ISSN No: 1608-6627
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Articles for Volume Year 2017 Vol 29-2

Estimation of Aggregate Consumption Function for Nepal: ARDL Bound Testing Approach
[Arbind Chaudhary]

The relationship between aggregate consumption and its determinants is one of the oldest statistical regularities of macroeconomics. It is important for macroeconomists, policy makers and for others as well. This study aims to estimate aggregate consumption function for Nepal employing Autoregressive Distributed Lag Model (ARDL) for the period of 1975 to 2015 using real income, real exchange rate, real interest rate and inflation rate as determinants. ARDL based co-integration analysis finds the existence of long run association among the variables. Furthermore, elasticity coefficient of real income is found significantly positive but the coefficients of other variables are negative. There exists inverse relationship between real depreciation of domestic currency and real consumption in the long run, but short run shows positive relation between them. The long run as well as short run dynamics of the model are significantly stable. Hence, income is a robust determinant of aggregate consumption. Real interest rate seems to generate substitution effects on consumption, and inflation rate evokes real balance effect on the aggregate consumption of Nepal further.

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Mergers and Acquisitions of the Financial Institutions: Factors Affecting the Employee Turnover Intention
[Rojan Baniya, Sujan Adhikari]

A prudent analysis of the factors affecting turnover intention of the employees after mergers and acquisitions should guide the managers to prevent the fallout of employees during such complex process; the primary objective of this study is to identify those factors that influence turnover intention of the employees. Drawing from the previous studies, a conceptual framework was developed that took into account pre-merger organizational identification, procedural justice, utility with the merger, non-monetary benefits, monetary benefits, trust with merger and adequate authority delegation as variables that influence post-merger organizational identification and satisfaction with the merger. The results illustrate that pre-merger organization identification, utility with the merger, and trust with merger significantly predicted the post-merger organization identification, whereas only trust with merger significantly predicted the satisfaction with the merger. Furthermore, the study elucidates that the post-merger organizational identification could prevent the turnover intention among the employees. The findings of the study unravel sentiments of the employees during the consolidation process and provide the practitioners and the policy-makers with a base to develop an effective strategy to prevent turnover of employees during the mergers and acquisitions.

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Stock Index, Interest Rate and Gold Price of Nepal: Cointegration and Causality Analysis
[Hom Nath Gaire]

This study examines cointegration and causality between the NEPSE index vis-à-vis short term interest rates and gold prices in Nepal. Main objective of this study is to identify the long run equilibrium relationship as well as cause and effect relationship between the variables under consideration. Monthly time series data cover the period starting from January 2006 to December 2016, which were sourced from Nepal Stock Exchange (NEPSE), Nepal Rastra Bank (NRB) and Nepal Gold and Silver Dealers Association (NEGOSIDA). The results of the unit root (ADF) tests and Cointegration (Johansen) tests confirm that there is long-run equilibrium relationship between the NEPSE index, short term interest rates and gold prices in Nepal. In the meantime, Granger Causality test reveals that there is no causality between the gold price and NEPSE index. However, it is confirmed that there is unilateral causal relationship between the NEPSE index and short term interest rate which moves from interest rate to NEPSE index. From the test results it can be concluded that the short-term interest rates are the better predictor for NEPSE index and bullion (commodity) market is yet to be developed as substitute of the Stock Market.

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Potential Output and Output Gap Estimates for Nepal
[Nepal Rastra Bank Research Department]

Estimation of potential output and output gap is one of the key issues for the conduct of macroeconomic policies and structural reforms in the long-run as the idea of output gap helps decide on the stance of such policies. A positive output gap, for instance, indicates that aggregate demand exceeds the productive capacity of the economy resulting into inflationary pressure. In contrast, a negative output gap is associated with recession, spare capacity, disinflation, and unemployment rate above the non-accelerating inflation rate of unemployment. In case of Nepal, the potential output grew by 4.3 percent during 1976-2017. While potential output growth was above 4.5 percent during the 1980s and 1990s, fall in total factor productivity limited such growth to 4 percent on average after 2000. The results show that output gaps in Nepalese case are mainly determined by the supply shocks like weather conditions, natural disasters, and supply disruptions rather than fluctuations in aggregate demand.

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