Volatile Macroeconomic Environment Research Articles

Optimising Portfolio Risk by Involving Crypto Assets in a Volatile Macroeconomic Environment

Optimising Portfolio Risk by Involving Crypto Assets in a Volatile Macroeconomic Environment

Evolution in the Consumer ABS Market (Past, Present, and Future)

The consumer ABS market provides a large and growing source of funding to the US economy. Historically the market consisted primarily of auto loans, credit card receivables, and student loans. Over the past decade, esoteric ABS issuance has proliferated, as more markets are able to securitize cash flows to unlock a lower cost of funding relative to comparable corporate alternatives. Sectors that did not exist 10 years ago have grown to be large and liquid market sectors, including marketplace lending, solar, PACE, and consumer handset receivables. This trend has been aided by a pullback in bank lending, driven by post-Great Financial Crisis (“GFC”) regulation and capital regime changes. The Fed’s imposition of higher interest rates throughout 2022 and into 2023 is designed to slow the economy and reduce inflation but is also likely to put pressure on consumer performance in the coming months. While consumer balance sheets remain relatively healthy, excess savings accumulated during the pandemic have been eroding, and delinquency rates are expected to rise. While performance is expected to deteriorate, consumer ABS structures have gotten safer since the GFC—including via more credit enhancement and better-quality collateral—and some of the longer-standing structures have shown their ability to withstand a variety of macroeconomic environments without taking a loss. Despite the more robust structures, performance of newer esoteric asset classes will be watched closely as we enter a more volatile macroeconomic environment. The ABS market will continue to evolve in the coming years, as large structural change has tended to correspond to material changes in macroeconomic conditions. Regardless of the changes, we expect the market to remain an integral source of funding for the US consumer.

Relocation trends determined by increasing risks in Eastern Europe: An ANP-TOPSIS approach

BACKGROUND: The COVID-19 pandemic has changed companies’ perspective on relocation and brought uncertainty into people’s lives. Uncertainty, a decisive factor in today’s global environment, requires new research about human resources and companies. The COVID-19 pandemic has caused an unexpected need for change within organizations, especially in terms of human resources management, creating a complex and challenging environment that interferes with business continuity, forcing employees to cope with this challenging situation. OBJECTIVE: The article aims identifying the changes generated by the COVID 19 pandemic in the relocation of businesses from the European Union, assessing the relocation trends of companies around the world in European countries in this volatile macroeconomic environment. The sustainability of companies, the way they can overcome the crises generated by the pandemic depend mainly on economic, social, financial, political factors and human resource involved in the relocation process. Studying the influence of the pandemic on relocation decision contributes to better management of crises in the future and to reducing risks. METHODS: The study proposes an integrated ANP-TOPSIS (Analytic Network Process- Technique for Order of Preference by Similarity to Ideal Solution) for ordering preference according to the ideal solution framework. Priority should be given to solutions that consider the interactions between factors involved in decision-making. The proposed model will increase the efficiency of the transfer decision-making process and help managers choose solutions effectively based on their importance and impact on the company and the human resources involved. RESULTS: The synthesis of the indicators and methods used, in addition to the factors that affect relocation, complements the specialized literature. The results showed a shift in business relocation options from east to west, demonstrating the current trend in the relocation issue associated with the COVID-19 virus. Eastern European countries are no longer as attractive for companies relocating compared to the pre-pandemic period. The countries with more stable economies, characterized by lower risks, seem to become more attractive to companies that relocate their facilities. CONCLUSIONS: The strategic positioning of the firm, its growth or adaptation to the present environment, and its geographic focus are fundamental components of a company’s migration. The selection of an ideal site is a research problem; not only to find a place where firms will have access to qualified human resources, to lower their costs, to be close to raw materials or the market, but also to prevent associated relocation hazards. According to research, today’s reality necessitates a risk-focused strategy.

The application of financing and dividend decision techniques in practice among Ghanaian chief financial officers (CFOs)

We use a survey approach to investigate how managers in a frontier market apply financing and dividend decision techniques in practice. 15 firm characteristics were grouped into paired subgroups for a two-sample t-test analysis that generated statistical differences, economic significance levels and ranking for each technique investigated. The Ghanaian listed firm’s sample choice was due to the country’s persistent volatile macroeconomic environment. In managing the capital structure, managers consider most relevant issuing of stock to give investors a better impression of their firms’ prospects (signalling). In choosing between short and long-term debt techniques, the most applied technique is matching the firm’s debt maturity with the assets’ useful life span. Managers are most concerned about the volatility of their earnings and cash flows on the appropriate amount of debt to use. A probe into debt policy indicates that the most valuable technique is issuing debt when the firm’s internal funds are inadequate. Under dividend policy, the most treasured technique is ensuring cash availability which deviated from existing literature. These results show that managers in frontier markets are cash-focused, which may lead to short-termism, which may be non-value-adding but important for survival in their persistent liquidity crunch markets.

Blockholdings in closely held corporations: An analysis of ownership coalitions in emerging countries

Blockholdings in closely held corporations have been examined in the literature to understand the importance of the size and structure of minimal coalitions in a volatile macroeconomic environment. We show, theoretically and empirically, that three-member minimal controlling coalitions provide the best performance results because the portfolio of potential strategies of such coalitions can increase strategic choices in the boom-bust-recovery cycle, but coordination costs are not that high. We also show that “competition” between potential minimal controlling coalitions (of the same firm) with two or more members improves the firm’s performance. With respect to the characteristics of the institutional owners of one-member controlling coalitions, we found that firms controlled by foreigners and/or other non-financial firms and financial holdings performed better than the average firm. Our study indicates that the change of ownership structures in emerging countries is determined by the extant economic systems and through administrative interventions.

A Study on Factors Affecting Companies Long-Term Investments within the GCC Markets

This study aims to explore the determinants of companies' long-term investments within the context of Gulf Cooperation Council markets. The importance of this study arises from the fact that earlier researchers who investigated this subject had mostly concentrated on developed markets and evidence from developing markets is largely absent. Besides, the existing studies had focused on factors influencing companies' long-term investment at the company level, and evidence related to the impact of macroeconomic factors on such investments is scarce. A Panel Ordinary Least Squares regression is utilized to analyze the data of 435 companies from the year 2000 to 2014. This period is chosen due to the steady economic conditions of the investigated markets as they enjoyed a less volatile macroeconomic environment compared to post-2014, where the fall of oil prices severely affected these markets' growth. The analysis revealed contradicting findings compared to the existing literature regarding both macroeconomic factors and companies related factors that influences long-term investments. For instance, government spendings, oil prices, and trade levels are all significant factors in the Gulf Cooperation Council companies' long-term investments which is not the case in other emerging markets. Also, the industrial companies within these markets are not severely influenced by these factors compared to the services companies. Hence, the current study extends the existing literature on two dimensions by providing new insight into this subject from new markets and reveals new findings regarding the impact of macroeconomic factors on companies' long-term investments.

Shale Renders the ‘Obsolescing Bargain’ Obsolete: Political risk and foreign investment in Argentina's Vaca Muerta

Argentina is a risky place for foreign investors, with frequent political swings from right to left, weak enforcement of contracts and property rights, endemic corruption, combative unions and a volatile macroeconomic environment. And yet, between 2013 and 2019 IOCs invested $13 billion in developing oil and gas concessions in Argentina. However in contrast to past investments, which were in conventional developments, these recent investments have been almost exclusively in unconventional developments in the Vaca Muerta shale play. We hypothesize tight oil and shale gas extraction is exposed to fewer expropriation risks than conventional oil and gas, and as a result, Argentina is likely to attract more investment in the Vaca Muerta formation than would otherwise be realized given its troubled history. Moreover, while we focus on Argentina, the case may have implications for the global oil market. If risk is institutionally and structurally lower in shale investments, this realization could encourage wider proliferation of shale production outside the United States.

Modelling the impact of oil price fluctuations on food price in high and low-income oil exporting countries

Oil exporting economies were the most hit by the recent oil price shock that spills on the food market in an increasingly volatile macroeconomic environment. This paper examines and compares sub-samples [before crisis <br />(2000 Q1–2013 Q1) and during crisis (2013 Q2–2019 Q4)] as to the impact of oil price on food prices in high- and low-income oil-exporting countries. We found an inverse relationship between oil and food prices in the long run based on full samples and sub-samples in high-income countries. The story is different during the crisis period: in low-income countries and all the countries combined, oil and food prices co-move in the long run as measured by the Fully Modified Ordinary Least Squares (FMOLS) and Dynamic Ordinary Least Squares (DOLS). Our findings suggest that economic structure and uncertain events (crises) dictate the behaviour and relationship between food and oil markets. Food and oil prices may drift away in the short-run, but market forces turn them toward equilibrium in the long-run. Moreover, low-income countries are indifferent in both periods due to limited capacity to balance the increasing demand for and supply of food items.

The rise of supermarkets in Zimbabwe against a tide of macroeconomic uncertainty

ABSTRACT Zimbabwe has experienced a rise in supermarkets despite its volatile macroeconomic environment. Using data elucidated from key informants in the supermarket retail sector, the study observes that Zimbabwe is still relatively attractive to foreign investors as its food retail sector is not yet saturated. Zimbabwe’s supermarket expansion is driven by the entry of global, regional, and home-grown chains, growing urbanisation and an upsurge in consumerism. Unlike other African countries, Zimbabwe supermarket sector is unique due to its historical footprint, macroeconomic and policy uncertainty. Supermarket development challenges include exclusion of small farmers, modernising procurement systems, difficult operating environment characterised by liquidity crisis, hyperinflation, energy shortages, and deficient infrastructure. Future supermarket growth could emerge from a more stable macroeconomic environment, improved backbone infrastructure, upgrading value chains and penetration of untapped markets in second tier cities and small rural towns.

Government Expenditure, Savings, FDI and Economic Growth: An Impact Analysis

This study investigates the impact of government expenditure, savings, FDI on economic growth in Nigeria for 1995 to 2018. The data for the study was sourced from World Bank’s World Development Indicator, while OLS estimating technique was employed for the analysis. Using OLS estimator, the empirical evidence from the findings show that government expenditure, savings, FDI significantly impacted economic growth. Therefore, government expenditure, savings, foreign direct investments are key determinants of economic growth in Nigeria. Based on the findings, we suggest that the Nigerian government should reduce the personal income tax so as to promote the disposal income and invariables savings. Also, effort should be made to promote stable and less volatile macroeconomic environment for the attraction of foreign direct investment inflow into Nigeria. This in turn could boost employment and increase in income and the individual savings. Further, we found government expenditure to negatively relate to economic growth. Hence, government spending in itself is not bad but should be utililize efficiently to help drive economic growth. Hence, we suggest that government spending should be reduced since it does not contribute immensely to the growth of the economy.

Управление материально-техническим и финансовым состоянием предприятий в условиях макроэкономической нестабильности

Управление материально-техническим и финансовым состоянием предприятий в условиях макроэкономической нестабильности

The Moldovan Business Environment: Theoretical and Empirical Survey

Moldova is a relatively small, landlocked country with few natural resources apart from its agricultural land. Over the last years, the contribution of SMEs was a little bit lower than 30% of the national GDP. This modest contribution corroborated the relative weight of SMEs in turnover and employment, which has decreased since 2010. In June 2014, Moldova signed the Association Agreement with the European Union, including Deep and Comprehensive Free Trade Area (DCFTA). This AA represents for Moldova an ambitious roadmap for policy reform, including in the area of SME development. Moldova made considerable progress in developing a comprehensive institutional framework for the SME sector. Nevertheless, Moldova’s business environment remains sensible to the volatile macroeconomic environment, structural challenges in the financial sector, crisis in the banking sector, internal political instability and regional geopolitical instability. In order to foster SME competitiveness and reap the benefits of new trading opportunities with the EU, the government needs to address the remaining challenges confronting SMEs.The aim of this chapter is to analyze the business environment in Moldova in terms of the existing regulatory framework, identifying barriers and constraints, and analysis of programs and policies to strengthen it, along with synthesizing and developing recommendations to foster the business environment. We will also focus on technology business incubators in the final section.

The Industrialization Blueprint: Re-Engineering the Future of Banking and Financial Services

Industrialization is a relatively new concept that has entered into the sphere of banking and finance, and consists of the radical transformation of that sector through new high performance banking operations. It involves strategically combining the standardization and automation of none-core operational activities (in order to significantly increase operational efficiencies), with new product and service innovations, and high levels of customer excellence. Industrialization is a strategic imperative touted as a new way to intelligently reduce costs and successfully address the complexities facing banks and financial institutions (BFIs) worldwide. It has been argued that industrialization can help BFIs rebuild asset quality and achieve a sustainable new digital banking business model, in the face of increasing compliance costs, a volatile macroeconomic environment, and continuing negative public perceptions. It may also provide BFIs with new opportunities to restore return on equity (RoE) to pre-crisis levels, whilst attaining sustainable profitability in a low interest environment. This article will investigate exactly what industrialization entails, it will analyze problems faced by BFIs, it will weigh them up against pro-industrialization arguments, and will seek to put forward a new “Industrialization Blueprint” consisting of five underlying “commonalities” (innovation, customer, costs, technology, and operational), which may help BFIs to successfully navigate their way through the current haphazard banking environment into a new era of industrialized banking.

Job Creation, Firm Creation, and <I>De Novo</I> Entry

Firm turnover and growth recorded in administrative data sets differ from underlying firm dynamics. By tracing the employment history of the workforce of new and disappearing administrative firm identifiers, we can accurately identify de novo entrants and true economic exits, even when firms change identifier, merge, or split-up. For a well-defined group of new firms entering the Belgian economy between 2004 and 2011, we find highly regular post-entry employment dynamics in spite of the volatile macroeconomic environment. Exit rates decrease with age and size. Surviving entrants record high employment growth that is monotonically decreasing with age in every size class. Most remarkably, we find that Gibrat’s law is violated for very young firms. Conditional on age, the relationship between employment growth and current size is strongly and robustly positive. This pattern is obscured, or even reversed, when administrative entrants and exits are taken at face value. De novo entrants’ contribution to job creation is relatively small and not very persistent, in particular for (the large majority of) new firms that enter with fewer than five employees.

Inflation-Hedging Portfolios: Economic Regimes Matter

The exceptional rise in government deficits following the subprime crisis, the recent commodity price spikes, and the increase in inflation volatility have revived the debate on medium- to long-term resurgence of inflation. Using a vector-autoregressive model, Brière and Signori investigate the relationships between asset returns and inflation and the optimal strategic asset allocation for investors seeking to hedge inflation risk in two types of macroeconomic regimes. In a volatile macroeconomic environment marked by countercyclical supply shocks, the asset classes of cash, inflationlinked bonds, and precious metals play an essential role. In a more stable environment, such as what has been called the “Great Moderation,” characterized by procyclical demand shocks, the asset classes of cash and nominal bonds play the most significant role, followed by precious metals, real estate, and equities. An ambitious investor in terms of required real returns should have a larger weighting in equities, real estate, and precious metals. <b>TOPICS:</b>Financial crises and financial market history, VAR and use of alternative risk measures of trading risk, pension funds

How Are Inflation Targets Set?

This paper aims to contribute to a better understanding on how inflation targets are set. For this reason, we first gather evidence from official central bank and government publications and from a questionnaire sent to central banks on how inflation targets are set; we then estimate the determinants of the level of inflation target in 19 inflation targeting countries using unbalanced panel interval regressions (to deal with the issue that targets are typically set as a range rather than as a point). Inflation targets are found to reflect macroeconomic fundamentals. Higher level as well as higher variability of inflation are associated with higher target. The setting of the inflation target is also found to have an important international dimension, as higher world inflation is positively correlated with inflation targets. Rapidly growing countries exhibit higher inflation targets. Our results also suggest that the larger width of inflation target is set in a more volatile macroeconomic environment. We find that central bank credibility is negatively associated with the level of inflation target, suggesting that less credible central banks are likely to recognize the risks related to anchoring inflation expectations at low levels. On the other hand, government party orientation does not matter even in less independent central banks.

Fiscal Policy Sustainability: A Basic Framework

The main purpose of this paper is to provide a simple analytical framework that can guide the development of indicators of fiscal policy sustainability in economies which operate in a highly volatile macroeconomic environment.

How are Inflation Targets Set?

This paper aims to contribute to a better understanding on how inflation targets are set. For this reason, we first gather evidence from official central bank and government publications and from a questionnaire sent to central banks on how inflation targets are set; we then estimate the determinants of the level of inflation target in 19 inflation targeting countries using unbalanced panel interval regressions (to deal with the issue that targets are typically set as a range rather than as a point). Inflation targets are found to reflect macroeconomic fundamentals. Higher level as well as higher variability of inflation are associated with higher target. The setting of the inflation target is also found to have an important international dimension, as higher world inflation is positively correlated with inflation targets. Rapidly growing countries exhibit higher inflation targets. Our results also suggest that the larger width of inflation target is set in a more volatile macroeconomic environment. We find that central bank credibility is negatively associated with the level of inflation target, suggesting that less credible central banks are likely to recognize the risks related to anchoring inflation expectations at low levels. On the other hand, government party orientation does not matter even in less independent central banks.

Inflation-Hedging Portfolios in Different Regimes

The unconventional monetary policies implemented in the wake of the subprime crisis and the recent increase in inflation volatility have revived the debate on medium to long-term resurgence of inflation. This paper presents the optimal strategic asset allocation for investors seeking to hedge inflation risk. Using a vector-autoregressive model, we investigate the optimal choice for an investor with a fixed target real return at different horizons, with a shortfall probability constraint. We show that the strategic allocation differs sharply across regimes. In a volatile macroeconomic environment, inflation-linked bonds, equities, commodities and real estate play an essential role. In a stable environment (“Great Moderation”), nominal bonds play the most significant role, with equities and commodities. An ambitious investor in terms of required real returns should have a larger weighting in risky assets, especially commodities.

How Do Canadian Budget Forecasts Compare with Those of Other Industrial Countries?

This paper compares Canadian central government budget forecasting with forecasting by other industrial countries. While fiscal forecasting in Canada is governed by one of the strongest institutional frameworks, quantitative analysis suggests that budget projections of macroeconomic and fiscal aggregates have been more cautious than in other countries since the mid-1990s. The relatively volatile macroeconomic environment as well as institutional factors, such as Canada's asymmetric deficit target, have likely contributed to this outcome.