Financial development and economic growth: A new empirical analysis

The paper describes tests of hypotheses from economic history concerning the significance of financial development as a determinant of economic growth. It goes beyond the existing studies in drawing on a large panel data set covering 93 countries from 1970-90 and includes a new proxy for the resource input into the financial system. Moreover, interaction effects between financial development and catching-up as well as education are considered. Finally, to clarify causal relationships, a two-wave path model is estimated. It is shown that during the 1970s and 1980s finance was a significant and predominantly supply-leading determinant of growth. --

Educational imbalance, socio-economic inequality, political freedom and economic development

This paper describes tests of several hypotheses put forward in the literature on the significance of education as a determinant of economic development. It is shown that the generally positive impact of education on economic development is severely impaired by 'educational imbalance' in the case of tertiary education, whereas economic inequality and repression of political rights primarily seem to reduce the social returns of the lower educational levels. --

Does financial activity cause economic growth?

To clarify the causal links between financial activity and economic growth, three theoretical models are analyzed and a structural equation path models is estimated. In the modeling part, poverty traps result from large fixed costs or high proportions of real investment to run a financial sector. Human capital allocated to financial activities will improve long-run levels but may reduce growth rates in the short run. Empirically, based on data for 93 countries during the 198090 period, it is shown that during the 1980s finance was predominantly a supply-leading determinant of economic growth. Our analysis suggests, however, that this general finding cannot be confirmed for the less developed countries, thereby giving some support to the conclusions derived from the theoretical modeling. --financial development,economic growth,financial sector,causality

A composite leading indicator for the Peruvian economy based on the BCRP's monthly business tendency surveys

This paper documents the construction of a composite leading indicator for the Peruvian economy based on the business tendency surveys (BTS) conducted by the Banco Central de Reserva del Perú (BCRP). We first classify potential composite leading indicators into "semantic" and "sophisti-cated" types. The former are based on the contents of the underlying indicators, whereas the latter results from statistical analyses relating to pre-determined reference series. We show that the BCRP BTS data provides a suitable basis for the construction of a sophisticated indicator with the Peru-vian year-on-year GDP growth rate as a reference series. The indicator selection consists of a num-ber of steps comprising semantic analyses of the questionnaire items, cross-correlation analyses as well as turning point analyses. We argue that based on these analyses, the choice should fall on five indicators, relating to firm-specific questionnaire items as well as to items relating to the sector or economy as a whole. The composite leading indicator is computed as the fist principal component of the selected variables. In-sample, it shows a lead of four months before the reference series, which amounts to about six months before the first official data release dates. Due to the limited number of observations (the BCRP's BTS now covering about eight years), we did not reserve any data points for out-of-sample analyses of the suggested composite leading indicator. Accordingly, the performance of the indicator still has to stand the test of time and its lead should be carefully monitored.

The Magnitude of Random Appraisal Error in Commercial Real Estate Valuation

Analysis of more than seven hundred pairs of simultaneous independent appraisals of institutional-grade commercial properties shows that the standard deviation of the random component of appraisal error is approximately 2%. Random appraisal error appears constant across both time and the institutional-grade investment universe, except during infrequent periods of real estate market gridlock. Most appraisal error is deterministic in nature, even though it usually appears random in routine cross-sectional analysis. Such appraisal error can be constrained and reduced by investment management control systems.

Serial Persistence in Equity REIT Returns

Annual and monthly REIT returns display statistically significant serial persistence, although the two types of persistence behavior are qualitatively different. By contrast, quarterly REIT returns do not display serial persistence. This strongly suggests that linear multifactor market models cannot describe REIT investment behavior. Annual REIT returns fail to reflect corresponding persistence behavior in underlying real estate returns precisely when the REITs are large enough to attract institutional investor interest. Institutional investors move in and out of large-capitalization REITs in ways that negatively impact investment returns.

Systematic Behavior in Real Estate Investment Risk: Performance Persistence in NCREIF Returns

Serial dependence of total annual returns in the NCREIF database is shown to be statistically significant in the first and fourth quartiles of disaggregated data between 1978 and 1994. More precisely, superior performance is generally followed by continued superior performance, and inferior performance is generally followed by continued inferior performance. In contrast, there is virtually no evidence to support serial dependence in the second or third quartiles, whether combined or taken separately. The empirical rejection of serial independence among real estate returns calls into question the conclusions of research based upon models that incorporate the assumption of serial independence.

Inflation Inequality in Europe

We analyze cross-household inflation dispersion in Europe using “fictitious” monthly inflation rates for several household categories (grouped according to income levels, household size, socio-economic status, age) for the period from 1997 to 2008. Our analysis is carried out on a panel of 23 up to 27 household-specific inflation rates per country for 15 countries. In the first part of the paper, we employ time series and related non-stationary panel approaches to shed light on cross-country differences in inflation inequality with respect to the number of driving forces in the panel. In particular, we focus on the degree of persistence of the household-specific inflation rates and their the adjustment behaviour towards the inflation rate of a “representative household”. In the second part of the paper, we pool over the full sample of all countries and test if and by how much certain household categories across Europe are more prone to significant inflation differentials and significant differences in the volatility of inflation. Furthermore we search for the presence of clusters with respect to inflation susceptibility. On the national level, we find evidence for the existence of one main driving factor driving the non-stationarity of the panel and evidence for a single co-integration vector. Persistence of deviations, however, is high, and the adjustment speed towards the “representative household” is low. Even if there is no concern about a long-run stable distribution, at least in the short- to medium run deviations tend to last. On the European level, we find small but significant differences (mainly along income levels), we can separate 5 clusters and two main driving forces for the differences in the overall panel. All in all, even if differences are relatively small, they are not negligible and persistent enough to represent a serious matter of debate for economic and social policy.Inflation, Inequality, Heterogeneity, Time Series, Panel.

Demography, Financial Openness, National Savings and External Balance

This paper examines the impact of demographic factors on saving, investment, and external balances. We derive a number of semi-structural equations from national accounting principle and the principle that external balances for the world as a whole must sum to zero. The resulting equations embody both closed, partially open and completely open economies as special cases, and are arguably more properly specified than those previously used in the literature. We apply these semi-structural equations to a large panel data set. While our findings by and large are in agreement with most of previous studies, our semi-structural equations give much more plausible estimation results for saving and investment than conventional specification.

Macroeconomic Fluctuations in Emerging Economies: An Unobserved Components Approach

This paper re-examines the impact of demographic factors on the current account balance. To this end, we develop an analytical framework that is more general than the one commonly used in the literature in three aspects. First, it accounts for the facts that the world current account balance must be equal to zero. Second, a bigger economy will have greater impacts on others, but be influenced less by them. Third, a more open economy will have greater impacts on others and at the same time be more readily influenced by them. We then confront two alternative empirical specifications based on both the new and the conventional framework with a panel of data. In contrast to the findings based on the conventional framework, our results with the new framework indicate that population ageing does not appear to have discernible impacts on the current account balance.