TIME–FREQUENCY ANALYSIS BETWEEN ECONOMIC RISK AND FINANCIAL RISK IN THE MINT NATIONS: WHAT CAUSES WHAT?

Abstract

This paper addresses a deficiency in the existing literature by examining the time–frequency domain association between economic risk (ER) and financial risk (FR) for the Mexico, Indonesia, Nigeria and Turkey (MINT) nations using dataset from 1984 to 2018. To the authors’ awareness, the relationship between economics and finance has not been thoroughly investigated in the context of risk for the MINT nations. As a result, the outcomes of this research are anticipated to provide an insight on and initiate a fresh discussion regarding the financial-economic nexus. The Breitung and Candelon (BC) causality and the wavelet coherence (WTC) techniques are used to inspect the combined time–frequency causal interrelationship between FR and ER, in accordance with the study goals. The findings from the wavelet revealed the following: (i) a one-way causality exists from ER to FR in Mexico; (ii) a one-way causality exists from FR to ER in Indonesia; (iii) a unidirectional causality exists from ER to FR in Nigeria and (iv) a one-way causality exists from FR to ER in Turkey. Furthermore, the BC causality outcomes validate the WTC outcomes. The study findings are critical for both researchers and macroeconomic policymakers and can be utilized to make appropriate measures, if necessary, by adopting alternative or more appropriate financial and economic decisions.