Monetary Authorities Research Articles

Panel Data Analysis in Identifying and Mapping Caused Factors of Financial Crises and Monetary Instability in Developing Countries

This study aims to reveal the extent of macroeconomic instability, which has the characteristics of a financial crisis and inflation. To test the hypothesis, researchers use fixed effects and random effects estimators to assess the presence of individual and temporal effects. Macroeconomic fundamentals, especially the risk of devaluation and a drop in economic activity can be seen as early warning signs of banks becoming less solvent. They also play a big role in explaining how deposits changed during the crisis. Our findings highlight the unique features of the convertible monetary regime, reinforcing the belief that debtors will enjoy permanent protection against devaluation risks. This perception encourages the dollarization of bank portfolios, thereby increasing the financial system's solvency risks. There is also evidence that the regulatory framework in this area is weak when it comes to the financial system's exposure to devaluation risks and public debt risks. This is especially true when it comes to an institutional framework that makes it hard for government funding to be changed into other currencies. We find that inflation is a very persistent process during periods of high inflation. However, with the decline in inflation after the implementation of the convertibility regime, its persistence reduced significantly. The results show that non-rational persistence is currently not very high, suggesting that the costs of designing the economy should not be either. We find that univariate models tend to perform better over very short horizons. The results suggest that there may be advantages to using a combination of different models, provided they are informative about the relationship between inflation and its short- and long-run determinants.

Crafting Banking Sector Stability Index for Sierra Leone

Stability in the banking sector of Sierra Leone is crucial because it gives confidence and trust in the banking ecosystem. However, it is vital to assess the health conditions of the sector, by means of a composite Banking Sector Stability Index (BSSI) for Sierra Leone. This BSSI will supplement the suite of early warning indicators of the financial system and offers a platform to keep policymakers informed about the dynamics in the ecosystem of Sierra Leone. This study developed a Banking Sector Stability Index (BSSI) for Sierra Leone, using a nest of financial soundness indicators and gauges the health of the banking ecosystem with short term forecasting tendencies conditions in the banking ecosystem. It applied statistical and Conference Board Methodology normalization processes on Sierra Leone’s banking data from 2019Q1 to 2022Q4. The resultant index traced fairly well the episodes of crisis in the system over the study period. It could, therefore, be employed as a complementary regulatory policy tool to gauge potential risks to enable monetary authorities take timely precautionary policy measures to assuage crisis in the banking ecosystem.

MONETARY AND FISCAL COORDINATION IN UKRAINE AND ITS IMPACT ON ECONOMIC GROWTH UNDER THE CONDITIONS OF MARITAL STATE

The purpose of this paper is to examine the effectiveness of monetary and fiscal policy instruments, to determine the level of influence of monetary and fiscal factors on economic growth, as well as to justify ways for improving the effectiveness of monetary and fiscal policy coordination. Insufficient coordination of monetary and fiscal policies entails devastating economic consequences. The critical analysis of scientific publications proved that today the coordination of monetary and fiscal policies depends on the degree of balanced regulation of interest rates and inflation control. The research uses a NARDL model to capture mainstream trends in the influence of monetary and fiscal factors, as well as in the empirical study of their coordination. According to the estimations it was established that the weighted average rate of NBU instruments is absorbed to a greater extent in the monetary component of coordination, the system of managing the internal public debt – in the fiscal component. The participation of monetary authorities in the management of the national internal debt remains a debatable issue today. It is proved that the process of coordination of monetary and fiscal policies is influenced by the state of Ukraine’s economy during the war.Despite the difficult political and economic situation in Ukraine, it is necessary to focus on improving the coordination of monetary and fiscal policies. In particular, the significant contribution of the NBU in financing the state budget deficit due to their purchase of government bonds needs to be resolved. Strengthening the role of macroprudential policy in the coordination of monetary and fiscal policies, one of the goals of which is to counter the emergence of a systemic crisis; formation of a clearly developed coordination strategy, which would be based on clearly defined goals, set tasks on the basis of selected methods and instruments for their achievement.

Analysis of Trade Effects of Parallel Exchange Rate in Nigeria

Aims: The study examines the potency of parallel exchange rates in the movement of international trade in Nigeria. The monetary authorities have embarked on various exchange rate regimes basically because the supply of foreign exchange is not enough to meet the demand. Consequently, a parallel market for exchange rates exists and has become a strong and functional market in the country. But the reason for managing foreign exchange and by extension, introducing various exchange rate regimes was to correct the balance of trade disequilibrium. Yet the balance of trade deteriorates, particularly that of non-oil trade balance. Does the parallel exchange rate contribute to this or does it ameliorate it? Study Design: Descriptive, Correlation, and Regression analysis on time series data. Place and Duration of Study: Sample: Monthly data from January 2007 to December 2022 (2007:1-2022:12) were extracted from the online data repository of the Central Bank of Nigeria. Methodology: The autoregressive distributed lag technique was employed on monthly data between January 2007 and December 2022 (2007:1-2022:12). Results: The result indicates that the short-run dynamics of total exports (total imports) are negatively (positively) and significantly affected by parallel exchange rate. Generally, depreciation of the parallel exchange rate is detrimental to export particularly non-oil exports. Further, depreciation of parallel exchange rate encourages imports and highly persistent in influencing non-oil imports. The J-curve phenomenon breaks down for total balance of trade. However, the J-curve phenomenon cannot be confirmed in the case of oil trade balance because there is no information about the long run effect of parallel exchange rate on oil export due to the non-integration of the model. In the case of non-oil trade balance, the short-run outcome confirms the existence of the J-curve prediction. Conclusion: Following these results, it is recommended among others that government should activate a single market (window) for foreign exchange. Also, the authorities should ensure that importation of non-oil products such as exotic cars by government officials be stemmed.

Digital transformation under the governance of Palestinian banks

This study aims to understand and evaluate the impact of applying governance principles on digital transformation in Palestinian banks listed on the Palestine Stock Exchange. A questionnaire was distributed to 750 employees from the study population. It included four axes representing governance principles (board of directors’ tasks, board practices and conflicts of interest, disclosure and transparency, and risk management) and a fifth axe representing digital transformation. The study found a strong, statistically significant positive effect of applying governance principles on digital transformation in Palestinian banks. The results also showed the keenness of the boards of directors to discuss the commitment of bank management to implement the provisions and regulations of governance issued by the Palestine Monetary Authority. This helped in developing and approving the necessary policies for risk management and enhanced the effectiveness of oversight of the digital transformation system. This was reflected in increasing customer confidence in the banks’ performance and maintaining the interests of related parties. The study recommended the need to enhance the level of transparency and disclosure regarding governance performance and the progress of digital transformation in banks. It also recommended developing an integrated framework for analyzing and managing risks related to digital transformation. This assists in providing comprehensive training and development programs for practitioners to enhance their capabilities in the field of digital transformation and applying governance principles.

Supply Chain Management in Agriculture Using Blockchain Technology

Block chains, now firmly established, are a digital system that combines data management, incentive systems, cryptography, and networking to enable the execution, recording, and verification of transactions between parties. Even while the original goal of block chain technology was to facilitate new forms of digital currency that would enable easier and more secure payment methods, they have enormous promise as a new foundation for all kinds of transactions. Agribusiness stands to gain a lot from this technology by leveraging it as a platform to conduct "smart contracts" for transactions, especially for high-value goods. Before we go any further, it is important to distinguish between distributed ledgers and block chain technologies and private digital currencies. Given the distributed and global character of digital currencies such as Bitcoin, it is improbable that central banks will be able to adequately oversee the underlying protocols. Monetary authorities are primarily concerned with understanding the "on-ramps" and "off-ramps" that comprise the links to the traditional payments system, rather than being able to monitor and manage the money itself. In contrast to the digital currency component of the block chain, the distributed ledger aspect holds great potential for application in trade and agriculture funding, especially in scenarios where multiple partners are involved and a dependable central authority is lacking

Interest Rate Volatility and Economic Growth in Nigeria: New Insight from the Quantile Autoregressive Distributed Lag (QARDL) Model

AbstractThis is a study on interest rate volatility, a crucial form of volatility which affects local and foreign investments in the real and financial sectors. Whether to prioritize interest rate stability to prevent distortions in the market mechanism or to prioritize other macroeconomic objectives while allowing interest rates to independently react to market forces is a key question for Nigeria’s apex monetary authority. Answering this question is the primary motivation for this research. This paper is an attempt to establish the effect of interest rate volatility on economic growth and further conclude on the suitability of the financial liberalization policy in Nigeria. To reach an evidence-based conclusion, the paper analyzes the relationship between interest rate volatility and economic growth in Nigeria for the period 1981–2020. The QARDL procedure was employed to establish the short-run and long-run quantile-specific impacts of interest rate volatility. As a final step, Granger causality tests are conducted to investigate the predictive powers of the variables. It is discovered from the econometric analysis that interest rate volatility adversely affects the economic performance of Nigeria in both the short run and long run. Consequently, full liberalization is not suitable for the economy. Moreover, we find that the short-run adverse growth effect of interest rate volatility is greater when the economy is already in a relatively weak state, whereas the long-run adverse growth effect is greater when the economy is already in a relatively strong position. The findings sufficiently prove that full interest rate liberalization is not Pareto efficient for Nigeria. Hence, greater supervision of the interest rate corridor system to reduce volatility in the rates and minimize chances of persistent upward or downward bias is advised. Study limitations and directions for further research are also provided.

Analysis of Determinants of Foreign Exchange Reserves in ASEAN-5 Countries

Foreign exchange reserves represent a nation's holdings of foreign currencies or currency equivalents, managed by its central monetary authority, and utilized in global transactions and engagements. This research aims to analyze the influence of inflation, Foreign direct investment, Exchange rate, economic growth and exports to the level of foreign exchange reserves in ASEAN-5 countries 2000-2022. This study relies on secondary data sourced from the World Bank's official website. The analytical methodology involves employing a panel data regression technique known as the Fixed Effect Model (FEM) alongside the analysis tools provided by StataMP17. The results of data processing show that partially each independent variable is inflation, Foreign direct investment, Exchange rate, Economic growth demonstrates a notable negative impact on Foreign Exchange Reserves within ASEAN-5 nations, with statistical significance. Conversely, the independent variable Exports exhibits a positive and significant correlation with Foreign Exchange Reserves across ASEAN-5 countries

Determinan Non-Performing Loan (NPL) Perbankan Kawasan ASEAN

There are numerous factors that influence Non-Performing Loan (NPL) in the banking sector. This research aims to examine empirical evidence regarding factors affecting NPL, namely GDP Growth, inflation, reference interest rates, loan growth, Capital Adequacy Ratio (CAR), and Current Account Saving Account (CASA). The novelty of this research is proposing CASA as a new independent variable influencing NPL. Population of this research comprises all banks listed in the Forbes Global 2000 released in May 2022, located within ASEAN countries, and possessing financial information relevant to variables at the study period. The data were processed using panel data regression, using Fixed Effect Model. This research finds that, GDP Growth, CAR, and CASA were not proven to have a significant impact on NPL. However, inflation, central bank interest rates, and loan growth were found to have a negative impact on NPL. This study contributes primarily to monetary authorities in the ASEAN region.

Demand Deposit Contracts and Probability of Bank Runs in Nigeria

The problem of bank runs is a global phenomenon and often damaging to the banking systems both in developed and developing countries. Monetary authorities always find it very difficult to resolve such a crisis; hence, it became imperative to examine this scenario in the case of Nigeria. Therefore, we examined the effect of demand deposit contracts on the probability of bank runs in Nigeria. This is considered a major contribution to the literature on finance from the perspective of an emerging market economy (EME). In this study, a multilevel Tobit regression approach was employed. This study identified statistically significant and positive effects of liquid assets (total assets) and total loans (total deposits) on bank runs in Nigeria. Based on the results, the study concluded that bank-specific factors have an effect on bank runs, and from these variables, liquid assets/total assets and total loans/total deposits have significant effects on bank runs. As a sequel to the findings and conclusion of this study, it was recommended that to avoid such a banking crisis, there is a need for deposit money banks in Nigeria to maintain adequate liquid assets and ameliorate the high level of deterioration in the quality of risk assets as well as the cost of funds.

Money growth pegging, Taylor rule, status‐seeking behavior and the “spirit of capitalism”

AbstractThis paper analyzes the impact of “spirit of capitalism” on stationary welfare and stability properties of a one‐sector Ramsey economy, where the demand of money is motivated by a cash‐in‐advance constraint on consumption expenditures. Preferences are defined over consumption and capital stock. There is a monetary authority that follows either a money growth pegging rule or an interest rate pegging rule. When a money growth pegging rule is introduced, a unique steady state emerges. A slight desire for status is a sufficient condition for an increase in the money growth rate to exert a local stabilizing effect and to improve stationary welfare. When an interest rate pegging rule is introduced, two steady states may emerge: a “liquidity trap” and an “interior” steady state. Both steady states are locally determinate. Moreover, we show that a slight desire for status is also a sufficient condition to ensure that the stationary welfare at “interior” steady state is higher than the one of the “liquidity trap”. It follows that an increase in the policy rate is, then, an efficient way to exit the “liquidity trap” steady state. Under similar conditions, a higher policy rate increases the stationary welfare at the “interior” steady state.

The role of foreign reserves in inflation dynamics

Purpose – Central banks’ foreign reserve stocks in emerging markets have increased substantially in recent decades. Foreign reserves accumulation has been widely believed as a shock absorber to prevent financial crises. Meanwhile, accelerating foreign reserves might be contradictory to the monetary policy objectives. This research aims to investigate the impact of foreign reserves on the inflation dynamics.Method – We apply the inflation-expectation augmented Phillips curve on the monthly data over the period of 2005(7) to 2020(12) in the case of Indonesia. Findings – We show that stockpiling foreign exchange reserves indeed has an inflationary pressure impact. The central bank's intervention in the foreign exchange market is more significant in selling rather than purchasing foreign exchange. However, the non-monetary factors also play an important role in determining inflation. Implications – Considering channels through which foreign reserves might affect inflation, our findings suggest the monetary authority should be concerned with inflationary expectations in the short term as one of the major policy-driven goals to maintain price stability in the long run.Originality – This paper contributes to the literature on monetary policy in developing countries. Unlike other empirical studies, this research employs the inflation-expectation augmented Phillips curve and accommodates the issue of asymmetric effects of the change in foreign reserves.

The Response of Macroeconomic Variables to Government Spending Shocks in the Sudanese Economy 1989-2019: Comparing the Structural Shocks (DSGE Approach) and Impulse Response (SVAR Model)

The importance that different (approaches and models) to modeling the macroeconomy place on theoretical coherence compared to their capacity to match the data and the quality of the econometric model description varies. Dynamic stochastic general equilibrium (DSGE) models are more theoretical, whereas vector autoregression (SVAR) models provide a better match to the data. For developed economies, there are well-established publications on measuring the response of economic indicators to government spending shocks and aggregate macroeconomic activity. In addition, such empirical studies in emerging nations are scarce. This research seeks to fill this void by utilizing the DSGE model and the SVAR approach to investigate the influence of the response of macroeconomic variables to government spending shocks in the Sudanese economy from 1989 to 2019. The findings indicate that the influence of government expenditure shocks on the Sudanese economy is inconsistent with Keynesian principles, as some selected macroeconomic indicators do not respond positively to government expenditure shocks. The non-responsiveness of the inflation rate and exchange rate to government expenditure shocks is demonstrated; this finding may indicate the monetary authority’s weakness in managing monetary variables in the Sudanese economy. In most situations, fiscal and monetary policies were in sync, and “double expansionary” and “double contractionary” policy coordination may be the proper approach; and also create tools that fit the Sudanese economy’s structure.

COMPETITIVE DEPRECIATION. A GLOBAL OBSTACLE TO MONETARY REGULATORY TASKS’ CONSENSUS

At the current stage of development of global economy and international economic relations, certain disputes over the goals of regulatory framework on international economic activity may arise. Such regulatory objectives of domestic monetary authorities as promoting the global competitiveness of domestic producers, may contradict the regulatory objectives international monetary authorities. One of such contradictions is competitive depreciation, the concept of which is defined, in particular, by the Articles of Agreement of the International Monetary Fund. The issue of competitive devaluation as a theoretical phenomenon has been studied by such foreign scholars as P. Bergin, D. Corsetti, D. Li, G. Lima, D. McCombie, R. Ribeiro, A. Rodnianski, S. Xiao, L. Tang, Y. Tervala, S. Zhou; among the domestic scholars whose works are devoted to this topic, we can distinguish O. Vinogradova, V. Holiuk, V. Dergachova, M. Kravchenko, Z. Lutsyshyn, N. Reznikova and others. This article analyzes the modern theoretical foundations of domestic currency depreciation as a way to promote gains of competitive advantages on global markets by domestic producers. The purpose of the study is to determine the fundamentals of monetary regulation on which available to monetary authorities mechanisms of influencing the domestic monetary system may simultaneously contribute to gains of global competitive advantages by domestic producers and cause the domestic currency depreciation. The main areas of regulatory activity of domestic monetary authorities that need to be modernized, namely, the mechanism for regulating the money supply in order to facilitate the acquisition of competitive advantages by national producers in world markets have been identified in this article.

THE MONETARY-OPPORTUNISTIC NORDHAUS MODEL IN TARGETS OF POLITICAL BUSINESS INFLATION CYCLES

Political business cycles reflect the imperfections of democratic institutions and are accompanied by electorally motivated interventions by governments in macroeconomic processes of redistribution of gross national product. This is fraught with potential conflict between political and economic reforms, in particular, hindering the implementation of current development programs aimed at reducing the deficit, curbing money supply growth and inflation, and liberalizing currency regimes and capital markets. This results in overestimated expectations of economic actors regarding the improvement of social welfare, loss of confidence in monetary authorities, and rising inflation. The purpose of the article is to analyze the monetary-opportunistic Nordhaus model in targeting political business cycles of inflation, as well as the impact of economic determinants of cyclicality on monetary policy.

Analysis of post COVID-19 economic recovery on inflation fluctuation management in Indonesia

This research aims to find out, explain and test the Post-COVID-19 Economic Recovery Analysis of Inflation Fluctuation Management in Indonesia. This research uses quantitative methods with a descriptive and verification approach by collecting presentations through a process of analysis and hypothesis testing. The data used is secondary data, namely from Ceic Data, Trading Economics and Bank Indonesia for 2019-2023. The data analysis method in this research uses a difference test where this model is used to analyze pre-post or before and after research models. The research results show that there are significant differences in inflation and exchange rates during COVID-19 and post-COVID-19. Post-COVID-19 economic recovery policies such as fiscal stimulus and quantitative easing were able to reduce inflation and stabilize the exchange rate. Coordination is needed between the central, regional and monetary authorities to maintain macroeconomic stability after the pandemic. This research concludes that the post-COVID-19 economic recovery policy has succeeded in controlling inflation and the exchange rate in Indonesia, although regular evaluation and refinement of policies is required.

Analytical Study of the Implementation of AAOIFI’s Ethical Standards in the Algerian Islamic Banking System: Assessment and Recommendations

Purpose ‒ The application of ethical requirements is a key way for all stakeholders in the Islamic financial industry to build trust and promote integrity. This study aims to assess the extent to which the Algerian banking system has adopted the ethical standards for Islamic financial transactions issued by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI). Design/Methodology/Approach ‒ This study conducted an analytical reading. It utilised the descriptive approach to present the study's variables and employed the analytical approach to discuss the various concepts and legal regulations that govern the banking sector and to provide recommendations that would help to build a solid foundation for the banking system. Findings ‒ The findings revealed that the Algerian monetary authority is committed to gradually promoting Islamic banking regulations in a thoughtful manner. However, the study also found that there is a lack of clarity regarding the adoption of regulatory laws in Algeria for the ethical standards issued by AAOIFI, even within the 2023 Monetary and Banking Act. Originality/Value ‒ To the best of the authors’ knowledge, this paper is the first study to assess the extent to which the Algerian banking system has adopted the ethical standards for Islamic financial transactions issued by AAOIFI. Research Limitations/Implications ‒ The primary limitation of this research is its exclusive focus on the Algerian banking system and its reliance on secondary data. Practical Implications ‒ This research offers valuable insights for those in decision-making roles. It recommends the establishment of a committee of experts to develop standards tailored to the Algerian Islamic banking environment. The committee should be financially independent and under the supervision of the monetary authority. Additionally, the study suggests the issuance of a code of ethics to govern the professional conduct of Islamic banks (IBs) and Islamic financial institutions (IFIs) in accordance with Sharīʿah.

The possibility of parallel market correction for exchange rate changes according to the ARDL and ARIMA models

The parallel market is an indicator of the prevailing economic situation in the country, and the exchange rate is one of the important tools that link the local economy to the global economy. It also plays an important role in influencing many variables in the Iraqi economy. Therefore, we find that the monetary authority represented by the Central Bank of Iraq is in a continuous monetary struggle across... Over the past few years and up to the present, we have sought to find accurate solutions to the problem of the difference between the official and parallel exchange rates.As the sustainable and growing difference between the two prices leaves the impression on the public of turning towards the foreign currency in their transactions and reducing transactions in the local currency, then the effect is greatly reflected in the Iraqi economic sectors, especially the commercial sector, causing large and sudden changes in price levels, which creates and stimulates a group of complicit traders and researchers. For their personal gains through illegal and fraudulent means, which harms the interests of society as a whole, and this is what we notice. Despite the attempts made by the Central Bank of Iraq, they did not significantly affect the reduction of the difference between the two prices. Therefore, this study attempted to find a predictive approach between the official and parallel exchange rates through the model. According to the standard forecast, we see that the parallel exchange rate will reach (1433.64) per US dollar in the future for the year 2027. Therefore, the Central Bank, the government, and members of society must use all measures necessary to address the imbalances in the exchange rate.

Is There a Relationship Between Islamic Banking Liquidity and Inflation? Empirical Evidence from Indonesia

This study aims to determine if there is a relationship between the Islamic bank liquidity and inflation in the context of Indonesia. In achieving this objective, the effects of Bank Indonesia Certificates Sharia (SBIS), Bank Indonesia Islamic Deposit Facility (FASBIS), Inflation on Sharia Banking Liquidity for the period of 2011-2019 are analysed. The research method is quantitative approach and analyzed using multiple linear regression analysis. The data used in this study are secondary data obtained from official data from Bank Indonesia and the Financial Services Authority (OJK).The results showed that the Bank Indonesia Certificates Sharia (SBIS) had a significant negative effect on Islamic banking liquidity; the Bank Indonesia Islamic Deposit Facility (FASBIS) had no influence on Islamic banking liquidity; and inflation had a significant positive effect on Islamic banking liquidity. For monetary authority, this research can be used as an evaluation material for programs that are carried out specifically in the FASBIS instrument so that in the future FASBIS has an influence on Islamic banking liquidity and also while maintaining monetary instrument stability.

Heterogeneity in the nominal exchange rate response to oil price shocks in oil-exporting countries: a new episode of the ‘fear of floating’?

ABSTRACT In this paper, we propose that the heterogeneity in the nominal exchange rate response to oil price shocks in oil-exporting countries with flexible regimes is influenced by monetary authority interventions. Thus, we identify three structural oil price shocks, and we estimate pooled OLS regressions for a panel of 27 oil-exporting economies. The results show that economies with higher international reserve accumulation experience lower exchange rate appreciation during oil-specific demand shocks.