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Journal Article
Foreign exchange reserves in East Asia: why the high demand?
Journal Article
Financial liberalization: how well has it worked for developing countries?
This Economic Letter gives a summary of another analysis of the impact of financial liberalization on the economic performance of developing countries from 1991 to 2001. It describes a new and simple method that measures the degree of international capital mobility and that also provides useful information about the degree to which a nation's domestic stock of capital is self-financed.
Working Paper
Fiscal Stimulus and Commercial Bank Lending Under COVID-19
We investigate the implications of extra-normal government spending under the COVID-19 pandemic for commercial bank lending growth between 2019Q4 and 2020Q4 in a large sample of over 3000 banks from 71 countries. We control for pre-pandemic structural factors, bank characteristics and government debt. To address the likely endogeneity of government assistance under the pandemic, we instrument for extra-normal spending using disparities in pre-existing national political characteristics for identification. Our results indicate that while higher government spending was associated with higher ...
Working Paper
Sovereign wealth funds: stylized facts about their determinants and governance
This paper presents statistical analysis supporting stylized facts about sovereign wealth funds (SWFs). It discusses the forces leading to the growth of SWFs, including the role of fuel exports and ongoing current account surpluses, and large hoarding of international reserves. It analyzes the degree to which measures of SWF governance and transparency compare with national norms of behavior. We provide evidence that many countries with SWFs are characterized by effective governance but weak democratic institutions, as compared to other nonindustrial countries. We also present a model with ...
Working Paper
Sterilization, monetary policy, and global financial integration
This paper investigates the changing pattern and efficacy of sterilization within emerging market countries as they liberalize markets and integrate with the world economy. We estimate the marginal propensity to sterilize foreign asset accumulation associated with net balance of payments inflows, across countries and over time. We find that the extent of sterilization of foreign reserve inflows has risen in recent years to varying degrees in Asia as well as in Latin America, consistent with greater concerns about the potential inflationary impact of reserve inflows. We also find that ...
Working Paper
Pegged exchange rate regimes -- a trap?
This paper studies the empirical and theoretical association between the duration of a pegged exchange rate and the cost experienced upon exiting the regime. We confirm empirically that exits from pegged exchange rate regimes during the past two decades have often been accompanied by crises, the cost of which increases with the duration of the peg before the crisis. We explain these observations in a framework in which the exchange rate peg is used as a commitment mechanism to achieve inflation stability, but multiple equilibria are possible. We show that there are ex ante large gains from ...
Working Paper
Military expenditure, threats, and growth
This paper clarifies one of the puzzling results of the economic growth literature: the impact of military expenditure is frequently found to be non-significant or negative, yet most countries spend a large fraction of their GDP on defense and the military. We start by empirical evaluation of the non- linear interactions between military expenditure, external threats, corruption, and other relevant controls. While growth falls with higher levels of military spending, given the values of the other independent variables, we show that military expenditure in the presence of threats increases ...
Working Paper
Asset class diversification and delegation of responsibilities between central banks and sovereign wealth funds
This paper presents a model comparing the optimal degree of asset class diversification abroad by a central bank and a sovereign wealth fund. We show that if the central bank manages its foreign asset holdings in order to meet balance of payments needs, particularly in reducing the probability of sudden stops in foreign capital inflows, it will place a high weight on holding safer foreign assets. In contrast, if the sovereign wealth fund, acting on behalf of the Treasury, maximizes the expected utility of a representative domestic agent, it will opt for relatively greater holding of more ...
Working Paper
Institutional efficiency, monitoring costs, and the investment share of FDI
This paper models and tests the implications of institutional efficiency on the pattern of foreign direct investment (FDI). We posit that domestic agents have a comparative advantage over foreign agents in overcoming some of the obstacles associated with corruption and weak institutions. We model these circumstances in a principal-agent framework with costly ex-post monitoring and enforcement of an ex-ante labor contract. Ex-post monitoring and enforcement costs are assumed to be lower for domestic entrepreneurs than for foreign ones, but foreign producers enjoy a countervailing productivity ...
Journal Article
Sovereign wealth funds: stumbling blocks or stepping stones to financial globalization?
Sovereign wealth funds (SWFs) are saving funds controlled by sovereign governments that hold and manage foreign assets. Private analysts put current sovereign wealth fund assets in the range of $1.5 to 2.5 trillion. This amount is projected to grow sevenfold to $15 trillion in the next ten years, an amount larger than the current global stock of foreign reserves of about $5 trillion (Jen 2007). While not a new phenomenon, the recent activities and projected growth of SWFs have stirred debate about the extent to which their size may allow them to destabilize financial markets and their ...