Aggregate volatility and international dynamics. The role of credit supply

Gete, Pedro; Melkadze, Givi

doi:10.1016/j.jinteco.2018.01.002

Cited by 13 publications

(19 citation statements)

References 33 publications

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“…One of the explanations could be the unfavourable effects of volatility under heavy reliance on external finance that lead to a decrease in productivity-enhancing investments, as argued by Aghion, Angeletas, Banerjee and Manova (2010). It cannot be ruled out that higher volatility creates credit supply shortages for steel manufacturers and thus decreases investment and output in the sector, in line with the arguments presented by Gete and Melkadze (2018).…”

Section: Resultsmentioning

confidence: 89%

“…These theoretical implications are confirmed by productivity growth estimates of 25 industries from 18 advanced economies over the period 1985-2010 (Choi, Furceri, Huang, & Loungani, 2018). Gete and Melkadze (2018) utilize an International RBC model in order to demonstrate that higher volatility contracts credit supply and depresses investment and output. A negative link between volatility and investments is obtained by Hoffmann, Krause and Tillmann (2019), but it has been found that investment reacts to long-run volatility of GDP growth less than to consumption.…”

Section: Theoretical Frameworkmentioning

confidence: 79%

“…There are also studies that imply no causality between output volatility and output growth, as was proved for Japan (Fountas, Karanasos, & Mendoza, 2004) and the U.K. (Speight, 1999). Empirical evidence suggesting that volatility reduces investment can be seen in many crosssection studies (Hoffmann, Krause, & Tillmann, 2019;Gete & Melkadze, 2018), as well as with reference to country-specific time series, as in the case of Turkey (Berument, Dincer, & Mustafaoglu, 2012).…”

Section: Introductionmentioning

confidence: 97%

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Macroeconomic effects of output volatility in Ukraine

Shevchuk¹

2019

Prace Naukowe Uniwersytetu Ekonomicznego we Wrocławiu

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This paper focuses on several macroeconomic effects of the output volatility in Ukraine. Our findings suggest that the volatility that originates from the gross domestic product (GDP) has a sizeable, negative and statistically significant effect on economic growth and investments while being complementary to industrial production (no impact on consumption and consumer prices has been detected). The results also indicate asymmetric exchange rate effects upon GDP and industrial production growth. Among other results, it has been found that (i) output volatility has expansionary effects on three out of five sectors (manufacturing, food processing and power generation), with a likely contractionary effect on the steel-making industry, (ii) exchange rate depreciation stimulates investments, but at the expense of higher inflation and lower consumption, (iii) output volatility is associated with lower money supply and a decrease in the interest rate, with a negative impact on the budget balance.

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Section: Resultsmentioning

confidence: 89%

Section: Theoretical Frameworkmentioning

confidence: 79%

Section: Introductionmentioning

confidence: 97%

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Macroeconomic effects of output volatility in Ukraine

Shevchuk¹

2019

Prace Naukowe Uniwersytetu Ekonomicznego we Wrocławiu

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“…After the 2008-2009 global financial crisis, concerns about policy uncertainty received significant attention from scholars and policy-makers. Since the seminal paper of Bloom (2009), many studies have examined the real economic effects of uncertainty on economies and have confirmed the adverse effects of uncertainty on economic activities, such as investment, output, and employment (Bachmann et al, 2013;Baker et al, 2016;Bloom, 2009;Caggiano et al, 2017;Gulen & Ion, 2016), and asset prices and financial markets (Arellano et al, 2012;Brogaard & Detzel, 2015;Christiano et al, 2014;Gete & Melkadze, 2018;Karnizova & Li, 2014).…”

Section: Related Literaturementioning

confidence: 99%

Output fluctuations and portfolio flows to emerging economies: The role of monetary uncertainty

Trung

2022

International Finance

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This paper examines the role of monetary-policy uncertainty (MPU) in driving business cycles in emerging economies. We employ a Bayesian vector autoregression model with stochastic volatility as the mean for different emerging economies. We find that MPU works as a crucial driver of business cycles in emerging economies. First, we show that an MPU shock can trigger instability in emerging economies by provoking risk/volatility in both financial and exchange-rate markets. Second, an MPU shock can lead to a decline in both output growth and capital inflows in emerging economies. Our empirical results suggest that the central banks of emerging economies should attempt to improve transparency in their monetary policy-making by increasing the effectiveness of public communication and forward guidance.

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“…3 of 27 traditional IRBC model can explain the impact of uncertainty shocks on current account surplus, but it fails to account for credit contraction and increased risk premiums. To address this issue, Gete and Melkadze [31] extends a two-country incomplete markets IRBC model by incorporating a credit supply channel that considers default and lenders' exposure to aggregate risk. According to Gete and Melkadze [31], uncertainty shocks increase the household sector's incentive for precautionary saving, leading to a higher current account surplus.…”

Section: Introductionmentioning

confidence: 99%

Financial Integration and International Dynamics: The Role of Volatility Shocks

Tang

2023

Preprint

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This study investigates the impact of financial integration on international dynamics from the perspective of volatility shocks. To achieve this, I employ an IRBC model with time-varying volatilities, recursive preferences, and a global bank. The model demonstrates that volatility shocks trigger precautionary saving incentives, but the specific effects vary based on the type of shock. In the presence of productivity volatilities, countries with a higher level of financial integration exhibit greater divergence in their business cycles, while financial integration tends to result in more synchronized business cycles in the face of financial volatilities. Disregarding volatility shocks would underestimate the impact of financial integration on the comovement of business cycles across countries. Furthermore, welfare analysis also indicates that financial markets play a crucial role in enhancing social welfare, regardless of the type of volatility.

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Aggregate volatility and international dynamics. The role of credit supply

Cited by 13 publications

References 33 publications

Macroeconomic effects of output volatility in Ukraine

Macroeconomic effects of output volatility in Ukraine

Output fluctuations and portfolio flows to emerging economies: The role of monetary uncertainty

Financial Integration and International Dynamics: The Role of Volatility Shocks

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