Macroeconomic Risk Research Articles

Impact of macroeconomic and idiosyncratic uncertainty on firms' financing decisions: Evidence from SADC countries

Purpose of Study: The purpose of this study is to investigate the impact of idiosyncratic and macroeconomic risks on financing decision on SADC countries. Methodology: Employing data from the African Financials database, the analysis is conducted over a ten-year period spanning from 2008 - 2019 for 309 companies. Unit Root Fisher Chi- Square Test and Granger Causality test were employed to test for unidirectional and bidirectional relationships cross-sectionally. Pooled Regression Analysis- (Fixed and Random effect) was employed as main topology for panel regression analysis. Findings: The study confirmed that companies become risk averse when there is an increase in idiosyncratic and macroeconomic risk and therefore take less leverage whichever type of financing decision is opted. In other words, when there are high idiosyncratic risks, debt to equity ratio is low. Banking and financial institutions charge a higher risk premium for companies having a high-risk profile. Due to this, the cost of debt financing augments. Therefore, companies employ internal financing and reduce debts due to high bankruptcy risk and costs. This finding is in line with the pecking order theory (Myers and Majluf, 1984). Conversely, a significant positive linkage is reported in Namibia and South Africa. This estimate posits that these companies use more debts during periods of high idiosyncratic risk which corresponds to the trade- off theory. Originality: The study is among one of the pioneering works underpinning the idiosyncratic risk and macroeconomic risk on capital structure and relying on a large number of companies across the SADC region. In this respect, it adds contribution to the existing literature on risks and capital structure to the socio-economic goals of the SADC region.

Strategic priorities for the development of the financial system of Ukraine in the conditions of globalization

Relevance of the research topic. In the context of globalization, one of the key priorities of financial policy in the world and in Ukraine is to reduce the negative impact of exogenous and endogenous factors on economic growth, creating conditions for the development of the financial system. Formulation of the problem. In the absence of strategic coordination of public administration bodies in the financial sphere, the risks of reducing its effectiveness may increase significantly. Analysis of recent research and publications. Problems of development of the financial system in the context of globalization are revealed in many scientific studies of foreign scholars: J. Keynes, R. Musgrave, P. Samuelson, J. Stiglitz. Among domestic scientists should be noted such as: A. Epifanov, Y. Pasichnyk, I. Salo, V. Fedosov and others. Selection of unexplored parts of the general problem. Significant levels of uncertainty and variability of socio-economic problems require the restoration of control and the establishment of strategic orientation of the financial system. Problem setting, research goals. The objectives of the study are: to determine the features of the financial system of Ukraine in modern conditions; to analyze and evaluate its indicators. The purpose of the study is to substantiate the priorities of Ukraine's financial system in the context of globalization. Method or methodology of the study. To achieve this goal, a set of general scientific and special methods was used: system-structural analysis; calculation and analytical method; formal-logical analysis; method of scientific abstraction. Presentation of the main material (results of work). The peculiarities of the functioning of the domestic financial system are determined, the indicators are assessed and the priorities of its development are substantiated. Field of application of results. The results of the study can be used in the process of reforming the financial system and its components. Conclusions according to the article. At this stage, an important task is to develop new scientifically sound approaches to the development of the financial system through the introduction of systematic monitoring of macroeconomic imbalances, which will improve the quality of macroeconomic and fiscal risks, create a single information base for sound management decisions in finance.

MAP OF TARGET INDICATORS OF THE STANDARD OF LIVING OF THE POPULATION OF ALMATY REGION IN THE CONTEXT OF CURRENT RISKS

The article reveals the results of the analysis of the dynamics of a number of indicators of the standard of living in the light of the implementation of state regulation measures in the last five years. The analyzed period is characterized by a significant level of macroeconomic risks, a serious impact of global challenges and high uncertainty. The purpose of the research is to draw up a map of target indicators of the dynamics of the standard of living, based on current trends in the strengthening of epidemiological, social and environmental risks. The methodology of the research includes an analysis of the dynamics of indicators of the standard of living in the Almaty region in the time horizon of 2017-2021. Originality / value of the research . The value of the research is expressed in the formation of a risk map for reducing the indicators of the standard of living of the Almaty region, which can serve as a basis for further scientific and applied research in the field of improving the effectiveness of measures of state regulation of the standard of living. The assessment of the complex of prolonged risks in relation to the dynamics of the standard of living of the Almaty region in connection with the pandemic of coronavirus infection is given for the first time in the framework of this research. Findings . The resulting assessment is proposed in the form of a map of target indicators characterizing the composition, main features, degree of risk and characteristics of the main trends in the development of determining factors.

A macroeconomic disaster risk analysis: The case study of Chile

From a macroeconomic perspective, the occurrence of disasters, especially high-impact events, can lead to financial stress in a country due to the sudden high demand for resources to restore affected exposed assets. Disaster risk is a sovereign risk and implies a non-explicit contingent liability that, in many cases, has a major impact on fiscal sustainability. Two risk composite indicators have been used to measure the impact that potential disasters can mean for a country: (i) The Disaster Deficit Index (DDI), which measures a country's financial capacity to cover the economic losses generated after the occurrence of high-impact events; and (ii) A complementary index (DDI′), which indicates the fraction that the expected annual loss would represent to the annual surplus of a country. This paper describes the overall macroeconomic impact of disasters and presents DDI results for Chile, which allows national-level decision-makers to understand the economic implications of disasters for the country and the need to consider this kind of information in the long-term policies. Results of the DDI for Chile illustrate that extreme disasters would imply the need for a significant amount of budgetary resources from the government. Estimated losses would be double the available budget resources and the financing of the recovery could mean restrictions to invest in other ongoing social and development needs of the country. This macroeconomic risk in Chile may be hedged by strategically setting up a risk financial structure based on adequate loss estimation criteria, using different available alternatives such as public and private assets insurance, disasters' reserves, contingency credits contracts, and investing in prevention and mitigation to reduce potential economic losses.

Macroeconomic News and Risk Exposure to Foreign Exchange Rate Evidence from Chinese Listed Firms

ABSTRACT This paper estimates the exchange rate exposure of Chinese listed firms across industries and tests whether their risk exposure to foreign exchange rates is shaped by macroeconomic news. Using a sample of 2321 Chinese listed firms from 2007 to 2020, we use six alternative models to estimate firms’ exposure to foreign exchange risk and their variations following macroeconomic news. We find that the risk exposure to foreign exchange rates significantly responds to macroeconomic news. The response is larger to news about GDP and international trade, and the response is particularly strong during the times of the Global Financial Crisis, the US-China trade war and the outbreak of COVID-19. Across different currencies, firms are more sensitive to the US dollar exchange rate risk. Across different industries, firms in technology-intensive industries are more sensitive to foreign exchange risk. Overall, the findings in this paper shed light upon the risk management of multinational firms in emerging markets.

Russian Business Culture in the Conditions of Macroeconomic Uncertainty

The new social reality developing over the past decades has caused serious internal transformations in the nature and content of economic culture in general, and business culture in particular. In this regard, the relevance of studying various forms, directions and levels of this transformation, as well as searching for solutions that allow purposefully influencing the process of evolution of business culture in the context of the need to improve its social and economic efficiency has increased. The study aims to assess the processes of business culture transformation in the conditions of growing macroeconomic instability, uncertainty and risks. The article examines the evolution of scientific ideas about business culture as a culture of entrepreneurship and active economic activity in the genesis of economic science. There is substantiated the idea of business culture as a culture of creativity and its generalizing nature in relation to other forms of economic culture. The article reveals the general and specific characteristics (features) of business culture. Its transformation is taking place in fundamentally new conditions of social instability and uncertainty both at the communication level (communication environment), in the field of axiology (value thinking and consciousness), and in the field of creative technologies (info-, nano-, bio-, cognitive, etc.). The author outlines the main directions and forms of the business culture transformation in the context of digital economy formation. The article reveals the features of the development of business culture in modern conditions. The growing variety of its models and typologies testifies to their different philosophical and ideological foundations, which objectively hinders the development of universal and generally accepted norms of economic behavior. There are indicated negative and positive characteristics in the transformation of business culture. Achieving the necessary balance between them meets the objectives of the country’s sustainable socio-economic development strategy both in the near future and for a longer period. The article formulates specific recommendations for modernizing the economic education system in the context of the need to develop and improve business culture.

Macroeconomic Attention and Announcement Risk Premia

Abstract We construct macroeconomic attention indexes (MAI), which are new measures of attention to different macroeconomic risks, including unemployment and monetary policy. Individual MAI tend to increase around related announcements and following changes in related fundamentals. Further, bad news raises attention more than good news. For unemployment and FOMC, attention predicts announcement risk premiums and implied volatility changes with large economic magnitudes. Our findings support theories of endogenous attention and announcement risk premiums, while demonstrating future research directions, including that announcements can raise new concerns. Macroeconomic announcements are important not only for contents and timing but also for attention. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Обеспечение национальной экономической безопасности: сценарии выхода из коронакризиса

Introduction. The COVID-19 pandemic has become a trigger mechanism for the deployment of a global economic crisis that has engulfed all countries of the world. The aim of the study is to analyze the consequences of the COVID-19 pandemic as a global threat to the world’s largest economies. Theoretical analysis. Within the framework of the basic AD-AS model, variants L, V, N, W were modeled and possible scenarios for overcoming the crisis were considered. Empirical analysis. Anti-crisis measures and the main indicators of the economic security of China, the United States, Germany and Russia are analyzed. Based on international statistics, forecasts have been made to overcome the economic crisis caused by the coronavirus. Conclusion. It is concluded that ensuring national economic security depends on the scenario conditions for economic recovery, on the effectiveness of macroeconomic policy and risk management at the global level.

Financial conditions and macroeconomic downside risks in the euro area

Motivated by empirically characterizing the relationship between financial conditions and downside macroeconomic risks in the euro area, I develop a regime-switching skew-normal model with time-varying probabilities of transitions. Using Bayesian methods, the model estimates show that a strong cyclical pattern emerges from the conditional skewness, which has a tendency to rapidly decline to negative territory prior and during recessions. However, the inclusion of financial-specific information in time-varying probabilities does not help to anticipate such skewness nor more generally to provide advance warnings of tail risks.

1 Rebuilding a resilient world of work after the COVID‐19 pandemic

Chapter 1 investigates the prospects for a global labour market recovery from the COVID‐19 crisis. It presents an analysis of factors that hold back the labour market recovery. The continuing pandemic, but also macroeconomic risks such as those related to inflation, all slow down and even threaten to derail the recovery. Unequal access to vaccines and different capacity to provide fiscal policy support created a great divergence in the recovery trajectories, with high‐income countries performing much better. The chapter also warns of the risk that the damaging impact of the pandemic on jobs and livelihoods, if not quickly reversed, will of inducing long‐term structural change with enduring adverse implications for labour markets. The ILO Centenary Declaration for the Future of Work provides a blueprint for a human‐centred agenda to overcome the crisis, address existing challenges and lead to a better future.

ANALYSIS OF INFLUENCE OF MACROECONOMIC RISKS ON ENTERPRISES IN FOREST INDUSTRIAL COMPLEX

The principle of clustering the main risk-generating factors by risk groups was studied. Groups of risk-creating factors that have the greatest impact on the activities of enterprises in the forestry complex have been identified. The table of the main groups of foreign economic risks and risk-creating factors of the forestry complex was formed on the basis of the conducted research, which is based on the principle of clustering the main risk-creating factors by groups of risks. Summarized data from the group of external risks related to the economic and competitive environment of the industry makes it possible to form a holistic picture of the entire macroeconomic risk range. These include risks associated with fluctuations in the external market situation (commercial), external financial, innovation and political risks. Political risks, divided into state, regional and international are characterized. External financial risks include the following risk-generating factors: exchange rate fluctuations, inflation, changes in refinancing rates or increases in credit prices, insolvency of counterparties, etc. It is noted that stock risks for forestry enterprises mean changes in the value of their assets or liabilities depending on exchange rate fluctuations. The main risks belonging to the investment group are considered, among them: capital, selective, interest, country, operational, temporary, the risk of legislative changes, liquidity risk, inflation risk. The group of innovation risks includes risks associated with the development by competitors of new, more technological types of products or the use of more modern equipment, which reduces its cost price. The assessment of the risk and the probability of its occurrence at the enterprise of the studied industry was carried out. It is outlined that, in general, the degree of risk is the probability of occurrence of loss, as well as the amount of possible damage from it. Keywords: risks, innovation risks, financial risks, commercial risks, forest industry, forest industry complex (FIC).

Characteristic-sorted portfolios and macroeconomic risks—An orthogonal decomposition

We assess the relative importance of individual macroeconomic variables in explaining the time series variation of a broad range of characteristic-sorted portfolios. Employing an optimal orthogonalization approach, the explained variation in each characteristic-sorted portfolio is decomposed into components associated with individual macroeconomic variables. When examined unconditionally, the set of macroeconomic variables account for only limited explained variation. This low explained variation is partially resolved by allowing for dynamic and non-linear macroeconomic exposure. Finally, we highlight a degree of commonality in the explained macroeconomic variation associated with various characteristic-sorted portfolios, indicating that they proxy for particular macroeconomic characteristics simultaneously. • Assess links between characteristic-sorted portfolios and macroeconomic variables. • Focus on explained variation using an optimal variable orthogonalization approach. • Macroeconomic variables account for limited explained variation unconditionally. • Provide evidence for pronounced dynamics in macroeconomic exposure attributions. • Highlight a degree of commonality in the explained macroeconomic variation.

Financial stability and macroeconomic risk: an outlook from emerging economies

Financial stability and macroeconomic risk: an outlook from emerging economies

ФОРМУВАННЯ СТРАТЕГІЇ РОЗВИТКУ БІЗНЕСУ З УРАХУАННЯМ УМОВ ВОЄННОЇ ЕКОНОМІКИ УКРАЇНИ

The article examines how the changes caused by the war in Ukraine in 2022 influenced the formation of business development strategies. In the course of the study, it was determined that changes in the external environment primarily affect the adjustment of the company's development strategies, therefore, such an analysis is the first and mandatory stage that must be done by the management of enterprises in order to implement this task. It is proposed to use the method of narrowing the focus when constructing the analysis. Therefore, it is necessary to first make an economic analysis of the main indicators of the general state of the country's economy, then indicators characterizing changes in a separate industry. During the study of the issue, it was determined that in the period from February 2022 in Ukraine, in the state of war economy, there was a partial relocation of business, a mass movement of labor resources, and the destruction of business in the occupied territories. It was established that micro- and small businesses were the most affected, and large industrial enterprises showed the greatest resilience. The state has also responded to the situation by introducing a number of solutions, but as noted, state solutions need more comprehensiveness and constant adjustment. The economic analysis of the industry is carried out on the example of the machine-building industry, since it includes large industrial enterprises that suffered the most economic losses and destruction in this period, and is one of the capital generators for the strategic development of Ukraine's economy in the near future. The analysis showed that a large share of enterprises was evacuated to safer places, and the industry is supported by the state. Therefore, from the point of view of revising the development strategy for such enterprises, it is necessary to understand that the influence of the external environment in wartime is significant, constantly changing, carries significant risks, the state does not have time to quickly respond to changes and adjust already made decisions. It was suggested that such enterprises adjust their strategies towards an active type of concentrated growth for enterprises operating at significant capacity, or an anti-crisis strategy or a stabilization strategy for those enterprises that have experienced significant or devastating losses of various nature. At the same time, such enterprises are recommended to engage in constant monitoring of their own and macroeconomic risks, as well as constant analysis of all enterprise resources.

Застосування антикризового менеджменту банками України в умовах сучасних викликів

The article is aimed at substantiating the need to use the anti-crisis management of banking institutions as a comprehensive management system for research, prediction, elimination of hazards and threats in crisis situations. The approaches of scholars to disclosure of essence of the anti-crisis management of banks are presented; the types and instruments of the anti-crisis management of banking institutions in the external and internal environment are provided. The current state and tendencies of development of banking institutions of Ukraine for 2016-2021 are analyzed. The results of rating of stability of banks of Ukraine during the researched period are presented, which give grounds to assert the need to increase the stability of domestic banks on the basis of effective anti-crisis management systems. A risk map of Ukrainian banking institutions is presented, which allows to assert a reduction in macroeconomic risk and credit risk in 2021 compared to 2020, which indicates a certain improvement in banking regulation in Ukraine. A complex of anti-crisis measures to support banking institutions adopted by the National Bank of Ukraine is outlined. Having studied the development of banking institutions of Ukraine over the past six years, we believe that the use of anti-crisis management is relevant and necessary to ensure an adequate level of sustainability of their functioning. Anti-crisis management is an important element of the activities of Ukrainian banks in the face of modern challenges and threats, by reason that with the help of its effective use it is possible to achieve their stable functioning.

Financial Conditions and Macroeconomic Downside Risks in the Euro Area

Financial Conditions and Macroeconomic Downside Risks in the Euro Area

Commodity Futures Return Predictability and Intertemporal Asset Pricing

We find out-of-sample predictability of commodity futures excess returns using forecast combinations of 28 potential predictors. Such gains in forecast accuracy translate into economically significant improvements in certainty equivalent returns and Sharpe ratios for a mean-variance investor. Commodity return forecasts are closely linked to the real economy. Return predictability is countercyclical, and the combination forecasts of commodity returns have significantly positive predictive power for future economic activity. Two-factor models featuring innovations in each of the combination forecasts and the market factor explain a substantial proportion of the cross-sectional variation of commodity and equity returns. The associated positive risk prices are consistent with the Intertemporal Capital Asset Pricing Model (ICAPM) of Merton (1973), given how the predictors forecast an increase in future economic activity in the time-series. Overall, combination fore- casts act as state variables within the ICAPM, thus resurrecting a central role for macroeconomic risk in determining expected returns.

Information networks in the financial sector and systemic risk

We create and test two novel network-based measures of interconnectedness in the financial industry during 1996 to 2013. A network based on informed trading in financial firms predicts firm-specific risk and performance, while one formed on financial firm returns predicts future macroeconomic risk. The measure of informed trading is robust to variable order arrival rates more common in modern algorithmic trading. A trading strategy based on informed trading network centrality in the financial sector delivers an annualized risk-adjusted return of 7.73%. This risk-adjusted return shows that the network centrality has an economic impact that is relevant beyond the statistical results of the paper.

The Changing Asymmetric Impact of Macroeconomic Risks on Oil Price Uncertainty

The Changing Asymmetric Impact of Macroeconomic Risks on Oil Price Uncertainty

Heterogeneous beliefs in macroeconomic growth prospects and the carry risk premium

To understand macroeconomic risks underlying currency carry trades, I propose exploiting rich source of information from analysts’ economic growth forecasts. Specifically, I obtain measures of global growth prospects from the cross-analyst distribution of real GDP growth forecasts. I find that the global measure of skewness in forecasts negatively predicts returns both for the G10 carry and for the carry based on a wide range of currencies. The global skewness measure is found to play a more robust role compared to the global expected growth or dispersion measure. Using a model of heterogeneous beliefs, I illustrate that the consumption risk of the unbiased agent can increase because of the presence of a pessimist, who negatively skews the forecast distribution. The additional consumption risk translates to higher currency risk, introducing a source of the carry risk premium.