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1 – 6 of 6Salvatore Capasso, Oreste Napolitano and Ana Laura Viveros Jiménez
The purpose of this paper is to analyse the long-term nature of the interrelationship between interest rate and exchange rate.
Abstract
Purpose
The purpose of this paper is to analyse the long-term nature of the interrelationship between interest rate and exchange rate.
Design/methodology/approach
By employing Mexican data, the authors estimate a non-linear autoregressive distributed lags (NARDL) model to investigate the nature of the changes and the interaction between interest rate and exchange rate in response to monetary authorities’ actions.
Findings
The results show that, contrary to simplistic predictions, the real exchange rate causes the real interest rate in an asymmetric way. The bounds testing approach of the NARDL models suggests the presence of co-integration among the variables and the exchange rate variations appear to have significant long-run effects on the interest rate. Most importantly, these effects are asymmetric and positive variations in the exchange rate have a lower impact on the interest rate. It is also interesting to report that the reverse is not true: the interest rate in the long-run exerts no statistical significant impact on the exchange rate.
Practical implications
The asymmetric long-term relationship between real exchange rate and real interest rate is evidence of why monetary authorities are reluctant to free float exchange rate. In Mexico, as in most developing countries, monetary policy strongly responds to exchange rate movements because these have relevant effects on commercial trade. Moreover, in dollarized economies these effects are stronger because of pass-through impacts to inflation, income distribution and balance-sheet equilibrium (the well-known “original sin”).
Originality/value
Under inflation targeting and flexible exchange rate regime, despite central banks pursue the control of short-term interest rate, in the long-run one could observe that it is the exchange rate that influences the interest rate, and that this reverse causality is stronger in emerging economies. This paper contributes by analysing the asymmetric relationship between the variables.
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Salvatore Capasso, Oreste Napolitano and Ana Laura Viveros Jiménez
The idea of this study is to provide a solid Financial Condition Index (FCI) that allows the monetary transmission policy to be monitored in a country which in recent decades has…
Abstract
Purpose
The idea of this study is to provide a solid Financial Condition Index (FCI) that allows the monetary transmission policy to be monitored in a country which in recent decades has suffered from major financial and monetary crises.
Design/methodology/approach
The authors construct three FCIs for Mexico to analyse the role of financial asset prices in formulating monetary policy under an inflation-targeting regime. Using monthly data from 1995 to 2017, the authors estimate FCIs with two different methodologies and build the index by taking into account the mechanism of transmission of monetary policy and incorporating the most relevant financial variables.
Findings
This study’s results show that, likewise for developing countries as Mexico, an FCI could be a useful tool for managing monetary policy in reducing macroeconomic fluctuations.
Originality/value
Apart from building a predictor of possible financial stress, the authors construct an FCI for a central bank that pursues inflation targeting and to analyse the role of financial asset prices in formulating monetary policy.
Highlights
We construct three FCIs for Mexico to analyse the role of financial asset prices in formulating monetary policy under an inflation-targeting regime.
The FCIs are based on (1) a vector autoregression model (VAR); (2) an autoregressive distributed lag model (ARDL) and (3) a factor-augmented vector autoregression model (FAVAR).
FCI could become a new target for monetary policy within a hybrid inflation-targeting framework.
FCI could be a good tool for managing monetary policy in developing countries with a low-inflation environment.
We construct three FCIs for Mexico to analyse the role of financial asset prices in formulating monetary policy under an inflation-targeting regime.
The FCIs are based on (1) a vector autoregression model (VAR); (2) an autoregressive distributed lag model (ARDL) and (3) a factor-augmented vector autoregression model (FAVAR).
FCI could become a new target for monetary policy within a hybrid inflation-targeting framework.
FCI could be a good tool for managing monetary policy in developing countries with a low-inflation environment.
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Keywords
Niloy Bose, Salvatore Capasso and Martin Andreas Wurm
The purpose of this paper is to examine the relationship between banking development and the size of shadow economies by employing data on 137 countries over the period from 1995…
Abstract
Purpose
The purpose of this paper is to examine the relationship between banking development and the size of shadow economies by employing data on 137 countries over the period from 1995 to 2007. Both cross‐sectional and panel analysis suggest that an improvement in the development of the banking sector is associated with a smaller shadow economy. In addition, the authors find that both the depth and the efficiency of the banking sector matter in reducing the size of shadow economies. These results are robust to a variety of specifications that address multi‐colinearity and endogeneity issues.
Design/methodology/approach
Empirical cross‐section and panel analysis were undertaken.
Findings
The authors find that both the depth and the efficiency of the banking sector matter in reducing the size of shadow economies.
Originality/value
This paper is original. Existing literature has identified a number of factors (e.g. the burden of taxation or regulation, the quality of government, legal enforcement, corruption, etc.) that create such incentives. In this paper the authors highlight another factor – the level of banking development – as a determinant of the shadow economy.
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Shabeer Khan, Baharom Abdul Hamid and Mohd Ziaur Rehman
The purpose of this paper is to empirically investigate the determinants and the impact of financial development on shadow economy in OIC countries and then compared with non-OIC…
Abstract
Purpose
The purpose of this paper is to empirically investigate the determinants and the impact of financial development on shadow economy in OIC countries and then compared with non-OIC countries.
Design/methodology/approach
The study applies advanced panel GMM technique.
Findings
The study finds that macro-variables (unemployment, economic growth, money supply and foreign trade) and institutional variables reduce shadow economy both in OIC and non-OIC countries. The study also explores that financial development mitigates shadow economy; however, its impact is significantly less in case of OIC economies compared to the non-OIC countries.
Research limitations/implications
Since the focus of this study is OIC countries vs non-OIC countries, the research only includes discussion about shadow economy in 42 OIC member states and 99 non-OIC economies. The decision to restrict the study to 42 OIC economies and 99 non-OIC nations is due to the availability of data.
Practical implications
The study suggests that free market and good business environment in the formal economy are the keys to have less shadow economy. Good institutional setup and ease in regulations can attract firms and businesses from informal sector to the official economy, while political instability is one of the main factors for having large size of shadow economy.
Social implications
The OIC member countries should implement policies which improve accessibility to finance of every citizen of the country.
Originality/value
Despite the growing importance of shadow economy, the literature investigating determinants and the role of financial development in shadow economy is scarce. To the best of the authors' knowledge, there is no literature that examined the shadow economy in the context of OIC member countries. Furthermore, this study has covered a large number of OIC and non-OIC economics over time and across different groups using largest data and advanced panel GMM techniques.
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Marina Mattera, Carmen Alba Ruiz-Morales, Luana Gava and Federico Soto
The purpose of this study is to evaluate whether the implementation of sustainable business models contributes to improving a firm’s performance during a global crisis, such as…
Abstract
Purpose
The purpose of this study is to evaluate whether the implementation of sustainable business models contributes to improving a firm’s performance during a global crisis, such as the one caused by COVID-19. Based on the triple bottom line theory, the paper explores the relation between the creation of value through solid corporate social responsibility (CSR) strategies, United Nations (UN) Global Compact’s (GC) business model proposals and Global Reporting Initiative’s (GRI) reporting scheme.
Design/methodology/approach
The present paper studies companies within the European Union, focusing specifically on the long-term impact of using the world’s most widely used standards for sustainability reporting – the GRI’s standards and/or the UNGC management models, as well as on the firm’s performance based on the financial results during COVID-19 crisis. To achieve this goal, the study analyses the share price of firms publicly listed in the FTSEMIB (benchmark index of Italy’s largest trading platform) out of those companies that are implementing the UN and GRI’s tools.
Findings
Findings show how a commitment to sustainable business models and long-term CSR strategies can contribute to firm’s ability to overcome periods of economic crisis. Furthermore, implementing GRI standards and UNGC guidelines within the business model seems to have a positive impact in overcoming a hard context such as COVID-19. In addition, it contributes to a better understanding of stakeholders’ needs, consumer profiling and value creation.
Originality/value
This study evaluates firms’ business models, considering the effects of decisions made in the context of COVID-19. The role of UNGC and GRI is evaluated in terms of their contribution to firms’ financial performance and corporate reputation during a context of hardship. Consequently, this study contributes to academia and practice, adding value in areas related to strategic planning and business model design.
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