Research

Our aim is to examine the link between corporate financial health indicators and the firms’ overall financial fragility in an emerging market economy. In this paper we use administrative firm-level data that covers small, medium and large firms in a de-identified form, and come from the Bureau of National Statistics of Kazakhstan. We utilize various components of balance sheet and income financial statement indicators to calculate Altman EM Z-score as a measure of corporate vulnerability. We report the following main results. First, we document evidence that firms in Kazakhstan with high leverage and large size are more financially vulnerable. The size effect is the most noticeable in the sectors of construction, trade, and mining, while the impact of leverage is more apparent in agriculture and construction. Second, we find that firms with more liquid assets and higher age are less financially vulnerable. Third, we see that firms that eventually become bankrupt have significantly lower EM Z-scores than the average value of non-bankrupt firms. Finally, we observe that firms with a bank loan are more financially vulnerable than firms without a bank loan.

This paper empirically analyzes the key drivers of inflation in Kazakhstan by differentiating between demand and supply-driven factors contributing to headline inflation. Given that Kazakhstan is highly sensitive to adverse external fluctuations (due to its economic structure), our empirical strategy investigates asymmetric dynamics of prices with high versus low degree of import share. Hence, we develop a methodology to determine the level of ``importability'' in certain consumption products, which serves as a proxy of vulnerability to external macroeconomic shocks. The results confirm our hypothesis that products with different degree of import content respond differently to major macroeconomic shocks. Consequently, we conclude that headline inflation in Kazakhstan is primarily impacted by supply-side factors, such as the direct transmission of higher import share product prices (exchange rate pass-through) and a large component of inflation inertia. Differentiating and properly identifying inflation dynamics of the high-import-content and low-import-content goods have important implications for optimal monetary policy conduct in developing economies.

We focus on the empirical link between U.S. “real economy” patterns and their global financial effects on developing economies. Specifically, we document the inverse relationship between corporate profitability in the U.S. and the exchange rate fluctuations of the U.S. dollar against the currencies of major emerging market economies. During economic crises (even if a crisis originates within the core economy), the U.S. dollar appreciates against the currencies of developing countries and tends to depreciate when U.S. corporate profits are increasing. We label this observed economic co-movement as the “Ybrayev Profit Regularity,” which will contribute to the analysis of center-periphery cyclical economic interactions.

We take advantage of the early adoption of the debt-service-to-income cap (DSTI) measure in Kazakhstan, as well as available granular information from the local credit registry to study the effects of macroprudential instruments on core financial stability parameters. Our results show that implementation of a DSTI cap of 50% leads to around a 9% decrease in 12 months in the amount of outstanding debt on average for the range of credits originated just around the introduction of the DSTI cap. We find that DSTI cap implementation decreased the probability of delinquency rates of loans by about 20% in 12 months on average compared to credits granted before the realization of the DSTI cap. We provide evidence on the importance of loan size heterogeneity across time when estimating the impact of macro-prudential intervention, which is partly overlooked in the existing literature. Finally, our results suggest that macroprudential and monetary policy tools can be complementary depending on the specific business cycle developments.

Total housing real returns in large agglomerations in Kazakhstan are approximately 1% per year lower than in the rest of the country. Our results are also supportive of emerging literature, that housing real rent returns, adjusted for population, are generally lower in large agglomerations compared to the rest of the country. We indicate that within-country heterogeneity of housing returns mainly result from the spatial concentration of economic activity in urban centers. Our findings also suggest that residential real estate in a developing economy produces higher returns compared to financial capital over the long-run. At the same time, the volatility of holding housing investment is substantially higher than its “safe” alternative (i.e. deposit rate paid for savings deposits). As such, “Yield Curves for Main Street” concept refers to the general positive spread between total housing returns and financial capital returns in a developing economy.

In this paper, we provide an in-depth overview of key macroprudential policy framework instruments and borrower-based analytical tools in Kazakhstan. We estimate the debt service-to-income ratio (DSTI) for household sector in Kazakhstan for the period between 2013Q2 and 2022Q1. We use the actual remaining maturity and the interest rate for each loan available from the micro-level database (credit registry), and also assume gradual repayment of debt over the time of its remaining maturity. In addition, we specify four types of aggregate income in Kazakhstan. We conjecture, that measuring DSTI with household disposable income approach is likely to provide an upper bound estimate, while calculating debt-service-to-income ratio adjusting for the average monthly nominal salary per one employee will likely provide a lower bound assessment.

In this paper we analyze whether the long-term economic growth of Kazakhstan is subject to macroeconomic constraints. The balance-of-payments-constrained growth (BPCG) models predict that a country’s growth rate can be approximated through the ratio of growth rates of exports to the income elasticity of demand for imports. We apply the BPCG model to Kazakhstan’s quarterly data - a typical emerging economy with a low trade to GDP ratio. To estimate the trade parameters we use Johansen’s cointegration technique. Vector Error Correction Model is employed to analyze the short-run adjustments of income elasticities. The results demonstrate that the average growth rate estimated by the BPCG hypothesis projects around 2 percent long-run economic growth for Kazakhstan and current economic growth is aggregate demand constrained.

...There is no possibility of balancing the budget except by

increasing national income...

J.M. Keynes, The Means to Prosperity, 1933

This paper investigates the macroeconomic consequences of an alternative fiscal rule in the context of commodity price shocks for a commodity-exporting country. We build a DSGE model to explain the business cycle in an oil-exporting economy, estimated using macroeconomic data from Kazakhstan. Our results demonstrate that when fiscal policy is procyclical in response to a transitory negative oil price shock, and if a majority of households are non-Ricardian, then a one standard deviation drop in oil prices causes an output decline of about 0.19%. In contrast, if the fiscal policy is countercyclical and conducted according to the structural balance fiscal rule, output increases by about 0.13% in response to the same shock. We also analyze the interaction of monetary and fiscal policies, and we find that countercyclical fiscal policy is robustly effective when the monetary policy is characterized by its active inflation stabilization framework.

This study aims to determine whether the transmission of monetary policy to the real economy depends on the structural conditions of financial stability. In particular, the paper shows that the effects of shocks to financial stability on output and inflation is conditional on the state of credit in the economy, measured broadly as a credit-to-GDP. The authors use a threshold vector autoregression model with Bayesian techniques to investigate the impact of private nonfinancial sector credit on the dynamic relationship between financial conditions, monetary policy transmission mechanism and macroeconomic performance in Kazakhstan from 2005:Q1 to 2020:Q1. The results show that when the credit-to-GDP gap is low or the credit is below its trend, an increase to the interest rate leads to a short-term economic expansion. However, when the credit-to-GDP gap is high or the nonfinancial credit is above its trend, a tightening in monetary policy leads to an economic contraction with domestic financial conditions being weaker compared to a low credit environment. The outcome is consistent with the related literature, which argues that a more sustained increase in credit is followed by a sharper economic contraction, but only when the economy is in the high credit state. These results highlight that financial stability measures (e.g. credit state) is important to take into account when conducting monetary policy in emerging economies.

This paper develops a theoretical model that would allow us to systematically analyze distributional effects of monetary policy regimes in a small open economy framework. The key characteristics of the model will include heterogeneous households, financial frictions, and a high level of financial dollarization, which are especially relevant for the study of monetary policy in emerging market economies. We choose to extend Prasad and Zhang (2015) model with an exogenous fraction of financially excluded (or rule-of-thumb) consumers coexisting with unconstrained households that are able to save in foreign currency and thereby smooth income fluctuations. For the empirical exercise, we combine World Inequality Database, World Bank Data, and World Income Inequality Database on BRICS countries to establish our benchmark model. Using panel data analysis with country- and time-level fixed effects, our preliminary results show that inflation is positively related with the top 10 percent of income shares in BRICS countries. We also find that financial frictions play a key role on the relationship between foreign exchange participation and wealth redistribution. And finally, the paper conjectures that contractionary monetary policy is associated with periods of higher economic inequality in emerging markets.

In this paper, I explain theoretically the coordination and conflict scheme of fiscal and monetary policy workings, and then, propose to empirically assess the effect of both inflation targeting and non-inflation only targeting policies on inflation and unemployment rates. I employ a difference-in-difference method to estimate the impact on inflation, unemployment rate and their volatilities in both 10 Inflation Targeting (single-mandate) and 11 Non-Inflation Targeting (multiple-mandate) countries specifically from the sample of developing economies over the period from 1998 to 2018. Our key findings show that while the IT-countries effectively present a reduction in inflation and inflation volatility, the effects on the unemployment rate are negligible, while the unemployment volatility is higher in the period 1998-2008. Finally, the paper argues that the unemployment rate should be used as a natural second target in a typical emerging market economy case.

This study contributes to the literature on the evaluation of the effects of the stable and competitive real exchange rate management (SCRER) on economic growth by studying the exporting performance of the tradable sector in Kazakhstan between 2009 and 2019. We also aim to capture the impact of a significant change in the behavior of the exchange rate in August of 2015, following the introduction of inflation targeting monetary policy and switching to the flexible exchange rate regime of domestic currency - tenge. Our results show that a 10 percent undervaluation of the RER leads to a 0.05 percentage points increase in the growth rate of manufacturing exports. At the same time, a one percent increase in RER leads to a 0.08 percentage points growth in primary products industries, while a depreciation of the RER by one percent leads to a rise of 0.14 percentage points in the growth rate of high-tech manufacturing industries. We also find that a highly volatile exchange rate regime of the exchange rate is not favorable to the development of capital-intensive sectors. Overall, the results suggest that a macroeconomic policy targeting a stable and competitive real exchange rate can be beneficial for the advancement of higher technologically-intensive sectors, increased price competitiveness for Kazakhstan’s manufacturing goods, and the process of rapid capital accumulation.

Despite the general improvement in controlling price levels over the last two decades, substantial amounts of the population in emerging market economies still save and borrow in foreign currencies. The case of a typical developing economy, where external debts are denominated in foreign currency, whereas domestic firms heavily rely on receipts in national currency, potentially causes a higher vulnerability in the domestic banking sector due to currency mismatch issues and large fluctuations in the exchange rates, which is also one of the features of Inflation Targeting monetary policy. The aim of this paper is to investigate various features of high level of financial dollarization, its challenges for conducting Inflation Targeting monetary policy, and formulate a number of relevant policy recommendations and implications.

Despite the general improvement in controlling price levels over the last two decades, substantial amounts of the population in emerging market economies still save and borrow in foreign currencies. The case of a typical developing economy, where external debts are denominated in foreign currency, whereas domestic firms heavily rely on receipts in national currency, potentially causes a higher vulnerability in the domestic banking sector due to currency mismatch issues and large fluctuations in the exchange rates, which is also one of the features of Inflation Targeting monetary policy. The aim of this paper is to investigate various features of high level of financial dollarization, its challenges for conducting Inflation Targeting monetary policy, and formulate a number of relevant policy recommendations and implications.

This paper presents a comprehensive practical analysis of Kazakhstani city-level housing prices. The key focus is to test whether there is a single, integrated Kazakhstani housing market, and hence to examine potential long-run relationships among the seven city housing prices series for which we have monthly data during the period 2014-2017. In addition, we investigate how monetary policy and subsequent exchange rate shock could affect the system of relative prices. The results obtained suggest that city house prices are weakly related across cities in the long run, and that interest rate channel of monetary policy currently is surprisingly weak, perhaps because of many other policy lurches that affected both demand and supply. One of our main conclusions is that Kazakhstani housing prices are largely driven by local factors and further examination should focus on capturing those region-specific fundamentals that can promote further discovery of the urban development in Kazakhstan.

The paper discusses the case of Kazakhstan as a typical emerging market economy example, examines its ability to respond to various external shocks and identifies the main transmission channels in order to contribute to the knowledge in this particular area. The results show, based on the interpretation of impulse response functions, a positive interest rate shock has an uncertain inflationary impact, which raises questions about the effectiveness of interest rate manipulation in keeping inflation within the given band. In addition, a positive exchange rate shock leads to a stronger upward pressure in inflation rates. Finally, inflation inertia explains a substantial increase in future inflation rates.