scholarly journals Financial Soundness Indicator, Financial Cycle, Credit Cycle and Business Cycle－Evidence from Taiwan

2016 ◽  
Vol 8 (4) ◽  
pp. 166 ◽  
Author(s):  
Yuan Chang
Keyword(s):  
Business Cycle ◽  
Economic Activity ◽  
Financial Stability ◽  
Financial Institution ◽  
Balance Sheet ◽  
Bank Credit ◽  
Contraction Phase ◽  
Financial Cycle ◽  
Financial Soundness ◽  
Credit Cycle

<p>Business cycle is the repeated expansions (from trough to peak) and contractions (from peak to trough) of real economic activity. Credit cycle is the cyclical process of the bank credit, ranging from short/long-term, loan to enterprise and loan to individual. Financial cycle reflects ups and downs in asset prices and financial institution's balance sheet. This paper examines the linkage among cycles as well as their lead-lag relationship. Theoretically, credit cycle is one of reasons driving business cycle, and financial cycle is a fundamental cause of credit cycle. Based on Taiwan’s quarterly data, this paper firstly identifies cyclical behavior of indicators of real economic activity, bank credit and assets prices in recent decade by defining expansion phases and contraction phases of cyclical variables. Second, this paper calculates concordance index to examine the degree of synchronization among cycles. Third, while the soundness for assets and liabilities of financial institution may drive financial cycle, this paper employs IMF’s Financial Soundness Indicator (FSI) as predictor of expansion and contraction phase of cyclical variables. Specifically, the paper assesses the health of bank’s balance sheet variables by Probit estimation on linkage between FSIs and expansion/contraction phase of cycle. Based on empirical evidence, the knowledge about the extent of assets/liability condition of financial institution corresponding to the expansion and contraction phase of financial, credit and business cycle is enhanced. Authority concerning about financial stability should oversight the performance of FSIs and then engage in prompt corrective actions when the level and volatility of those indicators sharply.</p>

scholarly journals TRI-CYCLES ANALYSIS ON BANK PERFORMANCE: PANEL VAR APPROACH

2017 ◽  
Vol 19 (4) ◽  
pp. 403-442 ◽  
Author(s):  
Denny Irawan ◽  
Febrio Kacaribu
Keyword(s):  
Business Cycle ◽  
Financial Risk ◽  
Balance Sheet ◽  
Banking System ◽  
Bank Performance ◽  
Panel Var ◽  
Vector Autoregressive ◽  
Dynamic Relationship ◽  
Credit Cycle ◽  
The Business Cycle

The previous financial crisis has revealed the importance of risk in the financial and business cycle within the economy. This paper examines relationship among three cycles in the economy, namely (i) business cycle macro risk, (ii) credit cycle and (iii) risk cycle, and their impacts toward individual bank performance. We examine the responses of individual bank credit cycle and risk cycle toward a shock in business cycle macro risk and its consequence to the bank performance. We use Indonesian data for period of 2005q1 to 2014q4. We use unbalanced panel data of individual banks’ balance sheet with Panel Vector Autoregressive approach based on GMM style estimation by implementing PVAR package developed by Abrigo and Love (2015). The result shows dynamic relationship between business cycle macro risk and financial risk cycles. The study also observes prominent role of risk cycles in driving bank performance. We also show the existence of financial accelerator phenomenon in Indonesian banking system, in which financial cycles precede the business cycle macro risk.

scholarly journals Measuring Sovereign Credit Risk of the EU countries

2021 ◽  
Vol 10 (3) ◽  
pp. 169-192
Author(s):  
Vojtěch Siuda ◽  
Milan Szabo
Keyword(s):  
Credit Risk ◽  
Public Debt ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Financial Institution ◽  
Debt Crisis ◽  
Balance Sheet ◽  
Sovereign Credit ◽  
Eu Countries ◽  
Sovereign Credit Risk

Abstract European countries have increased significantly their public debt since the Global Financial Crisis. The increasing trend and the high concentration of public debt in portfolios of financial institutions can lead to a financial turmoil we witnessed during the European Sovereign Debt Crisis. Financial stability authorities therefore look for models to measure the sovereign credit risk and develop“what-if”scenarios to assess a potential repercussion of a financial institution rescue or of an economic contraction on sovereign credit risk. The presented article introduces adjustments to the sovereign contingent claims analysis that is based on the Merton´s Credit Risk Model and the Black-Scholes option pricing techniques. The article proposes adjustments by introducing a new view on a stylised liability side of a central government balance sheet, seniority of its items, and a new proxy for risk measure of junior claims. We show reliable results using derived risk sensitivities for 20 EU countries with decent forward looking ability and propose potential stress-testing framework with an application for the Czech Republic.

scholarly journals Are interest rate changes comoving with financial cycle?

2021 ◽  
Vol 71 (2) ◽  
pp. 259-277
Author(s):  
Paweł Smaga
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Financial Stability ◽  
House Prices ◽  
Central Banks ◽  
Concordance Index ◽  
Expansion Phase ◽  
Financial Cycle ◽  
Widespread Phenomenon ◽  
Credit Cycle

AbstractWe explore to what extent official interest rate changes can potentially in a procyclical manner impact different financial cycle indicators (credit/GDP, debt service ratio, house prices and stock market indices). We test this on data covering 1995−2016 in 21 countries and the euro area using the Concordance index and Monetary policy procyclicality ratio. Results show that this was not a widespread phenomenon, but there was significant heterogenenity across countries. The procyclicality of interest rate changes was usually higher when financial cycle gaps were increasing and lower when they were decreasing. On average, central banks in several larger economies were running potentially less procyclical monetary policy than those in the smaller ones. The resulting propensity of conflicts between achieving price and financial stability by central banks was low, as only in 10% of the cases the objectives were conflicting (usually when inflation was below the target and the credit cycle was in an expansion phase).

The Non-Bank Credit Cycle

2018 ◽  
Author(s):  
Esti Kemp ◽  
Rene van Stralen ◽  
Alexandros Vardoulakis ◽  
Peter Wierts
Keyword(s):  
Bank Credit ◽  
Credit Cycle

Money growth variability and output: evidence with credit card-augmented Divisia monetary aggregates

2020 ◽  
Vol 24 (5) ◽  
Author(s):  
Jinan Liu ◽  
Apostolos Serletis
Keyword(s):  
Financial Stability ◽  
Credit Card ◽  
Negative Impact ◽  
Balance Sheet ◽  
Credit Cards ◽  
Money Growth ◽  
Monetary Policies ◽  
Growth Variability ◽  
Significant Negative Impact ◽  
Growth Volatility

Abstract We reexamine the effects of the variability of money growth on output, raised by Mascaro and Meltzer (1983), in the era of the increasing use of alternative payments, such as credit cards. Using a bivariate VARMA, GARCH-in-Mean, asymmetric BEKK model, we find that the volatility of the credit card-augmented Divisia M4 monetary aggregate has a statistically significant negative impact on output from 2006:7 to 2019:3. However, there is no effect of the traditional Divisia M4 growth volatility on real economic activity. We conclude that the balance sheet targeting monetary policies after the financial crisis in 2007–2009 should pay more attention on the broad credit card-augmented Divisia M4 aggregate to address economic and financial stability.

scholarly journals The Global Domain of the Dollar: Eight Questions

2020 ◽  
Vol 48 (4) ◽  
pp. 421-429
Author(s):  
Robert N. McCauley
Keyword(s):  
Economic Activity ◽  
Balance Sheet ◽  
The United States ◽  
Fiscal Deficits ◽  
Exorbitant Privilege ◽  
The World ◽  
World Economic ◽  
Dollar Debt ◽  
The 1960S ◽  
The U.S

Abstract Since the late 1950s, the rest of the world has come to use the dollar to an extent that justifies speaking of the dollar’s global domain. The rest of the world denominates much debt in U.S. dollars, extending U.S. monetary policy’s sway. In addition, in outstanding foreign exchange deals, the rest of the world has undertaken to pay still more in U.S. dollars: off-balance-sheet dollar debts buried in footnotes. Consistent with the scale of dollar debt, most of the world economic activity takes place in countries with currencies tied to or relatively stable against the dollar, forming a dollar zone much larger than the euro zone. Even though the dollar assets of the world (minus the United States) exceed dollar liabilities, corporate sector dollar debts seem to make dollar appreciation akin to a global tightening of credit. Since the 1960s, claims that the dollar’s global role suffers from instability and confers great benefits on the U.S. economy have attracted much support. However, evidence that demand for dollars from official reserve managers forces unsustainable U.S. current account or fiscal deficits is not strong. The so-called exorbitant privilege is small or shared. In 2008 and again in 2020, the Federal Reserve demonstrated a willingness and capacity to backstop the global domain of the dollar. Politics could constrain the Fed’s ability to backstop the growing share of the domain of the dollar accounted for by countries that are not on such friendly terms with the U.S.

From the Business Cycle to the Output Cycle: Predicting South African Economic Activity

2017 ◽  
Vol 41 (2) ◽  
pp. 111-133
Author(s):  
C. Vermeulen ◽  
F. Joubert ◽  
A. Bosch ◽  
J. Rossouw
Keyword(s):  
Business Cycle ◽  
South African ◽  
Economic Activity ◽  
The Business Cycle

Business Cycle and Credit Cycle: New Evidence in Italy

2014 ◽  
Author(s):  
Vincenzo Chiorazzo ◽  
Vincenzo D'Apice ◽  
Pierluigi Morelli ◽  
Giovanni Walter Puopolo
Keyword(s):  
Business Cycle ◽  
Credit Cycle ◽  
New Evidence
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