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on Central and Western Asia |
| By: | Saroj, Sunil; Kumar, Anjani; Mishra, Ashok |
| Keywords: | Risk and Uncertainty, Crop Production/Industries |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:ags:iaae21:315068&r= |
| By: | Jaydip Sen; Abhishek Dutta; Sidra Mehtab |
| Abstract: | Predicting future stock prices and their movement patterns is a complex problem. Hence, building a portfolio of capital assets using the predicted prices to achieve the optimization between its return and risk is an even more difficult task. This work has carried out an analysis of the time series of the historical prices of the top five stocks from the nine different sectors of the Indian stock market from January 1, 2016, to December 31, 2020. Optimum portfolios are built for each of these sectors. For predicting future stock prices, a long-and-short-term memory (LSTM) model is also designed and fine-tuned. After five months of the portfolio construction, the actual and the predicted returns and risks of each portfolio are computed. The predicted and the actual returns of each portfolio are found to be high, indicating the high precision of the LSTM model. |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2111.04709&r= |
| By: | Athanasios Lapatinas (European CoJoint Research Centre, EC, ISPRA, IT); Anstasia Litina (University of Macedonia, Thessaloniki, GR); Skerdilajda Zanaj (Department of Economics and Management, Université du Luxembourg) |
| Abstract: | “ He is a gentleman, and I am a gentleman’s daughter. So far we are equal ”, Pride and Prejudice, 1813. Imagine if Twitter or the Internet existed in 1813 when Jane Austen wrote the book! Would we observe similar gender roles we see today? Cultural norms that assign different roles to men and women originate from the use of primitive agricultural technologies and evolve with time. Does the knowledge accumulation part of economic growth affect attitudes towards women? We examine this hypothesis relating revealed attitudes of 26,727 to 64,954 individuals coming from 59 countries with the countries’ level of economic complexity. We find a U-shaped relationship. When economic complexity is limited, its further increase deteriorates female emancipation, back-lashing gender roles. However, when economic complexity is high, further knowledge accumulation favours more egalitarian attitudes. Our findings suggest that knowledge, encapsulated into technological advancement and the production of sophisticated goods, ultimately triggers a positive effect on female emancipation. Finally, we find that economic complexity favors the transition of female emancipation from the household into the society, but only when the level of economic development is sufficiently high. |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:luc:wpaper:21-16&r= |
| By: | Rajkhowa, Pallavi; Kornher, Lukas |
| Keywords: | Marketing, Research and Development/Tech Change/Emerging Technologies |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:ags:iaae21:314963&r= |
| By: | Ms. Sumiko Ogawa; Purva Khera; Miss Stephanie Y Ng; Ms. Ratna Sahay |
| Abstract: | Digital financial services have been a key driver of financial inclusion in recent years. While there is evidence that financial inclusion through traditional services has a positive impact on economic growth, do the same results carry over for digital financial inclusion? What drives digital financial inclusion? Why does it advance more in some countries but not in others? Using new indices of financial inclusion developed in Khera et. al. (2021), this paper addresses these questions for 52 developing countries. Using cross-sectional instrument variable procedure, we find that the exogenous component of digital financial inclusion is positively associated with growth in GDP per capita during 2011-2018, which suggests that digital financial inclusion can accelerate economic growth. Fractional logit and random effects empirical estimation identifies access to infrastructure, financial and digital literacy, and quality of institutions as key drivers of digital financial inclusion. These findings are then used to help inform policy recommendations in areas related to the digitization of financial services to promote financial inclusion. |
| Keywords: | A. literature review; digitization of financial services; capital markets department; growth rate; Digital financial services; number in bracket; regression equation; Financial inclusion; Mobile banking; Middle East and Central Asia; Caribbean; Asia and Pacific |
| Date: | 2021–06–11 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/167&r= |
| By: | Mr. Yunhui Zhao; Yang Liu; Viral V. Acharya |
| Abstract: | We study the effect of COVID-19 containment measures on expected stock price volatility in some advanced economies, using event studies with hand-collected minute-level data and panel regressions with daily data. We find that six-month-ahead volatility indices dropped following announcements of initial or re-imposed lockdowns, and that they did not drop significantly following the easing of lockdowns. Such patterns are not as strong for three-month-ahead expected volatility and generally absent for one-month-ahead expected volatility. These results provide suggestive evidence for the existence of an intertemporal trade-off: although stringent containment measures cause short-term economic disruptions, they may reduce medium-term uncertainty (reflected in expected stock volatility) by boosting markets’ confidence that the outbreak would be under control more quickly. |
| Date: | 2021–06–04 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/157&r= |
| By: | Emanuel Kohlscheen |
| Abstract: | This paper examines the drivers of CPI inflation through the lens of a simple, but computationally intensive machine learning technique. More specifically, it predicts inflation across 20 advanced countries between 2000 and 2021, relying on 1,000 regression trees that are constructed based on six key macroeconomic variables. This agnostic, purely data driven method delivers (relatively) good outcome prediction performance. Out of sample root mean square errors (RMSE) systematically beat even the in-sample benchmark econometric models, with a 28% RMSE reduction relative to a naïve AR(1) model and a 8% RMSE reduction relative to OLS. Overall, the results highlight the role of expectations for inflation outcomes in advanced economies, even though their importance appears to have declined somewhat during the last 10 years. |
| Keywords: | expectations, forecast, inflation, machine learning, oil price, output gap, Phillips curve |
| JEL: | E27 E30 E31 E37 E52 F41 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:980&r= |
| By: | Zechu Li; Xiao-Yang Liu; Jiahao Zheng; Zhaoran Wang; Anwar Walid; Jian Guo |
| Abstract: | Machine learning techniques are playing more and more important roles in finance market investment. However, finance quantitative modeling with conventional supervised learning approaches has a number of limitations. The development of deep reinforcement learning techniques is partially addressing these issues. Unfortunately, the steep learning curve and the difficulty in quick modeling and agile development are impeding finance researchers from using deep reinforcement learning in quantitative trading. In this paper, we propose an RLOps in finance paradigm and present a FinRL-Podracer framework to accelerate the development pipeline of deep reinforcement learning (DRL)-driven trading strategy and to improve both trading performance and training efficiency. FinRL-Podracer is a cloud solution that features high performance and high scalability and promises continuous training, continuous integration, and continuous delivery of DRL-driven trading strategies, facilitating a rapid transformation from algorithmic innovations into a profitable trading strategy. First, we propose a generational evolution mechanism with an ensemble strategy to improve the trading performance of a DRL agent, and schedule the training of a DRL algorithm onto a GPU cloud via multi-level mapping. Then, we carry out the training of DRL components with high-performance optimizations on GPUs. Finally, we evaluate the FinRL-Podracer framework for a stock trend prediction task on an NVIDIA DGX SuperPOD cloud. FinRL-Podracer outperforms three popular DRL libraries Ray RLlib, Stable Baseline 3 and FinRL, i.e., 12% \sim 35% improvements in annual return, 0.1 \sim 0.6 improvements in Sharpe ratio and 3 times \sim 7 times speed-up in training time. We show the high scalability by training a trading agent in 10 minutes with $80$ A100 GPUs, on NASDAQ-100 constituent stocks with minute-level data over 10 years. |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2111.05188&r= |
| By: | Yoon, Deok Ryong (KOREA INSTITUTE FOR INTERNATIONAL ECONOMIC POLICY (KIEP)); Rhee, Dong-Eun (Korea University); Lee, Jinhee (KOREA INSTITUTE FOR INTERNATIONAL ECONOMIC POLICY (KIEP)) |
| Abstract: | The world economy has experienced rapid polarization and concentration of wealth that has progressed rapidly over the past 30 years. Wealth inequality has caused a variety of socio-economic changes, and economic inequality remains unresolved. This study presented implications for fiscal and external policies by examining the wealth inequality faced by the global economy from various angles. First, we investigated the effect of wealth inequality on growth and consumption in Korea. Based on the results, the authors explored the direction for the redistribution policy and the consumption stabilization policy for the low-income class. Next, to alleviate income inequality, the determinants of income inequality were examined, focusing on the progressive fiscal policy and asset prices. Lastly, the impact of income inequality on the external economy was empirically analyzed to derive implications for future current account balances. |
| Keywords: | asset price change; economic inequality; external economic variables; growth; consumption; future current account |
| Date: | 2020–12–11 |
| URL: | http://d.repec.org/n?u=RePEc:ris:kiepwe:2020_037&r= |
| By: | Yayi Yan; Jiti Gao; Bin Peng |
| Abstract: | Vector autoregressive (VAR) models are widely used in practical studies, e.g., forecasting, modelling policy transmission mechanism, and measuring connection of economic agents. To better capture the dynamics, this paper introduces a new class of time-varying VAR models in which the coefficients and covariance matrix of the error innovations are allowed to change smoothly over time. Accordingly, we establish a set of theories, including the impulse responses analyses subject to both of the short-run timing and the long-run restrictions, an information criterion to select the optimal lag, and a Wald-type test to determine the constant coefficients. Simulation studies are conducted to evaluate the theoretical findings. Finally, we demonstrate the empirical relevance and usefulness of the proposed methods through an application to the transmission mechanism of U.S. monetary policy. |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2111.00450&r= |
| By: | Moreno Ruiz, Diego; Petrakis, Emmanuel |
| Abstract: | We study a setting in which several large investors select their portfolios of equity of the firms competing in a symmetric duopoly considering the impact of their interests on the managerial incentives. Assuming that investors objective is to maximize the value of their portfolios, we show that equilibrium portfolios will be symmetric, contributing to enhance the anticompetitive impact of the presence of large investors on price mark ups and profits. |
| Keywords: | Market Power; Common Ownership; Minority Equity; Portfolio Selection |
| JEL: | L13 L2 L4 L5 |
| Date: | 2021–11–22 |
| URL: | http://d.repec.org/n?u=RePEc:cte:werepe:33659&r= |
| By: | Danilo Cascaldi-Garcia; Flora Haberkorn; Eli Nir |
| Abstract: | A key challenge for monetary policymakers in achieving their inflation goals—particularly important at the current juncture—is to be able to distinguish between persistent inflationary changes and short-term idiosyncratic shocks. The most common approach for filtering out short-term price shocks from inflation is to focus on measures of "core" inflation, traditionally defined as the change in the consumer price index (CPI) excluding food and energy prices. |
| Date: | 2021–11–05 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfn:2021-11-05-1&r= |
| By: | Jaydip Sen; Saikat Mondal; Sidra Mehtab |
| Abstract: | Predictive model design for accurately predicting future stock prices has always been considered an interesting and challenging research problem. The task becomes complex due to the volatile and stochastic nature of the stock prices in the real world which is affected by numerous controllable and uncontrollable variables. This paper presents an optimized predictive model built on long-and-short-term memory (LSTM) architecture for automatically extracting past stock prices from the web over a specified time interval and predicting their future prices for a specified forecast horizon, and forecasts the future stock prices. The model is deployed for making buy and sell transactions based on its predicted results for 70 important stocks from seven different sectors listed in the National Stock Exchange (NSE) of India. The profitability of each sector is derived based on the total profit yielded by the stocks in that sector over a period from Jan 1, 2010 to Aug 26, 2021. The sectors are compared based on their profitability values. The prediction accuracy of the model is also evaluated for each sector. The results indicate that the model is highly accurate in predicting future stock prices. |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2111.04976&r= |
| By: | Rocco Ciciretti (DEF and CEIS, Università di Roma "Tor Vergata"); Ambrogio Dalò (University of Groningen); Giovanni Ferri (LUMSA University) |
| Abstract: | We investigate to what extent ESG funds present an herding/anti-herding behavior, and the consequences of their investment strategies in terms of both systematic risk exposure and risk-adjusted returns. Our findings document that ESG funds pursue an anti-herding strategy that leads to higher risk-adjusted returns. Specifically, a one standard deviation increase in ESG score at the fund-level is associated with an increase in fund performance of about 3.74 basis points per year. Moreover, we document that such an enhanced performance does not come at the cost of higher systematic risk exposure but instead reduces it. A possible explanation behind our findings is that after the catching-up phase previously documented by the literature, ESG funds are now able to put to good use enhanced stock-picking skills built over the years. |
| Keywords: | ESG investing, Equity Funds, Herding, Anti-Herding, Risk-Adjusted Returns |
| JEL: | G11 C58 |
| Date: | 2021–11–05 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:524&r= |
| By: | Digvijay, Dilip Bhujbal; shafighi, Najla |
| Abstract: | The goal of this research is to learn more about India's unemployment condition and how the country's GDP and inflation rate influence unemployment. We used data from the years 2000 to 2019 in our research. In this research, regression analysis is used to determine the relationship between India's unemployment, GDP, and inflation rate. The technique of finding the connections between two or more variables is known as regression analysis. Unemployment is a dependent variable and GDP, and rate of inflation are two independent variables. The findings of the final study are presented as a linear regression analysis. We can readily determine how India's GDP and inflation rate influence unemployment in India using linear regression analysis. Unemployment is greatly influenced by GDP. India's unemployment rate falls as the country's GDP rises. While India's inflation rate has a no significant impact on the country's unemployment rate. |
| Keywords: | Keywords: unemployment, GDP, Inflation |
| JEL: | E00 |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:110621&r= |
| By: | Harashima, Taiji |
| Abstract: | Some investments succeed and others fail. Furthermore, the probability of success will differ among people who undertake investments. In this paper, we construct exogenous and endogenous growth models that show that this heterogeneity in success rates of investment can cause extreme economic inequality. A major implication of our models is that even if the success rates are only slightly heterogeneous, people with relatively higher success rates can accumulate a larger amount of capital than those with relatively lower success rates, and as a result, the latter cannot satisfy all of their optimality conditions leading to extremely high debt-to-consumption ratios and large indebtedness to the former group. I then modify the models to consider multilateral behavior and the necessity of government intervention to improve this situation by means of simultaneous heterogeneity. I find that to prevent such extreme economic inequality, it is indispensable for the government to intervene appropriately by transferring appropriate amounts of income from the former to the latter. |
| Keywords: | Economic inequality; Success rate of investment; Heterogeneous ability |
| JEL: | D63 E22 H24 |
| Date: | 2021–11–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:110688&r= |
| By: | Sattarhoff, Cristina; Lux, Thomas |
| Abstract: | We adapt the multifractal random walk model by Bacry et al. (2001) to realized volatilities (denoted RV-MRW) and take stock of recent theoretical insights on this model in Duchon et al. (2012) to derive forecasts of financial volatility. Moreover, we propose a new extension of the binomial Markov-switching multifractal (BMSM) model by Calvet and Fisher (2001) to the RV framework. We compare the predictive ability of the two against seven classical and multifractal volatility models. Forecasting performance is evaluated out-of-sample based on the empirical MSE and MAE as well as using model confidence sets following the methodology of Hansen et al. (2011). Overall, our empirical study for 14 international stock market indices has a clear message: The RV-MRW is throughout the best model for all forecast horizons under the MAE criterium as well as for large forecast horizons h=50 and 100 days under the MSE criterion. Moreover, the RV-MRW provides most accurate 20-day ahead forecasts in terms of MSE for the great majority of indices, followed by RV-ARFIMA, the latter dominating the competition at the 5-day-horizon. These results are very promising if we consider that this is the first empirical application of the RV-MRW. Moreover, whereas RV-ARFIMA forecasts are often a time consuming task, the RV-MRW stands out due to its fast execution and straightforward implementation. The new RV-BMSM appears to be specialized in short term forecasting, the model providing most accurate one-day ahead forecasts in terms of MSE for the same number of cases as RV-ARFIMA. |
| Keywords: | Realized volatility,multiplicative volatility models,multifractal random walk,longmemory,international volatility forecasting |
| JEL: | C20 G12 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cauewp:202102&r= |
| By: | Shobande, Olatunji; Asongu, Simplice |
| Abstract: | Africa is currently experiencing both financial and human development challenges. While several continents have advocated for financial development in order to acquire environmentally friendly machinery that produces less emissions and ensures long-term sustainability, Africa is still lagging behind the rest of the world. Similarly, Africa's human development has remained stagnant, posing a serious threat to climate change if not addressed. Building on the underpinnings of the Environmental Kuznets Curve (EKC) hypothesis on the nexus between economic growth and environmental pollution, this study contributes to empirical research seeking to promote environmental sustainability as follows. First, it investigates the link between financial development, human capital development and climate change in East and Southern Africa. Second, six advanced panel techniquesare used, and they include: (1) cross-sectional dependency (CD) tests; (2) combined panel unit root tests; (3) combined panel cointegration tests; (4) panel VAR/VEC Granger causality tests and (5) combined variance decomposition analysis based on Cholesky and Generalised weights. Our finding shows that financial and human capital developments are important in reducing CO2 emissions and promoting environmental sustainability in East and Southern Africa. |
| Keywords: | Financial Development; Human Capital; East and Southern Africa; Climate Change |
| JEL: | G21 I21 I25 O55 Q54 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:110639&r= |
| By: | Gabriele D'Acunto; Paolo Bajardi; Francesco Bonchi; Gianmarco De Francisci Morales |
| Abstract: | In recent years, multi-factor strategies have gained increasing popularity in the financial industry, as they allow investors to have a better understanding of the risk drivers underlying their portfolios. Moreover, such strategies promise to promote diversification and thus limit losses in times of financial turmoil. However, recent studies have reported a significant level of redundancy between these factors, which might enhance risk contagion among multi-factor portfolios during financial crises. Therefore, it is of fundamental importance to better understand the relationships among factors. Empowered by recent advances in causal structure learning methods, this paper presents a study of the causal structure of financial risk factors and its evolution over time. In particular, the data we analyze covers 11 risk factors concerning the US equity market, spanning a period of 29 years at daily frequency. Our results show a statistically significant sparsifying trend of the underlying causal structure. However, this trend breaks down during periods of financial stress, in which we can observe a densification of the causal network driven by a growth of the out-degree of the market factor node. Finally, we present a comparison with the analysis of factors cross-correlations, which further confirms the importance of causal analysis for gaining deeper insights in the dynamics of the factor system, particularly during economic downturns. Our findings are especially significant from a risk-management perspective. They link the evolution of the causal structure of equity risk factors with market volatility and a worsening macroeconomic environment, and show that, in times of financial crisis, exposure to different factors boils down to exposure to the market risk factor. |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2111.05072&r= |
| By: | Sirio Aramonte; Andreas Schrimpf; Hyun Song Shin |
| Abstract: | The heft of non-bank financial intermediaries (NBFIs) in the financial system has grown significantly after the Great Financial Crisis of 2008. This paper reviews structural shifts in intermediation and how NBFIs have shaped the demand and supply of liquidity in financial markets. We then lay out a framework for the key channels of systemic-risk propagation in the presence of NBFIs, emphasising the central role of leverage fluctuations through changes in margins. The debt capacity of an investor is increasing in the debt capacity of other investors in the system, so that leverage enables greater leverage, and spikes in margins can lead to system-wide deleveraging. In our framework, deleveraging and `dash for cash' scenarios (as during the Covid-19 crisis) emerge as two sides of the same coin, rather than being two distinct channels of stress propagation. These findings have implications for the design of NBFI regulations and of central bank backstops. |
| JEL: | G22 G23 G28 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:972&r= |
| By: | Ms. Diva Singh; Luiza Antoun de Almeida; Victor Hugo C. Alexandrino da Silva |
| Abstract: | In recent years, we have observed an increase in low-income countries’ (LICs) access to international capital markets, especially after the Global Financial Crisis (GFC). This paper investigates what factors—country-specific macroeconomic fundamentals and/or external variables—have contributed to the surge in external bond issuance by these LICs, which we refer to in our paper as ‘frontier economies’. Using data on public and publicly guaranteed (PPG) external bond issuance, outstanding PPG bond stock, as well as sovereign spreads, we employ panel data analysis to examine factors related to the increase in issuance by these economies as well as the reduction in their spreads over time. Our empirical study shows that both country-specific fundamentals (such as public debt, current account balance, level of reserves, quality of institutions) and external variables (such as US growth and the VIX index) play a role in explaining the increased amount of issuance and the decline in spreads of frontier economies’ sovereign bonds. The impact of some of these variables on issuance appears to reflect a country’s need to issue bonds for external financing (‘the supply side’ of bond issuance), while others appear to correlate more through their impact on investors’ appetite for a country’s debt (‘the demand side’). In addition, the impact of country-specific variables can also be affected by external factors such as global risk appetite. Our analysis of key factors that have contributed to increased market access for frontier economies over the past decade provides important information to gauge the prospects for their continued market access, and for other LICs to join this group by tapping international markets for the first time. |
| Keywords: | frontier economy; market access; PPG bond stock; PPG issuance; data on public and publicly guaranteed; Bonds; International capital markets; Public and publicly-guaranteed external debt; Emerging and frontier financial markets; Stocks; Global |
| Date: | 2021–05–07 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/137&r= |
| By: | Michael Gasiorek (Department of Economics, University of Sussex, Falmer, United Kingdom); Nicolò Tamberi (Department of Economics, University of Sussex, Falmer, United Kingdom) |
| Abstract: | The UK-EU Trade and Cooperation Agreement (TCA) entered into force in January 2021. At the same time, the collection method for UK-EU trade statistics changed, moving from Intrastat to customs declarations. As a result, the gap between UK reported exports to the EU and their mirror flows reported by the EU widened substantially. Imports are not affected as the UK will not change theh collection method before 2022. This considerable difference in UK exports casts doubts on which dataset should be used to analyse the effects of the TCA on UK-EU trade, whether UK or EU reported data. After reviewing the methodological changes, we believe that the change from country of consignment to country of origin in EU imports declarations represents the main break in the series. We advise analysts and researchers to use HMRC reported exports flows instead of their EU reported mirror flows. Comparison of data by country of origin and consignment and comparisons of trade flows with freight traffic data confirm our beliefs. |
| JEL: | F14 Y10 |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:sus:susewp:0921&r= |
| By: | Anders Nõu; Darya Lapitskaya; Mustafa Hakan Eratalay; Rajesh Sharma |
| Abstract: | For stock market predictions, the essence of the problem is usually predicting the magnitude and direction of the stock price movement as accurately as possible. There are different approaches (e.g., econometrics and machine learning) for predicting stock returns. However, it is non-trivial to find an approach which works the best. In this paper, we make a thorough analysis of the predictive accuracy of different machine learning and econometric approaches for predicting the returns and volatilities on the OMX Baltic Benchmark price index, which is a relatively less researched stock market. Our results show that the machine learning methods, namely the support vector regression and k-nearest neighbours, predict the returns better than autoregressive moving average models for most of the metrics, while for the other approaches, the results were not conclusive. Our analysis also highlighted that training and testing sample size plays an important role on the outcome of machine learning approaches. |
| Keywords: | machine learning, neural networks, autoregressive moving average, generalized autore- gressive conditional heteroskedasticity |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:mtk:febawb:135&r= |
| By: | Rogelio Mercado Jr. (South East Asian Central Banks (SEACEN) Research and Training Centre); Shanty Noviantie (South East Asian Central Banks (SEACEN) Research and Training Centre) |
| Abstract: | This paper uses a dataset on bilateral capital flows to construct a financial centrality measure for 64 advanced and emerging economies from 2000-16 to capture an economy’s importance within the global financial flows network. The results highlight the varying significance of network systemic and idiosyncratic factors in explaining financial centrality across different types of investments and residency of investors. Most notably, the findings show that financial centres have deeper and more developed financial system, implying their importance in global financial intermediation. |
| Keywords: | financial centrality, financial depth, network analysis |
| JEL: | D85 F21 F36 G15 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:tcd:tcduee:tep1119&r= |
| By: | Ghosh, Saurabh; Mazumder, Debojyoti |
| Abstract: | In this paper, we try to explain the role of Non-bank Financial Intermediation (NBFI) to percolate and propel a real shock to the rest of the economy through the bank-NBFI interactions. We propose a simple theoretical model which identifies the channels and distinguishes between idiosyncratic, structural and sectoral shocks, cleanly. In our model, the non-deposit taking Non-bank Financial companies (NBFCs) which are the provider of risky, small and fragmented loans, are financed by borrowing from commercial banks. This link connects the NBFCs with the commercial banks and, in turn, with the rest of the economy. A higher realization of the failed firms (idiosyncratic shock) in the NBFC financed sector and a rise in the sector-wide productivity risk (sectoral risk) increase the interest rate charged by the banks and unemployment rate but reduces the real wages and per capita capital formation of the economy. However, when the average number of failed firms increases (structural shock), the reverse happens. |
| Keywords: | NBFC, Bank-NBFC interaction, Real Shock, Search and matching unemployment |
| JEL: | E44 G21 G23 J64 |
| Date: | 2021–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:110596&r= |
| By: | Aljabri, Salwa; Raghavan, Mala; Vespignani, Joaquin |
| Abstract: | This paper studies the impact of oil price shocks on fiscal policy and real GDP in Oman using new unexplored data. We find that an oil price shock explains around 22% and 46% of the variation in the government revenue and GDP, respectively. Decomposing the government revenue and GDP further into petroleum and non-petroleum related components, we find that an oil price shock explains around 26% of the variation in petroleum revenue and 90% of the petroleum-GDP. Though petroleum and non-petroleum GDP respond positively to oil price shocks, government expenditure is not affected by oil prices but is affected by government revenue. The results suggest that the Omani government uses its reserve fund and local and international debt to smooth and reduce the impact of oil price fluctuations. |
| Keywords: | oil price shocks, fiscal policy, GDP, SVAR |
| JEL: | E00 E6 F4 |
| Date: | 2021–09–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:110628&r= |
| By: | Chavan, Sumit Sunil; Shafighi, Najla |
| Abstract: | The main aim of this paper is to validate the Sticky Price Monetary Model in India and China. This aim will be achieved by the investigation of the major determinants of exchange rate in these two economies. One of the main reasons of conducting this research is because the last 25 years were crucial years in developing Asia (especially India and China) after Globalisation. Another reason is because exchange rate is an element of attracting Foreign Direct Investment which has started in India in 1991 and in China mainly after 1980. In this study, we take exchange rate as the dependant variable and money supply, interest rate, Consumer price index and GDP as independent variables based on the sticky price monetary model. A Quantitative Method with the help of regression is implemented for data analysis and to obtain the results. The data from year 1995 to year 2020 for India and China has been collected from the World Bank database. This study will help to understand and identify the major determinants of exchange rate behaviour in the two countries. The empirical results indicate that for the case of China, money supply, GDP, and CPI are found to be significant in the model. The coefficient of money supply and CPI are positive while GDP found to be negative. For the case of India, interest rate, money supply and GDP found to be significant. The coefficient of interest rate and money supply are positive, and GDP is negative. The GDP impact in both economies is negative, an increase in GDP results in a decrease in the exchange rate. More specifically, when GDP increases, the value of the local currency will increase as locals will pay less to get the same amount of foreign currency ($US). These findings will have important information for the policy makers. |
| Keywords: | Keywords: Exchange rate, money supply, Interest rate, GDP, CPI |
| JEL: | G0 |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:110622&r= |
| By: | Yuanchen Yang |
| Abstract: | We differentiate the effects of passive institutional investors, which mainly refer to index funds that adopt a passive portfolio strategy, on firms’ innovation activities and innovation strategies. Relying on plausibly exogenous variation in passive institutional ownership generated by Russell 1000/2000 index reconstitutions, we find that, with larger passive institutional ownership, while firms’ countable innovation activities increase, they shift their innovation strategies by focusing more on exploitation of existing knowledge instead of exploring new technology. Enhanced monitoring by passive institutional investors through active votes could explain their positive effects on firms’ innovation activities. Increasing risk aversion on the part of passive institutional investors appears the underlying force that drives firms’ shift to incremental innovation. Our paper uncovers a subtle relation between institutional investors and innovation, which is largely ignored by earlier studies. |
| Date: | 2021–06–04 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/158&r= |
| By: | Daniela Balutel; Christopher Henry; Jorge Vásquez; Marcel Voia |
| Abstract: | We develop a tractable model of Bitcoin adoption with network effects and social learning, which we then connect to unique data from the Bank of Canada’s Bitcoin Omnibus Survey for the years 2017 and 2018. The model determines how the probability of Bitcoin adoption depends on (1) network effects; (2) individual learning effects; and (3) social learning effects. After accounting for the endogeneity of beliefs, we find that both network effects and individual learning effects have a positive and significant direct impact on Bitcoin adoption, whereas the role of social learning is to ameliorate the marginal effect of the network size on the likelihood of adoption. In particular, in 2017 and 2018, a one percentage point increase in the network size increased the probability of adoption by 0.45 and 0.32 percentage points, respectively. Similarly, a one percentage point increase in Bitcoin beliefs increased the probability of adoption by 0.43 and 0.72 percentage points. Our results suggest that network effects, individual learning, and social learning were important drivers of Bitcoin adoption in 2017 and 2018 in Canada. |
| Keywords: | Digital currencies and fintech; Econometric and statistical methods; Economic models |
| JEL: | D83 O33 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:21-60&r= |
| By: | Mr. Ross Levine |
| Abstract: | Finance and growth emerged as a distinct field of economics during the last three decades as economists integrated the fields of finance and economic growth and then explored the ramifications of the functioning of financial systems on economic growth, income distribution, and poverty. In this paper, I review theoretical and empirical research on the connections between the operation of the financial system and economic growth and inequality. While subject to ample qualifications, the preponderance of evidence suggests that (1) financial development—both the development of banks and stock markets—spurs economic growth and (2) better functioning financial systems foster growth primarily by improving resource allocation and technological change, not by increasing saving rates. Some research also suggests that financial development expands economic opportunities and tightens income distribution, primarily by boosting the incomes of the poor. This work implies that financial development fosters growth by expanding opportunities. Finally, and more tentatively, financial innovation—improvements in the ability of financial systems to ameliorate information and transaction costs—may be necessary for sustaining growth. |
| Keywords: | spurs economic growth; producing information; incomes of the poor; fields of finance; cost of capital; resource allocation; Financial sector development; Income distribution; Income inequality; Stock markets; Income; Global |
| Date: | 2021–06–11 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/164&r= |
| By: | Nuerxiati Abudurexiti; Kai He; Dongdong Hu; Svetlozar T. Rachev; Hasanjan Sayit; Ruoyu Sun |
| Abstract: | The paper Zhao et al. (2015) shows that mean-CVaR-skewness portfolio optimization prob- lems based on asymetric Laplace (AL) distributions can be transformed into quadratic optimiza- tion problems under which closed form solutions can be found. In this note, we show that such result also holds for mean-risk-skewness portfolio optimization problems when the underlying distribution is a larger class of normal mean-variance mixture (NMVM) models than the class of AL distributions. We then study the value at risk (VaR) and conditional value at risk (CVaR) risk measures on portfolios of returns with NMVM distributions. They have closed form expres- sions for portfolios of normal and more generally elliptically distributed returns as discussed in Rockafellar & Uryasev (2000) and in Landsman & Valdez (2003). When the returns have gen- eral NMVM distributions, these risk measures do not give closed form expressions. In this note, we give approximate closed form expressions for VaR and CVaR of portfolios of returns with NMVM distributions. Numerical tests show that our closed form formulas give accurate values for VaR and CVaR and shortens the computational time for portfolio optimization problems associated with VaR and CVaR considerably. |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2111.04311&r= |
| By: | Alexandre Corhay; Thilo Kind; Howard Kung; Gonzalo Morales |
| Abstract: | This paper examines how the transmission of government portfolio risk arising from maturity operations depends on the stance of monetary/fiscal policy. Accounting for risk premia in the fiscal theory allows the government portfolio to affect the expected inflation, even in a frictionless economy. The effects of maturity rebalancing on expected inflation in the fiscal theory directly depend on the conditional nominal term premium, giving rise to an optimal debt maturity policy that is state dependent. In a calibrated macro-finance model, we demonstrate that maturity operations have sizable effects on expected inflation and output through our novel risk transmission mechanism. |
| Keywords: | Fiscal policy; Interest rates; Monetary policy |
| JEL: | E44 E63 G12 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:21-58&r= |
| By: | John J Shim; Karamfil Todorov |
| Abstract: | We document several novel facts about exchange-traded funds (ETFs) holding corporate bonds. First, the portfolio of bonds that are exchanged for new or existing ETF shares (called creation or redemption baskets) often represents a small fraction of ETF holdings – a fact that we call "fractional baskets." Second, creation and redemption baskets exhibit high turnover. Third, creation (redemption) baskets tend to have longer (shorter) durations and smaller (larger) bid-ask spreads relative to holdings. Lastly, ETFs with fractional baskets exhibit persistent premiums and discounts, which is related to the slow adjustment of NAV returns to ETF returns. We develop a simple model to show that an ETF's authorized participants (APs) can act as a buffer between the ETF market and the underlying illiquid assets, and help mitigate fire sales. Our findings suggest that ETFs may be more effective in managing illiquid assets than mutual funds. |
| JEL: | G01 G11 G12 G23 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:975&r= |
| By: | Fortin, Ines (Macroeconomics and Business Cycles, Institute for Advanced Studies, Vienna, Austria); Hlouskova, Jaroslava (Macroeconomics and Business Cycles, Institute for Advanced Studies, Vienna, Austria and Dept. of Economics, Faculty of National Economy, University of Economics in Bratislava, Slovakia); Soegner, Leopold (Macroeconomics and Business Cycles, Institute for Advanced Studies, Vienna, Austria and Vienna Graduate School of Finance (VGSF), Vienna, Austria) |
| Abstract: | We estimate new indices measuring financial and economic (in)stability in Austria and in the euro area. Instead of estimating the level of (in)stability in a financial or economic system we measure the degree of predictability of (in)stability, where our methodological approach is based on the uncertainty index of Jurado, Ludvigson and Ng (2015). We perform an impulse response analysis in a vector error correction framework, where we focus on the impact of uncertainty shocks on industrial production, employment and the stock market. We and that financial uncertainty shows a strong significantly negative impact on the stock market, for both Austria and the euro area, while economic uncertainty shows a strong significantly negative impact on the economic variables for the euro area. We also perform a forecasting analysis, where we assess the merits of uncertainty indicators for forecasting industrial production, employment and the stock market, using different forecast performance measures. The results suggest that financial uncertainty improves the forecasts of the stock market while economic uncertainty improves the forecasts of macroeconomic variables. We also use aggregate banking data to construct an augmented financial uncertainty index and examine whether models including this augmented financial uncertainty index outperform models including the original financial uncertainty index in terms of forecasting. |
| Keywords: | financial (in)stability, uncertainty, financial crisis, forecasting, stochastic volatility, factor models |
| JEL: | C53 G01 G20 E44 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:ihs:ihswps:36&r= |
| By: | Rik Dillingh (CPB Netherlands Bureau for Economic Policy Analysis); Maria Zumbuehl (CPB Netherlands Bureau for Economic Policy Analysis) |
| Abstract: | Dutch retirees – and individuals who are close to retirement – show a clear interest in two alternatives for the default lifelong flat rate annuity. The first alternative is the currently already available option of a high/low annuity based profile, with a higher annuity in the first years of retirement and a lower annuity after that. The second alternative is the announced new option of a partial lump sum at retirement, combined with a lower monthly annuity. In a survey experiment with over a thousand participants we investigated how appealing these different payout options are to retirees, and what influences their preferences. There is significant interest in all three payout options. While the default option of a constant annuity is most popular, there is also substantial interest in the alternative options, with both the high/low and the lump sum option being chosen in almost 30% of cases. The preference for a specific option depends on the choice parameters and the economic setting. Interest in a lump sum is higher if the size of the lump sum increases and interest in a high/low annuity-based profile is higher when the high annuity is valid for a shorter period. Higher replacement rates and a higher interest rate both increase the preference for the constant payout pattern. Individual characteristics also play a role in the choice of the preferred option. |
| JEL: | D14 G41 H31 J32 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpb:discus:431&r= |
| By: | Mr. Zhongxia Jin; Haobin Wang; Yue Zhao |
| Abstract: | Based on VAR analyses across 26 countries, we show that, although foreign exchange intervention (FXI) is effective in stabilizing the nominal exchange rate in the short run, its impacts on the real exchange rate are less significant: Limitations on nominal exchange rate flexibility may induce adjustments to the real exchange rate through domestic prices. We find that countries that intervene more heavily in response to external shocks experience greater general and asset price volatility, which is not conducive to countering the impact of external shocks. We show that China’s macroeconomic responses to external shocks are broadly consistent with international experiences among intervening countries. The simple methodological framework adopted in this paper is meant to examine a broad set of macroeconomic variables and bears limitations; our findings serve to motivate more structural analysis on FXI’s macroeconomic impacts going forward. |
| Keywords: | nominal exchange rate IRF; asset price volatility; housing price IRF; floaters IRF; stock price IRF; Real exchange rates; Nominal effective exchange rate; Asset prices; Real interest rates; Exchange rates; Global |
| Date: | 2021–04–30 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/126&r= |
| By: | Erik Feyen; Jon Frost; Harish Natarajan; Tara Rice |
| Abstract: | Proposals for global stablecoins have put a much-needed spotlight on deficiencies in financial inclusion and cross-border payments and remittances in emerging market and developing economies (EMDEs). Yet stablecoin initiatives are no panacea. While they may achieve adoption in certain EMDEs, they may also pose particular development, macroeconomic and cross-border challenges for these countries and have not been tested at scale. Several EMDE authorities are weighing the potential costs and benefits of central bank digital currencies (CBDCs). We argue that the distinction between token-based and account-based money matters less than the distinction between central bank and non-central bank money. Fast-moving fintech innovations that are built on or improve the existing financial plumbing may address many of the issues in EMDEs that both private stablecoins and CBDCs aim to tackle. |
| JEL: | E42 E51 E58 F31 G28 O33 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:973&r= |
| By: | Mao Guan; Xiao-Yang Liu |
| Abstract: | Deep reinforcement learning (DRL) has been widely studied in the portfolio management task. However, it is challenging to understand a DRL-based trading strategy because of the black-box nature of deep neural networks. In this paper, we propose an empirical approach to explain the strategies of DRL agents for the portfolio management task. First, we use a linear model in hindsight as the reference model, which finds the best portfolio weights by assuming knowing actual stock returns in foresight. In particular, we use the coefficients of a linear model in hindsight as the reference feature weights. Secondly, for DRL agents, we use integrated gradients to define the feature weights, which are the coefficients between reward and features under a linear regression model. Thirdly, we study the prediction power in two cases, single-step prediction and multi-step prediction. In particular, we quantify the prediction power by calculating the linear correlations between the feature weights of a DRL agent and the reference feature weights, and similarly for machine learning methods. Finally, we evaluate a portfolio management task on Dow Jones 30 constituent stocks during 01/01/2009 to 09/01/2021. Our approach empirically reveals that a DRL agent exhibits a stronger multi-step prediction power than machine learning methods. |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2111.03995&r= |
| By: | Battulga Gankhuu |
| Abstract: | This paper presents pricing and hedging methods for segregated funds and unit-linked life insurance products that are based on a Bayesian Markov--Switching Vector Autoregressive (MS--VAR) process. Here we assumed that a regime-switching process is generated by a homogeneous Markov process. An advantage of our model is it depends on economic variables and is not complicated. |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2111.04038&r= |
| By: | Stefano Mengoli (University of Bologna); Marco Pagano (University of Naples Federico II, CSEF and EIEF); Pierpaolo Pattitoni (University of Bologna) |
| Abstract: | Retail investors pay over twice as much attention to local companies than non-local ones, based on Google searches. News volume and volatility amplify this attention gap. Attention appears causally related to perceived proximity: first, acquisition by a nonlocal company is associated with less attention by locals, and more by nonlocals close to the acquirer; second, COVID-19 travel restrictions correlate with a drop in relative attention to nonlocal companies, especially in locations with fewer flights after the outbreak. Finally, local attention predicts volatility, bid-ask spreads and nonlocal attention, not viceversa. These findings are consistent with local investors having an information-processing advantage. |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:eie:wpaper:2114&r= |
| By: | Ryan Niladri Banerjee; José María Serena Garralda |
| Abstract: | Direct lenders, non-bank credit intermediaries with low leverage, have become increasingly important players in corporate loan markets. In this paper we investigate the role they play in the monetary policy transmission mechanism, using syndicated loan data covering the 2000-2018 period. We show that direct lenders are more likely to join loan syndicates whenever monetary policy announcements trigger a contraction in borrowers' net worth irrespective of the directional change in interest rates. Thus, our findings suggest that direct lenders dampen the financial accelerator channel of monetary policy. |
| Keywords: | direct lending, monetary policy, financial accelerator, credit channel |
| JEL: | G21 G32 F32 F34 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:979&r= |
| By: | Takushi Kurozumi (Bank of Japan); Willem Van Zandweghe (Federal Reserve Bank of Cleveland) |
| Abstract: | Recent studies indicate that, since 1980, the US economy has undergone increases in the average markup and the profit share of income and decreases in the labor share and the investment share of spending. We examine the role of monetary policy in these changes as inflation has concurrently trended down. In a simple staggered price model with a non-CES aggregator of individual differentiated goods, a decline of trend inflation as measured since 1980 can account for a substantial portion of the changes. Moreover, adding a rise of highly productive "superstar firms" to the model can better explain not only the macroeconomic changes but also the micro evidence on the distribution of firms' markups, including the flat median markup. |
| Keywords: | Average markup; Profit share; Labor share; Trend inflation; Non-CES aggregator; Superstar firm hypothesis |
| JEL: | E52 L16 |
| Date: | 2021–11–22 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojwps:wp21e13&r= |
| By: | Andrea Coveri; Claudio Cozza; Dario Guarascio |
| Abstract: | The paper applies the radical view of Monopoly Capitalism to the digital platform economy. Based on the seminal ideas of Hymer and Zeitlin that led Cowling and Sugden to define the large monopolistic firm as a means to plan production from a unique centre of strategic decision-making, we attempt to develop a framework where digital platforms are conceived as an evolution of large transnational corporations. Power and control in our Monopoly Capitalism view are then meant not only in terms of market relations, but rather as levers for coordinating global production and influencing world societies. Applying this framework to the Amazon case, we highlight the key analytical dimensions to be considered: not only Amazon dominates other firms and suppliers through its diversification and a direct control of data and technology; its power is also linked to global labour fragmentation and uneven bargaining power vis-Ã -vis world governments, as in the Hymer and Cowling's tradition. |
| Keywords: | Monopoly Capital; Monopoly Power; Digital Platforms; Amazon; Multinational corporation |
| JEL: | L12 L22 P12 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:sap:wpaper:wp209&r= |
| By: | Gianluca Cubadda (DEF & CEIS,University of Rome "Tor Vergata"); Alain Hecq (Maastricht University) |
| Abstract: | This chapter surveys the importance of reduced rank regression techniques (RRR) for modelling economic and ?nancial time series. We mainly focus on models that are capable to reproduce the presence of common dynamics among variables such as the serial correlation common feature and the multivariate autoregressive index models. Cointegration analysis, for which RRR plays a central role, is not discussed in this chapter as it deserves a speci?c treatment on its own. Instead, we show how to detect and model comovements in time series that are stationary or that have been stationarized after proper transformations. The motivations for the use of RRR in time series econometrics include dimension reductions which simplify complex dynamics and thus making interpretations easier, as well as pursuing e¢ ciency gains in both estimation and prediction. Via the ?nal equation representation, RRR also makes the nexus between multivariate time series and parsimonious marginal ARIMA models. The drawback of RRR, which is common to all the dimension reduction techniques, is that the underlying restrictions may be present or not in the data. We provide in this chapter a couple of empirical applications to illustrate concepts and methods. |
| Keywords: | Reduced-rank regression, common features, vector autoregressive models, multivariate volatility models, dimension reduction. |
| Date: | 2021–11–08 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:525&r= |
| By: | Simplice A. Asongu (Yaounde, Cameroon); Valentine B. Soumtang (University of Yaoundé II, Cameroon); Ofeh M. Edoh (Yaoundé, Cameroon) |
| Abstract: | This study assesses financial determinants of informal financial sector development in 48 Sub-Saharan African countries for the period 1995-2017. Quantile regressions are used as the empirical strategy which enables the study to assess the determinants throughout the conditional distribution of informal sector development dynamics. The following financial determinants affect informal financial development and financial informalization differently in terms of magnitude and sign: bank overhead costs; net internet margin; bank concentration; return on equity; bank cost to income ratio; financial stability; loans from non-resident banks; offshore bank deposits and remittances. The determinants are presented from a plethora of perspectives, inter alia: U-Shape, S-Shape and positive or negative thresholds. The study not only provides a practical way by which to assess the incidence of financial determinants on informal financial sector development, but also provides financial instruments by which informal financial development can be curbed. |
| Keywords: | Informal finance; financial development; Africa |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:21/077&r= |