Sovereign Debt Crisis in Sri Lanka and Bangladesh: A Comparative Study

Using IMF's World Economic Outlook (WEO) data for the macroeconomic variables, this study comparatively examines the sovereign debt crises in Sri Lanka and Bangladesh. It identifies different macroeconomic factors related to the sovereign debt crisis, investigates their interrelations, and explores if their debt crises are similar. It shows that the general revenue to Gross Domestic Product (GDP) ratios of Sri Lanka degraded to converge with the upgrading status of Bangladesh during the Covid-19 period. Since 2010, Sri Lanka has maintained a well-off economic status with per capita GDP, while Bangladesh has a long way to go yet. The general expenses to GDP ratio of Sri Lanka shows stresses on its GDP, while that of Bangladesh is more relaxed. Sri Lanka has overstressed debt to GDP ratio along with Balance of Payments (BOP) deficits, while Bangladesh has continued traces of managed debt to GDP ratio along with BOP surpluses. Bangladesh has taken enough precautions in their sovereign debt management, compared to Sri Lanka. Even in 2020, Bangladesh maintained progressive investment track over the threshold limit of 30%, while Sri Lanka fell into a debt trap. Following the pandemic, Bangladesh has enjoyed a gross national savings to GDP ratio of above the threshold of 25%, while Sri Lanka is going through a critical phase. It shows governance myopia of Bangladesh regarding its imbalanced current account positions, while governance myopia of Sri Lanka exists with reference to its imbalanced current account positions, adverse gross debts, and government borrowing as well.

Two Major Economic Crises in the Early Twenty-First Century and their Impact on Central Bank Independence

Two major economic crises in the early twenty-first century have had a serious impact on monetary policy and CB independence. Disruption in financial intermediation and associated deflationary pressures caused by the global financial crisis of 2007–2009 and European financial crisis of 2010–2015 pushed central banks (CBs) in major currency areas towards adoption of unconventional monetary policy measures, including large-scale purchase of government bonds (quantitative easing). The same approach has been taken by CBs in response to the COVID-19 crisis in 2020 even if the characteristics of this crisis differ from the previous one. As a result of both crises, CBs have become major holders of government bonds and de facto – main creditors of governments. Against rapidly deteriorating fiscal balances, CBs have become hostages of fiscal policies, which compromises their independence. Risks to the CB independence also come from their additional mandates (beyond price stability) and populist political pressures.

Decoding the rise of Central Bank Digital Currency in China: designs, problems, and prospects

During the Covid-19 pandemic, there has been a rapid shift in global transaction patterns from offline to online digital payment models, along with a growing interest in the development of Central Bank Digital Currencies (CBDCs) in various countries. This article spotlights the unexamined issue of digital currency regulation by examining the practice and related regulatory rules of the pilot CBDC in China. Beginning with the global design choices of digital currencies, the article comparatively examines the technical design of China's CBDC, known as e-CNY. It further triggers a rethinking of conventional regulations for the protection of digital currency information by investigating the gap between the actual operation and design of e-CNY, as well as the gap between pilot policies and legal provisions such as the Cybersecurity Law, the Data Security Law, and the Personal Information Protection Law. This article argues that, on the one hand, the legislative balance between the protection of personal information and the regulation of illicit financial activities involved in the "loosely coupled account link” system of e-CNY should be reconsidered. On the other hand, the delineation of rights and responsibilities between dissemination institutions, payment service providers, and end-users needs to be further redefined and clarified.

The effects of central bank extraordinary measures on financial conditions: Evidence from Mexico

This paper analyses the effects of the extraordinary measures implemented by the Central Bank of Mexico during the COVID-19 pandemic on financial conditions. For this purpose, we estimate a factor-augmented vector autoregressive model for the period 2001–2021. Based on this model, we construct a Financial Conditions Index, estimate the response of this indicator and its components from a shock to the outstanding amount of these measures, and conduct a counterfactual exercise to further analyse the effect of the aforementioned measures. The main results indicate that these extraordinary measures seem to have contributed to improve financial conditions. In particular, we find that if these measures had not been implemented, the sovereign risk premium, the 10-year government bond yield, the slope of the yield curve, and the long- and short-term yield spreads between Mexico and the US would have been higher by around 56, 31, 27, 37, and 49 basis points in December 2020, respectively. At the same time, the Mexican peso/US dollar exchange rate and its volatility would have been higher by 5 and 2 percentage points, respectively. In turn, the Mexican stock market index would have been lower by 10 percentage points. © 2023 Informa UK Limited, trading as Taylor & Francis Group.

Impact of Covid-19 Pandemic on the Investment Behavior of DIIs and FIIs on Indian Debt and Equity Markets

This paper aims to examine the impact of the Covid-19 pandemic on the investment behaviours of both Domestic Institutional Investors (DIIs) and Foreign Institutional Investors (FIIs) in the Indian debt and equity markets. The study is based on the daily time-series data from January 01,2015, to June 03, 2020. The study has constructed three Structural Vector Auto Regression dynamic models to compare the investment behaviors of FIIs and DIIs in both pre-and post-pandemic periods. The results indicate that the Institutional Investors' activities do not significantly impact the equity returns in the Indian markets, which has remained so in the wake of Covid-19. The debt purchases and sales for the DIIs are relatively more inelastic to market returns and reflect the risk-averse investment attitude of DIIs because of the negligible impact of Covid-19. There is a drop in the risk appetite of the FIIs due to a rise in the share of debt holdings in their portfolio in the wake of the Covid-19 pandemic.

Financing a Sustainable Economy in Hungary, Opportunities and Challenges: Decarbonisation, Green Transition, Sustainable Finance, Central Bank

today's prolonged crisis situations, such as the Covid-19 pandemic, the Russian-ukrainian conflict, and the energy and climate crisis call for climate neutrality in Hungary, although they make transition difficult in the short term. A number of studies suggest that Hungary will be able to reach the target by 2050 at the latest, and that the benefits, on the whole, will outweigh the macroeconomic sacrifices. Nevertheless, green transition, including the Hungarian economy, requires a huge amount of investment and financing, which makes it necessary to involve the private sector, and which central banks can assist effectively. Fortunately, a variety of solutions to finance green and sustainable investments have emerged recently, although we are still at the beginning of the process. The Central Bank of Hungary (Magyar Nemzeti Bank, MNB) has taken a number of measures – and is planning to take further ones – to promote green finance in Hungary, which, in addition to the development of a sustainable financial system will contribute to Hungary's transition to an environmentally sustainable economy. © 2023 Seventh Sense Research Group®

Reinstating fiscal policy for normal times: Public investment and Public Jobs Programmes

This paper upholds the classical Keynesian position that a laissez-faire market economy lacks a spontaneous tendency to full employment. Focusing on the UK case, it argues that monetary policy could not prevent the economic collapse of 2008-9 or achieve full recovery from the Great Recession that followed. The paper then outlines the case for fiscal policy to regain a permanent status of primacy in modern macroeconomic management, beyond the pandemic emergency. It distinguishes between public investment and automatic stabilisers, reducing discretionary actions to a minimum. It presents the case for re-empowering the State'spublic investment function and for reforming the system of automatic counter-cyclical stabilisers by means of public jobs programmes.

АНАЛІЗ ТЕНДЕНЦІЙ РОЗВИТКУ ГРОШОВО-КРЕДИТНОЇ СИСТЕМИ УКРАЇНИ

Bid устшност'1 фуищоиуваиия иацоиально!' грошово-кредитноi системи залетать ефективнсть органiзацľí в Kpami грошового обгу, девостi проведения заходв монетарного регулюваиия з боку центрального банку кроши i мотливкть задовольняти потреби спотивачв у р'вномаштиих иих ф'шансових послугах, а такот дieвiсть заход'ю щодо вдбудови иaшоiекоиомiкu у повоенний пер'юд i мотливкть нормального функцюнування в умовах военного стану. Метою статт'> е аналв теиденцй розвитку гpошово-кpедитиоi системи Украши, визначення етапв ii становления, а такот осиовиих проблем у поточний пер'юд. У робот'1 дотдтено становления та етапи розвитку грошово-кредитно!'системи в Укра'щ а саме визначено так ключов'! етапи: з 1991 р. - започаткування шституцшного становления грошово-кредитно!'системи;з 1996р. - введения иацюиальио!грошовоi одииицр з 1999 р. - подолання свтово!' фiиaисовоi кризи 1998 р. та розбудова нацонально!'грошово-кредитно!' системи;з 2009 р. - подолання наслдкв свтово!' фiиaисовоi кризи 2008 р.;з 2015 р. - подолання наслдкв росшсько-укра'шсько!' вiйии 2014 р.;з 2020 р. - подолання наслдкв свтово!' фiиaисовоi кризи 2019 р., прискореноi пандемею коpоиaвipусу;з 2022 р. - стабмвацю та подолання иаслдкв активно!' фази агресн роси проти Украши. Проаналвовано деяк ключовi показники, що характеризують грошово-кредитну систему кра'ши, а саме: дииaмiку грошово!' бази кра'ши, змии обл'шово!'ставки, щорчний прирст шдексу спотивчих цш, дииaмiку к'шькоmi дючих банюв та !'х активв, дииaмiку та структуру кредитв, що иaдaиi баиквськими установами, змiии pеитaбельиостi активв та катталу банквських установ. Проаналзовано основнi ризики та причини !'х виникнения у гpошово-кpедuтиiй системi Украши пд час вiйии. Визначено основнi поточи проблеми грошово-кредитно!' системи Украши у военний перод, а такот запропоновано деяк напрями !'х подолання. Запропоновано для оздоровления баиквського сектора вивести з ринку иедiездaтиi банки;для забезпечення шфляцшио!' стaбiльиостi иеобхдио забезпечити повернення до реалзацк полiтики iифляцiйиого таргетуваиия;для вдбудови економки, зокрема реального сектора, необхдно пом'якшити вимоги регулюваиия кредитио!'дяльиостi, впровадтувати нструменти цльового стимулювання кредитно! aктивиостi банквських установ.Alternate :The successful functioning of the national monetary system determines the efficiency of the country's money circulation, the effectiveness of monetary regulation measures taken by the country's central bank, and the ability to meet the needs of consumers for various financial services, as well as the effectiveness of measures to rebuild our economy in the post-war period and the ability to function normally under martial law. The purpose of the article is to analyze the trends in the development of the monetary system of Ukraine, to identify the stages of its formation along with the main problems in the current period. The publication examines the formation and stages of development of the monetary system in Ukraine, namely, identifying the following key stages: since 1991 - the beginning of the institutional formation of the monetary system;since 1996 - introduction of the national currency;since 1999 - overcoming the global financial crisis of 1998 and further development of the national monetary system;since 2009 - overcoming the consequences of the global financial crisis of 2008;since 2015 - overcoming the consequences of the russian-Ukrainian war of 2014;since 2020 - overcoming the consequences of the global financial crisis of 2019, accelerated by the coronavirus pandemic;since 2022 - stabilization and overcoming the consequences of the active phase of russia's aggression against Ukraine. Some key indicators characterizing the country's monetary system are analyzed, namely: the dynamics of the country's monetary base, changes in the discount rate, annual growth in the consumer price index, dynamics of the number of operating banks and their assets, dynamics and structure of loans granted by banking institutions, changes in the return on assets and capital of banking institutions. The main risks and causes of their occurrence in the monetary system of Ukraine during the wartime are analyzed. The main current problems of the monetary system of Ukraine in the wartime period are identified, and some directions for overcoming them are proposed. It is proposed that in order to sanitize the banking sector, it is necessary to withdraw insolvent banks from the market;to ensure inflationary stability, it is necessary to ensure a return to the implementation of inflation targeting policy;to restore the economy, in particular the real sector, it is necessary to ease the requirements for regulating loaning activity, to introduce instruments for targeted stimulation of loaning activity of banking institutions.

ANALYZING A MACROPRUDENTIAL INSTRUMENT DURING THE COVID-19 PANDEMIC USING BORDER COLLISION BIFURCATION

Bank Indonesia, el banco central de Indonesia, ha realizado ajustes en un instrumento de política macroprudencial llamado índice de intermediación macroprudencial (IIM) para impulsar el crecimiento de los préstamos en el contexto de la recuperación económica nacional debido a la pandemia de COVID-19. En este artículo, se desarrolla un modelo dinámico de préstamo bancario con comportamiento procíclico, y se equipa con el instrumento predecesor del IIM denominado requerimiento de reserva basado en la relación préstamo-depósito (RR-RPD). Examinamos los efectos de los parámetros RR-RPD en la dinámica del préstamo utilizando el análisis de bifurcación de colisión de fronteras para determinar los valores umbral de los parámetros RR-RPD para que se pueda mantener la estabilidad del equilibrio del préstamo. Este modelo se aplica a los datos mensuales de los bancos comerciales de Indonesia antes y durante la pandemia de COVID-19 para evaluar la región de estabilidad de los parámetros del instrumento.Alternate :Bank Indonesia, the central bank of Indonesia, has made adjustment settings in a macroprudential policy instrument called macroprudential intermediation ratio (MIR) to boost loan growth in the context of national economic recovery due to the COVID-19 pandemic. In this paper, a dynamic model of bank loan with procyclicality behavior is developed, and it is equipped with the predecessor of the MIR instrument called loan-to-deposit ratio based reserve requirement (LDR-RR). We examine the effects of LDR-RR parameters on the dynamics of loan using the border collision bifurcation analysis to determine the threshold values of the LDR-RR parameters so that the stability of loan equilibrium can be maintained. This model is applied to monthly data of Indonesian commercial banks before and during the COVID-19 pandemic to assess the stability region of the instrument parameters.

The impact of central bank digital currency news on the stock and cryptocurrency markets: Evidence from the TVP-VAR model

This study employs a non-linear framework to investigate the impacts of central bank digital currency (CBDC) news on the financial and cryptocurrency markets. The time-varying vector autoregressive (TVP-VAR) model developed by Primiceri (2005) is estimated based on weekly data from the first week of January 2015 to the last week of December 2021. The vector of endogenous variables in the VAR estimation contains the Central Bank Digital Currency uncertainty index (CBDCU), cryptocurrency policy uncertainty index, S&P 500 index, VIX, and Bitcoin price. The TVP-VAR model's time-varying responses demonstrated that the reactions of the cryptocurrency market to central bank digital currency announcements vary remarkably over time. The impacts of the CBDC shocks on the financial market have been increasingly visible during the COVID-19 pandemic. According to the time-varying forecast error decompositions, CBDCU and VIX shocks have accounted for most of the variance in cryptocurrency uncertainty and Bitcoin return shocks, notably during the COVID-19 period.

What Is the European Central Bank Supposed to Do? Recommending a Review of the ECB as anInstitution in Light of Two Decades of Crisis

In July 2021, the European Central Bank (ECB) published a new monetary policy strategy, the first time in 17 years that it had undertaken a review of its monetary policy. In the intervening time, the world - and the economic challenges facing the ECB - have changed immensely but partly as a result of the ECB's own maneuvering. In particular, monetary policy has been relied upon for every single malaise facing the global economy, including and up to the coronavirus pandemic. This paper argues that a review of central banks as an institutional mechanism in general, and in particular the ECB, was overdue but should not have been limited to policies;instead, an opportunity was missed to have an institutional review to examine whether or not it has been performing as intended. In particular, the vast experiment of unconventional monetary policy/issuance should have been more scrutinized from an institutional level as it appears to have contributed to the current problems the European economy faces. Europe and the ECB would be well served by taking stock of its actions over the past two decades and especially during the era of unconventional monetary policy to find a sustainable route forward.

Firms' rollover risk, capital structure and unequal exposure to aggregate shocks

We examine how debt rollover risk affects firms' capital structure following aggregate profitability shocks. Exploiting plausibly exogenous variation in perceived exposure to the Covid-19 pandemic, we find firms that are highly exposed to both rollover risk and aggregate shocks significantly raise leverage, compared to less exposed firms. The effect is amplified when regulators provide liquidity support to debt markets. Higher exposure to both risks, and consequent increase in leverage, leads to substantially diminished distance to default. We show the increase in leverage is consistent with standard trade-off theory, suggesting equity-holders tolerate a lower distance to default as long as cash flows received in continuation exceed that received in bankruptcy. Overall, our findings highlight how financial constraints can meaningfully affect firm policies following negative economic shocks.

India's low carbon value chain, green debt and global climate finance architecture

The paper critically evaluates the bottlenecks inherent in India's low carbon value chain that is financed by green bonds and related debt securities. The paper identifies three cardinal limitations of the value chain viz. unviable carbon mitigation projects, insufficient market competitiveness of green bonds issued from India and the inability of refinancing institutions to securitise their liabilities and overcome the problem of asset-liability mismatch. It is argued that a climate financial architecture that overcomes these limitations provides important lessons to the ongoing global efforts to strengthen the financial mechanisms laid down by the Paris Agreement on Climate Change. Extended summary: The paper explores India's ‘low carbon value chain' in the light of the developments that have taken place in India's climate finance landscape in the years following the adoption of the Paris Agreement on Climate Change. Shrinking budgetary resources, paucity of fiscal resources and the rise of non-performing assets in the debt portfolios of banks have compelled India's financial institutions to mobilise financial resources through debt markets. This trend has been accentuated by the advent of COVID-19. However, despite adhering to internationally laid down quality standards, the ‘on-shore' and ‘off-shore' green bonds issued by India's refinancing and development financial institutions suffer from insufficient liquidity in secondary markets. The yields clocked by these bonds compare unfavourably with Government Bonds of comparable maturities. The resultant tensions in the ‘low carbon value chain' can be obviated if refinancing institutions finance bankable climate mitigation projects which enjoy auxiliary revenue streams from carbon and renewable energy credits generated from carbon markets. It is further argued that supportive policy measures that enable the country's Central Bank to conduct market support operations involving green bonds and empower lending institutions to securitise their loan assets, can go a long way to enlarge the scope of debt securities in India's climate financing plan. It is stated that the new climate finance architecture proposed for India holds vital lessons for the ongoing efforts of the global community to provide teeth to the climate finance and carbon market provisos of the Paris Agreement on Climate Change. © 2023

Impact of Financial Technology on Improvement of Banks' Financial Performance

This study investigates the main financial technologies adopted by banks to improve their financial performance. The study population consists of commercial banks listed on the Amman Stock Exchange and Abu Dhabi Securities Exchange, and includes financial information and data from 2012 to 2020. A total of 115 questionnaires, consisting of five questionnaires for each bank, were distributed to the study population in Jordan and the United Arab Emirates. The dependent variable is financial performance, while the independent variable is financial technology (FinTech). Multiple linear regression analysis was conducted to test the hypotheses. The results showed that FinTech has a positive effect on both total deposit and net profits. This study recommends that banks be encouraged to adopt inclusive strategies to attain sustainable development.

Central Bank Independence: Where Do We Stand?

Central bank independence (CBI) has long been considered a key aspect of effective monetary policy, as it allows central banks to make decisions free from political interference. However, the global financial crisis of 2007–2008 and recent events such as the COVID-19 pandemic and armed conflict in Ukraine have threatened CBI. This article aims to examine the impact of these events on CBI in OECD member countries, both on a de jure and de facto level, using a variety of indicators. The results suggest that CBI has largely remained unchanged in most countries, but there is disturbing evidence of political interference in CBI in the Republic of Türkiye.

Redefining investors' goals in the post–normal world

PurposeThe purpose of the article is to show the changing behavior of investors in the post-pandemic period, the continued development of "emotional communities” in the financial market, as well as the factors contributing to their formation and the role of such communities in the elaboration of investors' decisions.Design/methodology/approachThe research includes an analysis of the popularity of various terms searched in the US segment of Google in the financial category from 2004 to 2022, their correlation with financial market indicators and theoretical observations around these data.FindingsThe results obtained by the author allow him to draw the following conclusions: (1) the change in investors' behavior indicates the formation of the new distributed community-centric model of the financial market;(2) the main distinguishing feature of the behavior of many retail investors is gamification;(3) the networking of investors contributes to a significant change in their priorities in the elaboration of investment decisions;(4) the fundamental indicators of the financial market play an ever decreasing role in the decision-making of individual investors.Originality/valueTo the best of the author's knowledge, the formation of emotional communities of investors and their role in the elaboration of mass investor decisions is not widely covered in the literature. The paper develops a framework for further studies on the role of emotional communities in the financial market and in changing behavior of retail investors.

Financial stability and monetary policy of the Central Bank of West African Countries: a Markov-Switching model

Purpose This paper aims to examine the response of monetary policy to financial instability in the West African Economic and Monetary Union.Design/methodology/approach Through annual aggregated data from 1970 to 2019, the empirical strategy is based on the Markov regime-switching model with fixed probabilities.Findings The results revealed that the monetary policy of the central bank of the West African Economic and Monetary Union is characterized by two regimes (calm and distress) with respect to the trend of financial stability. The authors also found that the occurrence of the calm regime was likely greater than that of the distress regime. In addition, the calm regime is longer than the distress regime. The authors finally revealed that the central bank reacts to financial instability risk by increasing its short-term interest rate when financial instability reaches a threshold.Research limitations/implications The limitation of this study is the unavailability of monthly or quarterly data that are more suitable for the methodological approach adopted.Originality/value This study is the one to estimate the response of the Central Bank of West African Countries to financial stress using a novel approach based on the Markov-Switching regression.

The effects of monetary policy response to the Covid-19 crisis on dynamic connectedness across financial markets in Central and Eastern Europe

This study investigates the effects of monetary policy interventions in Central and Eastern European (CEE) economies on shifts in financial market linkages during the Covid-19-induced crisis. We explore the market reaction to both standard and non-standard (e.g., quantitative easing) monetary policy announcements by central banks in Czechia, Hungary, Poland, and Romania, and analyse the way they affected sovereign bond and stock market linkages. The analysis is further extended to include international spill-over effects. Research Design & Methods: We first quantify a set of time-varying asset correlations using asymmetric generalised DCC-GARCH models and daily data on financial asset returns. Going beyond the domestic stock-bond interdependencies, we explore cross-border connectedness between CEE economies, Germany, and the US. Next, we investigate the effects of detailed central bank announcements, as they unfolded during the Covid-19 crisis.

On the interdependencies between mortgage, credit card and auto loans delinquency rates: evidence from the US states plus the District of Columbia

PurposeThis study aims to explain how delinquency shocks in one type of debt contaminate the others. That is, the authors aim to shed light on the time pattern of delinquencies in different debt types.Design/methodology/approachThis study analyzes the interdependencies between mortgage, credit card and auto loans delinquency rates in the USA from 2003 to 2019, using a panel VAR-X, the panel Granger causality tests and the Geweke linear dependence measures. The authors also compute the impulse response functions of a shock to one kind of debt on the others and decompose the variance of the forecast errors.FindingsThe authors find a statistically significant bidirectional Granger causality between the delinquencies. The Geweke measures of linear dependence and the Dumitrescu and Hurlin Granger non-causality tests support that mortgage predominantly causes credit card and auto loan delinquencies. Auto loans also cause credit card delinquencies. The impulse response functions confirm this pattern. This scenario aligns with a sequence where debtors consider rational first to default on credit cards, second on auto loans and only on mortgages in the last instance. Indeed, credit card delinquencies Granger-cause delinquencies in other debts when it occurs.Originality/valueTo the best of the authors' knowledge, this is the first study to focus on the temporal pattern of delinquency rates for all the US states, using panel data. Furthermore, the results call for policymakers to design regulations to break the transmission channel from debt delinquencies.

Public sector leadership during the COVID-19 crisis in Ghana

Purpose: This article examines public sector leadership during the economic crisis caused by the coronavirus pandemic in Ghana. It focuses on the Bank of Ghana – the nation's central bank responsible for monetary policy and financial sector leadership – and examines the critical leadership attributes that the central bank demonstrated through its administrative and policy responses to the crisis. Design/methodology/approach: Text-based content analysis is the method of investigation in this study. The analysis relies on textual data from the Bank of Ghana's monetary policy committee press briefings. The textual data are analyzed in three steps, namely pre-analysis, analysis and interpretation to identify patterns, themes and emphases and to make inferences about the central bank's public sector leadership during the coronavirus crisis in Ghana. Findings: The findings from textual analysis of monetary policy committee press briefings show that the central bank demonstrated several criteria of effective public service leadership during the crisis, namely sensemaking, critical decision-making, communication, accountability, adaptability and, to an extent, learning. However, the textual evidence suggests that the Bank of Ghana needs to broaden its collaboration and coordination across a wider spectrum of stakeholders in economic crisis management, while not compromising its policy independence. Originality/value: This article contributes to the emerging literature on public sector leadership during the COVID-19 crisis. It provides a unique perspective on public sector leadership through the lens of economic crisis management in a developing country context. © 2023, Emerald Publishing Limited.