Global uncertainty shocks and exchange-rate expectations in Latin America

Do professional exchange-rate forecasters change their projections upon global economic policy uncertainty (EPU) shocks? Significant effects have been identified for major currencies, but emerging-market currencies are usually more difficult to predict and less related to global shocks. We study this question for five Latin-American currencies: Brazil, Chile, Colombia, Mexico, and Peru using data for the period 2003–2020. Our results show that global EPU shocks lead to significant upward revisions implying expected exchange-rate depreciations on a 12-month horizon. Using time-varying coefficients, we find intensified impacts during crisis events such as the great financial crisis, and the initial COVID-19 emergency. These non-linear effects from global EPU shocks are new in the literature. Our results are not only robust to the use of alternative measures of global uncertainty, but are also consistent with the forward-looking nature of economic expectations given the documented negative effects of EPU shocks on global investment and consumption. © 2023 Elsevier B.V.

Global uncertainty shocks and exchange-rate expectations in Latin America

Do professional exchange-rate forecasters change their projections upon global economic policy uncertainty (EPU) shocks? Significant effects have been identified for major currencies, but emerging-market currencies are usually more difficult to predict and less related to global shocks. We study this question for five Latin-American currencies: Brazil, Chile, Colombia, Mexico, and Peru using data for the period 2003–2020. Our results show that global EPU shocks lead to significant upward revisions implying expected exchange-rate depreciations on a 12-month horizon. Using time-varying coefficients, we find intensified impacts during crisis events such as the great financial crisis, and the initial COVID-19 emergency. These non-linear effects from global EPU shocks are new in the literature. Our results are not only robust to the use of alternative measures of global uncertainty, but are also consistent with the forward-looking nature of economic expectations given the documented negative effects of EPU shocks on global investment and consumption.

Do Coastal Areas Experience More Recession during the Economic Crisis-Evidence from China.

The notion of resilience has been increasingly adopted in economic geography, concerning how regions resist and recover from all kinds of shocks. Most of the literature on the resilience of coastal areas focuses on biophysical stressors, such as climate change and some environmental factors. In this research, we analyze the regional economic resilience characteristics responding to the Great Financial Crisis in 2008 and its main determinants. We conclude that the coastal areas encountered more recession (or less growth) in the long term, and the secondary industry showed higher resilience than the tertiary industry. The influential factors of regional economic resilience varied across different stages of the crisis, and for the long term, good financial arrangement and governance ability could prompt the regional resilience to the crisis. Finally, some policy implications are proposed which may benefit dealings with major shocks such as economic crises and COVID-19.

2008's mistrust vs 2020's panic: can ESG hold your institutional investors?

Purpose The authors compare two market collapse incidents, focusing on their role as turning points for ESG considerations among investors that do not fall under the SRI class. The authors draw from the signaling theory to posit that ESG performance acts as a buffer to retain institutional shareholders under stress conditions. Design/methodology/approach The authors collect extensive data on institutional shareholdings and corporate performance during the pandemic and the 2008 financial crisis to examine the potential of ESG to act as a downward risk hedging mechanism. The authors test whether superior ESG scores function as insurance and resilience signals that lock investors in through times of high probability of divestments. Findings Findings indicate that ESG weighs in investment decisions during economic downturn and poor returns. The nature of this positive relationship is not static but dynamic contingent on overall risk materiality considerations. Research limitations/implications The authors update regulators, firms, investors and academics on ESG, risk and crisis management. The shifting materiality and the altering impact of ESG practices is our core implication, as well as limitation, in terms of metrics, temporal evolution and interaction with institutional factors, along with portfolio alpha and safe haven potential in ESG asset classes. Originality/value The authors extend current literature focusing on portfolio returns and firm valuations to highlight the role of ESG in shareholder retention during poor return periods. The authors further add to existing studies by examining the shifting materiality of ESG pillars during different crisis settings.