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Book part
Publication date: 31 December 2010

Fredj Jawadi and William A. Barnett

During the global financial crisis of 2008–2009, most developed and emerging economies and financial markets have recorded important financial losses. Those economies have…

Abstract

During the global financial crisis of 2008–2009, most developed and emerging economies and financial markets have recorded important financial losses. Those economies have experienced momentous corrections, and their assets were significantly devaluated, implying many losses and bankruptcies for banks, investors, and firms. Overall, despite continuing efforts made by governments and central banks to support their financial systems, most financial markets (stock markets, derivative markets, monetary markets, and currency markets) have been strongly affected by this crisis. Furthermore, the rapid transmission of the US subprime crisis to several European and Asian developed and emerging countries and the transformation into a global financial and economic crisis have revealed a high level of financial integration and linkage with the US market. The financial shocks have also induced negative feedbacks to macroeconomic indicators, suggesting significant relationships between financial markets and macroeconomies.

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Nonlinear Modeling of Economic and Financial Time-Series
Type: Book
ISBN: 978-0-85724-489-5

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Article
Publication date: 19 June 2020

Mohammed M. Elgammal, Fatma Ehab Ahmed and David G. McMillan

The purpose of this paper is to consider the economic information content within several popular stock market factors and to the extent to which their movements are both…

Abstract

Purpose

The purpose of this paper is to consider the economic information content within several popular stock market factors and to the extent to which their movements are both explained by economic variables and can explain future output growth.

Design/methodology/approach

Using US stock portfolios from 1964 to 2019, the authors undertake three related exercises: whether a set of common factors contain independent predictive ability for stock returns, what economic and market variables explain movements in the factors and whether stock market factors have predictive power for future output growth.

Findings

The results show that several of the considered factors do not contain independent information for stock returns. Further, most of these factors are neither explained by economic conditions nor they provide any predictive power for future output growth. Thus, they appear to contain very little economic content. However, the results suggest that the impact of these factors is more prominent with higher macroeconomic risk (contractionary regime).

Research limitations/implications

The stock market factors are more likely to reflect existing market conditions and exhibit a weaker relation with economic conditions and do not act as a window on future behavior.

Practical implications

Fama and French three-factor model still have better explanations for stock returns and economic information more than any other models.

Originality/value

This paper contributes to the literature by examining whether a selection of factors provides unique information when modelling stock returns data. It also investigates what variables can predict movements in the stock market factors. Third, it examines whether the factors exhibit a link with subsequent economic output. This should establish whether the stock market factors contain useful information for stock returns and the macroeconomy or whether the significance of the factor is a result of chance. The results in this paper should advance our understanding of asset price movement and the links between the macroeconomy and financial markets and, thus, be of interest to academics, investors and policy-makers.

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Studies in Economics and Finance, vol. 37 no. 2
Type: Research Article
ISSN: 1086-7376

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Book part
Publication date: 25 July 2017

Alexander J. Field

At the time they occurred, the savings and loan insolvencies were considered the worst financial crisis since the Great Depression. Contrary to what was then believed, and

Abstract

At the time they occurred, the savings and loan insolvencies were considered the worst financial crisis since the Great Depression. Contrary to what was then believed, and in sharp contrast with 2007–2009, they in fact had little macroeconomic significance. Savings and Loan (S&L) remediation cost between 2 percent and 3 percent of Gross Domestic Product (GDP), whereas the Troubled Asset Relief Program (TARP) and the conservatorships of Fannie and Freddie actually made money for the US Treasury. But the direct cost of government remediation is largely irrelevant in judging macro significance. What matters is the cumulative output loss associated with and plausibly caused by failing financial institutions. I estimate output losses for 1981–1984, 1991–1998, and 2007–2026 (the latter utilizing forecasts and projections along with actual data through 2015) and, for a final comparison, 1929–1941. The losses associated with 2007–2009 have been truly disastrous – in the same order of magnitude as the Great Depression. The S&L failures were, in contrast, inconsequential. Macroeconomists and policy makers should reserve the word crisis for financial disturbances that threaten substantial damage to the real economy, and continue efforts to identify in advance financial institutions which are systemically important (SIFI), and those which are not.

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Research in Economic History
Type: Book
ISBN: 978-1-78743-120-1

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Article
Publication date: 22 July 2021

Alexander Lubis, Constantinos Alexiou and Joseph G. Nellis

This paper examines the impact of using the reserve requirements, combined with foreign exchange (FX) intervention, as key instruments in an inflation-targeting framework.

Abstract

Purpose

This paper examines the impact of using the reserve requirements, combined with foreign exchange (FX) intervention, as key instruments in an inflation-targeting framework.

Design/methodology/approach

In the context of a dynamic stochastic general equilibrium (DSGE) framework and using Bayesian techniques, the authors estimate a model for the Indonesian economy using quarterly data spanning the period 2005Q2–2019Q4.

Findings

The reserve requirement is found to assume a complementary role to that of the interest rate policy and FX intervention when used to stabilise the macroeconomy.

Originality/value

This paper provides a benchmark for other emerging countries that consider adopting the inflation targeting framework and impose an FX intervention as part of their monetary policy.

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

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Case study
Publication date: 20 January 2017

Arvind Krishnamurthy and Taft Foster

This case presents financial and macroeconomic data for the United States between 2007 and 2013, a period covering the financial crisis and Great Recession of 2007–2009 and

Abstract

This case presents financial and macroeconomic data for the United States between 2007 and 2013, a period covering the financial crisis and Great Recession of 2007–2009 and the slow economic recovery from 2009 onward. During this period, the Federal Reserve had set the federal funds rate, its primary monetary policy instrument, near zero and was using additional monetary policy tools to stimulate the economy. One of these additional tools was quantitative easing (QE).

Students will use the data provided in the case to examine how financial markets reacted to QE actions by the Federal Reserve and to analyze the potential impact of QE on the macroeconomy.

After reading and analyzing the case, students will be able to:

  • Apply the event study methodology to analyze economic effects

  • Recognize how macroeconomic news affects the prices of financial securities

  • Describe the connections between the prices of financial securities and the macroeconomy

  • • Debate the relative costs and benefits of quantitative easing and the optimality of Federal Reserve policy

Apply the event study methodology to analyze economic effects

Recognize how macroeconomic news affects the prices of financial securities

Describe the connections between the prices of financial securities and the macroeconomy

• Debate the relative costs and benefits of quantitative easing and the optimality of Federal Reserve policy

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Kellogg School of Management Cases, vol. no.
Type: Case Study
ISSN: 2474-6568
Published by: Kellogg School of Management

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Article
Publication date: 4 July 2016

D. Owusu-Manu, E.A. Pärn, K. Donkor-Hyiaman, D.J. Edwards and K. Blackhurst

The purpose of this study is to explore the mortgage affordability problem in Ghana, an issue that has been associated inter alia with high mortgage rates, which results…

Abstract

Purpose

The purpose of this study is to explore the mortgage affordability problem in Ghana, an issue that has been associated inter alia with high mortgage rates, which results from the high cost of capital, an unstable macroeconomy and unfavourable borrowers’ characteristics. Concurrent improvements in both the macroeconomy and borrowers’ characteristics have rendered the identification of the most problematic mortgage pricing determinant difficult, consequently making the targeting of policy interventions problematic.

Design/methodology/approach

This research sought to resolve this aforementioned difficulty by providing empirical evidence on the relative importance of mortgage pricing determinants. A data set of mortgage rates of selected Ghanaian banking financial institutions from 2003 to 2013 was examined and analysed by applying Fisher’s model of interest rates and an ex post analysis of the standard regression coefficients.

Findings

The risk premium factor emerged as the most important determinant in Ghana compared with the inflation premium and the real risk-free rate, although all are statistically significant and strongly correlated with mortgage rates.

Originality/value

This study provides an insight on the relative importance of mortgage pricing determinates and subsequent macro-economic guidance to support policy interventions which could reduce mortgage rates/enhance mortgage affordability. The paper specifically aims to engender wider debate and provide guidance to the Ghanaian Government and/or private enterprises that seek to provide affordable mortgages. Further research is proposed which could explore ways of reducing mortgage rates as a means of engendering social equality and adopt innovative international best practice that has already been tried and tested in countries such as South Africa and the USA.

Details

Journal of Engineering, Design and Technology, vol. 14 no. 3
Type: Research Article
ISSN: 1726-0531

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Abstract

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Central Bank Policy: Theory and Practice
Type: Book
ISBN: 978-1-78973-751-6

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Article
Publication date: 8 May 2017

Sulaiman Abdullah Saif Al-Nasser Mohammed and Datin Joriah Muhammed

The purpose of this paper is to investigate the performance of Islamic banks in developing countries from 2007 to 2010 which includes the period of the financial crisis by…

Abstract

Purpose

The purpose of this paper is to investigate the performance of Islamic banks in developing countries from 2007 to 2010 which includes the period of the financial crisis by empirically examining the way in which the macroeconomy affected Islamic banking performance (IBP) in developing countries. The empirical examination involves two approaches of measuring performance: Sharia-based and conventional-based performance measurement.

Design/methodology/approach

For this paper, the authors have utilized a Data Stream/Bank Scope database and data from the Bank Negara Malaysia (Malaysian Central Bank) to collect a panel set of annual financial information for Islamic banking from the year 2007-2010. The initial sample covers 34 Islamic banks from developing countries that are listed on the International Islamic Service Board. Furthermore, the authors adopted only those listed Islamic banks to tackle the data availability issue. The authors’ final sample comprised 136 observations with complete data as the numbers of Islamic banks in developing countries are low in comparison to their conventional peers. The financial crisis dummy follows America’s commonly used National Bureau of Economic Research timeline for the financial crisis. The authors also used the method of a generalized least square (GLS) method of pooled panel data analysis regression model. The rationale for employing the GLS technique was made on the basis of the ability of GLS to give less weight to the error term that is closely clustered around the mean, to improve the goodness of fit and to remove autocorrelation compared with normal, random, and fixed effect models.

Findings

The authors of this paper found that the macroeconomic factors reflected in gross domestic product, gross domestic product growth, and inflation rate have a significant positive relationship with the return on assets. In addition, a significant negative relationship was found between the financial dummy and IBP in developing countries. On the other hand, it failed to find evidence of a relationship between the macroeconomic factors and performance including the legal system and the financial crisis dummy, when the performance is reflected by the Zakat ratio. The result embedded that the financial crisis had an impact on the performance of Islamic banks in developing countries when viewed from the conventional banking perspective. The financial crisis played a role in reducing the profitability of Islamic banks which is consistent with a previous study by Hasan and Dridi (2011). However, in the view of Sharia, the financial crisis did not have any effect on IBP; even the macro factors did not have any effect on the level of performance.

Research limitations/implications

There are possible explanations for these contradictory coefficient signs. First, the contradictory signs of the coefficient for the same independent variable that was regressed with different dependent variables show that researchers would need to take caution in using the right indicators when measuring IBP. Conventional indicators bring different results in comparison to Islamic indicators (Badreldin, 2009; Mudiarasan. Kuppusamy, 2010; Zahra and Pearce, 1989). Second, Richard et al. (2009), having reviewed performance measurement-related publications in five of the leading management journals (722 articles between 2005 and 2007), suggested that the past studies reveal a multidimensional conceptualization of organizational performance with limited effectiveness of commonly accepted measurement practices. Accordingly, these studies call for more theoretically grounded research and debate for establishing which measures are appropriate in a given research context. Today, there is a general consensus that the old financial measures are still valid and relevant (Yip et al., 2009). However, these need to be balanced with more contemporary, intangible, and externally oriented measures. It has been argued that various researchers working in their own disciplines using functional performance measures (such as market share in marketing, schedule adherence in operations and so on) ought to link their discipline to focused performance measures of overall organizational performance.

Practical implications

Islamic banking has unique characteristics in comparison to conventional banking and this paper examines the differences between the two and also investigates the resilience of Islamic banks during a period of economic turbulence. Furthermore, due to these unique characteristics, a comparison cannot be made by using the conventional performance measures alone. In addition, amid the in-depth studies examining the resilience of Islamic banks during periods of economic crises, there are instances of theoretical disagreement in the extant empirical literature examining finance and economics. In that regard, the majority of the existing literature is either based on advanced markets or countries where the majority of the population practices the faith of Islam, and little is known about the performance of Islamic banking from the pooled emerging markets; particularly in developing countries.

Originality/value

Introducing Zakat as a performance measurement in Islamic banking context relating it to macroeconomic factors enhances the thinking of new research in Islamic theory about bank performance.

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Article
Publication date: 4 March 2019

Nicholas Apergis

The purpose of this paper is to explore the direct and exclusive effects of this rather unconventional monetary policy on financial markets, economic activity and labor…

Abstract

Purpose

The purpose of this paper is to explore the direct and exclusive effects of this rather unconventional monetary policy on financial markets, economic activity and labor markets across the Eurozone.

Design/methodology/approach

Using a range of variables, the analysis employed the Markov-switching dynamic regression methodological approach.

Findings

The findings provided evidence in favor of the reduction of short- and log-term credit spreads, increased stock prices, improved market expectations, recovered labor market conditions and economic productivity, while the primary transmission channel of the quantitative easing policy is the expectations channel.

Originality/value

The novelties of this paper are twofold: it makes use of a wide data set to investigate the effect of economic and financial variables on productivity, labor markets, bond markets and equity markets in the Eurozone; and the analysis focuses on the direct effects of monetary base increases on the Eurozone economy, as well as on Eurozone financial markets.

Details

Journal of Economic Studies, vol. 46 no. 2
Type: Research Article
ISSN: 0144-3585

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Article
Publication date: 5 November 2020

Hardik Marfatia

The studies on international housing markets have not modeled frequency domain and focused only on the time domain. The purpose of the present research is to fill this gap…

Abstract

Purpose

The studies on international housing markets have not modeled frequency domain and focused only on the time domain. The purpose of the present research is to fill this gap by using the state-of-the-art econometric technique of wavelets to understand how differences in the horizon of analysis across time impact international housing markets’ relationship with some of the key macroeconomic variables. The purpose is to also analyze the direction of causation in the relationships.

Design/methodology/approach

The author uses the novel time–frequency analysis of international housing markets’ linkages to the macroeconomic drivers. Unlike conventional approaches that do not distinguish between time and frequency domain, the author uses wavelets to study house prices’ relationship with its drivers in the time–frequency space. The novelty of the approach also allows gaining insights into the debates that deal with the direction of causation between house price changes and macroeconomic variables.

Findings

Results show that the relationship between house prices and key macroeconomic indicators varies significantly across countries, time, frequencies and the direction of causation. House prices are most related to interest rates at the higher frequencies (short-run) and per capita income growth at the lower frequencies (long-run). The role of industrial production and income growth has switched over time at lower frequencies, particularly, in Finland, France, Sweden and Japan. The stock market’s nexus with the housing market is significant mainly at high to medium frequencies around the recent financial crisis.

Research limitations/implications

The present research implies that in contrast to the existing approaches that are limited to the only time domain, the frequency considerations are equally, if not more, important.

Practical implications

Results show that interested researchers and analysts of international housing markets need to account for the both horizon and time under consideration. Because the factors that drive high-frequency movements in housing market are very different from low-frequency movements. Furthermore, these roles vary over time.

Social implications

The insights from the present study suggest policymakers interested in bringing social change in the housing markets need to account for the time–frequency dynamics found in this study.

Originality/value

The paper is novel on at least two dimensions. First, to the best of the author’s knowledge, this study is the first to propose the use of a time–frequency approach in modeling international housing market dynamics. Second, unlike present studies, it is the first to uncover the direction of causation between house prices and economic variables for each frequency at every point of time.

Details

International Journal of Housing Markets and Analysis, vol. 14 no. 4
Type: Research Article
ISSN: 1753-8270

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1 – 10 of 758