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1 – 10 of 43This article analyzes the impact of monetary policy on income inequality across 16 advanced economies. The author investigates three key points: (1) the relationship between…
Abstract
Purpose
This article analyzes the impact of monetary policy on income inequality across 16 advanced economies. The author investigates three key points: (1) the relationship between domestic monetary policy and domestic income inequality, (2) the spillover effect of USA monetary policy (including quantitative easing) on international inequality and (3) the quantitative influence of the monetary policies of both the USA and the Eurozone on the formation of domestic income inequalities.
Design/methodology/approach
The author employed the Global Vector Autoregressive (GVAR) model, which uses Vector Autoregressive with Exogenous Variables (VARXs) models of each economy to build an integrated system that enables us to evaluate individual responses to global shocks.
Findings
The author's analysis reveals that (1) contractionary monetary policy exacerbates domestic inequality and (2) USA monetary policy, including quantitative easing, affects international inequality. Furthermore, the author's variance decomposition analysis highlights that USA monetary policy is especially influential on income inequality in Norway and Sweden. Additionally, the cointegrating analysis confirms that monetary policy's impact on inequality persists in the long term.
Originality/value
Most of the studies focused on investigating domestic economies as closed economies. However, the author's approach differs in that the author uses the GVAR, which treats all economies as open. This allows us to incorporate the world economy into the domestic dynamics and connect the economies using bilateral trade. Another advantage of the GVAR is that it captures spillover effects by modeling each economy and constructing the international economy.
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Haobo Zou, Mansoora Ahmed, Syed Ali Raza and Rija Anwar
Monetary policy has major impacts on macroeconomic indicators of the country. Accordingly, uncertainty regarding monetary policy shifts can cause challenges and risks for…
Abstract
Purpose
Monetary policy has major impacts on macroeconomic indicators of the country. Accordingly, uncertainty regarding monetary policy shifts can cause challenges and risks for businesses, financial markets and investors. Thus, the purpose of this study is to investigate how real estate market volatility responds to monetary policy uncertainty.
Design/methodology/approach
The GARCH-MIDAS model is applied in this study to investigate the nexus between monetary policy uncertainty and real estate market volatility. This model was fundamentally instituted to accommodate low-frequency variables.
Findings
The results of this study reveal that increased monetary policy uncertainty highly affects the volatility in real estate market during the peak period of COVID-19 as compared to full sample period and COVID-19 recovery period; hence, a significant decline is evident in real estate market volatility during crisis.
Originality/value
This study is particularly focused on peak and recovery period of COVID-19 considering the geographical region of Greece, Japan and the USA. This study provides a complete perspective on the nexus between monetary policy uncertainty and real estate markets volatility in three distinct economic views.
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Mugabil Isayev, Farid Irani and Amirreza Attarzadeh
The purpose of this paper is to fill the momentous gap by explicitly investigating the asymmetric effects of monetary policy (MP) on non-bank financial intermediation (NBFI…
Abstract
Purpose
The purpose of this paper is to fill the momentous gap by explicitly investigating the asymmetric effects of monetary policy (MP) on non-bank financial intermediation (NBFI) assets.
Design/methodology/approach
The authors utilized panel data from 29 countries for the period of 2012–2020 and used the quantile regression estimation. In addition to simultaneous quantile regression (SQR), the authors also employ quantile regression with clustered data (Parente and Silva, 2016) and the generalized quantile regression (GQR) method (Powell, 2020).
Findings
The empirical results show a significant heterogeneous impact of MP. While there is a positive relationship between MP and NBFI assets (“waterbed effect”) at lower quantiles of NBFI assets, at middle and higher quantiles, MP has a negative impact on NBFI assets (“search for yield” effect). The authors further find that negative impact strengthens as the quantile levels of NBFI assets rise from mid to high. Findings also reveal that “procyclicality” (except higher quantile) and “institutional demand” hypotheses hold. However, regarding “regulatory arbitrage,” mixed results are observed indicating the impact of Basel III requirements.
Originality/value
Previous empirical studies have concentrated on either the Dynamic Stochastic General Equilibrium (DSGE) framework or conditional mean regression approaches and delivered mixed findings of the MP effects on NBFI. The current paper takes a step toward dealing with this issue by deploying quantile regression methodology, which shows the impact of MP on NBFI at different conditional distributions (quantiles) of NBFI assets instead of just NBFI's conditional mean distribution.
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This study investigates the significance of trade credit (TC) as an alternative source of funding in financing the growth of financially dependent firms.
Abstract
Purpose
This study investigates the significance of trade credit (TC) as an alternative source of funding in financing the growth of financially dependent firms.
Design/methodology/approach
Panel data analysis using the difference generalized method of moments (GMM) and fixed-effects ordinary least squares (FE-OLS) is conducted on annual data from publicly listed firms across a number of developing economies. The data cover the period from 2003 to 2019.
Findings
The findings indicate that financially dependent firms rely on TC to manage their growth, especially when they have exhausted their debt capacity. This dependence on TC displays a cyclical pattern. As firms enhance their financial position, they tend to scale back their dependence. Nevertheless, firms with significant growth opportunities continue utilizing TC for at least two years after their initial identification as financially dependent.
Practical implications
The author's conclusion highlights that TC can be a valuable and accessible source of funding, especially in developing economies where the real sector may require alternative financing channels. Hence, TC has the potential to play a very significant role in financing corporate growth in these economies.
Originality/value
The current study adds to the existing body of literature by revealing that access to alternative sources of finance is also critical for firms that are dependent on external sources and for firms that have exhausted their financial debt capacity.
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Gloria Clarissa Dzeha, Christopher Boachie, Maryam Kriese and Baah Aye Kusi
This study provides empirical evidence for the first time on how different measures of monetary policy affect banking profitability in Ghana.
Abstract
Purpose
This study provides empirical evidence for the first time on how different measures of monetary policy affect banking profitability in Ghana.
Design/methodology/approach
Providing empirical evidence on how different measures of monetary policy affect banking profitability in Ghana using 29 banks for period between 2006 and 2016, new monetary indexes are developed and a robust panel random effect models is employed with year effect controls.
Findings
The results show that while increase in monetary policy basis point reduced banking profitability, average monetary policy rate stimulated banking profitability. Interestingly, the monetary policy basis point and rate indexes developed reduced and enhanced banking profitability, respectively. While these results may sound contradictory, they have both theoretical and empirical backing. Thus, basis point increments serve a monetary policy tightening condition which leads to higher loan prices, lower borrowing and declined profitability in the short run. However, in the long run, banks adjusted their loan prices and deposits to reflect basis point changes in their favor, hence the positive effect of average monetary policy rate on banking profitability. Additionally, monetary policy easing which represents decline in monetary policy basis point and rate enhances banking profitability.
Practical implications
These findings imply bank managers may take advantage of monetary policy easing to maximize profits in the banking sector of Ghana. Also, the monetary policy committee must be mindful of monetary policy tightening through basis point change since upward basis point increments reduce banking profitability.
Originality/value
This study provides empirical evidence for the first time on how different measures of monetary policy (developing indexes from monetary policy basis point and monetary policy rate) affect banking profitability in an emerging economy as Ghana.
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Muhammad Tariq, Muhammad Azam Khan and Niaz Ali
This study aims to investigate the effect of monetary policy on housing prices for US economy. It specifically examines whether nominal or real interest rates are the key drivers…
Abstract
Purpose
This study aims to investigate the effect of monetary policy on housing prices for US economy. It specifically examines whether nominal or real interest rates are the key drivers behind fluctuations in housing prices in US.
Design/methodology/approach
Monthly data from January 1991 to July 2023 and various appropriate analytical tools such as unit root tests, Johansen’s cointegration test, vector error correction model (VECM), impulse response function and Granger causality test were applied for the data analysis.
Findings
The Johansen cointegration findings reveal the presence of a long-term relationship among the variables. VECM results indicate a negative correlation between nominal and real interest rates and housing prices in both the short and long terms, suggesting that a strict monetary policy can help in controlling the housing price increase in the USA. However, housing prices are more responsive to changes in nominal interest rates than to real interest rates. Additionally, the study reveals that the COVID-19 pandemic contributed to the upsurge in housing prices in the USA.
Originality/value
This study contributes by examining the role that nominal or real interest rates play in shaping housing prices in the USA. Moreover, given the recent significant upsurge in housing prices, this study presents a unique opportunity to investigate whether these price increases are influenced by the Federal Reserve's monetary policy decisions regarding nominal or real interest rates. Additionally, using monthly data, this study provides a deeper understanding of the fluctuations in housing prices and their connection to monetary policy tools.
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This chapter analyzes how the macro-environment determines corporate dividend decisions. First, political factors including political uncertainty, economic policy uncertainty…
Abstract
This chapter analyzes how the macro-environment determines corporate dividend decisions. First, political factors including political uncertainty, economic policy uncertainty, political corruption, and democracy may have two opposite effects on dividend decisions. For example, firms learn democratic practices to improve their corporate governance, but dividend policy may be the outcome of strong corporate governance or the substitute for poor corporate governance. Second, firms in countries of high national income, low inflation, and highly developed stock markets tend to pay more dividends. A monetary restriction (expansion) reduces (increases) dividend payments, as economic shocks like financial crises and the COVID-19 may negatively affect corporate dividend policy through higher external financial constraint, economic uncertainty, and agency costs. On the other hand, they may positively influence corporate dividend policy through agency costs of debt, shareholders' bird-in-hand motive, substitution of weak corporate governance, and signaling motive. Third, social factors including national culture, religion, and language affect dividend decisions since they govern both managers' and shareholders' views and behaviors. Fourth, firms tend to reduce their dividends when they face stronger pressure to reduce pollution, produce environment-friendly products, or follow a green policy. Finally, firms have high levels of dividends when shareholders are strongly protected by laws. However, firms tend to pay more dividends in countries of weak creditor rights since dividend payments are a substitute for poor legal protection of creditors. Furthermore, corporate dividend policy changes when tax laws change the comparative tax rates on dividends and capital gains.
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Masagus M. Ridhwan, Affandi Ismail and Peter Nijkamp
Empirical studies regarding the impact of the real exchange rate (RER) on economic growth are extensively available. However, the literature as a whole appears to report varying…
Abstract
Purpose
Empirical studies regarding the impact of the real exchange rate (RER) on economic growth are extensively available. However, the literature as a whole appears to report varying results, while the causes of such differences have not been analyzed systematically. The present study aims to fill the gap in the literature.
Design/methodology/approach
In this paper, the authors compile 543 empirical estimates from 51 studies of the exchange rate-growth nexus in order to meta-analyze its relationship. Meta-analysis allows the authors to quantitatively synthesize previous empirical studies and explain the variation in the results. This method also enables us to investigate the possibility of publication bias, as there is a tendency in research only to report results that are both statistically significant and show the expected signs.
Findings
After addressing publication bias and heterogeneity in the estimates, the meta-regression results show that RER depreciation (or undervaluation) genuinely favors economic growth. On average, RER depreciation has a greater impact on economic growth in developing countries than the developed ones. The study’s results imply that maintaining an undervalued RER could be favorable to spur economic growth, especially in developing countries.
Originality/value
Initially predominant in the medical literature, meta-analysis has been on a rising edge in economics. This progress has produced many systematic quantitative review analyses with continuously improved statistical-econometric practices related to economic variables. However, to the authors’ knowledge, no comprehensive meta-regression analysis of the relationship between exchange rate and economic growth has been conducted and published in any publicly accessible academic outlet. Therefore, this study aims to fill this gap in the literature.
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Solomon Yemidi, Grace Nkansa Asante and Paul Owusu Takyi
The purpose of this research is to examine the impact of alterations in the path of monetary policy rates on inflation via the supply side of an emerging economy.
Abstract
Purpose
The purpose of this research is to examine the impact of alterations in the path of monetary policy rates on inflation via the supply side of an emerging economy.
Design/methodology/approach
The study employed semi-annual data covering the period 2007S1 to 2020S2 on the inflation rate, the combined outputs of industry and agriculture, the lending rate, and the monetary policy rate. The vector autoregression model was estimated and counterfactual simulation exercises were conducted.
Findings
The study revealed that a move from a higher to a lower monetary policy rate regime resulted in a shift in inflation from a higher to a lower regime. In particular, a 200-basis point reduction in the monetary policy rate over the simulation horizon produces a 1.3% fall in the inflation rate over the same period.
Research limitations/implications
The study has a limitation due to the unavailability of a long-span dataset on all relevant variables. As a result, it is important to exercise caution when interpreting the study's findings. A potential area for further research is to explore how changes in interest rates impact inflation in the real economy by utilising other multiple-variable time series techniques.
Practical implications
It is the opinion of the authors that for inflation in Ghana to move to a lower regime, conscious efforts should be made by the monetary authorities to gradually move from a regime of a high monetary policy rate to a lower one.
Social implications
In particular, a 200-basis point reduction in the MPR over the simulation horizon produces a 1.3% fall in the inflation rate over the same period.
Originality/value
This study enhances the authors' knowledge of how monetary policy can affect inflation in developing countries through the supply-side channel.
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Naser Yenus Nuru and Hayelom Yrgaw Gereziher
The main purpose of this study is to investigate the symmetric and asymmetric effects of exchange rate uncertainty on employment in South Africa’s manufacturing sector over the…
Abstract
Purpose
The main purpose of this study is to investigate the symmetric and asymmetric effects of exchange rate uncertainty on employment in South Africa’s manufacturing sector over the period 1985Q1–2019Q2.
Design/methodology/approach
Jorda’s (2005) local projection method is employed and following Koop et al. (1996); generalized impulse response functions are generated to see the effect of exchange rate uncertainty on employment in South Africa’s manufacturing sector.
Findings
The results show that exchange rate uncertainty affects negatively and significantly employment in South Africa’s manufacturing sector. Employment also responds negatively and significantly to export shock. Inflation and output shocks, however, positively and significantly affect employment on impact. Asymmetric responses of employment to exchange rate uncertainty are also found in this study. While high exchange rate uncertainty leads to a reduction in employment, low exchange rate uncertainty brings an increase in employment in South Africa’s manufacturing sector.
Originality/value
This research adds to the scarce empirical literature on the effect of exchange rate uncertainty on employment in South Africa’s manufacturing sector by incorporating mainly non-linearities into the model.
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