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Challenges of Contemporary Economics

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Volume 14 (2020) Volume 13 (2019) Volume 12 (2018) Volume 11 (2017) Volume 10 (2016) Volume 9 (2015) Volume 8 (2014) Volume 7 (2013) Volume 6 (2012) Volume 5 (2011) Volume 4 (2010) Volume 3 (2009) Volume 2 (2008) Volume 1 (2007)

Volume 14 Issue 2 (2020)

Central Bank Independence and Democracy: Does Transparency Matter? original article

pp. 90-111 | First published in 23 June 2020 | DOI:10.5709/ce.1897-9254.334

Mona Esam Fayed, Asmaa Mohamed Ezzat

Abstract

Securing central bank independence (CBI) is considered a vital and common practice in a large number of countries, since this independence is often associated with favorable economic performance, and it isolates monetary policy from the distortions of political business cycles, associated with electoral business or partisan cycles. However, one criticism against CBI is the seemed contradiction between independence and democracy, known as the problem of accountability of the monetary authority. Thus, this study empirically examines the potential effects of central bank transparency and independence on democracy. This would, in turn, attribute to reconciling the presumed contradiction between CBI and democracy, besides disentangling the impact of independence and transparency on democracy. To this end, we regress democracy on both CBI and CB transparency, besides some control variables, for a sample of 100 central banks in year 2010. The preliminary results indicate that CBI is conducive to democracy. However, this relationship is dependent on the level of CB transparency, where high levels of transparency could reverse this positive relation and make CBI an obstacle in face of democracy. Furthermore, CB’s transparency is always associated with more democracy, but increasing the level of CBI reduces this positive impact.

Keywords: Central Bank Independence, Transparency, Democracy

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Exchange Rate Movements and Structural Break on China FDI Inflows original article

pp. 112-126 | First published in 23 June 2020 | DOI:10.5709/ce.1897-9254.335

Jung Wan Lee, Tantatape Brahmasrene

Abstract

The aim of the study is to explore the short-run and long-run dynamic relationships between exchange rate fluctuations and foreign direct investment (FDI) inflows in China. The justification is that the undertaken topic is preeminent for devising strategies to promote economic development, thus, a course that carries much at stake not only for China but also for other developing countries. Methodology used in the study consists of co-integration tests, vector error correction models, Wald tests and impulse responses. Monthly time series data from the National Bureau of Statistics of the People’s Republic of China are analyzed. The main empirical results indicate that a change in exchange rates negatively affects FDI inflows in the long run while there exists no evidence of short-run dynamics and reciprocal feedback between exchange rate fluctuations and FDI inflows. Furthermore, a structural break occurs during the 2007-2009 global financial crisis shock to FDI inflows in China. In conclusions, this research expands knowledge of factors that affect FDI inflows. To generalize the results obtained from this study, recommendations for future research include studies encompassing different economies where data are available. Such research will contribute towards improving our understanding of exchange rate systems and responses in each market.

Keywords: exchange rates; foreign direct investment; cointegration; vector error correction; impulse responses; China.

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The Effectiveness of Hedge Fund Investment Strategies under Various Market Conditions original article

pp. 127-143 | First published in 23 June 2020 | DOI:10.5709/ce.1897-9254.336

Michał Falkowski, Agata Sierpińska-Sawicz, Piotr Szczepankowski

Abstract

The main purpose of the article was to analyze the effectiveness of the basic investment strategies used by hedge funds in the long term (years 1994-2015) and during the global financial crisis (years 2007-2009). Using information from commercial databases we attempted to verify the hypothesis that alternative hedge funds, regardless of the type of strategy they use, are capable of achieving better outcomes than other capital allocation options, at any time and under a variety of market conditions. We analyzed hedge funds effectiveness in two stages. For stage one, we performed a profitability analysis for the whole hedge funds sector in the two periods and compared the results with the stock rates of return achieved by investors in the global market for the same period and with the risk-free rate. At stage two we calculated ratios that included rate of return and risk, though only for specific strategies. We used traditional portfolio performance measures (Sharpe, Treynor, Jensen ratios) as well as the newer ones (the Sortino ratio, downside deviation). The results show no confirmation that investments carried out by hedge funds are more risky than traditional capital investment methods. Risk associated with investments by the analyzed entities was lower not only in times of prosperity, but also during crisis, providing a clear indication of the higher effectiveness of entities operating in the alternative investment sector and regardless of the changes taking place in the financial market, the length of the capital investment period or the investment strategy being pursued.

Keywords: hedge funds, efficiency, investment strategies, financial crisis

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Gamification for Sales Incentives original article

pp. 144-161 | First published in 23 June 2020 | DOI:10.5709/ce.1897-9254.337

Jacek Woźniak

Abstract

Gamification as the use of game mechanisms for motivation in non-game contexts has been gaining popularity and is considered one of the hottest topics in management. However, there is little research on gamification in remuneration systems, especially with regard to the sales force. The article discusses some problems posed by different types of incentives schemes for sales persons as well as two approaches that could be used for gamification in this area; the so called BLAP approach to gamification and gamification based on prize drawing. The results of two questionnaire-based opinion studies carried out on two groups of about 100 sales representatives show that the experience and knowledge in the area of gamification is low in this group of employees. Acceptance of gamification was studied taking into consideration institutional (i.e., the sales cycle length), organizational (i.e., satisfaction from the existing bonus scheme), psychological (i.e., risk adverseness), and situational (i.e., the need for high regular income) factors. Both bonus draws among sales representatives who achieved targets and collecting points exchangeable for non-material rewards are accepted by some of traders, and such acceptance of either of the two types of gamification is correlated with a dissatisfaction with the existing bonus scheme.

Keywords: gamification, sales force, compensation, incentives for sales force, gamification in sales force management

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Effectiveness of Monetary Policy on Money and Credit in Pakistan original article

pp. 162-181 | First published in 23 June 2020 | DOI:10.5709/ce.1897-9254.338

Kashif Munir

Abstract

This paper analyzes the effectiveness of monetary policy on money and credit in Pakistan by using the data rich environment. FAVAR model is used which consists of 115 macroeconomic variable for the period 1992:01 to 2010:12. Results depict that after a positive shock in interest rate (discount rate), M0 and M1 do not show any significant response, while M2 shows an instantaneous decline and shows revival after 34 months. Credit to public sector enterprises and credit to private sector both decline after a positive shock in monetary policy but credit to private sector declines more than credit to public sector enterprises and M2. An increase in interest rate discourages private sector which leads to slowdown in the economic activities and creates pressure on prices to increase. In Pakistan, the adverse victim of monetary policy is credit to private sector, therefore policy should be tailored to consider the demands of credit by private sector. The policies should be made which provide the credit to private sector at a subsidized rate and the environment of investment should be promoted by the authorities in the country.

Keywords: Monetary Policy, Money, Credit, VAR, FAVAR

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Natural Yield Curve: The Case of Indonesia original article

pp. 182-200 | First published in 23 June 2020 | DOI:10.5709/ce.1897-9254.339

Pakasa Bary, Yoga Affandi, Berry A. Harahap, Fenty T. Suryani

Abstract

The purpose of this study is to estimate the natural yield curve for an emerging economy, with Indonesia as a case study. The estimation is done by a two-stage approach, namely, the decomposition of the yield curve component through a dynamic Nelson-Siegel model, the results of which are then used to estimate a natural yield curve. Both steps are estimated through state space modeling with a Kalman filter. In addition, the study also analyzes the principal components of the real yields of Indonesia to prove that the use of the Nelson-Siegel model is relevant and sufficient. The main contribution of this research is the estimation of the natural yield curve for an emerging economy. The findings provide some evidence that a policy mix is needed for emerging economies to maintain macroeconomic stability. Some other findings are as follows: first, almost all yield curve variations can be explained by the first three principal components that moved similarly to level, slope, and curvature. Second, Indonesia's natural yield curve always has a positive slope over time. Third, across maturities, medium-term yields have the largest impact on the output gap. Fourth, the estimated natural yield curve can provide a gauge of the monetary policy stance, or external pressure.

Keywords: term structure, yield curve, natural interest rate, monetary policy, Kalman Filter

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Financial Development and Economic Growth in Selected Asian Economies: A Dynamic Panel ARDL Test original article

pp. 201-218 | First published in 23 June 2020 | DOI:10.5709/ce.1897-9254.400

Shravani ‎, Supran Kumar Sharma

Abstract

The present endeavor measures the extent of the nexus between financial development and economic growth by utilizing annual macroeconomic panel data for selected 14 Asian economies. The study focuses on the link between the indicators of financial development and economic growth. The results of panel cointegration analysis suggest that there is two-way cointegration relationship from GDP to GCF and BM in short-run as well as in long-run however, the relationship is one-way, that is, from GDP to DCPS as well as from GDP to DCBS. The findings of the present study establish strong indications of the positive long-run relationship among all the selected indicators of financial development and economic growth. Moreover, the present attempt also indicates that gross capital formation and broad money are critical for economic growth and suggests that upliftment of economic growth of the economies improves the development of financial sector.

Keywords: causality, banking sector, panel unit root, panel ARDL

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Multi-class Models for Assessing the Financial Condition of Manufacturing Enterprises original article

pp. 219-235 | First published in 23 June 2020 | DOI:10.5709/ce.1897-9254.401

Sebastian Klaudiusz Tomczak

Abstract

Since 2007, the operating conditions of companies have changed significantly and can be described as more unpredictable. Insolvency of one company may, by the domino effect, have negative impacts on other operators. In extreme cases, these impacts can lead to their bankruptcy. Therefore, it is important to constantly monitor both the financial condition of a company and the financial condition of its business partners. In order to evaluate the financial standing of a company different types of methods can be employed. The aim of the paper was to build two models that specify more than two states of financial standing of manufacturing businesses. The use of the models enables recognition of the deteriorating financial condition of manufacturing companies a few years before insolvency is declared. The traditional discriminant model and Bayesian model were constructed. Cluster analysis was used to select classes of financial standing of the analyzed companies. The models were tested on two sets of samples. A small sample consisted of 224 (112 + 112) companies and a large sample consisted of more than 10,600 companies. The results showed that the traditional discriminant model performs better than the Bayesian model for classifying companies.

Keywords: financial standing, integrated models, manufacturing sector, cluster analysis

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Complementarities of Knowledge Worker Productivity: Insights from an Online Experiment of Software Programmers with Innovative Cognitive Style original article

pp. 236-253 | First published in 23 June 2020 | DOI:10.5709/ce.1897-9254.402

Natallia Pashkevich, Darek M. Haftor

Abstract

The literature has been inconclusive regarding which factors determine knowledge worker productivity. To remedy that gap, this paper presented an online experiment to measure the productivity of software programmers, as a representative of knowledge workers, in a particular situation when a more aligned with the work process IT system is used. The assumed research model was based on the systems approach of complementarity theory and combined the following factors: worker’s cognitive style, work process, decision-making authority, worker training mode, and worker incentive. The experiment was conducted for 4 months and attracted 110 participants with innovative cognitive style from two crowdsourcing platforms. The results demonstrate that complementarities condition the productivity of a knowledge worker. More specifically, the learning effect is crucial for productivity gains and should be considered in further detail in the design of new studies. The paper’s key contribution is the test of a unique configuration of two systems of complementary factors, because most of the literature has investigated only the impact of particular factors in isolation.

Keywords: complementarity theory, individual productivity, knowledge worker, online experiment, software programmer

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The Twinning of Inflation and Unemployment Phenomena in Saudi Arabia: Phillips Curve Perspective original article

pp. 254-271 | First published in 23 June 2020 | DOI:10.5709/ce.1897-9254.403

Abla A. H. Bokhari

Abstract

The global economy has witnessed many economic fluctuations and waves of inflation and recession. With the consideration of achieving price stability as a primary goal of the economic policies, any attempt to eliminate inflation means accepting higher rates of unemployment, and vice versa. This conflict relationship was explained by the Economist “Phillips”, who developed the inflation/unemployment curve. After the emergence of the stagflation phenomenon, this relationship became an object of argument and skepticism. Therefore, the key point of this study is to investigate the tradeoff relationship between inflation and unemployment in the Kingdom of Saudi Arabia for the period 1988-2017. The co-integration and error correction approaches have been utilized, to determine the equilibrium relations in the long-run and short-run, and the causality direction between the two phenomena. Johansen test indicated that a long-run co-integration relationship was existed. Based on Vector Error Correction Model (VECM), results provide evidence in favor of the long-runs negative causation running from unemployment to inflation. Contrary to expectation, there was no significant evidence of short-run tradeoff between unemployment and inflation in the Saudi economy.

Keywords: Inflation, Unemployment, Phillips Curve, Causality Analysis, Saudi Arabia

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