Untangling the nonlinear ‘knots’ of UK’s housing prices

Purpose Housing prices in the UK offer an inspiring, yet a complex and under-explored research area. The purpose of this paper is to investigate the critical factors that affect UK’s housing prices. Design/methodology/approach The authors utilize the recently developed nonlinear ARDL approach of Shin et al. (2014) over the period 1969–2016. Findings The authors find that both the long-run and short-run impact of the price-to-rent (PTR) ratio and credit-to-GDP ratio on house prices (HP) is asymmetric whilst ambiguous results are established for mortgage rates, industrial production and equities. Apart from the novel framework of analysis, this study also establishes a positive association between HP and the PTR ratio which suggests a speculative behaviour and could imply the formation of a housing bubble. Originality/value It is the first study for the UK housing market that explores the underlying fundamental relationships by looking at nonlinearities hence, allowing HP to be tied by asymmetric relationships in the long as well as in the short run. Modelling the inherent nonlinearities enhances significantly the understanding of UK housing market which can prove useful for policymaking and forecasting purposes

European intellectual property institutions and Chinese foreign direct investment

Purpose We investigate the impact of the strength of intellectual property (IP) institutions on Chinese outward foreign direct investment (OFDI). Design/methodology/approach We use two different measures of IP on a sample of 21 European countries in the period 2003–2015. Panel quantile methodology is applied to assess the relationship at several points of the conditional distribution of OFDI. Findings We provide novel and robust evidence revealing a highly negative relationship between OFDI and the strength of IP institutions in Europe. This relationship which is more pronounced in the median and upper-quantiles, bolsters the conventional theoretical expectation that high institutional distance between home and host countries is inversely related to OFDI. Equally important is the preliminary evidence of the non-linear impact of IP at the median and upper-quantiles as well as the impact of other controlling variables such as GDP, population, trade openness and unit labour costs on Chinese OFDI. Originality/value The ensuing theoretical implications are of great significance for future studies on the institutional distance and drivers of OFDI by emerging economies as well as for European policymakers in so far as the strengthening of IP institutions constitutes a gravitational point for inward investment flows from China

Determinants of credit risk in the Bulgarian and the Romanian banking systems and the role of the Greek crisis

The global financial crisis of 2007-8 and the ensuing manifestation of the Greek debt crisis in the euro area have abruptly ended the credit-fuelled boom in the South East Europe (SEE). The crisis episodes have also reignited the interest of researchers and policy makers on the determinants of credit risk and the impact of crisis on the stability of the SEE banking sectors. The contribution of this thesis lies in the fact that it provides the first systematic assessment of the relationship between credit risk and macroeconomic shocks in the Bulgarian and Romanian banking systems with an explicit role for the Greek debt crisis and the spillover effects transmitted through the Greek banks’ subsidiaries in the thesis’ focal countries. The empirical research uses a comprehensive dataset spanning from 2001 to 2010, thus covering a significant part of the boom-bust cycle, as well as advanced modelling approaches that have not been used before in the focal banking systems. The results indicate that credit risk plays a central role in the linkages between banking systems and macroeconomic vulnerabilities. The determinants of credit risk in Bulgaria and Romania are macroeconomic, bank-specific and institutional. The evidence on the spillover effects from the Greek debt crisis, manifested through the strong banking linkages, differs between the two countries. The data generate evidence of a Greek crisis spillover effect on Romania but not on Bulgaria, given the pronounced differences in the economies and banking systems of these two countries. The results of the empirical research are country-specific, suggesting that the region does not form a homogeneous block, thus each country merits research on its own. The implications of the research support the view that banking stability should be at the core of central banks’ policymaking, while strong regional cooperation and coordination among regulators would be beneficial in safeguarding banking systems from crisis contagion

Economic growth and quality of institutions in 27 postsocialist economies

Purpose – The relationship between institutional quality and economic growth is revisited. Design/methodology/approach – A panel cointegration methodology and causality analysis are applied to 27 postsocialist economies over the period from 1996 to 2016. Findings – Utilizing the Worldwide Governance Indicators as a means of assessing the quality of institutions, it is found that in the long run, economic growth is positively associated with the rule of law and voice and accountability. In the short run, regulatory quality retains a positive effect, but voice and accountability demonstrate a puzzling negative effect on economic growth that merits further analysis. In exploring the causal dimension of our variables, supporting evidence of the strong links between the quality of institutions and economic growth is provided, hence rendering robust results. Originality/value – To the best of the authors’ knowledge, it is the first time that an ARDL methodological framework, which addresses potential endogeneity issues, is used to investigate the relationship between institutional quality and growth in the context of postsocialist economies

Estimating the Impact of Credit Risk Determinants in two Southeast European Countries: A Non-Linear Structural VAR Approach.

We study the impact of credit risk determinants on the Romanian and Bulgarian banking systems using a structural Markov Regime-Switching vector autoregressive (MRS-SVAR) analysis. To capture changes in the domestic macroeconomic conditions as well as the spillover effects from the Greek crisis we account for endogenous breaks in the mean and/or volatility dynamics. Our empirical results suggest that an increase of interest rate also increases the Romanian and Bulgarian credit risk in the short-run while in the medium and long-run it reduces it. We also find evidence of spillover effects from the Greek crisis on both the Romanian and Bulgarian banking system, which interestingly, are imminent in the low volatility regime

Macroeconomic announcements and stock returns in US portfolios formed on operating profitability and investment

The authors explore the reaction of US stock portfolio returns to macroeconomic announcements spanning the period from April 1998 to May 2017. Using daily returns of 25 portfolios formed on operating profitability and investment, the authors investigate the extent to which potential asymmetries permeate the stock portfolios following macroeconomic announcements. The three methodological approaches utilized in this study suggest that the ISM non-manufacturing index, employees on non-farm payrolls, retail sales, personal consumption expenditure and initial jobless claims have a significant impact on portfolio returns. Also, portfolios consisting of companies with higher operating profitability and investment level are found to be less responsive to announcements. As the particular area has received little currency over the years, this contribution is of great significance, because it provides insights into the reaction of returns in value-weighted portfolios to announcements on certain macro-indicators. At the same time, the study informs portfolio managers of the implications of macroeconomic news, which drive economic expectations and can reverberate through the expected returns in US stock portfolios

Exploring the dynamic nexus between cross-border dollar claims and global economic growth

This paper addresses the role of the U.S. dollar in fostering global economic growth during the post-war period. The existing literature lacks a comprehensive understanding of the true implications of the U.S. dollar’s status as a reserve currency and a dearth of studies examining its impact. In this study, we explore the dynamic long-run and short-run relationships between cross-border U.S. dollar claims, global GDP, and global trade while gauging the impact of the Global Financial Crisis (GFC) and the COVID-19 pandemic. In doing so, we use ARDL methodology for a data set that spans the period of 1980 to 2022. The estimation results reveal a robust long-run relationship between U.S. dollar claims, global GDP and global trade and no clear evidence of asymmetric effects. Our findings are of great significance for monetary authorities, emphasising the need for a nuanced understanding of the implications of the U.S. dollar’s conducive role in shaping global economic dynamics and fostering growth

Income inequality and financialization: a not so straightforward relationship

Purpose The authors explore the impact of financialization on income inequality for a panel of 19 OECD countries over the period 2000–2017. The authors control for the effect of banking crises, credit market regulation and globalization, among other factors. Design/methodology/approach The authors use three proxies for income inequality and four proxies for financialization. The authors employ a panel fixed effects approach using Driscoll and Kraay’s (1998) nonparametric covariance matrix estimator, which produces standard errors that are robust to general forms of cross-sectional dependence. Findings The authors provide evidence which to a great extent supports the view that the process of financialization has increased income inequality. In the disposable Gini specifications, two out of the four financialization measures are found to significantly contribute to rising inequality whilst in the specification with the market income Gini coefficient, three out of the four financialization proxies appear to adversely affect inequality. In the specification with the Gini coefficient based on manufacturing pay, the evidence is weak. Furthermore, trade unions appear to play a significant role in reducing inequality in two out of the three Gini specifications while the effect of credit market regulation is rather ambiguous. Originality/value The authors’ findings suggest a positive relationship between financialization and income inequality; however, the results depend on the proxies used to measure financialization and income inequality. The authors conclude that the process of financialization in triggering income inequality is complex and merits additional research

U.S. politics and exchange rate volatility: Do domestic politics matter?

This paper explores the effect of U.S. domestic politics on the behaviour of international currency markets. Specifically, for the first time in the literature, we gauge the impact of a divided government on the exchange rate volatility of five currencies: the Japanese Yen, the Canadian Dollar, the British Pound, the Mexican Peso, and Euro. At the same time, we control for the impact of political and macroeconomic factors. A GARCH methodology has been adopted for this objective, using weekly data from 2000 to 2021. The evidence suggests that the partisan and divided government variables significantly impact the conditional variance equation, whilst the observed reduced levels of exchange rate volatility during a Democrat presidency run counter to prior studies on Partisanship. In addition, exchange rate volatility seems to increase one month before an election and during periods of divided government. Given the nascent evidence, we argue that U.S. politics are instrumental in affecting global financial markets, in line with the postulates of the Global Hegemonic Theory

Exchange rate regimes in India: Central Bank interventions and purchasing power parity in the context of ASEAN currencies

In this study spanning four decades, we explored the relationship between the Reserve Bank of India’s (RBI) interventions and the validity of Purchasing Power Parity (PPP) across two distinct exchange rate regimes: the fixed exchange rate regime (1975–1993) and the managed floating regime (1994–2015). Applying an error correction model (VECM), our analysis reveals that under the fixed exchange rate regime, the environment is conducive to PPP due to frequent interventions by the RBI. However, in the managed floating regime, selective interventions weaken the applicability of PPP. These findings align with prior research but also hint at the limitations of linear models in capturing the intricate dynamics of PPP when central banks are involved. Nonlinear models may hold the key to unraveling the relationship more effectively