Working Papers
January 1, 0001
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January 1, 0001
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January 1, 0001
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January 1, 0001
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January 1, 0001
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2002
May 1, 2002
Calibrating Your Intuition: Capital Allocation for Market and Credit Risk
Description: Value-at-Risk (VaR) models often are used to estimate the equity investment that is required to limit the default rate on funding debt. Typical VaR "buffer stock" capital calculations produce biased estimates. To ensure accuracy, VaR must be modified by: (1) measuring loss relative to initial market value; and (2) augmenting VaR to account for the interest income required by investors. While this issue has been identified in the market risk setting, it has yet to be recognized in the credit risk literature. Credit VaR techniques, as typically described, are not an appropriate basis for setting equity capital allocations.
May 1, 2002
The Role of Internal Audit in Government Financial Management: An International Perspective
Description: The internal audit function has received increasing attention as an important component of government financial management and a tool for improving the performance of the government sector. Recently, a consensus has been reached on what audit standards governments should meet. This paper reviews these standards from an international perspective, noting that a large number of countries would face severe problems of meeting such standards. It is argued that internationally there are many different models for internal audit, and it may be necessary to take into account different audit traditions and different institutional capacities when introducing measures to strengthen internal audit in developing and transitional countries. The paper then discusses the main issues to be addressed in developing the internal audit in such countries, and offers a framework for introducing much needed reforms in this area.
May 1, 2002
Fiscal Policy and Economic Activity During Recessions in Advanced Economies
Description: Using data for advanced economies, this paper investigates whether factors identified in the theoretical and empirical literature explain the effectiveness of fiscal policy in responding to recessions. The results are informative about the fiscal response to recessions but provide only a partial explanation of the impact of fiscal policy on economic activity. Overall, it would appear that fiscal multipliers are very small.
May 1, 2002
Do “Flexible” Exchange Rates of Developing Countries Behave Like the Floating Exchange Rates of Industrialized Countries?
Description: The paper examines the behavior of daily spot exchange rates for a sample of industrialized countries which are generally considered to be floating with only occasional official foreign exchange market intervention. This behavior is then compared to the behavior of the exchange rates of a sample of sixteen developing countries whose regimes are often classified as being “flexible”. Considerable differences in the way these developing countries’ exchange rate regimes operate is apparent from the daily data, with some sharing similarities with the regimes of the industrialized countries and with others demonstrating regime shifts and other marked discontinuities.
May 1, 2002
Composition of Government Expenditures and Demand for Education in Developing Countries
Description: This paper addresses the potential effects on human capital accumulation and economic growth of the alternative compositions of public expenditures in the context of a computable dynamic general equilibrium model of overlapping generations and heterogeneous agents in which altruistic parents make schooling decisions for their children. In the presence of fixed and variable costs for different levels of schooling, we show that reducing household costs of primary education has the largest positive impact on growth and poverty reduction in the short run. Moreover, an increase in higher education spending increases long-run growth. These effects can be substantial even when increasing education spending comes at the expense of public infrastructure investment.