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Based on an uncertainty model with an infinite horizon, this chapter analyzes how financial development and monetary policy in two countries can impact international trade and capital flows and influence individual behavior and welfare. Our study shows that differences in capital market development are the major contributing factors for trade imbalance and investment among countries. We also find that monetary policies are important factors affecting the trade balance, consumption, and investment. Countries with one-sided, pegging exchange rate policies tend to buy more bonds and enjoy larger trade surpluses. This effect is closely related to the level of capital market development: in these two countries, at higher stages of development, the effects of idiosyncratic monetary policy on imbalance are amplified.

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.

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

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.

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

By using higher moments, this paper extends the quadratic local risk-minimizing approach in a general discrete incomplete financial market. The local optimization subproblems are convex or nonconvex, depending on the moment variants used in the modeling. Inspired by Lai et al. (2006), the authors propose a new multiobjective approach for the combination of moments that is transformed into a multigoal programming problem.

The authors evaluate financial derivatives with American features using local risk-minimizing strategies. The financial structure is in line with Schweizer (1988): the market is discrete, self-financing is not guaranteed, but deviations are controlled and reduced by minimizing the second moment. As for the quadratic approach, the algorithm proceeds backwardly.

In the context of evaluating American option, a transposition of this multigoal programming leads not only to nonconvex optimization subproblems but also to the undesirable fact that local zero deviations from self-financing are penalized. The analysis shows that issuers should consider some higher moments when evaluating contingent claims because they help reshape the distribution of global cumulative deviations from self-financing.

A detailed numerical analysis that compares all the moments or some combinations of them is performed.

The quadratic approach is extended by exploring other higher moments, positive combinations of moments and variants to enforce asymmetry. This study also investigates the impact of two types of exercise decisions and multiple assets.

The purpose of this paper is to present evidence about cultural differences between Mexico and China, and analyze their significance when implementing an innovative financial model. Specifically, the authors analyzed the case of the Yunus model (or Grameen model), originally developed in Bangladesh and further implemented in China and Mexico.

This paper uses a comparative quantity study to test the cultural difference which affects the innovative financial model implementation. A materialism and credit overuse value scale (Ponchio and Aranha, 2008; Richins, 2011; Roberts and Jones, 2001) is applied to analyze cultural differences with a sample of 250 people in each country.

The results show that the survey responses are statistically significantly different in these two countries. The Mexican sample shows a greater affinity with luxury and bragging. The Chinese sample shows more responsibility toward credit. Recommendations for the implementation of the innovative financial model considering cultural differences are suggested.

Based on the survey results, gender equality, greater caution with young borrowers, financial education programs, and strict liability agreements to ensure credit repayment, especially for Mexico, are suggested, with the aim of enabling microfinance institutions to increase the successful implementation of the Yunus model in China and Mexico.

There are few existing cultural comparisons between China and Mexico. Therefore, one of the relevant contributions of this work is to shed light on the cultural differences of these two important emerging economies for future research. Additionally, the authors applied a materialism and credit overuse value scale developed to assess consumer behavior as a proxy for culture. The results are relevant for further usage of this scale as a tool to help adapt innovative financial models for application in other cultures.

The crude oil market plays a key role in addressing the issue of energy economics. This paper aims to detect the causality relationship between the crude oil market and economy based on the financial system.

This paper used the static and dynamic Hatemi-J Bootstrap Toda–Yamamoto and Diebold–Yilmaz connectedness index. The Hatemi-J Bootstrap Toda-Yamamoto approach allows researchers to use nonstationary data and that method is robust to nonnormal distribution and heteroscedasticity. The Diebold–Yilmaz connectedness index model provides researchers to detect the power of connectedness besides linkage direction. The analyzed period is the span from January 3, 2005 to October 3, 2022.

The results show bidirectional causality in the full sample but unidirectional causality before and after the 2008 financial crisis. During the 2008 financial crisis period and the COVID-19 period, there was a bidirectional and unidirectional causality, respectively. The connectedness approach indicates that the crude oil market affects financial stress through investors’ risk preferences.

The Diebold–Yilmaz spillover index model is based on vector autoregression methods with a stationarity precondition. However, some of the five dimensions that constitute the financial stress index (FSI) are nonstationary in level. Therefore, the authors takes the first difference of the nonstationary data.

The linkage between the crude oil market and the FSI provides useful information for investors and policymakers. For instance, this paper indicates that an investor wanted to forecast future value of the crude oil (financial stress) should consider the current and past values of financial stress (crude oil). Moreover, policymaker should consider the crude oil market (FSI) to make a policy proposal for financial system (crude oil market).

Recently, indicators of economic activity levels (economic policy uncertainty, implied volatility index) have begun to be considered to analyze the relationship between energy and the economy but very little is known in the literature about the leading and lagging roles of data in subsample periods and the linkage channel. The other originality of this research is using the new econometric approaches.

This paper seeks to explain the serial persistence as well as the substantial number of zeros characterizing global bilateral investment holdings. We explore the different sources of serial persistence in the data (unobserved country pair effects, genuine state dependence, and transitory shocks) and examine the crucial factors affecting the decision to invest in a host country.

Based on a gravity setup, we consider investment behavior at the extensive (participation) margin and employ dynamic first-order Markov probit models, controlling for unobserved cross-sectional heterogeneity and serial correlation in the transitory error component, in order to explore the sources of persistence. Within this modeling framework we explore the importance of institutional quality of the host country in attracting foreign investment.

The data support that the strong persistence is driven by true state dependence, implying that past investment experiences strongly impact on the trajectory of future investment holdings. Institutional quality appears to play a significant role to attract foreign investment.

The empirical findings suggest that due to the existence of genuine state dependence, inward-investment stimulating policy measures could have a more pronounced effect since they are likely to induce a permanent change to the future trajectory of inward investment.

Both the substantial number of zeros and the salient persistence characterizing bilateral investment holdings decision have been previously overlooked in the literature. A study modeling jointly the levels and the selection mechanism could prove a fruitful direction for future research.

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.

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.

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.

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.

• • 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.

Recently, the concept of financial technology (FinTech) has attracted extensive attention from international organisations and regulators, in particular, how to achieve a “win–win” situation between financial institutions' FinTech innovation and effective regulation has become a hot topic. This study purposes to explore the evolutionary game relationship between FinTech innovation and regulation by constructing both static and dynamic earmarking game models.

A simulation experiment was conducted using primary data obtained from a commercial bank in China.

The results of the theoretical analysis of evolutionary game models were consistent with the corresponding simulation results, proving the validity of the proposed evolutionary game models. It was also found that the dynamic earmarking game model was more stable and effective than the static earmarking game model in promoting FinTech innovation and regulation. Furthermore, when the regulators utilised a dynamic earmarking mechanism, the evolutionary path of financial institutions and regulators' behaviour strategies took the shape of a spiral and eventually converged to a central point, indicating the existence of an evolutionary stable strategy and Nash equilibrium. Finally, because the behaviour strategies of financial institutions were mainly influenced by the regulators' policies, the regulators were inspired to adjust the corresponding regulation policies on FinTech innovation.

This study bridges the knowledge gap in the existing literature on financial innovation and regulation, in particular by establishing evolutionary game models from the perspective of financial earmarking policies. Also, the case study for simulation experiments can gain a more intuitive insight into FinTech innovation and financial earmarking policies.

This paper aims to empirically investigate the differences and similarities on the implementation constraints in public–private partnership (PPP) in developing and developed economies/countries, represented by Ghana and Hong Kong, respectively.

A questionnaire survey was conducted with relevant experienced PPP practitioners in Ghana and Hong Kong. One hundred and three completed questionnaires were received for analysis. Kendall’s coefficient of concordance analysis, mean score ranking, Mann–Whitney U test and quartile grouping were used for data analysis.

The results show six implementation constraints with significant differences. Constraints related to the general investment climate of PPP projects (i.e. ecological conditions of PPP) are ranked higher in Ghana than in Hong Kong, whereas constraints related to the organisation and negotiations of PPP projects are higher in Hong Kong than in Ghana. Further, two constraints, lengthy delay in finalising negotiations and lengthy delay due to political debate, are very critical in both jurisdictions, whereas “negative public perceptions on PPP transactions” and “high use of unsolicited proposals” are of less challenge in the implementation of PPP in both jurisdictions.

The findings of this study contribute to knowledge on the international best practices of PPP. In addition, international private bidders would be informed of the mitigation measures to adopt when engaging in PPP arrangements in any part of the world, whether in a developing or developed economy country.