Macroeconomic Shocks, Credit-Risk Persistence, and the Limits of Nonlinear Transmission in Emerging Europe

THE IMPACT OF PARALLEL EXCHANGE RATE ON INFLATION IN ALGERIA (2000-2024)

This study investigates the long-run and short-run impact of the parallel exchange rate on inflation in Algeria over the period 2000–2024. Using annual time-series data and the autoregressive distributed lag bounds testing approach, we estimate dynamic relationships while accommodating mixed integration orders. Results confirm cointegration between the variables, with a long-run elasticity of 0.43, indicating that a 1% depreciation in the parallel market raises inflation by 0.43 percentage points. The error-correction term of -0.32 indicates that approximately 32% of the disequilibrium is corrected annually. Diagnostic and sensitivity analyses, including Chow breakpoint tests and rolling-window estimates, validate the model's stability and robustness. The findings underscore the structural role of informal exchange rate dynamics in driving domestic price pressures, particularly following the 2014 oil price shock. Policymakers, central bankers, and researchers focused on macroeconomic stabilization in resource-dependent economies will find these results instrumental for designing exchange rate reforms, inflation-targeting frameworks, and structural diversification strategies aimed at reducing vulnerability to external shocks and informal market volatility.

ECONOMETRIC ASSESSMENT OF MACROECONOMIC FACTORS INFLUENCING NON-PERFORMING LOANS IN COMMERCIAL BANKS

This study develops a dynamic panel econometric framework to quantify the structural impact of macroeconomic conditions on the non-performing loan (NPL) ratios of commercial banks across a panel of twenty-eight emerging market economies observed between 2010 and 2024. Addressing dynamic persistence and the endogeneity inherent in the joint determination of credit quality and macro-financial conditions, the empirical strategy combines a two-step System Generalized Method of Moments (System GMM) estimator with a Panel Autoregressive Distributed Lag (P-ARDL) error-correction specification estimated via Pooled Mean Group (PMG). The results confirm strong dynamic persistence in NPL ratios and show that real GDP growth, the unemployment rate, consumer price inflation, and the real lending rate are statistically significant macroeconomic drivers of asset-quality deterioration. Critically, the interaction between currency depreciation and the share of unhedged foreign-currency lending is found to amplify the NPL response to exchange-rate shocks, a channel of particular relevance to partially dollarized banking systems in transition economies such as Uzbekistan, where reported and risk-based measures of asset quality have been shown to diverge materially. The error-correction estimates indicate that approximately one-third of any disequilibrium between actual and long-run equilibrium NPL levels is corrected within a single year. These findings offer a structural basis for calibrating countercyclical provisioning and macroprudential buffers in emerging banking systems exposed to currency and business-cycle volatility.

Discussion Papers In Economics And Business

Inflation, Unemployment, and Growth: Testing the Trade-Offs in Emerging Economies

This paper aims at reconsidering three classical macroeconomic relationships (the Phillips curve, Okun's law and the inflation–growth nexus) in a unique empirical setting of emerging economies. The study uses an unbalanced panel of 34 emerging market economies over the period 2000-2023 using the World Bank's World Development Indicators (WDI), and estimates each of the relationships separately and together, with the inclusion of gross capital formation, trade openness, government consumption and level of financial development. The use of panel fixed-effects and two-step system generalised method of moments (GMM) estimators is used to deal with unobserved heterogeneity and dynamic endogeneity issues. The Phillips curve trade-off is statistically significant; but it is relatively small in economic terms: a one-percentage-point increase in the unemployment rate reduces the inflation rate by about 0.28 percentage points. Okun's law is found to be a very strong relationship: a one-percentage-point increase in the unemployment rate is associated with a 0.41 percentage-point decline in real GDP growth. The relationship between inflation and growth is nonlinear and a threshold model identifies the turning point as around 9.4% annual inflation, beyond which increases in inflation have a much greater impact on growth. The results point to a cautious inflation targeting policy in the emerging markets: the estimated Phillips slope implies that disinflation carries real output costs, although the sacrifice ratio itself is not calculated here and no direct comparison of disinflation costs with the advanced economies is claimed.  

Dynamic Analysis of the Relationship Between Budget Deficit Financing Modes and Inflation in Africa

This paper investigates the dynamic short- and long-run effects of four budget deficit financing modes—monetary financing (seigniorage), domestic borrowing, external borrowing, and taxation—on inflation across 50 African countries over 1995—2024. Using 1,500 country-year observations, we apply cross-sectionally augmented unit root tests, Westerlund panel cointegration tests, and the Pooled Mean Group (PMG), Mean Group (MG), and Common Correlated Effects Mean Group (CCEMG) estimators, with Driscoll—Kraay standard errors and system-GMM as robustness checks. Monetary financing is the dominant long-run inflationary driver: a one percentage point rise in the seigniorage-to-GDP ratio increases log inflation by 0.682 points (p < 0.01). The nominal exchange rate is a key transmission channel (coefficient: 0.385, p < 0.001), while tax revenues exert a robust disinflationary effect (−0.348, p < 0.01). Domestic borrowing generates moderate long-run inflationary pressure (0.214, p < 0.05), and external debt effects are contingent on the exchange rate regime. CFA franc zone membership reduces the seigniorage coefficient to an insignificant 0.163, versus 0.847 (p < 0.01) for non-CFA countries. Central bank in-dependence further attenuates the seigniorageinflation nexus. These findings have direct implications for fiscal-monetary coordination and central bank institutional design in Africa.

Exchange-Rate Volatility and Financial Stability in the Banking Sector: Distributional Evidence from G7 and High-Income European Economies

The present study examined how volatility in exchange rates shapes banking-sector financial stability across the G7 and six high-income European countries, consisting of 13 developed economies. The study analyses the time period from 2000 to 2023. To measure volatility, the present study employed the GARCH(1,1) conditional variance of monthly real effective exchange rates. Stability is measured through the following two supporting indicators: Bank Z-score (solvency) and Non-Performing Loan (NPL) ratio (credit quality). Our analysis combines the Fully Modified OLS and two-step System GMM for analysing long-run and dynamic effects. To assess distributional heterogeneity, Method of Moments Quantile Regression (MMQR) is employed, while Dumitrescu–Hurlin tests are used for examining causality. The results show that volatility in exchange rates significantly reduces bank solvency and elevates credit risk. These effects are highly uneven: the adverse impact falls on the most fragile banking systems—those in the lower quantiles of the Z-score distribution and the upper quantiles of the NPL distribution. Causality runs unidirectionally, moving from volatility to instability. Institutional quality, which is proxied by the rule of law and regulatory quality, is seen to significantly decrease the credit-risk channel but not the solvency channel. Our findings provide implications for developed economies and support targeted, fragility-sensitive macro-prudential policy.