The growth of consumer credit in Asia

Consumer credit has shown strong growth in emerging and newly industrialised Asian economies in recent years. While credit card lending has helped smooth consumer spending and improved the profitability of financial institutions, it also represents a new source of risk. Preventing financial and macroeconomic instability associated with consumer lending requires policy makers to be confident that lenders have proper risk management systems in place and consumers have sustainable debt burdens. Public policy also needs to ensure that essential infrastructure for consumer credit is available and set up properly, such as credit information bureaux and personal debt workout systems.Asia; Consumer credit; financial services industry

Fiscal Decentralization and Public Sector Employment: A Cross-Country Analysis

This dissertation seeks to investigate the relationship between public sector employment and fiscal decentralization. We develop a theoretical model that helps us understand the interaction of the central executive\u27s and subnational governor\u27s decisions on the level of public employees at the central and subnational levels. Our empirical work shows that fiscal decentralization policy shifts central government employees to the subnational government level and that the increase in public employees at the subnational government level overwhelms the decrease in public employees at the central level. As a result, the level of total public sector employees increases with the degree of fiscal decentralization of a country. We also find that the levels of total public sector employees as a percentage of population are higher in unitary country systems than those in federal countries. The level of public employment also increases with the degree of urbanization and with the exposure to risk of a country. This is a somewhat surprising result. Typically, more public employment is associated with an excessive number of public sector employees, and, therefore, with unproductive spending. On the other hand, fiscal decentralization policy has been generally thought to result in an increase in allocative efficiency, since a decision on public expenditures made by a level of government that is closer and more responsive to a local constituency is more likely to reflect the demand for local services than a decision made by a remote central government. In addition, decentralization has been thought of as having the potential of improving competition among governments and of facilitating technical innovations. Therefore, one might expect that fiscal decentralization should help to retrench the public sector employment. However, from our empirical result, we find that subnational governors without taking full responsibility for subnational public finance tend to bloat the levels of subnational government employees and ask the central government to pay the bill. As a result, the level of total public sector employees increases with fiscal decentralization policy. These findings are much in line with Oates\u27 and Wallis\u27 anticipated results, but they are based on different explanations. Employing the two most commonly used spatial dependency tests, Moran\u27s I and Getis and Ord\u27s G statistics, we also find evidence of spatial dependency in terms of the level of public sector employees as a percentage of population among the countries in our dataset. This finding suggests that while using a country\u27s own domestic variables to explain the level of public sector employment, we should not ignore that the neighboring countries\u27 policies also play an important role in determining it

Essays on Testing for Smooth Structural Changes in Time Series

This dissertation contains two essays which propose tests for smooth structural changes in dependence and volatility, respectively. In the first essay, we propose a generalized likelihood ratio test for smooth structural changes in copula parameters. Dependence between different financial assets plays a crucial role in many financial applications. The dependence structure is likely to change over time and the copula parameter also changes accordingly. Modeling the time varying nature of the copula parameter has drawn increased attention in the last decade because it has become increasingly recognized that dependence of financial assets is time-varying. In this essay, we consider the problem of testing for the time-varying copula parameter by the generalized likelihood ratio test based on the local maximum likelihood estimator. We derive the asymptotic null distribution of the proposed test. The finite sample performance of the test is illustrated by simulations and an empirical application is provided. In the second essay, we propose a generalized Hausman test for smooth structural changes in volatility. Since volatility is central to the financial theory and its empirical applications, there is a growing interest to analyze variance stability in financial markets, and the stylized facts of financial returns like IGARCH effects or variance persistence can be well explained by structural changes in the unconditional variance. The proposed test can be viewed as a generalized Hausman's (1978) test by comparing the local linear smoothing estimator, which is an inefficient but consistent estimator under HA, of volatility with the constrained estimator which is an efficient estimator under H0. We show that the new test is more powerful than the CUSUM test which has been mostly used to test for structural changes in volatility