THE YEN‐DOLLAR EXCHANGE RATE AND MALAYSIAN MACROECONOMIC DYNAMICS

This paper empirically assesses the effect of the yen‐dollar exchange rate on selected macroeconomic variables, namely, real output, price level, and money supply, for Malaysia. The results, which are based on a vector autoregressive framework, suggest that variations in the yen‐dollar rate can have significant influences on Malaysia's macroeconomic variables. More specifically, the yen‐dollar depreciation leads to contraction in real GDP and money supply. These results are fairly robust to alternative model specifications. We believe that, apart from providing important insights into the interactions between the yen‐dollar rate and domestic macroeconomic variables, our results contribute to the debate on choice of exchange rate regimes for Malaysia.     

Re‐pegging the renminbi to a basket: issues and implications

On 19 June 2010, the Chinese authorities announced that the renminbi (RMB) was henceforth to be managed with reference to a currency basket. Yet, it has subsequently quite closely followed the USD, although having appreciated gradually by 7.7 per cent up to the time of writing. The details of the composition of the basket have not been announced. Despite having appreciated against the USD, the RMB became first significantly weaker against a broad trade‐weighted basket, and the EUR and the JPY, and this situation held until September 2011. China has announced at international forums that the RMB exchange rate regime will be reformed further. We discuss here what a transparent basket peg could mean for China. To reduce the overall volatility of the RMB exchange rate, the weight for the EUR should be significantly increased, with the special drawing right basket being one option for practical implementation. This would also have a positive impact on the EU. China's currency reform has possible implications for its USD‐dominated asset holdings. Reducing them could trigger a further depreciation of the USD. The potentially costly consequences call for new rules for the global financial architecture. However, China's economic expansion will inevitably lead to a diminishing international role for the USD.     

Bagehot for beginners: the making of lender‐of‐last‐resort operations in the mid‐nineteenth century1

In this article we develop new tools to survey the development of lending‐of‐last‐resort operations in the mid‐nineteenth century. One finding is that free lending and extensive liquidity support against good collateral developed gradually after 1847, and was already a fact of life before Bagehot published Lombard Street. Another is that the extension of the Bank of England's lender‐of‐last‐resort function went along with a reduction of its exposure to default risks, in contrast with accounts that have associated lending of last resort with moral hazard. Finally, we provide a new interpretation of the ‘high rates’ advocated by Bagehot. We suggest they were meant to prevent banks from free‐riding on the safety offered by the central bank, and were aimed at forcing them to keep lending during crises so as to maintain a critical degree of liquidity in the money market.     

Exchange Rate Regime,Financial Market Bubbles and Long‐term Growth in China: Lessons from Japan

Since 2014, capital inflows into China have turned into capital outflows, reversing the gradual appreciation path of the renminbi against the US dollar into an erratic depreciation path. The paper explains the current capital outflows by comparing China and Japan with respect to the impact of exchange rate expectations on speculative capital flows. It is argued that both in China and Japan, given benign liquidity conditions in the USA, policy‐induced appreciation expectations have generated capital inflows that have contributed to overinvestment and financial market bubbles. The current reversal of capital flows is seen as a signal that the bubble in China has burst. To stabilize growth in China and to discourage speculative capital outflows a fixed exchange rate to the dollar is recommended. Given Japan's experience and given that China's foreign assets remain high, the depreciation pressure on the Chinese renminbi can be expected to abate.     

THE IMPACT OF EXCHANGE RATE MOVEMENTS ON FOREIGN DIRECT INVESTMENT: MARKET‐ORIENTED VERSUS COST‐ORIENTED

This paper examines the impact of exchange rate movements on foreign direct investment (FDI). We first employ a real options model to show that while the depreciation of a host country's currency tends to stimulate FDI activity of cost‐oriented firms, the depreciation tends to deter FDI activity for market‐oriented firms. With industry panel data on Taiwan's outward FDI into China over the period 1991–2002, our empirical findings indicate that the exchange rate level and its volatility in addition to the relative wage rate have had a significant impact on Taiwanese firms’ outward FDI into China. In general, the empirical results are consistent with the prediction of the theory. Our results reveal that the relationship between exchange rates and FDI is crucially dependent on the motives of the investing firms. Without considering this fact in an empirical model, the testing results might suffer from aggregations bias.     

Scrip as private money,monetary monopoly,and the rent‐seeking state in Britain

Scrip—promissory notes payable in goods at company stores—was issued by employers to pay workers, and was an important component of British money during the industrial revolution. As late as the third quarter of the nineteenth century, scrip issued by coal firms, which represented the foregone demand for official currency, was at least 9 to 24 per cent of the value of English country or Scottish banknote issues. In some areas, scrip was 38 per cent of the total wages paid. The state's suppression of this private currency to defend its seigniorage rents was in part the motivation behind the prohibition of the truck system in 1831.     

Towards improved monetary policy in Indonesia

Indonesia's depreciation vastly exceeded that of all other countries hit by the Asian crisis. Indonesia also experienced far higher inflation. This paper argues that there is a close medium to long-term relationship between money growth and inflation in Indonesia, and that this has not been greatly disturbed by the crisis. It argues that the country's disappointing performance in relation to maintaining the value of the rupiah can be explained by the central bank's failure to sterilise the monetary impact on base money of its last-resort lending to the banks. The fundamental lesson is that Bank Indonesia would be well advised to adopt slow and steady growth of base money as the nominal anchor for monetary policy, now that the pre-crisis policy of slow and steady depreciation of the rupiah has been abandoned.     

Debt dilution in 1920s America: lighting the fuse of a mortgage crisis

The idea that real estate could have contributed to banking crises during the Great Depression has been downplayed due to the conservatism of mortgage contracts at the time. For instance, loan‐to‐value ratios often did not exceed 50 per cent. Using newly discovered archival documents and data from 1934, this article uncovers a darker side of 1920s US mortgage lending: the so‐called ‘second mortgage system’. As borrowers often could not make a 50 per cent down payment, a majority of them took second mortgages at usurious rates. As theory predicts, debt dilution, even in the presence of seniority rules, can be highly detrimental to both junior and senior lenders. The probability of default on first mortgages was likely to increase, and commercial banks were more likely to foreclose. Through foreclosure they would still be able to retrieve 50 per cent of the property value, but often after a protracted foreclosure process. This would have put further strain on banks during liquidity crises. This article is thus a timely reminder that second mortgages, or ‘piggyback loans’ as they are called today, can be hazardous to lenders and borrowers alike. It provides further empirical evidence that debt dilution can be detrimental to credit.     

Gender Inequalities and Economic Efficiency: New Evidence from Cassava‐based Farm Holdings in Rural South‐western Nigeria

Abstract: It is a widely accepted fact that persistent inequality between men and women constrains a society's productivity and ultimately slows its rate of economic growth. The economy pays for this inequality in reduced labour productivity today and diminished national output tomorrow. Motivated by this, the study aim is to assess the possibilities of enhancing productivity gains by improving the efficiency of small‐scale agriculture through gender‐responsive intra‐household allocation of resources in south‐western Nigeria. The study adopts a stochastic parametric decomposition method which yields efficiency measures that are not distorted by statistical noise to estimate the efficiency level of resource allocation by small‐scale cassava producers. The results indicate that average overall productive efficiency in the sample was 75.78 per cent, implying that small‐scale cassava farmers in the sample could reduce total variable cost by 24.22 per cent if they reduce labour, fertilizer, land and capital applications to levels observed in the changing input mix (technical efficiency) and then obtain optimal input mix for the given input prices and technology (allocative efficiency). The average technical efficiency and allocative efficiency indexes for the sample were 82.2 per cent and 92.2 per cent respectively. Also, evidence from empirical analysis of data from the male respondents showed that the average economic, technical and allocative efficiency indexes were 88.06 per cent, 89.34 per cent and 78.67 per cent respectively while the same computed for the female sample were 94.9 per cent, 74.85 per cent and 71.03 per cent respectively. Labour was the most limiting factor in cassava production suggesting that the technologies that enhance the productivity of labour are likely to achieve significant positive effects on cassava production. The paper shares the notion that producers' control over the means of production and impact of development are related and has influence on the economic efficiency and growth of society. Again, technical inefficiency constituted a more serious problem than allocative inefficiency, thus most cost savings will accrue to improvement in technical efficiency.     

The effects of Bank of Japan’s liquidity provision on the year-end premium

The premium on interbank money market rates arises over year-end periods as a result of the Japanese business practice of periodic settlement. This paper examines to what extent the Bank of Japan’s liquidity provision reduced the year-end premium in Japan. We find that the funds-supplying operations over the year-end and the fiscal year-end of 2008 had the largest effects during the period from 2006 to 2008, reflecting the fact that the Bank of Japan significantly expanded liquidity provision in response to the decrease in market liquidity under the financial turmoil.     

The Global Financial Crisis and Sub‐Saharan Africa: The Effects of Slowing Private Capital Inflows on Growth*

Abstract: This paper uses the bias‐corrected least‐squares dummy variable (LSDV) estimator to examine the relationship between economic growth and four different types of private capital inflows (cross‐border bank lending, foreign direct investment (FDI), bonds flows and portfolio equity flows) on a sample of 15 selected sub‐Saharan African countries over the period 1980–2008. Our results show that FDI and cross‐border bank lending exert a significant and positive impact on sub‐Saharan Africa's growth, whereas portfolio equity flows and bonds flows have no growth impact. Our estimates suggest that a drop by 10 per cent in FDI inflows may lead to a 3 per cent decrease of income per capita growth in sub‐Saharan Africa, and a 10 per cent decrease in cross‐border bank lending may reduce growth by up to 1.5 per cent. Therefore, the global financial crisis is likely to have an important effect on sub‐Saharan Africa's growth through the private capital inflows channel.     

WAGNER'S LAW: AN ECONOMETRIC TEST FOR SOUTH AFRICA, 1960‐2006

The main objective for this paper is to test Wagner's law by analysing the causal relationships between real government expenditure and real income for South Africa for the period 1960‐2006. The paper tests the long‐run relationship between the two variables using the autoregressive distributive lag approach to cointegration suggested by Pesaran et al. We use the Granger non‐causality test procedure developed by Toda and Yamamoto, which uses a vector autoregression model to test for the causal link between the two. Evidence of cointegration is sufficient to establish a long‐run relationship between government expenditure and income. However, support for Wagner's law would require unidirectional causality from income to government expenditure. Therefore, cointegration should be seen as a necessary condition for Wagner's law, but not sufficient. This research does find a long‐run relationship between real per capita government expenditure and real per capita income. Results for the short‐run causality find bidirectional causality. On the basis of empirical results in this paper, one may tentatively conclude that Wagner's law finds no support in South Africa.     

Labour market discrimination in the North West province of South Africa

This article provides an econometric estimate of labour market discrimination in the North West province of South Africa. Using data obtained from the October 1995 Household Survey, it was found that in 1995 statistically significant gender discrimination exists against women in North West's labour market. The male discriminatory wage advantage of 127 per cent and the female discriminatory disadvantage of 195 per cent were ascribed to the overrewarding and underrewarding of some personal characteristics of males and females, respectively. Productivity differentials of 40 per cent in favour of females and a premium paid to women measuring 71 per cent also exist. Discrimination explains 50 per cent of the wage gap between genders, while productivity differentials and the premium account for 13 and 37 per cent respectively. The study supports 'affirmative action' and suggests policies that aim to alter the occupational distributions, and these may need to target educational decisions made prior to labour market entry.     

Monetary Policy and Corporate Investment： Evidence from Chinese Micro Data

This paper investigates how a firm's characteristics restrict the influence of monetary policy changes on its investment behavior. Focusing on China's listed companies for a sample period from the first quarter of 2002 to the first quarter of 2011, we find that quantity‐oriented and price‐based monetary policies have heterogeneous impacts on corporate investment behavior, but the influence of monetary policies is constrained by the liquidity, inventory, size and asset–liability ratio of a firm. Firms with higher liquidity, lower inventory level and lower asset–liability ratios are less sensitive to the impact from two kinds of monetary policies. The larger the size of the firm, the less it is subject to influence from quantity‐oriented monetary policy; it responds more to price‐based monetary policy. The policy implication is that the monetary authorities should pay attention to the importance of policy‐making based on the monetary demand of microeconomic entities.     

Economic reform and the stability of the demand for money in Tanzania

This paper investigates whether there exists a stationary long-runequilibrium relationship between real money balances, real income,inflation and expected depreciation in Tanzania which can beidentified as a money demand function. As the institutionaland regulatory framework in Tanzania has undergone a seriesof changes since economic reforms began in the mid-1980s, shiftsin parameters over time might have occurred, causing instabilityin the money demand function. Using Johansen's maximum likelihoodand dynamic modelling procedure, the paper finds equilibriumin the long run and a stable money demand function. These findingsimply that, even though economic liberalization and relaxationof controls could have induced instability in the money demandfunction as conjectured in the literature, such instabilitywas not significant enough to inhibit the estimation of short-and long-run demand for money.     

Excess Liquidity,Housing Price Booms and Policy Challenges in China

Incorporating asymmetric cost and benefit of supplying excess liquidity into an otherwise standard time inconsistency model, this paper offers an explanation of the excess liquidity and housing price booms recently experienced in China. We find that the central bank's incentive to stimulate economic growth with excess liquidity fuels real estate prices and accelerates inflation bias. Therefore, the central bank should free itself from the pressure to achieve an economic growth rate higher than the potential level, and assign an appropriate weight to the real estate price fluctuations in the central bank's objective function, so that the central bank's policy of stimulating economic growth with excess liquidity can be constrained.     

The Controversy of Exchange Rate Devaluation in Sudan: An Economy‐wide General Equilibrium Assessment

Abstract: The International Monetary Fund (IMF) has worked with Sudan since 1997 to implement a managed float exchange rate. The IMF sees exchange rate flexibility as key to safeguard and rebuild foreign exchange reserves and essential to meet the international reserve target in Sudan. However, authorities in Sudan are concerned about the inflationary pressures that exchange rate flexibility may cause. A review of the literature reflects huge ambiguity about the outcome of exchange rate policies in Sudan. This calls for additional empirical investigations. This paper applies a computable general equilibrium (CGE) model to investigate the possible effects of devaluing the currently overvalued Sudanese pound, by simulating a depreciation of the Sudanese pound by 5 per cent, 10 per cent and 15 per cent. Based on the results, the study recommends that additional flexibility of the Sudanese exchange rate regime as suggested by the IMF be carefully considered if such flexibility devalues the Sudanese pound.     

The impact of real exchange rate movements on firm performance: A case study of Taiwanese manufacturing firms

Taiwan experienced large depreciations of its currency, the New Taiwan (NT) dollar, in the late 1990s. The largest real depreciation, 13 per cent, occurred during the East Asian Financial Crisis. Since Taiwan was subjected neither to the economic turmoil of the crisis itself nor to the subsequent reforms, its experience provides a good opportunity for studying the effects of exchange rate changes on firm performance. This paper empirically examines the exchange rate effects on firm exports, domestic sales, total sales, value-added and productivity, by using data on firms listed on the Taiwan Stock Exchange merged with customs trade data covering the period of 1992–2000. Our findings indicate that the real depreciation of the NT dollar led to an increase in exports, domestic sales, total sales, value-added, and productivity. In addition, we find that the productivity improvement induced by real currency depreciation may be a result of firm scale expansion.     

信息不对称性与融资租赁资产证券化的定价研究

资产证券化产品在中国市场规模中的份额在逐渐扩大,与此同时在中国债券类金融产品中所发挥的作用也日渐重要。利用所构建的信息不对称性衡量指标,以2011—2020年中国融资租赁资产证券化产品为样本,研究信息不对称性对相关融资租赁资产证券化定价的影响。研究发现：信息不对称性对中国融资租赁资产证券化产品的发行定价有着显著的正向影响;对于原始资产分散程度低的融资租赁资产证券,信息不对称性对其产品发行定价存在显著的正向影响;与溢价发行的资产证券相比,信息不对称性对折价发行的证券有更显著的正向影响。     

Another Look at Yield Spreads: The Role of Liquidity

Liquidity plays an important role in explaining how banks determine their allocation of funds. This paper examines whether this fact can explain yield spreads and the term structure of interest rates. The paper models banks' demand for liquidity in a manner similar to that often used to study household liquidity needs, namely, by using a cash-in-advance type model. The paper finds that the cash-in-advance constraint (liquidity constraint) plays an important role in determining yield spreads. The empirical part of the paper shows that the expectations hypothesis might be salvaged when account is taken of the liquidity premium and the risk premium.