Flow Management Policies Research Articles

MACROPRUDENTIAL POLICIES CAPITAL FLOW MANAGEMENT

This article aims to present the legitimization process of macroprudential capital flow management policies as a tool for economic stability after 2009, when such policies started to have the support of multilateral institutions such as the IMF. To this end, we conducted extensive bibliographical research, bringing together several academic strands to present how this process of transformation and acceptance developed and the motivations, impacts, and effective results of these policies. As a result, we verified that the use and effectiveness of these management strategies must follow an arrangement in which their scope must involve several other policies of the fiscal, macroprudential, monetary, exchange rate, and capital control, mainly in emerging economies and in these cases, reduce financial fragility and maintain the macroeconomic stability of these countries in the face of adverse shocks to the balance of payments caused by excessive capital inflows or outflows, mitigating the resulting externalities in the process.Keywords: Macroprudential policies / Stability / Capital flow

Similarities yet Divergence in South Asian Macroeconomic Performance


 Stylized business cycle facts for South Asia are both similar and different from other regions. They show the dominance of supply shocks, often amplified by macroeconomic policies and procyclical current accounts. Interest and exchange rate volatility rose initially on liberalization, but fell as markets deepened. A gradual approach to openness and market development, with flexible exchange rates, that avoided complete liberalization, worked well initially. But a combination of excessive government/foreign borrowing and inadequate reserves made it difficult for smaller countries to withstand the multiple external shocks that began with the global pandemic. Domestic ability to smooth shocks and global safety nets are both essential. India benefitted from growing diversity, evolution to countercyclical macroeconomic policy better suited to structure and a good coordination of monetary and fiscal policies, with balance between demand stimulus and continuing supply-side reforms. Reserves and capital flow management policies helped insulate from global shocks. Intervention damped excess exchange rate volatility, reducing risk premiums.

Mediating Effect of Operating Cash Flow on the Relationship between Working capital and Financial Performance of Tea Firms in Kenya.

Purpose: Many corporate firms incorporating those in the tea sector are normally interested in their corporate financial performance. This is particularly in regard to the manner in which their activities pertaining financing, investing and operating assignments, not only aid in generating incomes but similarly on how to maintain and manage the expenditures and costs of all these activities to their very minimal, with an objective of optimizing on firm’s profitability. Notwithstanding the agitation for corporate financial performance generally and in particular profitability, still it is unclear on how the management of operating cash flow influence the corporate financial performance of firms in the tea industry in Kenya. The divergence in the management of operating cash flow policies across the tea industry is depicted in the discrepancy in the operating cash flow fluctuating from very high of these ratios to low current asset to total asset ratios.
 Methodology: Regardless of the fluctuation in the management of operating cash flow management policies, still there is inadequacy of theoretical and empirical explicitness on the manner in which management of operating cash flow influences profitability of these corporate firms.
 Findings: Empirically, numerous research studies arrives at varied findings on how operating cash flow is correlated with to the corporate financial performance. Theoretically, whereas the Miller- Orr model (1966) and Baumol model (1956) suggest optimal structuring of operating cash flow to enhance risk minimization and thus uplift financial performance. On the other hand, the Jensen and Meckling agency theory (1976) shortfall in pointing out an explicit relationship between the operating cash flow collection period and corporate financial performance. The stewardship theory of Gitman (1974), showcased an inverse association between operating cash flow collection period and profitability. The present research study is developed as a correlational research designed study employing the 40 multinationals and KTDA managed tea companies in tea sector in Kenya over a 6 year period covering 2014 to 2019. This forms 240 firm-year observations. Random-effects model regression model was employed after conducting specification tests for the model. The hypothesis testing was analyzed by employing the t-statistic at 95% confidence interval.
 Unique contributor to theory, policy and practice: Having the foundation on the philosophy of positivist research design, the research results established that operating cash flow as measured by the ratio of cash and cash equivalent to current liabilities showed that it does not mediate the relationship between working capital management decisions and financial performance as measured by earnings before interest and taxes to total assets. This research study was confined to the tea factories under multinational and KTDA managed tea firms in Kenya and recommendation thereof is an increased sample for all tea firms in Kenya could be included in order to check out how it will influence the robustness of the findings.

INTERACTION OF MACRO-MANAGEMENT POLICIES TO REDUCE LENDING GROWTH

This paper examines whether capital flow management (CFM) and monetary policies effectively reduce lending growth in emerging market economies (EMEs) in the presence of conventional and unconventional monetary policy actions undertaken by advanced economies. We apply a dynamic panel model with fixed effects to a sample of 24 emerging market economies for 2000–2021 using quarterly data and more continuous variables than in other studies rather than limiting the variability using proxies. Capital controls and macroprudential regulation, as CFM policy tools, moderate lending growth. This effect is particularly shown in countries with tighter monetary conditions. Our main findings highlight the useful role of coordinating CFM and monetary policies. This role stands for both fixed and flexible exchange rate regimes. Lastly, we find capital flow management and monetary policies manage to control lending in normal periods, but their coordination is less effective during crises and high volatility periods.

Capital flow management and monetary policy to control credit growth

AbstractThis paper examines whether capital flow management and monetary policies effectively reduce credit growth in emerging market economies in the presence of both conventional and unconventional monetary policy actions undertaken by advanced economies. We apply a dynamic panel model with fixed effects to a sample of 21 emerging market economies from 2000 to 2020 using quarterly data and more continuous variables than in other studies rather than limiting the variability using proxies. We find that capital controls and macroprudential regulation, as tools of capital flow management policy, moderate credit growth. This effect is particularly shown in countries with tighter monetary conditions. Our main findings highlight the useful role of coordinating capital flow management and monetary policies. This role stands for both fixed and flexible exchange rate regimes. Lastly, we find capital flow management and monetary policies manage to control credit in normal periods, but their coordination is less effective during crises and high volatility periods. Robustness checks suggest that these findings are stable across alternative proxies used in the literature, thus providing additional support for the validity of our results.

Arus Kas Dan Kesulitan Keuangan Perusahaan (Studi Empiris Pada Perusahaan Subsektor Coal Mining yang Terdaftar Dalam IDX SCM Liquid di Bursa Efek Indonesia Periode 2017 – 2021)

The study evaluates the influence of cash flow on the financial distress of company under study is caol mining sector listed enterprises on IDXSCM Liquid in the Indonesia stock market from 2017 to 2021. We use the data collected from the financial statements of 4 company enterprises listed on the IDX SCM Liquid from 2017 to 2021 in the idx database. The quantile regression method was employed to analyze the effect of cash flow on the financial distress of listed coal mining subsector companies. The results show that the cash flow from operating activities and the cash flow from financial activities have negative relationships with financial distress. However, the cash flow from investing activities has a positive relationship. Based on experimental results, the study proposes some recommendations on cash flow forecasting, building an optimal budget model to help business managers have appropriate cash flow management policies to reduce the risk of financial distress

Cash flow and financial distress of private listed enterprises on the Vietnam stock market: A quantile regression approach

The study evaluates the influence of cash flow on the financial distress of private listed enterprises on the Vietnamese stock market from 2010 to 2020. We use the data collected from the financial statements of 263 private non-financial enterprises listed on the Ho Chi Minh and Hanoi stock exchanges from 2010 to 2020 in the FinPro database. The quantile regression method was employed to analyze the effect of cash flow on the financial distress of listed non-financial private enterprises. The results show that the cash flow from operating activities and the cash flow from financial activities have negative relationships with financial distress. However, the cash flow from investing activities has a positive relationship. Based on experimental results, the study proposes some recommendations on cash flow forecasting, building an optimal budget model to help business managers have appropriate cash flow management policies to reduce the risk of financial distress.

The Time-Varying Effects of Policies: Evidence from Capital Flows to Emerging Markets

We use a novel approach—instrumental variable quantile regression estimates—to analyze expected portfolio inflows to emerging economies. We consider country-specific conditions and the effectiveness of policy interventions when economies are faced with an adverse international financial shock. This approach allows differentiation between the short- and medium-term impacts. Our results suggest that macroprudential policies and foreign exchange actions may reduce the risks of large capital flow movements following an adverse international shock; however, capital flow management policies such as capital control stringency seem to be ineffective. Besides, there is little evidence that monetary policy and high quality of institutions can immediately protect emerging markets from the risks of international financial shocks. However, institutional quality may effectively dampen the impact of excessive flows in the medium term. These findings emphasize the limitations of previous studies, which focused merely on the short-term horizon.

AN EMPIRICAL COMPARISON OF DRP AND DEMAND-DRIVEN DRP

Companies are nowadays challenged to offer high service levels while minimising inventory costs in an ever-increasing competitive market. One of the keys is to manage and improve the product flow in the distribution network continuously. In this paper, Demand Driven Distribution Resource Planning (DDDRP) is a proposed model for product flow management in distribution networks. It allows to optimise the flow by managing customer demand fluctuations. A literature review about flow management policies is presented, and then a case study is provided to make a comparison of the DDDRP concept with conventional management methods such as Distribution Resource Planning (DRP). To achieve this comparison, a discrete event simulation (DES) is adopted to measure the effectiveness of each model regarding the demand fluctuations, using key performance indicators. The simulation gives empirical results and illustrates the interests and benefits of the DDDRP approach in terms of inventory costs and service levels. The originality of this document concerns the assessment of Demand-Driven Distribution as a new approach of management and opens up new opportunities for optimising inventory and product flow in distribution networks.

The information content of capital controls

Capital controls, policy measures used by governments to regulate cross-country financial flows, have became standard policy options in many emerging market economies. This paper will focus on what capital controls convey about the state of the economy and the implications of such revelation for policy efficacy. Empirically, this paper finds that capital controls convey important information market participants use to improve their understanding of economic fundamentals. Using a small open economy model with a collateral constraint and over-borrowing relative to the social optimum, I incorporate a representative agent’s Bayesian updating of information in response to change in policy and show that the efficacy of capital controls to correct over-borrowing and mitigate the negative impact of financial crises could be undermined if the agent rationally learns from policy. This paper highlights the need for policymakers to take into account the unintended consequences of information revelation in the design of capital flow management policies.

Combining Hydrologic Simulations and Stream‐network Models to Reveal Flow‐ecology Relationships in a Large Alpine Catchment

AbstractFlow regimes profoundly influence river organisms and ecosystem functions, but regulatory approaches often lack the scientific basis to support sustainable water allocation. In part, this reflects the challenge of understanding the ecological effects of flow variability over different temporal and spatial domains. Here, we use a process‐based distributed hydrological model to simulate 23 years of natural flow regime in 100 bioassessment sites across the Adige River network (NE Italy), and to identify typical nivo‐glacial, nivo‐pluvial, and pluvial reaches. We then applied spatial stream‐network models (SSN) to investigate the relationships between hydrologic and macroinvertebrate metrics while accounting for network spatial autocorrelation and local habitat conditions. Macroinvertebrate metrics correlated most strongly with summer, winter, and temporal variation in streamflow, but effects varied across flow regime types. For example (i) taxon richness appeared limited by high summer flows and high winter flows in nivo‐glacial and pluvial streams, respectively; (ii) invertebrate grazers increased proportionally with the annual coefficient of flow variation in nivo‐glacial streams but tended to decline with flow variation in pluvial streams. Although local land‐use and water quality also affected benthic communities, most variation in macroinvertebrate metrics was associated with spatial autocorrelation. These findings highlight the importance of developing environmental flow management policies in ways that reflect specific hydro‐ecological and land use contexts. Our analyses also illustrate the importance of spatially‐explicit approaches that account for auto‐correlation when quantifying flow‐ecology relationships.

SDN-Based Traffic Management Middleware for Spontaneous WMNs

Software Defined Networking (SDN), with its clear distinction of control and data planes, as well with its simple paradigm of logically centralized controller with global visibility of the whole targeted network status, is gaining momentum in different scenarios. However, its effective exploitation in Wireless Mesh Networks (WMNs) is still an open and emerging research topic, mainly due to the high dynamicity of some related deployment environments (e.g., spontaneous WMNs) and to the need of efficient solutions capable of locality-enhanced optimizations. Here we originally present motivations, challenges, design guidelines, and a prototype middleware implementation for SDN-based management of selected (most appropriate) traffic flows. Our solution advances the state of the art in the field by (i) allowing high flexibility via deployment and de/activation of flow management policies at provisioning time, (ii) supporting dynamicity via proper efficient handling node of join/leave events, and (iii) increasing scalability via a partially decentralized approach based on dynamically determined WMN “islands”, usually managed by separated SDN controllers that can seldom interact to federate their management decisions. In addition to design/implementation insights and to the availability of the prototype code, this paper provides the community with a significant novel contribution in terms of experimental performance results, which quantitatively demonstrate the feasibility and the effectiveness of the proposed approach.

Unconventional Central Bank Policies in Emerging Asia (Presentation Slides)

Targeting Inflation is well enshrined as a principal central bank objective, but other goals are also acknowledged to be important, notably financial stability. In small and highly open (both in terms of trade in goods and financial assets) economies, capital flows and exchange rate volatility can be important sources of macroeconomic and financial instability. Central bank policy is therefore conducted not only by using a short-term interest rate as in conventional Inflation Targeting, but also by using capital flow management policies and interventions in the foreign exchange market.

Crossing Borders: Foreign Investment and Sentiment in Korea

ABSTRACTThis study examines the effect of global investor sentiment on capital inflows in the Korean stock and bond markets using textual analysis. First, we conclude that global investor sentiment about Korea causes fluctuations in capital inflows to the Korean stock market. Second, global investor sentiment about Korea causes foreign investors to modify their investments but not by enough to cause drastic changes. Third, positive sentiment about Asia-Pacific countries results in more foreign investment in Korea. The results suggest that research on global investor sentiment provides insight into the determinants of capital flows and has implications for capital flow management policies.

Capital flow management policies in emerging market economies: Are they successful in mitigating drastic changes of capital flows?

AbstractThis paper constructs a new database for capital flow management policies (CFMs) in 16 emerging market economies from 1999 to 2008 and analyses their effect on extreme capital flow movements. We show that CFMs are effective in mitigating drastic changes of capital flows. We also find that CFMs do not have significant impacts on capital flow volumes. The results suggest that CFMs could be employed as policy toolkits for mitigating extreme capital flow movements without distorting capital flows in a normal period.

Are CFMs Successful on Mitigating Capital Flow Episodes?: Micro Level Assessment of Policy Impacts

This paper analyzes the effect of capital flow management policies (CFMs) on extreme capital flow movements. We identify CFMs for 21 countries (6 high-income, and 15 low-income) from 1999 to 2008 and classify them into capital controls and other CFMs based on whether there is a discrimination between residents and nonresidents. We find that capital controls are more effective on adjusting net capital flow episodes than other CFMs. We also find that CFMs have a similar effect on gross capital flow episodes. The analysis on capital flow volume shows that CFMs are not effective on both net and gross capital flow volume. The results suggest that CFMs, especially capital controls, could be employed as policy toolkits for mitigating extreme capital flow movements.

Does Global Investor Sentiment Encourage Capital Inflows?: Evidence from Korea

This paper examines the effect of global investor sentiment on capital inflows in the Korean stock and bond markets. First, we conclude that global investor sentiment about Korea causes capital inflows to the Korean stock market to fluctuate. Second, we find that global investor sentiment about Korea causes foreign investors to modify their investments but not enough to induce rapid changes in capital inflows. Third, we show that positive sentiment about other Asia-Pacific countries causes foreign investors to invest more in Korean stock and bond markets. The results suggest that studies of global investor sentiment provide insight into determinants for international capital flows and have implications for capital flow management policies.

Capital Flow Management Policies and Riskiness of External Liability Structures: the Role of Local Financial Markets

This paper investigates the role domestic financial systems play in the effectiveness of capital flow management policies (CFMs) on the risk of over-reliance on debt. Using data from 44 emerging market countries over the period 1995—2008, we investigate the relationship between financial development, CFMs, and the share of debt in external liabilities as the measure of financial stability risks. We find that financial sector development is an important channel for the effectiveness of CFMs, and enhances the impact of different policy measures on the reduction of external debt liabilities. Our results show that CFMs are significantly more effective in curbing debt inflows in a bank-based economy but, to a lesser extent, in a market-based economy. Our findings remain robust to alternative measures of external liability structures, CFMs and financial development, and consideration of potential endogeneity.

Comparative assessment of macroprudential policies

This paper provides a comparative assessment of the effectiveness of macroprudential policies in 12 Asia-Pacific economies over 2004–2013, using databases of domestic macroprudential policies and capital flow management (CFM) policies. We find that banking sector CFM policies and bond market CFM policies are effective in slowing down banking inflows and bond inflows, respectively. We also find some evidence of spillover effects of these policies. Finally, regarding the interaction of monetary policy and macroprudential policies, our empirical findings suggest that macroprudential policies are more successful when they complement monetary policy by reinforcing monetary tightening, than when they act in opposite directions.

Macro-Prudential Response to Increased Global Market Volatility

Volatilities of price indicators have remained extremely stabilized during the period of low interest rates since the Global Financial Crisis (GFC) of September 2009. Low volatility pushes down risk premium. That could lead global investors’ risk appetite to increase. There has been a big change in global liquidity flows since 2009. Emerging market economies (EMEs), with relatively high credit risk, received a huge capital inflows backed up by the increased risk appetite of global investors.US Federal Reserve is now trying to normalize its monetary policy by increasing the policy rate tied at zero low bound for about seven years. This will bring asset price volatility and risk premium to normalize too. We remain concerned about the downside risk to the capital outflows from EMEs, including Korea. And it may well potentially cause a decrease in asset price and a growth contraction in EMEs. Accordingly, we overview volatility of financial market and new trends in capital flows, and identify the determinants of capital flows to/from EMEs. We also review the use of capital flow management policies in EMEs including Korea, and examine the effectiveness of Asset? Based Reserve Requirements (ABRR) as an alternative macro-prudential policy measure to manage capital flows.