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1 – 10 of over 4000Carolina M. Vargas, Lenis Saweda O. Liverpool-Tasie and Thomas Reardon
We study five exogenous shocks: climate, violence, price hikes, spoilage and the COVID-19 lockdown. We analyze the association between these shocks and trader characteristics…
Abstract
Purpose
We study five exogenous shocks: climate, violence, price hikes, spoilage and the COVID-19 lockdown. We analyze the association between these shocks and trader characteristics, reflecting trader vulnerability.
Design/methodology/approach
Using primary survey data on 1,100 Nigerian maize traders for 2021 (controlling for shocks in 2017), we use probit models to estimate the probabilities of experiencing climate, violence, disease and cost shocks associated with trader characteristics (gender, size and region) and to estimate the probability of vulnerability (experiencing severe impacts).
Findings
Traders are prone to experiencing more than one shock, which increases the intensity of the shocks. Price shocks are often accompanied by violence, climate and COVID-19 shocks. The poorer northern region is disproportionately affected by shocks. Northern traders experience more price shocks while Southern traders are more affected by violence shocks given their dependence on long supply chains from the north for their maize. Female traders are more likely to experience violent events than men who tend to be more exposed to climate shocks.
Research limitations/implications
The data only permit analysis of the general degree of impact of a shock rather than quantifying lost income.
Originality/value
This paper is the first to analyze the incidence of multiple shocks on grain traders and the unequal distribution of negative impacts. It is the first such in Africa based on a large sample of grain traders from a primary survey.
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Pratik Modi, Vivek Pandey and Abhi Bhattacharya
This research investigates the impact of strategic research and development (R&D) (one led by a firm’s innovation orientation) on stock market performance during the economic…
Abstract
Purpose
This research investigates the impact of strategic research and development (R&D) (one led by a firm’s innovation orientation) on stock market performance during the economic disruption caused by the 2016 demonetization of high-value currency notes in India. It shows how firms’ strategic focus on innovation and integrated R&D initiatives can help mitigate shareholders’ losses and protect market value during negative macroeconomic shocks.
Design/methodology/approach
We analyzed financial and administrative data from firms listed in the Bombay Stock Exchange (BSE) 500 index and used the Fama French market model with appropriate instruments accounting for possible endogeneity to identify the impact. To ensure the reliability of our findings, we conducted robustness checks with alternate event windows, estimation methods, and variable measurements.
Findings
Strategic R&D plays a crucial role in building resilience against macroeconomic shocks. It effectively mitigated shareholders’ losses in the immediate aftermath of the shock, with an elasticity of abnormal returns of 7.65% on day zero, 13.1% during the first five days and 10.5% after the first fortnight. We also find that firms that are business-to-business (B2B), as well as those that are older and less leveraged, are better able to combat such a shock.
Research limitations/implications
The study looked at one shock, namely demonetization. Future research is needed to demonstrate the generalizability of results during other macroeconomic shocks, like the COVID-19 pandemic. The study focuses on relatively near-term impacts, leaving the long-term value-creation effects of strategic R&D unexplored.
Practical implications
Innovation orientation acts as a structural enabler, allowing firms to make strategic R&D investments that mitigate losses during macroeconomic shocks. It explains that managers should avoid myopically managing R&D investments and align them with the firm’s innovation focus to enhance value creation.
Social implications
While the currency demonetization was widely considered to be detrimental for firms as an unannounced negative monetary shock, our research shows that firms with high levels of strategic R&D were successfully able to counteract such a shock.
Originality/value
This is the first study to examine the short-term loss mitigation impact of firms’ focus on innovation and strategic R&D. It emphasizes the role of innovation-focused strategies during economic crises.
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Francisca Letícia Ferreira de Lima, Rafael Barros Barbosa, Alesandra Benevides and Fernando Daniel de Oliveira Mayorga
This paper examines the impact of extreme rainfall shocks on the performance in test scores of students living near at-risk urban areas in Brazil.
Abstract
Purpose
This paper examines the impact of extreme rainfall shocks on the performance in test scores of students living near at-risk urban areas in Brazil.
Design/methodology/approach
To identify the causal effect, we consider the exogenous variation of rainfall at the municipal level conditioned on the distance from the school to risk areas and the rainfall intensity in the school months.
Findings
The results suggest that extreme precipitation shocks, defined as a shock of at least three months of high-intensity rainfall, have an adverse impact on both math and language performance. Through a heterogeneous effects analysis, we find that the impact varies by student gender, with girls being more affected. In addition, among students who study near at-risk areas, those with better previous school performance and higher socioeconomic status are more negatively affected.
Originality/value
Our results suggest that extreme weather events can increase the differences in human capital accumulation between the population living near risk areas and those living more distant from these areas.
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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).
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.
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Julien Dhima and Catherine Bruneau
This study aims to demonstrate and measure the impact of liquidity shocks on a bank’s solvency, especially when the bank does not hold sufficient liquid assets.
Abstract
Purpose
This study aims to demonstrate and measure the impact of liquidity shocks on a bank’s solvency, especially when the bank does not hold sufficient liquid assets.
Design/methodology/approach
The proposed model is an extension of Merton’s (1974) model. It assesses the bank’s probability of default over one or two (short) periods relative to liquidity shocks. The shock scenarios are materialised by different net demands for the withdrawal of funds (NDWF) and may lead the bank to sell illiquid assets at a depreciated value. We consider the possibility of second-round effects at the beginning of the second period by introducing the probability of their occurrence. This probability depends on the proportion of illiquid assets put up for sale following the initial shock in different dependency scenarios.
Findings
We observe a positive relationship between the initial NDWF and the bank’s probability of default (particularly over the second period, which is conditional on the second-round effects). However, this relationship is not linear, and a significant proportion of liquid assets makes it possible to attenuate or even eliminate the effects of shock scenarios on bank solvency.
Practical implications
The proposed model enables banks to determine the necessary level of liquid assets, allowing them to resist (i.e. remain solvent) different liquidity shock scenarios for both periods (including eventual second-round effects) under the assumptions considered. Therefore, it can contribute to complementing or improving current internal liquidity adequacy assessment processes (ILAAPs).
Originality/value
The proposed microprudential approach consists of measuring the impact of liquidity risk on a bank’s solvency, complementing the current prudential framework in which these two topics are treated separately. It also complements the existing literature, in which the impact of liquidity risk on solvency risk has not been sufficiently studied. Finally, our model allows banks to manage liquidity using a solvency approach.
Details
Keywords
- Liquidity shock scenarios
- Bank solvency
- Probability of default (over one and two periods)
- Net demand for the withdrawal of funds (NDWF)
- Liquid and illiquid assets
- Second-round effects
- Probability of the occurrence of second-round effects
- Internal liquidity adequacy assessment process (ILAAP)
- C30
- G01
- G21
- G33
Whayoung Jung and Ji Hyung Lee
This chapter studies the dynamic responses of the conditional quantiles and their applications in macroeconomics and finance. The authors build a multi-equation autoregressive…
Abstract
This chapter studies the dynamic responses of the conditional quantiles and their applications in macroeconomics and finance. The authors build a multi-equation autoregressive conditional quantile model and propose a new construction of quantile impulse response functions (QIRFs). The tool set of QIRFs provides detailed distributional evolution of an outcome variable to economic shocks. The authors show the left tail of economic activity is the most responsive to monetary policy and financial shocks. The impacts of the shocks on Growth-at-Risk (the 5% quantile of economic activity) during the Global Financial Crisis are assessed. The authors also examine how the economy responds to a hypothetical financial distress scenario.
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Yahuza Abdul Rahman, Anthony Kofi Osei-Fosu and Daniel Sakyi
This paper examines correlations of the underlying structural shocks and the degree of synchronization in the impulse responses of output, inflation and trade to a one standard…
Abstract
Purpose
This paper examines correlations of the underlying structural shocks and the degree of synchronization in the impulse responses of output, inflation and trade to a one standard deviation shock to non-oil commodities price index and exchange rates within the West African Monetary Zone (WAMZ) countries from 1990q1 to 2020q1.
Design/methodology/approach
This paper uses the structural vector autoregressive model to isolate the underlying structural shocks and compares them with the West African Monetary Union (WAEMU) countries.
Findings
Findings from the study suggest that correlations of underlying structural shocks are more profound in the WAEMU than in the WAMZ. Impulse responses of output to price and exchange rate shocks are more symmetric in the WAEMU than in the WAMZ. However, impulse responses of inflation to price and exchange rate shocks are symmetric in the WAMZ than in the WAEMU and responses of trade in both sub-groups are not uniform.
Practical implications
The paper concludes that the WAMZ does not constitute an Optimum Currency Area concerning the correlations of the structural shocks and output. However, it has achieved convergence in inflation and there are adequate adjustment mechanisms to shocks in the WAMZ than in the WAEMU. Therefore, the WAMZ may not suffer from joining the monetary union. Thus, economic Community of West African States may take steps to roll out the monetary union.
Originality/value
The paper examines correlations of the underlying structural shocks, impulse responses of output and inflation to shocks to commodities price and exchange rates in the WAMZ and compares them with the WAEMU.
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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.
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A. Erin Bass, Ivana Milosevic and Sarah DeArmond
A growing body of literature suggests that unpredictable, resource-depleting shocks – ranging from natural disasters to public health crises and beyond – require the firm to…
Abstract
A growing body of literature suggests that unpredictable, resource-depleting shocks – ranging from natural disasters to public health crises and beyond – require the firm to respond adaptively. However, how firms do so remains largely undertheorized. To contribute to this line of literature, the authors borrow from the conservation of resources (COR) theory of stress and the dynamic capabilities perspective to introduce the concept of firm stress – a state of reduced and irregular readiness firms enter into following unpredictable, resource-depleting shocks. Our theoretical model illustrates that firms must punctuate the stress state to adapt by first deploying a retrenchment response, thereby conserving resources and allowing the firm to consider how to best redeploy its dynamic capabilities to adapt. Subsequently, the firm can redeploy its capabilities and adaptively respond in one of three ways: exiting (reconfiguring resources for alternative use), persevering (reconfiguring resources for better use), or innovating (developing new resources). Overall, the authors offer a process model of firm stress and adaptive responses following an unpredictable, resource-depleting shock that paves the way for future research on stress in the strategy literature.
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Oil market VAR models have become the standard tool for understanding the evolution of the real price of oil and its impact on the macro economy. As this literature has expanded…
Abstract
Oil market VAR models have become the standard tool for understanding the evolution of the real price of oil and its impact on the macro economy. As this literature has expanded at a rapid pace, it has become increasingly difficult for mainstream economists to understand the differences between alternative oil market models, let alone the basis for the sometimes divergent conclusions reached in the literature. The purpose of this survey is to provide a guide to this literature. Our focus is on the econometric foundations of the analysis of oil market models with special attention to the identifying assumptions and methods of inference.
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