financial liberalization urban unemployment and welfare some implications of the artificial low interest rate and the high wage rate policies in ldcs abstract this paper investigates how the low interest rate policy in the commercial banking sector affects the urban unemployment in a small open harris todaro model the rate of urban unemployment unambiguously declines the volume of it shrinks if the rural to urban employment rate and the urban unemployment rate are sufficiently high relative to the wage elasticity of agricultural labor demand the national income increases if agriculture is dominant in the domestic production in such an economy the financial liberalization advocated by the mckinnon shaw school may aggravate the welfare even if it eliminates the financial repression

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

macroeconomic effects of anticipated devaluations with informal financial markets abstract the paper analyzes the macroeconomic effects of devaluation in a general equilibrium model of a developing country in which controls on interest rates and foreign exchange restrictions lead to the emergence of informal financial markets the complexity of the model precludes an analytical treatment a simulation approach based on parameters derived from estimates in the existing literature is used to explore how the existence of informal financial markets causes the effects of an official devaluation to be felt before the devaluation itself occurs

the government financial system and large private enterprises in the economic development of south korea abstract the paper investigates the main characteristics of the government business relationship in south korea in the past three decades to find out how it may have contributed to south korea s economic development it proposes that the government and large private enterprises in south korea should be viewed as constituting an internal organization namely a quasi internal organization as such extensive intervention by the government with south korea s financial system can be viewed as an internal capital market and consequently it could have led to a more efficient allocation of credit than possible in a free market financial system it also argues that the quasi internal organization has made it possible for the government to efficiently implement its developmental policies it is however pointed out that for the quasi internal organization to be successful in accelerating the pace of economic development the country must have a political leadership committed to the goal of economic development and must adopt an outward oriented development policy

does financial reform raise or reduce saving the effect of financial liberalization on private saving is theoretically ambiguous not only because the link between interest rate levels and saving is itself ambiguous but also because financial liberalization is a multidimensional and phased process sometimes involving reversals using principal components we construct 25 year time series indices of financial liberalization for each of eight developing countries chile ghana indonesia korea malaysia mexico turkey and zimbabwe these are employed in an econometric analysis of private saving in these countries our results cannot offer support for the hypothesis that financial liberalization will increase saving on the contrary the indications are that liberalization overall and in particular those elements that relax liquidity constraints may be associated with a fall in saving

money prices and stabilization policies in some developing countries in this paper we examine the general reasons for price and balance of payments instability in less developed countries ldcs and critically evaluate the adjustment policies usually prescribed by the international monetary fund imf for these countries the scope for stabilization policies is then examined in the framework of the keynesfan monetarist controversy the causality between money and prices is examined by using a transfer function time series approach a simple model for inflation generation is set up to analyse the price and output effects of the growth of money supply some unfavourable effects of a restrictive monetary stabilization policy in ldcs are indicated the impact of a rise in interest rate on savings in some ldcs are found to be positive but not always significant

growth oriented adjustment programs a statistical analysis after the fall in average per capita gdp growth that took place in the 1980s adjustment lending programs supported by the international monetary fund imf and the world bank wb were launched in response to the deteriorating external environment the purpose of this paper is to evaluate and to assess statistically the extent to which adjustment programs supported by the imf and the wb have restored growth the evaluation relied on a large sample of countries 93 and controls for some of the statistical difficulties associated with measuring the effectiveness of adjustment programs the paper reviews the environment under which imf wb lending took place the rationale for adjustment lending and the distribution of adjustment loans through time the results of the statistical evaluation suggest that after controlling for external factors and for initial conditions growth is not higher in countries that receive imf wb funds but that investment was significantly lower than for non recipient countries the paper also examines further long term growth prospects

pricing stock and bond options when the default free rate is stochastic we derive formulas for the valuation of call options on stocks and bonds when the defaultfree rate is stochastic the formulas highlight the role of the correlation between the unanticipated returns on the underlying security and the changes in the short term rate in determining the options value our numerical analysis indicates that option prices predicted by the proposed formula differ from those predicted by the black and scholes formula when this correlation is relatively large and the short term rate s instantaneous variance is relatively large as well moreover the proposed formula predicts higher lower stock option prices than those predicted by the black and scholes formula for correlation values that are lower higher than some positive critical value

a sectoral accounting approach to national savings applied to korea abstract this paper presents a sectoral accounting approach to the determination of the national savings ratio starting with the process of sectoral savings determination and showing the sectoral interactions this approach offers an acceptable empirical framework for aggregate savings studies the model estimated with the korean data is used to run simulations to evaluate its predictive capacity to decompose past savings performance by major factors and to assess the savings effect of policy changes and other exogenous shocks the results indicate that income variables have been the most important determinants although interest rate and tax policies have also played some role

capital account liberalization and income inequality this article makes both a theoretical and an empirical contribution to the literature on financial liberalization and income inequality in the first part we develop a tractable model that features agents with varying investment abilities and a banking sector there are two possible interventions to liberalize the banking sector first a reduction in reserve requirements and second an increase in the amount of foreign funds that can be used to finance domestic loans financial liberalization leads to enhanced banking sector efficiency and adjustments in interest rates affecting income of investors and savers and therefore income inequality theoretically the impact of financial liberalization on income inequality is ambiguous yet the model suggests that financial liberalization will improve income distribution in countries where financial depth is high our empirical estimates confirm this conditional effect more precisely the estimates suggest that capital account liberalization only tends to lower income inequality if the level of financial depth as measured by private credit over gdp exceeds 25 percent

the effect of financial liberalization on the efficiency of credit allocation some evidence from korea abstract this paper examines korea s recent experience with financial liberalization to find empirical evidence for the mckinnon shaw hypothesis regarding the effect of financial liberalization on the allocative efficiency of credit this involves analyzing changes in the variation of average borrowing costs across different sectors and industries using consolidated balance sheets and income statements from firms it demonstrates that there has been a substantial improvement in the efficiency of credit allocation since 1980 when the korean government started to implement various financial liberalization reforms

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

financial development theories and recent experience for many years practising development econo mists made pronouncements on the importance of developing the financial sector to accelerate eco nomic growth based on slender theoretical grounds indeed the vast bulk of theoretical work relating financial conditions to economic development published before 1973 detected possibilities for negative or at best neutral effects of financial development on income levels john maynard keynes 1936 argues that liquidity preference tended historically to push the real interest rate above its full employment equilibrium level as a result income falls to equate saving and investment plans keynes suggests that liquidity preference and hence the real interest rate can be reduced by financial repression in the form of interest rate ceilings or a gesellian stamp tax on money james tobin 1965 shows that a larger ratio of money to physical capital in household portfolios reduces the capital labour ratio and hence per capita incomes even when the economy is operating at full employment by reducing preference for money in favour of physical capital financial repression can raise the capital labour ratio and accelerate economic growth during the transition to a new higher level of per c pi a incomes in tobin s model economic growth and inflation are positively related because higher inflation reduces the demand for money more recently a school of neo structuralist economists proffers models in which liberalization and devel opment of the formal financial system can produce both higher inflation and lower economic growth

inflation and financial deepening comment abstract in a recent paper moore 1986 has criticized mckinnon s 1976 analysis of the relationship between a country s savings propensities and its money income ratio on both logical and empirical grounds and has proposed an alternative treatment we argue here that moore s critique and proposed alternative while containing useful insights are theoretically and empirically problematic and we propose a synthesis of mckinnon s and moore s treatments we also develop a simple growth model based upon our synthesis which is shown to generate certain significant implications for the neo structuralist critique of the mckinnon shaw financial liberalization prescription

mckinnon shaw versus the neostructuralists on financial liberalization a conceptual note abstract the views of the mckinnon shaw group and the neostructuralists differ about the approach to financial liberalization not about financial liberalization itself the neostructuralists view as it is normally interpreted is misleading in that it recommends that developing countries maintain low interest rates in the banking sector a practical way for developing countries to pursue financial liberalization would be through the organized financial system

unorganized money markets and unproductive assets in the new structuralist critique of financial liberalization abstract the new structuralists critique of financial liberalization emphasizes the role of informal credit markets in financing firms residual credit demand in ldcs and the relevance of households portfolio substitution patterns the sensitivity of their policy conclusions is demonstrated in the context of a representative model developed by van wijnbergen the relative efficiency of intermediation in the formal and informal credit markets crucially affects the outcome of the portfolio allocation effects generated by higher bank deposit rates an anomaly in the characterization of unproductive assets in defining credit supply is also examined

interest rate management in ldc s the mckinnon argument that higher time deposit rates raise output and lower inflation in the short run and increase medium term growth by raising the savings rate are shown to depend crucially on the assumption that portfolio shifts into td s come out of an asset providing less intermediation than the banking system we show that if instead the shift is out of an asset providing more intermediation e g loans on a curbmarket raising td rates is contractionary in the short run may have negative impacts on growth and can lead to more rather than less inflation in the short run

the new structuralist critique of the monetarist theory of inflation the case of the philippines abstract developing economies may be characterized by long production lags advanced outlays to finance working capital needs will therefore assume primary importance with weak commodity and equity markets the financing is usually funded by credit either from the legal banking sector or from an underground curb market monetary and credit contraction espoused by monetarists as a key policy for controlling inflation will increase the cost of financing working capital needs this has an immediate short run stagflationary impact coming from the supply side of the economy the study uses a one sector macro model to test this hypothesis on the philippines with annual data from 1958 to 1980 the results give empirical support to the claim that the working capital cost push supply side effect is strong enough which means that austerity measures may require a heavy and costly recession before price inflation can be brought down

currency option pricing with stochastic domestic and foreign interest rates this study develops a currency option pricing model under stochastic interest rates when interest rate parity holds and it is assumed that domestic and foreign bond prices have local variances that depend only on time we demonstrate how existing currency option models are simply derived from one framework empirical tests employing transactions option data reveal that a particularly simple form of the stochastic rate model is uniformly more accurate than a constant rate model for all boundaries and maturities tested

market sentiment and macroeconomic fluctuations under pegged exchange rates this paper models changes in market sentiment as a temporary increase in the premium faced by domestic private borrowers on world capital markets the effects of this shock are studied in an intertemporal optimizing framework of a fixed exchange rate economy where firms demand for working capital is financed by bank credit depending on the perceived length of this shock the model is capable of predicting a rise in domestic interest rates capital outflows and a drop in official reserves a reduction in bank deposits and the supply of credit a fall in private consumption a contraction in output and an increase in unemployment these predictions are consistent with observed facts associated with several recent episodes of turbulence on international financial markets

formal and informal financial markets and the neo structuralist critique of the financial liberalization strategy in less developed countries abstract the neo structuralist critique of the mckinnon shaw financial liberalization prescription rests fundamentally on the consideration that formal financial intermediaries have significantly higher reserve ratios than informal ones however the economic functions served by these reserves in terms of liquidity enhancement and seignorage creation are ignored incorporation of the latter function into the analysis leads to the complete neutralisation of the neo structuralist critique and incorporation of the former function produces the result that a financial liberalization is unambiguously welfare increasing our optimizing framework also points up an important deficiency in neo structuralist modelling of substitutions by asset holders between formal and informal sector financial instruments

an analysis of yield curve notes this paper analyzes a new type of security the yield curve note which pays interest at a rate that varies inversely with short term interest rates a valuation model for yield curve notes is presented the parameters of the model are estimated empirically and the estimated model is used to explore in simulation the price behavior and risk characteristics of yield curve notes in comparison with fixed rate notes the risk of a yield curve note is approximately twice as great as a fixed rate note with the same maturity the unique risk characteristics of yield curve notes make them useful as liabilities in immunization strategies for financial institutions their usefulness in this regard may be the chief rationale for their development the high volatility of short term interest rates observed in recent years has had profound effects on the various markets and institutions dealing with fixedincome securities financial institutions in particular have had difficulties managing their operations in this environment because their assets generally

financial repression the new structuralists and stabilization policy in semi industrialized economies abstract this paper examines the short and long run effects of a variety of macroeconomic policies in a simple model where the curb market plays a pivotal role as the marginal supplier of loanable funds it is found that financial liberalization may fail in the short run and contrary to the claims of the new structuralists that the financial market repercussions of devaluation may be favorable in evaluating any policy the time horizon is critical short and long run multipliers may differ in sign in all cases save that of a contraction in the stock of bank credit

excess liquidity bank pricing rules and monetary policy abstract this paper studies the implications of excess bank liquidity for the effectiveness of monetary policy in a simple model with credit market imperfections the demand for excess reserves is determined by precautionary factors and the opportunity cost of holding cash it is argued that excess liquidity may impart greater stickiness to the deposit rate in response to a monetary contraction and induce an easing of collateral requirements on borrowers which in turn may translate into a lower risk premium and lower lending rates as a result asymmetric bank pricing behavior under excess liquidity may hamper the ability of a contractionary monetary policy to lower inflation

analyzing the effects of us monetary policy shocks in dollarized countries identifying monetary policy shocks is difficult therefore instead of trying to do this perfectly this paper exploits a natural setting that reduces the consequences of shock misidentification it does so by basing conclusions upon the responses of variables in three dollarized countries ecuador el salvador and panama they import us monetary policy just as genuine us states do but have the advantage that non monetary us shocks are not imported perfectly consequently this setting reduces the effects of any mistakenly included non monetary us shocks while leaving the effects of true monetary shocks unaffected results suggest that prices fall after monetary contractions output does not show a clear response

unanticipated inflation devaluation and output in latin america abstract employing a lucas type supply function this paper uses pooled cross country data for 16 latin american countries to estimate the impact on short run output growth of 1 unanticipated inflation 2 changes in the relative cost of foreign exchange and 3 business cycle fluctuations in the industrial countries the results give strong support to the contractionary impact of devaluation in latin america and to the existence of a negatively sloped phillips curve they also suggest a powerful impact of external economic activity on growth rates

interest rates and investment in east asia an empirical evaluation of various financial liberalisation hypotheses the article attempts to shed light on the appropriate interest rate policy in the process of economic development to this end we examine whether higher interest rates lead to higher investment and growth in four east asian countries we find that the investment rate went up with real interest rates up to 9 per cent in all four countries but started declining at still higher interest rates in two of the countries further a banking crisis occurred in each of the three countries for which the real interest rates exceeded 9 per cent this evidence rejects the neo structuralist argument nor does it support unbridled financial liberalisation yet it provides only limited support to stiglitz s case for mild financial repression real interest rates near zero since reducing real interest rates from say 6 to 3 or 0 per cent would have reduced investment the optimum policy seems to be closest to mckinnon s restrained financial liberalisation policy that is liberalisation with a moderate upper lim

limited capital markets and the real effects of monetary stabilization policies under alternative exchange rate regimes abstract a common argument against monetary stabilization policies in developing countries is that they lead to short run output contractions this paper argues that in economies facing severely limited capital markets such contractionary effects may hold only under a fixed exchange rate system especially if the policy lacks credibility however if currency substition is an additional feature of the economy monetary deceleration may be expansionary even under fixed exchange rates jel e52 e63

technical change labor use and income distribution in the muda irrigation project factors influencing the performance of net farm income in families who adopted the double cropping regime in malaysia are analyzed in light of the muda irrigation project which supplies off season water to approximately 250 000 acres of padi land in n w malaysia from 1970 when water was first released to 1975 when the full feasible command area was served most of the project area s 50 000 farm families switched from single to double cropping this switch was accompanied by an extremely rapid adoption of short maturing improved varieties of rice and large increases in yield in both seasons the result of this technical change was an increase in padi production from 384 721 tons in 1969 to 795 830 tons in 1974 approximately 50 percent of the country s production there were also important changes in net farm income labor use and output and factor prices factors related and unrelated to the muda project are found to have caused these changes

the financial repression liberalization debate taking stock looking for a synthesis financial repression and liberalization became the object of fierce debates between academics and policy makers since the early 1970s as of the late 1980s financial liberalization became also part of the structural adjustment programs sponsored by the international monetary fund and the world bank however the literature on financial repression and liberalization remains controversial on its theoretical conclusions and policy implications given its importance for both the theory and policy of economic development and growth this paper looks for a possible synthesis after reviewing the theoretical contributions and empirical studies under the headings of the mckinnon shaw and new structuralists models the survey concludes that a new synthesis might be found in the post keynesian attempt to take an institutional perspective within a globalised financial and economic environment

financial deregulation and segmented capital markets the case of korea abstract this paper deals with the relation between the official and the unregulated or curb segments of the capital market in korea the paper focuses on the behavior of officially controlled interest rates paid on time deposits and on freely determined curb market interest rates the effects of financial deregulation on interest rates investment and growth are investigated it is argued that under some plausible circumstances financial deregulation can generate significant crowding out in the curb market reducing the total degree of financial intermediation the empirical results provide some support to the crowding out hypothesis and indicate that changes in the officially controlled time deposit rate have been positively related to changes in the freely determined curb market interest rate an aggregate investment function is also estimated for korea it is found that an increase decrease in the curb rate discourages encourages investment on the other hand increases in the real volume of credit intermediate in the official segment have a positive effect on real aggregate investment

foreign exchange constraints and growth possibilities in the ldcs abstract we analyse the influence of foreign exchange constraints on output growth in the ldcs by studying the effect that these constraints have on the speed of adjustment of both investment and import activities we model the speed of adjustment of investment as a function of available foreign exchange resources and allow for imperfect substitutability between the domestic and the foreign capital stocks

debt crisis adjustment policies and capital formation in developing countries where do we stand abstract this paper documents the decline in investment rates observed in developing countries after 1982 and explores analytically and empirically the factors contributing to explain it the paper focuses on the impact of macroeconomic adjustment and reform measures on private investment particularly in latin america and east asia and underscores the importance of macroeconomic uncertainty policy credibility and potential coordination failures in shaping the response of investment to the changes in economic incentives brought about by structural reforms the analysis concludes with some policy recommendations to improve the design of sustainable growth oriented adjustment programs

macro economic effects of changes in bank interest rates simulation results for south korea abstract we use an empirical macro econometric model of korea to simulate the impact of bank interest rate changes this model includes a very detailed sub model of the financial sector plus in addition to the usual demand side transmission channels of monetary policy a link between the financial sector and the supply side of the real part of the economy via the cost of financing working capital cavallo effect increases in time deposit rate are shown to be contractionary in the short run because the portfolio shifts they trigger tighten credit conditions and cause higher costs of financing working capital people shift out of the curbmarket rather than out of cash the higher cost of financing working capital also pushes up inflation in the first quarter after the change making the increase in td rates stagflationary this effect dies out quickly however the persistence of the loss in output is shown to depend on whether the commercial banks are allowed to play their intermediary role or not if credit limits prevent the passing through into bank loans of the influx of time deposits caused by the higher rates substantial and persistent real output losses and decreased private investment were shown to result

assessing the impact of nigeria s naira depreciation on output and inflation empirical evidence in support of the argument that keeping real exchange rate persistently devalued may lead to a permanent higher level of inflation have been provided kamin 1985 calvo et al 1994 however probably because of the relatively recent origin of serious exchange rate depreciation in sub saharan africa countries especially nigeria when compared with other regions e g latin america and asia not many studies have been reported on the subject the existing studies on effect of persistent exchange rate depreciation in nigeria are based on either regression or simulation approach rather than var approach this present study intends to fill these gaps by not only focusing the study on nigeria but also adopting restricted vector autoregressive model thereby providing basis for comparison with existing results obtained for other countries this abstract was borrowed from another version of this item

does devaluation improve the current account this paper incorporates the link between devaluation foreign interest payments and the current acccount into a fairly general macroeconomic model in which exchange rate changes influence aggregate demand through exports imports and expenditures as well as aggregate supply via the cost of imported factors of production on the basis of avaliable statistical estimates of the behavioral and structural parameters of the model an attempt is mafe to assess the empirical importance of this link among others in a group of highly indebted industrial and developing countries by and large the empirical results indicate that high foreign debt and interest payments tend to reduce the short to medium run effect of devaluation on national income expecially in the ldcs but make little difference to its generally positive effect on the current account

pool strategy of a price maker wind power producer we consider the problem of a wind power producer trading energy in short term electricity markets the producer is a price taker in the day ahead market but a price maker in the balancing market and aims at optimizing its expected revenues from these market floors the problem is formulated as a mathematical program with equilibrium constraints mpec and cast as a mixed integer linear program milp which can be solved employing off the shelf optimization software the optimal bid is shown to deliver significantly improved performance compared to traditional bids such as the conditional mean or median forecast of wind power distribution finally sensitivity analyses are carried out to assess the impact on the offering strategy of the producer s penetration in the market of the correlation between wind power production and residual system deviation and of the shape of the forecast distribution of wind power production

stabilization policy and income distribution in developing countries abstract the trade off between income distribution and stabilization is one of the least understood in development economics the paper reviews the recent literature on the effects of devaluation and monetary and fiscal policy devaluation is shown to have a significant impact on incomes through both its expenditure switching and reducing effects this varying with the time perspective taken the implications of these effects for poverty are explored and shown in principle to be complex and uncertain similarly monetary and fiscal restraint is shown to influence income distribution through changes in the level and structure of output how changes in monetary and fiscal policy affect the poor in developing countries is again difficult to determine theoretically the labor market is shown to be a key determinant of how policy changes are transmitted to poverty groups the paper concludes that rigorous empirical research on this subject is long overdue

financial market liberalisation in ldcs the incidence of risk allocation effects of interest rate increases high deposit interest rates are central to the financial liberalisation argument the article investigates the relatively neglected issue of who must pay two issues are stressed if loan charges increase the incidence falls on typically highly geared businesses and overall financial saving may not rise as claimed second although loan charges need not increase and enhanced credit availability may compensate borrowers if they do the financial risks of banks increase these risks are pertinent to monetary policy and may force actions contrary to the liberalisation approach institutional developments to foster the supply of risk bearing capital are emphasised in conclusion

exchange rate management and stabilization policies in developing countries abstract we outline three channels via which a devaluation has a direct contractionaly impact on the aggregate supply side of the economy local currency costs of intermediate imports wage indexing in the presence of food imports and reduced volume of real credit to firms contractionary effects via the supply side are more damaging than krugman taylor effects via aggregate demand since a cut in aggregate supply leads to upward pressure on inflation while a cut in aggregate demand tends to abate inflation upward pressure on inflation may over time threaten the increase in competitiveness a nominal devaluation also intends to achieve we also discuss the implications of a substantial foreign debt we demonstrate that a successful devaluation raises the real in terms of domestic goods debt service burden causing a krugman taylor like contractionary effect on aggregate demand we then analyse the effects of a preannounced slowdown of the rate of depreciation our results of course do not imply that a devaluation should never be considered they do suggest however that a devaluation is likely to be an ineffective tool for demand management since it may cut aggregate supply as much or more in the short run

causal relationships among economic aggregates in china using china s macro data from 1952 to 1989 the stationarity and causality tests to two types of economic aggregates are applied the first type relates to the conventional money income and consumption relationship and the other is associated with the interest rate money and investment income relationship as embodied in a financial repression model stationarity test results show that a different direction of causality exists when different measurement of price is used a causal relationship between interest rate money and investment income is also found

a robust linear approach for offering strategy of a hybrid electric energy company this paper presents a new approach for determining the day ahead bidding strategies of a large scale hybrid electric energy company the company has both energy generation and energy retailing businesses in a competitive electricity market demand response programs are also considered in the retail side of the company in order to hedge the risk of participation in wholesale market this paper introduces a max min bilevel mathematical programming with equilibrium constraint model for offering a strategy that manages the risk of uncertain forecasted rivals bids by robust optimization the max min bilevel model is converted to its equivalent single level optimization using karush kuhn tucker optimality conditions the duality theory is utilized to find the equivalent ordinary maximization model of the max min problem strong duality theory and big m method are also used to linearize the final model of offering strategy applicability of the proposed approach is shown by implementing it on the ieee 118 bus test system

the bounds test approach for cointegration and causality between financial development international trade and economic growth the case of cyprus this study employs the bounds test for co integration and granger causality tests to investigate the long run equilibrium relationship and the direction of causality between financial development international trade and real income growth for the cyprus economy the results of the study reveal that financial development as measured by broad money m2 international trade and real income growth are cointegrated thus a long run equilibrium relationship can be inferred among these three variables on the other hand granger causality test results suggest that in cyprus the growth in real income stimulates the growth of international trade both exports and imports and the growth of money supply furthermore growth in imports of goods and services also stimulates a growth in exports of goods and services of cyprus although this result contradicts our initial expectations it indicates the importance of capital inflows in cyprus that plays a major role in financing the investments mainly in the tourism

unorganized loan markets and monetary policy instruments abstract the paper uses a portfolio balance model to examine the relationship between monetary policy instruments and the unorganized loan rate predicting the direction of the change in this rate as a result of varying a policy instrument is important since this rate is one channel through which a change in a policy instrument transmits to real activity and since the demand side of the money market is partially re equilibrated through this change studies have not clearly emphasized the relationship between each of the policy instruments and this rate the findings depart in some cases from existing studies and shed more light on the relationships among policy instruments monetary aggregates and real activity

stagflationary effects of monetary stabilization policies a quantitative analysis of south korea this paper presents a macro model of the korean economy that focuses on short run macro economic adjustment and more in particular on the transmission channels of monetary policy between the financial and the real sector of the economy in addition to the usual link between monetary policy and aggregate demand via investment the link between monetary policy and the supply side of the economy via the financing of working capital with borrowed funds is incorporated this link can potentially reverse the short run impact of tight money on inflation and aggregate the impact on output both export prices and domestic prices show a significant sensitivity to cost of financing working capital this credit supply side link gives a stagflationary bias to restrictive credit policies the empirical relevance of this phenomenon is strongly supported by the simulation results derived with the model structurally section 2 of the paper focuses on the real sector part of the model section 3 discusses the financial sector in section 4 different monetary stabilization packages are simulated using the model presented in sections 2 and 3 and alternative policy measures are discussed the simulation runs show strong short run stagflationary effects of tight money policies

credit policy inflation and growth in a financially repressed economy this report analyzes credit policy in an open economy macro model incorporating stylized facts about the financial sector of ldc s absence of security markets existence of a curbmarket these facts are incorporated in the financial sector part of a keynes wicksell growth model it focuses on a transmission channel of monetary policy into the supply side of the economy via the cost of working capital it shows that ignoring this effect when analysing restrictive credit policy leads to underestimates of inflation and overestimation of output and current account improvements it is shown that a credit crunch can be stagflationary in the short run a cut in the real stock of credit is shown to lead to a lower steady state capital stock