Monetary policy, financing constraints and investment efficiency

2016 ◽  
Vol 7 (1) ◽  
pp. 80-98 ◽  
Author(s):  
Dongping Han ◽  
Peng Zhang
Keyword(s):  
Monetary Policy ◽  
Market Process ◽  
Private Enterprises ◽  
Financing Constraints ◽  
Investment Efficiency ◽  
Content Type ◽  
Management Capacity ◽  
Internal Management ◽  
The Government ◽  
External Management

Purpose – This paper aims to analyze the different impacts of monetary policy on the financing constraints of diverse enterprises from China by introducing the concepts of external and internal management factors, and on the investment efficiency of these enterprises with the help of “Hayek Triangle”. Design/methodology/approach – Based on the concept of human action, this paper builds an empirical model which is remarkably different from previous related researches and conducts an empirical test by using the chosen sample data of 312 Chinese listed private companies from 2003 to 2012. Findings – This paper shows that owing to the differences of management capacity of diverse enterprises, under the condition of the governmental micro-economic intervention in the allocation of credit funds, the loose monetary policy relieves the financing constraints confronted by the enterprises with better external management capacity, and aggravates the financing constraints confronted by the enterprises with better internal management capacity. This paper also shows that the loose monetary policy will distort the market interest rate signal, which in turn falsely directs the enterprises to divert resources from short-term to long-term investment projects. Research limitations/implications – These findings mean that under the condition of the loose monetary policy, contrasted with the private enterprises with better internal management capacity, the investment efficiency of the private enterprises with better external management capacity will be lowered because they are able to acquire more credit funds preferentially and readily. Practical implications – This paper argues that the government should strengthen the ex-post property rights protection for financial transactions, reduce the micro-economic intervention in the credit funds allocation and improve the marketization level of the financial deals. Also, the government should prudently regulate macro-economy by monetary policy. Originality/value – This paper is mainly based on the market process theory of Austrian School, and therefore initiates a totally new perspective for the research of corporate financing.

scholarly journals Capacity Reduction Pressure, Financing Constraints, and Enterprise Sustainable Innovation Investment: Evidence from Chinese Manufacturing Companies

2020 ◽  
Vol 12 (24) ◽  
pp. 10472
Author(s):  
Huan Chen ◽  
Tingyong Zhong ◽  
Jeoung Yul Lee
Keyword(s):  
Transition Period ◽  
Chinese Economy ◽  
Private Enterprises ◽  
Financing Constraints ◽  
Inhibitory Influence ◽  
Manufacturing Companies ◽  
Sustainable Innovation ◽  
Capacity Reduction ◽  
The Government ◽  
The Impact

Resolving the problem of excess production capacity through sustainable technological innovation is an important issue facing the Chinese economy in achieving high-quality development. The Guiding Opinions of the State Council on Resolving the Contradiction of Severe Overcapacity promulgated by the government in 2013 undoubtedly had a huge external impact on the traditionally competitive manufacturing market. This paper uses 6680 company-year sample observations of 1609 A-share manufacturing listed companies in China from 2010 to 2017 to examine the impact of capacity reduction pressure on ‘corporate sustainable innovation’ (the strategic response made by the enterprise administrator to cope with the impacts of the external environment including economic, social and environmental aspects) investment and the moderating role of financing constraints on this relationship. The research shows that after the promulgation of the Guiding Opinions, the degree of overcapacity had a significant positive effect on the R&D investment of enterprises, indicating that the policy to resolve overcapacity promoted their sustainable innovation investment. Such a phenomenon indicates that, to a certain extent, in the context of capacity reduction, companies have strong pressure and motivation to seek a way out through sustainable innovation. However, financing constraints have a significant inhibitory influence on the anti-forcing effect of the capacity reduction policy, indicating that the ability of enterprises to respond to external capacity reduction policies is subject to their own limited financing. Further investigation shows that capacity reduction pressure mainly promotes the sustainable innovation investment of private enterprises and has no significant impact on that of state-owned enterprises. This may be because private enterprises struggled more for survival during the transition period. The results of this paper provide a theoretical basis and reference value for the formulation of government policies and the development of enterprises.

Monetary easing may quicken in Brazil this year

2017 ◽  
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Economic Recession ◽  
Government Debt ◽  
Domestic Demand ◽  
Private Debt ◽  
Content Type ◽  
Positive Effects ◽  
The Government

Significance At its first meeting of 2017, on January 10-11, the COPOM reduced the benchmark Selic interest rate to 13%. The 75-basis-point (bp) rate cut decision, the largest in nearly five years, accelerated the monetary easing cycle that started in October 2016. Economic recession has been relieving inflationary pressures and opening room for more intense cuts in interest rates. Impacts Further reductions of interest rates may contribute to controlling government debt. Private debt renegotiations at lower interest rates may facilitate a recovery in domestic demand and output. Any positive effects of monetary policy on activity may help contain popular dissatisfaction with the government.

Mexican fiscal consolidation steady despite oil price

2015 ◽  
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Oil Prices ◽  
Oil Price ◽  
Fiscal Consolidation ◽  
Significant Drop ◽  
Content Type ◽  
The Government

Subject The outlook for fiscal consolidation. Significance The significant drop in oil prices should not derail the fiscal consolidation trajectory mapped by President Enrique Pena Nieto's administration, which envisages that the debt/GDP ratio should stabilise by 2017. The fiscal hole opened by reduced oil prices has been compensated with greater taxation income and one-off revenues. Impacts Defying expectations, the oil price plunge did not push the government into an overtly contractionary fiscal correction. An arguably much-needed simplification of the cumbersome taxation regime will not take place due to the government's pledge not to alter it. Loose monetary policy from the autonomous central bank has worked in tandem with the government's fiscal stance.

Oil prices will increase Ecuador's fiscal pressures

2015 ◽  
Keyword(s):  
Monetary Policy ◽  
Budget Deficit ◽  
Oil Prices ◽  
Content Type ◽  
Full Control ◽  
Public Resources ◽  
Oil Sector ◽  
The Government ◽  
The Impact ◽  
Impact Of Falling

Significance The collapse of world oil prices has brought fiscal policy sharply into focus in Ecuador. At a time when the budget deficit is widening and the opposition is strengthening, the government faces the prospect of receiving significantly less income from the oil sector than anticipated. The fallout from the plunge of oil prices coincides with the beginning of the constitutional debate that could allow the re-election of President Rafael Correa in 2017. Impacts The government will intensify efforts to raise oil output in a bid to ease the impact of falling oil prices. Conflicts between central and local government will probably increase as public resources become scarcer. If oil prices remain low, the appeal of exiting dollarisation and establishing full control over monetary policy will rise.

Renzi may shift EU macroeconomic narrative

2016 ◽  
Keyword(s):  
Monetary Policy ◽  
Member State ◽  
Public Investment ◽  
Policy Coordination ◽  
State Governments ◽  
European Policy ◽  
Fiscal Stimulus ◽  
Content Type ◽  
Policy Strategy ◽  
The Government

Subject Renzi's bid for more growth-friendly policies. Significance In its paper, 'A shared European policy strategy for growth, jobs, and stability', the Ministry of the Economy and Finance (MEF) sketches a plan to create more flexibility in EU macroeconomic policy coordination. The immediate goal is to enable member-state governments to use more fiscal stimulus and public investment to boost growth. Impacts If Renzi's constitutional reforms do not go through in October, the government will be in disarray. The ECB is likely to ease policy further tomorrow, while reminding markets that monetary policy accommodation is insufficient on its own. The March 17 European Council summit will be Renzi's chance to reframe the macroeconomic conversation.

India's GST reform promises major economic rewards

2016 ◽  
Keyword(s):  
Monetary Policy ◽  
Supply Chains ◽  
The Political ◽  
Tax System ◽  
Content Type ◽  
Goods And Services ◽  
Economic Significance ◽  
National Market ◽  
The Government ◽  
Over Time

Subject The political and economic significance of GST. Significance The Goods and Services Tax (GST) bill earlier this month passed through the upper house of parliament, its most difficult hurdle. When rolled out, GST will represent the most significant reform of the tax system since India's independence in 1947, replacing the current myriad of central and state imposts to create a unified national market. The government claims that the GST will be the best version of its envisaged 'One Nation One Tax' concept. Impacts GST has longer-term implications for business costs, taxation ratios and India's illicit economy. Over time, businesses are likely to re-adjust their supply-chains to take advantage of the new opportunities. Inflation may rise temporarily when GST is implemented, possibly affecting political sentiment and monetary policy. Sectors such as renewables, tourism and telecommunications are likely to lobby the government for exemptions. The April 2017 deadline for rolling out GST is ambitious.

Threat of a downgrade hangs over Mexico

2016 ◽  
Keyword(s):  
Monetary Policy ◽  
Content Type ◽  
Borrowing Costs ◽  
Sovereign Credit ◽  
Credit Line ◽  
Mexican Government ◽  
Global Liquidity ◽  
The Government ◽  
Us Monetary Policy

Subject Mexico credit outlook downgrades. Significance On August 23, ratings agency Standard & Poor's (S&P) lowered the sovereign credit outlook of the Mexican government to negative from stable. The same day, the credit outlooks of state-owned enterprises Pemex (oil) and CFE (electricity) were also moved to negative. Moody's modified its outlook on Mexico's debt to negative in March. Impacts A rating downgrade would represent both a financial and a political blow for the government. The 'normalisation' of US monetary policy should moderately increase borrowing costs for emerging sovereigns, including Mexico. In the unlikely case of a global liquidity crunch, Mexico may activate its IMF credit line, borrowing up to 88 billion dollars immediately.

Risks are high despite Turkey’s policy 'normalisation'

2020 ◽  
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Risk Premium ◽  
Financial Stability ◽  
Foreign Debt ◽  
Content Type ◽  
The Public ◽  
High Inflation ◽  
The Government

Significance With the lira at a record low, the Central Bank continued to tighten monetary policy this week, funding the market through competitive one-month repo tenders at rates of around 12.5%. In recent weeks, the government and Central Bank have taken a series of steps to modify the expansionary and in some cases unorthodox policies adopted during the COVID-19 pandemic. Impacts Foreign portfolio investors could shun the Turkish market for some more months, and the risk premium will remain high. Although this year’s annual contraction in GDP, at 3-4%, may be less severe than expected, the recovery may decelerate or be interrupted. The lira may fall further with concerns about foreign debt, forex reserves, budgets, inflation and financial stability persisting into 2021. Given the weak lira, the jobs crisis and high inflation, the government will struggle to persuade the public it has managed the crisis well.

scholarly journals Sharīʿah-compliant central banking practices: lessons from Muslim countries’ experience

2020 ◽  
Vol 12 (1) ◽  
pp. 7-26
Author(s):  
Zaheer Anwer ◽  
Shabeer Khan ◽  
Muhammad Abu Bakar
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Islamic Law ◽  
Financial Institution ◽  
Central Banking ◽  
Policy Implications ◽  
Content Type ◽  
Muslim Countries ◽  
Muslim Majority ◽  
The Government

Purpose The purpose of this study is to document how a central bank can perform its primary and secondary functions in a Sharīʿah-compliant manner. It also seeks to investigate the outcomes of the experiments of Muslim-majority countries in this regard. Design/methodology/approach As a first step, a detailed review of existing literature is conducted, which discusses the views of scholars and practitioners on the central banking mechanism in a fully Sharīʿah-compliant financial system. Moving further, the case studies of Iran, Sudan and Pakistan are presented to highlight experiences of regulators from three Muslim-majority countries, which aimed to achieve full compliance with Sharīʿah (Islamic law) principles related to Islamic finance. To evaluate their models, an assessment of their practices is performed in the light of Sharīʿah rules and principles based on existing literature. Finally, the issues involved in establishing a Sharīʿah-compliant central bank (SCCB) are discussed and improvements are suggested. Findings It is found that Iran played an effective role in pursuing broader objectives of monetary policy by setting priorities for credit allocation and assisting the government in reducing expenses; however, with respect to instruments, its experience is limited to the rebranding of conventional products. Sudan has not only used monetary policy to effectively curb inflation but also it has introduced various indirect instruments to perform monetary operations. Pakistan succeeded in formulating a theoretical roadmap to establish a SCCB but the desired objectives could not be achieved because of multiple factors. Practical implications This study has important policy implications for regulators and policymakers from Muslim countries, who can use the findings in shaping effective Sharīʿah-compliant central banking practices in their respective countries. Originality/value This study discusses the salient features of an important Islamic financial institution, the central bank and evaluates the experiments of three Muslim-majority countries in implementing Sharīʿah-compliant central banking practices. To the best of the knowledge, this evaluation has not been performed in the existing literature and the present study fills in this gap.

scholarly journals Effects of trend inflation on monetary policy and fiscal policy shocks in Vietnam

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Le Thanh Ha ◽  
Finch Nigel
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Money Supply ◽  
New Keynesian ◽  
Method Of Moment ◽  
Content Type ◽  
Keynesian Model ◽  
Trend Inflation ◽  
Policy Shocks ◽  
The Government

PurposeThis paper analyzes variations in effects of monetary and fiscal shocks on responses of macroeconomic variables, determinacy region and welfare costs due to changes in trend inflation.Design/methodology/approachThe authors develops the New-Keynesian model, which the central banks can employ either nominal interest rate (IR rule) or money supply (MS rule) to conduct monetary policies. They also use their budgets for capital and recurrent spending to conduct fiscal policies. By using simulated method of moment (SMM) for parameter estimation, the authors characterize Vietnam's economy during 1996Q1 -2015Q1.FindingsThe results report that consequences of monetary policy and fiscal policy shocks become more serious if there is a rise in trend inflation. Furthermore, the money supply might not be an effective instrument and using the government budget for recurrent spending produces severe consequences in the high-trend-inflation economy.Originality/valueThis is the first paper that examines the effects of trend inflation on the monetary and fiscal policy implementation in the case of Vietnam.

Sign in / Sign up

Export Citation Format

Share Document