Interest rate pass-through in the Euro area during the financial crisis: A multivariate regime-switching approach

In this paper we use a Markov-switching vector autoregressive model to analyse the interest rate pass-through between interbank and retail bank rates in the Euro area. Empirical results, based on monthly data for the period 2003–2011, show that during periods of financial distress bank lending rates to both households and non-financial corporations show a reduction of their degree of pass-through from the money market rate. Significant sectoral heterogeneities characterise the transmission mechanism of monetary policy impulses, with rates on loans to non-financial firms being more affected by changes in the interbank rate than loans to households, both in times of high volatility and in normal market conditions.     

Liberalization,crisis and growth in MENA region: Do institutions matter?

The main purpose of this study is to investigate the interaction between financial liberalization, banking crisis and economic growth by taking into consideration the role of institutions. Our sample covers 15 Middle East and North African observed during the period 2000–2013. Using a dynamic panel data framework, our findings reveal that financial liberalization contributed to improve economic growth in MENA countries while banking crisis had harmful effects on MENA economies. The quality of institutions did not have a clear impact except for rule and order and democratic institution. These results have important policy implications. To grow output and avoid the occurrence of banking crisis, MENA countries should reinforce their institutions quality by adopting good practice of governance and regulation.     

Pre- versus post-crisis central banking in Qatar

In the years before the global financial crisis of 2008–2010, Qatar experienced a huge build-up of liquidity surplus in the banking system, mainly driven by surging net capital inflows. This paper identifies various sources of interbank liquidity in Qatar and discusses the various implications of structural primary liquidity surplus for the money market in particular and the economy at large. The paper attempts to evaluate the Qatar Central Bank policy making and conduct during the pre- and post-crisis periods within a framework of the Austrian monetary overinvestment theories, and concludes that the central bank had forcibly committed several forced monetary policy mistakes, which resulted in a breakdown in the interest rate channel of the monetary policy transmission mechanism. This led to the inability of the central bank to control the interbank interest rate and to an accelerating inflation rate during the pre-crisis years. In contrast, a dramatic change in the central bank's monetary policy framework and a deliberate monetary policy mistake on behalf of the central bank resulted in a restoration of the interest rate channel of the monetary policy transmission mechanism, stabilization of the interbank interest rate close to the central bank's policy rate and a sharp deceleration in the inflation rate in the post-crisis period. The paper concludes by offering brief policy recommendations.     

Inflation targeting and its spillover effects on financial stability in emerging market economies

In this paper, we study whether adoption of inflation targeting monetary policy framework has spillover effects on financial stability in emerging market economies. Working with data for 64 emerging market economies, we develop financial stability and sector specific stability indices and identify the effect using dynamic panel data models in difference-in-difference framework. We find significant positive spillover effects of inflation targeting adoption on banking system resilience and external capital inflows arising from improved transparency and accountability of the central banks. Based on the results, the paper recommends to emerging market economies which are currently under inflation targeting lite regime, to adopt full-fledged inflation targeting monetary policy.     

Financial access and household’s borrowing: Policy perspectives of an emerging economy

This paper analyzes access to finance based on the usage of financial services by Indian households. Based on two rounds of nationally representative All India Debt and Investment Survey (AIDIS) for 2002 and 2012, we examine how access to credit is associated with a household's socioeconomic and demographic characteristics using Heckman’s two-step approach procedure. Our results show that belonging to higher asset quintile groups has a statistically significant positive effect on the household's decision to take loans only from the formal sector in both rounds and significant negative effects on taking a loan only from the informal sector. Similarly, social and religious groups play a significant role in the decision of the household to take a loan. Households with more educated adults are more likely to take a loan. Households involved in regular wage-earning occupations in urban areas are more likely to take a loan from formal sources. Thus, the importance of policy placing greater emphasis on demand-side barriers rather than on improving the physical availability of formal financial services to promote financial inclusion in India.     

Red states,blue states: How well do the recent national election labels capture state political and policy differences?

The alleged polarization between the so-called red (Republican) and blue (Democratic) states during the presidential elections has been examined using only voter surveys. Focusing on the recent thirteen national elections from 1964 to 2012, we examine social, political, institutional, and policy indicators of the 50 American states to (1) gauge the extent to which national election results reflect significant policy and political differences between the red and blue states and (2) to assess the explanatory power of the dichotomous red–blue label relative to a continuous variable of “redness” or “blueness” by the percentage of votes received. We find substantial political and some moderate social differences between red and blue states but fewer institutional and policy differences than one would expect if there were actually deep divisions between the states. We find that the red–blue state distinction performs well when compared to the explanatory power of the more precise redness or blueness of a state.     

Food subsidy,income transfer and the poor: A comparative analysis of the public distribution system in India's states

The Targeted Public Distribution System (TPDS) – the largest food subsidy program in India – has been a dismal failure in targeting the poor. The present paper examines its performance in three Indian states – Andhra Pradesh, Maharashtra and Rajasthan, based on primary data collected for this study. As real income transfers through food price subsidies are a tiny fraction of expenditure per person under this scheme, a contribution of the present study is to model determinants of real income transfers through subsidised wheat, rice and sugar. The analysis throws new light on how income transfers vary with economic status of a household, inequality in the distribution of land in a village, amount of food price subsidy, transaction costs of buying from ‘fair price shops’ (FPS), and supply shortages. The policy implications of these results are profound. Desperate measures such as a universal food subsidy enshrined in a proposed National Food Security Act are rejected on the grounds that the enormous leakages and wastage under the present TPDS would only get worse. Assertions that a universal food subsidy is the only option consistent with the right to food are rejected as mistaken. Instead, it is worthwhile to overhaul the PDS within the existing outlay.     

Explaining individual level support for organ procurement policy

The demand for human organs for transplantation – both from live and deceased donors – has become a public health issue in the United States, as thousands of Americans die each year due to the lack of a needed transplant. The current policy basis for organ procurement is voluntarism as federal organ procurement policy, based on the 1984 National Organ Transplant Act (NOTA), prohibits the exchange of human organs for “valuable consideration.” While an increasing number of policy analysts, including some ethicists, have advocated for financial incentives to induce more donations, a variety of factors – such as the legislative status quo, ongoing ethical concerns, and uncertain public support – have resulted in little use of financial incentives. We argue that a better understanding of public opinion is an important prerequisite for any move toward the use of financial incentives. Consequently, we develop and test a model to explain individual level attitudes toward legalizing and regulating the sale of human organs for transplant. We find that political ideology, gender, age and geographic region are important predictors of support.     

Macroprudential policy and the probability of a banking crisis

The ultimate purpose of macroprudential policy is to avoid financial instability, such as banking crises, which have a long-lasting and devastating effect on the economy. Although a growing number of studies have examined the effects of macroprudential policy on credit growth, few empirical studies have analyzed its effect on the probability of a banking crisis. Does macroprudential policy actually affect the probability of a banking crisis? Do other macroeconomic policies matter for the effectiveness of macroprudential policy? To answer these questions, this paper empirically investigates the effect of macroprudential policy on the probability of a banking crisis and its relationship with other macroeconomic policies. Specifically, using data on 65 countries from 2000 to 2016, we employ a probit model to analyze the effect of changes in the loan-to-value (LTV) ratio on crisis probability. Our results show that macroprudential policy is effective in changing the probability of a banking crisis via a credit channel and that its effectiveness depends on other macroeconomic policies. Changes in the LTV ratio are found to be effective in influencing the probability of a banking crisis in countries that have inflation targeting frameworks, floating exchange rate regimes, and/or no capital controls. Our results underscore the importance of policy coordination among different government bodies to design an appropriate macroprudential policy, especially in the current context of the Covid-19 crisis.     

The role of macroeconomic policies in the global crisis

This paper argues that the lack of timely and decisive policy action to correct domestic and external imbalances contributed crucially to the build-up of financial excesses that led to the financial crisis and the Great Recession. We focus on 2002–2007 and perform a number of counterfactual simulations to investigate two central elements of the story, namely: (a) an over-expansionary US monetary policy and the absence of effective macro-prudential supervision, which permitted a prolonged expansion of debt-financed consumer spending and (b) the choice by China and other emerging countries to pursue an export-led growth strategy supported by pegging their currencies to the US dollar, in conjunction with sluggish domestic demand in major advanced economies characterized by low potential output growth. The results of the simulations lend support to the view that if substantial, globally coordinated demand rebalancing had been undertaken early on, the macroeconomic and financial imbalances would not have accumulated to the extent that they did and the financial turmoil might have had less drastic global consequences.     

The Irish macroeconomic response to an external shock with an application to stress testing

The Irish economy has recently endured a period of turbulence as a result of the collapse of the domestic property market bubble and the onset of the global financial crisis. There are two critical vulnerabilities in the Irish economy at present. The first is the potential for sluggish economic growth due to a slowdown in external demand, which impacts on the government's ability to meet budgetary targets. The second concern relates to the financial stability of the banking system given the escalating mortgage crisis. Our results show that Irish economic growth is highly sensitive to the performance of its trading partners and any international slowdown will hinder Ireland's growth prospects. The model used suggests that the appropriate policy response is to pursue further gains in competitiveness. We estimate the impact of an external slowdown on mortgage delinquency using a new dataset on the loan books of the commercial banking sector. The results suggest that a negative one standard deviation shock to US GDP growth leads to an increase of 1600 in the number of mortgages in arrears for at least 90 days. Arrears are driven by unemployment and negative equity in the model. We discuss policies to contain the mortgage crisis by improving these intermediate target variables.     

区域金融成长差异的现状及改善对策

在我国区域经济发展不平衡的背后,与之相伴而生的是区域金融发展的不平衡。区域金融发展差距的扩大和非均衡问题已成为影响我国经济社会和谐发展的重要因素。区域金融成长差异是综合性的不平衡,区域银行业、证券业和保险业均呈现空间发展的不平衡。因此,要基于系统的区域思考,通过培育区域金融生态环境、加快区域金融机构重构、发展良性区际金融关系和深化区域金融体制改革,从而达到整体改善区域金融成长差异的目的。     

Banking and inequality: US state evidence

The question of how financial development affects economic inequality is a subject of much debate. This paper adds to this literature by examining whether banking deregulation affects income inequality using state-level data from the United States from the late 20th century. Specifically, we test the hypothesis that the deregulation of interstate branch-banking restrictions had an effect on income inequality as measured by the Gini Coefficient and Thiel Index. We conduct our tests using fixed-effects OLS models and System GMM dynamic panel analysis. Our results suggest that branching deregulation has resulted in increased income inequality in the United States.     

Policy measures in the deleveraging process: A macroprudential evaluation

This paper evaluates post-crisis effects of deleveraging policy in Slovenia. Reductions in banks’ credits to nonfinancial sectors were driven by increased collateralization, credit rationing, and a neglect of cash flow performance of banking clients. These jeopardized the normal deleveraging of companies with positive cash flows, and rolling over credits, which stifled economic growth. Erroneous sequencing, timing, and calibration of measures steering the deleveraging process generated these processes. Optimal deleveraging process demands that the Central Bank also focus on the stability of the financial system. This task should be a constitutional part of the third macro policy pillar, namely macroprudential policy.     

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.     

Exploring the implications of different loan-to-value macroprudential policy designs

We evaluate the macroeconomic effects of changes in loan-to-value ratios in a multi-country model with financial frictions and a banking sector. Main findings suggest that a permanent LTV tightening in a small euro area economy leads to a long-run decline in lending to the private sector. The short-run impact depends crucially on the policy design, being less pronounced when the measure is phased-in. This is consistent with policy goals of curbing credit growth but avoiding an abrupt immediate contraction. A euro area wide measure implies larger long-run effects but the short-run recessionary impact is attenuated by the monetary policy response.     

A Predictive Model for Financial Literacy among the Educated Youth in Kerala,India

ABSTRACT

The economic importance of financial literacy among individuals necessitates policy intervention. Estimation of financial literacy is a prerequisite for strategies to improve financial literacy. This paper, using data collected from the educated young adults in Kerala, the most literate state in India, builds a predictive model for financial literacy employing logistic regression. The study reveals the low level of financial literacy in the state. The model points to the significance of gender, age, religion, discipline of study, occupation, and personal income as determinants of financial literacy. The findings have implications for policies aimed at improving the financial literacy of young adults in India.     

Does economic policy uncertainty affect bank earnings opacity? Evidence from China

Uncertainty about economic policy (EPU) in today's interconnected world and its impact worldwide is more significant than ever before. Thus, this study examines EPU's impact on the bank's earnings opacity of the Chinese banking industry, using the two-step system GMM estimator and the time covering 2011–2018. Our finding shows a negative and statistically significant relationship between EPU and bank earnings opacity, implying that the Chinese banking sector decreases earnings opacity in times of high EPU to earn trust and show good banks’ financial image. Moreover, our finding reveals that the effect of EPU on earnings opacity relies on the banks’ financial strength. This study recommends that a policy to reduce earnings opacity should be in place and also the supervisory capability and financial regulation should be strengthened. Moreover, the regulators should be more vigilant while making economic policies during high economic uncertainties.