Periods Of Financial Instability Research Articles

International financial stress spillovers during times of unconventional monetary policy interventions

In this study, we estimate a Bayesian global vector autoregressive model to uncover the effects of financial stress on output growth, inflation, and interest rates, accounting for several advanced and emerging economies for a period spanning from February 2008 until May 2022. We construct a financial stress index applicable to all countries, tracking periods of financial instability in the economies, and employ shadow short rates as a proxy measure of unconventional monetary policy. This study provides strong evidence that financial stress shocks are transmitted abroad as financial stress increases in all the countries in the sample. Our results also show that financial stress innovation generates important domestic and cross-border output, inflation, and interest rate spillovers for several countries. Additionally, we identify the active role of the financial and bank credit channels in the transmission of shocks across financial systems, while macroprudential policy can intercept the propagation of the shock. Our results carry policy implications for monetary and regulatory authorities.

Production networks and resilience: How dense production networks shield economies in financial crisis.

The research delves into the underexplored area of how production network structures influence the severity of economic downturns, particularly during the last financial crisis. Utilizing the RSTAN database from the OECD, we meticulously derived critical measures from the input-output matrices for 61 economies. Our methodology entailed a panel analysis spanning from 2008 to 2010, which is a period marked by significant recessionary pressures. This analysis aimed to correlate economic performance with various production network metrics, taking into account control factors such as interest rates and the prevalence of service sectors. The findings reveal a noteworthy positive correlation between the density of production networks and economic resilience during the crisis, which remained consistent across multiple model specifications. Conversely, as anticipated, higher interest rates were linked to poorer economic performance, highlighting the critical interplay between monetary policy and economic outcomes during periods of financial instability. Given these insights, we propose a policy recommendation emphasizing the strategic enhancement of production network density as a potential buffer against economic downturns. This approach suggests that policymakers should consider the structural aspects of production networks in designing economic stability and growth strategies, thus potentially mitigating the impacts of future financial crises.

Exploring the Impact of Economic Crises on Mental Health: Narratives from Affected Individuals

This study aims to explore the impact of economic crises on mental health through the personal narratives of affected individuals. By examining their experiences, this research seeks to understand the emotional toll and coping mechanisms adopted during periods of financial instability, providing insights into the broader implications for mental health and well-being. A qualitative research design was employed, utilizing semi-structured interviews with 20 participants who experienced significant financial hardship due to economic downturns. Participants were recruited through purposive sampling from community centers, support groups, and online forums. Data collection continued until theoretical saturation was reached. The interviews were transcribed and analyzed using NVivo software, with thematic analysis identifying key themes and subthemes. Ethical considerations included informed consent, confidentiality, and anonymity. The study identified three main themes: Emotional Impact, Coping Strategies, and Perceived Support Systems. Participants reported increased anxiety, stress, depression, and feelings of shame and guilt. Coping strategies included seeking social support, financial management, avoidance, substance use, positive reframing, and physical activity. Support systems such as family, community resources, government assistance, workplace support, and online communities played a crucial role in mitigating the mental health impacts. These findings align with existing literature, underscoring the complex interplay between economic crises and mental health. Economic crises have a profound impact on mental health, exacerbating anxiety, depression, and other emotional challenges. Effective coping strategies and robust support systems are essential in mitigating these impacts. This study highlights the need for accessible mental health services, financial literacy programs, and strong social support networks to support individuals during economic downturns. Future research should focus on larger, diverse samples and integrate quantitative measures to further understand these dynamics.

Volatility Connectedness of Chinese Financial Institutions: Evidence from a Frequency Dynamics Perspective

Accurately measuring systemic financial risk and analyzing its sources are important issues. This study focuses on the frequency dynamics of volatility connectedness in Chinese financial institutions using a spectral representation framework of generalized forecast error variance decomposition with the least absolute shrinkage and selection operator vector autoregression. It assesses the volatility connectedness network using complex network analysis techniques. The data are derived from 31 publicly traded Chinese financial institutions between 4 January 2011 and 31 August 2023, encompassing the Chinese stock market crash in 2015 and the COVID-19 pandemic. The frequency dynamics of the volatility connectedness results indicate that long-term connectedness peaks and cross-sectoral connectedness rises during periods of financial instability, especially in the recent bull market (2014–2015) and the 2015 Chinese stock market crash. The volatility connectedness of Chinese financial institutions declined during the COVID-19 pandemic but rose during the post-COVID-19 pandemic period. Network estimation results show that securities triggered the 2015 bull market, whereas banks were the main risk transmitters during the 2015 market crash. These results have important practical implications for supervisory authorities.

Has the Fed Responded to House and Stock Prices? A Time-Varying Analysis

Abstract We investigate whether the Federal Reserve has responded systematically to house and stock prices and whether this response has changed over time using a Bayesian structural VAR model with time-varying parameters and stochastic volatility. To recover the systematic component of monetary policy, we interpret the interest rate equation in the VAR as an extended monetary policy rule responding to inflation, the output gap, house prices, and stock prices. Our results indicate that the systematic component of monetary policy in the United States responded to real stock price growth significantly but episodically, mainly around recessions and periods of financial instability, and took real house price growth into account only in the years preceding the Great Recession. Around half of the estimated response captures the predictor role of asset prices for future inflation and real economic activity, while the remaining component reflects a direct response to stock prices and house prices.

Gold as a tool for harmonizing macroeconomic policies in the context of global imbalances

The article explores the role of gold as a means of harmonizing macroeconomic policies during periods of global imbalances. She analyzes the importance of gold in stabilizing economic processes in the face of global financial uncertainties and debt crises. The introduction allows you to assess the significance of the problem and present the research methodology. The section «Gold as a Reserve in the Global Economy» examines gold's historical role as a defensive instrument in times of economic instability. Examples are given of price fluctuations in gold and its impact on the global financial landscape. The next section, «Global Imbalances and Their Manifestations», examines the nature and consequences of global imbalances, explaining how they can exacerbate economic risks and uncertainty. Specific examples of global imbalances and their impact on different countries and regions are given. The theme «Gold as a Tool for Harmonization» reveals how gold can serve as a means of stabilizing macroeconomic policies. Cases are analyzed when investors turn to gold in search of protection from stock market fluctuations and inflation. The relationship between the policies of the US Federal Reserve and the dynamics of gold prices is examined. The section «Challenges and Limitations of Gold» discusses potential problems associated with the use of gold as a tool for harmonizing macroeconomic policies. The issue of the dependence of gold prices on the actions of central banks and global economic factors is considered. «Modern strategies for using gold» analyzes practical methods of investing in gold and its dynamics in world markets. Examples of analysts' forecasts about the future price of gold and its impact on the Russian economy are given. The analytical article reveals how gold can become an effective tool for harmonizing macroeconomic policies in the face of global imbalances, providing investors and countries with a reliable protective mechanism during periods of financial instability.

ДЕРЖАВНІ ОБЛІГАЦІЇ ЯК ІНВЕСТИЦІЙНИЙ ІНСТРУМЕНТ В ПЕРІОДИ ФІНАНСОВОЇ НЕСТАБІЛЬНОСТІ

The war in Ukraine led to the disruption of the stability of money flows both at the microeconomic and macroeconomic levels. The financial sphere was particularly vulnerable to internal and external shocks. In this vein, the question of investing in government bonds is relevant, which, on the one hand, is necessary for the state, and on the other hand, is beneficial for investors. Issues of public debt management are directly related to the development of the securities market. The effectiveness and investment attractiveness of government bonds directly depends on the level of development of the securities market and the segment of government debt securities. The purpose of the article is to study the theoretical and practical aspects of investing in government bonds in Ukraine with emphasis on the period of financial instability caused by the war. For this purpose, the article examines the regulatory and legal principles of investing in government securities and defines the subjects of such investment. The advantages of investing in government bonds for investors and for the issuer are determined. The key for the issuer is continuous access to sources of loan capital and the ability to promptly attract financial resources to the state budget. At the same time, emphasis is placed on the fact that investing in government bonds supports the securities market, especially in a period of financial instability, which is marked by a decrease in market capitalization. For an investor, the advantages of buying government bonds are high yield, diversification of the investment portfolio and low risk of such transactions. The analysis of investment supply and investment demand for government bonds of Ukraine was carried out with the help of statistical indicators. In particular, the dynamics of indicators of the share of the State God of Ukraine, which was formed due to the sale of government bonds, were analyzed; bond yields of Ukraine (on the example of 10-year bonds), as well as the specific share of entities investing in government bonds of Ukraine. It was concluded that in order to intensify investment in government bonds of Ukraine, it is necessary to achieve prerequisites that will contribute to the creation of an efficient market of government securities.

Связь финансового и промышленного стрессов с параметрами денежно-кредитной политики в российской экономике

The paper examines the relationship between financial and industrial stresses in the Russian economy in 2006–2019, mediated by the monetary policy of the state. Stress indices are constructed on the basi of a number of financial market and industrial sector indicators of the Russian economy. These variables are aggregated using the principal component analysis. Stress indices are calculated as the moving difference between the standard deviation and the mean value of the first principal component. The graphical and correlation analysis confirms that industrial stress in the Russian economy grows during financial crises, accompanied by an increase in credit interest rates (including the key rate) and the scale of refinancing of credit institutions by the Bank of Russia. Based on the construction of ARDL models, we obtained convincing evidence of the positive impact of both a short-term increase in the key interest rate and a longer increase in the scale of refinancing of credit institutions by the Bank of Russia on the reduction of financial and industrial stresses in the Russian economy, which, however, appears in different time intervals. We concluded that the combined management of industrial and financial stresses, taking into account their interaction and sensitivity to different instruments, requires the search for the optimal combination of monetary regulation methods. The results obtained may be useful in conducting a prudent monetary policy in periods of financial instability.

A New Viterbi-Based Decoding Strategy for Market Risk Tracking: an Application to the Tunisian Foreign Debt Portfolio During 2010–2012

In this paper, a novel market risk tracking and prediction strategy is introduced. Our approach takes volatility clustering into account and allows for the possibility of regime shifts in the intra-portfolio's latent correlation structure. The proposed specification combines hidden Markov models (HMM) with latent factor models that takes into account the presence of both the conditional skewness and leverage effects in stock returns. A computationally efficient expectation-maximization (EM) algorithm based on the Viterbi decoder is developed to estimate the model parameters. Using daily exchange rate data of the Tunisian dinar versus the currencies of the main Tunisian government's creditors, during the 2011 revolution period, the model parameters are estimated. Then, the suitable model is used in conjunction with a Monte Carlo simulation strategy to predict the Value-at-Risk (VaR) of the Tunisian government's foreign debt portfolio. The backtesting results indicate that the new approach appears to give a good fit to the data and can improve the VaR predictions, particularly during financial instability periods.

The concept, methods and tools for assessing the financial condition of an enterprise in a period of financial instability

The concept, methods and tools for assessing the financial condition of an enterprise in a period of financial instability

Development banks and the syndicate structure: Evidence from a world sample

Do development banks influence syndicate structure? Using a global dataset across 48 countries of 11,949 syndicated loans from 2001 to 2016, we show that lead banks decrease their loan shares and form less concentrated structures in mixed syndicates that include both development banks and private-sector banks as participant lenders. In line with the social view on the role of development banks, we find that such an effect is stronger during periods of financial instability, particularly for the green industry and in the case of borrowers that are financially constrained. Conversely, we do not find any evidence that mixed syndicates exhibit a different syndicate structure for political distortions. Lastly, we find that mixed syndicates are not associated with higher covenant violations and an increasing of the borrowers’ risk profile after the loan origination. Our results are robust when accounting for, among others, relationship lending, asymmetric information within the syndicate, lenders’ lending expertise, borrowers’ opacity, types of loan, and ranking hierarchy in the syndicate. • Lead banks retain lower loan shares in syndicates with development banks (DBs). • DBs affect the syndicate structure more during financial turmoil. • DBs affect the syndicate more for green and financially constrained borrowers. • No covenant violations and increased borrowers’ risk for mixed syndicates.

COVID-19 Sheds Light on Opportunities to Reshape Contraception Delivery.

COVID-19 Sheds Light on Opportunities to Reshape Contraception Delivery.

Preventing Financial Crises: A Vital Yet Frequently Overlooked Aspect of Minsky's Economics

: Periods of financial instability are always an opportunity for Hyman P. Minsky to return to the spotlight. Often, they result in an increase in the number of references made to Minsky's work, otherwise relegated to the margins of academic debate. For the most part, this work involving Minsky is limited to demonstrating the relevance of the Financial Instability Hypothesis in explaining the mechanisms of financial fragility or the need to implement countercyclical measures during the acute phase of the crisis. In my view, such a use of Minsky's work is incomplete because it fails to take into account an equally important aspect of it: that which relates to the prevention of financial crises.

ОПТИМІЗАЦІЯ СТРУКТУРИ КАПІТАЛУ МІЖНАРОДНИХ КОРПОРАЦІЙ В УМОВАХ ФІНАНСОВОЇ НЕСТАБІЛЬНОСТІ

The purpose of the article is to highlight the theoretical and practical aspects of optimizing the capital structure of international corporations in the context of financial instability. Research methodology. The methodological basis of the study is a systematic approach and analysis of modern concepts of capital structure optimization. To solve these tasks, comparative and statistical analyzes, the method of logical generalization were used. Results. As a result of the analysis of the capital structure of the 10 most famous international corporations that operate in Ukraine, it was found that almost half of them have problems associated with the optimal ratio of equity and debt capital. The analysis of the indicators of the accumulation and use of capital of leading international corporations during the period of financial instability made it possible to identify certain features in capital management which are aimed at optimizing capital structure. As a result of the study, it was found that the attraction of both external and internal sources of capital has both advantages and disadvantages; therefore their combination is of particular importance. The study of the indicators of the accumulation and use of capital by a number of leading world corporations made it possible to conclude that they use quite different approaches to financing their own activities, which, first of all, is determined by the field of their work and the prevailing type of business operations. At the same time, it is common for all companies to comply with the condition that the return on invested capital prevails over the value of the weighted average cost of capital. The practical significance of the research results. Theoretical substantiations and results of empirical research, revealing the theory of capital structure optimization and individual practical approaches of leading international corporations in capital management under conditions of financial instability can be used in the practice of Ukrainian business entities to improve the efficiency of economic activities and, in particular, the use of equity capital in crisis situations.

On macroeconomic instability in commodity economy in the context of external shocks: some questions of theory and Russian experience

The actual character of the research is based on the observation that the periods of financial instability during the last decade in Russia were determined by the specific features of the post-Soviet socio-economic model and their proper understanding is required for right choice of the instruments of anti-crisis policy. Such knowledge is becoming even more important under the oil shock and COVID-19 pandemic in the first half of 2020. The purpose is to provide systemic analysis of the crisis processes in the Russian economy in 2014-2016 as the combination of several interdependent economic processes specific for the large-scale resource export oriented economy. It raises the issue of potential recovery mechanism for such type of economy and such type of the crisis and analyses theoretical and methodological foundations for choice of anti-crisis policy instruments. The research methodology includes reference to the comparative study of systemic financial crises in South East Asia in 1997-1999 and Russian Federation in 2014-2016 and derivation of specific predictions of the third generation currency crises models which are relevant for the case of the Russian Federation in 2014-2016. The result includes the conclusions on the specific features of the potential recovery mechanism in such type of the crisis and the choice of anti-crisis policy instruments on different time horizons. It also outlines the issues for further research and open questions for macroeconomic policy debates.

Ages of financial instability

Starting from the mid-nineteenth century, this paper analyzes two periods of financial instability connected with financial globalization. The first culminates with the 1929 crisis, while the second characterizes the more recent experience starting from the 1970s. The period in between is divided into two subperiods. The first goes up to World War II and sees a retrenchment from globalization and the affirmation of a statist approach to national policy autonomy. The second subperiod, marked by the new international monetary order and limited globalization, although appearing as a relatively calm interlude, conceals the seeds of a renewed push toward financial fragility. The above periods are synthetically analyzed in terms of the development and mutual fertilization of theories, institutions, and vested public and private interests. The narrative is based on two interpretative keys: the Minskyan theory of financial fragility and changes in the public-private partnership, mainly with reference to the financial sector for which the role of the State as the guarantor of last resort necessarily ensues. The lesson is that a laissez-faire approach strengthens asymmetric powers and financial instability, rendering it extremely difficult and socially costly for the State to comply with its role of financial guarantor.

Ages of Financial Instability

Starting from the mid-nineteenth century, this paper analyzes two periods of financial instability connected with financial globalization. The first culminates with the 1929 crisis, while the second characterizes the more recent experience starting from the 1970s. The period in between is divided into two subperiods. The first goes up to World War II and sees a retrenchment from globalization and the affirmation of a statist approach to national policy autonomy in pursuing domestic goals, for which we take as examples the New Deal, financial regulation, and the new international cooperative approach finally leading to Bretton Woods. The second subperiod, marked by the new international monetary order and limited globalization, although appearing as a relatively calm interlude, conceals the seeds of a renewed push toward financial fragility. The above periods are synthetically analyzed in terms of the development and mutual fertilization of theories, institutions, and vested public and private interests. The narrative is based on two interpretative keys: the Minskyan theory of financial fragility and changes in the public-private partnership, mainly with reference to the financial sector for which the role of the State as guarantor of last resort necessarily ensues. The lesson that can be derived is that a laissez-faire approach to globalization strengthens asymmetric powers and necessarily leads to overglobalization, as well as to financial and economic instability, rendering it extremely difficult and socially costly for the State to comply with its role of financial guarantor.

Do Islamic stock indexes outperform conventional stock indexes? A state space modeling approach

Purpose The purpose of this paper is to investigate whether Islamic stock indexes outperform conventional stock indexes, in terms of informational efficiency and risk, during the recent financial instability period. Design/methodology/approach The paper uses a state space model combined with a standard GARCH(1,1) specification while taking into account structural breakpoints. The authors allow for efficiency and volatility spillovers to be time-varying and consider break dates to locate periods of financial instability. Findings Empirical results show that Islamic stock indexes are more volatile than their conventional counterparts and are not totally immune to the global financial crisis. As regards of the informational efficiency, the results show that the Islamic stock indexes are more efficient than the conventional stock indexes. Practical implications Resulting evidence of this paper has several implications for international investors who wish to invest in Islamic and/or conventional stock markets. Policy makers and even academics and Sharias researchers should as well take preventive measures in order to ensure the stability of Islamic stock markets during turmoil periods. Overall, prudent risk management and precocious financial practices are relevant and crucial for both Islamic and conventional financial markets. Originality/value The originality of this study is performed by the use of time-varying models for volatility spillovers and informational efficiency. It considers structural break dates that think about the dynamic effect of informational flows on stock markets. The study was developed in a global framework using international data. The global analysis allows avoiding country specific effects.

You Can't Fix What You Don't Measure: How ALICE Can Help Rebuild the Middle Class

AbstractSeventy percent of Americans identify as middle class, but one in three middle‐income households do not earn enough to support their family at the most basic level, and four in five do not earn enough to afford a sustainable budget. This incongruity explains the increasing frustration of many workers. Yet official government measures do not capture this reality, and as a result, policy makers continue to create economic policies that perpetuate the structural mismatch between wages and costs. This Viewpoint essay addresses these shortcomings. After reviewing alternatives to the federal poverty level, it argues that the most realistic and accurate floor to the middle class is the ALICE (Asset Limited, Income Constrained, Employed) Household Survival Budget. The essay then turns to policies that help realign wages and cost of living and presents initiatives that are being implemented in states across the country. Four policy areas would enable more workers to support their families and fulfill the promise of being middle class in America: meaningful work with stable and sufficient wages, upskilling and digital retooling, fiscal cushion for periods of financial instability, and affordable credit.

Quantifying instabilities in Financial Markets

Financial global crisis has devastating impacts to economies since early XX century and continues to impose increasing collateral damages for governments, enterprises, and society in general. Up to now, all efforts to obtain efficient methods to predict these events have been disappointing. However, the quest for a robust estimator of the degree of the market efficiency, or even, a crisis predictor, is still one of the most studied subjects in the field. We present here an original contribution that combines Information Theory with graph concepts, to study the return rate series of 32 global trade markets. Specifically, we propose a very simple quantifier that shows to be highly correlated with global financial instability periods, being also a good estimator for market risk and market resilience. We show that this estimator displays striking results when applied to countries that played central roles during the last major global market crisis. The simplicity and effectiveness of our quantifier allow us to anticipate its use in a wide range of disciplines.