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Article
Publication date: 19 October 2023

Haytem Troug and Ernil Sabaj

Despite being a flexible tool that can address several macroeconomic issues, Dynamic Stochastic General Equilibrium (DSGE) models have been rarely used to analyse the interaction…

Abstract

Purpose

Despite being a flexible tool that can address several macroeconomic issues, Dynamic Stochastic General Equilibrium (DSGE) models have been rarely used to analyse the interaction between monetary and fiscal policy until the post-financial crisis, leaving a gap in the analysis of how government consumption affects the transmission mechanism of monetary policy. This motivates this paper to analyse how government consumption affects the dynamics of a small open economy, once the former is included in a non-separable form to the utility function. To the best of the authors' knowledge, this issue has not been addressed by the literature, and the authors aim to do so in this paper.

Design/methodology/approach

A standard New Keynesian model for a small open economy is used to allow for the presence of non-separable government consumption in the utility function. The model is supported by panel regressions.

Findings

The inclusion of Government consumption dampens the transmission mechanism of monetary policy. The degree of openness dampens the crowding out effect of fiscal policy to monetary policy, as the exchange rate channel empowers it. Empirical estimates for 35 OECD countries support the theoretical findings of the model.

Originality/value

The effect of government consumption on the transmission mechanism of MP has not been addressed in the literature. This paper contributes to the literature by addressing this issue.

Highlights:

  • • The inclusion of Government consumption dampens the transmission mechanism of monetary policy.

  • • The degree of openness alleviates the crowding out effect of fiscal policy to monetary policy, as the exchange rate channel empowers it.

  • • Empirical estimates for 35 OECD countries support the theoretical findings of the model.

• The inclusion of Government consumption dampens the transmission mechanism of monetary policy.

• The degree of openness alleviates the crowding out effect of fiscal policy to monetary policy, as the exchange rate channel empowers it.

• Empirical estimates for 35 OECD countries support the theoretical findings of the model.

Details

Journal of Economic Studies, vol. 51 no. 1
Type: Research Article
ISSN: 0144-3585

Keywords

Article
Publication date: 26 December 2023

Hai Le and Phuong Nguyen

This study examines the importance of exchange rate and credit growth fluctuations when designing monetary policy in Thailand. To this end, the authors construct a small open…

Abstract

Purpose

This study examines the importance of exchange rate and credit growth fluctuations when designing monetary policy in Thailand. To this end, the authors construct a small open economy New Keynesian dynamic stochastic general equilibrium (DSGE) model. The model encompasses several essential characteristics, including incomplete financial markets, incomplete exchange rate pass-through, deviations from the law of one price and a banking sector. The authors consider generalized Taylor rules, in which policymakers adjust policy rates in response to output, inflation, credit growth and exchange rate fluctuations. The marginal likelihoods are then employed to investigate whether the central bank responds to fluctuations in the exchange rate and credit growth.

Design/methodology/approach

This study constructs a small open economy DSGE model and then estimates the model using Bayesian methods.

Findings

The authors demonstrate that the monetary authority does target exchange rates, whereas there is no evidence in favor of incorporating credit growth into the policy rules. These findings survive various robustness checks. Furthermore, the authors demonstrate that domestic shocks contribute significantly to domestic business cycles. Although the terms of trade shock plays a minor role in business cycles, it explains the most significant proportion of exchange rate fluctuations, followed by the country risk premium shock.

Originality/value

This study is the first attempt at exploring the relevance of exchange rate and credit growth fluctuations when designing monetary policy in Thailand.

Details

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

Keywords

Open Access
Article
Publication date: 17 November 2023

Sami Zaki Alabdulwahab and Ahmed Sabry Abou-Zaid

This paper aims to empirically investigate the sources of real exchange rate fluctuations in Egypt using structural vector autoregression (SVAR). The data covers the period…

Abstract

Purpose

This paper aims to empirically investigate the sources of real exchange rate fluctuations in Egypt using structural vector autoregression (SVAR). The data covers the period between 1980 and 2016, where exchange regime has been changed more than once.

Design/methodology/approach

This paper investigates the source of real exchange rate fluctuations for the period between 1980 and 2016 using the SVAR method. The SVAR method will incorporate real gross domestic product (GDP), real effective exchange rate (REER) and price level in a multidimensional equations system. However, impulse response function (IRF) and error variance decompositions (EVDC) will be generated by the system to have a behavioral insight of real exchange rate in response to economic shocks.

Findings

The IRF and EVDC results indicate a significant impact of demand shocks over the real exchange rate relative to supply shocks and monetary shocks in the period between 1980 and 2016. On the other hand, monetary shocks will have a negligible effect on the real exchange rate in the short run and converging to its previous level in the covering period of the study.

Originality/value

In the best of the authors' knowledge, the topic of the source of the real exchange rate fluctuations in Egypt has not been discussed in a wide range due to the lack of time series data. However, this study provides constructed data for REER for Egypt with the published method in the International Monetary Fund (IMF). Furthermore, the study involves theoretical and econometric modeling to ensure the reliability of the economic results.

Details

Review of Economics and Political Science, vol. 9 no. 1
Type: Research Article
ISSN: 2356-9980

Keywords

Article
Publication date: 20 April 2023

Mudaser Ahad Bhat and Mirza Nazrana Beg

This paper documents a robust empirical regularity: higher trade openness is associated with a lower unemployment rate. This paper also examines whether or not the effects of…

Abstract

Purpose

This paper documents a robust empirical regularity: higher trade openness is associated with a lower unemployment rate. This paper also examines whether or not the effects of trade liberalisation depend on countries' income levels. Further, the dynamic causation between trade openness and unemployment is also examined.

Design/methodology/approach

In order to obtain insight into the openness–unemployment nexus, following empirical methods were utilised - static panel models, dynamic panel models and a novel panel Granger causality approach proposed by Juodis et al. (2021).

Findings

Results suggest that openness negatively affects unemployment; the extent to which trade liberalisation affects unemployment depends on the income level of each country. The Juodis, Karavias, and Sarafidis (JKS) test confirmed that the past values of trade openness, inflation, foreign direct investment and gross domestic product per capita contain information that helps to predict unemployment in a more robust manner. To simply put, opening upto trade may eventually become a requirement for creating more job opportunities, but this alone may not be enough. The extent to which nations benefit from trade liberalisation is largely dependent on the overall economic conditions and their capability to move up the income scale.

Originality/value

A major difference between this study and those performed previously is that this study does not only examine the impact of trade openness on unemployment, but also investigates whether the unemployment effect of liberalisation is affected by countries' income levels – an issue that has received little attention in the past. Additionally, the unique panel non-causality approach put forth by Juodis et al. (2021) is used in the first instance to look into the causal link between trade openness and unemployment. This method has advantages in that the method enables capturing Granger-causality in homogeneous or heterogeneous panels amongst multiple variables.

Details

Journal of Economic Studies, vol. 50 no. 8
Type: Research Article
ISSN: 0144-3585

Keywords

Open Access
Article
Publication date: 6 December 2023

Binh Tran-Nam, Cuong Le-Van, Van Pham-Hoang and Thai-Ha Le

Abstract

Details

Fulbright Review of Economics and Policy, vol. 3 no. 2
Type: Research Article
ISSN: 2635-0173

Case study
Publication date: 8 November 2023

Jayanth R. Varma and Rahul Ghosh

Northern Textiles (NTL) used highly complex derivatives to hedge its currency risk, and these structured products have been profitable in the past. But in 2008, unanticipated…

Abstract

Northern Textiles (NTL) used highly complex derivatives to hedge its currency risk, and these structured products have been profitable in the past. But in 2008, unanticipated movements in exchange rates have led to serious losses. Seth, the Chairman of NTL, has come to know about the losses on a specific deal, but the Treasurer has ensured that he is the only person who understands the derivative book in its entirety. Though Seth is not aware of how grave the problem is, he realizes that he must review NTL's risk management policies and perhaps even replace the CFO.

Details

Indian Institute of Management Ahmedabad, vol. no.
Type: Case Study
ISSN: 2633-3260
Published by: Indian Institute of Management Ahmedabad

Keywords

Article
Publication date: 9 November 2023

Onyinye Imelda Anthony-Orji, Ikenna Paulinus Nwodo, Anthony Orji and Jonathan E. Ogbuabor

This paper aims to examine Nigeria’s dynamic output and output volatility connectedness with USA, China and India using quarterly data from 1981Q1 to 2019Q4.

40

Abstract

Purpose

This paper aims to examine Nigeria’s dynamic output and output volatility connectedness with USA, China and India using quarterly data from 1981Q1 to 2019Q4.

Design/methodology/approach

The study adopted the network approach of Diebold and Yilmaz (2014) and used the normalized generalized forecast error variance decomposition from an underlying vector error correction model to build connectedness measures.

Findings

The findings show that the global financial crisis (GFC) increased the connectedness index far more than the 2016 Nigeria economic recession. The moderate effect of the 2016 Nigeria economic recession on the connectedness index underscores the fact that Nigeria is a small, open economy with minimal capacity to spread output shock. For both real output and its volatility, the total connectedness index rose smoothly and systematically through time, thereby leaving the economies more connected in the long run.

Originality/value

To the best of the authors’ knowledge, this paper is among the first to examine Nigeria’s dynamic output and output volatility connectedness with the USA, China and India using new empirical insights from the GFC versus 2016 Nigerian recession. The study, therefore, concludes that the Nigerian economy should be diversified immediately as a hedge against future real output shocks, while the USA, China and India should maintain and sustain their current policy frameworks to remain less vulnerable to real output shocks.

Details

Journal of Financial Economic Policy, vol. 16 no. 1
Type: Research Article
ISSN: 1757-6385

Keywords

Article
Publication date: 11 January 2024

Siti Hafsah Zulkarnain, Abdol Samad Nawi, Miguel Angel Esquivias and Anuar Husin

The purpose of this study is designed to achieve the learning process in producing studies involving economic issues and scenarios in business management in Malaysia. In addition…

Abstract

Purpose

The purpose of this study is designed to achieve the learning process in producing studies involving economic issues and scenarios in business management in Malaysia. In addition, this study will provide exposure to the integration of managerial skills by using both microeconomics and macroeconomics concepts and theories to aid decision-making in a business environment.

Design/methodology/approach

The research method comprised qualitative methodology of literature review, case study and quantitative methodology of multiple linear regression (MLR). In this case, seven microeconomics and macroeconomics factors which are believed to significantly affect house price index (HPI) are taken into consideration which includes gross domestic product, consumer price index (CPI), government tax and subsidy on housing, overnight policy rate, unemployment rate (UNEMP), the median income (INC) and cost of production index.

Findings

This research has resulted in three significant factors affecting HPI from MLR, which include CPI, UNEMP and INC where the increase of these factors will cause a high increment of HPI. The other four factors are not significant.

Originality/value

Malaysia has been facing the stagnancy in house market these recent years due to issues such as massive oversupply, impacting Malaysia’s economy specifically focusing on domestic direct investment. To avoid oversupply issues, the vitality of future house demand and pricing forecast should be comprehended by involved bodies for more effective planning for the house development industry. To make a better and bigger impact, this research is intended to analyse the microeconomic and macroeconomic factors affecting the HPI to better understand the significance of each of these factors to the changes of HPI to resolve these economic issues.

Details

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

Keywords

Content available
Book part
Publication date: 9 November 2023

Abstract

Details

Modeling Economic Growth in Contemporary Poland
Type: Book
ISBN: 978-1-83753-655-9

Article
Publication date: 25 December 2023

Nemer Badwan, Besan Saleh and Montaser Hamdan

This paper aims to investigate the determinants that contribute to the financial stability and banking sector of Palestinian banks listed on the Palestine Stock Exchange (PEX) by…

Abstract

Purpose

This paper aims to investigate the determinants that contribute to the financial stability and banking sector of Palestinian banks listed on the Palestine Stock Exchange (PEX) by using yearly data for the years 2012–2022.

Design/methodology/approach

Pooled ordinary least squares (OLS) and two-stage least squares (2SLS) were used to identify the variables and factors affecting the financial stability and banking sector of Palestinian banks. The study’s data were collected from the banks listed on PEX and from the yearly reports posted on the Palestine Monetary Authority’s (PMA) webpage over the years from 2012–2022. According to this research’s analysis, SMEs loans and capital sufficiency have a statistically significant positive impact on the stability of Palestinian banks. Unobserved heterogeneity, simultaneity and dynamic endogeneity are taken into account when using the 2SLS regression approach to adjust for the study endogeneity factor.

Findings

The study’s findings show that some factors and determinants might have both good and negative effects on financial stability and banking sector. Loans to small and medium-sized businesses (SMEs) and enough capital are two characteristics that statistically have a major favourable impact on the stability of Palestinian banks since they help the banks withstand deficits. A further potential discovery relates to the favourable effects of financial inclusion (FI) and digital financial services (DFS) on the stability of banks.

Research limitations/implications

This research has faced some limitations, such as the lack of a defined index from the regulatory organizations, this research is based on information from bank annual accounts. It has mostly relied on self-developed or World Bank indexes. Furthermore, the research solely used information from the supply side (banks); demand-side data were not taken into consideration.

Practical implications

This paper has managerial implications for stability of banking sector. The Palestine Monetary Authority, as the central bank, must increase the percentage of bank loans directed to small and medium-sized companies and oblige bank management to adhere to adequate capital standards, which contributes to strengthening the Palestinian banking sector and increasing its profits. The study findings advise banks that are enjoying financial stability to speed up the pace of FI and DFSs because most of these reliable banks have relatively low FI ratios. PMA is responsible for preserving the stability of the financial system. PMA, decision makers and banks management must retain adequate liquidity in their institutions and raise client collateral expectations to raise credit conditions.

Originality/value

This paper adds some contributions to the literature. To adjust for discrepancies between various types of banks, the authors concentrate on conventional and Islamic banks, which enables us to use a homogenous data set as opposed to depending on dichotomous variables. The authors used Z-scores, which have recently been used in research, to measure stability and FI at the level of specific institutions. This research contributes in some key aspects that no prior research has addressed. Conventional banks are different from Islamic banks, and a number of issues might impact their stability. To evaluate the connection between FI and DFSs, it is important to consider the actions of bank regulators.

Details

Journal of Financial Regulation and Compliance, vol. 32 no. 1
Type: Research Article
ISSN: 1358-1988

Keywords

1 – 10 of 205