Changes In Financial Conditions Research Articles

Macro-financial imbalances and cyclical systemic risk dynamics: understanding the factors driving the financial cycle in the presence of non-linearities

Abstract This paper develops a multivariate filter based on an unobserved component model to estimate the financial cycle. Our model features: (1) a dynamic relationship between the financial cycle and key variables; (2) time-varying shock volatility for trend and cycle components. We demonstrate that our approach not only exhibits superior early warning properties for banking crises but also outperforms commonly used indicators in terms of data fit for decomposition exercises, as evidenced by the higher marginal likelihood. We document three important properties of the financial cycle. First, the sensitivity of the financial cycle to changes in real estate valuations increased during the post-90s period. Second, the sensitivity of the cycle to changes in financial conditions displays volatility and country specificities. Finally, our reduced form estimates suggest that the banking crisis of 1988 was preceded by positive contributions from the risk appetite shock, while the primary source of vulnerabilities emanated from the housing market in the run-up to the Global Financial Crisis.

Welfare costs of external shocks in the medium-scale model with shifting moderate trend inflation

We aim at investigating welfare costs of shocks as well as dynamics of business and financial cycle due to these shocks. By using the theoretical model and parameters calibrated jointly to match the selected moments for the U.S. data during 1954Q3–2018Q4 period, our findings emphasise interaction between trend inflation and shocks. In the one side, welfare costs of these shocks in the Rotemberg model are modest but these costs increase when central banks raise their inflation targets to the higher level. Under impacts of these shocks, the economy gets more volatile reflected by higher dynamics of business and financial cycles. On the other hand, we investigate impacts of trend inflation on impulse response of key macroeconomic as well as financial variables to these shocks. In almost cases, these variables reacts more strongly to the shocks for higher trend inflation levels. Importantly, there are long-lasting debt response and short-lived equity response to unexpected changes in financial conditions.

The differential impact of political risk factors on emerging market bond spreads and credit rating outlooks

It is well established that sovereign bond spreads vary with changes in financial conditions and political risk factors. What is less evident is the differential impact of political risk factors relative to the financial conditions of emerging market (EM) countries. This paper fills this gap by analyzing how changes in political risk overall and political risk components impact EM bond spreads and credit ratings. We find that improving political risk factors lowers sovereign bond spreads and improves credit rating outlooks. However, the effect varies by type of political risk. Also, the impact varies by type of EM country, with more of the impact of political risk components affecting higher financial risk countries.

High-frequency monitoring of growth at risk

Monitoring changes in financial conditions provides valuable information on the contribution of financial risks to future economic growth. For that purpose, central banks need real-time indicators to promptly adjust their policy stance. In this paper, we extend the quarterly growth-at-risk (GaR) approach of Adrian et al. (2019) by accounting for the high-frequency nature of financial conditions indicators. Specifically, we use Bayesian mixed-data sampling (MIDAS) quantile regressions to exploit the information content of both a financial stress index and a financial conditions index, leading to real-time high-frequency GaR measures for the euro area. We show that our daily GaR indicator (i) displays good GDP nowcasting properties, (ii) can provide an early signal of GDP downturns, and (iii) allows day-to-day assessment of the effects of monetary policies. During the first six months of the Covid-19 pandemic period, it has provided a timely measure of the tail risks to euro-area GDP.

Analisis Laporan Keuangan sebagai Alat Penilaian Kinerja Keuangan pada Koperasi Samudra Mulya Ciparagejaya-Karawang 2013-2018

Marine Fisheries Cooperativies production called KPPL a financial institution to empower the fishermen and help the economy of the fishermen arround. But many cooveratives / KPPL experienced significant tidal cooperative as a bussines entity that is differnt, has a special indikator in determining achievement performance.This research is descriptive research, which in this study describes and explain how the financial performance of the cooverative KPPL Samudra Mulya using financial statements as the basis for the financial perfomance of assesment. It’s this, this study aimed to analize the financial performance of the Marine Fisheries Cooperativies Production (KPPL) Samudra Mulya. Bassed on these results we concluded a brief presentation of pinancial statements Marine Fisheries Production Cooperatives “KPPL” consisting of banlance sheet income statements, statements of changes in equity, cash flow statements and notes on financial statements. Financial statement analysis is a relationship between one another with both quantitative and non-quantitative data explaining changes in financial conditions to determine a decision to be taken.

Leaning Against the Wind

This paper takes a new approach to assess the costs and benefits of using different policy tools—macroprudential, monetary, foreign exchange interventions, and capital flow management—in response to changes in financial conditions. The approach evaluates net benefits of policies using quadratic loss functions, estimating policy effects on the full distribution of future output growth and inflation with quantile regressions. Tightening macroprudential policy dampens downside risks to growth stemming from loose financial conditions, and is beneficial in net terms. By contrast, tightening monetary policy entails net losses, calling for caution in the use of monetary policy to “lean against the wind.” These findings hold when policies are used in response to easing global financial conditions. Buying foreign-exchange or tightening capital controls has small net benefits.

Leaning Against the Wind: A Cost-Benefit Analysis for an Integrated Policy Framework

This paper takes a new approach to assess the costs and benefits of using different policy tools-macroprudential, monetary, foreign exchange interventions, and capital flow management-in response to changes in financial conditions. The approach evaluates net benefits of policies using quadratic loss functions, estimating policy effects on the full distribution of future output growth and inflation with quantile regressions. Tightening macroprudential policy dampens downside risks to growth stemming from loose financial conditions, and is beneficial in net terms. By contrast, tightening monetary policy entails net losses, calling for caution in the use of monetary policy to 'lean against the wind.' These findings hold when policies are used in response to easing global financial conditions. Buying foreign-exchange or tightening capital controls has small net benefits.

High-Frequency Monitoring of Growth-at-Risk

Monitoring changes in financial conditions provides valuable information on the contribution of financial risks to future economic growth. For that purpose, central banks need real-time indicators to adjust promptly the stance of their policy. We extend the quarterly Growth-at-Risk (GaR) approach of Adrian et al. (2019) by accounting for the high-frequency nature of financial conditions indicators. Specifically, we use Bayesian mixed data sampling (MIDAS) quantile regressions to exploit the information content of both a financial stress index and a financial conditions index leading to real-time high-frequency GaR measures for the euro area. We show that our daily GaR indicator (i) provides an early signal of GDP downturns and (ii) allows day-to-day assessment of the effects of monetary policies. During the first six months of the Covid-19 pandemic period, it has provided a timely measure of tail risks on euro area GDP.

Global Flight-to-Safety Shocks

Sudden, asymmetric shifts in investor sentiment known as 'flights-to-safety' typically emanate from center economies but propagate globally. In the absence of policy intervention, these financial shocks can spill over and destabilize macroeconomic conditions in many countries. This paper explores these issues systematically over the 2000-2019 period, implementing a two-stage approach for measuring flights-to-safety originating in developed markets. First, tail realizations in asset returns are recovered from an asymmetric time-varying volatility model. Second, sign restrictions are imposed across assets to identify flights-to-safety from general changes in financial conditions. Estimates from a multi-country VAR show that flights-to-safety exhibit significant spillovers to emerging markets, inducing a rise in sovereign risk premia and exchange market pressure, and a drop in economic activity. Expansionary U.S. monetary policy shocks reduce these spillovers, suggesting that U.S. policy responses play an outsized role in shaping financial stability abroad.

Analisis Kinerja Keuangan pada Industri Tempe di Nagori Rambung Merah Kabupaten Simalungun

This study aims to determine the financial performance of the tempe industri in Nagori Rambung Merah. To measure financial performance, an analysis tool called financial ratio analysis can be used. In carrying out this analysis, it is necessary to calculate financial ratios that include certain aspects. Financial statement analysis will give the best results when used in a combination to show changes in financial condition or operating performance over a given period. The data analysis method used is descriptive analysis and the data is presented in the form of balance sheet financial statements and income statements. This data processing uses the Microsoft Excel software package followed by financial ratio analysis by looking at the comparison of financial ratios, namely the ratio of liquidity, solvability, and profitability. In this way, it will be obtained the results of the analysis of the correct financial performance for the tempe industri in Nagori Rambung Merah.

Weakness of investment in Portugal: what role do credit supply and fiscal consolidation shocks play?

In order to illustrate how tightened financial conditions have hampered investment in Portugal, we estimate a Factor Augmented Vector AutoRegressive model (FAVAR) with Bayesian techniques. We extract a financial conditions indicator and identify credit supply, demand and fiscal consolidation shocks with sign restrictions. We show that changes in financial conditions, which result from both credit supply shocks and fiscal shocks, have a protracted impact, especially on bank loans and bank lending spreads. We then develop a scenario in which we the tightening in financial conditions in the wake of the sovereign crisis is attributed to credit supply shocks. The analysis suggests that, due to the crisis, by the end of 2017, Portuguese GDP, corporate investment and corporate loans were reduced by respectively 6, 22 and 20 p.p., public investment by 1 p.p. of GDP and bank lending spreads widened by 80 b.p.

EME Financial Conditions: Which Global Shocks Matter?

This paper provides a quantitative assessment of the relative importance of global structural shocks for changes in financial conditions across a sample of emerging market economies. We disentangle four key drivers of global financial markets (oil supply shocks, global economic news shocks, US-specific economic news shocks and US monetary shocks) and show that these global factors account for about half of the variation in risky asset prices across EMEs. The influence of global factors for EME interest rates and currencies is much smaller, suggesting that factors beyond the identified global shocks (e.g. domestic or regional shocks) might be more important. In contrast to the recent literature on the global financial cycle which has emphasised the prominent role of US monetary policy, we find that although US monetary shocks have some influence in shaping EME financial markets, the broader global environment plays a significantly stronger role. JEL Classification: E44, E52, G15

Constrained or creative? Changes in financial condition and entrepreneurial orientation in public organizations

Public managers and organizations are often encouraged to take a proactive role in finding solutions to the challenges that face their communities. These challenges require meeting increasingly high expectations for public service provision with ever reducing resources. This research investigates the relationship between change in resource constraints—as measured by longer and shorter term financial condition—and the entrepreneurial orientation of US local governments. Theoretically, it remains unclear whether resource constraints foster or impede entrepreneurial actions (i.e., risk taking, proactivity, and innovation) in public organizations. While entrepreneurial actions may be related to increased organizational financial capacity, a decline in an organization's financial condition might motivate proactivity, innovation, and risk taking as problem‐solving mechanisms and a means to continue service provision. We explore this relationship using two sources of data: a 2012 national survey of managers in 500 cities and financial data from Comprehensive Annual Financial Reports. Our findings suggest that resource constraints are associated with increased entrepreneurial activity in US local governments.

Testing the asymmetric effects of financial conditions in South Africa: A nonlinear vector autoregression approach

The negative consequences of financial instability for the world economy during the recent financial crisis have highlighted the need for a better understanding of financial conditions. We use a financial conditions index (FCI) for South Africa previously constructed from 16 financial variables to test whether the South African economy responds in a nonlinear and asymmetric way to unexpected changes in financial conditions. To this end, we make use of a nonlinear logistic smooth transition vector autoregressive model (LSTVAR), which allows for a smooth evolution of the economy, governed by a chosen switching variable between periods of high and low financial volatility. We find that the South African economy responds nonlinearly to financial shocks, and that manufacturing output growth and Treasury Bill rates are more affected by financial shocks during upswings. Inflation responds significantly more to financial changes during recessions.

Mortgage Debt and Social Externalities

I analyse the implications of social status concerns on debt holdings at individual and aggregate level, in a partial equilibrium life-cycle framework with heterogeneous agents. The focal point of the analysis is the explicit consideration of durable goods, in their triple role as a part of utility, a collateralizable portion of life-time wealth and a social positioning device. In an economy featuring social status concerns, the debt-to-income ratio is higher, a shift of resources towards the beginning of life arises and the effects of changes in financial conditions are more pronounced.

Bank integration and co-movements across housing markets

This paper investigates whether bank integration measured by cross-border bank flows can capture the co-movements across housing markets in developed countries by using a spatial dynamic panel model. The transmission can occur through a global banking channel in which global banks intermediate wholesale funding to local banks. Changes in financial conditions are passed across borders through the banks’ balance-sheet exposure to credit, currency, maturity, and funding risks resulting in house price spillovers. While controlling for country-level and global factors, we find significant co-movement across housing markets of countries with proportionally high bank integration. Bank integration can better capture house price co-movements than other measures of economic integration. Once we account for bank exposure, other spatial linkages traditionally used to account for return co-movements across region – such as trade, foreign direct investment, portfolio investment, geographic proximity, etc. – become insignificant. Moreover, we find that the co-movement across housing markets decreases for countries with less developed mortgage markets characterized by fixed mortgage rate contracts, low limits of loan-to-value ratios and no mortgage equity withdrawal.

Borrowing constraints, collateral fluctuations, and the labor market

This paper studies the effects of changes in collateral requirements on the cyclical properties of unemployment and job creation. I develop a general equilibrium model in which labor market frictions prevent the costless adjustment of employment. Financial frictions arise from an imperfect enforcement contract. An environment in which borrowing limits are linked to the firm׳s physical capital stock can quantitatively account for the sluggish response of labor market variables to productivity shocks. I find that fluctuations in those variables are mainly driven by changes in financial conditions. The model can explain 75% of the variation in job creation observed in the data, and it can also account for the persistent reduction in both output and leverage that follows a contraction in credit availability.

Monetary Policy and Credit Supply Shocks

The depth and duration of the 2007–09 recession serves as a powerful reminder of the real consequences of financial shocks. Although channels through which disruptions in financial markets can affect economic activity are relatively well understood from a theoretical perspective, assessing their quantitative implications for the real economy remains a considerable challenge. This paper examines the extent to which the workhorse New Keynesian model—augmented with the standard financial accelerator mechanism—is capable of producing the dynamics of the U.S. economy during the recent financial crisis. To do so, we employ the methodology of Gilchrist and Zakrajsek (2011) to construct a measure of shocks to the financial sector, which is then used to simulate the model over the crisis period. The results indicate that a reasonably calibrated version of the model can closely match the observed decline in economic activity and can account for the sharp widening of nonfinancial credit spreads, a decline in nominal short-term interest rates, and for the persistent disinflation experienced in the wake of financial disruptions. Given its empirical relevance, we then use this framework to analyze the potential benefits of a monetary policy rule that allows the short-term nominal rate to respond to changes in financial conditions as measured by movements in credit spreads. The results indicate that such a spread-augmented policy rule can effectively dampen the negative consequences of financial disruptions on real economic activity, while engendering only a modest increase in inflation.

Dilemmas of a Vitalizing Vaccine Market: Lessons from the MMR Vaccine/Autism Debate

A number of issues related to vaccines and vaccinations in society are discussed in this paper. Our purpose is to merge an analysis of some recent changes in the vaccine market with social science research on the relationship between citizens and authorities. The article has two empirical parts. The first shows how the vaccine market, which for many years has had immense financial problems, nowadays seems to becoming economically vitalized, mostly due to the production of new and profitable vaccines. However prosperous the future may appear, certain reactions from the public regarding vaccination initiatives offer insight into inherent problems of vaccine policies in many Western countries. In the second part of the article, these problems are exemplified with the recent controversy over the MMR (measles, mumps, and rubella) vaccine. We conclude that in spite of the improving profit-margins, the vaccine market remains vulnerable and insecure. Vaccines are permeated by society, even more so than pharmaceutics that are used to cure or alleviate illnesses. Radical changes in financial conditions with promises of a more profitable market will not, we argue, solve other even more fundamental problems.

Monetary Policy and the Financing of Firms

How should monetary policy respond to changes in financial conditions? We consider a simple model where firms are subject to shocks which may force them to default on their debt. Firms' assets and liabilities are nominal and predetermined. Monetary policy can therefore affect the real value of funds used to finance production. In this model, allowing for inflation volatility in response to aggregate shocks can be optimal; the optimal response to adverse financial shocks is to lower interest rates and to engineer some inflation; and the Taylor rule may implement allocations that have opposite cyclical properties to the optimal ones. (JEL G32, E31, E43, E44, E52)