Recent Global Financial Crisis Research Articles

INTERMEDIATION AND SUSTAINABLE FINANCIAL SYSTEM STABILITY AMIDST THE COVID-19 PANDEMIC

This review aims to analyze the function of internalization and stabilization of the monetary-finance sector for the sustainability of financial system stability during the Covid-19 pandemic in Indonesia. The Covid-19 pandemic caused a deep recession in the national economy and a significant drop in the capital market index. Policy uncertainty over handling the pandemic and the continued emergence of various variants of Covid-19 exacerbated economic conditions. Bank Indonesia (BI) made several monetary policies to complement the policies taken by the government to maintain sustainability during the Covid-19 pandemic. Strengthening financial stability and supporting the intermediation recovery policy strengthens the monetary sector's sustainability and stabilization so that banks do not experience excessive pressure during Covid-19 and remain profitable. These perspectives were tested in the context of the Covid-19 pandemic, and the Indonesian banking and financial stability industry has shown sustainability in the last two years. On the other hand, the competition stability in the Covid-19 pandemic approach assumes that the borrower side of the relationship must be considered. Banks can charge exorbitant interest rates in collusive markets, increasing the cost of borrowing for businesses and triggering the moral hazard problem. Specifically for ASEAN and Indonesia, as a result of the recent global financial crisis in 2020, BI implemented expansionary monetary and fiscal policies in response to the crisis to stabilize its economies.

Upside/Downside spillovers between oil and Chinese stock sectors: From the global financial crisis to global pandemic

This paper examines the effects of the COVID-19 outbreak, recent oil price fall, and both global and European financial crises on dependence structure and asymmetric risk spillovers between crude oil and Chinese stock sectors. Using time-varying symmetric and asymmetric copula functions and the conditional Value at Risk measure, we provide evidence of positive tail dependence in most sectors using copula and conditional Value-at-Risk techniques. We can see the average dependence between oil and industries during the oil crisis. Moreover, we find strong evidence of bidirectional risk spillovers for all oil-sector pairs. The intensity of risk spillovers from oil to all stock sectors varies across sectors. The risk spillovers from sectors to oil are substantially larger than those from oil to sectors during COVID-19. Furthermore, the return spillover is time varying and sensitive to external shocks. The spillover strengths are higher during COVID-19 than financial and oil crises. Finally, oil do not exhibit neither hedge nor safe-haven characteristics irrespective of crisis periods.

Alternative investments during turbulent times comparison of dynamic relationship

The coronavirus pandemic, like the Russian aggression on Ukraine, had a significant impact on many financial markets and asset prices. The latter additionally led to large fluctuations on financial markets. In this paper, we try to compare the performance of safe haven assets during turbulent times, such as the recent global financial crises, eurozone debt crises, the COVID-19 pandemic and the Russian aggression on Ukraine. We investigate the dynamic relationship between indices from the European countries like the Czech Republic, France, Germany, Great Britain, Poland, Slovakia, Spain, and popular instruments such as gold, silver, Brent Crude Oil, Crude Oil WTI, US Dollar, Swiss Franc, and Bitcoin. The study estimated the parameters of either DCC or CCC models, to compare the dynamic relation between the above-mentioned stock markets and financial instruments. The results showed that in most cases, the US Dollar and Swiss Franc were able to protect investors from stock market losses during turbulent times. In those periods, gold was the closest to being a safe haven instrument for investors from France, Poland, the Czech Republic and Slovakia. Our findings are in line with other literature which points out that safe haven instruments can change over time and across countries. In that literature, we can find research performed for the USA, China, Canada, and Great Britain, but there is no such research for Poland, Italy, the Czech Republic or Slovakia. The purpose of this paper is therefore to try to fill this research gap.

Challenges and opportunities to enhance digital financial transformation in crisis management

Innovation and Technology transformed both small company-to-business and internal business relations. Reorganizing design, production, marketing, delivery, and service functions has been made feasible by distributed supply chains, independent innovation, outsourced manufacturing, contract warehousing, and delivery. There are two major global financial crises that have been seen in past decades. The financial crisis affected the actual global economy in 2008. In comparison, others came in recently during the COVID-19 pandemic problem. This study is based on Countries' Strategy to Enhance Digital Financial Transformation in Crisis Management: Challenges and Opportunities. The purpose of this research is to investigate the relationship between the adoption, exchange, and stability of electronic currencies in the economy, particularly considering recent global financial crises, as well as the effects of innovative electronic finance technologies such as blockchain technology and artificial intelligence. And big data on, on the one hand, the efficiency and comprehensiveness of the banking sector in developing market countries, and how it helps to supporting digital financial transformation, on the other.

Scientific communities, recent crisis and change in economics: a Kuhnian perspective

ABSTRACT Considering Kuhn’s emphasis on the community structure of science, this paper focuses on the scientific community to inquire whether the recent global financial crisis ushered paradigm change in economics. To appraise the nature and the extent of post-crisis change, we examine the methodological constitution of the dominant paradigm identified as New Consensus Macroeconomics, methodological commitments binding paradigm and scientific community, and assess the practice of the community, particularly the treatment of anomalies. Subsequently, an attempt is made to illuminate whether/how sociological and institutional parameters in the community structure of the discipline bear upon prospects of change. Empirically, this research investigates, categorizes and evaluates post-crisis responses and perceptions of the scientific community. The overarching aim is to determine whether economics responded to a major anomaly with critical self-reflection on the adequacy of its methodological toolbox, leading to theory change, and to shed light on institutional aspects influence this process.

On bank return and volatility spillovers: Identifying transmitters and receivers during crisis periods

This study investigates dynamic bank-return correlation and spillovers among G7 advanced markets, employing an asymmetric multivariate GARCH approach and the forecast-error variance decomposition framework of a generalized VAR model and using a time-varying parameter autoregressive model. We utilize weekly bank stock indices over a long period (2000–2020) covering the recent Global Financial Crisis (GFC) and the subsequent European Sovereign Debt Crisis (ESDC). Dynamic spillover analysis reveals evidence of contagion effects during recent episodes. It is also shown that the impact of the GFC is notably higher than that of the ESDC. Major spillover transmitters are the markets of France, Germany and the UK, with the US market being vulnerable to shocks from European markets. Useful implications arise for policy makers and investors.

Banking Risks in the Asset and Liability Management System

Banking risk management is considered weak compared to rapid changes in financial markets. In light of the recent global financial crisis, banking risk management has become a significant concern of banking regulators and government agencies. This work aims to build a model for assessing banking risks. The primary study method is economic–mathematical modeling based on the standardized model of the Basel Committee for Operational Risk Management, the modified CAPM model, and the model developed by Shapiro and Cornell for currency risk management. The information base was the financial statements of Bank Credit Agricole (Poland). As a result, an economic–mathematical model is built, which is the optimal combination of operational, currency, and credit risk management models. This model calculates the optimal values of bank balance sheet items, which allows for making the right management decisions. It allowed adjusting the value of the bank profit by 3.6 million US dollars. In conclusion, considering the results of banking risk modeling, the need to build a strategy for the bank’s development is determined.

Time-varying herding spillover for emerging countries: evidence from BRIC countries and Turkey

PurposeThis study aims to investigate herding spillover in BRIC (Brazil, Russia, India and China) countries and Turkey under different regimes by using a time-varying approach.Design/methodology/approachThe authors used the structural change model of Bai and Perron (1998).FindingsThe results indicate that there is an evidence of herding behaviour in the Chinese stock market in two different regimes. These regimes cover the recent global financial crisis and the period of Hong Kong protests. We also report the evidence of herding behaviour in the Turkish stock market in the regime covering the COVID-19 period. Findings of herding spillover show that there is a two-way herding among Russia and China during crises and high volatile regimes. Similarly, there exists a cross-country herding among Brazil and India during crisis regimes. Also, there is herding spillover from Turkey to Russia, China and Brazil during the global financial crisis, post-European debt crisis and COVID-19 periods respectively. Furthermore, it is also evident that there is a herding spillover from Russia and China to India during the period covering COVID-19.Originality/valueTo the best of the authors' knowledge, this is the first study that uses structural change approach to identify herding behaviour spillovers from the US stock market to BRIC countries and Turkey and to investigate the cross-country herding behaviour among BRIC countries and Turkey.

Energy reform and energy consumption convergence in Mexico: A spatial approach

• β-convergence in energy consumption per capita across Mexican states is studied. • Financial crisis and energy reform pre—and post—periods are examined. • Aftermath periods of both the crisis and reform vanish the convergence patterns. • Both absolute and conditional β-convergence in per capita energy consumption exist. • OLS and spatially dynamic models are used to control for spatial correlation. • Higher catch-up faced by least developed economies is found through spatial models. • There is evidence in favor of a curve of efficient energy development (CEED). This paper examines the convergence of energy consumption per capita (ECPC) in the 32 Mexican states from 2002 to 2017. Regardless of the recent Global Financial Crisis and Mexican Energy Reform, we first find evidence of a positive, increasing, and statistically significant spatial correlation of ECPC across states. Using cross-section and spatial dynamic econometric models, we document absolute and conditional β -convergence in ECPC during the pre-crisis, pre-Energy Reform, post-Energy Reform, and the whole study period. We report stable and larger convergence rates in spatial dynamic models, close to 20%, versus 3% without spatial effects. These figures suggest between-states relationships are crucial in Mexico. We also find an inverted U-shape relationship between ECPC and GDP per capita.

The effect of financial inclusion on bank stability: Evidence from ASEAN

After the recent global financial crisis of 2008, the attention of researchers and politicians has focused on both financial inclusion and bank stability. However, we still know little of how the former impacts the stability of financial services providers. This paper focuses on financial inclusion and its influence on bank stability. By using a sample of 102 banks in six countries of ASEAN over the period 2008–19, we achieve the result that the index of financial inclusion has a positive relationship with Zscore and a negative effect on the standard deviation of deposit growth rates and nonperforming loan ratio, which also means that higher level of financial inclusion contributes to greater bank stability. Or, to make it clearer, in an inclusive financial sector, those banks can increase more stable customer deposits and safe loans by providing banking services. The indices calculated for each dimension of financial inclusion, including accessibility, availability, and usage of the formal bank system, also have the same results. Our findings have important policy implications that ASEAN policymakers do not have to face a tradeoff between focusing on reforms to promote financial inclusion and focusing on further improvements in bank stability.

Corporate Governance Practices and Non-performing Loans in Banking Sector of Bangladesh: A comparative Study

Purpose: This study attempts to identify & significantly examine how corporate governance practices interact with non-performing loans in the banking sector of Bangladesh. Corporate governance (CG) is one of the significant factors that has gained considerable attention due to several rising scams in the banking sector. Recent global financial crisis as well as collapse of few local and global splendens entities like Bismillah Group, Hallmark, MCI Inc., and WorldCom etc. have strongly affected the banking sector globally that forced to rethink the overall banking structure. Methodology: The present study was descriptive in nature for which convenient sampling method was used to select the sample banks. Required data were collected from diversified data sources and tested with Microsoft Office (MS Excel). Findings: The study found that different persons and sectors like debased and dishonest bank officials of BB, top management and powerful political figures commonly affect the lending decisions. CG practices ought to be fortified as well as careful and tactful lending decisions must be ensured to stop credits turn bad. Practical Implications: Sometime, banks don't adhere to the principles and guidelines formulated by BB appropriately which are the constraints to operate business soundly. Each of the identified factors here ought to be analyzed cautiously so as to improve CG practices among the banks for fortifying the banking sector. Originality: Researchers tried to track down the relationship between CG practices and their effect on NPLs in BD perspective considering the financial data of respective entities. The present paper simply added some new nfluencing factors to the several prior works in this field which made it unique. Research Limitations: Researchers considered a limited part of the entire banking sector (only 12 of 61banks) which has shown a partial status of this sector. It would be possible to take private, specialized, Islamic and state-owned banks‘ data and make a comparison to show the desired real picture of CG practices and non-performing loans of the whole banking sector.

Spillover effects of policy uncertainty on the foreign exchange rate: Evidence from selected developed and developing countries

Following the Great Depression of the 1930s, a number of prominent economists believe that the global financial crisis that erupted in 2008 from the American financial market played a significant role in changing the path of global economic progress and intensifying various uncertainties in various market-related activities and processes. Therefore, our research has attempted to quantify how the U.S.‘s economic and monetary policy uncertainty affects the dollar's exchange with its 12 major trading partners, both from developed and developing countries. As part of our analysis, we also factored out the potential impact of the recent global financial crisis—2008. We applied the MM-QR panel conditional quantile regression of Machado and Silva (2019) to the monetary model for exchange rate determination with data from 2000:M1 to 2017:M2. Even though the global financial crisis is under control, the estimated results of the MM-QR panel conditional quantile regression have revealed that the developed countries' economic policy uncertainty, not the U.S.'s economic policy uncertainty, has caused their currencies to depreciate against the U.S. dollar. But the uncertainty of U.S. economic policy has had an asymmetric effect on the exchange rates of developing countries against the U.S. dollar before and after the global financial crisis. Moreover, the U.S.‘s monetary policy uncertainty has depreciated both developed and developing countries' currencies against the U.S. dollar, both with and without control of the global financial crisis. The global financial crisis has also depreciated developing countries' currencies while it has appreciated developed countries' currencies against the U.S. dollar. As a result, this study concludes that whether in developed or developing countries, economic and monetary policy uncertainty has a significant impact on the nominal exchange rate.

Domestic and Foreign Banks' Stability in Indonesia: the Grey Zone Trap and Key Determinants

The recent global financial crisis in 2008 has comprehensively predisposed the stability of most banking sectors worldwide, but not in Indonesia. As reported by IMF, the Indonesian banking industry showed such a remarkable stability level, facing negative shocks. However, an important question persists: whether Indonesian domestic banking sectors are truly stable or the foreign-owned banks are the ones that give a more significant share of stability contribution. Hence, this paper investigates the stability level using the Z-score modification model and assesses the main constituents that impart the stability levels of foreign and domestic banks by applying VECM of micro-prudential and macroeconomics indicators. The research is based on the aggregate data of Indonesian foreign and domestic banks from the year 2005 to 2015. The result then shows that the grey zone bridled the domestic banking sector in Indonesia, a high alert partial safe zone, due to its incommensurate loan control, inefficiency in generating profitability and liquidity from assets, and lack of capital buffers presence. Nevertheless, the findings also reveal that neither domestic nor foreign banks in Indonesia were completely safe against credit risk.

Loans to Different Groups and Economic Activity at Times of Crisis and Growth*

AbstractWe study the contribution of loans, granted to different borrower groups, to economic activity in the United States over the period 1971q1–2018q4. In general, loans to households emerge as the most important driver of economic activity when compared to other borrower groups. Meanwhile, for loans in terms of scope, consumer credit has a prime role. Deep economic recessions occurred during the period considered, we focus on the recent global financial crisis (GFC) to reveal the role of the credit crunch. The analysis confirms that loans had a large negative effect during the GFC when compared to other concurrent shocks. Furthermore, a comparison with other periods in post‐war US history points to the specific role that loans played in this last crisis. The results are delivered through a historical decomposition analysis based on the estimation of a large VAR through Bayesian techniques.

INVESTOR SENTIMENT CONNECTEDNESS: EVIDENCE FROM LINEAR AND NONLINEAR CAUSALITY APPROACHES

This paper provides a novel perspective in determining the Granger causality of sentiment across the US, Latin America, Eurozone, Japan and Asia (excluding Japan), based on monthly data covering the period of January 2003–November 2017. Using a survey-based sentiment index of “sentix”, our results suggest strong evidence of nonlinearity and structural breaks making the use of linear causality models unreliable. Using a kernel-based multivariate nonlinear causality test, we find that causality runs from Eurozone to the US, Asia and Japan, with Japan also causing the Eurozone sentiment, and Latin America causing the Japanese sentiment. Interestingly, when we apply rolling estimations to detect time-varying causality for the cases of Eurozone and the US, Eurozone and Asia, Eurozone and Japan and Latin America and Japan, the results suggest evidence of bidirectional spillovers during certain months of the recent global financial crisis, and thereafter. Overall, our findings indicate that the sentiments of Japan, Asia and the US are related quite strongly with that of the Eurozone, as well as the sentiments of Japan and Latin America.

Banking stability, institutional quality, market concentration, competition and political conflict in MENA

This paper uses panel data analysis via GMM estimation to investigate a number of contemporary issues regarding whether MENA banks’ stability and profitability are affected by market power and market concentration. Additionally, it investigates political issues that took place in late 2010 and 2011, as well as whether the quality of institutional environment contributed to shaping the financial performance of MENA banks and their stability.A large sample of banks was selected for a period (1999-2016) that includes the recent Global Financial Crisis period and Arab conflict. Findings confirm that the quality of institutional variables plays a major role in explaining bank performance and stability. Furthermore, banks operating in more concentred markets are able to exercise their market power to obtain higher returns, confirming that less competition and higher concentration would lead to deterioration in banking stability. However, results show that banking stability and profitability would be safeguarded if those banks with higher market power operate in better environment with high regulatory quality, emphasising that regulatory quality should be carefully considered to ensure the stability of financial systems and the national economy as whole.

Financial Frictions and Macroeconomy During Financial Crises: A Bayesian DSGE Assessment

The recent global financial crisis and the Eurozone sovereign default have rekindled the debate on the interactions between the real sector and the financial sphere. The present paper provides an assessment of the role of financial frictions on business cycles in Canada, the Euro Area, the U.K., and the U.S. during these recent financial crises using an extension of the DSGE methodology described by Merola (2015). The main goal is to examine whether and the extent to which those crises enhanced the contribution of financial frictions in driving macroeconomic fluctuations. The models’ properties are examined with posteriors distributions, variance decomposition, and historical decomposition. Posteriors distributions show that the role of real shocks in driving macroeconomic fluctuations decrease with the incorporation of financial frictions in the core DSGE model. Variance decomposition shows that financial frictions and financial shocks affect the business cycle through investment. The empirical estimates also suggest that the contribution of financial frictions and financial shocks in driving investment increases during the global financial crisis.

Direct real estate, securitized real estate, and equity market dynamic connectedness

ABSTRACT The paper’s objective is to scrutinize the dynamics of connectedness across returns of three markets, including direct real estate, securitized real estate, and stock markets. Through the connectedness index approach, the results indicate a significant degree of connectedness, which increases sharply during the recent global financial crisis. The net directional connectedness is volatile and time-dependent, yet the dominant shock transmitting role of the securitized real estate is pronounced during the GFC. While the direct real estate market plays as a dominant shock information receiver from the markets of securitized real estate and stocks in Australia, Canada, France, and the UK, it appears to shape other markets in the context of the US. Given the fact that the securitized real state is considered as the hybrid of the conventional real estate market and the stock market, we further note that the securitized real estate is more linked with its underlying market. Several implications for investors and policymakers are discussed.

Analyzing the Role of Money Balances as a factor of Output in Context of Globalization: A Case Study of Bahrain

The nexus between money and output is regaining attention from researchers after recent global financial crisis. Likewise, globalization-output nexus also grabs the attention of researchers. Henceforth, the study is design to analyze the effect of real money balances and globalization on output by incorporating real money balances and globalization in Cobb-Douglas production function. Time series data has been analyzed and all variables of the study are tested for order of integration through unit root test. So, it is found that that all variables are integrated of first order so one cannot apply ordinary least squares. This is the reason that Johansen cointegration technique and the cointegration regression, fully modified least squares, are applied for long run relationship and long run estimates respectively. The cointegration technique confirmed long run relationship among variables thus; it is concluded that real money balances and globalization are important determinants of output in the Kingdom of Bahrain. Furthermore, results of the study show that real money balances and globalization are found to have positive and significant effect on output along with labor and capital. Thus, this study concludes that real money balances and globalization are important factors of output in the Kingdom of Bahrain and monetary authorities should consider real money balances and globalization in policy making for sustainable economic growth.

A closed-form exact solution for pricing fixed-income variance swaps with affine-jump model

Fixed-income variance swaps became popular for investors to trade and hedge the fluctuation of interest rates after the recent global financial crisis over the past few decades, however, their valuations and risk management have not been studied sufficiently. This paper presents an analytic approach for pricing some discretely sampled fixed-income variance swaps under an affine-jump model with stochastic mean, stochastic volatility, and jumps. We employ a generalized characteristic function to derive the closed-form pricing formulas of these swaps, including two kinds of zero-coupon bond variance swap, Libor variance swap, and bond yield variance swap, to be precise. We also perform some numerical studies based on these models, which suggest that the fair strike values of these variance swaps are within a reasonable range regardless of estimation risk with data dependence and near-zero short rate regime. Our numerics show that the influences of varying sampling frequency and time-to-maturity on the values of these swaps are significant, and highlight the risks of specifying short rate model. Furthermore, the sensitivity analysis on the key parameters finds that the risks of stochastic volatility and jumps play prominent roles in pricing these variance swaps under the near-zero short rate regime.