264 research outputs found

    Current Accounts, Net Foreign Assets and the Implications of Cyclical Factors

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    Intertemporal models of the current account suggest that temporary income shocks are fully reflected in a country's net foreign asset position, so that agents invest abroad any savings generated by a positive income shock. On the other hand, a stylized fact in international economics is that there is a disproportionately large share of domestic assets in investors' portfolios. If investment risk is high and diminishing returns are weak, then savings from temporary income shocks may, in fact, be invested according to the existing portfolio composition. This implies that any bias in portfolios persists after a temporary shock. We estimate a model that explicitly allows for the possibility that the impact of initial portfolio allocation, proxied using net foreign assets, may differ, depending on whether shocks are permanent or temporary. Our results, from a panel of 18 OECD countries, suggest that initial portfolio allocation affects current account behavior following temporary, but not permanent, shocks. These results are therefore compatible with the "new rule".Current Account; Investment; Saving

    A Nonlinear Approach to Public Finance Sustainability in Latin America

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    The debt crisis in Latin America is associated with the large fiscal imbalances of the 1980s; therefore public finance sustainability occupies the center of stabilization efforts in these economies. The literature examining this question in emerging economies is surprisingly scant and this paper aims at filling this gap. We analyze sustainability for a sample of Latin American countries, employing unit root tests that incorporate nonlinear alternative hypotheses. These tests capture the thresholds or corridor regimes that international agreements or markets impose on emerging economies' public finances. We show that support for sustainability substantially improves when such nonlinearities are taken into account.

    Banking Sector Performance in Latin America: Market Power versus Efficiency

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    TSince the mid-1990s the banking sector in the Latin American emerging markets has experienced profound changes due to financial liberalisation, a significant increase in foreign investments and greater mergers activities often occurring following financial crises. The wave of consolidation and the rapid increase in market concentration that took place in most countries has generated concerns about the rise in banks’ market power and its potential effects on consumers. This paper advances the existing literature by testing the market power (Structure-Conduct-Performance and Relative Market Power) and efficient structure (X- and scale efficiency) hypotheses for a sample of over 2,500 bank observations in nine Latin American countries over 1997-2005. We use the Data Envelopment Analysis technique to obtain reliable efficiency measures. We produce evidence supporting the efficient structure hypotheses. The findings are particularly robust for the largest banking markets in the region, namely Brazil, Argentina and Chile. Finally, capital ratios and bank size seem to be among the most important factors in explaining higher than normal profits for Latin American banks.Structure-Conduct-Performance; Efficient Structure; Latin American banking; Data Envelopment Analysis (DEA).

    The financial development and growth nexus: A meta-analysis

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    We conduct a meta-analysis of the literature of financial development and economic growth. We cover a large number of empirical studies and estimations that have been published in journal articles. We measure the degree of heterogeneity and indentify the causes of the observed differentiation. Our results suggest that although evidence of publication bias is present, a genuine effect exists between financial development and economic growth.This is the accepted manuscript. The final version is available from Wiley at http://onlinelibrary.wiley.com/doi/10.1111/joes.12086/abstract