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Article
Publication date: 19 September 2022

Adams Adeiza, Queen Esther Oye and Philip O. Alege

This study examined the macroeconomic effects of COVID-19-induced economic policy uncertainty (EPU) in Nigeria. The study considered the effects of three related shocks…

Abstract

Purpose

This study examined the macroeconomic effects of COVID-19-induced economic policy uncertainty (EPU) in Nigeria. The study considered the effects of three related shocks: EPU, COVID-19 and correlated economic policy uncertainty and COVID-19 shock.

Design/methodology/approach

First, the study presented VAR evidence that fiscal and monetary policy uncertainty depresses real output. Thereafter, a nonlinear DSGE model with second-moment fiscal and monetary policy shocks was solved using the third-order Taylor approximation method.

Findings

The authors found that EPU shock is negligible and expansionary. By contrast, COVID-19 shocks have strong contractionary effects on the economy. The combined shocks capturing the COVID-19-induced EPU shock were ultimately recessionary after an initial expansionary effect. The implication is that the COVID-19 pandemic-induced EPU adversely impacted macroeconomic outcomes in Nigeria in a non-trivial manner.

Practical implications

The result shows the importance of policies to cushion the effect of uncertain fiscal and monetary policy path in the aftermath of COVID-19.

Originality/value

The originality of the paper lies in examining the impact of COVID-19 induced EPU in the context of a developing economy using the DSGE methodology.

Details

African Journal of Economic and Management Studies, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2040-0705

Keywords

Book part
Publication date: 29 July 2019

Marina L. Alpidovskaya and Dmitry P. Sokolov

The postindustrial economy did not take the place of previous types of economy. More than that, by definition, it hasn't become “post”-industrial in point of fact…

Abstract

The postindustrial economy did not take the place of previous types of economy. More than that, by definition, it hasn't become “post”-industrial in point of fact: relations with regard to the production of tangible goods define the imperative of industrialism, yet with a modern science and technology stage of development. The present-day production becomes increasingly automated, leading to the absence of demand for psychophysiological properties of man and labor in general. At the same time, highly qualified personnel who are able to control complex information management systems come to the fore. New types of energy and manmade materials appear; socioeconomic human living environment becomes more complicated. These processes are an objective phenomenon. However, the technological revolution is manifested differently in the “central” and “peripheral” countries. In the Russian Federation, formation of the innovational takes place in the conditions of integration of the resource model and opposition of the institutes that fund it. The crisis stimulates the conceptual search and does not deny the scientifically based classics.

Book part
Publication date: 23 October 2017

Sergio Rossi

This chapter argues that monetary integration must precede, rather than follow, monetary unification, in order to avoid the occurrence of structural and systemic crises…

Abstract

This chapter argues that monetary integration must precede, rather than follow, monetary unification, in order to avoid the occurrence of structural and systemic crises. It briefly overviews the relevant literature on european monetary union (EMU) with regard to the criteria to set up an optimum currency area (OCA) according to the mainstream view. It then points out that adopting the euro as single currency for a number of heterogeneous countries led inevitably to a number of major negative effects, so much so because of the counterproductive financial constraints induced by the Euro-area fiscal and monetary policies framework. Particularly, the lack of fiscal transfers between these countries and the dogmatic attitude of the European Central Bank (ECB) as regards its policy strategy and goal increase, rather than reducing, the unemployment rate, and the degree of financial instability across the euro area. In fact, a way out of the euro area exists without renouncing to the (long-run) benefits of monetary integration. It implies that countries whose population suffers most of “fiscal consolidation” introduce their national currencies again, limiting the use of the euro to their central banks only, in order for them to settle all international trade and financial-market transactions carried out by residents in these countries. This monetary–structural reform will be instrumental in increasing financial stability and employment levels across Europe, thereby inducing positive effects also for trade and public finance.

Details

Economic Imbalances and Institutional Changes to the Euro and the European Union
Type: Book
ISBN: 978-1-78714-510-8

Keywords

Book part
Publication date: 23 October 2017

Yaya Sissoko and Brian W. Sloboda

The objective of this chapter is to examine the recent experiences of capital flows and the associated fiscal imbalances since the inception of the Eurozone. We show that…

Abstract

The objective of this chapter is to examine the recent experiences of capital flows and the associated fiscal imbalances since the inception of the Eurozone. We show that the standard explanation for understanding these fiscal imbalances and capital flows is viable, but is not complete given the unique circumstances surrounding these fiscal imbalances within the Eurozone. That is, the creation of the Eurozone provided some fiscal and monetary stability up until the shock of the 2008 Financial Crisis. After the 2008 Financial Crisis, the interaction between the current account and fiscal imbalances started to spread throughout the Eurozone members and many of these Eurozone members began to engage in policies in an attempt to restore stability and to stem capital outflows by implementing fiscal reforms. In fact, some of the Eurozone members attempted to restore their fiscal viability in response to the 2008 Financial Crisis, but not with much success. Thus, the Eurozone members, collectively, need to reexamine best practices to implement fiscal policies that are resistant to intense financial shocks. Empirically, we examined the following two hypotheses in this chapter via the Wald test statistic. The first hypothesis examined the effect of the own country fiscal imbalances within own country is uniform across all the Eurozone members. Then, the second hypothesis examined the fiscal imbalances of one Eurozone member do not have on other Eurozone members. The Wald test statistic rejected both hypotheses.

Details

Economic Imbalances and Institutional Changes to the Euro and the European Union
Type: Book
ISBN: 978-1-78714-510-8

Keywords

Book part
Publication date: 15 September 2017

Edward J. Kane

Traditionally, individual states have shared responsibility for regulating the US insurance industry. The Dodd–Frank Act changes this by tasking the Federal Reserve with…

Abstract

Traditionally, individual states have shared responsibility for regulating the US insurance industry. The Dodd–Frank Act changes this by tasking the Federal Reserve with regulating the systemic risks that particularly large insurance organizations might pose and assigning the regulation of swap-based substitutes for insurance and reinsurance products to the SEC and CFTC. This paper argues that prudential regulation of large insurance firms and weaknesses in federal swaps regulation could reduce the effectiveness of state-based systems in protecting policyholders and taxpayers from nonperformance in the insurance industry. Swap-based substitutes for traditional insurance and reinsurance contracts offer protection sellers a way to transfer responsibility for guarding against nonperformance into potentially less-effective hands. The CFTC and SEC lack the focus, expertise, experience, and resources to adequately manage the ways that swap transactions can affect US taxpayers’ equity position in global safety nets, while regulators at the Fed refuse to recognize that conscientiously monitoring accounting capital at financial holding companies will not adequately protect taxpayers and policyholders until and unless it is accompanied by severe penalties for managers that willfully hide their firm’s exposure to destructive tail risks.

Details

Advances in Pacific Basin Business Economics and Finance
Type: Book
ISBN: 978-1-78743-409-7

Keywords

Open Access
Article
Publication date: 11 August 2021

Hoang Van Khieu

This paper aims to uncover the nexus between budget deficits, money growth and inflation in Vietnam in the period 1995–2012.

1695

Abstract

Purpose

This paper aims to uncover the nexus between budget deficits, money growth and inflation in Vietnam in the period 1995–2012.

Design/methodology/approach

The paper uses a structural vector auto-regressive model of five endogenous variables including inflation, real GDP growth, budget deficit growth, money growth and the interest rate.

Findings

It is found that inflation rose in response to positive shocks to money growth and that budget deficits had no significant impact on money growth and therefore inflation. This empirical evidence supports the hypothesis that fiscal and monetary policies were relatively independent. Money growth significantly decreased in response to a positive shock to inflation; interest rates had no significant effect on inflation but considerably increased in response to positive inflation shocks. This implies that the monetary base was more effective than interest rates in fighting inflation.

Originality/value

This paper sheds light into understanding the link between budget deficits, money growth and inflation in Vietnam during the high-inflation period 1995–2012. The finding supports the hypothesis that fiscal and monetary policies were relatively independent over the period.

Details

Fulbright Review of Economics and Policy, vol. 1 no. 1
Type: Research Article
ISSN: 2635-0173

Keywords

Article
Publication date: 2 May 2017

Sriparna Ghosh and Bryan C. McCannon

We explore how economic freedom measurements can be used to guide policy.

Abstract

Purpose

We explore how economic freedom measurements can be used to guide policy.

Design/methodology/approach

We propose a method for creating a growth-enhancing economic freedom index, which allows for nonlinearities and interaction effects between the components to economic freedom. We use this method to illustrate that US states differ in which policy area generates the greatest gains.

Findings

To validate the method presented, we apply our index to state bond markets. Financial market participants have the incentive to properly evaluate states’ policies. If our measurement is useful, then it should correlate with bond ratings. Consistent with this hypothesis, we present evidence that state bond ratings are strongly correlated with our growth-enhancing economic freedom index.

Originality/value

It has been well-established that economic freedom is associated with good economic outcomes. Economic freedom is comprised of numerous dimensions. Thus, the marginal benefit of improving policy in one area can be expected to depend on the amount of freedom in the other dimensions. Which policy improvement is most impactful depends on the entire menu of current policies and, therefore, differs between states. Our new method can then be used as a guide to determining for a particular state which policies can be expected to impact economic well-being the most.

Details

Journal of Financial Economic Policy, vol. 9 no. 02
Type: Research Article
ISSN: 1757-6385

Keywords

Article
Publication date: 3 April 2018

Dogus Emin

This paper aims to test whether the latest global financial crisis propagated contagiously from the USA to the rest of the world.

Abstract

Purpose

This paper aims to test whether the latest global financial crisis propagated contagiously from the USA to the rest of the world.

Design/methodology/approach

If the reason of the propagation of a crisis is a normal time interdependence with the crisis origin country due to real linkages, the spread of crisis can be limited by implementing well-defined preventive policies. On the other hand, if a crisis propagates because of the speculative attacks or irrational behaviors, the “national policymakers will face difficulties in protecting their markets from such a crisis” (Kleimeier et al., 2003, p. 2). Therefore, separation of contagion and interdependence may provide crucial insights for policymakers to implement appropriate policies to prevent and/or stop the financial crisis. Hence, this paper compares the heteroscedasticity-corrected conditional correlations and dynamic conditional correlations in the tranquil and shock periods.

Findings

The findings were quite straightforward and consistent for both Forbes and Rigobon heteroscedasticity correction technique and dynamic conditional correlation (DCC) model. The Forbes and Rigobon technique failed to reject the null of no contagion for 25 countries in our data sample, while the DCC model failed to reject the null of no contagion for 21 countries. While heteroscedasticity-corrected correlation technique confirmed the presence of a contagion for six countries, the DCC technique confirmed the presence of a contagion for ten countries.

Originality/value

This study particularly investigates whether the subprime mortgage crisis spilled over contagiously to the rest of the world. To investigate whether there is a significant increase in the cross-market correlations between the crisis origin country, the USA and the rest of the world markets during the latest financial crisis, both heteroscedasticity-corrected correlation technique and DCC model are used.Therefore, this study possibly contributes well to the literature using a large country set and conducting the analysis from different angles for important properties.

Article
Publication date: 15 December 2020

Vighneswara Swamy

The purpose of this study is to investigate the impact of the new capital requirements under the Basel III framework on bank lending rates.

Abstract

Purpose

The purpose of this study is to investigate the impact of the new capital requirements under the Basel III framework on bank lending rates.

Design/methodology/approach

By constructing a stylized representative bank's financial statements, the authors show that the higher cost associated with a 1-percentage increase in the capital ratio can be recovered by increasing the bank lending rate.

Findings

The results indicate that in the case of scheduled commercial banks, a 1-percentage-point increase in the capital ratio can be recovered by a commensurate increase in the bank lending rate by 16 basis points and would go up to an extent of 94 basis points for a 6-percentage point increase assuming that the risk-weighted assets are unchanged.

Practical implications

The results assume significance as the estimations for the scenarios of changes in risk-weighted assets change in return on equity and the cost of debt. Given the enormous significance of the impact of Basel III on banks, this research outcome benefits the practitioners in the industry and researchers.

Originality/value

This study contributes to the literature on bank regulation and risk management with a newer and topical approach for quantification of the impacts of new regulatory standards. Another contribution of this study is that it considers three different groupings of banks: (1) scheduled commercial banks; (2) public sector banks and (3) private banks in Indian banking. This is the first of its kind in the context of studying Indian banking.

Details

Journal of Economic and Administrative Sciences, vol. 37 no. 4
Type: Research Article
ISSN: 1026-4116

Keywords

Article
Publication date: 10 August 2020

Tomáš Konečný and Lukáš Pfeifer

This paper aims to focus on capital-related macroprudential policies in the context of recent policy discussions on the removal of barriers to the mobility of capital and…

Abstract

Purpose

This paper aims to focus on capital-related macroprudential policies in the context of recent policy discussions on the removal of barriers to the mobility of capital and liquidity of cross-border banks in the European Union (EU).

Design/methodology/approach

This study first discusses the link between financial stability and internal resource mobility of cross-border banks. Then, it examines past heterogeneity in structural capital buffers as key macroprudential capital instruments applied in the EU and relate them to costs of policy action, degree of foreign penetration and membership in the Banking Union.

Findings

Observed phase-in patterns of structural capital buffers in the EU are broadly consistent with costs of policy action, degree of foreign penetration and membership in the Banking Union as potential factors. The process of financial integration could be further enhanced through reduced uncertainty in the application of macroprudential policies that constrain capital mobility of cross-border banks.

Originality/value

This paper anchors macroprudential policies into a wider discussion on the mechanism and implications of ring-fencing in the EU over time. It discusses two policy areas, macroprudential policies and proposals for deeper financial integration, that share the same financial stability objective but tend to emphasize different implications of the mobility of capital and liquidity of cross-border banks in the EU. The study provides a discussion of potential implications of the recent adoption of the CRRII/CRDV legislation for future heterogeneity of macroprudential policies in the EU.

Details

Journal of Financial Regulation and Compliance, vol. 29 no. 2
Type: Research Article
ISSN: 1358-1988

Keywords

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