External Shocks Research Articles

Open-economy macroeconomics with financial frictions: A simple model with flexible exchange rates

A simple macroeconomic model with banking, financial frictions, and flexible exchange rates is used to study the performance of fiscal, monetary and macroprudential policy combinations in response to domestic and external shocks. After characterizing the transmission process of each instrument, a diagrammatic analysis of how these policies should be used, either individually or jointly, to promote economic and financial stability, is provided. The analysis shows that whether a policy should be assigned to internal or external balance, and whether it should be contractionary or expansionary, depends not only on the nature of the shocks impinging on the economy but also on the range of tools available to policymakers and the strength of financial frictions. In particular, in response to an external financial shock, monetary policy should be assigned to external balance, and fiscal policy or macroprudential regulation to internal balance. These two policies are substitutes when used in combination with monetary policy.

Alternative Exchange Rate Systems for Oil-Exporting Countries: Frankel’s Currency-Plus-Commodity Basket Proposal versus the Current System

Choosing an appropriate exchange rate regime is crucial for economic policy, particularly for developing countries seeking to establish robust macroeconomic frameworks to mitigate external shocks. However, such nations, including those reliant on oil and natural gas exports, often face challenges in selecting suitable regimes, exacerbated by a lack of traditional advice. The debate around this issue intensified in the aftermath of the 2014 oil price decline. In response, Jeffrey Frankel proposed the currency-plus-commodity basket (CCB) arrangement in 2017, blending the benefits of floating and pegging. This study applies the CCB system to Algeria, aiming to evaluate its impact compared to the current managed floating regime from 2001 to 2021, on indicators of internal (inflation rates) and external (change in foreign exchange reserves) balance using monthly data. Employing wavelet analysis and robustness tests, specifically quantile-on-quantile regression (QQR), the findings suggest that the CCB regime surpasses managed floating in maintaining monetary stability and achieving internal and external balance. Moreover, it provides greater flexibility and stimulates the domestic economy through its ability to stabilize terms of trade via active countercyclical monetary policy. Nonetheless, further discussion, adjustment, experimentation, and development of the proposed regime are warranted.

Reliability analysis and preventive maintenance policy for consecutive k$k$‐out‐of‐n:F$n: F$ balanced system under failure criterion operating in shock environment

AbstractThis paper presents a consecutive ‐out‐of‐: balance system in a shock environment, where the state transition of component is induced by external shocks. If a predetermined threshold number of effective shocks are applied to component in a critical state, the component will fail. The state of the system is defined by the number of consecutive failing component groups in the system, which leads to system failure when a critical number of consecutive failing components is reached. To minimize maintenance costs, we propose a preventive maintenance method with an optimization model. We use finite Markov chain imbedding and Phase‐type distribution to calculate component group failure rates and associated probability functions in discrete and continuous time, respectively. The validity and accuracy of the model are confirmed by numerical examples and Monte Carlo simulations.

Fiscal Reaction Functions Augmented with Bespoke Debt Indicators: Evidence from Small Island States

Developing countries have a higher propensity for debt distress than their developed counterparts and small economies are more vulnerable to external shocks than larger ones. We examine the primary balances of two economies at the intersection of developing and smallness classifications – so-called small island developing states (SIDS) – Trinidad and Tobago (T&T) and Mauritius. These countries have comparable characteristics (smallness, openness, populations, and are former plantation economies with similar colonial histories) but differ in their natural resource wealth status (the former is resource-rich and the latter is resource-poor). Given the myopic insights provided by single metrics of government indebtedness, such as the debt-to-GDP ratio, we augment standard fiscal reaction functions with purpose-built debt sustainability measures that use principal component analysis to consolidate the information content imbedded in a comprehensive range of country-relevant fiscal ratios. Our results show while debt is sustainable in both countries, fiscal policy is procyclical. We also find that debt volatility is positive and significant for T&T’s primary balance but is insignificant for Mauritius, which we attribute to the differing degrees of export-diversification between the countries. Policy recommendations include greater commitments to counter-cyclical fiscal policy in both SIDS and greater export-diversification initiatives in T&T.

Pelatihan Media Tanam dan Propagasi Tanah pada Mahasiswa Pendidikan Biologi Universitas Pendidikan Mandalika

The objectives of this community service activity are: 1) to introduce and train the capabilities of students in the Department of Biology Education, Faculty of Science, Engineering, and Applied Sciences, Mandalika University of Education, on the correct method of mixing planting media; and 2) to teach students how to plant or propagate soil on Hypoestes plants. The community service activity was conducted within 1 day. The stages of this community service activity include: 1) introduction; 2) practical activities in making media and soil propagation; and 3) follow-up activities (observation for 1 week). Mixing planting media can influence the survival of the plants. Therefore, it requires appropriate and precise ratios to ensure that the mixture obtained can result in good plant growth. The soil propagation process in Hypoestes plants is also crucial for their ability to withstand external conditions and environmental shocks. By understanding these principles, students can enhance agricultural productivity, manage soil resources sustainably, and contribute to innovations in plant variety development.

Experimental study on dynamic characteristics of shock train in an isolator with different types of incident shocks

The hypersonic mixed-compression inlet, operating in an off-design state, can be categorized into low-speed and over-speed regimes based on whether the external compression shock is incident into the internal flow channel. In this study, we investigate the movement process of the shock train within an inlet/isolator under both low-speed and over-speed conditions by generating various incident shocks using wedges installed in a direct-connected ground wind tunnel. Experimental investigations are conducted to examine the dynamic characteristics of the shock train in an isolator subjected to different types of incident shocks at an incoming Mach number of 2.7. The findings reveal that varying levels of backpressure resistance for the shock train are observed with different types of incident shocks. Through the movement trajectory of the shock train leading shock (STLS) and power spectral density analysis, it is found that unilateral incident shocks result in a more intense oscillation process for the shock train with a lower dominant oscillation frequency. The dynamic mode decomposition method identifies different oscillation structures within the unsteady shock train flow field and highlights that dominant mode energy primarily concentrates at the STLS, while its symmetry is influenced by the type of incident shock. Specifically, the symmetric bilateral incident shock tends to promote a higher degree of symmetry in the STLS structure while reducing its oscillation strength; however, when the STLS passes over the reflection point of the incident shock, the rapid upstream movement of the shock train still occurs in this situation, thereby inducing inlet unstart and compromising engine safety.

A Possibly Short GRB 180418A and Phenomenology of Reverse-Shock Emission in the Optical Afterglows of Gamma-Ray Bursts

We present early-time ground-based optical follow-up observations of GRB 180418A, which was discovered by both Swift/BAT and Fermi/GBM. Its broadband afterglow was well monitored by Swift/XRT and ground-based optical telescopes. The optical light curve of GRB 180418A can be modeled by forward shock (FS) plus reverse shock (RS). We fit the light curves with standard external shock models and derive the physical properties of the outflow. It is found that the ratio R B ≡ ε B,r /ε B,f is 11.22, indicating a moderate degree of magnetization in the RS region. The reported duration of GRB 180418A, T 90, lies in the intermediate region between short and long gamma-ray bursts (GRBs). We further discuss the classification of GRB 180418A, and calculate ε = E γ,iso,52/E p,z,2 values of 0.026 and 0.018 (assuming the redshift z is 1.0 and 1.5, respectively), which is closer to short GRBs (SGRBs) in the ε-T 90,z plane. If GRB 180418A is an SGRB, it is the only reported SGRB thus far with RS emission in optical light curves. In order to compare the properties of GRB 180418A, we collected three SGRBs that may have RS emission (GRBs 060313, 090426, and 210207B) and also 22 long GRBs (LGRBs) with RS emission. We find that the parameters of LGRBs are in a wider range than those of SGRBs. Also, SGRBs appear to have very small R B values, but the results are generally similar to those of LGRBs. The fitting parameters of GRB 180418A are generally consistent with those of the other three SGRBs, implying that GRB 180418A may belong to the category of SGRBs.

Financial fragility, regime change, and monetary policy in an open economy – A model and empirical application to emerging market countries

July 20, 2023 (Revised April 15, 2024) The experiences of the 1997–98 Asian Financial Crisis and the 2008–09 Global Financial Crisis encouraged economists to develop new open-economy dynamic finance-macro models. Such models allow for nonlinearities -- to study the effects of contractionary currency devaluation -- in contrast to models of expansionary currency devaluation. The generic dynamic model of the finance-macro link in this paper includes the dynamics of the inflation rates, output gap, and financial variables (credit flows, risk premia, and exchange rates). The theoretical model with nonlinearities shows that there can be resilient or non-resilient outcomes of the dynamics. The level of resilience is however dependent on some empirical vulnerabilities. Relevant empirics show the risk premium is related not only to domestic real macro and financial variables, but also to the exchange rate and the foreign currency reserves. Econometrically, this paper explores the regime-dependent interaction of the output gap and financial variables in a two-regime non-linear Logistic Vector Smooth Transition Auto-Regressive (LVSTAR) model with a logistic-type transition function. This empirical study reveals that the financial variables of emerging economies show regime-dependent responses to external shocks. Therefore, a positive shock to the risk premia in a negative output gap regime entails an exchange rate depreciation, and accelerating contractions. Overall, however, a diversity of EM economies are examined in terms of their response to external shocks and their resilience levels. This research also has implications for international portfolio holdings.

GRB 210610B: The Internal and External Plateau as Evidence for the Delayed Outflow of Magnetar

After launching a jet, outflows of magnetar were used to account for the achromatic plateau of afterglow and the early X-ray flux plateau known as “internal plateau”. The lack of detecting magnetic dipole emission together with the energy injection feature in a single observation poses confusion until the long gamma-ray burst (GRB) 210610B is detected. GRB 210610B is presented with an optical bump following an early X-ray plateau during the afterglow phase. The plateau followed by a steep decline flux overlays in the steadily decaying X-ray flux with index α X,1 ∼ 2.06, indicating an internal origin and that can be fitted by the spin-down luminosity law with the initial plateau luminosity log10LX∼48.29ergs−1 and the characteristic spin-down timescale T ∼ 2818 s. A subsequent bump begins at ∼4000 s in the R band with a rising index α R,1 ∼ − 0.30 and peaks at ∼14125 s, after which a decay index α R,2 ∼ 0.87 and finally transiting to a steep decay with α R,3 ∼ 1.77 achieve the closure relation of the external shock for the normal decay phase as well as the magnetar spin-down energy injection phase, provided that the average value of the photon index Γ γ = 1.80 derived from the spectral energy distributions (SEDs) between the X-ray and optical afterglow. The closure relation also works for the late X-ray flux. Akin to the traditional picture of GRB, the outflow powers the early X-ray plateau by dissipating energy internally and collides with the leading decelerating blast burst as time goes on, which could interpret the exotic feature of GRB 210610B. We carry out a Markov Chain Monte Carlo simulation and obtain a set of best parameters: ϵ B ≃ 4.7 × 10−5, ϵ e ≃ 0.15, E K,iso ≃ 4.6 × 1053erg, Γ0 ≃ 832, A * ≃ 0.10, L inj,0 ≃ 3.55 × 1050erg s−1. The artificial light curve can fit the afterglow data well. After that, we estimated the average Lorentz factor and the X-ray radiation efficiency of the later ejecta are 35% and 0.13%, respectively.

The Sovereign Debt Crisis in Sri Lanka: Anatomy and Policy Options

Abstract During the COVID-19 pandemic, there was a dramatic increase in national debt levels across the world, with reported cases of downgrading sovereign debt ratings and difficulty of fulfilling debt obligations (“debt distress”), heavily concentrated in low- and middle-income countries. In this context, the unfolding sovereign debt crisis in Sri Lanka has attracted worldwide attention as the canary in the coal mine for what could become a global “development” crisis. This paper examines the Sri Lankan crisis encompassing both the sources of vulnerability to the COVD-19 shock, and stabilization and structural adjustment reforms after the debt default, with emphasis on the systemic “solvency” challenge of dealing with the massive debt overhang evolved over the previous two decades. The prime focus of the Extended Fund Facility (EFF) program that Sri Lanka signed with the IMF in March 2023 is on economic stabilization through fiscal consolidation. This paper makes a strong case for combining economic stabilization with coherent structural adjustment policies to redress the long-standing antitradable bias in the incentive structure that underpinned vulnerability of the economy to external shocks.

Distribution of export size, Pareto exponent and financial crisis

This paper studies the impact of the 2008 financial crisis on the distribution of firms’ export sizes. Using Chinese customs data from 2003 to 2013, we first show that firms’ export sizes follow a Pareto distribution. By applying a difference-in-differences method, we find that the 2008 financial crisis induced significant changes in the values of the Pareto exponents. We argue that variations in the distribution of export size signal resource reallocations in the export sector at the macro level and are associated with exporters’ adjustments to their exporting behavior at the micro level. The findings suggest that the Pareto exponent is an informative indicator and offers policymakers a better understanding of firm-level adjustments to exporting behavior in the presence of external negative shocks.

A network analysis of external shocks on the dynamics and resilience of the global staple food trade

A network analysis of external shocks on the dynamics and resilience of the global staple food trade

Stock Market Performance in the Face of External Shocks. Does ESG Compliance Immunize Against the Pandemic?

Purpose: This study explores the link between corporate social responsibility and enhanced stock market resilience during crises. It examines whether adherence to Environmental, Social, and Governance (ESG) principles improves stock performance under economic stress. Methodology/approach: We use a standard event study with market model estimation to evaluate the impact of the first reported COVID-19 deaths on stock performance for companies in the STOXX Europe 600 and the S&P 500. Findings: The results show that capital market participants reward ESG performance during crises. Environmental and social factors enhance resilience, while corporate governance does not seem relevant in this context. Research limitations: The research focuses on the early COVID-19 pandemic stages, potentially missing long-term ESG dynamics. The sample comprises US and European companies, possibly limiting global generalizability. Practical implications: Understanding the relationship between ESG compliance and stock market resilience is crucial for investors, corporations, and policymakers to make informed decisions in a changing economic environment. Originality/value: This study demonstrates that during a pandemic, stock market resilience is driven by strong environmental and social performance rather than corporate governance, using a broad sample of US and European companies to highlight regional differences in ESG impact during crises.

Cooperative R&D networks embeddedness and innovation resilience: the moderating role of environmental turbulence

PurposeThe relationship between cooperative R&D network embeddedness and firm innovation resilience is understudied. This paper seeks to answer the questions of whether and how embedding in cooperative R&D networks improve digital firms’ innovation resilience.Design/methodology/approachBased upon social capital theory, this paper proposes a conceptual model with several hypotheses. The empirical analysis is based on a sample of 2,908 observations from 2005 to 2022. We measure firm innovation resilience by drawing on economic resilience and use LSM tests to assess the effect of cooperative R&D network position on innovation resilience.FindingsThe results indicate that cooperative R&D network centrality has a positive impact on firm innovation resilience and that the structural holes of the cooperative R&D network have an inverted U-shaped relationship with firm innovation resilience. Moreover, technological turbulence negatively moderates the relationship between centrality and firm innovation resilience while also steepening the inverted U-shaped relationship between structural holes and firm innovation resilience. Market turbulence positively moderates the relationship between centrality and firm innovation resilience. However, the moderating effect of market turbulence on the inverted U-shaped relationship between structural holes and firm innovation resilience is not significant.Research limitations/implicationsInnovators' knowledge needs, bounded rationality, interests, and even organizational environments change over time, thus prompting them to constantly seek new opportunities to exchange and integrate knowledge, meet new beneficial partners, maintain beneficial cooperation, or terminate unhelpful cooperation. The utility of the network structure has dynamic characteristics. Only by considering the dynamics of the network can research on the mechanism of network structure be more complete, accurate and convincing. Therefore, future research can pay more attention to the relationship between dynamic networks and firm innovation resilience.Practical implicationsFirms should actively embed themselves in the cooperative R&D network and occupy a beneficial network position. By joining the cooperative R&D network, firms can gain resource advantages and enhance their ability to resist external shocks and improve innovation resilience.Originality/valueThis research advances our understanding of the antecedents of firm innovation resilience through the lens of organizational cooperation and uncovers the boundary conditions under which network embeddedness influences innovation resilience, thereby further enriching the theoretical framework of innovation resilience.

Toward a third-generation rational choice theory: the multiple player approach to collective action problems

This paper aims to contribute to the development of a “third-generation” rational choice theory by introducing a Multiple Player Approach for analysing collective action problems. Drawing on the foundational first and second generation works of Olson (The logic of collective action, Cambridge University Press, Cambridge, 1965) and Ostrom (Scand Polit Stud 23(1):3–16), we introduce five player types that we believe capture essential empirical features of many real world collective action problems: Blind Riders, Tough Riders, Hard Riders, Easy Riders, and Low Riders. We consider the complex interaction and dynamics that unfold among them. The main novelty of the analysis is to draw attention to the need for active societal support to effectively empower and reward hard riders for resolving collective action problems, particularly when facing external shocks such as the Covid-19 pandemic, Brexit, and financial crises.

Early Warning of Systemic Risk in Commodity Markets Based on Transfer Entropy Networks: Evidence from China.

This study aims to employ a causal network model based on transfer entropy for the early warning of systemic risk in commodity markets. We analyzed the dynamic causal relationships of prices for 25 commodities related to China (including futures and spot prices of energy, industrial metals, precious metals, and agricultural products), validating the effect of the causal network structure among commodity markets on systemic risk. Our research results identified commodities and categories playing significant roles, revealing that industry and precious metal markets possess stronger market information transmission capabilities, with price fluctuations impacting a broader range and with greater force on other commodity markets. Under the influence of different types of crisis events, such as economic crises and the Russia-Ukraine conflict, the causal network structure among commodity markets exhibited distinct characteristics. The results of the effect of external shocks to the causal network structure of commodity markets on the entropy of systemic risk suggest that network structure indicators can warn of systemic risk. This article can assist investors and policymakers in managing systemic risk to avoid unexpected losses.

Modeling the economic performance of small ruminant pastoralist flocks and financial impact of changes in reproductive performance and mortalities in Kajiado county, Kenya

This study investigated the economic performance of pastoralist small ruminant flocks in Kajiado county, Kenya, and the financial impact of mortalities and changes in performance indicators. A survey of 129 pastoralist small ruminant flocks captured production and economic data for a 12-month period via interview. Simulation models were then developed for flocks with different performance levels and trading activities. Their gross margins, and the financial impact from mortalities, were estimated. Sensitivity analyses were conducted for select performance indicators to assess their relative economic importance. On average, pastoralists who were not purchasing supplementary feed (79% of flocks) had gross margins of KSh 3,016 – KSh 3,123 per reproductive female. Goat production generated 2.43–2.51 times greater returns than sheep production. High efficiency mixed flocks achieved 2.04–2.06 times greater returns than medium efficiency flocks, and 12.19–14.25 times greater returns than low efficiency flocks. Pastoralist-only flocks had 3.82–4.01 times greater returns than pastoralist-traders. Financial losses due to mortality were on average 17.81% of the starting flock value. Fecundity and abortion rates in sheep, and parturition rate in goats, had the greatest economic impact. The developed models could support decision-making toward improving the economic performance of pastoralist flocks and the evaluation of interventions and external shocks.

Impact of Trade Liberalization Policies on Investment and Development in Developing Countries

Purpose: The aim of the study was to analyze the impact of trade liberalization policies on investment and development in developing countries Methodology: This study adopted a desk methodology. A desk study research design is commonly known as secondary data collection. This is basically collecting data from existing resources preferably because of its low cost advantage as compared to a field research. Our current study looked into already published studies and reports as the data was easily accessed through online journals and libraries. Findings: Trade liberalization policies have led to increased foreign direct investment (FDI) inflows and export opportunities in developing countries. However, they have also posed challenges such as heightened competition and vulnerability to external shocks. The effectiveness of trade liberalization policies varies across countries and depends on factors such as institutional capacity, infrastructure, and trade-related regulations. Unique Contribution to Theory, Practice and Policy: Dependency theory, institutional theory & stages of economic development theory may be used to anchor future studies on the impact of trade liberalization policies on investment and development in developing countries. Policymakers should prioritize the design and implementation of targeted interventions aimed at maximizing the benefits of trade liberalization while mitigating its potential adverse effects. Moreover, policymakers should prioritize investments in education, healthcare, and social protection to enhance human capital development and ensure that the benefits of trade liberalization are equitably distributed across society

The Transatlantic Relationship and the Russia-Ukraine War

Abstract The Russia-Ukraine war triggered a new burst of solidarity across the Atlantic. The reactivation of the battered NATO alliance came easily under the pressure of an external shock. Yet, pulling together to react to Russia's belligerence is not sufficient to announce a new era of transatlantic partnership. The reason lies in the different interests that underpin American and European policies such as reliance on economic sanctions, the promotion of democracy, NATO strategy towards Russia, and economic coordination. Loosely sharing common values is not enough to reinforce the transatlantic relationship. Neither is a decision to stop the atrocities that Russia is committing against Ukrainians. Western leadership requires a coherent vision of Western interests. In the new world order, such coherence cannot be taken for granted.

Bank ownership around the world

This paper describes a dataset on bank ownership that covers more than 6,500 banks in 181 countries. It documents that until 2010, there was a reduction in state-ownership of banks and an increase in foreign ownership. However, the Global Financial Crisis interrupted or reversed these trends. I show that at the country level, there is no robust relationship between bank ownership and each of GDP growth and financial depth. Bank-level regressions show that state-owned banks are less profitable and have a higher share of non-performing loans than their private (domestic or foreign) counterparts. There is also evidence that state-owned banks stabilize credit in the presence of domestic shocks (more so in the presence of positive shocks). Instead, foreign banks amplify external shocks. In terms of domestic shocks, foreign banks are not significantly different from their domestic private counterparts.