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Just as Caribbean economies are emerging from the sharp recessions associated with the COVID-19 pandemic, a confluence of external shocks now complicates the recovery. Commodity prices started rising in late 2021, and the Russian invasion of Ukraine in late February of this year disrupted supplies and led to further price increases. The macroeconomic effects are varied across the Caribbean, depending on each country's trade specialization. However, households across the region are feeling the impact on their purchasing power. In addition, the normalization of monetary policy in global financial centers is increasing the cost of external borrowing for governments, with knock-on effects for borrowing costs for firms and households. This edition of the Caribbean Economics Quarterly provides a regional overview of the impacts of these external shocks, as well as country chapters that provide more detailed country-level information.

Advanced economies (AEs) transmit economic crisis to Emerging Market Economies (EMEs) through cross-border bank flows, impacting their output, credit, and assets prices. Empirical evidence suggests that the transmission of the crisis from AEs to EMEs is higher in the absence of macro-prudential policy. A macro-prudential policy in the form of a levy on EMEs banks, when credit grows faster than deposits, reduces the propagation of AEs crisis to EMEs: the consumption drop is 12 percent lower, and the reaction of the labor market smoother, so consumers are better off with the policy than without it.

Crediting in the banking sector plays an important role in developed and developing countries, which have built their financial system more on banking rather than capital markets. For this reason, it is monitored continuously by public authorities and measures are taken to control credit supply in rapid credit increases. In addition, strict provisioning rules for non-performing credits are under practice for non-performing loans. It is well known that in emerging markets strong credit growth in a given period is likely to end up with a financial crisis. In this study, the effects of credit-based variables on bank crises in the emerging 23 economies were investigated. In particular, the effects of credits and non-performing loans on crises are focussed. Additionally, the bank system-specific and macroeconomic control variables are included in the analysis. Findings show that private sector lending by banks and non-performing loans reflecting credit risk do not explain bank crises. Instead, it has been determined that the provisions for non-performing loans by banks and the credit gap that is considered to reflect the systemic risk in the banking system affect crises., La concesión de créditos en el sector bancario desempeña un papel importante en los países desarrollados y en vías de desarrollo, que han basado su sistema financiero más en las operaciones bancarias que en los mercados de capital. Por esta razón, las autoridades públicas la supervisan constantemente y se toman medidas para controlar la oferta crediticia en aumentos rápidos de crédito. Además, a los préstamos no redituables se les aplican estrictas reglas de provisión para créditos no redituables. Es bien sabido que en los mercados emergentes es probable que un periodo de fuerte crecimiento del crédito termine con una crisis financiera. En este estudio, se han investigado los efectos de variables basadas en el crédito en las crisis bancarias de 23 economías emergentes. En particular, el estudio se centra en los efectos de los créditos y préstamos no redituables durante las crisis. Asimismo, en el análisis se incluyen variables de control macroeconómico y específicas del sistema bancario. Los hallazgos muestran que los préstamos del sector privado por parte de los bancos y los préstamos no redituables que reflejan el riesgo crediticio no explican las crisis bancarias. En cambio, se ha determinado que sí afectan a las crisis las provisiones para préstamos no redituables de los bancos y la brecha crediticia que se considera que refleja el riesgo sistémico en el sistema bancario.

Crediting in the banking sector plays an important role in developed and developing countries, which have built their financial system more on banking rather than capital markets. For this reason, it is monitored continuously by public authorities and measures are taken to control credit supply in rapid credit increases. In addition, strict provisioning rules for non-performing credits are under practice for non-performing loans. It is well known that in emerging markets strong credit growth in a given period is likely to end up with a financial crisis. In this study, the effects of credit-based variables on bank crises in the emerging 23 economies were investigated. In particular, the effects of credits and non-performing loans on crises are focussed. Additionally, the bank system-specific and macroeconomic control variables are included in the analysis. Findings show that private sector lending by banks and non-performing loans reflecting credit risk do not explain bank crises. Instead, it has been determined that the provisions for non-performing loans by banks and the credit gap that is considered to reflect the systemic risk in the banking system affect crises., La concesión de créditos en el sector bancario desempeña un papel importante en los países desarrollados y en vías de desarrollo, que han basado su sistema financiero más en las operaciones bancarias que en los mercados de capital. Por esta razón, las autoridades públicas la supervisan constantemente y se toman medidas para controlar la oferta crediticia en aumentos rápidos de crédito. Además, a los préstamos no redituables se les aplican estrictas reglas de provisión para créditos no redituables. Es bien sabido que en los mercados emergentes es probable que un periodo de fuerte crecimiento del crédito termine con una crisis financiera. En este estudio, se han investigado los efectos de variables basadas en el crédito en las crisis bancarias de 23 economías emergentes. En particular, el estudio se centra en los efectos de los créditos y préstamos no redituables durante las crisis. Asimismo, en el análisis se incluyen variables de control macroeconómico y específicas del sistema bancario. Los hallazgos muestran que los préstamos del sector privado por parte de los bancos y los préstamos no redituables que reflejan el riesgo crediticio no explican las crisis bancarias. En cambio, se ha determinado que sí afectan a las crisis las provisiones para préstamos no redituables de los bancos y la brecha crediticia que se considera que refleja el riesgo sistémico en el sistema bancario.

This study to examine and analyze the effect of liquidity, credit growth, efficiency, and capital adequacy on the Bank’s profitability listed on the IDX partially and simultaneously. The research data are annual data for the 5-year observation period (2009-2013). This research was conducted at 33 banks listed on Indonesia Stock Exchange. Banks Analyzed that met the population criteria were 23 banks. The analytical method used in multiple linier regression. The results showed that liquidity, credit growth, efficiency, and capital adequacy together (simultaneously) significantly influence profitability. Partially,  liquidity has a significant positive effect on profitability, while efficiency has a significant negative effect. Credit growth and capital adequacy have no significant effect on profitability. Liquidity is the variable that has the biggest effect on the Bank’s profitability.&nbsp

This study to examine and analyze the effect of liquidity, credit growth, efficiency, and capital adequacy on the Bank’s profitability listed on the IDX partially and simultaneously. The research data are annual data for the 5-year observation period (2009-2013). This research was conducted at 33 banks listed on Indonesia Stock Exchange. Banks Analyzed that met the population criteria were 23 banks. The analytical method used in multiple linier regression. The results showed that liquidity, credit growth, efficiency, and capital adequacy together (simultaneously) significantly influence profitability. Partially,  liquidity has a significant positive effect on profitability, while efficiency has a significant negative effect. Credit growth and capital adequacy have no significant effect on profitability. Liquidity is the variable that has the biggest effect on the Bank’s profitability.&nbsp

In this thesis we used a Vector Error Correction (VEC) model to analyse whether changes in credit growth have a significant effect on output in Iceland using monthly data for the period 1997-2017. Both our results from the error variance decompositions and the impulse response functions suggest that changes in credit and exports have a large impact on Icelandic output. We conclude that changes in credit activity do affect Icelandic macroeconomic variables. There is a statistically significant relationship between output and credit growth and hence the ‘credit view’ is supported in the case of Iceland. This highlights the importance of implementing macroprudential rules that can minimize severe economic fluctuations caused by excessive credit growth.

In this thesis we used a Vector Error Correction (VEC) model to analyse whether changes in credit growth have a significant effect on output in Iceland using monthly data for the period 1997-2017. Both our results from the error variance decompositions and the impulse response functions suggest that changes in credit and exports have a large impact on Icelandic output. We conclude that changes in credit activity do affect Icelandic macroeconomic variables. There is a statistically significant relationship between output and credit growth and hence the ‘credit view’ is supported in the case of Iceland. This highlights the importance of implementing macroprudential rules that can minimize severe economic fluctuations caused by excessive credit growth.

This paper focusses on the relation between external imbalances and domestic money and credit growth in the euro area. We compute money and credit overhang both for the euro area as a whole and for individual member countries. Our results show that both aggregate money and credit overhang have trend-like increased since the early 2000s. The increase in money overhang has been rather evenly spread over the member states but the increase in credit overhang has been unevenly spread and has mainly occurred in the GIIP countries. We apply panel analysis to detect temporal patterns between the developments in money overhang, credit overhang and external indebtedness. Looking at the groups of GIPS countries in isolation, net debt flows do play a significant role to explain money and credit overhang.

The credit crisis of 2007-2009 has sparked an enormous interest in the role that financial intermediaries play in our economy. Recent literature examines how financial intermediaries affect not only macro-economic variables but also asset markets such as the stock and the bond markets. The underlying theme in this recent literature is that the function of financial intermediaries in our asset markets is not yet completely understood and requires further study. This dissertation is based on three chapters that examine the interaction between systemic risks, financial intermediaries, and asset markets.The first chapter is titled 'Counterparty Credit Risk and the Credit Default Swap Market'. This chapter is a version of a forthcoming paper in the Journal of Financial Economics by the same title. This paper is coauthored with Navneet Arora and Francis Longstaff. Counterparty credit risk has become one of the highest-profile risks facing participants in financial markets. Despite this, relatively little is known about how counterparty credit risk is actually priced. In this chapter I examine this issue empirically. I find that counterpartycredit risk is priced in the CDS market. The magnitude of the effect, however, is vanishingly small and is consistent with a market structure in which participants require collateralization of swap liabilities by counterparties.The second chapter is titled 'Size Anomalies in U.S. Bank Stock Returns: A Fiscal Explanation'. This chapter is a version of a UCLA Anderson working paper. This paper is coauthored with Hanno Lustig. I show that the largest commercial bank stocks, measured by book value, have significantly lower risk-adjusted returns than small- and medium-sized bank stocks, even though large banks are significantly more levered. I find a size factor in the component of bank returns that is orthogonal to the standard risk factors. This size factor, which has the right covariance with bank returns to explain the average risk-adjus

The credit crisis of 2007-2009 has sparked an enormous interest in the role that financial intermediaries play in our economy. Recent literature examines how financial intermediaries affect not only macro-economic variables but also asset markets such as the stock and the bond markets. The underlying theme in this recent literature is that the function of financial intermediaries in our asset markets is not yet completely understood and requires further study. This dissertation is based on three chapters that examine the interaction between systemic risks, financial intermediaries, and asset markets.The first chapter is titled 'Counterparty Credit Risk and the Credit Default Swap Market'. This chapter is a version of a forthcoming paper in the Journal of Financial Economics by the same title. This paper is coauthored with Navneet Arora and Francis Longstaff. Counterparty credit risk has become one of the highest-profile risks facing participants in financial markets. Despite this, relatively little is known about how counterparty credit risk is actually priced. In this chapter I examine this issue empirically. I find that counterpartycredit risk is priced in the CDS market. The magnitude of the effect, however, is vanishingly small and is consistent with a market structure in which participants require collateralization of swap liabilities by counterparties.The second chapter is titled 'Size Anomalies in U.S. Bank Stock Returns: A Fiscal Explanation'. This chapter is a version of a UCLA Anderson working paper. This paper is coauthored with Hanno Lustig. I show that the largest commercial bank stocks, measured by book value, have significantly lower risk-adjusted returns than small- and medium-sized bank stocks, even though large banks are significantly more levered. I find a size factor in the component of bank returns that is orthogonal to the standard risk factors. This size factor, which has the right covariance with bank returns to explain the average risk-adjus

The paper explores the relationship between bank size and bank credit growth during the recent period of financial crisis (2007-2009). We find that small banks are able to establish relationships based more extensively on the use of soft information especially in periods of crisis. The results show how small banks increased the credit supply unlike the larger banks. Control variable for firms demand factors do not seem to affect the changes in bank credit availability. © EuroJournals, Inc. 2012.

This thesis discusses how far the countercyclical capital buffer (CCB) addresses procyclicality and helps to stabilise the financial market based on a sample of developed, emerging and frontier market economies worldwide. Applying two methodological approaches to calibrate the CCB, it is shown that only one method meets the overall target to dampen procyclicality in the upswing phase and minimise the risk of credit contraction in the downturn phase. Evidence demonstrates that the CCB which is determined by the credit-to-GDP guide, the common reference model of the Basel Committee, did not address procyclicality. Instead, the CCB calculated on the basis of real credit growth better addressed cyclical issues in spite of high sensitivity towards credit growth changes that resulted in spurious volatility., submitted by Adrian Sasgary, BSc (WU), Masterarbeit Universität Innsbruck 2019

This thesis discusses how far the countercyclical capital buffer (CCB) addresses procyclicality and helps to stabilise the financial market based on a sample of developed, emerging and frontier market economies worldwide. Applying two methodological approaches to calibrate the CCB, it is shown that only one method meets the overall target to dampen procyclicality in the upswing phase and minimise the risk of credit contraction in the downturn phase. Evidence demonstrates that the CCB which is determined by the credit-to-GDP guide, the common reference model of the Basel Committee, did not address procyclicality. Instead, the CCB calculated on the basis of real credit growth better addressed cyclical issues in spite of high sensitivity towards credit growth changes that resulted in spurious volatility., submitted by Adrian Sasgary, BSc (WU), Masterarbeit Universität Innsbruck 2019