Social Choice as a Continuous Mapping from IRⁿ→IR : A Group Invariance Approach
Pages 394-400
Lyle Noakes and Alex Coram

DOI: http://dx.doi.org/10.6000/1929-7092.2014.03.30

Published: 10 November 2014

Abstract: Social choice is studied by employing a group invariance approach in a way that appears not to have been previously been exploited. This simplifies the problem and the proofs and provides some new insights into the foundations of impossibility results.

Trade Openness-Government Size Nexus: Compensation Hypothesis Considered for Nigeria
Pages 364-372
Omo Aregbeyenand Taofik Mohammed Ibrahim

DOI: http://dx.doi.org/10.6000/1929-7092.2014.03.27

Published: 24 October 2014

Abstract: Over the years, substantial theoretical and empirical studies have been carried out on the trade openness-government size nexus. While a strand of the literature reported positive linkage, the other suggests otherwise. This study contributes to the debate by examining this relationship for Nigeria using the bounds testing approach to cointegration within an ARDL framework proposed by Pesaran et al. (2001). Empirical evidence reveals that government size measured by percentage share of total government expenditure in GDP and share (percent) of recurrent expenditure in GDP significantly affects trade openness in the long run but percentage share of capital expenditure in GDP as a measure of government size does not impact on trade openness in the long run. The results of the standard causality test corroborate these findings. However, the three measures of government size considered significantly affect trade openness in the short run. The major implication for our study therefore is that compensation hypothesis holds for Nigeria. Thus, the government need to continue to expand its expenditure in order to cushion the effect of increase in risk caused by rising trade openness.

Modeling an Alternative Expression of Covered Interest Parity – in Inflation Targeting Economies of Emerging Asia
Pages 373-376
Suresh Ramanathan and Kian-Teng Kwek

DOI: http://dx.doi.org/10.6000/1929-7092.2014.03.28

Published: 24 October 2014

Abstract: We establish an alternative form of expressing the covered interest parity model that incorporates the onshore and offshore foreign exchange forward market of inflation targeting economies of Emerging Asia, which provides the ability to identify if there is the occurrence of covered interest parity in foreign exchange forward markets.

Yield Curve Forecasts and the Predictive Power of Macro Variables in a VAR Framework
Pages 377-393
Luciano Vereda, Hélio Lopes, Jessica Kubrusly and Adrian Pizzinga

DOI: http://dx.doi.org/10.6000/1929-7092.2014.03.29

Published: 24 October 2014

Abstract: Recent macro-finance papers have documented the importance of adding information from macro variables in order to improve out-of-sample forecasting performance of bond yields. This paper aims at investigating the reasons for this success. We use Diebold and Li’s dynamic version of the Nelson and Siegel exponential approximation of the yield curve to estimate the factors that govern its dynamics. Factors and macro variables are modeled simultaneously in a VAR framework, which is then used to forecast the factors. Our main conclusions are (i) this framework is useful in forecasting slope and curvature factors, but not the level factor; and (ii) to get good results in forecasting the level factor, one needs a macro model which incorporates variables related to long-run trends and expectations.

The MENA Region – An Optimal Currency Area? Evaluating its Stability by Taylor-Rule Derived Stress Tests
Pages 310-327
Mouchera Karara

DOI: http://dx.doi.org/10.6000/1929-7092.2014.03.23

Published: 23 September 2014

Abstract: The European currency union with the EURO as its common currency is the most persistent and largest monetary union to date. At the beginning, it has attracted a lot of attention to the concept of monetary unions; yet, it has recently signaled a lot of warnings around the concept that requires careful studying prior to any duplication attempt. This paper aims at identifying potential currency unions in the MENA region based on interest rates' similarity as one of the aspects that affect a monetary union's success. To assess their sustainability, the optimal interest rates (Taylor rates) of the members of each potential union is estimated and used to calculate a stress level index. The sample used in this study consists of eleven countries where Taylor rates were calculated using data from 1998 to 2008. The stress test results provide a clear result: Two monetary sub-unions, namely the Saudi Arabia - Kuwait union and the Mashreq union (Jordan, Egypt and Syria), are found to have relatively low stress levels and high benefits from a common currency. In contrast, a large MENA union would suffer from very high stress levels and only modest advantages of a common currency.