monitoring changes in economy wide energy efficiency from energy gdp ratio to composite efficiency index since the 1973 world oil crisis monitoring trends in energy efficiency at the economy wide level has been an important component of energy strategy in many countries to support this effort various energy efficiency related indicators have been developed we examine some classical indicators which are often found in national and international energy studies in the 1970s and 1980s we then describe the recent developments in using the index decomposition analysis to give an economy wide composite energy efficiency index based on a bottom up approach this composite index is superior to the classical indicators as an economy wide energy efficiency measure and has lately been adopted by a growing number of countries for national energy efficiency trend monitoring

aid volatility policy and development summary we build on bulir and hamann s analysis of aid volatility bulir a hamann j 2003 aid volatility an empirical assessment imf staff papers 50 1 64 89 bulir a hamann j 2008 volatility of development aid from the frying pan into the fire washington dc imf paper submitted to this special section showing that the conclusions reached depend on the dataset used their argument that the poorest countries have the highest volatility appears not to be correct the impact of volatility on growth is negative overall but differs between positive and negative volatility the mix between responsive components of aid for example programme aid and proactive components for example technical assistance is important finally we conclude that measures which increase trust between donor and recipient and reductions in the degree of donor oligopoly reduce aid volatility without obviously reducing its effectiveness

banking panics information and rational expectations equilibrium this paper shows that bank runs can be modeled as an equilibrium phenomenon we demonstrate that some aspects of the intuitive story that bank runs start with fears of insolvency of banks can be rigorously modeled if individuals observe long lines at the bank they correctly infer that there is a possibility that the bank is about to fail and precipitate a bank run however bank runs occur even when no one has any adverse information extra market constraints such as suspension of convertibility can prevent bank runs and result in superior allocations banking panics were a recurrent phenomenon in the united states until the 1930s they have re emerged as a source of public concern and much theoretical research recently in this paper we provide an information theoretic rationale for bank runs the traditional story is that contagion is an important aspect of bank runs the idea seems to be that when the general public observes large withdrawals from the banking system fears of insolvency grow resulting in even larger withdrawals of deposits in our model some individuals withdraw because they get information that future returns are likely to be low uninformed individuals observing this also have an incentive to liquidate their investments in addition some individuals need to withdraw deposits for other than informationally based reasons thus if the random realization of such a group of individuals is unusually large then the uninformed individuals will be misled and will precipitate a run on the bank the technology is such that a large volume of withdrawals involves liquidation costs consequently runs on the bank do impose social costs a mechanism that may reduce these costs in our model is to suspend convertibility if withdrawals are high however those individuals who need to withdraw their assets for liquidity reasons are worse off ex post our model provides a rationalization for restrictions in demand deposits that were widespread prior to 1929 friedman and schwartz 7 suggest that restrictions of payments ensured

convergence in oecd countries technical change efficiency and productivity the aim of this study is to analyse labour productivity convergence in the oecd countries over the period 1975 90 a nonparametric frontier approach is used to calculate the malmquist productivity index by breaking it down the contribution in the growth of labour productivity of technical progress of changes in efficiency and of the accumulation of inputs per worker are quantified unlike other studies the results obtained show that technical change has worked against labour productivity convergence since it has always been greater in the countries with higher labour productivity

competing models of international lending activity abstract four competing models of the world bank s lending to developing countries are constructed and econometrically estimated by pooled time series and cross section data the analysis suggests that a model combining economic and political determinants performs best besides per capita income inflation balance of payment and budget deficit external debt and past growth political determinants such as the capitalist climate or political instability are also important as well as a recipient country s former status as a colony or dominion this politico economic model is successfully used to forecast the distribution of ibrd loans and ida credits among the developing countries

clarifying the foreign aid puzzle a comparison of american japanese french and swedish aid flows this study explores the donor side of debates revolving around the proper role of foreign assistance as a foreign policy tool by empirically testing for the aid determinants of four industrial democracies france japan sweden and the united states a pooled cross sectional time series design is employed to assess the impacts of six sets of variables on aid flows to thirty six african states during the 1980s three sets of these variables humanitarian need strategic importance and economic potential are constructed using data traditionally employed in empirical foreign aid studies three additional sets of variables cultural similarity ideological stance and region are constructed from data that regional specialists consider to be important in the foreign aid equation although no two cases are alike one can nevertheless draw some tentative conclusions about the nature of the foreign aid regime of the final cold war decade of the 1980s on the basis of several cross national patterns in short the results 1 contradict rhetorical statements of northern policymakers who claim that foreign aid serves as an altruistic foreign policy tool designed to relieve humanitarian suffering 2 confirm the expected importance of strategic and ideological factors in a foreign aid regime heavily influenced by the cold war and 3 underscore the importance of economic particularly trade interests in northern aid calculations

on avoiding bank runs abstract can bank runs be avoided and should they be avoided i analyze a banking environment where bank runs can occur as a result of negative signals about the bank s investments in this environment banks can make sure that runs do not occur by designing the deposit contract appropriately i show that there are conditions under which it is profit maximizing for the bank to avoid runs and others under which occasional runs are part of optimal bank behavior i also compare the banking arrangement to an arrangement based on trading in equity

is corporate aid targeted to poor and deserving countries a case study of nestle s aid allocation summary empirical evidence on the targeting of private aid is largely lacking even though corporate donors are an increasingly important source of aid we contribute to closing this gap by performing a case study of nestle the allocation of nestle s aid is compared to that of swiss oda and ngo aid testing for both altruistic and selfish aid motivations we conclude that nestle s aid clearly lacks focus in terms of targeting poor countries which appears to be the downside of the strong link between commercial presence and aid moreover according to our tobit estimations nestle grants more aid to recipient countries with stronger democratic but also more corrupt institutions

why do bank runs look like panic a new explanation this paper demonstrates that even if depositors are fully rational and always choose the pareto dominant equilibrium when there are multiple equilibria a bank run may still occur when depositors expectations on the bank s fundamentals do not change more specifically a bank run may occur when depositors learn that noisy bank specific information will be revealed or when they learn that precise bank specific information will not be revealed the results in this paper are consistent with the empirical evidence about bank runs it also implies that suspension of convertibility can improve the efficiency of bank runs

motivations for aid to developing countries abstract this paper attempts to identify the underlying principles of aid allocation and particularly the balance of motivations as between the needs of recipient countries and the interests of donor countries two alternative models are fitted by cross country regressions to bilateral and multilateral aid flows to some 80 developing countries in 1969 1970 and 1978 1980 the first recipient need model assumes that all aid is given to compensate for shortfalls in domestic resources this model provides a reasonable explanation for the distribution of multilateral aid but it is clearly not applicable for bilateral aid flows the second donor interest model assumes that all aid serves only donor interests defined to cover political security investment and trade interests this model gives generally good explanations of bilateral aid but is a poor fit for multilateral aid the relative importance of the various donor interests differs sharply among donors the paper ends with an analysis of the shift in the balance of aid over the 1970s towards the recipient need element and with a reference to the sharp change in policy in the 1980s towards increasing emphasis on donor interest aid

looking ahead optimally in allocating aid summary the collier dollar approach to aid allocation among countries has been less than fully embraced by donors even those focused on poverty reduction partly because it conflicts with the approach to aid allocation implied by the millennium development goals these two approaches are shown to be special cases of a more general model of aid allocation in which donors care about future as well as current poverty this model is illustratively applied to data for developing regions adding a poverty decline adjustment to the allocation formulae used by donors could resolve the conflict between the two approaches

incentive effects of the u s welfare system a review the author would like to acknowledge support for prior work on this topic from the u s department of health and human services and helpful comments from three anonymous referees rebecca blank howard chernick john fitzgerald irwin garfinkel peter gottschalk edward gramlich david greenberg judith gueron james heckman v joseph hotz robert hutchens michael keane frank levy larry mead michael murray robert plotnick anuradha rangarajan philip robins howard rolston jeffrey smith and daniel weinberg all opinions and errors are those of the author alone

the contribution of the mining sector to sustainability in developing countries abstract does the mining sector contribute to or detract from the achievement of sustainable development in developing countries sustainability is defined as development that will give future generations opportunities equal to or greater than those of the present generation treating gross income per capita as an imperfect proxy of these opportunities a test is made to investigate whether increases in mining gdp have led to long run increases in gnp per capita despite the exhaustibility of mineral deposits this is a more encompassing criterion than the conventional hartwick criterion which establishes necessary conditions for the achievement of a related definition of sustainability a vector autoregression model var is estimated for each of 19 non opec developing countries with large mining sectors using the impulse response functions the long run multiplier of mining income on gnp is calculated the sustainability criterion developed in the paper requires the multiplier to exceed a minimum value this test is carried out under alternative assumptions regarding future mining income

government spending taxation of interest and private saving an empirical analysis using greek aggregate data abstract following campbell and mankiw 1989 i derive an approximate consumption function by log linearizing the budget constraint and the first order condition for intertemporal utility maximization of a representative consumer using annual aggregate data from greece 1960 1990 i find some evidence that an increase in government spending that is viewed as temporary and an increase in taxation of interest that is viewed as permanent may have considerable negative effects on current private saving

fairness in the international allocation of development aid this paper assesses the allocative performance of foreign aid donors it does so by identifying the consistency of the share of donor aid allocated to each developing country with these their shares of global poverty a given donor s allocative performance is maximised if the share of its aid to each developing country exactly equals its share of global poverty this is equated with fairness in the international allocation of aid the allocative performance of all donors all bilateral donors all multilateral agencies all non dac donor countries the eu france germany japan the united kingdom and the united states for the years 2010 15 is assessed the best performance is exhibited by all bilateral donors while that for an individual donor is exhibited by the united kingdom non dac donors exhibit the worst performance the paper also identifies which developing countries receive the most and least aid relative to their shares of global poverty

a model of the interactions between banking crises and currency crises abstract a second generation model of currency crises is combined with a standard banking model in a pegged exchange rate regime after funds have been committed to the banks news arrives about the quality of the banks assets and about the exchange rate fundamentals a run on the banks may cause a currency crisis or vice versa there are multiple equilibria with either twin crises or no crisis depending on depositors expectations of other depositors actions suspension of deposit convertibility can prevent a speculative attack on the currency but last resort lending to solvent banks can induce one

a panel data analysis of the fungibility of foreign aid the donor community has been increasingly concerned that development assistance intended for crucial social and economic sectors might be used directly or indirectly to fund unproductive military and other expenditures the link between foreign aid and public spending is not straightforward because some aid may be fungible this article empirically examines the impact of foreign aid on the recipient s public expenditures using cross country samples of annual observations for 1971 90 for the base sample of 14 developing countries it finds that aid is not fungible at the aggregate level and there is no associated tax relief increasing the number of countries however makes aid fungible moreover results based on the main sample indicate that aid is fungible in three out of five sectors examined developing country governments receiving earmarked concessionary loans for agriculture education and energy reduce their own resources going to these sectors and use them elsewhere only loans to the transport and communication sector are fully spent on the purposes intended by donors because most aid appears to be fungible the rate of return on a specific donor funded project tells little about the impact of that assistance a better approach may be to tie foreign aid to an overall public expenditure program that provides adequate resources to crucial sectors

investments in african agricultural research abstract over the past three decades africa s public agricultural research systems have changed in substantive ways the total number of researchers increased fourfold the dependency on expatriate researchers significantly declined while the education levels of national researchers improved initially the growth in research staff was matched by growth in expenditures but since the late 1970s real research spending has stagnated in addition loans and grants from donor agencies now account for a sizeable share of total funding for many african agricultural research systems many of the developments of the past decade in personnel expenditures and sources of support for public sector research and development r d in africa are not sustainable spending per scientist has declined continuously during the past 30 years most dramatically during the 1980s resources are spread increasingly thin over a growing group of researchers which has negative effects on the efficiency and effectiveness of agricultural research in africa

evaluating theories of bank runs with heterogeneity restrictions this paper empirically tests theories of bank runs we use a structural panel var to extract runs from deposit market data identification exploits cross sectional heterogeneity in deposit insurance we identify bank runs as adverse deposit market supply shocks hitting uninsured banks harder compared to insured conditional on a run we study the behavior of uninsured banks with bad and good fundamentals we find that both experience runs but deposit outflows at the former are more severe panic effects which affect all uninsured deposits alike irrespective of fundamentals dominate in the aggregate insured banks partially absorb the outflow of uninsured deposits

international integration risk and the welfare state how does international integration affect the welfare state does it call for a leaner or an expanded welfare state international integration may affect the distortions caused by welfare state activities but also the risks motivating social insurance mechanisms this paper addresses these potentially counteracting effects in a fully specified intertemporal two country stochastic endowment model focusing on the implications when product market integration reduces trade frictions across national product markets it is shown that lower trade frictions may increase the marginal costs of public funds which gives an argument for reducing steady state public consumption however tighter integration of product markets unambiguously leads to more variability in private consumption and this gives a case for expanding the social insurance provided via state contingent public sector activities automatic stabilizers jel classification e30 f10 h11

bank runs in emerging market economies evidence from turkey s special finance houses recent banking crises in emerging market countries have renewed debates about deposit insurance because insurance erodes banks incentives to manage risks prudently some argue that its elimination would improve bank stability yet eliminating insurance could be de stabilizing if it recreates risks of self fulfilling runs this paper examines dynamics of depositor behavior during a set of runs on turkey s special finance houses an uninsured sub sector of islamic banks detailed data on withdrawals are analyzed in a vector autoregressive framework that enables us to distinguish between informational and self fulfilling elements of runs we found that both types of dynamics were at work during the runs suggesting a role for deposit insurance judiciously used in ruling out expectational problems that fuel tendencies to run

economists and the welfare state abstract this paper constrasts the views of the welfare state of economists in the 1940s and 1950s with those of the current generation it is argued that economists as a profession in particular in the scandinavian countries have changed from being strong spokesmen for the welfare state to becoming much more critical the reasons for this are sought both in the expansion of the public sector in recent decades and in the development of economic theory in the areas of public finance insurance and incentives and public choice an attempt is made to evaluate the importance of the empirical and theoretical developments for the changing views of the welfare state

sources of panics evidence from the weekly data abstract we use weekly data 1867 1933 to investigate the sources of banking and financial panics we find that while a panic s exact starting date is unpredictable one can identify environments conducive to panics a lack of liquidity in financial markets seems to be a key source results also reveal the effectiveness of the aldrich vreeland act inelastizing the money supply and shortening the panic of 1914 and suggest that the panic of 1933 may have been caused by a speculative attack on the gold backed us dollar via the banks as opposed to a run on the banks directly

distinguishing panics and information based bank runs welfare and policy implications in this paper we contrast panics and information based bank runs in an effort to provide a robust and empirically plausible model of how bank runs are triggered the model of information based runs is characterized by two sided asymmetric information the bank cannot observe the true liquidity needs of the depositors while depositors are asymmetrically informed about bank asset quality we also examine the relative degrees of risk sharing provided by bank deposit contracts and traded equity contracts we show that the choice of deposit or equity depends on the attributes of and information about the underlying investment returns

bank runs as an equilibrium phenomenon a standard demand deposit contract in which individuals are entitled to their full deposit at any time provided the bank is solvent is analyzed in a context in which there are no exogenous events on which agents condition their behavior and a unique equilibrium involving a bank run with positive probability is shown to exist

reforming performance based aid allocation practice performance based aid allocation systems are used by a number of multilateral agencies to allocate aid among developing countries a number of bilateral agencies also allocate aid on the basis of the performance of recipients albeit in a less systematic way than these multilateral agencies this paper points to a number of fundamental problems associated with performance based aid allocation systems including a problematic balancing of need and performance criteria being reductionist with respect to the drivers of effective aid and not being sufficiently nuanced with respect to performance by ignoring a lack of human capital and economic vulnerability in recipient countries together with providing a theoretical framework that articulates these issues this paper introduces and outlines the papers that follow in this special section

additional evidence on the information based contagion effects of bank failures abstract recent theoretical models addressed the question of the nature of bank runs and what triggers them two competing hypotheses emerged pure panic and information based contagion this study provides additional evidence consistent with the latter hypothesis three observable bank characteristics are examined as proxy measures for the interim private information used by rational depositors in assessing the riskiness of a bank s long lived assets that may trigger bank runs the three factors are 1 the distance of the solvent banks headquarters from the headquarters of each failed bank 2 the size of the solvent banks and 3 the capital ratio as a proxy for their solvency the analysis is conducted in the context of the five large bank failures that occurred in the southwest region of the us during the mid 1980s weekly abnormal returns of 33 southwestern bhcs in ten critical failure related event dates are regressed on the three observable bank characteristics our findings suggest that distance and capital adequacy are negatively related to the magnitude of the contagion effect whereas size is positively related

information contagion and bank herding we show that the likelihood of information contagion induces profit maximizing bank owners to herd with other banks when bank loan returns have a common systematic factor the cost of borrowing for a bank increases when there is adverse news on other banks since such news conveys adverse information about the common factor the increase in a bank s cost of borrowing relative to the situation of good news about other banks is greater when bank loan returns have less commonality in addition to the systematic risk factor hence banks herd and undertake correlated investments so as to minimize the impact of such information contagion on the expected cost of borrowing competitive effects such as superior margins from lending in different industries mitigate herding incentives

on the dynamics of growth and fiscal policy with redistributive transfers abstract this paper continues the study of optimal fiscal policy in a growing economy by studying the case in which the government simultaneously provides three main categories of expenditures public production services public consumption services and state contingent redistributive transfers we make two contributions to the literature firstly we set up a dynamic general equilibrium model of endogenous growth in which rational voters choose the capital tax rate and the allocation of total tax revenues between productive government expenditures public production services and non productive ones public consumption services and redistributive transfers we study the properties of these policies and their impact on growth secondly we deliver analytic results for the long run and transitional dynamics of optimal fiscal policies and endogenous growth in particular we establish existence and investigate the possibility of uniqueness and dynamic determinacy and how this possibility is affected by the chosen allocative and redistributive policies

marketing strategies that make entrepreneurial firms recession resistant abstract the recession of 1990 1991 adversely affected nearly every industry in the united states and entrepreneurial manufacturing firms were among those hardest hit by the recession the failure rate among this group by mid year 1991 had risen 37 from the previous year thus recessions pose a serious threat to the survival of entrepreneurial firms understanding how the business cycle influences performance and what strategies are effective in such turbulent times has practical value for managers of entrepreneurial firms in this paper we report a large scale empirical research study involving subjective and financial information from 118 publicly traded u s manufacturing firms the participating firms are involved in technologically demanding and highly innovative industry segments industrial and computer equipment electrical equipment and components and measuring analysis and control instruments none of the firms has achieved a market share of more than one half of one percent we find that in these industries a company s marketing strategies preceding a recession strongly impact the extent of economic downturn on the firm and influence its odds of a timely and complete recovery our specific prescriptions follow first maintain marketing activities in the core business as assurance against recession increasing sales and advertising increasing breadth of production and increasing geographic coverage improve performance during both the peak and the contraction of the business cycle second during the peak period cautiously expand with an emphasis on marketing efficiency increasing the number of channels of distribution and cutting price have a negative effect unless accompanied by sales force performance measurement a simple emphasis on incentives and efficiency alone hurts a firm as a recession hits all of these prescriptions run counter to existing views that suggest that recession simply requires cutbacks and retrenchment recessions seem to be different from other threats to firm viability and marketing activities appear to help pull the firm through a macroeconomic downturn

an experiment on the causes of bank run contagions abstract to understand the mechanisms behind bank run contagions we conduct bank run experiments in a modified diamond dybvig setup with two banks left and right the banks liquidity levels are either linked or independent left bank depositors see their bank s liquidity level before deciding right bank depositors only see left bank withdrawals before deciding we find that left bank depositors actions significantly affect right bank depositors behavior even when liquidities are independent furthermore a panic may be a one way street an increase in left bank withdrawals can cause a panic run on the right bank but a decrease does not calm depositors

excess sensitivity of high income consumers using new transaction data i find considerable deviations from consumption smoothing in response to large regular predetermined and salient payments from the alaska permanent fund on average the marginal propensity to consume mpc is 25 for nondurables and services within one quarter of the payments the mpc is heterogeneous monotonically increasing with income and the average is largely driven by high income households with substantial amounts of liquid assets who have mpcs above 50 the account level data and the properties of the payments rule out most previous explanations of excess sensitivity including buffer stock models and rational inattention how big are these mistakes using a sufficient statistics approach i show that the welfare loss from excess sensitivity depends on the mpc and the relative payment size as a fraction of income since the lump sum payments do not depend on income the two statistics are negatively correlated such that the welfare losses are similar across households and small less than 0 1 of wealth despite the large mpcs

bank runs the deposit currency ratio and the interest rate abstract this paper provides a model of an economy with a banking system which is subject to bank runs the model is then used to explain the rise in short term interest rates during bank runs and the fall in the deposit currency ratio in anticipation of possible runs

payoff complementarities and financial fragility evidence from mutual fund outflows the paper provides empirical evidence that strategic complementarities among investors generate fragility in financial markets analyzing mutual fund data we find that consistent with a theoretical model funds with illiquid assets where complementarities are stronger exhibit stronger sensitivity of outflows to bad past performance than funds with liquid assets we also find that this pattern disappears in funds where the shareholder base is composed mostly of large investors we present further evidence that these results are not attributable to alternative explanations based on the informativeness of past performance or on clientele effects we analyze the implications for funds performance and policies

the information sensitivity of debt in good and bad times abstract we empirically show the dynamics of information production and information sensitivity of bank debt around the great recession as more precise information is produced at the onset of the crisis bank debt becomes informationally sensitive along two separate dimensions first precise information amplifies the effect of market expectations on default risk second for banks that are already expected to perform poorly more precise information further increases default risk both effects are muted in good times overall our findings are consistent with information based models of financial crises

can the world cut poverty in half how policy reform and effective aid can meet international development goals abstract poverty in the developing world will decline by about one half by 2015 if the trends of the 1990s persist most of this poverty reduction will occur in asia however while poverty will decline only slightly in africa effective aid could make a contribution to greater poverty reduction in lagging regions even more potent would be significant policy reform in these countries we develop a model of efficient aid in which flows respond to policy improvements that create a better environment for poverty reduction and effective aid we investigate scenarios of policy reform and efficient aid that point the way to how the world can cut poverty in half in every major region

introduction the welfare economics of the welfare state outsiders to economics might be forgiven for thinking that welfare economics provides the theoretical underpinnings for the welfare state but although the language is suggestive the link between theoretical welfare economics and policy recommendations concerning the role of the public sector the optimal degree of redistribution and social insurance etc is not obviously a very strong one economists who use a welfare theoretic framework for thinking about economic and social problems might be led to advocate a night watchman state which would mainly be concerned with the provision of public goods or alternatively to argue for a crucial role of the public sector as a redistributive system as in the welfare state what is the welfare state it is always tempting to avoid issues of definition but in this case it seems appropriate to point out that the concept is in fact used in at least two different ways some use it to denote a subsection of the public sector concerned with redistribution via social security and social assistance and the provision of those social goods which have a strong redistributive element like health care and education others use the term in a much wider sense to characterize the economic and social policies of a country that gives high priorities to equality and individual protection against social hazards to illustrate the difference in usage according to both definitions unemployment insurance would definitely come under the heading of welfare state policies whereas macroeconomic policies that are designed to prevent or reduce unemployment would be included in the second definition of welfare state policies but not in the first i am inclined to take the wider view of the welfare state primarily because i feel that the more narrow definition introduces a number of rather awkward borderlines between the various areas of economic policy in the following i first consider what bearing the neoclassical version of welfare economics has on the design of welfare policy i then discuss

an annual index of u s industrial production 1790 1915 as a remedy for the notorious deficiency of pre civil war u s macroeconomic data this study introduces an annual index of american industrial production consistently defined from 1790 until world war i the index incorporates 43 quantity based annual series most entirely new in the manufacturing and mining industries in a manner similar to the federal reserve board s monthly industrial production index the index changes our view of the growth and volatility of the u s economy before world war i a direct implication of the index is that antebellum postbellum differences in industrial volatility are statistically indistinguishable the index also demonstrates that the pernicious deflationary depressions that purportedly followed the financial panics in 1837 and 1873 were actually rather mild recessions when expressed in real output

the role of liquidity and implicit guarantees in the german twin crisis of 1931 abstract using monthly balance sheet data of all major german credit banks we analyze deposit withdrawals and bank failures in the german banking and currency crisis of 1931 we find that deposit withdrawals were driven by the run on the currency but were also related to banks liquidity positions that branch banks were no more stable than unit banks and that large banks were privileged being bailed out and receiving preferential access to the discount window these findings underline the importance of liquidity and implicit guarantees in twin crises

aid policies and growth the authors of this paper use a new database on foreign aid to examine the relationships among foreign aid economic policies and growth of per capita gdp in panel growth regressions for 56 developing countries and 6 four year periods 1970 93 they find that the policies that have a great effect on growth are those related to fiscal surplus inflation and trade openness they construct an index for those three policies and have that index interact with foreign aid they have instruments for both aid and aid interacting with policies they find that aid has a positive impact on growth in developing countries with good fiscal monetary and trade policies in the presence of poor policies aid has no positive effect on growth this result is robust in a variety of specifications which include or exclude middle income countries include or exclude outliers and treat policies as exogenous or endogenous they examine the determinants of policy and find no evidence that aid has systematically affected policies either for good or for ill they estimate an aid allocation equation and show that any tendency for aid to reward good policies has been overwhelmed by donors pursuit of their own strategic interests in a counterfactual they reallocate aid reduce the role of donor interests and increasing the importance of policy such a reallocation would have a large positive effect on developing countries growth rates

deposit competition and financial fragility evidence from the us banking sector preliminary and incomplete please do not cite without permission we develop and estimate an empirical model of the u s banking sector using a new data set covering the largest u s banks over the period 2002 2013 our model incorporates insured depositors and run prone uninsured depositors who have rich preferences over dierentiated banks banks compete for deposits in the spirit of matutes and vives 1996 and can endogenously default we estimate demand for uninsured

changes in business cycles evidence and explanations this paper shows that the volatility of annual real macroeconomic indicators for the united states and the average severity of recessions have declined only slightly between the pre world war i and post world war ii eras recessions have however become somewhat less frequent and more uniform it argues that the advent of macroeconomic policy after world war ii can account for both the observed continuity and change countercyclical monetary policy and automatic stabilizers have prolonged postwar expansions and prevented severe depressions at the same time policy induced booms and recessions have led to continued volatility of the postwar economy

information based contagion and the implications for financial fragility abstract this paper explores a global game model of information based financial contagion by revealing information on a common fundamental factor and thereby affecting the behavior of creditors the failure of a single firm can trigger the failure of another firm the model provides a unique equilibrium framework to assess the consequences of contagion and yields some hitherto unnoticed insights while contagion increases the correlation among the financial failures of different firms its impact on the incidence of failure is ambiguous i consider an analytically tractable version of the model in which the effect on the ex ante failure probabilities is exactly zero moreover the impact of contagion increases with the relevance of a common underlying fundamental but is limited to firms near the brink of success or failure

understanding economic policy reform one of the eventual consequences of the global debt crisis was a wave of market oriented economic reforms this paper discusses the state of our knowledge on the political economy of this process why were inefficient and often unsustainable policies maintained for so long why are so many governments reforming now after decades of adherence to policies of an opposite kind have the reformers internalized the correct lessons from the east asian experience finally are there any helpful rules for reformers to follow in guiding their policies through complicated political terrain

the cyclical behavior of individual production series 1889 1984 this paper uses simple summary statistics to analyze the volatility persistence and comovement of 38 annual individual production series for the period 1889 1984 it seeks to identify the size source and correlation of fluctuations in the production of specific commodities within various sample periods and to analyze possible changes in these characteristics over time the paper also discusses the implications of the behavior of individual production series for the behavior of the aggregate economy within the prewar interwar and postwar eras

bank runs and currency run in a system without a safety net argentina and the tequila shock abstract this paper tests the random withdrawals vs informed based theories of bank runs in the context of the bank panic that took place in argentina as a consequence of the mexican devaluation of december 20 1994 this evidence is unique in several ways it is the case of a contemporary banking system with virtually no explicit safety net a currency board with no deposit insurance scheme and a case in which the bank runs were triggered by a currency run the findings of the paper provide support to the informed based theories and show that depositors are concerned with the impact of a currency run on bank solvency

determinants of canadian bilateral aid allocations humanitarian commercial or political in this paper we examine the determinants of the allocation of canadian bilateral aid over the period 1984 2000 we draw on models of donor behaviour that allow us to incorporate humanitarian commercial and political considerations the trinity of mixed motives that affect canadian aid we find that allocations are moderately altruistic recipient country human rights and membership in the commonwealth and la francophonie also affect aid flows most strikingly our results suggest that canadian aid flows became less altruistic over this period and commercial motives became increasingly important jel classification h50 o10 les determinants des allocations de l aide humanitaire canadienne humanitaires commerciaux ou politiques ce memoire etudie les determinants de l allocation de l aide bilaterale canadienne dans la periode 1984 2000 on utilise des modeles de comportement de donateur qui permettent de prendre en considerations les motivations humanitaires commerciales et politiques la trinite de motifs mixtes qui affectent l aide canadienne on decouvre que les allocations sont moderement altruistes le fait pour un pays de defendre bien les droits de la personne et d etre membre du commonwealth et de la francophonie affecte les flux d aide plus important peut etre les resultats suggerent qu au cours de cette periode les flux d aide canadienne deviennent moins altruistes et les motifs commerciaux de plus en plus importants

the productivity debate of east asia revisited a stochastic frontier approach this paper applies a stochastic frontier production model to the data from penn world table s 49 countries over the period 1965 to 1990 to decompose total factor productivity growth into technical change and technical efficiency change empirical results show east asian countries led the world in productivity growth mainly because their technical efficiency gain was so much faster than that of other countries east asian countries also registered rapid technical change which was comparable to that of the g6 countries after the late 1980s the results provide evidence that negate the hypothesis that east asian growth was mostly input driven and unsustainable

world income components measuring and exploiting risk sharing opportunities a method is constructedfor decomposing the variance of changes in incomes in the world into components to indicate the most important risk sharing opportunities among people of the world a constant absolute risk premium carp model an intertemporal general equilibrium model of the world is presented to permit optimal contract design for a contract designer maximizing a social welfare function the optimal contracts maximize the equilibrium world real interest rate securities are defined in terms of eigenvectors of a transformed variance matrix the method is applied using penn world table data on the g 7 countries 1950

foreign aid and the question of fungibility this paper analyzes whether the foreign assistance provided for specific categories of expenditure is shifted among them contrary to the wishes of donors it also considers whether aid reduces the tax effort of recipient governments econometric results are presented for the dominican republic that show that the fungibility of aid has resulted in a thwarting of the intentions of donors an attempt is made to account for the observed differences in behavior of individual countries in altering expenditures copyright 1993 by mit press

depositor behavior under macroeconomic risk evidence from bank runs in emerging economies depositor behavior has been associated with bank specific characteristics random runs or contagion episodes using evidence on the 2000 02 bank runs in argentina and uruguay this paper shows that macroeconomic risk is also important few macroeconomic shocks can quickly cause large runs macroeconomic risk affects deposits regardless of traditional bank specific characteristics furthermore bank exposure to macroeconomic factors can explain differences in deposit withdrawals during crises the evolution of bank specific characteristics is mainly driven by macroeconomic factors while the informational content of bank specific variables declines overall depositors seem responsive to risk in a broader sense than that often considered by the literature

the brazilian default announcement and the contagion effect hypothesis abstract in this paper we use stocl market data to test several hypotheses regarding possible investor reaction to the february 20 1987 brazilian default both the traditional event study approach and a generalized least squares regression using brazilian exposure as an explanatory variable for abnormal returns are used a sample of 46 bank holding companies all listed on the new york or american srock exchanges is divided into groups of no low and high brazilian exposure we find that the initial stock market reaction to the default represents a rational investor response to new bank specific information however the stock market reaction also reveals that not all relevant information was contained in the disclosure announcement further we find some evidence of a contagion effect related to size

experimental evidence of bank runs as pure coordination failures abstract we investigate how coordination requirement measured by the coordination parameter affects the occurrence of miscoordination based bank runs in controlled laboratory environments we identify an indeterminacy region of the coordination parameter such that games with the parameter within the region have varying coordination outcomes and exhibit persistent path dependence experimental economies with the parameter above below the region stay close or converge to the run non run equilibrium switches between the two equilibria occur even with fixed economic fundamentals the experimental results are well accounted for by a version of the evolutionary algorithm that uses experimentation rates estimated from the experimental data

what can new survey data tell us about recent changes in distribution and poverty it has been claimed that in recent times the poor have lost ground both relatively and absolutely even when average levels of living have risen this article tests that claim using household surveys for 67 developing and transitional economies over 1981 94 it finds that changes in inequality and polarization were uncorrelated with changes in average living standards distribution improved as often as it worsened in growing economies and negative growth was often more detrimental to distribution than positive growth overall there was a small decrease in absolute poverty although with diverse experiences across regions and countries almost always poverty fell with growth in average living standards and rose with contraction

politics economics and investment abstract few economists or laypeople would deny that political events can have an important sometimes even overwhelming impact on economic decisions in general and investment decisions in particular the first goal of this paper is to integrate a number of political and non traditional economic variables into the standard theory of investment based on the maximization of the expected value of the firm the second goal is to test this generalized investment theory on a particularly fertile field for gauging the interaction of political and economic factors the plant and equipment spending of foreign manufacturing affiliates of us multinationals in argentina brazil and mexico the results of these tests show that the generalized theory is far superior to the traditional alternatives in explaining the real investment of the sample for the 1958 1989 period

bank failure contagion in historical perspective abstract bank failures are contagious due to the lack of bank specific information depositors who lack financial information on individual banks make withdrawal decisions based on the condition of the banking system as a whole a high ratio of bank failures then signals an adverse condition within the banking sector and triggers systemwide bank runs this paper looks at bank panics in u s history and shows the importance of solvency information specific to individual banks the major empirical finding is that the government or banks stopped bank panics mainly by providing financial information on banks

sectoral shocks and metropolitan employment growth abstract in this paper we study the sources of industry employment growth in each of five metropolitan statistical areas msas the objective is to understand the relative importance of aggregate disturbances versus local sectoral shocks in generating observed employment fluctuations at the msa level the empirical evidence presented in this paper derives from structural vector autoregressions svars estimated for each of the five msas estimations use monthly employment data covering nine one digit industrial categories for the period 1951 1 1999 8 as well as two variables that capture the influences of aggregate i e national shocks on msas we find that within msa industry shocks explain considerably more of the forecast error variance in industry employment growth than do aggregate shocks sectoral shocks account for between 87 and 94 of the 36 month ahead forecast error variance among individual local sectors shocks to msa specific government manufacturing and service sector employment growth are the predominate sources of variability

what explains the success or failure of structural adjustment programs in the 1980s development assistance shifted largely from financing investments such as roads and dams to promoting policy reform this change came because of a growing awareness that developing countries were held back more by poor policies than by a lack of finance for investment after nearly 20 years experience with policy based or conditional lending there have now been many studies of adjustment lending most of which take a case study approach many conclude that policy based lending works if countries have decided on their own to reform the authors examine a database of 220 world bank supported reform programs to identify why adjustment programs succeed or fail they find that a few political economy variables can successfully predict the outcome of an adjustment loan 75 percent of the time variables under the world bank s control resources devoted to preparation and supervision or number of conditions have no relationship with an adjustment program s success or failure what development agencies must do then is select promising candidates for adjustment support when the candidates is a poor selection devoting more administrative resources or imposing more conditions will not increase the likelihood of successful reform to improve its success rate with adjustment lending the world bank must become more selective and do a better job of understanding which environments are promising for reform and which are not that is likely to lead to fewer adjustment loans unless there is a significant change in the number of promising reformers to become more effective at supporting policy reform the agency must be willing to accept that this may lead to smaller volumes of lending

aid allocation and poverty reduction the authors derive a poverty efficient allocation of aid and compare it with actual aid allocations they build the poverty efficient allocation in two stages first they use new world bank ratings of 20 different aspects of national policy to establish the current relationship between aid policies and growth onto that they add a mapping from growth to poverty reduction which reflects the level and distribution of income they compare the effects of using headcount and poverty gap measures of poverty they find the actual allocation of aid to be radically different from the poverty efficient allocation in the efficient allocation for a given of poverty aid tapers in with policy reform in the actual allocation aid tapers out with reform in the efficient allocation aid is targeted disproportionately to countries with severe poverty and adequate polices the type of country where 74 percent of the world s poor live in the actual allocation such countries receive a much smaller share of aid 56 percent than their share of the world s poor with the present allocation aid is effective in sustainably lifting about 30 million people a year out of absolute poverty with a poverty efficient allocation this would increase to about 80 million people even with political constraints introduced to keep allocations for india and china constant poverty reduction would increase to about 60 million reallocating aid is politically difficult but it may be considerably less difficult than quadrupling aid budgets which is what the authors estimate would be necessary to achieve the same impact on poverty reduction with existing aid allocations

contagion and bank failures during the great depression the june 1932 chicago banking panic the authors examine the social costs of asymmetric information induced bank panics in an environment without government deposit insurance their case study is the chicago bank panic of june 1932 the authors compare the ex ante characteristics of panic failures and panic survivors despite temporary confusion about bank asset quality on the part of depositors during the panic which was associated with widespread depositor runs and bank stock price declines the panic did not produce significant social costs in terms of failures among solvent banks copyright 1997 by american economic association

volatility and persistence of fluntuations individual production series in italy 1890 1985 the analysis is focused on possible time related changes in the cyclical behaviour of production using a set of individual production series disaggregate data are used to analyse whether short run fluctuations have actually become less extreme or erratic in time and whether the tendency of shocks to have permanent or transitory effects has changed between the pre war and post war eras a third aspect of cyclical trends examined concerns the correlation of short term changes across sectors the main finding of the paper is that there has been little change in the behaviour of the individual series over time in fluctuation size persistence and frequency thus a reduction in variability appears also to be due to a problem of statistical measurement rather then suggesting as the standard literature does that demand shocks were unimportant in the post war period which implies that supply shocks were more important an estimate of the italian experience gives evidence of the importance of both causes

explaining international and intertemporal variations in income inequality this paper explores the propositions that income inequality is relatively stable within countries and that it varies significantly among countries a new and expanded data set provides broad support for both propositions drawing on a political economy and capital market imperfection arguments to explain the intertemporal and international variation in inequality the empirical analysis shows that the predicted variables associated with the first argument a measure of civil liberties and the initial level of secondary schooling and the second argument a measure of financial depth and the initial distribution of land are indeed important determinants of inequality this paper explores two propositions regarding income inequality they are first income inequality is relatively stable within countries and second it varies significantly across countries to illustrate note that the gini coefficient in india remained almost constant for forty years 1951 92 with mean 32 6 and standard deviation 2 0 2 in contrast the variation in gini coefficients across countries is large 61 9 in honduras in 1968 compared with 17 8 in bulgaria in 1976 if substantiated these propositions have potentially significant implications for poverty the significance of the first is obvious barring any fundamental socio political change poverty reduction will depend crucially on the rate of economic growth given this the significance of the second is that in inegalitarian economies the poor will enjoy a smaller share of any national increment in income than in more egalitarian ones drawing on a new and expanded data set on inequality deininger and squire 1996a the first of the paper s three sections conducts standard statistical tests of the two propositions the sample comprises 573 observations on the most common measure of inequality the gini coefficient for 49 developed and developing countries covering the period 1947 94 the results broadly confirm our two propositions specifically analysis of variance anova shows that about 90 of the total variance in the gini coefficients

interbank contagion at work evidence from a natural experiment this article tests financial contagion due to interbank linkages for identification we exploit an idiosyncratic sudden shock caused by a large bank failure in conjunction with detailed data on interbank exposures first we find robust evidence that higher interbank exposure to the failed bank leads to large deposit withdrawals second the magnitude of contagion is higher for banks with weaker fundamentals third interbank linkages among surviving banks further propagate the shock finally we find results suggesting that there are real economic effects these results suggest that interbank linkages act as an important channel of contagion and hold important policy implications jel g01 g21 g28 e58 since the onset of the financial turmoil increased uncertainty reflected particularly in counterparty risk has led banks to hoard liquidity this has resulted in a significant decline of trading in the interbank money markets jean claude trichet president of the european central bank december 2008

market rate versus fixed rate demand deposits abstract in an economy with uninsured banks market rate deposits are shown to provide services identical to fixed rate deposits without risking banking panics as long as there is not both aggregate uncertainty about liquidity demands and asymmetric information about bank asset quality however if both factors are present then the preferred deposit form depends on the riskiness of bank assets and information revealed through market prices the analysis may explain the evolution of fixed rate deposits before the introduction of deposit insurance moreover it provides currently relevant insights regarding deposit contract forms and deposit insurance

separating the likelihood and timing of bank failure abstract we use a split population survival time model to separate the determinants of bank failure from the factors influencing the survival time of failing banks basic indicators of a bank s condition such as capital troubled assets and net income are important in explaining the timing of bank failure however many of the other variables typically included in bank failure models such as measures of bank liquidity are not associated with the time to failure the results also suggest that the closure of large banks is not delayed relative to the closure of small banks