Modelling the Australasian Financial Cycle: A Markov-Regime Switching Approach

Wet, Milan Christian de; Milan, Chytrý

doi:10.25103/ijbesar.141.06

Cited by 2 publications

(1 citation statement)

References 0 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…It is increasingly apparent that market participants consider geopolitical tensions as a risk factor, and that, therefore, such risks are discounted into in the pricing of financial assets (Subramaniam 2022. Geopolitical risk is not a new phenomenon, but the growing importance of geopolitical risks as a driving factor of financial asset prices over recent decades is largely a function of increasingly globally integrated economies and financial markets (Gupta et al 2019;De Wet 2021). The integrated nature of economies and financial markets means that an escalation in geopolitical risk anywhere in the world will likely have a spillover effect on financial assets across economies and markets.…”

Section: Literature Reviewmentioning

confidence: 99%

Geopolitical Risks and Yield Dynamics in the Australian Sovereign Bond Market

Wet

2023

JRFM

View full text Add to dashboard Cite

Geopolitical risks and shocks such as military conflicts, terrorist attacks, and war tensions are known to cause significant economic downturns. The main purpose of this paper is to determine the dynamics between Australian sovereign bond yields and geopolitical risk. This is achieved by employing a quantile regression analysis. The findings of this study indicate that the impact of geopolitical risk on Australian sovereign yield dynamics is asymmetrical. Furthermore, an increase in geopolitical risk only impacts short-term yields at extreme regimes. However, the impact is, by and large, insignificant. On the other hand, an increase in geopolitical risk does have a statistically significant positive impact on medium- and long-term yields across most quantiles. Lastly, an increase in geopolitical risk tends to result in a steeper yield curve at the belly of the curve but causes the yield curve to flatten at the long end. This study is the first study that holistically examines the dynamics between geopolitical risk and Australian sovereign bond yields. The study thereby contributes to the body of knowledge on Australian bond yields, specifically, and adds to the sparse body of knowledge on the dynamics between geopolitical risk and sovereign bond yields. The findings of this study have implications for monetary policy makers, given that shifts in sovereign bond yields could impact all three core mandates of the Australian Reserve Bank. Furthermore, changes in the slope of the yieldcurve could be used by monetary policy makers to pre-empt changes in future economic growth. The results of this study also relate to fiscal policy formulation, given that yields directly impact the cost of government borrowing. Lastly, portfolio managers could benefit from the results of this study, as these results provide information on the ability of Australian sovereign bonds to hedge against geopolitical risk.

show abstract

Section: Literature Reviewmentioning

confidence: 99%

Geopolitical Risks and Yield Dynamics in the Australian Sovereign Bond Market

Wet

2023

JRFM

View full text Add to dashboard Cite

show abstract

Approximating Botswana's financial cycle: Expanding the macroprudential toolkit

Setshegetso,

Mado

2023

South African J Economics

View full text Add to dashboard Cite

This study estimates the financial cycle for Botswana using the Christiano–Fitzgerald band‐pass filter, unobserved components approach and a Markov switching dynamic factor model. Using real credit and equity prices, together with several macroeconomic variables from 2001Q1 to 2021Q4, we find that the domestic financial cycle generally captures movements along the business cycle, with peaks reflecting the cumulative build‐up of risks during the boom that ultimately burst, coinciding with periods of financial distress. These findings shed light on the implications of financial fluctuations on domestic financial stability, hence, inform effective calibration of macroprudential tools, while also providing traction for implementation of the recently approved macroprudential policy framework for Botswana.

show abstract

Modelling the Australasian Financial Cycle: A Markov-Regime Switching Approach

Abstract: Purpose: The importance of the financial cycle has become a central point of consideration for policymakers since the 2007-08 financial crisis. This study aimed to construct and characterize the aggregate Australasian financial cycle.

Cited by 2 publications

References 0 publications

Geopolitical Risks and Yield Dynamics in the Australian Sovereign Bond Market

Geopolitical Risks and Yield Dynamics in the Australian Sovereign Bond Market

Approximating Botswana's financial cycle: Expanding the macroprudential toolkit

Contact Info

Product

Resources

About