Challenges in the Era of Globalization - iaabd

Proceedings of the 12th Annual Conference © 2011 IAABD
Trace test indicates 2 cointegrating equations at the 0.05 level. This Result was obtained considering an
unrestricted VAR with only endogenous variables. However, adding exogenous variables didn’t alter the
main outcome.
The optimal lag length was selected on the basis of the Schwarz (SC) criterion along with
misspecification tests for the error terms. This led us to choose two lags in our VECM. Table 3 shows the
results of the Johansen’s trace test. The null hypothesis is of a cointegration rank of at most r (i.e., the
VECM has at most r cointegrating relationships). On the basis of this test, the null is rejected for r=0 and
r≤1 (at the 5% level), suggesting the presence of two cointegrating relationships. Test statistics of the
unrestricted vector autoregression model show that although the errors are not normally distributed, there
is no presence of autocorrelation among them.
Table 4: Unrestricted cointegration vectors
Credit Capital Interest Lending RGDP Inflation
-3.02 4.18 0.54 -0.14 2.05 -0.183
-0.64 1.37 -0.08 0.25 -0.51 -0.016
Weak Exogeneity a
3.5954 1.44 27.07 7.77 0.51 24.03
[0.16] [0.48] [0.000016] [0.02] [0.77 [0.000006]
a 2
The test statistics are distributed as χ with 2 degrees of freedom. P-values are reported in brackets.
The two estimated unrestricted cointegrating vectors are reported in Table 4 along with results of the
weak exogeneity test. According to the signs of the relevant parameters, it appears that vectors β1 and β2
could be interpreted as demand and supply relationships, respectively. The bottom of Table 4 indicates
also that at least three variables are weakly exogenous. According to Johansen (1995), a variable can be
treated as weakly exogenous if its coefficients of all errors correction terms are zero, implying that the
respective equation in the first difference does not contain information about the long-run parameters β.
The likelihood ratio tests on join restrictions on α have been carried without imposing restrictions on β.
The hypothesis of weak exogeneity test could not be rejected for loans, capital and Real GDP.
To identify the supply and the demand equations, we imposed the following exclusion and exogeneity
restrictions on the cointegrating parameters:
If the null hypothesis is not rejected, loan demand is unaffected by bank capital and the policy rate, loan
supply is unaffected by activity, and capital and activity are weakly exogenous. The null hypothesis could
not be rejected at classical levels on the basis of a LR test ( , p-value= 0.134). We therefore
obtained the parameters of the demand and supply equations after normalizing the unrestricted
cointegrating vectors in loans as follows (t-statistics are in brackets):
(8.34) (2.45) (8.03)
(0.574) (-12.81) (3.40) (11.65)
Our parameters show that economic activity is a powerful determinant of the demand for bank loans in
the CEMAC area. Other studies have also estimated the income elasticity of loan demand to be greater
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