319 research outputs found

    How much do we really know about growth and finance?

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    During the past twenty-five years, development economists have made a major shift toward a more mainstream, market-oriented approach to the financial sector. Economists now take for granted that a well-developed financial sector contributes to economic growth. But until recently there was surprisingly little solid evidence to support this view. ; This article assesses the econometric evidence about the finance-growth relationship. The author first describes the regression framework that has become the standard for assessing this relationship. He outlines some methodological reservations about the evidence used to establish this consensus, pointing out the drawbacks of using aggregate measures of activity. ; Over the last decade, a large body of empirical work using this framework has provided results that relate different dimensions of financial sector development to economic growth. The observed relationships in these studies appear convincingly to be causal, from finance to growth, and not the result of simultaneity or reverse causality. However, the author points out, the literature has not yet adequately explained what happens when the financial sector deepens or how that deepening affects behavior and economic growth. ; Research so far provides policymakers little guidance about how best to develop the financial sector or about the optimal sequence of developments. But the next generation of research has already begun to delve into the "black box." The author discusses a few of these studies that attempt to show how financial deepening effects are transmitted into the real sector.Finance ; Economic development ; Income distribution ; Financial institutions

    A note on exchange rate pass-through in CIS countries

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    We assess the extent and speed of exchange rate pass-through in the countries of the Commonwealth of Independent States (CIS). We do this in the framework of vector autoregressive regressions, utilising impulse functions and variance decompositions with monthly data that starts in 1999 in order to avoid periods of very high inflation and the Russian crisis. We find that exchange rate movements have a clear impact on price developments in the CIS countries. The speed of the pass-through is also fairly high: in most cases the full effect is transmitted into domestic prices in less than 12 months. Unlike in many other emerging market economies, an additional effect from US prices on to domestic prices is not significant. The extent of the exchange rate pass-through is usually much higher than in our benchmark group of emerging market countries. Variance decomposition shows that the relative share of exchange rates in explaining changes in domestic prices is higher in the CIS countries than in the benchmark group. Our results indicate that policy-makers in the CIS countries need to pay more attention to exchange rate movements than in many other emerging market countries.exchange rate pass-through; inflation; exchange rate regime; transition countries

    Observations on disinflation in transition economies

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    The transition economies were remarkably successful in curbing the inflation that took place after the initial transition and shocks and, more recently, most of the countries have brought inflation down to the levels found in major developed countries. In this paper we review the experiences and show how fiscal discipline, monetary policy and exchange rate policy contributed to the outcome. In addition, we note that the influence of EU accession on institutions and policy may have played an important role. The paper also surveys the literature on the quality of the inflation data, the extent to which necessary relative price adjustments have occurred and the size of the Balassa-Samuelson effect. Case studies of disinflation in four countries are presented: Poland, Romania, Estonia and Russia.

    The Structure of Expectations of the Weekly Money Supply Announcement

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    This paper examines the structure of expectations of the weekly money supply announcement in the late 1970s. The data used are from a weekly telephone survey of money market participants. The rationality and structure of expectations are explored with the data organized in three ways:the mean response to each weekly survey, the pooled sample of individual responses, and time series of responses by each individual in the survey.The effect of data aggregation on rationality tests is investigated. The structure of the expectations data are also examined and it is found that both strong regressive influences and adaptive learning characterize the data.