Abstract [+] [–] We provide new evidence of international spillover of US monetary policy considering three transmission channels in an integrated framework. In this framework, we use a comprehensive dynamic time and frequency domain analysis and identify the main transmission channel (spillover) of US monetary policy to be through interest rates followed by asset prices (mainly through the consumer discretionary sector), and the exchange rate channels. We find that the most significant spillover was at the onset of the COVID-19 pandemic, with other peak transmissions being during the European sovereign debt crisis (ESDC) and the global financial crisis (GFC). As a novel contribution to the identification of monetary policy shocks, we show that these spillovers can be used as external instruments to remove the price puzzle for Australia. We further show that US monetary policy could undermine Australia’s monetary policy. Our findings suggest international interest rate-channel as the dominant transmission channel for cross-country monetary policy spillovers
Abstract [+] [–] Using a sample of 130 countries over the period 2004-2019, we revisit the developmental impact of foreign direct investment (FDI), but novelly examine the role of research and development (R&D) within this framework. Unlike previous literature, we make causality statements by using bilateral investment treaties as an innovative instrument for FDI, in the development equations. We find that, compared to FDI, expenditure on R&D has a more pronounced impact on development outcomes – through increasing growth and human development while reducing poverty and inequality. We also find that countries that spend more on R&D are less dependent on FDI for development. This suggests that R&D and FDI are substitutes in the development process with the results showing varying FDI and R&D thresholds at which the substitution takes place. We also find a diminishing effect of FDI on development. Further to this, we find that R&D complements FDI only when FDI reaches a threshold level, and then begins to hurt development – at this stage there is sufficient R&D expenditure which possibly suggest sufficient adaptive capacity
(with Elikplimi K. Agbloyor, Lei Pan and Alfred Yawson)
Under review
Abstract [+] [–] This paper examines the impact of per capita CO2 emissions on banking stability in emerging markets and developing economies (EMDE). To identify the causal effect of carbon emissions on the stability of banking system, we use plausibly exogenous source of variations in energy use as an instrumental variable (IV) for CO2 emissions. Our results show an inverted U-shaped relationship between per capita CO2 emissions and banking stability. We also find that industrialization can be a potential channel through which per capita CO2 emissions affect banking stability. Our results are robust to alternative specifications, sample-splitting and have important implications for policy on banking stability.
(with Elikplimi K. Agbloyor, Lei Pan and Dennis Nsafoah)
Under review
Abstract [+] [–] Using data for 132 countries from 2000 to 2023, we investigate whether there is a systematic ratings bias against African countries based on the ratings provided by the major credit ratings agencies using machine learning techniques. This is not a trivial question as estimates of the costs of this potential subjectivity are in excess of $75 billion. Following the COVID-19 pandemic and Russia-Ukraine war, African countries argued that the major credit ratings were very quick to downgrade them. Our empirical analysis offers some credence to the arguments of African countries. We find that during this period, African countries received more adverse ratings compared to other countries. Further, the ratings of African countries were less stable as more non-African countries did not experience changes in their ratings. Indeed, our findings show that the difference or gap in the credit ratings of African countries compared to non-African countries widened after 2015. The results from our machine learning predictions in the full sample, we do not find evidence of a credit ratings bias against African countries as the African dummy does not rank as a top predictor of credit ratings. However, after controlling for sample selection bias, we find strong evidence of a credit ratings bias against African countries. The African dummy increased in importance and was now the number 3 predictor of credit ratings. The African dummy ranked ahead of many important economic, social, political and institutional variables as a predictor of credit ratings.
Abstract [+] [–] This paper investigates the spillover dynamics, hedging and portfolio optimisation strategies among tourism, cryptocurrency, and Fintech markets within a time-varying connectedness framework, accounting for spillovers from traditional financial markets. Using daily return indices, we document significant heterogeneity in spillovers over time, with the COVID-19 period exhibiting the highest levels of interconnectedness. Traditional financial markets emerge as the dominant net transmitters of spillovers, followed by the Fintech sector, while the tourism market is predominantly a net receiver. Cryptocurrency assets, despite offering the least expensive hedge, are ineffective hedging instruments, whereas tourism assets offer the most cost-effective and efficient hedge for cryptocurrencies, albeit at elevated risk levels. While, sectoral hedges are generally costlier and less effective due to strong co-movements, cross-sectoral hedges between Fintech and traditional financial markets were also expensive and ineffective. Our analysis further reveals that dynamic bilateral portfolio weight strategies consistently outperform dynamic hedge ratio strategies, with cryptocurrency assets driving superior portfolio returns. The minimum connectedness portfolio strategy, grounded in our framework, outperforms traditional minimum variance and correlation portfolio strategies, underscoring its relevance for optimizing risk-adjusted returns in dynamic markets.
Abstract [+] [–] This paper develops a theoretical model to investigate how inflation expectations — whether anchored or unanchored — affect international tourist demand. Departing from traditional models that assume tourists respond passively to observed prices, we incorporate behavioural macroeconomic insights to capture how perceived inflation risk influences travel decisions. In our framework, unanchored expectations lead tourists to overstate future destination prices, generating nonlinear declines in real tourism demand. By contrast, anchored expectations — consistent with credible inflation-targeting regimes — stabilise demand by reducing perceived price uncertainty. The model highlights the importance of macroeconomic credibility in shaping forward-looking tourism behaviour and provides theoretical support for inflation targeting as a complementary policy instrument in tourism-dependent economies.
Abstract [+] [–] This paper develops a dynamic Ramsey-Cass-Koopmans (RCK) model to analyse the macroeconomic impact of terrorism-induced fear on tourism and growth. We introduce a behavioural mechanism where households’ utility from tourism consumption is distorted by a time-varying security perception index, Θ(t), which declines following terrorist attacks. This fear channel reduces savings and investment, slowing capital accumulation and long-run growth. Our model also incorporates government intervention through public safety investment aimed at restoring confidence. We evaluate three scenarios: i) one-time shock; ii) persistent fear; and iii) policy-driven recovery, and simulate their effects on capital, consumption, and welfare. Our results show that persistent fear leads to the greatest welfare loss, while rapid policy-driven recovery can paradoxically destabilize investment if not properly calibrated. Our paper highlights the trade-offs in post-terrorism policy design and offers new theoretical insights into how behavioural responses to insecurity can shape macroeconomic trajectories in tourism-dependent economies.
