What were the economic benefits and costs of preventing a stock market meltdown during the summer of 2015 by the Chinese government intervention? We answer this question by estimating the value creation for the stocks purchased by the government between the period starting with the market crash in mid-June and the market recovery in September. We find that the government intervention increased the value of the rescued firms with a net benefit between RMB 5,697 and 6,635 billion, which is about 10% of the Chinese GDP in 2014. The value creation came from the increased stock demand by the government, the reduced default probabilities, and the increased liquidity.
Worldwide, people are gaining access to a formal bank account, which allows account-based instead of cash payments. Based on a novel randomized control trial, we document that the payment method is an important determinant of savings behavior. In rural India, we study the effect on savings of allocating identical weekly payments on a bank account (treated) or in cash (control). The treatment impact is huge: savings increase by 110% within three months, and the effect is long-lasting. Villagers paid in cash do not save more in other assets, but increase consumption. Therefore, we infer that being paid on a bank account has a net positive impact on total savings. When we twist the design and start paying everyone in cash, savings and consumption patterns no longer differ between the treated and control. We interpret these findings as the outcome of the default option, and shed light on six plausible underlying mechanisms.
This paper examines the relationship between the composition of exporters' currency pricing portfolio - number and value of product sales in different currencies at a destination - and their success in trade as measured by continuing to their exporting activity. Detailed investigation of currency choice data of Russian exporters between 2005-2009 shows that many exporters use only one currency pricing per destination. Among those who use more than one currency pricing, higher diversification is indeed associated with up to 18% higher odds of survival as an exporter at the product-destination. Nevertheless, many exporters still use only one currency pricing per destination. This puzzle is explained in this paper by incorporating the concept of "exchange rate hedging costs" into the existent literature on currency choice. These costs are firm-specific and relate to the complexity on the part of the firm of using more than one currency. The firms that have high exchange rate hedging costs will be using only one currency, but still continue exporting to the destination.
This paper evaluates different channels of oil price pass through into inflation for the countries Azerbaijan, Kazakhstan and Russia. We propose a methodology to disentangle the effects of different channels after an oil price shock hits international markets. We measure the relative importance of the two distinct channels through which oil price shocks are transmitted into inflation in these economies. For that, we employ an approach which is in the spirit of the methodology proposed by Sims and Zha(1995). The empirical evidence shows that the level of inflation in these oil-exporting countries responds significantly to oil price shocks. The fiscal and cost channels are major amplifiers of the effects of oil price shocks on inflation. By providing new evidence from emerging oil-exporting countries, the paper also has important policy implications on the maintenance of price stability by central banks.
In this paper, we have applied spectral and cross spectral analysis techniques as an alternative approach to characterize the Tunisian business cycle and measure the degree of its international synchronization. As a robustness check, we have applied these techniques to the industrial production (overall and manufacturing IPI) as well as two synthetic indexes: a dynamic factor and a diffusion index. We found the presence of two types of cycles: a minor cycle of 12.5 quarters (3.1 years) detected in Tunisia and in all its European trade partners and a major cycle of 33.3 quarters (8.3 years) observed in the majority of the cycles studied. The cross–spectral analysis provides a strong evidence of synchronization of the Business cycle in Tunisia and its European partners, particularly at high frequencies. The volatility of the Tunisian business cycle is generally lower than that of the European cycle. It is even lower for longer cycles. The transmission of cyclical shocks from the Euro Area to Tunisia is instantaneous for short cycles. The delays are much longer for the major cycles. They can reach 5 to 6 quarters.
This paper analyses monetary transmission mechanism in Vietnam by using a Vector Autoregression (VAR), focusing especially on how the economy dynamically responds money demand, interest rate, exchange rate, and asset price shocks. In this paper, we establish identification conditions to uncover the dynamic effects of monetary policy shocks. By using quarterly data over the period 1995-2010, a VAR model is developed to analyze various channels of monetary policy mechanism in a country with a large open and small economy like Vietnam. The empirical results show money demand and interest rates account for a major part of variations in output. And output is affected by monetary tightening in some lags, bottoming out after 5-6 quarters.
In this paper, we study the role of institutional quality in the cyclicality of macroeconomic policies of transition economies. Using annual data over 1996-2013, we find that the quality of institutions play a significant role in their ability to carry out counter-cyclical macroeconomic policy. This paper also analyzes the effects of monetary and fiscal shocks on output. Dividing the countries into two groups, namely CIS and non-CIS, we find that median impulse response of CIS countries’ GDP to monetary shock is negative, while in non-CIS countries this effect is close to zero. However, we find negative effect of fiscal shock on CIS countries’ GDP while the median effect of fiscal shock on GDP is very close to zero in non-CIS countries.
This paper empirically investigates the determinants of current accounts for a sample of 11 Central and East European Countries outside the Euro area. To this end we rely on the estimation of a panel VAR model with fixed effects over the period Q1 2005 to Q42014. Consistent with existing literature, we show that domestic GDP, the fiscal deficit, and the real effective exchange rate are key determinants of the current accounts of these countries. The dynamic relationships revealed in the paper complement the empirical literature on several fronts by providing new evidence from these emerging market economies.
Do incidents of ethnic polarization influence voter behavior? I address this question through the case study of India, the world’s largest functional democracy. Specifically, I test whether prior events of Hindu-Muslim riots electorally benefit Bharatiya Janta Party (BJP), a prominent Hindu nationalist party? The paper contributes to the literature by being the first to establish a causal relationship between Hindu-Muslim riots and BJP’s electoral performance. Results show that riots have a positive and significant effect on BJP’s vote share and are robust to our instrumentation strategy. The party vote share increases between 2.9 to 4.4 percent in response to different riot outcomes. Results seem to back the theory of electoral incentives i.e. parties representing elites among ethnic groups may have an incentive to instigate ethnic conflict to influence the marginal voter.
We examine the effectiveness of monetary policy transmission mechanism in Ghana using several of statistical and econometric techniques for the period 2002M1 – 2014M12. We find monetary policy rate (MPR) to be quite effective in signaling the money market interest rates in both the short run and long run, as the effect is incomplete (that is, not one-to-one). In addition, a hierarchy of short-term money market rates in Ghana is identified as follows: Monetary Policy Rate, Treasury bill rate, Interbank rate and retail rates (preferably, lending rate), accentuating the large role played by Treasury bill interest rate in the interest rate transmission channel in Ghana. Essentially, monetary authority responds positively and contemporaneously to output and inflationary pressures. Inflation is mostly driven by interest rate shock over the medium to long term, pointing to an impact of monetary policy. In the short term, however, exchange rate shock has relatively larger influence on inflation than that emanating from interest rate. In contrast, output is largely driven by credit and assets prices shocks. This suggests that agents’ knowledge about future output prospects are immediately reflected in assets prices before impacting on output. The paper therefore supports policies that would promote strong financial and macroeconomic stability to help inure effective monetary policy transmission in Ghana.
