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on Financial Development and Growth |
| By: | Michael D. Bordo |
| Abstract: | The current pattern of sudden stops and financial crises in emerging markets has great resonance to events in the first era of globalization, from 1870-1913. In this paper I present descriptive statistics on capital flows, current account reversals and financial crises during the period 1870-1913 and compare them with the recent experience. I analyze the incidence of crises and measure their effects on real output losses. Furthermore, I consider the influence of openness to trade, original sin and currency mismatches on the pattern of sudden stops and financial crises. I find strikingly similar patterns across both eras of globalization. The pre-1914 sudden stops were associated with significant output losses comparable with the recent events, and their effects differed considerably depending on a country’s economic circumstances, just as they do today. |
| JEL: | E44 F32 N1 N20 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12393&r=fdg |
| By: | Felipe Meza; Erwan Quintin |
| Abstract: | Total factor productivity (TFP) falls markedly during financial crises, as we document with recent evidence from Mexico and Asia. These falls are unusual in magnitude and present a difficult challenge for the standard small open economy neoclassical model. We show in the case of Mexico’s 1994-95 crisis that the model predicts that inputs and output should have fallen much more than they did. Using models with endogenous factor utilization, we find that capital utilization and labor hoarding can account for a large fraction of the TFP fall during the crisis. However, these models also predict that output should fall significantly more than in the data. Given the behavior of TFP, the biggest challenge may not be explaining why output falls so much following financial crises, but rather why it falls so little. |
| Keywords: | Financial crises - Mexico |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddcl:0105&r=fdg |
| By: | L. Randall Wray |
| Abstract: | This paper briefly summarizes the orthodox approach to banking, finance, and money, and then points the way toward an alternative based on socioeconomics. It argues that the alternative approach is better fitted to not only the historical record, but also sheds more light on the nature of money in modern economies. In orthodoxy, money is something that reduces transaction costs, simplifying “economic life” by lubricating the market mechanism. Indeed, this is the unifying theme in virtually all orthodox approaches to banking, finance, and money: banks, financial instruments, and even money itself originate to improve market efficiency. However, the orthodox story of money's origins is rejected by most serious scholars outside the field of economics as historically inaccurate. Further, the orthodox sequence of “commodity (gold) money” to credit and fiat money does not square with the historical record. Finally, historians and anthropologists have long disputed the notion that markets originated spontaneously from some primeval propensity, rather emphasizing the important role played by authorities in creating and organizing markets. By contrast, this paper locates the origin of money in credit and debt relations, with the money of account emphasized as the numeraire in which credits and debts are measured. Importantly, the money of account is chosen by the state, and is enforced through denominating tax liabilities in the state’s own currency. What is the significance of this? It means that the state can take advantage of its role in the monetary system to mobilize resources in the public interest, without worrying about “availability of finance.” The alternative view of money leads to quite different conclusions regarding monetary and fiscal policy, and it rejects even long-run neutrality of money. It also generates interesting insights on exchange rate regimes and international payments systems. |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_459&r=fdg |
| By: | Balázs Égert (Oesterreichische Nationalbank; EconomiX at the University of Paris X-Nanterre and William Davidson Institute.); Ronald MacDonald (University of Glasgow and CESIfo.) |
| Abstract: | This paper surveys recent advances in the monetary transmission mechanism (MTM). In particular, while laying out the functioning of the separate channels in the MTM, special attention is paid to exploring possible interrelations between different channels through which they may amplify or attenuate each others’ impact on prices and the real economy. We take stock of the empirical findings especially as they relate to countries in Central and Eastern Europe, and compare them to results reported for industrialised countries, especially for the euro area. We highlight potential pitfalls in the literature and assess the relative importance and potential development of the different channels. |
| Keywords: | Monetary transmission, transition, Central and Eastern Europe, credit channel, interest rate channel, interest rate pass-through, exchange rate channel, exchange rate pass-through, asset price channel. |
| JEL: | E31 E51 E58 F31 O11 P20 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:mnb:wpaper:2006/5&r=fdg |