Leveraging interest-growth differentials: hidden effects of government financial assets in the European Union

Investments are distributed unevenly in the economy. This distribution between economic sectors and activities (financial and non-financial) determines not only the dynamics of sectors, but also their contribution to economic growth. The aim of the article is to assess the impact of investments in the transaction and non-transaction sectors and the sectors themselves based on their gross value added on economic growth, as well as the impact of investments in financial assets on gross domestic product. The financial sector is an integral part of the transaction sector. Therefore, it is important to consider the impact of investments on economic growth, especially to compare it within countries. The research methodology employed the method of structural analysis, econometric modeling, and comparative analysis. The study resulted in structural models built to assess the GDP growth rate from investments in the transaction and nontransaction sectors, as well as changes in GDP from investments in financial and non-financial assets. The econometric models helped establish that the transaction sector and the investments in it make the largest contribution to the growth rate in the Russian economy, while financial investments largely weaken the economic dynamics, since the gap between financial and non-financial investments is rapidly increasing. In the other countries, the imbalance between financial and non-financial investments is less pronounced, which reduces the inhibitory effect of financial investments. The analysis of the countries provides the characteristics of their economic dynamics regarding the impact of investments in the transaction sector and financial assets. The general conclusion is that the economic growth policy in the Russian economy should consider the impact of investments in financial assets and attempt to narrow the gap with investments in non-financial assets. This will not only increase the sustainability of economic dynamics, but also the contribution of investments to economic growth.

Earlier studies on the impact of the insurance sectors activities on economic growth have largely failed. To examine the financial development market interaction of pensions and mutual funds linkages, through which insurance assets affects economic growth. This study re-examines the impact of life insurance premium volume, non-life insurance premium volume, insurance company assets, pension fund assets and mutual fund assets on economic growth. Using panel data of 33 countries over the period 2000-2016. The study applied the Autoregressive Distributed Lag (ARDL) model in panel setting using the PMG (Pooled Mean Group) and MG (Mean Group) estimators in this analysis. The study findings indicate that cointegration exists among all series and that insurances and mutual funds stimulate economic growth in both the short and long run.

The role of money in influencing real economic activities has been a long-standing debate in macroeconomics. As per the Keynesian theory, household consumption expenditure plays a significant role in promoting economic growth. Given the rapid consumption-led growth pattern in the emerging Asia Pacific region, in this article, we attempt to assess the role of money in influencing household consumption expenditure, which propels economic growth. We employ a panel data set from 2005–2018 for 10 emerging Asian economies, covering Bangladesh, Cambodia, India, Indonesia, Malaysia, Pakistan, Philippines, Sri Lanka, Thailand and Vietnam. Given the region’s heterogeneous nature, we employ a variant of the popular St Louise equation model with autoregressive distributed lag model (ARDL) panel framework based on pooled mean group (PMG) and dynamic fixed effect (DFE) models developed by Pesaran and Shin to study the underlying relationships. Both PMG and DFE models suggest a strong positive relationship between money and household consumption expenditure both in the long run and short run. After allowing for control variables such as government final consumption expenditure and interest rate, the relationships continue to hold steady. Further, the relationship holds true across both narrow (M1) and broad money (M3) measures. The government final consumption expenditure and interest rates do not have influence on household consumption expenditure in the long run, but they have an influence in the short run. JEL Codes: C23, O16, O47, E51, E31, E21

The 2008/2009 global financial crisis has re-ignited the debate around financial reforms with contrasting views with regards to the impact of financial reforms on economic growth. This study examines the impact of interest rate reforms on economic growth through savings and investments in SADC countries for the period 1990-2015. Three specifications are used for the analysis; the first one determines the influence of interest rate reforms on savings, the second one analyses the effect of savings on investments while the third one examines whether investments have a positive impact on economic growth. The Pooled Mean Group (PMG) estimation technique is employed for analysis. The results show that interest rate reforms have a positive impact on economic growth through savings and investments. The study therefore recommends that market forces should be allowed to determine real interest rates and furthermore, real interest rates maintained at artificially low levels may harm economic growth.

Government financial assets are increasingly recognized as playing an important role in assessing fiscal sustainability. However, very little research has been done on the dynamics of government financial assets compared to liabilities. In this paper, we investigate the impact of recent financial crises and macroeconomic shocks on government balance sheets, decomposing the separate effects on financial assets and liabilities. Using quarterly Government Finance Statistics (GFS) data, we analyze a panel of 27 countries over the period 1999Q1-2017Q1 through fixed effects and panel VAR techniques. Financial crises are shown to deteriorate the net financial worth of governments, but no significant impact is found on assets suggesting that they are not being used as fiscal buffers in bad times. On the contrary, countries that suffered both financial and banking crises experienced an “artificial” increase of their asset position through bank bailouts. Macroeconomic shock analyses reveal that government balance sheet items are countercyclical, but important asymmetries are found in their dynamics.

Government financial assets are increasingly recognized as playing an important role in assessing fiscal sustainability. However, very little research has been done on the dynamics of government financial assets compared to liabilities. In this paper, we investigate the impact of recent financial crises and macroeconomic shocks on government balance sheets, decomposing the separate effects on financial assets and liabilities. Using quarterly Government Finance Statistics (GFS) data, we analyze a panel of 27 countries over the period 1999Q1-2017Q1 through fixed effects and panel VAR techniques. Financial crises are shown to deteriorate the net financial worth of governments, but no significant impact is found on assets suggesting that they are not being used as fiscal buffers in bad times. On the contrary, countries that suffered both financial and banking crises experienced an “artificial” increase of their asset position through bank bailouts. Macroeconomic shock analyses reveal that government balance sheet items are countercyclical, but important asymmetries are found in their dynamics.

Government financial assets are increasingly recognized as playing an important role in assessing fiscal sustainability. However, very little research has been done on the dynamics of government financial assets compared to liabilities. In this paper, we investigate the impact of recent financial crises and macroeconomic shocks on government balance sheets, decomposing the separate effects on financial assets and liabilities. Using quarterly Government Finance Statistics (GFS) data, we analyze a panel of 27 countries over the period 1999Q1-2017Q1 through fixed effects and panel VAR techniques. Financial crises are shown to deteriorate the net financial worth of governments, but no significant impact is found on assets suggesting that they are not being used as fiscal buffers in bad times. On the contrary, countries that suffered both financial and banking crises experienced an “artificial” increase of their asset position through bank bailouts. Macroeconomic shock analyses reveal that government balance sheet items are countercyclical, but important asymmetries are found in their dynamics.

Thanks to its sound macroeconomic policy framework and strong institutions, Chile was well prepared to respond to the global economic recession of 2008-09 and to the natural disasters of February 2010. Consequently, economic growth rebounded quickly and indications are for continued strong growth in 2011 and 2012. The short-term focus is to rebalance fiscal and monetary policy, while the longer term challenge is to accelerate the catch-up toward higher living standards. • Economic activity after the global economic crisis and the natural disasters of February 2010 has been strong. If it remains so, the central bank should continue to raise the policy interest rate to keep inflation expectations well anchored. Similarly, under the same conditions, fiscal policy could make early progress towards the objective of reducing the structural budget deficit. • Chile was well prepared to face the global recession and the February natural disasters, thanks to the large financial buffers accumulated during the copper price boom. The stock of government financial assets is now reduced, and it should gradually be rebuilt to prepare for possible future contingencies. An additional fiscal rule (a floor on net government financial assets) could help to reach this goal. • Convergence toward OECD living standards has slowed over the past decade. Reforms to prepare workers for the skilled jobs of the future as well as further steps to foster business activity, especially innovative start-ups, would contribute to resuming a faster pace of long-term economic growth.

PurposeThe paper aims to investigate the impact of financial liabilities on households’ holdings of financial assets. The debt-to-income ratio of the household sector increased from 75 per cent in 2000 to 99 per cent in 2010 in the euro area on average, and the rapid accumulation of household debt has induced the need to study how indebtedness affects the behaviour of households beyond their borrowing decisions.Design/methodology/approachThe paper uses the first wave of the Household Finance and Consumption Survey from 2009-2010 covering euro area countries. The paper estimates a system of equations for households’ financial liabilities and assets, taking account of endogeneity and selection bias.FindingsThe results indicate that higher household liabilities are related to lower holdings of financial assets. The results are confirmed by a large number of robustness tests. The findings support the hypothesis that credit availability reduces precautionary savings as income shocks can be smoothed by borrowing, meaning fewer assets are held for self-insurance against consumption risk.Practical implicationsThe results are obtained from a recession period when households faced aggregate shocks, whereas credit constraints were tighter than during good times. The implications of lower incentives to keep financial assets by indebted households is that they are actually more vulnerable to aggregate shocks, as they have fewer resources available when they are hit by a negative shock.Originality/valueThis is the first paper to investigate the effect of liabilities on financial assets using household level data. The paper takes a holistic view and models financial assets and liabilities jointly while controlling for endogeneity and selection bias.

Family finance is becoming the focus of people’s attention. Family financial market participation, family asset selection and influencing factors are core issues of family financial research center. Although compared with the past, the current rate of household participation in financial market in our country has been raised, from the current status of financial market, there are still some problems in the household investment of financial risk assets like the low proportion of investment and the low market participation rate. Therefore, under current background conditions that current financial market and financial product development in our country are still unable to meet the diverse and multilevel needs of families, this paper studies the investment of household financial assets, especially the investment of family financial risk assets. It is helpful to the design of new financial products, market orientation and target population setting as for the nation and enterprises, and then the optimization of the household financial asset portfolio. In recent years, with the improvement of the availability of micro-data, more and more scholars have paid their attention to the factors that affect the investment decision-making behavior of family financial risk assets. In this respect, some scholars have revealed the impacts of income, education level, health status, social insurance and social interaction through micro-empirical research. However, according to existing related research, few scholars pay attention to the influence and influence mechanism of money from different sources on the investment decision-making behavior of family financial risk assets. This paper seeks to fill up this gap and provides new micro-empirical evidence in this area. House demolition has always been a hot issue as for the public and the academic community. House demolition in China is usually accompanied by rich demolition compensation. From a perspective of mental account, demolition compensation and wage income earned by families through hard work are two types of money with different sources, that is, the first one belongs to windfall income, and the last one fixed income. Therefore, this paper chooses the impact of house demolition on investment decision-making behavior of family financial risk assets and its impact mechanism as the research topics. First of all, this paper distinguishes the family money sources based on house demolition. Next, on the basis of in-depth theoretical analysis, rigorous empirical research has been carried out to verify the impact of house demolition on the investment decision-making behavior of family financial risk assets and its impact mechanism, and then the impact of money from different sources on the investment decision-making behavior of family financial risk assets and its impact mechanism are revealed. The robust research results show that house demolition can significantly affect household financial risk asset investment, and this impact is reflected not only at the breadth level, but also at the depth level, that is, house demolition significantly increases the family financial risk asset investment willingness and investment proportion. The intrinsic reason lies in that the expected loss of wealth is a mediator, that is, house demolition through the expected loss of wealth affects the family financial risk assets investment. However, the mediating effect is moderated by social insurance, that is, social insurance strengthens the intermediary effect of the expected loss of wealth, and further the impact of house demolition on household financial risk asset investment. The above results also indirectly show that money from different sources has a significant impact on household financial risk asset investment decisions through the expected loss of wealth, and social insurance strengthens the impact. This paper reveals how money from different sources affects the allocation of financial assets in households for the first time. It provides a new insight for human economic behavior and results, which is a further advance of the existing research, and helps to deepen the understanding of household financial venture capital investment decisions, having a strong theoretical vanguard. At the same time, the discovery in this paper provides important reference value and guiding significance for formulating financial investment policies or market strategies, deepens financial system reform and promotes economic growth.

In this paper, we study the drivers of public debt surges across 172 countries from 1980-2021. We focus on the role of discrepancies between the annual change in public debt and the budget deficit, referred to as stock-flow adjustments (SFA). The analysis employs survival methods to model the effect of SFA and other macroeconomic factors on the hazard rate for debt spike events. We differentiate between debt accumulation trends and spikes to examine how SFA influences the likelihood of a spike once a country is already on an increasing debt trajectory. Our results indicate that an increase of one percentage point in the SFA to GDP ratio increases the hazard rate of a surge by 15%. This effect is greater for advanced economies (25%) relative to emerging markets (14%). Moreover, contingent on a debt trend, a higher SFA significantly increases the chance that a spike will materialize, especially in advanced countries. We address the self-selection problem associated with SFA by using an IV approach based on the notion that fiscal transparency. We conclude that accurate SFA estimates are critical for debt sustainability analyses. Overall, our analysis provides novel evidence on the mechanisms underlying public debt surges and their consequences. Our findings can guide policymakers in identifying risks from hidden debt trajectories and improving transparency. The results are robust to various sensitivity checks and alternative specifications and methodologies.

PurposeThis study contributes to the pool of knowledge about the impact of monetary policy communication of central banks on financial instruments' prices and assets' value in emerging markets.Design/methodology/approachEmpirical analysis is executed using the National Bank of Poland (NBP) announcements about its monetary policy covering the data from the broad financial market in its three main segments: stock market, foreign exchange market and bonds market. The reactions are measured relative to the changes in the NBP announcements and also with respect to investors' expectations. Autoregressive conditional heteroscedasticity (ARCH) models with dummy variables are used as the main methodological tool.FindingsBonds market and foreign exchange market are the most sensitive market segments, while interest rate and money supply are the most influential types of announcements. The changes of the revealed new macroeconomic figures had more impact on assets' prices movements than the deviations from their expectations. Moreover, greater diversity of the Monetary Policy Council (MPC) members' opinions on the voted motions, captured in the MPC voting reports, is associated with more cases of statistically significant NBP communication events.Practical implicationsThe findings have direct relevance for fund managers, portfolio analysts, investors and also for financial market regulators.Originality/valueThe results provide novel evidence about how the emerging financial market responds to monetary policy announcements. They help understand the nature of the impact of public information on financial assets' valuation and on movements of their prices, analysed comprehensively in three market segments, in the emerging market environment.

Do government financial assets help improve public debt sustainability? To answer this question, we assemble a comprehensive dataset on government assets using multiple sources and covering 110 advanced and emerging market economies since the late 1980s. We then use this rich database to estimate the impact of assets on two key dimensions of debt sustainability: borrowing costs and the probability of debt distress. Government financial assets significantly reduce sovereign spreads and the probability of debt crises in emerging economies but not in advanced economies, and the effect varies with asset characteristics, notably liquidity. Government finacial assets also help discriminate countries across the distribution of sovereign spreads, thus signaling information about emerging economies’ creditworthiness.

This study is an attempt to test the long run relationship between Chinese foreign direct investment (FDI), agricultural and economic growth in host countries is known to have an important role in economic literature suffering from unemployment problems, food security and lack of technological progress. This paper examines this issue for West Africa by applying Pool Mean Group (PMG) and panel-Granger causality Models over the period of 2003 to 2015. The Pool Mean Group tests suggest cointegration between China FDI, economic growth, domestic investment and land agricultural used The article indicates that Chinese FDI, domestic investment and land agricultural spur economic growth contrary to some studies, which found that China FDI does not cause economic growth. The results also show that there is no significant Panel-VECM Granger causality from China FDI to economic growth, from economic growth to Chinese FDI, from agricultural to economic growth and from economic growth to agricultural. This implies that the increment in Chinese FDI inflows would definitely lead to increasing the economic growth, domestic investment and agricultural land in West Africa.

Purpose Globalization occupies a central research activity and remains an increasingly controversial phenomenon in economics. This phenomenon corresponds to a subject that can be criticized through its impact on national economies. On the other hand, the world economy is evolving in a liberalized environment in which foreign direct investment plays a fundamental role in the economic development of each country. The advent of financial flows – foreign direct investment, remittances and official development assistance – can be a key factor in the development of the economy. The purpose of this study is to analyze the effect of financial flows on economic growth in developing countries. Empirically, different approaches have been used. As part of this study, an attempt was made to use a combined autoregressive distributed lag (ARDL) panel approach to study the short-term and long-run effects of financial flows on economic growth. The results indicate ambiguous effects. Economically, the effect of financial flows on economic growth depends on the investor’s expectations. Design/methodology/approach To study the short-run and long-run effects of financial flows on economic growth, this paper considers an empirical approach based on the panel ARDL. This model makes it possible to distinguish between the short-run effect and the long-run one. This type of model is based on three estimators, namely, mean group, pooled mean group (PMG) and dynamic fixed effect. Findings Results confirm the existence of a long-run relationship because the adjustment coefficient (error correction parameter) is negative and statistically significant. This paper finds that the PMG estimator is more consistent and more efficient. In the short-run, foreign direct investment do negatively affect economic growth, the effect is no significant in the long-run. On the other hand, the effect of remittances on economic growth is significant in the short-run. However, it is no significant in the long-run. Finally, the results suggest that the effect of official development assistance on economic growth is insignificant; both in the long-run and in the short-run. Originality/value To study the interaction between financial flows and economic growth, some empirical methodology are used such as the dynamic panel data and the autoregressive vector (VAR) model. In this study, we apply the panel ARDL model to analyze the short-run and the long-run effect for each financial flow on economic growth. The objective is to study the heterogeneity on dynamic adjustment in the short-term and long-term.