the interest group theory of financial development in china openness and the role of interest groups the interest group theory of financial development predicts that the incumbents opposition to financial development will be weaker when an economy is open to both trade and capital flows based on regressions of financial development on trade and financial openness existing studies only provide indirect tests of the hypothesis and deliver mixed findings this paper proposes models for direct tests of interest group theory for china using chinese cross province data we define and measure interest groups based on the close tie between state owned enterprises and local government in china the empirical results show that the opposition from interest groups to financial development cannot be weakened in provinces with high trade or financial openness alone however the opposition is indeed weakened in provinces with high levels of both trade and financial openness these results provide robust support for interest group theory in accounting for cross province differences and time series variation in financial development in china

the inflation tax in a real business cycle model money is incorporated into a real business cycle model using a cash in advance constraint the model economy is used to analyze whether the business cycle is different in high inflation and low inflation economies and to analyze the impact of variability in the growth rate of money in addition the welfare cost of the inflation tax is measured and the steady state properties of high and low inflation economies are compared

financial development and barriers to the cross border diffusion of financial innovation this paper explores the determinants of financial development by focusing on the role played by barriers to the diffusion of financial technology these barriers are measured using human genetic distance from the technology frontier the results based on cross sectional data for 123 countries suggest that genetic distance to the global frontier has an economically and statistically significant effect on financial development in that countries that are genetically far from the technology leader tend to have lower levels of financial development genetic distance is found to have the largest effect even after controlling for other determinants of financial development established in the literature these findings indicate that cultural barriers to the diffusion of financial technology across borders impact financial development by influencing the follower countries ability to adopt and adapt innovations from the frontier

a growth model of inflation tax evasion and financial repression abstract this paper studies the relation between policies of financial repression inflation rates and long term growth we set up a model which shows that governments might want to express the financial sector because this sector is an easy source of resources for the public budget the inflation tax to the extent that the financial sector increases the efficiency of the allocation of savings to productive investment the choice of the degree of financial development will have real effects on the growth rate of the economy in countries where tax evasion is large the government will optimally choose to repress the financial sector in order to increase seigniorage taxation this policy will then reduce the efficiency of the financial sector increase the costs of intermediation reduce the amount of investment and reduce the growth rate of the economy financial repression will therefore be associated with high tax evasion low growth and high inflation

panel estimates of a two tiered earnings frontier this paper uses panel data to estimate a two tiered instead of a one tiered frontier model the innovation is to develop a two step maximum likelihood procedure yielding consistent estimates of inefficiency while at the same time accounting for heterogeneity the model is applied by estimating a two tiered earnings function to obtain indices of worker and firm incomplete labour market wage information using panel data from the panel study of income dynamics 1969 84 the estimation preserves the traditional quadratic age earnings profile but measures the extent to which employers often pay more than necessary to hire a worker incomplete employer information while at the same time employees often accept wages less than they could otherwise command incomplete employee information the results indicate that employees acquire less information than employers 1996 john wiley sons ltd

on the determinants of bank interest margins under credit and interest rate risks abstract this paper explores the determinants of optimal bank interest margins based on a simple firm theoretical model under multiple sources of uncertainty and risk aversion the model demonstrates how cost regulation credit risk and interest rate risk conditions jointly determine the optimal bank interest margin decision we find that the bank interest margin is positively related to the bank s market power to the operating costs to the degree of credit risk and to the degree of interest rate risk an increase in the bank s equity capital has a negative effect on the spread when the bank faces little interest rate risk the effect of rising interbank market rate on the spread is ambiguous and depends on the net position of the bank in the interbank market our findings provide alternative explanations for the empirical evidence concerning bank spread behavior

currency misalignments and growth a new look using nonlinear panel data methods the aim of this article is to investigate the link between currency misalignments and economic growth relying on panel cointegration techniques we calculate real exchange rate rer misalignments as deviations of actual rers from their equilibrium values for a set of advanced and emerging economies estimating panel smooth transition regression pstr models we show that rer misalignments have a differentiated impact on economic growth depending on their sign whereas overvaluations negatively affect economic growth rer undervaluations significantly enhance it this result indicates that undervaluations may drive the exchange rate to a level that encourages exports and promotes growth

the behavior of prices and inflation an empirical analysis of disaggregat price data this paper analyzes the effects of inflation on the dispersion of prices as well as other aspects of price behavior using disaggregated data on prices of foodstuffs in israel during 1978 84 we find that the effect of expected inflation on intramarket price variability is stronger than the effect of unexpected inflation we show that even in times of high inflation price quotations are not trivially short and price changes are not synchronized across firms these facts taken together confirm that there is some staggering in the setting of prices we find that the distribution of real prices is far from being uniform as many menu cost based models assume or conclude in fact as inflation increases to very high levels this distribution is not even symmetric when the annual inflation rate reaches 130 percent there are equal chances of finding real prices above or below the market average but upward deviations in the real price are further away from zero than downward ones furthermore as the annu

pricing risk adjusted deposit insurance an option based model this paper presents a methodology for arriving at empirical estimates of deposit insurance premiums from market data by using isomorphic relationships betweeen equity and a call option and insurance and a put option the data utilizes the market value of equity to solve for the asset value and its volatility market perceptions of fdic bailout policies are explicitly modeled so as to eliminate the bias in inverted values of assets and their volatility sensitivity analyses are performed to show that rank orderings based on premiums are robust to changes in specification thus facilitating allocation of aggregate premium across banks while economists have long argued in favor of risk adjusted deposit insurance as both more equitable and more efficient than the current system of flatrate premiums various recent developments have further contributed to an increasing dissatisfaction with the current system first both the banking industry and the government seem to be tending to the view that deregulation of the banking industry would be necessary in order to meet more sophisticated future demands on the industry as well as desirable as a policy means of stimulating greater competition among banks moreover a sudden rise in the incidence of bank failures 1 and the vulnerability of the u s banks to the socalled international debt crisis have served to bring to the fore concern about the health of the banking industry in the absence of deposit insurance riskier banks will be able to attract deposits only at higher rates and these higher costs of funding serve as built in market regulated incentives to limit excessive risk taking by banks as introduction of deposit insurance makes deposits equally risk free across banks these incentives disappear and regulation and close supervision of the banking industry must necessarily replace them as deterrents to excessive risk taking thus when insurance is offered at a flat premium regulation is designed to ensure that the risk posed to the insurer both asset and financial risk is appropriately uniform

theories of bank behavior under capital regulation abstract this paper reviews academic studies of bank capital regulation in an effort to evaluate the intellectual foundation for the imposition of the basel i and basel ii systems of risk based capital requirements the theoretical literature yields general agreement about the immediate effects of capital requirements on bank lending and loan rates and the longer term impacts on bank ratios of equity to total or risk adjusted assets this literature produces highly mixed predictions however regarding the effects of capital regulation on asset risk and overall safety and soundness for the banking system as a whole thus the intellectual foundation for the present capital regulation regime is not particularly strong the mixed conclusions in the academic literature on banking certainly do not provide unqualified support for moving to an even more stringent and costly system of capital requirements these widely ambiguous results do suggest however that assessing the implications of capital regulation for balance sheet risk and monitoring effort in diverse banking systems is an important agenda for future theoretical research in the banking area

financial intermediation as a beliefs bridge between optimists and pessimists this paper proposes a new framework for understandingnancial intermediation in contrast to previous research we consider a setting in which intermediaries possess no inherent information processing or monitoring advantages instead in an economy with overly optimistic entrepreneurs who require funding from overly skeptical pessimistic investors we show that intermediaries can arise endogenously in such a setting only a rational intermediary will be su ciently optimistic tond it worthwhile to invest in a technology for screening entrepreneurs projects and yet be pessimistic enough to use this technology our framework produces implications consistent with heretofore unexplained stylized facts and a number of others which are as of yet untested

financial liberalization financial regulation and bank efficiency a multi country analysis this article investigates the impact of financial reforms on bank efficiency more specifically we distinguish between two different types of financial reforms i e financial liberalization measures and measures of the quality of bank regulation and supervision i e financial regulation and study their relationship to bank efficiency separately moreover we analyse whether the impact of financial liberalization on bank efficiency is conditional on the quality of regulation and supervision of the banking system we apply stochastic frontier analysis to calculate bank efficiency at the individual bank level and use a new and detailed database that measures different aspects of financial reforms the data set consists of 87 312 bank year observations covering 61 countries for the period 1996 2005 overall we show that the impact of financial liberalization policies on bank efficiency is conditional on the extent to which bank regulation and supervision has been adopted and developed

the long run relationship between inflation and output in postwar economies abstract we investigate the relationship between inflation and real output in a large sample of postwar economies our methodology is to use a structural vector autoregression to estimate the response of the level of real output to permanent inflation shocks separately for each country we find that a permanent shock to inflation is not associated with a permanent movement in the level of real output for most countries in our sample the main exceptions are certain low inflation countries in which permanent inflation shocks permanently increase the level of output we also find that permanent inflation shocks do not permanently influence real output growth rates in our sample

the determinants of bank interest margins theory and empirical evidence this paper has developed a model of bank margins or spreads in which the bank is viewed as a risk averse dealer it was demonstrated that an interest spread or margin would always exist and that this was the result of transactions uncertainty faced by the bank moreover it was shown that this pure spread depended on four factors the degree of managerial risk aversion the size of transactions undertaken by the bank bank market structure and the variance of interest rates the model implied that liability and asset structures had to be analyzed together since they were directly interrelated through transactions uncertainty it was shown that because of this transactions uncertainty hedging behavior was perfectly rational within an expected utility maximizing framework extending the model from a structure with one kind of loan and deposit to loans and deposits with many maturities should lead to further interesting insights into margin determination especially as portfolio effects may become apparent

barter and monetary exchange under private information the authors develop a model of production and exchange with uncertainty concerning the quality of commodities and study the role of fiat money in ameliorating frictions caused by private information the model is specified so that without private information only high quality commodities are produced and there is no welfare gain from using money with private information there can be equilibria and sometimes multiple equilibria where low quality commodities are produced and money can increase welfare money works by promoting useful production and exchange in efficient monetary equilibria agents adopt strategies that increase the probability of acquiring high quality output copyright 1994 by american economic association

do natural resource revenues hinder financial development the role of political institutions we hypothesize that natural resource revenues may deteriorate contract enforcement if political institutions are weak as poor contract enforcement leads to low financial development resource revenues may hinder financial development in countries with poor political institutions but not in countries with comparatively better political institutions we provide empirical support for this hypothesis based on within country variation in our sample covering the period 1970 2005 and 133 countries our results are robust to the use of additional control variables different samples and alternative measures of financial development and political institutions

price dispersion information and learning abstract we consider an economy where trade is decentralized and agents have incomplete information with respect to the value of money agents learning evolves from private experiences and we explore how the formation of prices interacts with learning we show that multiple equilibria arise and equilibria with price dispersion entail more learning than equilibria with one price price dispersion increases communication about private histories which in turn increases the overall amount of information in the economy we also compare ex ante welfare under price dispersion and one price our results show that despite the existence of some meetings where no trade takes place ex ante welfare under price dispersion may be higher than under one price

a barrier option framework for corporate security valuation abstract this paper proposes a framework for corporate security valuation based on path dependent barrier option models instead of the commonly used path independent approach we argue that path dependency is an intrinsic and fundamental characteristic of corporate securities because equity can be knocked out whenever a legally binding barrier is breached a direct implication of this framework is that equity will be priced as a down and out call option we provide empirical validation of the barrier model by showing that implied barriers are statistically and economically significant for a large cross section of industrial firms additional robustness tests confirm that barriers remain significant over a wide range of input variable estimates and finally we apply the barrier option framework to bankruptcy prediction and find that implied failure probabilities dominate z scores in most cases

optimal bank capital with costly recapitalization we study optimal bank capital choice as a dynamic trade off between the opportunity cost of equity the loss of franchise value following a regulatory minimum capital violation and the cost of recapitalization we introduce a recapitalization delay that results in a strictly positive probability of capital adequacy violation we calibrate the model to bank accounting return data and evaluate the model s ability to explain observed bank capital ratios differences in return volatility explain a significant fraction of the cross sectional variation in bank capital ratios differences in the level of capital market imperfections across banks constitute a secondary explanation

how does equity capital cost affect bank performance during a financial crisis this article theoretically examines how equity capital cost affects return performance and safety of a bank and how this effect varies across a financial crisis comparing to a normal time when the bank manager s performance reveals the like of higher equity return and the dislike of higher equity risk we derive two main results first an increase in the bank s equity capital cost from an increase of the interest rate of the federal funds results in a reduced loan risk taking at an increased optimal bank interest margin implying better bank performance second by ignoring the dislike we find that the better performance is reinforced during a financial crisis but is reduced during a normal time financial crises and the dislike preference as such contribute a relatively low return and the stability of banking activities

short run and long run effects of changes in money in a random matching model a random matching model of money is used to deduce the effects of a once for all change in the quantity of money it is shown that the change has short run effects that are predominantly real and long run effects that are in the direction of being predominantly nominal provided that the change is random and people learn its realization only with a lag the change in the quantity of money comes about through a random process of discovery that does not permit anyone to deduce the aggregate amount discovered when the change actually occurs

the reeded edge and the phillips curve money neutrality common knowledge and subjective beliefs abstract i present a simple two person auction model in which a seller and a buyer make bids in terms of money however the value of a unit of money is uncertain i show 1 a monetary revaluation has purely nominal effects if and only if it is common knowledge 2 if seller and buyer have identical beliefs making the value of money common knowledge maximizes total gains from trade 3 if seller and buyer are equally well informed and have identical beliefs then monetary revaluations have no net effect 4 when the seller knows the value of money but the buyer does not the expected utilities of both seller and buyer are proportional to 1 1 2 where is the standard deviation of the value of money expressed as a fraction of the mean and 5 when beliefs are subjective monetary policy can improve total gains from trade as in friedman s explanation of the phillips curve and an optimal level of inflation can be determined journal of economic literature classification numbers c78 e52

a hierarchical model of the determinants of non performing assets in banks an ism and micmac approach the banking systems of emerging economies in general and india in particular are facing sustained impairment due to mounting non performing assets npas in the absence of stringent policies and t

whither monetary economics i argue that monetary economics should be pursued by applying implementation theory to models which contain explicit frictions that make money essential the argument has two parts first i argue that models in which real balances are assumed to be productive models with money in utility or production functions or with cash in advance constraints contain hidden inconsistencies second i argue that the approach advocated is capable of providing new insights about some of the main issues in monetary economics the effects of monetary shocks the welfare cost of inflation and the roles of inside and outside money

property rights and finance which is the tighter constraint on private sector investment weak property rights or limited access to external finance from a survey of new firms in post communist countries we find that weak property rights discourage firms from reinvesting their profits even when bank loans are available where property rights are relatively strong firms reinvest their profits where they are relatively weak entrepreneurs do not want to invest from retained earnings

markets for risk and openness to trade how are they related if protectionist trade policies aim to insure domestic industries against swings in world market prices the development of financial markets could lead to trade liberalization likewise trade lib

banking deregulation and allocative efficiency in pakistan abstractthis article examines the impact of deregulation policies on allocative efficiency of banks in pakistan it investigates whether deregulation has impacted the pattern of allocative efficiency of banks and explores which bank ownership segment has been more responsive it uses data from 1991 to 2005 and explicitly models allocative inefficiency by using the translog shadow cost share system empirical results show that overregulation and imperfect market structure hampers the ability of banks to make competitive decisions we find evidence of allocative inefficiency leading to over utilization of labour and deposits vis a vis operating cost empirical results for time varying allocative efficiency show declining levels of allocative inefficiency for state owned and private banks in post reform period deregulation policies induce state owned banks to decrease over utilization of labour relative to deposits and operating cost while private banks succeed in using operating cost closer to optimal leve

monitoring banking sector fragility a multivariate logit approach this article explores how a multivariate logit model of the probability of a banking crisis can be used to monitor banking sector fragility the proposed approach relies on readily available data and the fragility assessment has a clear interpretation based on in sample statistics the model has better in sample performance than currently available alternatives and the monitoring system can be tailored to fit the preferences of decision makers regarding type i and type ii errors the framework can be useful as a preliminary screen to economize on precautionary costs

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

economic exchange during hyperinflation historical evidence indicates that hyperinflations can disrupt individuals normal trading patterns and impede the orderly functioning of markets to explore these issues we construct a theoretical model of hyperinflation that focuses on individuals and their process of economic exchange in our model buyers must carry cash while shopping and some transactions take place in a decentralized setting in which buyer and seller negotiate over the terms of trade of an indivisible good since buyers face the constant threat of incoming younger hence richer customers their bargaining position is weakened by inflation allowing sellers to extract a higher real price however we show that higher inflation also reduces buyers search increasing sellers wait for customers as a result the volume of transactions concluded in the decentralized sector falls at high enough rates of inflation all agents suffer a welfare loss

a model of the commercial loan rate this paper explores the theoretical and empirical determinants of the commercial loan rate charged by commercial banks based on a model of financial intermediary behavior which assumes monopolistic competition in asset and liability markets the model incorporates the constraint that banks must maintain at least a minimum quantity of bonds in asset portfolios equations are estimated on a time series basis to explain the behavior of commercial loan rates over the period 1953 to 1980 the evidence appears consistent with the hypothesis that commercial banks operate in a market characterized by imperfect competition and that they explicitly set loan rates the development of large scale econometric models has focused attention on the operation of the commercial loan market because of the importance of commercial loan activity in the transmission of monetary policy moreover it is commonly accepted that the quantity of commercial loans or changes in these loans has an important influence on the holding of free reserves by commercial banks and this implies that the commercial loan market has an effect on the supply of money 2 nevertheless the determinants of commercial loan rates have drawn relatively little analytical attention previous work on the commercial loan market has generally focused on the question of whether this market is characterized by credit rationing 3 most studies assume that the commercial loan market is generally competitive but at times the commercial loan rate does not clear the market the quantity of loans transacted is constrained by the supply function and commercial banks engage in nonprice rationing of customers a corollary of this rationing hypothesis is that events in the deposit market have an important influence on the quantity of commercial loans 4 the purpose of this paper is to explore the determinants of the commercial

selection on observed and unobserved variables assessing the effectiveness of catholic schools in this paper we measure the effect of catholic high school attendance on educational attainment and test scores because we do not have a good instrumental variable for catholic school attendance we develop new estimation methods based on the idea that the amount of selection on the observed explanatory variables in a model provides a guide to the amount of selection on the unobservables we also propose an informal way to assess selectivity bias based on measuring the ratio of selection on unobservables to selection on observables that would be required if one is to attribute the entire effect of catholic school attendance to selection bias we use our methods to estimate the effect of attending a catholic high school on a variety of outcomes our main conclusion is that catholic high schools substantially increase the probability of graduating from high school and more tentatively attending college we find little evidence of an effect on test scores

optimal bank interest margin and default risk in equity returns under the return to domestic retail with structural breaks a retrenchment in crossborder credit is under way the product of both market forces and political pressure on international banks to lend at home economist 2009 in addition banks particularly the largest have also dramatically expanded their retail banking operations over the past few years hirtle and stiroh 2007 our goal in this article is to study the effects of default risk on equity returns through bank interest margin management under a renewed focus on domestic retail banking a trend often attributed to the stability of banking activities specifically this article explores the determinants of optimal bank interest margins based on an option based firm theoretical model with multiple sources of structural breaks due to political pressure the model demonstrates how capital regulation and political pressure on foreign lending return and risk conditions jointly determine the optimal bank interest margin decision we show that a more stringent capital requirement is linked with lower eq

introduction to monetary and financial arrangements abstract recent years have seen major innovations in the nature of monetary banking and payment arrangements these innovations which are certain to continue into the foreseeable future will have huge implications for the conduct of monetary policy for the regulation of banking and for the design of payment systems indeed central banks now need to think about the conduct of monetary policy in environments where the evolution of banking and payments systems already has implied and will continue to imply a declining demand for their liabilities central banks also need to think about the conduct of monetary policy in increasingly global markets and in a context where the number of currencies is shrinking as different nations abandon their own monies in favor of the dollar or the euro and at least in the united states all legal impediments to the issue of currency substitutes by private agents have been repealed this has occurred at the same time that developments in communications and record keeping technologies have made it feasible for agents to issue various forms of electronic currency substitutes what would the widespread issue of private possibly electronic currency substitutes imply for price level and interest rate determination or for the conduct of monetary policy in general in addition the increasing frequency and severity of financial crises around the globe and the increasing exposure of economies like the u s to external events raise issues about the appropriate roles for national central banks and the appropriate roles for international agencies like the imf and recent changes in u s banking legislation will force a rethinking of how the supervision and regulation of the banking system should be conducted and of how far the safety net created by deposit insurance provision and lender of last resort services should be extended these issues will become particularly vexing as the scope of activities conducted by banks increases and as the notion of a bank becomes more amorphous the papers in this issue are intended to provide frameworks for advancing research on these and other topics journal of economic literature classification numbers e0 e5 g0

basel iii and perceived resilience of banks in the brics economies abstractthis study investigates how the additional capital and liquidity requirements of basel iii would increase the resilience of banks in particular using panel data from 2007 to 2014 we examine the resilience of banks in the brics economies our results suggest that a 10 increase in capital adequacy ratio car tier 1 capital ratio tra and leverage ratio lev the resilience as measured by z score of banks increases by about 2 18 0 89 and 1 31 respectively similarly for a 100 increase in liquidity coverage ratio lcr the resilience of banks increases by 0 51 1 10 and 1 19 respectively in the models associated with car tra and lev hence our findings suggest that the car is robust to increase the resilience of banks our study also reveals that the lcr and lev are the most effective to increase the resilience of banks if implemented simultaneously we also find that the stage of economic development does not matter in formulating policies for the brics economies and finally

financial liberalization and bank efficiency a comparative analysis of india and pakistan this paper provides a comparative analysis of the evolution of the technical efficiency of commercial banks in india and pakistan during 1988 1998 a period characterized by far reaching changes in the banking industry brought about by financial liberalization data envelopment analysis is applied to two alternative input output specifications to measure technical efficiency and to decompose technical efficiency into its two components pure technical efficiency and scale efficiency the consistency of the estimated efficiency scores are checked by examining their relationship with three traditional non frontier measures of bank performance in addition the relationship between bank size and technical efficiency is examined it is found that the overall technical efficiency of the banking industry of both countries improved gradually over the years especially after 1995 unlike public sector banks in india public sector banks in pakistan witnessed improvement in scale efficiency only it is also found that banks are relatively more efficient in generating earning assets than in generating income this is attributed to the presence of high non performing loans in addition it is found that the gap between the pure technical efficiency of different size groups has declined over the years

a new database on the structure and development of the financial sector this article introduces a new database of indicators of financial structure and financial development across countries and over time the database is unique in that it combines a wide variety of indicators that measure the size activity and efficiency of financial intermediaries and markets it improves on previous efforts by presenting data on the public share of commercial banks introducing indicators of the size and activity of nonbank financial institutions and constructing measures of the size of bond and primary equity markets this article introduces a new database the first to provide comprehensive measures of the development structure and performance of the financial sector this database is the first to define and construct indicators of the size and activity of nonbank financial intermediaries such as insurance companies pension funds and non deposit money banks it is also the first to include indicators of the size of primary equity markets and primary and secondary bond markets in constructing the database authors carefully deflate measures and match stock and flow variables

bank capital regulation in a barrier option framework abstract the barrier options theory of corporate security valuation is applied to the contingent claims of a regulated bank the regulator insurer of a bank owns a down and in call option on the bank assets which can be balanced against the expected coverage cost raising the regulatory barrier critical asset level triggering bank closure leads to a transfer of wealth from stockholders to the insurer and reduces stockholder incentives to increase asset risk empirical tests on a sample of 152 one bank holding companies show that regulatory barriers are priced in the stock market and are inversely related to tier 1 leverage ratios

uncertainty capital flows and maturity mismatch abstract this paper explores a how the financial uncertainty generated by volatile international capital flows interacts with maturity mismatch on the balance sheets of nonfinancial firms to increase the volatility of output investment and total factor productivity tfp in emerging market economies i build a model of a small open economy in which financial frictions force firms to fund long term projects with short term debt in response to changes in the level of uncertainty regarding the availability of foreign borrowing firms adjust their long term investment contributing to the volatility of investment and output as well as generating endogenous fluctuations in aggregate productivity using data from a panel of major emerging markets i show that the volatility of portfolio debt flows negatively affects output by dampening investment while the volatility of equity flows which do not generate maturity mismatch has no effect consistent with the mechanism in the model the negative impact of capital flow volatility is larger at low levels of financial development and in industries with longer time to build lags my estimates imply that shocks to capital flow volatility account for one fifth of the excess output volatility of the emerging markets in my sample relative to a set of small open advanced economies

the impact of liberalization on the productive efficiency of indian commercial banks abstract we examine the productive efficiency of 70 indian commercial banks during the early stages 1986 1991 of the ongoing period of liberalization we use data envelopment analysis to calculate radial technical efficiency scores we then use stochastic frontier analysis to attribute variation in the calculated efficiency scores to three sources a temporal component an ownership component and a random noise component we find publicly owned indian banks to have been the most efficient followed by foreign owned banks and privately owned indian banks we also find a temporal improvement in the performance of foreign owned banks virtually no trend in the performance of privately owned indian banks and a temporal decline in the performance of publicly owned indian banks we attempt to explain these patterns in terms of the government s evolving regulatory policies

bank capital regulation with random audits we consider a model of optimal bank closure rules cum capital replenishment by banks with poisson distributed audits of the bank s asset value by the regulator with the goal of eliminating ameliorating the incentives of levered bank shareholders managers to take excessive risks in their choice of underlying assets the roles of tax or other subsidies on deposit interest payments by the bank and of the auditing frequency are examined c 2002 elsevier science b v all rights reserved

modeling the banking firm a survey this paper reports on the status of the literature on micro bank modeling and assesses our understanding of the banking firm s optimal behavior this is no mean task for much has been written on banking broadly defined over the past couple of decades the review is developed in pieces each major subproblem is outlined and the analysis used to deal with the issue explicated this is not the best way to summarize the development of a field it should be immediately recognized one would prefer to have a smooth continuum of development moving the frontier of knowledge evenly through time and across subareas yet this is rarely the way a field develops more likely individual questions attract attention and are the subjects of a substantial number of contributions after a time the field moves on to the new area of interest the banking field is no exception before embarking upon the review however a couple of lines should be devoted to previous attempts there have been essentially three first pyle 1972 analyzes the uncertainty portfolio models at a time when little existed in the literature and hence one finds the review a bit vague and sketchy baltensperger s contributions 1978 1980 are the next serious and rather extensive reviews the quality of these

volatile policy and private information the case of monetary shocks abstract we study how volatility in monetary policy affects economic performance in the presence of asymmetric information and endogenously chosen information structures we consider a model in which in the absence of either feature the equilibria would be efficient the equilibria that we find are inefficient for two reasons first in some cases agents fail to trade even though it is efficient to do so second agents spend resources acquiring socially useless information the model predicts a nonlinear relationship between inflation and output and a complex pattern of price dispersion with the nature of the relationship changing with the degree of volatility journal of economic literature classification numbers e30 e40 d82

lessons from the asian crisis abstract this paper provides an asymmetric information analysis of the recent east asian crisis it then outlines several lessons from this crisis first there is a strong rationale for an international lender of last resort second without appropriate conditionality for this lending the moral hazard created by operation of an international lender of last resort can promote financial instability third although capital flows did contribute to the crisis they are a symptom rather than an underlying cause of the crisis suggesting exchange controls are unlikely to be a useful strategy to avoid future crises fourth pegged exchange rate regimes are a dangerous strategy for emerging market countries and make financial crises more likely

capital market liberalization economic growth and instability summary this paper reviews briefly the arguments for capital market liberalization and identifies their theoretical and empirical weaknesses this provides the foundations for the argument for intervention in short term capital flows the paper concludes with a brief discussion of the various ways in which such interventions may be implemented 2000 elsevier science ltd all rights reserved

cost efficiency in bangladesh banking does financial reform matter abstractthis article estimates the cost efficiency of the commercial banks of bangladesh in the context of financial reform employing the single stage stochastic frontier analysis sfa model the study uses a unique balanced panel data set comprising bank level annual data from the dominant commercial banks in bangladesh for the period 1983 2012 the results show that bank cost has fallen due to financial deregulation our results from the data envelopment analysis do not vary significantly that we obtained from the sfa in addition the presence of politically linked directors on the bank board has an adverse effect on efficiency these findings suggest that further reforms aiming at removing all sorts of political influence should continue to ensure competitive environment in order to achieve cost efficiency in the financial sector of the country

money and growth revisited abstract conventional wisdom is that if public policy can affect the growth rate of the economy the welfare implications of alternative policies will be large in this paper a stochastic dynamic general equilibrium model with endogenous growth and money is examined in this setting inflation lowers growth through its effect on the return to work however the welfare costs of higher inflation are modest the endogenous labor supply is important in producing this result

financial liberalization and economic growth a meta analysis this study provides a systematic analysis of the empirical literature on the relationship between financial liberalization and economic growth by conducting a meta analysis based on 441 t statistics reported in 60 empirical studies we focus on explaining the heterogeneity of results in our sample in terms of study data and method specific characteristics although our findings indicate that on average there is a positive effect of financial liberalization on growth the significance of this effect is only weak moreover we find that most of the variables that may help explain the heterogeneity of results are insignificant there are two exceptions first studies carried out based on data from the 1970s on average find a statistically less significant relationship between financial liberalization policies and growth i e they report lower t statistics as compared to studies using data from the 1980s second studies controlling for the level of development of the financial system report lower t statistics for the relationship between liberalization and growth

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

empirical evidence on surrogate country method for non market economy us anti dumping policy towards china whether the non market economy nme treatment on china can be maintained even after the expiry date under section 15 of china s world trade organization wto accession protocol is one of the most controversial issues in the wto in fact the key issue of the nme status in the anti dumping ad proceedings turns out to be how surrogate countries are selected in relation to dumping margin calculation this paper reviews the us practices concerning the application of the surrogate country method despite the general perception of capricious and random selection of surrogate countries the department of commerce has maintained a consistent pattern for applying the criteria this seemingly consistent practice however raised systematic problems but not at a significant scale in dumping margin calculation concerning chinese products this result sheds an interesting light on the current wto disputes concerning the china s nme status at least in terms of the us ad practices the result of the wto dispute settlement process may not have a significant impact on the china s exportation

output and price level effects of monetary uncertainty in a matching model abstract monetary uncertainty and information lags are put into a random matching model so that the resulting setting has some meetings in which producers are relatively informed and others in which consumers are relatively informed for that setting the ex ante socially optimal way to conduct trade is characterized the optimum can display a variety of relationships between money and total output and the price level while the price level is always sticky even the direction of its response and that of total output depend on the magnitude of the lag and on subtle features of the serial correlation properties of the money supply

the interest group theory of financial development evidence from regulation abstract we use a new dataset of de jure measures of trade capital account product market and domestic financial regulation for 91 countries from 1973 to 2005 to test rajan and zingales s 2003 interest group theory of financial development in line with the theory we find strong evidence that trade liberalization is a leading indicator of domestic financial liberalization this result is robust to the use of different data frequencies annual 5 year intervals estimation methods ols 2sls system gmm and a check for non linear effects however in contrast to the theory we do not find consistent evidence of an effect of capital account liberalization

financial sector liberalization bank privatization and efficiency evidence from pakistan abstract the pakistani banking system has been transformed over the past 15 years through liberalization the entry of private banks the privatization of public sector banks and the tightening of prudential regulations the effects of these changes on bank productivity and relative efficiency are investigated using various techniques bank productivity in terms of profits has increased and new entrants have been efficient but the dispersion of efficiency remains wide the privatized banks improved their profit efficiency in the period immediately following their privatization but in the subsequent years only one significantly improved its efficiency whereas the other did not differentiate itself in terms of efficiency from the remaining state owned banks the new private domestic banks generally proved to be among the most efficient and sometimes out performed the foreign banks

the effects of deregulation on the performance of financial institutions the case of spanish savings banks this paper examines the impact of regulatory reform on the performance of spanish savings banks the focus is whether increased competition brought on by deregulation affected performance of banks over time output technical efficiency which is defined in terms of the production possibility frontier is also examined empirical results show declining levels of output technical efficiency along with a significantly high rate of technical progress in spite of declining technical efficiency during this period evidence of an increasing trend in productivity growth is found

deregulation ownership and productivity growth in the banking industry evidence from india this paper analyzes the relationship between deregulation and total factor productivity tfp growth in the indian banking industry using a generalized shadow cost function approach tfp growth is decomposed into a technological change a scale and a miscellaneous component a disaggregated panel data analysis using the population of public and private banks over 1985 96 that covers both pre and post deregulation periods indicates that a significant decline in regulatory distortions and the anticipated increase in tfp growth have not yet materialized following deregulation while private sector banks have improved their performance mainly due to the freedom to expand output public sector banks have not responded well to the deregulation measures

the eu anti dumping policy towards russia and china product quality and the choice of an analogue country this paper uses the theory of international trade in vertically differentiated products in order to assess whether the eu has calculated disproportionately high dumping margins in its anti dumping policy towards the two non market economies nmes russia and china since 1992 specifically the investigation concerns cases in which the level of economic development in and the quality of the products from the chosen analogue country are higher than in the two nmes the conclusion drawn here is that even when the eu chooses analogue countries at a higher level of economic development than russia and china the differences in product quality and in the levels of economic development between the dumpers and the analogue countries provide no systematic explanation of the size of dumping margins

the impact of financial liberalization on bank efficiency evidence from latin america and asia this article investigates the impact of financial liberalization on bank efficiency using data for a sample of over 4000 bank year observations from ten emerging economies for the period 1991 2000 we use data envelopment analysis dea to calculate bank efficiency at the individual bank level bank efficiency measures are then aggregated at the country level to investigate the relationship between financial liberalization and bank efficiency using a panel least square fixed effects model overall we find strong support for the positive impact of financial liberalization programmes on bank efficiency

the rise of us anti dumping activity in historical perspective empirical studies of anti dumping activity focus almost exclusively on the period since 1980 this paper puts recent us anti dumping experience in historical context by studying the determinants of annual case filings over the past half century the conventional view that few anti dumping cases existed prior to 1980 is not correct although most did not result in the imposition of duties the increased number of cases in recent decades largely reflects petitions that target multiple source countries the number of imported products involved has actually fallen since the mid 1980s the annual number of anti dumping cases is influenced by the unemployment rate the exchange rate import penetration closely related to the decline in average tariffs and changes in the anti dumping law and its enforcement in the early 1980s

optimal bank interest margin under capital regulation and deposit insurance this paper examines the relationships among capital regulation deposit insurance and the optimal bank interest margin in a model where loan losses are the source of uncertainty changes in capital regulation or deposit insurance premiums have direct effects on the bank s interest margin an increase in bank capital requirement or in deposit insurance premiums results in a reduced interest margin under nonincreasing risk aversion comparative static analysis also explores the relation between asset quality and interest margin it is shown that a mean preserving spread of the distribution of loan losses results in a reduced margin

financial deregulation and total factor productivity change an empirical study of turkish commercial banks abstract in january 1980 a new liberal economic policy was adopted in turkey to promote financial market development and increase the efficiency and productivity of the financial sector by fostering competition among banks as a result of this policy the turkish banking system witnessed a series of legal structural and institutional changes throughout the 1980s to enhance their competitive viability turkish banks responded by streamlining their operations and investing in new technology utilizing a dea type malmquist total factor productivity change index we examine productivity growth efficiency change and technical progress in turkish commercial banks during the deregulation of financial markets in turkey we found that all forms of turkish banks although in different magnitudes have recorded significant productivity gains driven mostly by efficiency increases rather than technical progress efficiency increases however were mostly owing to improved resource management practices rather than improved scales our results also indicate that private banks began to close their performance gap with public banks in the new environment

capital account liberalization financial depth and economic growth abstract we show a statistically significant and economically relevant effect of open capital accounts on financial depth and economic growth in a cross section of countries over the periods 1986 1995 and 1976 1995 countries having open capital accounts had a significantly greater increase in financial depth and over the 20 year period greater economic growth these results however are largely driven by the developed countries included in the sample the observed failure of capital account liberalization to promote financial deepening among developing countries suggests potentially important policy implications concerning the desirability of opening up the capital account

the determinants of bank interest rate margins an international study abstract this paper studies the determinants of bank net interest margins nims in six selected european countries and the us during the period 1988 1995 for a sample of 614 banks we apply the ho and saunders model ho t saunders a 1981 the determinants of bank interest margins theory and empirical evidence journal of financial and quantitative analyses 16 581 600 to a multicountry setting and decompose bank margins into a regulatory component a market structure component and a risk premium component the regulatory components in the form of interest rate restrictions on deposits reserve requirements and capital to asset ratios have a significant impact on banks nims the empirical results suggest an important policy trade off between assuring bank solvency high capital to asset ratios and lowering the cost of financial services to consumers low nims the more segmented or restricted the banking system both geographically and by activity the larger appears to be the monopoly power of existing banks and the higher their spreads macro interest rate volatility was found to have a significant impact on bank nims this suggests that macro policies consistent with reduced interest rate volatility could have a positive effect in reducing bank margins

financial development and openness evidence from panel data abstract this paper addresses the empirical question of whether trade and financial openness can help explain the recent pace in financial development as well as its variation across countries in recent years utilising annual data from developing and industrialised countries and dynamic panel estimation techniques we provide evidence which suggests that both types of openness are statistically significant determinants of banking sector development our findings reveal that the marginal effects of trade financial openness are negatively related to the degree of financial trade openness indicating that relatively closed economies stand to benefit most from opening up their trade and or capital accounts although these economies may be able to accomplish more by taking steps to open both their trade and capital accounts opening up one without the other could still generate gains in terms of banking sector development thus our findings provide only partial support to the well known rajan and zingales hypothesis which stipulates that both types of openness are necessary for financial development to take place