Prudent Macroeconomic Policies Research Articles

Exchange Rate Pass - through in Export Value-chain of Bangladesh

Determining the extent and rate of the exchange rate pass-through (ERPT) to inflation has been of utmost importance to policy-makers in developed and emerging nations. This study uses mixed techniques to examine the exchange rate pass-through in Bangladesh using a data sample that spans the years 1990 to 2020. Comparison with India and Bhutan has been made in some aspects. The results show that the ERPT is significant, asymmetric, and rapid, with prices reflecting significant amount of changes in exchange rates in short run. Policy-makers should continue aiming for low and stable inflation and establish a strong track record of prudent macroeconomic policies in order for the ERPT to drop. This study uses a panel of data to investigate the exchange rate pass-through (ERPT) connection, which is the link between the exchange rate and the prices of traded products. The results of this analysis indicate that while there is evidence of a one-to-one connection between changes in the exchange rate and export prices for primary exports, this link is not present for ready-made garment (RMG) exports. Market-specific econometric estimates show that exporters' pass-through behaviour is influenced by their perception of the demand pattern in destination markets. As a result, pricing-to-market (PTM) emerges as the dominant strategy, defying the "law of one price" hypothesis' prediction. The Multi-fiber Arrangement (MFA) system, which limited the competitive activity of several providers in many restricted commodities that are of export importance to Bangladesh, is to be made responsible for the startling results that RMG exports are insensitive to fluctuations in the currency rate.

Effect of Stock Market Valuations on Foreign Direct Investment in Nigeria

This study examines the impact of stock market valuations on foreign direct investment in the Nigerian economy. This was aimed at ascertaining how the development of the Nigerian Stock Exchange has stimulate the inflow of foreign direct investment to Nigerian businesses. Historical data was collated and estimated employing the Ordinary Least Squares (OLS) technique. The empirical results indicate that market capitalization and value of deals in the exchange exert a positive impact on foreign direct investment inflows to Nigeria. Although, further observations indicate that only stock market capitalization exert a statistically significant impact on foreign direct investment inflows to Nigeria. Furthermore, it emerged that all share index is negative and has a statistically valid impact on foreign direct investment inflows in Nigeria. On the basis of the findings of this study, the following recommendations are made: Government should consider the maintenance of prudent macroeconomic policies and also continue to create conducive environment to stimulate the flow of foreign direct investment; Also, there is need to increase citizens’ knowledge and awareness about participation in the stock market through conscious sensitization and education from schools to offices and places of worship.

Will Indonesia enter the 2023 financial crisis? Application of early warning model system

Purpose ― This paper estimates the possibility of a financial crisis in Indonesia using an early warning system (EWMS) model. Method ― A quantitative EWMS model has been developed to detect a potential financial crisis in 2023 based on the econometric logistic probability model (Logit) Findings ― Based on the model estimates, Indonesia is expected to enter a financial crisis without adequate macroeconomic policies in the next 12 to 24 months. In recent years, Indonesia has implemented prudent macroeconomic policies such as increasing the Bank Indonesia policy rate and sustaining the state budget to avoid the impact of a deep financial crisis. Implications ― To avoid the potential for further financial crises, Indonesia must implement a wider range of crisis mitigation policies. Originality/value ― Although many argue that financial crises are predictable, it has been demonstrated in the literature that little is known about how to prevent them. This paper contributes to providing empirical evidence to address these issues.

Argentina

Implementation of more prudent macroeconomic policies in the second half of 2022 supported a moderation in inflation and improvements of fiscal and external balances through end-2022. However, against the backdrop of still large macroeconomic imbalances and challenges from an increasingly severe drought, the nascent improvements in inflation and reserve coverage have proved evasive. Meanwhile, policy setbacks have contributed to recent underperformance and added to uncertainties about the political resolve to adhere to the program ahead of the elections. The authorities reaffirmed their commitments to implement the program, which they continue to view as the key anchor for policy making. In this context, the review discussions focused on strengthening policies to secure delivery of key underlying program objectives, and on how best to adapt to an increasingly complex environment, while avoiding building future vulnerabilities.

EFFECT OF FOREIGN EXCHANGE RATE ON FINANCIAL PERFORMANCE OF LISTED MANUFACTURING COMPANIES IN KENYA

<p>The government of Kenya’s broad target for enhancing manufacturing is to increase the manufacturing share of gross domestic product from 8.4% to 15% to create more jobs but the target remains a mirage owing to the poor performance of the manufacturing sector over the years where for instance, sector performance declined to 3.5% in 2019 compared to 4.4% in 2018. Studies globally, regionally and locally have been conducted to establish how macroeconomic variables affect the profitability of companies. However, mixed results have been reported pointing to positive, negative, significant and insignificant effects making it unknown how economic growth, inflation and exchange rates influence the performance of manufacturing firms. The purpose of this study was to establish the influence of Interest rates on the financial performance of listed manufacturing companies in Kenya. The study was guided by; the efficient market hypothesis and arbitrage pricing theory. This study adopted a descriptive correlational research design grounded on panel data spanning 6 years from 2015 to 2020 with a target of 8 listed manufacturing firms. The exchange rate showed a negative influence on performance with coefficients 0.358, 2.764 and -1.532 respectively such that a 1% increase in economic growth and inflation increased performance by 0.358% and 2.764% respectively while a 1% increase in exchange rate decreased performance by 1.532%. The study recommends the formulation of prudent macroeconomic policies including bailouts during pandemics geared towards enhancing the performance of manufacturing firms as envisaged under the Big four agenda and Vision 2030 blueprint.</p><p> </p><p><strong>JEL</strong>: L60; O24; F31</p>

The COVID-19 Pandemic and Public Finance of Georgia

The COVID-19 pandemic has severely affected the global economy and similarly to other countries, COVID-19 has hit Georgia hard. COVID-19 pandemic has had a significant negative impact on both the private sector and health and lives of the people, in the beginning of 2020 it became necessary to find additional financial resources for both business and direct assistance to the population, as well as to cover the costs of preventing the epidemic and provided citizens with social support. In order to finance the Emergency Response Plan measures developed by the Government of Georgia in response to the negative consequences of the COVID-19 pandemic, it was necessary to attract approximately GEL 3.6 billion international financial institutions. Georgia has been able to respond to the socio-economic challenges posed by the OVID-19 pandemic thanks to its recent years prudent macroeconomic policies, fiscal and external reserves growth, well-capitalized financial system and significant donor financial assistance. Keywords: COVID-19 pandemic, Public Finance, Budget support credits, donor support.

Foreign Direct Investment and Economic Growth in South Africa: Is there a Mutually Beneficial Relationship?

This paper interrogated the impact of foreign direct investment (FDI) on economic growth in the South African economy. The study employed annual time series data covering 1960 to 2019 extracted from the South African Reserve Bank. This study applied impulse response functions within a VAR methodology to analyse the dynamic interrelationships between FDI and economic growth in South Africa. The study discovered that there exists a mutually beneficial relationship between foreign investors and expansion of economic activities consistent with economic growth. A positive shock in FDI leads to a significant growth in South Africa’s economy. Likewise, a positive shock in GDP promotes FDI inflows in South Africa. The study suggested that policymakers ought to consider promulgating prudent macroeconomic policies that can attract FDI consistent with economic prosperity.

Interest rate, inflation and stock market performance in Ghana : a sector based vector error correction model perspective

No AccessInterest rate, inflation and stock market performance in Ghana : a sector based vector error correction model perspective Ebenezer Larbi Asiedu Daniel Mireku-Gyimah Kofi Kamasa Henry Otoo Ebenezer Larbi Asiedu0 Search for more papers by this author Daniel Mireku-Gyimah0 Search for more papers by this author Kofi Kamasa0 Search for more papers by this author Henry Otoo0 Search for more papers by this author Affiliations 0University of Mines and Technology, Ghana Published Online:1 Mar 2021https://hdl.handle.net/10520/ejc-aa_ajber_v16_n1_a8SectionsPDF ToolsAdd to favouritesDownload CitationsTrack Citations ShareShare onFacebookTwitterLinked InRedditGMailHotmailYammer AboutAbstractThis paper sought to examine the effect of inflation and interest rate on stock returns in Ghana at the sectoral level using monthly data from 2010 to 2016. By employing the Johansen cointegration technique as well as the Vector Error Correction Model (VECM) estimator, the results reveal a negative and significant effect of inflation and interest rate on the overall stock market performance in the long run. In specifics, the sector that is highly affected by inflation changes is the petroleum sector, followed by the consumer staples sector, financial sector and mining sector. With regards to interest rate, consumer staples sector is the most affected, followed by financial sector and mining sector. The paper therefore recommends for prudent macroeconomic policies in the areas of interest rate and inflation in Ghana to derive maximum benefits from the stock markets. Previous article Next article FiguresReferencesRelatedDetails None Volume 16, Issue 1 | Mar 2021 AffiliationAdonis & Abbey PublishersThe International Bibliography of Social Sciences (IBSS)EnglishBusiness and FinanceInternational JournalsAccreditationThe International Bibliography of Social Sciences (IBSS)LanguagesEnglish InformationCopyright © 2021, Adonis & Abbey Publishers:All rights reservedKeywordsInterest ratesStock marketinflationVector Error Correction ModelCointegration Disclosure The authors confirm that the manuscript has been read and approved by all named authors and that there are no other persons who satisfied the criteria for authorship but are not listed. The authors confirm that they have given due consideration to the protection of intellectual property associated with this work and that there are no impediments to publication, including the timing of publication, with respect to intellectual property. Ethical conduct of research The authors state that they have obtained appropriate institutional review board outlined in the Declaration of Helsinki for all human or animal experimental investigations. A signed informed consent document has been obtained from all participants included in the study.

Research on the Relationship Between Corporate Bond Credit Spreads and Macroeconomic Factors Based on TVP-VAR Model

There is a significant linkage relationship between corporate bond credit spreads and macroeconomic indicators. Exploring the dynamic and time-varying relationship between the two can better control and adjust market risks at the macro level. Selecting the 2010-2019 quarterly data, and establishing the TVP-VAR model of macro indicators and credit spreads, the following conclusions are drawn: (1) Credit spreads are counter-cyclical. (2) The degree of response of credit spreads and macroeconomic indicators in years with large economic fluctuations is significantly higher than in years when the economy is stable, and tends to be stable for a long time. (3) PMI and risk-free interest rates have a significant negative impact on credit spreads in the long term, and CPI has a relatively low contribution rate to the fluctuation of credit spreads. Based on this, targeted recommendations such as the implementation of prudent macroeconomic policies are provided to provide a basis for corporate bond pricing, regulators to control market risks, and to formulate relevant development strategies, and to promote the healthy development of the corporate bond market.

Foreign Direct Investment and Economic Growth in Kenya: An Empirical Investigation

ABSTRACT In this paper, the casual relationship between foreign direct investment (FDI) and economic growth in Kenya during the period 1980–2018 is examined. In an attempt to address the omission-of-variable bias, which has been detected in some previous studies, two variables, namely money supply and trade, are used as intermittent variables, thereby leading to a system of multivariate Granger-causality equations. Using the ARDL bounds testing approach, the results show that there is a unidirectional causal flow from economic growth to FDI in Kenya. These results apply, irrespective of whether the causality is conducted in the short run or in the long run. Based on these results, it can be concluded that the current burgeoning FDI inflows that Kenya has attracted in recent years are largely driven by the strong economic growth and prudent macroeconomic policies that the country has been pursuing in recent decades. Policy implications are discussed.

EFFECTS OF SELECTED MACROECONOMIC VARIABLES ON DIASPORA REMITTANCES IN KENYA FOR THE PERIOD 1980 TO 2016

This study investigated the effect of selected macroeconomic variables on diaspora remittances in Kenya. Earlier studies for Kenya on diaspora remittances have focused mainly on the importance of foreign remittances on economic growth and stock market performance with less focus on macroeconomic variables that drives the remittances. In particular, the study determined the effect of economic growth, interest rates, and openness of the economy, interest rates differential and exchange rates on diaspora remittances in Kenya for the period 1980 – 2016 based on quarterly data. The study found that currency depreciation increases diaspora remittances. Similarly, economic growth, financail sector development and openness of the economy were shown to increase diaspora remittances. Based on the findings, the study recommends the need for effective application of prudent macroeconomic policies to attract more diaspora remittances inflows. In addition, there is need to adopt policies geared towards financial sector development such as the policies on formalization of the informal financial services, leveraging on the technology for financial sector development. Lastly, establishing more economic ties beyond trade with other economies to address issues on the taxation and other charges on the remitting funds from abroad would go a long way in promoting diaspora remittances inflows.

Gabon

Prudent macroeconomic policies, supported by the Extended Arrangement, have contributed to Gabon’s economic recovery. Growth is picking up, the fiscal and external positions have improved, public debt has started to decline, and Gabon has contributed to the rebuilding of regional international reserves. Challenges remain, though, as buffers are still insufficient and deep-rooted institutional and structural weaknesses continue to constraint growth and poverty reduction. Almost one-third of the population still lives below the poverty line.

Seychelles

Seychelles has made noticeable progress toward economic stability and sustainability under successive Fund programs through prudent macroeconomic policies and bold reforms since the crisis in 2008. Despite significant headway, the country remains vulnerable to external shocks as a small, open, and tourism-dependent economy. Seychelles could face challenges to reconcile its goals to reduce its infrastructure gap, enhance its resilience to climate change, and bolster its medium-term fiscal and external sustainability.

People's Republic of China-Hong Kong Special Administrative Region

Hong Kong SAR’s economy benefitted from a strong cyclical upswing through the first half of 2018, supported by the continued global recovery, buoyant domestic sentiment, and the booming property market. However, near-term risks have significantly increased – including those from trade tensions, tighter global financial conditions, and capital outflows from emerging markets. Also, long-term challenges, including from aging, elevated inequality, and the persistent housing shortage, need to be tackled. Prudent macroeconomic policies and ample buffers are in place to help smoothen the transition and ensure continued stability.

People's Republic of China-Macao Special Administrative Region: 2019 Article IV Consultation Discussions-Press Release; Staff Report; and Statement by the Executive Director for Macao SAR

This 2019 Article IV Consultation highlights that while more moderate than in the past, gaming and tourism revenue in Macao Special Administrative Region picked up as the economy returned to expansion since mid-2016. Progress with diversification towards mass-gaming and nongaming tourism, together with the continued China gaming monopoly, are expected to deliver growth of around 4 percent in the medium term. Risks are tilted to the downside, mainly emanating from Mainland China. Prudent macroeconomic policies and high reserves provide strong buffers against shocks. In addition to supporting diversification, fulfilling social needs, and maintaining macroeconomic stability, the policies priorities explained in the report will reduce external imbalances. The report also discusses that the current housing macroprudential stance and related fiscal measures appear broadly appropriate. A broader set of policies are advised to support housing affordability, where continued efforts to boost housing supply will be key.

The effects of sovereign credit rating spillovers on neighbouring countries’ financial markets

ABSTRACTThis study investigates the spillover effects of long-term foreign currency sovereign credit rating announcements on foreign currency-denominated bonds and stock markets in 19 African countries during the period of 1994–2014. Using a combination of Granger causality tests and impulse response function, the results show that there is marginal regional sovereign rating spillover impacts that are quickly absorbed into capital markets trading long-term securities. The analysis further shows marginal spillover effects that persist over longer time periods in sovereign ratings of other countries in the same region from a sovereign rating change in one country. These results imply that the regional bilateral linkages between countries serve as channels of capital and sovereign credit rating information flow. Thus, it is imperative for regional countries to pursue prudent developmental macroeconomic policies to avoid negative ratings that will have regional spillover effects.

Impact of renewable energy (hydro) on electricity prices in Ghana: A tale of the short- and long-run

This study examines the dynamic effects of a hydro-based technology on electricity prices in Ghana. As a counterfactual model, this article also examines the dynamic effects of a thermal-based technology on electricity prices. Given the significance of total electricity expenditure in national and household final consumption expenditure, the findings have important implications on economic-wide welfare. To do this, we estimate a dynamic electricity price model based on the autoregressive distributed lag model. The findings reveal that, the effect of hydro on electricity price is dynamic in nature, and the technology provides better cost advantages than the thermal technology, in terms of reducing end-user tariffs. Though there is an associated risk with relying on the former which could impose a higher cost in the short-term, in the long-term, the effect seems to vanish. Further results show that, the positive pass-through effect of interest rate, exchange rate, and crude oil price to electricity price is gradual and materialises in the long-term. In sum, the task of achieving lower electricity tariffs in the country is multifaceted. Investment in a hydro-based renewable technology is critical as well as investment in demand-side management options. Moreover, prudent macroeconomic policies and structural amendments of the automatic price adjustment formulae are also critical.

Dynamic interelationship between macroeconomic fundamentals and stock prices in Nigeria

This paper investigated the dynamic interrelationship between macroeconomic fundamentals and stock prices in Nigeria using time series data spanning from 1980 to 2016. The study made use of co-integration test and the error correction mechanism. Empirical estimates revealed pointedly that there is a long run correlation between macroeconomic fundamentals and stock prices in Nigeria. Similarly, in the short run, the previous values of money supply and interest rate were found to demonstrate a significant effect on stock prices. Also, the previous value of stock market return was found to show significant influence on the current stock prices. Markedly, the results revealed that the natural logarithm of real gross domestic product is a leading indicator that stimulates stock prices in the long and short run. Based on the above findings the study recommends that the Central Bank of Nigeria should carry out prudent macroeconomic policies to derive the best from the stock market. Furthermore, the government should look into the high rate of inflation since it is one of the most significant macroeconomic indicators used to analyze the economic conditions of a country.

Oil price volatility and economic growth in Algeria

ABSTRACTAlgeria is one of the oil-rich countries that may be affected by the so-called natural resource curse. Algeria is one of the most important producers and exporters of hydrocarbon products (oil and gas) in the world; its exports from this sector represent about 98% of its total exportation. The hydrocarbon sector represents about 40–45% of the total GDP. The country’s macroeconomic performance over the past decade has been solid because of the relatively high oil prices, combined with prudent macroeconomic policies. This study tries to test the impact of oil prices volatility on economic growth in Algeria applying a VAR model using annual data over the period 1970–2012. This study’s results indicate that the negative growth effects of oil price volatility offset the positive impact of oil boom; therefore, it is argued that oil price volatility, rather than abundance per se, drives the “resource curse” paradox in Algeria.

Improving Microeconomic Efficiency of Latin American Economies

This article discusses the factors that have led to the relatively low microeconomic, or allocative, efficiency of Latin America, compared with other faster-growing economies, particularly in East Asia. It also identifies the major structural impediments to improving efficiency of the economies, and, finally, suggests policy and institutional reforms necessary to improve Latin America’s performance in the future. The article builds on an analysis of the region’s long-term economic performance and the major dilemmas and issues faced by the countries. An important conclusion of the article is that even with prudent macroeconomic policies, the problems are rooted in the micro-economy. In other words, the fundamental economic problems faced by the region can only be overcome by making major structural changes in the economies. These structural changes, in turn, would lead to higher and more inclusive growth.