Policy Announcements Research Articles

Financial stability policy and downside risk in stock returns

This paper investigates the impact of financial stability policy on downside risk in stock returns. Various risk measures are employed to estimate the downside risk of individual stock returns and to examine their responses subsequent to the proactive policy announcements made by China's Financial Stability and Development Committee (FSDC). The empirical results reveal significant financial stability policy effects in diminishing downside risks. Further analysis shows that direct support policies for the capital market have a more significant effect compared to proactive monetary policies and supportive credit policies. The real estate, non-cyclical consumer, and financial sectors exhibit particularly pronounced influences from financial stability policy.

Prime Minister Social Security Schemes - An Investigation into the Well-being of Rural Households

Abstract: Background: In order to establish a universal social security system for Indian citizens, especially the rural, marginalized, and vulnerable groups, the Indian government launched three ambitious social security schemes related to the insurance and pension sectors on May 9, 2015. Objective: This article is an attempt to investigate the effectiveness of these three social security schemes — Atal Pension Yojna, PM Jeevan Jyoti Beema Yojna, and PM Suraksha Beema Yojna, in improving the well-being of the poor households from rural regions and the people from the unorganized section of the country. Methodology: This investigation is entirely based on secondary sources, particularly the research publications on the selected topic and the government documents, reports, policy announcements, and news sources. Findings: Focusing on the identified schemes and their respective benefits, the article critically investigated their achievements along with the various challenges faced in effectively executing these schemes. Conclusion: The researcher highlighted an urgent need for a multi-faceted approach involving policy adjustments, awareness campaigns, and targeted efforts to address the identified challenges in the effective execution of the identified social security schemes.

The Effects of Fiscal Measures during COVID‐19

AbstractThis paper empirically examines the effects of fiscal measures during COVID‐19, using a novel database of daily fiscal policy announcements—classified by type of fiscal measure—and high‐frequency economic indicators for 52 countries from January 1 to December 31, 2020. Results suggest that fiscal policy announcements have been effective in stimulating economic activity, boosting confidence, and reducing unemployment, but their effect varies by type of measure and country characteristics. Emergency lifeline measures are more effective when containment policies are stringent, providing cashflow support to most affected firms and households. Demand support measures are more effective when containment measures are relaxed.

Can you hear me now? Identifying the effect of Chinese monetary policy announcements

Do Chinese monetary policy announcements matter? This study evaluates how relevant Chinese monetary policy announcements are to Chinese financial markets and the real side of the economy. Chinese monetary policy is identified by estimating a “target” factor measuring policy surprises and a “path” factor measuring future expectations of policy using price changes to Chinese financial derivatives on policy announcement dates. Local projection results show that 1) Chinese Treasury yields and interbank rates respond persistently, suggesting that policy transmission through an interest-rate channel exists; 2) Equities and exchange rates do not respond to policy announcements instantaneously, but with a lag; 3) Future expectations of Chinese monetary policy play a larger role than surprises, 4) Real variables show evidence of policy transmission, and 5) policy transmission may be sticky due to information frictions.

Monetary Policy, Investor Sentiment, and the Asymmetric Jump Risk of Chinese Stock Market

To investigate the impacts of monetary policies on the jump risk of Chinese stock market, we introduce them into an exponential generalized autoregressive conditional heteroskedasticity with autoregressive jump intensity (EGARCH-ARJI) model. A new jump model, i.e., the EGARCH-ARJI model with monetary policy (EGARCH-AM), is constructed. Moreover, investor sentiment is considered to investigate the interaction effect of a monetary policy and investor sentiment on the jump intensity. Results show that the announcement of an interest rate policy has significantly positive effect on it, while the effects of the announcement and implementation of a required reserve ratio policy are not significant. In addition, the interaction effect of an interest rate policy and investor sentiment on the jump intensity is positive. The interaction effect of the announcement of a required reserve ratio policy and investor sentiment is negative. The interaction effect of the implementation of a required reserve ratio policy and investor sentiment does not exist. The research results are of guiding significance for policy makers and investors to fully learn the time-varying volatility and jump risk of stock markets.

Herding behaviour and monetary policy: Evidence from the ZAR market

We investigated the presence of herding and its interactions with monetary policy in the ZAR market. We achieved this using both the standard herding tests and Sim and Zhou’s (2015) quantile-on-quantiles regressions. Similar to previous results in other markets, we found that extreme market events mainly drove herding behaviour in the ZAR market. This result was also significant in the presence of monetary policy announcements. However, herding in the ZAR markets was not related to market fads. It, therefore, was, in the main, a rational response to public information, indicating central bank credibility. This credibility gives scope to the central bank to improve communication in periods of market crisis to dampen potential volatility. Further studies on the herding of specific ZAR market participants can be invaluable.

Renewable Energy Stocks’ Performance and Climate Risk: An Empirical Analysis

This article studies the relationship between renewable energy stocks’ performance and climate risk. It shows that publicly held renewable energy stocks underperform as a reaction to climate policy information releases, modeled by feed-in tariff (FIT) legislation announcements. The study examined stock price behaviors 2 days before and 30 days after FIT policy announcements. The stock sample used in the study has 3702 firm-day combinations, which included 180 cleantech firms and 32 events from 2007 to 2017. Based on the residual analysis of the sample’s abnormal return, it indicated that the FIT announcements are associated with significant declines in returns. The cumulative abnormal return until Day 18 was a significant −0.83%, while the average abnormal return on the day was −0.16% at normal levels. The study partially excluded the likelihood of a transitory result by varying the measurement horizon. It also adopted both the market model and the Fama–French three-factor models to rule out model misspecification when estimating abnormal returns and thus increased the robustness. In fact, the results were stable to changes in estimating the model’s specifications. In addition, the study compared the portfolio’s performance with mimicking portfolios in terms of size, book-to-market equity (BE/ME), and the firms’ geographic location. It demonstrated that the documented anomaly of the portfolio of renewable energy companies is robust.

Whatever-it-takes policymaking during the pandemic

Central banks across the globe introduced large-scale asset purchase programs to address the unprecedented circumstances experienced during the pandemic. Many of these programs were announced as open-ended to shock-and-awe market participants and restore confidence in financial markets. This paper examines whether these whatever-it-takes announcements had larger effects than announcements with explicit limits on scale. We use a narrative approach to categorize announcements made by twenty-two central banks, and event study, propensity-score-matching, and local projection methods to measure the short-term effects of policy announcements on exchange rates and sovereign bond yields. We find that on average a central bank’s first whatever-it-takes announcement lowers 10-year bond yields by an additional 47 basis points relative to size-limited announcements, suggesting that communication of potential policy scale matters. Our results for yields hold for both advanced and emerging economies, while exchange rates go in opposing directions, muting their response when we group all countries together.

Labelling, shadow bans and community resistance: did meta's strategy to suppress rather than remove COVID misinformation and conspiracy theory on Facebook slow the spread?

In this paper, we ask how effective Meta's content moderation strategy was on its flagship platform, Facebook, during the COVID-19 pandemic. We analyse the performance of 18 Australian right-wing/anti-vaccination pages, posts and commenting sections collected between January 2019 and July 2021, and use engagement metrics and time series analysis to analyse the data, mapping key policy announcements against page performance. We combine this with content analysis of comments parsed from two public pages that overperformed in the time period. The results show that Meta's content moderation systems were partially effective, with previously high-performing pages showing steady decline. Nonetheless, some pages not only slipped through the net but overperformed, proving this strategy to be piecemeal and inconsistent. The analysis identifies trends that content labelling and ‘shadow banning’ accounts was resisted by these communities, who employed tactics to stay engaged on Facebook, while migrating some conversations to less moderated platforms.

Impacts of Monetary Policy Shocks on Inflation and Output in New Zealand*

We identify monetary policy shocks in New Zealand as 1‐day changes in the whole yield curve around monetary policy announcements. The impacts of these shocks on inflation and output are estimated using functional local projections. We find that the effects of monetary policy shocks are standard in the short run but might be different in the long run. Monetary policy shocks in a small open economy have similar effects as in a large economy, except that unconventional monetary policy announcements have limited impact on long‐term interest rates. Accounting for forward guidance, used in New Zealand since 1997, is important.

Enhancing public health response: a framework for topics and sentiment analysis of COVID-19 in the UK using Twitter and the embedded topic model.

To protect citizens during the COVID-19 pandemic unprecedented public health restrictions were imposed on everyday life in the UK and around the world. In emergencies like COVID-19, it is crucial for policymakers to be able to gauge the public response and sentiment to such measures in almost real-time and establish best practices for the use of social media for emergency response. In this study, we explored Twitter as a data source for assessing public reaction to the pandemic. We conducted an analysis of sentiment by topic using 25 million UK tweets, collected from 26th May 2020 to 8th March 2021. We combined an innovative combination of sentiment analysis via a recurrent neural network and topic clustering through an embedded topic model. The results demonstrated interpretable per-topic sentiment signals across time and geography in the UK that could be tied to specific public health and policy events during the pandemic. Unique to this investigation is the juxtaposition of derived sentiment trends against behavioral surveys conducted by the UK Office for National Statistics, providing a robust gauge of the public mood concurrent with policy announcements. While much of the existing research focused on specific questions or new techniques, we developed a comprehensive framework for the assessment of public response by policymakers for COVID-19 and generalizable for future emergencies. The emergent methodology not only elucidates the public's stance on COVID-19 policies but also establishes a generalizable framework for public policymakers to monitor and assess the buy-in and acceptance of their policies almost in real-time. Further, the proposed approach is generalizable as a tool for policymakers and could be applied to further subjects of political and public interest.

The Effects of Conventional and Unconventional Monetary Policy Shocks on US REITs Moments: Evidence from VARs with Functional Shocks

AbstractWe use a vector autoregressive model with functional shocks, capturing the shift of the entire term structure of interest rates on monetary policy announcement dates, to empirically evaluate the effects of conventional and unconventional monetary policy decisions on the Real Estate Investment Trusts (REITs) markets of the United States (US). Using 5-min interval intraday data, we analyze not only the impact on REITs returns, but also its realized variance (RV), realized jumps (RJ), realized skewness (RSK), and realized kurtosis (RKU) over the daily period of September 2008 to June 2021. While the effects of conventional monetary policy shocks on the moments of REITs returns tend to conform with economic theories, the same is not necessarily the case with unconventional monetary policy shocks. In addition, though monetary policy shocks have the most persistent and strongest effects on RJ, the extreme behaviour of the REITs market is also observed through RSK and RKU. Moreover, when we look into 10 REITs sectors, there is indeed heterogeneity in terms of the strength of the effect, but not so much in terms of the sign of responses of the various moments compared to the overall market. Our results have important implications for REITs market participants, given its exponential growth as an asset class.

Revival of trade in the Tambov province in the early 1920s

Importance. The p roblem o f r estoring t rade i n a r ural p rovince a fter i ts p rohibition during the years of “war communism” is considered. Without a commodity-producing, well-organized trading network, it was impossible to develop industry, agriculture and minimal satisfaction of the needs of the population. The study of the process of trade revival in the early 1920s shows not only the practical experience of restoring exchange operations in the agricultural region of the country, but also the state of the economy of the Tambov province as a whole.Research methods. Published and unpublished sources are used. The historical and comparative method allows us to reveal the essence of the phenomena under study on the basis of available facts within the narrow time limits of the new economic policy.Results and Discussion. The problems of restoring trade in the Tambov province with a predominantly rural population are shown. The conditions of the trade’s revival are considered, the peculiarities of the state cooperative and private trade's organization are revealed, the trading enterprises’ specialization is shown. The transition difficulties to the elements of a market economy are presented against the background of the economic life of an agricultural region. The dynamics of trade development in the early 1920s has been determined.Conclusion. The trade restoration in the Tambov province was complicated by the economic crisis, devastation, falling productivity of peasant farms, and low purchasing power of the population. With the new course's announcement of economic policy, petty bazaar trade begins to revive. Public- cooperative organizations had difficulty competing in the market with private trade and central trusts. The largest retail department stores in Tambov city and the county towns belonged to state and cooperative trade organizations. In cities, large-scale indoor trade grew more systematically, while in rural areas the trading apparatus was revived much more slowly. Small-scale universal trade prevailed in rural areas. Since 1923, the Bolshevik state has sought to establish control over the movement of goods from producer to consumer.

Assessing the effects of borrower-based macroprudential policy on credit in the EU using intensity-based indices

We construct new intensity-adjusted indices of macroprudential policy announcements for 28 European Union (EU) economies. The indices are able to capture the restrictiveness and bindingness of the macroprudential policy actions and are used to assess the effectiveness of borrower-based macroprudential policy in reducing credit in the EU from 2003 to 2019. Our results indicate that these macroprudential tools have successfully reduced household, housing, and, to a smaller extent, consumption credit in the long run. Moreover, we find that the measured effects change by taking into account the various dimensions of the policy changes' intensity, including their legal enforceability.

Entry regulations with implementation lag: Evidence from convenience store markets in Korea

Seocho County in Korea attempted to advance the interests of incumbent businesses by weakening competition in the convenience store market. To this end, it created a regulation impeding the opening of new convenience stores. Although this regulation intensified proximity restrictions between stores, our findings reveal that the announcement of legislation condemned incumbent businesses to unfavorable survival probabilities. We provided supporting evidence that so-called implementation lags—time lags between the announcement and implementation of policies—and adaptive behaviors of potential store owners may have caused unintended consequences. Our findings imply that policymakers should consider implementation lag and the adaptive behaviors of economic agents.

The effects of policy rate announcements on the exchange rates

Purpose- Exchange rate is the value of a country's national currency against foreign national currencies. In this context, the exchange rate is considered an important macroeconomic indicator in evaluating the country's economy. The failure to control the exchange rate may damage economy significantly. It is possible to understand this from the 2001 crisis in Turkey, known as 'Black Wednesday', and the foreign exchange crisis that started in Thailand in 1997 and affected many East Asian countries. Interest rate is one of the critical determinants affecting the exchange rates. Therefore, changes in interest rates are expected to affect the level of exchange rates. When there is an increase in interest rates, foreign capital flow is expected for that particular country. Hence, a decrease in exchange rates is expected for the excess capital flows. This study aims to analyze the relationship between exchange rates and interest rates, considering the last 10 announcements of the interest policy of the Central Bank of the Republic of Turkiye. These announcements are between January 19, 2023 and October 26, 2023. The study used the TL/USD exchange rates and 10-year government bond interest rates to measure the relationship in between these two variables. Methodology-The aim of this study is to analyze the relationship between the dollar exchange rate and government bond interest rates for Turkiye. For this purpose, data is collected for the days when the last 10 policy rates published by the CBRT were announced. Data is obtained investing.com. Vector Autoregression (VAR) is used to measure the relationship in between two variables. The VAR system is based on empirical regularities embedded in the data. The VAR model may be viewed as a system of reduced form equations in which each of the endogenous variables is regressed on its own lagged values and the lagged values of all other variables in the system. Vector Autoregressive models are widely used in time series research to examine the dynamic relationships exist in between variables that interact with one another. In addition, VAR models are viable forecasting tools used often by macroeconomic or policy-making institutions. . In this study first, the stationary levels of the variables are determined by using Unit Root Test. Second, pre-tests of autocorrelation, heteroscedasticity and normality are conducted for the validity of the VAR model. Third, the short-term relationship between variables is tested by using VAR Granger Causality Test. Fourth, VAR analysis is utilized by applying Impulse-Response Analysis and Variance Decomposition Analysis . And finally, the long-term relationship between variables is tested by using Johansen Cointegration Test. Vector Autoregressionmodel is employed in this study. Findings- According to the results of Granger Causality test, government bond interest rates strongly affect the changes of exchange rate. However, there is no causality from exhange rates to interest rates. Therefore, the changes of interest rates are the main determinants of the changes of exchange rates in this short period. The results of Impulse-Response Test show that an unexpected shock (an unexpected increase) in government bond interest rates affects the exchange rates and increases it significantly. More, an unexpected increase in the exchange rates causes the interest rates on government bond to increase. The results of the variance decomposition test show that 50% of the change in the variance of the exchange rates in the first period is explained by changes in bond interest while 30% of the change in the variance of bond interest rates is explained by the changes in exchange rates. The results of Johansen cointegration test support that there is a stable long-term relationship between dollar exchange rates and government bond interest rates. Conclusion-This study focuses on the relationship between government bond interest rates and the dollar exchange rates in Turkiye for the last 10 policy interest rates announcements by Cenral Bank of Turkiye. In summary, the changes in interest rates on bonds affect the changes in exchange rates more. Data for the days that the CBRT issued the last ten policy rates is gathered for this purpose. The association between two variables is measured using Vector Autoregression (VAR). According to overall results, the changes in interest rates on bonds affect the changes in exchange rates more. Keywords: Policy rate, exchange rate, interest rate, Turkiye, Granger Causality, VAR model JEL Codes: E40, E50, C10, C58

The impact of monetary policy interventions on banking sector stocks: an empirical investigation of the COVID-19 crisis

The enduring impact of the COVID-19 crisis on the financial sector is undeniable, persisting far beyond the eventual waning of the pandemic. This research examines central bank interventions during the pandemic, using a quantitative event study approach over a five-day window to analyse the impact of 188 monetary policy announcements on banking stocks in China, the U.S., and Europe. Our results demonstrate how monetary policy announcements targeting different economic mechanisms have produced a diverse market reaction throughout the COVID-19 pandemic. Namely, cuts in interest rates and the maintenance of a low interest rate environment by the Federal Reserve resulted in negative abnormal returns in the U.S.A., while short-term announcements surrounding intra-day credit and liquidity provisions boosted banking sector stock prices. In Europe, a muted reaction by the banking sector was observed, with negative abnormal returns observed in response to the ECB’s 2% inflation objectives. Finally, banking stocks in China responded strongly and positively to foreign currency and exchange-related announcements by the People’s Bank of China. The results and insights from this analysis can thus inform preparations made by policymakers, governments, and financial market stakeholders in the event of future waves of COVID-19, or further extreme societal disruptions.

Beneath the surface: The asymmetric effects of unconventional monetary policy on corporate investment

This paper explores the asymmetric effects of unconventional monetary policy on corporate investment in the aftermath of the Great Recession. Using a comprehensive dataset of US listed firms, our research unveils a compelling insight: firms with higher investment irreversibility and market power are less responsive to fluctuations in corporate bond yields following an unconventional monetary policy announcement. These results emphasize the critical importance of taking into consideration firm-specific characteristics when formulating monetary policy, providing valuable insights for central banks aiming to enhance the effectiveness of their policies.

Estimating the Fed’s unconventional policy shocks

Financial market responses to Fed monetary policy announcements are often very small, but sometimes very large and the mix of news contained in these announcements varies over time. I exploit these features of the data to estimate different types of Fed policy shocks. The resulting shocks can be naturally labeled as standard monetary policy, Odyssean forward guidance, large scale asset purchases and Delphic forward guidance. They affect risk-free interest rates, stock prices and the dollar on impact and have delayed but pronounced effects on corporate bond spreads and breakeven inflation rates.

Do anticipated government environmental audits improve firm productivity? Evidence from China

We investigate the impacts of anticipated government environmental audits (GEAs) on firm productivity. We use a 2009 policy set forth by China's National Audit Office that required GEAs of local governments as an exogenous event to examine the effect of the policy announcement on firms’ total factor productivity (TFP). Our difference-in-differences tests indicate that TFP in heavily polluting firms improved more than other firms’ TFP after the announcement of the policy. We also find that to raise TFP, firms engage in green invention patents or receive government environmental subsidies. In addition, our cross-sectional analysis suggests that firms in regions where governments have strong environmental enforcement or that are in the eastern regions of China increase TFP more.