international monetary relations taking finance seriously in our book global capital markets integration crisis and growth we traced out the evolution of the international monetary system using the framework of the international monetary trilemma countries can enjoy at most two from the set exchange rate stability open capital markets and domestic monetary autonomy the events of the past decade or more highlight the further complications for this framework posed by financial stability issues here we update and qualify our prior analysis drawing on recent experience and research under the classical gold standard scant attention was paid to macro management either to stabilize output and employment or to ensure financial stability the interwar years highlighted the changing demands for modern central bank interventions in the economy financial instability followed by wwii left a world with sharply constricted financial markets and little private cross border capital mobility due to this historical accident the bretton woods system agreed in 1944 focused not at all on financial stability and focused on issues like adjustment exchange rate misalignment and international liquidity defined in terms of official not private capital account transactions post 1970s floating rates permitted but did not require liberalization of the capital account but the political equilibrium had shifted in favor of financial interests signaled by the push toward european integration and the later reform process in emerging markets starting in the 1990s this development however opened the door once again to domestic financial crises and their international transmission countries now become more susceptible to a new species of capital account crises fueled by bank and bond lending and its sudden withdrawal these developments in fact made evident a different financial trilemma countries can pick at most two from financial stability open capital markets and autonomy over domestic financial policy we distill the main lessons as to the interactions between the monetary and financial trilemmas and policies that could best address the resulting weaknesses

the convergence of regional house prices in the uk the ripple effect hypothesis implies a long run convergence of regional uk house prices however despite many authors believing in the existence of such an underlying constancy statistical evidence has yet to be presented supporting this implication in this paper an alternative approach is proposed to analyse regional house price ratios in contrast to the findings of previous studies application of this new procedure results in the detection of widespread convergence of house prices in a number of regions of the uk the results suggest that the failure of previous analyses to uncover convergence is due to an underlying asymmetry in the adjustment process being ignored interestingly the form of asymmetry detected varies between regions while regions in the south east experience faster convergence following downswings in prices other regions exhibit more rapid convergence following increases in prices

assessing the impact of financial liberalisation on stock market volatility in selected developing countries this article argues for the importance of measuring stock market volatility following financial liberalisation in developing countries three alternative indices for measuring volatility are developed these are used to examine the view that financial liberalisation induces increased asset price volatility based on the limited data available this view is corroborated in the majority of countries investigated

do surges in international capital inflows influence the likelihood of banking crises this article asks whether capital inflows bonanzas increase the probability of banking crises and whether this occurs through a lending boom mechanism results indicate that bonanzas more than triple the odds of a crisis raising its probability to 14 from an unconditional probability of 4 this effect exists in the absence of a lending boom and is found in both net and gross inflows bonanzas this effect is driven by portfolio equity and debt flows while the effect of debt is channelled through excessive lending the effect of portfolio equity flows is present even in the absence of a lending boom

how good are standard debt contracts stochastic versus nonstochastic monitoring in a costly state verification environment the authors investigate ex ante efficient contracts in an environment in which implementation is costless in this environment standard debt contracts will typically not be optimal optimal contracts may involve defaults even in states in which the borrower is fully able to repay the authors then examine the welfare costs of arbitrarily restricting the set of feasible contracts to standard debt contracts when model parameters are calibrated to realistic values the welfare loss from exogenously imposing this restriction is extremely small thus if implementation costs are actually nontrivial as seems likely standard debt contracts will be very close to optimal copyright 1994 by university of chicago press

price and income elasticities of demand for housing characteristics in the city of barcelona garcia j and raya j m price and income elasticities of demand for housing characteristics in the city of barcelona regional studies this paper estimates price and income elasticities of demand for housing characteristics using the information of properties appraised in the city of barcelona 1998 2001 it employs a two stage approach estimating hedonic price equations for different districts in order to estimate subsequently the corresponding demand equations the results allow an analysis to be made of the complementarity or substitutability relationships among the characteristics analysed and also to catalogue these characteristics as goods by knowing the price cross and income elasticities of housing characteristics policy recommendations can be made about the type of housing units that are the most desirable to be subsidized garcia j et raya j m les elasticites par rapport au prix et au revenu de la demande de caracteristiques particulieres du logement a barcelone regional studies a p

distributional implications of macroeconomic policy theory and applications to el salvador abstract this article offers a theoretical framework for designing macroeconomic strategy for el salvador that will both respect stabilization and structural adjustment needs and enhance social equity after outlining the largely negative distributional implications of the orthodox policies followed by el salvador in recent years we argue that stabilization and efficiency could actually be improved by increased equity and sketch out the elements of an alternative approach that would be distributionally sensitive and thereby help consolidate the peace

sharing a ride on the commodities roller coaster common factors in business cycles of emerging economies fluctuations in commodity prices are an important driver of business cycles in small emerging market economies emes this paper documents how these fluctuations correlate strongly with the business cycle in emes a commodity sector is then embedded into a multi country emes business cycle model where exogenous fluctuations in commodity prices follow a common dynamic factor structure and coexist with other driving forces the estimated model assigns to commodity shocks 42 percent of the variance in income of which a considerable part is linked to the common factor a further amplification mechanism is a spillover effect from commodity prices to risk premia

improved price indexes for real estate measuring the course of swedish housing prices this paper presents an improved methodology for estimating asset prices for real estate and other durables the method is used to analyze house price dynamics by exploiting an unusually rich and detailed body of data extensive descriptive and financial information on every house sale in sweden during a 12 year period the results confirm the importance of many aspects of quality in affecting the course of housing prices as well as the role of individual specific and idiosyncratic aspects of housing the results are compared with the price trends produced by more primitive methods and published by official sources q 1998 academic press

unit root testing against an st mtar alternative finite sample properties and an application to the uk housing market a class of smooth transition momentum threshold autoregressive st mtar tests is proposed to allow testing of the unit root hypothesis against an alternative of asymmetric adjustment about a smooth nonlinear trend monte carlo simulation is employed to derive finite sample critical values for the proposed test and illustrate its attractive power properties against a range of stationary alternatives the empirical relevance of the st mtar test is highlighted via an application to aggregate house price data for the uk interestingly house prices are found to exhibit structural change characterized a fitted logistic smooth transition process with the newly proposed st mtar test providing the most significant results of the alternative smooth transition unit root tests available

how big is the crowding out effect of user fees in the rural areas of ethiopia implications for equity and resources mobilization summary using a nested multinomial logit model this study investigates the demand reduction and diversion effects of user fees in rural areas of ethiopia the results reveal that an increase in user fees of public clinics which are the most widely used alternative can have a significant demand reduction effect on the poorest of the poor this implies that despite cost recovery has been advocated as an alternative means of health care financing in most of the developing world increasing user fees may drive the poorest segment of the population out of the health care market unless some protective measures are taken

reserve uncertainty and the supply of international credit this paper shows that uncertainty about an emerging market s international reserves can affect the willingness of foreign investors to supply international credits we illustrate the relevance of this concern for south korea uncertainty has asymmetric effects when the expected reserve position of an emerging market is large relative to the potential bailout in bad states of nature reserve volatility does not matter however the same amount of reserve volatility can cause a large reduction in the supply of international credit if the private sector seriously downgrades its priors about repayment possibilities or becomes more pessimistic about the emerging market s reserve position

a firm level chronicle of financial crises in the southern cone abstract this paper chronicles the recent emergence of financial crises in the southern cone countries of south america relying on firm level panel data major changes in the macro and regulatory environments are linked to changes in firms earnings streams and financial structures for each country a boom phase a squeeze phase and a bust phase are identified it is argued that the proximate cause of this pattern was wild fluctuation in the expected real return on financial assets though no formal model is developed it is suggested that these swings were due to the system of incentives created by rapid banking sector deregulation cum exchange rate based stabilization policies

reserve requirements on sovereign debt in the presence of moral hazard on debtors or creditors this paper characterises the effects of reserve requirements on financial loans in the presence of moral hazard on the lender side and sovereign risk on the borrower side the impacts of such reserve requirements on the equilibrium default risk and borrowing are analysed and their welfare implications discussed more generous bailouts financed by the high income block encourage borrowing and increase the probability of default the optimal reserve requirements for both lender and borrower are characterised the

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

long memory and persistence in aggregate output abstract we examine persistence in u s aggregate output by estimating fractionally integrated arima models these models provide better low frequency approximations to the wold representation than previous stochastic specifications and earlier results on the importance of a permanent component emerge as special cases we find evidence of long memory which induces persistence though this long memory need not be associated with a unit root our point estimates indicate that macroeconomic shocks while persistent are distinctly less persistent than many earlier studies suggest however confidence intervals associated with the long run response are quite wide

the willingness to pay for the health care under taiwan s national health insurance system in this study we utilized the nested multinomial logit model to estimate the willingness to pay wtp values for different national health insurance nhi coverage plans in taiwan the wtp value for having care from clinics in a hospital care only hco plan is nt 178 us 6 per person month the wtp value for having care from hospitals in a clinic care only cco plan is nt 1342 us 43 per person month the wtp value for the nhi with a universal coverage uc is nt 1540 us 49 per person month the figure nt 1540 us 49 is equivalent to 8 77 of monthly household income much higher than the new premium rate of the new nhi tax 2 5 4 of monthly household income proposed by the taiwan s government our result suggests that taiwan s government may increase the new premium rate further in order to make taiwan s nhi financially more sustainable

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

international overborrowing a decomposition of credit and currency risks summary the severity of the financial crises enveloping the tiger economies of southeast asia in 1997 came as a surprise to many observers this paper uses a simple fisherian model of the overborrowing syndrome to compare the asian crises of 1997 with earlier overborrowing episodes in mexico and chile while important similarities exist the crises in southeast asia have been exacerbated by the unhedged foreign exchange positions of asian banks these open currency positions not only imposed significant additional losses on the banks following devaluation they also magnified the scale of overborrowing during the cycle s initial boom phase failure to limit the exposure of banks to foreign exchange risk therefore increased the magnitude of the boom bust overborrowing cycle both ex ante and ex post the paper highlights the importance of effective regulation and supervision of capital markets with a focus on limiting the speculative currency positions of banks especially those that form the core of the domestic payments system and therefore enjoy a possibly implicit public guarantee improving the institutional infrastructure of financial supervision is the only effective way of mitigating the macroeconomic costs of overborrowing

modeling long run behavior with the fractional arima model abstract when modeling long run behavior fractional arima models can give insights unobtainable with the nonfractional arima models as an application the deterministic trend and unit root with drift models are nested in the fractional arima model this allows testing between the two models based on estimated parameter values this test is applied to postwar us quarterly real gnp the test concludes that gnp is consistent with both models the estimated fractional parameter is significantly smaller than reported in diebold and rudebusch 1989 the difference is explained by bias in the previous estimates relationships with the cumulative impulse response and spectral density at frequency zero are noted

good bye financial repression hello financial crash some unintended consequences of financial liberalization in latin america are analyzed in this paper intrinsic imperfectious in financial markets and the policy dilemmas they pose are reviewed first the stylized facts of southern cone experiments in financial liberization are then presented alternative ways of organlzing domestic capital markets under latin american conditions are discussed and an eclectic reform mongering program is proposed

capital market imperfections international credit markets and nonconvergence abstract we consider a two country growth model with international capital markets these markets fund capital investment in both countries and operate subject to a costly state verification csv problem investors in each country require some external finance but also provide internal finance which mitigates the csv problem when two identical except for their initial capital stocks economies are closed they necessarily convergemonotonicallyto the same steady state output level unrestricted international financial tradeprecludesotherwise identical economies from converging and poor countries are necessarily net lenders to rich countries oscillation in real activity and international capital flows can occur journal of economic literatureclassification numbers e00 f00 f34 g14

the rip tide of privatization lessons from chile abstract chile is one of the rare exceptions where the voluble enthusiasm for privatization has been put into effect of the 500 companies that were under state ownership in the early 1970s only 19 remained under public control at the end of the decade moreover a land reform which had affected 43 of the country s cultivable area was rolled back by almost 40 privatization indisputably increased the economic power of a number of conglomerates and fostered the concentration of assets however the complexity of the liberalization package that accompanied privatization makes it difficult to establish strict causality for the economic collapse that followed in the early 1980s the chilean experience with privatization reveals some interesting lessons that other countries may wish to consider

the financial cycle and macroeconomics what have we learnt abstract it is high time we rediscovered the role of the financial cycle in macroeconomics in the environment that has prevailed for at least three decades now it is not possible to understand business fluctuations and the corresponding analytical and policy challenges without understanding the financial cycle this calls for a rethink of modelling strategies and for significant adjustments to macroeconomic policies this essay highlights the stylised empirical features of the financial cycle conjectures as to what it may take to model it satisfactorily and considers its policy implications in the discussion of policy the essay pays special attention to the bust phase which is less well explored and raises much more controversial issues

financial development and economic growth abstract this paper examines the empirical relationship between long run growth and financial development proxied by the ratio between bank credit to the private sector and gdp we find that this proxy is positively correlated with growth in a large cross country sample but its impact changes across countries and is negative in a panel data for latin america we argue that the latter findings is the result of financial liberalization in a poor regulatory environment our findings also show that the main channel of transmission from financial development to growth is the efficiency rather than the volume of investment

on the power of dickey fuller tests against fractional alternatives abstract we examine the properties of dickey fuller unit root tests under fractionally integrated alternatives and find that these tests have quite low power

hoarding international reserves versus a pigovian tax cum subsidy scheme reflections on the deleveraging crisis of 2008 9 and a cost benefit analysis abstract we outline the case for supporting self insurance by imposing a tax on external borrowing in a model of an emerging market entrepreneurs finance tangible investments via bank intermediation of foreign borrowing exposing the economy to negative fire sale externalities at times of deleveraging a risk that increases with the ratio of aggregate external borrowing to international reserves price taking economic agents ignore their marginal impact on the expected cost of a deleveraging crisis the optimal borrowing tax reduces the distorted activity external borrowing and induces borrowers to co finance the precautionary hoarding of international reserves

long memory and fractional integration in the housing price series of london and paris this article deals with the analysis of house price indexes from a long range dependence viewpoint in particular it estimates the fractional differencing parameter in the london and paris house price series recognizing in some cases the potential seasonality and allowing for breaks in the data moreover it analyses the stability of the parameters across the sample period examined it is concluded that the series are nonstationary but mean reverting in some cases and very persistent in others policy implications are derived

economic stabilization conditionality and political stability imf conditionality is seldom so important that it dominates all other considerations for political stability imf stabilization programs often shift benefits from one group to another they expose elites to charges of selling the sovereignty of their countries the imposition of imf conditions particularly subsidy cuts may lead to sharp outbreaks of civil disorder nonetheless the imf provides resources that make adjustment easier and thus may lessen the chances of political instability for a country imf programs are seldom implemented fully as negotiated and the penalties for partial compliance are not great debtor countries have more flexibility in imposing austerity measures and the economic constraints are less binding than often assumed the very availability of alternatives to imf programs results in internal divisions because some favor debt repudiation and others oppose it groups now contend over solutions to the debt problems of their countries

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

reserve accumulation and financial crises from individual protection to systemic risk abstract this paper provides a new perspective on the relationship between countries international reserve holdings and financial crises while the local view holds that reserves may prevent domestic crises it overlooks that the accumulation of reserves relaxes the financing constraint of the reserve currency country and may cause a financial crisis in the centre which is transmitted globally according to this global view reserve accumulation might destabilize the international financial system since the crisis affects all countries alike the accumulation of reserves imposes a negative externality on non accumulating countries we integrate this idea in a theoretical model of the optimal amount of reserves and illustrate the gap between local and global optimality the consideration of systemic risk lowers the demand for reserves moreover if a supranational authority determines the optimal level of reserves it internalizes the negative externality and accumulates fewer reserves a macroprudential tax on reserve hoardings might implement the socially optimal solution our calibration analysis shows that these considerations are economically significant they lower the optimal amount of reserves in the benchmark case by 45

capital inflow surges in emerging economies how worried should latin america and the caribbean be in the years leading up to the global economic crisis latin america and the caribbean received large capital inflows nonetheless the region survived the albeit short lived dramatic events of 2007 09 reasonably well with no financial crisis in any of the larger economies after the crisis capital inflows rose again in 2010 gross inflows to seven latin american countries argentina brazil chile colombia mexico peru and venezuela amounted to more than 6 percent of gross domestic product gdp and net inflows exceeded 3 percent of gdp more recently following the may 2013 speech of then chairman of the u s federal reserve ben bernanke there has been concern regarding the potential effects of tapering asset purchases by the u s federal reserve system and rising interest rates possibly spelling the end of large capital inflows to the latin american and caribbean region the literature on capital inflows suggests that while these flows represent an opportunity to spur investment and growth they may also increase vulnerability to financial crises macroeconomic instability and ultimately recession a relevant question then is whether the region can declare victory in being able to manage large capital inflows successfully or whether risks remain that justify strong measures our starting point is that the region has enjoyed strong surges in capital inflows we therefore decided to condition the analysis on surges occurring we do not seek to explain the reasons for such a surge one justification for this decision is that capital flows appear to be driven as much if not more by push rather than pull factors more specifically we seek to understand what determines whether such surges end in either a banking crisis or a recession while there is a substantial literature on the determinants of capital inflows their potential impacts have received much less attention the contribution of this paper is to analyze when inflow surges may end in severe economic problems including financial or macroeconomic instability rather than to identify the determinants of those surges we must first tackle the question of how to define a capital inflow surge we are helped in this regard by a small but growing literature however the current definitions of inflow surges in the literature may be injudicious we propose a new definition which considers the total size of the inflow episode across countries we also employ a more traditional definition based on yearby year inflows relative to a country specific threshold we contrast relevant statistics on the identified episodes using these two definitions and compare our episodes with others found in the literature we also consider whether the analysis should be conducted using gross or net inflows we take the view that employing net flows may discard useful information and that gross flows are relevant where financial instability is a potential concern even if net flows are zero a domestic financial system may intermediate large gross inflows when domestic residents purchase assets abroad we choose to focus on gross inflows but we include gross outflows as a potential explanatory variable so as not to lose information 1the empirical analysis in this paper develops a set of parsimonious models that discriminate reasonably well between the different economic outcomes we then analyze the case of a typical country from the region with a recent capital inflow surge providing a set of simulations to illustrate the economic magnitude of our results we simulate the changes in the estimated probabilities of negative outcomes given changes in certain critical variables we suggest that depending on the country inflow characteristics different policy measures may then be justified however a caveat is that emerging economies in general and latin america and the caribbean in particular have been experimenting with new policy measures and we are not able to evaluate their potential effectiveness in this paper

is there long run convergence among regional house prices in the uk this paper investigates the long run convergence of regional house prices in the uk existing studies have failed to reach a consensus on whether or not regional house prices exhibit long run convergence with each other the application is proposed of a new test involving unit root testing of the first principal component based on regional national house price differentials using mix adjusted quarterly data for 1973 2006 it is found that the first principal component is stationary this suggests that all uk regional house prices are driven by a single common stochastic trend further analysis suggests that those regions that are more distant from london exhibit the highest degrees of persistence with respect to deviations in house price differentials

the term structure of interest rates during a financial reform argentina 1977 81 abstract this paper studies the term structure of interest rates in argentina following the financial and monetary reforms of 1977 which mainly entailed the liberalization and deregulation of the financial system using first order conditions from the international capital asset pricing model we derived a set of term structure equations expressed in terms of returns data alone empirical implementation of these equations yielded results that are consistent with an important degree of time variation in term premiums

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

together or apart the relationship between currency and banking crises abstract the purpose of this study is to provide empirical evidence on the links between currency and banking crises panel data probit and bivariate probit models are estimated to a sample of 21 developed and developing countries having monthly observations between the years 1985 and 2010 the findings indicate that banking crises precede currency crises and vice versa currency crises also indirectly influence future banking crises probability through external shocks liberalized financial markets or highly leveraged banking sectors the study also finds evidence of contemporaneous correlation between the two crises the results not only confirm the theoretical links between banking and currency crises but also underline the importance of higher frequency data in analyzing the relationship between various financial crises

the assessment the twentieth century achievements failures lessons the past century saw unprecedented rises in life expectancy and living standards it also witnessed major structural changes the rise of big government and two globalizations yet the century s economic history was marred by policy and market failures resulting in a massive world wide depression frequent financial crises particularly in the developing world and several inflation spurts central planning set back development for one third of the world s population transition to the market economy was at best slow in some instances disastrous income distribution within countries changed little while productivity convergence between rich and poor economies was virtually absent policy making learnt some lessons from the 1930s experience particularly in the areas of macroeconomic management international cooperation and free trade dogmatic recipes however were often resorted to at home aided and abetted by the pretensions of the economics profession

currency crises are they all the same abstract the plethora of currency crises around the world has fueled many theories on the causes of speculative attacks the first generation models focus on fiscal problems while the second generation models emphasize countercyclical policies and self fulfilling crises in the 1990s models pinpoint to financial excesses with the crisis of argentina in 2001 models of sovereign default have become popular again while the theoretical literature has emphasized variety the empirical literature has supported the one size fits all models this paper contributes to the empirical literature by assessing whether the crises of the last 30 years are of different varieties

financial development financial liberalization and social capital abstractthe relationship between financial liberalization policies and financial development is controversial the impact of these policies differs greatly across countries in the literature the quality of formal institutions has been identified as an important source of this heterogeneity as countries with a weak institutional environment generally fail to benefit from financial liberalization using panel data covering 82 countries for the period 1973 2008 we find evidence that social capital may substitute for formal institutions as a prerequisite for effective financial liberalization policies in particular we find that during the post washington consensus period countries with a high prevailing level of social capital can ensure that financial liberalization positively influences financial development despite the poor quality of their formal institutions

persistence mean reversion and non linearities in the us housing prices over 1830 2013 abstractthe objective of this study is to provide a direct estimate of the degree of persistence of measures of nominal and real house prices for the us economy covering the longest possible annual sample of data namely 1830 2013 the estimation of the degree of persistence accommodates for non linear deterministic trends using chebyshev polynomials in time in general the results show a high degree of persistence in the series along with a component of non linear behaviour in general if we assume uncorrelated errors non linearities are observed in both nominal and real prices but this hypothesis is rejected in favour of linear models for the log transformation of the data however if autocorrelated errors are permitted non linearities are observed in all cases and mean reversion is found in the case of logged prices though given the wide confidence intervals the unit root null hypothesis cannot be rejected in these cases

a model of crises in emerging markets this paper presents a perfect foresight model of speculative attacks on emerging markets credit constrained governments are assumed to have two objectives to accumulate liquid assets in order to self insure against shocks to national consumption and to insure poorly regulated domestic financial markets this policy regime generates endogenous fiscal deficits defined to include the growth of contingent liabilities the model sets out a sequence of yield differentials consistent with capital inflows followed by anticipated speculative attacks the model suggests that a common shock generated capital inflows to emerging markets in asia and latin america after 1989

bank firm relationships and contagious banking crises this paper argues that in an open economy a banking system with close bank firm relationships may be easily subject to contagious banking crises because it is difficult to distinguish between crony capitalism and good main bank relationships 1 show that if international investors cannot distinguish the bank type the distinction between crony capitalism and good main bank relationships becomes very fuzzy in particular the model can explain sequences of bank defaults within a country even if the insolvent banks are very few ex ante as well as sequences of banking crises among countries that are equally rated by international investors but indeed differ in the ex ante solvency of their banking system

welfare effects of rural hospitial closures a nested logit analysis of the demand for rural hospital services been a central question in rural health debates over the past decade the reported results are mixed with some researchers finding that hospital closures in rural areas result in lower rates of inpatient hospitalizations bindman keane and lurie while other researchers have found no such link hadley and nair the literature on the economic impact of rural hospitals provides an additional perspective on hospital closures where researchers find that the presence of a hospital in a rural community generates significant positive economic effects cordes while research on both the access effect and the economic impact shed light on rural hospital closures neither approach rests upon the economic theory of demand and the principles of welfare analysis this paper argues that welfare evaluations of u s rural health policies can be undertaken with a discrete choice model of the demand

monetary trends in the united states and the united kingdom a review from the perspective of new developments in monetary economics milton friedman and anna schwartz monetary trends reports a great many findings 53 are enumerated in the introduction but paramount is the stability of the demand for money in the us and britain over the past century the money stock controls money income this proposition more than anything else is the point of their painstaking investigation friedman and schwartz argue against what might neutrally be called the early post war view of the macroeconomic role of money velocity will move easily to reconcile any level of nominal income to any money stock the demand for money in this view is a will o the wisp as the authors put it monetary policy has little influence over real activity stabilization policy necessarily relies on fiscal instruments the volume is completely convincing in disposing of this idea today s reader is likely to be puzzled why so much space is devoted to a view that has no serious adherents among professional economists friedman and schwartz are generals fighting an earlier war a situation accentuated by the long lags in putting this volume into print though the opposing armies fighting for the early postwar view have withdrawn in total rout a new front has opened up and the quantity theory is fighting for its life once again worse yet the new armies are fighting under the banner of free market economics and are led by former colleagues and students of milton friedman the midwest once the stronghold of the quantity theory is now largely occupied by the enemy the new monetary economics views the quantity theory as nothing more than an artifact of government regulation an economy organized along free market principles could function without money at all fischer black 1970 it is true that the kinds of monetary regulations imposed by the american and british governments of the past century create a more or less stable relation between a certain class of assets called money and nominal spending eugene fama 1980 but different regulations would alter that relation even the real bills doctrine anathema to quantity theorists because it invites unlimited expansion of the money supply has advocates in the new school thomas sargent and neil wallace 1981 a monetary system where the government is unconcerned about the money stock has been advocated by a university of chicago economist while visiting the hoover institution john bilson 1981 restoring the intrinsic value of money not limiting its quantity has been found to be the key to successful disinflation by one member of this group sargent 1982 a critical summary titled a laissez faire approach to monetary stability written see p 1528 above for publication information

financial opening and development evidence and policy controversies this paper outlines possible channels linking commercial and financial openness this inquiry is motivated by a salient feature of the global economy in recent decades the embrace by developing countries of financial reforms the adjustment process to the growing financial integration has been rocky frequently associated with financial crises these developments have led to a spirited debate concerning the wisdom of unrestricted capital mobility between oecd and emerging market countries various studies have identified circumstances in which unlimited capital mobility may be suboptimal this paper argues that notwithstanding the above debate the strongest argument for financial opening may be the pragmatic one like it or not greater trade integration erodes the effectiveness of restrictions on capital mobility hence for successful emerging markets that engage in trade integration financial opening is not a question of if but of when and how some insight into the possible linkages between financial and trade opening is obtained by looking at the patterns of changes in openness in the last 30 years in order to evaluate the statistical significance of the association between financial and trade openness i apply a panelregression methodology the units of observations are nonoverlapping five year changes in the openness measures throughout 1969 1998 for all countries subject to data availability table 1 presents the regressions where the dependent variable is the change in financial openness the explanatory variables are changes in trade openness and changes in the level of gdp per capita allowing for country fixed effects regression i reports all developing countries subject to data availability regression ii excludes from the sample developing economies countries that are characterized by financial openness that exceeds 100 percent or by trade openness that exceeds 60 percent and small island economies finally regression iii deals only with the oecd countries the first two regressions indicate a highly significant positive association between changes in financial and commercial openness in developing countries this effect in the oecd countries is positive but at a substantially lower significance level in aizenman and ilan noy 2003 annual data are used to investigate the impact of political economy and other structural variables on the links between trade and financial openness an extended version of our model where political economy considerations determine the efficiency of the tax system suggests that democracies are associated with lower financial openness our empirical investigation 317 social sciences 1 department of economics university of california santa cruz 1156 high st santa cruz ca 95064 and nber e mail jaizen ucsc edu i thank shang jin wei for sharing the data on financial openness and ilan noy and bill koch for excellent research assistance useful comments by mike dooley michael hutchison phil mccalman graciela kaminsky and ken kletzer are gratefully acknowledged 1 a useful survey of financial liberalization is john williamson and molly mahar 1998 see carlos diaz alejandro 1985 dani rodrik 1999 and thomas hellmann et al 2000 for skeptical assessments of the gains from financial liberalization for studies dealing with the financial instability associated with capital account opening see the papers in sebastian edwards and jeffrey frankel 2002 on the association between financial integration and financial crises see asli demirguc kunt and enrica detragiache 1998 guillermo calvo 1998 and graciela kaminsky and carmen reinhart 1999 2 financial openness measures gross private capital inflows gross private outflows 100 gdp using the data documented and applied by shang jin wei and yi wu 2002 and eswar prasad et al 2003 trade openness measures exports imports 100 gdp using the world development indicators wdi data 3 the inclusion of gdp per capita as an explanatory variable is suggested by the linkages between gdp per capital level and financial depth 4 following the approach of alex cukierman et al 1992 one expects less polarized societies and better functioning democracies to be characterized by more efficient taxcollection systems applying this conjecture a more efficient tax system would be associated also with lower tax

testing for convergence between uk regional house prices drake l 1995 testing for convergence between uk regional house prices reg studies 29 357 366 this paper uses the kalman filter time varying parameter estimation technique to test for convergence between uk regional house prices this issue is significant given the historical disparities in regional house price inflation rates and the unprecedented downturn in both uk and most regional house prices in the late 1980s and early 1990s the evidence suggests that there are clear regional differences in the pattern of uk house price movements in particular house prices in the north and scotland show evidence of greater divergence from prices in the rest of the south east region than do the southern and midlands regions drake l 1995 une analyse pour determiner la convergence des prix du marche immobilier regionaux au royaume uni reg studies 29 357 366 cet article se sert de la technique dite kalman filter afin de determiner la convergence des prix du marche immobilier regionaux au royaume uni c

does the ecb act as a lender of last resort during the subprime lending crisis evidence from monetary policy reaction models abstract we investigate whether the ecb aligns its monetary policy with financial crisis risk in emu member countries we find that since the outbreak of the subprime crisis the ecb has significantly increased net lending and reduced interest rates when banking and sovereign debt crisis risk in vulnerable emu countries greece ireland italy portugal and spain increases while no significant effect is identified for the pre crisis period and relatively tranquil emu countries austria belgium france germany and the netherlands these findings suggest that the ecb acts as a lender of last resort for vulnerable emu countries

did established early warning signals predict the 2008 crises abstract over the past 60 years a voluminous literature has painstakingly developed crises theories and their associated early warning signals the hallmark of this literature is the consistency with which selected early warning signals such as the level of reserves and exchange rate appreciations are presumed to predict different types of crises across countries and time the diversity of crises theories that motivate early warning signals presents however a challenge to empirical implementations given that the true model of early warning signals is unknown omitted variable bias contaminates estimates and confidence levels when the uncertainty surrounding a particular theory has been ignored after addressing model uncertainty in early warning signal regressions using an extended version of frankel and saravelos 2012 j int econ 87 216 231 dataset we do not find a single early warning signal that alerts to all dimensions of the 2008 crisis instead distinct sets of early warning signals identify different dimensions of the crisis banking balance of payments exchange rate pressure and recession

seasonality and cointegration of regional house prices in the uk the data generation process underlying regional house prices in the uk is investigated using new statistical tests it is found that causal flows tend to be northwards the south east rather than greater london acts as an exogenous price determinator of the other regions in the south the midland regions have a great influence on prices in the north and flows through the east midlands are characterised by bi directional causality these results are largely independent of assumptions made about the data generation process and tests of these assumptions have low power in any case there are also similarities between this causality and migration patterns particularly in the south of england