Full currency convertibility in Eastern Europe?

In the countries of Eastern Europe the question as to the degree of currency convertibility is among the most important decisions to be taken when setting the framework for a free market economy. This article attempts to indicate the monetary and fiscal measures that will be required if the reform countries willing and able to be integrated into the EC and OECD are to proceed rapidly to the liberalisation of capital transactions.     

Fixed-term contracts as sorting mechanisms: Evidence from job durations in West Germany

We estimate the effect of initial episodes under fixed-term contracts (FTCs) on job duration in the further course of the employment spell, using data from the German Socio-Economic Panel (SOEP) from 1985 to 2002 and a statistical matching approach. Our results show that job exit rates are initially much higher if the employment spell began with an FTC. However, exit rates fall below those of comparable spells spent entirely in permanent employment after a few years time. This suggests that FTCs accelerate a sorting process and that they may at least to some part be understood as prolonged probationary periods. Strikingly, the probability of long-term employment of more than five years duration is not lower in spells that are initially concluded as FTCs. Hence, the sorting processes taking place in both forms of contracts lead to similar results.     

Stabilitätskonzepte am Beispiel Österreichs

Summary This paper examines two aspects of equilibrium — and stability concepts, which go beyond the traditional analyses. Firstly the speed by which a systems returns to the equilibrium position after an initial disturbance and, secondly, the introduction of stochastic elements in the analysis of stability. Both aspects are presented against the background of a simple model of the Austrian economy.It is known that a system of difference equations is stable if the greatest sigenvalue is smaller than one. In trying to estimate confidence intervals it can be shown that an evaluation according to deterministic criteria alone can indeed be misleading, even though the probability of an instable solution is small in the model under examiniation.The speed, by which a system returns to the equilibrium position after an initial disturbance, is measured by the half-life-period. This is the time it takes for the effects of the initial disturbance to be reduced to half their original values. In the model under examination the half-line amounts to one year (real solution) or two years (complex solution) respectively. If we take the stochastic nature of the eigenvalues into consideration, we get, for the 95% level of significance, figures of 3 months to 6 years in the real case. The large spread results from the fact that the half-life-concept is very sensitive even towards minor changes in the eigenvalues.This paper shows that the conventional methods of estimation of coefficients in stability-analyses are not sufficiently accurate.     

Höchstzinspolitik,Inflation und wirtschaftliches Wachstum in Entwicklungsländern

Summary Interest Rate Ceilings, Inflation and Economic Growth in L.D.C.s. — Referring to the widespread prevalence of very low (frequently negative) real interest rates in most of the L.D.C.s this article empirically investigates the rationale for pursuing financial liberalization policies. First, it could be shown that the level of financial development is a significant determinant of the rate of capital formation and that for countries with low and stable inflation rates the constraints from the domestic financial sector are less effective than for those where high and very unstable rates of inflation are dominating. Secondly, in a cross-country analysis empirical support for McKinnon's “complementarity hypothesis” is provided, identifying the real rate of interest as positively related to private investment. Both findings are interpreted as recommendations for the freeing of interest rates and the reduction of inflation for stimulating growth in L.D.C.s.

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Résumé Les plafonds des taux d'intérêt, l'inflation et la croissance économique dans les PVD. — L'article se réfère à la prépondérance très répandue des taux réels très bas (souvent négatifs) dans la plupart des PVD et empiriquement analyse la raison de poursuivre une libération financière. Premièrement, l'auteur démontre que le niveau du développement financier est une déterminante significative du taux de la formation du capital et que dans les pays où les taux d'inflation sont bas et stables les restrictions en provenance du secteur local financier sont moins effectives que dans lesquels où les taux d'inflation hauts et très instables sont dominants. Deuxièmement, par une analyse transversale des pays l'auteur gagne un support empirique en faveur de la ?hypothèse de complémentarité? de McKinnon, c'est-à-dire qu'il y a une relation positive entre le taux réel d'intérêt et l'investissement privé. Les deux résultats sont interprétés comme recommandations du déblocage des taux d'intérêt et de la réduction d'inflation pour stimuler la croissance dans les PVD.

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Resumen Limites superiores para tasas de interés, inflación y crecimiento en pafses en desarrollo. — Refiriéndose a la amplia prevalencia de tasas de interés real muy bajas (frecuente negativas) en la mayoría de los países en desarrollo, este articulo investiga empíricamente la racionalidad de seguir politicas de liberalizaci 'on financiera. Primero, se puedo mostrar que el nivel de desarrollo financiero es una determinante significativa de la tasa de formación de capital y que para países con tasas de inflación bajas y estables las restricciones del sector financiero doméstico son menos efectivas que para aquéllos donde dominan tasas de inflación altas y muy inestables. Segundo, en un análisis de corte transversal de países se proporciona apoyo empírico a la ?hipótesis complementaria? de McKinnon, indentificando una relación positiva entre la tasa de interés real y la inversión privada. Ambos resultados se interpretan como recomendaciones para liberar las tasas de interés y reducir la inflación para estimular el crecimiento en países en desarrollo.