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Free Example of Forecasting of Macroeconomic Variables Essay

This phenomenon is a major concern to most financial institutions of the world and especially in the evaluation of several government departments’ performance in a wide scale as seen in most of the websites containing such issues. Forecasting of the macroeconomic variables can take different forms. These are the evaluation of the forecasting on the GDP, evaluation of the CPI and also the evaluation of the employment rate in a country. There are also other parameters that can be used to help in the forecasting of the performance of different government organs or departments. However, for purposes of this paper, I will only handle the three variables in detail and in relation to the developed countries.

The diffusion indexes derived from most dynamic factor models may have been applied to successfully forecast the macroeconomic variables. The papers that have touched on this sensitive issue include papers like Stock and Watson for the United States of America, Marcellino, Stock and Watson for the eleven countries of the original Eurozone, Artis, Barnerjee and Marcellino for the UK, Schumacher for Germany, De Bandt, Flageollet and Michaux for France and finally Den Reijer for the Netherlands. The general proof for the use of the factor models in these large data sets is due to the importance of these datasets as a means to extract information from several time series.

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The method employed here will permit the incorporation of the data at very different sites in order to have several frequencies and time spans to the same forecasting practice. It will therefore, provide a very reliable and specified economical framework for the use of the very large datasets in the analysis of the econometrics. Despite some of the constrains experienced during this process, several macroeconomic series of potential use in forecasting within a given period of time are readily available for every country. The diffusion forecasts based on the index will then be construed in a very amicable manner.

The Eurozone represents a good example of where the system on short T large N forecasting context has been employed in a very wide scale. The currency had been in existence for just a limited period of time and this prompted the policy makers to rely on very limited spans of data and some viable forecasting tools used to conduct policy that look the forward direction. This policy marked the beginning of the shift in the economic bloc trade in a very wide scale therein.

As a result of the financial crisis, experienced in Europe, there have been various arguments concerning trust that consumers have for conventional banking system. During the period, financial markets experienced a large downturn in customer trust. Therefore, the industry is under threat. Consumers of the banking services globally identified the worthiness of these banks and have therefore resorted to demand a more loyal relationship from the institutions. However, in today’s banking system, clients are quite reluctant on their decisions to switch to the banking system as a result of the belief that the change effort can be of great significance in the search for a more loyal and safe alternative. In addition, there have been increases in interest for sustainable financial products which are also ethical in nature. Therefore, customers are searching for more improved financial products that provide them with revenue as well as an opportunity to make a good investment, which is worth more than profit.

With the current trends of globalization, forms of communication have greatly changed coupled with changes in cultural values on a global scale. This has made customers have a more open minded attitude towards new approaches of conducting business. On the other hand, financial institutions, which offer options, have become more focused on the emerging markets.  As a result, Banking has developed and become one of the most growing segments in the international banking market. The development and growth of this financial institution has been perceived differently by different nations. For instance, some of the dominant countries, such as Malaysia, have proved to be pioneer within finance, and have been able to develop a dual system, including the conventional banking. This is an important approach, having many benefits, particularly when transferring banking system to the European markets, because the conventional banking system has dominated these markets, and is deeply rooted in these societies.

The emergence of financial systems has resulted to a new dimension of the current economic models of financial developments. However, the worldwide feature of the banking industry today is that it is increasingly becoming turbulent and competitive. There are indications that as competition intensifies, religious factors may not be able to substantiate the growth of retail banking.

The basic principles of banking include profit and loss sharing. In addition, the overall Islamic financial system prohibits the collection and payment of interest. Under the Islamic law, interest collection is prohibited. In the UK, HSBC, Lloyds TSB and the United National Bank are some of conventional banks that offer Islamic bank services.  This study aims at exploring Islamic banking as an alternative to the banking system in the UK, focusing on retail banking.

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Under the banking system, interest or usury is completely prohibited, be it simple or compound interest charge on productive or unproductive consumption loans. The other principle is profits and loss sharing. The economic agents, under finance, involved in any financial transaction must have some share from the associated profit and the transaction loss entered into. These include sharing of the profits and loss should be spelt out in terms and conditions that apply to such transactions at the onset of the business. The banks also ban on uncertainty interims and conditions of all transactions are prohibited. All the terms and conditions that of the associated with sharing of profits and loss should be comprehended by all parties involved to the financial transaction including the take off of the business. There is also prohibition of unethical investment under the principles of banking.

The banking system and the overall financial system prohibit pornography, gambling, pork-based products and financing of institutions that produce the above mentioned is discouraged. These activities are identified to result in increased social vices when allowed in the society as against the engagement of resources in productive activities. The other principle is asset banking, whereby, under this system, all assets are transformed into gold standard or its equivalents whose value do not deteriorate with time.  Profit is the recognized reward for capital. In addition, the returns can be claimed in a situation where either risk or loss has been assumed or effort has been expanded.

It has been observed that Islamic banking is growing rapidly world-wide today. The current statistics note this rapid expansion of Islamic banking in more than fifty countries in the world today. The volume of transactions and money being handled by these banks exceeded a figure of US $ 951 by 201. There could some factors and reasons that are attributed to this. For instance, the widespread of the Islamic religion into many countries world-wide could be one of those reasons. More and more people are being converted to the Islamic religion. These people have to look for a bank that serves their financial needs, while at the same time it should follow the teachings of the Koran.

Shylocking is loathed by these banks. The concept of interest on loans given is not very encouraged among these banks. The Islamic religion likens this concept of interest payment to theft. The scatter of people of Islamic religion world-wide has had a great influence on Islamic banking. As these people settle down in some places, it becomes very vital for them to have a certain structure there, which can help them deal with their finances. And since most or apparently all of them feel that the conventional banking system is full of exploits that are not in line with the teachings of the holy book, they decide to form a bank that adheres to these teachings of the holy book, while taking care of their financial needs.

Then the question is: if these banks do not operate on the basis of taking interest for the loans that they advance to their clients, how then do they make profit, and how do they survive in this competitive environment? The operations of these banks and the laws and regulations that are observed by these banks in accordance to the holy book form a point of discussion. The following paragraphs will analyze this aspect of Islamic banking through taking a review of what different scholars, authors and other writers have to say on this subject. A comparison of this method of banking with conventional methods of banking will be also discussed in the literature review. The similarities of Islamic banking with the conventional mode of banking will be made. Also, the differences will be analyzed.

Islamic Sharia laws was discussed in the early 1940s; however, this notion was not implemented until the opening of a rural bank in Egypt in 1963. Tieman et al. (2012) observed that after the creation of the Islamic Development Bank (IDB) in 1975, most nations realized the importance of this financial institution and developed Islamic banking system, which later emerged as a rapidly growing segment of the international banking and capital markets. Currently, there are various Islamic Banks operating in many nations all over the world, majorly in the Muslim world, as well as, several western nations. In addition, there are many Islamic financial institutions, which have been developed in various regions of the world, such as urban cooperative credit societies, as well as different financial associations, adopted by many countries and functioning at a local level.

Therefore, it is necessary to understand the meaning of Islamic Banking. As mentioned earlier, these are institutions, which base their objectives and operations on Islamic Sharia law, which is a legal system that operates under the code of behavior derived from the Islamic teaching as provided by the holy book.

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