an alternative approach to market structure and the markup ratio hall s studies of market power emphasize that the markup ratio of price over marginal cost is an important indicator for assessing the role of market structure in resource allocation without using concentration ratios and is also a good measure of allocative efficiency the basic idea was that price is equal to marginal cost if there is perfect competition and constant markup ratio a statistrical model was developed to estimate the markup ratio if the markup ratio estimated for an industry is unitary then the null hypothesis of competition is not rejected if however it is greater than one the alternative hypothesis of non competition is not rejected the theory mandates that monopoly power is dynamically constant despite a nonconstant productivity residual hall assumes in etimation that technical progress or solow residual has a randomness this assumption implies that the procyclicity of technical progress is not a true phenomenon the spurious procyclicity is revealed in the estimated mark

the dynamics of international capital flows results from a dynamic hierarchical factor model abstract the present paper examines the degree of comovement of gross capital inflows which is a highly sensitive issue for policy makers we estimate a dynamic hierarchical factor model that is able to decompose inflows in a sample of 47 economies into i a global factor common to all types of flows and all recipient countries ii a factor specific to a given type of capital inflows iii a regional factor and iv a country specific component we find that the latter explains by far the largest fraction of fluctuations in capital inflows followed by regional factors which are particularly important for emerging markets fdi and portfolio inflows as well as bank lending to emerging europe the global factor however explains only a small share of the overall variation we also employ dynamic panel and time series regressions to explain the determinants of the estimated components the global factor is shown to reflect u s financial conditions

capital flows and gdp in emerging economies and the role of global spillovers abstract this paper provides a global analysis of capital flow impacts on gdp for selected emerging economies as additional control variables we also include currency reserves and effective exchange rates in our analysis we distinguish between gross and net capital flows and also assess the impact of both fdi and portfolio flows accounting for the fact that common factors have been the main drivers of capital flows while country specific determinants pull factors drive the response to such shocks we analyze shocks to country groups but consider country specific responses based on a bayesian time varying panel var framework in the spirit of canova and ciccarelli 2009 based on a sample of 24 economies our results show a robust positive effect of capital flows on gdp except for korea both gross and net capital flows display a positive impact for around two quarters the impact of effective exchange rates on gdp hardly offers an explanation for a possible transmission of capital flow effects with effective depreciations both positively and negatively linked to gdp we also find that the effect of net portfolio flows is even more positive compared to net fdi flows for emerging economies finally we provide evidence that the importance of global factors increases in times of crises

the shifting drivers of global liquidity abstract the sensitivities of the main global liquidity components international loan and bond flows to global factors varied considerably over the past decade the estimated sensitivity to us monetary policy rose substantially in the immediate aftermath of the global financial crisis peaked around the time of the 2013 fed taper tantrum and then reverted towards pre crisis levels conversely the responsiveness of international bank lending to global risk conditions declined steadily throughout the post crisis period we show that the main driver of the fluctuations in the estimated sensitivities to us monetary policy was the degree of convergence among advanced economy monetary policies meanwhile the post crisis fall in the sensitivity of international bank lending to global risk was mainly driven by increases in the lending shares of better capitalized banking systems

measuring international capital mobility a review many barriers to the international movement of capital across national boundaries have been dismantled over the course of the last 20 years financial integration was greatly enhanced by the removal of capital controls on the part of the united states germany canada switzerland and the netherlands after 1973 the recycling of surpluses to developing countries through the euromarkets in the 1970 s the removal of capital controls in the united kingdom and japan beginning in 1979 financial integration among european community countries including france and italy in preparation for 1992 recent moves toward financial liberalization in smaller countries in the pacific and the steady process of technical and institutional innovation that has proceeded around the world some popular tests of international capital mobility however appear to show anomalous results martin feldstein and charles horioka upset conventional wisdom in 1980 when they concluded that changes in countries rates of national saving had very large effects on their rates of investment and interpreted this finding as evidence of low capital mobility the argument

inflationary finance and currency substitution in a public finance framework abstract this paper analyzes the impact of currency substitution on inflationary finance in a public finance framework it is shown that if foreign money balances can be taxed or subsidized the optimal inflation tax is always zero in the more realistic case in which foreign money cannot be taxed the optimal inflation tax is positive whenever there are revenue needs moreover the optimal inflation tax is an increasing function of government spending and the foreign nominal interest rate

in search of the exchange risk premium a six currency test assuming mean variance optimization abstract a number of authors examining deviations of actual rates of currency depreciation from forward discounts have claimed to find evidence of risk premiums if these deviations are indeed partly due to risk premiums rather than being entirely due to expectational errors then they should be systematically related to those variables on which risk premiums are thought to depend finance theory tells us that if investors optimize with respect to mean and variance the risk premium depends in a specific way on 1 the supplies of assets denominated in the various currencies 2 the variance covariance matrix of the rates of return and 3 the coefficient of risk aversion the null hypothesis of this paper is that the coefficient of risk aversion is zero countries assets are perfect substitutes and risk premiums are nonexistent the alternative hypothesis is that rates of return are systematically related to asset supplies by a macroeconomic portfolio balance function the maximum likelihood technique used dominates previous attempts to find such a relationship in that the parameters of the portfolio balance function are constrained to depend on the variance covariance matrix as the finance theory says they should on the other hand the technique also dominates previous applications of the finance theory in that the expected returns are allowed to vary over time as the macroeconomic portfolio balance theory says they should the paper s finding is a statistical inability to reject the null hypothesis for a portfolio of six currencies although this could be due to low power in the test

what is the major determinant of cross border banking flows abstract this study examines the major determinant of cross border credit flows through global banks across 70 countries employing a bayesian dynamic latent factor model we decompose volatilities of banking flows into the contribution of a global common factor regional common factor and country specific factor the results indicate that the global and regional common factor explains about 40 50 percent of volatility in overall cross border banking flows in particular the contribution of the global common factor increased in the 2000s simultaneously main determinants are largely heterogeneous across countries this implies that the desirable policy response to credit inflows may differ for each host country

hot money in bank credit flows to emerging markets during the banking globalization era this paper investigates the relative importance of hot money in bank credit and portfolio flows from the us to 18 emerging markets over the period 1988 2012 we deploy state space models a la kalman filter to identify the unobserved hot money as the temporary component of each type of flow the analysis reveals that the importance of hot money relative to the permanent component in bank credit flows has significantly increased during the 2000s relative to the 1990s this finding is robust to controlling for the influence of push and pull factors in the two unobserved components the evidence supports indirectly the view that global banks have played an important role in the transmission of the global financial crisis to emerging markets and endorses the use of regulations to manage international capital flows

daily cross border equity flows pushed or pulled we investigate the conditions under which an intertemporal equilibrium model based on investors portfolio decisions can explain the dynamics of high frequency equity flows our model shows that w

mutual funds flows and the geography of contagion abstract this paper studies the dynamics and geography of investments made by international mutual funds located in advanced markets i identify precise global and regional dynamics in equity and bond flows very few countries receive or lose funding in isolation i also find strong evidence of global contagion when financial conditions in developed markets change emerging markets funding is heavily affected i illustrate this finding by deriving contagion maps showing where contagion spreads and with what intensity in general the results suggest that push effects from advanced market investors affect massively developing countries and expose them to sudden stops and surges

equity and bond flows to latin america and asia the role of global and country factors abstract this paper investigates the factors motivating the large capital flows to a number of developing countries in recent years we use monthly us capital flows to nine latin american and nine asian countries to analyze the behavior of bond and equity flows employing a panel data approach we find that although global factors the drop in us interest rates and the slowdown in us industrial production are important in explaining capital inflows country specific developments are at least as important especially for asia we also find that equity flows are more sensitive than bond flows to global factors but that bond flows are generally more sensitive to a country s credit rating and secondary market debt price

an empirical analysis on capital flows the case of korea and mexico this paper discusses causes of capital flows in korea and mexico both countries received substantial amounts of foreign capital in the late 1980s and early 1990s international capital helped these countries achieve a higher standard of living and faster economic growth however undesirable macroeconomic effects such as appreciation of real exchange rate and widening current account deficits usually accompany foreign capital inflows the vector autoregressive var method is applied to investigate the underlying shocks causing the capital inflows the main findings are that the u s business cycle and shocks to foreign interest rates account for more than 50 of capital inflows to both countries in the past two decades

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

modelling portfolio capital flows in a global framework multilateral implications of capital controls abstract in the aftermath of the global financial crisis many emerging market countries resorted to capital controls to tackle the excessive surge of capital inflows a number of recent research papers have suggested that the imposition of controls may have imposed negative externalities on other countries by deflecting flows our aim in the research reported in this paper is to assess the efficacy of capital controls and potential deflection effects on other countries by constructing a comprehensive global econometric model which captures the dynamic interactions of capital flows with domestic and global fundamentals the results suggest that capital controls are effective for some countries in the short run but have no lasting effects moreover there is only limited evidence of deflection effects for a small number of emerging market countries

external factors in emerging market recoveries an empirical investigation abstract we estimate conditional duration models to analyse recovery processes in emerging market economies our reduced form specification is parsimonious as we focus on exogenous factors such as the effect of growth in the us eu and japan on the prospects for recovery in emerging market economies experiencing recessions the model confirms the importance of external factors in recovery processes however the short run effect of japanese growth on recovery prospects is unconventional weak economic conditions in japan turn out to facilitate recoveries

push factors and capital flows to emerging markets why knowing your lender matters more than fundamentals abstract countries gross capital inflows are not equally affected by changes in global conditions analyzing 21 advanced countries acs and 33 emerging markets ems between 2001 and 2015 we confirm that co movements in capital inflows are concentrated in bank portfolio bond and portfolio equity flows to ems however changes in global factors do not affect all ems equally even for the same type of flow investigating the characteristics of these sensitivities we find that ems relying more on global mutual funds are more sensitive in their gross equity and bond inflows recipient market liquidity and inclusion in global market indices also increase sensitivities but we find little robust evidence that institutional and macroeconomic fundamentals dampen sensitivities

hot money accounting labels and the permanence of capital flows to developing countries an empirical investigation using maximum likelihood kalman filtering techniques and non parametric variance ratio statistics we gauge the relative importance of permanent and temporary components of capital flows to latin american and asian developing countries over the period 1988 1997 for the broad categories of flows in the capital account equity flows ef bond flows bf official flows of commercial bank credit bc and foreign direct investment fdi we find relatively low permanent components in ef bf and of while commercial bc flows appear to contain quite large permanent components and fdi flows are almost entirely permanent these results have a natural interpretation and clear policy implications

the new wave of private capital inflows push or pull abstract this paper studies the determinants and sustainability of the widespread private capital inflows to middle income countries after 1989 the key question is whether these flows are mostly pulled by attractive domestic conditions or pushed by unfavorable conditions in developed countries an analytical model focusing on country risk is developed and used empirically it is argued that the observed improvement in country creditworthiness is mostly due to the decline in international interest rates and that therefore its importance as a proximate cause does not support the pull interpretation all things considered in most countries the key answer that emerges is push

the pecking order of cross border investment abstract is there a pecking order of cross border investment in that countries become financially integrated through some types of investment rather than others using a novel database of bilateral capital stocks for all types of investment fdi portfolio equity securities debt securities as well as loans for a broad set of 77 countries we show that such a pecking order indeed exists the paper focuses on two key determinants of this pecking order information frictions and the quality of host country institutions overall we find that in particular fdi and to some extent also loans are substantially more sensitive to information frictions than investment in portfolio equity and debt securities we also show that the share as well as the size of fdi that a country receive are largely insensitive to institutional factors in host countries while portfolio investment is by far the most sensitive to the quality of institutions this provides new evidence in favor of some hypotheses but contradicts others put forward in the literature on trade in financial assets

global economic divergence and portfolio capital flows to emerging markets this paper studies the role of global and regional variations in economic activity and policy in developed world in driving portfolio capital flows pcfs to emerging markets ems results suggest that pcfs to ems depend mainly on economic activity at the global level and monetary policy in america and asia positively on the former and negatively on the latters pcfs are procyclical with respect to global activity but countercyclical to regional activity in aggregate regional variations contribute more than global variations this implies that economic divergence in the developed world can have significant effects on ems via pcfs

what drives international portfolio flows understanding what drives international portfolio flows has important policy implications for countries wishing to exert some control on the size direction and volatility of the flows this paper empirically assesses the relative contribution of common push and country specific pull factors to the variation of bond and equity flows from the us to 55 other countries using a bayesian dynamic latent factor model we find that more than 80 of the variation in bond and equity flows is due to push factors from the us to other countries hence global economic forces seem to prevail over domestic economic forces in explaining movements in international portfolio flows the dynamics of push and pull factors can be partially explained by us and foreign economic fundamentals

fdi debt and capital controls abstract we examine the link between financial sector fdi flows banking debt flows and capital controls in emerging market economies during episodes of large gross capital inflows surges we find that fdi surges in the financial sector behave remarkably similar to surges in banking debt flows they are associated with boom bust cycles in gdp and expansions of credit in foreign currency unlike surges in fdi in the non financial sectors moreover global and contagion factors have a strong explanatory power in explaining surges in financial fdi and banking debt flows compared to surges in non financial sectors but capital controls have the opposite effect on the two types of flows restrictions on short term debt flows tend to decrease the likelihood of surges in banking debt flows but increase the likelihood of surges in financial sector fdi

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

a general equilibrium model of international portfolio choice we investigate in a two country general equilibrium model whether a bias in consumption towards domestic goods will necessarily lead to a preference for domestic securities we develop a model where investors are constrained to consume only from their domestic capital stock and where it is costly to transfer capital across countries in this model investors less risk averse than an investor with log utility bias their portfolios towards domestic assets investors more risk averse than log however prefer foreign assets thus this model suggests that it is unlikely that the portfolios observed empirically can be explained by the high proportion of domestic goods in total consumption we investigate in a two country general equilbrium model whether a bias in consumption toward domestic goods will necessarily lead to a preference for domestic assets in an investor s optimal portfolio we constrain investors to consume only from their domestic capital stock and introduce a proportional cost for transferring goods from one country this cost gives rise to endogenous deviations from the law of one price lop thus the home and foreign investors do not hold identical portfolios we show that an investor s optimal portfolio is biased towards domestic equity only if she is less risk averse than an investor with log utility investors with relative risk aversion greater than one exhibit a preference for the foreign asset this is because the exchange rate derived endogenously is negatively correlated with the return on the foreign asset and therefore the translated return on the foreign stock is less risky than that on the domestic stock thus the results of this model suggest that it is unlikely that the preference for domestic assets that is observed empirically can be explained by the high proportion of domestic goods in total consumption there exists a considerable body of literature documenting the gains from international diversification grubel 1968 was the first to propose that international diversification allows investors to attain lower return variances than those achievable by diversifying domestically this proposition relies on the correlation between stock indices across countries being significantly less

globalization and the decline of the welfare state in less developed countries why have trends in government welfare spending in developing countries diverged from those in developed countries i address this question by investigating the effects of capital and trade flows on government welfare spending in fifty three developing countries using an original measure of labor power in developing countries i test the links between international markets labor s political strength and the welfare state i argue that labor s collective action problems caused by large populations of low skilled and surplus workers offset labor s potential political gains from globalization i show that when the proportion of low skilled workers in a nation is high globalization will lead to a decline in welfare spending most significantly the results suggest that in nations where labor market institutions are not yet well developed government social welfare spending is constrained by international market forces

international capital crunches the time varying role of informational asymmetries we examine the determinants of capital flows to four developing countries during the 1990s using an explicitly disequilibrium econometric framework in which the supply and demand for capital are not necessarily equal and the actual amount of the flow is determined by the short side of the market we are thus able to detect instances of international capital crunch where capital flows are curtailed because of supply side rationing and to relate these instances to movements in the underlying fundamentals the analysis highlights the role of asymmetric information as distinct from the traditional concern with default risk in conditioning capital flows

moral hazard asset price bubbles capital flows and the east asian crisis the first tests we examine the view that the recent east asian crisis was precipitated by bursting asset price bubbles which had been fuelled by strong capital inflows that were largely the result of a moral hazard problem in financial intermediation and was exacerbated by a vicious cycle of asset price deflation and incipient and actual capital flight we find evidence of stock market bubbles in all east asian economies examined although not in australia we examine various categories of capital flows to these countries and find in particular relatively high reversible components in portfolio flows to east asian economies

currency matters analyzing international bond portfolios abstract bonds denominated in the investor s currency are special we show this indirectly in a global dataset of bilateral bond holdings indirectly because the global holdings dataset does not differentiate by currency denomination and then more directly in datasets of us holdings of foreign bonds that do differentiate by currency we find that the share of a country s bonds denominated in investors currencies is an important determinant of the amount of cross border investment it receives factors associated with greater or less cross border investment in bonds differ by currency denomination and one phenomenon of international portfolios the ever present home bias in some cases actually disappears when bonds are denominated in the investor s currency suggesting that the home bias is to some extent a home currency bias