Tightening Of Financial Conditions Research Articles

Financial conditions, macroeconomic uncertainty, and macroeconomic tail risks

This paper investigates how financial conditions and macroeconomic uncertainty jointly affect macroeconomic tail risks. We first document that tight financial conditions decrease all conditional quantiles of future output growth in the near term, while high macroeconomic uncertainty only stretches the interquartile range. Because financial conditions and uncertainty comove substantially, the conditional means and variances shift simultaneously in the opposite direction. Consequently, the downside risk varies much more than the upside risk. A quantile impulse response analysis indicates that both financial and uncertainty shocks are responsible for the asymmetric behaviors in the downside and upside risks.

Do Recessions and Bear Markets Occur Concurrently across Countries? A Multinomial Logistic Approach

Abstract We introduce a novel multinomial logistic model for detecting and forecasting concurrent recessions and bear markets across multiple countries. Our framework leverages cross-country panel features and provides additional information for robust analysis. Through a comprehensive simulation study, we demonstrate the computational efficiency and accuracy of our model, even when handling multiple binary indicators. Applying our framework to empirical data from the United States, the UK, and Euro Area, we find that the multinomial logistic model produces superior medium-term forecasting of concurrent recession and bear market events across countries compared to multiple independent single logistic models. Additionally, our counterfactual analysis reveals that specific events, such as a recession and bear market in the United States, along with the tightening of financial conditions and a negative interest rate spread in the United States, increase the probability of concurrent and individual recession and bear market occurrences in the UK and Euro Area.

Inflation at risk in advanced and emerging market economies

Using quantile regression techniques, we study the drivers of inflation risks in a large panel of advanced and emerging market economies (EMEs). We document several facts regarding the inflation forecast distribution and highlight some key differences between these two groups of countries. First, the exchange rate has a quantitatively important and non-linear impact on the inflation outlook in EMEs: a depreciation is associated with larger increases in the upper quantiles than in the lower quantiles, increasing the right skewness of the distribution. By contrast, there is no evidence of such non-linearities for advanced economies. Second, tighter financial conditions in EMEs carry both downside and upside risks to inflation, while having a muted impact on the modal or mean outcome. This is in contrast to advanced economies, where only downside risks prove sensitive. Third, the zero lower bound on policy rates translates into substantial downside risks to inflation. Finally, the adoption of inflation targeting is associated not only with lower mean inflation but also with a less right-skewed distribution. Our findings underscore the importance of including non-linearities in structural models of inflation dynamics.

The international spillovers of synchronous monetary tightening

We use historical data and a calibrated model of the world economy to study how a synchronous monetary tightening can amplify cross-border transmission of monetary policy. The empirical analysis shows that historical episodes of synchronous tightening are associated with tighter financial conditions and larger effects on economic activity than asynchronous ones. In the model, a sufficiently large synchronous tightening can disrupt intermediation of credit by global financial intermediaries causing large output losses and an increase in sacrifice ratios, that is, output lost for a given reduction in inflation. We use this framework to show that there are gains from coordination of international monetary policy.

The International Spillovers of Synchronous Monetary Tightening

We use historical data and a calibrated model of the world economy to study how a synchronous monetary tightening can amplify cross-border transmission of monetary policy. The empirical analysis shows that historical episodes of synchronous tightening are associated with tighter financial conditions and larger effects on economic activity than asynchronous ones. In the model, a sufficiently large synchronous tightening can disrupt intermediation of credit by global financial intermediaries causing large output losses and an increase in sacrifice ratios, that is, output lost for a given reduction in inflation. We use this framework to show that there are gains from coordination of international monetary policy.

Contradictions of economic policy in the context of new risks and challenges in the development of the world economy

The relevance of the problems considered in the article is associated with the growth of uncertainty and increased turbulence in the development of the world economy in recent years, as well as with the ambiguous impact of this instability on the economies of individual countries. These new trends have actualized the problems of economic policy, the analysis of which is the purpose of our study. These problems are connected both with the restoration of the previous growth rates and the choice of optimal instruments of fiscal and monetary policy, as well as counteracting the volatility of world prices and the instability inherent in commodity markets. One of the objectives of the study is to assess the approaches of individual countries in terms of their response to the crisis phenomena of recent years, to determine the main directions for counteracting the growth in the debt burden of countries, tools to curb inflation in the context of unprecedentedly tight financial conditions, as well as mechanisms for macroprudential regulation. As one of the results of the study, the author proves the growing differentiation of economic policies in the context of individual countries, limiting the sustainable recovery of the world economy, which is exacerbated by the ongoing instability of international trade and disruptions in global value chains. In addition, the author concluded that volatile world energy and food prices make traditional economic policies more uncertain and force countries to use alternative economic regulation tools, in particular, those related to changing the practice of applying policy rates to curb inflation, new approaches to the implementation of the tasks of the climate agenda and labor market policy.

HOME ECONOMICS: PAST, PRESENT AND FUTURE IN POST COVID PANDEMIC

The theme for this year’s conference: Home Economics: Past, Present and Future in Post-Covid Pandemic is therefore considered very apt and significant in addressing the multidisciplinary concerns that will bring about innovative ideas, knowledge and skills geared towards improving the quality of life of individuals, families, communities and society at large.The 11th March 2020 is a date that is significant as the earth experienced a global remarkable change to a new normal which affected the entire human race, professional practices and activities of men and women in unimaginable ways across the nations of the world. The World Health Organization [WHO] (2020a) officially declared the viral infection emanating from a novel corona virus on the 11th of march, 2020 which was previously named COVID-19, a global pandemic (Worldometer, 2021). The COVID-19 pandemic triggered a global economic recession which has resulted in a dramatic loss of livelihoods and income on a global scale (World Bank, 2020a).The spread of COVID-19 already had a high human cost, and with public health systems struggling to cope, these costs will continue to grow. This has led to significant trade disruptions, drops in commodity prices, and the tightening of financial conditions in many countries. These effects have already led to large increases in unemployment and underemployment rates and will continue to threaten the survival of many firms worldwide (Loayza and Pennings, 2020). Furthermore, the International Labour Organization (ILO) stated that more than the equivalent of 400 million full-time jobs was lost in the second quarter of 2020 with a number of countries enforcing lockdown measures (ILO, 2020a). In Nigeria, a similar or higher scenario of its effects was recorded.This is also having complex consequences for professionals in the field of Home Economics. In order to address the main focus of this topic, emphasis will be laid in the following areas.• Brief Historical perspective of Home Economics practice• Home Economics and its components• Challenges of Learning Situations in the past and Present.• The future of Home Economics in post covid-19 Era.• Innovations in Home Economics classrooms (Digital Learning Platforms).• Problems of Online learning• Optimal Productivity & Sustainability in Teaching & Learning Home Economics Education

Practical challenges of fiscal/monetary response to COVID-19 situation in the USA

The article’s main objective was to analyze sentiment, financial markets, and Consumer Price Index (CPI) emotional impact. It narrates and summarizes the changes that have occurred since the onset of the financial crisis and financial recession in 2003. Data document review is the main method used to collect data for the article. The article borrows concepts and theories from the cited sources. As per the article, it is hard for the government to target specific parts of the economy. The mainstream economic limits in the covid-19 era disproved several theoretical pillars of the mainstream economy. According to studies, conventional economic theory holds that people are constantly eager to adapt their requirements and satisfactions to better their balance sheets for increased utility. The demand and supply rules serve as the foundation for modern economics models. It demonstrates how the market continually seeks equilibrium. One of the key tenets of orthodox economics is that since economists are practical by nature, it follows that everyone wants their unique needs to be satisfied. People occasionally judge and make decisions, which is the limitation of contemporary mainstream economics in addressing real-world issues. The key dangers are that these markets could cause the real economy to suffer from risk re-pricing, decreased confidence, falling asset values, and tighter financial conditions. Mainstream economics influences most people’s lives aspects. Its majority dealings are at the house level and are deeply flawed in terms of their real-life impact. Individuals commonly follow market trends and predictions, and any shift will undoubtedly impact the individual.

Finland

The economy recovered swiftly from the pandemic, but Russia’s war in Ukraine has worsened the outlook given Finland’s exposures to the fallout through trade and increase in energy prices, while high inflation and rising interest rates are weighing on household purchasing power. Long-standing structural challenges—from adverse demographics and low productivity growth—remain. Tighter financial conditions will test the resilience of Finland’s large financial system: banks are well-capitalized, but vulnerable to liquidity shocks and exposed to credit risks from other Nordics and high household debt.

Consumer loan rate dispersion and the role of competition: Evidence from Turkish banking industry

This paper investigates the degree of dispersion in the loan pricing of commercial banks and its association with competitive conditions in the banking industry of a large emerging economy. To quantify the lending rate variability in consumer loans, we utilize a new indexation mechanism exploiting a detailed bank-level dataset for the period January 2007–April 2020. With panel convergence methods, we show the existence of heterogeneity in long-term co-movements among banks' loan pricing, while periods following the tightening in financial conditions display short-term deviations from general tendencies as demonstrated by dispersion indices. Our empirical design also entails the construction of competition indicators for aggregated and consumer segment-based credit market developments. Quantile regression results validate that the improvements in industry competition are related to the lower level of lending rate dispersion in housing and vehicle segments in a statistically significant manner, whereas an opposite relationship is evident for general-purpose loans.

Handle with Care: Regulatory Easing in Times of COVID-19

AbstractThe policy response to the COVID-19 shock included regulatory easing across many jurisdictions to facilitate the flow of credit to the economy and mitigate a further amplification of the shock through tighter financial conditions. Using an intraday event study, this paper examines how stock prices – a key driver of financial conditions – reacted to regulatory easing announcements in a sample of 18 advanced economies and 8 emerging markets. It finds that regulatory easing announcements contributed to looser financial conditions but effects varied across sectors and tools. News about regulatory easing led to lower valuations for financial sector stocks, mainly in jurisdictions with relatively lower capital buffers. These results stand in stark contrast with valuations of non-financial sector stocks, which increased in response to regulatory relief announcements, particularly in industries that are more dependent on bank financing. The effects also differed across tools. Valuations declined and financial conditions tightened following announcements related to easier bank capital regulation while equity valuation rose and financial conditions loosened after those about liquidity regulation.

Can Financial Soundness Indicators Help Predict Financial Sector Distress?

This paper shows how the role of Financial Soundness Indicators (FSIs) in financial surveillance can be usefully enhanced. Drawing from different statistical techniques, the paper illustrates that FSIs generate signals that can accurately detect, with 4 to 12 quarters lead, emerging financial distress—as measured by tight financial conditions.

Are Rising U.S. Interest Rates Destabilizing for Emerging Market Economies?

Rising U.S. interest rates are often thought to be bad news for emerging market economies (EMEs) as they increase debt burdens, trigger capital outflows, and generally cause a tightening of financial conditions that can lead to financial crises. Indeed, as shown in Figure 1 below, the rise in the federal funds rate (the black line) during the Volcker disinflation of the early 1980s was associated with a sharp rise in the incidence of financial crises in EMEs (the green bars).

Handle with Care

The policy response to the COVID-19 shock included regulatory easing across many jurisdictions to facilitate the flow of credit to the economy and mitigate a further ampli-fication of the shock through tighter financial conditions. Using an intraday event study,this paper examines how stock prices—a key driver in financial conditions—reacted to regulatory easing announcements in a sample of 18 advanced economies and 8 emerging markets. The paper finds that overall, regulatory easing announcements contributed to looser financial conditions, but effects varied across sectors and tools. Financial regulatory easing led to lower valuations for financial sector stocks, and higher valuations for non-financial sector stocks, particularly for industries that are more dependent on bank financing. Furthermore, valuations declined and financial conditions tightened following announcements related to easier bank capital regulation while equity valuation rose and financial conditions loosened after those about liquidity regulation. Effects from non-regulatory financial measures appear to be generally more muted.

Forecasting macroeconomic risks

We construct risks around consensus forecasts of real GDP growth, unemployment, and inflation. We find that risks are time-varying, asymmetric, and partly predictable. Tight financial conditions forecast downside growth risk, upside unemployment risk, and increased uncertainty around the inflation forecast. Growth vulnerability arises as the conditional mean and conditional variance of GDP growth are negatively correlated: downside risks are driven by lower mean and higher variance when financial conditions tighten. Similarly, employment vulnerability arises as the conditional mean and conditional variance of unemployment are positively correlated, with tighter financial conditions corresponding to higher forecasted unemployment and higher variance around the consensus forecast.

Handle with Care: Regulatory Easing in Times of COVID-19

The policy response to the COVID-19 shock included regulatory easing across many jurisdictions to facilitate the flow of credit to the economy and mitigate a further ampli-fication of the shock through tighter financial conditions. Using an intraday event study,this paper examines how stock prices—a key driver in financial conditions—reacted to regulatory easing announcements in a sample of 18 advanced economies and 8 emerging markets. The paper finds that overall, regulatory easing announcements contributed to looser financial conditions, but effects varied across sectors and tools. Financial regulatory easing led to lower valuations for financial sector stocks, and higher valuations for non-financial sector stocks, particularly for industries that are more dependent on bank financing. Furthermore, valuations declined and financial conditions tightened following announcements related to easier bank capital regulation while equity valuation rose and financial conditions loosened after those about liquidity regulation. Effects from non-regulatory financial measures appear to be generally more muted.

ЕКСПОРТНА ДІЯЛЬНІСТЬ В УМОВАХ ПАНДЕМІЇ

The article highlights the relevance of the study of export activities of domestic enterprises in a crisis; the dynamics of export-import operations during the pandemic is studied; the export-oriented industries with the most devastating effects of the COVID-19 pandemic have been identified; the contribution of the enterprises of the mining and metallurgical complex, light, chemical branches to the volumes of commodity exports of Ukraine is considered; the impact of the crisis on the volume and structure of exports of transport services is determined, the issues are updated and the prospects for overcoming the consequences of the crisis by exporters are outlined. The coronavirus pandemic has reached almost every country in the world. Its spread has left national economies and businesses counting the costs, as governments struggle with new lockdown measures to tackle the spread of the virus. The crisis highlights the need for urgent action to cushion the pandemic’s health and economic consequences, protect vulnerable populations, and set the stage for a lasting recovery [8]. Emerging market and developing economies will be buffeted by economic headwinds from multiple quarters: pressure on weak health care systems, loss of trade and tourism, dwindling remittances, subdued capital flows, and tight financial conditions amid mounting debt. Exporters will be particularly hard hit. The article highlights the changes in the state of export activity caused by the pandemic. According to Moody’s Analytics [12] , the coronavirus pandemic could become the "black swan" of 2020, which will have a more significant impact on the world economy than the financial crisis of 2008-2009. Export is one of the most important side of the development of any country. The relevance of the chosen topic is related to the export orientation of domestic producers. Ukrainian export accounts over 30% of Ukraine’s GDP. Export is one of the most important sources of filling the state budget, as well as inflow of foreign currency. However, with the beginning of the active phase of the COVID-19 pandemic on March 25, we may see a sharp decline of export of certain commodity items and into some countries. It is stated that the GDP pf Ukraine can decline in 4-8% in comparison with 2019. The indicators of the decline of export in main industries were identified and analyzed in the article, and ways to solve this problem have been provided [2]. At this point, none of the top-15 trade partner of Ukraine in export has not changed its trade policy, although export to some counties has been reduced considerably. Restrictions, imposed as a part of fight against the pandemic, create additional difficulties for producers. Regulations in the agricultural sector are sophisticated and they lead to the additional losses in business. Uninterruptible performance of the cargo transportation is essential for proper job of the agricultural sector and the manufacturing. As a result of the pandemic supply chains are ruining, the access of the producers to the markets is going to be lost, and the demand for goods is decreasing.

Consumer Loan Rate Dispersion and the Role of Competition: Evidence from the Turkish Banking Sector

This paper aims to examine the degree of dispersion in the loan pricing of commercial banks and its association with competitive conditions. To this end, an indexation mechanism processing a novel bank-level dataset is proposed to quantify the lending rate variability in general-purpose, vehicle, and housing loans for the period January 2007-April 2020. In panel convergence tests, we show that there exists heterogeneity in long-term co-movements in banks’ loan pricing, while periods following the tightening in financial conditions display short-term deviations from general tendencies demonstrated by dispersion indices. The methodological setting also entails the construction of competition indicators for total and segment-based credit market developments. The competitive conditions monitored by Herfindahl-Hirschman Indicator (HHI) present that housing and vehicle loan segments have been concentrated in recent years. Quantile regression results further validate that improvements in the competition are associated with a lower level of lending rate dispersion in housing and vehicle segments in a statistically significant manner, whereas this relation is not applicable for general-purpose loans.

Financial Conditions and Economic Activity: Insights from Machine Learning

Machine learning (ML) techniques are used to construct a financial conditions index (FCI). The components of the ML‐FCI are selected based on their ability to predict the unemployment rate one‐year ahead. Three lessons for macroeconomics and variable selection/dimension reduction with large datasets emerge. First, variable transformations can drive results, emphasizing the need for transparency in selection of transformations and robustness to a range of reasonable choices. Second, there is strong evidence of nonlinearity in the relationship between financial variables and economic activity—tight financial conditions are associated with sharp deteriorations in economic activity and accommodative conditions are associated with only modest improvements in activity. Finally, the ML‐FCI places sizable weight on equity prices and term spreads, in contrast to other measures. These lessons yield an ML‐FCI showing tightening in financial conditions before the early 1990s and early 2000s recessions, in contrast to the National Financial Conditions Index (NFCI).

Markup dynamics and financial frictions: The Spanish case

In this paper, we estimate price markups on a panel of Spanish manufacturing firms for the period 2000–2012 ​at a 3-digit sectoral level. Our results reveal that there is no evidence of large market power in the industries considered; however, in around 60% of these industries average markups either increased or remained stable over the crisis (2008–2012), despite the sharp fall in economic activity. We examine whether this result is related to the extremely tight financial conditions faced by Spanish corporations during the crisis. In this setting, firms may try to boost current profits by increasing markups –and possibly foregoing market share– to cover their financial commitments and fund their operations. We find a positive association between our measure of financial pressure and the estimated change in average markups between 2000-2007 and 2008–2012. This result suggests that those manufacturing industries more exposed to financial shocks by the end of the expansionary period tended to experience a larger increase in markups over the crisis.