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Abstract

Details

Dynamics of Financial Stress and Economic Performance
Type: Book
ISBN: 978-1-78754-783-4

Open Access
Article
Publication date: 20 November 2023

Ezekiel Olamide Abanikanda and James Temitope Dada

Motivated by the negative effect of external shocks on the domestic economy, this study explores the role of financial sector development in absorbing the effect of external shocks

Abstract

Purpose

Motivated by the negative effect of external shocks on the domestic economy, this study explores the role of financial sector development in absorbing the effect of external shocks on macroeconomic volatility in Nigeria.

Design/methodology/approach

Autoregressive distributed lag and fully modify ordinary least square are used to examine the moderating effect of financial development in the link between external shocks and macroeconomic volatilities in Nigeria between 1986Q1 and 2019Q4. External shock is proxy using oil price shock, and financial development is proxy by domestic credit to the private sector and market capitalisation. At the same time, macroeconomic volatility is proxy by output and inflation volatilities. Macroeconomic volatilities are generated using generalised autoregressive conditional heteroskedasticity (GARCH 1,1).

Findings

The results indicate that domestic credit to the private sector significantly reduces output and inflation volatilities in Nigeria in the short and long run. However, market capitalisation promotes macroeconomic volatility. More specifically, financial development indicators play different roles in curtaining macroeconomic volatilities. The results also reveal that external shocks stimulate macroeconomic volatility in Nigeria in the short and long run. Nevertheless, the effects of external shocks on macroeconomic volatilities are reduced when the role of financial development is incorporated.

Practical implications

This study, therefore, concludes that strong financial sector development serves as a significant shock absorber in reducing the adverse effect of external shock on the domestic economy.

Originality/value

This study contributes to the extant studies by introducing a country-specific analysis into the empirical examination of how financial development can moderate the influence of external shock on macroeconomic volatilities.

Details

PSU Research Review, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2399-1747

Keywords

Article
Publication date: 6 March 2020

Carmela Barbera, Enrico Guarini and Ileana Steccolini

Studies on how accounting is involved in financial crises and austerity are limited. The context of austerity provides an interesting opportunity to explore the role of accounting…

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Abstract

Purpose

Studies on how accounting is involved in financial crises and austerity are limited. The context of austerity provides an interesting opportunity to explore the role of accounting in shaping governmental financial resilience, i.e. the capacity of governments to cope with shocks affecting their financial conditions.

Design/methodology/approach

Based on a multiple case analysis of eight Italian municipalities, this paper explores how accounting contributes to the government capacities which are used to anticipate and respond to shocks affecting public finances.

Findings

Municipalities cope with financial shocks differently; accounting can support self–regulation and can affect internally-led or externally-led adaptation. Different combinations of anticipatory and coping capacities lead to different responses to shocks.

Practical implications

The findings can be useful for public managers, policymakers and oversight bodies for strengthening governmental financial resilience in the face of crises and austerity.

Originality/value

The results provide evidence of the conditions, contexts, processes under which accounting becomes a medium which can support both anticipation of and coping with financial shocks, supporting cuts in some cases and resistance in the short run or driving long-term changes intended to maintain public services as much intact as possible. This highlights the existence of different patterns of governmental financial resilience and thus indicates ways of best preserving the service of the public interest.

Details

Accounting, Auditing & Accountability Journal, vol. 33 no. 3
Type: Research Article
ISSN: 0951-3574

Keywords

Article
Publication date: 12 February 2018

Hussein Mohammad Salameh and Bashar Alzubi

The purpose of this paper is to assess the sources of Dubai Financial Market Index volatility shocks if they are from its own or previous shocks on the one hand, or if they are…

Abstract

Purpose

The purpose of this paper is to assess the sources of Dubai Financial Market Index volatility shocks if they are from its own or previous shocks on the one hand, or if they are out board shocks (FSTE and S&P500) on the other.

Design/methodology/approach

A daily time series data were collected over the period 1st January 2014-31st December 2015 and the generalized autoregressive conditional heteroskedasticity (GARCH) methodology was implemented.

Findings

Empirically, the authors find that the current volatility of Dubai Financial Market Index is largely dependent on its own shocks and part of the external shock; in particular, S&P500. However, other external volatility (FSTE) cannot contribute to this volatility. Furthermore, our findings indicate that Abu Dhabi stock Exchange (APX) affects Dubai Financial Market Index.

Practical implications

These results conclude that Securities Regulation Department in the federal state of United Arab Emirates had captured the effect of outside shocks from the UK only, but not from USA; this is basically due to the strong ties between the two countries. Accordingly, UAE investors seek capital outside their home country within a climate of increasing overseas’ investment options in the UK. More transparency of transactions via information technology will increase the efficiency of Dubai Financial Market.

Originality/value

To the best of the knowledge, this is the first work that shows the external and internal sources of volatility shocks at once; previous studies have focused almost exclusively on one type of shocks. To investigate DFM volatility shocks, the authors employed GARCH methodology; this method is an advanced econometric method and is often a preferred method to depict actual effects because it provides a more real-world context than other forms when trying to predict volatility shocks of financial instruments.

Details

Journal of Economic and Administrative Sciences, vol. 34 no. 1
Type: Research Article
ISSN: 1026-4116

Keywords

Article
Publication date: 3 June 2021

Chokri Zehri

By reinforcing monetary policy independence, reducing international financing pressures and avoiding high-risk takings, capital controls strengthen the stability of the financial

Abstract

Purpose

By reinforcing monetary policy independence, reducing international financing pressures and avoiding high-risk takings, capital controls strengthen the stability of the financial system and then reduce the volatility of capital inflows. The objective of this study was to conduct an empirical examination of this hypothesis. This topic has received strong support in the theoretical literature; however, empirical work has been quite limited, with few empirical studies that provide direct empirical support to this hypothesis.

Design/methodology/approach

This study analyzed quarterly data of 32 emerging economies over the period between 2000 and 2015 and proposes two methods to identify capital control actions. Using panel analysis, Autoregressive Distributed Lag and local projections approaches.

Findings

This study found that tighter capital controls may diminish monetary and exchange rate shocks and reduce capital inflows volatility. Furthermore, capital controls respond counter-cyclically to monetary shocks. Under capital controls, countries with floating exchange rate regimes have more potential to buffer monetary shocks. We also found that capital controls on inflows are more effective for reducing the volatility of capital inflows compared to capital controls on outflows.

Originality/value

This study contributes to the question of the effectiveness of capital controls in attenuating the effects of international shocks and reducing the volatility of capital flows. Previous studies have mostly focused on the role of macroprudential regulation; however, there is a lack of systematic effects of capital controls on monetary and exchange rate policies. To our knowledge, this is the first preliminary study to suggest that capital controls may buffer monetary and exchange rate shocks and reduce the volatility of capital inflows. This study investigates the novel notion that capital controls allow for a notable counter-cyclical response of monetary and exchange rate policies to international financial shocks.

Details

International Journal of Emerging Markets, vol. 18 no. 4
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 15 May 2023

Amrita Kulshreshtha, Sk Raju, Sai Manasa Muktineni and Devlina Chatterjee

The purpose of this study was to investigate the relationship between income shock suffered during the coronavirus pandemic and subsequent financial well-being (FWB) of Indian…

Abstract

Purpose

The purpose of this study was to investigate the relationship between income shock suffered during the coronavirus pandemic and subsequent financial well-being (FWB) of Indian adults, mediated by financial resilience (FR) and psychological resilience (PR).

Design/methodology/approach

The authors propose a conceptual model for the relationship between income shock and FWB, with FR and PR as mediator variables. The authors consider four dimensions of financial resilience: economic resources, financial inclusion, financial knowledge and social capital. This study uses a unidimensional scale for PR. Data were collected from 370 respondents from 11 cities across India. Structural equation models were built to test the proposed hypotheses.

Findings

Income shock was negatively associated with FWB. Estimated path coefficients for FR and PR were statistically significant and confirmed a mediating role. Among the four dimensions of financial resilience, only economic resources were positively associated with FWB. The mediation relation between economic resources and FWB was larger than PR.

Research limitations/implications

Since convenience sampling was used to collect data, the results of this study are indicative but not generalizable.

Social implications

For individuals who suffered income shocks during the pandemic, adequate economic resources are crucial for FWB. Governmental disbursements, personal savings and medical or life insurance could provide an adequate safety net.

Originality/value

There are no extant studies that examine the association between income shocks and FWB in the pandemic, and this study contributes to the literature.

Details

International Journal of Bank Marketing, vol. 41 no. 5
Type: Research Article
ISSN: 0265-2323

Keywords

Article
Publication date: 7 February 2024

Luccas Assis Attílio, Joao Ricardo Faria and Mauricio Prado

The authors investigate the impact of the US stock market on the economies of the BRICS and major industrialized economies (G7).

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Abstract

Purpose

The authors investigate the impact of the US stock market on the economies of the BRICS and major industrialized economies (G7).

Design/methodology/approach

The authors construct the world economy and the vulnerability between economies using three economic integration variables: bilateral trade, bilateral direct investment and bilateral equity positions. Global vector autoregressive (GVAR) empirical studies usually adopt trade integration to estimate models. The authors complement these studies by using bilateral financial flows.

Findings

The authors summarize the results in four points: (1) financial integration variables increase the effect of the US stock market on the BRICS and G7, (2) the US shock produces similar responses in these groups regarding industrial production, stock markets and confidence but different responses regarding domestic currencies: in the BRICS, the authors detect appreciation of the currencies, while in the G7, the authors find depreciation, (3) G7 stock markets and policy rates are more sensitive to the US shock than the BRICS and (4) the estimates point out to heterogeneities such as the importance of industrial production to the transmission shock in Japan and China, the exchange rate to India, Japan and the UK, the interest rates to the Eurozone and the UK and confidence to Brazil, South Africa and Canada.

Research limitations/implications

The results reinforce the importance of taking into account different levels of economic development.

Originality/value

The authors construct the world economy and the vulnerability between economies using three economic integration variables: bilateral trade, bilateral direct investment and bilateral equity positions. GVAR empirical studies usually adopt trade integration to estimate models. The authors complement these studies by using bilateral financial flows.

Details

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

Keywords

Book part
Publication date: 24 October 2013

Arturo J. Galindo, Alejandro Izquierdo and Liliana Rojas-Suarez

This chapter explores the impact of international financial integration on credit markets in Latin America, using a cross-country dataset covering 17 countries between 1996 and…

Abstract

This chapter explores the impact of international financial integration on credit markets in Latin America, using a cross-country dataset covering 17 countries between 1996 and 2008. It is found that financial integration amplifies the impact of international financial shocks on aggregate credit and interest rate fluctuations. Nonetheless, the net impact of integration on deepening credit markets dominates for the large majority of states of nature. The chapter also uses a detailed bank-level dataset that covers more than 500 banks for a similar time period to explore the role of financial integration – captured through the participation of foreign banks – in propagating external shocks. It is found that interest rates charged and loans supplied by foreign-owned banks respond more to external financial shocks than those supplied by domestically owned banks. This does not hold for all foreign banks. Spanish banks in the sample behave more like domestic banks and do not amplify the impact of foreign shocks on credit and interest rates.

Details

Global Banking, Financial Markets and Crises
Type: Book
ISBN: 978-1-78350-170-0

Keywords

Article
Publication date: 28 November 2023

Kyoung Tae Kim, Jing Jian Xiao and Nilton Porto

Financial inclusion can be proxied by banking status. The purpose of this study is to investigate the potential effects of financial capability on the financial fragility of US…

Abstract

Purpose

Financial inclusion can be proxied by banking status. The purpose of this study is to investigate the potential effects of financial capability on the financial fragility of US adults with various banking statuses during the COVID-19 pandemic.

Design/methodology/approach

This study utilized the 2021 National Financial Capability Study (NFCS) dataset to investigate the relationship between financial capability and financial fragility among consumers with different banking statuses. The analysis controlled for employment shocks, health shocks and other consumer characteristics. Banking statuses included fully banked, under-banked (utilizing both banking and alternative financial services) and unbanked individuals. Logistic regression analyses were conducted on both the entire sample and subsamples based on banking statuses.

Findings

The results showed that financial capability was negatively associated with financial fragility. The magnitude of the potential negative effect of financial capability was the greatest among the fully banked group, followed by the underbanked and unbanked groups. Respondents who were underbanked or unbanked were more likely to experience financial fragility than those who were fully banked. Additionally, respondents who were laid off or furloughed during the pandemic were more likely to experience financial fragility than those without employment shocks. The effect size of financial capability factors was greater than that of COVID-19 shock factors. These results suggest that higher levels of both financial capability and financial inclusion may be effective in reducing the risk of financial fragility.

Originality/value

This study represents one of the first attempts to examine the potential effects of financial capability on financial fragility among consumers with various banking statuses during the COVID-19 pandemic. Furthermore, this study offers new evidence to determine whether COVID-19 shocks, as measured by health and employment status, are associated with financial fragility. Additionally, the effect size of financial capability factors is greater than that of COVID-19 shock factors. The results from the 2021 NFCS dataset provide valuable insights for banking professionals and public policymakers on how to enhance consumer financial wellbeing.

Details

International Journal of Bank Marketing, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0265-2323

Keywords

Article
Publication date: 1 June 2010

Sven Blank and Jonas Dovern

The paper is to understand how the financial system is influenced by macroeconomic shocks and how the financial stance, in turn, feeds back into the macroeconomic environment is…

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Abstract

Purpose

The paper is to understand how the financial system is influenced by macroeconomic shocks and how the financial stance, in turn, feeds back into the macroeconomic environment is key for policy makers. The most recent financial crisis has demonstrated the need for a deeper understanding of these interdependencies. The purpose of this paper is to analyze what macroeconomic shocks affect the soundness of the German banking system.

Design/methodology/approach

The paper draws on a micro‐macro stress‐testing framework for the German banking system in which macroeconomic and bank‐specific data are used to identify the effects of various shocks in a structural vector autoregressive model, which includes main macroeconomic variables and an indicator of stress in the banking system. To this end, the sign‐restriction approach is applied.

Findings

First, it is found that there is a close link between macroeconomic developments and the stance of the banking sector. Second, monetary policy shocks are the most influential shocks for distress in the banking sector. Third, fiscal policy shocks and real estate price shocks have a significant impact on the distress indicator, while evidence is mixed for the exchange rate. Fourth, for the identification of most shocks it is essential to work in the integrated model that combines the micro‐ and the macro‐sphere.

Originality/value

The paper analyzes various shock scenarios in an integrated micro‐macro framework that takes the mutual relationship between the financial stance and the macroeconomic environment into account.

Details

Journal of Financial Economic Policy, vol. 2 no. 2
Type: Research Article
ISSN: 1757-6385

Keywords

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