Since the Global Financial Crisis of 2007–2009, economists are reconsidering the appropriate role of monetary policy towards equity bubbles. This paper contributes to these deliberations by estimating the response of the stock market to monetary policy tightening by using a Bayesian time‐varying VAR model. By introducing the cyclically adjusted price/earnings ratio, we propose a method that estimates its fundamental and bubble components. We find that asset prices will initially fall and eventually rise again but without the risk of feeding the bubble. Counterfactual policy experiments provide additional evidence that monetary policy can lean against equity and housing prices. (JEL E50, E52, E58)
This paper employs a medium scale Bayesian VAR model to provide a rich picture of the transmission of unconventional monetary policy (UMP) shocks in various dimensions of the economy, and to shed light on the appropriate policy mix that the central bank could adopt to fulfil its price stability mandate. We show that UMP shocks have a significant positive impact on both economic activity and inflation; stem financial market stress episodes and boost economic sentiment. Additionally, several channels seem to have been activated, including the exchange rate, inflation expectations and the bank lending channel. Counterfactual policy analysis suggests that a policy mix that combines the use of permanently negative interest rates with a balance sheet expansion at a steady pace over a long period, could bring inflation closer to the target. Alternative policy scenarios that, either give more weight on the purchases during the first months or, terminate asset purchases too early, would fail to keep inflation on track to meet its target.
This paper analyses the international transmission of US monetary policy shocks. We use a time-varying, factor-augmented VAR framework to examine how and to what extent the propagation of US policy shocks affects the South East Asian (SEA) and European Union (EU) economies, through various transmission channels. We find that in the SEA economies, the income absorption effect is the most pronounced channel as indicated by the significant worsening of the trade balance of these countries, which provokes a reduction in their output. In addition, wealth effects and the balance sheet channel have an important contribution in the transmission of the shock to these economies. In the EU, the initial rise observed in output as a result of the shock is driven more by exchange rate movements rather than movements in the trade balance. In terms of changes in the magnitude of the effect of the shock over time, we find that the deepening of global integration dampens the effect of the shock on the foreign economies in core macroeconomic and financial variables. Moreover, the impact of the shock on the foreign economies has increased in the post-crisis period.
The main purpose of this paper is to investigate the impact of an endogenous relationship between international financial reporting standards (IFRS) and sovereign credit ratings on the factors that determine foreign direct investments, by using an instrumental variable panel data framework. The results show that the adoption of IFRS by developed economies is interpreted by credit rating agencies as a positive sign that the firms will provide more transparent financial reports. In addition, the authors find that the consideration of the endogenous relationship between IFRS and credit ratings for developed economies highlights the importance of some variables that was not evident previously such as the degree of corruption and the educational level. Finally, the authors suggest that foreign direct investments are more easily attracted when one considers a joint factor which captures people’s perceptions about the ability of the government to implement policy and regulations that promote the development of public and private sector.
Keywords: credit ratings, IFRS, FDI determinants. JEL Classification: C23, C26, M41, E51
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.