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.     

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.     

The effectiveness of monetary policy in small open economies

This paper examines the relative effectiveness of the use of direct and indirect monetary policy instruments in Barbados, Jamaica and Trinidad and Tobago, by estimating a restricted Vector Autoregressive model with Exogenous Variables (VARX). The model captures the dynamic interaction of the key sectors in the economy and it accounts for the fact that the banking system in those countries is characterized by high levels of excess reserves. Also, the study assumes that the central bank conducts monetary policy using a Taylor-type rule, and it evaluates the effects of a reserve requirement policy. The results show that although a positive shock to the policy interest rate has a direct effect on commercial banks’ interest rates, there is a weak transmission to the real variables. Furthermore, an increase in the required reserve ratio is successful in reducing private sector credit and excess reserves, while at the same time alleviating pressures on the exchange rate. The findings therefore indicate that central banks in small open economies should consider using reserve requirements as a complement to interest rate policy, to achieve their macroeconomic objectives.     

The effects of wage flexibility on activity and employment in Spain

In this paper we estimate the macroeconomic effects of the greater wage and firms’ internal flexibility promoted by the economic policies implemented since 2012, which changed markedly Spanish labour regulations. To do so, we propose a structural VAR that allows us to break down changes in main macroeconomic variables into different structural shocks. From a policy perspective, the estimation of the structural shocks allows us to simulate a counterfactual scenario, whereby we conclude that the effects of less rigid labour market are positive and significant. Our results suggest that, if these policies were implemented at the beginning of the crisis, they could have avoided a significant part of the falls in GDP and employment.     

International transmission of monetary and global commodity price shocks to Turkey

This paper explores the international transmission mechanisms on the macroeconomic and monetary variables of Turkey and hence proposes some particular policy implications. The effects of monetary shocks stemming from the U.S. and the European area, and global commodity price shocks are investigated using a structural vector auto-regression (SVAR) approach. For the analysis, we use monthly data from 2002M01 to 2016M06 and we analyze the transmission mechanism in Turkey using two different SVAR model specifications. Our results reveal that shocks coming from the U.S. and the Euro area lead to significantly different responses on industrial production, consumer prices, real effective exchange rates, and the domestic interest rate, with the Euro area monetary expansion having more explicit and positive effects on the real economy. The global commodity price shocks affect the Turkish macroeconomic variables in a similar but much less powerful fashion than that of the U.S. monetary expansion. As our empirical findings point out that the Turkish economy is vulnerable to global monetary and commodity price shocks. This vulnerability necessitates moving to a sustainable growth path consistent with a sustainable current account balance and a sustainable private and government debt coupled with a strengthened macroprudential regime and comprehensive structural reforms.     

Public policies promoting the informal sector: Effects on incomes,employment and growth in Burkina Faso

Since the 1990s, Burkina Faso has intensified the implementation of supporting policies to enhance the access to capital and liquidity in the informal sector. This paper analyzes the effects of these public policies on incomes, employment and economic growth by taking into account the interactions between the informal sector, the formal sector and the agricultural sector. For that purpose, policy shocks are simulated through the Partnership for Economic Policy Network's static computable general equilibrium (CGE) model which is adapted to the structure of a 2008-based social accounting matrix developed by the International Food Policy Research Institute. Our results highlight mixed effects including a paradoxical contraction of the informal sector, the formal sector and economic growth as well as an improvement of the informal households and the farmers’ incomes.     

Tunisia after the 2011’s revolution: Economic deterioration should,and could have been avoided

The political instability and social unrest in Tunisia since 2011, generated a short-term foresight of the macroeconomic management which contributed to the deterioration of the country’s macroeconomic fundamentals. The objective of this paper is to provide the policy makers with quantitative arguments showing the importance to undertake the macroeconomic stabilization and the structural reforms that improve the total factor productivity, one of the main engines of a sustained economic growth. To that end, the paper employs a financial dynamic general equilibrium model calibrated using six flow-of-funds accounts representing the Tunisian economy in 2010. In a first stage, I reproduce the main macroeconomic variables observed for the Tunisian economy over 2011–2018. In a second stage, the model is used to compare the impacts of counterfactual policy scenarios on the Tunisian macroeconomic performance. The results show that the economy could perform much better, in relation to a battery of macroeconomic indicators (economic growth, unemployment, public external and domestic debts, current account, fiscal balance) under alternative economic policies. The most insightful results are obtained under the scenario of a total factor productivity’s growth progressing at its average level of 2001–2010. Indeed, this could generate an average yearly gain in terms of GDP growth of 3.45 percentage points and a reduction of the average unemployment rate by 7 percentage points over the same time horizon.     

A Test of the Relationship between Monetary Growth Uncertainty and Economic Growth in China： 1980-2008

我国货币增长不确定性的根源可以划分为货币政策冲击和宏观经济冲击两个层面,通过检验我国货币增长不确定性与经济增长之间的关系,结果显示：货币增长不确定性主要由宏观经济冲击所引致;1998年以前的货币增长不确定性比较剧烈,1998之后的货币增长不确定性明显减弱;由货币政策冲击导致的货币增长不确定性能够有效地促进经济增长,这意味着货币政策调控的有效性;但2003年以来,由宏观经济冲击导致的货币增长不确定性对经济增长起到了抑制作用,这说明以国际金融危机为代表的经济冲击对我国经济稳定增长产生了显著的消极影响,需对此进行积极的国家经济风险预警和防范。     

Remittances,growth and poverty: New evidence from Asian countries

The present study re-examines the effects of remittances on growth of GDP per capita using annual panel data for 24 Asia and Pacific countries. The results generally confirm that remittance flows have been beneficial to economic growth. However, our analysis also shows that the volatility of capital inflows such as remittances and FDI is harmful to economic growth. This means that, while remittances contribute to better economic performance, they are also a source of output shocks. Finally, remittances contribute to poverty reduction – especially through their direct effects. Migration and remittances are thus potentially a valuable complement to broad-based development efforts.     

Productivity growth,external shocks,and capital inflows in Chile: A general equilibrium analysis

This paper uses a computable general equilibrium model to analyze the growth path of the Chilean economy during 1977–1981. During that period a comprehensive package of reforms liberalized international trade and removed restrictive labor legislation. As a result of the reforms, there were large changes in relative prices and in the structure of production and demand, and the economy enjoyed unprecedented growth with declining inflation. But large macroeconomic imbalance become evident toward the end of the period and in 1982 Chile experienced an abrupt and severe recession. Taking the real exchange rate as an exogenous policy variable, and using the observed levels of employment growth and foreign capital inflows, this paper compares model-generated growth paths with those of the economy. First, the benchmark simulation path is used to estimate the magnitude and pattern of growth and productivity change during the 1971–1981 period. Next, counter-factual simulations are used to assess how Chile's economic performance would have differed if (a) external events had been different; and (b) foreign capital inflows had been different. The analysis suggests that the macroeconomic imbalances that led to the crisis in 1982 were exacerbated by the large capital inflows and real exchange rate appreciation that resulted from the use of the exchange rate as a stabilization device.     

Real and financial shocks,exchange rate regimes and the probability of a currency crisis

We analyze the relationships among shocks, exchange rate regimes, and capital controls in relation to the probability of a currency crisis. Based on the theoretical model by Nakatani (2016, 2017a), we use panel data on 34 developing countries and apply a probit estimation. We find that both productivity shocks and risk premium shocks trigger currency crises, whereas productivity shocks are important for severe currency crises. We also find that the effects of these shocks on the probability of a crisis are larger for floating exchange rate regimes and that capital controls mitigate the effects of productivity shocks in pegged regimes.     

对我国银行业进入第二波融资高峰期的几点认识

目前我国上市银行融资和再融资活动的基本现状和特征,说明我国银行业已步入第二波融资高峰期,其产生主要缘于新的宏观经济背景、信贷扩张和资本监管要求的提高。尽管通过市场化手段——资本市场的融资和再融资方式可以解决上市银行的资本充足率不足问题,但鉴于上市银行具有天然的再融资冲动与偏好,因此,实现银行经营方式从以信贷资产规模扩张为主导的外延粗放型向内涵集约型增长转变,才是遏制未来上市银行无节制的再融资冲动与需求的可行之路。     

Identifying endogenous fiscal policy rules for macroeconomic models

The forecast and policy simulations based on macroeconomic models are used in many instances as an important input into policy decision-making. In this paper, we present a model-based method for identifying fiscal closure rules in stochastic macroeconomic models. The methodology is based on the stability analysis of the model at hand, with an endogenous derivation of a reaction on the part of the fiscal authority to state variables in the model. The rule achieves the dual aim of imposing solvency on the fiscal sector and generating a state-contingent dynamic adjustment in a framework consistent with the properties of the model. The approach differs from the standard practice of deriving fiscal closure rules in large macroeconomic forecasting models in both its derivation and implementation. An example of the endogenously derived rule, including some illustrative results, is provided using a small calibrated macro model     

Remittance volatility and financial sector development in sub-Saharan African countries

In this study we examine the relationship between remittances, remittance volatility and financial sector development in sub-Saharan Africa using a two-step system GMM estimator over the period 2002–2014. Separately focussing on banking sector- and stock market development, our study distinguishes between the effect of remittances and remittance volatility on financial sector depth and financial sector efficiency. The results indicate remittances act as a substitute for the formal banking system in sub-Saharan African countries. We further provide evidence that remittance volatility is detrimental to both banking sector depth and efficiency. No evidence is found that remittance volatility is related to stock market development. A policy implication from our study is that sub-Saharan African countries should have measures in place to monitor the predictability of remittances while the cost of remittance transfer needs to be investigated.     

Efficiency of financial market intermediation in Kenya: A comparative analysis

Wide interest margins as witnessed in Kenya are a sign of a repressed and inefficient financial sector. This paper carries out a cross-country analysis of the determinants of financial market efficiency using panel cointegration with a view to recommending policy options for improving the efficiency of the financial sector intermediation process in Kenya. The study finds that the major contributors to the differences in financial sector inefficiency in Kenya compared to the other countries in the study are high bank operating costs, default risk and financial market structure. The study recommends, among other measures, that the government through the Central Bank need to collaborate with the commercial banks and establish a working credit reference bureau to enable easy identification of credit worthy customers in order to reduce default risk; there is also need by the central bank to license more new banks to increase competition and reduce bank concentration. The study also recommends increased use of technology including phone-banking and e-banking to reduce operation costs of the banks. The paper concludes that contrary to the findings from other cross-country analysis, the factors that lead to financial market in/efficiency varies from one country to the other.     

Home country impact on Outward FDI from India

The altering policy environment in emerging markets and the surge in their outward foreign direct investment (OFDI) calls for an empirical investigation. Accordingly, this paper examines the effect of home country macroeconomic conditions and Government policies on the OFDI flows from India during the period 1984 to 2015. Incorporating the structural breaks in the empirical model, results indicate the existence of a long-run relationship between OFDI flows and home country macroeconomic and Government policies. Government policies relating to foreign trade and investment and financial sector development are found to be significant determinants. The results also suggest the need for the Government to enhance its effort on the development of knowledge infrastructure in order to support the OFDI from India's manufacturing sector and thereby contribute to the success of “Make in India” programme. Policy implications are discussed.     

人际关系资本与关系资本借贷

本文试图从互动论的研究视角,通过对一个关系资本借贷案例的分析,来说明人们是采取怎样的行动策略使社会资本的功能得以呈现的,并对功能主义和结构主义两种研究视角提出质疑。本文认为,人们只有通过其自身所拥有的动员能力,动用其社会关系网络中已存关系资本,或建构新的关系链条以借用顶端优势资本,才能最终使社会资本有效地发挥作用。     

Channels of monetary policy transmission in Vietnam

Since the economic reforms launched in 1986, the Vietnamese economy has registered impressive economic growth. While foreign investment is providing much needed capital, through the conduct of monetary policy, the State Bank of Vietnam (SBV), which is an integral part of the government of Vietnam, is also playing an important role in nurturing the economic growth. The aim of this paper is to evaluate the success of the SBV policies. Monetary policy actions affect all sectors of real economies with a significant lag. Without a good understanding of the transmission mechanism, monetary policy actions may not achieve the desired outcomes. Using quarterly data from 1995 to 2010, this paper focuses on monetary policy transmission mechanisms in Vietnam. Specifically, we consider the dynamic response of the Vietnamese economy to interest rate, exchange rate and foreign shocks. The estimated results based on structural vector autoregressive (SVAR) methodology suggest that monetary shocks tend to have a strong influence on Vietnam’s output. We find that Vietnam’s monetary policy is relatively more susceptible to foreign shocks.     

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.