global imbalances and the intertemporal external budget constraint a multicointegration approach abstract this paper analyzes the external solvency of a group of 23 oecd countries for the period 1970 2012 the empirical strategy adopted underlines the increasing importance of the financial channel for the external adjustment as proposed in gourinchas and rey 2007 we unify the traditional approaches to testing for external sustainability considering the stock flow system created by the variables representing the external relationships of an open economy external sustainability is tested using several types of cointegration and multicointegration tests the results obtained point to weak sustainability in the flows analysis whereas some degree of strong sustainability is found for up to six countries in the stock flow approach among these countries we find both non european economies such as japan and new zealand and euro area members especially those with more restricted access to financing in the international markets

the role of net foreign assets in a new keynesian small open economy model abstract this paper develops a small open economy sticky price model that determines a unique stable long run asset position for households as function of their incentive to anticipate or postpone consumption and labor effort across periods this is accomplished by adopting an overlapping generations structure in which new households with no assets enter the economy in each period the same characteristics of household behavior that determine long run assets are also important determinants of the model s responses to shocks stabilizing producer prices results in a milder recession following a drop in world demand than stabilizing consumer prices because it prevents the markup in the pricing of goods from increasing in addition given an initial foreign debt allowing consumer prices to rise causes a decrease in the ex post real interest rate on impact lowering the interest burden of the initial debt the differences across policy rules generated by the initial asset position are robust to changes in the latter as long as these are brought about by changes in parameter values that do not alter the fundamental characteristics of household and firm behavior that are also the key determinants of long run assets

growth of firms in developing countries evidence from cote d ivoire the paper presents evidence in support of a particular growth process of firms that is consistent with a missing middle in the size distribution of manufacturing firms in african countries firm growth is explained by size and age effects as a result of efficiency exploiting through scale enlargements and learning but is strongly moderated by reputation effects and formal legitimation which facilitate access to output markets and resources complementing the model with data on growth obstacles as perceived by the owners of firms medium sized firms are found to be strongly hurt by insufficient access to infrastructure and financial services

what determines real exchange rates the nordic countries the model derived in this paper yields testable implications concerning the long run co movements of real exchange rates relative labor productivity the trade balance and terms of trade countries with relatively higher output growth trade deficits or improved terms of trade are found to have more appreciated real exchange rates with the main channel of transmission working through the relative price of nontraded goods exogenous terms of trade shocks are found to be the most important determinant of long run movements in the real exchange rate for denmark and norway while demand shocks account for most of the long run variance in the real exchange rate for finland and sweden

what happened to the washington consensus the phrase the washington consensus was so the story goes coined by john williamson at a conference in response to the suggestion that during the 1980s countries in latin america were being confronted with conflicting and therefore confusing advice from the international monetary fund and the world bank williamson s response was that there was in fact a strong consensus about policy across the washington based institutions around the need for macroeconomic stability microeconomic liberalisation and openness their advice was therefore not conflicting but reinforcing

imperfect mobility of labor across sectors a reappraisal of the balassa samuelson effect this paper investigates the relative price and relative wage effects of a higher productivity in the traded sector compared with the non traded sector in a two sector open economy model with imperfect substitutability in hours worked across sectors the balassa samuelson 1964 model predicts that a rise in the sectoral productivity ratio by 1 raises the relative price of non tradables by 1 while leaving the non traded wage traded wage ratio unchanged applying cointegration methods to a panel of fourteen oecd countries over the period 1970 2007 our estimates show that the relative price rises by only 0 78 and the relative wage falls by 0 27 while our first set of empirical findings cast doubt on the quantitative predictions of the balassa samuelson model our second set of evidence highlights the role of imperfect labor mobility the relative price responds more to a productivity differential between tradables and non tradables while the reaction of the relative wage is more muted in countries with higher intersectoral reallocation of labor we show that the ability of the two sector model to account for our evidence quantitatively relies upon two ingredients i imperfect mobility of labor across sectors and ii physical capital accumulation finally our numerical results reveal that the model predicts the relative price response fairly well and to a lesser extent the relative wage response

country size and exchange rates this paper studies how country size affects the role of the exchange rate in external adjustment first the impact of country size on the sensitivity of relative prices to external imbalances is explored in a two country neoclassical model second at the empirical level a significant effect of external imbalances on relative prices is found in particular a trade surplus is associated with a depreciation of the real exchange rate our estimations reveal a systematic pattern in the sensitivity of the real exchange rate to external imbalances larger countries are characterized by a higher absolute trade elasticity of the exchange rate

international evidence on tradables and nontradables inflation abstract using 1970 1985 sectoral data for the oecd we find that inflation in nontradable goods exceeds inflation in tradables we identify a demand shift towards nontradables and faster growth of total factor productivity in the tradable goods sector as the prime causes of the differential inflation in addition disinflation attempts and the exchange rate regime appear to have exerted significant influence on the relative inflation rate

the influence of financial and legal institutions on firm size abstract theory does not predict an unambiguous relationship between a country s financial and legal institutions and firm size using data on the largest industrial firms for 44 countries we find that firm size is positively related to financial intermediary development the efficiency of the legal system and property rights protection we do not find any evidence that firms are larger in order to internalize the functions of the banking system or to compensate for the general inefficiency of the legal system

the effects of macroeconomic stability on foreign trade an analysis for spain 1986 2000 two main factors underlie the rebirth of interest in the study of the influence of the real exchange rate on trade the reduction of its volatility and the current trend towards price stability the objective of this study is to analyse the effects of the process of nominal convergence required of the european member states for the fulfilment of monetary integration on foreign trade flows the case of spain which is especially interesting in this context is studied for the period 1986 to 2000 the results of estimating the aggregate functions of the export and import of goods shows how macroeconomic stability has altered the behaviour of trade with respect to the two basic determinants income and prices how it has caused a significant structural change in the real exchange rate and finally how it has laid the explanatory bases for transactions in the twenty first century with the single currency the euro

willingness to consume and ability to consume abstract george katona 1960 introduced the distinction between ability to buy and willingness to buy ability to buy refers to the objective factors determining actual purchases whereas willingness to buy captures subjective factors such as attitudes or moods i show that katona s theory can be reconciled easily with standard models of intertemporal utility maximization if one allows for a time varying preference parameter that is exogenous to the consumer and determined by the social environment such a willingness to consume model is tested against standard alternatives using data from seven european countries the empirical evidence rejects the permanent income hypothesis and supports the willingness to consume model

an alternative approach to monetary aggregation in dea this paper proposes a set of alternative dea based money indices that are proved to be both theoretically and empirically competing monetary aggregates since they perform as good as the divisia aggregates based on all the results concerning causality forecasting and money demand we conclude that dea money aggregates prove to be at least competing alternatives to the divisia aggregates and hence suggest that these new aggregates may be considered along with the existing weighted monetary aggregates like the divisia ones given the inherent benefit of the doubt weighting mechanism underlying the dea models where the optimal weight assigned by dea to each monetary asset reflects the ongoing financial innovation and the reserve bank of india s policy priority in the distribution of total liquidity we feel that the dea money indices can truly capture the liquidity better with ongoing financial innovations in the economy

imf conditionality coercion or compromise abstract the author compares the utility of three competing models of decision making in the international monetary fund with the purpose of determining how best one can understand how the imf decides on its conditionality vis a vis borrowing nations the three models focus on the following as alternative sets of factors in imf decision making 1 bureaucratic expertise and authority 2 dominance of political interests of major industrialized nations and 3 bargaining and compromise among imf staff and between the fund and borrowing countries based on interviews with imf officials and seven brief case studies the author concludes that bargaining and compromise is the most central dynamic of imf policy making

measuring the dollar euro permanent equilibrium exchange rate using the unobserved components model this paper employs an unobserved component model that incorporates a set of economic fundamentals to obtain the euro dollar permanent equilibrium exchange rates peer for the period 1975q1 to 2008q4 the results show that for most of the sample period the euro dollar exchange rate closely followed the values implied by the peer the only significant deviations from the peer occurred in the years immediately before and after the introduction of the single european currency the forecasting exercise shows that incorporating economic fundamentals provides a better long run exchange rate forecasting performance than a random walk process

term structure of interest rates and the expectation hypothesis the euro area abstract this paper investigates the informational content of the yield curve in the european market using data on the italian term structures according to the expectation hypothesis theory eht the current forward rate equals the future short rate plus a constant risk premium that is time invariant but maturity dependent this theory has been widely tested in the empirical literature providing various findings according to the country where it has been applied and to the segment of the yield curve examined or the period under study the standard approach to test the eht uses the regression techniques assuming data on spot rates and their first differences to be stationary recently an increasing number of studies evidenced the non stationarity of interest rates time series and some tests of the eht are formulated using term spread and forward spot spread which are stationary a new strand of literature suggests to investigate the eht using a restricted var framework in this paper following jondeau e ricart r 1999 the expectations hypothesis of the term structure tests on us german french and uk euro rates journal of international money and finance 18 725 750 ghazali n a low s w 2002 the expectations hypothesis in emerging financial markets the case of malaysia applied economics 34 1147 1156 and seo b 2003 non linear mean reversion in the term structure of interest rates journal of economic dynamics and control 27 2243 2265 we test if the expectation hypothesis holds using cointegration and error correction analysis for the period under study results suggest that the long and short term interest rates are cointegrated and therefore subject to a long equilibrium path providing evidence that the eht holds for the italian and the european market

net foreign assets and the exchange rate redux revived abstract we revisit obstfeld and rogoff s 1995 results on exchange rate dynamics in a two country monetary model with incomplete asset markets stationary net foreign assets and endogenous monetary policy the nominal exchange rate exhibits a unit root under flexible prices it also depends on the stock of real net foreign assets with sticky prices the exchange rate depends on the past gdp differential along with net foreign assets endogenous monetary policy and asset dynamics have consequences for exchange rate overshooting a persistent relative productivity shock results in delayed overshooting under both flexible and sticky prices a persistent relative interest rate shock generates undershooting under flexible prices

intertemporal optimizing models of trade and current account balance a survey abstract this study surveys the intertemporal optimizing models of trade and current account balance that were developed calibrated and empirically tested since they came into vogue in the 1980s the implications of these models often differ from those of static and dynamic conventional non optimizing models the literature on optimizing models has not only grown reasonably fast but has also witnessed significant advances in methodology and these models have culminated into a distinct strand of new open economy macroeconomics the studies conducted until the late 1980s have used deterministic perfect foresight models while several studies conducted since the 1990s relax the perfect foresight and certainty equivalence assumptions and develop stochastic dynamic general equilibrium models to account for uncertainty confronting the optimizing agents the future research needs to explore the possibility of tracing any preferred specification of household preferences model the effect of time varying discount factor on household utility function and intertemporal budget constraint examine the role of costs in international trade place a parallel emphasis on the empirical verifications of theoretical propositions examine the relative performance of optimizing vis a vis non optimizing models and rationalize the extreme propositions of perfect and imperfect capital mobility in the wake of moderately open capital accounts

what do current account reversals in oecd countries tell us about the us case this study examines macroeconomic developments around reversals in current account deficits in 29 oecd countries over four decades and draws some inferences for the present us deficit estimates of a probit model indicate that the deepness of the deficit itself absence of spare production capacity and a beginning real depreciation are factors that increase the likelihood of a current account reversal in the following year for the us each of these three indicators of a reversal are now on making a near reversal probable over the past 40 years half of the current account deficit reversals in the oecd area were followed by a recession in the countries concerned

bad news and dow jones make the spanish stocks go round this paper is a data based attempt to analyse what kind of information basically affects close to open returns open to close returns volatility and volume in actively traded individual securities on the spanish stock market specifically we are interested in detecting how these variables react to specific pieces of news considered as exogenous information however as volume itself could be interpreted as a proxy of the information flow we first apply the linear and nonlinear granger causality tests from volume to return and to volatility we do not find evidence supporting this latter hypothesis furthermore we only find significant evidence of linear causality from volume to volatility the other major finding is that both bad news and the dow jones play a significant informational role in explaining price changes and volatility as a consequence of these findings we also test the residual role of volume as a proxy for noise liquidity trading after filtering for news although we do not find evidence in favour of this argument

financial and legal constraints to growth does firm size matter using a unique firm level survey database covering 54 countries we investigate the effect of financial legal and corruption problems on firms growth rates whether these factors constrain growth depends on firm size it is consistently the smallest firms that are most constrained financial and institutional development weakens the constraining effects of financial legal and corruption obstacles and it is again the small firms that benefit the most there is only a weak relation between firms perception of the quality of the courts in their country and firm growth we also provide evidence that the corruption of bank officials constrains firm growth

a more complete conceptual framework for sme finance abstract we propose a more complete conceptual framework for analysis of sme credit availability issues in this framework lending technologies are the key conduit through which government policies and national financial structures affect credit availability we emphasize a causal chain from policy to financial structures which affect the feasibility and profitability of different lending technologies these technologies in turn have important effects on sme credit availability financial structures include the presence of different financial institution types and the conditions under which they operate lending technologies include several transactions technologies plus relationship lending we argue that the framework implicit in most of the literature is oversimplified neglects key elements of the chain and often yields misleading conclusions a common oversimplification is the treatment of transactions technologies as a homogeneous group unsuitable for serving informationally opaque smes and a frequent misleading conclusion is that large institutions are disadvantaged in lending to opaque smes

historical financing of small and medium size enterprises we focus on the economies of the north atlantic core during the 19th and early 20th centuries and find that an impressive variety of local financial institutions emerged to supply the needs of smes wherever there was sufficient demand for their services although these intermediaries had significant weaknesses they were able to tap into local information networks and so extend credit to firms that were too young or small to secure funds from large regional or national institutions in addition by raising the return to savings for local households they helped to mobilize significant new resources for economic development

can consumer confidence forecast household spending evidence from the european commission business and consumer surveys 1 introductionthe analysis of the impact of consumer attitudes on consumer spending has been an area of sustained interest in the macroeconomics literature this interest in consumer attitudes reflects a popular belief that macroeconomic outcomes depend heavily on consumers expectations of future economic conditions reinforcing this belief is the fact that consumer spending accounts for 60 to 70 of the gross domestic product of highly industrialized countries such as the g 7 during the past few decades a number of single country investigations have attempted to assess the predictive power of consumer confidence in forecasting household spending for example in the united states mishkin 1978 reports that the index of consumer sentiment ics published by the university of michigan possesses good explanatory power for changes in durable goods carroll fuhrer and wilcox 1994 also find that the michigan ics has good predictive capability with regard to household expenditure but that its forecasting power decreases considerably when the index is used along with other macroeconomic variables 1 kwan and cotsomitis 2004 examine the robustness of carroll fuhrer and wilcox s 1994 findings when alternative measures of consumer confidence are used in their prediction equations they report that use of the michigan index of consumer expectations improves on the estimation results of carroll fuhrer and wilcox 1994 bram and ludvigson 1998 and ludvigson 2004 compare the forecasting performance of the michigan ics and the u s conference board s index of consumer confidence icc their findings indicate that the conference board s index provides additional information about future consumer consumption that is not captured by the michigan index however chopin and darrat 2000 utilizing a multivariate causality framework report that the conference board s icc is an unreliable predictor of u s retail sales as regards other studies using non u s data acemoglu and scott 1994 employ granger causality and regression analyses to determine if consumer confidence as measured by the gallup poll in the united kingdom can predict future consumption they find that consumer confidence is a leading indicator of future consumption growth in a subsequent study delorme kamerschen and voeks 2002 examine whether consumer confidence and rational expectations are the same in the united kingdom as they are in the united states they report that the predictive ability of the u k consumer confidence index is greater than that of the united states belessiotis 1996 using french data also reports that the consumer confidence index provides decent explanatory power for future consumer spending in canada kwan and cotsomitis 2005 find that although consumer sentiment is a reliable predictor of consumer expenditures at the national level results obtained using regional data are quite mixed fan and wong 1998 find that unlike the case in the united states or the united kingdom confidence indicators in hong kong have little or no explanatory power in forecasting household spending the existing studies on the ability of consumer confidence to predict household spending have produced mixed results the results vary depending on the sample period chosen the frequency of observations monthly or quarterly and the different survey methodologies employed to gauge consumer attitudes moreover most of these studies confine their attention to single country investigations given the diversity of results it is important to investigate the predictive power of consumer confidence on the basis of comparable time series data for as many countries as possible this paper presents a first formal attempt to study the ability of consumer confidence to forecast household spending within a multicountry framework to this end we use two confidence indices namely the consumer confidence indicator cci and the economic sentiment indicator esi both of which are derived from the european commission business and consumer survey ecbcs

net foreign asset positions and consumption dynamics in the international economy we examine the effect of non zero steady state foreign assets on consumption dynamics in response to productivity shocks in a two country dynamic general equilibrium model the model generates non zero steady state net foreign assets by allowing for different discount factors across countries as a consequence of discounting differences individual steady state consumption profiles are tilted upward or downward worldwide shocks to long run productivity levels lead to dynamics that are absent in standard symmetric models with equal discount factors we then compare the model results to those of a var in common trend representation for the u s versus the rest of the g7 in the data we find that permanent worldwide productivity shocks lead to net foreign asset and consumption dynamics that are broadly consistent with interpreting the u s as the relatively impatient model economy and are not consistent with symmetric models with equal discount factors

structural determinants of real exchange rates and national price levels some empirical evidence contrary to the long held notion of purchasing power parity ppp economists have found systematic evidence that the general level of prices across countries at a point in time varies dramatically irving b kravis alan w heston and robert summers 1982 for example report that some countries national price levels are no more than one third the u s price level extensions of this work show that such departures from ppp have persisted for decades recently efforts have been made to explain systematically these persistent or structural departures from ppp pioneering work by kravis and robert e lipsey 1983 1987 1988 has demonstrated that a positive correlation between the price level and real per capita gross domestic product is robust across numerous cross sectional specifications for instance using data from kravis et al 1982 table 6 12 87 percent of the variation in national price levels pl of 21 countries in 1975 is explained by per capita gdp y and a constant

african smes networks and manufacturing performance abstract this paper examines the role of private support institutions in determining small and medium enterprise smes growth and performance in sub saharan africa ssa it finds that smes in ssa get around market failures and lack of formal institutions by creating private governance systems in the form of long term business relationships and tight ethnically based business networks there are important links between these informal governance institutions and sme performance networks raise the performance of insiders and in the sparse business environments of the ssa region have attendant negative consequences for market participation of outsiders such as indigenous african smes this is indicated through the determinants of access to supplier credit policy interventions will be needed to improve the platform for relation based governance mechanisms and to address the exclusionary effects of tight networks

multivariate cointegration analysis of the finnish japanese stock markets abstract in this paper evidence on the cointegration between the finnish and japanese financial markets is provided the results obtained by multivariate cointegration analysis indicate that changes in the nikkei financial market have an impact on the error correction mechanism of the finnish stock market

can orthodox stabilization and adjustment work lessons from new zealand 1984 90 most debate about the efficacy of orthodox stabilization programs such as those of the international monetary fund has been fruitless first rarely are these programs fully implemented or sustained for long periods second defenders and critics of the programs hold differing premises about the nature of capitalist economies the debate is therefore not about the appropriate balance of supply and demand side measures but rather about what sort of supply and demand side measures will address the supply and demand side problems that each group perceives the results of an orthodox stabilization program which incorporated demand and supply side elements and which was fully implemented and sustained by the new zealand government from 1984 to 1990 reveal the limits to orthodox programs new zealand a primary product exporter suffers from a structural imbalance of payments and from an external debt burden equal in scale to that of the latin american and other highly indebted less developed countries ldcs but it does not have the serious supplyside constraints on growth that critics claim typify underdeveloped economies this makes new zealand an appropriate test of the typical orthodox stabilization program despite the fact that its administrative capacity political will domestic support and access to external resources were far in excess of those of the typical would be ldc stabilizer new zealand achieved only a precarious macroeconomic and international payments stability moreover as the case of new zealand demonstrates inflation control and financial liberalization policy components of orthodox plans have contradictory consequences for payments balance this suggests that long term stabilization in new zealand and elsewhere cannot be achieved solely by internal reforms

real exchange rates in small open oecd and transition economies comparing apples with oranges abstract we find that productivity gains in tradables cause an appreciation of the real exchange rate via both tradable and nontradable prices in the cee 5 and have no affect in the baltic countries while they lead to a depreciation of the real exchange rate of tradables in oecd economies that overcompensates the appreciation due to nontradable prices rising net foreign liabilities lead to a real appreciation in the baltic countries instead of the expected depreciation found in oecd and cee 5 countries these differences are due to the different impact of the fundamentals on the real exchange rate depending on the time horizon studied

dutch disease real effective exchange rate misalignments and their effect on gdp growth in eu abstract in this article we study the impact of real effective exchange rate misalignments based on determinants including different types of foreign capital inflows on gdp growth in the eu for this analysis we use a panel of 27 eu countries for the period 1994 2012 with annual frequency core countries have been only slightly undervalued from the crisis onwards while the periphery was overvalued however the gap for the periphery has reduced in the last two years as regards the new member states these were overvalued for the entire time span the results seem to be generally driven by the inflows of bank loans the misalignments are associated with lower long run growth the exchange rate volatilities are not robust in affecting gdp growth while spillovers and global factors seem to matter in all the specifications both in the short and long run

the external wealth of nations measures of foreign assets and liabilities for industrial and developing countries abstract although capital flows are closely monitored surprisingly little is known about the accumulated stocks of foreign assets and liabilities held by various countries especially in the developing world this paper constructs estimates of foreign assets and liabilities and their equity and debt subcomponents for a sample of 67 industrial and developing countries it characterizes the stylized facts of international balance sheets and asks whether there are trends in net foreign asset positions and shifts in debt equity ratios over time finally it explores the sensitivity of estimated stock positions to the treatment of valuation effects not captured in balance of payments data

uk bank services for small business how competitive is the market abstract this study is the first to employ an econometric model to examine the pricing behaviour of british financial institutions with respect to key bank products services offered to small and medium sized enterprises smes including current accounts investment accounts business loans and mortgages a mean group approach is used on a panel of monthly data to gauge individual banks reactions to identify factors influencing the setting of deposit and loan rates and to assess the competitive structure that best describes the uks sme banking market though the results should be interpreted with caution the empirical evidence is suggestive of a complex oligopoly policies directed at improving information and making it easier for small businesses to change banks accounts would reduce inertia and improve competition among financial institutions

long run determinants of the irish real exchange rate smooth adjustment to real exchange rate shifts is one of the major challenges facing the irish economy under emu rather than assume purchasing power parity the long run real exchange rate is modelled as time varying being determined by relative output levels the terms of trade and the net foreign asset position it is shown that these factors account for a large proportion of the long run movement in the irish real exchange rate

information sharing in credit markets we present a model with adverse selection where information sharing between lenders arises endogenously lenders incentives to share information about borrowers are positively related to the mobility and heterogeneity of borrowers to the size of the credit market and to advances in information technology such incentives are instead reduced by the fear of competition from potential entrants in addition information sharing increases the volume of lending when adverse selection is so severe that safe borrowers drop out of the market these predictions are supported by international and historical evidence in the context of the consumer credit market a large body of literature on credit markets has shown that asymmetric information may prevent the efficient allocation of lending leading to credit rationing e g jaffee and russell 1976 stiglitz and weiss 1981 or to a wedge between lending and borrowing rates e g king 1986 in this literature informational asymmetries are taken to be exogenous lenders fail to observe some relevant characteristic or action of potential borrowers and have no way of learning about it in some countries however lenders can improve their knowledge about new customers by exchanging information with other lenders through information brokers generally known as credit bureaus the latter collect file and distribute the information voluntarily supplied by their members and operate on the principle of reciprocity lenders who do not provide data are denied access to the bureau s files in other countries instead these institutions do not exist the literature offers no guide to identify the factors that lead to endogenous communication between lenders this paper is an attempt to fill the gap information sharing is important for a number of reasons it may increase the degree of competitiveness within credit markets vives 1990 improve

the new open economy macroeconomics a survey since the 1995 publication of obsteld and rogoff s redux model there has been an outpouring of research on open economy dynamic general equilibrium models that incorporate imperfect competition and nominal rigidities this paper offers an interim survey of this recent literature 2001 elsevier science b v all rights reserved

real exchanges rates commodity prices and structural factors in developing countries this paper provides new empirical evidence about the relationship that may exist between real exchange rates and commodity prices in developing countries that are specialized in the export of a main primary commodity it investigates how structural factors like the exchange rate regime the degree of financial and trade openness the degree of export concentration and the type of the commodity exports affect the strength of the commodity price real exchange rate dependence

the predictive power of the business and bank sentiment of firms a high dimensional granger causality approach we study the predictive power of industry specific economic sentiment indicators for future macro economic developments in addition to the sentiment of firms towards their own business situation we study their sentiment with respect to the banking sector their main credit providers the use of industry specific sentiment indicators results in a high dimensional forecasting problem to identify the most predictive industries we present a bootstrap granger causality test based on the adaptive lasso this test is more powerful than the standard wald test in such high dimensional settings forecast accuracy is improved by using only the most predictive industries rather than all industries

the changing relationship between the world bank and the international monetary fund the world bank and the international monetary fund have been bedeviled since their common creation over how to define their areas of specialized competence and how to interact in areas of overlapping jurisdiction the multiple shocks that have destabilized the global economy over the last two decades have stimulated the bank and fund to alter fundamentally their programs and approaches often without fully taking into account their relation to the work of the other bretton woods agency the fund s traditional focus on short term stabilization correcting external account imbalances and fighting inflation contrasted with the world bank s provision of long term funds for investment in capital intensive projects but more recently with the establishment of the imf s extended fund facility and the bank s structural adjustment lending both institutions share the objective of adjustment with growth and each claims some responsibility for an extremely wide range of policy instruments the new structural adjustment facility in particular has the potential to link more tightly decision making on fund stand by arrangements and bank structural adjustment lending increasing the probability of new forms of cross conditionality termed here consultative cross conditionality interdependent cross conditionality and indirect financial linkage the bank and fund need to find ways to better delineate and manage their new relationship problems that should be addressed to do so include proper modes of collaboration between bank and fund staff issue specialization the avoidance of piling on excessively detailed performance requirements and decisions on ineligibility enhanced cooperation between the bank and fund can not only produce more coherent adjustment programs but can also help to mobilize other sources of official and private capital

the real effect of banking crises finance or asset allocation effects some international evidence abstract this paper analyzes whether the decline in economic growth that follows a banking crisis occurs because of a reduction in the amount of credit available finance effect or a worsening in the allocation of investable resources asset allocation effect we use a sample of more than 2500 industrial firms in 18 developed and developing countries that experienced 19 systemic banking crises between 1989 and 2007 the results indicate that banking crises negatively affect firms intangible investments which intensifies the economic downturn the negative growth effect produced by the worsening of the investment allocation is stronger in countries with highly developed financial systems and institutions

external wealth the trade balance and the real exchange rate abstract we examine the link between the net foreign asset position the trade balance and the real exchange rate in particular we decompose the impact of a country s net foreign asset position external wealth on its long run real exchange rate into two mechanisms the relation between external wealth and the trade balance and holding fixed other determinants a negative relation between the trade balance and the real exchange rate we also provide additional evidence that the relative price of nontradables is an important channel linking the trade balance and the real exchange rate

macroeconomic forecasting using diffusion indexes this article studies forecasting a macroeconomic time series variable using a large number of predictors the predictors are summarized using a small number of indexes constructed by principal component analysis an approximate dynamic factor model serves as the statistical framework for the estimation of the indexes and construction of the forecasts the method is used to construct 6 12 and 24 monthahead forecasts for eight monthly u s macroeconomic time series using 215 predictors in simulated real time from 1970 through 1998 during this sample period these new forecasts outperformed univariate autoregressions small vector autoregressions and leading indicator models

the purchasing power parity debate originally propounded by the 16th century scholars of the university of salamanca the concept of purchasing power parity ppp was revived in the interwar period in the context of the debate concerning the appropriate level at which to re establish international exchange rate parities broadly accepted as a long run equilibrium condition in the post war period it first was advocated as a short run equilibrium by many international economists in the first few years following the breakdown of the bretton woods system in the early 1970s and then increasingly came under attack on both theoretical and empirical grounds from the late 1970s to the mid 1990s accordingly over the last three decades a large literature has built up that examines how much the data deviated from theory and the fruits of this research have provided a deeper understanding of how well ppp applies in both the short run and the long run since the mid 1990s larger datasets and nonlinear econometric methods in particular have improved estimation as deviations narrowed between real exchange rates and ppp so did the gap narrow between theory and data and some degree of confidence in long run ppp began to emerge again in this respect the idea of long run ppp now enjoys perhaps its strongest support in more than 30 years a distinct reversion in economic thought

the composition of government spending and the real exchange rate we show that the composition of government spending influences the long run behavior of the real exchange rate we develop a two sector small open economy model in which an increase in government consumption is associated with real appreciation while an increase in government investment may generate real depreciation our empirical work confirms that government consumption and government investment have differential effects on the real exchange rate and the relative price of nontradables

small and medium size enterprises access to finance as a growth constraint abstract this paper presents recent research on access to finance by small and medium size enterprises smes smes form a large part of private sector in many developed and developing countries while cross country research sheds doubt on a causal link between smes and economic development there is substantial evidence that small firms face larger growth constraints and have less access to formal sources of external finance potentially explaining the lack of smes contribution to growth financial and institutional development helps alleviate smes growth constraints and increase their access to external finance and thus levels the playing field between firms of different sizes specific financing tools such as leasing and factoring can be useful in facilitating greater access to finance even in the absence of well developed institutions as can systems of credit information sharing and a more competitive banking structure

business collateral and personal commitments in sme lending abstract using a database of sme credit approvals from a large belgian bank this paper extends the empirical evidence on the determinants of collateral by examining the determinants of business collateral simultaneously with the determinants of personal collateral commitments our results suggest that firm and relationship characteristics seem to be more important determinants of collateral commitment protection than loan and lender characteristics family firms are more likely to offer a higher degree of collateral commitment protection while introducing competition between banks decreases this likelihood the collateral requirement decreases in the length of the bank borrower relationship furthermore trade credit seems to have a signalling effect the lazy banks hypothesis was not supported our results suggest that beside risk arguments also commercial arguments help explain the pledging of collateral using a continuation ratio logit model we discover several differences in the determinants of the collateralisation decision and the determinants of the type of collateral commitments

divergent inflation rates in emu inflation divergence inflation rates have diverged much more widely than expected among the member states of the emu we show that much of this is attributable to the differential impact on different member states of the weakness of the euro on international currency markets in the early months of the union the balassa samuelson productivity growth effect has not yet played an important role even in respect of the outlier ireland although it will likely be more significant over a longer run especially as the accession countries join patrick honohan and philip lane