Expansionary Monetary Policy Research Articles

BUSINESS CYCLE, MACROECONOMIC INDICATORS AND ECONOMIC GROWTH. THE SIERRA LEONE EXPERIENCE

<p>The study investigates the impact of business cycle fluctuation on economic growth in Sierra Leone using the autoregressive distributed lag (ARDL) model bound testing framework with annual time series data for the period 1992 to 2022. The result from the unit root shows that the variables are mixed variables of I (0) and I (1) variable series, while the bound test testifies that there is an existence of cointegration in the long run. The long-run result reveals that domestic credit to the private sector, inflation, lending interest rate, and broad money supply are the main determinants of the business cycle fluctuation on the economic growth in Sierra Leone. The result shows that broad money supply portrays a positive effect on the business cycle economic growth and statistically it is not significant at the 0.05 level of significance. It implies that for every 1% increase in the broad money supply, the business environment will be improved by 0.220 in the long run. This result implies that an increase in money supply is part of an expansionary monetary policy that tends to boost the industrial sector by expanding the investment which tends to create employment and improve the business cycle and economic growth in Sierra Leone. Policymakers are therefore encouraged to further enhance the power of appropriate monetary authorities in introducing both monetary and credit policies that will serve to increase the broad money supply.</p><p><strong> </strong></p><p><strong>JEL: </strong>E61, E62, P35<strong></strong></p><p> </p><p><strong> Article visualizations:</strong></p><p><img src="/-counters-/soc/0011/a.php" alt="Hit counter" /></p>

Monetary policy and housing market cycles

Abstract Using monthly data from 1978:M1 to 2019:M9, this paper provides empirical evidence concerning the role that monetary policy plays in the US housing market. We first show that shocks to short-run interest rates have significant impacts on house prices and that these effects are persistent. Our findings also provide evidence supporting the claim that too-low-for-too-long interest rates are responsible for the 2002–2006 US housing boom. We further investigate the different channels through which an easing monetary policy fuels the house price boom and find that faster sales and lower inventory levels in the housing market most amplify the policy effects. Lastly, we provide compelling evidence of the asymmetric effects of contractionary and expansionary monetary policies on house prices.

Influential Determinants of Income Disparity in China: An Examination Using Panel Data

Over the past few decades, the world has witnessed the economic miracle that China has achieved, but it is also worried about its rapidly increasing level of income inequality. This paper uses a panel data regression model to assess to what extent urbanization, Foreign Direct Investment (FDI), inflation, and education affect income inequality in China, using data from 25 Chinese provinces from 1995-2010. This study demonstrates that in China, the link between income inequality and urbanization aligns with the Kuznets inverted-U curve hypothesis. Meanwhile, FDI and education correlate positively with income inequality, while inflation and income inequality correlate negatively. The finding of this study argues that the policymaker in China should moderate urbanization to a certain extent, direct FDI flows to sectors that better benefit society as a whole, limit the rich's access to additional educational resources through their wealth, and use moderate expansionary monetary policy, thereby reducing income inequality while ensuring sustained economic growth.

The Growth Effect of the Expansionary Monetary and Fiscal Policies Applied in the Periods When the Economies Shrank: Developed and Developing Countries Cases

The Growth Effect of the Expansionary Monetary and Fiscal Policies Applied in the Periods When the Economies Shrank: Developed and Developing Countries Cases

The Impact of Expansionary Monetary Policy on the Economic Environment during and after an Epidemic Era: Analysis of Effects and Implications

The Impact of Expansionary Monetary Policy on the Economic Environment during and after an Epidemic Era: Analysis of Effects and Implications

Monetary Policy Between Stability and Growth

Abstract The global financial crisis and the coronavirus pandemic were marked by expansionary policies of key central banks in an attempt to stop the recession. The degree of expansiveness of monetary policy was unprecedented. As a result of expansionary policies, global inflation has been present since 2021. The change in the macroeconomic environment has led to a turnaround in monetary policy pursuits and a rapid rise in reference interest rates. The FED reacted much faster than the ECB and that is why inflation was lower in the USA compared to the euro area. All announcements for 2023 point to the continuation of contractionary policies. The subject of the paper’s analysis is the monetary policy of key central banks, as well as expectations for the next period. The paper raises the question of whether central banks have gone from one extreme of overly expansionary monetary policy to the other extreme of overly contractionary monetary policy and whether such policies carry the risk of reoccurrence of recession. The paper also contains recommendations for improving existing monetary policy regimes, as well as for creating a completely new monetary policy regime which will be based on two nominal anchors.

An Assessment of the Relationship between Stock market Development and Monetary Policy on Economic Growth in some selected African Countries

The stock market supplies equity and a direct form of finance to prospect investors for economic reasons. This function qualifies it to work as an essential long-term lubricant in the economic growth progress. The study examines the relationship between stock market development and monetary policy on economic growth in the major oil producing African countries namely Nigeria, Angola, Algeria and Libya. The panel unit root tests show that real gross domestic product, market capitalization and interest rate are integrated of order one while money supply is integrated of order zero. The fixed effect model shows that market capitalization, money supply and interest rate have positive and statistically significant effect on the real gross domestic product in Nigeria, Angola, Algeria and Libya. The study concludes that stock market development has a positive effect on economic growth in the selected African countries and monetary policy has a positive effect on economic growth in the selected African countries. The recommends that African countries especially Nigeria, Angola, Algeria and Libya should advance buying and selling of stock by encouraging more companies and securities to be listed in the stock exchange for more equity capitalization and finally this could lead to increase in economic growth in their region, expansionary monetary policy should implemented in African countries in order to boast economic variables and achieved higher economic growth.

Expansionary Monetary Policy and Bank Loan Loss Provisioning

We explore how expansionary monetary policy (EMP) influences bank loan loss provisioning. We find that banks’ discretionary loan loss provisions (DLLPs) increase during periods of EMP. This effect is stronger for banks with greater risk-taking, a larger proportion of influential stakeholders, lower ex-ante transparency of loan loss provisions, and more stringent bank regulation, which is consistent with external stakeholders requiring more conservative and timelier loan loss provisioning. We also find that both the timeliness and the validity of banks’ loan loss provisions (LLPs) increase during EMP periods. Our results are robust to the use of instrumental variable estimation and exogenous variations in monetary policy. Lastly, we show that conservative (i.e., higher DLLPs) and timely loan loss provisioning discipline banks from excessive risk-taking during periods of EMP.

The Effects of Oil Price Volatility on South African Stock Market Returns

The aim of this study is to assess the response of the South African stock market returns to oil price volatility, based on the daily South African stock market index, using the GARCH-Copula modelling technique. The results of the analysis show evidence of an asymmetric impact of fluctuations in oil prices on South African stock market returns, using a copula model specification, particularly the bivariate symmetrized Joe-Clayton (SJC) copula. The results also revealed that the EGARCH process is the best univariate model to capture oil price volatility. Interestingly, this study also revealed that the tourism industry is most dependent on oil price fluctuations, due to its heavy reliance on transportation costs. The economic implications of this study also suggest that sectors affected by oil price fluctuations need specific long-term and short-term monetary policy strategies. It is recommended that in the short term, expansionary monetary policy could assist in mitigating the impact of higher oil prices, while in the long-term, policies aimed at reducing the volatility in oil prices would be of great help in alleviating its harmful effect on stock market returns.

The Optimum Quantity of Money in a Situation of Information Asymmetries: Evidence from Cameroon

This article is a macroeconomic assessment of the optimum quantity of money to inject into a developing economy in situation of information asymmetries. Starting from Tobin's "absolute liquidity rule", and under the hypothesis of a sub-optimal macroeconomic monetary equilibrium, a method of optimizing the money supply is proposed, based on a "monetary adjustment coefficient". It takes into account the effective growth rate, the potential growth rate and the current money supply. It appears, in the case of Cameroon, that the quantity of money in circulation is 30% lower than its optimal level compatible with the potential product, hence the need for an expansionary monetary policy, including monetary and credit easing measures. It is thus proposed to decision makers to introduce a monetary adjustment coefficient when elaborating monetary policy to be implemented in the country.

The Impact of Demand Management Policies on the Local Economy under the Background of the Domestic Big Cycle

In this paper, the important background factor of the domestic big cycle is incorporated into the DSGE model. On the basis of this model, this paper uses actual data of China's economy, through Bayesian estimation and dynamic simulation methods, and believes that in this context, in order to stimulate the economy, the country has adopted a combination of expansionary fiscal policy and expansionary monetary policy. While curing diseases, macroeconomic policies inevitably have some side effects on the local economy, such as increasing the financial burden of local governments and increasing the uncertainty of the number of orders for export enterprises.

Pushing and pulling on a string? Inflationary effects of expansionary and contractionary monetary policies when rates are negative

Theoretically, the effect of conventional monetary policy may reverse when policy rates are cut into negative territory. Empirical literature provides evidence that cutting policy rates extremely low can be harmful for bank lending. Using euro area data from the period 2014–2022, we study whether this has implications for the transmission of monetary policy to inflation – the key variable for many central banks. Specifically, we study whether contractionary and expansionary monetary policy changes cause equally large inflation effects when nominal interest rates are extremely low. We analyse separately conventional and different types of unconventional monetary policies. We find that inflation effects of policy rate cuts are muted when policy rates are already negative in line with the theory about reversal rate. Both expansionary and contractionary quantitative easing shocks are found to have inflationary effects. We also provide evidence that different policy tools are more effective when used together.

Assessing the influence of fiscal and monetary policies on carbon dioxide emissions

This paper examines the impact of fiscal and monetary policies on carbon dioxide emissions in Trinidad and Tobago, using data from 1970 to 2020. We use a fiscal policy index based on government revenue and expenditure, a monetary policy index based on interest rates and reserve requirement data, and a Non-linear Autoregressive Distributed Lag technique. Our results show that expansionary fiscal policy raises emissions, while contractionary fiscal policy reduces emissions. Intriguingly, expansionary monetary policy increases emissions, while contractionary monetary policy lowers them. These findings hold significance for fiscal and monetary policymakers working on climate change mitigation strategies.

ECB Monetary Policy and the Term Structure of Bank Default Risk

Euro Area banks have been confronted with unprecedented monetary policy actions by the ECB. Monetary policy may affect bank risk profiles, but the consequences may differ for short-term risk versus long-term or structural bank risk. We empirically investigated the association between the ECB’s monetary policy stance and market-perceived short-term and long-term bank risk, using the term structure of default risk captured by bank CDS spreads. The results demonstrated that, during the period 2009–2020, ECB expansionary monetary policy diminished bank default risk in the short term. However, we did not observe a similar decline in long-term bank default risk, since we documented that monetary stimulus is associated with a steepening of the bank default risk curve. The reduction of bank default risk was most pronounced during the sovereign debt crisis and for periphery Euro Area banks. From 2018 onwards, monetary policy accommodation is associated with increased bank default risk, both short-term and structurally, which is consistent with the risk-taking hypothesis under which banks engage in excessive risk-taking behavior in their loan and securities portfolios to compensate profitability pressure caused by persistently low rates. The increase in perceived default risk is especially visible for banks with a high reliance on deposit funding.

Optimal primary dealer selection in financial networks

This paper establishes a financial network model with bank heterogeneity to analyze the optimal choice of primary dealers. We conclude that expansionary monetary policy should utilize small banks as primary dealers while contractionary monetary policy should utilize large banks as primary dealers.

Market-moving events and their role in portfolio optimization of generations X, Y, and Z

Abstract We examine how generations X, Y, and Z might react to market-moving events over short- and long-term horizons to maintain an optimal balance among risk, return, and investor preferences. To analyze various portfolio variants, we use data on selected global assets and several types of economic and non-economic events for 2000-2021H1, applying the mean-variance optimization procedure. According to our results, in optimal portfolios, fixed-income assets dominate and are the main driver of portfolio adjustments. Portfolios with short-term horizons with less risk-averse investors and those for generation Z are the most reactive to analyzed types of events. None of the events per se creates an extraordinary opportunity to increase returns. However, expansionary monetary policy generates the greatest potential for incremental returns. Our findings provide practical implications for investors on how to adjust their portfolios in response to significant market events.

Impact of financial development on economic growth in Nigeria

The study investigated the impact of financial development on economic growth in Nigeria utilising annual data from 1985 to 2022 sourced from the Central Bank of Nigeria Statistical Bulletins and World Bank indicators. The variables used in this study were real gross domestic product (RGDP), a proxy for economic growth as the dependent variable while credit to the private sector, a proxy for financial deepening, all share index (ASI), nominal exchange rate (ER), gross savings (GS), remittances (REM) and financial technology (Fin-Tech_dum) were all used as financial development indicators which are the independent variables. The method of analysis employed was the Auto-regressive Distributed Lag (ARDL) and the pairwise granger casualty test. The ARDL long run results show that all share index, exchange rate and financial technology positively and significantly affects economic growth; credit to the private sector and gross savings positively but insignificantly impacts on economic growth. However, remittances reveal a negative and insignificant impact on economic growth in Nigeria. The Pairwise causality test shows that there are three unidirectional causality which runs from economic growth to credit to private sector, financial technology and gross savings in Nigeria. In conclusion, the findings of the study validate the demand-following theory in Nigeria. The policy recommendation suggests that the Central Bank of Nigeria should promote the adoption of advanced financial technologies and implement cautious expansionary monetary policies in specific sectors to encourage investment and economic growth. Overall, these measures would boost investment and economic growth in the country.

The impact of conventional and unconventional monetary policies on loan default risk—Evidence from UK peer‐to‐peer lending platforms

AbstractThis study investigates the effect of both conventional and unconventional monetary policies on loan default of UK personal and business peer‐to‐peer (P2P) loans. I employ loan book data of Zopa, Lending Works, and MarketFinance, which are three of the most popular UK P2P lending platforms. Survival analysis reveals consistent evidence for the existence of the risk‐taking channel of monetary policy. Monetary easing, be it conventional or unconventional, reduces loan survival in the P2P lending market. This finding delivers useful information for policymakers to rebalance the countervailing effects of expansionary monetary policies on financial stability during the era of alternative financing.

The Impact of Monetary Policy on the Transformation to Circular Economy: Does Foreign Direct Investment Speak?

Our paper examines the relationship between State Bank of Vietnam's implementation of monetary policies, Foreign direct investment inflows, and the country's move toward a circular economy. By using the PLS-SEM method with 330 observations, the study demonstrated that the positive impacts of the State Bank of Vietnam's monetary policies will aid in promoting Vietnam's transition to the circular economy, either when the State Bank offers a contractionary or expansionary or sustainable monetary policy. Moreover, when a country receives foreign direct investment, it tends to encourage companies' ability to create green, environmentally friendly products. Foreign direct investment inflows also stimulate a country to the transition to circular economy. Our research highlights the regulatory factor of Foreign Direct Investment capital that will increase 0.204 and 0.07 levels of impact between stable and expansionary monetary policy on the shift to circular economy. The results of this study contribute new factors in the theory of circular economy as well as policy implications for the State Bank of Vietnam, thereby aiding in the State Bank's development of an appropriate monetary policy to encourage foreign direct investment and the transition to the circular economy.

Optimal Monetary Policy Transmission Mechanism for Economic Growth of Developing Countries

This paper assesses the role of monetary policy on economic growth in selected developingcountries and empirically estimates a dynamic model for exploring the performance of monetarypolicy in developing countries. The panel data is collected for 44 developing countries from 1974to 2018. The analysis is carried out through the Generalized Method of Moment (GMM) which isefficient to handle the problem of endogeneity and serial correlation. The results of monetaryindicators show that expansionary monetary policy is best suited for economic growth indeveloping countries. The results of the money supply and banks reserve ratio suggested thatexpansionary monetary policy is more appropriate for selected countries over contractionarymonetary policy. In a similar line, population growth performs a negative impact on economicgrowth while the developing countries are labor-abundant, and analysis supports that the laborforce has a positive role in economic growth. Based on empirics, it is suggested that expansionary monetary policy is more effective for economic growth and economic stability in selectedcountries.