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Liquidity in the banking sector in Argentina reached new heights in early 1996 with the sharp reflow of deposits in the aftermath of the 1995 banking crisis. Yet, this did not translate into a similar recovery of credit to the private sector. Two hypotheses have been raised to explain this mismatch. One is that credit to the private sector was supply constrained because of adverse selection mechanisms exacerbated by the crisis. An alternative hypothesis is that credit was demand constrained, as unemployment remained high and the debt stock adjustment unwound only slowly through the first half of 1996. This paper examines these hypotheses.
Banks and Banking --- Money and Monetary Policy --- Industries: Financial Services --- Macroeconomics --- Financial Markets and the Macroeconomy --- Money Supply --- Credit --- Money Multipliers --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Public Enterprises --- Public-Private Enterprises --- Monetary economics --- Finance --- Banking --- Civil service & public sector --- Bank credit --- Loans --- Domestic credit --- Money --- Financial institutions --- Public sector --- Economic sectors --- Banks and banking --- Finance, Public --- Argentina
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The currency board arrangement and widespread dollarization of the Argentine economy since 1991 have laid the basis for domestic interest rates to converge to international levels. Although such a convergence has been observed for interest rates on bank deposits, interest rates on bank lending remain well above industrial country levels. This paper examines the causes of high intermediation spreads in Argentina using a dual currency model of the banking industry, which incorporates key features of credit markets in that country. Empirical results allow inferences to be drawn on the effects of macroeconomic and financial policies on bank lending and interest rates.
Banks and Banking --- Money and Monetary Policy --- Industries: Financial Services --- Interest Rates: Determination, Term Structure, and Effects --- Financial Markets and the Macroeconomy --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Financing Policy --- Financial Risk and Risk Management --- Capital and Ownership Structure --- Value of Firms --- Goodwill --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Banking --- Monetary economics --- Finance --- Financial services law & regulation --- Currencies --- Loans --- Exchange rate risk --- Bank credit --- Financial institutions --- Money --- Financial regulation and supervision --- Commercial banks --- Banks and banking --- Financial risk management --- Credit --- Argentina
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The role of exchange rate flexibility in the periphery of the gold standard has been grossly overlooked. This paper builds a new dataset on trade-weighed exchange rates for the period 1870-1913 and finds that large currency movements in periphery countries operating inconvertible paper-money and silver-standard regimes induced major fluctuations in effective exchange rates worldwide. We relate the phenomenon to the international trade structure at the time and show that such currency fluctuations had powerful effects on trade flows. We conclude that nominal exchange rate flexibility in the periphery was an important ingredient of international payments adjustment under the gold standard.
Investments: Metals --- Foreign Exchange --- International Monetary Arrangements and Institutions --- Economic History: Macroeconomics and Monetary Economics --- Growth and Fluctuations: General, International, or Comparative --- Metals and Metal Products --- Cement --- Glass --- Ceramics --- Currency --- Foreign exchange --- Investment & securities --- Exchange rates --- Real effective exchange rates --- Real exchange rates --- Nominal effective exchange rate --- Gold --- Commodities --- United States
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This paper presents new estimates of export and import equations for Argentina, using a broader set of variables than previous studies and distinguishing between intra- and extra-MERCOSUR trade. It measures the importance of relative price versus income effects in accounting for the higher trade deficit during the 1990s, and examines whether foreign trade elasticities have increased as a result of structural changes in the economy. It finds that the high income elasticity of imports and the responsiveness of exports to changes in world commodity prices, domestic absorption, and economic activity in Brazil have been key determinants of Argentina’s trade balance.
Exports and Imports --- Foreign Exchange --- Macroeconomics --- Neoclassical Models of Trade --- Empirical Studies of Trade --- Trade: General --- Price Level --- Inflation --- Deflation --- International economics --- Currency --- Foreign exchange --- Exports --- Imports --- Real exchange rates --- Trade balance --- Export prices --- International trade --- Prices --- Balance of trade --- Argentina
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This paper examines the propagation of monetary shocks in a two-good optimizing macromodel where domestic banking activity is costly and the non-tradable sector is highly dependent on domestic bank credit, as in most emerging market economies. The model develops the Bernanke-Blinder “credit view” of the monetary transmission mechanism along classical lines, with no Keynesian rigidities being imposed and the only sources of “imperfection” arising from deposit and credit-in-advance constraints. Using numerical simulations, we show that such a relatively simple model goes a long way toward explaining some key “stylized facts” of recent financial crises.
Banks and Banking --- Labor --- Macroeconomics --- Money and Monetary Policy --- Finance: General --- Financial Markets and the Macroeconomy --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Macroeconomics: Consumption --- Saving --- Wealth --- Employment --- Unemployment --- Wages --- Intergenerational Income Distribution --- Aggregate Human Capital --- Aggregate Labor Productivity --- General Financial Markets: General (includes Measurement and Data) --- Monetary economics --- Banking --- Labour --- income economics --- Finance --- Bank credit --- Credit --- Consumption --- Money --- National accounts --- Emerging and frontier financial markets --- Financial markets --- Banks and banking --- Economics --- Economic theory --- Financial services industry --- Argentina
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Empirical studies have had little success in finding a statistically significant relationship between fiscal deficits and inflation in broad cross-country panels. This paper provides new econometric estimates for a panel of 23 emerging market countries during 1970-2000. Unlike previous studies, we allow for a rich dynamic specification and focus on the long-run relationship between the two variables controlling for differences in the inflation tax base. We find that a 1 percentage point reduction in the ratio of fiscal deficit to GDP typically lowers long-run inflation by 1½ to 6 percentage points, depending on the size of the inflation tax base.
Exports and Imports --- Foreign Exchange --- Inflation --- Macroeconomics --- Public Finance --- Price Level --- Deflation --- Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General --- Debt --- Debt Management --- Sovereign Debt --- Energy: Demand and Supply --- Prices --- International Lending and Debt Problems --- Public finance & taxation --- Currency --- Foreign exchange --- International economics --- Government debt management --- Oil prices --- Exchange rate arrangements --- Interest payments --- Public financial management (PFM) --- External debt --- Debts, Public --- Debt service --- United States
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Dollarization in financial intermediation has exhibited a widely diverse pattern across countries. Empirical work relating it to macroeconomic variables has had only limited success in explaining the phenomenon. This paper presents a two-currency banking model to show that deposit and loan dollarization are determined by a broader set of factors. These include interest rates and exchange rate risk, as well as structural factors related to costly banking, credit market imperfections, and availability of tradable collateral. The direction in which dollarization tends to move with macroeconomic shocks is shown to depend on those factors as well as on initial dollarization levels.
Banks and Banking --- Money and Monetary Policy --- Industries: Financial Services --- Interest Rates: Determination, Term Structure, and Effects --- Financial Markets and the Macroeconomy --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Financing Policy --- Financial Risk and Risk Management --- Capital and Ownership Structure --- Value of Firms --- Goodwill --- Monetary economics --- Finance --- Banking --- Financial services law & regulation --- Dollarization --- Currencies --- Loans --- Bank credit --- Monetary policy --- Money --- Financial institutions --- Exchange rate risk --- Financial regulation and supervision --- Banks and banking --- Credit --- Financial risk management --- United States
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A perennial question in international finance is to what extent stock returns are influenced by country-location, as opposed to industry-affiliation, factors. This paper develops a novel methodology to measure these effects, in which portfolios mimicking "pure" country and industry factors are first constructed and their joint dynamics then modeled as regime-switching processes. Estimation using global firm-level data allows us to identify well-defined volatility states over the past thirty years and shows that the contribution of the industry factor becomes systematically more prominent during high global volatility states, while the country factor contribution declines. Using the model's estimates, we find that portfolio diversification possibilities vary considerably across economic states.
Econometrics --- Finance: General --- Investments: Stocks --- Public Finance --- Portfolio Choice --- Investment Decisions --- International Financial Markets --- Pension Funds --- Non-bank Financial Institutions --- Financial Instruments --- Institutional Investors --- Financial Markets and the Macroeconomy --- General Financial Markets: General (includes Measurement and Data) --- Time-Series Models --- Dynamic Quantile Regressions --- Dynamic Treatment Effect Models --- Diffusion Processes --- State Space Models --- National Government Expenditures and Related Policies: General --- Finance --- Investment & securities --- Econometrics & economic statistics --- Public finance & taxation --- Stocks --- Market capitalization --- Stock markets --- Time series analysis --- Public expenditure review --- Financial institutions --- Financial markets --- Expenditure --- Econometric analysis --- Financial services industry --- Stock exchanges --- Expenditures, Public --- United States
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While the relationship between volatility and credit risk is central to much of the literature on finance and banking, it has been largely neglected in empirical macro studies on sovereign defaults. This paper presents new econometric estimates for a panel of 25 emerging market countries over 1970-2001, breaking down aggregate volatility into its external and domestic policy components. We find that countries with historically higher macroeconomic volatility are more prone to default, and particularly so if part of this volatility is policy-induced. Reducing policy volatility thus appears to be key to improving a country's credit standing.
Exports and Imports --- Foreign Exchange --- Macroeconomics --- Public Finance --- International Lending and Debt Problems --- Debt --- Debt Management --- Sovereign Debt --- Empirical Studies of Trade --- Fiscal Policy --- International economics --- Currency --- Foreign exchange --- Terms of trade --- Fiscal policy --- Debt default --- Exchange restrictions --- Fiscal stance --- International trade --- External debt --- Economic policy --- nternational cooperation --- Debts, External --- United States
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Macroeconomic theory postulates that fiscal deficits cause inflation. Yet empirical research has had limited success in uncovering this relationship. This paper reexamines the issue in light of broader data and a new modeling approach that incorporates two key features of the theory. Unlike previous studies, we model inflation as nonlinearly related to fiscal deficits through the inflation tax base and estimate this relationship as intrinsically dynamic, using panel techniques that explicitly distinguish between short- and long-run effects of fiscal deficits. Results spanning 107 countries over 1960-2001 show a strong positive association between deficits and inflation among high-inflation and developing country groups, but not among low-inflation advanced economies.
Budgeting --- Foreign Exchange --- Inflation --- Macroeconomics --- Public Finance --- Price Level --- Deflation --- Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General --- Debt --- Debt Management --- Sovereign Debt --- Energy: Demand and Supply --- Prices --- National Budget --- Budget Systems --- Public finance & taxation --- Budgeting & financial management --- Currency --- Foreign exchange --- Government debt management --- Oil prices --- Budget planning and preparation --- Exchange rate arrangements --- Public financial management (PFM) --- Debts, Public --- Budget --- United States
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