Economic Fundamentals Research Articles

Volatility spillover across Chinese carbon markets: Evidence from quantile connectedness method

The paper investigates the volatility spillover across China's carbon emission trading (CET) markets using the connectedness method based on the quantile VAR framework. The non-linear result shows strong volatility spillover effects in upper quantiles, resulting from major economic and political events. This is in accordance with the risk contagion hypothesis that volatility of carbon price returns is affected by the shocks of economic fundamentals and spills over to other pilots. Guangdong and Shanghai are the most significant contributors to volatility transmission because of their high liquidity and active markets. Hubei CET pilot has shifted from transmitter to receiver since the COVID-19 pandemic. Regarding the pairwise directional connectedness, geographical location and similar market attribute also matter in volatility transmission. This provides implications for policymakers and investors to attach importance to risk management given the quantile-based method rather than the average shocks.

Precautionary Saving and Liquidity Shortage

Most of the canonical macroeconomic models simulate liquidity anomalies by changing the economic fundamentals or adding massive financial shock to firms’ collateral constraints, but a few facts somehow tell a different story. Instead of relying on the exogenous shocks, we introduce uncertainty into an otherwise classical liquidity framework and try to answer what worsens the aggregate liquidity in the absence of exogenous simulations and what a firm dynamics and financing strategy would be. Our analysis shows that (1) uncertainty induces agents to make decisions under the worst-case scenario and hence generates a unique expectation threshold that drags market (or firms) liquidity from sufficiency to insufficiency even without any shock or economic changes. (2) Precautionary saving occurs before the real liquidity shortage as the expectation shifts, causing firms to secure external financing by raising the equity issuing price and hoarding liquid assets, such as fiat money, against liquidity tightening. (3) To achieve liquidity stability and sustainability, an extra mathematical constraint is supplemented for the uniqueness and the existence of equilibrium under uncertainty. Other properties of firms’ intertemporal allocations, such as the bid-ask spread and return of holding of the illiquid asset, are derived. Moreover, some approaches for further empirical research are discussed.

Trends and Implications of Caring Economics Research in Indonesia: a Bibliometric Analysis from 2016 to 2022

Purpose: The aim of this study is to explain the trends of published research on Caring Economics and their implications for the development of future research. Theoritical Framework: Caring Economics is a novel approach to considering human prosperity. According to conventional economics, prosperity is determined by consumption, income, and wealth. Caring Economics, in contrast, conceives of prosperity in terms of more fundamental causes of long-term human wellbeing. From this perspective, individuals are prosperous when their lives are going well. This feeling of success is not limited primarily to the satisfaction of materialistic demands and desires. Moreover, it contains an interpersonal component. Design/methodology/approach: This research method is a bibliographic analysis using data from the Google Scholar database, the most popular indexer in Indonesia. To collect data, Harzing Publish or Perish was used with the central database of Google Scholar. VosViewer is also used as a tool to get a map of the relationship between authors and between searched keywords. Furthermore, Microsoft Excel is used to process the data and tree mapping from the data obtained. Findings: This research is essential to drive the development of a sustainable caring economics paradigm in realizing collective economic prosperity. The results of this study indicate that the type of research with the theme of Caring economics is not widely published, namely 32 publications of research results and conceptual scientific ideas. Focused and Interdisciplinary Journal of Partnership Studies is the most influential journal in Caring Economics research, namely H-index 4. The most cited Caring Economics researcher from 2015 to 2022 is Indra Darmawan, with 4 citations. Silvia Hedenigg followed in second place with 4 citations and Mit Witjaksono with 2 citations. After being traced, Indra Darmawan and Mit Witjaksono came from the State University of Malang. Researcher Silvia Hedenigg comes from Friedensau Adventist University institution. Research, Practical & Social implications: The results and findings indicate that caring economics research has not been widely studied in economics, economic education, community economics, health, and services related to humans and the economy. Empirically, problems related to concerns in economics, financial education, community economics, health, and services related to humans and the economy must be investigated to solve the issues faced. It is essential to implement caring economics to build the Indonesian economy towards social justice for all Indonesians by realizing a prosperous Indonesia as a whole. Originality/value: This finding has implications for efforts to encourage academics and researchers in Indonesia to discover caring economics to revitalize the economy from the micro to macro level so that Indonesia's economic fundamentals are getting stronger. In addition, it is recommended for collaborative research between institutions to enrich scientific wealth and develop a more comprehensive research study on Caring Economics.

CURRENCY CRISES AND CONTAGION CHANNELS IN ASIAN ECONOMIES

This study examines multiple transmission mechanisms that propagate and amplify shocks across Asian nations owing to financial turbulence with emphasis on global shock transmission between economies that prioritise ‘trade’ and ‘financial’ connections in four countries: Indonesia, Korea, Malaysia, and the Philippines. Based on the logit estimation outcomes, a higher degree of trade openness amplifies the implications of shocks on the economy. Relevant implications are drawn for optimal regional monitoring and the coordination of integration as the economic fundamentals associated with the currency crises complements the first-generation models of speculative attacks.

Prediction of The Global Recession's Effects on Indonesia's Economy in 2023

The global economy in recent years has shown a downward trend and is predicted by the World Bank to become a recession in 2023. As a global economic phenomenon, this condition will affect every country, including Indonesia’s. This study analyzed the ability of Indonesia's economic fundamentals in a qualitative descriptive and literature study based on five indicators of the economic crisis, namely: economic growth, the exchange rate of the rupiah against the US dollar; inflation; economic growth; and total foreign debt, by comparing conditions during the economic crisis in 1998 and 2008, with Indonesia's current economic situation (in 2022). The results of this study indicated that Indonesia's economic condition is considered quite ready and stable to face the threat of a global economic crisis in 2023. However, as a country that depends on global economic relations, Indonesia will indirectly or directly impact the economic fluctuations and inflation that occur in many countries during the crisis because the economic crisis will have social and political impacts. This research suggests that Indonesia should focus on maintaining economic continuity in the real sector, maintaining the supply of basic needs at the community level, building economic independence by encouraging more production, and supporting political and security stability.

Does Exchange Rates Swings Affect Trade? Evidence from an Emerging Open Economy

The volatility of the exchange rate is commonplace for every open economies. If excessive, it would have severe implications for the country’s international trades. Using the ARDL and cointegration bound tests on quarterly data [2000:Q2–2022:Q3], the study empirically explore how exchange rate volatility and other macroeconomic variables impacts real exports and imports demands for Nigeria. The evidence identify cointegration and the trade’ parsimonious models disclose a negative as well as significant short run effects of the exchange rate volatility. The estimated convergence ECM regressions indicate that exchange rates volatility cause significant decline in real exports and imports in the long run. Under this circumstance, the study supposes measures that will curb fluctuations beyond economic fundamentals. In particular, monetary authority should expand periodic exchange rate intervention to curtail excessive swings. This should be maintained intuitively and regularly appraise to avoid creating any counter-productive response.

How many fundamentals should we include in the behavioral equilibrium exchange rate model?

This paper evaluates the reliability of alternative equilibrium exchange rate assessments. The literature has predominantly relied on the behavioral equilibrium exchange rate (BEER) model, which attempts to establish a long-term link between the real exchange rate and economic fundamentals. We challenge the recent tendency among BEER modelers to increase the number of regressors. The wisdom of this choice is evaluated with the criterion that equilibrium exchange rates should help predict the future trajectory of real exchange rates. Using panel data for 30 countries during the period 1991–2018, we show that it is hard to outperform both a parsimonious BEER model (with only three fundamentals) and the relative PPP model (which excludes a role for fundamentals in the long run). This finding calls for caution in the ability of economists to closely map the evolution of equilibrium exchange rates and economic fundamentals. • Behavioral equilibrium exchange rate (EER) models are widely used by policy makers. • Large BEER models are commonly believed to be more reliable than simple ones. • We assess BEER model reliability within a forecasting competition framework. • We find that the increased model complexity is counterproductive out-of-sample. • The claim that we understand long-term drivers of real exchange rates beyond PPP is doubtful.

Economic Fundamentals and Stock Market Valuation: A CAPE-based Approach

Economic Fundamentals and Stock Market Valuation: A CAPE-based Approach

Learning about Debt Crises

The European debt crisis presents a challenge to our understanding of the relationship between government bond yields and economic fundamentals. I argue that information frictions are an important missing element and support that claim with evidence on the evolution of GDP forecast errors after 2008. I build a quantitative model of sovereign default where output features rare disasters and agents learn about their realizations. Debt crises coincide with economic depressions and develop gradually while markets update their expectations about future income. Calibrated to the Portuguese economy, the model replicates the comovement of bond spreads and output before and after 2008. (JEL E23, E27, E32, E43, F34, H63)

Interaction between Stock Return and Retail Investor Sentiment on the Indonesia Stock Market

This study investigated the relationship between retail investor sentiment and stock return in Indonesian markets. The examination was based on the firm size characteristics of the big, middle, and small stock indexes obtained from Morgan Stanley Capital Indonesia (MSCI). The study assessed the monthly statistics of the Indonesia Stock Exchange (IDX) on returns on the MSCI index and stock trading volume between January 2015 and January 2021 to analyze the influence of retail investor sentiment. Retail investor sentiment as an object of research has criteria, namely stock trading volume activity carried out by individual investors registered on the IDX. We find that retail investors' irrational sentiments should have a larger impact on all stock market return indexes than their rational sentiments and retail investors' irrational sentiments had the largest impact on the middle stock return index. We also document that the all-stock returns index is significantly and negatively impacted by investor sentiment. Unlike prior research, which placed all of the blame for the negative stock market sentiment on the irrational actions of investors, the new data lends credence to the thesis that underlying economic fundamentals drive stock market returns. Since both rational and irrational emotions affect stock returns, investors can enhance their portfolio performance by considering both. This research adds to the growing literature on behavioral finance regarding the impact of retail investor sentiment on the performance of all stock indices based on firm size characteristics and adds to the understanding of the impact of retail investor sentiment on stock returns, particularly in Indonesia as a representative of an emerging market. Keywords: retail investor sentiment, Indonesia Stock Exchange, stock returns, error correction model, vector error correction model. DOI: https://doi.org/10.55463/hkjss.issn.1021-3619.60.69

The Usefulness of Corporate Income Tax Accounting: Evidence from Pension Returns

ABSTRACTWe explore whether income tax accounting (ITA) for pensions provides measurement benefits incremental to U.S. GAAP. We use publicly reported Form 5500 defined-benefit pension expense and funding measures, which are calculated using ITA rules, and contrast them with parallel GAAP amounts. We document that ITA measures are more strongly associated with market value, future cash contributions, the cost of equity capital, and credit ratings than comparable GAAP measures, particularly when ITA better maps to economic fundamentals and when GAAP offers greater managerial discretion. Using intraday returns and disclosure times obtained through a Freedom of Information Act request, we also find that markets quickly react to the release of ITA measures in Form 5500. Our study provides novel empirical tests of theory about the benefits of ITA using actual, not imputed, ITA measures and provides evidence that investors can and do use the unique information in a publicly disclosed tax form.JEL Classifications: H25; J32; M41; M48.

Expectations and the Central Banker: Making Decisions the Market Expects to See?

This paper develops a simple model to examine conditions under which a monetary policy-making authority is tempted to ‘follow the market’. In doing so, we explore the implications of increased market consensus on the practice of monetary policy and show that inefficiency in policymaking is most likely precisely when there is a very high consensus that economic fundamentals are weak or strong. In addition, our results also shed light on (i) why interest rates may not be high enough even when the central bank's information suggests a rise in asset prices may be due to a ‘bubble’ shock; (ii) why a central banker may be reluctant to adopt a loose monetary policy even when investors seem to be very pessimistic about the path of future output; and (iii) why, contrary to conventional models, we sometimes observe an upward revision of private sector‘s forecasts of inflation when the central bank tightens its monetary policy. The results have implications for the transparency of monetary policy.

Macro‐financial linkages in the high‐frequency domain: Economic fundamentals and the Covid‐induced uncertainty channel in US and UK financial markets

AbstractThis article contributes to our understanding of the macro‐financial linkages in the high‐frequency domain during the recent health crisis. Building on the extant literature that mainly uses monthly or quarterly macro proxies, we examine the daily economic impact on intra‐daily financial volatility by applying the macro‐augmented HEAVY model with asymmetries and power transformations. Our study associates US and UK financial with macroeconomic uncertainties in addition to further macro drivers that exacerbate equity market volatility. Daily local economic policy uncertainty is one of the main drivers of financial volatility, alongside global credit and commodity factors. Higher macro uncertainty is found to increase the leverage and macro effects from credit and commodity markets on US and UK stock market realized volatility. Most interestingly, the Covid‐19 outbreak is found to exert a considerable impact on financial volatilities through the uncertainty channel, given the prevalent worry about controversial policy interventions to support societies and markets, particularly in the case of the severely censured US and UK governments' reluctant and limited response in the very beginning of the pandemic.

Nowcasting of the Short-run Euro-Dollar Exchange Rate with Economic Fundamentals and Time-varying Parameters

This paper nowcasts the Euro-Dollar short-run exchange rate by using a MF-TVP-FAVAR model. The FAVAR framework improves forecasting accuracy by expanding the information set of the previously widely used VAR models. We adopt a flexible modelling approach that adjusts for structural breaks in the data and money demand instability; it also prevents information loss due to variables being quoted at mixed frequencies. We estimate our model by using a dual conditionality linear Kalman filtering/smoothing. Our results indicate that the specified model outperforms the Random Walk and other structural models at all forecasting horizons.

Modelování rovnovážných odchylek měnových kurzů od parity kupní síly na datech pro 34 zemí v letech 2000-2020

We construct a simple model of exchange rates stemming from the methodology of behavioural equilibrium exchange rate (BEER) models on annual panel data for 34 countries with a floating exchange rate regime during the period 2000-2020. The basic building block of the model is the absolute version of purchasing power parity theory (the ratio of domestic and foreign price levels), further extended by other variables rooted in economic theory. A complementary interpretation of our approach could be a measurement of exchange rate deviations from purchasing power parity caused by variation in economic fundamentals. The results suggest that purchasing power parity is an appropriate reference point for exchange rate models. Furthermore, national currencies tend to be stronger against the euro with higher GDP per capita, interest rates, investment freedom, urbanization rate and terms of trade, and with lower inflation. The presented deviations of exchange rates from the model equilibrium are significantly lower than those implied by a naïve model based on purchasing power parity alone.

Liquid Proof-of-Stake in Tezos: An Economic Analysis

In this paper, we investigate some economic fundamentals related to the Tezos blockchain platform under the Emmy* consensus protocol. The protocol is based on a liquid version of Proof-of-Stake, in the sense that users can temporarily delegate some or all of their Tz units to full nodes. In addition to increasing the stake of the full node, and thus the probability of being selected as a block baker/endorser, such delegation induces the property of the super-additivity of users’ selection probability of baking/endorsing a block. That is, with delegation, the selection probability may be larger than the sum of the selection probabilities without delegation. In this paper, we study how monetary holdings and stakes can evolve with time, also discussing the individual user and the market implications of delegation.

Analysis of Cultivated Land Area and Urbanization Rate Based on Spatial Coordination

The study of the regional effects of urban competitiveness on housing prices and their impact is of great significance to real estate market operations, consumer purchases and government decision-making. This study takes 32 major cities as research samples, draws on the more mature urban competitiveness index system, selects 8 representative factors, collects panel data such as statistical yearbook, and uses principal component analysis regression equation to establish the influence of urban competitiveness on housing price. The model analyzes the extent to which major competitiveness factors affect housing prices. The results show that: 1 The regional GDP and the balance of household savings play a more important role in the change of housing prices. The impact of environmental factors on housing prices is gradually expanding. The impact of urban real estate development investment on housing prices is getting smaller and smaller. The tertiary industry creates comfort for urban life and has a greater impact on housing prices. The total population at the end of the year and the number of students in colleges and universities have a negative impact on housing prices; the total population at the end of the year, the completion of real estate development investment, and the proportion of the tertiary industry have a greater impact on housing prices in the eastern region; Factors such as economic fundamentals have a greater impact.

The excess volatility puzzle explained by financial noise amplification from endogenous feedbacks

The arguably most important paradox of financial economics—the excess volatility puzzle—first identified by Robert Shiller in 1981 states that asset prices fluctuate much more than information about their fundamental value. We show that this phenomenon is associated with an intrinsic propensity for financial markets to evolve towards instabilities. These properties, exemplified for two major financial markets, the foreign exchange and equity futures markets, can be expected to be generic in other complex systems where excess fluctuations result from the interplay between exogenous driving and endogenous feedback. Using an exact mapping of the key property (volatility/variance) of the price diffusion process onto that of a point process (arrival intensity of price changes), together with a self-excited epidemic model, we introduce a novel decomposition of the volatility of price fluctuations into an exogenous (i.e. efficient) component and an endogenous (i.e. inefficient) excess component. The endogenous excess volatility is found to be substantial, largely stable at longer time scales and thus provides a plausible explanation for the excess volatility puzzle. Our theory rationalises the remarkable fact that small stochastic exogenous fluctuations at the micro-scale of milliseconds to seconds are renormalised into long-term excess volatility with an amplification factor of around 5 for equity futures and 2 for exchange rates, in line with models including economic fundamentals explicitly.

Meningkatkan Kemampuan UMKM Kecamatan Cibadak Kabupaten Lebak Banten Melalui Workshop Sistem Daya Saing (Pelatihan Accounting, Pricing, dan Marketing Berbasis Web)

The lack of solid Indonesian economic fundamentals has prompted the government to buildan economic structure by taking into account the existence of Micro, Small and MediumEnterprises (SMEs). This sector has been proven to provide jobs and provide opportunities forSMEs to develop in society. The existence of SMEs cannot be doubted because they have proven tobe able to survive and become an economic driver, especially after the economic crisis. On theother hand, SMEs also face many problems, namely limited working capital, low humanresources, and inadequate mastery of science and technology. Another obstacle faced by MSMEsis the unclear relationship with business prospects and unstable planning vision and mission.Providing information and market networks, easy access to funding and assistance as well asincreasing information technology capacity are some strategies to increase the competitiveness ofIndonesian SMEs.In this case, special attention is needed for SMEs, especially for business records,determining HPP and marketing problems. Efforts to develop small and medium industries, thenthese weaknesses must be overcome. This is where the role of universities as educationalinstitutions can be more involved and help overcome existing problems so that it is hoped thatMSMEs can continue to play a role in Indonesia's economic growth and development.

Why is it worth studying economics? A course proposal for non-economics students

At an early life stage, students must choose a degree, a crucial decision that will shape their professional life. Whatever the studies chosen, these are very topic specific, and the current higher education system does not have the mechanisms to make this choice less focused, allowing students to open their minds to other areas of knowledge. This situation is particularly critical for students who do not choose a major in a business-related discipline. Basic economic knowledge is paramount as it provides individuals with a better understanding of human behavior and the rules of the marketplace. Knowledge of its foundations is valuable for daily life (e.g. making better choices, allocating resources more effectively, and understanding policy options). However, in some countries, economics is compulsory at neither high school nor university; and thus, it is usually overlooked. Focusing on Spain’s particular context, this study underlines the key reasons for including economics in non-economic university programs. A survey gathering students’ perceptions of the fundamentals of economics and their level of understanding is presented and discussed. Building on the literature and the survey’s results, we identify three core blocks that should be taught. A panel of experts is consulted to evaluate our proposal.