Expansionary Monetary Policy Research Articles

The Monetary Policy of Real Estate Industry Implemented by the Government under the Covid-19

Abstract: Recently, the real estate become more and more prosperous and turn out the mainstay industry of Chinas economy. And monetary policy is a wise choice to control the development of the real estate industry. In the history of the development of Chinas real estate industry, different periods have different monetary policies implemented by the government. Recently, with the influence of COVID-19, the real housing industry has been in a recession. This essay summarizes the past monetary policies implemented by government and extends to the status quo of the real housing industry to find out the fitting monetary policy which can relieve the pressure brought by the COVID-19. The expansive monetary policy would reduce the bubbles of real estate industry while the constrictive monetary policy would enhance the real estate industry. And finally get the conclusion that government should choose to implement a tight monetary policy to boost the economy of the property sector.

The impact of bank liquidity, monetary policy and global crises on bank risk-taking: evidence from Vietnam

Purpose This paper aims to examine the impact of bank liquidity, monetary policy and global crises on bank risk-taking behavior of Vietnamese banks. It provides evidence for a risk-taking channel of monetary policy through bank liquidity and global crises. Design/methodology/approach The study uses the data set of 572 observations from 35 banks operating in Vietnam between 2005 and 2022, using the GMM regression technique. Findings The findings indicate that banks with higher liquidity tend to take more risks in the long run. Additionally, expansionary monetary policies encourage banks to take on more risk. Bank liquidity and global crises, such as the global financial crisis and the COVID-19 pandemic, not only directly affect bank risk-taking but also indirectly through monetary policy. Originality/value This paper expands the existing literature by examining the effect of bank liquidity, monetary policy and global crises on bank risk-taking by using the GMM and two models of which the authors regress the impact with and without bank liquidity and global crises. New factors affecting risk-taking, including operating cost, financial crisis and the COVID-19 pandemic are added into the model.

Restrictive monetary policy – an obstacle to foreign direct investment

This article examines some acute problems of Foreign Direct Investment (FDI), Monetary Policy and Inflation. Following a long declining trend, global FDI flows decreased in 2023 and remaining below the indicator of 2007, that is pre-global financial crisis level. According to international organizations, FDI flows were negatively affected by high interest rates, unfavourable financing conditions and situation on capital markets. The article considers the role of restrictive monetary policy alongside the theoretical aspects of global inflation. The author argues that the drop in international investment, in particular, can be attributed to Restrictive Monetary Policy in many countries. Restrictive Monetary Policy seems to underestimate the inflationary role of imperfect competition, the rise of prices for imported energy and food, the fluctuations of currency rates as well as expectations of the micro-level participants. The article provides certain economic recommendations to Russia’s regulators on Monetary and FDI Policy. In future the Bank of Russia may gradually move from Restrictive Monetary Policy to Expansionary Monetary Policy to provide stimulus for FDI. Also, this article summarizes the process of predicting future condition of the world economy in applying Kondratieff’s approach. The author concludes that it is necessary to continue studying the long wave theory with the aim of its further use in forecasting the events in Russia and worldwide.

Main business profits at risk? Examining the financialization conundrum

We examine the impact of financialization on the profitability of firms’ main business activities and the role of monetary policy. Using evidence from Chinese A-share listed firms from 2008–2019, we reveal that financialization leads to a significant reduction in firms’ main business profits. The negative effect remains robust after testing for robustness and addressing endogenous concerns. We also find that expansionary monetary policy exacerbates this effect, and it is more pronounced when firms hold more short-term financial assets and in state-owned firms. Our findings suggest that enterprises shall strategically reassess investment priorities towards long-term operational sustainability and value creation, while mitigating excessive financialization tendencies.

Monetary policy and equity returns: The role of investor risk aversion

AbstractThis article examines the role of investor risk aversion in the transmission of monetary policy to stock returns based on U.S. data. Our results show that following an expansionary monetary policy shock, investor risk aversion falls, leading to a decrease in the equity risk premium and an increase in equity returns. Moreover, the returns of high‐beta stocks increase much more than those of low‐beta stocks. Finally, we investigate the mechanism through mutual fund flows. We find that high‐beta funds attract greater inflows in response to lower interest rates, and there is a positive relationship between fund returns and flows. Our findings have policy implications for financial stability.

Uncovering the Mystery of Tax Collection and Money Supply in Targeting Industrial Success: A Case Study of Singapore

The economic vitality or momentum of any economy is contingent upon the success of the industrial sector. The rise in industrial production indicates economic progress, improved livelihoods, enhanced access to necessities and increased domestic investments. Economic strength transforms into economic weakness if the industrial sector is not producing the desired outcome. This study investigates how tax revenue and money supply relate to Singapore's industrial production in order to understand more about the shifting trends in the country's industrial output. This study takes into account FDI inflows, domestic listed companies and electric power consumption as controlling factors of industrial production function. The ARDL bounds test has been employed over the period from 1980-2022. The empirical findings provide evidence of cointegrating relation between industrial production and its regressors in the long run. The results further demonstrate that tax revenue as an instrument for fiscal policy and money supply as an instrument for monetary policy are significantly escalating industrial production but between both, money supply has a stronger impact on industrial production. This study suggests that expansionary monetary policy and expansionary fiscal policy may be adopted to accelerate industrial production in Singapore while keeping the cost of conducting these policies in mind. Furthermore, FDI inflows and domestic listed companies are also advised to be encouraged as these give a boost to industrial production.

Funding Liquidity and Risk-Taking Behavior of Banks in India

This study, utilizing bank-level data for India, investigates the relationship between funding liquidity and banks’ risk-taking behavior. The study uses two risk measures: risk-weighted assets (encompassing credit, market, and operational risk) and liquidity creation (encompassing intermediacy risk). Findings reveal that banks with higher funding liquidity exhibit higher risk-taking behavior. This risk-taking behavior is more pronounced during economic recuperation and expansionary monetary policy phases. Notably, during economic recuperation, banks display heightened intermediacy risk, contrasting with the absence of such evidence during expansionary monetary policy phases. Larger banks with higher deposit shares demonstrate lower risk-taking behavior. Additionally, banks with a return on equity (ROE) below the average ROE exhibit a proclivity for increased risk-taking. This study advocates for liquidity regulation as a crucial complement to bank capital regulation, offering empirical support for moderate risk-taking among highly liquid banks and fortify their balance sheets for a stable banking system in India. JEL Codes: E32, E52, G21, G28

The Macroeconomic Impact of Crude Oil Price Fluctuations in Nigeria

The main objective of the study was to determine the way fluctuations in the price of crude oil affected macroeconomic variables in Nigeria from 2000 Q1 to 2022 Q4. The data was analysed in the paper using Structural Vector Autoregressive (SVAR) models. According to the findings, Nigeria's current economic growth has been significantly impacted by lag GDP values. This indicates that economic growth in Nigeria was significantly impacted by one-period lag GDP by 3,791.7 units in the short-run and 7,430.4 units in the long-run. Also in the short-run, the current broad money supply was significantly impacted by both the one-period lag general price level (0.445 units) and the one-quarter lag broad money supply (757.7 units). According to the crude oil price fluctuation model, current crude oil price variations in Nigeria are significantly influenced by one-period lags in general price level (-64.9 units), crude oil price fluctuation (1,114.6 units), and fiscal budget deficits (0.65 units). All of the one-period lagged coefficients of macroeconomic variables, including real GDP, broad money supply, interest rates, general price level, inflation rates, and fiscal budget deficits, had a significant impact on current economic growth and broad money supply, respectively, as demonstrated by the long-run economic growth and broad money supply models. The real GDP's impulse response to fluctuations in crude oil prices fell during the first period, peaked during the second, and then increased to show a positive trend during the third. This study came to the conclusion that shocks or fluctuations in the price of crude oil are the main cause of macroeconomic policy instability in Nigeria. The study recommended that the government should control foreign exchange rate regimes, pursue expansionary monetary policy, general price level control and stabilisation measures.

Unveiling the Yin and Yang of expansionary monetary policy: Differential impact on inequality in China based on a national-level survey

This study explores the impact of expansionary monetary policy (EMP) on both income and wealth inequality in China using data from a national-level survey, with a particular focus on the discernible trend of wealth inequality surpassing income inequality since the beginning of the 21st century. Our findings unveil a non-uniform relationship between EMP and income inequality. While it serves to mitigate disparities between middle and low-income groups, it simultaneously exacerbates gaps between middle and high-income groups. In terms of the impact on wealth inequality, EMP exacerbates disparities by amplifying the wealth of low, middle, and high-wealth strata, with the effect escalating from lower to higher wealth groups. Moreover, this study identifies the burgeoning real estate market as the pivotal factor amplifying the policy's influence on wealth inequality. By elucidating the varied effects of EMP on income and wealth inequality, this study provides policymakers in transitioning economies with valuable insights to address inequality issues.

Asymmetric effects of monetary policy shocks on financial stability

This study investigates the asymmetric effects of interest rate innovations on financial stress during times of conventional and unconventional monetary policy. We employ the methodology of Kilian and Vigfusson (2011) to examine the possible asymmetries between different monetary policy stances of the Fed and the ECB. The period under examination spans from 1999 to 2023, when the two central banks were active in conducting quantitative easing (QE) operations. The evidence reveals that the effects of implementing a contractionary or an expansionary monetary policy on financial stress are sign- and size-specific.

The post-COVID inflation episode

This study examined the recent inflation episode in the US using an estimated NK-DSGE model with endogenous unemployment fluctuations. We find that the US price inflation accelerated due to a sudden wage increase during the COVID-19 lockdown, the 2021 expansionary monetary policy, and price-push shocks in the quarters of a global surge in energy costs. The disinflation path predicts that further indexing prices or wages to lagged inflation will lead to higher wage inflation and slower price disinflation. Moreover, severely tightening the Fed’s monetary policy will only slightly reduce inflation but increase unemployment.

EVALUATION OF THE EFFECT OF EXPANSIONARY MONETARY POLICIY IMPLEMENTED DURING COVID-19 ON THE TÜRKİYE, EU AND US ECONOMIES

In this article, the effect of expansionary monetary policy implemented during the covid-19 on the Türkiye, the EU and the USA economies has been evaluated. The beginning of the pandemic covers the period between January 2020 and January 2024. The effects of the monthly percentage change in M3 money supply on unemployment, real economic growth and inflation are presented comparatively with graphs. As a result, while Türkiye was the country where the increase in M3 money supply increased inflation the most, the country where unemployment increased most rapidly at the initial phase of the pandemic was the USA. However, over time, the Fed managed to reduce unemployment to historical low levels with the measures it took. The consequence of the contractionary monetary policy after the pandemic, inflation has been brought under control and the option of reducing interest rates has recently come to the fore. Rising inflation in the EU was also taken under control, but unemployment still remained high

HANK Comes of Age

We study the aggregate and distributional effects of monetary policy in a heterogeneous agent New Keynesian model that explicitly represents the life cycle of households. The model matches the age patterns in the level and dispersion of labor income and financial wealth in the U.S. despite the absence of preference heterogeneity and portfolio adjustment costs. Monetary policy affects the consumption of young households mainly through labor income and the consumption of old households mainly through asset returns. More than half of the aggregate consumption response to an expansionary monetary policy shock comes from those below the age of 40. The shock redistributes welfare from the wealthiest old to the poorest young and increases average welfare of most cohorts.

Asymmetric Effect of Monetary Policy on Asset Prices: Contractionary VS Expansionary Regimes

This research study seeks to investigate the asymmetrical impact of monetary policy on asset prices (stock price and house prices as indicators of asset prices). Understanding this asymmetry is crucial for policymakers and central banks to evaluate the implications of expansionary and contractionary monetary policies on asset price dynamics. The study examines both interest rates and the money supply, which are key tools of monetary policy, to determine if they have similar effects on asset prices across various economic regimes in 51 countries with diverse income levels for the period of 2009 to 2021. Using a linear and non-linear ARDL (NARDL) approach this study analyze the short-run and long-run impacts of monetary policy on stock and house prices, besides comparing the symmetric and asymmetric impacts of monetary policy shocks on these prices. The outcomes accentuate the importance of policymakers being cognizant of the impacts of different policy regimes on asset prices. Notably, the study reveals a significant and negative short-term impact of interest rates on asset prices under contractionary monetary policy. Conversely, expansionary monetary policy does not demonstrate a significant short-term effect on asset prices. This study makes substantial contributions by deepening insights into the efficacy of monetary policy, offering practical guidance for policymakers, and addressing a pivotal void in the extant scholarly discourse.

The effects of monetary policy across fiscal regimes

How do the effects of monetary policy depend on the fiscal policy stance? We aim to answer this question using a panel smooth transition local projection model for the euro area. We find that an expansionary monetary policy shock raises inflation and output, but only when fiscal policy is also expansionary. In a regime of contractionary fiscal policy, the responses to a monetary easing are insignificant or negative. Similarly, a monetary tightening only reduces inflation and output when accompanied by contractionary fiscal policy. These results are robust to several alternative model specifications and underline the importance of the fiscal stance for the effects of monetary policy.

How do institutions affect output recovery after financial crises?

This study examines whether a country’s institutional quality can affect its output recovery after the recessions caused by financial crises. Utilizing a sample of 66 countries that experienced various financial crises during the period 1985–2010, we find that the quality of government institutions is negatively associated with the duration of recovery as well as the depth and severity of output losses during recessions. The results remained valid even after accounting for potential endogeneity. Moreover, institutional quality’s ability to improve output recovery is more pronounced for countries with the largest output losses, when coupled with an expansionary monetary policy, in emerging economies, during banking and sovereign debt crises, and in the 1990s.

The Micro-Effect of Monetary Policy on the Misallocation of Credit

The structural effects of monetary policy and these effects impact on credit allocation are crucial facets of monetary policy research. This study initially estimates China’s monetary policy based on the GDP growth target and CPI target found in the Chinese Government’s Annual Work Report. Subsequently, it quantifies the extent of credit misallocation among Chinese firms using data from listed companies from the years 2013 to 2022. Finally, we empirically investigate the repercussions of expansionary monetary policy shocks on credit misallocation, focusing on micro-firms. Empirical findings reveal that expansionary monetary policy significantly exacerbates credit misallocation, particularly in underfinanced firms. Mechanistic analysis suggests that a preference for loan size in lending behavior constitutes a major factor contributing to credit misallocation among firms.

The Effects of Interest Rates on Bank Risk-Taking in South Africa: Do Cyclical and Location Asymmetries Matter?

We examine the nonlinear relationship between interest rates on bank risk-taking behavior in South Africa between 2008:q1 and 2022:q3 using nonlinear autoregressive distributive lag (NARDL) and quantile autoregressive distributive lag (QARDL) models. Whilst the preliminary estimates from linear ARDL produce results adhering to conventional theory, the NARDL and QARDL analysis shows that the relationship between the variables is more complex. On one hand, the NARDL model shows that the phase of monetary policy (cyclical asymmetries) is important in determining the pass-through effects of interest rates on bank risk behavior. We find that both contractionary and expansionary monetary policy increases long-term risk through decreased liquidity for the former and increased non-performing loans for the latter. On the other hand, the QARDL model shows that the level of bank risk behavior (location asymmetries) is also important in determining the impact of interest rates on bank risk behavior. We find that interest rates affect bank risk behavior in ‘medium-to-high risk environments’ for unsecured loans and lending and in ‘medium-to-low risk environments’ for liquidity. Overall, these results enable us to recommend ways in which the SARB can strengthen its monitoring mechanisms given the multifaceted impact of interest rates on bank risk-taking.

The Implementation of Central Bank Policy during the Economic Crisis in Lebanon

During the last four years Lebanon has been facing a severe crisis that have no way out. It has challenged all the potential of the authorities dealing with financial, social and economic sector circumstances. Recently this economic crisis is still going up in higher frequency and more effectively on the Lebanese people. During this crisis central bank of Lebanon implemented its own monetary policy that is represented by expansionary monetary policy. The aim of this paper is to detect the impact of central bank implemented monetary policy during the economic crisis in Lebanon using money supply and open market operations tools in both short and long run on coincident index and consumer price index. In this consideration we perform monthly data covering the period January 2017 to June 2022 by applying VAR model. The empirical results shows that money supply and open market operation have no impact on coincident index and consumer price index in the long run, in addition they do not cause them in the short run. However the impulse response function show some reactions of coincident index and consumer price index to shocks in money supply and open market operations.

Analyzing the dynamics of monetary policy and economic growth in Ethiopia: an autoregressive distributed lag (ARDL) approach

Numerous studies conducted by various scholars have aimed to ascertain the impact of monetary policy on economic growth. However, these empirical investigations have not reached a unanimous consensus. Therefore, this study analyzes the effect of monetary policy. To address this objective, this study employed ARDL and error correction model (ECM) based on annual data from 1993 to 2022. Granger causality test was also employed to check the direction of causal effects of one variable on the other variable. All required pre and post estimation tests were performed and verified that the model was statistically viable. The study revealed that, in the short run, deposit interest rate, reserve required amount, and open market operation have positive and statistically significant effects on real GDP growth of Ethiopia; however, money supply has negative and statistically significant effects on real GDP growth of Ethiopia. In the long run, money supply has positive and statistically significant effects on real GDP growth of Ethiopia; however, deposit interest rate and reserve required have negative and statistically significant effects on real GDP growth of Ethiopia. To sum up, in the short run, contractionary monetary policy was promising, and in the long run, expansionary monetary policy was favorable for economic growth. The Granger causality test result shows that there is bidirectional causality between monetary policy and economic growth; except there was a unidirectional relationship between deposit interest rate and economic growth. Ultimately, this research suggests the following policy recommendation: for short-term economic enhancement, it is advisable for the government to opt for a contractionary monetary policy rather than an expansionary one. On the other hand, for long-term economic improvement, an expansionary monetary policy is more favorable than a contractionary one.