Financial Imbalances Research Articles

INFLATION TARGETING IN THE COUNTRIES WITH MIDDLE AND LOW INCOME: TRADITIONAL DILEMES AND POST-CRISIS CHALLENGES

Introduction. It is focused on the problem inflation targeting regime evolvement in emerging market countries. The generalization of key problems is done relying on literature review and overview of empirical works. Purpose of the paper is to show how the way of thinking about inflation targeting in emerging market countries is changed according to they economic and financial development as well as they connections with global economy. It is distinct some the most disputable and progressmade arrears of inflation targeting in less developed countries: connections between price and exchange rate stability; reactions on the supply-side shocks; institutional drivers of deviations from the targets; cointegration between inflation targeting and macroprudential policy. It is fount the more country advanced in the structural reforms the less sensitive price stability to exchange rates movements is and term-of-trade shocks more resemble supply-side shocks. But central banks from emerging market countries couldn’t stay neglect of supply-side shocks because of more sensitive inflation expectations to core-inflation reaction on non-core inflation behavior. While commodity shocks may easily deteriorate movements of the most volatile components of price index supply-side shocks are more like persistent in nature. Not to react on them according to orthodox New-Keynesian theory is very risky especially then inflation expectations are not strongly anchored. Results. Deviations from inflation targets are viewed from institutional position meaning that political environment as well as factual central bank’s independence is important and markets flexibility, that minimizes costs of stronger reaction on price shocks, is a consequence of structural reforms. Financial stability in emerging markets is viewed from capital flows and exchange rates volatility perspective that may bring additional conflicts with inflation targets. Conclusions. It is stressed that monetary policy in emerging markets will benefited from more active approach on financial imbalances. That is why inflation targeting with pro-active macroprudential policy is shown as example of relevant policy-mix for better macroeconomic performance.

Value Chain in the Visual Arts Market

The added value allows an asset or a service to meet a specific need. The value chain represents all those activities properly organized, which create these assets and services to make them available for final consumers. Documentary review has revealed that in the visual arts market these roles are not always adequately defined and often, the agents involved are unaware of their functions and responsibilities, generating aesthetic and financial distortions or imbalances that hinder this economic activity. This article aims to reveal this value chain as a way of legitimizing a piece of art as well as the benefits that some of these links have brought recently, given the new relationship between art and people. Such is the case of museums, especially the Guggenheim in Bilbao, with its positive impact on the economies of the communities that house them; art fairs, in the globalization of artists, works and aesthetic tendencies and art critics who influence the behavior of consumers and markets.

NEW APPROACHES TO BANKING BUSINESS MODELS IN THE DIGITAL ECONOMY

The factors of the post-crisis development of the world banking system, the strengthening of the role of information technology in all industries, the increasing role of innovative Fintech intermediaries in the banking market encourage the management of banks to revise traditional business models and to form new approaches to managing the modern bank. In the article the authors aimed to investigate the impact of digitization on the choice of banking business model and the development of algorithm for estimating a bank’s business model. Traditionally banks choose one of five business models: lending, high leverage, investment, fee, margin. Most operating banks opt for traditional models because the business environment requires it. However, maintaining the bank’s competitiveness, enhancing its efficiency and resilience to financial imbalances is possible by building an innovative business model that takes into account the modern diffusion of information technology and the functioning of FinTech companies as an alternative to traditional banking business. Although nobody knows yet what will replace the current business model, there are currently three approaches to assimilating FinTech in banking: the Financial Control Center, Banking-as-a-Service, the Niche Bank. The choice of the banking business model and its transformation should be accompanied by an assessment of the bank’s business model. Thus, an important component of banking management in an unstable environment is the analysis of the business model of the bank and its transformation in order to minimize the impact of possible negative effects of financial crises on the performance of the bank. The proposed algorithm for estimating a bank’s business model includes 6 stages: preliminary assessment of the main components of the bank’s business model; assessment of the business environment of the bank; stress testing of the viability of the bank’s business model; evaluation of the bank’s strategy; identification of key vulnerabilities to which the bank’s business model is prone or likely to be vulnerable; and justification of the results and formation of effective conclusions. Keywords: banks, banking business model, banking management, digital economy, business model innovation.

Financial disbalances in the regional economy: analysis of causes and consequences

The article is devoted to the study of the analysis of the causes and consequences of financial imbalances in the economy of the regions. The purpose of the paper is to analyze the causes and consequences of financial imbalanced in the region's economy, to consider scenarios for the development of financial imbalanced, and to identify the main goals of the development of financial imbalanced and ways to achieve them. The object of the study is a certain system of indicators on the analysis of financial imbalances in the regions of Ukraine. The theoretical and methodological basis of the research is the diagnosis of indicators of financial imbalances in the economy of regions that characterize the economic development of the region's economy, namely: the number of economic entities, the volume of sales of goods (goods, services) of economic entities; the volume of retail trade, the volume of foreign trade in goods, the index of capital investments, the index of industrial products, the index of construction products, the consumer price index both in Ukraine and regions for 2013-2017 years. Based on the results of the assessment, the reasons for the financial imbalancees that arose in Ukraine during the crisis phenomena from 2014 were substantiated, an analysis of the causes of these imbalances and their forms and the impact on the stability of the financial system of the regions and the economy of the state as a whole is necessary not only to overcome the consequences of the current crisis , but also for counteracting possible crisis phenomena in the future. Scientific novelty consists in systematizing a certain number of indicators for the analysis of financial imbalances in the region's economy, and their influence on the development of regions and Ukraine as a whole is considered. The main ways to determine the causes and consequences of the planned regional economic policy, which takes into account the specifics of regions in the most important industries and aimed at solving problems that impede economic development. Along with this, the reasons and consequences of financial imbalanced in the region's economy are substantiated, as well as criteria for assessing the effectiveness of indicators that directly affect financial imbalanced in the economy of Ukraine and regions in particular. Conclusions: trends and prospects for the development of financial imbalanced in the regional economy are very important for the regions, which contributes to the formation of a balanced structure of the regional economy. Thus, the stability of the economic development of financial imbalanced implies the existence of unity, autonomy and integrity.

PROSPECTS OF IMPLEMENTATION OF EUROPEAN PRACTICE OF FINANCIAL IMBALANCES REGULATION IN UKRAINE

In the article it is noted that the trigger for the emergence of financial instability is the accumulation of financial imbalances the spread of which leads to increasing vulnerabilities in the financial system, violation of its stability and reduce the level of financial security. The interrelations between financial imbalances, financial stability, financial instability, financial vulnerability, financial security, financial crisis are outlined. The article is aimed at determining key indicators in assessing the level of existing financial imbalances and developing a set of measures to resolve disequilibrium in the domestic financial system, taking into account European practice. The domestic practice of financial imbalances disclosure was summarized which gave the opportunity to justify the conclusions on ineffectiveness of the methods used in Ukraine, that allow only identify already existing threats in the financial system. The experience of European countries is examined, where the practice of identification of potential signals of financial imbalances is widely used, in particular, to identify imbalances in the economies of the EU the macroeconomic imbalances procedure was approved. The main indicators in assessing the level of existing financial imbalances are determined. Some contradictory aspects of applying macroeconomic imbalances procedures within the EU are identified. It is noted that the necessity of providing financial stability is a priority task of the economic policy of each state, because a stable financial system has the ability to restrict and eliminate disparities through self-regulation mechanisms before they lead to a crisis. Priority directions of development of the state system of financial imbalances regulation in Ukraine are proposed: legislative provision of comprehensive and systematic monitoring of financial imbalances; preparing the necessary array of statistical information; delegating the authority of evaluating financial imbalances and developing measures for their regulation by a unit of the government institution.

Institutional Mechanisms for Regulating External Imbalances in the European Economic and Monetary Union

The relevance of the research is driven by the need to reveal modern factors and specifics of structural financial imbalances typical for regional integrated associations by an example of the European Union and to assess new mechanisms for regulation of disparities and investment cooperation development in a region. The subject of the research is the factors, trends and consequences of the division of EU countries into creditors and debtors by parameters of external debt financing; structure and directions of cross-border financial flows; and net international investment position based on the analysis of statistics related to types, structure and scale of external imbalances in the euro area as well as to methods and institutional mechanisms for their regulation. The purposes of the research were to reveal the acuteness of external imbalances in the countries of the European Economic and Monetary Union (EMU) in the financial sphere as a factor of macroeconomic destabilization in the region and systematize measures for strengthening and development of various institutional mechanisms to level off the remaining structural imbalances and expand the channels of investment in the real economy as part of the project to create a sustainable renovated EMU in the period until 2025 It is concluded that new more developed forms of regional financial integration, including the creation of the Banking Union and the Union of Capital Markets, the European Monetary Fund and the European Fund for Strategic Investment, are strategically important as effective institutions for regulation of external financing imbalances and support of investment in the economic development.

Análise de fatores influentes na relação entre constribuições e benefícios previdenciários

Este estudo procurou identificar fatores que podem corroborar com as diferenças entre as arrecadações e despesas previdenciárias (RGPS) no que tange aos municípios de Minas Gerais. Na revisão de literatura, discutiu-se as clientelas previdenciárias, a influência dos cenários trabalhistas e demográficos e socioeconômicos na previdência social, o debate sobre o déficit previdenciário e a conexão entre a previdência social, as finanças públicas e o Estado de bem-estar social. Quanto a metodologia, foi utilizada a Análise Exploratória de Dados, Análise Fatorial, e o Teste de Independência de Qui-Quadrado, visando associar entre os fatores encontrados e o Indicador de Resultado Previdenciário Primário (IRPP) criado. Os resultados demonstraram a conexão do IRPP às condições socioeconômicas municipais, confirmando a hipótese testada. Ademais, verificou-se relação entre aspectos de localidade populacional, demográficos, trabalhistas e de desenvolvimento humano com o mesmo indicador. Concluiu-se os desequilíbrios financeiros no RGPS podem ser retratados por cenários socioeconômicos negativos

The Swiss Sovereign Money Initiative

Abstract On 10 June 2018, Switzerland voted against a constitutional amendment to introduce a system of sovereign money or Vollgeld. The proposal foresaw that all money be created by the central bank and that commercial banks be banned from creating demand deposits. Demand deposits would have been required to be held in off-balance sheet accounts at commercial banks. We discuss the specific features of this proposal and compare them to its historical predecessor, the Chicago plan. We argue that the Swiss initiative would not have tangibly enhanced financial, monetary, and economic stability. Specifically, if implemented earlier, it would not have addressed the root causes of the Global Financial Crisis and would have been ineffective in changing its course and its consequences for Switzerland. Though the Vollgeld proposal would have turned commercial bank into central bank money, close-money substitutes would likely have remained on the liability side of commercial bank balance sheets. Vollgeld would also unlikely have redeemed promises of ancillary effects such as a reduction in public debt, more sustainable economic growth, and less complex regulation. Forestalling and tackling financial imbalances requires limiting leverage and safeguarding liquidity buffers through bank-level and system-wide rules and regulation. Zusammenfassung Am 10. Juni 2018 lehnten drei Viertel der Schweizer Stimmberechtigten eine Verfassungsänderung ab, die ein Vollgeldsystem in der Schweiz eingeführt hätte. Der Vorschlag hätte der Notenbank das alleinige Recht zur Geldschöpfung gegeben und den Geschäftsbanken die Schaffung von Sichteinlagen verboten. Zahlungsverkehrskonten hätten von den Geschäftsbanken ausserhalb ihrer Bilanz geführt werden müssen. Wir diskutieren die Einzelheiten des Vorschlags und vergleichen sie mit dessen Vorgänger aus den 1930er Jahren, dem Chicago Plan. Wir argumentieren, dass sich die monetäre und wirtschaftliche Stabilität sowie die Finanzstabilität in der Schweiz durch die Annahme der Initiative nicht wesentlich verbessert hätten. Ein bestehendes Vollgeldsystem hätte nicht bei den Ursachen der Finanzkrise angesetzt und wäre unerheblich für ihren Verlauf und ihre Folgen für die Schweiz gewesen. Obwohl mit Vollgeld Sichteinlagen bei Geschäftsbanken in Zentralbankgeld umgewandelt worden wären, hätten geldnahe Einlagen auf der Passivseite der Bilanz weiter existiert. Vollgeld hätte auch Versprechen wie eine Senkung der Staatsverschuldung, ein nachhaltigeres Wachstum und eine weniger komplexe Bankenregulierung nicht erfüllt. Die Verhinderung und Bewältigung von finanziellen Ungleichgewichten erfordert eine Regulierung sowohl auf Bankenebene als auch für das Finanzsystem insgesamt, um die gesamtwirtschaftliche Verschuldung zu beschränken und Liquiditätspuffer zu schaffen. JEL Classification: E42, E50

The Interaction between Financial Cycle and Business Cycle in China: An Empirical Analysis Based on the Dynamic Spillover Index

Currently, it is believed that the economy in China is at a very specific period of three-phase superposition”, where the coexistence of economic downward pressure and accumulated financial risks brings higher requirements and more challenges to macroeconomic regulation and financial supervision. In this situation, a thorough study of the dynamic interaction between financial cycle and business cycle would contribute to a better understanding of the macroeconomic in the new era, specifically the essence of the financial system. Furthermore, it could be considerably practical to formulate financial supervision and macroeconomic regulation policy scientifically, and to enhance the ability of financial risk control and the support from the financial system to the real economy, hence guarantee the stability of the macro-economy and the financial system. In this paper, interest rate, exchange rate, money supply, aggregate financing to the real economy and asset prices are selected to build the financial condition index （FCI）, which could be helpful to analyze the characteristics of financial cycle fluctuation in China. Furthermore, the dynamic spillover index method, based on generalized prediction error variance decomposition, is adopted to focus on the interaction between financial cycle and business cycle in China. It is revealed in the results that the interaction between macro-finance and economic fluctuation is affected by numerous factors, such as the shock of the international financial market, the openness of the economic and financial market, the development of the financial market, and the innovation of financial instruments. Besides, the impact of financial fluctuation on economic fluctuation is significantly high, while that of economic fluctuation on financial fluctuation remains apparently lower constantly. Hence, the phenomenon called off real to virtual” in the financial system deserves vigilance. The research not only obtains the interaction between financial cycle and business cycle from time-varying and directional aspects, but also provides useful decision-making basis enlightenment for financial risk supervision policy and macroeconomic regulation. This paper holds that on the one hand, considering the important influence and the amplification effect of financial cycle fluctuation on macroeconomic fluctuation, we should pay close attention to the domestic and international economic and financial situations, strengthen supervision and anticipation management of financial risks, actively guide the financial sector return to the service standard, and avoid the financial system losing contact with the real economy and become a self-service system. On the other hand, we are supposed to further improve the dual-pillar regulatory framework of monetary policy and macro-prudential policy based on the financial-economic endogenous linkage mechanism, and actively explore the monetary policy regulatory model that takes into account financial stability while improving the local regulatory and supervision of macro-prudential policy for financial imbalances, so as to achieve the dual stability and coordinated development of the macro-economy and the financial system.

Trends in the Development of Russian Currency Markets in the Context of Global Structural Transformations and Sanctions

The article analyzes factors, features and trends in the development of the Russian foreign exchange market as an integral part of international currency market in the context of global financial imbalances, de-globalization processes, new protectionism and sanctions regime in relation to Russia. Particular attention is paid to assessing the impact of forms and methods of managing international foreign exchange reserves on structure of Russian foreign exchange market, as well as characterizing the channels of impact of the current conditions for functioning of the Russian foreign exchange market on the currency policy strategy.

The Relationship between Macroeconomic Overheating and Financial Vulnerability: A Quantitative Exploration

In this note, we explore the link between indicators of financial imbalances and macroeconomic performance, focusing on the experience of the United States. In an accompanying note, The Relationship between Macroeconomic Overheating and Financial Vulnerability: A Narrative Investigation, we follow a narrative approach to review historical episodes of significant financial imbalances and examine whether these episodes were linked to macroeconomic overheating.

The Relationship between Macroeconomic Overheating and Financial Vulnerability: A Narrative Investigation

In this note, we follow a narrative approach to review historical episodes of significant financial imbalances and examine whether these episodes were linked to macroeconomic overheating.

Counteraction to the Legalization (Laundering) of Proceeds from Crime and the Financing of Terrorism in the Context of the Digitization of economy: strategic objectives and legal Solutions

Issues of counteracting the legalization of proceeds from crime (money laundering) and the financing of terrorism (CML / FT) are urgent in the context of crime control. The inflow of money from criminal activities has a destructive impact on the state and the society, poses a threat to the economy and the social sphere. This negative process results in the disruption of market economy mechanisms, the criminalization of the production and trade sectors, the emergence of financial imbalances and the increase in the inflation pressure. The problem is urgent for Russia as well, so the development of effective solutions, including legal ones, is one of the priorities for researchers. In the modern context, the digitization of economy creates new opportunities for criminal groups, who use virtual technologies, crypto-currencies and other opportunities of the digital environment to finance terrorism and legalize criminal proceeds. The article presents the results of studying the condition and dynamics of legal regulation in the sphere of CML / FT. They include the qualitative description of the legal basis for CML / FT in Russia, doctrinal conclusions regarding the structure and key features of the Russian model of legal regulation of CML / FT, modern trends and the direction of its future development, predictions regarding the legal basis for CML / FT, setting fundamental and practical goals of the legal doctrine to provide scientific support for CML / FT, as well as legal solutions developed by the author. Besides, the author outlines and supports specific directions of reforming the Russian legislation with the goal of brining it in accord with the challenges of the digitization of economy and the emergence of new types of crime.

Understanding inter-organizational trust among integrated care service provider networks: A perspective on organizational asymmetries

ObjectiveTo explore the factors that influence trust among the integrated healthcare service provider network in the context of seeking combined health and care services in the UK. Data sources/study settingPrimary data were collected from three regional integrated care service provider networks from March 2016 to October 2017. Study designExplorative qualitative study and inductive methods from emerging findings. Data collection/extraction methodsWe conducted qualitative semi-structured interviews in three care networks and collected organizational documents from local integration boards from 2016 to 2017. Thematic analysis was performed in three large care networks with hospital staff, local councils, integration boards, and community and voluntary organizations under the NHS England Better Care Fund. Principal findingsOur findings reveal that trust among integrated care service provider networks is influenced by the following factors on various asymmetries: 1) recognition and knowledge asymmetries among care service partners of each other’s skills, expertise and capabilities; 2) capacity and financial imbalances within the network; and 3) organizational differences in management, culture and attitudes toward change. ConclusionThere is a need to improve competence recognition and capacity imbalances and to foster open minds toward change within networks to build trust to overcome divisions and facilitate integrated services among health and care organizations.

Financial Imbalances in Regional Disaster Recovery Following Earthquakes—Case Study Concerning Housing-Cost Expenditures in Japan

In the aftermath of the 1995 Kobe Earthquake, a large-scale effort towards reconstruction of houses damaged by the quake was required. This led to increased mortgage, thereby financially plaguing a number of earthquake victims and inhibiting their long-term sustainability and self-supported recovery. The current framework of housing reconstruction assistance provided by the Japanese government does not account for regional disparities in cost and other socioeconomic factors. This study proposes a technique for estimating the cost of reconstructing household units damaged in an earthquake by considering the effects of construction methods influenced by regional climatic zones. The financial constraints on rebuilding resources have been estimated by considering the annual regional income and household savings, as determined by social factors and employment opportunities. The susceptibility of regions to the occurrence of earthquakes has also been factored in the calculation of recovery costs. Together, these factors are used to provide a more complete picture of economic costs associated with earthquake recovery in different regions of Japan, thereby revealing large disparities in the difficulty and financial burden involved in the reconstruction of household units. Results of this study could be used to develop a robust system for earthquake-recovery assistance that accounts for differences in recovery costs between different regions, thereby improving the speed and quality of post-earthquake recovery.

Divergent Performance and Shifting Alliances in a Deglobalizing World

There is a significant probability that the world economy is about to stumble into a period of financial dislocation. Exacerbated by political tensions partly as a consequence of an untethered American foreign policy, the unwillingness and/or inability of the major economic powers to confront the imbalances that led to the financial crisis of 2007-8 have laid the basis for a historical repetition. The danger is that the confluence of slow real growth, low productivity increases, inflated asset prices (notably real estate) and higher public debt in some of the major Group of 20 (G20) economies cannot be sustained much longer. The Bank for International Settlements (BIS), among others, has been expressing its concerns that collectively we have been unable to constrain the buildup of financial imbalances, leading to a progressive narrowing of policy options. Not only are debt levels higher but we have unwittingly helped to entrench the concentration and power of large banks, spurred the development of shadow banking, encouraged a massive misallocation of capital and exacerbated income inequality via financial repression and productivity-sapping bailouts to crippled firms, which have the side effect of perpetuating unsustainable asset bubbles. It hardly seems surprising that deglobalization has become a factor in the internal politics of too many countries. It could well be that in retrospect the past 10 years will seem like a lost opportunity to address serious crisis prevention. Despite efforts to strengthen global governance over these past 10 years, the economic foundation has little resilience.

The Effect of Workplace Pensions on Household Saving: Evidence From a Natural Experiment in Taiwan

AbstractPopulation aging causes financial imbalances in pay‐as‐you‐go public pension programs. To remedy this problem, while ensuring the adequacy of retirement savings for employees, many countries complement or substitute public pensions by regulating their workplace pensions. This article exploits a pension reform in Taiwan that has mandated, since 2005, that all private‐sector employers contribute at least 6 percent of an employee's monthly wage to an individual pension account. I use workers in the unaffected sectors as a comparison group and employ a difference‐in‐differences method to estimate the impact of the reform on household saving rates. My estimates suggest that making private pensions mandatory significantly reduces the household saving rate by between 2.06 and 2.45 percentage points, thus implying that a $ 10 increase in the workplace pension could offset $ 5 to $ 6 of household savings.

Enterprise’s financial equilibrium in the system of modern economic relations

The subject of the article is the financial equilibrium of an enterprise in the system of equilibrium interrelations in the economy. The purpose of the article is to substantiate the place of the enterprise financial equilibrium in the hierarchical system of economic relations. The objective is achieved by using the following general and specific research methods: dialectical approach, induction and deduction, ratio analysis, comparative trend analysis. The financial state of ninety-three leading enterprises of the food, machine-building, metallurgical and chemical industries is analyzed. The signs of financial equilibrium are identified at every fourth enterprise. The trend towards an increase in financial imbalances in industry and in the socio-economic environment of Ukraine is revealed. The interrelation of financial imbalances that are present at the level of households, enterprises and economy of Ukraine is proved. It is shown that the high poverty level among the Ukrainian population, on the one hand, is the result of the loss of the financial balance by the vast majority of employers and, on the other hand, the reason for the low level of human capital development that is necessary for the restoration of equilibrium at all hierarchical levels of the economy. The theoretical and methodological foundations of formation of enterprise financial equilibrium are further developed. A complex system of equilibrium relations in the economy is presented. The place of financial equilibrium in the system of economic relations is specified. The noostical qualities of the financial equilibrium of the dissipative type are determined: dynamism, cyclical nature, adjustable character, subordination to the achievement of strategic socio-economic goals of system development.

Methodology for assessing the financial potential of the state in overcoming the consequences of military conflicts

The article is devoted to the study of the methodological foundations for measuring the state financial potential in overcoming the consequences of military conflicts. The critical analysis of papers on this subject makes it possible to define 10 quantitative indicators to assess the formation, distribution and use of financial resources to ensure post-conflict recovery. Separately, the author had proposed an indicator of regional concentration of sources of financial resources, which allows assessing the level of financial imbalances at the regional level. Based on data from the State Statistics Service of Ukraine, the National Bank of Ukraine and the World Bank Group, the proposed indicators have been calculated and compared with their recommended values in 2014–2016. The assessment of financial potential of the state through its international credit rating (for example, Fitch Ratings), positions in ratings Doing Business, Global Competitiveness Index, Index of Economic Freedom and Corruption Perceptions Index 2010–2016 has not been left without attention.

Stabilizing an unstable complex economy on the limitations of simple rules

This paper offers a systematic comparison of a wide range of leaning-against-the-wind interest-rate policy rules within a macroeconomic, stock-flow consistent, agent-based model. The model generates endogenous booms and busts along credit cycles. As feedback loops on aggregate demand affect the goods and the labor markets, the real and the financial sides of the economy are closely interconnected. The baseline scenario is able to qualitatively reproduce a wide range of stylized facts. We show that a monetary policy rule that targets the movements in the net worth of firms significantly dampens the credit cycles and reduces the employment costs of financial crises, because this indicator incorporates early signals of financial imbalances. Performances of this three-mandate Taylor rule are also more robust to the specific parameter values and regulatory framework than the standard dual-mandate Taylor rules. Nonetheless, none of the policy rules under study completely eliminates the high employment costs of financial crises.