An empirical analysis of excess interbank liquidity: a case study of Pakistan

We investigate the drivers of excess interbank liquidity in Pakistan, using the Autoregressive Distributed Lag approach on weekly data for December 2005 to July 2011. We find that the financing of the government budget deficit by the central bank and nonbanks leads to persistence in excess liquidity. Moreover, we identify a structural shift in the interbank market in June 2008. Before June 2008, low credit demand was driving the excess liquidity holdings by banks. After June 2008, banks’ precautionary investments in risk-free securities drive excess liquidity holdings. Monetary policy is less effective if banks hold excess liquidity for precautionary reasons.     

Political and economic determinants of OECD budget deficits and government expenditures: A reinvestigation

Recent theoretical and empirical research has examined the variation in political and institutional arrangements which may affect national policy formation, in order to explain cross-country differences in fiscal policies. In this note we investigate cross-country differences in debt accumulation and the level of government spending in the OECD countries over the period 1982–1992. Our findings are negative and suggest a reappraisal of previous research. In particular, neither the growth of government debt nor the level of government spending is related to the corrected Roubini–Sachs power dispersion index.     

Testing uncovered interest rate parity using LIBOR

We test uncovered interest rate parity (UIP) using London InterBank Offered Rate (LIBOR) interest rates for a wide range of maturities. In contrast to other markets, LIBOR markets have minimal frictions. Whereas most previous studies reject UIP, we find that UIP holds for several short-term LIBOR maturities using block bootstrap panel unit root tests suggested by Palm et al. (2011) and cointegration techniques by Westerlund (2007). Furthermore, the estimation results suggest that the speed of adjustment to the long-run equilibrium marginally differs across the maturity of the underlying instrument, thus supporting the efficient market hypothesis.     

Central bank independence,inflation and political instability in developing countries

We test whether political instability affects central bank independence in developing countries. Both a legal measure and the turnover tate of central bank governors are used as proxies for central bank independence and the frequency of government transfers is used to proxy political instability. Only the number of coups affects the turnover rate of central bank governors. We also find that both the turnover rate of central bank governors and political instability affect the rate of inflation.     

Comparison of solutions to the incomplete markets model with aggregate uncertainty

This paper compares numerical solutions to the model of Krusell and Smith [1998. Income and wealth heterogeneity in the macroeconomy. Journal of Political Economy 106, 867–896] generated by different algorithms. The algorithms have very similar implications for the correlations between different variables. Larger differences are observed for (i) the unconditional means and standard deviations of individual variables, (ii) the behavior of individual agents during particularly bad times, (iii) the volatility of the per capita capital stock, and (iv) the behavior of the higher-order moments of the cross-sectional distribution. For example, the two algorithms that differ the most from each other generate individual consumption series that have an average (maximum) difference of 1.63% (11.4%).     

Small is beautiful but large is not to be belittled: reply

We appreciate that the Italian central bank has been able to provide the requested information for our comparison of the research output of European central banks. Based on this information, the ranking of the Italian central bank improves considerably. Still, many small central banks have a better research performance than the Banca d'Italia and, after recomputation, our previous conclusion that “small is beautiful” is not compromised.     

The Delta-Model Revisited: Recent trends in the structural performance of the Dutch economy

Since the late 1980s, the Dutch economy has outperformed neighbouring countries in terms of employment and GDP growth. We argue that the recent growth performance of the Netherlands has primarily been the result of a correction of the belowaverage performance during the 1970s. This correction was mainly brought about by a significant wage moderation since the early 1980s, probably strengthened by the creation of a more effective wage negotiation structure and measures to reduce the replacement rate. Furthermore, we show that the euphoria about the 'Delta model' is dampened by a slowdown in labour productivity performance, which appears to be particular serious in major parts of the services sector.