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Volume 11 (2022): Issue 3 (September 2022)

Volume 11 (2022): Issue 2 (May 2022)

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Volume 10 (2021): Issue 3 (September 2021)

Volume 10 (2021): Issue 2 (May 2021)

Volume 10 (2021): Issue 1 (January 2021)

Volume 9 (2020): Issue 3 (September 2020)

Volume 9 (2020): Issue 2 (May 2020)

Volume 9 (2020): Issue 1 (January 2020)

Volume 9 (2020): Issue s1 (July 2020)

Volume 8 (2019): Issue 3 (September 2019)

Volume 8 (2019): Issue 2 (May 2019)

Volume 8 (2019): Issue 1 (January 2019)

Volume 7 (2018): Issue 3 (September 2018)

Volume 7 (2018): Issue 2 (May 2018)

Volume 7 (2018): Issue 1 (January 2018)

Volume 6 (2017): Issue 3 (September 2017)

Volume 6 (2017): Issue 2 (May 2017)

Volume 6 (2017): Issue 1 (January 2017)

Volume 5 (2016): Issue 3 (September 2016)

Volume 5 (2016): Issue 2 (May 2016)

Volume 5 (2016): Issue 1 (January 2016)

Volume 4 (2015): Issue 3 (September 2015)

Volume 4 (2015): Issue 2 (May 2015)

Volume 4 (2015): Issue 1 (January 2015)

Volume 3 (2014): Issue 3 (September 2014)

Volume 3 (2014): Issue 2 (May 2014)

Volume 3 (2014): Issue 1 (January 2014)

Journal Details
Format
Journal
eISSN
2336-9205
First Published
11 Mar 2014
Publication timeframe
3 times per year
Languages
English

Search

Volume 9 (2020): Issue s1 (July 2020)

Journal Details
Format
Journal
eISSN
2336-9205
First Published
11 Mar 2014
Publication timeframe
3 times per year
Languages
English

Search

12 Articles
Open Access

Financial Structure and Stability: An Empirical Exploration

Published Online: 16 Jul 2020
Page range: 9 - 32

Abstract

Abstract

This paper attempts to investigate empirically whether financial and macroeconomic stability of economies are significantly affected by the structure of their financial systems, viz., bank-based and market-based structures. Using panel data estimations based on data from 82 countries for the period of 1996-2012, we find that in general, bank-based financial system contributes significantly to instability of the financial sectors and currency market. We also find some evidence that within the bank-based structure, higher presence of foreign banks is positively associated with currency market pressure. Additionally, the results show that the choice of bank-based versus market-based financial structure is important for low income countries. Banks in low income countries contribute to exchange market pressures whereas stock markets leads to reduction in such pressure. In high income countries, stock markets do not significantly affect banking and currency market instability.

Keywords

  • Financial structure
  • bank-based financial system
  • market-based financial system
  • stability

JEL Classification

  • G0
  • G21
  • G10
Open Access

Capital Flows and Bank Risk-Taking Behavior: Evidence From Indonesia

Published Online: 16 Jul 2020
Page range: 33 - 53

Abstract

Abstract

This paper investigates the impact of capital flows on bank risk-taking behavior. It undertakes two levels of empirical estimations, namely (i) single-country industry-level; and (ii) multi-country industry-level estimations, covering emerging market economies. The results suggest that capital inflows, in the form of portfolio investment, is significant in raising risk-taking behavior. Large banks are less aggressive in their risk-taking behavior vis-à-vis smaller banks. Such impact of portfolio investment on risk-taking behavior is also shown in the multi-country level estimates.

Keywords

  • Capital flows
  • Bank risk-taking behavior
  • Panel data

JEL Classification

  • E0
  • F0
  • F1
Open Access

Financial Vulnerability and Economic Dynamics in Malaysia

Published Online: 16 Jul 2020
Page range: 55 - 73

Abstract

Abstract

This study attempts to develop a financial vulnerability indicator serving as a composite indicator for the state of financial vulnerability. The indicator was constructed from 10 variables of macroeconomic, financial and property market by extracting a common vulnerability component through the dynamic approximate factor model. On the feedback and amplification effects, the outcome revealed that financial vulnerability shock catalysed significant negative effects on economic activity in a high-vulnerability regime, while the impact was negligible in periods of low vulnerability. This study highlighted the usefulness of composite indicators as an early warning mechanism to gauge vulnerabilities in the Malaysian financial system.

Keywords

  • Financial Vulnerability Indicator
  • Financial Crises
  • Macro-financial Linkages
  • Markov-switching Bayesian VAR

JEL Classification

  • C11
  • C32
  • C58
  • E44
  • G01
Open Access

Does Bank Competition Enhance or Hinder Financial Stability? Evidence from Indian Banking

Published Online: 16 Jul 2020
Page range: 75 - 102

Abstract

Abstract

The primary purpose of this paper is to empirically investigate the impact of bank competition on financial stability in India. We use a dynamic panel model to examine whether an increase in bank competition hindrances financial stability of commercial banks in India over the period 1996 to 2016. Findings reveal that in India, a higher degree of bank competition is positively associated with the prevalence of non-performing loans. Additionally, the positive impact of the Lerner index on Z-score lends support to competition-fragility hypothesis. However, we argue that both the views of competition-stability and competition-fragility can coexist in a single banking system like India.

Keywords

  • Bank competition
  • Competition-Stability
  • Competition-Fragility
  • Financial Stability

JEL Classification

  • G21
  • F30
  • G38
Open Access

Early Warning System for Government Debt Crisis in Developing Countries

Published Online: 16 Jul 2020
Page range: 103 - 124

Abstract

Abstract

This study develops an early warning signal (EWS) of government debt crisis using a panel data consisting of 43 developing countries over the period of 1960 to 2017. It employs two different methods: the noise to signal ratio to capture the signaling power of individual indicators; and the binomial logistic regression to construct a more general model. The binomial logistic regression offers a better predictive power relative to the noise to signal ratio. The binomial logistic regression can predict 61.5% of the government debt crisis 2 years in advance. An increase in inflation, government and private debt exposures, external debt to exports, ratio of short-term external debt to foreign exchange reserves, and the ratio of external interest payments to gross national income can signal an upcoming debt crisis. Similarly, a continuous decline in the gross domestic product (GDP) and government consumption also increase the likelihood of government debt crisis.

Keywords

  • Government debt crisis
  • Systemic risk
  • Macroprudential
  • sovereign debt crisis

JEL Classification

  • H63
  • H68
Open Access

Monetary Consequences of Fiscal Stress in a Game Theoretic Framework

Published Online: 16 Jul 2020
Page range: 125 - 164

Abstract

Abstract

This paper maps Leeper and Walker (2011) model into a game theory framework to study about the strategic aspects of monetary and fiscal interaction under a fiscal stress caused by an ageing population problem. The paper reveals that the outcomes of the game depend on the parameters of the underlying model, the size of the projected transfers and the public inflation expectation. The findings show that commitment to the target (inflation, government transfers) plays a crucial role in the policy interaction.

Keywords

  • Monetary-fiscal interaction
  • Game theory
  • Ageing population
  • Dynamic leadership
  • Stochastic timing

JEL Classification

  • E63
  • C70
Open Access

Macroprudential Liquidity Stress Test: An Application to Indonesian Banks

Published Online: 16 Jul 2020
Page range: 165 - 187

Abstract

Abstract

This paper develops a macroprudential liquidity stress test model for Indonesian banks. Our model incorporates two factors driving liquidity runs: (i) idiosyncratic factors; and (ii) macroeconomic factors. We estimate this model using a sample of 113 banks over the period of January 2011 to June 2018, and dynamic panel data estimators. We establish significant transmission channels from macroeconomic and idiosyncratic (bank idiosyncratic risks) factors to liquidity runs. By using the macroeconomic scenario transmission, we find the liquidity stress test to be more consistent with the solvency stress test.

Keywords

  • Liquidity stress test
  • Stress test
  • Financial stability
  • Banking

JEL Classification

  • G21
  • G33
Open Access

Cashless Payments and Economic Growth: Evidence from Selected OECD Countries

Published Online: 16 Jul 2020
Page range: 189 - 213

Abstract

Abstract

This study investigates the relationship between cashless payments and economic growth in selected OECD countries. Using annual data from 2007 to 2016, our results indicate that: Firstly, cashless payment stimulates economic growth in OECD countries. Specifically, the growth-enhancing effect is found in debit card payment while credit card, e-money and cheque payment have no impact on economic growth; Secondly, the positive relationship between economic growth and debit card payment is robust after controlling for the effect of endogeneity, omitted variable bias and outliers. Based on the findings, this study offers some imperative policy recommendations.

Keywords

  • Cashless payments
  • Economic growth
  • Organisation for Economic Co-operation and Development (OECD)
  • debit card payment

JEL Classification

  • G20
  • G21
  • G23
Open Access

The Determinants of Indonesia’s Business Cycle

Published Online: 16 Jul 2020
Page range: 215 - 235

Abstract

Abstract

This study investigates the determinants of Indonesian’s business cycle using the global vector autoregressive (GVAR) approach, by including spillover responses within 33 countries with 2000 bootstrap replications. The results show that Indonesia’s business cycle is influenced by both domestic and external factors. In addition to exogenous shocks from output, the dominant domestic factors are monetary policy and price competitiveness. The dominant external factors are global economic activity and liquidity conditions, particularly those originating from the Chinese economy. Spillovers from a number of economies appear to shape Indonesia’s economic fluctuations. The paper discusses such relevant spillovers.

Keywords

  • Business cycle
  • Trade relations
  • Global vector autogressive approach

JEL Classification

  • E32
  • F44
  • E30
  • C22
Open Access

Uncertainty and Effectiveness of Monetary Policy: A Bayesian Markov Switching-VAR Analysis

Published Online: 16 Jul 2020
Page range: 237 - 265

Abstract

Abstract

There is a growing body of literature examining the effectiveness of the monetary policy on the macroeconomy in different contexts for developed and developing countries. However, lately, especially after the GFC, the focus of research shifted to examine the role of uncertainty in economic activity and on the monetary policy effectiveness. Both theoretical and empirical studies suggest that uncertainty does influence monetary policy effectiveness. However, until now, empirical studies are restricted to only developed countries. To this end, the present study examines the influence of uncertainty on monetary policy effectiveness for a developing country, namely India. We applied a non-linear VAR, which allows us to examine the effect of monetary policy shocks during high and low uncertainty periods. The results exhibit that uncertainty influences the effectiveness of monetary policy shocks. We find weaker effects of the monetary policy shocks during high uncertainty regime relative to low uncertainty regime.

Keywords

  • Uncertainty
  • Monetary Policy
  • India

JEL Classification

  • E310
  • E320
  • E400
Open Access

Influence of Exchange Rate Fluctuations and Credit Supply on Dividend Repatriation Policy of U.S. Multinational Corporations

Published Online: 16 Jul 2020
Page range: 267 - 290

Abstract

Abstract

This study aims to examine the effect of exchange rate fluctuations and credit supply on the dividend repatriation policy of foreign subsidiaries of U.S. multinational corporations (MNCs) around the world. The difference generalised method of moments (GMM) estimator was applied to estimate the dynamic dividend repatriation model. The results suggest that the appreciation of host-country currency against the USD leads to higher dividend repatriation by the foreign subsidiaries of U.S. MNCs. Moreover, results reveal that higher availability of private credit in the host country results in lower dividend repatriation by the U.S. MNCs’ foreign subsidiaries.

Keywords

  • Exchange rate fluctuations
  • Credit supply
  • Dividend repatriation policy
  • Generalised method of moments
  • Multinational corporations

JEL Classification

  • F23
  • F31
  • F34
  • G35
Open Access

Indonesian Household Payment Choice: A Nested Logit Analysis

Published Online: 16 Jul 2020
Page range: 291 - 313

Abstract

Abstract

We examine the preferences of respondents for six types of payment instruments, namely cash, debit and credit cards, card and server-based electronic money, and internet or mobile banking. By applying a nested logit model to 500 household data covering six provincial capitals in Indonesia, we find that the decision to choose payment instruments is made sequentially. Socio-economic characteristics, including education, age, income, and transaction objectives or functionality have a significant effect on the probability of using non-cash electronic payment instruments. We find a substitution pattern between payment instruments, not only between cash and non-cash instruments but also between non-cash instruments. In light of these findings, appropriate payment system policies are in order to hasten the use of non-cash payment.

Keywords

  • Payment Preferences
  • Payment Instruments
  • Substitution between Payment Instruments

JEL Classification

  • D14
12 Articles
Open Access

Financial Structure and Stability: An Empirical Exploration

Published Online: 16 Jul 2020
Page range: 9 - 32

Abstract

Abstract

This paper attempts to investigate empirically whether financial and macroeconomic stability of economies are significantly affected by the structure of their financial systems, viz., bank-based and market-based structures. Using panel data estimations based on data from 82 countries for the period of 1996-2012, we find that in general, bank-based financial system contributes significantly to instability of the financial sectors and currency market. We also find some evidence that within the bank-based structure, higher presence of foreign banks is positively associated with currency market pressure. Additionally, the results show that the choice of bank-based versus market-based financial structure is important for low income countries. Banks in low income countries contribute to exchange market pressures whereas stock markets leads to reduction in such pressure. In high income countries, stock markets do not significantly affect banking and currency market instability.

Keywords

  • Financial structure
  • bank-based financial system
  • market-based financial system
  • stability

JEL Classification

  • G0
  • G21
  • G10
Open Access

Capital Flows and Bank Risk-Taking Behavior: Evidence From Indonesia

Published Online: 16 Jul 2020
Page range: 33 - 53

Abstract

Abstract

This paper investigates the impact of capital flows on bank risk-taking behavior. It undertakes two levels of empirical estimations, namely (i) single-country industry-level; and (ii) multi-country industry-level estimations, covering emerging market economies. The results suggest that capital inflows, in the form of portfolio investment, is significant in raising risk-taking behavior. Large banks are less aggressive in their risk-taking behavior vis-à-vis smaller banks. Such impact of portfolio investment on risk-taking behavior is also shown in the multi-country level estimates.

Keywords

  • Capital flows
  • Bank risk-taking behavior
  • Panel data

JEL Classification

  • E0
  • F0
  • F1
Open Access

Financial Vulnerability and Economic Dynamics in Malaysia

Published Online: 16 Jul 2020
Page range: 55 - 73

Abstract

Abstract

This study attempts to develop a financial vulnerability indicator serving as a composite indicator for the state of financial vulnerability. The indicator was constructed from 10 variables of macroeconomic, financial and property market by extracting a common vulnerability component through the dynamic approximate factor model. On the feedback and amplification effects, the outcome revealed that financial vulnerability shock catalysed significant negative effects on economic activity in a high-vulnerability regime, while the impact was negligible in periods of low vulnerability. This study highlighted the usefulness of composite indicators as an early warning mechanism to gauge vulnerabilities in the Malaysian financial system.

Keywords

  • Financial Vulnerability Indicator
  • Financial Crises
  • Macro-financial Linkages
  • Markov-switching Bayesian VAR

JEL Classification

  • C11
  • C32
  • C58
  • E44
  • G01
Open Access

Does Bank Competition Enhance or Hinder Financial Stability? Evidence from Indian Banking

Published Online: 16 Jul 2020
Page range: 75 - 102

Abstract

Abstract

The primary purpose of this paper is to empirically investigate the impact of bank competition on financial stability in India. We use a dynamic panel model to examine whether an increase in bank competition hindrances financial stability of commercial banks in India over the period 1996 to 2016. Findings reveal that in India, a higher degree of bank competition is positively associated with the prevalence of non-performing loans. Additionally, the positive impact of the Lerner index on Z-score lends support to competition-fragility hypothesis. However, we argue that both the views of competition-stability and competition-fragility can coexist in a single banking system like India.

Keywords

  • Bank competition
  • Competition-Stability
  • Competition-Fragility
  • Financial Stability

JEL Classification

  • G21
  • F30
  • G38
Open Access

Early Warning System for Government Debt Crisis in Developing Countries

Published Online: 16 Jul 2020
Page range: 103 - 124

Abstract

Abstract

This study develops an early warning signal (EWS) of government debt crisis using a panel data consisting of 43 developing countries over the period of 1960 to 2017. It employs two different methods: the noise to signal ratio to capture the signaling power of individual indicators; and the binomial logistic regression to construct a more general model. The binomial logistic regression offers a better predictive power relative to the noise to signal ratio. The binomial logistic regression can predict 61.5% of the government debt crisis 2 years in advance. An increase in inflation, government and private debt exposures, external debt to exports, ratio of short-term external debt to foreign exchange reserves, and the ratio of external interest payments to gross national income can signal an upcoming debt crisis. Similarly, a continuous decline in the gross domestic product (GDP) and government consumption also increase the likelihood of government debt crisis.

Keywords

  • Government debt crisis
  • Systemic risk
  • Macroprudential
  • sovereign debt crisis

JEL Classification

  • H63
  • H68
Open Access

Monetary Consequences of Fiscal Stress in a Game Theoretic Framework

Published Online: 16 Jul 2020
Page range: 125 - 164

Abstract

Abstract

This paper maps Leeper and Walker (2011) model into a game theory framework to study about the strategic aspects of monetary and fiscal interaction under a fiscal stress caused by an ageing population problem. The paper reveals that the outcomes of the game depend on the parameters of the underlying model, the size of the projected transfers and the public inflation expectation. The findings show that commitment to the target (inflation, government transfers) plays a crucial role in the policy interaction.

Keywords

  • Monetary-fiscal interaction
  • Game theory
  • Ageing population
  • Dynamic leadership
  • Stochastic timing

JEL Classification

  • E63
  • C70
Open Access

Macroprudential Liquidity Stress Test: An Application to Indonesian Banks

Published Online: 16 Jul 2020
Page range: 165 - 187

Abstract

Abstract

This paper develops a macroprudential liquidity stress test model for Indonesian banks. Our model incorporates two factors driving liquidity runs: (i) idiosyncratic factors; and (ii) macroeconomic factors. We estimate this model using a sample of 113 banks over the period of January 2011 to June 2018, and dynamic panel data estimators. We establish significant transmission channels from macroeconomic and idiosyncratic (bank idiosyncratic risks) factors to liquidity runs. By using the macroeconomic scenario transmission, we find the liquidity stress test to be more consistent with the solvency stress test.

Keywords

  • Liquidity stress test
  • Stress test
  • Financial stability
  • Banking

JEL Classification

  • G21
  • G33
Open Access

Cashless Payments and Economic Growth: Evidence from Selected OECD Countries

Published Online: 16 Jul 2020
Page range: 189 - 213

Abstract

Abstract

This study investigates the relationship between cashless payments and economic growth in selected OECD countries. Using annual data from 2007 to 2016, our results indicate that: Firstly, cashless payment stimulates economic growth in OECD countries. Specifically, the growth-enhancing effect is found in debit card payment while credit card, e-money and cheque payment have no impact on economic growth; Secondly, the positive relationship between economic growth and debit card payment is robust after controlling for the effect of endogeneity, omitted variable bias and outliers. Based on the findings, this study offers some imperative policy recommendations.

Keywords

  • Cashless payments
  • Economic growth
  • Organisation for Economic Co-operation and Development (OECD)
  • debit card payment

JEL Classification

  • G20
  • G21
  • G23
Open Access

The Determinants of Indonesia’s Business Cycle

Published Online: 16 Jul 2020
Page range: 215 - 235

Abstract

Abstract

This study investigates the determinants of Indonesian’s business cycle using the global vector autoregressive (GVAR) approach, by including spillover responses within 33 countries with 2000 bootstrap replications. The results show that Indonesia’s business cycle is influenced by both domestic and external factors. In addition to exogenous shocks from output, the dominant domestic factors are monetary policy and price competitiveness. The dominant external factors are global economic activity and liquidity conditions, particularly those originating from the Chinese economy. Spillovers from a number of economies appear to shape Indonesia’s economic fluctuations. The paper discusses such relevant spillovers.

Keywords

  • Business cycle
  • Trade relations
  • Global vector autogressive approach

JEL Classification

  • E32
  • F44
  • E30
  • C22
Open Access

Uncertainty and Effectiveness of Monetary Policy: A Bayesian Markov Switching-VAR Analysis

Published Online: 16 Jul 2020
Page range: 237 - 265

Abstract

Abstract

There is a growing body of literature examining the effectiveness of the monetary policy on the macroeconomy in different contexts for developed and developing countries. However, lately, especially after the GFC, the focus of research shifted to examine the role of uncertainty in economic activity and on the monetary policy effectiveness. Both theoretical and empirical studies suggest that uncertainty does influence monetary policy effectiveness. However, until now, empirical studies are restricted to only developed countries. To this end, the present study examines the influence of uncertainty on monetary policy effectiveness for a developing country, namely India. We applied a non-linear VAR, which allows us to examine the effect of monetary policy shocks during high and low uncertainty periods. The results exhibit that uncertainty influences the effectiveness of monetary policy shocks. We find weaker effects of the monetary policy shocks during high uncertainty regime relative to low uncertainty regime.

Keywords

  • Uncertainty
  • Monetary Policy
  • India

JEL Classification

  • E310
  • E320
  • E400
Open Access

Influence of Exchange Rate Fluctuations and Credit Supply on Dividend Repatriation Policy of U.S. Multinational Corporations

Published Online: 16 Jul 2020
Page range: 267 - 290

Abstract

Abstract

This study aims to examine the effect of exchange rate fluctuations and credit supply on the dividend repatriation policy of foreign subsidiaries of U.S. multinational corporations (MNCs) around the world. The difference generalised method of moments (GMM) estimator was applied to estimate the dynamic dividend repatriation model. The results suggest that the appreciation of host-country currency against the USD leads to higher dividend repatriation by the foreign subsidiaries of U.S. MNCs. Moreover, results reveal that higher availability of private credit in the host country results in lower dividend repatriation by the U.S. MNCs’ foreign subsidiaries.

Keywords

  • Exchange rate fluctuations
  • Credit supply
  • Dividend repatriation policy
  • Generalised method of moments
  • Multinational corporations

JEL Classification

  • F23
  • F31
  • F34
  • G35
Open Access

Indonesian Household Payment Choice: A Nested Logit Analysis

Published Online: 16 Jul 2020
Page range: 291 - 313

Abstract

Abstract

We examine the preferences of respondents for six types of payment instruments, namely cash, debit and credit cards, card and server-based electronic money, and internet or mobile banking. By applying a nested logit model to 500 household data covering six provincial capitals in Indonesia, we find that the decision to choose payment instruments is made sequentially. Socio-economic characteristics, including education, age, income, and transaction objectives or functionality have a significant effect on the probability of using non-cash electronic payment instruments. We find a substitution pattern between payment instruments, not only between cash and non-cash instruments but also between non-cash instruments. In light of these findings, appropriate payment system policies are in order to hasten the use of non-cash payment.

Keywords

  • Payment Preferences
  • Payment Instruments
  • Substitution between Payment Instruments

JEL Classification

  • D14

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