An Application of Asymmetric Toda Yamamoto Causality on Exchange Rate-inflation Differentials in Emerging Economies

Mohammed Umar and Jauhari Dahalan
Additional contact information
Mohammed Umar: Federal University Kashere, Nigeria
Jauhari Dahalan: School of Economics, Finance and Banking, Universiti Utara Malaysia, Malaysia

International Journal of Economics and Financial Issues, 2016, vol. 6, issue 2, 420-426

Abstract: The paper employs asymmetric causality test based on Toda and Yamamoto (1995) causality approach to further investigate the causal relationship between exchange rate and inflation differentials in Brunei, Malaysia and Singapore. We simulate critical values based on leverage bootstrapping and asymmetric causality test from the underlying empirical data. The results are compared among the Granger asymptotic Chi-square, the modified WALD leverage bootstrapped distributions and asymmetric causality test. The reported conflicting findings proved the existence of size distortion and nuisance parameter estimates when the traditional Granger approach is applied. The results from Toda Yamamoto with asymmetric causality test establish the existence of Granger causality running from positive cumulative exchange rate shocks to positive cumulative shocks in inflation differentials for Brunei and Malaysia. However, the asymmetric causality for Singapore runs from both positive and negative cumulative domestic inflation shocks to positive and negative exchange rate shocks respectively. The policy implication of the findings is that a strong price stabilization policy during both good and bad times can stabilize exchange rate fluctuations in Singapore whereas; formulation of effective exchange rate policy can only achieve price stability in Brunei and Malaysia during good period.

Keywords: Asymmetric Causality; Leverage Bootstrap; Toda Yamamoto; Exchange Rate; Structural Break (search for similar items in EconPapers)
JEL-codes: C10 E31 F31 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.econjournals.com/index.php/ijefi/article/download/1758/pdf (application/pdf)
http://www.econjournals.com/index.php/ijefi/article/view/1758/pdf (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eco:journ1:2016-02-8

Access Statistics for this article

International Journal of Economics and Financial Issues is currently edited by Ilhan Ozturk

More articles in International Journal of Economics and Financial Issues from Econjournals
Bibliographic data for series maintained by Ilhan Ozturk ().