The next Tuesday 28th of March, Prof Sushanta Mallick – CGR member and Professor of International Finance at the School of Business and Management, Queen Mary University of London– will deliver his Inaugural Lecture, examining how far the developing countries have come in their process of growth following the rapid pace of policy reforms in the 1990s. Prof Mallick makes a key distinction between trade and financial liberalisation, finding that many low-income countries have benefitted from trade openness in improving their pricing power in the global market place but there is a long way to go to achieve the degree of financial deepening or openness that exists in high-income countries.
Recently, the research of Prof Mallick has had a substantial impact on the public debate about the effectiveness of policy measures including quantitative easing policy in major economies to emerging markets banking and finance. In January 2018, Bloomberg covered Prof Mallick’s co-authored research on market volatility and the term premium in their article “BIS Study cast doubts on the ultimate effectiveness of QE”. The article echoes the findings of Prof Mallick’s co-authored paper published in the Bank for International Settlements (BIS) Working Paper Series. The paper, “Market volatility, monetary policy and the term premium”, is co-authored with BIS researchers Madhusudan Mohanty, Head of Economics and Financial Markets of Asia and the Pacific at the Bank, and Fabrizio Zampolli, Principal Economist at the Monetary and Economic Department.
In their research, Prof Mallick and his co-authors, investigate how stock and bond market volatilities and monetary policy determine the US 10-year bond premium. They find that a looser monetary policy reduces stock and bond market volatilities, nonetheless there are important differences between the pre-Lehman and post-Lehman period. They find that the unconventional monetary policy measures taken after 2008 have had a sizeable impact on the term premium but no statistically significant real impact on economic activity. This finding is highlighted in the Bloomberg article that stresses how unconventional monetary policy has helped to reduce the Term premium (see figure 1) but that has not helped to spark economic growth.
Figure 1. US Term Premium un 10 Year Zero Coupon Bond
Prof Mallick has also recently published a column in “Ideas for India” an economics and policy portal that aims to foster a debate based on evidence about the best policies for growth and development in India.
Their research evaluates the effects of the Reserve Bank of India’s (RBI) decision to introduce an out-of-court corporate debt restructuring (CDR) programme. The CDR programme aimed to cover the problems created by the non-existence of a unified bankruptcy code until 2016, by offering a cost-effective and market-friendly alternative to in-court procedures in order to reduce possible financial instability created by Non-Performing Assets (NPAs). To examine the effectiveness of the CDR mechanism, they assess how the volume of restructured assets at the bank level impacted on the risk-taking of Indian banks over 2003-2012 and compare if the banks that made use of regulatory forbearance as members of the CDR program were able to increase their stability vis-à-vis non-CDR members. They find that the CDR had a positive impact in stabilising the banking sector but that also provided opportunities to understate NPAs and overstate the bank’s net income, justifying the decision of the RBI to end the CDR system in April 2015. Their analysis of the CDR provides important policy lessons for emerging market economies, they conclude that:
“As other emerging-market economies are facing similar corporate distress (example, Brazilian companies), our finding implies that such type of mechanism with judicious regulatory forbearance can be an effective temporary tool for regulators in order to forestall bankruptcy of viable corporates on the one hand, and to avoid accumulating bad debt and thereby fragility of financial institutions on the other.”
In his inaugural lecture, Prof Sushanta Mallick will also continue outlining which policies can be effective in guaranteeing growth and development. In this case, outlining the impact of the “great liberalisation” of the 1990s in the context of developing economies in their “catching-up” with developed economies. The inaugural lecture will take place on the Tuesday 28th of March 2017 from 18:30 to 21:30 hours, at The People’s Palace, Queen Mary University of London. If you are interested in attending the lecture, you can register in the link below:
- Ahamed, M Mostak and Sushanta Mallick (2017a), “House of restructured assets: How do they affect bank risk in an emerging market?”, Journal of International Financial Markets, Institutions and Money, 47: 1–14, March 2017 (published as lead article).
- Ahamed, M Mostak and Sushanta Mallick (2017b), “Does regulatory forbearance matter for bank stability: Evidence from creditors’ perspective”, Journal of Financial Stability, 28: 163-180.
- Mallick, Sushanta K., Madhusudan, Mohanty and Fabrizio Zampolli (2017), “Market volatility, monetary policy and the term premium” BIS Working Paper No 606
Previous CGR posts: