Challenges of Contemporary Economics


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Volume 8 Issue 2 (2014)

Current-Account Imbalances and Economic Growth During the 2008-2009 Financial Crisis: an Empirical Analysis original article

pp. 123-136 | First published in 30 June 2014 | DOI:10.5709/ce.1897-9254.136

Rossitsa Rangelova


This study examines the relationship between current-account imbalances and economic growth during the 2008-2009 financial and economic crisis for 179 countries (covered by IMF data) and within the EU-27 countries (covered by Eurostat data). The countries are divided into 4 groups by GDP per capita based on PPPs, namely, low income, lower middle-income, upper middle-income and high-income countries. Empirical analysis is applied, including descriptive statistics and regression estimates. Statistical data are used, including the average of the GDP growth rate in the years prior to the crisis (2003–2007), the average of the GDP growth rate for 2008 and 2009, current account as a percentage of GDP, and the level of average inflation. It is proved that, in general, the 2008-2009 crisis affected high- and upper middle-income countries more than poorer countries. Within the EU-27 countries, however, the crisis appears to have affected lower income countries more than higher income countries. A common tendency is observed for the two country samples: countries that experienced strong growth just prior to the crisis had an increased risk of suffering after the crisis. The boom prior to the crisis led to imbalances that rendered economies more vulnerable. Additionally, surpluses that existed prior to the crisis are an important risk factor for the two groups of countries.

Keywords: current-account imbalances; economic growth; 2008-2009 financial and economic crisis; EU countries; global scale

Cross-border commuting and migration intentions: the roles of risk aversion and time preference original article

pp. 137-156 | First published in 30 June 2014 | DOI:10.5709/ce.1897-9254.137

Klaus Nowotny


This article analyses the effects of individual risk aversion and time preference on cross-border mobility intentions using a theoretical and empirical model. The paper extends the previous literature by considering both cross-border commuting and migration as modes of mobility. The theoretical model shows that risk aversion has a negative effect on the willingness to migrate and to commute while the effect of time preference depends on expectations about the development of future wages in the home country and abroad. The empirical model, which is based on a multinomial probit regression, confirms the hypotheses regarding risk aversion and shows that the rate of time preference has a nonlinear effect on migration and commuting intentions consistent with expectations of higher real wage growth in the home country than abroad. The analysis sheds light on how time preference and risk aversion influence mobility decisions. This is especially important for integrating border regions in the European Union, in which both migration and commuting are possible.

Keywords: willingness to migrate; willingness to commute; risk aversion; time preference; discount rate; migration and commuting intentions

Selected Macroeconomic Variables and Stock Market Movements: Empirical evidence from Thailand original article

pp. 157-174 | First published in 30 June 2014 | DOI:10.5709/ce.1897-9254.138

Joseph Ato Forson, Jakkaphong Janrattanagul


This paper investigates and analyzes the long-run equilibrium relationship between the Thai stock Exchange Index (SETI) and selected macroeconomic variables using monthly time series data that cover a 20-year period from January 1990 to December 2009. The following macroeconomic variables are included in our analysis: money supply (MS), the consumer price index (CPI), interest rate (IR) and the industrial production index (IP) (as a proxy for GDP). Our findings prove that the SET Index and the selected macroeconomic variables are cointegrated at I (1) and have a significant equilibrium relationship over the long run. Money supply demonstrates a strong positive relationship with the SET Index over the long run, whereas the industrial production index and consumer price index show negative long-run relationships with the SET Index. Furthermore, in non-equilibrium situations, the error correction mechanism suggests that the consumer price index, industrial production index and money supply each contribute in some way to restore equilibrium. In addition, using Toda and Yamamoto’s augmented Granger causality test, we identify a bi-causal relationship between industrial production and money supply and unilateral causal relationships between CPI and IR, IP and CPI, MS and CPI, and IP and SETI, indicating that all of these variables are sensitive to Thai stock market movements. The policy implications of these findings are also discussed.

Keywords: macroeconomic variables; cointegration; Thai Stock Exchange index (SETI); T-Y augmented Granger-causality

The Role of Weather on Investors’ Monday Irrationality: Insights from Malaysia original article

pp. 175-190 | First published in 30 June 2014 | DOI:10.5709/ce.1897-9254.139

Rayenda Brahmana, Chee Wooi Hooy, Zamri Ahmad


Evidence supporting the weekend effect, also known as Monday Irrationality, has shown that conventional finance is unable to follow a rational behavior assumption. Many scholars have proposed a behavioral approach to explain this phenomenon; however, few studies have investigated this effect empirically. Interestingly, literature on weather patterns and the preliminary results of our study have identified a particular weather cycle that occurs on Mondays, when the temperature in Malaysia is higher compared with other days. Therefore, this paper aims to investigate the role of weather on investors’ Monday irrationality. By analyzing the market index and size-based portfolio formation model from 1999 to 2010, this research study found that the weather influenced investors’ mood, causing anomalous conditions in the market. Our findings conclude that the mood of investors plays an important role on investment decisions and the resulting Monday irrationality of investors.

Keywords: weather; monday irrationality; psychological finance; malaysian stock market

Financial Services to the Unbanked: the case of the Mzansi intervention in South Africa original article

pp. 191-206 | First published in 30 June 2014 | DOI:10.5709/ce.1897-9254.140

Philip Kostov, Thankom Arun, Samuel Annim


The Mzansi intervention is a major initiative designed to provide banking services to the unbanked South African population. This study investigates the underlying variables that define the choice of a Mzansi account from a consumer perspective. Unlike previous studies, we do not assume that demand for financial services is a given but instead that it is underlain by perceptions and attitudes. Financial attitudes and perceptions are found to exert significant effects on financial choices. In particular, aspirations and forward-looking values are instrumental in facilitating access to finance.

Keywords: access to finance; variable selection; adaptive LASSO

Plane Ticket Price Dispersion in the Online Selling System in Poland original article

pp. 207-218 | First published in 30 June 2014 | DOI:10.5709/ce.1897-9254.141

Tomasz Stanisław Szopiński, Robert Nowacki


Many authors have studied the influence exerted by tourism on the economy. Today, Information and Communication Technologies (ICT) are an important factor influencing competitiveness in the tourism sector and consumers’ decision-making concerning tourism purchases. Along with the expansion of the European Union, the revolution in passenger air transportation has spread over new member states in Central and Eastern Europe, including Poland. The authors of this study analyzed ticket prices on Internet websites that aggregate offers from different carriers and on the websites managed by the carriers themselves, specifically studying offers for the most popular flight connections from F. Chopin airport in Warsaw to London, Frankfurt, Munich, and Paris. For each connection, the study examined flights operated by the Polish carrier, i.e., LOT Polish Airlines, and by a carrier originating from a destination country. The analysis of the particular coefficients illustrating the price dispersion for each flight operated by a foreign carrier in comparison to the offer from LOT Polish Airlines points to the conclusion that the tickets offered by the latter were marked by a much narrower price dispersion in contrast to the connections offered by foreign carriers on the same route.

Keywords: e-tourism; ICT; airline ticket price; price dispersion; price discrimination; price competitiveness

Religious Pluralism, yet a Homogenous Stance on Interest Rate: The Case of Judaism, Christianity, and Islam original article

pp. 219-228 | First published in 30 June 2014 | DOI:10.5709/ce.1897-9254.142

Ahmed S. Abou-Zaid, Tesa Leonce


Despite the conventional consensus that interest rates are efficient mechanism of allocating loanable funds and the most influential monetary policy instrument in modern economies, the three major monotheistic religions, Judaism, Christianity, and Islam, prohibit the use of interest and consider charging interest as an act of exploitation and extortion. Several passages and verses in the Torah, the Bible, and the Quran make their position on interest clear and definitive, from the Bible’s dictum, “Do not charge your brother interest” to the Quran’s exhortation “give up what remains of your demand for usury.” This paper reviews those passages and verses, provides different scholars’ perspectives on these verses, and relates them to the current financial system. The paper also presents several recent events that support the religious position by showing the negative impact of interest on countries, societies, and individuals. These events have, in fact, inspired many economists and financial institutions to seek alternatives to the current system.

Keywords: Interest rates; relegions; Islam; Christianity; Judaism

Corporate Governance: Behavioral Approach and Cognitive Mapping Technique original article

pp. 229-242 | First published in 30 June 2014 | DOI:10.5709/ce.1897-9254.143

Nassreddine Garoui, Anis Jarboui


Psychological biases represent new paradigms that complement traditional behavioral finance theory while introducing “behaviorist” aspects to the decision-making process. The aim of this paper is to examine the mental models of actors in Tunisian firms with respect to the behavioral approach to corporate governance. We use a cognitive map to observe these mental diagrams and to visualize ways to conceptualize the behavioral approach. The objective of this study is to understand the concept of “mental models” through the presentation and analysis of the cognitive maps of the actors in Tunisian firms. The paper uses a corporate governance perspective to examine the mental models. Each actor’s systematic exploration grid shows a balance of concepts that expresses their cognitive orientation. Thus, we visualize the concepts (variables) that structure the cognitive universe of the actors, which is projected in terms of influences and dependencies. We can distinguish four major categories of variables through the distribution of the scatter plot variables in the grids, particularly in relation to different quadrants.

Keywords: corporate governance; behavioral approach; cognitive mapping; mental models; structural analysis