Vanishing financial contagion?

While a number of crises in emerging markets generated widespread contagion in financial markets during the 1990s, more recent crises (notably, in Argentina) have been mostly contained within national borders. This has led some observers to wonder whether contagion might have become a feature of the past, with financial markets now better discriminating between emerging countries with good and bad fundamentals. Available data suggest that the main channels that contribute to transmitting financial crises across countries are – if anything – even stronger today than in the 1990s. Moreover, anticipation by international investors may help to explain the near-absence of contagion in the context of the Argentine crisis. This paper argues that a prudent working assumption is that financial contagion has not vanished.     

China–Africa financial markets linkages: Volatility and interdependence

The China–Africa relationship has blossomed in recent years and the scale and scope of Chinese engagement and investment in the latter have expanded enormously in the last decade. The purpose of this paper is to analyse the dynamic linkages and volatility transmission mechanisms between Chinese and African stock markets in recent years while highlighting the relative importance of Chinese capital flows and investments. We utilise dynamic forecasting models including Bayesian VAR and BEKK GARCH to estimate both price and volatility behaviours of Chinese and 15 selected African stock markets. Our empirical results indicate strong evidence of spillover effects in terms of both price movement and volatility behaviour, implying that Chinese and African stock markets are showing signs of integration. For price movement, bidirectional feedback relationships between Chinese and most of the African stock markets are observed, suggesting that both Chinese and African stock markets could influence each other. China has been building a strong African partnership and, therefore, increasing its trade and investment influences in the region. Examining volatility transmissions, at least one spillover effect (shock and/or volatility) from China to most of the African stock markets is reported. This suggests that the Chinese stock market now plays an influential role across African stock markets given that it has major investments in 46 out of 54 countries. Our findings show important portfolio management implications as a surge in Chinese investments provide new portfolio diversification opportunities for international investors. Policy-wise, we believe further market-oriented reforms and carefully designed and long-term development policies are required to boost capacity for development and achieve sustainable trade and growth.     

Convergence or divergence? How the financial crisis affected European pensioners

The Member States of the European Union entered the financial crisis with very different pension systems. Although the use of standard adequacy measures suggest small impacts from the crisis, alternative measures based on pension wealth estimates indicate stronger effects. While the largest continental systems were left relatively unscathed by the crisis, Mediterranean systems were cut back significantly. This should lead to considerable convergence in system generosity across countries. Despite the cuts, state pensions in the stressed economies should still be generous enough to keep the majority of pensioners out of relative poverty, but this depends on a relatively quick turnaround in labour market performance in these countries.     

Does financial development cause economic growth? Implication for policy in Korea

The causal relationship between financial development and economic growth is examined, utilizing the superexogeneity methodology. We use annual data for Korea during 1971–2002, during which Korea has experienced both phenomenal economic growth and a variety of financial liberalization and reforms. In our tests for superexogeneity, we find that financial development control causes economic growth, but the reverse is not true. Our empirical results provide evidence in favor of the ‘finance causes growth’ view for the case of Korea while rejecting the ‘growth causes finance’ view. The policy implication is that Korea should give policy priority to financial reform rather than economic growth, because only a decisive and accelerated pace of financial restructuring can ensure a sustainable growth in the medium or long term.     

Exploring how workplace and social policies relate to caregivers’ financial strain

Informal caregiving is a critical component of the US long-term care system, but can have significant negative impacts on caregiver employment, finances, and well-being. An online survey of Colorado caregivers was piloted in 2016–17 to explore whether workplace and social policies such as access to paid family leave and public health insurance can buffer the negative financial impacts of caregiving and help caregivers to remain in the workforce. Using standardized measures, the survey assessed caregivers’ employment and financial status, well-being (physical and mental health, caregiver strain, benefits of caregiving), access to workplace supports, and covariates (e.g., caregiver demographics, health, social support, and service utilization). Ninety-five caregivers, recruited through community agency partners, completed the survey. Respondents were predominately female (89%), middle-aged (M = 57), non-Hispanic White (64%) or Latino/a (22%), and caring for a parent (40%) or spouse (30%) for over one year. Half (51%) reported working full- or part-time jobs, while 16.4% had stopped working because of caregiving. In multivariate regression modeling, predictors of financial strain included the care recipients’ financial strain and the caregiver’s reduction or ceasing of work. Medicare may be protective to minimize caregivers’ need to reduce or cease work. Implications for caregivers’ ability to stay engaged in the workforce and prepare for their own retirement are explored.     

The impact of globalization and financial development on India’s income inequality

This paper empirically examines the combined effects of globalization and financial development on income inequality in a unified framework for an emerging economy. Using annual data for the Indian economy over the period 1980–2014, we show that the perceived benefits of globalization and financial development have not trickled down; rather, has aggravated income inequality. Our results also indicate that while inflation aggravates income inequality, education seems to alleviate the differential effect. Proactive measures in providing access to financial services, creating equitable employment opportunities, and improving the quality of education are required to offset the negative impacts of globalization and financial development on income disparity.     

The sustainability of Australia's current account deficits—A reappraisal after the global financial crisis

The heated debate over the sustainability of Australia's high current account deficit that raged over most of the fixed and floating exchange period was due to the failure of policymakers to shift from the Keynesian Mundell Fleming (KMF) paradigm which has been rendered obsolete by the floating of the Australian in 1983q4 to the Intertemporal Optimization (ITO) paradigm which was more appropriate under the floating exchange rate as advocated by a number of Australian economists in the Pitchford thesis. The Pitchford thesis contended that after the floating of the exchange rate the current account deficit was the residual outcome of rational optimizing decisions of private agents and if there was fiscal balance then the policy of targeting the reduction of the current account deficit based on the KMF paradigm was misconceived. Empirical tests based on the application of the net present value criterion using vector autoregressions, unit root and cointegration econometrics reveals that Australia's current account deficit revealed that the current account deficits were unsustainable during the fixed exchange period and over the whole study period 1960q3–2007q4, but not during the floating exchange rate period post-1983q4. Therefore the empirical results gave credibility to the Pitchford thesis but Australian policymakers continued to target the reduction of the current account deficit because their failure to make the paradigm shift from KMF to ITO to be consistent with the regime shift from a fixed to a floating exchange rate. However, in 2004 after more than two decades feuding Australian policymakers accepted the Pitchford thesis and abandon the policy of targeting the reduction of the current account deficit. But the global financial crisis and global recession has delivered a death blow to the Pitchford thesis by undermining the key assumptions of fiscal balance and rationality that underpins it. The fiscal stimulus package that has been implemented to combat the fall in aggregate demand and restore consumer confidence due to the global recession has resulted in massive fiscal imbalance and the credit crunch has undermined rational behavior and consumer confidence. Therefore, the Pitchford thesis no longer rules the policy roost after the global financial crisis. In this study we draw on the conflicting policy perspectives on the unsustainability of high US current account deficits that tender a malign prognosis based on Salvatore's twin deficit hypothesis and a benign prognosis based on Bernanke's global savings glut hypothesis to identify some key policy challenges that confront Australian policymakers to navigate the Australian economy out of the global financial crisis and recession into a robust recovery phase in the near future.     

The impact of informality on inclusive growth in Sub-Saharan Africa: Does financial inclusion matter?

Rising poverty levels in Sub-Saharan Africa requires a better understanding of inclusive growth determinants to develop effective policy responses. Using panel data from 44 Sub-Saharan African countries for the period 1990–2018, we compute measures of inclusive growth based on gender and the rural–urban divide. We account for endogeneity, cross-sectional dependence, and heteroscedasticity, and estimate an inclusive growth model using the instrumental variable generalized method of moments (IV-GMM) estimator. The empirical evidence indicates that the impact of informality on inclusive growth depends on the measure of informality and inclusiveness. Our results show that financial inclusion exhibits an inverted-U-shaped relationship with inclusive growth. Also, we find that the moderating role of financial inclusion in the informality–inclusive growth nexus is mixed. Our results are robust to alternative model specifications and highlight the importance of financial inclusion and informality in influencing inclusive growth in Sub-Saharan Africa.     

How effective are countercyclical policy tools in mitigating the impact of financial and economic crises in Africa?

Using panel vector auto regression (PVAR) and GMM estimates we provide evidence for the transmission of financial crises to African economies through foreign direct investments and exports. Although many countries resort to stimulus packages to mitigate the impacts of financial crises, we find no evidence for fiscal policy to be considered an effective countercyclical policy tool in the African context. Monetary policy could be an effective tool in mitigating the impact in non-resource rich SSA countries, but not in others. Limited policy space calls for African economies to reconsider their policies towards trade, investment, finance and macroeconomic management.     

Why was the ECB’s reaction to Covid-19 crisis faster than after the 2008 financial crash?

At the time of the financial crises of 2008 and 2010–11 the ECB reacted with an extremely cautious gradualism. This behaviour is attributable to the slower learning process that characterizes a central bank of a monetary union composed of countries with fiscal sovereignty compared to other central banks. In sharp contrast to the previous crises, the ECB reacted promptly to the COVID-19 crisis. This change in behaviour is explained here by the learning process about the effects on monetary policy transmission of the increased financial fragmentation of the eurozone over the last decade.     

Reaching universal coverage by means of social health insurance in Lesotho? Results and implications from a financial feasibility assessment

This article discusses the process, results and implications of a financial feasibility assessment of social health insurance (SHI), as one part of Lesotho's exploration of how to move towards achieving universal health care coverage. Quantitative data from government and other sources, and qualitative data from discussions with stakeholders, were entered into SimIns, a health insurance simulation software, through which SHI revenue and expenditure for 11 years was projected. In principle, the assessment reveals that through a mix of tax financing and SHI contributions, all citizens of Lesotho could be covered with a defined benefit package of health services under the defined policy assumptions. Such a financing scheme would provide financial risk protection and enhance equity in access and health financing.