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Extant literature investigates on the determinants of NPL (non-performing loan) many a time, however, little is known on the relationship between economic uncertainty and NPL for any developing country. Historically, Bangladesh is suffering from high level of NPL in the banking sector. In addition to that, Bangladesh observes high level of macroeconomic uncertainty as characterized by high and volatile Gross Domestic Products and inflation, continuous exchange rate devaluations, and shallow financial markets. Motivated by this, we investigate the nexus between economic uncertainty and NPL for Bangladesh. Based on the data availability, we use the annual dataset covering 1990-2018. Furthermore, we use autoregressive distributed lag (ARDL) model considering its benefit accommodating both I(0) and I(1) variables. The empirical results show that there is positive relationship between economic uncertainty and NPL in the long run. The results are robust to the alternative measures of economic uncertainty and specifications. Consistent with the expectation, financial development carries a negative sign on the asset quality albeit the effect of economic uncertainty is actually pronounced (both the size and significance changes) in the augmented models. Key policy implication of this study is that government should formulate well anchored, rule-based policies to reduce inflation and interest related uncertainties. With a rule-based policy (for example, inflation targeting), people believe that central bank can achieve its targets. Government should adopt floating exchange rate regime that will adjust the external shocks well via exchange rates. In addition to this, government can monitor, and regulate stock market so that uncertainty in stock market is reduced. Finally, monetary and fiscal policies should be communicated well to the people. Thus, it is possible to reduce asymmetric information among the people, which may reduce economic uncertainty, and thus reduce NPL. JEL Classifications: E44, G28, E58 Keywords: Non-performing loan, economic uncertainty, Bangladesh evidence., INTRODUCTION Given the persistent and rising Non-performing loans (NPL) in Bangladesh since 1990, we are motivated to study whether economic uncertainty, as the key macroeconomic factor, lead to systematic development [...]

This paper describes the growth of local-currency bond markets in Emerging Asia and the institutional and policy challenges facing the region's economies for their further development. It presents an empirical analysis of the relationship between local-currency government bond (LCGB) market development and the components of financial development, using panel data for selected Emerging Asian economies. The analysis seeks to identify the key determinants for the development of LCGB markets. The results show that the depth of and access to both financial markets and financial institutions have a significantly positive impact on LCGB market development. Critical factors associated with local-currency bond market depth include macroeconomic variables, the exchange-rate regime, capital account openness and creditor rights. Based on these results, the paper offers policy directions for fostering the development of local-currency bond markets in the region. Keywords: Local-currency government bond, bond market development, financial deepening, financial development, Southeast Asia, Asia, 1. Introduction Emerging Asia's bond markets have grown substantially over the last two decades. For instance, in the six ASEAN countries for which data are available (Indonesia, Malaysia, the Philippines, [...]

Oil prices have dropped sharply in recent years. If for some countries, the decrease represents tremendous benefits, for others, namely the oil-producing countries, it is a huge loss which is susceptible to cause budget deficit. With respect to such deficit, this study investigates the impact of budget deficit and public debt on monetary policy in Sub-Saharan Africa. We apply the panel instrumental variables (IV)generalized method of moments (GMM) estimator to a pool of 44 countries over the period 1997-2017. The estimator implements IV/GMM estimation of the fixed-effects panel data models with endogenous regressors and is heteroskedastic and autocorrelation consistent. Regardless of the exporting or importing nature of the country, the results indicate no significant relationships between the fiscal variables and interest rates over the period 1997-2017. However, we find significant positive relationships between public debt and the discount rate and, to a lesser extent, between budget deficit and the discount rate, following the fall in oil prices from 2014. Put simply, monetary authorities have increased the discount rate from 2014. In the net oil-exporting countries, the evidence indicates from 2014 that public debt has significant positive impacts on the interest rates, whereas no significant impacts arise between budget deficit and interest rates. Monetary authorities in those countries seem to respond to the stock of debt rather than to its flow. In the net oil-importing countries, the results show a positive relationship between public debt and the discount rate following the fall in prices. Overall, our results suggest that monetary authorities may have been accommodating monetary policy, mainly through the discount rate, to prevent financial instability that may result from the falling oil prices since 2014. That is, tightening monetary policy may mitigate the inflationary pressure the long-standing decrease in oil prices may have created. Finally, while the falling oil prices should be good news for the oil-importing countries in terms of transportation and production costs, the results shed light on the fact that both oil-importing and exporting countries may be equally affected by the fall since the response of monetary authorities in the two sets of countries is very similar. JEL Classifications: E30, E58, H60 Keywords: Monetary policy, budget deficit, oil prices Corresponding Author's Email Address: fdonouadonsou@jcu.edu, INTRODUCTION Since June 2014, the international oil price has been falling (see Figure 1). If for some countries, the decrease represents tremendous benefits, for others, namely the oil-producing countries, it [...]

This article examines the effectiveness of Guyana s fiscal framework as the country is set to usher in an era of oil wealth. It draws on a large body of literature to determine the key elements of an effective fiscal framework for resource-dependent economies. In summary, the literature argues for resource-dependent countries to have appropriate levels of stabilisation savings, a strong institutional framework, and effective spending policies and use taxation effectively to reduce revenue volatility. We examine how Guyana stacks up against those requirements and what lessons Guyana can learn from other hydrocarbon-dependent economies. We find that Guyana has a lot of work to do in all these areas. We argue that Guyana should place a strong emphasis on strengthening expenditure policies and improving budget transparency and governance. These improvements could potentially increase the productivity of public investment, reduce the wastage of public funds, and reduce the perception of corruption. Keywords: fiscal framework, fiscal policy, Guyana, oil-dependent countries. JEL classification: E62, Q02, H5 Cet article examine l'cfficacite du cadre fiscal de la Guyane alors que le pays s'apprete a entrer dans une ere de richesse petroliere. 11 s'appuie sur un large corpus de litterature pour determiner les elements cies d'un cadre fiscal efficace pour les economies dependantes des ressourecs. En resume, la litterature plaide pour que les pays dependant des ressourecs disposent de niveaux appropnes d'epargne de stabilisation, d'un cadre institutionnel solide, de politiques de depenses cfficaces et utilisent la fiscalite de maniere efficace pour reduirc la volatilite des revenus. Nous examinons comment la Guyane se situe par rapport a ces exigences et quels enseignements elle peut tirer d'autres economics dependantes des hydrocarbures. Nous constatons que la Guyane a beaucoup dc travail a fairc dans tous ccs domaincs. Nous soutenons que la Guyane devrait mettre l'acccnt sur le rcnforccmcnt des politiques dc depenses et l'ameliorarion dc la transparence budgctaire et de la gouvernance, Ces ameliorations pourraient potentiellement augmenter la productivite des investisscments publics, reduirc le gaspillage des fonds publics et diminuer la perception de la corruption. Mots-cles: cadre budgctaire, politique budgctaire, Guyana, pays dependant du petrole. Classification JEL: E62, Q02, H5 Este articulo examina la efectividad del marco fiscal de Guyana a medida que el pais esta listo para marcar el comienzo de una era dc riqueza petrolera. El mismo se basa en una gran cantidad de literatura para determinar los elementos clave de un marco fiscal eficaz para las economias dependientes de recursos. En resumen, la literatura aboga por que los paises que dependen dc recursos puedan tener niveles adecuados de ahorro para su estabilizacion, un marco institucional solido, y politicas de gasto efectivas, asi como un uso efectivo de impuestos que les permita reducir la volatilidad de los ingresos. Examinamos la situacion dc Guyana dc cara a esos requisitos y que lecciones puede aprender dc otras economias dependientes de los hidrocarburos. Encontramos que Guyana tiene mucho trabajo por hacer en todas estas areas. Sustentamos que Guyana debe hacer especial hincapie en fortalecer las politicas de gasto y mejorar la transparencia presupuestaria y la gobernacion. Tales mejoras podrian aumentar potencialmente la productividad dc la inversion publica, reducir el despiltarro de fondos publicos, asi como reducir la percepcion de corrupcion. Palabras clave: marco fiscal, politica fiscal, Guyana, paises dependientes del petroleo. Clasificacion JEL: E62, Q02, 115, INTRODUCTION Guyana is shaping up to become an oil giant in the Caribbean and as such has attracted a lot of attention from policymakers, academics, and economic pundits from both [...]

In the aftermath of the global financial crisis and in the wake of the COVID-19 pandemic, and the subsequent diminishing fiscal spaces of small islands, fiscal policy and the search for fiscal sustainability have regained prominence on both policy and research agendas. Strengthening fiscal rules and fiscal institutions have indeed emerged as a key response to the fiscal legacy of the crisis. This is more evident across small island economies in the Caribbean, especially the tourism-dependent island economies. While the recent surge in policy debates and discussion is certainly a sign of the mounting fiscal pressures, these are by no means new to the Caribbean. Over halfa-century ago fiscal matters were prominently on the Caribbean federation agenda. Nevertheless, fiscal sustainability remains ephemeral and illusionary; indeed, an odyssey in the Caribbean. Keywords: Fiscal sustainability, Fiscal rules, Fiscal institutions, Dutch Caribbean, Aruba Au lendemain de la crise financiere mondiale et a la suite de la pandemie de COVID-19, et de la diminution subsequente des espaces budgetaires des petites iles, la politique budgetaire et la recherche d'une viabilite budgetaire ont repris de l'importance dans les programmes politiques et de recherche. Le renforcement des regles budgetaires et des institutions budgetaires est en effet apparu comme une reponse cle a l'heritage budgetaire de la crise. Cela est plus evident dans les petites economies insulaires des Caraibes, en particulier les economies insulaires dependantes du tourisme. Bien que la recente vague de debats et de discussions sur les politiques soit certainement un signe des pressions budgetaires croissantes, celles-ci ne sont en aucun cas nouvelles pour les Caraibes. Il y a plus d'un demi-siecle, les questions fiscales figuraient en bonne place dans l'agenda de la federation des Caraibes. Neanmoins, la soutenabilite budgetaire reste ephemere et illusoire; en effet, une odyssee dans les Caraibes. Mots-cles: Viabilite fiscale, Regles fiscales, Institutions fiscales, Antilles neerlandaises, Aruba A raiz de la crisis financiera mundial y de la pandemia del COVID-19, y la consiguiente disminucion de los espacios fiscales de las islas pequenas, la politica fiscal y la busqueda de la sostenibilidad fiscal han recuperado protagonismo tanto en las agendas de politicas como en las de investigacion. El fortalecimiento de las reglas fiscales y las instituciones fiscales ha surgido de hecho como una respuesta clave al legado fiscal de la crisis. Esto es mas evidente en las pequenas economias insulares del Caribe, especialmente en las economias insulares que dependen del turismo. Si bien el reciente aumento de debates y discusiones sobre politicas es ciertamente una senal de las crecientes presiones fiscales, estas no son de ninguna manera nuevas en el Caribe. Hace mas de medio siglo, los asuntos fiscales ocupaban un lugar destacado en la agenda de la federacion caribena. Sin embargo, la sostenibilidad fiscal sigue siendo efimera e ilusoria; de hecho, una odisea en el Caribe. Palabras clave: Sostenibilidad fiscal, Reglas fiscales, Instituciones fiscales, Caribe holandes, Aruba., What is Past is Prologue In the aftermath of the global financial crisis and in the wake of the COVID-19 pandemic, and the subsequent diminishing fiscal space of governments, fiscal [...]

Indonesia fielded shocks due to the Asian Financial Crisis (AFC) and the Global Financial Crisis (GFC) quite differently. Financial contagion, policy misdirection, panic and political upheaval saw the AFC bring economic collapse. The GFC, however, brought about real domestic growth of 6.1 per cent (2008) and 4.5 per cent (2009)--amongst the world's best performances at the time. This paper reviews these events and employs numerical modelling of stylized AFC and GFC shocks to show that some of the contrast stems from differences in the shocks and intervening changes in Indonesia's economic structure. Critically, IMF conditionality during the AFC required unsustainably contractionary reforms. Capital flight elements were present in both crises, however, and exchange rate depreciations and moneyfinanced fiscal expansions are shown to have contributed significantly to resolution. Keywords: Indonesia, external shocks, financial crises, exchange rates, macroeconomic policy Article received: May 2019; revised: April 2020; accepted: June 2020, 1. Introduction Indonesia has an open, developing economy that has been affected, occasionally dramatically, by shocks from abroad. The most substantial of these was the Asian Financial Crisis (AFC), which [...]

This study presents an empirical analysis of the impact of the US unconventional monetary policy and its normalization on the dynamics of relatively volatile capital inflows (i.e., portfolio equity, portfolio debt securities, and bank and money market) into the Philippines using monthly data from January 2008 to March 2016. Results are obtained using a structural vector autoregression (SVAR) model, interacting both 'push' and 'pull' factors of capital inflows into the SVAR system. Overall, results show that the effects of these US monetary policy shocks on the aforementioned volatile capital inflows are minimal when scaled in terms of gross domestic product (GDP). The findings also suggest that, of the three volatile capital inflows, the impact of these shocks is more pronounced on portfolio debt securities, as well as on bank and money market inflows. Meanwhile, the impact on portfolio equity inflows is very limited. Additionally, the persistence of these shocks is seen to last from one to six months. Keywords: US unconventional monetary policy, US policy normalization, capital flows, monetary policy, the Philippines Article received: August 2018; revised: October 2019; accepted: December 2019, 1. Introduction Capital surges and subsequent reversals of greater magnitude have been observed in emerging market economies (EMEs) stemming from spillovers from US monetary policy aimed at mitigating the effects [...]

I am delighted to be at the Cato Institute today to participate in your annual monetary conference. The last time I had the privilege of speaking at this conference was [...]

This paper examines the effects of exchange rate depreciation to the U.S. economy in a factor-augmented vector autoregression model using monthly data of 148 variables for the post-Bretton Woods period of 1973-2017. Exchange rate shock is identified to reflect exogenous disturbances to the foreign exchange market, and movements in exchange rate that are not accounted for by changes in the U.S. monetary policy. We find that depreciation is expansionary and inflationary to the broad U.S. economy, the current account improves over time conforming to the J-curve theory, and monetary policy is leaning against the wind. (JEL E3, E5, F31, F32, F41), I. INTRODUCTION The breakdown of the Bretton Woods system in the early 1970s embarked on the transition of the world monetary system from fixed exchange rates to floating. With accelerated [...]

Estimating a large-scale factor-augmented vector autoregressive model for 18 Organisation for Economic Co-operation and Development member countries, we quantify the global effects of economic policy uncertainty shocks. More specifically, we check whether the signs, the magnitude, and the persistence profile are consistent with the literature on the real and financial sector effects of uncertainty. In that respect, we compare the impacts of a U.S. and a Euro area policy uncertainty shock. According to our results, an increase in economic policy uncertainty has a strong negative impact on economic activity (gross domestic product), consumer prices, equity prices, and interest rates. Uncertainty shocks cause deeper recessions in Continental Europe (except Germany) than in Anglo-Saxon countries. U.S. uncertainty shocks have a bigger impact than those for the Euro area. Economic policy uncertainty does not only affect that country where the shock originates but also has large cross-border effects. We also find a high degree of synchronization among the responses of national variables to a (foreign) uncertainty shock, indicating evidence of an international business cycle. With respect to the responses of national long-term interest rates to an economic policy uncertainty shock, our results reveal a strong 'North-South' divide within the Euro area with rates decreasing less significantly in the South. Moreover, economic policy uncertainty shocks emerging in one region quickly raise uncertainty outside the region of origin. (JEL C32, F42, D80), I. INTRODUCTION Uncertainty has gained much attention as one of the main drivers of the depth and duration of the Great Recession (Bloom et al. 2013; Caggiano, Castelnuovo, and Pellegrino [...]

We develop a small open economy, New Keynesian model that incorporates a financial accelerator in combination with liability dollarization. Applying a Ramsey-type analysis, we compare the welfare implications of an optimal monetary policy under flexible exchange rates and an optimal capital control policy under fixed exchange rates. In an economy without the financial accelerator, an optimal monetary policy under flexible exchange rates is superior to an optimal capital control policy under fixed exchange rates. In contrast, in an economy with the financial accelerator, an optimal capital control under fixed exchange rates yields higher welfare than an optimal monetary policy under flexible exchange rates.(JEL E44, E52, F32, F38, F41), I. INTRODUCTION Although capital controls are not a new policy instrument, it is not until the recent global financial crisis that the potential effects of capital control policies have been [...]

We find that the adoption of numerical fiscal rules reduces government borrowing costs in a sample of 101 advanced and developing countries for 1985-2010. We apply a variety of propensity score matching methods to address the self-selection problem of policy adoption and find strong evidence that fiscal rules have large and significant treatment effects on lowering government borrowing costs in both international and domestic financial markets. The results are robust to changes in country sample and alternative estimation methodology, and are consistent with fiscal rules helping to build policy credibility by reducing the probability of default and the 'risk premium' on government debt that compensates lenders for this possibility. (JEL E43, G12, H60), I. INTRODUCTION Numerical fiscal rules have been a popular addition to fiscal frameworks since the early 1990s. (1) In this paper, we examine whether the adoption of such rules has [...]

In this article, I review the state of Ecuadorean economic policy in the twenty-first century, emphasizing the impact of and national reaction to liberal economic policy in the nation, especially dollarization. While economic liberalism and dollarization had a positive effect on Ecuador's economy, these policies have faced a backlash from voters, resulting in reversion to greater governmental intervention in the economy that, liberal critics argue, is unsustainable in the long term. Advocates for economic liberalism will need to adopt more incrementalist approaches toward policy reform, remain cognizant of the centrality of Ecuador's human development aspirations, and recognize the reality of policy diffusion processes to succeed in future policy changing efforts. Keywords: Ecuador, Liberalism, Dollarization, Economic Reform, Latin America, Governmental Economic Intervention, Policy Reform, Human Development. En este articulo reviso la politica economica del estado Ecuatoriano en el siglo 21, enfatizando el impacto y la reaccion nacional de la politica economica liberal en la nacion, especialmente el impacto de la dolarizacion. Mientras que el liberalismo economico y la dolarizacion han tenido un efecto positivo en la economia de Ecuador, estas politicas han enfrentado una contraola de electores que ha resultado en una marcha atras a la gran intervencion gubernamental en la economia que los criticos liberales han considerado como insostenible en el largo plazo. Los defensores del liberalismo economico necesitan adoptar enfoques mas incrementalistas hacia una politica de reforma, y mantenerse conscientes de la centralidad de las aspiraciones del desarrollo humano de Ecuador y reconocer la realidad de los procesos de difusion de las politicas para tener exito en sus esfuerzos de cambio de las politicas futuras. Palabras clave: Ecuador, Liberalismo, Dolarizacion, Politica Economica Liberal, Reforma Economica. [Please note: Some non-Latin characters were omitted from this article] [Please note: Some non-Latin characters were omitted from this article], The Latin American nation of Ecuador has long struggled with its approach toward the management of its national economy. At times, Ecuador has utilized more statist methods toward economic development, [...]

Monetary theory is like a Japanese garden. It has esthetic unity born of variety; an apparent simplicity that conceals a sophisticated reality; a surface view that dissolves in ever deeper [...]

Monetary policy was too tight in many countries following the financial crisis, due to the lower bound on interest rates. This is likely to have prolonged the recession that followed. [...]

This paper examines the conduct of fiscal policy in Brunei from 2003Q1 to 2014Q2, focusing on the cyclical patterns in government expenditure. The results from a structural vector autoregression model provide evidence that fiscal policy in Brunei is procyclical, which has an expansionary effect on output and thus exacerbates the business cycle. This behaviour is primarily driven by procyclical current expenditure while capital expenditure is largely acyclical. The government should exercise caution to avoid adding cyclical pressures to the economy already afflicted by volatile oil prices. A key policy recommendation would be to adopt clear fiscal rules and better integration of the reserve funds in the budgetary framework to delink government spending from volatile oil revenues. Keywords: Fiscal policy, fiscal rules, oil fund, Brunei Darussalam., 1. Introduction The plunge in crude oil prices over the past year, from US$110 per barrel in June 2014 to less than US$40 per barrel as of December 2015, is [...]

The Great Financial Crisis has triggered much soul-searching within the economic profession and the policymaking community. The crisis shattered the notion that price stability would guarantee macroeconomic stability: financial markets [...]

After almost a decade of high growth, Vietnam's growth rate fell during 2011-13. Since 2001, the country has also experienced two bouts of high inflation, booms and busts in equity and real estate markets, and episodes of large capital inflows and outflows. Against the backdrop of the global economy, this paper provides an account of macroeconomic developments in Vietnam during 2011 to 2013, examines the imbalances that came to a head in 2011, the macroeconomic stabilization achieved during 2012 to 2014, and the outlook and challenges going forward. The paper concludes that successfully designing and implementing a broad set of policies--staying the course on macroeconomic stabilization, while accelerating the pace of structural reform significantly, and integrating into the global economy--will allow Vietnam to further advance the remarkable gains that it has already made in poverty alleviation and achieving its Millenium Development Goals. Keywords: Vietnam, macroeconomics policies, structural reforms, world economy., 1. Introduction After almost a decade of high growth, Vietnam tumbled to low growth rates. Prior to the Global Financial Crisis (GFC) in 2008, real GDP growth averaged 7.25 per [...]

Improving the business environment has been a major aim of Myanmar's reforms. However, the formal and informal economic institutions that govern exchange and shape the business environment changed significantly under a half-century of socialist and military government. The socialist leadership eliminated many market-supporting institutions made unnecessary because economic activity was to be state planned. Under this framework, personal exchange became dominant and control of economic life widespread. The military government revived market exchange, but many institutions from the socialist era remained and continue to constrain private business today. Thus, the strict economic controls, arbitrary policy-making and lack of processes that affect businesses in present-day Myanmar have direct institutional links with former regimes. They distort the structure of the economy, incentivize clustering in particular sectors and promote the use of networks and personal exchange. As other countries have shown, successful reform is a long process requiring more than changes in the formal institutions of regulation. Keywords: Business environment, Myanmar, New Institutional Economics, economic development, Burma., I. Introduction Since Myanmar's transition began in 2011, one of the key elements of the economic reform agenda has been building a more efficient and competitive business environment. A good [...]

In this world of zero interest rates, fiscal policy has to contribute to support aggregate demand. A well-designed expansionary fiscal policy can contribute to better economic outcomes in three ways. [...]

This paper investigates the impact of fiscal policy on profits using panel data for 18 high-income OECD countries during the period 1975-1999. We estimate a profit equation allowing a consistent treatment of the government budget constraint, and we try to disentangle the effects of different spending and taxation items. As far as public spending is concerned, our results strongly suggest that capital expenditures are associated with higher profits, while expenditures on goods and services and in particular on wages and salaries deteriorate profits. In general, 'productive' expenditures seem to increase profits while the effect of 'unproductive' expenditures is insignificant. Transport and communication expenditures seem to have a positive impact on profits. On the revenue side, we find that both direct and indirect taxation has a negative impact on profits. (JEL E62, H32, H54), I. INTRODUCTION A large number of policy-making decisions rely on the key issue of the impact of fiscal policy on the economy. Therefore, it is not surprising that the effect [...]

'Personally like most economists. I am in fact in favor of free trade and free investment flows; but they are surely given too much credit.' (1) The ongoing Financial and [...]

We analyze the impact of monetary and financial policies on the level of financial euroization in Croatia during 2002-2010. We find strong empirical evidence that these policies effectively helped reduce financial euroization in 2002-2007. During the financial crisis, some of the measures might have contributed to partial re-euroization in 2008-2009, but they ultimately paid off when judged against a wider set of criteria. Generalizing our results, it appears that in non-crisis periods monetary and financial policies can reduce financial euroization. Comparative Economic Studies (2012) 54, 443- 470. doi: 10.1057/ces.2012.23; published online 26 July 2012 Keywords: Croatia, financial euroization, foreign currency lending JEL Classifications: E44, E58, E65, F31, F41, INTRODUCTION Episodes of significant currency depreciation during the financial crisis have exposed some of the risks associated with the widespread practice of foreign currency lending in Central and Eastern Europe. [...]