financial markets and growth the last five years have witnessed a resurgence of interest in the relationship between financial intermediation and economic growth this issue had been extensively studied nearly two decades earlier by goldsmith 1969 mckinnon 1973 shaw 1973 and others who produced considerable evidence that financial development correlates with growth but their work though insightful lacked analytical foundations in traditional growth theory financial intermediation could be related to the level of the capital stock per worker or to the level of productivity but not to their respective growth rates the latter were ascribed to exogenous technical progress the recent revival of interest in the link between financial development and growth stems mainly from the insights and techniques of endogenous growth models which have shown that there can be self sustaining growth without exogenous technical progress and that the growth rate can be related to preferences technology income distribution and institutional arrangements this provides the theoretical underpinning that early contributors lacked tinancial intermediation can be shown to have not only level effects but also growth effects the resulting models have offered important insights into the effect of financial development on growth and vice versa they have also provided new impetus to empirical research on these issues this paper reviews the ground covered so far on the theoretical and empirical front and points to some still unresolved issues

finance and growth in a bank based economy is it quantity or quality that matters abstract most finance growth studies approximate the size of financial systems rather than the quality of intermediation to explain economic growth differentials furthermore the neglect of systematic differences in cross country studies could drive the result that finance matters we suggest a measure of bank s intermediation quality using bank specific efficiency estimates and focus on the regions of one economy only germany this quality measure has a significantly positive effect on growth this result is robust to the exclusion of banks operating in multiple regions controlling for the proximity of financial markets when distinguishing different banking sectors active in germany and when excluding the structurally weaker east from the sample

does opening a stock exchange increase economic growth we examine the connection between the creation of stock exchanges and economic growth with a new set of data on economic growth that spans a longer time period than generally available we find that economic growth increases relative to the rest of the world after a stock exchange opens our evidence indicates that increased growth of productivity is the primary way that a stock exchange increases the growth rate of output rather than an increase in the growth rate of physical capital we also find that financial deepening is rapid before the creation of a stock exchange and slower subsequently

interrelationships among banks stock markets and economic growth an empirical investigation this article utilizes a simultaneous equations model to study the relationships among economic growth banking and stock market development in contrast to conventional instrumental variable approach we implement the analysis via the methodology of identification through heteroscedasticity using beck and levine 2004 dataset we find that each of the three variables interacts in important ways while both are conducive to economic growth banking development matters more for growth in low income countries and stock market development is more favourable to growth in high income or low inflation ones the data also reveal coexistence of a positive effect of banking development on stock market development and a negative effect of stock market development on banking development besides the feedback effects of growth on both banking and stock market development are found

what type of finance matters for growth bayesian model averaging evidence this paper examines the effect of finance on long term economic growth using bayesian model averaging to address model uncertainty in cross country growth regressions the literature largely focuses on financial indicators that assess the financial depth of banks and stock markets these indicators are examined jointly with newly developed indicators that assess the stability and efficiency of financial markets once the finance growth regressions are subjected to model uncertainty the results suggest that commonly used indicators of financial development are not robustly related to long term growth however the findings from the global sample indicate that one newly developed indicator the efficiency of financial intermediaries is robustly related to long term growth

models of stock returns a comparison in this paper a discrete mixture of normal distributions is proposed to explain the observed significant kurtosis fat tails and significant positive skewness in the distribution of daily rates of returns for a sample of common stocks and indexes stationarity tests on the parameter estimates of this discrete mixture of normal distributions model revealed significant differences in the mean estimates that can explain the observed skewness and significant differences in the variance estimates that can explain the observed kurtosis an alternative explanation for the observed fat tails is the symmetric student model the result of a comparison between the models is that the discrete mixture of normal distributions model has substantially more descriptive validity than the student model for many years both financial economists and statisticians have been concerned with the description of stock market returns the form of the distribution of stock returns is a crucial assumption for mean variance portfolio theory theoretical models of capital asset prices and the prices of contingent claims for example understanding the behavior of the variance is essential to option pricing models empirical tests of asset pricing models and the efficient markets hypothesis draw statistical inferences that are also conditional on distributional assumptions the most convenient assumption for financial theory and empirical methods is that the distribution of security rates of return be multivariate normal with parameters that are stationary over time since the normal distribution is stable under addition any arbitrary portfolio of stocks will also be normally distributed with the additional assumption of risk aversion mean variance theory follows furthermore the assumptions of normality and parameter stationarity are required for most of the econometric techniques typically used in empirical research tests of the normality hypothesis on the daily returns of the dow jones industrial stocks by fama 121 revealed more kurtosis fatter tails than that predicted from a sample of independent and identically distributed normal variates fama concluded from this evidence that the distribution of price changes conforms better to the stable paretian distribution with characteristic exponent

equity markets transactions costs and capital accumulation an illustration poorly developed equity markets inhibit the transfer of capital ownership moreover the costs of transacting in equity markets affect not just the level of investment but the kinds of investments that are undertaken once equity markets allow the ownership of capital to be transferred economically reductions in costs tend to favor the use of longer maturity investments when there is a relationship between the maturity of an investment and its productivity transactions cost reductions are conducive to observing certain kinds of increases in productive efficiency this article analyzes savings investment and consumption decisions by using an overlapping generation s model with two period lived agents the analysis allows for several technologies for converting current output into future capital that varies by productivity and maturity and it makes ownership of capital costly to transfer a reduction in transactions costs will typically alter the composition of savings and investment and have potentially complicated consequences for capital accumulation and steady state output

oil prices brownian motion or mean reversion a study using a one year ahead density forecast criterion abstract for oil related investment appraisal an accurate description of the evolving uncertainty in the oil price is essential for example when using real option theory to value an investment a density function for the future price of oil is central to the option valuation the literature on oil pricing offers two views the arbitrage pricing theory literature for oil suggests geometric brownian motion and mean reversion models empirically driven literature suggests arma garch models in addition to reflecting the volatility of the market the density function of future prices should also incorporate the uncertainty due to price jumps a common occurrence in the oil market in this study the accuracy of density forecasts for up to a year ahead is the major criterion for a comparison of a range of models of oil price behaviour both those proposed in the literature and following from data analysis the kullbach leibler information criterion is used to measure the accuracy of density forecasts using two crude oil price series brent and west texas intermediate wti representing the us market we demonstrate that accurate density forecasts are achievable for up to nearly two years ahead using a mixture of two gaussians innovation processes with garch and no mean reversion

the financial development and growth nexus a meta analysis this is the accepted manuscript the final version is available from wiley at http onlinelibrary wiley com doi 10 1111 joes 12086 abstract

change point analysis of the growth effects of state banking deregulation this article uses recent developments in change point analysis to demonstrate thatstronger income growth rates previously associated with state bank branch deregu lation were in all cases temporary rather than permanent in addition patterns oftemporal ordering across regions suggest that in many states deregulation was a re sponse to economic conditions rather than the reverse jel e44 g28

endogenous growth and the emergence of equity finance abstract this paper characterises the development of equity markets as a dynamic process that both influences and is influenced by the development of the real sector of the economy in overlapping generations economy borrowers seek funds to run risky investment projects by drawing up contracts which may take the form of either equity or debt issue in the presence of information asymmetry between borrowers and lenders the optimal contract is determined by trading off information dilution costs against bankruptcy costs significantly the equilibrium choice of contract depends on the state of the economy which in turn depends on the contracting regime based on this analysis the paper provides a theory of the joint determination of real and financial development with the ability to explain the emergence of a stock market along the path of real development

evaluating natural resource investments notwithstanding impressive advances in the theory of finance over the past 2 decades practical procedures for capital budgeting have evolved only slowly the standard technique which has remained unchanged in essentials since it was originally proposed see dean 1951 bierman and smidt 1960 derives from a simple adaptation of the fisher 1907 model of valuation under certainty under this technique expected cash flows from an investment project are discounted at a rate deemed appropriate to their risk and the resulting present value is compared with the cost of the project this standard textbook technique reflects modern theoretical developments only insofar as estimates of the discount rate may be obtained from crude application of single period asset pricing theory but see brennan 1973 bogue and roll 1974 turnbull 1977 constantinides 1978 the inadequacy of this approach to capital budgeting is widely acknowledged although not widely discussed its obvious deficiency is its the evaluation of mining and other natural resource projects is made particularly difficult by the high degree of uncertainty attaching to output prices it is shown that the techniques of continuous time arbitrage and stochastic control theory may be used not only to value such projects but also to determine the optimal policies for developing managing and abandoning them the approach may be adapted to a wide variety of contexts outside the natural resource sector where uncertainty about future project revenues is a paramount concern

what do market calibrated stochastic processes indicate about the long term price of crude oil abstract stochastic process models of commodity prices are important inputs in energy investment evaluation and planning problems in this paper we focus on modeling and forecasting the long term price level since it is the dominant factor in many such applications to provide a foundation for our modeling approach we first evaluate the empirical characteristics of crude oil price data from 1990 to 2013 using unit root and variance ratio tests statistical evidence from these tests shows only weak support for the applicability of stationary mean reverting type processes up through 2004 with non stationary brownian motion type processes becoming more plausible when the data from 2005 to 2013 is added we then apply a kalman filtering method with maximum likelihood approach to estimate the model parameters for both a single factor geometric brownian motion gbm process as well as the two factor schwartz and smith 2000 process the latter process decomposes the spot price into unobservable factors for the long term equilibrium level and short term deviation and it accommodates aspects of both a gbm process and a mean reverting process both empirical and simulated data are analyzed with these models and we quantify the increases in both the drift rate and volatility of these processes that result from developments in the crude oil markets since the middle of the last decade we conclude by comparing and contrasting both historical accuracy and forecasts from the parameterized models and show that when the emphasis is on the long term expectations a single factor gbm forecast may be sufficient

inflation financial markets and long run real activity abstract empirical evidence suggests that real activity the volume of bank lending activity and the volume of trading in equity markets are strongly positively correlated at the same time inflation and financial market activity are strongly negatively correlated in the long run as are inflation and the real rate of return on equity inflation and real activity are also negatively correlated in the long run particularly for economies with relatively high rates of inflation we present a monetary growth model in which banks and secondary capital markets play a crucial allocative function we show that at least under certain configurations of parameters the predictions of the model are consistent with these and several other observations about inflation finance and long run real activity

poverty traps the money growth rule and the stage of financial development abstract this paper investigates how monetary policy influences the emergence of local indeterminacy local bifurcations and multiple steady states depending upon the degree of the commitment parameter that defines financial market imperfection using diamond s overlapping generations model with credit market frictions the analytical results will show that poverty traps happen as an inevitable outcome under a wider range of money growth rates because financial markets are less developed put differently we derive analytically the positive link between financial development and per capita income

stock markets banks and growth panel evidence this paper investigates the impact of stock markets and banks on economic growth using a panel data set for the period 1976 98 and applying recent gmm techniques developed for dynamic panels on balance we find that stock markets and banks positively influence economic growth and these findings are not due to potential biases induced by simultaneity omitted variables or unobserved country specific effects

financial intermediation and endogenous growth an endogenous growth model with multiple assets is developed agents who face random future liquidity needs accumulate capital and a liquid but unproductive asset the effects of introducing financial intermediation into this environment are considered conditions are provided under which the introduction of intermediaries shifts the composition of savings toward capital causing intermediation to be growth promoting in addition intermediaries generally reduce socially unnecessary capital liquidation again tending to promote growth

does financial development affect growth this article contributes to the literature on the relationship between financial development and economic growth in three ways it utilizes recently developed techniques for generalized methods of moments gmm one step estimation with dynamic panel models it focuses exclusively on a sample of developing countries and it uses as proxies for financial development variables which capture both banking sector and stock market effects the results provide evidence based on a panel of annual data for 30 developing countries that while the stock market variables are positively and significantly related to growth their presence results in the standard banking sector variables credit to the private sector and liquid liabilities having negative effects on growth

on the nexus of financial development economic growth and energy consumption in china new perspective from a gmm panel var approach abstract this paper studies the endogenous relationships among financial development energy consumption and economic growth in china by applying a gmm panel var approach with a panel data of 30 chinese provinces over the period 1996q1 2015q4 financial development is measured by six individual indicators and by a comprehensive indicator obtained through the pca method we also account for regional heterogeneity by dividing our sample into three regions eastern region central region and western region we underline our findings in three aspects first financial development measured by most individual indicators m2 credit revenue of the insurance industry and stock market value and the comprehensive one has a significantly negative impact on economic growth second energy consumption can significantly contribute to economic growth in all regions while no feedback effect is found except in the western region this result is further supported by the granger causality tests last financial development in the sense of m2 credit stock turnover and the comprehensive indicator can significantly lessen energy consumption in all regions but this inhibitory effect is found to be largest in the western region followed by the eastern region and be smallest in the central region the granger causality tests confirm further the existence of heterogeneity across regions a bidirectional granger causality between the two variables is found in the eastern region a unidirectional granger causality running from energy consumption to financial development is identified in the central region and no significant causal relationship shows up in the western region our findings provide valuable policy implications for china heading for a green economic growth

estimating the general equilibrium benefits of large changes in spatially delineated public goods the purpose of this article is to report a new approach for measuring the general equilibrium willingness to pay for large changes in spatially delineated public goods such as air quality we estimate the parameters of a locational equilibrium model and compute equilibria for alternative scenarios characterizing the availability of public goods within a system of communities welfare measures take into consideration the adjustments of households in equilibrium to nonmarginal changes in public goods the framework is used to analyze willingness to pay for reductions in ozone concentrations in southern california between 1990 and 1995

does financial development increase energy consumption the role of industrialization and urbanization in tunisia this paper assesses the relationship among energy consumption financial development economic growth industrialization and urbanization in tunisia from 1971 to 2008 the autoregressive distributed lag bounds testing approach to cointegration and granger causality tests is employed for the analysis the result confirms the existence of long run relationship among energy consumption economic growth financial development industrialization and urbanization in tunisia long run bidirectional causalities are found between financial development and energy consumption financial development and industrialization and industrialization and energy consumption hence sound and developed financial system that can attract investors boost the stock market and improve the efficiency of economic activities should be encouraged in the country nevertheless promoting industrialization and urbanization can never be left out from the process of development we add light to policy makers with the role of financial development industrialization and urbanization in the process of economic development

opening a stock exchange abstract a large body of theoretical and empirical literature has established a positive relationship between levels of stock market development and economic growth however previous empirical work has been based on samples of approximately 40 countries with the most highly developed financial systems since 1950 over 70 countries have opened their first national stock exchanges can such exchanges increase economic growth i present a data set of my construction that describes the exchange openings that occurred between 1960 and 1998 and find that these exchanges have generated increases in growth during their first 5 years of existence although the longer term results are ambiguous

financial structure and economic growth recent empirical work on financial structure and economic growth analyzes multi country dataset in panel and or cross section frameworks and concludes that financial structure is irrelevant we highlight their shortcomings and re examine this issue utilizing a time series and a dynamic heterogeneous panel methods our sample consists of fourteen countries tests reveal that cross country data cannot be pooled financial structure significantly explains output levels in most countries the results are rigorously scrutinized through bootstrap exercises and they are robust to extensive sensitivity tests we also test for several hypotheses about the prospective role of financial structure and financial development on economic growth

stock and credit market expansion and economic development in emerging markets further evidence utilizing cointegration analysis this paper empirically investigates the relationship between equity and credit market development and economic growth in a sample of five very important emerging markets in particular employing a multivariate time series methodology to test for long run trends and causality between variables that proxy for stock market development credit market development and economic development the results seem to suggest that equity markets have a role to play only in relatively liberalized economies like chile and mexico in financially repressed economies like india the equity market does not affect real sector growth furthermore the banking crises in the 1980s and 1990s in chile and mexico resulted in a negative relation between economic growth and the credit market in south korea equity and credit markets both affect economic growth but not vice versa in countries where the nature of the stock market has been speculative like taiwan a negative relationship is detected between equity market develo

options in the real world lessons learned in evaluating oil and gas investments many firms in the oil and gas business have long used decision analysis techniques to evaluate exploration and development opportunities and have looked at recent development in option pricing theory as potentially offering improvements over the decision analysis approach unfortunately it is difficult to discern the benefits of the options approach from the literature on the topic most of the published examples greatly oversimplify the kinds of projects encountered in practice and comparisons are typically made to traditional discounted cash flow analysis which unlike the option pricing and decision analytic approaches does not explicitly consider the uncertainty in project cash flows in this paper we provide a tutorial introduction to option pricing methods focusing on how they relate to and can be integrated with decision analysis methods and describe some lessons learned in using these methods to evaluate some real oil and gas investments

financial markets in development and the development of financial markets what is the relationship between markets and development it is argued that markets promote growth and that growth in turn encourages the formation of markets two models with endogenous market formation are presented to analyze this issue the first examines the role that financial markets banks and stock markets play in allocating funds to the highest valued use in the economic system it is shown that intermediation will arise under weak conditions the second focuses on the role that markets play in supporting specialization in economic activity the consequences of perfect competition in market formation are highlighted

non price equilibria for non marketed goods abstract as part of the resources for the future frontiers of environmental economics collection of papers we consider the problem of general equilibrium feedback effects in non price space as they relate to non market valuation our overall objective is to examine the extent to which non price equilibria arising from both simple and complex sorting behavior can be empirically modeled and the resulting differences in partial and general equilibrium welfare measures quantified after motivating the problem in general we consider the specific context of congestion in recreation demand applications which we classify as the outcome of a simple sorting equilibrium using both econometric and computable general equilibrium cge models we examine the conceptual and computational challenges associated with this class of problems and present findings on promising solution avenues we demonstrate the relevance of accounting for congestion effects in recreation demand with an application to lake visits in iowa our econometric and cge results confirm that for some plausible counterfactual scenarios substantial differences exist between partial and general equilibrium welfare estimates we conclude the paper by describing tasks that are needed to move forward research in this area

testing the three roles of equity markets in developing countries the case of china abstract the role of equity markets in economic development has been increasingly recognized in recent years yet few studies have analyzed the transmission mechanisms between them this paper looks at this missing agenda by indirectly assessing whether the equity markets fulfill the following roles a financing firms investment b improving firms corporate governance and hence performance and c signaling information regarding issuers to public investors through stock prices all of which are essential in achieving economic growth for developing countries this paper assesses the development stages of china s equity markets by testing whether the above three roles are fulfilled

financial system development in transition economies this paper provides an overview of the major issues with respect to financial system development in transition economies which were discussed at a conference in groningen the netherlands december 1997 after a brief remark on the role of financial system design during economic transition the paper focuses on the role of stock markets in the process of financial intermediation with emphasis on the role of regulations in these markets the role of deposit insurance to improve bank system stability and the importance of an independent central bank measurement issues relating to central bank independence and its impact on inflation and growth 2000 elsevier science b v all rights reserved

applied welfare economics with discrete choice models economists have been paying increasing attention to the study of situations in which consumers face a discrete rather than a continuous set of choices such models are potentially very important in evaluating the impact of government programs upon consumer welfare but very little has been said in general regarding the tools of applied welfare economics indiscrete choice situations this paper shows how the conventional methods of applied welfare economics can be modified to handle such cases it focuses on the computation of the excess burden of taxation and the evaluation of quality change the results are applied to stochastic utility models including the popular cases of probit and logit analysis throughout the emphasis is on providing rigorous guidelines for carrying out applied work this abstract was borrowed from another version of this item

global growth opportunities and market integration we propose an exogenous measure of a country s growth opportunities by interacting the country s local industry mix with global price to earnings pe ratios we find that these exogenous growth opportunities predict future changes in real gdp and investment in a large panel of countries this relation is strongest in countries that have liberalized their capital accounts equity markets and banking systems we also find that financial development external finance dependence and investor protection measures are much less important in aligning growth opportunities with growth than is capital market openness finally we formulate new tests of market integration and segmentation by linking local and global pe ratios to relative economic growth in a perfectly integrated world economy capital should be invested where it

a survey of recent developments in the literature of finance and growth this paper provides a survey of the recent progress in the literature of financial development and economic growth the survey highlights that most empirical studies focus on either testing the role of financial development in stimulating economic growth or examining the direction of causality between these two variables although the positive role of finance on growth has become a stylized fact there are some methodological reservations about the results from these empirical studies several key issues unresolved in the literature are highlighted the paper also points to several directions for future research

short term variations and long term dynamics in commodity prices in this article we develop a two factor model of commodity prices that allows meanreversion in short term prices and uncertainty in the equilibrium level to which prices revert although these two factors are not directly observable they may be estimated from spot and futures prices intuitively movements in prices for long maturity futures contracts provide information about the equilibrium price level and differences between the prices for the short and long term contracts provide information about short term variations in prices we show that although this model does not explicitly consider changes in convenience yields over time this short term long term model is equivalent to the stochastic convenience yield model developed in gibson and schwartz 1990 we estimate the parameters of the model using prices for oil futures contracts and apply the model to some hypothetical oil linked assets to demonstrate its use and some of its advantages over the gibson schwartz model

stock markets and development this paper asks if financial development especially stock market development affects the level and or the growth rate of economic activity it finds a substantial effect on both current wisdom suggests that the growth effects of financial intermediation could be either permanent or transitory for instance the greenwood jovanovic 1990 henceforth gj model has an ak stucture with no diminishing returns to the reproducible factor and a permanent exogenous improvement in financial structure would cause a permanent increase in the rate of growth on the other hand if the returns to the reproducible factor did diminish better intermediation could lead only to level effects since one should not a priori exclude either growth effects or level effects we shall look for both our search for growth effects will use the gj model our search for level effects will rely on an amended version of the mankiw romer and weil 1992 henceforth mrw structure

the coevolution of the real and financial sectors in the growth process the role of debt and equity changes over time and with the level of development what are these changes and why should they systematically occur across different countries and time periods this article characterizes financial innovation as a dynamic process that both influences and is influenced by the development of the real sector it focuses on the emergence and development of equity markets using a model that allows for growth and for capital accumulation that is financed externally through a combination of debt and equity as an economy develops the aggregate ratio of debt to equity will generally fall yet debt and equity remain complementary sources for the financing of capital investments the results suggest how various government policy actions might affect capital accumulation and equity market activity

financial development and economic growth convergence or divergence abstract this study tests for convergence in financial development and economic growth by incorporating the interaction between the real and financial sectors into an otherwise traditional test for convergence the results show strong evidence for conditional convergence middle and high income countries conditionally converge to parallel growth paths not only in per capita gdp but also in financial development the mutually reinforcing relationship between financial development and economic growth is stronger in the early stage of economic development and this relationship diminishes as sustained economic growth gets under way as such low income countries with a relatively well developed financial sector are more likely to catch up to their middle and high income counterparts and those with a relatively under developed financial sector are more likely to be trapped in poverty this finding explains the observed great divergence between poor and rich countries another finding is that while human capital is more important to growth in the early stage of economic development economic freedom becomes more important in the later stage

emerging stock markets portfolio capital flows and long term economie growth micro and macroeconomic perspectives abstract the paper examines two major components of financial liberalization stock market development and portfolio capital flows in the context of less developed countries the paper considers microeconomic and macroeconomic perspectives on their implications for long term development and economic growth it concentrates on 1 a the role of stock markets in financing corporate growth 2 b the implications of stock market volatility for resource allocation and productive efficiency and 3 c the interactions between the foreign exchange and stock markets in the context of economic shocks its policy recommendations are that ldcs should promote bank based systems influence the scale and composition of capital inflows and prevent a market for corporate control from emerging

the siable law model of stock returns this study investigates the tail shapes of empirical distributions of returns on an extensive group of common stocks the tails of the return distributions are found to be thinner than those of infinite variance stable distributions therefore although homogeneity is evident in general economic and statistical inferences drawn from stable law parameters estimated from samples of stock returns may be misleading this is in spite of the apparent overall similarity in shape between empirical and stable distributions

financial liberalisation stockmarkets and economic development abstract during the 1980s and 1990s many developing countries dcs have been engaged in far reaching reforms of their financial systems liberalising them and making them more market oriented this liberalisation involving inter alia financial de repression has been inspired partly by the work of the mckinnon 1973 and shaw 1973 m s school this paper suggests that in addition to financial de repression there has been a major new element in the development of dc financial systems in recent years the establishment and fast expansion of stockmarkets these markets have played a key role in the internal as well as external financial liberalisation processes in leading dcs further the paper finds that the actual behaviour of these markets in many countries has led to outcomes which undermine the effects of the higher real interest rates arising from financial de repression

a theory of financial exchange organization abstract although there has been extensive research on the economic functions of financial exchanges and the properties of prices determined on exchanges there has been little research on their organization and governance the heterogeneity of the suppliers of financial services who are members of financial exchanges explains salient features of exchange organization when suppliers of financial services are heterogeneous one expects to observe exchanges organized as not for profit firms especially if an exchange can enforce collusive agreements moreover heterogeneity can lead to conflicts between members over rents which necessitates the creation of formal governance mechanisms finally if exchanges exercise market power or are protected from competitive entry as is plausible exchanges may adopt inefficient rules the efficiency of exchange rules depends on the degree of member heterogeneity the distributive consequences of these rules and the ability of exchange governance structures to enfo

financial development government ownership of banks and firm innovation abstract using a newly available world bank survey of over 28 000 firms from 46 countries we examine how financial development affects firm innovation around the world we find that while stock market development significantly enhances firm innovation banking sector development has mixed effects we show that the latter result can be explained by different levels of government ownership of banks specifically in countries with lower government ownership of banks banking sector development significantly enhances firm innovation while in countries with higher government ownership of banks banking sector development has no significant or sometimes even significantly negative effects on firm innovation such negative effects are significantly stronger for smaller firms the results are robust to various controls such as firms human capital and ownership structure to estimations using instrumental variable techniques and alternative measures of firm innovation

volatility transmission and volatility impulse response functions in crude oil markets abstract using daily data from july 2005 to february 2011 for wti dubai and brent futures contracts we employ a var bekk model to investigate crude oil markets integration on the second moment we also quantify the size and persistence of these connections through the analysis of volatility impulse response functions virf for two historical shocks namely the 2008 financial crisis and the bp deepwater horizon oil spill we observe that brent and dubai crude are highly responsive to market shocks whereas wti crude shows the least responsiveness of the three benchmarks which creates questions about its predominance as a benchmark crude oil furthermore we fit the density of the virf at different forecast horizons these fitted distributions are asymmetric showing that the probability of observing a large impact of a shock is lower while the probability of a relatively smaller impact is much higher finally we simulate the virf for a given probability of a random shock the virf shows that only a large shock derived from a smaller probability will result in an increase in expected conditional volatilities these results provide useful insights into the volatility transmission mechanism in crude oil markets and their associated risk estimation and may have significant implications for various market participants and regulators

financial development and economic growth evidence from panel unit root and cointegration tests abstract in this paper we investigate the long run relationship between financial depth and economic growth trying to utilize the data in the most efficient manner via panel unit root tests and panel cointegration analysis in addition we use threshold cointegration tests and dynamic panel data estimation for a panel based vector error correction model the long run relationship is estimated using fully modified ols for 10 developing countries the empirical results provide clear support for the hypothesis that there is a single equilibrium relation between financial depth growth and ancillary variables and that the only cointegrating relation implies unidirectional causality from financial depth to growth

stock markets and development a re assessment abstract this paper re examines the empirical relationship between stock markets and economic growth in contrast with atje and jovanovic stock markets and development european economic review 37 pp 632 640 1993 it finds no hard evidence that the level of stock market activity helps to explain growth in per capita output estimating their model using current investment rather than lagged investment suggests that the stock market effect may be weaker than they found two stage least squares is used to circumvent the possible endogeneity of current investment the sample is divided into developed and less developed countries for the less developed sample the stock market effect as with the full sample is at best very weak for the developed countries however stock market activity does have some explanatory power

financial development and economic growth the role of stock markets utilizing time series methods and data from five developed economies we examine the relationship between stock market development and economic growth controlling for the effects of the banking system and stock market volatility our results support the view that although both banks and stock markets may be able to promote economic growth the erects of the former are more powerful they also suggest that the contribution of stock markets on economic growth may have been exaggerated by studies that utilize cross country growth regressions

estimating oil price value at risk using the historical simulation approach abstract in this paper we propose using value at risk var for oil price risk quantification var provides an estimation for the maximum oil price change associated with a likelihood level and can be used for designing risk management strategies we analyse three var calculation methods the historical simulation standard approach the historical simulation with arma forecasts hsaf approach developed in this paper and the variance covariance method based on autoregressive conditional heteroskedasticity models forecasts the results obtained indicate that hsaf methodology provides a flexible var quantification which fits the continuous oil price movements well and provides an efficient risk quantification

equity markets and growth cross country evidence on timing and outcomes 1980 1995 abstract the rapid expansion of organized equity exchanges in both emerging and developed markets has prompted policymakers to raise important questions about their macroeconomic impact yet the need to focus on recent data poses implementation difficulties for econometric studies of dynamic interactions between stock markets and economic performance in individual countries this paper overcomes some of these difficulties by applying recent developments in the analysis of panels with a small time dimension to estimate vector autoregressions for a set of 47 countries with annual data for 1980 1995 after describing recent theories on the role of stock markets in growth and considering a pure cross sectional empirical approach our panel vars show leading roles for stock market liquidity and the intensity of activity in traditional financial intermediaries on per capita output the findings underscore the potential gains associated with developing deep and liquid financial markets in an increasingly global economy

recovering an asset s implied pdf from option prices an application to crude oil during the gulf crisis we develop a general method for estimating the implied martingale equivalent probability density function pdf for futures prices from american options prices the early exercise feature of american options precludes expressing the price of the option in terms of the pdf there exist tight bounds for the price of american options in terms of the pdf we demonstrate how these bounds together with observed option prices can be used to estimate the parameters of the pdf we estimate the distribution for crude oil during the persian gulf crisis and find the distribution differs significantly from that recovered using standard techniques

the effects of open market operations in a model of intermediation and growth we examine an otherwise standard model of capital accumulation to which spatial separation and limited communication create a role for money and shocks to portfolio needs create a role for banks in this context we examine the existence multiplicity and dynamical properties of monetary equilibria with positive nominal interest rates moderate levels of risk aversion can lead to the existence of multiple monetary steady states all of which can be approached from a given set of initial conditions in addition even if there is a unique monetary steady state monetary equilibria can be indeterminate and oscillatory equilibrium paths can be observed thus financial market frictions are a potential source of both indeterminacies and endogenously arising economic volatility we also consider the consequences of monetary policy actions that rearrange the composition of government liabilities contractionary monetary policy activities can have complicated consequences depending especially on the nature of the steady state equilibrium that obtains when there are multiple steady states under plausible conditions however a permanent contractionary change in monetary policy raises both the nominal rate of interest and the rate of inflation and reduces long run output levels thus liquidity provision by a central bank just as by the banking system as a whole can be growth promoting loose monetary policy also is conducive to avoiding development trap phenomena

money banking and capital formation we consider a monetary growth model in which banks arise to provide liquidity in addition there is a government that issues not only money but interest bearing bonds these bonds compete with capital in private portfolios when the government fixes a constant growth rate for the money stock we show that there can exist multiple nontrivial monetary steady states one of these steady states is a saddle while the other can be a sink moreover paths approaching a steady state can display damped endogenous fluctuations and development trap phenomena are common across different steady states low capital stocks are associated with high nominal interest rates the latter signal the comparative inefficiency of the financial system also increases in the steady state inflation rate can easily reduce the steady state capital stock journal of economic literatureclassification numbers e13 e44 e50 g20 o16

manufacturing growth and financial development evidence from oecd countries recent theoretical models conjecture that the development of the financial sector is essential for economic growth we investigate this hypothesis from a time series perspective and find that financial sector gdp is cointegrated for many oecd countries not so much with manufacturing gdp but mostly with manufacturing total factor productivity moreover this relation is in some instances characterized by long run causality in the sense of granger and lin however even within this homogeneous group of countries the variety of results suggests a more complex picture than is apparent from cross sectional evidence

does economic structure determine financial structure abstract in this paper we examine the relationship between the structure of the real economy and a country s financial system we consider whether the development of the real economic structure can predict the direction of evolution of a country s financial structure using data for 108 countries we find a significant relationship between real economic structure and financial structure next we exploit shocks to the economies in india finland and sweden and south korea and show that changes in the economic structure of a country influence the evolution of its financial system this suggests that financial institutions and capital markets change in response to the structure of industries

evaluating density forecasts with applications to financial risk management density forecasting is increasingly more important and commonplace for example in financial risk management yet little attention has been given to the evaluation of density forecasts the authors develop a simple and operational framework for density forecast evaluation they illustrate the framework with a detailed application to density forecasting of asset returns in environments with time varying volatility finally the authors discuss several extensions copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

financial development growth and the distribution of income a paradigm is presented in which both the extent of financial intermediation and the rate of economic growth are endogenously determined financial intermediation promotes growth because it allows a higher rate of return to be earned on capital and growth in turn provides the means to implement costly financial structures thus financial intermediation and economic growth are inextricably linked in accord with the goldsmith mckinnon shaw view on economic development the model also generates a development cycle reminiscent of the kuznet hypothesis in particular in the transition from a primitive slow growing economy to a developed fast growing one a nation passes through a stage in which the distribution of wealth across the rich and poor widens

what matters in the finance growth nexus of advanced economies evidence from oecd countries over the last decades a large strand of finance and growth literature has provided ample evidence on the importance of financial deepening for economic development yet recently the focus of pub

production growth and business cycles ii new directions abstract this paper outlines new directions for investigations of real business cycle models consideration of stochastic growth of exogenous and endogenous forms analysis of suboptimal outcomes arising due to externalities of distorting taxes and implications of labor market heterogeneity

optimal crude oil procurement under fluctuating price in an oil refinery abstract in this paper we study the optimal procurement and operation of an oil refinery the crude oil prices follow geometric brownian motion processes with correlation we build a multiperiod inventory problem where each period involves an operation problem such as separation or blending the decisions are the amount of crude oils to purchase and the amount of oil products to produce we employ approximate dynamic programming methods to solve this multiperiod multiproduct optimization problem numerical results reveal that this complex problem can be approximately solved with little loss of optimality further we find that the approximate solution significantly outperforms a set of myopic policies that are currently used

financial development and economic growth a meta analysis we analyze 1334 estimates from 67 studies that examine the effect of financial development on economic growth taken together the studies imply a positive and statistically significant effect but the individual estimates vary widely we find that both research design and heterogeneity in the underlying effect play a role in explaining the differences in results studies that do not address endogeneity tend to overstate the effect of finance on growth while the effect seems to be weaker in less developed countries the effect decreases worldwide after the 1980s our results also suggest that stock markets support faster economic growth than other financial intermediaries

the decision to go public an overview abstract firms motives for going public are reviewed and significant cross country differences in the propensity to seek a listing are documented and discussed

densities rather than shares improving the measurement of congestion in recreation demand models while economists have successfully addressed the endogeneity of congestion in revealed preference approaches little attention has been devoted to measuring congestion in fact most applications measure congestion as a simple count of users or at best consider the shares of users defined as the proportion of people visiting a site during the course of the season however only when all sites have a similar size or length and the total number of visitors is constant over time can these measures be used as a proxy for congestion in general these assumptions are unrealistic in this paper we examine site density measures rather than participation shares as a measure of congestion we show that endogeneity problems can be addressed using a control function approach and demonstrate that the density of users leads to more statistically significant coefficients of congestion

the going public decision and the development of financial markets this paper explores the linkages between stock price efficiency the choice between private and public financing and the development of capital markets in emerging economies generally the advantage of public financing is high if costly information is diverse and cheap to acquire and if investors receive valuable information without cost the value of public firms generally depends on public market size which implies that there can be a positive externality associated with going public so that an inferior equilibrium can exist where too few firms go public the model is consistent with empirical observations on financial market development

estimation of value at risk for energy commodities via fat tailed garch models the choice of an appropriate distribution for return innovations is important in var applications owing to its ability to directly affect the estimation quality of the required quantiles this study investigates the influence of fat tailed innovation process on the performance of one day ahead var estimates using three garch models garch n garch t and garch ht daily spot prices of five energy commodities wti crude oil brent crude oil heating oil 2 propane and new york harbor conventional gasoline regular are used to compare the accuracy and efficiency of the var models empirical results suggest that for asset returns that exhibit leptokurtic and fat tailed features the var estimates generated by the garch ht models have good accuracy at both low and high confidence levels additionally mrsb indicates that the garch ht model is more efficient than alternatives for most cases at high confidence levels these findings suggest that the heavy tailed distribution is more suitable for energy commodities particularly var calculation

the probability distribution of foreign exchange price changes tests of candidate processes this study investigates empirically candidate processes for characterizing foreign exchange price changes measured over limited horizons extant empirical studies find distributions of exchange returns too long tailed and leptokurtic to satisfy normality four processes are investigated here because of their potential to model o bserved discontinuities in exchange rates and nonstationary sample moments as well as their economic appeal the results favor a mixed jump model for all six major trading currencies tested copyright 1988 by mit press

the impact of financial development on energy consumption in emerging economies abstract financial development is often cited as a very important driver of economic growth in emerging economies and it is thus likely that financial development affects energy demand this study uses generalized method of moments estimation techniques to examine the impact of financial development on energy consumption in a sample of emerging countries several different measures of financial development are examined using a panel data set on 22 emerging countries covering the period 1990 2006 the empirical results show a positive and statistically significant relationship between financial development and energy consumption when financial development is measured using stock market variables like stock market capitalization to gdp stock market value traded to gdp and stock market turnover the implications of these results for energy policy are discussed

are small stock markets different abstract recent literature has established a positive correlation between financial development and economic growth while papers such as bencivenga et al j econom theory 67 1995 53 identify potential nonlinearities in this relationship empirical research to date has allowed for only linear relationships this paper uses regression tree techniques to investigate whether the partial correlation between growth and financial development differs based on countries levels of financial and economic development as in previous studies growth and financial development are positively correlated in countries with high levels of market capitalization however this relationship does not appear to hold for countries with low levels of market capitalization

a control function approach to endogeneity in consumer choice models abstract endogeneity arises for numerous reasons in models of consumer choice it leads to inconsistency with standard estimation methods that maintain independence between the model s error and the included variables the authors describe a control function approach for handling endogeneity in choice models observed variables and economic theory are used to derive controls for the dependence between the endogenous variable and the demand error the theory points to the relationships that contain information on the unobserved demand factor such as the pricing equation and the advertising equation the authors approach is an alternative to berry levinsohn and pakes s 1995 product market controls for unobserved quality the authors apply both methods to examine households choices among television options including basic and premium cable packages in which unobserved attributes such as quality of programming are expected to be correlated with price without correcting for endogeneity aggregate d

do non intermediation services tell us more in the finance growth nexus causality evidence from eight oecd countries abstractthis paper provides new evidence on a traditional finance growth nexus through dividing financial services into financial intermediation and non intermediation services and examining their

estimating equilibrium models of sorting across locations while there is growing interest in measuring the size and scope of local spillovers it is well understood that such spillovers cannot be distinguished from unobservable local attributes using solely the observed location decisions of individuals or firms we propose an empirical strategy for recovering estimates of spillovers in the presence of unobserved local attributes for a broadly applicable class of equilibrium sorting models our approach relies on an iv strategy derived from the internal logic of the sorting model itself we show practically how the strategy is implemented provide intuition for our instruments discuss the role of effective choice set variation in identifying the model and carry out a series of monte carlo simulations to demonstrate performance in small samples

portfolio flows volatility and growth abstract we study the realized openness to portfolio flows of economically more developed and less developed countries as it affects future gdp growth outflows of a country s funds into u s securities are predictive of gdp growth suggesting that the benefits of openness outweigh local capital flight both inflows and outflows of funds via local equity securities are predictive of growth which is the evidence of the benefits of openness for less developed countries the effect of inflows is especially strong country specific volatility in flows does not detract from growth and volatility in world wide flows precedes growth overall the evidence is consistent with strong benefits of realized financial integration where the availability of u s markets for local portfolio investment along with equity investment from the outside enhances economic growth

why and how to regulate power exchanges in the eu market integration context abstract the european union eu market integration is leading to increasingly monopolistic electricity market infrastructures which has opened a debate on the regulation of these so called power exchanges in this paper we start by stating that there are two types of power exchanges in europe i e merchant and cost of service regulated power exchanges we then discuss how regulation can be used to better align their incentives with the main power exchange tasks we conclude that adopting the cost of service regulated model for all power exchanges in europe could be counterproductive in the current context but that regulation can help ensure that the benefits of the eu market integration materialize promising regulatory actions include tempering the reinforced market power of power exchanges and quality of service regulation for the ongoing cooperation among power exchanges to organize trade across borders

a revealed preference approach to the measurement of congestion in travel cost models abstract travel cost models are regularly used to determine the value of recreational sites or particular site characteristics yet congestion a key site attribute is often excluded from such analyses one reason for this omission is that congestion is determined in equilibrium by the process of individuals sorting across sites and thus presents significant endogeneity problems this paper illustrates this source of endogeneity describes how previous research has dealt with it using stated preference techniques and describes an instrumental variables approach to address it in a revealed preference context we demonstrate that failing to address the endogeneity of congestion leads one to dramatically understate its costs we apply our technique to the valuation of a large recreational fishing site in wisconsin lake winnebago which if eliminated would induce significant re sorting of anglers amongst remaining sites ignoring congestion leads to an understatement of the lake s value by more than 50

financial liberalization financial sector development and growth evidence from malaysia abstract the objective of this paper is to examine whether financial development leads to economic growth or vice versa in the small open economy of malaysia using time series data from 1960 to 2001 we conduct cointegration and causality tests to assess the finance growth link by taking the real interest rate and financial repression into account the empirical evidence suggests that financial liberalization through removing the repressionist policies has a favorable effect in stimulating financial sector development financial depth and economic development are positively related but contrary to the conventional findings our results support robinson s view that output growth leads to higher financial depth in the long run

corporate finance in developing countries new evidence for india abstract recent work by singh and hamid 1992 corporate financial structures in developing countries and singh 1995 corporate financial patterns in industrializing economies a comparative international study has suggested that large firms in a number of developing countries including india use much more external finance in general and equity finance in particular than those in developed countries however the contrast is in part a product of methodological differences and india is much less different from countries such as france and italy the singh results are not due merely to bias arising from the focus on the largest companies since the rest of the indian corporate sector also issues large amounts of equity via informal networks rather than organized stock exchanges the importance of such issues suggests the need for further research before policy conclusions can be drawn

what determines output losses after banking crises abstract we examine the output costs associated with 150 banking crises using cross country data for years after 1970 many banking crises do not lead to contractions and most banking crises do not lead to large contractions a result that holds for developed and developing economies we examine which variables help to predict output changes after a banking crisis using bayesian model averaging for developed economies we find that the output losses are positively related to prior economic conditions such as credit growth for low income economies we find that other factors such as having a stock market and deposit insurance are more important

estimating the cost savings and avoided co2 emissions in brazil by implementing energy efficient policies abstract investing more in renewable energy sources and using this in a rational and efficient way is vital for the sustainable growth of world energy efficiency ee will play an increasingly important role in future generations the aim of this work is to estimate how much the pnef national plan for energy efficiency launched by the brazilian government in 2011 will save over the next 5 years by avoiding the construction of additional power plants as well as the amount of the co2 emission the marginal operating cost is computed for medium term planning of the dispatching of power plants in the hydro thermal system using stochastic dynamic dual programming after incorporating stochastic energy efficiencies into the demand for electricity we demonstrate that even for a modest improvement in energy efficiency 1 in the optimistic scenario by comparison the new belo monte hydro electric plant will cost r 26 billion to be repaid over a 30 year period i e r 867 million in 5 years so in brazil ee policies are preferable to building a new power plant