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Article
Publication date: 21 November 2023

Haobo Zou, Mansoora Ahmed, Syed Ali Raza and Rija Anwar

Monetary policy has major impacts on macroeconomic indicators of the country. Accordingly, uncertainty regarding monetary policy shifts can cause challenges and risks for…

Abstract

Purpose

Monetary policy has major impacts on macroeconomic indicators of the country. Accordingly, uncertainty regarding monetary policy shifts can cause challenges and risks for businesses, financial markets and investors. Thus, the purpose of this study is to investigate how real estate market volatility responds to monetary policy uncertainty.

Design/methodology/approach

The GARCH-MIDAS model is applied in this study to investigate the nexus between monetary policy uncertainty and real estate market volatility. This model was fundamentally instituted to accommodate low-frequency variables.

Findings

The results of this study reveal that increased monetary policy uncertainty highly affects the volatility in real estate market during the peak period of COVID-19 as compared to full sample period and COVID-19 recovery period; hence, a significant decline is evident in real estate market volatility during crisis.

Originality/value

This study is particularly focused on peak and recovery period of COVID-19 considering the geographical region of Greece, Japan and the USA. This study provides a complete perspective on the nexus between monetary policy uncertainty and real estate markets volatility in three distinct economic views.

Details

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

Keywords

Article
Publication date: 19 March 2021

Hong Wu

This paper aims to examine if the market risk premiums of the Gulf Cooperation Council (GCC) countries are particularly higher on prescheduled US monetary policy announcement…

Abstract

Purpose

This paper aims to examine if the market risk premiums of the Gulf Cooperation Council (GCC) countries are particularly higher on prescheduled US monetary policy announcement days. The findings shed light on the causality relationship from the state of the global economy to the GCC equity markets as well as their integration with the rest of the world.

Design/methodology/approach

The author takes the standard event-study approach, following Fama et al. (1969). As the announcement days are prescheduled, the impact of the announcements on the GCC markets' risk premia allows for test of causality, while other studies address predictability and association.

Findings

The author finds that excess returns are higher, both economically and statistically, on announcement days in most individual GCC countries and the region overall. Moreover, additional compensations may not appear on the exact days of announcement in a few countries; rather, on the days right before or after announcements, possibly due to information leakage or gradual diffusion. My results show that there is a causal relationship from the state of the global economy to the GCC equity markets' risk premia. This new evidence supports integration between the Gulf region's and the world's financial markets.

Practical implications

The evidence of risk–return transmission from US monetary policy announcements to GCC countries' equity indices supports integration between the region's and the world's financial markets. The study results will help guide investors' and corporations' investing, capital budgeting and portfolio evaluation decisions.

Originality/value

This paper extends the announcement literature (Savor and Wilson 2013, 2014) by examining the responses of the GCC countries, the major players of the global oil markets. The empirical analysis documents a causal relationship from the state of the global economy, as revealed by US monetary policy announcements, to the GCC equity indices. This new evidence supports increased integration between the Gulf region and the world, a finding that investors and corporations should consider when making investing, capital budgeting and portfolio evaluation decisions.

Details

Journal of Economic and Administrative Sciences, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2054-6238

Keywords

Open Access
Article
Publication date: 4 September 2024

Raphael José Pereira Freitas

This study aims to elucidate the dynamics of monetary and fiscal policy interactions in Brazil, focusing on the impacts of positive shocks in government consumption and interest…

Abstract

Purpose

This study aims to elucidate the dynamics of monetary and fiscal policy interactions in Brazil, focusing on the impacts of positive shocks in government consumption and interest rates. By comparing rational and behavioral agent responses, it clarifies how these frameworks influence gross domestic product (GDP), inflation, private and government consumption and nominal interest rates.

Design/methodology/approach

The study employs a new Keynesian dynamic stochastic general equilibrium (DSGE) model with Bayesian estimation from 2000Q1 to 2022Q4, capturing rational and behavioral behaviors with adjustments for Brazilian economic idiosyncrasies. Impulse response functions (IRF) assess the dynamic effects of policy shocks, providing a comparative analysis of the two frameworks.

Findings

Behavioral agents show greater initial sensitivity to policy shocks, causing more pronounced fluctuations in GDP, inflation and private consumption compared to rational agents. Over time, the behavioral approach leads to a more robust recovery, while the rational approach results in a quicker return to equilibrium but less pronounced long-term recovery. The study also finds fiscal policy can partially offset the negative impacts of monetary tightening, with a more delayed effect in the behavioral model.

Originality/value

This paper provides insights into the interplay between monetary and fiscal policies under different agent expectations, emphasizing the importance of incorporating behavioral elements into macroeconomic models to better capture policy dynamics in emerging markets.

Details

EconomiA, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1517-7580

Keywords

Article
Publication date: 30 July 2024

Rajesh Sharma and Pradip Kumar Kafle

This study aims to explore the linguistic and syntactic textual features of Central Bank of Nepal (Nepal Rastra Bank [NRB])’s monetary policy. Considering the recent literature…

Abstract

Purpose

This study aims to explore the linguistic and syntactic textual features of Central Bank of Nepal (Nepal Rastra Bank [NRB])’s monetary policy. Considering the recent literature and methodological advancement in computational linguistic analysis, this study intends to explore the features of published monetary policy reports.

Design/methodology/approach

Text mining technique has been used on the monetary policy published by Central Bank of Nepal for the period between 2002/03 and 2021/22 to describe the textual features such as length, tone, degree of forward looking, use of numerical contents and readability. The raw text was tokenized using Python’s Natural Language Toolkit. Considering the LM dictionary, the frequency of tokens matching with dictionary is computed and divided by total number of words to normalize the obtained value.

Findings

This study found that NRB publishes lengthy monetary policies during economic contractions and vice versa. The tone of the policies are pessimistic most of the time. NRB’s policies are not sufficiently forward looking and complex to be comprehended by layman. Ergo, NRB shall form a team of communication experts to ensure publication of optimistic policies with appropriate linguistic features. Furthermore, publishing the minutes of monetary policy meetings will help enhance effective communication through transparency and proper functioning of expectations channel.

Originality/value

To the best of the authors’ knowledge, no similar study has been conducted to assess the textual features of monetary policy in Nepal. And this study will be helpful to gauge the status of central bank communication in the context of emerging and least developed countries.

Details

Global Knowledge, Memory and Communication, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2514-9342

Keywords

Article
Publication date: 10 July 2024

Japan Huynh

This paper investigates the moderating role of uncertainty in the impact of monetary policy on bank liquidity creation.

Abstract

Purpose

This paper investigates the moderating role of uncertainty in the impact of monetary policy on bank liquidity creation.

Design/methodology/approach

Utilizing data from Vietnam spanning 2007–2022, the paper measures uncertainty in the banking industry through the dispersion of shocks to crucial bank-level variables and considers both interest rate- and quantity-based tools of the monetary policy regime. The study regresses economic models using different econometric methods, including the generalized method of moments (GMM) estimator in the main section and the least squares dummy variable corrected (LSDVC) estimator for the robustness check.

Findings

Monetary expansion enhances banks’ ability to create liquidity, affirming the existence of the bank liquidity creation channel. Further analyses suggest that monetary policy adjustments aimed at regulating bank liquidity creation may be less effective in the presence of higher uncertainty in the banking system. This observation holds for both interest rate- and quantitative-based monetary policy tools, emphasizing the functioning of the monetary policy transmission mechanism through bank liquidity creation and the mitigating effect of uncertainty.

Originality/value

This study contributes novel insights to the existing literature by presenting the first attempt to explore the dynamics of monetary policy transmission through the bank liquidity creation channel in the context of banking sector uncertainty. Moreover, our contribution extends to examining a multi-tool environment, incorporating both interest rate- and quantitative-based indicators.

Details

Managerial Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 22 August 2024

Afees Adebare Salisu, Abeeb Olatunde Olaniran and Xuan Vinh Vo

This study aims to contribute to the literature on migration by examining the nexus between migration-related fears and housing affordability in France, Germany, the UK and the…

Abstract

Purpose

This study aims to contribute to the literature on migration by examining the nexus between migration-related fears and housing affordability in France, Germany, the UK and the USA using new datasets for migration-related fears.

Design/methodology/approach

This study adopts the feasible quasi-generalized least squares approach wherein a predictor can be isolated in the estimation process. Thus, rather than specifying a multi-predictor model that may also lead to parameter proliferation, a single-predictor model (for the predictor of interest) is formulated while also accounting for other salient features resulting from suppressing other important factors that may not be of interest to the current study. Such salient features include persistence, endogeneity and conditional heteroscedasticity issues.

Findings

Overall, the results show heterogeneous responses of housing affordability to migration fears across the four developed countries, as the latter deteriorates housing affordability in Germany and the USA and improves it in France and the UK. Similarly, the GFC makes housing less affordable in all four countries as low interest rate passes the mediation test in the nexus. The results, especially for low interest rates, are robust to different uncertainty measures.

Research limitations/implications

As is often the case with economic phenomena, no single model can capture all the factors influencing an economic variable. Thus, besides examining the nexus between migration fears and housing affordability, the authors also account for the role of GDP per capita, given the influence of population and income dynamics on housing affordability. However, incorporating GDP per capita alone does not substantially enhance the model’s ability to predict housing affordability. Future research should explore additional macroeconomic and social factors, such as human capital development, to further enhance this subject.

Practical implications

The findings have significant implications for policymakers regarding the use of low interest rates to counteract the adverse effects of migration-related fear on housing affordability. Specifically, to mitigate the potential negative impact of migration and the associated fear on housing affordability, monetary authorities could adopt a more accommodative stance on mortgages. By allowing real estate investors to obtain loans at lower rates, this approach would help increase housing supply and reduce the housing gap exacerbated by migration influx.

Originality/value

The values of this study lie in its examination of housing affordability in relation to migration fears from both the demand and supply sides of the market. Furthermore, the analyses are conducted to cover out-of-sample forecast evaluation as in-sample predictability may not guarantee out-of-sample prediction.

Details

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

Keywords

Article
Publication date: 18 June 2024

Helder Ferreira de Mendonça, Luciano Vereda Oliveira and Matheus Ignacio Santos Dias

The relevance of transparency related to public finances is considered fundamental for good economic policy management. An environment of greater fiscal transparency allows the…

Abstract

Purpose

The relevance of transparency related to public finances is considered fundamental for good economic policy management. An environment of greater fiscal transparency allows the private sector greater predictability, improving the entrepreneur’s decision-making ability. This study empirically analyzes fiscal opacity’s effect on business confidence in an emerging economy.

Design/methodology/approach

We use monthly data from the Brazilian economy from January 2010 to March 2023. Based on Ordinary Least Squares (OLS) and the Generalized Method of Moments (GMM) regressions, we analyze whether fiscal opacity, measured by the signal-to-noise ratio, affects business confidence. Moreover, to evaluate the duration of a shock transmitted by the fiscal opacity on business confidence, we consider an impulse-response function generated by a Vector Auto-Regressive (VAR).

Findings

We found that fiscal opacity resulting from the lack of information to anticipate the budgetary result of the public sector deteriorates business confidence.

Practical implications

We present robust empirical evidence that allows us to assume that using a strategy to reduce fiscal opacity through mechanisms that provide reliable economic data and fiscal forecasts is essential for fiscal policy to affect business confidence positively. Reducing fiscal opacity provides greater clarity regarding the budget outcome, reduces economic uncertainty and improves the fiscal policy expectation channel.

Originality/value

This paper is the first to analyze how the lack of information for market agents to anticipate the government’s budget execution accurately (fiscal opacity) affects business confidence.

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: 24 May 2024

Rangan Gupta and Damien Moodley

Recent evidence from a linear econometric framework infers that housing search activity, captured from Google Trends data, can predict housing returns for the USA at a national…

Abstract

Purpose

Recent evidence from a linear econometric framework infers that housing search activity, captured from Google Trends data, can predict housing returns for the USA at a national and regional (metropolitan statistical area [MSA]) level. Based on search theory, the authors, however, postulate that search activity can also predict housing returns volatility. This study aims to explore the possibility of using online search activity to predict both housing returns and volatility.

Design/methodology/approach

Using a k-th order non-parametric causality-in-quantiles test allows us to test for predictability in a robust manner over the entire conditional distribution of both housing price returns and its volatility (i.e. squared returns) by controlling for nonlinearity and structural breaks that exist in the data.

Findings

The analysis over the monthly period of 2004:01 to 2021:01 produces results indicating that while housing search activity continues to predict aggregate US house price returns, barring the extreme ends of the conditional distribution, volatility is relatively strongly predicted over the entire quantile range considered. The results carry over to an alternative (the generalized autoregressive conditional heteroskedasticity-based) metric of volatility, higher (weekly)-frequency data (over January 2018–March 2021) and to over 84% of the 77 MSAs considered.

Originality/value

To the best of the authors’ knowledge, this is the first study regarding predictability of overall and regional US housing price returns and volatility using search activity, based on a non-parametric higher-order causality-in-quantiles framework, which is insightful to investors, policymakers and academics.

Details

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

Keywords

Article
Publication date: 19 April 2024

Oguzhan Ozcelebi, Jose Perez-Montiel and Carles Manera

Might the impact of the financial stress on exchange markets be asymmetric and exposed to regime changes? Departing from the existing literature, highlighting that the domestic…

59

Abstract

Purpose

Might the impact of the financial stress on exchange markets be asymmetric and exposed to regime changes? Departing from the existing literature, highlighting that the domestic and foreign financial stress in terms of money market have substantial effects on exchange market, this paper aims to investigate the impacts of the bond yield spreads of three emerging countries (Mexico, Russia, and South Korea) on their exchange market pressure indices using monthly observations for the period 2010:01–2019:12. Additionally, the paper analyses the impact of bond yield spread of the US on the exchange market pressure indices of the three mentioned emerging countries. The authors hypothesized whether the negative and positive changes in the bond yield spreads have varying effects on exchange market pressure indices.

Design/methodology/approach

To address the research question, we measure the bond yield spread of the selected countries by using the interest rate spread between 10-year and 3-month treasury bills. At the same time, the exchange market pressure index is proxied by the index introduced by Desai et al. (2017). We base the empirical analysis on nonlinear vector autoregression (VAR) models and an asymmetric quantile-based approach.

Findings

The results of the impulse response functions indicate that increases/decreases in the bond yield spreads of Mexico, Russia and South Korea raise/lower their exchange market pressure, and the effects of shocks in the bond yield spreads of the US also lead to depreciation/appreciation pressures in the local currencies of the emerging countries. The quantile connectedness analysis, which allows for the role of regimes, reveals that the weights of the domestic and foreign bond yield spread in explaining variations of exchange market pressure indices are higher when exchange market pressure indices are not in a normal regime, indicating the role of extreme development conditions in the exchange market. The quantile regression model underlines that an increase in the domestic bond yield spread leads to a rise in its exchange market pressure index during all exchange market pressure periods in Mexico, and the relevant effects are valid during periods of high exchange market pressure in Russia. Our results also show that Russia differs from Mexico and South Korea in terms of the factors influencing the demand for domestic currency, and we have demonstrated the role of domestic macroeconomic and financial conditions in surpassing the effects of US financial stress. More specifically, the impacts of the domestic and foreign financial stress vary across regimes and are asymmetric.

Originality/value

This study enriches the literature on factors affecting the exchange market pressure of emerging countries. The results have significant economic implications for policymakers, indicating that the exchange market pressure index may trigger a financial crisis and economic recession.

Details

International Journal of Emerging Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-8809

Keywords

Open Access
Article
Publication date: 16 September 2024

Michael Chak Sham Wong, Emil Ka Ho Chan and Imran Yousaf

This paper examines the impact of Central Bank Digital Currencies (CBDCs), regulated stablecoins and tokenized traditional assets on the cryptocurrency market, following the…

Abstract

Purpose

This paper examines the impact of Central Bank Digital Currencies (CBDCs), regulated stablecoins and tokenized traditional assets on the cryptocurrency market, following the guidelines set by the Basel Committee. This study aims to analyze the implications for secure storage, cross-border transfers and necessary investments.

Design/methodology/approach

The paper uses a policy analysis approach to assess the potential effects of the Basel Committee’s regulations on CBDCs, regulated stablecoins and tokenized traditional assets. It explores their impact on the cryptoasset market, strategies of central and commercial banks, payment systems and risk management.

Findings

The adoption of CBDCs, regulated stablecoins and tokenized traditional assets is expected to grow rapidly in the coming years. It raises concerns about secure storage, cross-border transfers and required investments. Central banks are likely to introduce CBDCs and authorize stablecoin issuance, aiming for efficient monetary policies and risk management. Basel III regulations may lead to asset tokenization by banks, reducing asset size and increasing fee-based income.

Originality/value

This paper provides insights into the potential impact of the Basel Committee's regulations on CBDCs, regulated stablecoins and tokenized traditional assets. It contributes to the understanding of the evolving cryptoasset market and the strategies of central and commercial banks in adopting these technologies. The findings offer valuable information for policymakers, regulators and market participants in navigating the changing landscape of digital assets.

Details

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

Keywords

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