Working Papers
2000
March 1, 2000
Terms of Trade Shocks in Africa: Are they Short-Lived or Long-Lived?
Description: This paper examines the persistence of shocks to the terms of trade, using annual data on 42 Sub-Saharan African countries between 1960-96. We find that the persistence of terms of trade shocks varies widely—for about half the countries such shocks are short-lived, while for one-third of the countries such shocks are long-lived. The countries experiencing long-lived terms of trade shocks are typically those that have large shares of petroleum imports in total imports, small shares of nonfuel commodity exports in total exports, and are highly concentrated in exportable commodities with long-lived price shocks.
March 1, 2000
Financial Market Spillovers in Transition Economies
Description: This paper examines financial market comovements across European transition economies and compares their experience to that of their regions. Correlations in monthly indices of exchange market pressures can partly be explained by direct trade linkages, but not by measures of other fundamentals. Higher-frequency data during three crisis periods reveals the presence of structural breaks in the relationship between exchange-, but not stock markets. While the reaction of markets during the Asian and Czech crises is muted, the pattern of high-frequency spillovers during the Russian crisis looks very similar to that observed in other regions during turbulent times.
March 1, 2000
Banks and Monetary Shocks in Emerging Markets: How Far Can We Go with the "Credit View"?
Description: This paper examines the propagation of monetary shocks in a two-good optimizing macromodel where domestic banking activity is costly and the non-tradable sector is highly dependent on domestic bank credit, as in most emerging market economies. The model develops the Bernanke-Blinder “credit view” of the monetary transmission mechanism along classical lines, with no Keynesian rigidities being imposed and the only sources of “imperfection” arising from deposit and credit-in-advance constraints. Using numerical simulations, we show that such a relatively simple model goes a long way toward explaining some key “stylized facts” of recent financial crises.
March 1, 2000
Does 'Grease Money' Speed Up the Wheels of Commerce?
Description: In a general equilibrium in which bribe-extracting bureaucrats can endogenously choose regulatory burden and delay, the effective (not just nominal) red tape and bribery can be positively correlated across firms. Using data from three worldwide firm surveys, this paper finds evidence consistent with this hypothesis. Firms that pay more in bribes are also likely to spend more, not less, management time with bureaucrats in negotiating regulations. They also face a higher, not lower, cost of capital.
March 1, 2000
Welfare Effects of Uzbekistan's Foreign Exchange Regime
Description: In addition to transferring about 16 percent of GDP from exporters to importers, Uzbekistan’s quasi-fiscal multiple exchange rate regime generates identifiable welfare losses of 2-8 percent of GDP on import markets and up to 15 percent on export markets. These excess burdens have increased substantially with the growing difference of exchange rates. The welfare analysis allows some conclusions regarding the optimal reform strategy: (i) welfare losses will decline overproportionally as exchange rates unify; (ii) exchange rate unification should be supplemented by changing the explicit fiscal system; (iii) at a minimum, Uzbekistan would benefit from moving to an explicit fiscal regime.
March 1, 2000
Relative Prices, Inflation and Core Inflation
Description: Empirical evidence on the distribution of relative price changes almost invariably reveals high kurtosis and a tendency toward right-skewness. Simple mixed distribution models including volatile and infrequently adjusted prices can account for these and other common features, such as correlation between the mean and variance of relative prices. In such circumstances, robust measures of central tendency are likely to outperform the mean or standard measures of “core” inflation as indicators of generalized inflation. The analysis also supports the use of geometric averaging in CPI construction and the targeting of the geometric mean inflation rate rather than the Laspeyres mean.
March 1, 2000
Deposit Insurance and Crisis Management
Description: A well-designed deposit insurance system (DIS) will provide incentives for citizens to keep the financial system sound. However, a poorly designed DIS can foster a financial crisis. This paper, therefore, makes recommendations for creating and running a limited, incentive-compatible, DIS. The paper also examines factors in the decision to grant, temporarily, a comprehensive guarantee, and the design of that guarantee, should a systemic financial crisis nevertheless occur. It concludes with guidance on the removal of that guarantee.
March 1, 2000
A Framework for Assessing Fiscal Vulnerability
Description: Fiscal vulnerability describes a situation where a government is exposed to the possibility of failure to meet its aggregate fiscal policy objectives. The suggested framework for assessing vulnerability highlights four macro-fiscal aspects of vulnerability: incorrect specification of the initial fiscal position; sensitivity of short-term fiscal outcomes to risk; threats to longer-term fiscal sustainability; and structural or institutional weaknesses affecting the design and implementation of fiscal policy. Fiscal vulnerability indicators are suggested.
March 1, 2000
Dynamic Gains From Trade: Evidence From South Africa
Description: This paper examines the empirical relationship between trade and total factor productivity (TFP) in South Africa. It uses (i) a time series approach where trade is defined in terms of aggregate outcomes, i.e., as the share of imports plus exports in GDP, and (ii) a cross sectional approach, where trade is defined in terms of trade policy, i.e., as actual trade protection across different manufacturing sectors. The results indicate that there is a significant positive relationship between trade and TFP growth both over time and across sectors.
March 1, 2000
Financial Liberalization, Bank Market Structure, and Financial Deepening: An Interest Margin Analysis
Description: The paper shows that commercial banks’ ability to lower deposit interest rates (market power) can increase deposit mobilization. Interest expenses saved can subsidize and lower fees on checking and branching services and thus help attract deposits. United States data illustrates the financial deepening effect of this market power. Commercial banks’ ability to lower deposit interest rates diminishes when their deposits become closer substitutes to nonbank liabilities requiring greater interest rate competition. Lack of bank deposit market power, including through capital account mobility, may lessen financial deepening.