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This paper proposes a novel theory of reserve accumulation that emphasizes the role of an independent central bank. Motivated by a positive correlation between reserve accumulation and central bank independence in Latin America, the paper develops a quantitative sovereign default model with an independent central bank that can accumulate a risk-free foreign asset. The findings show that if the central bank is more patient than the government and as patient as households are, in equilibrium, the government issues more debt than what is socially optimal, and the central bank accumulates reserves to undo government over-borrowing. A key insight is that the government can issue more debt for any level of reserves but chooses not to because doing so would increase sovereign spreads, making it more costly to borrow. Quantitatively, the analysis finds that the central bank independence channel accounts for 75 percent of the average reserve levels observed in Mexico from 1994 to 2017. Finally, the paper shows that accumulating reserves improves social welfare. Welfare gains come from reducing the costs of front-loading public spending.

Central Bank Independence --- Currencies and Exchange Rates --- Currency --- Debt Markets --- Exchange Rate Regime --- External Debt --- Finance and Financial Sector Development --- International Economics and Trade --- International Reserves --- Public Sector Development --- Reserve Accumulation --- Sovereign Debt

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The paper presents a dynamic model for small to medium open economies operating under a fixed exchange rate regime. The model provides a partial explanation of the channels through which fiscal and monetary policy affects the real exchange rate. An empirical investigation is conducted for the case of Argentina during the currency board period of 1991-2001. Empirical estimates show that fiscal policy may indeed be an efficient instrument for promoting macroeconomic stability insofar as it encourages convergence toward long-run equilibrium and alters the long-term balance between exports and consumption, both private and public. The simulation applied to Argentina shows that if the share of public spending in the economy is higher than the share of imports, an increase in the tax rate will stimulate capital stock slightly, at least in the short term, and depreciate the real effective exchange rate. In the long run, the fiscal policy affects the value of the real exchange rate and consequently external competitiveness.

Currencies and Exchange Rates --- Currency --- Currency board --- Debt Markets --- Economic Stabilization --- Economic Theory and Research --- Emerging Markets --- Finance and Financial Sector Development --- Fiscal Policy --- Fixed Exchange Rate --- Fixed Exchange Rate Regime --- Macroeconomic stability --- Macroeconomics and Economic Growth --- Monetary policy --- Open economies --- Poverty Reduction --- Private Sector Development --- Real exchange rate

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This paper examines how fiscal rules, exchange rate regimes, and institutional quality affect the cyclical behavior of fiscal policy (how government spending responds to fluctuations in gross domestic product). The analysis is performed on a panel of 153 advanced, emerging, and developing countries over 1993-2015 using local Gaussian-weighted ordinary least squares and two-stage least squares estimators. The findings show that the adoption of fiscal rules alone is not sufficient to promote countercyclical fiscal policy and should be combined with strong institutions. Moreover, fiscal rules seem to limit procyclicality, especially in countries with flexible exchange rate regimes rather than in countries with fixed exchange rates. The analysis also finds that the disciplining effect of fiscal rules depends on the type of rule.

Business Cycle --- Business Cycles and Stabilization Policies --- Cyclicality --- Economic Policy, Institutions and Governance --- Exchange Rate Regime --- Fiscal and Monetary Policy --- Fiscal Discipline --- Fiscal Policy --- Governance --- Governance and the Financial Sector --- Institutions --- Macroeconomics and Economic Growth --- National Governance --- Procyclical Policy --- Public Sector Development

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July 2000 - Empirical econometric evidence shows that Mexico's simulated output recovery after a negative external shock was faster (a third as long) when the country's policymakers let the nominal foreign exchange rate float than when they fixed it, and much faster than in other developing countries that kept nominal foreign exchange rates constant, especially those that resorted to currency board arrangements to support that constancy. The academic and policy debate about optimal foreign exchange rate regimes for emerging economies has focused more on the theoretical costs and benefits of possible regimes than on their actual performance. Giugale and Korobow report on what can be called exchange-rate-regime-dependent differential shock persistence-that is, the time output takes to return to its trend after a negative shock-in a sample of countries representing various points on the spectrum of nominal foreign exchange flexibility. They find strong evidence that Mexico's simulated output recovery after a negative external shock was faster (a third as long) when the country's policymakers let the nominal foreign exchange rate float than when they fixed it, and much faster than in other developing countries that kept nominal foreign exchange rates constant, especially those that resorted to currency board arrangements to support that constancy. These results are insufficient to guide the choice of regime (they lack general equilibrium value and are based on a limited sample of countries), but they highlight an important practical consideration in making that choice: How long it takes for output to adjust after negative shocks is sensitive to the level of rigidity of the foreign exchange regime. This factor may be critical when the social costs of those adjustments are not negligible. This paper-a product of the Mexico Country Department, Latin America and the Caribbean Region-is part of a larger effort in the region to understand policy options open to developing countries for handling macroeconomic volatility in a globalized economy. The authors may be contacted at mgiugale@worldbank.org or akorobow@worldbank.org.

Currencies and Exchange Rates --- Currency --- Currency Board --- Currency Board Arrangements --- Currency Boards --- Debt Markets --- Domestic Economy --- Econometric Evidence --- Economic Stabilization --- Economic Theory and Research --- Economies --- Emerging Markets --- Exchange Rate Flo Exchange Rate Regime --- Exchange Regime --- External Shock --- Finance and Financial Sector Development --- Financial Crises --- Fiscal and Monetary Policy --- Foreign Exchange --- Foreign Exchange Rate --- Foreign Exchange Rates --- Inflation --- International Financial Integration --- Macroeconomic Management --- Macroeconomics and Economic Growth --- Monetary Unions --- Open Capital Accounts --- Private Sector Development --- Public Sector Development --- Structural Reform

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This book is a collection of high-impact papers accepted and presented at the 2019 Vietnam’s Business and Economics Research Conference (VBER2019) organised by Ho Chi Minh City Open University held on 18th–20th July 2019. The Special Issue is associated with a broad coverage of the contemporary issues in Business and Economics in Vietnam and other emerging markets reflecting a key theme of VBER2019: Vietnam’s Place in the Asia Pacific Region. A total of 14 papers were published from more than the 120 submissions to the VBER2019 Conference. Published papers had been undergone a rigorous reviewing process conducted by the Journal of Risk and Financial Management. The papers incorporated in this book address contemporary issues in business and economics from Vietnam and other emerging markets in the Asian region from various angles such as economics, finance, and statistics to management science. At the time of writing this note, some of the papers have attracted more than 1000 downloads in 3 months. In particular, a paper on “Foreign Direct Investment and Economic Growth from Developing Countries in the Short Run and Long Run” by Trang Thi-Huyen Dinh and her team has attracted almost 6000 downloads in 3 months. These statistics indicate that the papers published in this Special Issue have attracted the wide interest of readers. Among these 14 published papers, three main areas of important contemporary issues in Business and Economics in the Asian region can be identified. First, a block of papers deals with various important and fundamental issues in the emerging markets the Asian region, from exchange rate regime, financial inclusion, and financial development to energy consumption and environmental degradation. On the issue of CO2 emissions, energy consumption and economic growth in the ASEAN, Vo, Vo, and Le utilized various time series econometrics approaches. Key findings from this paper indicate that there are no long-run relationships among carbon dioxide (CO2) emissions, energy consumption, renewable energy, population growth, and economic growth in the Philippines and Thailand, but a relationship does exist in Indonesia, Myanmar, and Malaysia. Loo, in his paper on financial inclusion for the ASEAN, concluded that advancing internet capability and availability present investors an opportunity to offer financial technology or Fintech to meet the need for financial services in this digital era. Second, a challenge in quantitative studies for a single country, such as Vietnam, with limited data is generally noted. However, various empirical studies on Vietnam’s business and economics issues have been conducted. Nguyen, Quan, and Pham examined the cultural distance and entry mode of foreign direct investment in Vietnam. A key finding from their paper is that when there is a great cultural difference between Vietnam and their home country, foreign-invested firms prefer wholly owned subsidiaries over equity joint ventures. Within the Vietnamese market, Pham, Vo, Ho, and McAleer conducted a study on the issue of corporate financial distress. The authors conclude that the corporate financial distress prediction model, which includes accounting factors with macroeconomic indicators, performs much better than alternative models. In addition, the evidence confirms that the global financial crisis (GFC) had a damaging impact on each sector, with the Health & Education sector demonstrating the most impressive recovery post-GFC, and the utilities sector recording a dramatic increase in bankruptcies post-GFC. At another extreme of the spectrum, Van and Nguyen considered that competitive context, social influences, the understanding of managers about corporate social responsibility (CSR), and the internal environment of companies are the four drivers of CSR. The authors also argued that in the four drivers, competitive context has the strongest impact on adopting CSR. Third, last but not least, various papers focus on an important aspect of public finance. For an example, Pham, Pham, and Ly documented the effect of double taxation treaties on the bilateral trade of Vietnam with ASEAN member states, thereby making an extensive comparison with its EU partner countries. Their findings indicate the significant contributions of the tax treaties to Vietnam’s trade performance, not exclusively with ASEAN but also with EU partner countries. In addition, regarding public finance for Vietnam, Nguyen, Vo, Ho, and Vo investigated the contribution of fiscal decentralisation to economic growth across provinces in Vietnam. For the first time in Vietnam, the fiscal decentralisation index together its two subcomponents, including fiscal importance and fiscal autonomy, are developed. Findings from this paper indicate that while fiscal importance and an overall level of fiscal decentralisation have provided negative impact on provincial economic growth, fiscal autonomy has a positive impact on economic growth across provinces in Vietnam.

Technology: general issues --- fiscal autonomy --- fiscal decentralisation --- fiscal importance --- DGMM --- Vietnam --- performance --- internationalization --- organizational slack --- ASEAN --- CO2 emissions --- economic growth --- EKC --- energy consumption --- Granger causality --- VECM --- urbanization --- income inequality --- Driscoll and Kraay --- PMG --- agricultural commodity prices --- volatility --- crude oil prices --- structural vector autoregressive model --- impulse response functions --- pecking order theory --- trade off theory --- capital structure --- GMM --- listed firms --- industry level --- corporate financial distress --- bankruptcy --- distance to default --- fundamentals --- Global Financial Crisis --- double taxation treaty --- trade --- gravity model --- financial development --- FMOLS --- DOLS --- emerging markets --- corporate social responsibility --- textile and garment industry --- foreign direct investment (FDI) --- endogenous growth --- developing countries --- financial inclusion --- Fintech --- risk --- foreign direct investment --- competitiveness --- exchange rate regime --- Asia --- Reinhart and Rogoff --- cultural distance --- entry mode --- equity joint venture --- wholly owned subsidiary --- fiscal decentralization --- exchange rate --- Asian region