...attempted to reconcile an apparent contradiction between short-run and long-run movements in the price of gold. They used monthly gold price data January 1976 to December 1999 and applied Error Correction Model. If set of conditions have satisfied, the price of gold will rise over time at the general rate of inflation. Ranson (2005) tried to find out role of gold and oil as predictor of inflation. He found that gold price is more reliable barometer of the inflation than oil price because the effect on official inflation statistics, is reliably indicated by how far policy actions have allowed the price of gold to rise. Worthington and Pahlavani (2006) tested for the presence of a stable long-run relationship between the monthly price of gold and inflation in the United states from 1945 to 2006 and from 1973 to 2006. By applying unit root and modified cointegration test, they provided strong evidence of a cointegrating relationship between inflation and gold. This is in line with the view that gold can serve as an effective inflationary hedge. Levin and Wright (2006) tried to find out short-run and long-run determinants of the price of gold for the period January 1976 to August 2005. By using cointegration techniques they confirmed that the long-run price of gold moves only to the US price level, while short-run movements in the gold price were related to exchange rate, gold lease rate , gold’s beta, US inflation , US inflation volatility, credit risk and political uncertainty...
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...sector & Stock Exchange and Conceptual framework – Macroeconomic variable |3.1 An overview of Banking sector and Stock market of Bangladesh | We are interested in investigating the relationship between stock prices and macroeconomic variables because individual investors can earn abnormal profits by exploiting this relationship and the existence of this utilizable opportunity would then dangerously distort the market’s ability to proficiently allocate scarce resources. In other word, the stock market will lose its informational efficiency. Informational efficiency is defined as at any given time, stock prices fully reflect all available information of the market. Thus, no investor has an advantage in predicting a return on a stock price because no one has access to information not already available to everyone else. Identifying the relationship or informational efficiency thus can be used to correct the current economic stabilization policies. Therefore, the issue of whether stock prices and macroeconomic variables are related or not have received considerable attention. This paper provides empirical evidence of the relationship between stock prices with each of the macroeconomic variables: exchange rate, inflation rate, money supply variables and so on. The knowledge of the prevailing relationship between stock prices one the one hand, and micro variables like market price/ earnings, growth rate in market capitalization...
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...in the stock market. Based on the history, the economic condition will influence stock market. For instances, Malaysia faced deflation during the Asian crisis in years 1997. It caused the KLCI index sharply reduced from 1207.43 to 470.43. It have been shown that the investors need to predict the stock prices based on the macro factors to get an abnormal return from stock market There were a lot of researches to study the relationship between macroeconomics variables and stock returns. It is important to study the interaction of macroeconomics factor and stock return. Based on the study, the public can identify which factors can influence the stock market and use the knowledge to predict movement of stock price. According to Wongbangpo & Sharma (2002), the research can reveal the functions of stock market in identify the change in economic condition and also can predict the future performance of stock market. Besides, the study will be useful for the stock market participators. Clare & Priestley (1998) said that the study of the risk factor relationship of stock market will be useful for corporate manager to undertake cost of capital calculation. Moreover, the fund managers can use the information from the result of study to make an effective investment decision and at the same times the investors can access the performance fund managers (Clare & Priestley,...
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...the long-run, its prices keep increasing due to high demand and inadequate supply worldwide. However, in the short-run, its price seems to be volatile due to various potential reasons. Therefore, this study was conducted to determine the factors influencing gold prices in Malaysia. In order to achieve the objective, Stata software was used to assess the prospective relationships between the gold prices as the dependent variable and the inflation rate, interest rate and exchange rate as independent variablesby using Pooled Ordinary Least Squares (POLS) methodology. The monthly data employed in this study spans across a 14 years period from year 2000 until 2013. The results revealed that the rates of inflation, exchange and interest were significantly related with gold prices in Malaysia in different magnitude and direction.It is empirically proven that any change in the rates of these three variables will likely pose a change of gold prices in the country.The results also solidify the importance of gold as a store of wealth and portfolio construction. KEYWORDS:Gold prices, Exchange Rate, Inflation Rate,...
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...TITLE The relationships among determinants of the gold price in Malaysia RESEARCH OBJECTIVES 1. To determine the relationship between USD-MYR exchange rate on the Malaysian gold price. 2. To determine the relationship between the price of crude oil on the Malaysian gold price. 3. To determine the relationship between the Malaysian Gross Domestic Product on the Malaysian gold price 4. To determine the relationship between inflation rate on the Malaysian gold price. 5. To determine what are the stronger factors influencing the price of gold in Malaysia LITERATURE REVIEW There are number of group studies literature related with the functions gold has in the economy. The first group includes the literature showing how gold price is affected by macroeconomic news (Dooley et al., 1995; Fortune, 1987; Sherman, 1983; Sjaastad and Scacciallani, 1996; Wang and Lee, 2011). These studies investigate the relation of gold price with economic variables which includes inflation, interest rate, exchange rate etc. Second group includes the literature focusing on the examined the influencing factors in the variations of the gold price (Diba and Grossman, 1984; Pindyck, 1993; Baker and Tassel, 1985). Third group includes the literature aiming on the advantage of using gold in diversifying risk for a long-run portfolio (Chua et al., 1990; Sherman, 1986; Michaud et al., 2006; Ciner, 2011; Jaffe, 1989). Fourth group includes the literature focusing on the inflation hedging...
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...The Developing Economies, XLI-4 (December 2003): 401–35 401 EFFECTS OF THE REAL EXCHANGE RATE ON OUTPUT AND INFLATION: EVIDENCE FROM TURKEY HAKAN BERUMENT MEHMET PASAOGULLARI This paper assesses the effects of real depreciation on the economic performance of Turkey by considering quarterly data from 1987:I to 2001:III. The empirical evidence suggests that, contrary to classical wisdom, the real depreciations are contractionary, even when external factors like world interest rates, international trade, and capital flows are controlled. Moreover, the results obtained from the analyses indicate that real exchange rate depreciations are inflationary. I. INTRODUCTION interest among academics and policymakers on the controversial issue of exchange rate policies in general and exchange rate regimes and real exchange rates in particular. The effects of financial crises on the global economy are getting more severe, and international trade and capital movements have begun to be central factors in the evolution of such a crisis. Domestic factors that lead to crises in various countries are different, but there are also common features of these crises: big devaluations or depreciations in domestic currency and the subsequent significant output losses of the crisis-hit countries. Turkey has often experienced financial crises in its history. In 1994 and 2001, the nominal domestic currency depreciated 62 per cent and 53 per cent, respectively. This made the effects of large depreciations...
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...The Relationship between Interest Rate and Exchange Rate in India Pradyumna Dash[1] Introduction The theoretical as well as empirical relationship between the interest rate and exchange rate has been a debatable issue among the economists. According to Mundell-Fleming model, an increase in interest rate is necessary to stabilize the exchange rate depreciation and to curb the inflationary pressure and thereby helps to avoid many adverse economic consequences. The high interest rate policy is considered important for several reasons. Firstly, it provides the information to the market about the authorities’ resolve not to allow the sharp exchange rate movement that the market expects given the state of the economy and thereby reduce the inflationary expectations and prevent the vicious cycle of inflation and exchange rate depreciation. Secondly, it raises the attractiveness of domestic financial assets as a result of which capital inflow takes place and thereby limiting the exchange rate depreciation. Thirdly, it not only reduces the level of domestic aggregate demand but also improves the balance of payment position by reducing the level of imports. But the East Asian currency crisis and the failure of high interest rates policy to stabilize the exchange rate at its desirable level during 1997-1998 have challenged the credibility of raising interest rates to defend the exchange rate. Critics argue that the high interest rates imperil the ability of the domestic firms...
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...gold in Malaysia. The study used Multiple Linear Regression Model to determined significant relationship between dependent and independent variables, covering data for 10 years period which are from 2003 until 2012. The researcher used three independent variables that affect the prices of gold which are crude oil prices, inflation rates and exchange rates. The empirical results have found there is negatively significant relationship between inflation rates and exchange rates on gold prices, while a crude oil price is positively significant. The results of the study are valuable for both academic and investor. Index Terms—determinant, gold prices, crude oil prices, inflation rates, exchange rates price and sell it at high price later on. Thus, this is why the factors that affect the gold price must be determined so that people may estimate the timing to buy, hold or sell the gold. This study is made to seek the proofs for the possible factors that affect the gold price in Malaysia. From this research, the most important or most influence factor can also be determined. Simply put, the findings for this research will bring benefit to individual, group as well as the government in analyzing the movement of the gold price. To discuss more about this topic, this research paper present the sensitivity of gold prices to the changes in the crude oil prices, inflation rates and exchange rates factor by taking 10 years data from 2003 until 2012. II. DATA AND METHODOLOGY I. INTRODUCTION...
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...economic variables like exchange rate, gross domestic product and inflation using data from 1960-2010 to analyze the results. We have taken the data in percentage form. A great number of empirical studies on the relationships of monetary policy and inflation are available and most of these have analyzed the effectiveness of monetary policy in controlling inflation in Pakistan. In this paper we have presented the effectiveness of monetary policy it’s framework and data estimation through which we reached to the conclusion that monetary shocks do affect real variables like GDP, inflation and exchange rate. Pakistan has been estimated by a number of researchers and it has been recognized that monetary phenomenon are responsible for the high levels of inflation. Keywords: Monetary Policy, Inflation, Exchange rate, Economic Growth, Gross domestic product and Pakistan. Introduction This paper attempts to examine the long-run effects of Monetary Policy on several economic variables such as inflation, economic growth that is gross domestic product and exchange rate in Pakistan. For this purpose, analysis have been employed for the period 1960-2010. As monetary policy actions affect policy variables with a significant gap and with high degree of unpredictability and insecurity, it is key to predict the probable impact and degree of monetary policy actions on the real variables. Usually, policy makers and central banks decide that price stability or low inflation would prompt higher...
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...broad economy at the regional or national level and affects a large population rather than a few select individuals. Macroeconomic factors are key indicators of economic performance and are closely monitored by governments, businesses and consumers. Macroeconomic factors are the factors which affect the wider economy. In other words these factors seem to summarize the picture of economy. Macroeconomic variables include economic output, unemployment, inflation, interest rates, money supply, exchange rate, foreign reserves, savings and investment. Variables used in study: • Consumer Price Index (CPI) Inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects erosion in the purchasing power of money – a loss of real value in the internal medium of exchange and unit of account within the economy. A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the CPI) over time. A consumer price index (CPI) measures changes in the price level of consumer goods and services purchased by households. It captures the retail price movement for different sections of consumers. In India, the Consumer Price Index or CPI measures changes in the prices paid by consumers for a basket of goods and services. It is a measure that examines the weighted...
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...interest rates, ceteris paribus. There are several models of money demand used to explain why individuals and businesses hold money balances like cash and checkable deposits. Those models of money demand shows how do the behavior of individuals and businesses causes the fluctuations of money balances in the economy. According to the liquidity preference theory by economist, John Maynard Keynes, he determined that there are three primary motives that people holding money.The first motive is transaction motive which explained that people holding money and used it to buying things. In this motive, money demand depends on size of income, spending habit and slightly affected by interest rate. The second motive for holding money is for precautionary motive which means that people hold money in anticipation of wishing to make huge transactions in the future. People will keep money on hand just in case to overcome unforeseen emergency. The demand of money in order for precautionary motive is depend on size of income, nature of person and farsightedness. The last is speculative motive which people will like to keep money in the liquid form and invested in securities when the interest rate are rises thus it can be said that hold wealth as money to store value. This motive is relies on interest rate, income and expected capital gain. Interest rate is the rate which interest is paid by borrowers for the use of money that they borrow from lender. The equilibrium of interest rate is determined...
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...variables 7 Income level 7 Fig: Income receipts of Bangladesh from 2005-2012in US dollar 8 Income payments (US dollar) in Bangladesh 8 Effects of inflation on income 9 Effects of interest rates on income level: 11 Theory of Interest Rate Parity and BDT 12 Theory of Purchasing Power Parity 14 Theory of International Fisher Effect against BDT 16 Regulations on foreign currency transfers/remittances 16 Analysis of investment opportunity for US-based MNC 17 Analysis of Bangladeshi Taka (BDT) against US Dollar ($) Exchange rates play a vital role in a country's level of trade. This is critical to almost every free market-oriented economy in the world. Numerous factors such as inflation, interest rates, current-account/trade balance, public (government) debt and political environment determine exchange rates and all are related to the trading relationship between any two countries. The exchange rate, measured as a number of units of local currency per unit of foreign currency, is the price of the foreign currency in terms of the local currency. Like any other price, the value of the foreign currency in the local market depends on its supply and demand. Like all other countries, the exchange rate management is one of the central issues of macroeconomic policies of Bangladesh. There are four types of exchange rate system- fixed, freely floating, managed float and pegged. Historically,...
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...Studies INFLATION IN VIETNAM OVER THE PERIOD 1990-2007 A Research Paper presented by: Bui Thi Kim Thanh (Vietnam) in partial fulfillment of the requirements for obtaining the degree of MASTERS OF ARTS IN DEVELOPMENT STUDIES Specialisation: Economic of Development (ECD) Members of the examining committee: Dr. Karel Jansen Dr. Lorenzo Pellegrini The Hague, The Netherlands November, 2008 1 Disclaimer: This document represents part of the author’s study programme while at the Institute of Social Studies. The views stated therein are those of the author and not necessarily those of the Institute. Research papers are not made available for circulation outside of the Institute. Inquiries: Postal address: Institute of Social Studies P.O. Box 29776 2502 LT The Hague The Netherlands Kortenaerkade 12 2518 AX The Hague The Netherlands +31 70 426 0460 +31 70 426 0799 Location: Telephone: Fax: 2 Table of Content Chapter 1 INTRODUCTION 1.1 BACKGROUND AND STATEMENT OF THE PROBLEM The period 1980-1984 The period 1985-1989 The period 1990-2007 1.2 OBJECTIVE AND SCOPE OF THE PAPER 1.3 APPROACH OF THE PAPER AND DATA 1.4 STRUCTURE OF THE PAPER Chapter 2 THE THEORETICAL AND EMPERICAL FRAMEWORK 2.1 THEORETICAL CONSIDERATION 2.1.1 Demand-pull inflation 2.1.2 Cost-push inflation 2.2 APPLICABILITY OF THE THEORIES IN THE CASE OF VIETNAM 2.3 EMPERICAL EVIDENCES Chapter 3 ANALYSING INFLATION IN VIETNAM AN OVERVIEW OF VIETNAM’S ECONOMY FROM 1990-2007 VIETNAM’S INFLATION OVER...
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...the modern economy. Since U.S. and China are inextricably linked, I would like to analyze the trade between U.S. and China in this paper, and find out what are influencing the value of trade between the two countries. First of all, there are some economic concepts that need to be explained. China has a favourable balance of trade, which means nowadays China exports more than imports; however, U.S. has run a trade deficit every year for more than thirty years, which means U.S. imports more. The import and export are always connected with the exchange rate. For instance, if you are exporting and your local currency becomes strong then your products become more expensive for your buyers. If you are importing and your local currency becomes weak then the products you are importing become more expensive. As we can see, China is exporting more to the U.S., so I would assume that one of the reason why U.S. would import more from China may be the exchange rate of China’s currency Yuan is slumping; in the other word, RMB depreciated against U.S. dollar. In this case, U.S. can buy more stuff with the same amount of U.S. dollar. There is another reason I would like to mention which is the inflation rate. First of all, purchasing powers parity is a theory that states the exchange rate between one currency and another is in equilibrium when their domestic purchasing powers at that rate...
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...interest rate on stock market 3 A study based on the effects of interest rate (KIBOR) on share price 4 Market Interest rate and commercial bank profitability in Pakistan 5 Determinants of Corporate dividend payout policy 6 Effects of Free Cash flow on profitability of firms 7 Determinant of dividend payout ratio: A study of Pakistani fertilizer sector 8 Fundamentals and stock returns in Pakistan 9 Effects of mergers and acquisition in banking sector of Pakistan 10 Impact of Privatization of banks on profitability 11 Can risk aversion indicators anticipate financial crises? 12 Cash flow and capital spending relationship: evidence from automobile sector 13 Impact of Privatization on profitability and efficiency of banks in Pakistan 14 To study the relationship between price earning ratio and return on investment 15 A test of price earning ratio to predict future growths 16 Factors affect on the dividend payout ratio (sugar industry) 17 Impact of macro-economic variables on stock sector of Pakistan 18 Relationship between Cash flow and investment spending in textile industry 19 Impact of taxation on firm’s dividend payout/ratio 20 Share price volatility explicatedmeasured by fundamentals 21 Stock price and economic variables ( Interest rate, inflation and GDP) 22 Determinants of P/E Ratio 23 Impact of capital structure on profitability 24 Impact of interest rate changes on bank’s profitability 25 Relationship of stock market returns and rate of inflation 26 Dividend...
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