Faculty of Commerce, Law and Management (ETDs)
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Item Policy uncertainty, economic distance, and macroeconomic variables in developing economies(University of the Witwatersrand, Johannesburg, 2021) Adjei, Abigail Naa Korkor; Tweneboah, GeorgeAlthough economic policy uncertainty (EPU) is a less explored source of uncertainty that is related to economic policy, economic policy uncertainty in describing the state of an economy has assumed dominance in decision-making in countries and has remained relevant to investors, governments, and policy makers across the globe. This has become the standard because studies have proved that policy uncertainty has a significant effect on the overall economy and heightened EPU (especially during recessions) has the potential to harm economic activities. The literature review revealed evidence that EPU comoves with business cycles, that uncertainty influences the distance between economies, and that EPU spillover shocks from one economy to another have a significant impact on the recipient economy's economic activities. As yet, there has been scant systematic investigation of these possible interactions. The study of EPU is of major importance to emerging market economies (EMEs) because, although literature has proved the harmful effects of EPU on EMEs, the studies done is meager since majority of study on EPU have focused on developed countries. These implications of uncertainty on EMEs have made it very relevant to focus on the role uncertainty plays in EMEs. In order to make significant contribution to the role EPU plays in EMEs, this thesis focuses on addressing three main problems. To begin, the study examines whether EPU correlates with business cycles and, if so, whether EPU is the cause or effect of recessions across business cycles. The study makes an important contribution by finding answers to why business cycles fluctuate. This study deviates from traditional sources of fluctuations and focus on uncertainty as a potential cause or effect of business cycle fluctuations. We also propose new variables as measures ofbusiness cycles (GDP, CPI, SPX, import, export and broad money). The wavelet multiple correlation and wavelet multiple cross-correlation proposed by Fernandez-Macho (2012) is used to investigate the comovement between EPU ad business cycles. The analysis shows that business cycles commove with strong records of interdependence. The scale by scale analysis, on the other hand, has shown that the level of integration is strongest in the long-term. We further investigated the role EPU plays in the comovement of variables (gross domestic product (GDP), consumer price index (CPI), SPX (SPX), import, export and broad money) within each EME and discovered that positive correlation was generally recorded between EPU and CPI within each EME. Likewise, evidence of negative correlation for EPU was recorded between EPU and SPX across all EMEs. We also note that, although there is strong evidence of comovement between EPU and the macroeconomic variables, EPU has no lead/lag potential across all the time scales within the selected EMEs. To also clear all the inconsistencies of whether uncertainty is the cause or effect of fluctuations in the business cycle, the study adopts Diks and Panchenko (2005, 2006) non- parametric test. It was discovered that causality with respect to the economic indicators of business cycles is specific to each EMEs. We conclude that EPU is both a cause and effect of business cycles fluctuations in the selected EMEs except for India where business cycles cause EPU fluctuations. The second objective is to ascertain the relationship between EPU and distance in EMEs. The study focuses on the investigation of economic distance and geographical distance. This section makes two contributions to the study. First, we conduct a novel investigation on the relationship between economic distance and EPU. Second, we adopt a non-parametric geospatial analysis to investigate the spatial dependence between EMEs (with respect to their EPU measures). We first find an answer to the question, “can EPU influence economic distance in EMEs?”. The extent of similarities (or dissimilarities) of economic characteristics between units (or countries) is termed as economic. Despite evidence that uncertainty increases when the economic characteristics between countries are different, no study has investigated the relationship between economic distance and EPU although EPU has a greater significant impact on an economy than uncertainty in general. The dynamic linear regression method is adopted to investigate the relationship between EPU and economic distance. We discover that macroeconomic variables were largely statistically significant and have explanatory power to explain the economic distance between the EMEs as compared to the role EPU plays in explaining the economic distance between EMEs. We therefore find limited evidence of EPU’s effects on the economic distance between EMEs. We also discover that changes in the values of import, CPI and broad money in most EMEs are statistically relevant and significantly drive the changes in the values of economic distance between the selected EMEsItem Essays on cryptocurrencies and traditional assets in emerging market economies: dynamic modelling, connectedness, and spillovers(2020) Omane-Adjepong, MauriceThe last decade has experienced notable changes and unique innovations in the global financial system. In particular, the introduction of cryptocurrencies, pioneered by Bitcoin and later other alternative coins (best known as altcoins) by libertarian cryptographers after several efforts in the 1990s to usher in electronic currencies foundered, has been lauded and likewise received enormous attention worldwide, raising many concerns for governments, monetary authorities and other regulatory bodies. Originally designed as electronic cash for decentralised peer-to-peer online financial transactions, secured by cryptographic algorithms, cryptocurrency, a specialised kind of digital currency, in barely a decade of existence, is challenged with an identity crisis. The debate as to what cryptocurrency is, or has become looms in the minds of the general public, and it has been the subject of media commentary. At the same time, the limited amount of research on the topic has only raised more questions than answers. For instance, not only are the existing studies not attacking the root of the deepest questions posed by the rise of cryptocurrencies to date, but also they are not robustly studied methodologically. The depth of analysis is shallow, and the scope of the studies published on the subject matter so far is very limited, both in space and time. Additionally, the extent of the relatedness of the new digital currency market to traditional assets, especially in frontier and emerging economies remains a virgin field. This naturally raises additional concerns: does the emergence of cryptocurrencies offer any relevant economic benefits to these emerging market economies? What implications does this evolution hold for established financial systems? Answers to these questions, and many more are crucial for monetary policy effectiveness, legislation and regulation, financial system stability, the future of cryptocurrencies, and overarchingly, to illuminate the blind spots of the enthusiastic libertarian public, as well as the general investor community. iii In light of the above, this thesis makes a bold attempt at addressing some of the weaknesses of extant research, extend the frontiers of knowledge in this new financial instrument, and shed insights on cryptocurrencies in emerging market economies, proxied by those in the G20. The study produced interesting juxtapositions in three essays. The first essay examined the evolving characteristics of cryptocurrencies under five sub-themes, and presents a map for analysing the cryptocurrency market. We find that Bitcoin and the largest long-lived altcoins are collectively unique instruments that share features of paper money, security assets (mostly equities), and commodity money (such as gold and oil), making the digital currencies a “trinity-hybrid” financial instrument which could best operate under the private sector to complement emerging currencies and assets. For emerging market economies, cryptocurrencies, in our view, is a three-in-one financial instrument, if and only if its role is limited to exchange of goods and services, and helping facilitate transactions of various kinds. This, in turn, raises a number of possibilities for recalibrating the current financial architecture while addressing the regulatory changes that ought to be in place for a well-functioning diversified economy. The second empirical essay found evidence in favour of an extremely weakly correlated market, and later, multifaceted economic benefits of cryptocurrency in times where emerging market economies’ assets wander in distress. This positions the new currency market to the advantage of heterogeneous groups of emerging market investors. However, we caution that expectations of such derived economic benefits need to be examined further on a case by case basis, and in a measured manner, especially given that the cryptocurrency market is still at its embryonic stages of evolution. iv The third and final essay allays the fears of investors and market participants, and reveals for the first time that the cryptocurrency market is less influenced by existing highly integrated instruments, and has little effect on emerging markets, and consequently pose, for now, a negligible danger. At their current level of development, some economies are not yet exposed to the variety of developments in the world of electronic commerce and payment systems that make the algorithms that power the peer-to-peer decentralised ledger platforms seamless. This may change in the future. For now, we are sure that the coming into being of cryptocurrencies is an inevitable consequence of the financial sector paradigms of the last few decades, however, the distributional consequences across regions, countries and among different market participants are largely asymmetric. The insights gleaned from this study, therefore, open doors for policymakers to properly fine-tune their economies to maximise the upside potential presented by this asset class and minimise the downside risks, in the light of what has been learned about the role of cryptocurrencies so far.Item Essays on cryptocurrencies and traditional assets in emerging market economies: dynamic modelling, connectedness, and spillovers(2021) Omane-Adjepong, MauriceThe last decade has experienced notable changes and unique innovations in the global financial system. In particular, the introduction of cryptocurrencies, pioneered by Bitcoin and later other alternative coins (best known as altcoins) by libertarian cryptographers after several efforts in the 1990s to usher in electronic currencies foundered, has been lauded and likewise received enormous attention worldwide, raising many concerns for governments, monetary authorities and other regulatory bodies. Originally designed as electronic cash for decentralised peer-to-peer online financial transactions, secured by cryptographic algorithms, cryptocurrency, a specialised kind of digital currency, in barely a decade of existence, is challenged with an identity crisis. The debate as to what cryptocurrency is, or has become looms in the minds of the general public, and it has been the subject of media commentary. At the same time, the limited amount of research on the topic has only raised more questions than answers. For instance, not only are the existing studies not attacking the root of the deepest questions posed by the rise of cryptocurrencies to date, but also they are not robustly studied methodologically. The depth of analysis is shallow, and the scope of the studies published on the subject matter so far is very limited, both in space and time. Additionally, the extent of the relatedness of the new digital currency market to traditional assets, especially in frontier and emerging economies remains a virgin field. This naturally raises additional concerns: does the emergence of cryptocurrencies offer any relevant economic benefits to these emerging market economies? What implications does this evolution hold for established financial systems? Answers to these questions, and many more are crucial for monetary policy effectiveness, legislation and regulation, financial system stability, the future of cryptocurrencies, and overarchingly, to illuminate the blind spots of the enthusiastic libertarian public, as well as the general investor community. In light of the above, this thesis makes a bold attempt at addressing some of the weaknesses of extant research, extend the frontiers of knowledge in this new financial instrument, and shed insights on cryptocurrencies in emerging market economies, proxied by those in the G20. The study produced interesting juxtapositions in three essays. The first essay examined the evolving characteristics of cryptocurrencies under five sub-themes, and presents a map for analysing the cryptocurrency market. We find that Bitcoin and the largest long-lived altcoins are collectively unique instruments that share features of paper money, security assets (mostly equities), and commodity money (such as gold and oil), making the digital currencies a “trinity-hybrid” financial instrument which could best operate under the private sector to complement emerging currencies and assets. For emerging market economies, cryptocurrencies, in our view, is a three-in-one financial instrument, if and only if its role is limited to exchange of goods and services, and helping facilitate transactions of various kinds. This, in turn, raises a number of possibilities for recalibrating the current financial architecture while addressing the regulatory changes that ought to be in place for a well-functioning diversified economy. The second empirical essay found evidence in favour of an extremely weakly correlated market, and later, multifaceted economic benefits of cryptocurrency in times where emerging market economies’ assets wander in distress. This positions the new currency market to the advantage of heterogeneous groups of emerging market investors. However, we caution that expectations of such derived economic benefits need to be examined further on a case by case basis, and in a measured manner, especially given that the cryptocurrency market is still at its embryonic stages of evolution. The third and final essay allays the fears of investors and market participants, and reveals for the first time that the cryptocurrency market is less influenced by existing highly integrated instruments, and has little effect on emerging markets, and consequently pose, for now, a negligible danger. At their current level of development, some economies are not yet exposed to the variety of developments in the world of electronic commerce and payment systems that make the algorithms that power the peer-to-peer decentralised ledger platforms seamless. This may change in the future. For now, we are sure that the coming into being of cryptocurrencies is an inevitable consequence of the financial sector paradigms of the last few decades, however, the distributional consequences across regions, countries and among different market participants are largely asymmetric. The insights gleaned from this study, therefore, open doors for policymakers to properly fine-tune their economies to maximise the upside potential presented by this asset class and minimise the downside risks, in the light of what has been learned about the role of cryptocurrencies so far