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.

The Impact of the COVID-19 Pandemic on Household Financial Well-being

Purpose: The current research is one of the few studies investigating the impact of COVID-19 on shattered households' financial well-being in light of Friedman's Theory of Consumption Function. It explored if there are statistical differences in the impact of COVID-19 due to the demographic variables of the study. Design/methodology/approach: The study is descriptive and analytical. It used an online survey that targeted respondents representing 387 Palestinian households randomly selected from the community of the Gaza Strip. Findings: The results showed a negative impact of the COVID-19 pandemic on households' financial well-being. It also revealed these households' lack of financial resilience due to the combined effect of the pandemic and the concurrent siege and its economic drawbacks. The statistical results demonstrated no statistically significant differences in the households' mean financial well-being scores due to gender before and during the COVID-19 pandemic. In contrast, it was found that there are statistically significant differences in the households' mean scores of financial well-being due to the (education level, number of household members, employability status, and the number of households' breadwinners) before and during the COVID-19 pandemic. Research limitations/implications: The researcher conducted an online survey among the general population in the Gaza Strip during the COVID-19 pandemic between the 2nd and 5th of June 2021. Although the results of this study are based on the Palestinian context, the main hypotheses can be tested in other countries to assess the impact of COVID-19 on household financial well-being, especially in emerging countries. Originality/value: This study is the first to address the financial and economic effects of the COVID-19 pandemic on households already shattered and torn by suffrage political and economic inequalities. It also demonstrates how people in emergencies tend to respond to the resulting conditions of the pandemic in the light of Friedman's Theory of the Consumption Function. © 2022 People and Global Business Association.

The Nexus Between Bank Credit Risk and Liquidity: Does the Covid-19 Pandemic Matter? A Case of the Oligopolistic Banking Sector

Background: There is a raging debate on how the COVID-19 pandemic disrupted the financial market environments, affected the banks’ strength as the credit channel, and the nexus between market liquidity and credit risk. During the COVID-19 crisis in the banking sector, credit risk and liquidity risk cannot be ignored as they have a considerable bearing on the performance and survival of banks.Purpose: Within the context of COVID-19, bank-specific and external factors were examined to determine the relationship between liquidity and the credit risk of South African domiciled banks.Research methodology: Quarterly panel data from 13 South African domiciled banks from 2018 to 2021 were examined using panel data methodologies: fixed effects and the system GMM.Results: In an analysis of the period between 2019Q1 to 2021Q1 the results suggest a positive relationship between liquidity and credit risk, the COVID-19 pandemic was found to have an implication on the nexus as the COVID-19 dummy variable was significant. Also, the results show that liquidity deteriorated with an increase in COVID-19 cases during the pandemic period. During the Pre-COVID-19 liquidity improved with a decrease in credit risk. Nevertheless, during COVID-19 liquidity was not influenced by credit risk. The results are contrary to the pre-COVID-19 period as the government interventions to support households and non-financial firms could have changed the dynamics of liquidity and loan losses.Novelty: The pandemic has ushered in a novel set of responses whose lasting impacts are not yet certain. The originality of the article lies in the nature of the investigation, where the nexus between liquidity and credit risk under the COVID-19 shocks/pandemic set-up. This is a unique study as the study revealed that policymakers and researchers alike should pay particular attention to the vulnerabilities to shocks from within and outside of the financial system as COVID-19 was found to significantly affect liquidity and credit risk. Since the pandemic is still active, further research is necessary to examine the cointegrating and causal relationship in the long run.

How do customers change their purchasing behaviors during the COVID-19 pandemic?

This study focuses on examining how customers' shopping behaviors have changed during the pandemic and contributing variables. Three primary shopping modes include online purchases, curbside pickup, and in-store shopping. The dependent variables are the changes in customers' spending in those three modes during the pandemic. The theory of fear appeal was used as the theoretical foundation for selecting independent variables. Based on this theory, two groups of independent variables were identified, fears for health and fears for financial conditions due to COVID-19. Additionally, demographic variables were also included in the analysis. The data from Census Bureau's Household Pulse Survey Phase 3.1 collected from June 23 to July 5, 2021, was used with 24,998 useable cases. Logistic regression was used to analyze the data to test the effects of independent variables on customers' shopping behavior changes in the three modes. The results show that both fears for health and fears for financial conditions have effects on the shopping behavioral changes. Due to those fears, residents change their shopping behaviors by considering the shopping modes that allow them to deal with or avoid the risks. Additionally, demographic variables, including age, gender, race, income, and marriage status, also have significant impacts on their shopping decisions.

Handle with Care: Regulatory Easing in Times of COVID-19

The policy response to the COVID-19 shock included regulatory easing across many jurisdictions to facilitate the flow of credit to the economy and mitigate a further amplification of the shock through tighter financial conditions. Using an intraday event study, this paper examines how stock prices - a key driver of financial conditions - reacted to regulatory easing announcements in a sample of 18 advanced economies and 8 emerging markets. It finds that regulatory easing announcements contributed to looser financial conditions but effects varied across sectors and tools. News about regulatory easing led to lower valuations for financial sector stocks, mainly in jurisdictions with relatively lower capital buffers. These results stand in stark contrast with valuations of non-financial sector stocks, which increased in response to regulatory relief announcements, particularly in industries that are more dependent on bank financing. The effects also differed across tools. Valuations declined and financial conditions tightened following announcements related to easier bank capital regulation while equity valuation rose and financial conditions loosened after those about liquidity regulation.

The COVID-19 Economic Crisis in Mexico through the Lens of a Financial Conditions Index

The COVID-19 pandemic not only generated real shocks affect- ing economic activity severely, but also a broad uncertainty that un-leashed an extreme shock to financial markets. In this paper, we focus on the financial dimension of the pandemic from the view- point of an emerging market economy. Accordingly, we estimate a financial conditions index for Mexico since 1993 and find that the acute turmoil generated by the pandemic stands among the four largest episodes of financial distress experienced by the country. In addition, we find evidence suggesting that real variables have re- sponded differently to shocks that worsen financial conditions than to shocks that improve them.

Impact of the COVID-19 pandemic: Evidence from the U.S. restaurant industry.

The current study examines how the effect of COVID-19 on U.S. restaurant firms' stock returns varies according to the firms' pre-pandemic characteristics by employing three firm-level dimensions (financial conditions, corporate strategies, and ownership structure). Employing 795 firm-year observations obtained from annual reports and other databases, this study found that restaurant firms with past characteristics of larger size, more leverage, more cash flows, less ROA, and more internationalization are more resilient to stock declines reacting to COVID-19 than otherwise similar firms. Whereas, dividend, franchising, institutional ownership, and managerial ownership did not show any significant moderating effect on the relationship between COVID-19 and stock returns. This study sheds light on the research topic by providing insights into drivers of restaurant firm's stock returns during the COVID-19 shock. Future studies can employ the variables and method used in the current study to extend the understanding of the issue.