COVID-19, government interventions and emerging capital markets performance

In this study, we explore the impact of government intervention to contain the spread of COVID-19 in emerging countries on the performance of their leading stock indices. We retrieved data on the performance of 25 international capital market indices included in the MSCI Emerging Markets Index and data about the closures, economic, and health measures imposed in each country examined. Overall, our findings show that government restrictions are associated with negative market returns, possibly due to the anticipated adverse effect to the economy. The adverse effect is more evident when closures are imposed. The market response to economic stimulus is mild but varies depending on the type of intervention imposed, much as with the health measures. Public campaigns may raise public awareness about COVID-19, but they can also increase the public’s fear of the pandemic, reflected in the negative response in capital markets. The results are essential for understanding the trends and fluctuations in emerging markets during this current crisis and for preparing for crises in the future.     

Sovereign credit ratings during the COVID-19 pandemic

Using 603 sovereign rating actions by the three leading global rating agencies between January 2020 and March 2021, this paper shows that the severity of sovereign ratings actions is not directly affected by the intensity of the COVID-19 health crisis (proxied by case and mortality rates) but through a mechanism of its negative economic repercussions such as the economic outlook of a country and governments' response to the health crisis. Contrary to expectations, credit rating agencies pursued mostly a business-as-usual approach and reviewed sovereign ratings when they were due for regulatory purposes rather than in response to the rapid developments of the pandemic. Despite their limited reaction to the ongoing pandemic, sovereign rating news from S&P and Moody's still conveyed price-relevant information to the bond markets.     

Estimating the COVID-19 cash crunch: Global evidence and policy

In this paper, we investigate how the COVID-19 health crisis could affect the liquidity of listed firms across 26 countries. We stress-test three liquidity ratios for each firm with full and partial operating flexibility in two simulated distress scenarios corresponding to drops in sales of 50% and 75%, respectively. In the most adverse scenario, the average firm with partial operating flexibility would exhaust its cash holdings in about two years. At that point, its current liabilities would increase, on average, by eight times, suggesting that the average firm would have to resort to the debt market to prevent a liquidity crunch. Moreover, about 1/10th of all sample firms would become illiquid within six months. Finally, we study two different fiscal policies, tax deferrals and bridge loans, that governments could implement to mitigate the liquidity risk. Our analysis suggests bridge loans are more cost-effective to prevent a massive cash crunch.     

COVID-19, government policy responses,and stock market liquidity around the world: A note

Unprecedented non-pharmaceutical interventions targeted to curb the spread of COVID-19 exerted a dramatic impact on the global economy and financial markets. This study is the first attempt to investigate the influence of these government policy responses on global stock market liquidity. To this end, we examine daily data from 49 countries for the period January-April 2020. We demonstrate that the impact of the interventions is limited in scale and scope. Workplace and school closures deteriorate liquidity in emerging markets, while information campaigns on the novel coronavirus facilitate trading activity.     

Banking sector reactions to COVID-19: The role of bank-specific factors and government policy responses

This paper examines the impact of bank-specific factors and variations in the context of stringency of government policy responses on bank stock returns because of the COVID-19 pandemic. A sample of 1,927 publicly listed banks from 110 countries is used for the period of the first major wave of COVID-19, that is, January to May 2020. Our findings indicate that stock returns of banks with higher capitalization and deposits, more diversification, lower non-performing loans, and larger size are more resilient to the pandemic. While banks’ environment and governance scores do not have a significant impact, higher social and corporate social responsibility strategy scores intensify the negative stock price reaction to COVID-19. We further observe that the pandemic-induced reduction in bank stock prices is mitigated as the strictness of government policy responses increases, mainly through economic responses such as income support, debt and contract relief, and fiscal measures from governments.     

The global credit boom: Challenges for macroeconomics and policy

The recent financial crisis has put the spotlight on the rapid rise in credit which preceded it. In this paper, we provide an empirical and theoretical analysis of the credit boom and the macroeconomic context in which it developed. We find that the boom was unusually long and associated with neither particularly strong growth nor rising inflation in the economies in which it took place. We show that this type of credit and financial cycle is hard to reconcile with existing economic theory and argue that, while the “global savings glut” may account for the cycle's initial phase, other factors – such as the conduct of monetary policy and perceptions of declining macroeconomic risk – were more important from the mid-2000s onwards. We conclude by identifying some of the challenges now facing macroeconomics and policy.     

Monetary policy,accounting conservatism and trade credit

Using a sample of A-share listed firms in China during the 2003–2012 period,this paper investigates the effect of accounting conservatism on trade credit,taking...     

The Brazilian bankruptcy law experience

In early 2005, the Brazilian Congress approved a new bankruptcy law. The new legislation increased creditor protection and improved the efficiency of the bankruptcy system. This paper evaluates the empirical consequences of a bankruptcy reform on a poorly developed credit market. Using data from Brazilian and non-Brazilian firms, we estimated, using two different models, the effect of the bankruptcy reform on contractual and non-contractual debt variables. In general, both models yielded similar results. Concerning contractual debt variables, we found a significant increase in the total amount and the long-term debt and a reduction in the cost of debt. For the non-contractual debt variable, we found no effect in the loans’ ownership structure.     

Cyclical fiscal policy,credit constraints,and industry growth

What are the effects of cyclical fiscal policy on industry growth? We show that industries with a relatively heavier reliance on external finance or lower asset tangibility tend to grow faster (in terms of both value added and of labor productivity growth) in countries that implement fiscal policies that are more countercyclical. We reach this conclusion using Rajan and Zingales׳s (1998) difference-in-difference methodology on a panel data sample of manufacturing industries across 15 OECD countries over the period 1980–2005.     

International house price cycles,monetary policy and credit

We evaluate three alternative predictors of house price corrections: anticipated tightenings of monetary policy, deviations of house prices from fundamentals, and rapid credit growth. A new cross-country measure of monetary policy expectations based on an international term structure model with time-varying risk premiums is constructed. House price overvaluation is estimated via an asset pricing model. The variables are incorporated into a panel logit regression model that estimates the likelihood of a large house price correction in 18 OECD countries. The results show that corrections are predicted by increases in the market’s forecast of higher policy rates. The estimated degree of house price overvaluation also contains significant information about subsequent price reversals. In contrast to the financial crisis literature, credit growth is less important. All of these variables help forecast recessions.     

Forecasting for regulatory credit loss derived from the COVID-19 pandemic: A machine learning approach

The economic onslaught of the COVID-19 pandemic has compromised the risk management of financial institutions. The consequences related to such an unprecedented situation are difficult to foresee with certainty using traditional methods. The regulatory credit loss attached to defaulted mortgages, so-called expected loss best estimate (ELBE), is forecasted using a machine learning technique. The projection of two ELBEs for 2022 and their comparison are presented. One accounts for the outbreak's impact, and the other presumes the nonexistence of the pandemic. Then, it is concluded that the referred crisis surely adversely affects said high-risk portfolios. The proposed method has excellent performance and may serve to estimate future expected and unexpected losses amidst any event of extraordinary magnitude.     

中小企业呼唤实施差别性信贷政策

2011年中央经济工作会议和中国人民银行工作会议明确指出．加大对中小企业与“三农”的支持力度,把更多的信贷资金投向实体经济,但落实起来恐怕有难度。鉴于当前县域信贷政策对中小企业发展的不利影响,迫切需要央行出台差别性信贷等政策支持     

The impact of COVID-19 pandemic on transmission of monetary policy to financial markets

This study uses event-study methodology to estimate the impact of the COVID-19 pandemic on the transmission of monetary policy to financial markets, based on a sample of 37 countries with severe pandemics. Financial markets include government bond, stock, exchange rate and credit default swap markets. The results suggest that the emergence of pandemic has weakened the transmission of monetary policy to financial markets to a more significant degree. During our sample period following the outbreak of pandemic, neither conventional nor unconventional monetary policies have significant effects on all four of the financial markets. Of course, the unconventional monetary policies are slightly more effective as they can affect the stock and exchange rate markets to some extent. Therefore, in the post-pandemic period, if the monetary policy is used to stimulate financial markets, stronger policy adjustments, or other macro policies such as fiscal policies, may be needed to achieve the desired effect     

Economic policy uncertainty and short-term financing: The case of trade credit

We examine the impact of economic policy uncertainty on trade credit. We document a decline (increase) in accounts payable, receivable, and net credit during periods of high (low) policy uncertainty and that firms react quickly to changes in uncertainty. The relation is long-term and holds after controlling for endogeneity, non-policy economic and political uncertainties, and the Great Recession. Industry competitiveness, proxied by firm market power, moderates the impact of economic policy uncertainty on trade credit. Uncertainty about monetary and fiscal policies, taxes, and regulations are the major drivers of trade credit changes. The reduction in trade credit during periods of increasing uncertainty can be explained by financial distress, constraints, and relation-specific investment channels.     

Rent control: The British experience and policy response

Rent Control in Britain began in the First World War and has lasted, on and off, most of this century. There has been almost no new building for private rent since 1939. The private rented sector is small (8%), marginalized, delapidated, and unattractive.The British Government is enacting new legislation to reform all areas of rented housing. Rents of new lettings will be freely agreed (i.e., at market levels) between landlord and tenant. But the tenant has security of tenure, subject to renegotiating a new rent. The absence of any important tax incentives or other subsidy was an obstacle to revival even with market rents. But the Business Expansion Scheme proposal in the March 1988 budget has created considerable interest among investors.Paper for conference on Rent Control: The International Experience, John Deutsch Institute Roundtable, Kingston, Ontario, 2 September 1987     

Futures research and policy formulation : The Spanish experience

The expectation that futures research will contribute to the formulation of policy is increasing, in an environment characterised by growing complexity and uncertainty about the future. In this paper the role of a public institute for futures studies in Spain is briefly described, and the participation of the institute in the policy-making process is discussed. A particular example of its role, in the area of long-term economic policy, is outlined. A methodological aspect of a recently completed study of Spain in the 1980s is presented; this methodology is derived from Interpretative Structural Modelling and from Qualitative Analysis (signed directed graphs) and is used to portray a possible structure of policy objectives.     

Cross-sector comovements and policy impact in the COVID-19 stock market: A dynamic factor approach

This study investigates the remarkable comovements in U.S. equity returns during the COVID-19 pandemic. It constructs a dynamic factor model (DFM) to illuminate the sources of the comovements and their implications. Using the Markov Chain Monte Carlo (MCMC) estimation method, the study finds that the comovements had a weak daily oscillation pattern during the pandemic. With that pattern, the study also finds significant monetary policy effects on the equity returns of several key sectors. In addition, it estimates the impact of news shocks, including monetary policy news, fiscal stimulus news, and unemployment news, on cross-sector equity returns. For any given sector, the conventional and unconventional monetary policy news shocked the sector in opposite directions. Among the positive monetary news shocks, the strongest were from interest rate policy surprises. Conversely, fiscal stimulus news had the most substantial positive impact and triggered all sectors to rebound from the bear market at the end of March 2020. Furthermore, by applying Natural Language Processing (NLP) sentiment analysis, this study sheds light on the positive correlation between comovements and news sentiment.     

Macroprudential regulation,credit spreads and the role of monetary policy

We study the macroprudential roles of bank capital regulation and monetary policy in a borrowing cost channel model with endogenous financial frictions, driven by credit risk, bank losses and bank capital costs. These frictions induce financial accelerator mechanisms and motivate the examination of a macroprudential toolkit. Following credit shocks, countercyclical regulation is more effective than monetary policy in promoting price, financial and macroeconomic stability. For supply shocks, combining macroprudential regulation with a stronger anti-inflationary policy stance is optimal. The findings emphasize the importance of the Basel III accords in alleviating the output-inflation trade-off faced by central banks, and cast doubt on the desirability of conventional (and unconventional) Taylor rules during periods of financial distress.