Working Papers
January 1, 0001
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1998
June 1, 1998
Banking System Restructuring in Kazakhstan
Description: This paper reviews financial restructuring in Kazakhstan, and the condition of the financial system in the period following independence. The authorities’ efforts to redress financial sector weaknesses fall into two phases: The first phase addressed the immediate crises in the banking system by slowing bank licensing, tightening prudential regulations, and dealing with large nonperforming loans. The next phase saw reforms to regulatory and institutional structures. The paper shows that, by the end of 1997, substantial reforms in the structure of the financial system had been accomplished and a major financial collapse avoided. However, the banking system had not begun to play an active role in financial intermediation.
June 1, 1998
Liberating Supply-Fiscal Policy and Technological innovation in a Multicountry Model
Description: This paper examines how endogenizing technological progress in a multicountry macroeconometric model affects the analysis of fiscal policies. It uses an expanded version of the IMF’s multicountry model, MULTIMOD, in which total factor productivity (TFP) is endogenized as a function of domestic research and development (R&D) expenditures, R&D expenditures of trading partners, and trade. Compared with the standard version of the model with exogenous TFP, fiscal policies have much larger and long-lived effects on the domestic economy and on other countries.
June 1, 1998
Intermediation Spreads in a Dual Currency Economy: Argentina in the 1990s
Description: The currency board arrangement and widespread dollarization of the Argentine economy since 1991 have laid the basis for domestic interest rates to converge to international levels. Although such a convergence has been observed for interest rates on bank deposits, interest rates on bank lending remain well above industrial country levels. This paper examines the causes of high intermediation spreads in Argentina using a dual currency model of the banking industry, which incorporates key features of credit markets in that country. Empirical results allow inferences to be drawn on the effects of macroeconomic and financial policies on bank lending and interest rates.
June 1, 1998
Current Account Reversals and Currency Crises: Empirical Regularities
Description: This paper studies large reductions in current account deficits and exchange rate depreciations in low- and middle-income countries. It examines which factors help predict the occurrence of a reversal or a currency crisis, and how these events affect macroeconomic performance. Both domestic factors, such as the low reserves, and external factors, such as unfavorable terms of trade, are found to trigger reversals and currency crises. The two types of events are, however, distinct; an exchange rate crash is associated with a fall in output growth and a recovery thereafter, while for reversals there is no systematic evidence of a growth slowdown.
June 1, 1998
The Price Incentive to Smuggle and the Cocoa Supply in Ghana, 1950-96
Description: From the early 1960s to the early 1980s, the officially recorded production of cocoa in Ghana declined by 60 percent. During the 1983–95 Economic Recovery Program, however, cocoa production doubled. Although these developments have inspired much empirical research, most of the studies have been unable to explain the medium-term persistence of cocoa output to remain below its estimated capacity level. The paper argues that the price incentive to smuggle can explain as much as one-half of the observed decline in output and the subsequent recovery. A cointegration analysis and a dynamic error-correction model of cocoa supply support the analysis.
June 1, 1998
The United Kingdom's Experience with Inflation Targeting
Description: This paper reviews the first five years’ experience with inflation targeting in the United Kingdom. It concludes that inflation performance was not significantly different under inflation targeting than predicted by a VAR model estimated in the period prior to participation in the exchange rate mechanism (ERM). Both short- and long-term interest rates were lower than predicted, however, which is consistent with the interpretation that some gains in credibility were achieved under the inflation targeting regime.
June 1, 1998
Japanese Effective Exchange Rates and Determinants: Prices, Real Interest Rates, and Actual and Optimal Current Accounts
Description: This paper empirically analyzes Japanese long-run exchange rates from several perspectives. Several exchange rate models are considered, including the purchasing power parity, the real interest differential model, and the hybrid models à la Hooper and Morton (1982). A notable feature of the latter models is that the current accounts are introduced as determinants of the exchange rates; one type of hybrid model uses the actual current account, and the other the optimal current account, which is calculated using the present value model suggested by Campbell and Shiller (1988). The paper finds that the long-run specification is sensitive to the specification of the model.
June 1, 1998
Exchange and Capital Controls as Barriers to Trade
Description: This paper considers the effect of exchange and capital controls on trade in the gravity-equation framework, in which bilateral exports depend on the distance between countries, the countries’ size and wealth, tariff barriers, and exchange and capital controls. The extent of exchange and capital controls is measured by unique indices. In view of the degree to which countries have liberalized their exchange systems, controls on current payments and transfers are found to be a minor impediment to trade, while capital controls significantly reduce exports into developing and transition economies. Thus, further capital account liberalization could significantly foster trade.
Notes: Also published in Staff Papers, Vol. 46, No. 1, March 1999.
June 1, 1998
A Model for Financial Programming
Description: This paper presents a simple simulation model that enables the formulation of a consistent growth-oriented, medium-term adjustment program. The applied version is available in Excel (using data for El Salvador) and can be used directly as a financial programming tool that provides a range of standard IMF performance criteria together with a complete set of consistent accounts for the real, monetary, public, and external sectors of the economy. Medium- and long-term growth considerations are incorporated through a neoclassical production function at the same time as monetary and fiscal policies are adjusted to satisfy the requirements for internal and external balance.