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Business and Economics > Investments: Stocks

You are looking at 1 - 10 of 20 items for :

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Cover IMF Working Papers
Is the Public Investment Multiplier Higher in Developing Countries? An Empirical Exploration
Mr. Alejandro Izquierdo
,
Mr. Ruy Lama
,
Juan Pablo Medina
,
Jorge Puig
,
Daniel Riera-Crichton
,
Mr. Carlos A. Végh Gramont
, and
Guillermo Javier Vuletin
Over the last decade, empirical studies analyzing macroeconomic conditions that may affect the size of government spending multipliers have flourished. Yet, in spite of their obvious public policy importance, little is known about public investment multipliers. In particular, the clear theoretical implication that public investment multipliers should be higher (lower) the lower (higher) is the initial stock of public capital has not, to the best of our knowledge, been tested. This paper tackles this empirical challenge and finds robust evidence in favor of the above hypothesis: countries with a low initial stock of public capital (as a proportion of GDP) have significantly higher public investment multipliers than countries with a high initial stock of public capital. This key finding seems robust to the sample (European countries, U.S. states, and Argentine provinces) and to the identification method (Blanchard-Perotti, forecast errors, and instrumental variables). Our results thus suggest that public investment in developing countries would carry high returns.
Keywords:
WP; investment multiplier; Fiscal multiplier; Public investment; Stock of public capital; Crowding-in; multiplier estimate; public investment multiplier; multiplier calculation; government spending multiplier; Public investment spending; Stocks; Government consumption; Private investment; Global
Cover IMF Working Papers
Understanding the Macro-Financial Effects of Household Debt: A Global Perspective
Mr. Adrian Alter
,
Alan Xiaochen Feng
, and
Nico Valckx
We confirm the negative relationship between household debt and future GDP growth documented in Mian, Sufi, and Verner (2017) for a wider set of countries over the period 1950–2016. Three mutually reinforcing mechanisms help explain this relationship. First, debt overhang impairs household consumption when negative shocks hit. Second, increases in household debt heighten the probability of future banking crises, which significantly disrupts financial intermediation. Third, crash risk may be systematically neglected due to investors’ overoptimistic expectations associated with household debt booms. In addition, several institutional factors such as flexible exchange rates, higher financial development and inclusion are found to mitigate this impact. Finally, the tradeoff between financial inclusion and stability nuances downside risks to growth.
Keywords:
WP; debt ratio; Household debt; financial crises; neglected crash risk; leverage; macro-financial stability; standard deviation; bank stock; negative correlation; subprime crisis; financial leverage; Exchange rate arrangements; Stocks; Consumption; Commercial banks; Consumer credit; Global
Cover IMF Working Papers
Investment in Brazil: From Crisis to Recovery
Mr. Ivo Krznar
and
Mr. Troy D Matheson
While Brazil’s deep recession has been broad based, it has been marked by a particularly large fall in investment. Real investment fell by around 30 percent between the beginning of 2014 and the beginning of 2017. This paper finds that a variety of factors contributed to the investment decline, including a deterioration in Brazil’s medium-term growth prospects, rising real interest rates, falling terms of trade, rising uncertainty related to economic policy, rising levels of corporate leverage and lower cash flow. Some of the factors that have weighed on investment over recent years have begun to normalize providing some impetus for a recovery. However, still-high levels of corporate leverage and the prospect of continued uncertainty related to economic policy settings suggest a turnaround in investment is likely to be subdued.
Keywords:
WP; financing investment; Investment; Recession; policy uncertainty; drive investment decision; growth expectation; investment growth; investment equation; cash flow ratio; Terms of trade; Gross fixed investment; Real interest rates; Labor costs; Stocks; Global
Cover IMF Working Papers
Financial Frictions, Underinvestment, and Investment Composition: Evidence from Indian Corporates
Miss Sonali Das
and
Mr. Volodymyr Tulin
This paper studies private investment in India against the backdrop of a significant investment decline over the past decade. We analyze the potential causes of weaker investment at the firm level, using both firm-level financial statements and a novel dataset on firms’ investment project decisions, and find that financial frictions have played a role in the slowdown. Firms with higher financial leverage invest less, as do firms with lower earnings relative to their interest expenses. Consistent with the notion of credit constraints leading to pro-cyclical investment, we also find that firms with higher leverage are (i) less likely to undertake new investment projects, (ii) less likely to complete investment projects once begun, and (iii) undertake shorter-term investment projects.
Keywords:
WP; firm; investment; investment rate; financial leverage; Corporate Leverage; India; investment project; Project length; firm investment; investment expenditure; investment decision; investment slowdown; Stocks; Exports; Capital adequacy requirements; Financial frictions; Private investment; Global
Cover IMF Working Papers
Should Unconventional Monetary Policies Become Conventional?
Mr. Dominic Quint
and
Mr. Pau Rabanal
The large recession that followed the Global Financial Crisis of 2008-09 triggered unprecedented monetary policy easing around the world. Most central banks in advanced economies deployed new instruments to affect credit conditions and to provide liquidity at a large scale after shortterm policy rates reached their effective lower bound. In this paper, we study if this new set of tools, commonly labeled as unconventional monetary policies (UMP), should still be used when economic conditions and interest rates normalize. In particular, we study the optimality of asset purchase programs by using an estimated non-linear DSGE model with a banking sector and long-term private and public debt for the United States. We find that the benefits of using such UMP in normal times are substantial, equivalent to 1.45 percent of consumption. However, the benefits from using UMP are shock-dependent and mostly arise when the economy is hit by financial shocks. When more traditional business cycle shocks (such as supply and demand shocks) hit the economy, the benefits of using UMP are negligible or zero.
Keywords:
WP; central bank; monetary policy; Unconventional Monetary Policy; Banking; Optimal Rules; UMP rule; goods producer; supply shock; purchases of government bonds; UMP matter; unwinding UMP; government bond purchase; UMP shock; transmission mechanism; UMP reaction; long-term debt; optimal UMP policy; Unconventional monetary policies; Sovereign bonds; Consumption; Corporate bonds; Inflation; Global
Cover IMF Working Papers
Financial Sector Debt Bias
Ms. Oana Luca
and
Alexander F. Tieman
Most tax systems create a tax bias toward debt finance. Such debt bias increases leverage and may negatively affect financial stability. This paper models and estimates debt bias in the financial sector, and present novel estimates for investment banks and non-bank financial intermediaries such as finance and insurance companies. We find debt bias to be pervasive, explaining as much as 10 percent of total leverage for regular banks and 20 percent for investment banks, with the effects most pronounced before the global financial crisis. Going forward, debt bias is likely to once again gain prominence as a key driver of leverage decisions, underscoring the importance of policy reform at this juncture.
Keywords:
WP; oil price; interest rate; Oil prices; equity prices; dividends; economic growth; oil supply; global oil markets; international business cycle.; equity price; standard error band; term interest rate; price relationship; price fall; oil price shock; oil price coefficient; Oil; Oil production; Stocks; Long term interest rates; Global
Cover IMF Working Papers
Oil Prices and the Global Economy: Is It Different This Time Around?
Mr. Kamiar Mohaddes
and
M. Hashem Pesaran
The recent plunge in oil prices has brought into question the generally accepted view that lower oil prices are good for the United States and the global economy. In this paper, using a quarterly multi-country econometric model, we first show that a fall in oil prices tends relatively quickly to lower interest rates and inflation in most countries, and increase global real equity prices. The effects on real output are positive, although they take longer to materialize (around four quarters after the shock). We then re-examine the effects of low oil prices on the U.S. economy over different sub-periods using monthly observations on real oil prices, real equity prices and real dividends. We confirm the perverse positive relationship between oil and equity prices over the period since the 2008 financial crisis highlighted in the recent literature, but show that this relationship has been unstable when considered over the longer time period of 1946–2016. In contrast, we find a stable negative relationship between oil prices and real dividends which we argue is a better proxy for economic activity (as compared to equity prices). On the supply side, the effects of lower oil prices differ widely across the different oil producers, and could be perverse initially, as some of the major oil producers try to compensate their loss of revenues by raising production. Taking demand and supply adjustments to oil price changes as a whole, we conclude that oil markets equilibrate but rather slowly, with large episodic swings between low and high oil prices.
Keywords:
WP; oil price; Oil prices; equity prices; dividends; economic growth; oil supply; global oil markets; international business cycle; equity price; standard error band; price relationship; oil price shock; oil price coefficient; oil price variable; term interest rate; oil price volatility; price coefficient; real oil price; rate of change; Oil; Oil production; Stocks; Long term interest rates; Global
Cover IMF Working Papers
Do Asset Price Drops Foreshadow Recessions?
Mr. John C Bluedorn
,
Mr. Jörg Decressin
, and
Mr. Marco Terrones
This paper examines the usefulness of asset prices in predicting recessions in the G-7 countries. It finds that asset price drops are significantly associated with the beginning of a recession in these countries. In particular, the marginal effect of an equity/house price drop on the likelihood of a new recession can be substantial. Equity price drops are, however, larger and are more frequent than house price drops, making them on average more helpful as recession predictors. These findings are robust to the inclusion of the term-spread, uncertainty, and oil prices. Lastly, there is no evidence of significant bias resulting from the rarity of recession starts.
Keywords:
WP; price growth; asset price; frequency distribution; growth model; term spread; Business cycles; Macroeconomic forecasting; Financial markets; Uncertainty; Oil Prices; Binary dependent variable models; lag terms; asset price collapse; house price change; price volatility; price movement; equity price drop; Asset prices; Housing prices; Stocks; Stock markets; Global
Cover IMF Working Papers
Incorporating Financial Sector Risk Into Monetary Policy Models: Application to Chile
Mr. Leonardo Luna
,
Mr. Dale F Gray
,
Jorge Restrepo
, and
Carlos Garcia
This paper builds a model of financial sector vulnerability and integrates it into a macroeconomic framework, typically used for monetary policy analysis. The main question to be answered with the integrated model is whether or not the central bank should include explicitly the financial stability indicator in its monetary policy (interest rate) reaction function. It is found in general, that including distance-to-default (dtd) of the banking system in the central bank reaction function reduces both inflation and output volatility. Moreover, the results are robust to different model calibrations: whenever exchange-rate pass-through is higher; financial vulnerability has a larger impact on the exchange rate, as well as on GDP (or the reverse, there is more effect of GDP on bank's equity - i.e., what we call endogeneity), it is more efficient to include dtd in the reaction function.
Keywords:
WP; interest rate; monetary policy; Financial vulnerability; central banking; asset volatility; bank assets; risk indicator; reaction function; monetary policy interest rate; Inflation; Asset valuation; Output gap; Financial sector risk; Stocks; Asia and Pacific
Cover IMF Working Papers
Data-Rich DSGE and Dynamic Factor Models
Mr. Maxym Kryshko
Dynamic factor models and dynamic stochastic general equilibrium (DSGE) models are widely used for empirical research in macroeconomics. The empirical factor literature argues that the co-movement of large panels of macroeconomic and financial data can be captured by relatively few common unobserved factors. Similarly, the dynamics in DSGE models are often governed by a handful of state variables and exogenous processes such as preference and/or technology shocks. Boivin and Giannoni(2006) combine a DSGE and a factor model into a data-rich DSGE model, in which DSGE states are factors and factor dynamics are subject to DSGE model implied restrictions. We compare a data-richDSGE model with a standard New Keynesian core to an empirical dynamic factor model by estimating both on a rich panel of U.S. macroeconomic and financial data compiled by Stock and Watson (2008).We find that the spaces spanned by the empirical factors and by the data-rich DSGE model states are very close. This proximity allows us to propagate monetary policy and technology innovations in an otherwise non-structural dynamic factor model to obtain predictions for many more series than just a handful of traditional macro variables, including measures of real activity, price indices, labor market indicators, interest rate spreads, money and credit stocks, and exchange rates.
Keywords:
WP; interest rate; monetary policy; DSGE model; Data-rich DSGE models; dynamic factor models; Bayesian estimation; DFM model; DSGE state; investment deflator inflation; model state; GDP deflator; Dynamic stochastic general equilibrium models; Factor models; Inflation; Stocks; Consumption