The efficacy of macroeconomic policies in resolving financial market disequilibria: A cross‐country analysis

Abstract

This study attempts to evaluate the efficacy of macroeconomic policies in resolving financial market disequilibria and to elucidate the influence of the political landscape and global financial integration on the policymaking process. The current investigation examines three macroeconomic policies: (a) government spending, (b) liquidity provision, and (c) central bank interest rates by analysing 21 countries around the globe. The results suggest that government spending is a suboptimal macroeconomic policy for mitigating imbalances in financial markets, as it may have destabilizing effects. Liquidity provision was found to be ineffective in facilitating financial market stability whereas the adjustment of interest rates was found to be a viable tool for mitigating financial market imbalances. Therefore, an appropriate policy framework would comprise the following: prudent government spending, conditional liquidity provision, and a reduction in interest rates following the development of financial market disequilibria. Furthermore, this study found strong evidence against the notion that political orientations influence policy frameworks, which were designed to redress financial market disequilibria. This study also found that global financial integration does not influence the policymaking process.

Government Expenditure and Economic Growth Nexus in Ghana

“…The study suggests prioritizing external debt management during growth and foreign direct investment during downturns. Corroborating the findings of Afonso and Leal (2020), Afonso & Jalles (2015), Alshammary et al (2020), Anning et al (2017), Mbanyele (2019), Singh et al (2019), Swamy (2020), andZhao et al (2020). Mbanyele (2019), Azam and Khan (2020), Ouedraogo and Sawadogo (2020), Owusu (2021), and Wisniewski and Jackson (2021) The study found that domestic and external debt thresholds impact capital and consumption expenditure.…”

“…Contrarily, as asserted by Singh et al (2019), the impact of government capital spending on the economy is found to be insignificant both in the short-term and long-term. However, it is important to note that in the short term, economic growth is significantly and positively influenced by consumption expenditure.…”

Do Financial Support Policies Catalyse the Development of New Consumption Field?—Evidence from China’s New Consumer Enterprises

“…From the perspective of financial support policies, they belong to one type of financial policy. After sorting through them, we summarized the existing studies on financial policies into two categories: One is the research on macro-financial policies, which mainly investigates the overall impact of financial policies on the macro-economy at the macro level and demonstrates the role of financial policies in solving the imbalance of the financial market, coping with the repair of the financial system in a period of financial crisis and post-financial crisis, stabilizing macroeconomic activities, and promoting macroeconomic growth, as well as the important role in macroeconomic regulation and control such as improving physical capital accumulation and economic efficiency [11][12][13][14][15]. The other is the research on micro-financial policies, which analyzes the directional impact of financial policies on specific industries and enterprises such as loan restriction policies for house purchases, green credit policies, inclusive financial services, and the efficiency of credit resource allocation [16][17][18].…”