nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2016‒05‒08
seven papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Foreign Branches of US Global Banks: Geography, Balance Sheet Structure and Contagion By Carmela D'Avino
  3. The Fiscal Risk of Local Government Revenue in the People’s Republic of China By Fan, Ziying; Wan, Guanghua
  4. The Impact of a Permanent Income Shock on Consumption: Evidence from Japan's 2014 VAT increase By David CASHIN; UNAYAMA Takashi
  5. The banking sector and the Swiss financial account during the financial and European debt crises By Raphael Anton Auer; Cédric Tille
  6. How accounting accuracy affects DSGE models By Kim, Minseong
  7. Depreciation and the Time Value of Money By Brendon Farrell

  1. By: Carmela D'Avino
    Abstract: This paper contributes to the understanding of the international financial linkages created by US banks by looking at the geographical composition and structure of the balance sheet of foreign branches. The empirical investigation, which is based on a novel dataset containing balance sheet statistics of foreign branches by country of location, has a threefold objective. First, it provides geographical mapping and distribution of foreign activities of branches by host country by accounting also for those balance sheet items not included in the available international banking statistics, i.e. gross interoffice positions and transactions with third-countries. Secondly, this paper presents a classification of host countries by balance sheet structure of foreign offices. A partioning-based clustering analysis allows to identify 4 distinct types of foreign branches: liquidity importers, liquidity exporters, liquidity conduits and locally implanted. Lastly, the paper provides evidence in support of the fact that US branches’ banking foreign operations are a good measure of financial integration with US as they can significantly explain business cycle synchronisation between the host country and the US during the Great Recession.
    Keywords: US global banks, Foreign branches, Balance sheet structure, Contagion
    JEL: F33 F34 F36 F42 C23 C49
    Date: 2016–04
  2. By: GÖKHAN ÖZDAMAR (Süleyman Demirel University)
    Abstract: Main objective of this study is to analyze the relationships between the current account balance and selected major macroeconomic variables in Turkish economy. In this respect ARDL-Bounds testing approach is applied. Results of the study related to the long-run show that the international terms of trade is a strong explanatory variable of the current account balance of Turkey. This result implies that Harberger-Laursen-Metzler (HLM) hypothesis is valid for Turkey. Findings reveal that also foreign trade balance has a strong effect on the current account balance of Turkey while the gross domestic product is found to be statistically significant but the effect level is quite low. Domestic interest rate and the real effective exchange rate variables are found to be statistically insignificant in the long-run. Error correction model results for the short-run reveal that current account balance of Turkey is mostly affected from the lagged value of itself, from foreign trade balance and also from the lagged value of real effective exchange rate.
    Keywords: Current Account Balance; Turkey; ARDL-Bounds testing
    JEL: F32 F40 F41
  3. By: Fan, Ziying (Asian Development Bank Institute); Wan, Guanghua (Asian Development Bank Institute)
    Abstract: Since the Tax Sharing Reform in 1994, the local government revenue of the People’s Republic of China (PRC) has faced downward risk problems. This paper reviews the fiscal and taxation reforms in the central and local governments of the PRC and focuses on evaluating the effectiveness of fiscal transfers. We find that, to a certain extent, fiscal transfers significantly promote the construction of local infrastructure. Earmarked transfers had an effect, but lump-sum transfers did not. Results showed every 1% increase in earmarked transfers to be associated with a 5% increase in local spending on infrastructure. These fiscal transfers also increased the size of local government spending such that a 1% increase of fiscal transfer would increase the ratio of local fiscal spending to gross domestic product by 1%. The risk of the local fiscal revenue sources was also assessed, and results showed that land finance, local government bonds, and fiscal transfers from the central government are not sustainable in the long term. The local fiscal system in the PRC needs to focus on improving local taxes in the future, such as the property tax.
    Keywords: PRC fiscal risk; fiscal transfers; fiscal and tax reforms
    JEL: H54 H68 H71
    Date: 2016–04–22
  4. By: David CASHIN; UNAYAMA Takashi
    Abstract: We test the Life Cycle/Permanent Income Hypothesis (LCPIH) using Japan's 2014 value-added tax (VAT) rate increase as a natural experiment. The VAT rate increase represents an unanticipated and proportional reduction in lifetime resources for several reasons: few goods and services are exempt from the VAT; the tax rate increase was uncompensated; it was fully passed on to households in the form of higher prices; and the VAT increase was not anticipated prior to Prime Minister Shinzo Abe's October 2013 announcement. Contrary to the excess smoothness literature, we find that consumption fell in proportion to the income shock upon announcement, implying that we cannot reject the LCPIH.
    Date: 2016–03
  5. By: Raphael Anton Auer; Cédric Tille
    Abstract: The US financial crisis and the later eurozone crisis have substantially impacted capital flows into and out of financial centers like Switzerland. We focus on the pattern of capital flows involving the Swiss banking industry. We first rely on balance-of-payment statistics and show that net banking inflows rose during the acute phases of the crises, albeit with a contrasting pattern. In the wake of the collapse of Lehman Brothers, net inflows were driven by a substantial retrenchment into the domestic market by Swiss banks. By contrast, net inflows from mid-2011 to mid-2012 were driven by large flows into Switzerland by foreign banks. We then use more detailed data from Swiss banking statistics which allow us to differentiate the situation across different banks and currencies. We show that, during the US financial crisis, the bank flows cycle was driven strongly by exposures in US dollars, and to a large extent by Swiss-owned banks. During the eurozone crisis, by contrast, the flight to the Swiss franc and move away from the euro was also driven by banks that are located in Switzerland, yet are foreign-owned. In addition, while the demand for the Swiss franc was driven by both foreign and domestic customers from mid-2011 to early 2013, domestic demand took a prominent role thereafter.
    Keywords: capital flows, safe haven, Switzerland, financial globalization, international banking.
    JEL: E51 G15 G21 F21 F32 F36 F65
    Date: 2016
  6. By: Kim, Minseong
    Abstract: This paper explores how accounting consistency affects DSGE models. As many DSGE models descended from real business cycle models, I explore a simple labor-only RBC model with an exogenous external sector introduced. The conclusion reached in this paper is that once an external sector is introduced, DSGE models may suffer from accounting inconsistency, unless disequilibrium or some non-orthodox theory of price level, real monetary supply or bonds is accepted.
    Keywords: accounting consistency, DSGE, external sector, fiscal deficit
    JEL: B41 E13 E62 F41
    Date: 2016–03–29
  7. By: Brendon Farrell
    Abstract: Generally accepted depreciation methods do not factor in the Time Value of Money, despite the concept being a core principle of financial asset valuation. By applying the concept to depreciation, Depreciable Asset Value Models can be formulated, that allow depreciation to be calculated in a manner consistent with financial theory. While the Basic Depreciable Asset Value Model formulated within has its limitations, more complex models, which factor in a greater number of variables, can be formulated using its logic.
    Date: 2016–04

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