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Inflation, the Credit Market, and Economic Growth
Abstract
This paper presents a model which predicts a negative, non-linear relationship between the rate of inflation and rate of output growth, as observed in many empirical studies. The model describes an economy in which credit market imperfections arise due to asymmetric information between lenders and borrowers. Within this environment, two types of lending regime are possible--a rationing regime, where high and low risk borrowers are separated by means of credit rationing, and a screening regime, where separation takes place through costly information acquisition. An increase in the inflation rate alters lenders' behaviour in such a way (by increasing the incidence of rationing or the level of costly screening, or by switching the lending regime from screening to rationing) that adverse growth effect of inflation is magnified. The analysis provides a basis for the empirical finding that growth effect of inflation may be strongest in some specific range of inflation. Copyright 2002, Oxford University Press.
... such changes would also have implications for long-run real activities. The studies of Hyubens and Smith (1999), Gylfason and Herbertsson (2001), Bose (2002), and Rousseau and Wachtel (2002) have demonstrated that the level of inflation is an important factor in affecting the relationship between financial development and growth. Moreover, these studies provide empirical evidence indicating that under a low or moderate inflation rate, financial development promotes economic growth. ...
... However, recent literature has found that the relationship between financial development and economic growth does not follow a single pattern. For example, Huybens and Smith (1999), Gylfason and Herbertsson (2001), and Bose (2002) have found that inflation affects real variables through its impact on the financial market activities. In order to examine the effects of the interaction between inflation and financial development on economic growth, we employ the TAR model proposed by Tong (1978) and Hansen (1996). ...
... As a result, financial development that promotes economic growth can only be established under low inflation. This empirical finding is consistent with the conclusion derived from the theoretical models of Huybens and Smith (1999), and Bose (2002). Note that both investment and export variables have a positive and significant impact on economic growth regardless of the inflation regimes. ...
This paper employs a threshold regression model to investigate the existence of inflation threshold effects in the relationship between financial development and economic growth. A specific question that is addressed in this paper is what the threshold inflation rates are for Taiwan and Japan. Results indicate that there is one inflation threshold value in Taiwan, whereas there are two in Japan. Earlier studies support the view that financial development may promote economic growth. However, the conclusion drawn from the empirical findings suggests that it can only be achieved under low and moderate inflation. In addition, the threshold level of inflation below which financial development significantly promotes growth is estimated at 7.25% for Taiwan and 9.66% for Japan. The empirical findings from the threshold regression model indicate that inflationary threshold for both countries occurred in the high inflation period of the world energy crises in the 70s.
... However, recent literature has found that the relationship between financial development and economic growth does not follow a single pattern. For example, Gylfason and Herbertsson (2001) and Bose (2002) have found that inflation affects real variables through its impact on financial market activities. In order to examine the role of inflation in the relationship between financial development and the growth, we employ the TAR model proposed by Tong (1978) and Hansen (1999). ...
... Estimation results almost confirm the theoretical studies of Gylfason and Herbertsson (2001) and Bose (2002), which imply that inflation will affect the real sector of the economy through its impact on the financial market. These results are obtained by comparing the linear and TAR structure estimations on growth models. ...
... However, recent literature has found that the relationship between financial development and economic growth does not follow a single pattern. For example, Gylfason and Herbertsson (2001) and Bose (2002) have found that inflation affects real variables through its impact on financial market activities. In order to examine the role of inflation in the relationship between financial development and the growth, we employ the TAR model proposed by Tong (1978) and Hansen (1999). ...
... Estimation results almost confirm the theoretical studies of Gylfason and Herbertsson (2001) and Bose (2002), which imply that inflation will affect the real sector of the economy through its impact on the financial market. These results are obtained by comparing the linear and TAR structure estimations on growth models. ...
... The recent literature has instituted that the relationship between financial development and economic growth does not follow a single pattern. For example, [17,13,5] have found that inflation affects real variables through its impact on financial market activities. To examine the effects of the interaction between inflation on capital market performance, the study employed the TAR model proposed by [30,14]. ...
... The least-squares method for estimating was introduced by Hansen in (1996). This can be achieved by minimizing the sum of squared errors in (5). The estimated threshold value is given as: ...
Abstract: The purpose of this study is to investigate the threshold effect of inflation on capital market performance. The study employed a Threshold Autoregressive model introduced by Tong (1978) and Hansen (1996). The study used secondary quarter-time series data for thirty-years from 1990 to 2019. The capital market performance was measured by the value of shares traded; market turnover; market capitalization and all-shares index. However, the results revealed the following estimated threshold level of inflation for each performance indicator: 3.77%; 4.12%; 4.15%, and 4.22% respectively. In all, the
threshold level of inflation estimated was between 3 to 4%. The findings suggest that low inflation is performance-enhancing. Besides, inflation above the threshold level is detrimental to the capital market performance. The study further concluded that the exchange rate equally affects the performance of the capital market. The findings of this investigation might be helpful to the government of Ghana and policymakers as they settle on an inflation target to adopt to avoid the detrimental effects of high inflation while obtaining the growth benefits of low inflation.
Keywords: Capital Market Performance, Inflation, Threshold Autoregressive, Market Capitalization All-Shares Index, Turnover Ratio
... The authors verify that the calibrations of the theoretical model comply with Asian Pacific Economic Cooperation (APEC) and Organisation for Economic Cooperation and Development (OECD) data. In separate studies, Huybens and Smith (1999) and Bose (2002) proposed a dynamic general equilibrium model of endogenous growth in which credit market imperfections rise due to asymmetric information between lenders and borrowers in the capital market. A rise in inflation reduces the funds available for lending while simultaneously altering the behaviour of lenders such that the adverse effects of inflation are magnified and a critical level or threshold effect is obtained. ...
... A rise in inflation reduces the funds available for lending while simultaneously altering the behaviour of lenders such that the adverse effects of inflation are magnified and a critical level or threshold effect is obtained. Hung (2005) expands on Bose (2002) by including non-productive consumption loans into a model of asymmetric information. These loans allow for the concurrent existence of positive and negative effects of inflation on capital accumulation and economic growth resulting in two thresholds in the relationship. ...
... This can be because inflation increases asymmetric information between lenders and borrowers. In periods of high inflation, lenders are less willing to supply financial loans while borrowers are more reluctant to make future investments due to rising uncertainty in cost changes (Bose 2002). As is well-known, periods of high rate of inflation also mean high inflation uncertainty, which in turn implies higher risks for investors. ...
... Pratap, Lobato and Somuano (2003) tested the relationship using a sample of publicly listed Mexican firms and found similar results to ours, i.e. a positive relationship between REER appreciations and investments. Bonomo, Martins and Pinto (2003) investigated the case of Brazil over the period 1990-2002and Benavente, Johnson and Morande (2003 looked at Chile over the 1994-2001 period. Both papers failed to find significant relationships between the interaction variable and corporate investments. ...
This study investigates the current account deficit (CAD) of Turkey from the perspective of its capital account. We discuss how global liquidity conditions and monetary policies in Turkey have contributed to higher deficits through real exchange rate appreciations. We analyze the impact and consequences of exchange rate (ER) changes on the investments of non-financial firms. In the case of real ER depreciations, we find that the magnitude of the contractionary effect through balance sheets of firms with dollarized liabilities is significantly higher than the expansionary effect through trade competitiveness. We also analyze the “soft-landing” policies aimed at reducing the CAD in Turkey and estimate the rate of economic growth that must be foregone for a percentage reduction in CAD.
... The authors verify that the calibrations of the theoretical model comply with Asian Pacific Economic Cooperation (APEC) and Organisation for Economic Cooperation and Development (OECD) data. In separate studies, Huybens and Smith (1999) and Bose (2002) proposed a dynamic general equilibrium model of endogenous growth in which credit market imperfections rise due to asymmetric information between lenders and borrowers in the capital market. A rise in inflation reduces the funds available for lending while simultaneously altering the behaviour of lenders such that the adverse effects of inflation are magnified and a critical level or threshold effect is obtained. ...
... A rise in inflation reduces the funds available for lending while simultaneously altering the behaviour of lenders such that the adverse effects of inflation are magnified and a critical level or threshold effect is obtained. Hung (2005) expands on Bose (2002) by including non-productive consumption loans into a model of asymmetric information. These loans allow for the concurrent existence of positive and negative effects of inflation on capital accumulation and economic growth resulting in two thresholds in the relationship. ...
... The model frameworks of Bose (2002), and Huybens and Smith (1999) more formally describe the theoretical functioning of inflation threshold nonlinearities. Drawing directly from these frameworks, the panel data empirical studies of Barnes and which are included as explanatory variables in describing the growth process of an economy. ...
... The described results support the following theoretical propositions put forth by Bose (2002), and Huybens and Smith (1999): ...
This study is concerned with determining the level of inflation which is least detrimental towards finance-growth activity for the South African economy. This objective is attained by estimating an inflation threshold in a nonlinear finance-growth regression for quarterly data collected between the period February 2000 and July 2010. The econometric model is estimated using Ordinary Least Squares (OLS) technique whilst robustness checks are confirmed by re-estimating the model using the two-stage least squares instrumental variable (2SLS-IV) method. The presented findings of the study are two-fold: firstly, inflation is found to have an adverse effect on finance-growth activity at all levels of inflation. Secondly, the least adverse effects of inflation on finance-growth activity are established at an inflation level of 8 percent. Above and below this level, real activity losses gradually begin to be magnified the further one moves from the threshold. In relevance to policy conduct, this evidence advocates on the South African Reserve Banks (SARB) 3-6 percent inflation target as being too restrictive on the sustainment of real economic activity through financial intermediary channels.
... The lack of significance in the relationship below the threshold value suggests that a lower inflation rate does not exert a constraining influence on economic growth. This empirical observation is consistent with the conclusions drawn from the empirical studies proposed by Huybens and Smith (1999), as well as Bose (2002). Conversely, in regime 2, when the inflation rate exceeds the established threshold of 12.88%, there is a statistically significant and negative impact on economic growth. ...
Purpose: The aim of this study is to analyze the influence of inflation on the economic growth of Nigeria from 1990 to 2021. Specifically, it aims to identify a threshold, if it exists, at which the impact of inflation on economic growth begins to shift. Methodology: To assess the inflation threshold and its impact on economic growth, this study employed a novel method, the endogenous sample-splitting and threshold model developed by Hansen (2000). Findings: The study reveals a non-linear relationship between inflation and economic growth in Nigeria, with a single inflation threshold of 12.88%. When inflation is below this threshold, it positively impacts economic growth, while exceeding it negatively impacts economic growth. Furthermore, higher trade openness negatively affects economic growth, and population growth positively impacts growth across all inflation regimes. Investments contribute to economic growth in the linear model, but their influence is statistically insignificant across the threshold regimes. Financial deepening impedes growth above the inflation threshold. Unique Contribution to Theory, Practice and Policy: The study expands upon the current body of research on estimating the inflation threshold for Nigeria using the Hansen (2000) sample splitting technique. To our knowledge, this is the first study that has adopted this technique to estimate inflation threshold for Nigeria. The Hansen (2000) threshold technique offers more flexibility in model specification. It allows for the estimation of parameters separately for different regimes, typically above and below the threshold. This flexibility can help in identifying distinct regimes, such as low and high inflation regimes, and capturing their unique characteristics. The research findings are crucial for shaping monetary policy in Nigeria, providing policymakers with valuable insights for establishing an inflation target that is in line with Nigeria's overarching goal of attaining sustained economic growth.
... This study's findings on the nonlinear relationship between public debt to GDP (PDGDP) and economic growth are consistent with the empirical and theoretical conclusions reached in previous studies by Sarels (1996), Bose (2002), Lee and Wong (2005), and Munir et al. (2009); that is, inflation has a negative effect on economic growth in a high-inflation regime (i.e., when inflation is high). Furthermore, in this study, both the linear model and the TAR model demonstrate that the calculated coefficients of public debt have a negative and statistically significant association with GDPPC (GDP per capita growth). ...
ABSTRACT
Purpose– Ghana’s debt stock has been a subject of debate for a very long time. This study is to estimate the debt threshold level above which
it will be detrimental to economic growth.
Methodology– The study used a threshold autoregressive model introduced by Tong (1978) and Hansen (1996). The study employed timeseries data for thirty-one years from 1990 to 2020. Economic growth was measured by the Gross Domestic Product Per Capita (GDPPC). The
study sought to answer the following question: What is Ghana's public debt threshold value?
Findings– The data reveal that Ghana has a single public debt threshold value (i.e., structural breakpoint), implying that public debt and
growth are not linear. The derived threshold regression model indicates a public debt threshold of 57.09 per cent, above which the growth
rate of GDPPC is considerably retarded. In addition, below the threshold level, there is a statistically significant positive association between
public debt and growth.
Conclusion– This article concludes that low public debt is growth-enhancing, whereas public debt above the threshold value is detrimental
to economic growth. Therefore, policymakers should focus on monetary policies that aid in maintaining public debt at a low level. However,
this study makes the following recommendations to help sustain Ghana's expanding state debt:
To begin with, the government should halt the accumulation of external debt, which incurs additional costs during periods of currency
depreciation. Second, policymakers with decision-making authority should exert severe restraint on the growing cedi. Thirdly, the
government should eliminate all wasteful spending. Finally, the government of Ghana should allocate its external debt appropriately for
economic investment and maintain a strong debt management policy.
Keywords: Ghana’s debt stock, threshold, economic growth, policymakers.
... There are now substantial theoretical literatures arguing that inflation impedes financial deepening. Hyubens and Gylfason and Herbertsson (2001), Bose (2002), and Rousseau and Wachtel (2002) have demonstrated that the level of inflation is an important factor in affecting the relationship between financial development and growth. Moreover, these studies provide empirical evidence indicating that under a low or moderate inflation rate, financial development promotes economic growth. ...
... There are now substantial theoretical literatures arguing that inflation impedes financial deepening. Hyubens and Gylfason and Herbertsson (2001), Bose (2002), and Rousseau and Wachtel (2002) have demonstrated that the level of inflation is an important factor in affecting the relationship between financial development and growth. Moreover, these studies provide empirical evidence indicating that under a low or moderate inflation rate, financial development promotes economic growth. ...
The purpose of this paper is to evaluate the short-run and long-run impact of financial deepening on inflation in Nigeria from 1980 to 2012 using open economy model. Data was collected from Central Bank of Nigeria Statistical Bulletin (2012) and United Nations Conference on Trade and Development (UNCTAD) Volume index. The study employed the use of Auto-regressive Distributed Lag Model (coefficient Diagnostic Wald test and Variance Decomposition Test), to enable us achieve our objectives. The result shows that import volume index (IMPV) and exchange rate (EXCR) in lags 1 & 2 respectively are significant to explain variations in the consumer price index (CPI) in the short-run while all other variable have no significant impact on CPI. Also the short-run result indicates that financial deepening variables; MS2/GDP ratio (Fd1) and PSC/GDP ratio (Fd2) have no significant impact on consumer price index. While in the long-run, import volume index (impv), prime lending rate (prim) and exchange rate (excr) are significant with P-values of 0.0002, 0.0017 and 0.0010 respectively. The coefficients of FD1(-1) and FD2(-1) designated with C(16) and C(17) was tested together using Wald Coefficient Diagnostic Test to see the impact of financial depth on the price level, and the result indicates a positive and significant impact of financial deepening on Consumer Price Index (CPI). Meaning that, increase in money supply to GDP ratio (MS2/GDP) and private sector credit to GDP ratio (PSC/GDP) together generated consequent increases in price. The variance decomposition test indicates that shocks to FD1 can rarely cause variation in price level while shocks to PSC/GDP ratio (FD2) can cause variations in prices more than any other variable both in the short-run and long-run. Standing on our findings, appropriate monetary and exchange rate policies should be ensured as Nigeria move towards achieving her financial depth goals by the year 2020.
... In others words, a moderately high inflation infringes losses in the effectiveness of financial deepening on economic growth. This empirical evidence confirms the theoretical models of Huybens and Smith (1999), and Bose (2002) who argue that the financial development can only boost economic growth under the condition of low inflation. We may conclude that financial development remains relevant for economic growth whereas the banking system presents some issues for Tunisian economy development. ...
... In others words, a moderately high inflation infringes losses in the effectiveness of financial deepening on economic growth. This empirical evidence confirms the theoretical models of Huybens and Smith (1999), and Bose (2002) who argue that the financial development can only boost economic growth under the condition of low inflation. We may conclude that financial development remains relevant for economic growth whereas the banking system presents some issues for Tunisian economy development. ...
The main purpose of this paper was to ascertain the effect of inflation on the growth-enhancing role of financial development assuming a non-linearity relationship between finance and growth under different inflation regimes. The empirical study was carried out using the threshold regression model over the period of the first month of 1982 to the twelfth month of 2018. We found a strong evidence of a threshold effect (4.89%) which modifies the impact of financial deepening on growth in Tunisia. If the inflation rate falls below 4.89%, financial depth stimulates economic growth. However, this effect is weakened as inflation rate grows. Oppositely, credit growth of commercial banks is not efficient enough to contribute to economic growth. Thus, high inflation disrupts the growth-enhancing role of finance in Tunisia. Practically, the Tunisian monetary authorities are recommended to keep an inflation rate under 4.89% to reach a sustainable growth through financial development.
... The recent literature has instituted that the relationship between monetary development and economic growth does not follow a single pattern. As an example, [14,11,6] have found that inflation affects real variables through its impact on monetary market activities. To look at the effects of the interaction between inflation on capital market performance, the study employed the TAR model proposed by [24,12] . ...
Abstract
The exchange rate plays a significant role in an economy and also the purpose of this study is to examine the impact of exchange rate threshold level on the capital market performance. The study used a Threshold Autoregressive model introduced by [24] and [12]. The study used quarter-time series data for thirty years from 1990 to 2019. The capital market performance was measured by the value of shares traded; market turnover; market capitalization and all-shares index. However, the results unconcealed the subsequently estimated threshold level of exchange rate for every performance indicator: 7.94%; 25.33%; 25.33%, and 7.80% respectively. In all, the threshold level of the exchange rate estimated was 8 and 25 percent. The findings suggest that a low rate is performance-enhancing. Additionally, the exchange rate above the threshold level is harmful to the capital market performance. The findings of this investigation may be helpful to the government of Ghana and policymakers as they decide on an exchange rate target to implement to avoid the prejudicious affects of high exchange rates whereas getting the growth advantages of the low exchange rate. The finding of the study shows that the exchange rate impacts the economy more than inflation however, not many works in the subject area have been done in Sub-Saharan Africa. Therefore, I suggest that more threshold studies ought to be meted out on the exchange rate in the other sectors of the economy to determine its impact on the economy
... inflation) causes an initial increase in the return to capital which later turns negative hence dictating the nonlinear inflation-growth relationship. Moreover, other theoretical studies presented by Huybens and Smith (1999) and Bose (2002). Low inflation does not distort information or interfere with resource allocation and economic activity up to certain inflation threshold of which crossed, inflation aggravates the credit market through distorted flow of information. ...
This paper investigates the relationship between inflation and economic growth for South Africa and Ghana using quarterly empirical data collected from 2001 to 2016 applied to the quantile regression method. For our full sample estimates we find that inflation is positively related with growth in Ghana at high inflation levels whilst inflation in South Africa exerts its least adverse effects at high inflation levels. However, when particularly focusing on the post-crisis period, we find inflation exerts negative effects at all levels of inflation for both countries with inflation having its least adverse effects at high levels for Ghana and at moderate levels for South Arica. Based on these findings bear important implications for inflation targeting frameworks adopted by Central Banks in both countries.
... Согласно некоторым исследованиям, фондовые рынки оказывают стимулирующее влияние -посредством накопления и благодаря механизмам распределения рисков -на развития реального сектора (Greenwood and Smith, 1997). Н.Боуз отмечает, что участники фондового рынка (кредиторы), создавая систему дополнительного финансирования, повышают эффективность бизнеса (Bose, 2002;Bose, 2005). ...
Книга посвящена поиску эффективного равновесия между рыночной саморегуляцией экономики и ее государственным регулированием. В результате исследований, которые Институт Экономики НАНА проводит по этой проблеме с 2014 года, разработана новая методология измерения уровня либеральностидирижизма экономики – на основе моделеобразующих форм государственного вмешательства. Отчет за 2016 год, открывающий книгу, содержит сравнительные оценки по 62 экономикам мира. В книгу включен также ряд работ сотрудников Института Экономики по вопросам, нашедшим отражение в Отчете. Авторы надеются, что теоретические инновации и практические рекомендации книги окажутся интересными и полезными для экономистов и экспертовобществоведов широкого профиля, а также для лиц, принимающих решения по экономической политике.
... It has a positive sign, meaning that high uncertainty results higher inflation rates in emerging market economies. A negative correlation between inflation and the variables such as rate of credit growth, leverage growth and output growth shows that reduction in credit growth (borrowing) changes expectations and causes an increase in inflation (Bose 2002). Finally, macroprudential policy instruments are not a statistically significant variable for the inflation rate. ...
The implementation of macroprudential policies for improving a country’s financial stability has become more common in emerging markets. The aim of this paper is to analyse the effect of macroprudential policy on both capital flow volatility and price stability in emerging market economies. The analysis covers the Global Financial Crisis and post-crisis period. The effects of general macroprudential variables including leverage growth and credit growth and specific instruments, namely loan-to-value caps and reserve requirements on capital inflow, capital outflow and price stability have been tested. Propensity score matching techniques have been used to measure the effectiveness of various macroprudential policy measures on capital flow volatility. Major findings indicate monetary policy instruments are effective in pursuing both monetary policy objectives and macroprudential objectives. Short-term capital account volatility is seen to respond to macroprudential policy instruments. Propensity score matching was only successfully implemented for capital volatility. Results show that increased measures for macroprudential policy are effective for capital outflow and, decreased measures for macroprudential policy are effective, to a lesser extent, for capital inflows. Furthermore, meaningful correlation between increased macroprudential measures during periods of tight monetary policy exists only for capital outflows.
... In De Gregorio and Sturzenegger (1994) and Choi, Smith, and Boyd (1996), inflation distorts the credit allocation process and deteriorates credit quality because the financial sector is unable to distinguish good borrowers from bad ones, which is costly and adverse for long-run capital formation and real output. Finally, Bose (2002) presents a model with credit market imperfections generated by asymmetric information between two types of agents, lenders and borrowers. A rise in inflation rates leads to greater rationing, costly screening, or switching from screening to rationing, and therefore the negative inflation effects are enlarged 6 . ...
This paper explores the influence of inflation on the conditional distribution of financial development, an issue that has not received attention in related literature, with data from 84 countries covering the 1980-2010 period. In our data we show the presence of fixed effects, reject cross-sectional dependence in the error structure and justify poolability. Our empirical strategy employs standard and fixed-effects quantile regressions to demonstrate that the influence of inflation varies along the quantiles of the conditional finance distribution. In general, we find a consistently negative and nonlinear effect of price increases on financial variables; in particular, it is statistically significant in the full sample of countries, significant in developing countries, and insignificant in developed countries.
Resumen
Este artículo explora la influencia de la inflación sobre la distribución condicional del desarrollo financiero, un tema que ha recibido poca atención en la literatura, con datos de 84 países para el periodo 1980-2010. Probamos la presencia de efectos fijos, rechazamos la dependencia de sección cruzada en los errores y justicamos la agrupabilidad en los datos. Nuestra estrategia empírica usa regresiones estándares y cuantílicas con efectos fijos para demostrar que la influencia de la inflación varía a lo largo de los cauntíles de la distribución condicional financiera. En general, encontramos un efecto negativo y no lineal consistente con el aumento de precios sobre las variables financieras; en particular, es significativo para toda la muestra; significativo para los países subdesarrollados, e insignificativo para los países desarrollados.
... Согласно некоторым исследованиям, фондовые рынки оказывают стимулирующее влияние -посредством накопления и благодаря механизмам распределения рисков -на развития реального сектора (Greenwood and Smith, 1997). Н.Боуз отмечает, что участники фондового рынка (кредиторы), создавая систему дополнительного финансирования, повышают эффективность бизнеса (Bose, 2002;Bose, 2005). ...
Книга посвящена поиску эффективного равновесия между рыночной саморегуляцией экономики и ее государственным регулированием. В результате исследований, которые Институт Экономики НАНА проводит по этой проблеме с 2014 года, разработана новая методология измерения уровня либеральности-дирижизма экономики – на основе моделеобразующих форм государственного вмешательства. Отчет за 2016 год, открывающий книгу, содержит сравнительные оценки по 62 экономикам мира. В книгу включен также ряд работ сотрудников Института Экономики по вопросам, нашедшим отражение в Отчете. Авторы надеются, что теоретические инновации и практические рекомендации книги окажутся интересными и полезными для экономистов и экспертов-обществоведов широкого профиля, а также для лиц, принимающих решения по экономической политике.
... Bəzi tədqiqatlara görə, yığım mexanizmi və riskin bölüşdürülməsi vasitəsilə fond bazarları real sektorun inkişafına stimullaşdırıcı təsir göstərir (Greenwood and Smith, 1997). N.Bouz qeyd edir ki, fond bazarının iştirakçıları (kreditorlar) əlavə maliyyələşdirmə sistemi yaratmaqla biznesin səmərəliliyini artırmış olurlar (Bose, 2002;Bose, 2005). ...
Kitab iqtisadiyyatın özünütənzimləmə mexanizmləri ilə dövlət tənzimləməsi arasında effektiv müvazinət axtarışına həsr olunmuşdur. Bu yönlü tədqiqatlar AMEA İqtisadiyyat İnstitutunda 2014-cü ildən aparılır. Həmin araşdırmaların gedişində dövlətin iqtisadiyyata modelyaradıcı müdaxilələrinin ölçülməsi üçün yeni metodologiya hazırlanmış və onun əsasında 62 ölkə üzrə müqayisəli qiymətləndirmələr aparılmışdır. Bu tədqiqatlar həm Azərbaycan iqtisadçılarının, həm də beynəlxalq ekspert icmasının ciddi marağına səbəb olmuşdur. Kitaba dövlətin iqtisadiyyatı tənzimləməsi səviyyəsi üzrə 2016-cı ilin Hesabatı və Hesabatda əksini tapmış məsələlər üzrə İqtisadiyyat İnstitutu əməkdaşlarının araşdırmaları daxil edilmişdir. Müəlliflər ümid edirlər ki, kitabda ifadə edilmiş nəzəri tapıntılar və praktik tövsiyyələr iqtisadçılar, iqtisadi siyasət qərarları qəbul edən dövlət adamları və geniş profilli cəmiyyətşünas ekspertlər üçün maraqlı və faydalı olacaqdır.
... They conclude that the positive impact of financial development is dependent upon the threshold level of inflation. This argument is consistent with the findings of Huybens and Smith (1999), Bose (2002), and Rousseau and Wachtel (2002). Keho (2009) further examined these empirical positions using the bound testing cointegration. ...
The relationship between inflation and financial development remains an important issue in the empirical and theoretical literature, but has yet to receive significant research attention. This paper examines this issue for South Africa by applying the bounds testing (ARDL) approach to cointegration using a monthly series for the period from 2007 to 2016. The bounds tests suggest that the variables are bound together in the long run when credit allocated to the private sector is the dependent variable. The associated equilibrium correction is also significant, confirming the existence of a long-run relationship. The results indicate significant Granger and ARDL causality from inflation to the credit allocated to private sector as a measure of financial development. The empirical finding implies moderate rise in price level would motivate financial development in South Africa. Hence, the study concludes that management of financial system must be conducted in a manner that would motivate a moderate increase in price levels.
... We therefore conclude that inflation exerts a positive influence on economic growth both below and above the 5.30% threshold level even though this positive effect is more pronounced at inflation rates below the threshold. Note that this result is in line with the theoretically predictions of Huybens and Smith (1999) and Bose (2002) who hypothesise that inflation positively affects economic growth at low levels and then exerts a less positive effect at higher levels of inflation. We also observe similar positive coefficient of 0.48 for the financial deepening variable (m2_gdp) in the lower regime of the model and these estimates are significant at a 5% critical level. ...
In this paper, we challenge the notion of a monotonic relationship between inflation and economic growth in South Africa. In particular, we establish threshold effects in the inflation-growth relationship using a smooth transition regression (STR) model which is applied on data collected between 2001: Q1 and 2016: Q2. Our empirical results confirm a threshold of 5.30% in which the effects of inflation on economic growth are positive below this threshold whereas inflation exerts adverse effect on economic growth at inflation levels above this level. In a nutshell, our study offers support in favour of the optimal level of inflation lying between the current 3-6% inflation target and more specifically suggests that the monetary authorities should slightly lower the upper level of this target to about 5.30% as a means creating a more conducive financial environment for promoting higher economic growth.
... We therefore conclude that inflation exerts a positive influence on economic growth both below and above the 5.30% threshold level even though this positive effect is more pronounced at inflation rates below the threshold. Note that this result is in line with the theoretically predictions of Huybens and Smith (1999) and Bose (2002) who hypothesise that inflation positively affects economic growth at low levels and then exerts a less positive effect at higher levels of inflation. We also observe similar positive coefficient of 0.48 for the financial deepening variable (m2_gdp) in the lower regime of the model and these estimates are significant at a 5% critical level. ...
... Согласно некоторым исследованиям, фондовые рынки оказывают стимулирующее влияние -посредством накопления и благодаря механизмам распределения рисков -на развития реального сектора (Greenwood and Smith, 1997). Н.Боуз отмечает, что участники фондового рынка (кредиторы), создавая систему дополнительного финансирования, повышают эффективность бизнеса (Bose, 2002;Bose, 2005). ...
... The estimated coefficients, in two-regime models, of INFRATE not only differ statistically from zero but are also highly significant at p < 10. The estimated nonlinear relationship between inflation and economic growth is quite consistent with the empirical and theoretical conclusion derived in previous studies (Sarel 1996;Bose 2002;Lee and Wong 2005); that is, under high inflation regime, inflation has a negative effect on economic growth. In addition, the estimated coefficients on GCFGR (investment rate) show a positive and statistically significant relationship with GDPGR (growth rate of GDP) in the linear model as well as the TAR mode. ...
This paper examines the issue of the existence of threshold effects in the relationship between inflation rate and growth rate of GDP in the context of Malaysia, using new endogenous threshold autoregressive (TAR) models proposed by Hansen (2000) for estimation and inference. The empirical analysis uses annual data from Malaysia for the period 1970–2005. A specific question addressed in this study was: What is the threshold inflation rate for Malaysia? The findings clearly suggest that one inflation threshold value (i.e., structural break point) exists for Malaysia; and this implies a non-linear relationship between inflation and growth. The estimated threshold regression model suggests 3.89 per cent as the threshold value of inflation rate above which inflation significantly retards growth rate of GDP. In addition, below the threshold level, there is a statistically significant positive relationship between inflation rate and growth. If Bank Negara (Central Bank of Malaysia) pays more attention to the inflation phenomena, then substantial gains can be achieved in low-inflation environment while conducting the new monetary policy.
... The results support the theoretical preposition stated by Huybens and Smith (1999), and Bose (2002) that a negative relationship exists in the inflation-FSD-growth nexus. A level of inflation below the threshold level will stimulate the economic growth through FSD and vice-versa. ...
The study examined a nonlinear relationship between inflation and growth through financial development using data for Nigeria, Ghana and Cote d'Ivoire for periods between 1970 and 2010. The threshold value of inflation that could ensure positive association in the finance-growth nexus was empirically determined. Our results confirmed the existence of threshold with estimates that suggest that the threshold level of inflation is between 5% and 10% per annum for Ghana, and 15% per annum for Nigeria and Cote d' Ivoire.
... This has the propensity to rapidly heat up the economy by way of inflation which enhances the performance of real sector and financial sector. This is line with Bose (2002) and Huybens and Smith (1999). ...
In this study, the impact of globalization on labor force utilization, proxied as employment, in Nigeria was addressed with a view to assessing the extent to which globalization has influenced the structure of development in Nigeria. To achieve this, Augmented Dickey Fuller (ADF) test, and cointegration test were performed to investigate the unit root problem and the long run relationship among variables respectively; also an Error Correction Methodology was applied with a view to capturing both the short run and long run dynamic adjustments in employment model. The findings that emerged from the analysis showed that globalization practice could generate negative impact on employment in both short-and long run periods suggesting that if globalization continues as being practiced, globalization could further worsen the extant decrepit state of unemployment in Nigeria other things being equal. It is therefore recommended that government should confront the imminent unavoidable negative effects of globalization with a well –designed policy mix.
... Alternate approaches rely on inflation's redistributive effects Shibata, 1995, 2000), its role in public finance(de Gregorio, 1993;Roubini and Sala-i-Martin, 1995) and its interaction with financial frictions(Chari et al. 1996, Ho 1996, Haslag 1998, Bose 2002, Chang et al. 2007). To our knowledge, the only preexisting models that embed some form of nominal rigidity areJones and Manuelli (1995) andFunk and Kromen (2010). ...
The long-run relation between growth and inflation has not yet been studied in the context of nominal price and wage rigidities, despite the fact that these rigidities now figure prominently in workhorse macroeconomic models. We therefore integrate staggered price- and wage-setting into an endogenous growth framework. In this setting, growth and inflation are linked via the incentive to innovate. For standard calibrations, the linkage is strong: as trend inflation shifts from -5 to 5 percent, the range over which the economy’s steady-state growth rate varies spans 50 basis points, implying up to a 15 percent output differential after thirty years. Nominal wage rigidity plays a critical role in generating these results, and compounding of inflation’s growth effects implies large welfare losses. Endogenous growth thus proves a key channel via which inflation impacts New Keynesian economies.
... The estimated coefficients, in two-regime models, of INFRATE not only differ statistically from zero but are also highly significant at p < 10. The estimated nonlinear relationship between inflation and economic growth is quite consistent with the empirical and theoretical conclusion derived in previous studies (Sarel 1996;Bose 2002;Lee and Wong 2005); that is, under high inflation regime, inflation has a negative effect on economic growth. In addition, the estimated coefficients on GCFGR (investment rate) show a positive and statistically significant relationship with GDPGR (growth rate of GDP) in the linear model as well as the TAR mode. ...
This paper examines the issue of the existence of threshold effects in the relationship between inflation rate and growth rate of GDP in the context of Malaysia, using new endogenous threshold autoregressive (TAR) models proposed by Hansen (2000) for estimation and inference. The empirical analysis uses annual data from Malaysia for the period 1970–2005. A specific question addressed in this study was: What is the threshold inflation rate for Malaysia? The findings clearly suggest that one inflation threshold value (i.e., structural break point) exists for Malaysia; and this implies a non-linear relationship between inflation and growth. The estimated threshold regression model suggests 3.89 per cent as the threshold value of inflation rate above which inflation significantly retards growth rate of GDP. In addition, below the threshold level, there is a statistically significant positive relationship between inflation rate and growth. If Bank Negara (Central Bank of Malaysia) pays more attention to the inflation phenomena, then substantial gains can be achieved in low-inflation environment while conducting the new monetary policy.
... The reduction in money demand creates excess supply of credit and stimulates a rise in aggregate demand. Consequently , price must increase so that individuals can be satisfied to hold the existing stock of money rather than spending it on commodities or interest bearing assets (Bose, 2002). On the other hand, changes in the interest rate are likely to affect the equilibrium condition in the goods market and, in turn, price. ...
This paper analyzes the relationship between interest rates and inflation by using the Johansen's co-integration approach and then vector error correction model (VECM) approach. It should be noted that this relation has been known as Fisher effect in long run term, so we used the theory of Fisher for theoretical basis. The hypothesis, proposed by Fisher (1930), which states that the nominal rate of interest should reflect movements in the rate of inflation has been the subject of much empirical research in many industrialized countries. The existence of a long run relationship between interest rate and inflation was tested by Johansen's co-integration test. The result shows that there is one co-integration relation, so there is one co-integration equation too. To estimate the adjustment coefficients, we used VECM. Consequently, the results show that there is a long run relationship between these variables in Iran. Also, the results show that the long run relationship between the weighted average of interest rate is weak, while the long run relationship between rental rates of housing and inflation is strong.
In this paper, we assess the effectiveness of macroprudential policies in controlling
short- and long-term credit growth. Using a sample of 414 banks located in 61 countries,
we document that macroprudential policies manifest a stabilizing effect in the
short run, reducing credit growth, with borrower-targeted macroprudential policies
being the most effective in taming credit developments. However, in the long-term
tight macroprudential policies enhance credit growth. In this case, country-level analysis
shows that financial institution-targeted macroprudential policy is more effective
than the instruments that target borrowers, whereas at the bank-level the opposite is
true. In addition, using a difference-in-difference approach, we emphasize that there
is heterogeneity in the relationship among macroprudential policy and credit growth
across different types of countries, banking systems, policy regimes and banks. Our
findings stress the importance of macroprudential instruments in limiting excessive
lending, most notably borrower-based tools.
We analyse a monetary growth model where entrepreneurs borrow funds to invest in projects that produce capital goods. In addition to their varying pecuniary returns, different projects also vary with respect to the status they confer to the entrepreneurs who operate them. We show that (i) social status increases the growth rate, but this effect is mitigated by a social norm that inversely links overall levels of employment in the high-return project with the status conferred to it; (ii) the combined effect of social status and inflation is a source of transitional dynamics in an environment where such dynamics would not emerge if considerations of occupational prestige were absent; (iii) when the social norm affects social status, the economy's dynamics may be manifested in the form of endogenous volatility; (iv) the presence and characteristics of social status can generate a negative correlation between volatility and growth.
With the credit-channel effect driven by the central bank's open market operations, this paper's model easily gives rise to the nonlinear inflation-growth nexus, which is evidenced by a number of cross-country empirical studies. The threshold level of the inflation rate is found to be lower when tax rates are higher. The presence of the credit-channel effect also provides the rationale for setting positive (and smaller than 1) tax rates on consumption, labor income, and capital income. The optimal tax rates rise as the inflation target declines. Under a fiscal policy rule where labor and capital income taxes move proportionally to each other, the optimal capital income tax rate could be higher than the optimal labor income tax rate. Under a sufficiently large central bank balance sheet, the credit-channel effect will be so weak that inflation and all kinds of taxes are growth and welfare repressing. This provides a rationale for central banks that have implemented quantitative easing policies to shrink their balance sheets. (JEL E58, E62, O42)
This study contributes to the literature by extending the argument of the theoretical underpinning of dollarization. While the earlier studies have identified inflation, inter alia, as the important determinant of dollarization, it is silent about the exact inflation rate that is conducive for the dollarized economies. Using threshold autoregressive model, results show that inflation rate of 14–16% is favorable for the economies. Any further increment, beyond this level, would magnify the incidence of dollarization and vice-versa. Results are consistent to some robustness checks. Policy implications were suggested based upon the results estimated.
Inflasi akan mempengaruhi tingkat suku bunga. Ketika inflasi naik maka tingkat suku bunga
akan meningkat begitupun sebaliknya, ketika inflasi turun maka tingkat suku bunga akan
menurun juga. Tidak seperti negara lain, Indonesia memiliki keadaan yang unik, terkadang
meskipun BI Rate turun namun tingkat kredit tidak turun. Jadi, berdasarkan kasus ini, maka
-
lah ini mengkaji hubungan Inflasi, Suku Bunga dan Tingkat Kredit. Dengan menggunakan
model Vasicek, paper ini mengevaluasi fitting long-term, speed and volatility dari setiap
tingkat kredit berdasarkan kategori bank di Indonesia. Kemudian menilai tingkat fluktuasi
pada masing-masing bank. Tingkat masing-masing kategori bank sangat fluktuasi namun
tidak lebih dari 0,005 dan tidak lebih rendah dari 0,005.
This paper examines the role of inflationary threshold effects in the finance-growth relationship for Ghana and Nigeria. Ghana and Nigeria are relatively homogenous in terms of financial development, economic growth, and inflationary history and therefore provide an acceptable choice for this empirical analysis. Due to lack of data availability, the sample spans the period 1964–2011 for Ghana and 1961–2011 for Nigeria. Using appropriately specified threshold regressions, we found inflationary thresholds in both countries during the study periods. Specifically, the inflationary threshold range for Ghana is 10.73 %–29.83 %. For Nigeria, the inflationary threshold range is 10.07 %–19.25 %. By estimating the threshold regressions, we found financial development to have positive and significant effect on economic growth during low and moderate inflationary regimes; and insignificant effect on growth during high inflationary regimes, for both countries. In particular, financial development impact greatly on growth in Ghana when the rate of inflation is below a threshold of 10.73 % but dissipates when inflation rate reaches and exceeds 29.83 %. Similarly, financial development impact greatly on growth in Nigeria when the rate of inflation is below a threshold of 10.07 % but dissipates when inflation rate reaches and exceeds 19.25 %. The results imply that policymakers in these countries should take inflation into account when devising policies to promote financial development with the aim of generating economic growth. For without low or moderate inflation rates, such policies will not achieve their intended purposes.
The purpose of this study is to determine the effect of inflation and interest rate on economic growth & to determine the correction measures to inflation and interest rate trend are sustainable in Nigeria between 1981-2014. Secondary data sourced from World Bank databank and Central Bank of Nigeria was used in the study. The study adopted ordinary least square (OLS) method of analysis. The long run relationship between the variables was analyzed using the Johansen integration test. However, the Augmented Dickey Fuller test performed showed that only inflation is not stationary at first difference. The direction of causality and trend analysis was also performed on variables. It found out that Inflation and Interest rate has a negative effect on Economic growth but neither Inflation nor Interest rate granger causes economic growth. The work concludes with the recommendation that policy makers should focus on maintaining inflation at a low rate (single digit) and ensuring interest rate stability.
This paper uses 1996-2006 data on the top 10 countries in the 2008 Country Brand Index to examine threshold effects. When exchange rate changes are higher than the threshold value, the coefficient is positive. This means that continued tourism development can greatly enhance economic growth. If a currency continues to depreciate dramatically, the correlation between the two will disappear. The interactions between tourism development and economic growth are different under various ratio threshold values of exchange rate changes. This study shows that, if the government pays attention to trends in exchange rates and implements appropriate policies, tourism can effectively boost economic growth; at the same time, inflation suppresses economic growth. Tourism can potentially contribute to economic development and so it is advisable for governments to dedicate strategic resources to tourism in order to boost short-term economic growth.
Purpose
– The purpose of this paper is to investigate asymmetric cointegration and causality effects between financial development and economic growth for South African data spanning over the period of 1992-2013.
Design/methodology/approach
– This study makes the use of the momentum threshold autoregressive (M-TAR) approach which allows for threshold error-correction (TEC) modeling and Granger causality analysis between the variables. In carrying out an empirical analysis, the author uses six measures of the financial development variables against gross domestic per capita, that is, three measures which proxy banking activity and another three proxies for stock market development.
Findings
– The empirical results generally indicate an abrupt asymmetric cointegration relationship between banking activity and economic growth, on the one hand, and a smooth cointegration relationship between stock market activity and economic growth, on the other hand. Moreover, causality analysis generally reveals that while banking activity tends to Granger cause economic growth, stock market activity is, however, caused by economic growth increase.
Originality/value
– This study contributes to the literature by examining asymmetries in the cointegration and causality relations by using both banking and stock market proxies against economic growth for the South African economy.
In this paper we build an endogenous growth model in which the informal economy is subject to a cash-in-advance constraint along with physical capital accumulation and consumption. In this setting, we find that inflation generally adversely affects long-run growth. However; this effect strongly interacts with the size of the informal economy. Specifically, the negative effect becomes milder (and can even be positive) under the presence of a large informal economy. Moreover, using an annual cross-country panel data set of 161 countries over the period 1950-2010 we also provide some empirical support for the mechanism of our theory.
This paper's model is capable of explaining the empirical evidence on the mixed growth-rate effects of fiscal and monetary policies and a nonlinear inflation–growth relation. When monopoly power in the product market is strong/weak, an increase in the money growth rate or the income tax rate promotes/reduces the output growth rate through lowering/raising the equilibrium gross markup and increasing/reducing the net rate of return on capital. The fact that money can generate a positive growth rate effect allows for the appearance of a nonlinear inflation–growth relation. Such a nonlinear relation cannot be caused by changes in the income tax rate.
This article reviews the extensive literature on how to respond to the Feldstein–Horioka puzzle. This study quantitatively investigates the impact of instrumental variables on the correlation between domestic savings and investment. I consider two financial frictions: the economic system and the bank features. I find that the dynamic panel model with instrumental variables produces a savings–investment correlation and that information technology generates capital flows to ensure that countries have an incentive to develop. The findings emphasise the potential benefits associated with developing prospects and capital flow in an increasingly competitive emerging market.
The capital allocation inefficiency has become an important factor that restricted China's sustained economic growth, long-term macroeconomic stability and low financial system risk. Along with the further reform and opening policy, the commercial bank credit rationing phenomenon is more obvious, it is easily viewed that, on the one hand there is over investment even malignancy capital increase in the state- owned major industry, on the other hand it is extremely difficult for the small and medium enterprise to get loan. This paper firstly establishes a two-stage state-owned commercial bank credit rationing model which is based on the bank manager and loan officer's utility maximization, then analyzes the intrinsic mechanism of capital allocation inefficiency, finally on the base of the theoretical analysis, this paper proposes the related conclusion and suggestions of improving the capital allocation efficiency in China.
In this paper I examine the financial accelerator effects in analyzing determinants of corporate interest rates. Using the data of Chinese firms from 1998-2007, I find that balance sheet indicators matter for the interest rates paid by firms. Market access is particularly important in this regard. The strength of corporate balance sheets seem to vary with firm size. There is also evidence that monetary policy has a stronger effect on small than on large firms. But I find no asymmetry in the monetary policy effects over the business cycle. These results suggest some support for the existence of financial accelerator effects in China.
The majority of theoretical studies on the relationship between income inequality and financial development argue that financial deepening might be a feasible instrument for improving income distribution. This paper finds that the prediction crucially depends on the stages of financial development that the country is undergoing. The benefits of financial depth only occur if the country has reached a threshold level of financial development. Below this critical value, financial development counteracts income inequality. Our policy implication is that a minimum level of financial development is a necessary precondition for achieving reduction in income inequality through financial development.Highlights► A study on the relationship between income inequality and financial development. ► We use the instrumental-variable threshold regressions approach. ► We find that the nexus crucially depends on the stages of financial development. ► A threshold level of financial development is necessary. ► For achieving reduction in income inequality through financial development.
This paper studies the marginal debt issuance behavior of publicly traded companies with firm-level data from 42 countries. The focus is on the extent to which measures from the literature on finance and development can help to explain the observed differences among countries in the corporate use of marginal debt financing. Using the pecking order testing framework of Shyam-Sunder and Myers (1999), this study provides empirical evidence that financial market imperfections and institutional development affect the debt issuance decisions of firms when raising external capital. Country development, Law enforcement, legal origin, shareholder protections, effectiveness of the government, and control of corruption are significantly related to marginal debt issuance decisions of firms. Finally, the coefficient estimates of the pecking order regressions are correlated with the long run average growth rates of the countries and appear to be a powerful objective measure of financial market efficiency.
In this paper, a general-equilibrium business- cycle model is construct ed that, when subjected to real disturbances, mimics observed qualita tive comovements among real output, money, business failures, risk pr emia, intermediary loans, and prices. In contrast, monetary disturban ces generate cycles that have several inconsistencies with empirical evidence, thus providing support for real business-cycle theory at th e expense of monetary theories of the business cycle. Financial inter mediation arises endogenously in the model and intermediation matters for business-cycle behavior. A credit supply mechanism acts in tande m with an intertemporal substitution effect in propagating stochastic disturbances. Copyright 1987 by University of Chicago Press.
The Ramsey-Romer model of endogenous growth is extended to allow for holdings of real money balances and government debt as well as capital and for non-interconnected generations of households. Tax-financed increases in government consumption and debt depress growth prospects and boost inflation, as long as a positive birth rate ensures that future taxes are shouldered by future, yet unborn, generations. Debt-financed increases in government consumption depress growth and boost inflation even more. Money-financed increases in government consumption depress growth less but increase inflation by more. Giving subsidies through an increase in monetary growth is non-neutral, since this increases real growth and thus inflation increases by a lesser amount than monetary growth. Bond-financed increases in monetary growth lead to a larger increase in real growth and a smaller increase in inflation. If there are cost adjustment for investment, cuts in monetary growth and increases in government debt and government consumption induce an increase in the real interest rate. Copyright 1994 by Ohio State University Press.
Issues in wage determination, 379. — Hypothesis 1 (institutional): wage rates are set by a bargaining process, 381. — Hypothesis
2 (economic): both product and labor market factors influence wage determination, 381. — Hypothesis 3 (economic): two variables,
profit and unemployment rates, are sufficient to explain most of the variation in the rate of increase of wage rates, 383.
— Hypothesis 4 (institutional): wage determination in a group of heavy industries is interdependent, 384. — Hypothesis 5 (institutional):
wages are determined in wage rounds, 386. — The central result on wages: wage determination in the key group, 388. — Some
supporting evidence: time series for individual industries within the key group, 390. — The significance of other variables
— productivity, 392; consumer prices, 392. — Wage determination outside the key group, 394. — Results of cross-section analysis,
397. — Reconciliation of time series and cross-section results, 401. — Relation to previous empirical results, 402. — Is there
a Phillips curve for the United States? 406. — Extrapolation of the central result, 406. — Summary and concluding comment,
408. — Appendix I. The derivation of the central result, 409. — Appendix II. The construction of unemployment estimates for
two-digit industries, 413.
In non-monetary neo-classical growth models, the equilibrium degree of capital intensity and correspondingly the equilibrium marginal productivity of capital and rate of interest are determined by "productivity and thrift," i.e., by technology and saving behavior. Keynesian difficulties, associated with divergence between warranted and natural rates of growth, arise when capital intensity is limited by the unwillingness of investors to acquire capital at unattractively low rates of return. But why should the community wish to save when rates of return are too unattractive to invest? This can be rationalized only if there are stores of value other than capital, with whose rates of retrun the marginal productivity of capital must compete. The paper considers monetary debt of the government as one alternative store of value and shows how enough saving may be channeled into this form to bring the warranted rate of growth of capital down to the natural rate. Equilibrium capital intensity and interest rates are then determined by portfolio behavior and monetary factors as well as by saving behavior and technology. In such an equilibrium, the real monetary debt grows at the natural rate also, either by deficit spending or by deflation. The stability of the equilibrium is also considered.
We consider a small open economy with a costly state verification problem and binding reserve requirements. The presence of these frictions leads to the existence of two steady states with credit rationing. An increase in the money growth rate, the world interest rate or reserve requirements raises (lowers) GDP in the high (low) activity steady state. However, sufficiently large increases in money growth or the world interest rate can transform the high activity steady state from a sink to a source. The model also delivers prescriptions for restoring the stability of this steady state in such an eventuality.Journal of Economic LiteratureClassification Numbers: E5, F4.
Using a regression analog of growth accounting, I present cross-sectional and panel regressions showing that growth is negatively associated with inflation, large budget deficits and distorted foreign exchange markets. Supplementary evidence suggests that the causation runs from macroeconomic policy to growth. The framework makes it possible to identify the channels of these effects: inflation reduces growth by reducing investment and productivity growth; budget deficits also reduce both capital accumulation and productivity growth. Examination of exceptional cases shows that while low inflation and small deficits are not necessary for high growth even over long periods, high inflation is not consistent with sustained growth.
Conventional wisdom is that if public policy can affect the growth rate of the economy, the welfare implications of alternative policies will be large. In this paper, a stochastic, dynamic general equilibrium model with endogenous growth and money is examined. In this setting, inflation lowers growth through its effect on the return to work. However, the welfare costs of higher inflation are modest. The endogenous labor supply is important in producing this result.
This paper provides a survey on studies that analyze the macroeconomic effects of intellectual property rights (IPR). The first part of this paper introduces different patent policy instruments and reviews their effects on R&D and economic growth. This part also discusses the distortionary effects and distributional consequences of IPR protection as well as empirical evidence on the effects of patent rights. Then, the second part considers the international aspects of IPR protection. In summary, this paper draws the following conclusions from the literature. Firstly, different patent policy instruments have different effects on R&D and growth. Secondly, there is empirical evidence supporting a positive relationship between IPR protection and innovation, but the evidence is stronger for developed countries than for developing countries. Thirdly, the optimal level of IPR protection should tradeoff the social benefits of enhanced innovation against the social costs of multiple distortions and income inequality. Finally, in an open economy, achieving the globally optimal level of protection requires an international coordination (rather than the harmonization) of IPR protection.
The authors construct a model of a dynamic economy in which lenders cannot force borrowers to repay their debts unless the debts are secured. In such an economy, durable assets play a dual role: not only are they factors of production but they also serve as collateral for loans. The dynamic interaction between credit limits and asset prices turns out to be a powerful transmission mechanism by which the effects of shocks persist, amplify, and spill over to other sectors. The authors show that small, temporary shocks to technology or income distribution can generate large, persistent fluctuations in output and asset prices. Copyright 1997 by the University of Chicago.
The persistently high unemployment rate of the Atlantic Region of Canada may be a symptom of importation into the region of inappropriately high wage levels from other Canadian regions. A theoretical explanation for the existence of such interregional wage spillover is offered. The hypothesis of spillover is empirically examined using data on the wage change provisions of individual contracts in the manufacturing sector. Possible econometric problems associated with contract data are examined and corrective measures taken. Results of the estimation support the hypothesis that wage spillover plays a role in the determination of Atlantic Region wages. Copyright 1987 by MIT Press.
In this paper, we measure the effect of internal R&D and various spillover concepts on productivity growth, using a database for France that covers the period 1978-92. Three spillover concepts are distinguished: rent spillovers related to investment goods; rent spillovers related to intermediate goods; pure knowledge spillovers. When production is measured by gross output, all three spillover concepts yield positive and statistically significant coefficients. Each concept has a measurable effect on technological progress at the sectoral level.
This article examines the relationship between financial liberalization and stock market volatility in Indonesia. By looking at the time series properties of the Jakarta Composite Index (JCI) we identify breaks in stock market volatility which coincide with the timing of major policy events. Our main findings are (i) a significant decrease in volatility after the 'official' opening of the stock market to foreign participation; (ii) a significant increase in volatility in the year before market opening following reforms that eased entry requirements and the issuance of brokerage licenses and (iii) a significant increase in volatility at the time of the Asian crisis followed by a significant decrease in the second and sixth years after the crisis.
This paper assesses the bank-lending channel interpretation of evidence on the heterogeneous response of firms to monetary shocks. To do so, the author develops a quantitative general equilibrium model of the bank-lending channel with imperfect credit markets. The calibrated model's steady state supports a common identification strategy adopted in the literature: small firms are credit constrained and large firms are not. For some parameter values, the model reproduces the cyclical observations viewed as supporting the lending view of the monetary transmission mechanism and for others it does not. The parameter values consistent with the lending view appear to be implausible.
The authors consider a neoclassical growth model with risky investment projects in which a borrower's (an investor's) risk type is private information. Their innovation is to determine jointly the equilibrium loan contract and the economy's growth path and the steady state capital stock. The authors show that as capital accumulates, credit rationing may fall as an increasing number of lenders choose to acquire costly information to separate borrowers as to type. This transition from credit rationing to screening in turn results in a higher capital accumulation path and a higher steady state capital stock. They also investigate the effects of a decrease in the cost of information on the economy's capital accumulation path and steady state capital stock. The authors show that the cost of information must fall below a threshold level before the economy moves from a credit rationing equilibrium to a screening one. Thus a threshold must be crossed before the steady state capital stock is increased with a decrease in the cost of information. Copyright 1997 by Ohio State University Press.
This paper develops an endogenous growth model with financial market imperfections to study the effects of money on economic growth and to examine the role of informational imperfections in the determination of the equilibrium growth path. The findings are summarized as follows: economic growth is slower when there is imperfect information; changes in money growth have qualitatively similar effects on economies with and without private information; and, contrary to the popular view that informational imperfections in credit markets or borrowing constraints tend to amplify the impact of policy interventions, economies with private information are less responsive to changes in monetary policy. Copyright 1996 by Ohio State University Press.
Two credit market models with private information are used here to evaluate the effectiveness of government credit programs. In a model with costly state verification, direct government lending and government loan guarantees at best have no effect, and at worst make all agents worse off by increasing (decreasing) interest rates faced by borrowers (lenders) and increasing the amount of rationing in the loan market. In an adverse selection model with costly screening of borrowers, government lending influences credit allocation by affecting borrowers' incentives to misreport type. Government programs to encourage secondary markets in private loans are welfare improving only when there are regulations which inhibit diversification by private financial intermediaries. Copyright 1994 by Ohio State University Press.
We introduce an informational asymmetry into an otherwise standard monetary growth model and examine its implications for the determinacy of equilibrium, for endogenous economic volatility, and for the relationship between steady-state output and the rate of money growth. Some empirical evidence suggests that, for economies with low initial inflation rates, permanent increases in the money growth rate raise long-run output levels. This relationship is reversed for economies with high initial inflation rates. Our model predicts this pattern. Moreover, in economies with high enough rates of inflation, credit rationing emerges, monetary equilibria become indeterminate, and endogenous economic volatility arises. Copyright 1996 by Kluwer Academic Publishers
This chapter describes the issues confronting any realistic context for economic forecasting, which is inevitably based on unknowingly mis-specified models, usually estimated from mis-measured data, facing intermittent and often unanticipated location shifts. We focus on mitigating the systematic forecast failures that result in such settings, and describe the background to our approach, the difficulties of evaluating forecasts, and the devices that are more robust when change occurs.
This article examines the relationship between financial liberalization and stock market volatility in Indonesia. By looking at the time series properties of the Jakarta Composite Index (JCI) we identify breaks in stock market volatility which coincide with the timing of major policy events. Our main findings are (i) a significant decrease in volatility after the 'official' opening of the stock market to foreign participation; (ii) a significant increase in volatility in the year before market opening following reforms that eased entry requirements and the issuance of brokerage licenses and (iii) a significant increase in volatility at the time of the Asian crisis followed by a significant decrease in the second and sixth years after the crisis.
Recently, a debate has resurfaced on whether and how credit market imperfections may play a role in the transmission of monetary policy. This new literature attempts to identify the effect s of credit market imperfections by analyzing the response to tight mo ney of different forms of credit and different types of borrowers. The arguments and evidence in this literature are reviewed and some new evidence is presented. There is a striking difference in response of credit flows to small versus large borrowers, potentially consistent with the view that credit market imperfections help propagate the impact of monetary policy. Copyright 1993 by The editors of the Scandinavian Journal of Economics.
The negative growth-inflation association in the existing literature is usually interpreted as a long-run relationship. But the existing literature on inflation and growth has a puzzling anomaly: there is little evidence of a relationship with low-frequency (30-year) data, but inflation and growth are found to be correlated using higher-frequency data (decades or annual data). The inflation-growth correlation using decade or annual data only confirms a relationship in the 70s and 80s; evidence for earlier periods is lacking. We propose that these anomalies can be explained by viewing high inflation crises as discrete events that temporarily but sharply lower growth, followed by a strong recovery once the high inflation crisis is over. Empirical evidence strongly supports this view. There were few high inflation crises (which we define as inflation above 40 percent for 2 years or more) in the 60s, hence the lack of results in the 60s. The strong growth recovery after the end of high inflation crises help explain the lack of an inflation-growth relationship using low-frequency data which averages out the output collapse and recovery. We find that the occurence of high inflation crises explains all of the existing growth-inflation relationships in the literature, as there is no robust evidence that inflation below 40 percent annual lowers growth.
This paper establishes a link between equilibrium credit rationing and financial intermediation, in a model with asymmetrically informed lenders and borrowers, costly monitoring with increasing returns to scale, and investment project indivisibilities. Intermediation dominates borrowing and lending between individuals. Equilibrium interest rates, the aggregate quantity of loans, and the size of each intermediary firm respond different to changes in taste and technology parameters, depending on whether or not there is rationing in equilibrium.
An endogenous growth model with multiple assets is developed. Agents who face random future liquidity needs accumulate capital
and a liquid, but unproductive asset. The effects of introducing financial intermediation into this environment are considered.
Conditions are provided under which the introduction of intermediaries shifts the composition of savings toward capital, causing
intermediation to be growth promoting. In addition, intermediaries generally reduce socially unnecessary capital liquidation,
again tending to promote growth.
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