Russian Financial Transition: The Development of Institutions and Markets for Growth

A well-developed financial intermediation industry increases domestic savings, efficiently allocates investment resources to the most productive uses in the economy and increases the rate of economic growth. In the Soviet economy the banking system served as a means of collecting household savings and a means of distributing centrally determined capital grants to enterprises. Banks then audited enterprise financial activities to ensure compliance to the financial plan. After a decade the transition from the Soviet banking system to a market oriented banking system is incomplete and fraught with uncertainty. While the number of financial institutions has increased dramatically, the state sector still dominates financial sector activity, the legal and regulatory framework is incomplete, information necessary for risk management is of poor quality and policy makers and regulators have been slow to act to improve intermediation services. While significant progress has been made, the commonly recognized characteristics of a sound financial system are not yet met.http://deepblue.lib.umich.edu/bitstream/2027.42/39839/3/wp455.pd

Real Exchange Rate Misalignment: Prelude to Crisis?

A model of the long run equilibrium real exchange rate based upon macroeconomic fundamentals is employed to calculate real exchange rate misalignments for Poland and Russia during the 1990s using the Beveridge and Nelson (1981) decomposition of macrofundamentals into transitory and permanent components. Short run movements of the real exchange rate are estimated with ARIMA and GARCH error correction specifications. The different nominal exchange rate regimes of the two countries generate different levels of misalignment and different responses to exogenous shocks. The average misalignment in Russia is substantially greater than that in Poland, indicating incipient pressures to devalue the ruble immediately preceding the August 1998 crisis. The half life of an exogenous shock is found to be much shorter for Poland than for Russia in the pre-crisis period. Dynamic forecasts indicate that the movements of the real exchange rate in the post-crisis period are significantly different from those in the pre-crisis period. Thus, the currency crisis in Russia could not be anticipated with the movements of the real exchange rate estimated with the macroeconomic fundamentals.http://deepblue.lib.umich.edu/bitstream/2027.42/40183/3/wp797.pd

Real Exchange Rate Misalignment: Prelude to Crisis?

A model of the long run equilibrium real exchange rate based upon macroeconomic fundamentals is employed to calculate real exchange rate misalignments for Poland and Russia during the 1990s using the Beveridge and Nelson (1981) decomposition of macrofundamentals into transitory and permanent components. Short run movements of the real exchange rate are estimated with ARIMA and GARCH error correction specifications. The different nominal exchange rate regimes of the two countries generate different levels of misalignment and different responses to exogenous shocks. The average misalignment in Russia is substantially greater than that in Poland, indicating incipient pressures to devalue the ruble immediately preceding the August 1998 crisis. The half life of an exogenous shock is found to be much shorter for Poland than for Russia in the pre-crisis period. Dynamic forecasts indicate that the movements of the real exchange rate in the post-crisis period are significantly different from those in the pre-crisis period. Thus, the currency crisis in Russia could not be anticipated with the movements of the real exchange rate estimated with the macroeconomic fundamentals.Russia, Poland, equilibrium real exchange rates, misalignment, cointegration, exogenous shocks, macroeconomic crises

Yuan Real Exchange Rate Undervaluation, 1997-2006. How Much, How Often? Not Much, Not Often

Yuan real effective exchange rate misalignment is esitimated in a behavioral equilibrium exchange rate (BEER) model for the period 1997 to third quarter 2007. Using the Beveridge-Nelson decomposition a vector error correction model (VECM) of the exchange rate as a function of macroeconomic fundamentals, including government expenditures, economic openness, the balance of trade surplus, and net foreign assets, is estimated. We find that the Chinese Yuan has been fluctuating moderately around its long run equilibrium value with undervaluation up to 4% and overvaluation up to 6% at various points in time since 1997. This result is consistent with findings of many of the most recent studies employing alternative econometric methodologies to determine the equilibrium exchange rate. While the Yuan real effective exchange rate has deviated from equilibrium, and it is sticky, taking over five years to correct 50% of the short run misalignment, it does not appear to have been consistently undervalued as has been widely argued.http://deepblue.lib.umich.edu/bitstream/2027.42/64348/1/wp934.pd

Yuan Real Exchange Rate Undervaluation, 1997-2006. How Much, How Often? Not Much, Not Often

Yuan real effective exchange rate misalignment is esitimated in a behavioral equilibrium exchange rate (BEER) model for the period 1997 to third quarter 2007. Using the Beveridge-Nelson decomposition a vector error correction model (VECM) of the exchange rate as a function of macroeconomic fundamentals, including government expenditures, economic openness, the balance of trade surplus, and net foreign assets, is estimated. We find that the Chinese Yuan has been fluctuating moderately around its long run equilibrium value with undervaluation up to 4% and overvaluation up to 6% at various points in time since 1997. This result is consistent with findings of many of the most recent studies employing alternative econometric methodologies to determine the equilibrium exchange rate. While the Yuan real effective exchange rate has deviated from equilibrium, and it is sticky, taking over five years to correct 50% of the short run misalignment, it does not appear to have been consistently undervalued as has been widely argued.Chinese Yuan, Exchange Rate, Misalignment, BEER, Behavioral, Cointegration, ARIMA, VECM, FGLS.

Soverign Wealth Fund Issues and the National Fund(s) of Kazakhstan

This paper first describes the major concerns associated with SWFs, mainly revolving around state ownership and lack of transparency. It then focuses on the National Fund for the Future of Kazakhstan (the “oil fund”, or NOF) and Samruk Kazyna (SK), the holding company for state owned enterprises. The NOF is funded predominately by corporate income taxes and royalties on natural resource production and is an instrument to provide financial stability and intergenerational equity. SK includes most large public monopolies and state owned enterprises not privatized in the 1990s with all of the accompanying issues related to state ownership and control of productive activities.http://deepblue.lib.umich.edu/bitstream/2027.42/133053/1/wp1036.pd

Evaluating inflation forecast models for Poland: Openness matters, money does not (but its cost does)

Countries in which inflation targeting has been adopted require high quality inflation forecasts. The Polish National Bank adopted a variant of implicit inflation targeting and therefore the ability to forecast inflation is critically important to policy makers. Since the domestic price formation process is still evolving, medium term inflation forecasting is often difficult. Using quarterly data from 1995-2007, we estimate and evaluate three types of models for inflation forecasting: (1) output gap models, (2) models involving money, and (3) models which bring the foreign sector into the price formation process. We find that openness is significant in the price formation process and inflation targeting is associated with lower inflation. Traditional measures of forecast accuracy indicate that the simple price gap version of the P* model and the money demand model perform best of this group for medium term forecasting

Evaluating inflation forecast models for Poland: Openness matters, money does not (but its cost does)

Countries in which inflation targeting has been adopted require high quality inflation forecasts. The Polish National Bank adopted a variant of implicit inflation targeting and therefore the ability to forecast inflation is critically important to policy makers. Since the domestic price formation process is still evolving, medium term inflation forecasting is often difficult. Using quarterly data from 1995-2007, we estimate and evaluate three types of models for inflation forecasting: (1) output gap models, (2) models involving money, and (3) models which bring the foreign sector into the price formation process. We find that openness is significant in the price formation process and inflation targeting is associated with lower inflation. Traditional measures of forecast accuracy indicate that the simple price gap version of the P* model and the money demand model perform best of this group for medium term forecasting

Active resonant subwavelength grating for scannerless range imaging sensors.

In this late-start LDRD, we will present a design for a wavelength-agile, high-speed modulator that enables a long-term vision for the THz Scannerless Range Imaging (SRI) sensor. It takes the place of the currently-utilized SRI micro-channel plate which is limited to photocathode sensitive wavelengths (primarily in the visible and near-IR regimes). Two of Sandia's successful technologies--subwavelength diffractive optics and THz sources and detectors--are poised to extend the capabilities of the SRI sensor. The goal is to drastically broaden the SRI's sensing waveband--all the way to the THz regime--so the sensor can see through image-obscuring, scattering environments like smoke and dust. Surface properties, such as reflectivity, emissivity, and scattering roughness, vary greatly with the illuminating wavelength. Thus, objects that are difficult to image at the SRI sensor's present near-IR wavelengths may be imaged more easily at the considerably longer THz wavelengths (0.1 to 1mm). The proposed component is an active Resonant Subwavelength Grating (RSG). Sandia invested considerable effort on a passive RSG two years ago, which resulted in a highly-efficient (reflectivity greater than gold), wavelength-specific reflector. For this late-start LDRD proposal, we will transform the passive RSG design into an active laser-line reflector

Extraordinary optical transmission through patterned subwavelength apertures.

Light propagating through a subwavelength aperture can be dramatically increased by etching a grating in the metal around the hole. Moreover, light that would typically broadly diverge when passing through an unpatterned subwavelength hole can be directed into a narrow beam by utilizing a specific pattern around the aperture. While the increased transmission and narrowed angular emission appear to defy far-field diffraction theory, they are consistent with a fortuitous plasmon/photon coupling. In addition, the coupling between photons and surface plasmons affects the emissivity of a surface comprised of such structures. These properties are useful across several strategic areas of interest to Sandia. A controllable emission spectrum could benefit satellite and military application areas. Photolithography and near-field microscopy are natural applications for a system that controls light beyond the diffraction limit in a manner that is easily parallelizable. Over the one year of this LDRD, we have built or modified the numerical tools necessary to model such structures. These numerical codes and the knowledge base for using them appropriately will be available in the future for modeling work on surface plasmons or other optical modeling at Sandia. Using these tools, we have designed and optimized structures for various transmission or emission properties. We demonstrate the ability to design a metallic skin with an emissivity peak at a pre-determined wavelength in the spectrum. We optimize structures for maximum light transmission and show transmitted beams that beat the far-field diffraction limit