Research

Open AccessArticle

Liquidity Creation, Oil Term of Trade Shocks, and Growth Volatility in Middle Eastern and North African Countries (MENA)

by

Ali Almeshari

,

Mohamed Hisham Bin Dato Haji Yahya

,

Fakarudin Bin Kamarudin

,

Rosalan Ali

and

Sha’ari Abd Hamid

Economies 2023, 11(5), 147; https://doi.org/10.3390/economies11050147 - 15 May 2023

Viewed by 653

Abstract

Both real and monetary shocks have been extensively researched, with conflicting findings on the involvement of the banking sector following the occurrence of these shocks. Nonetheless, liquidity creation (LC) appears to be one of the most underappreciated banking operations. This research analyses the [...] Read more.

Both real and monetary shocks have been extensively researched, with conflicting findings on the involvement of the banking sector following the occurrence of these shocks. Nonetheless, liquidity creation (LC) appears to be one of the most underappreciated banking operations. This research analyses the impact of LC on economic volatility and the mechanisms through which LC influences volatility in 10 MENA countries from 2000 to 2019. Using a recently published panel cointegration estimating approach, we show that LC does influence growth volatility over the long term and short term—in other words, LC, as a primary activity of banks, helps to reduce volatility. According to PMG’s findings, both real and monetary shocks significantly increase volatility in the short term compared to their influence in the long term. The channels of expression show that LC mitigates the influence of real shocks (amplifies the effect of monetary shocks) on growth volatility, and there is a greater magnitude of this effect in the short term. Strengthening the banking industry through LC, which is their primary business, could be a critical strategy in avoiding economic swings. Full article

(This article belongs to the Special Issue International Financial Markets and Monetary Policy 2.0)

Open AccessArticle

Monetary Policy Implications on Macroeconomic Performance in the Common Monetary Area: A Panel-SVAR Framework

by

Theron Shumba

and

Sophia Mukorera

Economies 2023, 11(5), 144; https://doi.org/10.3390/economies11050144 - 11 May 2023

Cited by 1 | Viewed by 1360

Abstract

The CMA (Common Monetary Area) is a quadrilateral monetary arrangement encompassing South Africa, Namibia, Lesotho, and Eswatini. The four countries have undergone a gradual improvement in regional economic integration for the effective economic coordination of their policymaking. Despite the monetary coordination, the countries [...] Read more.

The CMA (Common Monetary Area) is a quadrilateral monetary arrangement encompassing South Africa, Namibia, Lesotho, and Eswatini. The four countries have undergone a gradual improvement in regional economic integration for the effective economic coordination of their policymaking. Despite the monetary coordination, the countries are still experiencing poor economic performance. This study traces how a shock or an unanticipated change in the anchor country’s central bank’s policy instrument, in this case, South Africa, affects the macroeconomic performance in the entire CMA region. Employing a Panel Structural Vector Autoregressive model (Panel-SVAR) and annual data from 1980–2021, the findings show that a positive shock in the repo rate from South Africa significantly affected important macroeconomic performance indicators. The results indicate that a shock in the anchor country’s repo rate is followed by a significant decline in RGDP_G, a decrease in inflation, a decrease in money supply, and an increase in lending rate in the entire CMA region. The study recommends that CMA monetary authorities and policymakers need to formulate policies toward cushioning the effects of unanticipated monetary policy shock from the anchor country as well as global shocks. Full article

(This article belongs to the Special Issue International Financial Markets and Monetary Policy 2.0)

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Open AccessArticle

Inflation Spillovers among Advanced and Emerging Economies: Evidence from the G20 Group

by

Nassar S. Al-Nassar

and

Abdulrahman A. Albahouth

Economies 2023, 11(4), 126; https://doi.org/10.3390/economies11040126 - 20 Apr 2023

Cited by 1 | Viewed by 1316

Abstract

The influence of recent global shocks such as the COVID-19 pandemic and the Russian–Ukrainian war on the variability of major macroeconomic trends not only shows synchronized behavior across economies but also induces similar policy responses to counter these shocks. The purpose of this [...] Read more.

The influence of recent global shocks such as the COVID-19 pandemic and the Russian–Ukrainian war on the variability of major macroeconomic trends not only shows synchronized behavior across economies but also induces similar policy responses to counter these shocks. The purpose of this article is to explore the transmission of inflation among the G20 economies and evaluate its contribution to domestic inflation. To this end, we use the Diebold and Yilmaz spillover approach. The results that emerge from unconditional analysis reveal stark dissimilarities in inflation spillover patterns between advanced and emerging economies. Advanced economies are subject to higher spillover rates and thereby more exposed to global shocks compared to their emerging counterparts. Inflation in emerging countries is mainly derived from idiosyncratic shocks, while global shocks have only a modest influence on domestic inflation. In addition, bilateral spillovers among the G20 members show that the average pairwise directional spillovers between emerging economies are lower compared to advanced economies. The results pertaining to the spillover dynamics, on the other hand, show that total inflation spillover has a clear upward trend, indicating that the overall interconnectedness between G20 countries is increasing over time. Moreover, the estimates of spillover dynamics show a growing influence of received inflation spillovers from external shocks in both advanced and emerging economies. Policymakers in advanced economies are expected to respond to global shocks to mitigate the influence of spillovers, which is essential for economies that display high spillovers and turn out to be net receivers of shocks. However, public agencies in emerging economies should concentrate more on internal shocks to control inflation while not ignoring global shocks. Full article

(This article belongs to the Special Issue International Financial Markets and Monetary Policy 2.0)

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Open AccessFeature PaperArticle

Central Bank Independence: Where Do We Stand?

by

Osvald Vasicek

,

Natalie Uhrova

,

Lenka Dimitriou Janickova

,

Tomas Wroblowsky

and

Boris Navratil

Economies 2023, 11(4), 109; https://doi.org/10.3390/economies11040109 - 03 Apr 2023

Viewed by 2044

Abstract

Central bank independence (CBI) has long been considered a key aspect of effective monetary policy, as it allows central banks to make decisions free from political interference. However, the global financial crisis of 2007–2008 and recent events such as the COVID-19 pandemic and [...] Read more.

Central bank independence (CBI) has long been considered a key aspect of effective monetary policy, as it allows central banks to make decisions free from political interference. However, the global financial crisis of 2007–2008 and recent events such as the COVID-19 pandemic and armed conflict in Ukraine have threatened CBI. This article aims to examine the impact of these events on CBI in OECD member countries, both on a de jure and de facto level, using a variety of indicators. The results suggest that CBI has largely remained unchanged in most countries, but there is disturbing evidence of political interference in CBI in the Republic of Türkiye. Full article

(This article belongs to the Special Issue International Financial Markets and Monetary Policy 2.0)

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Open AccessFeature PaperArticle

Economic Policy Uncertainty, Energy and Sustainable Cryptocurrencies: Investigating Dynamic Connectedness during the COVID-19 Pandemic

by

Inzamam Ul Haq

,

Paulo Ferreira

,

Derick David Quintino

,

Nhan Huynh

and

Saowanee Samantreeporn

Economies 2023, 11(3), 76; https://doi.org/10.3390/economies11030076 - 24 Feb 2023

Cited by 2 | Viewed by 1235

Abstract

The purpose of the research is to explore the dynamic multiscale linkage between economic policy uncertainty, equity market volatility, energy and sustainable cryptocurrencies during the COVID-19 period. We use a multiscale TVP-VAR model considering level (EPUs and IDEMV) and returns series (cryptocurrencies) from [...] Read more.

The purpose of the research is to explore the dynamic multiscale linkage between economic policy uncertainty, equity market volatility, energy and sustainable cryptocurrencies during the COVID-19 period. We use a multiscale TVP-VAR model considering level (EPUs and IDEMV) and returns series (cryptocurrencies) from 1 December 2019 to 30 September 2022. The data are then decomposed into six wavelet components, based on the wavelet MODWT method. The TVP-VAR connectedness approach is used to uncover the dynamic connectedness among EPUs, energy and sustainable cryptocurrency returns. Our findings reveal that CNEPU (USEPU) is the strongest (weakest) NET volatility transmitter. IDEMV is the most consistent volatility NET transmitter among all uncertainty indices across the original returns and wavelet scales (D1~D6). Energy cryptocurrencies, i.e., GRID, POW and SNC, are more likely to receive volatility spillovers than sustainable cryptocurrencies during a turbulent period (COVID-19). XLM (XNO) is least (most) affected by volatility spillover in system-wide connectedness, and XLM (ADA and MIOTA) showed a consistent (heterogeneous) non-recipient behavior across the six wavelet (D1~D6) scales and original return series. This study uncovers the dynamic connectedness across multiscale, which will support investors considering different investment horizons (D1~D6). Full article

(This article belongs to the Special Issue International Financial Markets and Monetary Policy 2.0)

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Open AccessArticle

How Catalytic Is Digital Technology in the Nexus between Migrants’ Remittance and Financial Development in Sub-Saharan African Countries?

by

Olufunmilayo Olayemi Jemiluyi

and

Leward Jeke

Economies 2023, 11(3), 74; https://doi.org/10.3390/economies11030074 - 24 Feb 2023

Viewed by 909

Abstract

Given the indisputable roles of remittance and financial development in countries’ economic performance, enhancing the nexus between the two variables has become pertinent. The remittance–financial development literature has surged, with a growing argument that making the relationship work is conditioned on mediating roles [...] Read more.

Given the indisputable roles of remittance and financial development in countries’ economic performance, enhancing the nexus between the two variables has become pertinent. The remittance–financial development literature has surged, with a growing argument that making the relationship work is conditioned on mediating roles of certain economic indicators. Despite the overwhelming evidence of the transformative roles of digital technology, the assessment of its possible mediating role in the remittance–financial development nexus is lacking in the literature. Hence, using pooled data of 35 Sub-Saharan African (SSA) countries sourced from the World Bank’s Development Indicators, this study examined the mediating effect of digital technology in the relationship between remittance inflows and financial development. Using two indicators of ICT—fixed broadband and mobile cellular subscription—the results of the generalized method of moment analysis suggest that digital technology spurs remittance inflows to promote financial development in SSA. The results are consistent for both measures. These findings imply that remittance and digital technology are complementary in promoting financial development in the sub-region. Based on these outcomes, the study therefore advances the enactment of policies aimed at fostering diffusion of digital technology and achieving the sustainable development goal’s recommendation of lower transaction cost of remittances. Full article

(This article belongs to the Special Issue International Financial Markets and Monetary Policy 2.0)

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Open AccessArticle

Testing the Validity of the Quantity Theory of Money on Sectoral Data: Non-Linear Evidence from South Africa

by

Siyabonga Mndebele

,

Devi Datt Tewari

and

Kehinde Damilola Ilesanmi

Economies 2023, 11(2), 71; https://doi.org/10.3390/economies11020071 - 20 Feb 2023

Viewed by 1349

Abstract

Purpose: The purpose of this study is to test the validity of the quantity theory of money (QTM) on South African sectoral data. The rationale of this study and its necessity for South Africa as the case study is that, although aggregate inflation [...] Read more.

Purpose: The purpose of this study is to test the validity of the quantity theory of money (QTM) on South African sectoral data. The rationale of this study and its necessity for South Africa as the case study is that, although aggregate inflation may lie within the target range, inflation at a sectoral level, particularly in the food and transport sector, is still a matter of concern in South Africa. Methodology/approach: This study employed the Non-linear Autoregressive Distributed Lagged model (NARDL) to assess potential asymmetries in the effect of money supply to differentiate between the effects of contractional and expansional episodes on inflation at the sectoral level. Quarterly time series data spanning from 2002Q2 to 2021Q2 was utilised for the estimation. Ultimately, the causal effect amongst the variables is examined by employing the Pairwise Granger Causality test. Findings: The results suggest that in the short run, the effect of monetary policy shocks is very weak. On the other hand, in the long run, both negative and positive shocks in the money supply push inflation at the sectoral level in the opposite directions, and positive shocks (expansionary monetary policy) have a greater effect than negative shocks, which renders the QTM invalid in South Africa. The sectoral response was found to be heterogeneous in the long run, and this was also backed by the results of the Granger Causality test and the dynamic multipliers. Asymmetry in the effect of the money supply is assessed in some of the sectors only in the long run. Practical implications: Based on the results, this study confirms great discrepancies in sectoral responses. Therefore, aggregate inflation may not be a good indicator of the inflation path in South Africa, as it may underestimate sectoral variations. Originality/value: The originality of this study lies on testing the validity of the QTM on inflation at the sectoral level in the South African context using a non-linear approach to assess potential asymmetry between the effects of expansionary and contractionary episodes of monetary policy shocks. Full article

(This article belongs to the Special Issue International Financial Markets and Monetary Policy 2.0)

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Open AccessArticle

Impact of Money Supply in Different States of Inflation and Economic Growth in South Africa

by

Eugene Msizi Buthelezi

Economies 2023, 11(2), 64; https://doi.org/10.3390/economies11020064 - 14 Feb 2023

Viewed by 3671

Abstract

This paper investigates the impact of the money supply in different states of inflation and economic growth in South Africa from 1990 to 2021. The term “states” defines periods of low and high rates of economic variables of interest. Markov-switching dynamic regression (MSDRM) [...] Read more.

This paper investigates the impact of the money supply in different states of inflation and economic growth in South Africa from 1990 to 2021. The term “states” defines periods of low and high rates of economic variables of interest. Markov-switching dynamic regression (MSDRM) and time-varying parameter structural vector autoregression (TVP-VAR) are used in this paper. The contribution of this paper is not only based on the long run but also on the examination of the impact of the money supply in different states of inflation and economic growth. Moreover, the use of shock accounts for time-varying elasticity. It is found that there is a 0.70% decrease in the gross domestic product for a 1% increase in money supply in state 1, while in state 2, the money supply was insignificant. The money supply had a negative and a positive impact on inflation in states 1 and 2, with rates of 0.05% and 0.35% in the respective states. The money supply had a high multiplier effect on gross domestic product and inflation. More than 5 years were spent in each state for both gross domestic product and inflation, while the transition probability of moving and returning to each state is significant. The trade-off of using the money supply for economic growth and inflation is evident in South Africa. It is recommended that the state of the economy be considered when using the money supply in an effort to stimulate economic growth or stabilise inflation. Full article

(This article belongs to the Special Issue International Financial Markets and Monetary Policy 2.0)

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Open AccessArticle

Nonlinear Fiscal Multipliers in Saudi Arabia

by

Raja AlMarzoqi

,

Sarra Ben Slimane

and

Saud Altamimi

Economies 2023, 11(1), 11; https://doi.org/10.3390/economies11010011 - 04 Jan 2023

Viewed by 1151

Abstract

This paper presents an estimation of the fiscal multipliers for Saudi Arabia, conducted by applying the local projection (LP) method. It also presents an exploration of the non-linear features of fiscal multipliers. The findings showed that (i) consistent with earlier studies, fiscal multipliers [...] Read more.

This paper presents an estimation of the fiscal multipliers for Saudi Arabia, conducted by applying the local projection (LP) method. It also presents an exploration of the non-linear features of fiscal multipliers. The findings showed that (i) consistent with earlier studies, fiscal multipliers are generally moderate; (ii) the investment spending multiplier is larger in magnitude than the current spending multiplier; (iii) the non-oil revenue multiplier is negative; (iv) the output response to fiscal shocks is larger during expansions; and (v) fiscal multipliers are stronger during a contractionary fiscal policy phase. Full article

(This article belongs to the Special Issue International Financial Markets and Monetary Policy 2.0)

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Open AccessArticle

EUR/USD Exchange Rate Characterization: Study of Events

by

Jorge Carvalho

,

Gualter Couto

and

Pedro Pimentel

Economies 2022, 10(12), 294; https://doi.org/10.3390/economies10120294 - 24 Nov 2022

Viewed by 4110

Abstract

This study aims to evaluate the impact of major and minor changes in the Euro Zone and US interest rates on the EUR/USD exchange rate between 1 January 1999 and 31 December 2020. Therefore, twelve events are analyzed in this period, five related [...] Read more.

This study aims to evaluate the impact of major and minor changes in the Euro Zone and US interest rates on the EUR/USD exchange rate between 1 January 1999 and 31 December 2020. Therefore, twelve events are analyzed in this period, five related to changes in the US interest rate, six related to changes in the European interest rate, and finally, a single event in which both interest rates undergo an equal variation on the same date. The event study methodology was used, which, through the calculation of abnormal returns, makes it possible to evaluate whether there was a repercussion of the events on the value of the EUR/USD exchange rate. This methodology is used in several studies related to capital markets. The obtained results prove that there are abnormal returns with statistical significance on the event days, and, on the days that follow, changes in the interest rates have an impact on the EUR/USD exchange rate; however, there is no clear direction of the asset after the events occur. Full article

(This article belongs to the Special Issue International Financial Markets and Monetary Policy 2.0)

Open AccessArticle

Analyzing Greece 2010 Memorandum’s Impact on Macroeconomic and Financial Figures through FCM

by

Stavros P. Migkos

,

Damianos P. Sakas

,

Nikolaos T. Giannakopoulos

,

Georgios Konteos

and

Anastasia Metsiou

Economies 2022, 10(8), 178; https://doi.org/10.3390/economies10080178 - 23 Jul 2022

Cited by 3 | Viewed by 1470

Abstract

The financial crisis of 2008 has caused a series of drawbacks to economies around the world. Greek economy has been hit twice at 2009, since its credibility worsened, provoking the implication of harsh fiscal measures from the 2010 Memorandum of Understanding (MoU). The [...] Read more.

The financial crisis of 2008 has caused a series of drawbacks to economies around the world. Greek economy has been hit twice at 2009, since its credibility worsened, provoking the implication of harsh fiscal measures from the 2010 Memorandum of Understanding (MoU). The effects of these measures to Greek macroeconomic figures have been widely criticized. Authors aim to estimate these effects at the macroeconomic figures of Greece through utilization of Decision Support Systems, and propose accurate insights regarding their efficacy. By capitalizing on regression analysis and Fuzzy Cognitive Mapping processes, specific results from 2010 Memorandum’s measures arise. It has been calculated that measures implied by 2010 Memorandum have been harsh and posed a negative effect on key Greek macroeconomic figures like GDPR, public debt, etc., especially with the ongoing 2008 financial crisis. Full article

(This article belongs to the Special Issue International Financial Markets and Monetary Policy 2.0)

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