Cointegration

The pricing of medicines and health products ranks among the most hotly debated topics in health policy, generating controversy in richer and poorer markets alike. Creating the right pricing structure for pharmaceuticals and other healthcare products is particularly important for low-and middle-income countries, where pharmaceuticals account for a significant portion of total health expenditure; high medicine prices therefore threaten the feasibility and sustainability of nascent schemes for universal health coverage (UHC). We argue that a strategic system of value-based tiered pricing (VBTP), wherein each country would pay a price for each health product commensurate with the local value it provides, could improve access, enhance efficiency, and empower countries to negotiate with product manufacturers. This paper attempts to further understanding on the potential value of tiered pricing, barriers to its implementation, and potential strategies to overcome those.

The purpose of this paper is to measure the risks posed by the COVID-19 outbreak on financial market indicators, which caused uncertainty and fear all over the world. In the paper, the Fourier KPSS unit root test, which helps to measure structural breaks more precisely by means of the Fourier transformations in time series, the Fourier-SHIN Cointegration Test to determine long-term relationships between time series, and the Fourier Granger Causality Test to determine causality relationships are used. As a result of these tests applied on the daily price series between 31.12.2019 and 01.05.2020, it has been found that in the long term, the COVID-19 outbreak has a significant effect on stock markets, crude oil representing oil markets, and fear index; but no significant effect on Bitcoin which represents money markets. In the short term, it is concluded that COVID-19 has had a significant effect on stock markets, crude oil, fear index, and Bitcoin.

The main purpose of this research paper is to explore and understand the nature of association and the possible existence of a short run and long run relationship between US Dollar, EURO, British Pound and Japanese Yen. To find out the relationship among currencies USD/INR, EUR/INR, GBP/INR and JPY/INR pairs are considered. The main idea is to know how these selected indicators are related to each other. The daily basis 2781 observations for all four variables from year 2007 to 2018 are taken into consideration. Data are collected from website of Reserve Bank of India. The stationarity of time series is checked and differentiated as per requirement. Johansen co-integration test to know the long run relationship between variables is used. The result shows that there is no co-integration equation among the variables. The short run relationship is examined with help of Vector Auto-regression (VAR) model and the short run relationship within different lags of variables has been identifi...

In this paper we propose a simple method of testing for cointegration in models that allow for multiple shifts in the long-run relationship. The procedure consists of carrying out conventional residual-based tests with standardized residuals from an appropriate Markov switching model. Our Monte Carlo results show that standard tests work well, even though their asymptotic validity can be questioned because they are not based on least-squares residuals. An empirical application to the present-value model of stock prices is also discussed.

Recent cross-country empirical evidence indicates that the money-prices relationship depends on the level of inflation. This relationship is close to proportional for high inflation economies, but weakens when mean inflation is lower. Based on these findings, we focus on the Argentine experience along the last 30 years. Using descriptive analysis as well as cointegration tests we find that proportionality holds for the high inflation period but weakens under the low inflation regime. Money velocity is quite volatile but keeps a positive correlation with inflation in the long run. Under low inflation, velocity correlates negatively with money growth, a result consistent with the empirical evidence in the literature. We use VAR analysis to study the short-run dynamics of money and prices under high and low inflation. Including relevant macroeconomic variables such as the nominal interest rate, the exchange rate depreciation and GDP growth we study the transmission of nominal shocks to...

Several industrialized countries have signed the Kyoto Protocol, promising to reduce greenhouse gasses 8 (GHG) emissions. To reduce or mitigate such emissions several policies including reducing energy con-9 sumption, increasing energy efficiency, decreasing energy intensity and forestation may be possible. The 10 viability and effectiveness of each policy may differ due to country specific factors. This paper tries to 11 assess the impact of a change in energy consumption on income and vice versa in G-7 countries. We employ 12 multivariate cointegration, error correction models and generalized variance decompositions and uncover 13 Granger causality relation between energy consumption and income in all countries. However, the direction 14 of causality seems to differ across countries. This may suggest that although they are at the same level of 15 economic development, different policy alternatives in support of the protocol may be available in each 16 country.

Using panel data, this paper tests whether public and private capital have a positive and significant effect on aggregate output and labor productivity for Mexico during the 1960-2001 period. The richer information set made possible by the sectorial data enables this study to utilize the methodologically sound "group-mean" Fully Modified Ordinary Least Squares (FMOLS) procedure developed by Pedroni to generate consistent estimates of the relevant panel variables in the cointegrated production (labor productivity) function. The results suggest that, in the long run, changes in the stocks of public and private capital and the economically active population (EAP) have a positive and economically significant effect on output (and labor productivity). The period is also broken down into two sub-periods: 1960-81 (state-led industrialization) and 1982-2001 (neoliberal model). The estimate for the public capital variables clearly shows that it had a relatively more important economic effect during the earlier state-led period.

This paper examines the impact of the Athens 2004 Olympic Games on the Greek economy. Using a small aggregate macroeconometric model we find evidence to support the view that the Olympics is an event that could successfully boost the economy of the host city by generating benefits that outweigh the preparation cost. Consistent with recent literature in this area, whilst the impact effects are quite strong during the preparation phase and the year the Games took place, the long-term economic legacy effects appear to be quite modest.

This paper investigates the relationship between human capital and economic growth in Pakistan with aggregate time series data. Estimated with the Johansen (1991) approach, the fitted model indicates a critical role for human capital in boosting the economy’s capacity to absorb world technical progress. Much higher returns, including spillovers, to secondary schooling in Pakistan than in OECD economies is consistent with very substantial education under-investment in Pakistan. Similarly, extremely large returns to health spending compare very favorably with industrial investment. Human capital is estimated to have accounted for just under one-fifth of the increase in Pakistan’s GDP per head. Since the 1990s, the impact of deficient human capital policies is shown by the negative contribution to economic growth.

This paper examined the demand for broad money and its long run stability in Ghana. Multivariate time series approach was used. Since all the variables are integrated of order one, Johansen's cointegration approach is used to establish that the variables are cointegrated. Hence, vector error correction model was used to find the determinants of broad money. Also, CUMSUM and CUMSUMSQ plots are used to check the long run stability of the demand function. It was established that nominal foreign interest rate and expected inflation were long run determinants of demand for money while real income and nominal exchange rate were short run determinants. Also, it was found that the long run broad money demand function was stable over the period under consideration. It was recommended that monetary policy authorities should continue to implement policies that will enhance macroeconomic stability (price stability) and facilitate economic growth. Introduction This study aims at investigatin...

This working paper gathers three projects of articles which have as a same subject inflation expectations and their use within the framework of monetary policy. It appeared convenient to synthesize them in the form of three parts of only one document, thus making it possible to the reader to have a vision as complete as possible on this question. The first part is of a theoretical nature and presents the literature. The second points out this literature, specifies the characteristics of a monetary policy founded on a direct target of inflation, and proposes an econometric analyse in the French case. The third extends this methodology to the case of the euro zone and shows the difficulties of it.

Currently, Botswana is one of high income economies in Africa. Since independence in 1966, the government has put emphasis on the development of human capital through education and skills development of the citizens. The country has dedicated much of the government funds to education to the extent possible while the contribution and payoffs of education expenditure have been limited. This study examines data from 1960-2013 and attempts to link GDP and education expenditure in a long run framework. It has been noted that member states of the United Nations are under pressure to achieve development goals and countries like Botswana need to estimate not only public spending requirements and the macroeconomic implications of financing them, but also the potential social and economic rewards associated with education. Estimations show that at least 40% of people in developing economies are illiterate and governments intend to leave no stone unturned in eliminating this problem. This study applies the Johansen cointegration test and Granger causality procedure to examine the long run affiliations of the variables. Astoundingly, for Botswana economy, there is no long run comovement between GDP and education expenditure for the period 1960-2013. It is advised to review the quality of education and the programmes offered by the local institutions. Jel code:

The paper examines the long-run relation and short-run dynamics between electricity prices and three fossil fuel pricescoal, natural gas and crude oilusing annual data for the U.S. for 1960-2007. The results suggest (1) a stable long-run relation between real prices for electricity and coal (2) Bi-directional long-run causality between coal and electricity prices. (3) Insignificant long-run relations between electricity and crude oil and/or natural gas prices. And (4) no evidence of asymmetries in the adjustment of electricity prices to deviations from equilibrium. A number of implications are addressed.

This study examines the nature of the linkages between stock market prices and exchange rates in six advanced economies, namely the US, the UK, Canada, Japan, the euro area, and Switzerland, using data on the banking crisis between 2007 and 2010. Bivariate GARCH-BEKK models are estimated producing evidence of unidirectional spillovers from stock returns to exchange rate changes in the US and the UK, in the opposite direction in Canada, and of bidirectional spillovers in the euro area and Switzerland. Furthermore, causality-invariance from stock returns to exchange rates changes is found in Japan and in the opposite direction in the euro area and Switzerland, whilst there is evidence of bidirectional feedback in the US and Canada. These findings imply limited opportunities for investors to diversify their assets during this period.

In this paper long run structural relationship for freight transport demand is derived for railways in India using annual time series data for 1960±1995. Some of the recent developments in multivariate dynamic econometric time series modelling have been employed such as estimation of long-run structural cointegrating relationship, short-run dynamics and measurement of the eects of shocks and their persistence during the evolution of dynamic freight transport demand system. The models are estimated using a cointegrating vector autoregressive (VAR) modelling framework, which allows for endogeneity of regressors. Results indicate high GDP elasticity and low price elasticity, with real freight rate, i.e. the price variable behaving exogenously with respect to the system. Any disequilibrium in the short-run is likely to be corrected in the long run via adjustments in freight transport demand and GDP. Further, the demand system seems to be stable in the long run and converges to equilibrium in a period of around 3 years after a typical system-wide shock. Ó

The aim of the study is the relationship between foreign direct investments, exports and economic growth. The analysis of this study included E7 (Emerging 7) the so-called developing countries are Turkey, Mexico, China, India, Brazil, Russia and Indonesia in the analysis in this context. This study covered the period of 1992-2018. Pesaran (2007) panel unit root test was used for the analysis of the series stationary. Panel ARDL approach, which allows short and long term relationship, is used for series with different levels of stationary. According to the results of the error correction model established for all panel, any shock in the gross domestic product equation was adjusted by approximately 0.86 % within the first year. Error correction models were estimated for all units, and error correction terms for all units expect India were obtained as negative and statistically significant. As a result of the panel causality test, one-way causality findings were found between economic growth and exports. Additionally, there was a causality relationship with foreign direct investments and exports.

The aim of this paper is to compare the relative performance of several tests for the null hypothesis of cointegration, in terms of size and power in finite samples. This is carried out using Monte Carlo simulations for a range of plausible data-generating processes. We also analyze the impact on size and power of choosing different procedures to estimate the long run variance of the errors. We found that the parametrically adjusted test of is the most well-balanced test, displaying good power and relatively few size distortions.

This paper calculates Theil's entropy index to measure the extent of productivity differences across 92 countries for the period from 1970 to 2003. While there is evidence of increasing differences in productivity across these countries, we observe different patterns when we group the countries by income levels. These differences seem to be decreasing among middle income developing and developed countries whereas they seem to be widening among low and high income developing countries. The results of our multivariate time series analysis also suggest that FDI increases productivity differences among low and high income developing countries whereas GDI reduces these differences among low income countries in the long-run. Granger causality test results indicate that while an increase in GDI leads to a decline in growth of trade, a higher growth of trade appears to be important for attracting FDI to middle income countries. Furthermore, a reduction in productivity differences and a higher FDI growth lead to higher growth of trade in developed countries.

Tax policy is among the most common and relevant instruments in the toolkit of policy-makers when thinking
about promoting growth, yet there is not compelling evidence regarding its effect in Tunisia. Using a variety of
approaches, we measure firstly the optimal tax burden rate using Scully’s static model and the quadratic model. For
Scully’s static model, gross domestic product is the dependent variable. For the quadratic model, growth rate is a
dependent variable explained by tax rate in level and in square. Secondly and according to stationary and cointegration
test results, we focus on the long-term effects on gross domestic product of the important taxes, namely tax revenue and
private receipts. In this second study, we use a basic Scully model and we develop a vector error correction model
technique. Our results show that optimal tax burden rate has to be situated between 12.8% and 19.6% of gross domestic
product which is widely lower than the current rates. The long-term analysis estimates an optimal rate of 14% of gross
domestic product which can participate to increase economic growth, to stabilize the tax evasion and to encourage
investment especially after the Tunisian revolution

Economists have investigated the relationship between output and export in order to explain economic growth for long years. Numerous studies have found very close correspondence between the growth of output and export. It is commonly known that Thirlwall's papers indicate very tight relationship between the growth of output and the ratio of the growth of exports to the income elasticity of demand for imports. This
paper aims to apply Thirlwall's balance-of-payments-constrained (BPC) model for the Turkish economy for 1968–2011 period. This research also evaluates the procedures of testing Thirlwall's principle by estimation of the income elasticity of demand for imports using the test of stationarity and cointegration methods. The findings are in accordance with the Harrod–Thirlwall growth model. The test results of Johansen cointegration
procedure and the comments on these results are presented as well.

This study aims at identifying the factors of aggregate and disaggregate crime categories in Japan over the period 1964-2009. All crime categories are related to police outlays, police numbers, unemployment, divorce and urbanization rates. Bounds testing approach to cointegration is implemented to test the existence of a long-run relationship amongst the variables. Cointegration analysis yields that the main deterrent effect on crime is the police presence and this factor is further confirmed by the real police outlays. As for the essential cause of crime, urbanization stands as the leading factor which is followed by divorce and unemployment rates. Policy implications are discussed.

Bu çalışmada, eğitim harcamaları ve sağlık-sosyal hizmet harcamaları ile GSYH arasındaki uzun dönem ilişkinin incelenmesi amaçlanmaktadır. 1998Q1-2016Q2 dönemi verileri çoklu yapısal kırılmaları dikkate alan Maki (2012) eşbütünleşme testi ile incelenmiştir. Bu doğrultuda, öncelikle Kapetanios (2005)'da geliştirilen ve çoklu yapısal kırılmaya izin veren birim kök testi uygulanmıştır. Eşbütünleşme eşitliğinde yer alan tüm değişkenler istatistiksel olarak anlamlı ve işaretleri de beklentilerle uyumludur. FMOLS yöntemiyle tahmin edilen eşbütünleşme eşitliği; eğitim harcamalarındaki %1'lik değişimin GSYH üzerinde %0,51'lik bir artışa neden olduğunu ve sağlık-sosyal hizmet harcamalarındaki %1'lik artışın ise GSYH üzerinde %0.36'lık bir artışa neden olduğunu göstermektedir.
In this study, it is aimed to examine the long term relationship among education expenditures, health-social services expenditures and GDP. 1998Q1-2016Q2 period was examined by a unit root test allowing multiple structural breaks that developed by Kapetanios (2005) and Maki (2012) cointegration test that considers multiple structural breaks. According to results of cointegration test, there is a long-run relationship between variables. And estimated cointegration equation by FMOLS method shows that; all variables in the cointegration equation are statistically significant and the signs of the variables are in line with expectations. In regard to FMOLS estimation; a 1% change in education expenditures cause a 0.51% increase in GDP, and a 1% increase in health-social services expenditures cause a 0.36% increase in GDP.

The goal of this paper is to model the impact of oil prices on Vietnam's stock prices. We use daily data for the period 2000-2008 and include the nominal exchange rate as an additional determinant of stock prices. We find that stock prices, oil prices and nominal exchange rates are cointegrated, and oil prices have a positive and statistically significant impact on stock prices. This result is inconsistent with theoretical expectations. The growth of the Vietnamese stock market was accompanied by rising oil prices. However, the boom of the stock market was marked by increasing foreign portfolio investment inflows which are estimated to have doubled from US$0.9 billion in 2005 to US$1.9 billion in 2006. There was also a change in preferences from holding foreign currencies and domestic bank deposits to stocks local market participants, and there was a rise in leveraged investment in stock as well as investments on behalf of relatives living abroad. It seems that the impact of these internal and domestic factors were more dominant than the oil price rise on the Vietnamese stock market.

In this paper we present an equilibrium model of commodity spot (s t ) and futures (f t ) prices, with finite elasticity of arbitrage services and convenience yields. By explicitly incorporating and modelling endogenously the convenience yield, our theoretical model is able to capture the existence of backwardation or contango in the long-run spot-futures equilibrium relationship, s t = β 2 f t + β 3 . When the slope of the cointegrating vector β 2 > 1(β 2 < 1) the market is under long run backwardation (contango). It is the first time in this literature in which the theoretical possibility of finding a cointegrating vector different from the standard β 2 = 1 is formally considered.

Abstract- Aggregate annual production of made tea in India is empirically analyzed in this study using time series analysis techniques. Important factors affecting tea production are identified and modeled using Vector Autoregressive (VAR) model taking two variables at a time of which one is production, the variable of interest.

This paper investigates the causal links between budget deficit (BD) and other
macroeconomic variables such as Consumer Price Index (CPI), Gross Domestic Product
(GDP) and Nominal Effective Exchange Rate (NEER) for Greece, during the period 1980-
2009. Empirical evidence based on Variance Error Correction Model (VECM) and variance
decomposition estimates indicate that the variables under study are cointegrated and that
one-way causalities exist running from NEER to BD and from BD to GDP. Moreover,
results imply that bidirectional causal links between NEER and CPI exist in the case of
Greece while GDP granger-causes CPI. However, this study finds no significant links
between budget deficit and inflation in the case of Greece. Therefore, this paper highlights
the fact that NEER has a direct impact on Greece’s budget deficit, which is in line with the
majority of relevant academic works. So, the Greek government should closely monitor the
impact of NEER on the budget deficit of Greece, especially under the severe
macroeconomic pressure that the sovereign debt crisis causes on the Greek economy since
2009.

The article empirically investigated economic growth as a function of foreign direct investment and exports in South Africa. The article applied the autoregressive distributed lag model, known as the ARDL bounds testing approach to cointegration for the long run relationship between economic growth, foreign direct investment and exports. The error correction model was used to examine the short run dynamics; and the VECM Granger causality approach was used to investigate the direction of causality. The article confirmed cointegration between economic growth, foreign direct investment and exports. The article indicates that both foreign direct investment and exports spur economic growth. The VECM Granger causality analysis found unidirectional causality between economic growth and foreign direct investment running from foreign direct investment to economic growth, unidirectional causality between foreign direct investment and exports running from foreign direct investment to exports and bidirectional causality between economic growth and exports. The article confirms the FDI-led growth hypothesis for South Africa. On the policy front, the government should stimulate foreign direct investment through incentives to investors, creation of a good macroeconomic environment and a careful utilisation of loose monetary policy to grow the economy.

The article attempts to delve the comprehensive understanding between trade balance and currency depreciation by incorporating the absorption and monetary approaches, including the Marshal Lerner condition. In doing so, the Ng-Perron test is employed to find out the order of integration and the cointegration technique developed by Johansen and Juselius (1990) to examine the long-run relationship between currency depreciation and trade balance. Our results reveal that there is a long-run relationship among trade balance, currency depreciation, real income and money supply. Any depreciation in local currency worsens the trade balance. The reforms in trade policies improve the trade balance in the future but deterioration in the trade balance seems to reverse this impact due to currency depreciation. A fall in money supply plays a vital role in improving the trade balance in Papua New Guinea. A rise in domestic income seems to recover the trade deficit.

The study examines the relationship between unemployment and property crimes for Pakistan covering the period of 1975 to 2008. The Johansen cointegratiom methodology along with Granger causality through VEC is applied to the annual time series data. The results of the cointegration analysis provide evidence of a valid long-run relationship between unemployment and different kinds of property crimes. The results provide evidence of unidirectional causality running from unemployed to different kinds of property crimes. The causality results explain that unemployment Granger cause theft, dacoity, robbery and cattle theft while it does not cause burglary.

The aim of this paper is to investigate, for the first time, the performance of trading strategies based on the combination of technical trading rules and fundamental analysis in the sale and purchase market for dry bulk ships. Using a sample of price and charter rates over the period January 1976 to September 2004, we establish the existence of a long-run cointegrating relationship between price and earnings and use this relationship as an indicator of investment or divestment timing decisions in the dry bulk shipping sector. In order to discount the possibility of data snooping biases and to evaluate the robustness of our trading models, we also perform tests using the stationary bootstrap approach. Our results indicate that trading strategies based on earnings–price ratios significantly out-perform buy and hold strategies in the second-hand market for ships, especially in the market for larger vessels, due to higher volatility in these markets.

In this paper we examine the long-run relationship between gold and oil spot and futures markets. We draw on the conceptual framework that when oil price rises, it creates inflationary pressures, which instigate investments in gold as a hedge against inflation. We test for the long-run relationship between gold and oil futures prices at different maturity and unravel evidence of cointegration. This implies that: (a) investors use the gold market as a hedge against inflation and (b) the oil market can be used to predict the gold market prices and vice versa, thus these two markets are jointly inefficient, at least for the sample period considered in this study. (P.K. Narayan). 1 There is one related strand of literature, which examines long memory property in the gold market and arbitrage in gold spot and futures options . The oil market has been analysed from various perspectives; for some recent analysis, see Hayat and Narayan , Narayan and Narayan , Narayan and Wong .

Purpose -This study aims to investigate the dynamic relationships between oil price shocks and Indian stock market. Design/methodology/approach -The study used daily data for the period starting from January 2001 to March 2013. In this study, Johansen's cointegration test, vector error correction model (VECM), Granger causality test, impulse response functions (IRFs) and variance decompositions (VDCs) test have been applied to exhibit the long-run and short-run relationship between them. Findings -The cointegration result indicates the existence of long-term relationship. Further, the error correction term of VECM shows a long-run causality moves from Indian stock market to oil price but not the vice versa. The results of the Granger causality test under the VECM framework confirm that no short-run causality between the variables exists. The VDCs analysis revealed that the Indian stock markets and crude oil prices are strongly exogenous. Finally, from the IRFs, analysis revealed that a positive shock in oil price has a small but persistence and growing positive impact on Indian stock markets in short run. Originality/value -The study would enhance the understandings of the interaction between oil price volatilities and emerging stock market performances. Further, the study would enable foreign investors who are interested in Indian stock market helps in understanding the conditional relationship between the variables.

We present a detailed study of portfolio optimisation based on cointegration, a statistical tool that here exploits a long-run equilibrium relationship between stock prices and an index price. We compare the theoretical and empirical properties of cointegration optimal equity portfolios with those of portfolios optimised on the tracking error variance. From an eleven year out of sample performance analysis we

This research estimated dynamic supply and demand equations for the U.S. softwood lumber using two-stage least squares. Long-run and ECM equations were derived from the estimated coefficients. Empirical data included monthly observations from 1990 to late 2006. Stationarity of the residuals was explored using Augmented Dickey-Fuller statistics. Results suggest that demand and supply elasticities in both short and long-run are relatively small compared with past studies. The Canadian softwood lumber supply to the U.S. is more price elastic than the domestic softwood lumber supply. U.S. import tariffs have had limited impact on the amount of softwood lumber imported from Canada. Technological progress and end-ofyear seasonal effects on softwood lumber demand and supply were significant over this period.

ÖZET: Geleneksel finans beklenen fayda ve rasyonel tercih olmak üzere iki temel varsayıma dayalı olarak gelişim göstermiştir. Bununla birlikte bu varsayımların yeterince gerçekçi olmadığı ileri sürülerek yoğun bir şekilde eleştirilmiştir. Davranışsal finans alanının temeli ise beklenti teorisine dayanmaktadır. Bu teoriye göre bireyler tam rasyonel hareket edemezler ve kayıplara, aynı miktarda kazançlardan daha fazla anlam yüklerler, riskten ve kayıptan kaçınma davranışı gösterirler. Davranışsal finans bireylerin davranış ve duygusal kalıplarını karar verme süreçlerine dahil ederek finansal karar verme süreçlerinde kullandıkları akıl yürütme kalıplarının daha gerçekçi olarak anlaşılmasını amaçlamaktadır. Bu çalışmada, geleneksel finans ve davranışsal finans alanları ile bu iki alanın temelleri üzerinde durulmuş ve genel prensipler üzerinden karşılaştırılarak tartışılmıştır. Bu çalışma, konuya ilişkin geniş kapsamlı bir bakış açısı yansıtmaktadır. Çalışmanın hedefi, geleneksel ve davranışsal finans disiplinlerinin ortaya koydukları farklı bakış açılarının ve temellerinin bir bütün olarak daha iyi anlaşılmasını sağlamaktır. Bu çalışma ile ayrıca, daha sonra yapılacak çalışmalarda kullanılabilecek teorik alt yapıya veya kavramsal çerçeveye katkı sağlanması da amaçlanmıştır.
ABSTRACT: Traditional finance has developed based on two fundamental assumptions, including the expected utility theory and rational choice or decision. However, this hypothesis has been criticized heavily by put forward that are not realistic enough. The basis of behavioral finance theory is based on the " prospect theory ". According to this theory individuals cannot act fully rational, they install more sense to loses than at the same amount of profit and they exhibit risk and loss aversion behaviour. Behavioral finance is intended individuals' understanding of the reasoning patterns that used in their financial decision-making as a more realistic by including the behavioral and emotional patterns of individuals to the decision making processes. This study has focused on traditional finance and behavioral finance fields and the basics of these two fields. And also these fields are discussed and compared with general principles. This study reflects the terms of a comprehensive view on the subject. The goal of the study is to provide a better understanding of the different viewpoints that put forward by traditional and behavioral finance disciplines as a whole. Also with this study it is aimed to contribute to the theoretical background and conceptual framework that will be used in next studies.

Fiscal policy, which entails an appropriate alignment in government revenue and expenditure, is of crucial importance in promoting price stability and sustainable growth in output, income and employment. It is one of the macroeconomic policy instruments that can be used to prevent or reduce short-run fluctuations in output, income and employment in order to move an economy to its potential level. However, for sound fiscal policy, a good understanding of the relationship between government revenue and government expenditure is very important, for instance, in addressing fiscal imbalances. Thus, the causal relationship between public revenue and public expenditure has been an issue that has generated heated debates globally, over the years, among economists and policy analysts. Four major hypotheses have emanated from the debates namely: the revenue-spend hypothesis (where there is a unidirectional causality from government revenue to government expenditure); the spend-revenue hypothesis (where there is a unidirectional causality from government expenditure to government revenue); the fiscal synchronization hypothesis (where there is bidirectional causality between government revenue and government expenditure); and the institutional separation hypothesis (where there is no causality between government revenue and government expenditure). public expenditure reforms in order to achieve sustainable economic growth, since higher government revenue invites higher government expenditure, while the quality of expenditure is central to achieving any meaningful growth.

ABSTRACT Workers&amp;#39; remittance is one of the major sources of foreign exchange earnings for Bangladesh in recent years. It accounted for 12% of GDP in 2009 and has colossal socio-economic implications for the country. However, the inflows of foreign exchange earnings can exert adverse effects on the international competitiveness of an economy as postulated by the Dutch Disease theory. Using Johansen cointegration and Vector Error Correction Model and annual data from 1971 to 2008, this paper investigates the effects of remittances on the external trade competitveness as measured by the movements of real exchange rate of the country. The results of the study suggest that the influx of workers&amp;#39; remittances significantly appreciates the real exchange rate and deteriorates the external trade competitiveness of Bangladesh. While increased terms of trade indicates similar adverse effects, openness in goods and capital markets and nominal devaluation improve the trade competitiveness of the country. Therefore, greater trade openness and channelling remittances to the priority investment projects can be powerful policy devices to imporve the external competitiveness and avert &amp;#39;Dutch Disease&amp;#39; in Bangladesh

The main purpose of this study is to find out the longrun of relationship between inflation and economic growth in Bangladesh over the period 1978 to 2010. A stationarity test was carried out using the Augmented Dickey-Fuller (ADF) and Phillip-Perron (PP)tests and stationarity found at first difference at 1% and 5% level of significance. The result of the Co-integration test showed that for the periods, 1978-2010, there was no co-integrating relationship between inflation and economic growth for Bangladeshi data. Further effort was made to check the causality relationship that exists between the two variables by employing the VAR-Granger causality at two different lag periods. The results showed the same at different lags. The first test was conducted using lag two (2) and in the result unidirectional causality was seen running from Inflation to economic growth. Further test at lag four (4) was carried out and it supported the first by also indicating a unidirectional causality running from inflation to economic growth. Thus, the study through the empirical findings maintain the fact that the causality that run from inflation to economic growth is an indication of relationship showing that inflation indeed has an impact on growth.

Özet Özellikle 1980'li yılların sonlarında Türkiye'de döviz kontrolünün kaldırılmasından sonra, döviz kurlarında aşırı dalgalanmalar gözlemlenmiştir. Son dönemlerde yaşanan döviz kurundaki dalgalanmalar sonucu, döviz kurunu etkileyen faktörler tartışılmaya başlamıştır. Bu bağlam bu çalışma döviz kurunun belirlenmesinde parasalcı yaklaşımı ele almıştır. Modelde döviz kurlarını göreli para arzı, göreli gelir düzeyi, göreli faiz oranı ve göreli enflasyon belirlemektedir. Tüm değişkenlerin birim kök içerdiği Genelleştirilmiş Dickey Fuller ve Philips Perron testleri ile tespit edilmiştir. Johansen yöntemi ile değişkenler arasında en az bir eşbütünleşme vektörü olduğu bulunmuştur. Dinamik en küçük kareler yöntemi sonuçlarına göre göreli gelir en fazla etkileyen faktördür. Göreli faiz oranı ve göreli enflasyon oranının etkileri önemsenmeyecek kadar azdır. Reel faiz farkları teorisinin açıklamaları bu çalışmanın bulgularıyla örtüşmektedir. Abstract Especially last part of the 1980s, after backing down from the control in the exchange rate market, over fluctuated exchange rate has been observed. Debates have started which factors affect exchange rate after the fluctuations in foreign exchange market, recently. In this context, the monetary approach to exchange rate determination is employed in this study. In the model, exchange rate is derived by relative income, money supply, interest rate and inflation. It is found that all variables have unit root by applying Augmented Dickey Fuller and Philips Perron tests. There is at least one vector that all variables are cointegrated by employing Johansen cointegration test. As a result of dynamic ordinary least square approach, relative income is the most influential variable. The effects of the relative interest rate and inflation are infinitesimally. The explanations of the theory of the reel interest rate differential are overlap with the findings in this study.