Global Shocks Research Articles

Shift in house price estimates during COVID-19 reveals effect of crisis on collective speculation

We exploit a city-level panel comprised of individual house price estimates to estimate the impact of COVID-19 on both small and big real-estate markets in California USA. Descriptive analysis of spot house price estimates, including contemporaneous price uncertainty and 30-day price change for individual properties listed on the online real-estate platform Zillow.com, together facilitate quantifying both the excess valuation and valuation confidence attributable to this global socio-economic shock. Our quasi-experimental pre-/post-COVID-19 design spans several years around 2020 and leverages contemporaneous price estimates of rental properties – i.e., off-market real estate entering the habitation market, just not for purchase and hence free of speculation – as an appropriate counterfactual to properties listed for sale, which are subject to on-market speculation. Combining unit-level matching and multivariate difference-in-difference regression approaches, we obtain consistent estimates regarding the sign and magnitude of excess price growth observed after the pandemic onset. Specifically, our results indicate that properties listed for sale appreciated an additional 1% per month above what would be expected in the absence of the pandemic. This corresponds to an excess annual price growth of roughly 12.7 percentage points, which accounts for more than half of the actual annual price growth in 2021 observed across the studied regions. Simultaneously, uncertainty in price estimates decreased, signaling the irrational confidence characteristic of prior asset bubbles. We explore how these two trends are related to market size, local market supply and borrowing costs, which altogether lend support for the counterintuitive roles of uncertainty and interruptions in decision-making.

From oil surges to renewable shifts: Unveiling the dynamic impact of supply and demand shocks in global crude oil market on U.S. clean energy trends

Transitioning to renewable energies has become undeniably important in recent decades, especially for the United States. Oil price shocks are prominent determinants of renewable energy. Hence, this study examines the impacts of oil supply, aggregate demand, and oil-specific demand shocks on renewable energy consumption from 1973:01 to 2021:05 using Structural VAR and Time-Varying Parameter VAR models. Based on the results, oil supply shocks generally have a negligible effect on renewable energy, except those that originate from sharp changes in Saudi Arabian oil production and the U.S. recession-induced oil supply deficit. Aggregate demand shocks, such as those caused by the Persian Gulf War and the Asian financial crisis, negatively affect renewable energy by reducing investments and making oil more affordable. Conversely, oil-specific demand shocks, such as the 1979 Iranian Revolution and the 2008 financial crisis, initially reduce renewable energy attractiveness but ultimately lead to increased renewable energy consumption due to soaring oil prices. This study’s unique approach of separately examining global oil market shocks provides new insights, complementing and extending previous research on the relationship between oil prices and renewable energy consumption. Eventually, policy implications for strengthening incentive policies and adding punitive policies to seeking investment in renewable energy are proposed.

Are exchange rates absorbers of global oil shocks? A generalized structural analysis

This paper studies the impact of global oil market shocks on the level, volatility, and correlation dynamics of real effective exchange rates over time. We find that the USD and the EURO act as shock absorbers, as shocks to the global oil market explain substantial proportions of the volatility and correlation dynamics of each exchange rate – compared to the small or even negligible contributions of exogenous interest rate and effective exchange rate shocks. Further we find an interesting “puzzle” that the Euro Area unexpectedly behaves as if it were an oil exporting country - the EURO appreciates in response to a flow demand shock that increases oil price. Our findings are garnered from a generalized time-varying SVAR model with stochastic volatility that allows for correlated disturbances between observation and transition equations and among transition equations themselves. This approach of enriching dynamics between the first and second moments of endogenous variables is particularly suitable for capturing the transmission of structural level oil shocks to the volatility of exchange rates and their correlation with the global oil market.

The Inefficiency of Bitcoin and the COVID-19 Pandemic

From the perspectives of asset pricing, market outreach, regulatory framework, and investor ethos, crypto markets differ substantially from traditional financial markets. Given these fundamental differences, it is interesting to examine how the notions of market efficiency apply to crypto markets, especially because the arguments of the efficient market hypothesis (Fama, 1970) and the adaptive market hypothesis (Lo, 2004, and Lo, 2008) were originally developed in the context of traditional financial markets. Research on the informational efficiency of crypto markets has attracted increasing attention in recent years. This paper examines the evolving efficiency of Bitcoin, the leading cryptocurrency, especially during the period when economies around the world were devastated by the Covid-19 pandemic. For a newly-emerged cryptocurrency with a market that is essentially global, a global shock like the Covid-19 pandemic presents ideal conditions for assessing how efficiency evolves as the market faces a series of shocks. Employing a fixed-length rolling window approach, this paper carries out the following tests: the automatic portmanteau test of Escanciano and Lobato (2009), the wild bootstrap automatic variance ratio test proposed by Kim (2009), the generalized spectral test of Escaciano and Valesco (2006), and the test proposed by Dominguez and Lobato (2003). The results provide evidence of episodes of inefficiency in a market that is efficient over extended periods. The inefficiency index constructed in this study shows that the Bitcoin market went through proportionately longer and more frequent episodes of inefficiency during the Covid-19 period. This is in line with the adaptive market hypothesis and has practical significance for investors and regulators.

Generalised morality and contemporary fertility dynamics across European regions

ABSTRACT This study focuses on the concept of generalised morality (GM), a cultural trait measured with the values of respect, obedience, generalised trust and control. Since GM drives economic prosperity and the way nations organise their welfare, we investigate how it matters for contemporary fertility trends. We consider the period between 2000 and 2014, when divergent fertility trends in Europe arose and the Great Recession took place. Using Eurostat and Organisation for Economic Co-operation and Development (OECD) data for 177 regions in 23 European countries, we demonstrate that GM plays a moderating role with educational expansion and when there is a global shock – here the Great Recession.

From Decline to Rebound: Analyzing the Dynamics of Fertility Trends in Sleman Regency Amid Global Shocks, 2018-2022

This quantitative study aims to examine the trends of live birth rates in Sleman Regency over a five-year period (2018-2022). The study utilizes birth data obtained from the Ministry of Home Affairs (Kemendagri). The analysis focuses exclusively on live birth data without considering socio-economic indicators or environmental factors. The findings indicate that Sleman Regency experienced significant fluctuations in fertility trends amidst global challenges, including the Covid-19 pandemic. Initially, the fertility environment was stable, with a slight increase in live births from 13,102 in 2018 to 13,354 in 2019. However, a notable decline to 11,702 live births was observed in 2021, followed by a robust rebound to 14,908 live births in 2022. The study highlights the resilience of Sleman Regency’s demographic dynamics in the face of global disruptions. These findings underscore the importance of continuous monitoring and analysis of demographic data to anticipate and manage future demographic shifts. This research contributes to the demographic field by providing insights into the fluctuating fertility patterns in a specific region during a period marked by global disruptions.

Changes in Inflation Dynamics in Korea: Global Factor, Country Factor and Their Propagation*

AbstractThis study examines the influence of global and country factors on inflation movements in Korea using a multi‐level factor model. Our results indicate that country factors showed a more pronounced alignment with inflation in Korea up to the mid‐2000s, having particularly strong impacts around the Asian financial crisis. Beyond the mid‐2000s, global factors played a more influential role in shaping inflation. This increased influence of global factors on inflation became particularly apparent during the notable inflationary surge following the COVID‐19 pandemic. We construct structural models to identify global and country shocks and find that the effect of global shocks persists for a longer period, whereas the immediate impact of country shocks is more pronounced. Global shocks have a greater influence on producer price index and import price index inflation compared to consumer price index (CPI) or core CPI inflation. We further find that energy prices closely correlate with global factors, while exchange rates are highly correlated with country factors in Korea.

Trends in changes in poverty levels in the Republic of Armenia

Today, the whole world is faced with ever-increasing demonstrations of social inequality, one of which is poverty. Especially in 2019-2020 Social inequality around the world has worsened as the pandemic has hit the poor hardest. According to the World Bank, more than 700 million people in the world today live in extreme poverty, spending just $2.15 a day, which is the extreme poverty threshold. After decades of efforts to reduce global poverty, shocks and crises in the global economy in recent years have led to a worsening of the situation. As a result, the problem of poverty has worsened in low-income countries, which are still unable to recover and return to their previous pace. At the current pace, the goal of ending global poverty will not be achieved by 2030, according to the World Bank.

Crises and energy markets reforms

The spikes in energy prices observed following recent major global shocks—e.g., COVID-19 and Russia-Ukraine war —as well as issues related to the diffusion of renewable energy power generation, have reopened the debate about the design of electricity markets and the role of the “state” vs. “market” in the electricity markets governance. In this article, we contribute to this debate by looking at the effect of economic crises on energy markets regulation. We find that, historically, economic crises have been associated with a persistent tightening in energy markets regulation (i.e., more restrictions to competition), with the effect being larger during periods of high economic and policy uncertainty and when governments were politically strong—that is, characterized by a larger majority, in majoritarian systems, and at the beginning of their mandate.

Drivers of inflationary shocks and spillovers between Europe and the United States

This paper builds a structural econometric model to measure the impact on inflation of three shocks: a shock of disequilibrium in the energy markets, a money growth shock, and a global stochastic shock, which covers factors such as inflationary expectations and uncertainty. It is found that for the economies of Europe and the United States, the current inflationary period is dominated by the global component closely followed by energy markets in the short term and by monetary growth in the medium term. The dynamics of the model further show that the recent exponential inflationary surge of 2021 onward is mainly headed by other factors rather than energy markets or money growth, such as expectations or uncertainty. Further analysis of the spillover effects between the inflation of Europe and the United States based on endogeneity-robust econometric estimations shows that this relationship is unidirectional from the USA to Europe. In essence, this work shows that a coordinated strategy between fiscal and monetary policies is the best response to recent inflationary shocks.

In what way can worldwide robotics and artificial intelligence encourage development in green crypto investments? An implementation of a model-free connectedness technique

PurposeThis study aims to investigate connections between the development of robotic and artificial intelligence (AI) and green crypto investments. The author also explores the influences of global uncertainty shocks like the COVID-19 pandemic and international conflicts on the role of each channel.Design/methodology/approachIn this research, the author uses a cutting-edge model-free connectedness approach to investigate the relationships between the development of Global X Robotics and AI (BOTZ) and the volatility of green crypto investments from November 9, 2017 to March 24, 2023.FindingsIn the sample duration, the findings reveal a two-way link between AI and green/nongreen cryptocurrencies. Throughout the examined period, BOTZ has been a net receiver of shocks as determined by the net total connectedness. Among the main spillover shock carriers in the system, green cryptocurrencies are the most significant. The net pairwise directional connectivity reveals that green cryptocurrencies controlled BOTZ throughout the analyzed time, particularly during the COVID-19 era as well as the Ukraine–Russia crisis. According to the findings, the proposed system is vulnerable to a high level of indication influence.Practical implicationsThe results have important policy implications for investors and governments, as well as methods from the spillovers across the various indicators and their interconnections. Sharp information on the primary contagions among these indicators aids politicians in designing the most appropriate policies.Originality/valueTo the best of the authors’ knowledge, this paper is the first to look at the link between AI, technological advancement and green cryptocurrency investing. Second, this study developed a methodology for examining instability links between various factors that is more appropriate for investigating these linkages. This study investigates the links between AI, technical advancement and green digital currencies using a cutting-edge model-free connectivity method. This work is also the first to examine the interconnection between volatility derived from AI, technological development and green cryptocurrency investments in light of unknown events, such as the COVID-19 pandemic and the Ukrainian–Russian conflict. Finally, this study includes a daily database from the BOTZ fund, which attempts to invest in firms that stand to gain from rising robotics and AI use. Cardano (ADA), IOTA, NANO (XNO), Stellar Lumens and Tron are examples of green cryptocurrencies, whereas Bitcoin is an example of a nongreen cryptocurrency. These virtual currencies are being used to investigate the relationship between investor mood and green and nongreen digital currencies. The data set spans the period from November 9, 2017 to March 24, 2023.

Exploring minimal indirect digital economy taxation as a post-COVID-19 economic recovery strategy for African revenue mobilisation

The COVID-19 pandemic and its aftermath continue to devastate most areas of society and continue to reveal inherent structural vulnerabilities in the economies, social, and health systems in countries. In addition, the Russia-Ukraine conflict of 2022 and the geopolitics of its resolution continue to create shocks across the globe- evidenced by rising inflation, increased sovereign debt level, recession, and reduced public expenditure among others. While many sectors of the economy were crippled by the back-to-back global economic shocks of the Covid-19 pandemic and the Russia-Ukraine conflict through reduced economic activities resulting in a global recession and reduced tax revenues for public expenditure, the digital economy has surprisingly boomed and continues to grow in this period of uncertainty. This has been directly attributed to the 'lure of the alternative', caused by the social and economic lockdowns imposed by countries, which pushed many persons and companies to explore the next available option- online platforms to conduct business. Although the rise in the use of digital platforms for business activities is commendable, this development has some implications for traditional business frameworks which in turn affects revenue mobilisation for funding public infrastructure projects and services. This is because, in Africa, the digital economy is not as well-regulated as the traditional economy. This creates an avenue for tax evasion and avoidance, arising from the dynamic and complex nature of digital transactions. This challenge requires that urgent solutions be found for the effective taxation of the digital economy. There will be a need to review/reform economic and fiscal policies and laws to ensure a faster recovery from the economic effects of the COVID-19 pandemic. There would also be a need to create digital tax policies that are equitable for source and market jurisdictions and, lastly, there will be a need for cooperation in tax law and policies across Africa that capture the reality of the growth and ubiquitous presence of digital multinationals in Africa.

Analyzing fossil fuel commodities' return spillovers during the Russia and Ukraine crisis in the energy market

During the Russia and Ukraine crises, the energy market, including fossil fuel commodities, experienced significant global shocks. This research paper investigates the phenomenon of return spillover across the energy market amid the Russia and Ukraine conflict, utilizing the Diebold and Yilmaz Spillover Framework and EGRACH Model. The study examines daily frequency data from 24 February 2022 to 30 June 2023, focusing on the interconnectedness between various energy commodities: Brent Oil, Carbon Emissions, Crude Oil WTI, Gasoline, Heating Oil, and Natural Gas. The result of the study reports a total spillover index of 36%, indicating a significant spillover during the Russia and Ukraine conflict. Furthermore, the highest dynamic gross directional return spillovers have been reported in Brent Oil compared to the others. However, carbon emissions and natural gas have the lowest spillovers. The study significantly contributes to a deeper understanding of energy commodities by confirming the volatility persistence across the energy market based on the E-GARCH model.

2023 PESA business environment review

In 2023, the world faced increased local and global headwinds in achieving the goal of net zero emissions by 2050 due to geopolitical factors, global economic variables, advancing technology, and evolving policies and regulations. Despite a 22% rise in global investments for renewable energy, the world fell short of the 76% required for a Net Zero Emissions Pathway by 2050. There was a collective return to fossil fuels, particularly natural gas and liquefied natural gas (LNG), to meet the demand for secure and affordable energy amid global energy supply shocks. As a result of sustained elevated energy prices governments and energy companies are having to consider all three elements of the energy trilemma – affordability, sustainability, and security – in a more balanced way. The energy industry responded to these challenges by increasing investments in gas-oriented resources and the emergence of investments into the critical minerals value chain, indicating a historic convergence of multiple industries to address the global energy transition. Investment in new energy technologies to support decarbonisation continued, albeit at a slower pace than required. The energy transition also accelerated the decommissioning responsibilities of upstream energy producers for their mature infrastructure assets. As Australia and other countries globally, strive to deliver on net zero ambitions, the oil and gas sector continues to grapple with the delicate balancing act of providing reliable, affordable, secure and sustainable sources of energy, which only continues to emphasise the need for fossil fuels during this energy transition.

Uncertainty shocks and monetary policy rules in a small open economy

Abstract Post the great financial crisis (GFC) of 2008–2009, there has been a surge in the macroeconomics literature on aggregate uncertainty. Although the recent literature has recognized the adverse real effects of global uncertainty shocks in emerging market economies (EMEs), the role of monetary policy in offsetting these adverse effects and their link with the exchange rates is not explored in the literature. We find that the currently followed interest rate rules (IRRs) under a flexible inflation-targeting regime are ineffective in stabilizing the domestic economy during periods of high global uncertainty in the EMEs. Using a small open economy new Keynesian DSGE model with Epstein–Zin preferences and second-moment demand shocks, we compare and propose alternate monetary policy rules that significantly reduce welfare losses. We find that the best monetary policy rule in terms of welfare depends on the nature of shock that is, first-moment or second-moment shock.

Global shocks and the dynamics of EU countries' specialisation

AbstractThis article empirically investigates the effects of global shocks on EU‐28 countries' patterns of specialisation by focusing on the global financial crisis of 2008. In particular, it addresses the following two research questions: Did the financial crisis change the patterns of specialisation of EU member states? Was the impact of the crisis homogenous across countries and manufacturing products? Answering these questions is important because changes in specialisation generate inequalities, given the shift of the demand from one factor to another. Using an unconditional quantile regression approach, this study demonstrates that the financial crisis had a positive effect which was larger on products in which countries were not specialised before the crisis. Some heterogeneity also emerged at both sectoral and geographical levels.

Do higher global oil and wheat prices matter for the wheat flour price in Lebanon?

AbstractThis article investigates the effect of global oil and wheat prices, and local price shocks on the real price of wheat flour in Lebanon. We estimate a structural vector autoregressive model with exogenous variables (SVARX) using Bayesian methods. We then compute the impulse response functions and find that global commodity price shocks play a trivial role. Meanwhile, local gasoline price and wheat flour price‐specific shocks trigger large increases in the Lebanese wheat flour price on impact. Furthermore, since 2020, local gasoline price and wheat flour price‐specific shocks have contributed the most to the historical variation in the Lebanese wheat flour price.

Stock market pattern recognition using symbol entropy analysis

Market uncertainty and asset pricing are closely related. The emergence of global and local shocks provokes price patterns in stock markets that threaten overall market stability. Using a combination of symbol entropy analysis, regression models, and forecast variance decomposition estimates, we examine the relationships between the frequency of states associated with rising and falling price patterns of the S&P 500 index, its implied volatility, and the fluctuations in the global stock market uncertainty. We find a positive (negative) relationship between the increase (decrease) in global uncertainty and the frequency of extreme bear (bull) episodes. Similarly, we observe the same relationship between increases (decreases) in the implied volatility and the frequency of extreme bear (bull) episodes. Furthermore, joint increases (decreases) in implied volatility and global uncertainty are positively (negatively) associated with the frequency of bear (bull) episodes in the S&P 500 index. Finally, interconnectedness studies confirm the relevance of the mutual influence of the phenomenon and its dynamic nature, which increases the probability of observing shock waves of financial instability in global and local stock markets. Our work highlights the need to consider price patterns and their links to uncertainty as factors of stock market instability. For policymakers, governments, and practitioners, our findings are a call to include events with high global/local impact in the radar of threats to financial stability.

Reprint of “Unveiling the dance of commodity prices and the global financial cycle”

We examine the impact of commodity price changes on the business cycles and capital flows in emerging markets and developing economies (EMDEs), distinguishing between their role as a source of shock and as a channel of transmission of global shocks. Our findings reveal that surges in export prices, triggered by commodity price shocks, boost domestic GDP, an effect further amplified by the endogenous decline of country spreads. However, the effects on capital flows appear muted. Shifts in U.S. monetary policy and global risk appetite drive the global financial cycle in EMDEs. Eased global credit conditions, attributed to looser U.S. monetary policy or lower global risk appetite, lead to a rise in export prices, higher output, a decrease in government borrowing costs, and stimulate greater capital flows. The endogenous response of export prices amplifies the output effects of a more accommodative U.S. monetary policy while country spreads magnify the impact of shifts in global risk appetite.

Emerging markets' response to COVID-19: Insights from arbitrages strategies

Global capital markets are sensitive to extreme and physical events. This research explores the influence of COVID-19 on cross-border arbitrage strategies in emerging markets. Specifically, this study develops a novel cross-market pairs trading strategy centered on healthcare stocks, tailored for the unique dynamics of the emerging market environment. The feasibility of cross-border arbitrage strategies in emerging markets is demonstrated by comparing the performance of the strategy before and after the outbreak. Additionally, sensitivity analysis of the risk preference factors before and after the COVID-19 outbreak further supports this argument. These findings offer valuable insights for international investors seeking arbitrage between emerging and other markets and, effectively responding to global shocks.