Working Papers
1997
January 1, 1997
Stock Market Equilibrium and Macroeconomic Fundamentals
Description: This paper examines the efficiency of the Stock Exchange of Singapore and the relationship between the stock market and the overall economy. Using a wide range of methods for testing market efficiency, the paper establishes that the Singapore stock market is both “weakly” and “semi-strongly” efficient in asset-pricing terms but not “strongly” efficient. Granger causality tests based on the efficiency test results indicate that developments in the stock market appear to be systematically related to the overall economy in Singapore and can thus serve as a leading indicator of its intertemporal behavior.
January 1, 1997
Financial innovations Involving the Greek Drachma
Description: During the last decade, a number of new financial instruments and derivative products related to the Greek drachma have emerged in local as well as international capital markets. The paper analyzes the characteristics of these financial instruments which are traded in organized exchanges and over-the-counter (OTC) markets, and evaluates the conditions under which they have evolved. Drawing from legislative and industry developments in the European Union (EU) and the United States, the paper also examines the effects and implications of such developments for local markets and for the conduct of monetary and foreign exchange policies and argues for the need for sound macroeconomic policies.
January 1, 1997
Patterns of Capital Flows to Emerging Markets: A Theoretical Perspective
Description: This paper reviews some of the basic patterns of international capital flows to emerging markets in recent years, including the composition of capital flows, intraregional flow patterns, and the geographical distribution of the flows. A theoretical model that sheds new light on these observed patterns is developed. This model focuses on the cost of financing aspect of capital flows, and shows that the patterns of capital flows are influenced by the combined effects of financial market development and growth potential in the recipient countries. The theoretical predictions of the model are shown to be consistent with the stylized facts.
January 1, 1997
Towards a Market Economy: Structures of Governance
Description: This paper proposes an operational interpretation of the concept of economic governance. It argues that the capacity of governments to credibly ensure a secure economic environment provides an important benchmark against which governance can be evaluated. Such an environment—which is essential for sustained growth in a market economy—can be established through a rules–based system which ensures freedom of entry into the market, access to information, and sanctity of contracts. Since creating a secure economic environment involves profound, far–reaching social change, it has historically been a complex and lengthy process in most societies. However, basing policy prescriptions on this benchmark helps avoid possible conflicts between different social and moral values.
January 1, 1997
From Generosity to Sustainability: The Austrian Pension System and Options for its Reform
Description: Austria has probably the world’s highest pension expenditures relative to its economic size, largely because of the generosity of its pension system. This paper examines the institutional setup of the Austrian pension system and projects its future development based on current policies. The projection results show a swift financial worsening. With the already high level of contribution rates, pension expenditures, and budget transfers, the results underscore the need for reform. Much of this reform can, however, be achieved by maintaining the structure of the system and adjusting some of its key parameters. The paper outlines options for such a reform.
January 1, 1997
External Stability Under Alternative Nominal Exchange Rate Anchors: An Application to the GCC Countries
Description: Import and export stability is examined under two alternative nominal exchange rate anchors, the U.S. dollar and the SDR. Stability under the two pegs depends critically on import and export elasticity with respect to exchange rates. The implications of import and export elasticity for an optimal currency basket are also explored. The elasticity estimates for the GCC countries suggest that the SDR peg may not outperform the dollar peg in improving external stability. Nevertheless, switching to some other nominal exchange rate anchor may improve external stability, a possibility that remains to be explored.
Notes: This paper was presented at the Eleventh Annual Congress of the European Economic Association, Istanbul, August 21-24, 1996.
January 1, 1997
The Exchange Rate in a Dynamic-Optimizing Current Account Model with Nominal Rigidities: A Quantitative Investigation
Description: This paper studies dynamic-optimizing model of a semi-small open economy with sticky nominal prices and wages. The model exhibits exchange rate overshooting in response to money supply shocks. The predicted variability of nominal and real exchange rates is roughly consistent with that of G-7 effective exchange rates during the post-Bretton Woods era. The model predicts that a positive domestic money supply shock lowers the domestic nominal interest rate, that it raises output and that it leads to a nominal and real depreciation of the country’s currency. Increases in domestic labor productivity and in the world interest rate too are predicted to induce a nominal and real exchange rate depreciation.
January 1, 1997
Improving India’s Saving Performance
Description: This paper discusses recent trends in Indian saving behavior and reviews policy options to increase domestic saving. In the absence of forceful policy measures, private saving would continue to rise gradually, but probably not by enough to finance the government’s growth target of 7 percent over the next decade. The most promising way to boost domestic saving would be through increased public saving and a strong structural reform program, including financial liberalization, which would initiate a virtuous growth-saving circle. To increase the efficiency of the savings allocation, particular attention should be paid to long-term saving instruments.
January 1, 1997
Do Labor Market Policies and Growth Fundamentals Matter for Income Inequality in Oecd Countries? Some Empirical Evidence
Description: Income distribution may be related to fundamentals affecting economic growth and to labor market policies. Noting that inequality is affected by unemployment. This paper presents a model in which labor market policies affect unemployment which in turn affects inequality. The model also includes the effects of changes in per capita income on inequality through the accumulation of physical capital and technological know–how. When a resulting reduced–form relationship is estimated, its explanatory power is surprisingly high: on average, it explains about three quarters of the variation in inequality measures for the OECD countries, and Granger Causality tests confirm the model’s predictions.
Notes: Also published in Staff Papers, Vol. 44, No. 3, September 1997.
January 1, 1997
Fiscal Imbalances, Capital Inflows, and the Real Exchange Rate: The Case of Turkey
Description: This paper examines the links between fiscal policy, capital inflows, and the real exchange rate in Turkey since the late 1980s. After an overview of recent macroeconomic developments in Turkey, a vector autoregression model is estimated linking government spending, interest rate differentials, capital inflows, and the temporary component of the real exchange rate. Positive shocks to government spending and capital inflows lead to an appreciation of the temporary component of the real exchange rate, whereas positive shocks to the uncovered interest rate differential lead to a capital inflow and an appreciation of the temporary component of the real exchange rate. The findings highlight the role of fiscal adjustment in restoring macroeconomic stability.