the international transmission of interest rate shocks the federal reserve and emerging markets in latin america and asia abstract this paper analyzes the effects of changes in the u s federal reserve s federal funds rate on emerging countries interest rates using high frequency weekly data i also investigate how changes in the u s term structure affect short term rates differentials other shocks include changes in the u s dollar euro exchange rate changes in the international price of oil risk ratings and the degree of capital mobility the results indicate that there is a strong and fairly rapid transmission of changes in the federal funds rate into interest rates in the latin american countries in the sample this effect is equally large in the asian nations in the long run the adjustment path is different across the two regions however adjustment is very fast and cyclical in latin america it is gradual and slower in east asia

the economics of exchange rate regimes a review essay the exchange rate regime issue has taken centre stage in discussions of international economic policy much of the profession appears to have been converted to the hypothesis of the vanishing middle regime for countries well integrated into world capital markets there is little if any middle ground between floating exchange rates and monetary unification this paper considers the exchange rate regime issue in the context of recent books on the subject by w max corden and morris goldstein both authors prescribe managed floating exchange rates supplemented with inflation targeting for emerging market economies under managed floating and with a credible monetary policy the public finances in order and strengthened debt management and prudential regulation the exchange rate is free to act as a market gauge for assessing policies and as a mode of conflict resolution both authors also argue however that no exchange rate regime is a holy grail ultimately a credible exchange rate regime depends upon the trust evoked by governments there is no exchange rate regime whether of the managed floating or hard fix variety that can eradicate a history of failed stabilisation attempts

capital controls capital flow contractions and macroeconomic vulnerability abstract in this paper i analyze whether restrictions to capital mobility reduce vulnerability to external shocks more specifically i ask if countries that restrict the free flow of international capital have a lower probability of experiencing a large contraction in net capital flows i use three new indexes on the degree of international financial integration and a large multi country data set for 1970 2004 to estimate a series of random effect probit equations i find that the marginal effect of higher capital mobility on the probability of a capital flow contraction is positive and statistically significant but very small having a flexible exchange rate greatly reduces the probability of experiencing a capital flow contraction the benefits of flexible rates increase as the degree of capital mobility increases a higher current account deficit increases the probability of a capital flow contraction while a higher ratio of fdi to gdp reduces that probability

women s changing participation in the labor force a world perspective this paper describes how the composition of the labor force changes with economic development it considers recent trends in women s labor force participation and the type of jobs held in various sectors as national per capita income increases the paper notes that women are more likely to work in the family or informal labor market if the labor costs to firms exceed the opportunity costs of female labor to family enterprises firms are at a relative disadvantage compared with families in the employment of less experienced and less skilled labor presumably because their labor costs are affected by such regulations as minimum wage social insurance premiums and limits on firing in asia and africa an increase in the proportion of employment in firms within the major sectors accounts for most of the rapid growth in women s overall share of wage employment in latin america however growth in the proportion of firm employment has been slower than elsewhere and the share of women in wage employment has even fallen overall in several countries it is not unreasonable to assume that women have lost more than men from market regulations and distortions but little research has addressed this proposition if it is true however these interventions in the labor market may be responsible for slowing women s transition from nonmarket and family work to firm employment this in turn may affect the rate and structure of economic growth

efficiency wage models of unemployment one view h lorne carmichael persistent wage rigidity and involuntary unemployment appear to be recurrent problems in most economies what could be preventing the wage adjustment necessary to clear the labor market many recent papers claim to have found the answer in efficiency wage models this paper surveys this literature and attempts to evaluate its accomplishments it concludes that the efficiency wage models fail to explain wage rigidity or persistent involuntary unemployment persistent involuntary unemployment of workers is a recurrent problem in labor markets all over the world unemployed workers seem unable to find work even though they are willing to accept lower wages than those being paid employed workers with similar skills what could be preventing wages from adjusting to clear these markets many recent papers known collectively as the efficiency wage literature now claim to have the answer this paper will survey the efficiency wage literature and critically evaluate some of its accomplishments efficiency wage models have already been examined by yellen 1984 katz 1986 and stiglitz 1987 and have received generally favorable reviews this paper is more critical its overall conclusion is that efficiency wage models provide some useful insights into the workings of the labor market but they do not provide a satisfactory account of wage rigidity or involuntary unemployment there are at least five separate versions of the efficiency wage model they share a common structure however and this is outlined in the first section of the paper this section also attempts to relate efficiency wage models to other recent models of unemployment section ii examines and criticizes the different approaches in detail section iii evaluates the achievements of this approach and suggests some directions for future work i a general efficiency wage model efficiency wage models as the name suggests are first of all models of wages they generate unemployment by showing that firms will sometimes want to set wages at non market clearing levels it is useful to begin therefore by reviewing how wages and employment are determined in some related models in a perfectly competitive labor market the wage for each type of labor is adjusted constantly to maintain equality of supply and demand overall employment fluctuates in response to demand changes as workers move up and down their labor supply curves unemployment is voluntary in that anyone who is not working prefers that state to employment at the going wage for people of his skills as well the value of a worker s marginal product is equal to the marginal value of his leisure so there are no unexploited wage bargains between unemployed workers and firms this model is successful in predicting the long term response of wages to shifts in demand and supply but it is clear that in the short run its depiction of voluntary unemployment and flexible wages is unrealistic a natural way to generate more realism is to assume that wages are inflexible in the short run in this case a reduction in demand away from a long run equilibrium will lead to rationing of jobs by employers as they attempt to stay on their labor demand curves the unemployment here is involuntary in that the unemployed would prefer to be working at the going wage and is inefficient in that there are lost gains from trade between these workers and firms the weakness of this model is that it is silent about the mechanism that keeps wages rigid unemployed workers who offer to work for less than the fixed wage ought to find work the early implicit contract models of azariadis 1975 baily 1974 and gordon 1974 provide one explanation for wage rigidity these models introduced the idea that wages can do more than just clear the market for labor wages in an implicit contract model are used to shift the risk generated by uncertain output market conditions from risk averse workers to the risk neutral firm

crisis transmission evidence from the debt tequila and asian flu crises the increasing globalization of the economy has put the issue of the international transmission of crises in the front line although the word contagion is a rather new concept in international finance it is the focus of a large number of policy oriented seminars and debates the clustering of crises by both region and time are at the heart of this discussion there are several important questions that need to be answered in this chapter we focus on a subset of them i what are the propagation channels of international crises across countries other than common shocks ii was the debt crisis contagious and iii are there useful policy instruments to shield countries from contagion in particular do capital controls exchange rate flexibility and the external debt maturity structure affect contagion we seek to answer these questions using evidence from three key events the 1982 debt crisis the 1994 mexican devaluation and the 1997 asian crisis

the federal reserve the emerging markets and capital controls a high frequency empirical investigation in this paper i use weekly data from seven emerging nations four in latin america and three in asia to investigate the extent to which changes in fed policy interest rates have been transmitted into domestic short term interest rates during the 2000s the results suggest that there is indeed an interest rates pass through from the fed to emerging markets however the extent of transmission of interest rate shocks is different in terms of impact steady state effect and dynamics in latin america and asia the results also indicate that capital controls are not an effective tool for isolating emerging countries from global interest rate disturbances changes in the slope of the u s yield curve including changes generated by a twist policy affect domestic interest rates in emerging countries i also provide a detailed case study for chile

how effective are capital controls a number of authors have recently argued that in order to avoid financial instability emerging countries should rely on capital controls two type of controls have been considered controls on capital outflows and controls on capital inflows in this paper i review the historical evidence on the effectiveness of these two type of controls i argue that controls on outflows have been ineffective they are circumvented and breed corruption i also analyze chile s recent experience with controls on inflows and i argue that their effectiveness has been exaggerated

capital controls on inflows exchange rate volatility and external vulnerability abstract we use high frequency data and a new econometric approach to evaluate the effectiveness of controls on capital inflows we focus on chile s experience during the 1990s and investigate whether controls on capital inflows reduced chile s vulnerability to external shocks we recognize that changes in the controls will affect the way in which different macro variables relate to each other in particular we consider the case where controls co exist with an exchange rate band aimed at managing the nominal exchange rate we develop a methodology to deal explicitly with the interaction between these two policies the main findings may be summarized as follows a a tightening of capital controls on inflows depreciates the exchange rate and b we find that a tightening of capital controls increases the unconditional volatility of the exchange rate but makes it less sensitive to external shocks

capital controls in brazil stemming a tide with a signal controls on capital inflows have been experiencing a renaissance since 2008 with several prominent emerging markets implementing them in recent years we focus on brazil which instituted five changes in its capital account regime in 2008 2011 using the synthetic control method we construct counterfactuals i e brazil with no policy change for each of these changes we find no evidence that any tightening of controls was effective in reducing the magnitudes of capital inflows but we observe some modest and short lived success in preventing further declines in inflows when the capital controls were relaxed we hypothesize that price based capital controls only perceptible effect is to be found in the content of the signal they broadcast regarding the government s larger intentions and sensibilities in the case of brazil its left of center government s willingness to remove controls was perceived as a noteworthy indication that the government was not as hostile to the international financial markets as many expected it to be

not your grandfather s imf global crisis productive incoherence and developmental policy space the response by the international monetary fund imf and developing country national governments to the current global financial crisis represents a moment of what i term productive incoherence which has displaced the constraining neoliberal coherence of the past several decades productive incoherence refers to the proliferation of inconsistent and even contradictory strategies and statements by the imf that to date have not congealed into any sort of new organised regime those who see continuity at the imf emphasise the reassertion of the imf s authority the reiteration of pro cyclical policy adjustment and the maintenance of existing governance patterns within the institution in contrast evidence of discontinuity includes a world now populated by increasingly autonomous states in the south the normalisation of capital controls and fund conditionality programmes that are inconsistent in key respects in the face of this evidence it is best to understand the current conjuncture as an interregnum that is pregnant with new development possibilities

compositional effects of capital controls theory and evidence this paper examines the effects of capital controls on the composition of inter national capital flows paying particular attention to debt inflows versus equity inflows a two period small open economy model with stochastic second period output and asymmetric information between domestic agents and international financiers is utilised to generate predictions regarding the effects of capital controls on the relative use of debt versus equity for financing first period investment these capital control implications are then investigated with quarterly frequency panel data for latin america capital controls are found to significantly affect the composition of the capital account

volatility dependence and contagion in emerging equity markets abstract in this paper we use weekly stock market data for a group of latin american countries to analyze the behavior of volatility through time we are particularly interested in understanding whether periods of high volatility are correlated across countries the analysis uses both on univariate and bivariate switching volatility models our results do not rely on the correlation coefficients but on the co dependence of volatility regimes the results indicate that high volatility episodes are in general short lived lasting from 2 to 12 weeks we find strong evidence of volatility co movements across countries especially among the mercosur countries

persistent wage dispersion and involuntary unemployment it is costly for firms offers to workers to be turned down both because firms must make additional offers and making offers is costly and because capital is underused or unused provided that workers apply to at least two firms for jobs there will be wage dispersion in equilibrium and some workers will randomly fail to receive any wage offers firms in the same industry with access to the same technology may nevertheless choose different levels of capital intensity firms using capital intensive technologies will pay higher wages

capital account liberalization what do cross country studies tell us capital account liberalization it is fair to say remains one of the most controversial and least understood policies of our day one reason is that different theoretical perspectives have very different implications for the desirability of liberalizing capital flows another is that empirical analysis has failed to yield conclusive results the answer another influential strand of thought contends is that this efficient markets paradigm is fundamentally misleading when applied to capital flows limits on capital movements are a distortion it is an implication of the theory of the second best that removing one distortion need not be welfare enhancing when other distortions are present

equilibrium wage dispersion and interindustry wage differentials this paper develops a search theoretic explanation of interindustry wage differentials given coordination problems in the labor market the probability of filling a vacancy is an increasing function of the wage offered in equilibrium firms that find vacancies more costly will offer higher wages the model thus explains the persistence of interindustry wage differentials and their correlation with industry average capital labor ratio and profitability additionally the model predicts that high wage firms will receive more applications per job opening and that wages in the labor market will behave as strategic complements

premiums to employment in larger establishments evidence from peru abstract examination of the employer size wage effect for males in urban peru suggests the following higher wages in larger establishments do not merely compensate for higher worker quality or inferior working conditions size differences in the use of rising wage tenure profiles cannot provide a market clearing explanation for the employer size wage effect unless workers are extremely impatient thus larger employers appear to pay premiums unionization explains none of the premiums and minimum wage compliance explains at best a small fraction shirking based efficiency wage explanations for premiums are implausible because peruvian job security legislation greatly inhibits dismissals in larger establishments explanations meriting further research involve the use of high wages to reduce turnover and to improve productivity enhancing morale

dual exchange markets for countries facing financial crises abstract in dual exchange markets there is an exchange market for capital transactions separate from the foreign exchange market for current transactions developing countries experiencing financial crises should avoid both a substantial decline in the exchange value of their currency and a reduction of their imports to the point at which their production and consumption of essentials are grossly impaired it is suggested that a temporary system of dual exchange markets will prevent capital outflow from reducing foreign exchange for imports of goods and services both markets should be free of exchange controls except those needed to maintain separation of the markets

job protection the macho hypothesis this paper shows that the stringency of employment protection in mediterranean countries can be partly explained by cultural values embedded in religion both the security provided by this legislation and its redistributive effects in favour of the male breadwinner insiders fit into the framework of mediterranean religions first international individual surveys allow us to document that catholics and muslims are more likely to agree with traditional gender division of work than protestants and the non religious second we develop a political economy model predicting that employment protection should be more stringent in countries where there is a larger share of insiders supportive of traditional family values we then show that this prediction is supported by empirical evidence on oecd countries over the period 1970 99 copyright 2006 oxford university press

a selectivity model of employer size wage differentials this article investigates wage differentials for employees of different size firms utilizing an econometric methodology that allows the size of employer to be treated as endogenous in the context of discrete ordered employer size data as a result we are able to estimate i employer size wage gaps which are corrected for selectivity bias and ii the magnitude and direction of the selection bias decompositions of the resulting wage differentials are computed with comparisons of the conditional on sorting across employer size and unconditional wage gaps

why do smaller firms pay less this paper uses data from the national longitudinal survey of young men and the current population survey for 1983 to examine the relationships among wages firm size and plant size we reach three key findings first plant size has little independent effect on wages once we have controlled for firm size for firms with fewer than 1 000 employees second we find evidence of sorting on observed and unobserved ability characteristics across firm sizes better educated and more stable workers are in larger firms third results from a first difference estimator indicate that about 60 percent of the wage size effect is due to unobserved heterogeneity when all firms are considered and about 100 percent when firms with 25 or more employees are considered

stock market cycles financial liberalization and volatility in this paper we analyze the cycles of the stock markets in four latin american and two asian countries and we compare their characteristics we divide our sample in two subperiods in order to account for differences induced by the financial liberalization processes of the early 1990s we find that cycles in emerging countries tend to have shorter duration and larger amplitude and volatility than in developed countries however after financial liberalization latin american stock markets have behaved more similarly to stock markets in developed countries whereas asian countries have become more dissimilar concordance of cycles across markets has increased significantly over time especially for latin american countries after liberalization

distinguished lecture on economics in government exchange rate regimes is the bipolar view correct the choice of appropriate exchange rate regime which for economies with access to international capital markets increasingly means a move away from the middle ground of pegged but adjustable fixed exchange rates towards the two corner regimes of either flexible exchange rates or a fixed exchange rate supported if necessary by a commitment to give up altogether an independent monetary policy lawrence h summers 2000 p 8

the influence of capital controls on long run growth where and how much abstract the financial crisis in east asia generated a revival of interest in the merits of financial openness the ensuing debate on the benefits of openness has focused more on short and medium run issues than on the long run effects within the empirical literature on economic growth little or no attention has been paid to the effects of financial openness contrary to the orthodox position the few results that exist suggest that capital controls have no effect on economic growth this paper argues that this conclusion emerges from a failure to account for underlying differences across countries with similar degrees of capital controls we show that the degree of ethnic and linguistic heterogeneity in a country plays a significant role in explaining the effects of controls on economic growth for countries with relatively higher degrees of ethnic heterogeneity the effects are particularly adverse whereas for countries with high degrees of homogeneity capital controls actually have a net positive effect on economic growth on balance more developing countries suffered due to controls than not within the sample of 57 non oecd countries that did implement controls for the period 1975 1995 as many as 39 saw a reduction in their growth rates this result is robust to a number of variables commonly used in the economic growth regressions

deeper integration in east asia regional institutions and the international economic system sea change in east asian perceptions of the international economic system is causing a determined thrust toward deeper east asian integration through regional financial and trade institutions the financial crisis of 1997 98 contributed to this change by revealing weaknesses in the international financial architecture at the same time that it bared weaknesses in domestic policies and institutions in east asia many east asians felt the existing international financial system failed to provide them with adequate prescriptions or aid at a time of great need in response governments are intensifying regional policy cooperation and have begun to develop regional institutional capacity to head off future financial crises and manage them if they occur this change in perceptions of the international economic system has been reinforced by paralysis in the world trade organisation wto the failure of governments to launch a new round of multilateral trade negotiations at the november 1999 wto ministerial meeting in seattle is helping to propel regional approaches to trade liberalisation deeper integration in east asia is a potentially substantial development which will influence the future shape of the international economic system in section 2 i review the primary factors contributing to the financial crisis and discuss the implications for policy makers in east asia in a context of diminished confidence in global institutions the emphasis is on macroeconomic policy management structural reforms changing incentive systems overhauling crisis

international investment agreements and services markets locking in market failure summary bilateral investment treaties bits and investment chapters in preferential trade agreements have become popular measures to guarantee investor friendly policies while they reassure multinational firms they also constrain host country authorities in regulating markets to stimulate competition these problems are widespread in service industries characterized by significant economies of scale this paper presents case studies of the difficulties the chilean regulatory authorities faced in regulating the financial services telecom and energy industries it concludes that able regulators are necessary but that international agreements need to also leave enough policy space

capital controls in brazil effective abstract a large theoretical literature emerged in recent years analyzing the positive and normative effects of capital controls begging for empirical studies to validate it no emerging market experimented as actively with controls on capital inflows as brazil did since late 2009 this paper analyzes the impact of those measures these policies had some success in segmenting the brazilian from global financial markets as measured by the spread between onshore and offshore dollar interest rates as well as adr premia relative to the underlying local stocks the measures adopted from late 2009 to mid 2011 did not translate into significant changes in the exchange rate suggesting limited success in mitigating exchange rate appreciation however the exchange rate strongly depreciates after a tax on the notional amount of derivatives is adopted in mid 2011 the last of the three restrictions studied may have depreciated the brazilian real in the range from 4 to 10 percent that strong response may have been driven by complementarities with the previous measures as well as an unexpected easing in monetary policy

evaluation of currency regimes the unique role of sudden stops this paper tackles two established puzzles in international macroeconomics literature the first is the lack of systematic differences in the macroeconomic performance across exchange rate regimes the second is the absence of a clear empirical relationship between macroeconomic performance and capital account liberalization we suggest that these negative findings may be due to empirical methods that fail to account for a latent economic crisis state influenced by exchange rate and capital account regimes and to allow that latent variable to influence the growth effects of policy regimes in practice we model and estimate the latent state of the economy as a crisis probability our proposed framework of analysis allows exchange rate and capital market liberalization regimes to have both a direct effect on short term growth and an indirect effect on growth that is channelled through their effects on the crisis probability the empirical decomposition of the total effect into two conflicting effects helps resolve the puzzles assaf razin and yona rubinstein

capital controls and recovery from the financial crisis of the 1930s abstract we examine the first widespread use of capital controls in response to a global or regional financial crisis in particular we analyze whether capital controls mitigated capital flight in the 1930s and assess their causal effects on macroeconomic recovery from the great depression we find evidence that they stemmed gold outflows in the year following their imposition however time shifted difference in differences dd estimates of industrial production prices and exports suggest that capital controls did not accelerate macroeconomic recovery relative to countries that went off gold and floated countries imposing capital controls also appear to perform similar to the gold bloc countries once the latter group of countries finally abandoned gold time series analysis suggests that countries imposing capital controls refrained from fully utilizing their newly acquired monetary policy autonomy

is the accumulation of international reserves good for development international reserves accumulation has been the preferred policy recently adopted by developing economies to achieve financial stability the aim of this policy is to increase liquidity and thus reduce the risk of suffering a speculative attack the main concern expressed in the literature has been related to its cost most of the studies conclude that the opportunity cost of international reserves accumulation is around 1 of gdp however these studies have not analysed whether this strategy is or could be more broadly supportive of development an issue that must be of central interest for developing economies the aim of this paper is to show that the stockpiling of international reserves is not optimal for developmental purposes and that there exist alternative policies that can be applied to achieve financial stability policy autonomy and a better performance in terms of development

capital mobility and coalitional politics authoritarian regimes and economic adjustment in southeast asia this article investigates the coalitional bases of authoritarian rule to explain striking variation in adjustment policy to the asian financial crisis in indonesia and malaysia given currency depreciation with financial sector fragility holders of mobile assets prefer to maintain an open capital account while owners of fixed assets and labor favor restrictions of capital mobility to facilitate expansionary macroeconomic policies differences in adjustment policy across the two countries reflect differences in the political coalitions supporting the authoritarian regimes these findings illuminate the nature of political conflict during financial crises and show how a nuanced view of the coalitions supporting authoritarian rule can yield powerful insights into the political economy of authoritarianism and economic adjustment in a global economy

financial instability in latin america in this paper i deal with a number of issues related to financial instability in latin america i first discuss from a macroeconomic research perspective what i believe are some of the most important policy issues faced by the latin american nations these include the effectiveness of controls on capital inflows the effect of exchange rate depreciation on output and the international transmission of the business cycle second i argue that the economic research agenda on latin america should not ignore history in latin america more so than in any other region in the world there has been a self destructing tendency for repeating history 2003 elsevier ltd all rights reserved

the place premium bounding the price equivalent of migration barriers large international differences in the price of labor can be sustained by differences between workers or by natural and policy barriers to worker mobility we use migrant selection theory and evide

demand for international reserves in developing nations a quantile regression approach abstract i estimate the determinants of the demand for international reserves using quantile regressions employing a dataset of 108 developing nations over the period of 1980 2007 i find considerable differences at different points of the conditional distribution of reserves the estimates of elasticities that were found to be insignificant in ordinary least squares regressions become statistically significant at various quantiles of the distribution furthermore majority of the explanatory variables have lower coefficients for the nations that are located on the right tail of the conditional reserve distribution this finding shows that the level of reserves is as important as the other determinants of the demand for reserves

work characteristics firm size and wages a positive wage firm size relationship is well documented in the empirical literature in industrial organization and labor economics firm size seems to proxy various unobserved determinants such as job satisfaction monitoring costs more complex technologies and worker participation in monopoly profits it is generally argued that the greater the possibility of controlling for these latent factors the less likely that a significant size effect will appear this paper attempts to distinguish firm size from other wage determinants for a rich data source for west germany and demonstrates the persistence of the size premium

capital controls re examined the case for smart controls the global financial crisis which began in east asia in 1997 is not over neither is the inquest into its implications for adjustment policy in the wake of this crisis we focus here on the role of capital controls which formed a much publicised part of the crisis coping strategy in one country malaysia and less openly were also deployed by other crisis afflicted countries evaluation so far has examined different target variables with different estimation methods generally concentrating on efficiency and stability indicators and ignoring equity measures it has also typically treated control as a one zero dummy variable ignoring the quality of intervention and in particular the extent to which efficiency gains are obtained in exchange for controls partly because of these limitations the literature has reached no consensus on the impact of controls nor therefore about where they fit within the set of post crisis defence mechanisms we propose an approach in which the government plays off short term political security against long term economic gain the more insecure its political footing the greater the weight it gives to political survival which is likely to increase the probability of controls being imposed the modelling of this approach generates a governmental policy reaction function and an impact function for controls which are estimated by simultaneous panel data methods across a sample of thirty developing and transitional countries between 1980 2003 using for the period since 1996 the new imf dataset which differentiates between controls by type we find that controls appear to cause increases in income equality and are significantly associated with political insecurity and relatively low levels of openness to trade they do not in our analysis materially influence the level of whole economy productivity or gdp across the sample of countries examined although they do influence productivity in particular sectors in particular manufacturing but the dispersion around this central finding is wide the tendency for controls to depress productivity by encouraging rent seeking sometimes is and sometimes is not counteracted by purposive government policy actions to maintain competitiveness whether or not this happens whether as we put it controls are smart and the manner in which they are smartened is vital on both efficiency and equity grounds we devise a formula for and make the case for capital controls which are time limited and contain an inbuilt incentive to increased productivity as a means of improving the sustainability and equity of the adjustment process whilst keeping to a minimum the cost in terms of productive efficiency

public debts and private assets explaining capital flight from sub saharan african countries we investigate the determinants of capital flight from 30 sub saharan african countries including 24 countries classified as severely indebted low income countries for the period 1970 1996 the econometric analysis reveals that external borrowing is positively and significantly related to capital flight suggesting that to a large extent capital flight is debt fueled we estimate that for every dollar of external borrowing in the region roughly 80 cents flowed back as capital flight in the same year capital flight also exhibits a high degree of persistence in the sense that past capital flight is correlated with current and future capital flight the growth rate differential between the african country and its oecd trading partners is negatively related to capital flight we also explore the effects of several other factors inflation fiscal policy indicators the interest rate differential exchange rate appreciation financial development and indicators of the political environment and governance we discuss the implications of the results for debt relief and for policies aimed at preventing capital flight and attracting private capital held abroad

capital controls and the real exchange rate do controls promote disequilibria abstract the consensus view is that capital controls can effectively lengthen the maturity composition of capital inflows and increase the independence of monetary policy but are not generally effective at reducing net inflows and influencing the real exchange rate this paper studies the adjustment dynamics of the real exchange rate towards its long run equilibrium and presents empirical evidence that capital controls increase the persistence of misalignments allowing the speed of adjustment to vary according to the intensity of restrictions on capital flows it is shown that the real exchange rate converges to its long run level at significantly slower rates in countries with capital controls this result is stronger when the exchange rate is undervalued and is independent of confounding factors such as the exchange rate regime and other forms of heterogeneity affecting the speed of adjustment i also find evidence that controls on capital inflows have greater effects than controls on outflows in addition while the combination of capital controls with a fixed or managed exchange rate regime significantly increases the persistence of misalignments controls appear to loose traction under more flexible exchange rate arrangements

wage differentials and moonlighting by civil servants evidence from cote d ivoire and peru as part of their efforts to reduce fiscal deficits many governments have allowed public sector salaries to erode often on the assumption that government workers are overpaid vis a vis those in the private sector that assumption is tested by analyzing public private pay differentials in cote d ivoire and peru switching regressions models are estimated using full information maximum likelihood fiml and the results are compared to those obtained using ordinary least squares ols techniques the ols yields seriously biased estimates of the pay structure suggesting that public wages are higher than private wages the fiml estimates show the opposite our probit analysis also shows that the wage disadvantage of civil servants is a determinant of the greater prevalence of moonlighting among public than private employees the evidence suggests that reductions in employment rather than pay while being less palatable in the short term will be more effective in the long run

capital controls and stock market volatility in frequency domain abstract the link between capital controls and stock market volatility is examined using frequency domain techniques conventional analyses of the second moments can produce spurious results if the high frequency volatility is reduced increased while the overall volatility is increased reduced

capital mobility in developing countries some measurement issues and empirical estimates an economy s financial integration with the outside world the extent of capital mobility across its borders is a key determinant of some of its most important macroeconomic properties yet little is known about this characteristic of many developing economies an important stumbling block in the empirical assessment of financial integration openness is the many approaches to measuring it the author describes and evaluates different tests of capital mobility surveys existing evidence and applies four tests of capital mobility to assess the degree to which the many developing countries tested have achieved integration with the world financial markets the four tests are the 1 magnitude of gross capital flows 2 uncovered interest rate parity 3 strength of saving investment correlations and 4 behavior of domestic consumption over time the evidence suggests that most developing countries can be considered to be financially open in only 18 of the 57 developing countries classified did the data fail to show financial openness and that many countries may be experiencing an increased degree of integration with world financial markets

capital account liberalisation and poverty how close is the link the literature on the theoretical and empirical aspects of the relationship between finance and economic growth is both substantial and extensive the same cannot be said on the relationship between financial development and poverty reduction an equally important aspect in this study we visit the theoretical arguments and conduct an empirical analysis of the relationship between the capital account dimension of financial liberalisation and poverty for developing countries for the period 1985 2005 in particular we employ the system gmm technique to test whether capital account liberalisation has helped alleviate poverty and also whether the extent to which capital account liberalisation affects poverty depends on the quality of institutions we also use ols and iv techniques to verify our findings our findings indicate that there is no statistically significant relationship between the degree of capital account liberalisation during the period and the poverty rate developing countries with higher institutional quality have lower poverty rates but the effect has low statistical significance a higher degree of capital account liberalisation is associated with a lower income share for the poor

tenure unions and the relationship between employer size and wages the unionization rate in a worker s industry and the worker s tenure are interacted with employer size in wage regressions using current population survey data the results provide insight into the relatively small size wage relationship in the union sector nonunion tenure profiles steepen sharply with establishment size while union profiles flatten also the effect of industry unionization increases with firm size in the nonunion sector a pattern indicative of threat effects a separate analysis of nonunion wages indicates that size wage relationships are stronger in occupations associated with high monitoring costs

a model of the natural rate of unemployment since the publication of edmund phelps volume the new macroeconomics has treated the labor market as a dynamic process of rational search by unemployed workers for available vacancies wages are viewed as at least potentially flexible though free contracting between workers and firms may lead to fixed wages in the short run imperfect information is a crucial element of the theory for it implies both a need for contracting and a need for rational search rather than simple market clearing in each period a positive rate of frictional unemployment may exist in equilibrium denoted as the natural rate this unemployment is due to the frictions in the search process and imperfections in information rather than to any deficiency in aggregate demand milton friedman defined the natural rate as the level that would be ground out by the walrasian system of general equilibrium equations provided there is embedded in them the actual structural characteristics of the labor and commodity markets including market imperfections stochastic variability in demands and supplies the cost of gathering information about job vacancies and labor availabilities the costs of mobility and so on p 8 this paper reexamines the micro foundations of the natural rate in a model of labor market equilibrium in which turnover flows and imperfect information are explicitly considered workers may quit their current jobs to enter the unemployment pool in order to search among available vacancies for a more preferred position firms economize on turnover by an appropriate wage policy

regulation of capital flows effects on liquidity and the role of financial reporting quality abstract capital controls as restrictions on capital flows are a tool proposed as a cure to the destabilizing market movements of the 1970s i e tobin 1978 despite the criticism that they have received edwards 1999 capital controls resurfaced during the european financial crisis and the restrictions imposed on capital flows in cyprus and greece these were the first instances of capital control implementation in the european union s history and had various effects on firms financial positions by using a sample of eu countries and distinguishing between austerity and capital controls periods we assess the effects of capital controls on the stock liquidity of firms all of the sample countries have a common financial reporting framework international financial reporting standards ifrs and some of them implemented a range of different measures from less intensive such as increases in tax rates to more intensive such as the enforcement of capital controls in their effort to stabilize their economies for the task at hand we specifically engage two accounting determinants of information asymmetry namely conditional conservatism and the level of earnings management our results show that financial reporting quality as measured by higher conditional conservatism and lower earnings management is beneficial for liquidity however during the capital controls period the relation between conditional conservatism and liquidity becomes negative and this negative relation relates to less risky firms thus the negative relation between conditional conservatism and liquidity is likely due to investors keeping more conservative firms in their portfolios as a measure against the crisis

controls on capital inflows do they work abstract this paper analyzes the effectiveness of controls on capital inflows in particular we analyze in great detail the chilean experience with the use of the unremunerated reserve requirement we examine the effects of the controls applied in chile in 1991 1998 on interest rates real exchange rate and the volume and composition of capital inflows the effects are elusive and it is difficult to pin down long run effects although after the unremunerated reserve requirement was introduced there was an increase in the interest rate differential the econometric evidence does not show it has a significant long run effect also we detect very small effects on the real exchange rate however the more persistent and significant effect is on the composition of capital inflows tilting composition toward longer maturity

government intervention efficiency wages and the employer size wage effect in zimbabwe abstract this paper uses matched employer employee data from a survey of 201 manufacturing firms and 1609 of their workers conducted in zimbabwe in the summer of 1993 the results indicate that there is a substantial premium associated with employment in larger firms and that this premium cannot be explained by differences in worker quality and job characteristics nor is it eliminated by controlling for unionization minimum wages or other forms of government intervention the size premium is much larger for white collar than for blue collar workers these differentials are also found to be substantially larger than those estimated for other developed and developing countries the analysis uses the data about firm characteristics to explore a number of efficiency wage based explanations of the size differential and finds results which are consistent with but not conclusive proof of hiring turnover and morale based notions of efficiency wages