Impact Of Changes In Monetary Policy Research Articles

The Effect of Global Monetary Policy Changes on the Financial Strategy of International Companies

In the interconnected global economy, the financial strategies of international corporations play a crucial role in navigating the dynamic landscape shaped by various factors, including monetary policies set by central banks worldwide. This narrative explores the intricate interplay between global monetary policy changes and the financial strategies of multinational corporations, investigating how shifts in these policies reverberate across borders, impacting corporate decision-making, risk management, and performance. Over recent decades, significant transformations in monetary policy frameworks have occurred, driven by evolving economic paradigms, financial crises, and geopolitical dynamics. Central banks have deployed a range of tools, from conventional inflation targeting to unconventional measures like quantitative easing, to stabilize economies and stimulate growth. However, the effectiveness and unintended consequences of these policies transcend domestic boundaries, permeating the international financial system and shaping the strategic imperatives of multinational corporations. The impact of global monetary policy changes on international companies' financial strategies is substantial. U.S. monetary policy shocks notably affect foreign firms, especially those with extensive global production linkages and financial constraints. Financial globalization has made domestic financial conditions more vulnerable to external shocks, reinforcing the case for price stability as an optimal monetary rule. The volatility of foreign currency exchange rates significantly affects international budgeting, while multinationals with foreign involvement exhibit lower leverage ratios and rely more on short-term borrowing. One primary channel through which global monetary policy changes influence international companies is by altering financing costs and access to capital. Changes in interest rates and liquidity conditions affect borrowing costs for firms operating across borders, impacting investment decisions, capital allocation, and capital structure optimization. Additionally, these changes induce currency fluctuations and volatility, necessitating robust currency risk management strategies to safeguard revenues and mitigate exchange rate exposure. Furthermore, global monetary policy changes affect asset prices, financial markets, and investor sentiment, shaping the risk-return dynamics faced by international companies. Expansive monetary policies often fuel asset price inflation and influence investment strategies, while abrupt policy shifts can trigger market dislocations and liquidity constraints. Beyond financial markets, monetary policy changes influence macroeconomic variables, such as economic growth, inflation, and trade patterns, shaping international companies' operating environments and strategic decisions. In conclusion, the interconnectedness of global financial markets accentuates the importance of agility, flexibility, and strategic foresight for multinational corporations in navigating the impact of monetary policy changes on their financial strategies and overall performance.

Inflation, Monetary Policy, and Portfolio Decisions of U.S. Households

We study the impact of monetary policy changes on portfolio decisions of U.S. households. Contrary to the predictions of canonical portfolio choice models, interest rate increases are related to increased equity ownership and larger wealth allocations to risky assets. Inflation hedging is a likely explanation for these findings. Interest rates have a stronger impact on the equity exposure of households that experience higher inflation, especially those with greater inflation awareness and potentially stronger hedging motives. Using household portfolios at a large discount brokerage house, we provide direct evidence that investors with greater inflation sensitivity overweight stocks with high hedging potential. This paper was accepted by Camelia Kuhnen, finance. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2023.02197 .

The Impact of Monetary Policy Changes on the Efficiency of Corporate Investment—Based on Capital Goods and Consumer Goods Research Perspectives

Credit expansion makes over-investment in capital goods in the upstream production chain, which reduces the efficiency of firm investment; credit expansion makes under-investment in consumer goods in the downstream production chain, which reduces the efficiency of firm investment. The impact of monetary policy changes on enterprise investment efficiency is temporal and sequential, and its intrinsic mechanism and transmission channels: credit expansion reduces enterprise financing costs, and funds will be concentrated in the long-cycle and capital-intensive upstream capital goods production link, leading to over-investment in capital goods and under-investment in consumer goods; large-scale investment in capital goods drives up the prices of its production factors, and the profit margin of capital goods production and sales becomes smaller, and The efficiency of investment in capital goods decreases; the credit crunch after the credit expansion, the rising cost of enterprise financing, the rising prices of production factors, the underinvestment in consumer goods, the oversupply of consumer goods, the subsequent rise in the price of consumer goods, and the decrease in the efficiency of investment in consumer goods.

Household Portfolios and Monetary Policy

We show that expansionary monetary policy is associated with higher household portfolio allocation to high risk assets and lower allocation to low risk assets, in line with “reaching for yield” behaviour. Our findings are based on analysis of US household level panel data using two measures of monetary policy shifts over the period 1999-2007. We also show that the impact of monetary policy changes is stronger for active investors. In addition, our hurdle model estimates reveal that monetary shocks strongly affect the decision to hold high risk assets, but not the decision to hold low risk assets. Finally, our results highlight the role of self-reported risk attitudes as well as that of mortgage-holder status in affecting the response of household portfolios to monetary policy changes.

Monetary policy in Haiti: 1991-2019

This study reviews the potential impact of monetary policy changes in Haiti for a twenty-eight year period (1991-2019). During that time, the country faced an increasing degree of dollarization, a result of recurrent balance of payment problems present in the economy since the 1980s. In 1991 the financial sector received the green light to accept dollar deposits and to provide loans in foreign currency. In 2008, the monetary policy started to implement easy monetary measures, which were aimed to induce growth, to increase credit in the domestic currency and to curb the "dollar addiction" of Haitian economic agents. The study applies the counterfactual analysis method as the methodology to provide a quantitative assessment of this new policy impact on growth and credit conditions. To do so, two periods were identified, the pre-policy period, i.e.,1991-2007 and the implementation period, i.e., 2008-2019. The policy variable was the interest rate on 91-days maturity period's bonds. Two ARDL (Autoregressive Distributed Lag) equations with trend were estimated for the first period, one with industrial production -a proxy for growth- as an outcome, the other with credit to the private sector (in gourdes) by commercial banks. A set of control variables, invariant to the policy changes but which affect the outcome variables, was also included. The observed outcome, which resulted from the policy implementation, was compared to an unobservable outcome generated from the estimation of the first period ARDL, this for each equation. This comparison was conducted through a test of effectiveness. The results of the test show that, on average, the easy policy did not bring significant changes to the economy as measured by industrial production and credit during the period studied. This does not preclude the policy from having an effect at specific times. One line of explanation behind these results lies in the observed increase of Haitian economic agents' "dollar addiction", something that the easy policy framework was unable to dampen. Another line of explanation builds on the structure of the financial sector, a risk adverse sector which did not alter its lending habits when the Central Bank adopted the easy policy framework at first and then, in 2014, adjusted its focus to some specific sectors identified as "growth enhancing" sectors.

Impact of Monetary Policy Changes on Brazilian Banking Efficiency during Crises

This study investigated the effects of monetary policy changes on Brazilian banking efficiency during crises through data envelopment analysis and difference of means tests between March 2001 and June 2014. The results indicate an increase in the effectiveness of the banking sector given changes in domestic monetary policy, especially, in terms of allocative and economic efficiencies during a crisis.

Time-varying response of treasury yields to monetary policy shocks

Purpose This paper aims to examine the Treasury bond yields response to monetary policy shocks in Tunisia under a heterogeneous economic environment. Design/methodology/approach Using a traditional fixed coefficient model, the impact of monetary policy changes on the term structure of interest rates for the whole period from January 2006 to December 2016 is estimated first. Then the stability of this relationship by distinguishing two sub-periods around the revolution of January 2011 is studies. To investigate how the relationship between the monetary policy and the Treasury yield curve evolves over time, a time-varying parameter model is estimated. Findings The results show that the impact of monetary policy is more pronounced at the short end of the yield curve relative to the longer end. Furthermore, this impact declines significantly across all maturities following the revolution and exhibits wide time variation. This evidence supports the negative influence of high levels of uncertainty on monetary policy effectiveness and highlights the desirability of more active monetary policy, especially in turbulent environment. Research limitations/implications The impact of uncertainty on the effectiveness of monetary policy shocks needs to be explored further in future research to understand the structural sources of uncertainty and their dynamic interactions with monetary policy and risk aversion in asset markets. Practical implications A more active role of the central bank to influence the yield curve mainly through Treasury bond purchases covering medium and long maturities may be warranted. Communication also needs to be reinforced to ensure predictability of the monetary policy stance. Originality/value This paper extends the empirical literature on the pass-through of monetary policy to interest rates for an emerging country in context of transition by estimating a state-space model to test the time-varying behavior and examine the influence of increased economic uncertainty on monetary policy effectiveness.

A MODEL OF STOCK MARKET CORRECTIONS USING STATISTICAL MACHINE LEARNING

ABSTRACT Global real economic activity is closely linked through various financial mechanisms, including credit and equity markets, as illustrated by the 2008 U.S. financial crisis and the resulting widespread economic dislocations. We apply statistical machine learning to the problem of identifying the key risk factors associated with daily equity market corrections and to address whether changes in monetary policy influence aggregate stock returns. Monetary policy changes that persist from one trading day to the next increase the odds of an equity market correction, as back-to-back adjustments in the funds rate might signal an unexpected policy action. If market agents view the temporal evolution in monetary policy as being unpredictable, the likelihood of market corrections increases as the overall confidence in the Fed’s ability to provide long-term price stability diminishes. The likelihood of a stock market decline is reduced if monetary policy follows a predictable path. An implication of this finding is that monetary authorities tend to remain in a tightening or an easing pattern until they receive a strong signal that they may have tightened or eased excessively. Such a signal in a contractionary cycle could be an inversion in real economic growth accompanied by a sizable equity market correction. Another finding of this paper is that heightened variability over time increases the odds of market corrections. The market response may be driven by the waning confidence of market agents. The impact of monetary policy changes is not symmetric as declines in the interest rate may lead to larger changes in equity prices. This fits the notion that many market agents fail to consider not only the effect of asymmetric temporal adjustments across a range of risk factors but also the impact of persistence in monetary policy changes on equity prices. Model results indirectly incorporate momentum-driven investor psychology and bandwagon effects. An original multiple feature lag-length optimization algorithm and the associated generalized non-linear vector autoregressive (GENVAR) framework introduced in the paper merit further study. Keywords Monetary Policy, Equity Prices, Stock Market Corrections, Statistical Machine Learning, GENVAR, Multiple Feature Optimal Lag Algorithm, Interest Rates, Asymmetric

THE IMPACT OF THE MONETARY TRANSMISSION MECHANISM ON MACROECONOMIC STABILITY IN UKRAINE

The ability of changes in money supply to influence business activity is realized through the transfer mechanism of monetary policy. The purpose of the study is to reveal the theoretical foundations of the transmission mechanism of monetary regulation and the key channels for its implementation to ensure economic growth. The effect of the interest rate channel is that the change in monetary policy, primarily through the official discount rate, directly affects the short-term rates on the financial market, and through the yield curve – the long-term rates. The credit channel reflects the impact of the central bank's monetary policy on the availability of resources on the credit markets, primarily because of the volatility of the free reserves of the banking system. The action of the currency channel is that, in the event of a decrease in domestic interest rates resulting from an increase in money supply, the demand for the national currency decreases, which leads to a decrease of the national currency, and as a result, to the growth of net exports and aggregate demand. The action of the money channel is characterized by the direct influence of the money supply on the money market and the level of prices in the economy. The channel of expectations characterizes the impact of monetary policy changes on the expectations of economic agents concerning future prices and the macroeconomic situation and, accordingly, their decisions on volumes of consumption, savings and investments. The perspective direction in the field of improving the functioning of the transmission mechanism in Ukraine may be the further orientation towards the mode of inflation targeting, rebooting the banking system.

Effectiveness of the monetary policy implemented in the context of crisis: use of short-term interest rate in the Czech Republic and the EMU

Focus on monetary policy transmission mechanism has regained its importance especially in regards to fi nancial and debt crisis. Negative developments after 2008 still verify the ability of monetary policy to mitigate its impacts. In EMU, it can be seen in the case of the effects of single monetary policy and the deepening of the asymmetries between member countries. This can be compared to the case of the monetary policy ef fi ciency in small and open non-member country and its in fl uence on macroeconomic developments. This paper is focused on the analysis of transmission process of monetary policy through the interest rate channel in EMU as well as in a non-member country, namely in Czech Republic. The aim of the analysis was to verify the similarity of reaction in case of monetary policy shock. The results for Czech Republic were compared to results for overall EMU. The focus was predominantly on interest rate channel of monetary transmission process and its impact on in fl ation, nominal effective exchange rate and gross domestic product, the variables that are typically used in central banks’ monetary rules. We also assumed that negative developments related to the crisis can distort the transmission of monetary policy effects on macroeconomic variables and that the impact of monetary policy changes is transmitted to the economic variables only partially or signi fi cantly lagged. The effects of interest rate shocks on selected variables were identi fi ed by estimating VAR model that uses Cholesky decomposition of innovations; the most widely used empirical methodology for analysing the transmission mechanism of monetary policy. The results show that the reactions of the product and the price level to positive interest rate shock are very similar for Czech Republic as well as for EMU throughout the investigated period 1999–2013. However, we cannot de fi nitively af fi rm that the crisis disrupted the transmission process from monetary measures to analysed macroeconomic variables as shown in the cases of Czech Republic and EMU. Interest rate channel has not shown particularly strong and stable in fl uence on the observed variables neither for Czech Republic, nor for EMU.

Impact of monetary policy changes on the Chinese monetary and stock markets

The impact of monetary policy changes on the monetary market and stock market in China is investigated in this study. The changes of two major monetary policies, the interest rate and required reserve ratio, are analyzed in a study period covering seven years on the interbank monetary market and Shanghai stock market. We find that the monetary market is related to the macro economy trend and we also find that the monetary change surprises both of lowering and raising bring significant impacts to the two markets and the two markets respond to the changes differently. The results suggest that the impact of fluctuations is much larger for raising policy changes than lowering changes in the monetary market on policy announcing and effective dates. This is consistent with the “sign effect”, i.e. bad news brings a greater impact than good news. By studying the event window of each policy change, we also find that the “sign effect” still exists before and after each change in the monetary market. A relatively larger fluctuation is observed before the event date, which indicates that the monetary market might have a certain ability to predict a potential monetary change, while it is kept secret by the central bank before official announcement. In the stock market, we investigate how the returns and spreads of the Shanghai stock market index respond to the monetary changes. Evidences suggest the stock market is influenced but in a different way than the monetary market. The climbing of returns after the event dates for the lowering policy agrees with the theory that lowering changes can provide a monetary supply to boost the market and drive the stock returns higher but with a delay of 2 to 3 trading days on average. While in the bear market, the lowering policy brings larger volatility to the market on average than the raising ones. These empirical findings are useful for policymakers to understand how monetary policy changes impact the monetary and stock markets especially in an emerging market like China where the economy is booming and the policy changes impact the markets as surprises by the central bank without a pre-decided schedule. This is totally different from previous studies on FED, which follows pre-decided schedules for monetary policy changes.

The Impact of Banking Interest Rates in Agriculture

National Bank of Romania establishes the monetary policy interest rate. The characteristicsof the Romanian’s financial system have impact on the degree of correlation between interest rates inthe banking system. This research uses the method of analyses of the impact of monetary policychanges in interest rate on key macroeconomic variables and on agriculture credit. The dimensionsand the evolution of agricultural credit show the restricted access of farms to the financial bankresources during the period 2007-2011. It is also evaluated the vulnerability of the agricultural system.The access of agricultural farms to the bank credit offer is determined through a series of factors.Romanian agriculture faced special problems regarding access to bank credits, because in competitionwith other sectors in the economic activity (industry, commerce, transportation etc.) agriculture wasthought to be unattractive and with a high risk for the banking sector. The evolution of the interest ratehas also a great impact on the evolution of agricultural products prices. Annual National Bank interestrates and inflation rates created difficulties in realizing the main objective - the prices stability. On thethird millennium, the development of a performing agriculture depends largely on the flexibility andefficiency of the crediting system practiced by the commercial banks and the access of agriculturalfarms to bank credits.

Implications of bank ownership for the credit channel of monetary policy transmission: Evidence from India

Using bank-level data from India, we examine the impact of ownership on the reaction of banks to monetary policy, and also test whether the reaction of different types of banks to monetary policy changes is different in easy and tight policy regimes. Our results suggest that there are considerable differences in the reactions of different types of banks to monetary policy initiatives of the central bank, and that the bank lending channel of monetary policy is likely to be much more effective in a tight money period than in an easy money period. We also find differences in impact of monetary policy changes on less risky short-term and more risky medium-term lending. We discuss the policy implications of the findings.

Implications of Bank Ownership for the Credit Channel of Monetary Policy Transmission: Evidence from India

Many developing and emerging markets have high degrees of state bank ownership. In addition, the recent global financial crisis has led to significant state ownership of banking assets in developed countries such as the United Kingdom. These observations beg the question of whether the effectiveness of monetary policy through a lending channel differs across banks with different ownerships. In this paper, using bank-level data from India, we examine this issue and also test whether the reaction of different types of banks (i.e., private, state and foreign) to monetary policy changes is different in easy and tight policy regimes. Our results suggest that there are considerable differences in the reactions of different types of banks to monetary policy initiatives of the central bank and the bank lending channel of monetary policy might be much more effective in a tight money period than in an easy money period. We also find differences in impact of monetary policy changes on less risky short term and more risky medium term lending We discuss the policy implications of the findings. Our results from India are preliminary and further studies are needed to see whether our findings can be generalized to emerging economies or developing countries in general.

Implications of Bank Ownership for the Credit Channel of Monetary Policy Transmission: Evidence from India

Many developing and emerging markets have high degrees of state bank ownership. In addition, the recent global financial crisis has led to significant state ownership of banking assets in developed countries such as the United Kingdom. These observations beg the question of whether the effectiveness of monetary policy through a lending channel differs across banks with different ownerships. In this paper, using bank-level data from India, we examine this issue and also test whether the reaction of different types of banks (i.e., private, state and foreign) to monetary policy changes is different in easy and tight policy regimes. Our results suggest that there are considerable differences in the reactions of different types of banks to monetary policy initiatives of the central bank and the bank lending channel of monetary policy might be much more effective in a tight money period than in an easy money period. We also find differences in impact of monetary policy changes on less risky short term and more risky medium term lending We discuss the policy implications of the findings. Our results from India are preliminary and further studies are needed to see whether our findings can be generalized to emerging economies or developing countries in general.

Sensitivity of the Islamic and conventional banks to monetary policy changes: the case of Malaysia

This study intends to determine the impact of monetary policy changes on Islamic banks vis-a-vis conventional banks. In achieving this, the study explores the dynamic inter-relationships between deposits and loans of the Islamic and conventional banks with monetary policy variable using two major tests. First, the Auto-Regressive Distributed Lag (ARDL) model is used to examine the long-run relationship among the variables. Second, the Vector Error-Correction Model (VECM) is adopted to explore the short- and long-run dynamics between the variables. The study focuses on Malaysian data covering the period from January 1998 to December 2006. The study finds that the Islamic banks' balance sheet items are relatively more sensitive to monetary policy changes, compared to the conventional banks balance sheet items. This implies that the impact of monetary policy is more de-stabilising on the Islamic banks than on the conventional banks.

The bank lending channel and monetary transmission in Central and Eastern European countries

This paper carries out a systematic empirical investigation of the bank lending channel of monetary transmission in the 8 CEE countries which have joined the EU: Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovak Republic and Slovenia. We examine in particular whether the impact of monetary policy changes on bank lending differs depending on the banks' size, capital strength, liquidity and ownership structure. Panel data for a large number of banks over the period 1994–2003, and dynamic panel estimation techniques are employed. Looking at the experience of individual countries, there is evidence of a bank lending channel in all countries, though the strength of it varies across countries. Bank size and liquidity seem to play the most significant role in distinguishing banks' reactions to changes in monetary policy. We also investigate the macroeconomic consequences of the bank lending channel and find evidence connecting aggregate loan supply to real economic activity in the CEE countries. Journal of Comparative Economics 37 (2) (2009) 321–334.