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JEM Vol. 31(1), 2018


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The influence of money supply on inflation in Nigeria

Ditimi Amassoma, Keji Sunday, Emma-Ebere Onyedikachi
2018; 31(1): 5-23;

Aim/purpose – The aim of this study is to empirically investigate the influence of money supply on inflation in Nigeria. The study was borne out of the curiosity to reexamine the immediate cause of the alarming rate of inflation in Nigeria which is adversely affecting the general welfare of Nigerian populace.
Design/methodology/approach – The study employed co-integration test and error correction approach on annual time series data spanning from 1970 to 2016 to ascertain both the long run and short run dynamics relationship among the variables under consideration.
Findings – The results showed that money supply does not considerably influence inflation both in the long and short run possibly because the country is in recession. The error correction model has the correct sign of negative and it is significant meaning that about 21% of the errors are corrected yearly. The Granger causality outcome demonstrates that, there is no causality between money supply and inflation in Nigeria within the study period and vice-versa.
Research implications/limitations – The implication of this is often that there are different economic conditions which are key determinant of inflation in Nigeria. The study recommends that the government should diversify the economy, minimise importation by encouraging local production of products and services. The Central Bank of Nigeria should guarantee an exchange rate policy that is essentially determined by the state of the economy and not by speculators being a net importation economy. Also, the Central Bank of Nigeria should look inwards into the current interest rate and see how it can be regulated in such a way that will encourage private and foreign investors to be able to invest in the country. This in turn, successively increases income, infrastructure development and economic growth at large.
Originality/value/contribution – This paper has been able to confirm that money supply is not a key factor that trigger up inflation in Nigeria.

Keywords: error correction model, Granger causality, Central Bank of Nigeria.
JEL Classification: E51, E58, C22, C51.


Predicting South African personal income tax – using Holt–Winters and SARIMA

Mangalani Peter Makananisa, Jean Luc Erero
2018; 31(1): 24-49;

Aim/purpose – Over estimation and under estimation of the Personal Income Tax (PIT) revenue results in an unstable economy and unreliable statistics in the public domain. This study aims to find a suitable SARIMA and Holt–Winters model that suits the sample monthly data for PIT well enough, from which a forecast can be generated.
Design/methodology/approach – This study uses the aspects of time series model (Holt–Winters and SARIMA) and regression models with SARIMA errors to simulate the structure which followed the historical actual realization of PIT. The quarterly data were obtained from quarter1, 2009 to quarter 1, 2017 for the purpose of modelling and forecasting. The data were divided into training (quarter 1, 1995 to quarter 1, 2014) and testing (quarter 2, 2014 to quarter 1, 2017) data sets. The forecast from quarter 2, 2017 to quarter 1, 2020 were also derived and aggregated to annual forecast.
Findings – Holt–Winters, SARIMA and Time Series Regression models fitted captured the movement of the historical PIT data with higher precession.
Research implications/limitations – The generated forecast is recommended to avoid several model revisions when locating the actual PIT realisation. However, monitoring of this model is crucial as the prediction power deteriorate in a long run.
Originality/value/contribution – The study recommends the use of these methods for forecasting future PIT payments because they are precise and unbiased when forecasting are made. This will assist the South African authorities in decision making for future PIT revenue.

Keywords: South African Revenue Service (SARS), Personal Income Tax (PIT), Autoregressive Integrated Moving Averages (SARMA), Holt–Winters (HW).
JEL Classification: H24, C15, E37.


Regulations as a tool to increase consumer protection on the European retail payment market

Janina Harasim  , Monika Klimontowicz
2018; 31(1): 50-73;

Aim/purpose – The purpose of the paper is to identify the main areas of customers’ threats concerning using financial services and the in-depth review of European industry -specific consumer regulations concerning current accounts and payments.
Design/methodology/approach – Desk research including in-depth analysis of industry-specific consumer regulations referring to current accounts and payment services having the character of EU directives and regulations, European Commission reports, and documents.
Findings – The paper shows that consumers’ interests are threatened even when they use basic financial services as current account and combined payment instruments. The analysis based on of desk resources has revealed that the regulations give effect to customer protection only if they strictly correspond to defined areas of threats and particular types of risks.
Research implications/limitations – The experience of the recent financial crisis proved that the asymmetry of knowledge and information was one of the crucial reasons disrupting customers’ position on financial markets. Research findings will help to identify gaps in regulations and develop the quality of further initiatives aimed on informing customers about the implementation of regulations and improving their financial literacy level.
Originality/value/contribution – The payment products are rarely discussed in the literature in the context of consumers’ protection and financial regulations. This paper contributes to the debate by providing an overview of financial consumer protection issues concerning retail payments.

Keywords: customer protection, customer risk, financial markets, retail payment market.
JEL Classification: D18, G21, G28, O16.


Exchange market pressure, stock prices, and commodity prices east of the Euro

Scott W. Hegerty 
2018; 31(1): 74-94;

Aim/purpose – This paper aims to examine connections between the exchange, equity, commodity and commodity markets of a set of Central and Eastern European (CEE) economies using monthly time-series data. In particular, we examine whether stock – or commodity – price changes might put pressure on these currencies to depreciate, and whether these pressures are transmitted within the region or from larger neighbors.
Design/methodology/approach – This paper creates monthly indices of Exchange Market Pressure (EMP) from 1998 to 2017 using a combination of currency depreciation, reserve losses, and changes in interest-rate differentials for the Czech Republic, Hungary, Poland, and Ukraine, Bulgaria, and Romania. After examining these indices for evidence of currency ‘crises’, and their components for evidence of changes in currency policy, Vector Autoregressive (VAR) methods such as Granger causality and impulse-response functions are used to examine connections between EMP, domestic and foreign stock returns, and changes in commodity prices in the first four countries listed.
Findings – While EMP increased in 2008, and the degree of central banks’ currency-market interventions decreased afterward, this paper uncovers key differences among countries. In particular, the Czech Republic is relatively insulated from international transmissions, while Hungary is more susceptible to global spillovers and Poland is exposed to events originating elsewhere in the CEE region. Ukraine shows bidirectional causality between its EMP and stock indices, and finds that pressure on the hryvnia increases if commodity or oil prices decline.
Research implications/limitations – This study adds to the relatively limited literature regarding this region, and highlights particular vulnerabilities for both individual countries and specific neighbors; further research is necessary to uncover the channels of transmission using economic modeling.
Originality/value/contribution – This study explicitly models two major economic processes in a part of the world that is relatively rarely examined. These include events in Central and Eastern European exchange markets and central bank intervention, and also interlinkages among regional currency and equity markets, foreign equity markets, and global commodity prices. This will allow policymakers to assess integration between these countries, the rest of the European Union, and the global economy.

Keywords: exchange market pressure, stock returns, commodity prices, Central and Eastern Europe, time series.
JEL Classification: F42, E44, F62, O57.


The relationship between the output gap and excess liquidity: Evidence from Czech Republic, Estonia and Kosovo

Albulenë Kastrati , Nick Adnett, Valentin Toçi
2018; 31(1): 95-118;

Aim/purpose – Banks in European Transition Economies are proportionally lending less than their counterparts in the Eurozone in the face of seemingly profitable loan opportunities, whilst apparently continuously holding excess liquidity. The question that arises is whether banks in European Transition Economies are holding excess liquidity that widens the output gap?
Design/methodology/approach – Given its endogenous nature, the relationship between the output gap and excess liquidity is estimated using Seemingly Unrelated Regressions method. The research sample covers three European Transition Economies for the period 2004Q1 – 2013Q4.
Findings – The results indicate that rather than being in a causal relationship, excess liquidity and the output gap are found to be correlated via common observed and unobserved determinants.
Research implications/limitations – The most important policy implication of this research is that since the relationship between output gap and excess liquidity is not causal, reducing excess liquidity will not necessarily lead to a smaller (negative) output gap. There seems to be no straightforward policy framework informed by a clear trans-mission mechanism from excess liquidity to output gap.
Originality/value/contribution – This study is novel in two respects. Firstly, assuming endogeneity, a new conceptual relationship between output gap and excess liquidity is presented. Secondly, empirical evidence is presented using the system equation method Seemingly Unrelated Regression, not previously used in this context.

Keywords: output gap, excess liquidity, transition economies, system equation models.
JEL Classification: E32, E51, P2, C3.


Key location factors and the evolution of motives for business service offshoring to Poland

Radosław Malik
2018; 31(1): 119-132;

Aim/purpose – The aim of the research is to study key location factors and changes in motives for business service offshoring.
Design/methodology/approach – The empirical research was conducted on a sample of 200 managers employed in business service centers in Poland.
Findings – The results of the research confirm human capital as the most important basis for the location selection of business-service offshoring to Poland. The study has revealed that the pursuit of cost reduction is currently the most important motive for the relocation of business services to Poland. It has been shown that the motives for business service offshoring undergo evolution. The importance of salary arbitrage is diminishing, while other motives are becoming increasingly crucial. In the near future, efficiency improvement and service quality are expected to become more important than cost reduction, while innovation improvement is expected to grow at the fastest rate.
Research implications/limitations – In the global economy, the location of business services is becoming the subject of increasingly free choice. Transnational corporations transferring their business services implement various location strategies in search of specific advantages that reflect their expectations. The findings of the study could be extended to other transition economics.
Originality/value/contribution – It is one of a few empirical studies on the evolution of motives for business service offshoring worldwide and the first performed in Poland, which has become an important host location for business service offshoring in Europe.

Keywords: offshoring, business services, location factors, location decision, relocation.
JEL Classification: F200, F230.


Efficiency, customers’ satisfaction and deposit money banks’ performance in Nigeria

Powel Maxwell Worimegbe , Adebiyi Julius Abosede, Temitope Mariam Worimegbe
2018; 31(1): 133-148;

Aim/purpose – The study seeks to explore the technical efficiency of Nigerian banks using production approach and; to establish the relationship that exists between technical efficiency, customers’ satisfaction and bank performance in the face of a volatile economy.
Design/methodology/approach – Data used in achieving the research objectives were from both primary and secondary sources. The Data Envelopment Analysis (DEA) and Structural Equation Model (SEM) were employed in the analysis of data. 600 hundred questionnaires from 18 deposit money banks.
Findings – The study reveals that technical efficiency leads to customers’ satisfaction. The findings also show that customers’ satisfaction affects bank performance. Further-more, efficiency influences banks’ financial performance and this indicates that banks that pursue improved financial performance using a singular approach may be fundamentally misguided.
Research implications/limitations – The study has important implications because it suggests that Deposit Money Banks should concentrate effort firstly on efficiency before customers’ satisfaction. Bank managers should also seek better way of meeting customers need thereby increasing their customers’ satisfaction and increasing bank financial performance. The study is limited in scope since it does not look at other approaches in measuring bank efficiency; further studies should consider using intermediation, user-cost, asset, modern and value-added model approaches in measuring bank efficiency.
Originality/value/contribution – The study focuses solely on deposit money banks in Nigeria and empirically analyses the effect of efficiency, customers’ satisfaction on financial performance of deposit money banks in Nigeria.

Keywords: Bank efficiency, customers’ satisfaction, bank performance.
JEL Classification: C19 G21 G29.


The third currency war as an effect of post-crisis changes in the international currency system. The risk aspect – the case analyses of Brazil

Jacek Pera
2018; 31(1): 149-180;

Aim/purpose – The objectives of the paper include: identification of factors that influence the directions of fluctuations of foreign exchange rates seen as manifestations of currency wars; description of the most important forms of currency wars conducted in the contemporary global economy (including in particular the currently observed third currency war); analysis of risks to contemporary financial markets and national economies posed by the third currency war.
Design/methodology/approach – The paper uses the method of critical analysis of the literature on the subject, as well as US-China and Brazil case analyses. The Propensity Score Matching method was used in the study.
Findings – The research findings confirmed the following hypotheses: contemporary fluctuations of foreign exchange rates in the largest economies of the world confirm that the third currency war is ongoing; the risk of consequences of the currency war destabilises the international and local financial markets and trade transactions among them.
Research implications/limitations – The limited scope of the research performed is due to the fact that emerging economies have no control of devaluation or revaluation pro-cesses in their respective countries. However, large economies, such as China or Japan, are able to create the value of their respective currencies, thus artificially controlling the competitiveness of their products and services. These differences between small and large economies limit and distort the scope of the research done.
Originality/value/contribution – Identification, analysis and results of the risks to contemporary financial markets and national economies posed by the third currency war.

Keywords: foreign exchange rate, currency war, risk, financial crisis, easing.
JEL Classification: E52, E58, F41, G3, G10.


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