Showing papers in "Journal of quantitative economics in 2018"

Covariate and Idiosyncratic Shocks and Coping Strategies for Poor and Non-poor Rural Households in India

Abstract: The objective of the paper is to track the association between different type of shocks experienced by rural households and corresponding coping strategies opted by them as they are, not only exposed to household-level and community level shocks, but also, lack effective risk management strategies which make them vulnerable to get into chronic poverty. A probit analysis has been used to articulate the comparative static distinction of risk management strategies between poor and non poor rural households using Additional Rural Incomes Survey/Rural Economic and Demographic Survey (ARIS/REDS) data surveyed by National Council of Applied Economic Research (NCAER) in rural India across 17 states to get a comparative static analysis. Households, generally, withdraw savings, seek remittances from migrant family members, take loan from formal and informal lenders and sell their existing assets and participate in Government sponsored welfare based programs to control after effect of shocks. Comparatively non-poor rural households could build up safety net (precautionary measure) to cope with price rise and other sudden shocks. But, extremely poor, generally, if don’t get help from relatives or can’t borrow from informal sources, ultimately starve at the time of sudden shocks. The welfare based government programs fail to arrest this extreme situation of grief during the idiosyncratic shocks.

Integration of Financial Markets in Post Global Financial Crises and Implications for British Financial Sector: Analysis Based on A Panel VAR Model

Abstract: This study analyses the dynamics of integration among global financial markets in the context of Global Financial Crisis (2008) by employing a Panel Vector Autoregressive (VAR) model on the monthly data of nine countries and three markets from Jan 2003 to Oct 2015. It was found that there has been a shift in the association among the global financial markets since Global Financial Crisis (GFC). Moreover, the British financial sectors in Post- GFC world clearly showed a change in the association with the global financial sectors. Particularly, the emerging markets including China, Brazil and India showed a comparatively more significant impact on the UK financial sector implying the increased importance of the latter in the recent past. The German and USA financial sector also showed a change in its impact in the Post-GFC world. It showed that Germany and USA financial sectors have become competitive to the UK financial Sector as the surge in them lead to a relative response from the UK financial sector which could be associated with the portfolio adjustment.

Price Discovery and Efficiency of Indian Agricultural Commodity Futures Market: An Empirical Investigation

Abstract: This study examines the price discovery process and relative efficiency of ten most liquid agricultural commodities’ futures contracts, traded on the largest agricultural commodity exchange of India (National Commodity and Derivative Exchange Limited). Three different common factor methodologies—component share method (Gonzalo and Granger in J Bus Econ Stat 13:27–35, 1995), information share method (Hasbrouck in J Financ 50:1175–1199, 1995), and modified information share method (Lien and Shrestha in J Futures Mark 29:377–395, 2009)—have been employed to determine the extent of price discovery contribution by spot and futures markets. The sample consists of daily data for the period from January 1, 2009 to October 20, 2015. Stationarity and Cointegration test results reveal that spot and futures prices are integrated and cointegrated for all commodities. The price discovery results show that the futures market leads the spot market in case of six commodities, i.e., castor seed, coriander, cottonseed oilcake, soy oil, sugarM and turmeric. Whereas, in the case of four commodities (chana (chickpea), guar seed, jeera, and mustard seed), price discovery takes place in the spot market. Therefore, it could be inferred that futures market is more efficient in price discovery of agricultural commodities. Policymakers could use these results to design futures contracts on other commodities or to plan concrete policies to curb speculation without hampering the efficiency of the agricultural commodity derivatives market.

Macroeconomic Determinants of Crime: Evidence from India

Abstract: This paper examines the relationship between crime, inflation, unemployment, and real GDP per capita in India. Based on the national-level data, the Johansen cointegration test confirms the presence of cointegration relationship between the variables. The Toda–Yamamoto Granger causality test suggests that macroeconomic indicators, especially unemployment, can significantly affect crime in India. Based on the state-level data, the ordinary least squares results corroborate the effect of inflation on crime even after controlling for governance. However, they fail to verify the relationship between crime, unemployment, and real GDP per capita.

Stock Market Integration Dynamics and its Determinants in the East Asian Economic Community Region

Abstract: We study the dynamic nature of equity market integration for the ASEAN+6 countries referred as East Asia Economic Community (EAEC) Region from January 1999 to March 2015. Copula GARCH models have been employed to study the inter-temporal process of equity market integration. Empirical results show that the sample countries exhibit varying degrees of integration with the Asian benchmark. The 6 countries that form part of EAEC but not ASEAN (China, Japan, South Korea, Australia, India and New Zealand) exhibit high level of integration followed by ASEAN-5 (Indonesia, Malaysia, Philippines, Singapore and Thailand) members. Equity portfolio flows within the EAEC region reconfirm the findings based on price data that regional integration is strengthening over time. Further, results from the panel data analysis show that fiscal position, stock market performance, external position, governance and trade linkages seem to be the fundamental drivers of equity market integration in this region. The paper contributes to the International Finance literature, especially dealing with regional economic blocs by providing strong arguments for expanding the ASEAN Economic Community region in the near future to a more economically viable East Asian Economic Community region.

From Income to Household Welfare: Lessons from Refrigerator Ownership in India

Abstract: This paper draws implications for the energy and education policies in developing countries based on the insights derived from studying the determinants of household refrigerator ownership in India. In our study the failure of the government policies to ensure reliable public services such as uninterrupted power supply and improving female education levels turn out to be the key stumbling blocks to raising household welfare in India. While a threshold level of household income is necessary for a purchase of a consumer durable, it is not a sufficient condition. Our results for the determinants of refrigerator ownership in India suggest that, even when households have sufficient purchasing power, the duration of a complementary good (electricity for >17 h per day) is critical for the ownership, all else held constant. Also, females in households tend to derive greater utility from the refrigerator usage due to its impact on lowering household burden of work and easing women’s entry into the labour market. Our results confirm the hypothesis that when women bargaining power is proxied by the level of education, households with a female with higher level of education have higher probability of refrigerator ownership.

Do Macroeconomics Channels Matter for Examining Relationship Between Public Debt and Economic Growth in India

Abstract: This paper investigates the impact of public debt on economic growth using key macroeconomic channels for the period 1970–2013 in the context of India. The analysis is undertaken in two different steps: first, it is examined whether public debt has any nonlinear impact on economic growth and second, determines the key channels through which public debt affects economic growth. The results derived from 2SLS model show that public debt positively affects economic growth in the short run, while it shows a negative impact in the long run. Further, by using Nonlinear ARDL approach, this paper supports the existence of a nonlinear impact of public debt on economic growth. The channels through which public debt significantly affects economic growth are households saving, public investment and total factor productivity growth. From policy perspective, we suggest that government should target the public investment and productivity channels for utilizing the public debt in India, and the government should opt for borrowings as long as it leads to capital formation of the country.

On Standard-Error-Decreasing Complementarity: Why Collinearity is Not the Whole Story

Abstract: There is a widespread belief among economists that adding additional variables to a regression model causes higher standard errors. This note shows that, in general, this belief is unfounded and that the impact of adding variables on coefficients’ standard errors is unclear. The concept of standard-error-decreasing complementarity is introduced, which works against the collinearity-induced increase in standard errors. How standard-error-decreasing complementarity works is illustrated with the help of a nontechnical heuristic, and, using an example based on artificial data, it is shown that the outcome of popular econometric approaches can be potentially misleading.

Government Expenditure in India: Composition and Multipliers

Abstract: We estimate fiscal multipliers for total, capital (capex), and revenue (revex) Indian government expenditure using a two variable Structural Vector Auto-Regression (SVAR). Our quarterly data allows us to estimate both short- and long-run multipliers. We then extend and re-estimate the model including supply shocks and the monetary policy response sequentially and together and re-estimate the multipliers. The long-run capex multiplier remains much larger than the corresponding revex multiplier in all the estimations. The short run impact multiplier is the highest for revex, but does not rise after the first quarter. The capex peak multiplier in the 2nd quarter is 1.6–1.9 times larger. The cumulative multiplier is also the highest for capex, 2.4–6.5 times the size of the revex multiplier. Capex also reduces inflation more over the long-term. Despite this, capex shows greater volatility since it is more vulnerable to discretionary cuts. Monetary accommodation of capex and revex is allowed to differ. It varies in the absence/presence of supply shocks. The combination of a direct cut in capex and monetary tightening in response to a supply shock reduces the capex multiplier. The results are consistent with an elastic long-run aggregate supply. Disaggregated evaluation of spending policy, therefore, gives useful insights.

Value-Added Trade and Empirical Distributions of RCA Indices

Abstract: Revealed Comparative Advantage (RCA) indices aid in identification of the sectors in which countries reveal comparative advantage or disadvantage. Apart from serving such a dichotomous measure, the RCA indices are frequently employed as cardinal or ordinal measures over time. Application of the indices for comparative analyses calls attention towards the distributions of RCA indices, which must reasonably be stable over time, sectors and countries. Stability of index distributions facilitates the usage of indices as cardinal or ordinal measures over time. The present paper therefore analyses the empirical distributions of RCA indices to determine their suitability. However, such an analysis would be incomplete if the implications for RCA indices due to growing significance of global supply chains are not recognized. Hence apart from analyzing the distributions of gross trade based RCA indices, the distributions of domestic value-added in export based indices are also examined, and the differences are noted. Similar extensive analyses on the distributions of RCA indices are lacking in the literature. In this sense, the present paper makes an important contribution to the existing literature on RCA indices.

Determinants of Nominal Interest Rates in India

Abstract: This paper examines the role of monetary factors in the variation of nominal interest rates in India for the deregulated regime of interest rates and the exchange rates. Empirical analysis involves quarterly time series dataset including interest rates on 91-day, 364-day treasury bills (TBs), call money rate, money supply (both narrow and broad money), income and exchange rate over the period 1996–97:Q1 to 2015–16:Q4. In the short-run and the long-run variations of interest rates on TBs, role of the broad money supply, income and exchange rate are established; where the broad money negatively affects interest rates indicating the Liquidity effect view. Income and depreciation of exchange rate lead to raise interest rates. In the variations of the call money rate income, the narrow money and the broad money have significant role but the role of exchange rate is not established. The paper also finds evidence that interest rates on TBs are related to the relative growth of money supply and anticipated nominal income. Theatrical base of such relation is discussed based on some seminal work of Friedman. Based on these findings the paper concludes that it would be effective to control interest rate through a comprehensive monetary management.

Quantifying the Landlocked Trade Penalty using Structural Gravity

Abstract: I estimate the cost of being landlocked on exports using a structural gravity model. The empirical challenge of doing so is to estimate a country-specific variable, being landlocked, in the presence of exporter and importer fixed effects. To do so I follow two alternative approaches, each of which models the exporter fixed effect as a function of country-specific variables and average trade costs. Both approaches show a substantial “landlocked penalty”, with landlocked countries on average exporting 27–41% less than non-landlocked countries over 2005–2014, all else equal. I further demonstrate that such a penalty is driven primarily by developing countries. Indeed, whilst I find no landlocked penalty in high-income countries, the penalty was over 40% in developing countries. The difference between the two sets of countries is likely driven by the income level of transit countries, and the ease with which exporters can access the coast. Developing landlocked countries are generally constrained by limited infrastructure, inefficient logistics services and lengthy border delays. This constraint appears to be increasing over time; the landlocked penalty was higher in 2014 than in both 2005 and 2010.

Electoral Cycles and Project Outcomes

Abstract: Using a novel dataset on announced project-level investments, we examine the determination of project outcomes and the role of elections. Using India as a case study, the findings suggest that projects announced by state-owned enterprises (SOEs) exhibit a lower probability of completion. Furthermore, we show that projects announced by SOEs have a higher probability of being abandoned. Our results are consistent with the political view of government ownership where elected representatives make investment promises that are subsequently reneged.

Marital Infidelity: A Game-Theoretic Analysis

Abstract: In this paper we focus on a married couple and analyze a game of marital infidelity. The husband can either be faithful to or cheat on his wife. The wife decides how much effort to expend monitoring her husband and she chooses monitoring effort \(m\in [ {0,1} ]\). Our analysis of this strategic interaction leads to five results. First, we solve for the optimal m when the wife believes that her husband is certainly cheating on her. Second, we solve for the optimal m when the wife believes that her husband is faithful for sure. Third, given that the wife believes her husband is faithful with probability p, we determine the best response level of m as a function of p. Fourth, we explain why there is no pure strategy Nash equilibrium in the game between the husband and the wife. Finally, we show that there exists a mixed strategy Nash equilibrium in the same husband–wife game.

On the Dynamics of Inflation-Stock Returns in India

Abstract: In this paper, an attempt is made to examine the relationship between inflation and stock returns in India using spectral and time-frequency methods. Scale specific relation between inflation and stock returns is unraveled, allowing us to capture the relationship at varying investment horizons. The results based on monthly data from 1994:5 to 2014:11, obtained using spectral and wavelet techniques, reveal that there exist no significant pro-cyclical interdependencies between inflation and stock returns, implying that stock returns is no longer an adequate hedge against inflation.

Targeting Debt and Deficits in India: A Structural Macroeconometric Approach

Abstract: This study attempts to construct a consistent macroeconomic framework for India to review the macro-fiscal linkages over the 14th Finance Commission period, 2015–2019. A macroeconomic policy simulation model comprising of real, external, monetary, fiscal and macroeconomic block is built for the purpose. The estimated model is used for policy simulations to address three scenarios: (a) shock due to 7th Pay Commission award, (b) targeting deficit and debt and (c) targeting higher growth. The results suggest that while Pay Commission award would result in slightly higher growth compared to the base case, this also results in higher inflation, fiscal-revenue deficits, current account deficit as well as higher government liability. Further simulation results suggest that expenditure switching policy, which is the core of expansionary fiscal consolidation mechanism, of increasing higher government capital expenditure and reducing the government transfers could result in higher growth with a manageable fiscal deficit of 5.3% that also brings down the government (centre plus states) liability to around 60% by 2019–2020.

Financial Liberalization and Allocation of Capital: Dark Side of the Moon

Abstract: Although it is well established that financial liberalization leads to a positive ‘quantity effect’ with higher levels of investment, it remains uncertain whether it also improves the efficacy with which such investment funds are allocated. This paper contributes to this sparely researched aspect of liberalization (‘quality effect’) by carefully examining if the financial reforms in India have led to an improvement in the allocation of resources. Since one of the premises of better allocation is that funds are channelled to firms with higher marginal returns to capital (measured by Tobin’s Q), we propose three unique measures to track the efficiency of resource allocation: (a) dispersion-based measures; (b) the allocative efficiency index; and (c) the relative value of allocation. Contrary to the prevalent assumption that financial liberalization leads to higher capital allocation efficiency, this study’s findings could not establish a direct correlation between the opening up of markets and higher allocation efficiency, except for the latter part of the reform period. Further, this paper draws attention to the greater misallocation of funds in the post-reform period, as the increase in funds availability leads to excess capacity creation in some industries without consideration of the need for concurrent return or demand. The authors of this paper recommend that any financial liberalization needs to be accompanied by the setting up of institutions for corporate control, particularly in an emerging market like India.

Inequality in Food Expenditure in India and the Contributing Factors

Abstract: One of the most important implications of nutrition transition is the change in food expenditure along with the changes in food consumption pattern. While inequalities in income have been extensively documented, relatively less is known about the inequality in food expenditure in India. In the Indian context, the diversity in agriculture offers enough scope to examine expenditure inequality across regions. The study examined the inequality in food expenditure in India and the contributing factors using household level expenditure data from the National Sample Survey Organisation. The study first examined the pattern of food expenditure and then the factors associated with the inequality in food expenditure. The study identified that inequality in food expenditure by place of residence, geographic and agro-climatic regions has increased over time. Moreover, type of occupation and household size had significant contribution to inequality in food expenditure. The findings from Gini decomposition suggests that with the increase in food expenditure inequality, share of cereals in total food expenditure increased for the poor; and share of milk products, vegetables and processed food increased for the rich. The geographic variations within the country and the share of each expenditure category within state will also help in explaining the food expenditure inequality in India.

Evolving Efficiency of Dually-Listed Indian Stocks: A Nonlinear Perspective

Abstract: This paper examines the degree of efficiency of Indian ADRs and their underlying stocks trading in NSE/BSE from an adaptive markets hypothesis (AMH) perspective that is theoretically grounded in nonlinear serial dependence. For this purpose, the authors employ the windowed as well as the rolling hinich bicorrelation test procedures on ADRs and the underlying stocks issued by Indian firms such as, and limited to, Dr. Reddy’s Laboratories, HDFC Bank, ICICI Bank, Infosys, Wipro, Tata Motors, and Sterlite Industries. The study’s findings indicate that the degree of market efficiency witnessed at the level of individual scrips (ADRs or underlying domestic stocks) differs considerably from the degree of efficiency of the broader stock market in which such scrips trade. Further, the degree of efficiency witnessed amidst all US and Indian scrips considered for this study was found to be heterogeneous in nature and in-turn warrants a ranking approach. Lastly, the degree of efficiency witnessed in certain (not all) dually-listed Indian scrips was found to be homogenous across trading locations. However, this does not happen to be the case for all other dually-listed scrips considered for this study. The study’s findings bring to light the need for disaggregated, firm level market efficiency studies aimed at examining firm-level market efficiency at different trading locations and in-turn identifying the antecedents behind homogeneity (or lack-thereof) in firm-level market efficiency across multiple trading locations.

On the Dynamic Linkages Among International Emerging Currencies

Abstract: This study examines the interdependence of US dollar exchange rates expressed in five emerging currencies. Focusing on different phases of the global financial and European sovereign debt crises, the aim of this paper is to examine how the dynamics of correlations between emerging exchange markets evolved from January 04, 2000 to July 11, 2014. To this end, we adopt a dynamic conditional correlation model into a multivariate Fractionally Integrated Asymmetric Power ARCH framework, which accounts for long memory, power effects, leverage terms and time varying correlations. The empirical findings indicate a general pattern of decrease in exchange rates correlations across the phases of the global financial crisis and the European sovereign debt crisis, suggesting the depreciation against US dollar and different vulnerability of the currencies. Moreover, our analysis supports the existence of a general pattern of increase in dynamic correlations across several phases of the two crises, indicating the existence of a “contagion effect”.

Some Economics of Fertiliser Subsidy

Abstract: The paper discusses the nature of distortionary and counter-productive effects of and the deadweight losses due to fertilizer subsidy with special reference to the system adopted with effect from 1st April, 2010. The Economic Survey 2015–2016 identifies some of these effects; but its recommended remedies leave the core inefficiencies and suboptimality of the system unaddressed. Both theoretical and empirical considerations suggest that, for promoting agricultural productivity and ensuring food security, instead of subsidizing fertilizers (or other inputs) it is much more cost-effective to institute a scheme of output subsidy on food grains on the basis of their nutrient values on the one hand and costs of production on the other.

Performance and Persistence in Performance of Actively Managed Chinese Equity Funds

Abstract: The aim of this study is to analyze performance of mutual funds of biggest emerging economy i.e. China. Examining Chinese mutual funds’ performance provides an opportunity to assess the ability of fund managers to outperform the benchmark market. We study the equity mutual funds of China by taking the sample of 707 funds for the period from 2004 to 2015 and evaluate their performance using Capital Asset Pricing Model, Fama–French three factor model and Carhart four factor model. It is found that mutual funds in China give better return than the benchmark market return which means that active management pays better than passive management in mutual fund industry. Moreover, this study also investigates the existence of persistence in the performance of mutual funds and findings indicate that mutual funds in China are not consistent in their performance. Winner (Top-Performing) funds of last year do not continue to be winner funds in the following year and loser funds of previous year give better return in the following year. Overall findings indicate the non-existence of persistence in the performance of Chinese mutual funds.

Ad-Hoc Black–Scholes vis-à-vis TSRV-based Black–Scholes: Evidence from Indian Options Market

Abstract: This research paper examines one-day-ahead out-of-sample performance of the volatility smirk-based options pricing models, namely, Ad-Hoc-Black–Scholes (AHBS) models on the CNX Nifty index options of India. Further, we compare the performance of these models with that of a TSRV-based Black–Scholes (BS) model. For the purpose, the study uses tick-by-tick data. The results on the AHBS models are highly satisfactory and robust across all the subgroups considered in the study. Notably, a daily constant implied volatility based ad-hoc approach outperforms the TSRV-based BS model substantially. The performance of the ad-hoc approaches improves further when the smile/smirk effect is considered. For the estimation of the implied volatility smile, we apply three weighting schemes based on the Vega and liquidity of the options. All the schemes offer equally competing results. The major contribution of the study to the existing literature on options pricing is in terms of the ex-ante examination of the ad-hoc approaches to price the options by calibrating volatility smile/smirk on a daily basis.

Estimating Sectoral Disinflation Cost in India: Some Structural VAR Evidence

Abstract: This paper attempts a sectoral estimation of sacrifice ratios for India. Two Structural VAR models are estimated using quarterly data for the period 1997–98 Q1 to 2016–17 Q1. The empirical findings suggest that the real cost of disinflation policy is not negligible in India. The estimate of sacrifice ratios in terms of real GDP range from 0.16 to 0.17 depending upon the model employed. The calculation of sectoral sacrifice ratios show that all the three sectors are affected negatively and the largest impact is found in the manufacturing sector followed by the other two sectors, i.e., agriculture sector and service sector. The sacrifice ratio in the manufacturing sector is found to be 1.10 and 0.72 indicating huge negative impact of tight monetary policy. Similarly, for the agriculture sector the sacrifice ratios are 0.40 and the service sector shows sacrifice ratios of 0.36 and 0.37 respectively for different models. Further, from 10-year rolling estimation, we find that sacrifice ratios are time varying. The sacrifice ratio is declining in the last few quarters at the aggregate and sectoral levels indicating that disinflation could be less costly in recent times. However, the high disinflation cost experienced prior to the year 2015 can’t be neglected. So, it is important to take caution while interpreting the results of disinflation cost in India.

Regional Incentives and Location Choice of New Firms in India: A Nested Logit Model

Abstract: This research paper attempts to develop an appropriate econometric model for regional incentives and location choice of new firms in India. The alternative econometric models of location choice include ordinary least squares, multinomial logit model, Poisson (count) model, conditional logit model and nested logit model. The present study utilised two-level Nested logit model, a discrete choice regression technique, to estimate the influence of regional incentives on the location choice of new firms in India. In considering what groupings of location choices to use for the upper nest of the tree structure, we simply categorised areas into designated and non-designated status, as defined by policy. We divided the area in two nests or subgroups, or regions: the Special Category States or the Beneficiary States (Jammu and Kashmir, Himachal Pradesh and Uttarakhand) which have been granted special investment incentives package and the Control Group or the Non-Beneficiary Neighbouring States (Haryana, Punjab and Uttar Pradesh) which were given no regional incentives. We have considered only firms established between 2002–2003 and 2010–2011. The independent variables considered for the analysis include investment incentives (dummy variable), manufacturing agglomeration, market potential and land cost. The nested logit model was estimated with full information maximum likelihood estimation using Stata software. The estimation validated the importance of regional fiscal incentives and manufacturing agglomeration as the most important determinants of industrial location.

Do the Maids Get a Meager Pie

Abstract: This paper builds a simple theoretical model to provide an economic justification of why maids’ wages in general, are set much lower than what is socially desirable. The model studies possible spill-over effects in the maids’ labor market when maids are available to complement female labor supply in household activities. Maid is wage taker while the female household sets the wage. It shows that such optimization drives a wedge between social and private optimum leading to a meager pay for the maids.

Foreign Direct Investment and Rural Farm and Nonfarm Sectors in a Developing Economy

Abstract: The rural nonfarm sector has been increasingly becoming a key determinant of the economic development of a developing economy. It is supposed that with process economic development of the nonfarm sector would expand and employ a greater proportion of the workforce previously engaged in the farm sector. We have built up a three-sector Harris–Todaro type dual economy model for a small open economy to investigate the consequences of the liberalized investment policy resulting in higher foreign direct investment (FDI) on the competitive rural sector wage and the urban unemployment problem taking into consideration the “consumption linkage” between the rural farm and nonfarm sectors. We have found that FDI unambiguously raises the rural wage and leads to a contraction of the farm sector. However, the consequence on the urban unemployment problem crucially hinges on the elasticities of demand for the nonfarm product and the proportion of the workforce employed in the urban sector. We have then extended the basic model to consider the “production linkage” between the two sectors in lieu of the “consumption linkage”. The results of the basic model are found to be approximately valid even in this case. Finally, we have advocated a few policies that should be adhered to assist both the farm and the nonfarm sectors to grow simultaneously which would not only make the common workers better off and mitigate the unemployment problem but would also lessen the degree of income inequality existing among the different groups of the working population.

What Can We Learn About the Real Exchange Rate Behavior in the Case of a Peripheral Country

Abstract: Since the reforms undertaken by policymakers to stop the depreciation of the Tunisian currency have failed, this paper investigates the dynamic of the Tunisian real exchange rate RER). The paper examines the nonlinear behavior of the power party purchase in Tunisia. It also considers whether the RER follows a true long-memory or spurious long-memory process with the presence of shifts. The analysis has two main findings. First, strong evidence of short memory in the presence of structural breaks appears in the Tunisian RER and, second, our results highlight that the presence of structural breaks creates distortions that prevent Tunisian policymakers from reacting to the exchange rate system effectively through central bank intervention. The dynamic of the Tunisian exchange rate is governed by the heterogeneity among investors and policy changes. The presence of multiple regimes in the Tunisian exchange rate implies that monetary policy cannot affect the exchange rate dynamic through central bank interventions. Therefore, this study recommends that Tunisian policymakers follow a market-oriented strategy in making relevant reforms, such as revisiting the weight of the dinar against the euro, to ensure better management of the risks associated with foreign exchange fluctuations.

Demographic Transition and Economic Development in Karnataka

Abstract: The universal process of population change has significant attainment of social and economic implications at global level. Demographic transition is not only consisting of population growth tendency but much more along with economic consequences Karnataka is in the third stage of demographic transition and this scenario is marked with opportunities and challenges. This paper examines the demographic trends of Karnataka by using different Census data collected from Census reports and time series data over the time period of 1991–2014 collected from SRS. The fertility and mortality levels in the state have declined considerably. The districts in the Karnataka state have shown considerable increment in HDI from decade to decade. The study used the bound testing approach to co-integration; Autoregressive Distributed Lag (ARDL) model was also applied for analyzing the long run relationship whereas Error Correction Mechanism (ECM) was applied for analyzing the short run link of the demographic variables with economic growth. The study exhibited that the demographic transition positively affected the economic growth in the long run and negatively in the short run.