Asset Purchases Research Articles

Digital Financial Assets: Problems of Recognition, Valuation and Legal Regulation in Accounting

The article reveals the author’s vision of the recognition, valuation and legal regulation of accounting of digital assets at company level.
 The economic nature of cryptocurrency is discussed through interpreting the functions of money: a measure of value, a means of circulation, a means payment and accumulation, and the global money. It is concluded that cryptocurrency does not comply with the classical definition of “money”, because it does not feature its main functions. But it can be said that cryptocurrency constitutes the first opened, digital alternative currency able to take the form of traditional money. 
 The procedure for cryptocurrency valuation in the business stocks and intangible assets is analyzed. In cases when a business entity is intended to buy cryptocurrency as a commodity, the transactions related to cryptocurrency flows should be recorded on the account 28 “Commodities”, whereas the transactions related to cryptocurrency production should be recorded on the account 26 “Finished products”. 
 The proposed improvements in cryptocurrency accounting in the company stocks will be realizable when the transactions on cryptocurrency purchase or production (mining) are performed on permanent basis. The recognition of cryptocurrency in the intangible assets of a company will be feasible on the following conditions: cryptocurrency does not have a physical form; it can be identified; it is a non-monetary asset. The distinctive features of Bitcoin in relation to financial instruments are outlined, ways of cryptocurrency production using ІСО, mining, forging etc. are discussed. 
 Regarding the legal regulation of cryptocurrency circulation in Ukraine, it is revealed that no normative and legal document exists to specify the legal status of the notions “virtual assets”, “digital financial assets” or “cryptocurrency”. By now, the draft law has been approved, intended to regulate purchase, sale and taxation of virtual assets. The official recognition of digital financial assets and blockchain technology is expected to promote the transition of Ukraine to the digital economy. This transition is going to give rise to the emergence of a new object of accounting, e. g. digital financial assets. The authors’ vision of the normative and legal regulation of cryptocurrency accounting at micro- and macrolevel allowed to propose a new national standard of accounting “Digital financial assets”, to develop a methodological framework for reporting the data on digital financial assets and their disclosure in the financial statements of companies.

Does quantitative easing affect market liquidity?

We argue that central bank large-scale asset purchases—commonly known as quantitative easing (QE)—can reduce priced frictions to trading through a liquidity channel that operates by temporarily increasing the bargaining power of sellers in the market for the targeted securities. For evidence we analyze how the Federal Reserve’s second QE program that included purchases of Treasury inflation-protected securities (TIPS) affected a measure of liquidity premiums in TIPS yields and inflation swap rates. We find that, for the duration of the program, the liquidity premium measure averaged about 10 basis points lower than expected. This suggests that QE can improve market liquidity.

Unconventional central banking and the politics of liquidity

The 2008 financial crisis saw central banks introduce a variety of tools to shore up the financial system, including unconventional measures that made use of central bank balance sheets to directly shape markets. This paper argues that central banks increasingly rely on unconventional tools in noncrisis times to maintain confidence in an unstable financial system: in rich countries, outright asset purchase programs form the core of monetary policy, and in emerging capitalist economies, the sale and purchase of foreign exchange assets constitute the central mechanism of exchange rate policy. These interventions increasingly target ‘market dysfunction,’ as opposed to (a narrow interpretation of) monetary policy or the level of the exchange rate, suggesting a convergence in central bank operations around maintaining the plumbing of finance. Using two case studies – foreign exchange operations by the Reserve Bank of India and asset purchase programs by the U.S. Federal Reserve – the paper demonstrates a blurring of the boundaries between crisis and noncrisis interventions, and lends evidence to the concept of a de-risking state that guarantees liquidity. The paper concludes with a discussion of how a de-risking state exacerbates inequality, financial vulnerabilities and undermines meaningful action on pressing issues such as climate change.

Optimal policy in lemon markets with flexible information acquisition

I examine the impact of government interventions in lemon markets where buyers can acquire information about asset returns. In markets where the cost of information is high, direct asset purchases may cause welfare losses by crowding out private asset demand.As an alternative policy to overcome the issue, I study optimal loss insurance, recognizing that an insurance policy may also cause welfare losses, possibly because of moral hazard or taxation. I find that an optimal policy design requires careful consideration of two factors: the cost of information and the endogenous effect of asset price on asset returns. When such an endogenous effect is high, the optimal insurance can be a hump-shaped function of a default rate. When the information cost is high, the optimal insurance provides greater protection to both the best and worst states, thereby increasing an upside risk and decreasing a downside risk.

Asset Purchases and Direct Financing: Guiding Principles for Emerging Markets and Developing Economies during COVID-19 and Beyond

"Volume 2021 (2021): Issue 023 (Oct 2021): Asset Purchases and Direct Financing: Guiding Principles for Emerging Markets and Developing Economies during COVID-19 and Beyond" published on 11 Oct 2021 by International Monetary Fund.

COVID-19 and Monetary Response of Reserve Bank of India: A Critical Review

The unprecedented shocks from the COVID-19 pandemic jeopardized the global economy and created an environment of Knightian uncertainty all around. This study evaluates the impact of the monetary policy responses initiated by Reserve Bank of India (RBI) to mitigate the cascading effect of the pandemic on Indian Economy. The study uses a combination of exploratory and analytic approach for evaluating the monetary policy responses initiated since January 2020. Actions of RBI are analysed under four headings namely Policy Rate Cuts, Liquidity Provisions and Credit Supports, Asset Purchases, and Regulatory Easing. It is observed that RBI has responded on all four fronts successfully which are evident through availability of sufficient liquidity and easy credit in the market for all the stakeholders like central and state governments, large corporates, MSMEs and individuals. RBI must maintain the momentum of policy response till the return of normalcy in the economy. It should also be ensured that no adverse effect appears after withdrawal of the stimulus extended as policy response against the pandemic.

Climate actions and macro-financial stability: The role of central banks

Limiting global warming to well below 2 °C may pose threats to macroeconomic and financial stability. In an estimated Euro Area New Keynesian model with financial frictions and climate policy, we study the possible perils of a low-carbon transition and evaluate the role of monetary policy and financial regulation. We show that, even for very ambitious climate targets, transition costs are moderate along a timely and gradual mitigation pathway. Inflation volatility strongly increases for disorderly climate policy, demanding a strong monetary response by central banks. In reaction to an adverse financial shock originating in the fossil sector, a green quantitative easing policy can provide an effective stimulus to the economy, but its stabilizing properties do not significantly differ from those of market neutral asset purchase programs. A financial regulation, encouraging the decarbonization of the banks’ balance sheets via ad hoc capital requirements, can significantly reduce the severity of a financial crisis, but prolongs the recovery phase. Our results suggest that the involvement of central banks in climate actions must be carefully designed to be in compliance with their mandate and to avoid unintended trade-offs.

Morocco’s Monetary Policy Transmission in the Wake of the COVID-19 Pandemic

This paper finds that the neutral interest rate has been on a downward trajectory in Morocco since the global financial crisis and may have fallen in the wake of the pandemic. In that context, monetary policy transmission to output and prices appears relatively muted given limited exchange rate flexibility until recently. Also, monetary policy transmission to some market rates has somewhat weakened in the wake of the pandemic. A lower natural rate and low policy rates raise the question of whether further rate reductions would impair the banking system. We find that the sensitivity of cash demand to deposit rates is low, implying limited risks that banks would lose funding with further reductions. A reliance on checking and savings accounts for funding may impair monetary pass-through, however. If monetary policy reaches its effective lower bound, limited and credible recourse to an asset purchase program could usefully complement conventional measures and strengthen monetary policy transmission under an inflation-targeting regime with a flexible exchange rate.

CONSISTENCY AND COHERENCE IN ADJUDICATING THE ECB'S UNCONVENTIONAL MONETARY POLICY

AbstractFew court cases in the history of European integration have been more controversial than the decisions of the Court of Justice of the EU and the German Federal Constitutional Court on the European Central Bank's public sector asset purchase programmes. This article regards consistency and coherence in the case law as uncontroversial minimum conditions that have to be satisfied for the decisions to gain legitimacy. It assesses the case law against this benchmark and determines the limits of asset purchase programmes under a consistent and coherent application of the legal tests developed by the courts.

An unwinding of QE won't be the end of this policy tool

▪ The BoE has updated its guidance for when it will begin to reverse asset purchases. If financial markets are functioning normally at that point, and the future path of interest rates is clearly signalled, the central bank thinks the macroeconomic consequences of quantitative tightening (QT) should be small. ▪ This seems a reasonable premise. If so, decisions around QT should not greatly affect the pace at which the official interest rate rises and, relatedly, the space to cut borrowing costs in the event of a future shock. ▪ But even allowing for a muted effect from QT, and scope to take Bank Rate negative, room to support the economy with rate cuts looks like staying very limited for years to come. So QE‐to‐QT is unlikely to be a one‐way street.

Factors Associated with Land Ownership by Women in Uganda: A Cross-Sectional Study

Aims: There is growing evidence concerning the significance of asset ownership by women. However, in Sub-Saharan Africa, asset ownership is lower for women compared to men. This study investigated factors associated with land ownership by women in Uganda.
 Study Design: Cross-sectional study.
 Place and Duration of Study: The Uganda Demographic and Health Survey 2016 data was collected by the Uganda Bureau of Statistics from 20 June to 16 December 2016. 
 Methodology: The logistic regression model was fitted to determine factors significantly associated with land ownership.
 Results: The likelihood of a woman owning land increased with an increase in her age and reduced with improvement in her household's wealth index. Furthermore, the likelihood of owning land was lowest for women; aged 18-19 years, residing in the Central region, residing in urban areas, of single status, with no account in a bank or other financial institution, in the richest wealth index category, and those currently not working.
 Conclusion: There is a need to develop more effective strategies to empower women regarding land ownership and control. There is a need to sensitize women about their rights to land ownership, about saving with registered financial institutions which increases their likelihood of accessing alternative funding sources to support their purchase of land and other valuable assets.

The Involvement of Women as the Domestic Decision Maker: A Study of Patna Metropolitan City, Bihar, India

In this paper, the importance of women in decision-making at family level in Patna City (Bihar, India) has been studied in detail. The status of women in society is a significant indicator of the socio-economic development of a region. The crucial parameters regarding women, such as their freedom of movement, involvement in family matters, the decision in the purchase of home assets and family planning, etc. are chosen to ascertain the degree of women empowerment in the study area. On the basis of these variables, the womens’ decision-making index (DMPI) has been calculated to determine the socio-economic status of women in their respective families. The study is based on primary data collected from 500 women having the age between 18 to 60 years in Patna city using stratified sampling method. The present report also examines some important features and autonomous factors which usually affect womens’ decision-making ability at the family or domestic level. In the study area, it was found that the power of women in decision-making was historically limited primarily due to patriarchal ideology. The study reveals that about 45% of the women enjoyed equal status in the family with regard to taking various decisions. The educational level and employment status of women was observed to be the most important factor determining their empowerment and involvement in decision making in all spheres of domestic life.

Re‐stating power: How states make, tame, and shape markets

AbstractThis article presents the argument that states work in and through markets to actively balance competing interests and manage contradictions and disequilibrium. I focus on four processes reshaping Australia’s electricity governance in the last two decades, namely deregulation, (de)centralisation, decarbonisation, and digitalisation, and show the ubiquity of state spatial strategies to govern through markets. I establish the historical legacy of subnational state‐led development in Australian electricity, then examine how recent deregulatory processes have resulted in new modes of state power exercised through the creation and taming of markets. My claims are that subnational governments continue to exercise authoritative power under Australian federalism and that new networks of techno‐managerial market governance remain subject to hierarchical state power. The purchase of key electricity assets has become a strategy for exercising state influence in and through the market. Political and spatial economic geographies of Australian energy continue to shape the struggles over energy futures, requiring attention to place, scale, territory, and network. The socio‐spatial dimensions of state strategies reveal complex and vacillating modes of state power. State action is characterised by a lack of coordination rather than unification at different scales, and the capacity to execute state projects is complicated by discursive and agential politics.

Cross-country spillovers of national financial markets and the effectiveness of ECB policies during the euro-area crisis

Abstract We investigate spillover effects between sovereign ratings and sovereign spreads for five euro-area countries—Greece, Ireland, Italy, Portugal, and Spain—using monthly data over the period of January 2000 through June 2019. We extend previous work in two ways. First, using spatial estimation, we model and quantify the spillover effects on ratings and spreads among countries. Secondly, we assess the effectiveness of European Central Bank (ECB) policies on spreads and ratings. We find significant feedback effects among countries. Consistent with the view that forward-looking agents typically respond to credible announcements right away, our results suggest that then-ECB President Draghi’s July 2012 speech was pivotal, and was supported by the ECB’s January 2015 announcement that it would undertake asset purchases.

Dynamic Impact of Unconventional Monetary Policy on International REITs

In this paper, we estimate the dynamic impact of unconventional monetary policy in the US on international REITs. Unlike existing studies which are limited to conventional policy tools and undertake a static approach, we use an event study approach and estimate a time-varying parameter model to investigate the dynamic impact of forward guidance (FG) and large-scale asset purchases (LSAP) shocks on the international REIT returns. We also compare the effects of these unconventional tools with the effects of conventional federal funds rate (FFR) shocks. The results show that the response of international REITs to unconventional policy shocks depends on the time under consideration. FG shocks have greater time-variation in the impact on REIT returns compared to LSAP shocks, particularly with Australia, Belgium, and the US REIT markets. Furthermore, FG shocks broadly have a negative impact on REITs while the results for LSAP effects are mixed. We also find that in most countries, REITs time-varying response of FG shocks is related to changes in gold prices and financial conditions.

The growing impact of US monetary policy on emerging financial markets: Evidence from India

Much research has been devoted to studying the international spillover effects of US monetary policy. However, a lot of the focus has been on the recent unconventional monetary policies undertaken by the Federal Reserve. Combining high frequency financial market data with a time-varying parameter approach we show that US monetary policy decisions have had significant effects on the Indian stock markets well before the use of unconventional policy tools and that these effects have gotten stronger over time. In addition to the conventional channel of surprise changes in the policy rate, we find that US monetary shocks are also transmitted through an uncertainty channel, which is especially important for announcements about large scale asset purchases (quantitative easing). Using firm level stock prices, we also show that the higher sensitivity of the aggregate response is uniform across the stock market and is not driven by the increased exposure of any specific industry to US monetary policy. Instead, our results suggest that it is driven by the portfolio decisions of foreign institutional investors, the exchange rate becoming more sensitive to US monetary policy and the global financial cycle working through volatility and risk aversion.

Monetary policy shocks identified using the entire yield curve: an alternative approach

ABSTRACT Conventional monetary policy (MP) shocks are typically identified as unexpected changes in the short end of the yield curve. During the zero lower-bound period, central banks attempt to provide stimulus by operating on the long end of the yield curve with new tools, such as forward guidance and large-scale asset purchase. This implies that the identification of MP shocks should be done throughout the entire yield curve. This study proposes an alternative approach to analysing the effects of MP shocks, using factor-augmented vector autoregression (FAVAR) of monthly data. We therefore used information from large datasets and made changes over the entire yield curve as shocks to the VAR, which were identified using external high-frequency instruments. Furthermore, empirical analyses using economic and financial variables showed that contractionary yield curve changes decrease the inflation rate and increase risk aversion and uncertainty, which is consistent with conventional wisdom.

Monetary Policy for the Real Economic Sector in Muslim Majority Countries: A Transitional Solution

The paper examines the issue of monetary policy from an Islamic perspective and offers a transitional solution given the existing circumstances in the contemporary Muslim economies, dominated by financial institutions, fiat currencies, and fractional reserve banking. Qualitative research with a “complex systems” perspective is used to determine the state of monetary policy in several Muslim majority countries, to study the issues and challenges, as well as to point out the most problematic areas that need urgent addressing. The paper will argue that central banks are the main institutions that have the power and responsibility to maintain the country’s economic stability and the value of a local currency, as well as to affect the inflation and unemployment rates. It will be argued that in the current circumstances central banks can act within the given system to (1) encourage financing of small and medium enterprises; (2) initiate the growth of small local financial institutions, such as cooperative and savings banks; and (3) allow “monetary democracy.” The paper is therefore divided into three main parts. After the introduction, the first section will provide a historic overview of ideas on monetary policy by several influential Muslim economists over the last forty years and will offer a critique of their views. The second section will deal with the issues of money and banking from a “complex systems” perspective and demonstrate common misconceptions that lead to improper understanding amongst the general public and the academic community. And before concluding, the paper will offer intermediate solutions within the current financial system. This section will argue that central banks can use the power of the banking system to create money to finance SMEs while curbing speculation and limiting the purchase of financial assets.

Monetary policy strategies for the European Central Bank

We develop a behavioral DSGE model which addresses the forward guidance puzzle. We then use the estimated model to assess if unconventional monetary policy tools such as negative interest rates, forward guidance, and asset purchases can provide efficient macroeconomic stabilization in a low nominal and real interest rate environment. While these tools boost output and inflation, the rebound from deep recession can still be painfully slow. Makeup strategies, including average inflation and price level targeting, can further support recovery and reduce downside risks, though the benefits are quite modest under behavioral expectations.

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.