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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
The purpose of this paper is to examine the effectiveness of hedge fund activism (HFA) in preventing corporate policy deviations.
Abstract
Purpose
The purpose of this paper is to examine the effectiveness of hedge fund activism (HFA) in preventing corporate policy deviations.
Design/methodology/approach
This paper identifies HFA interventions through a hand-collected sample of Schedule 13D filings between 1994 and 2016, and uses mechanical mutual fund fire sales as the instrument variable (IV) for the likelihood of such interventions. Armed with the instrument, this paper estimates firm's distribution, managerial compensation and investment policies in response to a change in the perceived likelihood of HFA interventions.
Findings
An increase in the HFA intervention likelihood leads to increases in shareholder distribution, decreases in CEO pay and investments and increases in operating performance. Compared to the sample average, a one standard deviation increase in the intervention likelihood leads to a 9.29% increase in the firm's payout ratio, a 7.42% decrease in CEO compensation, a 2.67% decrease in capital expenditures and a 4.96% decrease in R&D expenses. These changes are consistent with the threat of intervention curbing managerial empire-building behaviors and improving firm operation. The relationships are causal, significant and robust to a variety of alternative specifications and sample divisions.
Originality/value
Results of this paper suggest that as a mechanism for corporate governance, the threat of HFA is effective in preventing corporate policy deviations. They also demonstrate a stronger and broader impact of HFA on corporate policy than previously documented. By showing that HFA is an effective and viable mechanism for corporate governance, this study allows policymakers to make more informed decisions to whether increase hedge fund regulations or not.
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Xinping Huang, Jie Gao and Huantao Zhang
The rationality of the selection and application of policy instruments in current policy schemes for promoting the development of low-carbon eco-cities in China is examined and…
Abstract
Purpose
The rationality of the selection and application of policy instruments in current policy schemes for promoting the development of low-carbon eco-cities in China is examined and, in view of existing problems, effective suggestions for scientifically and reasonably organizing and designing policy instruments are proposed, which is of great significance to optimize the policy system for the development of low-carbon eco-cities in China and thereby promote sustainable urban development.
Design/methodology/approach
In the study, using 117 policy documents focusing on the development of low-carbon eco-cities issued by the Chinese central government as well as the relevant ministries and commissions between 2010 and 2019 and comprehensively adopting bibliometric and content analysis methods, the contents of policy documents are quantitatively analyzed from three dimensions: policy instrument, policy area and policy target.
Findings
The study finds the following. Ecological environment and low-carbon development are the focus of policy attention. Policy-promulgating institutions have formed a core subnetwork, that is, an “iron triangle.” There exists a structural imbalance in the use of policy instruments, and the distribution of policy instruments in different policy areas exhibits significant differentiating characteristics. Driven by different policy targets, the proportion of the policy instrument types adopted by the government is constantly changing. According to these findings, suggestions are put forward to optimize China's low-carbon eco-city development policy.
Originality/value
(1) A three-dimensional policy analysis framework is conducted from the perspective of policy instrument, which is innovative in theory. (2) This paper finds the selective utilization rationality and evolution rule of China's low-carbon eco-city development policy instruments. (3) Recommendations on optimizing China's low-carbon eco-city development policies are discussed systematically, which plays a theoretical guiding role in optimizing the development policies of low-carbon eco-cities in China.
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Norway is a small nation state on the northernmost coastline of Western Europe, integrated in the Western world economy. For centuries Norway's integration in the world economy…
Abstract
Norway is a small nation state on the northernmost coastline of Western Europe, integrated in the Western world economy. For centuries Norway's integration in the world economy had been based on exports of raw materials such as fish and timber, as well as shipping services. In the early 20th century, furnace-based metals (made possible by cheap hydropower) were added to this export basket. Just as the world economy entered an increasingly unstable phase in 1970s, another natural resource was discovered in Norway: petroleum – that is, oil and natural gas from the North Sea. This chapter analyses the challenges and possibilities inherent in the Norwegian strategy of developing an oil economy in a world economic situation influenced by new and stronger forms of international integration through the four decades between 1970 and 2010.
Emna Trabelsi and Asma Ben Khaled
The implementation of monetary policy by the central bank is an ongoing topic of discussion. This paper aims to explore monetary policy transmission shocks in times of uncertainty…
Abstract
Purpose
The implementation of monetary policy by the central bank is an ongoing topic of discussion. This paper aims to explore monetary policy transmission shocks in times of uncertainty using the new World uncertainty index (WUI). The authors investigate the impact of crises, wars and pandemic shocks on selected macroeconomic variables.
Design/methodology/approach
The authors use unit root tests, structural vector autoregressive model and the Granger causality test according to Toda–Yamamoto with quarterly data over 1999–2022.
Findings
The results of this study show that in the short run, there is a unidirectional relationship between the money market rate and WUI, while the relationship between the latter and the money supply (M2) is bidirectional. The short-term effect runs from WUI to inflation. In the long run, the variance decomposition shows that global uncertainty explains around 12% of inflation pressures. The uncertainty caused by special events in the world creates positive shocks on inflation in Tunisia, which decreases the ability of the central bank to control inflation.
Research limitations/implications
The results have implications over necessary and urgent actions to be implemented for a progressive economic recovery but point to a necessary transition to an inflation-targeting regime.
Originality/value
Examining monetary policy under uncertainty is a recent phenomenon. The authors purposely use a novel WUI by Ahir et al. (2022) that is unexploited in literature.
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Riccardo Cristadoro and Giovanni Veronese
Indian monetary policy performed reasonably well in the past, while both strategy and operational framework were evolving on par with domestic financial and monetary markets. The…
Abstract
Purpose
Indian monetary policy performed reasonably well in the past, while both strategy and operational framework were evolving on par with domestic financial and monetary markets. The purpose of this paper is to document how this good track record came to an abrupt stop in recent years as inflation rose sharply and, more worryingly, expected inflation followed suit.
Design/methodology/approach
This paper has analytical, empirical and policy dimensions. Given the recent surge in inflation in India, as well as in inflation expectations, a discussion of the role of monetary policy is needed. This is presented by resorting to survey evidence on expectations as well as to indirect evidence inferred from the market reactions to macroeconomic news.
Findings
The authors documented the unhinging of inflation expectations in India in the aftermath of the financial crisis. The evidence gathered leads to the conclusion that both the monetary policy strategy and framework of the Reserve Bank of India would benefit from further evolution in the direction of a precisely defined and overarching objective (price stability), instead of the present multiplicity of goals, and of a well‐defined operating target, enhancing the transparency, communication and signalling effect of policy moves. The authors suggest that embracing a flexible inflation targeting approach is a possible solution.
Originality/value
This is a highly topical issue that has attracted a great deal of attention in policy discussions, both in India and in the region. Very few papers combine the analytical and empirical considerations in this topic.
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Sherine Al-shawarby and Mai El Mossallamy
This paper aims to estimate a New Keynesian small open economy dynamic stochastic general equilibrium (DSGE) model for Egypt using Bayesian techniques and data for the period…
Abstract
Purpose
This paper aims to estimate a New Keynesian small open economy dynamic stochastic general equilibrium (DSGE) model for Egypt using Bayesian techniques and data for the period FY2004/2005:Q1-FY2015/2016:Q4 to assess monetary and fiscal policy interactions and their impact on economic stabilization. Outcomes of monetary and fiscal authority commitment to policy instruments, interest rate, government spending and taxes, are evaluated using Taylor-type and optimal simple rules.
Design/methodology/approach
The study extends the stylized micro-founded small open economy New Keynesian DSGE model, proposed by Lubik and Schorfheide (2007), by explicitly introducing fiscal policy behavior into the model (Fragetta and Kirsanova, 2010 and Çebi, 2011). The model is calibrated using quarterly data for Egypt on key macroeconomic variables during FY2004/2005:Q1-FY2015/2016:Q4; and Bayesian methods are used in estimation.
Findings
The results show that monetary and fiscal policy instruments in Egypt contribute to economic stability through their effects on inflation, output and debt stock. The monetary policy Taylor rule estimates reveal that the Central Bank of Egypt (CBE) attaches significant importance to anti-inflationary policy and (to a lesser extent) to output targeting but responds weakly to nominal exchange rate variations. CBE decisions are significantly influenced by interest rate smoothing. Egyptian fiscal policy has an important role in output and government debt stabilization. Additionally, the fiscal authority chooses pro-cyclical government spending and counter-cyclical tax policies for output stabilization. Again, past values of the fiscal instruments are influential in the evolution of the future fiscal policy-making process.
Originality/value
A few studies have examined the interaction between monetary and fiscal policy in Egypt within a unified framework. The presented paper integrates the monetary and fiscal policy analysis within a unified dynamic general equilibrium open economy rational expectations framework. Without such a framework, it would not be easy to jointly analyze monetary and fiscal transmission mechanisms for output, inflation and debt. Also, it would be neither possible to contrast the outcome of monetary and fiscal authorities commitment to a simple Taylor instrument rule vis-à-vis optimal policy outcomes nor to assess the behavior of monetary and fiscal agents in macroeconomic stability in context of an active/passive policy decisions framework.
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