Stability in the banking industry and commodity price volatility: perspective from developing economies

Abaidoo, Rexford; Agyapong, Elvis Kwame; Boateng, Kwame Fosu

doi:10.1108/jeas-05-2021-0089

Cited by 12 publications

(18 citation statements)

References 60 publications

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“…As already mentioned, we derived macroeconomic uncertainty variable by subjecting the data set for GDP growth through the GARCH modeling technique. This process has received significant application in the literature; among such works that have generated volatility data using the technique include Asteriou and Price (2005), Fountas and Karanasos (2007), Asamoah et al (2016), Abaidoo et al (2021) and Abaidoo and Agyapong (2021). As a measure of uncertainty (risk), the GARCH approach is preferred to the use of standard deviation because volatility in output growth or key economic indicators often results in heightened degree of uncertainty or risk among key economic agents (Abaidoo and Agyapong, 2021).…”

Section: Methodsmentioning

confidence: 99%

Institutional quality, macroeconomic uncertainty and efficiency of financial institutions in Sub-Saharan Africa

Abaidoo

Agyapong²

2022

JFRC

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Purpose This paper evaluates how institutions of governance and macroeconomic uncertainty influence efficiency of financial institutions in the subregion of Sub-Saharan Africa (SSA). Data for the empirical inquiry were compiled from relevant sources for 33 countries in the subregion from 2002 to 2019. Empirical estimates verifying hypothesized relationships were carried out using the continuous updating estimator (CUE) by Hansen et al. (1996). Design/methodology/approach The purpose of this paper is to evaluates how institutions of governance and macroeconomic uncertainty influence efficiency of financial institutions in the subregion of Sub-Saharan Africa (SSA). Data for the empirical inquiry were compiled from relevant sources for 33 countries in the subregion from 2002 to 2019. Empirical estimates verifying hypothesized relationships were carried out using the continuous updating estimator (CUE) by Hansen et al. (1996). Findings The results suggest that institutional quality has significant positive effect on financial institution efficiency, supporting the view that improved and supportive structures of governance tend to promote operational efficiency among financial institutions among economies in SSA. In addition, improvement in individual governance indicators such as corruption control, government effectiveness, regulatory quality and rule of law was also found to support or enhance efficiency of financial institutions among economies in the subregion. Macroeconomic uncertainty on the other hand is found to impede efficiency of financial institutions; the same condition (macroeconomic uncertainty) is further found to negate any positive impact corruption control, government effectiveness, regulatory quality and rule of law have on operational efficiency among financial institutions in the subregion. Originality/value Unlike most of related studies, this study adopts a different approach on the dynamics of financial institutions. Approach pursued in this empirical inquiry examines how the regulatory environment within which financial institutions operate, the form of governance and the quality of government institutions influence efficiency of financial institutions among emerging economies in Sub-Sahara. Empirical analysis conducted examines effects of variables that are unique to this study; these variables are either constructed or econometrically derived specifically for various interactions verified in the study. For instance, institutional quality variable is an index constructed specifically for this study using principal component analysis approach.

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Section: Methodsmentioning

confidence: 99%

Institutional quality, macroeconomic uncertainty and efficiency of financial institutions in Sub-Saharan Africa

Abaidoo

Agyapong²

2022

JFRC

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“…This approach to volatility data generation is not new; it is routinely employed in the economics and finance literature. The approach adopted in this study follows the approaches reviewed in studies such as Abaidoo et al . (2021), Abaidoo and Anyigba (2020), Abaidoo and Agyapong (2021), Asamoah et al .…”

Section: Methodology and Datamentioning

confidence: 99%

Inflation uncertainty, macroeconomic instability and the efficiency of financial institutions

Abaidoo

Agyapong

2023

JED

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PurposeThe study examines the effect of macroeconomic risk, inflation uncertainty and instability associated with key macroeconomic indicators on the efficiency of financial institutions among economies in sub-Saharan Africa (SSA).Design/methodology/approachData for the empirical inquiry were compiled from 35 SSA economies from 1996 to 2019. The empirical estimates were carried out using pooled ordinary least squares (POLS) with Driscoll and Kraay’s (1998) standard errors.FindingsReported empirical estimates show that macroeconomic risk and exchange rate volatility constrain the efficiency of financial institutions. Further results suggest that inflation uncertainty has a significant influence on the efficiency of financial institutions among economies in the subregion. Additionally, reviewed empirical estimates show that institutional quality positively moderates the nexus between inflation uncertainty and financial institution efficiency. At the same time, political instability is found to worsen the adverse effect of macroeconomic risk on the efficiency of financial institutions.Practical implicationsFor policymakers and governments, improved institutional structures are recommended to ensure the operational efficiency of financial institutions, especially during an inflationary period. For decision-makers among financial institutions, the study recommends policies that have the potential to make their institutions less vulnerable to macroeconomic risk and exchange rate fluctuations.Originality/valueThe approach adopted in this study differs significantly from related studies in that the study examines and reviews interactions and relationships not readily found in the reviewed literature.

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“…The health of the banking sector is closely linked to macroeconomic variables (Vo et al 2019). For example, high inflation can erode the value of bank deposits, while changes in interest rates can impact the profitability of banks (Kinda et al 2018;Abaidoo et al 2021). In addition, variations in exchange rates can affect the value of assets and liabilities designated in foreign currencies (Archer et al 2022;Barson et al 2022).…”

Section: Figure 1: Value Of Major Commodities Exported In Ghanamentioning

confidence: 99%

“…The revenue from commodity exportation has been a source of financial and macroeconomic stability for most countries (Kinda et al 2018;Abaidoo et al 2021). Particularly for countries that depend on commodity revenue whom United Nations Conference on Trade and Development (UNCTAD) (2021) describe as commodity dependent.…”

Section: Introductionmentioning

confidence: 99%

“…A weaker exchange rate could then lead to higher inflation, which could further weaken the economy (Vo et al 2019;Mohammed 2021). As a result, banks may experience a decrease in their asset quality and profitability due to the surge in non-performing loans (Abaidoo et al 2021). If the banking sector is unable to handle these pressures, it could lead to a banking crisis, further worsening the economic situation (Siklos 2021;Tahar et al 2021).…”

Section: Introductionmentioning

confidence: 99%

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Modelling the dynamic connectedness among commodity prices, banking sector’s financial soundness, and macroeconomic variables in Ghana

Kyei

Cantah

Owusu

2023

Preprint

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The study explores the dynamic connectedness among international commodity price, banking sector’s financial soundness (BSFSI) and some selected macroeconomic variables in Ghana. To achieve this, the study employed the TVP-VAR connectedness and a robustness technique: Wavelet Multiple. We utilise monthly data of three (3) commodity prices (cocoa, gold and crude oil), seven BsFSI and six (6) macroeconomic variables in Ghana. In addition, the global economic policy uncertainty (GEPU) was used as a control variable as a gauge of external shock. The monthly data spanned January 2007 to March 2022 to include some major economic, political and health events, yielding 183 datapoints. We found strong degree of connectedness among international commodity prices, BsFSI, and macroeconomic variables in Ghana at an estimate of 68.36% for the total connectedness index. However, the connectedness value changes across time which corroborates the adaptive market hypothesis. We demonstrate strong evidence of interdependence and contagion among the variables. Findings from the study requires that the government should broaden its production and export base to have more diverse sources of economic growth, enabling it to manage the erratic nature of earnings tied to commodities exports on the financial stability of Ghana.

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Stability in the banking industry and commodity price volatility: perspective from developing economies

Cited by 12 publications

References 60 publications

Institutional quality, macroeconomic uncertainty and efficiency of financial institutions in Sub-Saharan Africa

Institutional quality, macroeconomic uncertainty and efficiency of financial institutions in Sub-Saharan Africa

Inflation uncertainty, macroeconomic instability and the efficiency of financial institutions

Modelling the dynamic connectedness among commodity prices, banking sector’s financial soundness, and macroeconomic variables in Ghana

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