Secondary Data ◽  
Vector Error Correction ◽  
Current Period ◽  
Vector Error ◽  
Long Run ◽  
Short Run ◽  
Security Challenge

The burgeoning remittances into Nigeria and their effect on the economy have received renewed attention in recent times. Literature has suggested the existence of a relationship between remittances and food security. The extent to which this is true for Nigeria is uncertain. Using Vector Error Correction Model (VECM), this study examined the link between remittances and food security using secondary data for the period 1980 to 2018. Findings revealed a robust long and short-run relationship between remittances and food security. In the short-run, a positive and significant relationship was found between remittances and food security in the current period such that a 1 per cent increase in remittances was associated with a 5.08 per cent improvement in food security. In the long-run, a cointegrated relationship was observed as the error correction term depicting this relationship was well-behaved, properly signed and significant indicating that any previous period deviation in long-run equilibrium is corrected in the current period at an adjustment speed of 28.8 per cent. In addition, the Granger test suggests a unidirectional causality running from remittances to food security such that past values of remittances determined food security during the period investigated. Consequent to the findings, the study recommended with a caveat, the design and proper implementation of a diaspora and remittances policy to cater for the welfare of Nigerians in the diaspora to improve remittance receipts and by implication, food security. However, since remittances alone cannot guarantee food security in Nigeria, this study further recommends a holistic and multidimensional approach to address the food security challenge and close the food deficit gap.

scholarly journals DETERMINANTS OF THE DEMAND FOR IMPORT OF BANGLADESH: A COINTEGRATION AND VECTOR ERROR CORRECTION ANALYSIS

2020 ◽  
pp. 23-30
Author(s):  
Maila Lama
Keyword(s):  
Error Correction ◽  
Foreign Exchange ◽  
Trade Deficit ◽  
Import Demand ◽  
Foreign Exchange Reserves ◽  
Vector Error Correction ◽  
Real Gdp ◽  
Vector Error ◽  
Long Run ◽  
Short Run

This paper examines the determinants of import demand of Bangladesh by using the time series data for the period 1990-91 to 2015-16. The study found that both export and import of the country has increased significantly after the liberalization of its economy in early 1990s. But its import has always been higher than export resulting in widening of its trade deficit. Its export destinations are located in distant countries; USA, Germany and UK while its imports sources are neighbouring countries like China and India. Johansen’s cointegration method and vector error correction model was applied to estimate the determinants of its import demand. The results showed that there was a long-run relationship between real import, real GDP and Foreign exchange reserves. In the long-run, import was found to be more elastic to real GDP and inelastic with respect to foreign exchange reserves. The VEC model indicated that any deviation in import in the short-run would get corrected within a period of less than one year. The import was more elastic to real income in the short-run than in the long-run. The evidences showed that the volume of import would increase faster with increase in real GDP and would deteriorate the country’s trade balance unless accompanied by high export growth. Hence, there is a need to invest in establishing import substitute industries to control imports and promote exports to reduce trade deficit. KEYWORDS: Import, trade policy, real GDP, foreign exchange reserve, cointegration

scholarly journals REVISITING KEYNES’ INVESTMENT AND SAVING MODEL IN INDONESIA

2020 ◽  
Vol XVIII (2) ◽  
pp. 45-58
Keyword(s):  
Error Correction ◽  
Causal Relationship ◽  
Granger Causality Test ◽  
Vector Error Correction Model ◽  
Causality Test ◽  
Correction Model ◽  
Vector Error Correction ◽  
Vector Error ◽  
Long Run ◽  
Short Run

This study aims to analyze the Keynes’ investment and saving model in Indonesia from 1981 to 2018. The researchers use the econometric test from the Granger causality test to find the short-run causal relationship and the Vector Error Correction Model to reveal both the short-run and long-run effects in the model. The result of Granger causality test demonstrates that there is no short-run causal relationship between these two variables. In the short-run, the increase in saving affects the consumption loans more compared to the investment loans. Besides, increased consumption compared to saving has more influence in raising investment. However, the Vector Error Correction Model proves that saving negatively affects investment in the long-run. This model empirically supports the long-run Keynes’ investment and saving model. Consequently, the Indonesian government needs to consider saving as a policy instrument to increase investment in the longrun.

Measuring Monetary Policy in Germany: A Structural Vector Error Correction Approach

2003 ◽  
Vol 4 (3) ◽  
pp. 307-339 ◽  
Author(s):  
Imke Brüggemann
Keyword(s):  
Monetary Policy ◽  
Error Correction ◽  
Structural Break ◽  
Vector Error Correction ◽  
Vector Error ◽  
Long Run ◽  
Short Run ◽  
Monetary Policy Shock ◽  
German Data ◽  
Structural Vector

Abstract A structural vector error correction (SVEC) model is used to investigate several monetary policy issues. While being data-oriented the SVEC framework allows structural modeling of the short-run and long-run properties of the data. The statistical model is estimated with monthly German data for 1975-98 where a structural break is detected in 1984. After splitting the sample, three stable long-run relations are found in each subsample which can be interpreted in terms of a moneydemand equation, a policy rule and a relation for real output, respectively. Since the cointegration restrictions imply a particular shape of the long-run covariance matrix this information can be used to distinguish between permanent and transitory innovations in the estimated system. Additional restrictions are introduced to identify a monetary policy shock.

scholarly journals Price Dynamics of Domestic and International Wheat Markets: A Vector Error Correction Mechanism (VECM) Approach

2021 ◽  
pp. 15-20
Author(s):  
A. G. Sabhaya ◽  
S. M. Upadhyay ◽  
P. R. Vekariya ◽  
B. Swaminathan
Keyword(s):  
United States ◽  
Error Correction ◽  
Market Integration ◽  
Vector Error Correction ◽  
Vector Error ◽  
Integration Approach ◽  
Long Run ◽  
Error Correction Mechanism ◽  
Production And Distribution ◽  
Short Run

Market integration in agricultural commodities is vital for both developed and developing countries alike. If prices are not dreamily transmitted, then it may lead to biases in production and distribution. The strength of interdependence among markets and the speed in which the changes are passed through determine the degree of integration and the global efficiency of markets. This study examines the long-run and short-run integration of domestic and international wheat markets using Co-integration approach within the framework of Vector Error Correction Mechanism (VECM). A sample of two domestic wheat markets comprising two from the national wheat markets of Mathura (UP) and Khanna (Punjab) were selected along with two international wheat markets comprising from United States and Argentina. Analysis was carried out using the monthly price data between January 2003 and Dec 2019. Findings discovered that the prices became stationary merely upon first differencing. The presence of integration was confirmed among markets involving that there is price conduction.

scholarly journals Effect of Liquidity Management on Profitability of Commercial Banks in Nigeria

2021 ◽  
Vol 6 (2) ◽  
pp. 25-34
Author(s):  
Oreoluwa Olaleye ◽  
Muhammed Adesina ◽  
Sulaiman Yusuf
Keyword(s):  
Error Correction ◽  
Commercial Banks ◽  
Profit Maximization ◽  
Unique Contribution ◽  
Liquidity Management ◽  
Vector Error Correction ◽  
Vector Error ◽  
Long Run ◽  
Negative Effect ◽  
Short Run

Introduction: Commercial banks in Nigeria are more engrossed with profit maximization and as such they tend to neglect the importance of liquidity management. This eventually leads to financial indebtedness and consequently low patronage and deposit flight. Purpose: This study examined the effect of liquidity management on profitability of commercial banks in Nigeria using data obtained from the financial statements of tier 1 banks over the period 1998 to 2018. Methodology: The study employed the correlational research design and engaged the Johansen test with the vector error correction model to access the long run and short run relationship among the variables. Findings: The results of the Johansen test revealed at most two cointegrating equations among the variables, while result of vector error correction revealed a positive effect of liquidity on return on asset and return on equity but a negative effect on net profit margin. Results revealed a fairly stable trend in the liquidity and profitability indicators from 1998-2018 and concluded that banks controlled enough liquidity to serve their obligations. Unique contribution to theory, practice and policy: The study recommends that the central bank of Nigeria should maintain the regulation over the minimum liquidity of commercial banks as this affects their profitability.

scholarly journals Modeling I(2) Processes Using Vector Autoregressions Where the Lag Length Increases with the Sample Size

Econometrics ◽  
2020 ◽  
Vol 8 (3) ◽  
pp. 38
Author(s):  
Yuanyuan Li ◽  
Dietmar Bauer
Keyword(s):  
Sample Size ◽  
Error Correction ◽  
Vector Autoregressions ◽  
Reduced Rank Regression ◽  
Vector Autoregressive ◽  
Vector Error Correction ◽  
Vector Error ◽  
Pseudo Likelihood ◽  
Long Run ◽  
Stage Estimation

In this paper the theory on the estimation of vector autoregressive (VAR) models for I(2) processes is extended to the case of long VAR approximation of more general processes. Hereby the order of the autoregression is allowed to tend to infinity at a certain rate depending on the sample size. We deal with unrestricted OLS estimators (in the model formulated in levels as well as in vector error correction form) as well as with two stage estimation (2SI2) in the vector error correction model (VECM) formulation. Our main results are analogous to the I(1) case: We show that the long VAR approximation leads to consistent estimates of the long and short run dynamics. Furthermore, tests on the autoregressive coefficients follow standard asymptotics. The pseudo likelihood ratio tests on the cointegrating ranks (using the Gaussian likelihood) used in the 2SI2 algorithm show under the null hypothesis the same distributions as in the case of data generating processes following finite order VARs. The same holds true for the asymptotic distribution of the long run dynamics both in the unrestricted VECM estimation and the reduced rank regression in the 2SI2 algorithm. Building on these results we show that if the data is generated by an invertible VARMA process, the VAR approximation can be used in order to derive a consistent initial estimator for subsequent pseudo likelihood optimization in the VARMA model.

scholarly journals Interest rate pass-through: a nonlinear vector error-correction approach

2017 ◽  
Vol 21 (5) ◽  
Author(s):  
Michal Ksawery Popiel
Keyword(s):  
Error Correction ◽  
Mortgage Market ◽  
Correction Model ◽  
Vector Error Correction ◽  
Market Rate ◽  
Vector Error ◽  
Long Run ◽  
Short Run ◽  
Nonlinear Vector ◽  
Pass Through

AbstractThis paper analyzes pass-through from money market rates to consumer retail loan and deposit rates in Canada from 1983 to 2015 using a nonlinear vector error-correction model. This model permits estimation of long-run pass-through coefficients while simultaneously accounting for asymmetric adjustments and short-run dynamics. In contrast to empirical frameworks used in previous studies, it also allows testing of commonly made assumptions such as exogeneity of the market rate, making inference more robust. I find that pass-through was complete for all rates before the financial crisis although only after the mid 1990s for the 1 year mortgage rate. Since the end of the 2008–2009 recession, pass-through remains complete in the mortgage market but has significantly declined for deposit rates. Furthermore, many rates adjust asymmetrically but the direction of rigidity differs among rates and time periods.

scholarly journals Assessment of cassava supply response in Nigeria using vector error correction model (VECM)

Agricultura ◽  
2016 ◽  
Vol 13 (1-2) ◽  
pp. 79-86
Author(s):  
Oluwakemi Adeola Obayelu ◽  
Samuel Ebute
Keyword(s):  
Error Correction ◽  
Error Correction Model ◽  
Vector Error Correction Model ◽  
Agricultural Commodities ◽  
Correction Model ◽  
Vector Error Correction ◽  
Vector Error ◽  
Long Run ◽  
Short Run ◽  
Cassava Production

Abstract The response of agricultural commodities to changes in price is an important factor in the success of any reform programme in agricultural sector of Nigeria. The producers of traditional agricultural commodities, such as cassava, face the world market directly. Consequently, the producer price of cassava has become unstable, which is a disincentive for both its production and trade. This study investigated cassava supply response to changes in price. Data collected from FAOSTAT from 1966 to 2010 were analysed using Vector Error Correction Model (VECM) approach. The results of the VECM for the estimation of short run adjustment of the variables toward their long run relationship showed a linear deterministic trend in the data and that Area cultivated and own prices jointly explained 74% and 63% of the variation in the Nigeria cassava output in the short run and long-run respectively. Cassava prices (P<0.001) and land cultivated (P<0.1) had positive influence on cassava supply in the short-run. The short-run price elasticity was 0.38 indicating that price policies were effective in the short-run promotion of cassava production in Nigeria. However, in the long-run elasticity cassava was not responsive to price incentives significantly. This suggests that price policies are not effective in the long-run promotion of cassava production in the country owing to instability in governance and government policies.

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