Inflationary performance in sub-Saharan Africa since 1996 is examined. Median inflation has tended to be higher than in other regions of the developing world, such as MENA and Latin America. ...Inflation is highly persistent and is higher in countries that are less politically stable, in those without hard-peg exchange rate regimes, and in those with larger fiscal deficits. Inflation has declined over time, at least at the upper end of the distribution. There is no evidence that commitment devices such as inflation targeting have reduced inflation, but in SSA the sample is confined to two countries. Inflation typically spikes after a devaluation, and is sensitive to supply-side shocks. Movements in the real price of oil and rice (but not maize) have significantly affected the inflation rate. In countries that are poor in oil and minerals and therefore more reliant on agriculture, output growth is negatively correlated with inflation, presumably because, when the harvest is good and agricultural output is high, the extra supply reduces food prices. Fiscal balances also display considerable persistence and are more favourable in resource-rich and politically stable countries and in those with hard-peg exchange rate regimes, and have improved over time. PUBLICATION ABSTRACT
As some emerging market economies have amassed large quantities of foreign exchange reserves, concern has arisen over the sterilisation of the domestic money stock from these flows. Existing studies ...focus mostly on narrow (reserve) money, and estimate a high degree of sterilisation. Empirical work on the long‐run relationship between money and prices emphasises broad money, yet the long‐run effect of foreign exchange inflows on broad money has been almost entirely ignored. Using a sample of quarterly data from 28 countries over the period 1990–2010, it is shown that broad money is sterilised to a significantly smaller degree than reserve money, raising concerns about the implications for financial imbalances and inflation. This pattern of sterilisation is not confined to any particular group of countries and is unrelated to the nature of the flows (e.g. current account versus capital account surpluses). Sterilisation rates have increased in Asia during the recent period of persistent accumulation of foreign exchange reserves.
In a rational expectations model, wages and prices should respond more to shocks in currency unions than under adjustable pegs because of the absence of exchange rate adjustment. This is an aspect of ...the endogeneity of the optimum currency area criteria that has been largely ignored. Empirical evidence from three currency unions tends to suggest some degree of endogeneity of price flexibility, but the rate of adjustment is slow. Self‐selection into currency unions by countries with naturally greater price flexibility does not appear to be a significant factor.
The loss of output in major recessions tends to be permanent. Using IMF de facto exchange rate regime classifications over the period 1980–2012 for up to 193 countries, it is shown that growth ...collapses are more frequent under less flexible exchange rate regimes, and particularly hard pegs. Amongst intermediate regimes, those with recent devaluations are less likely to experience a growth collapse, which confirms the role of exchange rate adjustment in reducing the output effects of a negative shock. Our findings are robust to the marked shift in the pattern of growth collapses after the global financial crisis.
A new spread estimator Bleaney, Michael; Li, Zhiyong
Review of quantitative finance and accounting,
07/2016, Letnik:
47, Številka:
1
Journal Article
Recenzirano
Odprti dostop
A new estimator of bid-ask spreads is presented. When the trade direction is known, any estimate of the spread is associated with a unique series of conjectural mid-prices derived by adjusting the ...observed transaction price by half the estimated spread. It is shown that the covariance of successive conjectural mid-price returns is maximised (or least negative) when the estimated spread is equal to the true spread. A search procedure to maximise this covariance may therefore be used to estimate the true spread. The performance of this estimator under various conditions is examined both theoretically and with Monte Carlo simulations. The simulations confirm the theoretical results. The performance of the estimator is good.
Is the evidence consistent with the predictions of endogenous growth models that the structure of taxation and public expenditure can affect the steady-state growth rate? Much previous research needs ...to be re-evaluated because it ignores the biases associated with incomplete specification of the government budget constraint. We show these biases to be substantial and, correcting for them, find strong support for the Barro model (1990, Government spending in a simple model of endogenous growth. Journal of Political Economy 98 (1), s103–117, for a panel of 22 OECD countries, 1970–95. Specifically we find that (1) distortionary taxation reduces growth, whilst non-distortionary taxation does not; and (2) productive government expenditure enhances growth, whilst non-productive expenditure does not.
There exist several statistically-based exchange rate regime classifications that disagree with one another to a disappointing degree. To what extent is this a matter of the quality of the design of ...these schemes, and to what extent does it reflect the need to supplement statistics with other information (as is done in the IMF’s de facto classification)? It is shown that statistical methods are good at the basics (distinguishing some type of peg from some type of float), but less helpful in other respects, such as determining whether a float is managed, particularly for countries that are not very remote from their main trading partners. Different measures of exchange rate volatility have been used but are not primarily responsible for differences between classifications. The theoretical underpinning of particular classification schemes needs to be more explicit.
This study assesses the response of the trade balance to exchange rate fluctuations across a large number of countries. Fixed-effects regressions are estimated for three country groups (industrial, ...developing and emerging markets) on annual data for 87 countries from 1994 to 2010. The trade balance improves significantly after a real depreciation, and to a similar degree, in the long run for all countries, but the adjustment is significantly slower for industrial countries. Emerging markets and developing countries display relatively fast adjustment. Disaggregation into exports and imports shows that the delayed adjustment in industrial countries is almost entirely on the export side. The rate of adjustment in emerging markets is slowing over time, consistent with their eventual graduation to high-income status. The ratio of trade to GDP is also highly sensitive to the real effective exchange rate, with a real depreciation of 10 % raising the trade/GDP ratio across the sample by approximately 4 %. This result, which presumably reflects movements in the prices of tradables relative to non-tradables, raises questions about the widespread use of the trade/GDP ratio as a trade policy indicator, without adjustment for real exchange rate effects.
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