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Working Paper
Banking and finance in Argentina in the period 1900-35
From 1900 to 1935, Argentina evolved from an economy highly dependent on external, primarily British, finance to one more nearly self-sufficient. We examine the failure of domestic finance to adequately fill the void left by the decline of London and the breakdown of the world financial system in the interwar period, when neither the Buenos Aires Bolsa nor the private domestic banks developed rapidly enough to fully replace British investors as efficient channels for financing private investment. One consequence is that Argentine investable funds were increasingly concentrated in a single ...
Working Paper
The implications of capital-skill complementarity in economies with large informal sectors
In most developing nations, formal workers tend to be more experienced, more educated, and earn more than informal workers. These facts are often interpreted as evidence that low-skill workers face barriers to entry into the formal sector. Yet, there exists little direct evidence that such barriers are important. This paper describes a model where significant differences arise between formal and informal workers even though labor markets are perfectly competitive. In equilibrium, the informal sector emphasizes low-skill work because informal managers have access to less outside financing, and ...
Working Paper
Argentina's capital gap puzzle
Argentinas GDP per working age person in 2003 was about the same as it was twenty years earlier and around fifteen percent below trend. By international standards that has been a dismal performance whose ultimate sources are important to uncover to eventually reverse that countrys seemingly secular decline. The purpose of this paper is precisely to take a first step towards that understanding. To that effect, we examine Argentinas recent growth experience, which includes two deep recessions and a recovery, with the lens of a neoclassical growth model that takes total factor productivity as ...
Working Paper
Financial liberalization, market discipline and bank risk
In the literature on systemic banking crises, two common themes are: (1) Risky lending often follows bank liberalization. (2) Lack of market discipline encourages risky lending. That not all liberalizations are followed by financial crisis and that financial systems without market discipline sometimes operate without incident invites examination of these themes. In a test of six countries, we find that our measure of bank risk increases significantly in the wake of financial liberalizations, but only where depositors fail to discipline banks. Our measures of market discipline and bank risk, ...
Working Paper
Choosing among rival poverty rates : some tests for Latin America
Poverty rates are now widely available, but are they reliable? Wide variations in estimated poverty rates for the same poverty line, year and country reflect an underlying reality: there is no widely accepted procedure for estimating national poverty rates. This paper proposes a simple, ex post procedure for selecting poverty rates that have certain desirable properties. Absolute poverty measures, estimated uniformly across countries, should be correlated with nonmonetary indicators that reflect the consequences of physical deprivation (e.g., malnutrition, birth rates, school attendance). A ...
Working Paper
Why do financial systems differ? History matters
We describe a dynamic model of financial intermediation in which fundamental characteristics of the economy imply a unique equilibrium path of bank and financial market lending. Yet we also show that economies whose fundamental characteristics have converged may continue to have very different financial structures. Because setting up financial markets is costly in our model, economies that emphasize financial market lending are more likely to continue doing so in the future, all else equal.
Working Paper
Is tighter fiscal policy expansionary under fiscal dominance? Hypercrowding out in Latin America
We test for hypercrowding out as a signal of market concerns over fiscal dominance in five Latin American countries. Hypercrowding out occurs when fiscally dominated governments domestic credit demands are perceived as so intrusive to a nations financial system that a move towards fiscal surplus lowers interest rates and increases growth. We sample five Latin American countries to test for these relationships. Judged by the results of vector error correction models, three nations test clearly positive, suggesting market concern despite their recent efforts towards fiscal balance.
Working Paper
Capital account liberalization and disinflation in the 1990s
As a way of addressing arguments in the literature (Rodrik, 1998) that the act of capital account liberalization leads to inflation, we present a simple theoretical model in which capital account liberalization raises the absolute value of the elasticity of money demand because agents have broader money holding options than under a closed capital account. The central bank maximizes seigniorage, balancing the benefits of higher inflation against potential losses of foreign currency reserves. The optimum seigniorage-maximizing rate of inflation falls when capital controls are loosened, as a ...
Working Paper
Is foreign-currency indexed debt a commitment technology? Some evidence from Brazil and Mexico
We examine the effects of foreign currency-indexed debt upon inflationary expectations in Brazil and Mexico. Conjecturing that markets will view increasing overhangs of foreign currency-indexed debt as a commitment technology that fiscally punishes devaluation, we test whether increasing such overhangs will attenuate the effect of monetary growth upon inflationary expectations. We find some econometric confirmation of these conjectures in both the Brazilian and Mexican cases. Finding that the results are consistent with the notion that increasing the share of dollar indexed debt may also ...