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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 [...]

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 [...]

In this paper, we investigate the extent of monetary independence in a group of ten Asian countries: China, Malaysia, Japan, India, Indonesia, Philippines, Thailand, Korea, Singapore, and Hong Kong. While the traditional investigation has considered only the bivariate relationship between the home interest rate and the base rate, we employ both single-equation and vector autoregressive representations of the bivariate and the trivariate relationship including the desired (or optimal) interest rate. We find in most countries, that the ranking of monetary independence is relatively consistent across the models and methodologies although model specifications produce important differences for some countries such as Japan, Indonesia, and India. Trilemma suggests that a country cannot accomplish all three policy objectives: monetary independence, exchange rate stability, and free capital mobility. To increase monetary independence a country must choose between greater exchange rate flexibility or a lower degree of capital mobility. The fact that China and Malaysia, the two countries that are known to have imposed the strictest capital controls, consistently rank high in various scenarios while Hong Kong, which has maintained nearly the freest regime in capital markets, is lowest in monetary independence, indicates that perhaps capital controls may play a more important role than does exchange rate flexibility in securing independence in monetary policy making. On the other hand, countries that maintain greater exchange rate stability do not necessarily rank low, unless it is combined with greater capital mobility as in the case of Hong Kong. Keywords Trilemma * Monetary independence * Capital controls * Exchange rate flexibility This paper has been written with a generous support from The A P J Kalam India Studies Research Program. We have benefitted from very useful and constructive comments from two referees. JEL Classification F3 F4, Introduction In an open economy, a monetary authority is subject to the trilemma, which states that it is impossible to have all three policy objectives of (a) unrestricted capital movement, [...]

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. [...]

Many central banks, particularly in the developing world, aim for exchange rate stability as a macroeconomic goal. However, most are reluctant to relinquish monetary policy autonomy, so they end up operating through both interest rate and foreign exchange interventions. But the use of multiple policy instruments does not necessarily equip monetary authorities with better tools to achieve their targets. On the contrary, their effects can potentially offset each other. Using daily data from the Central Bank of Colombia during the period of 1999-2012, I study the effects of simultaneous policies by first deriving new measures of monetary shocks and then determining their impact on economic activity. The main findings indicate that (a) while interest rate interventions have a significant impact on real and nominal variables, foreign exchange interventions tend to have limited effects; and (b) empirical anomalies, such as the positive relationship between output growth, inflation, and the policy rate are eliminated when properly accounting for the systematic responses of policy. (JEL E43, E52, E58, F31), But it remains a fact that compared to conventional policy the effects of unconventional monetary policy are very limited and uncertain --Olivier Blanchard (1) I. INTRODUCTION Ever since the demise [...]

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 Recession sparked wide interest in the economic effects of fiscal policy. That interest is reflected in an ongoing debate over the size of the fiscal multiplier. This survey article addresses three questions: What models do economists use to estimate that multiplier? Why do estimates of it vary widely? How can economists use those estimates to judiciously analyze U.S. economic policy? (JEL E62, H30, H50), I. INTRODUCTION The Great Recession, which began in December 2007 and ended in June 2009, sparked wide interest in the economic effects of fiscal policy. The downturn initially provoked a [...]

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. [...]

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. [...]

Work on the impact of U.S. monetary policy on emerging financial markets mostly focuses on official target rate announcements; empirical evidence using data on informal communication channels, such as speeches, is scant. Employing a unique data set covering formal and informal communication channels in a generalized autoregressive conditional heteroskedasticity model framework, we provide comprehensive evidence on the effects of U.S. monetary policy on 17 emerging equity market returns over the period 1998-2009. We find, first, that both monetary policy actions and communications have a significant impact on market returns. Second, target rate change surprises are an important driver of emerging market returns. However, informal communications--particularly when taking into account their higher frequency--have a larger (cumulative) influence on returns than do target rate surprises. Third, during the recent financial crisis, central bank communication played an even more pronounced role. Finally, American emerging markets react more to communications than do non-American markets. JEL Classification: E52, G14, G15, 1. Introduction According to the Coordinated Portfolio Investment Survey, published by the International Monetary Fund, the United States is the world's largest investor. U.S. investors held about 30% of the [...]

Abstract This paper reexamines the empirical performance of monetary exchange rate models for the dollar/yen exchange rate. We focus on the character of a potential long-run relationship between exchange rates [...]

We examine the fiscal policy options that were available to Latin American countries at the onset of the current global economic crisis, concluding that most of the major countries in the region possessed the fiscal space (as measured by credible fiscal sustainability and debt headroom) to run prudent countercyclical fiscal deficits. For those countries, the appropriate policy response involved a constrained fiscal expansion focused on productive public spending and financed by drawing on the 'rainy day' funds--in the form of large stocks of foreign exchange reserves--that they accumulated in prior years, rather than by market borrowing. (JEL E62, E63, F34)., I. INTRODUCTION The current financial crisis has been the most severe and widespread that the international economy has experienced since the Great Depression of the 1930s. Although it originated in [...]

There is increasing recognition that prior to the global financial crisis financial regulation had lacked a macroprudential perspective. There has since been a strong effort to make a new macroprudential [...]

The 2007-2008 financial crisis has once again prompted a Lively debate on the benefits and risks of capital account liberalization in emerging market countries. This paper contributes to this debate by looking back at the 1990s through the lenses of the International Monetary Fund (IMF). On the basis of archival research, the paper argues that the IMF looked at Mexico as evidence of the benefits of global financial integration both before and after the 1994 crisis, focusing on macroeconomic conditions and underestimating the soundness of the domestic financial sector. In the conclusions, the paper links the findings with the debate that followed the subprime crisis. Comparative Economic Studies (2010) 52, 589-609. doi: 10.1057/ces.2010.18; published online 2 September 2010 Keywords: Mexico, IMF, capital account liberalization, crisis, JEL Ctassifications: F3, N2 The financial crisis that started in the summer of 2007 in the small segment of the US subprime market has rekindled the debate about the benefits [...]

This paper asks whether interest rate rules that respond aggressively to inflation, following the Taylor principle, are feasible in countries that suffer from fiscal dominance. We find that if interest rates are allowed to also respond to government debt, they can produce unique equilibria. But such equilibria are associated with extremely volatile inflation. The resulting frequent violations of the zero lower bound make such rules infeasible. Even within the set of feasible rules the welfare optimizing response to inflation is highly negative. The welfare gain from responding to government debt is minimal compared to the gain from eliminating fiscal dominance. JEL codes: E61, E62 Keywords: optimal simple policy rules, fiscal dominance., 'A central bank charged with maintaining price stability cannot be indifferent as to how fiscal policy is determined' (Woodford 2001). 'Ideally, where fiscal policy that undermines central bank control of [...]

The paper argues that many of the exaggerated claims that globalization has been an important factor in lowering inflation in recent years just do not hold up. Globalization does, however, have the potential to be stabilizing for individual economies and has been a key factor in promoting economic growth. The paper then examines four questions about the impact of globalization on the monetary transmission mechanism and arrives at the following answers: (i) Has globalization led to a decline in the sensitivity of inflation to domestic output gaps and thus to domestic monetary policy? No. (ii) Are foreign output gaps playing a more prominent role in the domestic inflation process, so that domestic monetary policy has more difficulty stabilizing inflation? No. (iii) Can domestic monetary policy still control domestic interest rates and so stabilize both inflation and output? Yes. (iv) Are there other ways, besides possible influences on inflation and interest rates, in which globalization may have affected the transmission mechanism of monetary policy? Yes. JEL codes: E52, F41 Keywords: globalization, monetary policy, inflation, monetary transmission mechanism, aggregate output., IN RECENT YEARS, globalization has become one of the hottest topics, not only for the general public but also for central bankers. Some commentators have gone so far as to [...]

Using vector autoregressions on U.S. time series for 1957-79 and 1983-2004, we find government spending shocks to have stronger effects on output, consumption, and wages in the earlier period. We try to account for this observation within a DSGE model featuring price rigidities and limited asset market participation. Specifically, we estimate the structural parameters of the model for both periods by matching impulse responses. Model-based counterfactual experiments suggest that most of the changes in fiscal policy transmission are accounted for by increased asset market participation and the more active monetary policy of the Volcker-Greenspan period. JEL codes: E21, E62, E63 Keywords: government spending, asset market participation, fiscal policy, monetary policy, DSGE, vector autoregression, minimum distance estimation., ONE OF THE MOST PROMINENT ISSUES IN macroeconomics concerns the effects of an increase in government spending. The topic takes center stage in the policy debate and has received great [...]

The role of International Monetary Fund in stabilizing inflation, from the study of Stanley Fischer's 'The International Monetary Fund in a Time of Crisis,' is examined.

A study analyzing the rationality behind the alterations of real Gross Domestic Product (GDP) forecasts and GDP deflator forecasts by International Monetary Fund (United Nations) (IMF), and Organisation for Economic Co-operation and Development (OECD) in the last thirty years is presented.

A paper on international monetary reform argues that growth constrained fundamentally by supply rather than demand. Use of 'World Economic Outlook' in assessing progress, exchange rates and International Monetary Fund's role are also discussed.

Top International Monetary Fund (IMF) and U.S. Treasury officials have put forth proposals designed to make it eventually easier for governments and bondholders to go through a debt-workout process. Their [...]

Using a bivariate, dynamic version of the Heckman selection model, we estimate the effect of participation in International Monetary Fund (IMF) programs on economic growth. We find evidence that governments enter into agreements with the IMF under the pressures of a foreign reserves crisis but they also bring in the Fund to shield themselves from the political costs of adjustment policies. Program participation lowers growth rates for as long as countries remain under a program. Once countries leave the program, they grow faster than if they had remained, but not faster than they would have without participation.