Ahmad Danu Prasetyo

Response of Stock Markets to Monetary Policy: An Asian Stock Market Perspective

Abstract The article assesses the response of Tehran stock prices to exogenous monetary policy shocks, using a vector error correction model for the 1998Q1–2013Q2 period. Monetary policy is transmitted to stock market price through three routes: money by itself, exchange rate and inflation. Our result in this paper points to the fact that stock prices increase persistently in response to an exogenous easing monetary policy. Variance deposition results show that, after ten periods, the forecast error variance of more than 53 per cent of the Tehran Stock Exchange Price Index (TEPIX) can be explained by the exogenous shocks to the US dollar–Iranian rial exchange rate, while this ratio for exogenous shocks to the Iranian real gross domestic product was only 17 per cent. The article argues that such evidence can be accounted for by an endogenous response of the stock prices to the monetary policy shocks.

Analyzing the Dynamics of Total Output of Japanese Creative Industry Sectors: An Input – output Approach

Abstract The purpose of this study is to analyze the dynamics of total output of Japanese creative industry sectors caused by final demand changes. This study employs input – output analysis as a tool of analysis. The results show that the patterns of total output of creative industry sectors of Japan on future period are not identic. Nevertheless, those sectors have one similarity, namely the modification of import will decrease their total output on future period.

The Government Expenditure Efficiency towards the Human Development

Abstract In this paper, we investigate the efficiency level of government expenditure per capita in health and education sectors and transfers and subsidies in 81 countries towards the human development in the respective countries by using Data Envelopment Analysis (DEA) approach during 2006-2010. We found there are countries that always be positioned in the efficient frontier during the sample period, namely: Armenia, Australia, Bangladesh, Chile, Georgia, Japan, Korea Republic, Lao PDR, Madagascar, Niger, Norway, Philippines, Sierra Leone, Singapore, US, and Zambia. Nevertheless, only Singapore and Zambia succeed to maintain positive improvements among countries that are listed in the efficient frontiers.

Exchange rate policy in the pacific: an evaluation of currency basket regimes

The Pacific island countries have opted for exchange rate regimes with varying degrees of flexibility. Whereas several microstates have adopted an external currency as their legal tender, others have decided to use a basket currency, and yet others have chosen a managed float. The choice of exchange rate regime can have far reaching economic consequences. In the paper, we study the basket currency arrangements by Fiji, Samoa, the Solomon Islands, and Tonga. We first build a new four-country exchange rate model that illustrates how monetary authorities should best determine the weights of the basket currencies given certain macroeconomic objective functions. In this model, we explicitly include tourism flows. In the second part of the paper, we estimate the de facto weights of foreign currencies in the currency basket of the four countries. We show how the composition has changed amid the global financial crisis. Finally, we demonstrate that the current weights are not optimal compared with the predictions of our model.

Asset Allocation Strategy under Rate of Return, Rate of Inflation and Credit Spread Rate in Finite-Time Horizon

The global financial crisis has given a very tremendous financial market chaos in the world. Beside the reason that it caused mostly by the bubble economic, it also caused by the ignorance of default risk from bond derivatives such as CDO, CDS and SWAP. Those portfolio of bond ignored the risk of the low rating bonds, which gives a very high risk of having default. This research aims to find an optimal solution for dynamic portfolio in finite-time horizon under defaultable assets. Defaultable assets mean that the assets has a chance to be liquidated in a finite time horizon, e.g stock and corporate bond. The assets that will be used here are limited to the equity, corporate bond and money account. In this study, beside for having the risk of default, the investor will also consider the risk of market such as inflation into her investment. The indirect utility function will be used as the reference for investment decision. Further the asset allocation will be obtained by maximizing the total expected discounted utility in the time span during the investment is executed.To determine the financial defaulty assets, there are two methods that can be used, namely the reduced form and the structural methods. The first method is more applicable because the assets price can be linked with the market risk and credit risk and the latter method. The interest rate and the rate of inflation will be allowed as a representation of market risk, while the credit spread will be used as a representation of credit risk. Furthermore, the dynamic of asset prices can be derived analytically by using Ito Calculus in the form of the movement of the three risk factors above.The dynamic process of investor wealth will be derived from the dynamics of asset prices and budget constraints, which will be linked with portfolio composition. This problem will be solved using the stochastic dynamic programming method. Depending on the chosen utility function, the optimal solution of the portfolio composition can be found explicitly in the form of feedback control. The closed form solution will give the proportion of wealth between bond and money account. Furthermore, the composition of the portfolio will be given as the result. The complicated equation of bond pricing will follow recovery market value (RMV) methods. The finding model is later simulated with different possible values of the parameters. The result shows that the optimal asset allocation will depend on various parameters such as correlation between the risks, the chosen utility function and also recovery rate.

Hard Pegs versus Intermediate Currency Arrangements in the Pacific

The 14 Pacific developing member countries (DMCs) of the Asian Development Bank (ADB) have opted for very different exchange rate regimes with varying degrees of flexibility. Whereas several microstates have adopted an external currency as their legal tender, others have decided to use a basket currency and yet others have chosen a managed float. The choice of exchange rate regime can have far reaching economic consequences. In this paper, we first build a simple exchange rate model that illustrates how monetary authorities should best determine the weights of the basket currencies in order to keep fluctuations in gross domestic product (GDP) and in exchange rates to a minimum. We add to the literature by explicitly modeling tourism flows. In the second part of the paper we study the recent developments of the Pacific DMCs in terms of the volatility of their exchange rates, their GDP and their balance of trade. We find that Pacific DMCs with external currencies systematically exhibit lower GDP volatility compared to Pacific DMCs with basket currencies or floats. We conclude that Pacific DMCs with basket currencies or floats seem to have managed their exchange rate with the objective to minimize fluctuations of exchange rates, rather than those of their GDP. Our model therefore provides valuable guidance for those monetary authorities in the Pacific that would like to lower GDP fluctuations.

Foreign portfolio investment performance and investor’s trading patterns: empirical study in Indonesian government bonds market

There is a dispute on whether foreign investors are superior compared to the domestic investors. Many economists suggest that foreign investors may have had more advantages due to significant amount of investment, experience and expertise. On the other hand, domestic investors may have a short-lived information advantage. Following the work of Kamesaka et al. (2003), this paper is purposed to uncover the trading patterns of foreign investors and the other domestic investor groups, as well as to measure their performance in Indonesian government bonds market. The study suggests that foreign investors were not always profited. Nevertheless, cumulatively, they enjoyed the highest return in Indonesian Government bond market. In addition, there is indication that foreign investors have become market followers instead of initiators in the market.