Bank-Based or Market-Based Financial Systems: Which Is Better?

For over a century, economists and policymakers have debated the relative merits of bank-based versus market-based financial systems. Recent research, however, argues that classifying countries as bank- or market-based is not a very fruitful way to distinguish financial systems. This paper represents the first broad, cross-country examination of which view of financial structure is more consistent with the data. The results indicate that although overall financial development is robustly linked with economic growth, there is no support for either the bank-based or the market-based view. Journal of Economic Literature Classification Numbers: G0, K2, O4.     

What have we learned from a decade of empirical research on growth? It's Not Factor Accumulation: Stylized Facts and Growth Models

The article documents five stylized facts of economic growth.(1) The "residual" (total factor productivity, TFP) rather thanfactor accumulation accounts for most of the income and growthdifferences across countries. (2) Income diverges over the longrun. (3) Factor accumulation is persistent while growth is not,and the growth path of countries exhibits remarkable variation.(4) Economic activity is highly concentrated, with all factorsof production flowing to the richest areas. (5) National policiesare closely associated with long-run economic growth rates.These facts do not support models with diminishing returns,constant returns to scale, some fixed factor of production,or an emphasis on factor accumulation. However, empirical workdoes not yet decisively distinguish among the different theoreticalconceptions of TFP growth. Economists should devote more efforttoward modeling and quantifying TFP.     

Learning to play Bayesian games

This paper discusses the implications of learning theory for the analysis of games with a move by Nature. One goal is to illuminate the issues that arise when modeling situations where players are learning about the distribution of Nature's move as well as learning about the opponents' strategies. A second goal is to argue that quite restrictive assumptions are necessary to justify the concept of Nash equilibrium without a common prior as a steady state of a learning process.     

A remark on serial correlation in maximum likelihood

Maximum likelihood estimation can be consistent and asymptotically normal despite serial correlation in the residuals. The usual estimator of the asymptotic covariance of the parameter estimator is inconsistent, but an alternative consistent estimator is derived.     

The effect of scale size on obtaining information in preference testing

The effect of scale size upon response is the subject of this study. The same questions (regarding preferences) were put to four equal-sized groups measuring preference with four different scale lengths; a three-point scale, a five-point scale, a seven-point scale, and a nine-point scale. This paper describes the results obtained.     

2003 Lawrence R. Klein Lecture The Case Against Intellectual Monopoly*

In the modern theory of growth, monopoly plays a crucial role both as a cause and an effect of innovation. Innovative firms, it is argued, would have insufficient incentive to innovate should the prospect of monopoly power not be present. This theme of monopoly runs throughout the theory of growth, international trade, and industrial organization. We argue that monopoly is neither needed for, nor a necessary consequence of innovation. In particular, intellectual property is not necessary for, and may hurt more than help, innovation and growth. We argue that, as a practical matter, it is more likely to hurt.     

Governance and bank valuation

This paper assesses the impact of the ownership structure of banks and shareholder protection laws on bank valuations while controlling for differences in bank regulations. Except in a few countries with very strong shareholder protection laws, banks are not widely held. Rather, families or the State control banks. Furthermore, (i) larger cash-flow rights by the controlling owner boost valuations, (ii) stronger shareholder protection laws increase valuations, and (iii) greater cash-flow rights mitigate the adverse effects of weak shareholder protection laws on valuations. These results suggest that ownership structure is an important mechanism for governing banks.     

Linear-quadratic approximation, external habit and targeting rules

We examine the linear-quadratic approximation of nonlinear dynamic stochastic optimization problems. A discrete-time version of Magill [1977a. A local analysis of N-sector capital accumulation under uncertainty. Journal of Economic Theory 15(2), 211–219] is generalized to models with forward-looking variables paying special attention to second-order conditions. This is the ‘large distortions’ case in the literature. We apply the approach to monetary policy in a DSGE model with external habit in consumption. We then develop a condition for ‘target-implementability’, a concept related to ‘targeting rules’. Finally, we extend the approach to a comparison between cooperative and non-cooperative equilibria in a two-country model and show that the ‘small distortions’ approximation is inappropriate for this exercise.