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Article
Publication date: 14 October 2019

Zafar Hayat, Jameel Ahmed and Faruk Balli

The conventional and new inflation bias theories present two distinct facets to explain the outcome of excess inflation without output gains by a discretionary central banker…

Abstract

Purpose

The conventional and new inflation bias theories present two distinct facets to explain the outcome of excess inflation without output gains by a discretionary central banker. First is the temptation to achieve a higher than potential output, and, second is not to let it falter. The authors explicitly account for these two distinct dimensions in empirical formulations both exogenously and endogenously. Specifically, the purpose of this paper is to investigate what monetary discretion can and cannot do in terms of dual objectives – inflation and growth – across boom and bust cycles, both directly and indirectly.

Design/methodology/approach

(i) Segregate the economic activity into boom and bust cycles; (ii) Explicitly account for the two dimensions of conventional and new inflation bias theories; and (iii) model and estimate the direct and indirect effects of monetary discretion across business cycles.

Findings

The results indicate considerable asymmetries in the effects of monetary discretion and distribution thereof across objectives and cycles. The direct impact of monetary discretion tends to induce significantly higher inflation in boom and bust cycles, while it exerts a positive but insignificant effect on output. The inflation effects are more pronounced in boom than bust cycles and vice versa are the output effects. The indirect effects on output via inflation are significantly pernicious, which are more pronounced in expansions than recessions.

Originality/value

In a nutshell, instead of benefiting, monetary discretion tends to harm in terms of both the dual policy objectives, which cautions about its well calculated and constrained use only.

Details

Journal of Economic Studies, vol. 46 no. 6
Type: Research Article
ISSN: 0144-3585

Keywords

Article
Publication date: 29 January 2021

Javed Iqbal

This paper estimates the sensitivities of the output of the manufacturing industries of the four Southeast countries (Indonesia, Malaysia, Philippines, Singapore) to both the…

Abstract

Purpose

This paper estimates the sensitivities of the output of the manufacturing industries of the four Southeast countries (Indonesia, Malaysia, Philippines, Singapore) to both the country-specific and global business cycle fluctuations. The study investigates whether the business cycle exposures of these industries differ to their nature classified as producing durable or nondurable goods and also to booms and recessions.

Design/methodology/approach

Using annual time series data on sectoral manufacturing production indices for major manufacturing industries over the period from 1999 to 2018, this paper uses the seemingly unrelated regression (SUR)–based generalized least square estimator to estimate the exposures of each industry for each of the four countries to local and world business cycle.

Findings

The individual country analysis indicates that generally the sensitivities of the ASEAN manufacturing industries to booms and recessions are different from the pattern observed in the developed countries and Russia. We do not find evidence consistent with the commonly held view among economists and business managers that demand for durable goods flourishes in booms and falls in recessions. Also, very few industries exhibit an asymmetric reaction to booms and busts. However, the analysis of panel data reveals the expected pattern of industrial sensitivities to the local business cycle only.

Originality/value

The paper makes several contributions. Firstly, the model proposed in the paper estimates sensitivities of industries to both the local and global business cycle variations. Secondly, the model enables us to explicitly test the asymmetric reaction of industries to booms and busts. Thirdly, the paper is the first attempt to estimating business cycle exposures for manufacturing industries in emerging markets.

Details

International Journal of Emerging Markets, vol. 17 no. 8
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 13 March 2009

Mary M. Cleveland

The purpose of this paper is to compare and contrast three‐factor models of boom and bust from Henry George, Knut Wicksell and Mason Gaffney.

Abstract

Purpose

The purpose of this paper is to compare and contrast three‐factor models of boom and bust from Henry George, Knut Wicksell and Mason Gaffney.

Design/methodology/approach

The approach takes the form of an analysis and discussion and mathematical appendix.

Findings

It was found that gaffney modifies and incorporates features of both George and Wicksell into his own model.

Practical implications

The works of George, Wicksell and Gaffney are highly relevant, especially given the current economic crisis.

Originality/value

The paper should be useful both to historians of economic thought and contemporary economists. It brings together ideas that have been neglected in recent years, and contributes to the understanding of economic crises.

Details

International Journal of Social Economics, vol. 36 no. 4
Type: Research Article
ISSN: 0306-8293

Keywords

Article
Publication date: 3 April 2017

Ekaterina Chernobai and Tarique Hossain

This study aims to investigate the determinants of homeowners’ planned holding periods. Real estate market is known for displaying buying and selling behavior that does not…

Abstract

Purpose

This study aims to investigate the determinants of homeowners’ planned holding periods. Real estate market is known for displaying buying and selling behavior that does not conform to traditional economic theories such as rational expectation or expected utility. Mounting evidence of anomalous observations appear to be supported by other theories, such as prospect theory, which in particular helps explain the disposition effect – sellers are too quick to sell when prices are climbing and hold on to properties longer when prices are plummeting. While this evidence is widely documented in housing studies based on data on realized holding periods (i.e. ex post), this study explores factors that may motivate homeowners to alter their expected holding horizons (i.e. ex ante) to form new preferred holding periods that may be shorter or longer than those planned during house search.

Design/methodology/approach

The empirical study uses data collected from two cross-section surveys of recent homebuyers in rising and declining housing markets in Southern California in 2004-2005 and 2007-2008, respectively.

Findings

The empirical results demonstrate that in addition to the financial characteristics of the recent homebuyer, the characteristics of the buying experience – non-monetary, such as the realized search duration, and monetary, such as perception of negative or positive premium paid for the house relative to its market value – have a statistically significant effect on the holding horizon revision. The data strongly indicate that the perception of having overpaid increases the likelihood of upward revision of the original holding horizon. This effect is stronger in the declining than in the rising market – a crucial finding that mirrors the disposition effect.

Originality/value

This study sheds new light on what may contribute to the disposition effect in housing markets that has not yet been investigated in past literature. The novel approach here is to look at how different house price environments may affect homeowners’ holding periods ex ante when they begin, rather than ex post when already realized.

Details

International Journal of Housing Markets and Analysis, vol. 10 no. 2
Type: Research Article
ISSN: 1753-8270

Keywords

Article
Publication date: 6 August 2020

Todd Kuethe and Todd Hubbs

This study examines the relationship between economic fluctuations and financial distress in the US agricultural sector, which is associated with a large degree of financial…

Abstract

Purpose

This study examines the relationship between economic fluctuations and financial distress in the US agricultural sector, which is associated with a large degree of financial instability.

Design/methodology/approach

The authors developed a parsimonious model of economic fluctuations in the US agricultural sector. The authors used statistical filter methods to identify the co-movement in cyclical fluctuations in real, cumulative growth rates in farm real estate values, farm sector debt and leverage.

Findings

The proposed model closely approximated the financial evolution of the US agricultural sector between 1960 and 2018. In addition, the authors proved that the proposed model is an early warning indicator of farm loan delinquencies and farm bankruptcies.

Originality/value

This study exploits recent advances in economic theory and empirical macroeconomic modeling to develop a model that is a robust predictor of financial distress in the agricultural sector. Further, the authors demonstrate that the policy interventions following the 1980s farm financial crisis demonstrate the likely long-run economic response to the policies enacted following the 2008 financial crisis.

Details

Agricultural Finance Review, vol. 81 no. 1
Type: Research Article
ISSN: 0002-1466

Keywords

Open Access
Article
Publication date: 4 June 2018

Duy-Tung Bui

The purpose of this paper is to examine the impacts of fiscal policy, namely, net tax and government expenditure on national saving and its nonlinearity. The author first…

3989

Abstract

Purpose

The purpose of this paper is to examine the impacts of fiscal policy, namely, net tax and government expenditure on national saving and its nonlinearity. The author first investigates whether the impacts of fiscal policy on national saving have changed after the global financial crisis of 2008. Then, the author tests the nonlinearity of the relationship by taking account of the economic cycle, namely, economic expansion (boom) and economic recession (bust).

Design/methodology/approach

The empirical model bases on a reduced-form equation with national saving as a dependent variable, lagged value of national saving, output gap and fiscal policy as independent variables. The two-step system GMM approach was employed to estimate the empirical model, using a panel of 23 emerging Asian economies in the period of 1990-2015.

Findings

The empirical results show that tax policy and expenditure policy follow the predictions of the overlapping generation model with finite horizon and the Keynesian view. The nonlinearity of fiscal policy is twofold. The conduct of fiscal policy in the period after 2008 seems effective, while the effect is insignificant in the period before 2008. Likewise, fiscal policy tends to have more significant effects in bust cycle. The effect of tax policy is increased during recession, while the effect of government spending is more pronounced during economic downturn.

Originality/value

The contributions of this paper are twofold. First, it is shown that fiscal policies in the region had more impacts on national saving after the global financial crisis of 2008. Second, the research confirms nonlinear impact of fiscal policy on saving behavior during economic recession and economic boom.

Details

Journal of Asian Business and Economic Studies, vol. 25 no. 1
Type: Research Article
ISSN: 2515-964X

Keywords

Article
Publication date: 1 February 2004

Ming‐Chi Chen, Yuichiro Kawaguchi and Kanak Patel

This paper examines the time‐series behaviour of house prices for the four Asian markets, namely, Hong Kong, Singapore, Tokyo and Taipei, by using structural time‐series…

4413

Abstract

This paper examines the time‐series behaviour of house prices for the four Asian markets, namely, Hong Kong, Singapore, Tokyo and Taipei, by using structural time‐series methodology. The paper assumes two types of trend models to characterise and compare the long‐run movement of house prices. It also examines the cyclical pattern hidden in the series. The long‐run trend rate in these markets ranged between approximately 1.6 and 3.2 per cent per annum. Hong Kong, Singapore and Taipei have relatively higher figures, which could be expected in light of the rapidly growing economies. Surprisingly, their cyclical patterns were fairly similar, although causes of the cycles differed. The markets were found to have stochastic cycles of around one year, two to four years and seven to ten years, which were consistent with previous findings on real business cycles commonly observed internationally in other macroeconomic time series. However, the found stochastic nature suggests all these markets are not in a steady state and is still changing.

Details

Journal of Property Investment & Finance, vol. 22 no. 1
Type: Research Article
ISSN: 1463-578X

Keywords

Article
Publication date: 1 February 2002

Eddie Hui and Tsz‐Ying Lui

This paper uses an econometric approach to examine the relationship between real ( ex post) and rationally expected housing prices in Hong Kong over its boom and bust cycle…

1778

Abstract

This paper uses an econometric approach to examine the relationship between real ( ex post) and rationally expected housing prices in Hong Kong over its boom and bust cycle. Models of market fundamentals are developed from a rational expectation hypothesis to compare the ex post housing prices and expected housing prices, and to test whether the housing price can reflect the market fundamentals. The findings suggest that the private housing price in Hong Kong is cointegrated to the market fundamentals in the long‐runP only; and exhibits a volatile performance in the short‐run. The short‐term market “noises” are believed largely to be the result of government intervention and unexpected market fluctuations.

Details

Journal of Property Investment & Finance, vol. 20 no. 1
Type: Research Article
ISSN: 1463-578X

Keywords

Article
Publication date: 4 January 2013

Alan A. Stephens, J. Brian Atwater and Vijay R. Kannan

The collapse of the sub‐prime mortgage market parallels several earlier failures within the financial services sector, begging the question why the lessons of past failures were…

1278

Abstract

Purpose

The collapse of the sub‐prime mortgage market parallels several earlier failures within the financial services sector, begging the question why the lessons of past failures were not learned. Throughout history from the tulip bulb crisis of the 1600s to the most recent economic crisis, decision‐makers keep making the same mistakes. This occurs in part because of a failure to recognize similarities between past and current events. This conceptual paper aims to use systems dynamics tools to examine the crisis and illustrate how seemingly independent events are linked.

Design/methodology/approach

The paper provides a fundamental review of systems thinking concepts and uses a tool of systems dynamics, causal loop diagrams (CLD), to provide a visualization of the dynamics of the sub‐prime market collapse over time. This approach provides insights that traditional analytic methods do not, which should be beneficial in understanding future cases where speculative demand drives behavior.

Findings

The paper uses the CLD tool to understand the evolution of the recent financial crisis. It finds that the dynamics of the collapse closely mirror many historic financial disasters (the paper cites several) and proposes the fundamental CLD of this phenomenon be elevated to a special category of the “limits to growth” archetype model. The paper makes this recommendation in the hope it will allow investors and policy makers to quickly recognize future speculative events when they happen again.

Originality/value

This paper argues that, despite the surface level uniqueness and complexity of the recent economic collapse, there is an underlying simplicity that links the recent collapse with speculative boom/busts going back over 400 years. The representation that the paper develops applies the language of systems thinking to the most recent financial crisis. A mental model of this system and the corresponding systems structure can be used to not only understand what happened, but also inform decision‐makers when similar speculative behavior occurs in the future.

Details

The Learning Organization, vol. 20 no. 1
Type: Research Article
ISSN: 0969-6474

Keywords

Article
Publication date: 20 February 2017

Charalambos Pitros and Yusuf Arayici

The study looks at the characteristics of upswings and downswings for UK housing cycles. Specifically, the purpose of this paper is to empirically analyse cycles in house prices…

1896

Abstract

Purpose

The study looks at the characteristics of upswings and downswings for UK housing cycles. Specifically, the purpose of this paper is to empirically analyse cycles in house prices and housing affordability on the characteristics of persistence, magnitude and severity.

Design/methodology/approach

The paper draws upon the triangular methodology of cycles and utilises housing data from the last three decades.

Findings

From an empirical perspective, the study obtained four main results. First, the graphical trajectory of cycles in house price and housing affordability is highly synchronized. Second, upturns in both cycles tend to be longer than downturns on average. Third, the recent upturn in house prices and housing affordability is characterised by larger duration, magnitude and severity than the earlier case. Fourth, the latest downturn in both cycles is highly synchronised in terms of time occurrence, persistence, magnitude and severity; in addition, in both cases, the latest downturn is considerably smaller than the previous one. The study additionally indicates that on average the length of a complete house price and housing affordability cycle is 19 years on a peak-to-peak basis.

Research limitations/implications

This paper is essentially exploratory and raises a number of questions for further investigation. Future research should, first, arrive at a more nuanced definition of affordability and, second, examine causality. The fact that two phenomena appear to have some significant synchronicity is not an indication that they are interdependent, although logic would suggest they might be.

Originality/value

This is among the few papers that analyses cycles in UK house prices. It is the first study that draws attention to the housing affordability cycle and the first to compare cycles in house prices with cycles in housing affordability.

Details

Property Management, vol. 35 no. 1
Type: Research Article
ISSN: 0263-7472

Keywords

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