The Impact of Monetary Policy on Bank Profitability and the Moderating Role of Funding Patterns in Vietnam

The study investigates the effect of monetary policy on bank profitability while also taking into account the moderating role of bank funding patterns. Uniquely, the study focuses on disaggregate components of bank profits in an environment containing various monetary policy tools. Using a dataset of commercial banks in Vietnam, the results show that monetary policy drives bank profitability asymmetrically. Concretely, interest rates (i.e., lending rates and policy rates) exert positive effects on net interest income, but negative impacts on non-interest income. For quantitative-based policy tools, including the central bank’s security purchases and foreign exchange reserves, monetary policy is positively correlated with non-interest income but negatively associated with net interest income. The reaction of banks’ net interest income to monetary policy adjustments is translated into overall bank profits. Further analysis indicates that the monetary policy/bank profitability nexus across different proxies is less pronounced at banks with more diversified funding patterns. This finding sheds light on prior arguments attributing financially weaker banks’ greater sensitivity in facing monetary shocks to the limited alternative funding.

Does Investing in Renewable Energy Sources Contribute to Growth? A Preliminary Study on Greece’s National Energy and Climate Plan

As more economies are transitioning away from fossil fuels for their electricity production and towards greener alternatives, many socioeconomic implications of this shift remain actively debated. The present paper attempts to assess the economic impact of investments in renewable energy sources (RESs) for Greece and whether the broader effects of this transition can offset the negative impact that will occur due to the targeted phase-out of lignite plants by 2028, which constitute the predominant power source for Greece. Our methodological approach builds on input–output analysis and the creation of composite RES industries for the estimation of the net effects of a series of monetary shocks that correspond to Greece’s phase-out investment plan, utilizing the most recent national input–output tables and satellite structural business statistics. We focus on the structural effects of these shocks on a series of socioeconomic indicators, including GDP, employment, wages, government income (through taxes), and capital formation. The results indicate that even though lignite power production still provides a significant contribution to the Greek economy, investing in renewables presents a significant opportunity for value added and job creation.

Balance Sheet Channel of Monetary Policy: Evidence from Credit Spreads of Russian Firms

In this paper, I analyse the relationship between the credit spreads of Russian bond issuers and monetary policy shocks. According to the theory of demand-side financial imperfections, in the presence of financial frictions, the higher the net worth of a firm, the lower its external finance premium. The theory of the balance sheet channel of monetary policy suggests that monetary shocks may affect the net worth of a firm through debt outflows. Together, these ideas predict that the external finance premium of more indebted companies is more sensitive to monetary policy shocks. However, my empirical findings from the credit spreads of Russian companies do not support this theory.

The Significance of Monetary Policy Transmission Mechanism in the Sustainable Development of the SAARC Economic Community

The purpose of this study is to examine the monetary policy transmission mechanisms in seven South Asian Association for Regional Cooperation (SAARC) countries to discover the viability of the convergence of the SAARC into a monetary and economic union based on common monetary channels. By employing optimal currency area theory, we used the restricted VAR analysis on the annual data from 1978 to 2017. We find that the money channel response provides proof for the presence of an exchange rate and credit channels. Furthermore, the real sector also responds to changes in fiscal and monetary shocks through the exchange rate and credit channels over short-run to long-run time horizons. This implies that the SAARC is a good candidate due to common exchange rate and credit channels. The function of the variance decomposition and the impulse for forming a monetary and economic union is that they share a coincidental pattern of dynamic reactions of inflation and growth to exogenous shocks. If the SAARC monetary and economic union is created, it will reap overall economic benefits inside and outside of Asia just like the European Union (EU).

Effectiveness of capital controls in dampening international shocks

This study is a contribution to the ongoing debate on whether capital controls are effective in buffering international shocks and reducing capital flows volatility. The author demonstrates that capital controls can considerably mitigate the effects of monetary and exchange rate shocks and reduce the volatility of capital inflows to emerging markets. This study analyses quarterly data of 28 emerging economies over the period between 2000 and 2015 and proposes two methods to identify capital controls actions. Using panel analysis, autoregressive distributed lag, and local projections approaches, this study finds that tighter capital controls may diminish monetary and exchange rate shocks and reduce capital inflows volatility. Furthermore, capital controls respond anti-cyclically to monetary shocks. Under capital controls, countries with floating exchange rate regimes have more potential to buffer monetary shocks. The author also finds that capital controls on inflows are more effective for reducing the volatility of capital flows compared to capital controls on outflows.

Why Are Banks Exposed to Monetary Policy?

We propose a model of banks’ exposure to movements in interest rates and their role in the transmission of monetary shocks. Since bank deposits provide liquidity, higher interest rates allow banks to earn larger spreads on deposits. Therefore, if risk aversion is higher than one, banks’ optimal dynamic hedging strategy is to take losses when interest rates rise. This risk exposure can be achieved by a traditional maturity-mismatched balance sheet and amplifies the effects of monetary shocks on the cost of liquidity. The model can match the level, time pattern, and cross-sectional pattern of banks’ maturity mismatch. (JEL E43, E44, E51, E52, G21, G32)