Impact Of Macroeconomic Shocks Research Articles

Financial determinants of ensuring the resilience of Ukrainian regions

Financial resilience is the basis of economic development as it determines the ability of the financial system to efficiently perform its functions and ensure optimal resource allocation and the normal course of economic processes under the impact of macroeconomic shocks and endogenous risks. The article aims to assess financial resilience as a systemic component of ensuring the economic development of Ukrainian regions. The research methods include systemic and structural analysis (building an information and analytical model for studying financial resilience), clustering (grouping regions by the criterion of economic development), and risk theory and analysis of variance (identifying potential zones of financial resilience and its components). Data from the regions (oblasts) of Ukraine for 2015–2021 serve as the information and analytical basis of the study. The article reveals that in 2021 regions with better financial resilience (Zhytomyrska, Dnipropetrovska, Kyivska, Lvivska, Odeska, Kharkivska, Cherkaska, and Volynska oblasts) take leading positions in terms of economic development and more efficient use of exogenous and endogenous financial resources than the regions with low financial resilience (Chernivetska, Vinnytska, Khmelnytska, Donetska, Ternopilska, and Ivano-Frankivska oblasts). The study proves that enhancing financial resilience is a trigger and foundation for ensuring economic growth in the regions, especially amid macroeconomic shocks. Balancing the need to use financial resources to restore the economy (growth of production, consumption, and employment) while reducing the dependence of regional economies on external financial sources should become the main vector of policy to ensure the financial resilience of Ukrainian regions. AcknowledgmentsThe study was conducted within the framework of the “Financial Determinants of Ensuring Economic Growth of Regions and Territorial Communities based on Behavioral Economics” project (No. 2020.02/0215) funded by the National Research Foundation of Ukraine (Competition “Support for Research of Leading and Young Scientists”).

Macroeconomic cyclical indicators and bank non-performing loans: does country governance matter in African countries?

PurposeThe purpose of this paper is to investigate the influence of macroeconomic cyclical indicators and country governance on bank non-performing loans in African countries.Design/methodology/approachData was collected from the 53 African countries covering 2005–2021. The paper develops an empirical model to examine the impact of country governance in reducing macroeconomic cycle-induced adverse effects on bank credit risk. This research estimates Random Effects models and the General Method of Moment to examine the link between microeconomic and governance factors on bank non-performing loans. Stata version 15.1 was used to conduct panel regression analysis.FindingsThe findings of the study revealed that the generalized method of moments findings contributes valuable insights into the persistence of NPLs over time and the specific effects of variables on NPL levels. The study findings highlight that the debt-to-GDP ratio, unemployment, regulatory quality, government effectiveness and inflation have significant relationships with NPLs, shedding light on their specific contributions to credit risk dynamics.Research limitations/implicationsThe focus on a specific set of determinants for NPLs, which may not capture all the factors that influence NPL levels. Thus, the study did not consider the impact of macroeconomic shocks, such as natural disasters or global economic crises, which can have a significant impact on NPLs.Practical implicationsPolicymakers should prioritize maintaining sustainable debt levels, promoting employment growth and controlling inflation rates to mitigate credit risk and reduce nonperforming loans. Also, enhancing regulatory quality and government effectiveness is crucial in ensuring financial stability and minimizing non-performing loans in Africa.Originality/valueThis paper provides a new possible solution to minimise bank non-performing loans risk by examining interactions of country governance regarding the macroeconomic cycle behaviour.Peer reviewThe peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-11-2022-0729

Impact of Macroeconomic Shocks on the Growth of Nigeria Economy

Policy redirection has been supported as the way out of the display development challenges confronting the nation. The objective of the paper is to survey the effect of macroeconomic stuns on the development of Nigeria economy. The theory appears the whether macroeconomic stuns have critical effect on the Nigeria financial development. This think about embraced Akaike Data Model (AIC) to decide the ideal slack combination for the ARDL. The slack combination with the slightest esteem of the chosen basis among the competing slack orders is considered the ideal slack. Discoveries uncovered the impacts of monetary arrangement factors on financial development of Nigeria are found to be noteworthy both within the long run and brief run particularly the center financial approach factors like government expenditure and government income conjointly affirmed the defenselessness of the Nigerian economy to outside stuns. The paper concludes that out of the two major financial arrangement factors, government income has more critical relationship with Nigerian financial development. The development rate of Nigeria is more connected to government income than expenditure. Suggestion appears that Nigerian government ought to input approaches that will upgrade nearby yield, this will diminish the helplessness of the economy to outside stuns.

Demand for Cash and its Determinants - a Post-Crisis Approach1

Abstract The use of cashless payment instruments has been on an increase over many years now. At the same time, demand for cash has been on the rise as well and we can observe a particularly high level of growth demand for banknotes during crisis times. The increase in demand for cash known as the “banknote paradox” is a phenomenon observed in many economies. It results from the existence of two streams of demand for cash - transactional and precautionary, and the differences in the directions of their changes from the point of view of the central bank and other entities involved in cash transactions, since it enables the optimization of cash supply management, which allows, on the one hand, to reduce the costs of cash processing and, on the other hand, to improve the effectiveness of monetary policy. This paper estimates the share of the transaction demand for cash with the aggregate demand. The strength and direction of the impact of selected macroeconomic and behavioural factors (uncertainty caused by the Global Financial Crisis and the Pandemic Crisis) on transaction and precautionary demand for cash were also assessed. A novel approach to the problem of demand for cash is based on considering the impact of macroeconomic shocks in the form of crises on the demand for cash.

Financial development, economic growth and the role of fiscal policy during normal and stress times: Evidence for 26 EU countries

AbstractThis article empirically explores the finance‐growth relationship and the performance of the financial system measured by financial depth, accessibility, and efficiency of both financial sectors, that is, institutions and stock markets. It also examines the role of fiscal policy in conjunction with the performance of financial development during both normal and stress times. The data consists of a panel of 26 European Union countries over the period 1990–2020. The results show that during normal times, the finance‐led growth relationship and the stock market are greatly important, while during stress times the relationship becomes insignificant. Interestingly, financial institutions are found to be more effective at promoting growth and there is clear evidence that a potentially dynamic positive effect of institutions to growth is absorbed by macroeconomic shocks. In addition, there is evidence for a threshold at a lower level compared to those previously identified in the literature. This latter finding can be attributed to different measures of financial institutions used and the impact of macroeconomic shocks. The inability of both financial sectors to enhance economic activity seems to exhibit persistence from the occurrence of the global financial crisis until the onset of the recent Covid‐19 pandemic.

Impact of Macroeconomic Shocks on the Individual Banks: Case of Madagascar

The successive financial crises have highlighted the interdependence between the financial system and the real economy. Prudential measures to limit the negative repercussions of the financial crisis, through the Basel I and Basel II agreements, have shown their limits and the Basel III agreements have consequently integrated the macro-prudential component which aims to ensure the stability of the financial sector as a whole within the economy. The financial stability assessment tool known as the “stress test” has also been developed in various forms and its application to the financial sector, particularly the banking sector, is strongly recommended by the Bank for International Settlements. Indeed, the purpose of this study is to assess the resilience of the Malagasy banking sector to macroeconomic shocks and to evaluate its impact on the capitalization of the banking system through the macroeconomic stress test tool. To do so, we used a dynamic panel model. Non-performing loan forecasts are used to obtain capital projections at both the banking system and bank levels under adverse scenarios. The results show that most banks were able to hold capital above the minimum regulatory threshold of 8% under Basel III standards. However, only one bank fails to meet the minimum capital adequacy threshold. Non-performing loan forecasts are used to obtain capital projections at both the banking system and bank levels under adverse scenarios.

Влияние макроэкономических шоков на неравенство: современный аспект

Влияние макроэкономических шоков на неравенство: современный аспект

Russian stock market: The structure of economic factors in times of advance and recession

Subject. This article explores the structure of economic factors at the national level, the Russian stock market's development depends on, and its changes in different economic periods. Objectives. The article aims to identify structural changes in the system of internal factors that determine the conditions of the Russian stock market's development under the influence of macroeconomic shocks of 2008 and 2014. Methods. For the study, I used a correlation analysis, and the event study and descriptive approaches. The study time-frame from 2002 to 2019 is divided into four periods. Results. The article determines that the structure of internal economic factors influencing the Russian stock market gets transformed under the impact of macroeconomic shocks. Conclusions and Relevance. At present, the relationship between the Russian stock market and domestic economic factors is not strictly determined. The modern stock market performs its functions in the development of the real sector of the economy to a moderate degree. The practical significance of the study lies in the possibility of using its results to develop measures to regulate the stock market depending on economic conditions and instruments of impact, as the structure of economic factors in the development of the stock market changes during periods of growth and crisis.

Macroeconomic shocks and evolution of term structure of interest rate: A dynamic latent factor approach

It is imperative to assess the impact of macroeconomic shocks on the health of financial institutions under macro-prudential surveillance, which percolate through interest rate risk, because any change in the interest rate term structure would affect their profit and loss account through income from interest earning assets and expenses on interest bearing liabilities. Accordingly, this paper empirically evaluates impact of key macroeconomic variables, namely, output gap, inflation and policy rate on the term structure of the Indian G-sec using latent factor model. First, level, slope and curvature of the yield curve were modelled dynamically through dynamic latent factor model and then these factors were linked to the macroeconomic variables using vector autoregressive framework. The empirical findings show a strong evidence of the effects of macroeconomic shocks on future movements in the yield curve.

Financial fragility of euro area households

Until recently, the lack of appropriate harmonized micro data covering both income and wealth has been the major obstacle in analyzing financial vulnerability of the household sector in the euro area. This data problem has been partially circumvented by the dissemination of the Household Finance and Consumption Survey (HFCS). Based on this unique data set, we put forward a stress testing method of household balance sheets in a consistent manner across euro area countries. To this end, we put forward a metric of distress which takes into account both the solvency and liquidity position of the household and demonstrate that this metric outperforms the most common metrics used in the literature, which do not take into account the households’ asset holdings. We calibrate this metric using the country level data on non-performing loan ratios and estimate stress-test elasticities in response to an interest rate shock, an income shock and a house price shock. We find that, albeit euro-area households are relatively resilient as a whole, there are large discrepancies in the impact of macroeconomic shocks across countries. Finally, we demonstrate that our framework could be used to assess some measures mitigating losses to the banks, such as engaging in the restructurings of loans that are at risk of defaulting.

Analysing the Effects of Macroeconomic Shocks on Public Debt in Zimbabwe

This paper analyses the impact of macroeconomic shocks on public debt in Zimbabwe. Understanding the impact of macroeconomic shocks on public debt is necessary as this allows debt managers to focus on a public debt structure which limits the potential of debt from deviating from its long-run steady state. The study applied the Bayesian Vector Auto regression (BVAR) model to simulate the impact of macroeconomic shocks on public debt. The results show that Zimbabwe’s public debt is more vulnerable to interest rate, exchange rate, economic growth and primary balance shocks. Together these shocks account for about 61 per cent of forecast error variation in the debt to GDP ratio. From this analysis, the major policy implication is the need for government to pay particular attention to automatic debt dynamics. There is also a need to maintain the primary balance at manageable levels as well as instituting growth enhancing policies to ensure long-term sustainability of public debt. The need for appropriate selection of the currency composition of public debt is also necessary to mitigate the risk of unexpected increases in public debt from adverse external sector developments.

Stress Testing of Retail and Corporate Segments of Russian Credit Market

The objective of the paper is to investigate and compare risk patterns in retail and corporate segments and assess the potential impact of macroeconomic shocks on loan quality. Banks’ monthly financial statements data for the period 2004 – 2012 are used. Firstly, we develop an indicator to measure institution’s credit risk that reflects variance and average value of NPL corrected for loan loss reserves. It is used to compare the risk-return patterns of largest state-owned banks, and under our framework we identify how the strategies of various banks differ in retail and corporate loans, identifying ‘safest’ and ‘riskiest’ institutions. Secondly, loan growth and credit risk sensitivity to macroeconomic shocks is analyzed using vector auto-regression. Macroeconomic shocks do not significantly increase NPL growth in the corporate segment. However, inflation and investment growth have a considerable impact on NPL growth in the retail segment (which is however almost three times less than the corporate). Based on these findings we conclude that there is no reason to expect rampant rise in corporate loan defaults in response to sudden changes in macroeconomic environment of Russia, though further growth of corporate loan segment increases credit risk, while the opposite is true about the retail sector.

Differences in Retail Inventory Investment Behavior During Macroeconomic Shocks: Role of Service Level

In this article, we analyze how retailers change their inventory investment behavior in response to macroeconomic shocks. We examine if service level, as measured by the ratio of stockout to inventory holding costs, can explain the differences in observed behavior across retailers. We use data on macroeconomic indicators and quarterly filings of US public retailers from 1985 to 2009 to estimate a dynamic model of short‐ and long‐term impact of macroeconomic shocks on inventory investment. Our results show that retailers with a high service level increase their inventory investment significantly more than those with a low service level during expansion shocks. Conversely, retailers with a low service level curtail their inventory investment significantly more than those with a high service level during periods of economic contractions. Thus, we show that the aggregate change in inventory investment documented in prior macroeconomics research is driven by different sets of retailers, as predicted by newsvendor logic. We draw implications of our findings to retailers as well as their suppliers.

Euler Equation with Habits and Measurement Errors: Estimates on Russian Micro Data

This paper presents estimates for the consumption Euler equation for Russia. The estimation is based on micro-level panel data and accounts for the preference heterogeneity, measurement errors, and the impact of macroeconomic shocks. The presence of multiplicative habits is checked with the LM-test in a GMM framework. We obtain estimates of the elasticity of intertemporal substitution and of the subjective discount factor, which are consistent with the theoretical model and can be used for calibration, as well as for a Bayesian estimation of DSGE models for the Russian economy. We also show that the effects of habit formation are not significant. The hypotheses on habits (external, internal, and both external and internal) are not supported by the data.

Regional output growth and the impact of macroeconomic shocks in Mexico

This paper presents an empirical analysis of the relationship between national and regional output growth in Mexico, and the impact of domestic and international shocks on national, regional and state output movements. Our results suggest that there are similarities, but also significant differences, in real output dynamics across the regions and states of Mexico and that it would be wrong to regard the Mexican economy as a homogeneous entity. The results show that real output growth in Mexico and the United States are linked, but there is no common output trend for the two countries. At the regional level, it appears that North and Central Mexico share similar features, but the path of output growth is more distinctive in South Mexico. Overall, our results suggest that assessments of macroeconomic performance, and related discussions of policy, should pay greater attention to the potential diversity in regional performance.

Financial Fragility of Euro Area Households

We propose a novel framework to identify distressed households by taking account of both the solvency and the liquidity situation of an individual household. Using the data from the Household Finance and Consumption Survey and the country-level data on non-performing loans we calibrate our metric of distress and estimate stress-test elasticities in response to an interest rate shock, an income shock and a house price shock. We find that, albeit euro area households are relatively resilient as a whole, there are large discrepancies in the impact of macroeconomic shocks across countries. Furthermore, while losses given default as calculated using our framework are low, they are sensitive to house prices changes. Hence, any factors hindering the seizure of the collateral or lowering its value, such as inefficient legal systems, moratoria on foreclosures or bottlenecks in judicial procedures may significantly increase losses facing banks. Finally, we demonstrate that our framework could be used for macroprudential purposes, in particular for the calibration of country level loan-to-value ratio caps.

A Comprehensive Framework for Quantitative Stress Tests in Financial Institutions

In recent years, the importance of stress tests as a complement to VaR framework is widely recognized by both financial regulators and risk management practitioners.To perform credit risk stress tests in a financial institution, one must quantify the impact of macroeconomic shocks on a credit portfolio.To this end, we enhance the widely used firm-value model by incorporating macroeconomic factors and apply a fast computation technique of moment generating function (MGF) to the enhanced model. Since various risk measures and risk contributions can be obtained by the Laplace inversion of MGF and its derivatives, risk management practitioners can analyze the risk characteristics of their credit portfolio in detail under given macroeconomic conditions. In addition, based on our framework, one can also perform quantitative reverse stress tests. More specifically, one can calculate the conditional distribution of macroeconomic factors under the condition that severe losses have occurred in a credit portfolio. Thus, risk managers can investigate under what macroeconomic conditions their financial institution has difficulty in its management. In this way, our methodology provides a comprehensive stress test framework that can be used for practical risk management.

Capital Structure and Firm Vulnerability in Indonesia

The main idea of this paper is to provide empirical evidence of firm vulnerability in Indonesia around the 1997 financial crisis. For capturing the effect of crisis on firm vulnerability, this paper includes country, industrial sector and firm specific factors influencing capital structure choices of Indonesian firms. Afterwards, relation of capital structure and firm performance is examined for gaining better explanation of the impact of the financing policies on firm performance. Accordingly, this paper takes into account the impact of macroeconomic shocks or business cycle effect on firm healthiness in where capital structure choices play pivotal role in the mechanism.