We investigate the empirical validity of the monetary model of the exchange rate (Rand / Dollar = ZAR / $ = e) using a technique (ARDL Bounds test) capable of testing for the existence of a long-run relationship regardless of whether the underlying time series are individually I(I) or I(O). Monetary fundamental variables (money supply, income, interest rate) are augmented by the stock market prices. We find evidence supporting the existence of a long-run relationship between the ZAR / $ exchange rate and fundamental variables, including stock prices. With the exception of relative money supplies where, we offer various explanations, all variables have the correct sign and plausible magnitudes.
This study seeks to find out whether financial development in Ghana conforms to either the Supply-leading, demand-following or Patrick's Stages of development hypotheses. A bivariate VAR model is estimated in four scenarios, after which Granger-causality Test, Impulse Response Function and Variance Decomposition analyses were conducted for each respective scenario of the VAR. Whereas there is some evidence in support of demand-following hypothesis, when growth of broad money to GDP ratio is used as a measure of financial development, there is no significant evidence to support either the supply-leading or demand-following hypotheses when growth in domestic credit to GDP ratio, private credit to GDP ratio, and private credit to domestic credit ratio are used as proxies for financial development. Also, in all the four scenarios, there is no statistical evidence to support Patrick's stages of development hypothesis in Ghana.
This paper explores the structure of volatility on the JSE Securities Exchange of South Africa by employing ARCH-type models. Although the evidence suggests that volatility is prevalent on this market, it is established that the effects of shocks on volatility are symmetric, and that volatility is not a commonly priced factor. Hence, the standard GARCH(1,1) model provides the best description of the return dynamics relative to its complex augmentations. Further, application of the BDS test shows that the model significantly, but less than fully, accounts for non-linearities in the series.
We examine the impact of aid and export revenue; and their volatilities on domestic private and public investment in Cameroon. Our results show that export revenue is almost three times more volatile than aid. Export has a significant positive impact on both private and public investment, while aid has a positive influence only on public investment. Both export and aid volatilities hurt both types of investment. Through the use of interaction variables, we show that export revenue can completely eliminate the impact of aid volatility on investment, but aid is unable to do same with export volatility. Reducing export volatility is more of a priority for Cameroon than aid volatility.