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20 pages, 1399 KiB

Open AccessArticle

The Boomerang Effects: An Analysis of the Pre and Post Dollarisation Era in Zimbabwe

by Michael Takudzwa Pasara and Rufaro Garidzirai

Economies 2020, 8(2), 32; https://doi.org/10.3390/economies8020032 - 17 Apr 2020

Cited by 13 | Viewed by 11507

Does dollarisation influence economic activity in Zimbabwe? The question has incited a lot of debates among researchers and analysts. In an attempt to answer this question, the study used an Auto Regressive Distributive Lag (ARDL) procedure, to investigate the effects of dollarisation on [...] Read more.

Does dollarisation influence economic activity in Zimbabwe? The question has incited a lot of debates among researchers and analysts. In an attempt to answer this question, the study used an Auto Regressive Distributive Lag (ARDL) procedure, to investigate the effects of dollarisation on economic growth in Zimbabwe. The study employed quarterly data over a 14-year period between 2000 and 2014. The results of the study indicate that dollarisation, gross domestic investment and trade openness are positively related to economic growth. Based on the findings of the study, the paper recommends that Zimbabwean policy makers should establish additional complementary policies which foster economic integration with anchor countries to reduce credit risk. On the other hand, dollarisation should be maintained since it resulted in economic stability and improved financial sector credibility. It is therefore still premature to de-dollarise the economy until a sufficient level of credibility is gained by the central bank. Full article

(This article belongs to the Special Issue Macroeconomics and Monetary Policy)

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14 pages, 850 KiB

Open AccessArticle

Growth Dynamics, Multiple Equilibria, and Local Indeterminacy in an Endogenous Growth Model of Money, Banking and Inflation Targeting

by Rangan Gupta and Philton Makena

Economies 2020, 8(1), 22; https://doi.org/10.3390/economies8010022 - 18 Mar 2020

Cited by 1 | Viewed by 4647

Abstract

We develop an overlapping generations monetary endogenous growth (generated by productive public expenditures) model with inflation targeting, characterized by relocation shocks for young agents, which in turn generates a role for money (even in the presence of the return-dominating physical capital) and financial [...] Read more.

We develop an overlapping generations monetary endogenous growth (generated by productive public expenditures) model with inflation targeting, characterized by relocation shocks for young agents, which in turn generates a role for money (even in the presence of the return-dominating physical capital) and financial intermediaries. Based on this model, we show that growth dynamics emerge with a S-shaped growth path producing three equilibria. The low and high-growth equilibria are stable, but locally indeterminate, while the medium-growth equilibrium is unstable. Since, government expenditure is productive in our model, a higher inflation-target would translate into higher growth, but under multiple equilibria, this is not necessarily always the case. Full article

(This article belongs to the Special Issue Macroeconomics and Monetary Policy)

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17 pages, 917 KiB

Open AccessArticle

Homogeneity of Determinants in the Financial Sector and Investment in EU Countries

by Erika Urbankova and David Krizek

Economies 2020, 8(1), 14; https://doi.org/10.3390/economies8010014 - 17 Feb 2020

Cited by 5 | Viewed by 5400

Abstract

This paper evaluates the homogeneity of the financial markets in European Union (EU) countries and the impact of determinants of the financial sector in individual EU countries on the investment by economic entities in the given countries. The objective of the paper is [...] Read more.

This paper evaluates the homogeneity of the financial markets in European Union (EU) countries and the impact of determinants of the financial sector in individual EU countries on the investment by economic entities in the given countries. The objective of the paper is to evaluate the homogeneity of financial sectors in EU countries in terms of individual indicators. The paper also evaluates the interdependence between the loan amount (debt and liabilities of the financial sector) on one side and the selected investments on the other. This paper uses the statistical method of correlation analysis to determine the strength and closeness of dependence among indicators, and the multidimensional statistical method of cluster analysis to determine the homogeneity among the individual countries. The results show that, in terms of financial markets, there is still a difference between developed countries in terms of Gross Domestic Product and the rest of the EU Member States. However, in the case of investment activity that is no longer. Partial integration therefore takes place within the EU, in terms of financial markets. Full article

(This article belongs to the Special Issue Macroeconomics and Monetary Policy)

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26 pages, 406 KiB

Open AccessArticle

External Shocks, Trade Margins, and Macroeconomic Dynamics

by Stefano D’Addona and Lilia Cavallari

Economies 2020, 8(1), 6; https://doi.org/10.3390/economies8010006 - 14 Jan 2020

Viewed by 5680

Abstract

This paper studies the role of the exchange rate regime for trade of new products. It first provides VAR evidence that a rise in external productivity shifts trade away from new products and more so in fixed regimes. Then, it presents a model [...] Read more.

This paper studies the role of the exchange rate regime for trade of new products. It first provides VAR evidence that a rise in external productivity shifts trade away from new products and more so in fixed regimes. Then, it presents a model with firm dynamics in line with this evidence. We argue that exchange rate policy can affect firms’ entry decisions with consequences for the competitiveness of a country’s exports well beyond the short run. In our setup, fixed exchange rates can foster the competitiveness of firms that trade new products, while flexible rates favor firms that produce mature products. Full article

(This article belongs to the Special Issue Macroeconomics and Monetary Policy)

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25 pages, 4899 KiB

Open AccessArticle

Transmission Channels of Central Bank Asset Purchases in the Irish Economy

by Cormac Cawley and Marie Finnegan

Economies 2019, 7(4), 98; https://doi.org/10.3390/economies7040098 - 23 Sep 2019

Cited by 3 | Viewed by 7155

Abstract

The European Central Bank (ECB) engaged in an expanded asset purchase programme (APP) from 2014 to 2018 to help achieve their primary objective of price stability. Total assets purchased over this period was over €2.5 trillion and new net purchases ended in December [...] Read more.

The European Central Bank (ECB) engaged in an expanded asset purchase programme (APP) from 2014 to 2018 to help achieve their primary objective of price stability. Total assets purchased over this period was over €2.5 trillion and new net purchases ended in December 2018. This paper identifies whether the ECB’s APP in Ireland operated through the portfolio rebalancing channel, the signalling channel or the lending channel. It presents a quantitative descriptive analysis of some key Irish data sets in the 2014–2018 period and uses time-series visualisation and trend analysis to identify trends and correlations. There are a number of preliminary findings. First, much downward pressure on sovereign debt yields and spreads had occurred before the APP began due to previous accommodative monetary policy and the signalling channel. Second, the corporate-sector purchase programme (CSPP) did impact on targeted bonds and may have had spill overs to non-targeted bonds. Third, the APP did not lead to much increased lending to the SME sector. Fourth, while households did engage in traditional portfolio rebalancing, Irish banks did not and were perhaps more motivated to meet their capital requirements and manage their level of reserves. This is a first step towards understanding the transmission channels of ECB policy in Ireland and more work needs to be done to detangle the transmission of the most recent APP from other factors and consider these findings in the context of theoretical models. Such work is important to help inform policy makers on enhancing the transmission mechanism to the Irish economy of the recently launched new ECB asset purchase programme from November 2019. Full article

(This article belongs to the Special Issue Macroeconomics and Monetary Policy)

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13 pages, 2064 KiB

Open AccessArticle

Approaching Modern Monetary Theory with a Taylor Rule

by Ryan S. Mattson and Rex Pjesky

Economies 2019, 7(4), 97; https://doi.org/10.3390/economies7040097 - 20 Sep 2019

Cited by 2 | Viewed by 7193

Abstract

Considering the goals of Modern Monetary Theorists, this article examines inflation stabilization and employment maximization through a Taylor Rule for fiscal policy, similar to John Taylor’s foundational examination of the behavior of the Federal Reserve. If it is the role of the federal [...] Read more.

Considering the goals of Modern Monetary Theorists, this article examines inflation stabilization and employment maximization through a Taylor Rule for fiscal policy, similar to John Taylor’s foundational examination of the behavior of the Federal Reserve. If it is the role of the federal government to aid in the maintenance of the dual mandate of the Federal Reserve, then their behavior should follow a similar policy of setting an intermediate target of deficits relative to the maximum employment (the “Federal Job Guarantee”) and the inflation target. The paper will compare the historical data with the rule. When the predictions of the Deficit Rule are compared to historical data from 1965, we find that fiscal policy aligns with what the Deficit Rule predicts with two exceptions: the stagflation of the 1970s and the current increases in budget deficits. Full article

(This article belongs to the Special Issue Macroeconomics and Monetary Policy)

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24 pages, 1580 KiB

Open AccessArticle

Financial Stability Index for the Financial Sector of Pakistan

by Sadia Babar, Rashid Latief, Sumaira Ashraf and Sania Nawaz

Economies 2019, 7(3), 81; https://doi.org/10.3390/economies7030081 - 13 Aug 2019

Cited by 17 | Viewed by 10920

Abstract

This study aims to develop a financial stability index for the Pakistani financial sector by using the financial reports for the period of 2001–2011. Specifically, we constructed three different classes of indices in this study based on a variance-equal weighted approach, a linear [...] Read more.

This study aims to develop a financial stability index for the Pakistani financial sector by using the financial reports for the period of 2001–2011. Specifically, we constructed three different classes of indices in this study based on a variance-equal weighted approach, a linear probability approach, and a logistic approach. We also assessed the prediction accuracy of the financial stability index. All indices indicated that profitability, liquid liability to the liquid asset, non-performing loan, uncovered liabilities, interest spread and inter-fund to liquid liabilities variables contribute significantly to the determination of financial stress of commercial banks. We also compared the results of indices computed with different methodologies—among them was the index constructed by employing coefficients of the logistic model and which performed outstandingly in predicting distressed and non-distressed banks. Moreover, the findings of this study suggest that in regard to return on assets and return on equity, when employed in a stepwise manner for developing the financial stability index, the results are similar in the sense that both profitability indicators have the same behavior. Finally, we conclude that the financial stability indices developed in this study could help decision makers to detect and avoid instability in the future. Full article

(This article belongs to the Special Issue Macroeconomics and Monetary Policy)

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24 pages, 2903 KiB

Open AccessArticle

China’s Bank Balance Sheet and Financing of Heterogeneous Enterprises

by Kun Huang and Qiuge Yao

Economies 2018, 6(4), 65; https://doi.org/10.3390/economies6040065 - 4 Dec 2018

Cited by 1 | Viewed by 5577

Abstract

Given the background of financial disintermediation and interest rate marketization, the assets of China’s commercial banks can be divided into traditional credit assets, whose rates of return are controlled by the supervision department, and financial assets, whose rates of return fluctuate according to [...] Read more.

Given the background of financial disintermediation and interest rate marketization, the assets of China’s commercial banks can be divided into traditional credit assets, whose rates of return are controlled by the supervision department, and financial assets, whose rates of return fluctuate according to market conditions. Direct financing enterprises are mainly state-owned enterprises with a good reputation, endorsed by the government, and they finance using the financial assets of commercial banks. Indirect financing enterprises are mainly private enterprises, which finance using credit assets. By introducing a financial intermediary sector with a balance sheet into dynamic stochastic general equilibrium (DSGE) model, our model endogenously determines the leverage ratio and the ratio of the two assets of the bank. Model results show that the impact from the volatility of financial markets and other exogenous shocks can affect the banks’ asset proportions of the two asset types, asymmetrically affecting the production scale of enterprises with two types of financing. Further, the bank’s leverage ratio changes will have a magnifying effect on economic fluctuations. Full article

(This article belongs to the Special Issue Macroeconomics and Monetary Policy)

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