Prudent Policy Research Articles

Helping or hampering banks competition? The Asian experience after the Asian financial crisis

In this paper we revisit the question of the determinants of competition in banking markets and provide a new, in-depth analysis. We use the successful stabilization experience that followed the Asian Financial Crisis and evaluate the effects of a comprehensive set of potential competition determinants on a sample of nine Asian countries observed in the period 2000–2016. Focusing on the loans market we estimate two separate models of competition: a more flexible reformulation of Bolt and Humphrey’s competition efficiency, and a dynamic Lerner index model. Our results are consistent between the two models. Competition overall increases moderately, despite the more prudential policies adopted after the crisis. Lower entry barriers, higher foreign penetration, foreign ownership and competition from the stock market, as well as higher concentration and larger size, all encourage competition among banks. Higher freedom on non-traditional banking markets instead promotes substitution and reduces competition for loans, as banks shift their competitive efforts towards potentially more profitable non-interest activities. These findings lend some support to the current restructuring policies in the region, and to the concomitant liberalization processes that have continued to take place.

Monetary policy, prudential policy and bank's risk‐taking: A literature review

AbstractThe pre‐crisis low‐interest‐rate environment is raising concerns among researchers and policymakers about its impact on the triangle prudential policy‐monetary policy‐bank's risk‐taking. While interest rates are set at low level for inflationary and economic growth reasons, they may lead banks to take more risk, jeopardizing the financial system and impeding the recovery. This paper provides a literature review, on the one hand, on the interaction of monetary and prudential policies through their impacts on bank's risk‐taking, and on the other hand, on the issues of their coordination. Monetary policy appears to have ambiguous effects on banks’ profitability, and then, on banks’ risk‐taking behavior. Despite monetary and prudential policies pursue different objectives, they inevitably interact, raising challenges that face policymakers. Albeit it is argued that monetary policy alone is not sufficient to maintain macroeconomic and financial stability, and that it should be coordinated with prudential policy, the form of this coordination is not clear‐cut.

In the face of spillovers: Prudential policies in emerging economies

We examine whether emerging market prudential policies help to reduce the macro-financial spillover effects of US monetary policy. We find that emerging markets with tighter prudential policies face significantly smaller, and less negative, spillovers to total credit from US monetary policy tightening shocks. Reserve requirements and, to a lesser extent, loan-to-value ratio limits appear to be particularly effective prudential measures at mitigating the spillover effects of US monetary policy. Consistent with the bank-lending channel, our findings indicate that domestic prudential policies can dampen emerging markets’ exposure to US monetary policy and the associated global financial cycle, even when accounting for capital controls. These findings suggest they may be a useful tool in the face of international macroeconomic policy trade-offs.

A Dynamic Multivariate Causality Analysis of Energy–Growth Nexus Using ARDL Approach: A Malaysian Energy Policy Perspective

This study analyzes a dynamic long-run and short-run causal nexus between energy consumption and economic growth in the presence of capital, labor, and urbanization over the period 1971–2014, in Malaysia. The stationarity issue was tested using augmented Dickey–Fuller (ADF), Kwiatkowski–Phillips–Schmidt–Shin (KPSS), and Ng–Perron tests. However, a dynamic long-run co-integration relation between variables was checked through the ARDL technique. An unrestricted vector error correction model (MUVECM) was used to estimate the short-run and long-run dynamic relations between the parameters and the Engle–Granger method was used for causality analysis. Results of statistical analysis confirmed that all variables were found to be I (1) except variable labour was I(0) and none of the variables was I(2). Total energy consumption Granger caused GDP in one direction over the period 1992-2010 in the case of Croatia. However, labor and urbanization impacts were mixed. The Granger causality analysis confirmed mixed results in the short run and the long run. Moreover, estimated results confirmed a feedback hypothesis between income and capital was in the short term and the long run. The short-run and long-run causal effects of labor force on economic growth were confirmed. This study provides important insights to policymakers and energy economists. Prudent energy conservation policies and economically improved measures would be of great help. However, demand-side management-based policies would have no adverse effect on the economic performance of Malaysia.

Socioeconomic spillovers of COVID-19: case of Saudi Arabia

PurposeWith the global outbreak of COVID-19 that has made the economic activities standstill, countries have taken immediate measures to safeguard not only the human lives but also the economies. This study investigates empirically the lockdown impact of current pandemic on the Saudi economy.Design/methodology/approachThe study employs inoperability input–output model (IIOM) on the input–output table (IOT) of Saudi Arabia for the analysis.FindingsFindings show that with the closure of few sectors for the period of two months, the GDP declined to 6.49%. Findings also show a negative impact on consumption, investments and exports.Research limitations/implicationsOne limitation of current study is that it uses IOTs which lack primary and secondary income distribution that is vital for presenting complete interindustry connections in the analysis. The interindustry structures relate to the consumption structures which ultimately lead to the income distribution and affect the consumption behaviors of economic agents. Hence, the complete income circular flow is not incorporated in IIOM using IOT. The findings of current study would be well grounded if it endogenized the primary and secondary income distribution.Practical implicationsThe practical implication of this study is the use of IIOM for anticipating the potential loss against the backdrop of catastrophes and pandemics. The IIOM has the capability to predict the economic effects of disruptive events and hence the policy-makers can better predict and devise prudent policies to avoid the likely threats to the economy.Originality/valueThe current situation is unprecedented, and it is challenging for governments to forecast the economic repercussions. Several economic sectors have been inoperative due to lockdown implemented by the governments. This study empirically estimated the inoperability produced by the current pandemic. The findings are consistent with other estimated statistics, thereby proving the efficacy of IIOM to anticipate the economic repercussions of natural hazards.

Examining the behaviour of energy prices to COVID-19 uncertainty: A quantile on quantile approach

The energy market is extremely vulnerable to the uncertainty caused by the pandemic and leads to global lockdowns and stagnant economic activity. This study is important because energy prices (EPs) experience a dramatic decline due to the pandemic, which has negative consequences for the global economy. We aim to analyze EPs behaviour to coronavirus (COVID-19) from 2020:01 to 2021:05. The finding shows that EPs are extremely vulnerable to the uncertainty produced by the pandemic in the short run. The COVID-19 has a negative effect on EPs in the medium to upper quantile, which suggests that higher uncertainty caused by the pandemic results in rapid decline. However, the impact of the COVID-19 is greater on the oil prices (OPs) as compared to the natural gas (NGP) and the heating oil price (HOP). Moreover, the finding reveals that COVID-19 impact on EPs are consistently negative across all the quantile. The degree of the impact increases when the relationship changes from short to long run. The pandemic has affected the energy price in the short run, which needs prudent policies to fully grasp the magnitude of the COVID-19 impact on energy prices.

A Prospective Phase II Clinical Study of Simultaneous Integrated Boost Radiotherapy on Stage III Local-advanced Non-Small Cell Lung Cancer Patients

In consideration of the results of the RTOG0617 study, researchers began to adopt a prudent policy to high-dose radiotherapy. Based on the assume that radiation dose escalation to the primary tumor can improve local control and therefore producing survival benefits under the condition of limiting the dose to the organ at risk (OAR), we launched the study to evaluate the effect of simultaneous Integrated boost (SIB) radiotherapy implemented on the stage III local-advanced non-small cell lung cancer (LA-NSCLC) patients.42 Patients with stage III LA-NSCLC who were eligible for definite concurrent chemoradiotherapy were prospectively given the radiation regimen of single dose of 2.0Gy for PTV, 2.2Gy for CTV, and 2.4 -2.8Gy for GTV with 25 fractions. Other stage III LA-NSCLC patients retrospectively collected with routinely radiotherapy were matched through PSM. 2 Cycles of platinum based concurrent chemotherapy were carried on patients in both groups. The primary endpoints were progression-free survival (PFS), toxic effects and dose for normal tissues, with the secondary end point of overall survival (OS). The Kaplan-Meier method was used to evaluate PFS and OS, and the Mann-Whitney U test for toxic effects and the dose for normal tissues.The median PFS time was 20.6 vs 9.0 months (P = 0.01), and the median OS was 40.0 vs 24.5 months (P = 0.02) in the SIB group and the control group respectively, all were obviously longer in the SIB group. No significant differences of radiation-related pneumonitis (P = 0.95) and myelosuppression (P = 0.40) have been observed between the two groups, as well as nausea, vomiting, esophagitis and dyspnea. The dose and the radiation-effected volume to the surrounding normal tissues also did not show the tendency of increasement in the SIB group.The results of our research has revealed that the dose escalation did improve the PFS and OS while not increased the dose to the surrounding normal tissues and the occurrence of toxic effects. Simultaneous integrated boost radiotherapy to the primary tumor might be a safe and feasible regimen to improve survival benefit for the stage III LA-NSCLC patients eligible for definite concurrent chemoradiotherapy in the future.

MODELING THE NONLINEAR FISCAL REACTION FUNCTION IN MALAYSIA

The fiscal reaction function (FRF) provides valuable insights into a country’s fiscal sustainability and output stability. However, there is no consensus yet on how to model it. Thus, this study investigates the best functional form for the FRF by adopting a nonlinear autoregressive distributed lag approach that accounts for a potential structural break in the data across periods. We examine the case of Malaysia and address the country’s data by using a break-point of the unit root test. The test results indicate the presence of a structural break in the country’s FRF. Moreover, the primary balance of Malaysia has an asymmetrical reaction to the country’s public debt and the output gap. This result suggests that a nonlinear behavior of FRF with a structural break is an accurate approach for the fiscal authority in Malaysia (for example, the Ministry of Finance) in designing prudent fiscal policy. This study finds that an asymmetric fiscal reaction in Malaysia neither guarantees fiscal sustainability nor supports output stability, thus suggesting the need for an independent fiscal council to promote prudent fiscal policy.

Banking research in the time of COVID-19

Despite the devastating worldwide human and economic tolls of the COVID-19 crisis, it has created some positive economic and financial surprises and opportunities for research. This paper highlights two such favorable surprises – the shortest U.S. recession on record and the avoidance of any banking crisis – and a number of research opportunities. The paper ties the “economic surprise” of the short recession to the speed and size of U.S. stimulus programs during COVID-19 – faster and larger than for the Global Financial Crisis (GFC). We connect the “financial surprise” of the resilient banking sector to prudential policies put in place during and after the GFC that fortified U.S. banks prior to COVID-19. These twin “surprises” are also mutually reinforcing – if either the economy or banking system had failed, so would the other. The paper also reviews extant COVID-19 banking research and suggest paths for future research. It recommends that particular attention be paid to research outside of the U.S. – where fewer favorable “surprises” may be present – as the best way to advance knowledge in this area.

Explaining Indonesia’s Under-balancing: The Case of the Modernisation of the Air Force and the Navy

The current maritime challenges that Indonesia faced had not led to the development of the navy and air force. While theories of neoclassical realism highlighted the importance of domestic factors when determining responses at the strategic level, inefficiencies within the state bureaucracy had often been the bane of prudent policies. Our article attempts to engage with the neorealist concept of under-balancing to look at the reasons why there is stagnation in Indonesia’s naval and air force development. The proponents of under-balancing blamed inefficient bureaucracy as the cause of the issue. Our study on Indonesia’s naval and air force development indicated that inefficient bureaucracy was not the only driver of under-balancing. Looking at the agenda of naval and air force modernisation, this research argues the lack of commitment from the government, limited economic sources and the different modernisation priorities at the military unit level that had greatly contributed to the mismatch between systemic pressure and the response, in this case through naval and air force development, against it.

COVID-19 pandemic control and administrative issues in Pakistan: How Pakistan mitigated both pandemic and administration issues?

COVID‐19 is wreaking havoc all around the globe, and Pakistan bears no exception. This study explores Pakistan's response toward controlling COVID‐19 Pandemic from the day the 1st case was reported, February 26, 2020, in Pakistan until August 31, 2020. It explores the administrative conflicts among federal and provincial governments and political behaviors of political parties toward the COVID‐19 pandemic by referring Government Response Index. By applying the ARDL model approach, results show that since the administrative harmony had been implemented in Pakistan in July 2020, its positive impact on combating the COVID‐19 situation in Pakistan and substantial improvement in recovered cases and a downward trend new confirmed and fatal cases has observed in Pakistan. The findings demonstrate that administrative efforts scattered due to internal conflicts from February to mid‐July 2020 have ended, and collective aggressive policy enforcement has been mitigating the adverse impact of COVID‐19 in Pakistan since July to date. However, sustainable measures and prudent policy implications are needed to combat the ongoing COVID‐19 pandemic and future calamities.

DOES THE CLEAN DEVELOPMENT MECHANISM EXIST IN DEVELOPING COUNTRIES AFTER AN INTERNATIONAL AGREEMENT?

The Kyoto Protocol is a key document on climate change agreements by the United Nations Framework on Climate Change. The latest commitments agreed in 2012. Its agreed to reduce CO2 emissions by about 20% or less of all global carbon emissions. A strong commitment is needed to reduce greenhouse gas emissions by governments from various countries. This study aims to figure out the progress of clean development mechanism of reducing CO2 emissions in the Asia and Middle East Region countries after the Kyoto Protocol Commitment. Variable CO2 emissions, economic growth, foreign direct investment, trade activities which covered from 2013 to 2017 were analysed using a panel data model. The alteration after agreement were evaluated using a Klassen Typology. The results show that economic growth and trading activities have a significant effect on clean development mechanism in Asia and the Middle East, but still have differences in the patterns and behavior of each country in implementing commitments to reduce CO2 emissions. Overall, attempts are needed to align economic growth with efforts to reduce emissions so that prudent policies are needed in forming realistic and sustainable mitigation and adaptation steps to address the problem of climate change.Keywords: CO2 emission, clean development mechanism, agreement, Klassen Typology, mitigationJEL Classifications: Q5, Q28, Q54, Q540DOI: https://doi.org/10.32479/ijeep.11514

Economic policy responses to the COVID‐19 pandemic and growth of nonperforming loans

AbstractIn this paper, we investigate the relationship between various economic policy responses to the COVID‐19 pandemic (liquidity support, prudential policies, borrower support, asset purchase, and policy rate decisions) and the growth of nonperforming loans (NPLs) in 2020 across 47 economies. Controlling for other relevant determinants of NPLs, our regression analyses show that economies in which policymakers have used prudential and borrower support measures reported significantly slower growth of aggregate NPLs. The prudential measures also confirmed a more robust relationship with NPL reductions compared with borrower support measures. Added to this, non‐mortgage consumer loans are found to be more sensitive than mortgage loans to economic policy responses.

Monetary Policy Variables Relevance on Balance of Payments Adjustment in Nigeria 1980-2020

This study examines monetary policy relevance on the Nigerian balance of payments adjustment, form 1980-2020. Objectives are; to examine the relevance of monetary policy variables such as Exchange rate, Inflation rate, Balance of trade, Real Gross Domestic Product and Domestic Credit on the Nigerian balance of payments adjustment. Evaluate the significant speed of adjustment of monetary policy variables such as Exchange rate, Inflation rate, Balance of trade, Real Gross Domestic Product and Domestic Credit on the balance of payments adjustment within the period under study. The study employed the following advanced econometric techniques; Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) tests, chow test, ECM model OLS model, statistical tests & Co-integration test. Based on the above econometric techniques conducted, it was observed that group unit root test result shows that variables used in the study became stationary after the first differenced at degree of order one I(I). There is Co-integration (long run relations) among variables used in the study. Our results indicated rejection of the two null hypotheses of this study and acceptation of the alternative three hypotheses that said; Nigerian monetary policy variables such as Exchange rate, Inflation rate, Balance of trade and Domestic Credit have significant relevance on the Nigerian balance of payments adjustment. Nigerian monetary policy variables used have significantly three years to adjust balance of payments adjustment in the Nigerian economy within the period of the study. The researcher recommends that; the need to manage domestic liquidity wisely in view of the tremendous pressure on the balance of payments of excess money. A determined effort to mobilize resources through private saving and the implementation of a prudent fiscal policy through efficient collection of tax revenues, rationalization of government expenditure towards growth enhancing and poverty reduction programmes will also enable the government to pursue its development programs without having to rely on the monetization of its budget deficit. Overall concentration on monetary tools solely should be reduced and employ other policy instruments to correct the balance of payment fluctuation. The government should also be cautious of budget deficit that are often time financed by internal borrowings.

Key Sectors in the Economy of Saudi Arabia.

This study shows the key sector for the economy of Saudi Arabia based on input-output model analyses. They derived the analyses from the economy of the Kingdom of Saudi Arabia (KSA) using 35 economic sectors. We found that four leading sectors exceeded the values of the linkage coefficients with a value of 1, represented by both chemicals and pharmaceutical products, namely, manufacturing basic metals (S13), transportation and storage (S24), and other business sector services (S31). According to the unbalanced growth theory, more attention is paid to these sectors that are the primary engine for the rest of the sectors and their growth. The results obtained are beneficial for success of the economic policy of Saudi Arabia. By observing the different influences, it is possible to identify the policies expected to have more significant indirect impacts on other sectors in Saudi Arabia and are likely to develop a prudent economic policy. Given the economic dependence on oil, it is also essential to be acquainted with the different sectors that are probable to have an overall effect on the economy for strategic and operationally effective analysis that can help.

Role of COVIDsafe app and control measures in Australia in combating COVID-19 pandemic

PurposeCOVID-19 (C19) has been destroying the world's health and emergency response system for almost the past year. Policymakers and health practitioners are trying their best to save the public through various policy development and initiatives in this regard. This study aims to examine the containment measures and their impacts on Australia's C19 situation in Australia's COVIDsafe app background.Design/methodology/approachThis study investigates the role of the Australian Government's (AG) Health Containment (HC) and Stringency response (SR) in combating the C19 situation in Australia. The time horizon has been taken from January to October 2020 and applied Linear Regression with graphical demonstration analysis by STATA-18 version and MS Word chart features.FindingsBy applying linear regression and graphical demonstration, statistics revealed that AG made various policy developments during the C19 pandemic. However, due to inconsistent and unsustainable measures, the second C19 wave hit Australia much harder than the first wave. COVIDsafe app has been a vital AG in this regard; however, it did not show its progress during the second wave due to privacy issues. After the more focused and aggressive research and development measures, AG overcame the App drawbacks and controlled the situation, demonstrating 92% recovered statistics from C19.Practical implicationsThe study concludes that AG should enforce many prudent policy measures and distinct E-government features in the COVIDsafe app and make it secure so people will use it in probable forthcoming C19 waves.Originality/valueThis study has examined the Government of Australia's containment measures in the background discussion of the COVIDsafe app.

FINANCIAL STABILITY AND ECONOMIC GROWTH NEXUS: EVIDENCE FROM SUB-SAHARAN AFRICA USING PANEL DATA

This paper examines the effect of financial stability on the economic growth of countries in Sub-Saharan Africa using the World Development Indicators Data. To select the appropriate model best fits for the data, the Hausman test was used to select Random Effect Estimator over Fixed Effect Estimator to assess the relationship between the variables. Panel data was collected on Sub-Saharan Africa countries from 2010 to 2019 to predict the effect of financial stability on economic growth. The paper revealed that financial stability accounted for 71.8% of the variation of a country's economic growth for the period other things being equal. It recommends that financial regulators within Sub-Saharan African should provide prudential policies aim at attaining higher economic growth should target both monetary and fiscal policies as well market discipline.Keywords: Sub-Saharan African, economic growth, financial stability, panel data, Fixed effects estimatorJEL Classifications: E50, E58, F43, O47DOI: https://doi.org/10.32479/ijefi.11407

Role of Chinese government and Public–Private Partnership in combating COVID-19 in China

COVID-19 has been called a Global Health Emergency worldwide. According to their available resources, developed and developing countries' public and private sectors are fighting against this pandemic. This paper examines how effective the Public–Private Partnership (PPP) strategies under the Chinese government response to control this COVID-19. The study takes the Chinese government and private sector's collective efforts for analysis and discussion from January 01 to October 31, 2020. Applying linear regression revealed that public governance strategies have worked to control this pandemic's severity and frequency. The results also show that despite the negative COVID-19 graph, the Chinese government has remained consistent in health and stringency measures. Furthermore, in cooperation with private sectors, China's emergency management has built two makeshift hospitals in 12 days and 5G technology implementation; Health Code application and volunteer works illustrate sharing governance by PPP. The study advises that by keeping in mind the strategy of PPP in China, other countries should also involve private sectors to mitigate emergency issues like COVID-19 for fast and effective outcomes and ask for assistance from the Chinese government and follow their quarantine and prudent policies to control this contagious disease. It further suggests that governments should engage private sectors before draft effective emergency preparedness policies to fight against future calamities.

MACROPRUDENTIAL AND MONETARY POLICY TRANSMISSION ISSUES

Before the global financial crisis, it was widely believed in academic circles, that there was a conflict (inflation / f inancial stability) between monetary policy and prudential policy, which justified the separation of monetary and prudential functions. Due to this approach, a significant trend of segregation of functions was observed in some countries. Weaknesses of this approach became apparent after the crisis, thus countries actively began to adopt macroprudential policy integrated with monetary policy, which ultimately increases the effectiveness of both policies in terms of achieving the stability of country's economic, banking and financial sectors

Implications of the Imperfect Deposit Market Structure for Micro and Macro Discretionary Prudential Policies

Implications of the Imperfect Deposit Market Structure for Micro and Macro Discretionary Prudential Policies