The determinants of technology diffusion: evidence from the UK financial sector

This paper investigates the role of firm and industry-specific factors in the diffusion of automated teller machines (ATMs) in the UK financial sector. A duration model of technology adoption is employed in the empirical modelling and is applied to an annual panel of adoption histories over the period 1972 - 1997. The main factors affecting the diffusion of new technology are found to be endogenous learning, cumulative learning-by-doing effects, firm size, growth and profitability, and price expectations. There is, however, little evidence to support the role of stock effects in the diffusion process. The results are found to be robust across a number of specifications of the baseline hazard function

Structural real exchange rate and unemployment interdependencies in Argentina

Based on a three-sector, micro-founded model of a small open economy, this paper investigates the interdependences between the structural real exchange rate (defined as the relative prices tradable to non-tradable goods prices) and the unemployment rate with an application to Argentina. The empirical results suggest a significant, negative relationship between the structural real exchange rate and the rate of unemployment, suggesting that an appreciating real exchange rate may lead to Dutch disease effects – which effectively contract the size of the manufacturing sector – and damage long-term growth and employment opportunities

Testing the ‘fear of floating’ hypothesis: a statistical analysis for eight African countries

This paper revisits the fear of floating hypotheses for eight African countries from the collapse of the Bretton Woods fixed exchange rate system in the early 1970s up until December 2017. This long period of calendar time allows us to extend previous studies by examining the fear of floating hypotheses in two distinct ways. First, we look at a set of descriptive statistics to compare the degree of exchange rate flexibility under alternative dejure exchange rate regimes. We find no statistical difference between exchange volatility between declared floaters and fixers, but greater reserve volatility between the floaters, which is suggestive of fear of floating. Second, we use a non-linear, threshold VAR model, estimated for each country, to test for a relationship between exchange rate changes and reserve changes. The results suggest some evidence of a fear of floating for countries which have declared a de jure floating regime, with the regime-dependent impulse responses indicating that exchange rate appreciation due to positive reserve shocks is more prevalent in the high reserve regimes, indicative that level of foreign reserves available are important for their exchange rate policies. In general, although the countries with de jure floating regimes have a lower threshold than those with pegged regimes, reserves adjust by more than the exchange rates showing a fear of floating

Firm heterogeneity in modelling foreign direct investment location decisions

This article investigates the probability of the FDI location decisions of multinational enterprises using a mixed logit panel data model, which is the most flexible discrete choice model. We employ a three-level data set, which includes over 1100 FDI location decisions into 13 alternative Central and Eastern European Countries (CEECs) over an 11-year period. Our empirical results on the effect of host country, industry and firm characteristics on the probability of undertaking FDI in a particular location are significant and consistent with the predictions of our theoretical model

Was it different the second time? An empirical analysis of contagion during the crises in Greece 2009-15

Over the period between end-2009 and end-2015 Greece experienced two discernible financial crises. This article undertakes a correlation analysis of risk premia to investigate the nature and extent of contagion from these crises to other selected Euro-zone countries. A commonly expressed view is that the effects of the second crisis were more muted since the systemic risks were seen by markets as being lower. However, using a rolling correlation model, a DCC-GARCH model and a t-copula model we find that this is not the case. Broadly speaking, the contagion effects of the second crisis were at least as large as those associated with the first one

Safe haven or contagion? The disparate effects of Euro-zone crises on non-Euro-zone neighbours

While there have been many studies that examine contagion within the Euro-zone, this paper investigates the potential contagion from changes in the Greek sovereign risk premium over 2009-2016, as measured by the yield on 10 year government bonds, to six European countries outside of the Euro-zone all of which operated a managed float against the Euro. We find evidence of contagion to potential Euro-zone ascendants (Czech Republic, Hungary and Poland), but ‘flight to safety’ (or safe haven) effects for the United Kingdom, Sweden and Switzerland

New “News” for the news model of the spot exchange rate

The “News” model of the exchange rate, that received only weak support in the 1980s, is shown to be a verifiable model of the bilateral spot rate once the “news” is appropriately measured. Using market sentiment and policy uncertainty indices derived from big data for Japan, as “news” and survey data of agents’ expectations of the spot rate one month ahead, the “News” model of the exchange rate is shown not to be rejected for the bilateral JPY/USD rate from June 2009 to December 2017

The changing sources of real exchange rate fluctuations in China, 1995–2017: twinning the western industrial economies?

Relative real demand shocks are the most important source of real exchange rate fluctuations for most countries, including China, but prior to 2005 supply shocks were also large and highly significant. Whereas China’s pegged exchange rate policy rendered nominal (monetary) shocks unimportant, the shift to a more flexible exchange rate policy made nominal shocks a more important source of real exchange rate variability. Using a structural VAR model and quarterly data on China from 1995 to 2017, impulse response and variance decomposition analysis suggest that, although real relative demand shocks remain the main source of real exchange rate fluctuations, nominal shocks have become much more important in both absolute terms and relative to supply shocks. This suggests that, since adopting a managed floating exchange rate regime, the sources of China’s real exchange rate fluctuations have become similar to those of developed industrial countries. This stands in contrast to the fact that, despite being the world’s largest manufacturing economy, China is still classified as a developing country

The twin deficits hypothesis: an empirical examination

The ‘twin deficits hypothesis’ (TDH) claims that there is a connection between fiscal and current account deficits. In its most extreme form, popularized by the ‘New Cambridge School’ in the 1970s, the argument was that, with equilibrium in the private sector, the size of the public sector deficit was proportional to, and the principal determinant of the size of the current account deficit. In softer versions, private sector equilibrium is not assumed, but it is still argued that changes in the size of the fiscal deficit result in broadly equivalent changes in the current account. If valid, the TDH has important policy implications. In this paper we critically review the theoretical rationale for the TDH. We go on to examine the empirical evidence relating to it. We find little consistent support for the hypothesis either across our sample of advanced OECD countries or members of the BRICS group, excluding Russia. An explanation of current account disequilibria requires going beyond a narrow focus on fiscal imbalances in the context of the twin deficits hypothesis.</p

Foreign aid, debt interest repayments and Dutch disease effects in a real exchange rate model for African countries

The international competitiveness of developing countries is integral to their economic development, hence understanding the main determinants of the real exchange rate is important. The empirical literature supports the Dutch disease hypothesis that foreign aid inflows significantly contribute to a real appreciation of African currencies, but these studies do not account for the downward pressure on the exchange rate from foreign currency payments. Using a panel of sub-Saharan African countries from 1980 to 2017, we test the hypothesis that the real exchange rate appreciation from aid inflows is moderated by interest repayments on external debt. Our findings suggest that one-third of the Dutch disease effect of aid inflows on the real exchange rate is offset by external debt interest repayments. These findings are important in showing that countries with external debt servicing obligations can mitigate the Dutch disease effect of aid inflows on competitiveness.</p