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on Financial Development and Growth |
| By: | Carlo Altavilla; Ugo Marani |
| Abstract: | The paper investigates whether the policy framework adopted by the EMU participating countries might create recessive tendencies. First, we check the existence of a deflationary bias by separately analysing monetary and fiscal policy. The analysis of monetary policy focuses on a backward- and a forward-looking monetary rule. The reaction functions are estimated to capture the criteria that a centralized monetary authority should use in setting short-term interest rate. Second, a comparative analysis is made of the ability of different central banks to stabilize output and inflation. Precisely, we compare the strategy followed by the European Central Bank, the Deutsche Bundesbank and the US Federal Reserve. Then, a measure of fiscal bias is retrieved by estimating the impact that a change in the primary surplus to GDP ratio has on the real economy. Finally, we search for a quantitative assessment of the recessive propensity of the European economic policies by estimating an overall policy bias. The results suggest the EU institutional set-up might create and/or amplify the recessive tendencies. The policy constraints the EMU members face were dreamt when the Community was struggling with an inflationary legacy. The danger nowadays is not inflation but rather its opposite, deflation. As a consequence, the EU institutions need to be at least partially reformed |
| JEL: | E52 C52 |
| Date: | 2005–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:liu:liucej:17&r=fdg |
| By: | Patricia McGrath; ; |
| Abstract: | Advocates of financial regulation, Arestis and Demetriades, argue that financial liberalisation does not impact on financial market efficiency and the allocation of investment. Results in this study find that Czech, Hungarian and Polish firms are subject to scrutiny when applying for credit. The firm’s ability to provide collateral, the potential of the proposed investment project and individual financial backgrounds are all factors that are used before loans are offered, and it likely that allocational efficiency is strengthened in these circumstances, and not weakened. Stiglitz has the view that financial repression improves the quality of the pool of loans. Results here indicate that companies in these countries previously had very limited access to credit while government owned companies and government projects received the bulk of credit. After deregulation it became apparent that the quality of the pool of loans was very poor. This study supports Shaw’s assertion that financial deregulation improves financial deepening. |
| Keywords: | Transition Economies, Industrial Development, Financial Deregulation, Economic Growth, Eastern Europe |
| JEL: | G G2 G21 |
| Date: | 2005–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2005-804&r=fdg |
| By: | Piti Disyatat |
| Abstract: | This paper shows that the quality of banks within each country is one of the important factors that can account for the fact that developing economies tend to suffer more severe output contractions in the wake of a currency crisis than more mature economies. In particular, countries with a banking sector whose balance sheets are healthy, in terms of having high net worth and low foreign currency exposure, are much less likely to suffer a contraction in the wake of an unexpected depreciation. |
| Keywords: | Financial crisis , Banks , Financial sector , External debt , Economic models , |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:01/49&r=fdg |
| By: | Stabley W. Black |
| Abstract: | The obstacles to economic growth in Mongolia are modeled with a supply-side growth model calibrated to represent inefficient use of resources and intermediation. Progressive removal of inefficiencies over time by means of privatization of banks and industrial enterprises potentially leads to increased productivity and increased capital accumulation, raising economic growth and per capita output. |
| Keywords: | Transition economies , Economic growth , Mongolia , Capital , Labor , Privatization , Economic models , |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:01/37&r=fdg |
| By: | Alexei Kireyev |
| Abstract: | The paper reviews the experience of financial reforms in Sudan with a view to assessing their macroeconomic impact and to shedding light on the question why such reforms have not yet brought about visible improvements in financial intermediation. The paper concludes that regardless of the progress achieved in recent years, deficiencies in the reform design, institutional weaknesses, shallow financial markets, shortcomings of the Islamic mode of finance, and strong seasonality remain key factors that constrain financial intermediation. Additional efforts, in particular in bank restructuring, credit instrument design, monetary policy management, and prudential regulation are needed to address the systemic problems of the financial sector and to make it capable of supporting private sector growth. |
| Keywords: | Bank reforms , Sudan , Financial systems , Islamic banking , Bank supervision , Monetary policy , |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:01/53&r=fdg |
| By: | Robert Dekle; Kenneth Kletzer |
| Abstract: | A model of the domestic financial intermediation of foreign capital inflows based on agency costs is developed for studying financial crises in emerging markets. In equilibrium, the banking system becomes progressively more fragile under imperfect prudential regulation and public sector loan guarantees until a crisis occurs with a sudden reversal of capital flows. The crisis evolves endogenously as the banking system becomes increasingly vulnerable through the renegotiation of loans after idiosyncratic firm-specific revenue shocks. The model generates dynamic relationships between foreign capital inflows, domestic investment, corporate debt and equity values in an endogenous growth model. The model's assumptions and implications for the behavior of the economy before and after crisis are compared to the experience of five East Asian economies. The case studies compare three that suffered a crisis or near-crisis, Thailand and Malaysia, to two that did not, Taiwan Province of China and Singapore, and lend support to the model. |
| Keywords: | Bank regulations , Asia , Financial crisis , Exchange rate regimes , Capital inflows , Economic models , |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:01/63&r=fdg |
| By: | Simon Johnson; Todd Mitton; Kalpana Kochhar; Natalia T. Tamirisa |
| Abstract: | We analyze the capital controls imposed in Malaysia in September 1998. In macroeconomic terms, these controls neither yielded major benefits nor were costly. At the same time, the stock market interpreted the capital controls (and associated events) as favoring firms with stronger political connections, and some connected firms reportedly received advantages immediately following the crisis. Analysis of financial accounts indicates that connected firms outperformed unconnected firms before the 1997-98 crisis but not afterward. After the crisis, connected firms were either not supported as much as the market had expected or the benefits they received were not manifest in their published accounts. |
| Keywords: | Capital controls , Malaysia , Financial crisis , Political economy , Stock markets , |
| Date: | 2006–03–07 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/51&r=fdg |
| By: | Jean-Marc Figuet; Nikolay Nenovsky; |
| Abstract: | Despite their progress Bulgaria and Romania significantly differ from the EU economies. In this article, on the basis of the theoretical and empirical achievements of the theory of optimal and (endogenous) currency areas we study to what extent the two South European economies are able to adopt the common economic (and above all monetary) policy of the EU, and to what extent the convergence to the EU stimulates the economic development of these countries. Despite the similarities, the two countries now differ fundamentally in their choice of a monetary regime – while Romania uses inflation targeting and a flexible exchange rate, Bulgaria has adopted a currency board regime. For this purpose we analyze: (i) the degree of nominal, real and financial convergence and synchronization of the economic cycle with that of the European Union (using unconditional ß convergence approach). Income and price levels, inflation rate, interest rate, monetary aggregates, credit, productivity etc. are among the studied variables; (ii) the resistance to different external and internal shocks (using VAR model) as well as (iii) the mechanisms for balancing and absorption of these shocks. To give a better comparative picture we compose the panel including Hungary and Czech Republic. |
| Keywords: | convergence, shocks, EU enlargement, Bulgaria and Romania |
| JEL: | E3 F4 P2 |
| Date: | 2006–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2006-810&r=fdg |
| By: | David Marston |
| Abstract: | The relationship between the observance of financial system standards and financial stability is complex owing to the multitude of macroeconomic and structural factors affecting stability. Therefore, assessments of standards in terms of technical criteria for compliance needs to be reinforced with additional information on other factors affecting risks in order to assess financial stability. Preliminary evidence from country data on observance of Basel Core Principles (BCPs) suggests that indicators of credit risk and bank soundness are primarily influenced by macroeconomic and macroprudential factors and that the direct influence of compliance with Basel Core Principles on credit risk and soundness is insignificant. BCP compliance could, however, influence risk and soundness indirectly through its influence on the impact of other macro variables. |
| Keywords: | Financial systems , Bank supervision , |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:01/62&r=fdg |
| By: | Aasim M. Husain |
| Abstract: | This paper proposes a template for assessing whether or not a country's economic and financial characteristics make it an appropriate candidate for a pegged exchange rate regime. The template employs quantifiable measures of attributes-trade orientation, financial integration, economic diversification, macroeconomic stabilization, credibility, and "fear-offloating" type effects-that have been identified in the literature as key potential determinants of regime choice. To illustrate, the template is applied to Kazakhstan and Pakistan. The results indicate a fairly strong case against a pegged regime in Pakistan. The implications for Kazakhstan are mixed, although changes in that economy in recent years strengthen the case against a peg. |
| Keywords: | Exchange rate regimes , Pakistan , Kazakhstan , |
| Date: | 2006–03–09 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/54&r=fdg |
| By: | Hakob Zoryan |
| Abstract: | This paper attempts to estimate the actual (de facto) level of dollarization in Armenia. "Co-circulation" involves the regular use of two or more currencies within an economy. The existence of an unknown amount of foreign currency in circulation makes the outcome of domestic monetary policy uncertain. The volume of foreign currency deposits is easily obtained from the official statistics. However, it is very hard to determine the stock of foreign currency in circulation. The effective money supply may be much larger than the domestic money supply and is subject to behavioral responses which are very different than the movements of the presently measured money supply. The purpose of this paper is to assess the level of dollarization, that is, to evaluate the size and/or proportion of foreign currency in the total money stock of Armenia as a highly dollarized country. |
| JEL: | E5 E4 G21 P3 F3 P2 |
| Date: | 2005–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:liu:liucej:14&r=fdg |