Key Macroeconomic Variables Research Articles

Credit rating and microfinance lending decisions based on loss given default (LGD)

This paper proposes a credit rating model that considers the impact of key macroeconomic variables on commercial banks' credit decisions and loss given default (LGD). The findings provide additional insight into the phenomena that under some circumstances a higher credit rating may lead to a higher LGD. The empirical analysis is based on actual bank data from 2,044 farmers in China. The theoretical analysis and empirical verification provides key insights into regulatory and commercial bank credit policy in a developing country setting, while helping to alleviate financing problems of small and micro credit entities.

EFFECTS OF US QUANTITATIVE EASING ON LATIN AMERICAN ECONOMIES

Most emerging economies have been affected to some degree by the Fed’s quantitative easing (QE) policies. This paper assesses the impact of these measures in terms of key macroeconomic variables for four inflation-targeting small open economies in Latin America. We identify a QE policy shock in a structural vector autoregressive with block exogeneity and a mixture of zero and sign restrictions. Overall, we find that these QE policies have significant effects on financial variables such as the exchange rate, and these effects are larger with respect to those in output and prices. Furthermore, the effects vary across countries, and these are more significant in Chile and Mexico than in Peru and Colombia.

Analysis of the Effect of Uganda’s 2011 Government Spending Shock on Key Macroeconomic Variables

Economic theory suggests that when an economy experiences a government spending shock, it reacts in a specific manner. This paper tests this supposition by analyzing the response of Uganda’s aggregate output, inflation and real policy interest rates to the country’s 2011 government spending shock, in contrast with what the AD/AS economic model suggests. The analysis indicates that following the shock, all the aforementioned economic variables responded in line with the model’s stipulations, and the economy experienced a crowding out effect on net exports. Keywords: government spending shock, AD/AS model, policy interest rate, inflation rate, aggregate output, GDP, government expenditure DOI : 10.7176/JESD/10-6-11 Publication date :March 31 st 2019

Why do Latin American firms hold so much more cash than they used to?

Abstract This study assesses whether the trade-off or the pecking order theories explain the increased cash ratios in Latin American firms. It also assesses the explanatory power of additional variables that identify key macroeconomic features in Latin American economies. Due to its noticeable increase, cash became a key feature of Latin American firm performance over the last decades. The need for a better understanding is stressed by the fact that, during most of the last decade, these firms experienced a phase of accelerated economic growth and buoyant financial markets. The resulting surge in real investment opportunities within this period makes the growing cash holdings all the more puzzling. As far as we know, no other research addresses this issue in a direct way. There are robust facts about the increased cash holdings in Latin American firms. This article assesses traditional explanations and defines which fits more properly to the study sample. A complementary explanation regarding exchange rate exposure and key macroeconomic variables is constructed and empirically evaluated. To address potential sources of endogeneity, dynamic panel data methods are used. Particularly, the system generalized method of moments (GMM) was applied, as proposed by Blundell and Bond (1998). This article reports an increasing trend for corporate cash holdings in a sample of selected Latin American firms between 2000 and 2014. Likewise, net leverage and short-term debt show a declining trend over the same period. The trade-off theory may explain this. A substantial effect of macroeconomic variables particularly affecting firms that operate in the region is observed, such as exchange rate risks.

Central bank forecasts and private expectations: An empirical assessment from three emerging economies

As part of their monetary policy strategy, many central banks are attempting to manage private sector expectations about key macroeconomic variables. In this article, we investigate whether forecasts provided by central banks in three inflation targeting emerging economies (Brazil, Mexico, and Poland) affect the expectations of private forecasters. In particular, we analyze whether the disagreement between the central bank and private sector forecasts applies to explain changes in private sector expectations regarding inflation and economic growth. The findings show that while central bank forecasts are higher than those made by private sector forecasters, the result is an update upwards of private forecasts and that this effect is stronger for GDP growth forecasts than for inflation forecasts.

Macroeconomic forecasting for Australia using a large number of predictors

A popular approach to forecasting macroeconomic variables is to utilize a large number of predictors. Several regularization and shrinkage methods can be used to exploit such high-dimensional datasets, and have been shown to improve forecast accuracy for the US economy. To assess whether similar results hold for economies with different characteristics, an Australian dataset containing observations on 151 aggregate and disaggregate economic series as well as 185 international variables, is introduced. An extensive empirical study is carried out investigating forecasts at different horizons, using a variety of methods and with information sets containing an increasing number of predictors. In contrast to other countries the results show that it is difficult to forecast Australian key macroeconomic variables more accurately than some simple benchmarks. In line with other studies we also find that there is little to no improvement in forecast accuracy when the number of predictors is expanded beyond 20–40 variables and international factors do not seem to help.

The global effects of productivity gains in Asian emerging economies

This paper investigates international responses of key macroeconomic variables to simultaneous shocks to productivity in the traded sector in eight Asian emerging and developing countries. We use panel estimation techniques to construct component sub-models in a thirty country global vector autoregressive (GVAR) model. We identify the shocks by using sign restricted impulse responses. We find that increases in traded-sector productivity in Asian emerging and developing countries have a positive effect on economic growth and international trade for most countries.

Transmission of Household and Business Credit Shocks in Emerging Markets: The Role of Real Estate

AbstractWe study the role of real estate in the transmission of household and business credit shocks to the economy. To this end, we construct a small open economy real business cycle model with households and entrepreneurs, who hold real estate and face credit constraints on their borrowing. The impulse response analysis shows that both household and business credit shocks lead to an expansion in the economy, with business credit having a larger effect. Real estate plays an important role in understanding the response of the economy to credit shocks. A credit expansion in one sector increases house prices, which raises the value of real estate holdings of the other sector and generates spillover effects between sectors. As a result, household and business credit shocks lead to similar responses. Without housing, the two types of shocks affect the key macroeconomic variables differently with only business credit shocks leading to an expansion. Our findings suggest that housing as a common asset provides a transmission channel between the sectors that mitigates the differences in the responses to the credit shocks.

From households to national statistics: Macroeconomic effects of Women's empowerment

How do shifts in intra-household gender dynamics affect the economy at large? This paper parametrizes intra-household gender-powered decision-making and endogenous distributions of income to allow for the aggregation of key macroeconomic variables. In equilibrium, we find that greater women's empowerment increases precautionary savings to offset low endowment realizations. The effect is stronger among poor households who hedge against hitting a subsistence bound. Given the boost in savings at the bottom of the distribution, more empowerment leads to less poverty and lower income inequality. Another equilibrium prediction of the model is an increase in the household's food intake regardless of income, reflecting women's greater preference for food compared to men. The model's predictions are mapped to Mexico's 2014 National Household Income and Expenditure Survey which identifies the gender of the head of the household. These predictions have policy implications in the areas of monetary policy, social policy, financial intermediation and banking.

Assessing U.S. Aggregate Fluctuations Across Time and Frequencies

We study the behavior of key macroeconomic variables in the time and frequency domain. For this purpose, we decompose U.S. time series into various frequency components. This allows us to identify a set of stylized facts: GDP growth is largely a high-frequency phenomenon whereby inflation and nominal interest rates are characterized largely by low-frequency components. In contrast, unemployment is a medium-term phenomenon. We use these decompositions jointly in a structural VAR where we identify monetary policy shocks using a sign restriction approach. We find that monetary policy shocks affect these key variables in a broadly similar manner across all frequency bands. Finally, we assess the ability of standard DSGE models to replicate these findings. While the models generally capture low-frequency movements via stochastic trends and business-cycle fluctuations through various frictions, they fail at capturing the medium-term cycle.

Relationship between Economic Factors and Economic Growth

The aim of this study was to examine the effect of some of the key macroeconomic variables on Economic growth of India. Money Supply, Inflation and Exchange rate was taken as the independent variables whereas GDP was taken as the measure of economic growth. Simple & Multiple Regression test was applied to check the relationship between the independent and dependent variables over the period 2007-08 to 2017-18. The results from multiple regression test revealed that Money Supply possessed a positive impact on economic growth and Exchange rate had negative effect on GDP but Inflation had insignificant negative relationship with GDP.

How do energy consumption, output, energy price, and population growth correlate with CO<SUB align="right">2 emissions in Liberia

Researches that provide insights on major environmental matters are necessary for policy decision making in Liberia. Therefore, we employ autoregressive distributed lag (ARDL) model to gauge short-and-long-run associations between CO2 emissions and Liberia's key macroeconomic variables. The ARDL long-run outcomes are compared against results from dynamic ordinary least square (DOLS) approach. The short-run outcomes reveal that energy consumption (EC) and real output (GDP) have significant positive impacts on CO2 emissions in Liberia. In the long-run, both ARDL and DOLS estimates show significant positive impacts of EC, real GDP and oil price on CO2 emissions. Hence, we find the existence of the environmental Kuznets curve (EKC) hypothesis for Liberia. Therefore, we argue that EC is the main factor that promotes economic growth in Liberia, but growth in EC and real GDP stimulate CO2 emissions growth. Thus, new carbon free technologies that reduce dependence on primary energy use are required.

Human development and economic growth in Asia: a dynamic panel cointegration and causality analysis

This paper explores the impact of human development on economic growth in a large Asian panel, covering more than 83% of the entire Asian economy, by using data from 1990 to 2014 for each country. In this paper, the growth model considering human development unlike Malthusian and Neoclassical views is augmented with other key macroeconomic variables namely per capita electricity consumption and capital formation to represent a hyperopic view of impact on economic growth. Human development has significant positive impact on economic growth both in the short-run and in the long-run like that of electricity consumption and capital formation. However, fertility has significant negative impact on economic growth in the short-run unlike that of the long-run. Imbalance in economic growth takes approximately 9.5 years to adjust. Innovation in human development makes economic growth respond slightly positively in next 8 years and explains a part of variation in economic growth.

Human development and economic growth in Asia: a dynamic panel cointegration and causality analysis

This paper explores the impact of human development on economic growth in a large Asian panel, covering more than 83% of the entire Asian economy, by using data from 1990 to 2014 for each country. In this paper, the growth model considering human development unlike Malthusian and Neoclassical views is augmented with other key macroeconomic variables namely per capita electricity consumption and capital formation to represent a hyperopic view of impact on economic growth. Human development has significant positive impact on economic growth both in the short-run and in the long-run like that of electricity consumption and capital formation. However, fertility has significant negative impact on economic growth in the short-run unlike that of the long-run. Imbalance in economic growth takes approximately 9.5 years to adjust. Innovation in human development makes economic growth respond slightly positively in next 8 years and explains a part of variation in economic growth.

Identification of key macroeconomic variables for forecasting housing construction costs in Nigeria

The housing sector in Nigeria has been undermined by the persistent rising costs of building construction. This study therefore determined the key macroeconomic factors influencing housing construction costs in Nigeria. Data obtained from quantity surveying firms and central bank of Nigeria (CBN), were analysed using one-sample T-test, Pearson correlation and Granger causality test. Findings reveal that fluctuations in costs of housing within the period were statistically significant. The results further indicate that GDP, money supply, exchange rate and inflation rate have significant positive relationship with housing construction costs. However, only inflation rate and gross domestic product (GDP) can be used to predict housing construction costs. The study recommends that government should initiate policies that will help in stabilising prices. It also recommends that caution should be applied when using historical cost data to predict the cost of housing during periods of rapid economic growth.

Education costs in Brazil: analysis of macroeconomic variables

This article is meant to analyse the key macroeconomic variables that affect higher education costs in Brazil and to provide an overview of the present status of education in that country. Quantitative indicators regarding population, education, employment and economy, provided by public database bodies such as MEC, IBGE, OECD and WEF were used. Statistical tools, such as principal component analysis, simple regression and clusters analysis, were carried out. Results indicate a strong relationship between the number of public higher education institutions (HEI) and number of people who attend them. As a result of the main components analysis, 15 variables were reduced to three principal components that explain 89.109% of the total variance. Finally, as a result of the cluster analysis, four different clusters can be verified, with divergent situations identified between the four aggrupation of Brazilian states.

Demographic Structure and Macroeconomic Trends

We estimate the effect of changes in demographic structure on long-term trends of key macroeconomic variables using a panel VAR for 21 OECD economies from 1970 –2014. The panel data variation assists the identification of demographic effects, while the dynamic structure, incorporating multiple channels of influence, uncovers long-term effects. We propose a theoretical model, relating demographics, innovation, and growth, whose simulations match our empirical findings. The current trend of population aging and low fertility is projected to reduce output growth, investment, and real interest rates across OECD countries. (JEL E22, E23, E32, E43, J11, J13)

Decoding Policy Puzzles and Monetary Policy Transmission in Sri Lanka through Time-Varying Dynamics

This study analyses the evolution of key macroeconomic variables and their linkages to understand and resolve some of the policy puzzles in Sri Lanka and to check whether responses to monetary policy shocks exhibit any time-variation over two decades employing time-varying parameter vector autoregression with stochastic volatility (TVP-SVOL). In addition, interest rate pass-through is also measured employing Autoregressive Distributed Lag (ARDL) method to update evidence on transmission of policy rates to other interest rates, including the periods that recognizes short term interest rate as operational target of the monetary policy. The findings from the interest rate pass-through analysis reconfirms the existing evidence of complete pass-through from policy interest rates to money market interest rates and sluggish pass-through from money market rates to other market interest rates, though the size and speed of adjustment are somewhat different from past findings. The time-varying analysis of macroeconomic dynamics leads to four main conclusions. Firstly, time varying mean did not show any substantial moderation in GDP growth trend over the years though a marginal moderation is observed recently. The level and volatility of inflation exhibit systematic moderation since late 2000s. The weaker linkages of money growth with GDP growth and interest rate evolve over the years, supporting the policy move to discontinue monetary targeting. Finally, the responses of growth and inflation to monetary policy shocks show time-dependence.

Assessing U.S. Aggregate Fluctuations Across Time and Frequencies

We study the behavior of key macroeconomic variables in the time and frequency domain. For this purpose, we decompose U.S. time series into various frequency components. This allows us to identify a set of stylized facts: GDP growth is largely a high-frequency phenomenon whereby inflation and nominal interest rates are characterized largely by low-frequency components. In contrast, unemployment is a medium-term phenomenon. We use these decompositions jointly in a structural VAR where we identify monetary policy shocks using a sign restriction approach. We find that monetary policy shocks affect these key variables in a broadly similar manner across all frequency bands. Finally, we assess the ability of standard DSGE models to replicate these findings. While the models generally capture low-frequency movements via stochastic trends and business-cycle fluctuations through various frictions, they fail at capturing the medium-term cycle.

From Fixed-event to Fixed-horizon Density Forecasts: Obtaining Measures of Multi-horizon Uncertainty from Survey Density Forecasts

Surveys of professional forecasters produce precise and timely point forecasts for key macroeconomic variables. However, the accompanying density forecasts are not as widely utilized, and there is no consensus about their quality. This is partly because such surveys are often conducted for “fixed events”. For example, in each quarter panelists are asked to forecast output growth and inflation for the current calendar year and the next, implying that the forecast horizon changes with each survey round. The fixed-event nature limits the usefulness of survey density predictions for policymakers and market participants, who often wish to characterize uncertainty a fixed number of periods ahead (“fixed-horizon”). Is it possible to obtain fixed-horizon density forecasts using the available fixed-event ones? We propose a density combination approach that weights fixed-event density forecasts according to a uniformity of the probability integral transform criterion, aiming at obtaining a correctly calibrated fixed-horizon density forecast. Using data from the US Survey of Professional Forecasters, we show that our combination method produces competitive density forecasts relative to widely used alternatives based on historical forecast errors or Bayesian VARs. Thus, our proposed fixed-horizon predictive densities are a new and useful tool for researchers and policy makers.