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on South East Asia |
| By: | Park, Donghyun (Asian Development Bank) |
| Abstract: | Due to population aging, weakening of family-based support, and other factors, old-age income support is becoming an issue of growing importance throughout Asia. This is especially true in East Asia and Southeast Asia where the demographic transition is already well under way. This paper provides a broad overview of the current state of the pension systems in People’s Republic of China, Indonesia, Republic of Korea, Malaysia, Philippines, Singapore, Thailand, and Viet Nam; diagnoses the pension systems; and identifies their major structural weaknesses. Key systemic failures were found to be low coverage, inadequate benefits, lack of financial sustainability, and insufficient support for the elderly poor. The paper concludes with some specific policy directions for pension reform to strengthen the capacity of Asian pension systems in delivering economic security for the looming large and growing army of the elderly in the region. |
| Keywords: | Pension; social security; Asia |
| JEL: | H55 |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbewp:0165&r=sea |
| By: | Park, Donghyun (Asian Development Bank); Shin, Kwanho (Asian Development Bank) |
| Abstract: | An integral part of global current account imbalances is the large and persistent current account surplus developing Asia has run since the 1997–1998 Asian crisis. A country’s current account surplus is, by definition, equal to its net saving. The central objective of this paper is to investigate the extent to which the saving and investment rate of Asian countries can be explained by the underlying fundamental determinants of saving and investment such as gross domestic product growth and demographic factors. Our empirical analysis yields two key findings. First, we find stronger evidence of oversaving than underinvestment in the region. Second, we find stronger evidence of overinvestment prior to the Asian crisis than underinvestment after the Asian crisis. This suggests that the key to rebalancing Asian growth toward domestic sources lies in promoting consumption rather than investment. |
| Keywords: | Saving; investment; current account balance; global imbalance; Asia |
| JEL: | E21 E22 F32 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbewp:0158&r=sea |
| By: | H. Son, Hyun (Asian Development Bank); A. San Andres, Emmanuel (Asian Development Bank) |
| Abstract: | The global economic crisis in 2008–2009 had varying impacts on economies in Asia and the Pacific. This paper studies the impacts of the global crisis, with emphasis on the labor market, on three Asian countries: Republic of Korea (Korea), Philippines, and Thailand. It develops a crisis index that measures the impacts of the crisis by comparing actual values of economic indicators during the crisis period (2008–2009) with counterfactual indicators derived from each country’s pre-crisis (2001–2007) long-term trends. The study finds that all three countries were significantly affected by the crisis, but the severity and channels of these impacts varied widely: Thailand suffered the most in terms of reduced growth in gross domestic product, Korea suffered the worst in reduced employment, and Philippines’ output was affected only in 2009. In the labor market, the study finds that the crisis led to significant job losses in all three countries and highlighted underlying problems, particularly Korea’s problems with youth unemployment, and Philippines’ and Thailand’s vulnerable industrial sectors. |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbewp:0174&r=sea |
| By: | Byron Gangnes; Ari Van Assche |
| Abstract: | The growth of East Asia’s intra-regional trade is driven largely by increased component trade within global electronics production networks. Data on both electronics trade and production elucidate a pattern of specialization in which upper- and middle-income countries produce sophisticated components and lower-income countries assemble lowervalue- added final goods. There is evidence of increasing sophistication within the electronics sector by the Newly Industrialized Economies and to a lesser extent by ASEAN countries. Despite the marked increase in intra-regional trade, developing East Asian countries remain heavily dependent on developed-country markets. When Western export demand rapidly contracted during the 2008-2009 economic crisis, these specialization patterns led the rapid diffusion of the business cycle shock throughout the East Asian region. |
| Keywords: | Global production networks, electronics, Asian trade, business cycle transmission, global economic crisis |
| JEL: | F14 F23 F40 L63 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:lic:licosd:25710&r=sea |
| By: | Byron Gangnes (Department of Economics, University of Hawaii at Manoa); Ari Van Assche (HEC Montreal and LICOS) |
| Abstract: | The growth of East Asia’s intra-regional trade is driven largely by increased component trade within global electronics production networks. Data on both electronics trade and production elucidate a pattern of specialization in which upper- and middle-income countries produce sophisticated components and lower-income countries assemble lowervalue- added final goods. There is evidence of increasing sophistication within the electronics sector by the Newly Industrialized Economies and to a lesser extent by ASEAN countries. Despite the marked increase in intra-regional trade, developing East Asian countries remain heavily dependent on developed-country markets. When Western export demand rapidly contracted during the 2008-2009 economic crisis, these specialization patterns led the rapid iffusion of the business cycle shock throughout the East Asian region. |
| Keywords: | Global production networks; electronics; Asian trade; business cycle transmission; global economic crisis |
| JEL: | F14 F23 F40 L63 |
| Date: | 2010–03–10 |
| URL: | http://d.repec.org/n?u=RePEc:hai:wpaper:201004&r=sea |
| By: | Yaovarate Chaovanapoonphol (Faculty of Agriculture, Chiang Mai University); Christine Lim (Waikato Management School, University of Waikato); Michael McAleer (Erasmus School of Economics, Erasmus University Rotterdam); Aree Wiboonpongse (Faculty of Agriculture, Chiang Mai University) |
| Abstract: | Even though tourism has been recognized as one of the key sectors for the Thai economy, international tourism demand, or tourist arrivals, to Thailand have recently experienced dramatic fluctuations. The purpose of the paper is to investigate the relationship between the demand for international tourism to Thailand and its major determinants. The paper includes arrivals from the USA, which represents the long haul inbound market, from Japan as the most important medium haul inbound market, and from Malaysia as the most important short haul inbound market. The time series of tourist arrivals and economic determinants from 1971 to 2005 are examined using ARIMA with exogenous variables (ARMAX) models to analyze the relationships between tourist arrivals from these countries to Thailand. The economic determinants and ARMA are used to predict the effects of the economic, financial and political determinants on the numbers of tourists to Thailand. |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:tky:fseres:2010cf722&r=sea |
| By: | Patnaik, Ila (Asian Development Bank Institute); Shah, Ajay (Asian Development Bank Institute) |
| Abstract: | In this paper, we examine capital account openness and exchange rate flexibility in 11 Asian economies. Asia has made slow progress in de jure capital account openness, but has made much more progress in de facto capital account openness. While there has been a gradual increase in exchange rate flexibility, most Asian economies continue to have largely inflexible exchange rates. This combination of advancing de facto capital account integration without greater exchange rate flexibility has led to procyclical monetary policy, when capital flows are procyclical. This paper emphasises the need for a consistent monetary policy framework. |
| Keywords: | capital account openness; exchange rate flexibility; asian economies |
| JEL: | E40 E60 F41 |
| Date: | 2010–03–12 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbiwp:0204&r=sea |
| By: | Sato, K.; Zhang, Z.; McAleer, M.J. (Erasmus Econometric Institute) |
| Abstract: | In this paper we use a structural VAR model with block exogeneity to investigate if external shocks originating from the USA played a dominant role in influencing the macroeconomic fluctuations in East Asia during the period 1978-2007. The empirical results show a dynamic effect of external shocks, implying that, even though regional integration appears to be deepening and accelerating, especially after the recent global financial crisis, the influence of US shocks on real output fluctuations in the East Asian region is still very strong. The effects of Chinese shocks show an increasing trend over time, but the impacts are still small and not comparable with those of US shocks. The world oil price shock has become increasingly important in influencing the stability of real output growth in the region. The results from variance decomposition and impulse response analysis confirm the findings. Even though Japanese firms have established production networks in East Asia through trade and investment, and China has also grown rapidly and become a key regional country, the results suggest that US influence in the region is still asymmetric and strong. Therefore, it is difficult to conclude that shocks to the East Asian economies have become more regionally oriented. |
| Keywords: | structural vector autoregression;block exogeneity;monetary union;extrnal shocks;East Asia |
| Date: | 2009–12–17 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:eureir:1765017522&r=sea |
| By: | Park, Yung Chul (Asian Development Bank Institute) |
| Abstract: | Asia has staged an impressive turnaround in 2009, but it is unclear whether the recovery can be self sustaining even if the United States and Europe fail to pull themselves out of the current recession. This policy brief discusses the impact of the global financial crisis on emerging Asia and seeks to articulate the rationale behind the policy changes and reform necessary to return East Asia to the path of pre-crisis growth. |
| Keywords: | financial crisis growth asia; emerging asia economic recovery; rebalancing growth east asia |
| JEL: | F00 |
| Date: | 2009–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbipb:0031&r=sea |
| By: | Durmaz, Nazif; Thompson, Henry |
| Abstract: | This paper estimates exchange rate sensitivity of US cotton imports for three textile producers with floating or regularly adjusting exchange rates since the 1970s, Bangladesh, Indonesia, and Thailand. The cotton import market model includes mill use, US production cost, and an alternate supply. Empirical analysis examines effects of the Asian financial crisis. Exchange rate behavior and sensitivity varies across the three importers. Aggregation hides information on market reaction. Changes in the rate of depreciation have stronger effects than changes in the level of the exchange rate. |
| Keywords: | Cotton imports; exchange rates |
| JEL: | Q17 F14 F31 |
| Date: | 2010–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:21831&r=sea |
| By: | Jongwanich, Juthathip (Asian Development Bank); E. James, William (Asian Development Bank); J. Minor, Peter (Asian Development Bank); Greenbaum, Alexander (Asian Development Bank) |
| Abstract: | This paper examines the structure and direction of developing Asia’s trade over the past two decades. The impacts on developing Asia of the economic slowdown in 2009–2010 in high-income countries of the Organization for Economic Cooperation and Development (OECD), which includes the European Union (EU), Japan, and United States (US) are projected through a computable general equilibrium model (CGE) of world trade and production. In addition, the impacts of fiscal stimulus and the rise of protectionist sentiments within developing Asia are examined. The expansion of intraregional trade in Asia reflects the role of the People’s Republic of China (PRC) as an assembly point and its reliance on demand from outside the region, the EU and the US in particular. The trade channel is crucial in transmitting economic distress from the OECD countries to developing Asia. The projection shows that developing Asia will continue to suffer from demand decline in OECD countries, with the PRC and India being the most impacted. Though Southeast Asia faces reduced exports to the OECD countries, its exports are reduced significantly to other Asian exporters, demonstrating the indirect trade linkages that now exist in the global economy. Fiscal stimulus from the largest economies (including PRC, EU, Japan, and US) could help boost trade and gross domestic product growth in developing Asia but it is not projected to offset entirely the negative impact from the global economic downturn. Protectionism has a negative impact on the countries and regions that take that course. Southeast Asia would be the most impacted by protectionism. If Southeast Asian countries were to raise their applied tariffs to the maximum most-favored nation bound rates under the World Trade Organization, the impact would be negative on real gross domestic product. Heavy manufactures followed by light manufactures, electronics, and textiles are most impacted. |
| Keywords: | Trade; CGE model; Forecasting/Simulations; Developing Asia |
| JEL: | C63 F17 O53 |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbewp:0161&r=sea |
| By: | Adams, Charles (National University of Singapore); Park, Donghyun (Asian Development Bank) |
| Abstract: | Global current account imbalances are one of the key macroeconomic imbalances that underlie the global financial crisis. The central objective of this paper is to analyze the causes and consequences of global imbalances from the perspective of developing Asia. More specifically, we examine the root causes of the large and persistent current account surpluses that have emerged in the region since the Asian crisis. We also explore the consequences of global imbalances for the region, in terms of welfare and economic growth. Based on our analysis, we recommend a number of concrete policy directions to help Asia rebalance its demand and growth toward domestic sources. |
| Keywords: | Global imbalances; current account; global financial crisis; rebalancing; Asia |
| JEL: | F32 F41 F43 |
| Date: | 2010–02–04 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbewp:0157&r=sea |
| By: | Takagi, Shinji (Asian Development Bank Institute) |
| Abstract: | Responding to the severe negative impact of the recent global financial crisis, many Asian economies resorted to substantial easing of macroeconomic policies. This policy brief reviews the principal policy measures implemented, examines the issues that have emerged from this extraordinary experience, and concludes with a forward-looking discussion of medium- to longer-term measures to improve the effectiveness of macroeconomic policies and to make the world and the region a safer place. |
| Keywords: | asian eased macroeconomic polices; global financial crisis; macroeconomic policy issues |
| JEL: | F00 |
| Date: | 2009–12–18 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbipb:0032&r=sea |
| By: | Park, Donghyun (Asian Development Bank); Estrada, Gemma (Asian Development Bank) |
| Abstract: | Developing Asian countries have accumulated foreign exchange reserves on an unprecedented scale in recent years. There is a growing consensus that Asia’s reserves now substantially exceed the levels required for precautionary purposes or for self-protection against currency crisis. The central objective of our paper is to informally and formally test whether reserves in developing Asia have in fact reached excessive levels. Informal tests of reserve adequacy based on widely used rules of thumb such as the Greenspan-Guidotti rule unambiguously indicate the presence of sizable excess reserves. To test for excess reserves more formally, we use panel-data econometric analysis based on Edison (2003). Our estimation results indicate the presence of large and growing excess reserves since 2002. The results of both informal and formal tests thus confirm the popular belief that developing Asia now has excessive foreign exchange reserves. Therefore, the short-run policy challenge for Asian governments is to manage the region’s burgeoning excess reserves more actively and use them more productively. One promising area of future research, brought to the fore by the global financial crisis, is to develop more nuanced measures of reserve adequacy that take into account the possibility of severe negative shocks. |
| Keywords: | Foreign exchange reserve; Asia |
| JEL: | F31 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbewp:0170&r=sea |
| By: | Sim, Benson (Asian Development Bank); de Castro, Modesta (Asian Development Bank); Pascua, Melissa (Asian Development Bank) |
| Abstract: | This paper analyzes the histories of revisions of official annual real gross domestic product (GDP) growth rates for six regional members of the Asian Development Bank (ADB)—People’s Republic of China; India; Indonesia; Republic of Korea; Taipei,China; and Thailand—for the period 1990–2004 as computed from successive editions of ADB’s flagship annual statistical publication, Key Indicators for Asia and the Pacific. A number of revisions indicators for each economy are computed. The results show that first published estimates of annual real GDP growth rates in all the six economies are revised upward 3 years later and in the latest period. Most of the six economies also experienced positive revisions to estimates of annual real GDP growth rates in the first, second, third, and latest years after their initial release. Revisions to first published estimates of annual real GDP growth rates a year later tend to be mostly small, although there are some outliers. In all the six economies, the size of the mean absolute revisions to the first published estimates of annual real GDP growth rates is nontrivial. All the six economies also have rather low relative mean absolute revisions to initial estimates of annual real GDP growth rates published a year later, implying that the first published estimates are generally robust for the purpose of assessing the current performance of these economies. The mean squared revisions for most of the six economies tend to be rather low. This implies that there may not be much volatility in the revisions to initial estimates of annual real GDP growth rates in these economies. Mean revisions in the first, second, third, and latest years in Indonesia are statistically significant, while the People’s Republic of China and Taipei,China have mean revisions that are statistically significant for the latest period. |
| Keywords: | revisions analysis; GDP; first published estimates |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbewp:0184&r=sea |
| By: | Park, Donghyun (Asian Development Bank); Shin, Kwanho (Korea University) |
| Abstract: | Developing Asia has traditionally relied on exports to the United States (US) and other industrialized countries for demand and growth. As a result, the collapse of exports to the US and other industrialized countries during the global financial and economic crisis has sharply curtailed gross domestic product (GDP) growth across the region. The emergence of the People’s Republic of China (PRC) as a globally influential economic force is fueling hopes that it can supplement the US as an additional source of demand and growth. The central objective of this paper is to use vector autoregression (VAR) models to empirically investigate whether exports to the PRC have a significant and positive effect on the GDP of nine developing Asian countries. The study’s results from a three-variable VAR model indicate that PRC’s imports have a significant positive effect on the GDP of regional countries. However, the study’s results from a four-variable VAR model indicate that the PRC’s apparently positive impact reflects the US’ demand for Asian goods, rather than independent demand from the PRC. Therefore, overall, the study’s evidence suggests that the PRC is not yet an engine of growth for the rest of the region. |
| Keywords: | China; Asia; trade; engine; recovery; growth; VAR |
| JEL: | F10 F14 F43 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbewp:0175&r=sea |
| By: | Jha, Shikha (Asian Development Bank); Sugiyarto, Guntur (Asian Development Bank); Vargas-Silva, Carlos (International Migration Institute) |
| Abstract: | Remittances to Asia plunged during the 1997 Asian financial crisis, but the drop was temporary as the flows were increasing once again after just 1 year. The current crisis, however, is fundamentally different in that even the countries that send remittances have been adversely affected. The global nature of this crisis raises several questions such as whether it will also last for a short time or developing Asia should prepare for a long period of remittance stagnation. This study examines remittances data to several Asian countries to shed light on such issues. The results suggest that while remittance flows to key recipients in the region have slowed down in the current year, there has not been a sharp drop. Furthermore, there is no indication that the remittance flows will slow down further, suggesting that the flows should be back on a higher growth path in a few years. It is unlikely, however, to see the same growth rates of the past, given that an important share of that growth during the last two decades was due to better recording of remittances and an increased use of wire transfers on the part of migrants. |
| Keywords: | Global Crisis; Remittances; Asia |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbewp:0185&r=sea |
| By: | Cuevas, Sining (Asian Development Bank); Mina, Christian (Asian Development Bank); Barcenas, Marissa (Asian Development Bank); Rosario, Aleli (Asian Development Bank) |
| Abstract: | The paper attempted to use the February 2007 round of Indonesia’s National Labor Force Survey (Sakernas) for a comparative analysis of wages and benefits of formal and informal workers. While Sakernas was not designed for this purpose, the study explored questions in the existing survey that can be used to distinguish formal and informal workers. Because of data limitation, workers were classified as employed informally or “mixed”—a category composed of workers who cannot be identified, with precision, to be engaged in either formal or informal employment. Given this constraint, informal employment was estimated at the minimum to be at 29.1% of total employment in Indonesia. Informal employment is also highly concentrated in rural areas and is prevalent in agriculture and construction sectors. More women are likely to be informally employed than men, and women generally receive lower pay and are mostly unpaid family workers. To the extent possible the study was able to examine informal employment in Indonesia and to identify the gaps in the Sakernas questionnaire that can be addressed in future rounds of the survey for a successful comparative analysis between formal and informal workers. |
| Keywords: | Indonesia; informal employment; informal sector; gender analysis; wage differentials |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbewp:0156&r=sea |
| By: | Narjoko, Dionisius |
| Abstract: | Some major policy changes towards a more open trade and investment regime occurred in Indonesia during the 1980s and 1990s. The impact of these policy changes on the country’s industrialisation has been generally favourable. However, little is known about the impact on the dynamics of plant in the country’s manufacturing. This study addresses this subject, examining the extent and determinants of plant entry in Indonesian manufacturing over the period 1993-96, and asking how the policy reforms affected plant entry. The key finding suggests that the policy reforms increased the extent of competition within industry. This, however, does not seem to be very strong, and the study puts forward some possible explanations. The discussion reaches a consensus that maybe, during the period under this study, the process of the reform had not really been completed and, at the same time, the (predicted) positive impact of the liberalisation had not been fully realised. |
| Keywords: | Firm-level data; globalisation; firm entry; trade liberalisation |
| JEL: | L16 F15 L60 |
| Date: | 2009–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:21960&r=sea |
| By: | Kim, Sangho (Honam University); Park, Donghyun (Asian Development Bank); Park, Jong-Ho (Sunchon National University) |
| Abstract: | Based on Cuesta (2000), this paper develops a stochastic frontier production model that allows for different groups of firms to have different patterns of technical efficiency over time. The authors apply the model to the Malaysian manufacturing sector to decompose total factor productivity growth into technical efficiency change and technical progress for different firm sizes— e.g., large and small—in seven industries during 2000–2004. The empirical results indicate that technical efficiency has worsened across all industries and firm sizes. In contrast, evidence of substantial technical progress was found in all industries. In fact, technical progress has been larger than technical efficiency deterioration in most industries and firm sizes, leading to total factor productivity growth. The analysis identifies the industries and firm sizes that lag the most in productivity, and thus have the greatest scope for policies that facilitate productivity growth. |
| Keywords: | Capital mobility; financial crises; investment-saving gap; Asia |
| JEL: | O53 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbewp:0176&r=sea |
| By: | Headey, Derek D. |
| Abstract: | From 2003 to their peak in mid 2008, the nominal prices of maize and wheat roughly doubled, while those of rice tripled in a matter of months rather than years. Although fundamental factors were clearly responsible for shifting the world to a higher equilibrium price during this time, there is little doubt that when food prices peaked in June 2008, they soared well above the new equilibrium price. Numerous arguments have been proposed to explain overshooting, including financial speculation, depreciation of the United States (U.S.) dollar, low interest rates, and reductions in grain stocks. However, observations that international rice prices surged in response to export restrictions by India and Vietnam suggested that trade-related factors could be an important basis for overshooting, especially given the very tangible link between export volumes and export prices. In this paper, we revisit the trade story by closely examining monthly data from the largest export markets for rice (Thailand), wheat, maize and soybeans (the United States). In each case, we find that large surges in export volumes preceded the price surges. The presence of these demand surges, together with back-of-the-envelope estimates of their price impacts, suggest that trade events played a much larger and more pervasive role than previously thought. This further implies that improving the international grain markets should be a central focus of the international policy agenda going forward. |
| Keywords: | equilibrium price, export markets, export prices, export restrictions, export volumes, international grain trade, panic purchases, world food crisis, |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fpr:ifprid:958&r=sea |
| By: | Sabina Alkire and James E. Foster |
| Abstract: | This paper proposes a new methodology for multidimensional poverty measurement consisting of an identification method ?k that extends the traditional intersection and union approaches, and a class of poverty measures Ma. Our identification step employs two forms of cutoff: one within each dimension to determine whether a person is deprived in that dimension, and a second across dimensions that identifies the poor by 'counting' the dimensions in which a person is deprived. The aggregation step employs the FGT measures, appropriately adjusted to account for multidimensionality. The axioms are presented as joint restrictions on identification and the measures, and the methodology satisfies a range of desirable properties including decomposability. The identification method is particularly well suited for use with ordinal data, as is the first of our measures, the adjusted headcount ratio. We present some dominance results and an interpretation of the adjusted headcount ratio as a measure of unfreedom. Examples from the US and Indonesia illustrate our methodology. |
| Keywords: | multidimensional poverty measurement, capability approach, identification, FGT measures, decomposability, ordinal variables |
| JEL: | I3 I32 D63 O1 H1 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:qeh:ophiwp:ophiwp32&r=sea |
| By: | Cho-Hoi Hui (Research Department, Hong Kong Monetary Authority); Hans Genberg (Research Department, Hong Kong Monetary Authority); Tsz-Kin Chung (Research Department, Hong Kong Monetary Authority) |
| Abstract: | Significant deviations from covered interest parity were observed during the financial crisis of 2007-2009. This paper finds that before the failure of Lehman Brothers the market-wide funding liquidity risk was the main determinant of these deviations in terms of the premiums on swap-implied US dollar interest rates for the euro, British pound, Hong Kong dollar, Japanese yen, Singapore dollar and Swiss Franc. This suggests that the deviations can be explained by the existence and nature of liquidity constraints. After the Lehman default, both counterparty risk and funding liquidity risk in the European economies were the significant determinants of the positive deviations, while the tightened liquidity condition in the US dollar was the main driving factor of the negative deviations in the Hong Kong, Japan and Singapore markets. Federal Reserve Swap lines with other central banks eased the liquidity pressure and reduced the positive deviations in the European economies. |
| Keywords: | Sub-prime crisis, funding liquidity, covered interest parity, FX swaps |
| JEL: | F31 F32 F33 |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:hkg:wpaper:0913&r=sea |
| By: | Daniel Preve (Singapore Management University); Marcelo Cunha Medeiros (Department of Economics PUC-Rio) |
| Abstract: | In this paper we introduce a linear programming estimator (LPE) for the slope parameter in a constrained linear regression model with a single regressor. The LPE is interesting because it can be superconsistent in the presence of an endogenous regressor and, hence, preferable to the ordinary least squares estimator (LSE). Two dierent cases are considered as we investigate the statistical properties of the LPE. In the rst case, the regressor is assumed to be xed in repeated samples. In the second, the regressor is stochastic and potentially endogenous. For both cases the strong consistency and exact nite-sample distribution of the LPE is established. Conditions under which the LPE is consistent in the presence of serially correlated, heteroskedastic errors are also given. Finally, we describe how the LPE can be extended to the case with multiple regressors and conjecture that the extended estimator is consistent under conditions analogous to the ones given herein. Finite-sample properties of the LPE and extended LPE in comparison to the LSE and instrumental variable estimator (IVE) are investigated in a simulation study. One advantage of the LPE is that it does not require an instrument. |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:rio:texdis:567&r=sea |
| By: | Peter C. B. Phillips (Yale University, University of Auckland, University of York & Singapore Management University); Jun Yu (School of Economics,Singapore Management University) |
| Abstract: | A recursive regression methodology is used to analyze the bubble characteristics of various financial time series during the subprime crisis. The methods provide a technology for identifying bubble behavior and consistent dating of their origination and collapse. Seven relevant financial series are investigated, including three financial assets (the Nasdaq index, home price index and asset-backed commercial paper), two commodities (the crude oil price and platinum price), one bond rate (Baa), and one exchange rate (Pound/USD). Statistically significant bubble characteristics are found in all of these series. The empirical estimates of the origination and collapse dates suggest an interesting migration mechanism among the financial variables: a bubble first emerged in the equity market during mid-1995 lasting to the end of 2000, followed by a bubble in the real estate market between January 2001 and July 2007 and in the mortgage market between November 2005 and August 2007. After the subprime crisis erupted, the phenomenon migrated selectively into the commodity market and the foreign exchange market, creating bubbles which subsequently burst at the end of 2008, just as the effects on the real economy and economic growth became manifest. Our empirical estimates of the origination and collapse dates support strongly the general features of the scenario of this crisis put forward in a recent study by Caballero, Farhi and Gourinchas (2008). |
| Keywords: | Financial bubbles, Crashes, Date stamping, Explosive behavior, Mildly explosive process, Subprime crisis, Timeline |
| JEL: | C15 G12 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:siu:wpaper:18-2009&r=sea |
| By: | Peter C.B. PHILIPS (Yale University, University of Auckland, University of York & Singapore Management University); Yangru WU (Rutgers Business School-Newark & New Brunswick, Rutgers University, & Chinese Academy of Finance and Development, Central University of Finance and Economics); Jun YU (School of Economics, Singapore Management University) |
| Abstract: | A recursive test procedure is suggested that provides a mechanism for testing explosive behavior, date-stamping the origination and collapse of economic exuberance, and providing valid con?dence intervals for explosive growth rates. The method involves the recursive im- plementation of a right-side unit root test and a sup test, both of which are easy to use in practical applications, and some new limit theory for mildly explosive processes. The test procedure is shown to have discriminatory power in detecting periodically collapsing bubbles, thereby overcoming a weakness in earlier applications of unit root tests for economic bubbles. An empirical application to Nasdaq stock price index in the 1990s provides con?rmation of ex- plosiveness and date-stamps the origination of ?nancial exuberance to mid -1995, prior to the famous remark in December 1996 by Alan Greenspan about irrational exuberance in ?nancial market, thereby giving the remark empirical content. |
| Keywords: | Explosive root, irrational exuberance, mildly explosive process, Nasdaq bubble, periodically collapsing bubble, sup test, unit root test |
| JEL: | G10 C22 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:siu:wpaper:19-2009&r=sea |