Export Currency Pricing and Fiscal Multipliers

This paper develops a small open economy dynamic stochastic general equilibrium model to study the implications of the use of foreign currency in export pricing for fiscal policy in East Asian economies. The result shows that external currency pricing amplifies the effect of an exogenous government spending shock on output. The impact and cumulative multipliers are larger under external currency pricing. However, the result depends on the government policy regime. When the government allows for a systematic response of government spending to public debt, the multipliers in the medium-term are smaller under external currency pricing.     

政府支出与经济波动——基于省级面板数据的实证分析

政府支出能否起到稳定经济增长的作用是一个值得研究的重要问题。使用1987-2013年30个省市自治区的面板数据,文章考察了政府支出对我国经济波动的影响。在考虑政府支出规模的内生性后,2SLS估计结果发现政府支出对经济波动的影响具有两面性。一方面政府支出规模主要发挥了财政自动稳定器作用,因而减少了经济波动;另一方面,政府支出变动对总量产出冲击较大,从而增加了经济波动。进一步控制了贸易开放、通货膨胀、货币政策冲击、金融发展和产业结构等因素,估计结果表现出较好的稳健性。研究结论意味着,在保持经济稳定增长方面,需要权衡政府支出规模与政府支出变动对经济波动的影响。     

Ricardian Equivalence and Fiscal Policy Effectiveness in Japan

The present paper asks whether there is a limit to the potential for government spending to stimulate output in the Japanese economy. Overlapping generations and Ricardian infinite horizon representative agent models are developed, in which the government spending multiplier falls as the level of spending rises. Consistent with the Ricardian hypothesis, vector autoregressions (VAR) indicate that the timing of taxes has little impact on national output. Conversely, the impact of government spending is significant. However, using non–linear VAR techniques, the author finds empirical evidence for the hypothesis of a regime–dependent government spending multiplier that falls as spending rises.     

Crisis Vulnerability

Earlier attempts to explain the East Asian crisis of 1997 have overemphasised the importance of contagion, missing the central role of vulnerability. According to conventional accounts, Thailand experienced a financial panic due to such factors as corrupt government and corporate practices, inadequately supervised banks and venal currency speculators. Confidence in the Thai currency and banking system collapsed, provoking capital flight, a float of the Thai currency and a drastic decline in its value. This undermined confidence in the prospects of other East Asian countries, also provoking crises there. This article clarifies the concept of vulnerability and demonstrates its relevance by showing the long-term development of vulnerability in each of the three 'IMF bail-out' countries: Thailand, Indonesia and Korea. By 1996 all three were vulnerable to a currency crisis. Contagion provided the short-term trigger for the crisis but was not its underlying cause. The policy lesson is to avoid vulnerability, not to attempt to avoid contagion.     

Tax and Spend,or Spend and Tax? An Inquiry into the Turkish Budgetary Process

For resolving the budget deficit problem, some economists have advocated spending cuts, while others support either tax increases or tax cuts. This paper investigates the interrelationship between the two fiscal variables for Turkey using bivariate and multivariate cointegrating models. The Engle-Granger and Johansen tests consistently support the existence of one nonzero cointegrating vector representing a stable long-run relationship between government spending and revenues in Turkey. Furthermore, the multivariate error-correction model suggests that taxes unidirectionally Granger-cause negative changes in spending in accordance with the Buchanan-Wagner hypothesis. Thus, from the perspective of policy making and the deficit solution debate, raising taxes in Turkey is perhaps the optimal solution to the current budget deficit predicament.     

Banking and the Macroeconomy in China: A Banking Crisis Deferred?

The downturn in the world economy following the global banking crisis has left the Chinese economy relatively unscathed. This paper develops a model of the Chinese economy using a DSGE framework with a banking sector to shed light on this episode. It differs from other applications in the use of indirect inference procedure to test the fitted model. The model finds that the main shocks hitting China in the crisis were international and that domestic banking shocks were unimportant. However, directed bank lending and direct government spending was used to supplement monetary policy to aggressively offset shocks to demand. The model finds that government expenditure feedback reduces the frequency of a business cycle crisis but that any feedback effect on investment creates excess capacity and instability in output.     

An introduction to problems of economic development in the CMEA countries

Through the Asian financial crisis, many key international economic issues have come to the forefront the stability of the international financial system under the IMF, “Asian values”, the universal validity of the Asian Economic Development Model, China's leadership in the regional world economy, Japan's role in the region, and the immunity of Greater China from the current financial crisis. Currently, most Asian countries seem eager to redress structural problems involving the government sector, banking, and corporate governance. In the process of this full scale restructuring, Korea must reevaluate its economic relationship with Central Asia. This paper argues that Korean financial crisis stems basically from the system failure. Furthermore, since a small open economy carries with it intrinsic vulnerabilities, the government should be more careful in securing optimal foreign exchange, opening capital markets based on the economy's absorption capacity. In this respect, the banking industry should be run based on the profitability of capital. Once banking industries are distorted by the practice of government‐led policy loans, it is more difficult to correct those customized distortions. The banking industry should play a larger role as the “brain of the economy”, sensing abnormalities of the economy. Moreover, in today's increasingly interdependent global economic system, no single country can solve its problems without close coordination of its policy with the outside world. An early warning system to signal financial instability would help developing economies in modernizing and strengthening their domestic financial institutions and would also work as a supplement to the IMF standby fund. Also, human resource management has proven too important to be neglected. Central Asia could derive lessons from the above Asian “failure”, not the Asian “miracle”, to avoid inappropriate policies and to deepen its economic development.     

Will Bank Bailouts Bust Budgets? Fiscalisation of the East Asian financial crisis

East Asia has returned to a position of relative financial stability and modest economic growth seven years since the onset of the East Asian financial crisis, but the long-range impact of the crisis is still unclear, especially regarding fiscal ramifications. Thailand and Indonesia were two of the hardest hit economies and each had exemplary fiscal policies before the crisis. Since the crisis, both countries have maintained prudent fiscal policies, keeping budget deficits relatively small, managing debt burdens effectively and limiting exposure to contingent liabilities. Both countries have addressed the short-term triggers of the financial crisis admirably and continue to monitor vigilantly their external vulnerabilities. Thus, if either country experiences a fiscal crisis, it will be the result of other factors—bank bail-outs will bust budgets only if banks have to be bailed out once again due to incomplete or insufficient financial sector reform.     

Governance and Growth: Lessons from the Asian Economic Crisis

The East Asian financial crisis of 1997-98 has provoked yet another round of controversy on the institutional foundations of the region's growth. This article provides some flavour of this new work by examining three factors that impinge on economic policy and performance: the role of political regime type; the structure of business-government relations; and the design of government agencies. Institutional weaknesses contributed to the onset of the Asian financial crisis.     

Fiscal sustainability in the wake of the economic crisis in Korea

The total amount of government debt was expected to rise sharply over the following several years in the wake of the Korean financial and economic crisis in 1997, raising concern about the sustainability of government deficits and fiscal consolidation. This paper provides an overview of Korea’s fiscal stance after the financial crisis and the policy implications for fiscal consolidation by assessing fiscal sustainability. Sustainability tests are carried out and show that Korean fiscal policy for the period 1970–1999 should be regarded as sustainable. Indicators of sustainability are also measured to that Korean fiscal policy for the period 1970–1996 is sustainable. However, both the primary and tax gap indicators with a sharp rise in the debt ratios are shown to be worsening since 1997 indicating increasingly possible unsustainable fiscal policies. It implies that the current primary deficit is too large and current taxes are too low to stabilize the debt ratio.     

An empirical analysis of the factors determining the financial crisis in Asia

This article tests a hypothesis that the causes of the Asian financial crisis are weaknesses in the balance sheet of financial institutions, high international interest rates, high short-term external debts, excessive loans, and continuing large current account deficits. It also tests a hypothesis regarding the determination of nonperforming bank loans. Empirical tests are carried out with panel data on seven countries in Asia—Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan, and Thailand—for the 1995 through 1997 period. The 3-month LIBOR interest rate and nonperforming loan rates of banks are found to be the major determinants of the Asian financial crisis. The nonperforming bank loan ratios are explained by the corporate leverage ratio. In addition, both the corporate high leverage ratio and LIBOR interest rates are found to significantly affect the outcome of the Asian crisis. Lowering world interest rates and taking the measures of individual Asian countries to reduce nonperforming assets and debt-to-equity ratios would be very effective in preventing reoccurrence of the crisis.     

Market-power versus cost-efficiency in Thailand's banking sector in the post-crisis period (1998–2011)

The degree of competition and effect of market concentration on interest rate margins in the banking sector of Thailand are estimated using the new empirical industrial organization model. We find that the collusive behavior and the market power of banks intensified during 2005–2011, after the East Asian financial crisis. Although the estimated benefit of scale economies resulting from increased concentration is statistically insignificant, its estimated impact would offset the unfavorable effect of higher market-power associated with higher concentration.     

Influence of real estate prices on domestic bank loans in Southeast Asia

This study examines whether and how fluctuations in real estate prices affected bank lending in Malaysia, Singapore, and Thailand before and after the 1997–98 Asian financial crisis. Since the crisis, it has been claimed that the rise and fall in the price of real estate, which is used as collateral, affected bank lending and the macroeconomy in these Southeast Asian countries. The study implements a dynamic model of bank lending and employs a test using the panel data of domestic bank balance sheets in order to estimate the influence of real estate prices on new bank lending in the three countries. The study also examines the conditions surrounding the role of real estate as collateral for bank loans in the countries. The regression results suggest that fluctuations in real estate prices can influence domestic bank lending and did so, especially after the crisis in Singapore and Thailand, and that domestic bank lending behaviour in these countries changed after the crisis.     

Currency crisis and contagion: evidence from exchange rates and sectoral stock indices of the Philippines and Thailand

This paper analyzes empirically the recent Asian financial crisis by using high-frequency data of exchange rates and stock indices of the Philippines and Thailand. With time-series techniques, this study confirms that benchmark stock indices often fail to provide valuable insights into currency crises, but there is evidence that developments in some sectoral indices—including those of banking and financial sectors—seem to have caused upward pressure on exchange rates. Our evidence therefore confirms the importance of financial markets as a transmission channel during the currency crisis period.     

The Asian crisis,private sector saving,and policy implications

The Asian financial crisis has several critical implications for the saving behavior in the crisis-hit economies as well as in other Asian economies, which are summarized as follows: increase in economic uncertainty; increase in poverty; decrease in public confidence in financial institutions; financial liberalization; and reduction in corporate leverage ratio. Putting these together, the postcrisis saving rates in the crisis economies are likely to decrease without government interventions. Although the uncertainity factor may contribute to an increase in short-term saving, an abated level in household income and corporate output and slow GDP growth will lead to a contraction in saving rates. Increased poverty, diminished public confidence in banking institutions, and the increased variability of business sales will further contribute to a reduction in saving rates of the household and corporate sectors. Keeping this in mind, the postcrisis saving policy should consider stronger macroeconomic stabilization policies to reduce the underlying economic uncertainty to encourage long-term savings/investments; improving the public confidence in financial institutions through financial restructuring and a proper deposit insurance scheme in place; channeling informal sector saving into the formal financial institutions; and promoting propoor saving policies.     

Asian Financial Crisis and the Evolution of Korean Banks Efficiency: A DEA Approach

Abstract

In the mid-1990s, the East Asian countries experienced severe financial crisis that were followed by deep economic downturns. A variety of methodologies have been used to understand the nature of the Asian financial crisis. However, the impact of the 1997 Asian financial crisis on the efficiency of the financial industry has yet to be critically examined. By employing the Data Envelopment Analysis (DEA) approach the present study attempts to examine for the first time the impact of the 1997 Asian financial crisis on the efficiency of the Korean banking sector. The study focuses on three major approaches, namely, intermediation, value added, and operating approaches. The results clearly bring forth the high degree of inefficiency in the Korean banking sector, particularly a year after the Asian financial crisis. We find that the Korean banking sector has consistently exhibit higher technical efficiency levels under value added approach, while technical efficiency seems to be lowest under intermediation approach.     

Effects of Monetary Policy during Financial Market Crises and Regime Changes: An Empirical Evaluation Using a Nonlinear Vector Autoregression Model

Using monthly data for Korea, this study examines nonlinear effects of monetary policy in association with financial market distress. The study uses a nonlinear vector autoregression model and finds that monetary policy becomes ineffective for addressing huge demand contractions in times of financial market turmoil or severe economic downturn, implying a structural change from a non‐Keynesian to a Keynesian regime, such as a liquidity trap. Monetary contractions have stronger output effects than monetary expansions, particularly in times of financial distress. We found no evidence in favor of asymmetric effects of monetary shocks of different sizes. Finally, we also found financial shocks to have stronger effects on the real economy in times of financial distress than in normal times. The results have important policy implications for periods of financial turmoil or economic crisis.     

Will monetary policy affect energy security? Evidence from Asian countries

This paper uses the System Generalized Moments (SYS-GMM) method to empirically analyze the data of 16 Asian countries from 2000 to 2019, and finds the impact of monetary policy on energy security. We conclude that the real interest rate, total reserve and exchange rate all have a positive impact on energy security, that is, when these three indicators decline, the risk of energy security increases, this reminds policymakers to pay close attention to the trend of energy security when implementing loose monetary policy. In addition, we also found that the relationship between monetary policy and energy security increased significantly after the 2008 financial crisis, and the more developed the economy is, the more likely it is to encounter energy security challenges brought about by changes in monetary policy. Overall, our evidences provide useful experience for the literature related to energy security.     

金融危机对劳务经济的影响——基于河南省信阳籍农民工的调查

本文基于河南省信阳籍农民工的调查数据,分析金融危机对劳务经济的影响,以期为新形势下解决农民就业、增加农民现金收入的政策制定提供建议。研究发现,金融危机对劳务收入、回归创业、农民工权益维护以及输出地经济发展都有很大影响。最后,本文提出了应对危机,解决返乡农民就业问题的政策建议。     

An Empirical Study on Taiwan's Tax Policy: 1966–1988

If government financing policy aims at reducing the distortionary cost of taxation over time as Barro's tax smoothing hypothesis suggested, then the government tends to run a "surplus" whenever the growth rate of its expenditure is expected to increase or the growth rate of aggregate income is expected to decline. We examine whether Taiwan's tax policy was consistent with this prediction of the hypothesis for the period between 1966 and 1988. Our formal tests and informal evaluations accord well with such prediction. One implication is that if Taiwan's "six year national development plan" results in a permanent increase in government spending, then the government will raise taxes to finance the increased spending.