Capital Flows and Current Account Sustainability: The Ghanaian Experience

Save this PDF as:
 WORD  PNG  TXT  JPG

Size: px
Start display at page:

Download "Capital Flows and Current Account Sustainability: The Ghanaian Experience"

Transcription

1 CREDIT Research Paper No. 07/07 Capial Flows and Curren Accoun Susainabiliy: The Ghanaian Experience by Absrac Maxwell Opoku-Afari Boh heoreical and operaional definiions of curren accoun susainabiliy show a persisen and fragile curren accoun balance (defici) for Ghana. This has creaed a financing gap in he Ghanaian economy, ypically filled by capial inflows, in paricular aid. Even as Ghana depends o a large exen on aid inflows i has ended o be procyclical. I is eviden from he analysis ha curren accoun susainabiliy in Ghana is very sensiive o donor flow dynamics raher han rade flows. To make Ghanaian curren accoun deficis susainable a more sable and predominan rade conribuion is required. Remiances from abroad are of increasing imporance since 2000 and are relaively sable and couner-cyclical, and if managed can conribue o curren accoun susainabiliy. Cenre for Research in Economic Developmen and Inernaional Trade, Universiy of Noingham

2 CREDIT Research Paper No. 07/07 Capial Flows and Curren Accoun Susainabiliy: The Ghanaian Experience by JEL Classificaion: F32, F35, F41 Maxwell Opoku-Afari Keywords: Curren Accoun, Susainabiliy, Capial Inflows Ouline 1. Inroducion 2. Concep of Susainabiliy 3. Curren Accoun Susainabiliy Crieria 4. Is he Ghanaian Curren Accoun Susainable? 5. Conclusion The Auhor Maxwell Opoku-Afari was he Head of he Special Sudies Uni in he Research Deparmen of he Bank of Ghana a he ime of wriing his paper. Views expressed here are enirely hose of he auhor and do no necessarily represen he official view of he Bank of Ghana. Auhor s conac: Acknowledgemens The auhor acknowledges useful commens from Dr. E. K.Y Addison (Direcor of Research, Bank of Ghana) and research assisance from Messrs Emmanuel Kinful and Ibrahim Abdulai. However, all errors are enirely his own. An earlier version was presened a a Workshop on Capial Flows and Curren Accoun Susainabiliy in African Economies, organized by UNECA in Accra, Ghana on Sepember 2005 Research Papers a

3 1 1. INTRODUCTION As he Ghanaian economy posiions iself on he pah o move he economy from sabiliy o growh, policy makers and inernaional communiy as a whole have been concerned wih idenifying he drivers of growh and wheher hese sources of growh would lead o a susainable growh needed o plunge he economy o ha much awaied susainable growh pah owards middle income saus by Righ from he days of Srucural Adjusmen Programme (SAP) ill now, Ghana has benefied immensely from significan capial inflows, mosly in he form of donor assisance. More recenly, Ghana has also idenified anoher form of inflow, remiances, as a significan componen of he curren accouns 1. While hese developmens have been seen as crucial o he curren rend of sabiliy, people have quesioned he susainabiliy of his rend and how imporan his is in erms of promoing growh. Over he pas wo decades, curren accoun balance in Ghana has consisenly been in he defici reaching a peak of 12.5 percen in However, in recen years while posiive economic growh has reurned in Ghana, large and increasing curren accoun deficis have become common making he quesion of susainabiliy imperaive. On he one hand, a curren accoun defici is a reflecion of he srengh of a developing economy, insofar as i measures underlying financing of invesmen demand in excess of naional savings. On he oher hand, a curren accoun defici can reflec a dangerous and unsusainable imbalance beween naional savings and invesmen and he accumulaion of deb. I would be exremely imporan and ineresing o know which of hese wo scenarios represen he siuaion in Ghana. Given he firs scenario, if curren accoun deficis in Ghana represen he underlying driver of growh, hen i would reflec in major srucural changes ha have led o an inflow of capial causing invesmen and economic growh. These in mos cases have been viewed in he case of a developing counry as 1 In addiion o significan increases over recen years in remiances, improvemen in recordings a he recipien banks following new guidelines released by he Bank of Ghana accouns for he sudden surge. Implying some of he increase are no new remiances flows. I is also believed ha abou wo-hirds of remiances are in he informal secor (see Addison, 2004).

4 2 represening he ransiion process from sabiliy o growh. We could also have he siuaion where he defici resuls in he accumulaion of unsusainable deb. Looking a i differenly, he defici could be seen as a performance crierion of he Ghanaian economy. Tha is, given ha he curren accoun defici is closely relaed o fiscal balance (public savings) and privae savings, i has imporan implicaions for overall growh. Similarly, i would have implicaions for he exchange rae and compeiiveness, which could prove couner-cyclical o growh effors being pursued. Hence, our exploring he dynamics of he curren accoun and is underlying drivers would illuminae our undersanding on he overall performance and prospecs of he Ghanaian economy. This is a huge ask especially in developing economies, which are perceived o have a very prolonged ransiion rajecory. This if no properly undersood and managed could make he economy more suscepible o large and unpredicable shocks, he consequences of which canno be overemphasized. This paper aemps o idenify he underlying srucure of curren accoun deficis in Ghana, and specifically assess he susainabiliy of he Ghanaian curren accoun using a muli faceed suie of models and indicaors. We have paricularly been moivaed o invesigae he curren accoun susainabiliy in Ghana due o he following: he size of he defici relaive o GDP in recen years (rising as high as 12.5% in 1999) he relaively poor income and savings rae indicaing ha deficis are he resul of high consumpion and low savings unsusainabiliy of exernal deb plunging he counry ino he HIPC saus real appreciaion of he exchange rae posing hreas o our exernal compeiiveness relaively unchanged srucure of he Ghanaian economy over he pas wo decades quesioning he sources of growh.

5 3 The paper begins wih a review of background and rends in curren accoun balance in Ghana. Secion wo discusses he concep of curren accoun susainabiliy. Secion hree looks a crieria for susainabiliy of curren accouns deficis. Secion four presens a deailed assessmen of curren accoun susainabiliy in Ghana, while secion five presens suggesions o improve susainabiliy. Secion six concludes he paper. 2. THE CONCEPT OF SUSTAINABILITY Simulaneous achievemen of domesic and exernal macroeconomic equilibrium is considered o be driving macroeconomic managemen in boh developed and developing economies. Domesic balance can be defined as he condiion where non-radables goods clear in he curren period and are expeced o be in equilibrium in he fuure. Exernal balance is mosly defined as he curren accoun balance ha is compaible wih long-run susainable capial inflows (Opoku-Afari e al, 2004). A simulaneous achievemen of inernal and exernal balances resul in a corresponden opimal real exchange rae and consumpion (or domesic demand) consisen wih boh exernal and inernal balances. The figure below represens differen scenarios of boh inernal and exernal (dis) equilibrium. Char 1 demonsraes he differen sages of macroeconomic (dis)equilibrium paricularly for developing economies which are always in ransiion. The righ side of he CA* line represen a siuaion of curren accoun defici. An economy showing chronic defici would persisenly be on he righ side of CA* line. Similarly, an economy showing depressed oupu would be on he lef side of inernal balance (ha is he Y* line). We can have four differen scenarios, a curren accoun defici wih inernal balance (labeled inflaionary pressured curren accoun defici), or a curren accoun surplus wih inernal balance (inflaionary pressured curren accoun surplus). We can also have siuaions where here is inernal disequilibrium (depressed oupu) wih a curren accoun surplus or depressed oupu wih a curren accoun defici.

6 4 Which of hese four scenarios is preferable and which of hem characerize he presen siuaion in Ghana? I is no hard o see ha he Ghanaian economy has suffered persisen curren accoun deficis and hus puing us on he righ side of he CA* line. In addiion, growh in Ghana has no been susainable (unil recenly) and his is coupled wih he fac ha unemploymen levels are exremely high (here are no formal esimaes), credi o he privae secor is depressed. Given hese characerisics, one can convincingly say ha oupu in Ghana has been significanly depressed, resuling in an inernal imbalance. This comforably pus Ghana above he poin E in char 1, an indicaion ha Ghana s macroeconomic condiion could be classified as a siuaion of depressed oupu wih curren accoun defici. One can also say ha judging from high inflaionary levels (unil recenly when he economy sared disinflaion), Ghana s economy is believed o be iling owards he righ side of poin E, an indicaion of he underlying inflaionary pressures. Char 1: Macroeconomic (Dis) Equilibrium RER CA* Y* Depressed Oupu CA Defici R* E Inflaionary Pressure CA Defici Depressed Oupu CA Surplus Inflaionary Pressure CA Surplus Real Domesic Demand

7 5 Following from he macroeconomic analysis above and concenraing our paper on he exernal balance, we decompose he curren accoun ino rade balance including ne of expors of goods and services (TB = X M ), ne facor income which includes ne invesmen income ( NIC ) and ne ransfers including remiances ( NT ). CA = X M + NIC + NT (1.1) Similarly, he curren accoun can be defined as he difference beween savings (S) and invesmen (I) for he whole economy, which reflecs he power of a developing economy albei wih some danger if he negaive difference is unsusainable and his he exernal economy. This is represened below as 2 : CA = ( S I ) + ( S I ) = S I (1.2) p p g g Equaion (1.2) shows he underlying srucure of he curren accoun. I is no hard o see ha a defici could eiher resul from dissaving eiher by he privae or public secor. Convenionally, i is expeced ha a curren accoun defici resuling from low domesic savings is likely o be unsusainable han one resuling from high invesmen. Obviously, high invesmen has he poenial of increasing producion capaciy and hus fuure oupu and rade surpluses 3, an indicaion ha in dynamic analysis high invesmen is preferable even hough in saic analysis boh may have he same impac. 3. CURRENT ACCOUNT (UN)SUSTAINABILITY CRITERIA Recen financial crisis in Asia and Lain America have made i clear ha here is no a simple mehod of assessing he susainabiliy or oherwise of curren accoun deficis. This is due mainly o he fac ha foreign exchange crisis ha occurred proved o be couner-inuiive in cerain counries given he rends in he curren accoun deficis. Having said his, here are however, commonly held views ha have been used hroughou he lieraure o assess he healh of he curren accouns balances. We noe ha hese crieria have raher ended o be necessary bu no sufficien condiions for assessing he healh of curren accouns. In his secion we will discuss various measures 2 Subscrips p and g denoes privae and governmen respecively. 3 We are mindful of he fac ha he composiion of invesmen o a large exen deermines he exen of ranslaion ino rade surpluses.

8 6 available o policy makers o make a judgmen on he healh of he exernal secor and o use as early warning signals for imminen crisis. As noed by Roubini and Wachel (1998), a counry is solven as long as he discouned value of he counry s foreign deb is non-zero in he infinie limi. This implicily means ha he counry is no in he posiion of increasing is foreign deb faser han he real ineres rae on his deb. They herefore concluded ha any pah of curren accoun ha reurns he infinie sum of all curren accouns o be equal o he iniial foreign deb is consisen wih solvency. They concluded by saying ha a counry could hen run a large curren accoun defici for a long period of ime and remain solven as long as here are surpluses a some poin in he fuure. This also has an obvious implicaion of running a large foreign deb as long as he rae of increase is lower han he real ineres rae. The above obviously has very loose implicaions of solvency and wih he benefi of hindsigh i is no longer a surprise ha some counries in Asia and Lain America experienced financial crisis under he wach of solvency. The looseness of he above has promped analyss o look a a more pracical aspec of susainabiliy. According o Summers (1996), curren accoun defici in excess of 5 percen of GDP should be seen as uncomforable. He mainained ha i is even more criical if his defici is paricularly financed in a way ha leads o rapid reversals or hrough a ponzi-ype of game. This even became more prominen when empirical sudies afer he Asian crisis concluded ha counries ha were hi hard were hose wih large defici/gdp raios hroughou he 1990s (Corsei, Peseni and Roubini, 1998; Radele and Sachs, 2000). Similarly, Milesi-Ferrei and Razin (1996) have mainained ha susainabiliy depended on he counry s willingness o pay and crediors willingness o borrow, making i even more difficul o use sandard measures o predic susainabiliy. In his ligh hey suggesed cerain key issues o observe in susainabiliy assessmens such as large

9 7 imbalances relaive o GDP, reducion in domesic savings raher han increasing in naional savings rae and exremely low naional savings rae. Furher o hese measures, ohers have also developed empirical models o assess he vulnerabiliy of developing and emerging economies o exernal shocks in addiion o assessing he susainabiliy of he curren accouns deficis 4. Wha became obvious from hese empirical models is he fac ha here was no unique susainable rajecory of he curren accoun deficis (exisence of muliple opimal pahs). 3.1 Fundamenal Deerminans of (Un)Susainabiliy Graned ha curren accoun is equal o he difference beween naional savings and invesmen, we could comforably define a curren accoun defici as resuling mainly from eiher a fall in savings or increase in invesmen. In his case, he (un) susainabiliy of a given defici will depend o a large exen on he source as explained above. This involves real secor dynamics o reveal he underlying sources of he curren accoun defici. This brings ino quesion he conceps of privae consumpion, governmen expendiures, invesmen and ne expors in addiion o naional income (or commonly referred o as growh or ne cashflow). How hese variables inerac would deermine wheher he economy would be running a curren accoun defici or surplus and wheher his defici is susainable or no. I is well esablished ha a curren accoun defici ha is caused by a fall in naional savings could eiher be due o a fall in privae savings or in public savings (higher budge deficis) as esablished in equaion (1.2). I is poenially worrying if lower public savings is driving he defici. I is also riskier han privae savings as privae savings reducion could be seen as a ransiory phenomenon in he dynamic sense while srucural public secor deficis have he endency of becoming endemic 5 (Roubini and Wachel, 1998). 4 See GS-SCAD model in 1997 developed by Goldman and Sachs and he Deusch Bank model developed in Poenial of unsusainable build-up of deb

10 8 To be able o rack he underlying real secor sources of he curren accoun defici in Ghana, we employed he framework iniially developed by Obsfeld and Rogoff (1995), called he Iner-Temporal Model of Opimal Benchmark. This model is used o forecas he opimal ime pah of curren accoun balances and ha is compared wih he acual balances o assess wheher here are huge deviaions and wheher hese deviaions are sysemic. This approach has been used widely by Ghosh and Osry (1994) for a hos of developing counries, Adedeji (2001) for Nigeria, Hudson and Senne (2003) for Jaimaica, Cashin and McDermo (1996) and Makrydakis (1999). For he purposes of his paper, we ouline below a very brief resaemen of he framework (see appendix for deail analysis and empirical esimaions of he model for Ghana). The main hrus of he framework using he ineremporal uiliy funcion of a represenaive individual (exhibiing raional expecaions) in a small open economy wihou liquidiy consrains (abiliy o borrow and lend o smoohen ou consumpion), is ha a consumpion smoohing componen of he curren accoun is given as: * ca (1 ) j = E + r z+ j (1.3) j= 0 This shows he exen of movemen in he curren accouns as a decreasing funcion of he persisence of emporary shocks in ne cashflow (or oupu), as permanen shocks wih no implicaions on ne oupu would have no impac on he curren accoun. This implies ha an economy would regiser a curren accoun surplus if i expecs is ne cashflow o be falling emporarily in he fuure (he converse holds). This follows from he inuiion ha households end o save when hey expec heir fuure labour income o fall in he fuure. Obviously savings would reflec in curren accouns and labour income would reflec in ne cashflow. Equaion (1.3) is very informaive and one could draw a number of useful policy implicaions from i. For insance curren accoun deficis on is own may no necessarily signal imminen crisis or srucural problems. I could be ha here is a emporary

11 9 increase in governmen expendiure, in invesmen or a decline in produciviy, which would obviously lead o a defici. This should no necessiae drasic exchange rae policy measures aimed a devaluaion o correc he problem. Also if he observed curren accoun defici represens consumpion smoohening of privae agens hen such deficis may no necessarily resul in exernal deb build up. Finally, observed defici may be a wake up call on he economy o accelerae growh in he fuure o repay borrowed savings used o smoohen ou consumpion. These are imporan policy implicaions making he sudy of underlying causes of curren accouns deficis imperaive. To arrive a he consumpion smoohening componen of he curren accouns one needs o esimae Equaion (1.3), however, his would prove o be quie challenging. However, Campbell and Schiller (1987) 6 inroduced an innovaive way of doing his, which is resaed below 7 as: z ϕ11 ϕ12 z 1 ε1 CA = + ϕ ϕ CA ε (1.4) where in his case balance and CA is he derended consumpion smoohening curren accoun z is he changes in ne cahsflow or oupu. Given he above, we could perform a number of ess. In paricular, i should be possible o evaluae and es he fac ha should equaion (1.3) be rue, he behaviour of economic agens mus be such ha changes in he curren accoun should predic fuure changes in he ne privae cashflow (ha is expeced emporary shocks in cashflow should reflec in movemens in he curren accoun). Also as noed in Hudson and Senne (2003), we could es formally for (un)susainabiliy base on wheher or no he prediced value equals he acual curren accoun balance. This implies ha ϕ11 = ϕ21 and 6 The basic insigh of Campbell-Schiller s mehodology is ha as long as he informaion se used does no conain all he informaion available o privae agens, hen pas values of curren accoun conain informaion useful in consrucing esimaes of agens expecaions of fuure values of z. 7 See appendix for deailed derivaion of Campbell and Schiller (1987) s innovaion.

12 10 ϕ22 ϕ12 = (1 + r). Finally we could es wheher he curren accoun Granger-causes subsequen movemens in ne cashflow which implies ha ϕ 12 < 0 and significan. Daa and resuls Using annual daa from 1960 o 2002, we aemp an empirical analysis of he dynamics of he Ghanaian curren accouns by esimaing he presen value model. Similar o Adedeji (2001) and in line wih Hudson and Senne (2003) we use privae consumpion, governmen consumpion, naional invesmen, gross domesic produc (GDP) and gross naional income (GNI). These variables are in nominal erms so we divided by GDP deflaor for Ghana (1995 as base) and oal populaion o ransform he variables ino real per capia erms. Insead of using he curren accoun as per he balance of paymens accouns, we raher derived he curren accouns from he naional accouns by subracing privae and governmen consumpion as well as invesmen from GNI. These ransformaions gave us real per capia privae consumpion expendiures ( c ) and ne cashflow (which is esimaed as GDP less invesmen and governmen consumpion expendiures and adjused for ne facor paymens). This is denoed as z. The consumpion smoohing curren accoun balance (adjused for consumpion iling) is derived by using DECOMP 8 o decompose oal curren accoun balance ino rend and residual and he residual in his insance used o represen consumpion smoohing curren accoun balance while he rend represens he consumpion iling componen. All our daa were aken from World Developmen Indicaors of he World Bank. In line wih sandard pracice and more specifically for he purposes of he heoreical underpinnings of his paper, we deermined he (non)saionariy properies of hese variables used in esing he ineremporal model. As noed by Campbell and Schiller 8 See Opoku-Afari e al (2004) for deail analysis of DECOMP and oher univariae decomposiion mehodologies.

13 11 (1987), he consumpion smoohing componen of he curren accoun balance ( ca sm ) and he changes in ne privae cashflow ( ) mus be saionary (ha is I(0)). We also needed z o esablish, in order o suppor he underlying heory ha here exiss a long run relaionship beween z and c (implying hey should be inegraed of order one). We esed for boh uni roos and coinegraion using boh he Augmened Dickey Fuller (ADF) and he Philip-Perron (PP) procedures 9 for he uni roo analysis and he Johansen procedure for he coinegraion es esablishing he long run properies (see Table 1 in appendix for resuls). Using he Johansen mehodology, we are able o esablish a long run coinegraion relaion beween ne cashflow and privae consumpion 10. In addiion he error correcion model following he esablishmen of he coinegraion relaion showed a significan error correcion erm albei wih very small adjusmen coefficien. This goes o confirm ha he Ghanaian exernal posiion saisfies he ineremporal solvency condiion. Unlike he case for Nigeria (which is in he same sub-region as Ghana and shares common characerisics wih Ghana), he long-run coefficien beween ne cashflow ( z ) and privae consumpion ( c ) is 1.92 (wih a -saisic of 2.4). I is obviously larger han 0.87 and 0.95 for Nigeria (Adedeji, 2001) and larger compared o Ghosh and Osry (1995) for mos developing counries and 1.05 for Jamaica (see Hudson and Senne (2003). The obvious implicaion of he 1.92 long run coefficien is ha Ghanaians end o pospone curren consumpion for he fuure. This resul is quie couner-inuiive o wha he general low savings rae in Ghana predics. In effec, i implies Ghanaians end o smoohen heir consumpion more han adjusing (iling) heir consumpion o reflec long-erm rends. 9 We included a consan and a rend erm in boh procedures. 10 Using a model wih a consan in he coinegraion equaion bu no deerminisic rend and wih an opimal lag lengh of 3, we are able o esablish a coinegraing vecor.

14 12 We esimaed he opimal curren accoun model for Ghana using he framework discussed above (see Table 2 in appendix for esimaion resuls) 11. Char 2 plos he opimal and acual curren accoun balances for Ghana as implied by he model 12. I is obvious ha he opimal curren accoun forecased from he model is able o rack significanly he acual curren accoun (correlaion of 0.5). However, i is no hard o see why Ghana has consisenly had a negaive curren accoun balance as he opimal in mos years have been below he acual reflecing in persisen negaive deviaions wih sharp spikes in 1974 and , reflecing he oil price shock and he adverse erms of rade shock in Ghana respecively. For mos of he period up o 2000 he acual curren accoun was in excess of he opimal curren accoun and his resuled in a persisen defici in he curren accouns. However, one can easily see a reversal of rends for a greaer par of he period afer The acual curren accoun ends o lag behind he opimal curren accoun, an indicaion of conained exernal balances. This rend could easily be explained. In addiion o effecive policies pu in place during his period, Ghana benefied from HIPC deb relief and also considerable increase in ne ransfers of which remiances forms a greaer par. This has obviously ranslaed he susainabiliy dynamics of he curren accoun balance in Ghana in recen years 14. One quesion o ask is wheher he underlying fundamenals of he dynamics in curren accoun balances in recen years are susainable. This quesion goes beyond his model. One needs o specifically access he susainabiliy of donor inflows ino Ghana a his juncure and also he dynamics of remiances ino Ghana o assess wheher hey could susain he curren accoun balances. 11 Resuls are presened in he appendix. 12 To ease he picorial analysis and also o reflec he ransformaions done in our daa by convering everyhing o real values using GDP deflaor (1995 as base), we rebased boh he opimal curren accoun series and he acual curren accoun series o See char 3 ploing he deviaions 14 We noe ha no all increases in ne ransfers and hence remiances are new money. Some proporion of i represens improved recordings by banks following revision of reporing procedures by Bank of Ghana.

15 13 Char 2: Ghana-Acual and Opimal Curren Accoun Balance (1995=100) Index Period Opimal Acual Char 3: Ghana-Deviaion Beween Opimal and Acual Curren Accouns Index Period 3.2 The Role of Exernal Deb in Curren Accoun (Un) Susainabiliy The curren accoun defici could be seen as a mismach beween naional savings and invesmen derived from curren resources generaed wihin he economy and his deviaion could be financed eiher by deb creaing capial inflows. An exising large burden of deb compromises he counry s credi worhiness as i affecs heir abiliy o service his deb, affecing he counry s abiliy o mee is curren accoun imbalance. The above is derived from he undersanding ha a large deb burden will pu excessive

16 14 pressure on expor revenues, which compees wih impors of invesmen goods ha are needed for growh. In mos cases (and ypical of Ghana), his creaed a deb rap, which culminaed in he rescheduling of deb servicing and ulimaely some developing counries oping for he HIPC iniiaive (including Ghana). Following from he above, i would be ineresing o assess Ghana s curren accoun (un) susainabiliy aking ino consideraion he role of exernal deb. To achieve he above, we adoped he accouning approach o curren accoun susainabiliy, which focuses on deb raio analysis 15. As discussed in Hudson and Senne (2003), his framework defines a susainable curren accoun as he one ha does no generae increases in he deb o GDP raio. This is drawn from he general undersanding ha exernal indebedness evolves from he rade balance as well as ineres paymens. In his ligh, he framework defines he exernal financing consrain as: B ( X M) = (1 + i ) (1.5) B 1 B 1 where B denoes he deb sock, i represen he ineres rae payable on he deb and X M represen he rade balance. Equaion (1.5) can be re-wrien as: B = (1 + i ) B ( X M) (1.6) 1 Given he ime pahs for i and ( X M ), equaion (1.6) describes he ime pah of he ne exernal liabiliies. One could infer from he above ha if rade is exacly balanced (i.e X M = 0 ), he counry s ne exernal indebedness would grow exacly as he rae of ineres ( i ). I follows from his same logic ha should he economy run a rade defici, he deb sock would grow a a rae ha exceeds he ineres rae. Having se he above line of logic, we derive he (un) susainabiliy condiion by seing equaion (1.6) in growh erms by dividing hrough by Y on he assumpion ha Y = (1 + g ), where g Y is he growh rae of GDP. This would reurn equaion (1.6) as: 1 15 Typically deb o GDP raio.

17 15 B B ( X M) (1 + i ) B ( X M) = (1 + i ) = 1 1 Y Y Y (1 + g) Y 1 Y (1.7) For simpliciy we denoe he raios as lower case leers and recas equaion (1.7) as: 1+ i b = b 1 ( ) 1 x m g + subracing b from boh sides i 1+ g b = b b ( x m) g 1+ g i g = b 1 ( x m ) 1+ g (1.8) herefore he condiion for susainabiliy would be given by he relaion below: i g b 1 ( x m ) = 0 1+ g (1.9) In effec wha equaion (1.9) implies is ha should he rade be exacly balanced, he change in he deb o GDP raio would depend on he deviaion beween he ineres rae on he economy s ne exernal liabiliies and he growh of GDP 16. Tha is if g < i, hen he deb o GDP raio would increase. Obviously, a preferable siuaion is where g indicaion ha growh is enough o couner increases in deb build-up. > i, an Wih a general agreemen ha curren accoun is susainable if i does no generae deb build-up (ha is o mainain a paricular deb o GDP raio), i implies ha rade mus generae surpluses sufficien o offse he growh in he deb sock as a resul of pure ineres rae/gdp growh differenial. Negaive values of equaion (1.9) imply he rade 16 The obvious lieral implicaion of equaion (1.9) is ha he susainable rade balance and for ha maer curren accoun balance is he one ha does no resul in a change in he sock of deb.

18 16 defici and for ha maer curren accoun defici has he poenial of increasing he deb sock, implying an early signal of he poenial unsusainabiliy of he curren accoun deficis Char 4: Curren Accoun Defici Susainabiliy Crieria (Using Accouning Approach) raio Period Source: Auhor s own Derivaion from he Accoun Approach Model Char 4 above clearly shows an ineresing picure of rends in curren accoun balance in Ghana. I is obvious ha his corroboraes oher findings and he exising daa in Ghana. I is clear ha he posiion in Ghana over he pas decade suppors he unsusainabiliy crieria discussed in he model (ha is i has consisenly been in he negaive). This is an indicaion ha rade defici had poenially increased exernal deb in Ghana and has compromised he susainabiliy of curren accoun deficis. However, one noices an ineresing paern. From 1994 ill 2000 here was a seady increase in he negaive rend 18. This rend however reversed afer 2000 showing a seady reducion in he negaive rend. This is an indicaion of a reversal of he worsening curren accoun defici The main shorcoming of his approach is he fac ha i does no ake ino accoun he role of lenders and invesors in deermining evoluion of deb. 18 Ghana experienced he wors curren accoun shock beween 1999 and I is possible for one o aribue he reversal in 2000 o Ghana s adopion of HIPC, and hus a reducion in he deb sock, bu a look a he deb sock figures show ha i only sared reducing from Given ha his dismisses ha line of argumen, one could confidenly aribue his reversal o improved privae and public secor savings (see char 8).

19 Oher Insiuional Measures of (Un) Susainabiliy In addiion o he wo models presened above (ha is he ineremporal model and he accoun approach), here are oher ses of crieria, which are used simulaneously o deermine he healh saus of exernal balances. I mus be noed ha no paricular crieria is sufficien in deermining he (un) susainabiliy of curren accoun deficis. As noed by Roubini and Wachel (1998), here is no simple way of finding ou wheher he curren accoun defici in a paricular economy is susainable or no, even hough heoreically an economy s susainabiliy of inernaional financial obligaions (solvency) can be considered as a proxy indicaor of susainabiliy of he curren accoun defici 20. Due o he inconclusiveness associaed wih sandard models and indicaors of susainabiliy, a number of pracical crieria ha obviously suppor he heoreical underpinnings discussed earlier have been used and we discuss a few of hem for he purposes of assessing he susainabiliy of Ghana s curren accoun defici. Increasing exernal deb o GDP raio is an indicaion of unsusainabiliy. As discussed in he accouning approach model, a curren accoun balance ha leads o increasing exernal liabiliies is an indicaion of unsusainabiliy of he defici. As noed by Summers (1996), a curren accoun defici o GDP raio higher han 5 percen sends a srong signal for an evaluaion of (un)susainabiliy of he curren accoun defici. However, i is noed ha one needs o uncover he source of he higher defici as a defici driven by invesmen growh is more likely o be more susainable in a dynamic concep 21 han a defici driven mainly by falling naional savings (higher budge deficis). I is obvious following from he above ha a fall in naional savings is problemaic for curren accoun defici susainabiliy. Inasmuch as we associae 20 As we have noed earlier his indicaor is problemaic due o a cerain level of indefinieness associae wih he ineremporal budge limiaion and real ineres raes. 21 Higher curren accoun deficis are more likely o be susainable under condiions of higher economic growh.

20 18 fall in he public componen of naional savings wih higher budge deficis, rends in fiscal deficis hen become an auomaic indicaor of (un)susainabiliy of curren accoun deficis. Composiion of he curren accoun is very imporan in deermining wheher i is susainable or no. Given ha i could be broadly broken down ino rade defici and ne facor income, hese wo sub-componens become a source of defici (un) susainabiliy. A curren accoun defici may be less susainable if i is derived from a large rade defici han from a large negaive ne facor income (Roubini and Wachel (1998). Large and persisen rade deficis indicae a srucural compeiiveness problems while large and negaive facor incomes may be a fall ou of higher exernal deb profile. In his conex he level of expors o GDP raio could be a good indicaor of srucural compeiiveness. In addiion, we could use he real exchange rae as a measure of srucural compeiiveness and rends in he real exchange rae could be a good indicaor of compeiiveness and hus (un)susainabiliy of deficis. Gross inernaional reserves have been used widely o measure he susainabiliy of curren accoun deficis. I is believed ha higher gross inernaional reserves o deb sock indicae susainabiliy of curren accouns (in some insances he number of monhs of impors hese reserves could suppor is also used). The susainabiliy of curren accoun deficis is believed o be coningen upon a sound and sable domesic financial sysem wih srong supervisory and regulaory role. Since he financing gap creaed by curren accoun deficis are filled by foreign capial inflows, hen he sae of poliical sabiliy of he economy and predicabiliy of economic policies which hinges on coninuiy of he sysem of governmen is an imporan indicaor of aracing foreign inflows and hence imporan for curren accoun susainabiliy. Las bu no leas, and in fac very imporan is he role of capial inflows. Since he financing gap generaed by curren accoun deficis are normally filled hrough foreign capial inflows, is composiion and size is very crucial. As he general

21 19 noion sill holds, shor-erm inflows are more dangerous in financing he curren accoun deficis han long erm inflows. Even hough long erm inflows in he long erm may enhance he curren accoun, in he long run i is expeced o have real effecs as he real exchange rae would end o appreciae and compromise he compeiiveness of he economy and consequenly re-inroduce srucural rade deficis, which would worsen he iniial curren accoun deficis, making i unsusainable. 4. IS THE GHANAIAN CURRENT ACCOUNT DEFICIT SUSTAINABLE? The curren accoun in Ghana has persisenly been in a defici since early , bu wih significan variaion over he period. The average defici for he period 1975 o 2004 is abou 3.4 percen of GDP. I can be said ha he rend has worsened over ime unil recenly where one can posiively idenify a reversal of he rend (see Char 5). For he period , he curren accoun regisered an average defici of 0.32 percen of GDP. This modes average worsened significanly in he 1980s where a defici of 1.87 percen was posed. The 1990s saw he wors period of high deficis wih an average of 6.1 percen of GDP and a peak of 12.5 percen in However, his rend has reversed wih a modes average of 1.87 percen of GDP regisered beween 2000 and According o Char 6, i is no hard o see ha Ghana s curren accoun pah has mainly been driven by developmens in he goods and services componen. This has dicaed he slope and urning poins of he curren accouns defici rajecory in Ghana unil 2001 where one can see a significan deparure from rends in goods and services as agains curren accoun balances 22 Wih he excepion of 2003 where a surplus of 2.89% of GDP was recorded.

22 20 Char 5: Ghana-Trade and Curren Accoun Balances 10 5 Percen of GDP TB/GDP CA/GDP Period Char 6: Ghana-Curren Accoun and Fiscal Balances Percen of GDP FB CAB Period Char 7: Ghana-Curren Accoun and Principal Componens Percen of GDP CAB G&S Ne Trans Ne Inv. Inc -25 Period

23 21 Given he narrowness of he expor base in Ghana, one is no misaken o say ha he goods and services componen has been driven mainly by impors which available daa indicaes ha no unil recenly, a greaer percenage (abou 30%) of he goods componen is dominaed by consumpion goods. This obviously is a conservaive esimaed given ha ohers in ha sub-componen is mainly made up of consumpion goods bu due o improper classificaions has been lef ou of his esimaion. In addiion abou 50 percen of he goods and service componen is made up of capial goods, which underscores he counry s effor o increase invesmen o drive growh. Nowihsanding, 30 percen of goods and services driving curren accoun deficis is quie a subsanial amoun raising concerning as o wheher Ghana s curren accouns are susainable. This is coming from he fac ha if curren accoun deficis indicae dominance of consumpion hen i underscores lack of domesic savings, which is an imporan recipe for unsusainabiliy and financial crisis. I is obvious from char 6 ha curren accoun deficis have shared a sochasic rend wih he level of public secor savings (measured as fiscal deficis). Deerioraing public savings, which is also refleced in naional savings (see char 8 below), have in mos cases dicaed he rend of curren accoun deficis in Ghana, wih urning poins in curren accoun deficis dicaed by public savings. This is an ineresing developmen, as worsening public savings end o lead worsening curren accoun deficis. As explained earlier, if curren accoun deficis emanae from fall in public savings and for ha maer naional savings, hen ha is roubling as i sands he chance of becoming endemic and making he curren accoun defici unsusainable. I is obvious from char 8 ha naional savings have persisenly lagged behind invesmen since 1983 and while invesmen is increasing on average, savings is falling, a clear sign ha he consequen curren accoun defici is also driven by falling savings 23, bringing o he fore he unsusainabiliy of he Ghanaian curren accoun deficis over he period Rising invesmen is dominaed by foreign capial inflows. 24 Once again i is imporan o noe ha over he pas hree years or so ha gap has sared closing up, also due o increases in savings rae on he one hand and fall in invesmen rae on he oher. The laer is no good hough for he economy bu he former is a welcome developmen.

24 22 Char 8: Ghana-Savings and Invesmen Raes Rae (% of GDP) Invesmen Rae Savings Rae Period I is also obvious from he ineremporal model which assesses he exen of he defici from he real secor of he economy. As noed in char 2, he acual curren accoun in Ghana has in mos cases been above he opimal curren accoun forecased from he model. Given ha he model racks movemens in he Ghanaian curren accouns balances, we are convinced ha he deviaions measured give a clear indicaion of persisen deficis in Ghana wih brief episodes of acual being below opimal. I is however, concluded ha over he period covered in his sudy, he defici has been persisen and raises quesions of unsusainabiliy. Looking a i from exernal liabiliies dynamics, we also developed he accouning model which looked a he foreign deb consequences of curren accoun deficis. I is obvious from char 4 ha he persisen curren accoun defici in Ghana has resuled in increasing foreign deb 25. This allies very well wih he available balance of paymens (BOP) daa for Ghana as he wors scenario was in 1999/2000 where we had he larges negaive number and in pracice had he larges defici o GDP raio (12.5%) 26. This obviously necessiaed he adopion of he IMF/World Bank HIPC iniiaive which was unavoidable, an indicaion of insolvency due o problems wih meeing deb repaymen schedules. The obvious conclusion is ha deb-creaing financing of he defici is no 25 As he model dicaes ha a negaive sign implies he rade balance would lead o increases in foreign deb and hus a sign of unsusainabiliy. 26 This developmen necessiaed he adopion of HIPC which was obviously unavoidable

25 23 compensaed for by increasing growh, and hus a sign of unsusainabiliy. I is clear ha he siuaion has sared improving saring from Given ha foreign capial inflows is very crucial in deermining he susainabiliy of curren accoun deficis, i is imporan o look a how capial inflows in general impac on Ghanaian curren accoun deficis. From char 7 above, i is obvious ha ne ransfers of which remiances forms a greaer percenage serves as a huge moderaing facor in supporing he curren accoun deficis in Ghana. While he pro-cyclical naure of aid inflows and i being highly volaile engender he susainabiliy of he defici, remiances are seen o be relaively sable and using ha as a pivo of curren accoun dynamics in Ghana has he poenial of improving upon is degree of susainabiliy. As demonsraed in char 9 below, aid shock (volailiy) has influenced he exen of curren accoun defici in Ghana (see Addison and Opoku-Afari, 2005 for deails). One easily observes wo periods represening an inernal shock (afermah of democraizaion and he wai and see aiude of donors) and severe erms of rade shock in The firs shock is a resul of high cos of democraizaion which came along wih significan falls in donor inflows (aid shock) due o he wai and see aiude of developmen parners as ha was he firs democraic elecions afer a long period of miliary rule and observers were no sure wha he oucome was going o be given he insabiliy of he sub-region. This obviously slowed down he economy and resuled in high fiscal deficis as a way of closing he gap. The second shock represens a erms of rade shock, as Ghana s major expors cocoa and gold suffered a sharp fall in world prices in addiion o rising crude oil prices on he inernaional marke. This erms of rade shock was furher aggravaed by an aid shock 27 forcing he governmen o once again rely on domesic borrowing o accommodae he gap (indicaed by high domesic borrowing o GDP raio over ha period). 27 This is measured by he difference beween projeced and acual aid ino Ghana.

26 24 Char 9: Aid Shorfall (Shock) and Curren Accoun Balance US$ Million Evidence of changes in curren accoun balance leading changes in aid shorfall in Ghana. This ends o sugges aid has more ofen han no been pro-cyclical Shorfall Period Curr Acc Bal These wo episodes underscores how unsusainable a curren accoun defici pivoed on aid inflows and fragile rade balances could be. I is clear from he above ha a more srucural change in favour of rade balanced based on diversified expors o aler he curren composiion of GDP is more favourable o he curren dependence on primary commodiies which makes he rade gains raher suscepible o inernaional marke developmens of which Ghana has very lile (if no) conrol. I is generally expeced ha large capial inflows have he poenial of causing real exchange rae appreciaion. Tha is he downside risk of over depending on capial inflows o fill he curren accoun defici gap. The appreciaion in real exchange rae could cause a loss of compeiiveness 28 and furher srucural worsening of he rade balance, which in mos developing economies ends o drive he curren accoun defici. Once he source of he rade defici is srucural, i is likely he ensuing curren accoun defici would be unsusainable. Roubini and Wachel (1998) noed ha alhough he cause of he curren accoun defici is due mainly o invesmen and savings gap, if i is accompanied by a real appreciaion of he exchange rae, he defici could become less susainable 29. The obvious quesion is how has real exchange rae appreciaion affeced he curren accoun balance dynamics in Ghana. As indicaed in he plos in chars 10 and 28 See Opoku-Afari e a l (2004) for deailed analysis of he role of capial inflows on real exchange rae appreciaion and consequenly loss of compeiiveness. 29 We noe ha no all real exchange rae appreciaion could lead o curren accoun defici worsening as some real exchange rae appreciaion would be in response o changing fundamenals and no necessarily misalignmen.

27 25 11 below, movemens in real exchange rae in Ghana have racked and boh rade balance and curren accoun balance movemens consisenly. In boh cases appreciaing real exchange rae 30 have consisenly driven rade deficis and curren accoun deficis. This period of appreciaing real exchange rae coincide wih periods of massive capial inflows ino Ghana 31 (period afer he Srucural Adjusmen Programme in 1983) 32. This has consequenly driven rade deficis, which in urn has driven curren accoun deficis in Ghana Char 10: Real Exchange Rae (REER) and Trade Balance in Ghana REER Index REER Trade Bal Trade Balance (US$ Million) Period Noe: REER is defined in such a way ha an upward movemen denoes depreciaion and a downward movemen denoes appreciaion Char 11: Real Exchange Rae (REER) and Curren Accoun Balance in Ghana REER Index REER Curr Acc Bal Curr. Acc Bal Period Real exchange rae has been defined in such a way ha downward movemen represen appreciaion and upward movemens represen depreciaion. See Opoku-Afari (2004) for derivaion of Real Effecive Exchange Rae for Ghana. 31 For deailed analysis of impac of Capial Inflows on real Exchange Rae in Ghana, see Opoku-Afari e al (2004) 32 A perfec example of he impac of large capial inflows on real exchange rae appreciaion.

28 26 Finally we look a he level of inernaional reserves as anoher indicaor of Ghana s curren accoun defici susainabiliy. An increase level of inernaional reserves ensures higher susainabiliy of he economy s liabiliies han a decreasing level of inernaional reserves. I is no hard o see he deerioraing naure of inernaional reserves as he Ghanaian economy recorded as low as less han a monh s impors by 1999/2000. However, he siuaion has improved significanly moving o abou 4.0 monhs of impors which is considered close o he opimal level of 4.5 monhs of impors. Obviously, he improvemen in he inernaional reserves is no due mainly o rade gains as during his period of improvemen he rade balance has raher worsened. I is no hard o see ha he recen improvemen in inernaional reserves is mainly due o implici savings from deb relief as well as increases in remiances. The laer is a welcome developmen and relaively sable bu he former (implici savings from deb relief) is unsusainable, raising doubs abou he susainabiliy of curren accoun deficis looked a from inernaional reserves perspecive. Char 12: Ghana-Inernaional Reserves (in Monhs of Impors) Monh Period 5. SUGGESTIONS FOR IMPROVING CURRENT ACCOUNT DEFICIT SUSTAINABILITY IN GHANA A number of imporan issues came up during he analysis above. I was obvious ha he curren accoun defici in Ghana has been driven by a few fundamenal srucural problems. Imporan among hem is he fac ha he srucure of he economy has virually remained he same for he pas wo decades and over (see char 13 below).

29 27 Char 13: Secoral Conribuion o GDP Growh in Ghana Secor Conribuions o GDP 100% 90% 80% % % of oal 60% 50% 40% % 20% % 0% P Agriculure Indusry Services Source: Daa obained from Bank of Ghana and various issues of budge saemens This confirms ha Ghana has been relying on he same sources of expor revenues, as has been he case since independence. I is no surprising ha rade deficis have driven curren accoun deficis over he period making i eviden he criical imporance of rade in ensuring curren accoun defici susainabiliy. Thus we could confidenly sae ha Ghanaian curren accoun defici susainabiliy in he long run is coningen upon rade defici susainabiliy. This calls for a complee srucural change in he Ghanaian economy, since he shorer roue of reducing impors o make he rade defici appear susainable is no plausible. Inasmuch as capial goods and inermediae goods make up abou 75 percen of oal impors of goods and services, hen one can say ha he source of rade defici unsusainabiliy is from he expor sub-componen. We are however no underplaying he poenial of he economy s abiliy o subsiue impor goods wih similar qualiy of locally produced goods. As his has go o do wih ase and generally ase changes slowly, we are proposing ha a conscious effor is made o drive up expors o ensure susainabiliy of rade balance. This calls for measures o improve our compeiiveness in he inernaional marke. Here, i is no only he policy measure of depreciaing real exchange rae ha would increase our compeiiveness, bu here are issues wih access o inernaional markes which is lacking in Ghana. This is a

BALANCE OF PAYMENTS. First quarter 2008. Balance of payments

BALANCE OF PAYMENTS. First quarter 2008. Balance of payments BALANCE OF PAYMENTS DATE: 2008-05-30 PUBLISHER: Balance of Paymens and Financial Markes (BFM) Lena Finn + 46 8 506 944 09, lena.finn@scb.se Camilla Bergeling +46 8 506 942 06, camilla.bergeling@scb.se

More information

The Greek financial crisis: growing imbalances and sovereign spreads. Heather D. Gibson, Stephan G. Hall and George S. Tavlas

The Greek financial crisis: growing imbalances and sovereign spreads. Heather D. Gibson, Stephan G. Hall and George S. Tavlas The Greek financial crisis: growing imbalances and sovereign spreads Heaher D. Gibson, Sephan G. Hall and George S. Tavlas The enry The enry of Greece ino he Eurozone in 2001 produced a dividend in he

More information

II.1. Debt reduction and fiscal multipliers. dbt da dpbal da dg. bal

II.1. Debt reduction and fiscal multipliers. dbt da dpbal da dg. bal Quarerly Repor on he Euro Area 3/202 II.. Deb reducion and fiscal mulipliers The deerioraion of public finances in he firs years of he crisis has led mos Member Saes o adop sizeable consolidaion packages.

More information

4. International Parity Conditions

4. International Parity Conditions 4. Inernaional ariy ondiions 4.1 urchasing ower ariy he urchasing ower ariy ( heory is one of he early heories of exchange rae deerminaion. his heory is based on he concep ha he demand for a counry's currency

More information

MACROECONOMIC FORECASTS AT THE MOF A LOOK INTO THE REAR VIEW MIRROR

MACROECONOMIC FORECASTS AT THE MOF A LOOK INTO THE REAR VIEW MIRROR MACROECONOMIC FORECASTS AT THE MOF A LOOK INTO THE REAR VIEW MIRROR The firs experimenal publicaion, which summarised pas and expeced fuure developmen of basic economic indicaors, was published by he Minisry

More information

The Real Business Cycle paradigm. The RBC model emphasizes supply (technology) disturbances as the main source of

The Real Business Cycle paradigm. The RBC model emphasizes supply (technology) disturbances as the main source of Prof. Harris Dellas Advanced Macroeconomics Winer 2001/01 The Real Business Cycle paradigm The RBC model emphasizes supply (echnology) disurbances as he main source of macroeconomic flucuaions in a world

More information

DOES TRADING VOLUME INFLUENCE GARCH EFFECTS? SOME EVIDENCE FROM THE GREEK MARKET WITH SPECIAL REFERENCE TO BANKING SECTOR

DOES TRADING VOLUME INFLUENCE GARCH EFFECTS? SOME EVIDENCE FROM THE GREEK MARKET WITH SPECIAL REFERENCE TO BANKING SECTOR Invesmen Managemen and Financial Innovaions, Volume 4, Issue 3, 7 33 DOES TRADING VOLUME INFLUENCE GARCH EFFECTS? SOME EVIDENCE FROM THE GREEK MARKET WITH SPECIAL REFERENCE TO BANKING SECTOR Ahanasios

More information

Morningstar Investor Return

Morningstar Investor Return Morningsar Invesor Reurn Morningsar Mehodology Paper Augus 31, 2010 2010 Morningsar, Inc. All righs reserved. The informaion in his documen is he propery of Morningsar, Inc. Reproducion or ranscripion

More information

Measuring macroeconomic volatility Applications to export revenue data, 1970-2005

Measuring macroeconomic volatility Applications to export revenue data, 1970-2005 FONDATION POUR LES ETUDES ET RERS LE DEVELOPPEMENT INTERNATIONAL Measuring macroeconomic volailiy Applicaions o expor revenue daa, 1970-005 by Joël Cariolle Policy brief no. 47 March 01 The FERDI is a

More information

Chapter 1.6 Financial Management

Chapter 1.6 Financial Management Chaper 1.6 Financial Managemen Par I: Objecive ype quesions and answers 1. Simple pay back period is equal o: a) Raio of Firs cos/ne yearly savings b) Raio of Annual gross cash flow/capial cos n c) = (1

More information

Appendix D Flexibility Factor/Margin of Choice Desktop Research

Appendix D Flexibility Factor/Margin of Choice Desktop Research Appendix D Flexibiliy Facor/Margin of Choice Deskop Research Cheshire Eas Council Cheshire Eas Employmen Land Review Conens D1 Flexibiliy Facor/Margin of Choice Deskop Research 2 Final Ocober 2012 \\GLOBAL.ARUP.COM\EUROPE\MANCHESTER\JOBS\200000\223489-00\4

More information

Price elasticity of demand for crude oil: estimates for 23 countries

Price elasticity of demand for crude oil: estimates for 23 countries Price elasiciy of demand for crude oil: esimaes for 23 counries John C.B. Cooper Absrac This paper uses a muliple regression model derived from an adapaion of Nerlove s parial adjusmen model o esimae boh

More information

Duration and Convexity ( ) 20 = Bond B has a maturity of 5 years and also has a required rate of return of 10%. Its price is $613.

Duration and Convexity ( ) 20 = Bond B has a maturity of 5 years and also has a required rate of return of 10%. Its price is $613. Graduae School of Business Adminisraion Universiy of Virginia UVA-F-38 Duraion and Convexiy he price of a bond is a funcion of he promised paymens and he marke required rae of reurn. Since he promised

More information

Vector Autoregressions (VARs): Operational Perspectives

Vector Autoregressions (VARs): Operational Perspectives Vecor Auoregressions (VARs): Operaional Perspecives Primary Source: Sock, James H., and Mark W. Wason, Vecor Auoregressions, Journal of Economic Perspecives, Vol. 15 No. 4 (Fall 2001), 101-115. Macroeconomericians

More information

Chapter 8: Regression with Lagged Explanatory Variables

Chapter 8: Regression with Lagged Explanatory Variables Chaper 8: Regression wih Lagged Explanaory Variables Time series daa: Y for =1,..,T End goal: Regression model relaing a dependen variable o explanaory variables. Wih ime series new issues arise: 1. One

More information

Economics Honors Exam 2008 Solutions Question 5

Economics Honors Exam 2008 Solutions Question 5 Economics Honors Exam 2008 Soluions Quesion 5 (a) (2 poins) Oupu can be decomposed as Y = C + I + G. And we can solve for i by subsiuing in equaions given in he quesion, Y = C + I + G = c 0 + c Y D + I

More information

SPECIAL REPORT May 4, Shifting Drivers of Inflation Canada versus the U.S.

SPECIAL REPORT May 4, Shifting Drivers of Inflation Canada versus the U.S. Paul Ferley Assisan Chief Economis 416-974-7231 paul.ferley@rbc.com Nahan Janzen Economis 416-974-0579 nahan.janzen@rbc.com SPECIAL REPORT May 4, 2010 Shifing Drivers of Inflaion Canada versus he U.S.

More information

Chapter 6: Business Valuation (Income Approach)

Chapter 6: Business Valuation (Income Approach) Chaper 6: Business Valuaion (Income Approach) Cash flow deerminaion is one of he mos criical elemens o a business valuaion. Everyhing may be secondary. If cash flow is high, hen he value is high; if he

More information

Why Did the Demand for Cash Decrease Recently in Korea?

Why Did the Demand for Cash Decrease Recently in Korea? Why Did he Demand for Cash Decrease Recenly in Korea? Byoung Hark Yoo Bank of Korea 26. 5 Absrac We explores why cash demand have decreased recenly in Korea. The raio of cash o consumpion fell o 4.7% in

More information

Relationships between Stock Prices and Accounting Information: A Review of the Residual Income and Ohlson Models. Scott Pirie* and Malcolm Smith**

Relationships between Stock Prices and Accounting Information: A Review of the Residual Income and Ohlson Models. Scott Pirie* and Malcolm Smith** Relaionships beween Sock Prices and Accouning Informaion: A Review of he Residual Income and Ohlson Models Sco Pirie* and Malcolm Smih** * Inernaional Graduae School of Managemen, Universiy of Souh Ausralia

More information

Cointegration: The Engle and Granger approach

Cointegration: The Engle and Granger approach Coinegraion: The Engle and Granger approach Inroducion Generally one would find mos of he economic variables o be non-saionary I(1) variables. Hence, any equilibrium heories ha involve hese variables require

More information

BALANCE OF PAYMENTS AND FINANCIAL MA REPORT 2015. All officiell statistik finns på: www.scb.se Statistikservice: tfn 08-506 948 01

BALANCE OF PAYMENTS AND FINANCIAL MA REPORT 2015. All officiell statistik finns på: www.scb.se Statistikservice: tfn 08-506 948 01 RKET BALANCE OF PAYMENTS AND FINANCIAL MA REPORT 2015 All officiell saisik finns på: www.scb.se Saisikservice: fn 08-506 948 01 All official saisics can be found a: www.scb.se Saisics service, phone +46

More information

Individual Health Insurance April 30, 2008 Pages 167-170

Individual Health Insurance April 30, 2008 Pages 167-170 Individual Healh Insurance April 30, 2008 Pages 167-170 We have received feedback ha his secion of he e is confusing because some of he defined noaion is inconsisen wih comparable life insurance reserve

More information

CRISES AND THE FLEXIBLE PRICE MONETARY MODEL. Sarantis Kalyvitis

CRISES AND THE FLEXIBLE PRICE MONETARY MODEL. Sarantis Kalyvitis CRISES AND THE FLEXIBLE PRICE MONETARY MODEL Saranis Kalyviis Currency Crises In fixed exchange rae regimes, counries rarely abandon he regime volunarily. In mos cases, raders (or speculaors) exchange

More information

Market Analysis and Models of Investment. Product Development and Whole Life Cycle Costing

Market Analysis and Models of Investment. Product Development and Whole Life Cycle Costing The Universiy of Liverpool School of Archiecure and Building Engineering WINDS PROJECT COURSE SYNTHESIS SECTION 3 UNIT 11 Marke Analysis and Models of Invesmen. Produc Developmen and Whole Life Cycle Cosing

More information

The Grantor Retained Annuity Trust (GRAT)

The Grantor Retained Annuity Trust (GRAT) WEALTH ADVISORY Esae Planning Sraegies for closely-held, family businesses The Granor Reained Annuiy Trus (GRAT) An efficien wealh ransfer sraegy, paricularly in a low ineres rae environmen Family business

More information

Contrarian insider trading and earnings management around seasoned equity offerings; SEOs

Contrarian insider trading and earnings management around seasoned equity offerings; SEOs Journal of Finance and Accounancy Conrarian insider rading and earnings managemen around seasoned equiy offerings; SEOs ABSTRACT Lorea Baryeh Towson Universiy This sudy aemps o resolve he differences in

More information

Terms of Trade and Present Value Tests of Intertemporal Current Account Models: Evidence from the United Kingdom and Canada

Terms of Trade and Present Value Tests of Intertemporal Current Account Models: Evidence from the United Kingdom and Canada Terms of Trade and Presen Value Tess of Ineremporal Curren Accoun Models: Evidence from he Unied Kingdom and Canada Timohy H. Goodger Universiy of Norh Carolina a Chapel Hill November 200 Absrac This paper

More information

Performance Center Overview. Performance Center Overview 1

Performance Center Overview. Performance Center Overview 1 Performance Cener Overview Performance Cener Overview 1 ODJFS Performance Cener ce Cener New Performance Cener Model Performance Cener Projec Meeings Performance Cener Execuive Meeings Performance Cener

More information

TREASURY WORKING PAPER 01/32

TREASURY WORKING PAPER 01/32 TREASURY WORKING PAPER 01/32 Saving and growh in an open economy Iris Claus, David Haugh, Gran Scobie and Jonas Törnquis Absrac Concern has been raised by an apparen lack of saving in New Zealand. I is

More information

PROFIT TEST MODELLING IN LIFE ASSURANCE USING SPREADSHEETS PART ONE

PROFIT TEST MODELLING IN LIFE ASSURANCE USING SPREADSHEETS PART ONE Profi Tes Modelling in Life Assurance Using Spreadshees PROFIT TEST MODELLING IN LIFE ASSURANCE USING SPREADSHEETS PART ONE Erik Alm Peer Millingon 2004 Profi Tes Modelling in Life Assurance Using Spreadshees

More information

Sustainability of current account deficit with high oil prices: Evidence from Turkey 1

Sustainability of current account deficit with high oil prices: Evidence from Turkey 1 Inernaional Journal of Economic Sciences Vol. III / No. 2 / 2014 Susainabiliy of curren accoun defici wih high oil prices: Evidence from Turkey 1 Erkan Özaa ABSTRACT Curren accoun defici as a raio of GDP

More information

LECTURE: SOCIAL SECURITY HILARY HOYNES UC DAVIS EC230 OUTLINE OF LECTURE:

LECTURE: SOCIAL SECURITY HILARY HOYNES UC DAVIS EC230 OUTLINE OF LECTURE: LECTURE: SOCIAL SECURITY HILARY HOYNES UC DAVIS EC230 OUTLINE OF LECTURE: 1. Inroducion and definiions 2. Insiuional Deails in Social Securiy 3. Social Securiy and Redisribuion 4. Jusificaion for Governmen

More information

11/6/2013. Chapter 14: Dynamic AD-AS. Introduction. Introduction. Keeping track of time. The model s elements

11/6/2013. Chapter 14: Dynamic AD-AS. Introduction. Introduction. Keeping track of time. The model s elements Inroducion Chaper 14: Dynamic D-S dynamic model of aggregae and aggregae supply gives us more insigh ino how he economy works in he shor run. I is a simplified version of a DSGE model, used in cuing-edge

More information

THE FIRM'S INVESTMENT DECISION UNDER CERTAINTY: CAPITAL BUDGETING AND RANKING OF NEW INVESTMENT PROJECTS

THE FIRM'S INVESTMENT DECISION UNDER CERTAINTY: CAPITAL BUDGETING AND RANKING OF NEW INVESTMENT PROJECTS VII. THE FIRM'S INVESTMENT DECISION UNDER CERTAINTY: CAPITAL BUDGETING AND RANKING OF NEW INVESTMENT PROJECTS The mos imporan decisions for a firm's managemen are is invesmen decisions. While i is surely

More information

Debt and Fiscal Sustainability in Sri Lanka

Debt and Fiscal Sustainability in Sri Lanka Inernaional Journal of Scienific and Research Publicaions, Volume 2, Issue 3, March 212 1 Deb and Fiscal Susainabiliy in Sri Lanka N. P. Ravindra Deyshappriya Uva Wellassa Universiy SRI LANKA Absrac- Fiscal

More information

Hedging with Forwards and Futures

Hedging with Forwards and Futures Hedging wih orwards and uures Hedging in mos cases is sraighforward. You plan o buy 10,000 barrels of oil in six monhs and you wish o eliminae he price risk. If you ake he buy-side of a forward/fuures

More information

LEASING VERSUSBUYING

LEASING VERSUSBUYING LEASNG VERSUSBUYNG Conribued by James D. Blum and LeRoy D. Brooks Assisan Professors of Business Adminisraion Deparmen of Business Adminisraion Universiy of Delaware Newark, Delaware The auhors discuss

More information

Lecture Note on the Real Exchange Rate

Lecture Note on the Real Exchange Rate Lecure Noe on he Real Exchange Rae Barry W. Ickes Fall 2004 0.1 Inroducion The real exchange rae is he criical variable (along wih he rae of ineres) in deermining he capial accoun. As we shall see, his

More information

Chapter 10 Social Security 1

Chapter 10 Social Security 1 Chaper 0 Social Securiy 0. Inroducion A ypical social securiy sysem provides income during periods of unemploymen, ill-healh or disabiliy, and financial suppor, in he form of pensions, o he reired. Alhough

More information

An Intertemporal Assessment of Kenya s Current Account Deficits

An Intertemporal Assessment of Kenya s Current Account Deficits Inernaional Journal of Economics and Managemen Sciences Vol. 2, No. 9, 203, pp. 34-43 MANAGEMENT JOURNALS managemenournals.org An Ineremporal Assessmen of Kenya s Curren Accoun Deficis James K. Gichuki

More information

USE OF EDUCATION TECHNOLOGY IN ENGLISH CLASSES

USE OF EDUCATION TECHNOLOGY IN ENGLISH CLASSES USE OF EDUCATION TECHNOLOGY IN ENGLISH CLASSES Mehme Nuri GÖMLEKSİZ Absrac Using educaion echnology in classes helps eachers realize a beer and more effecive learning. In his sudy 150 English eachers were

More information

Longevity 11 Lyon 7-9 September 2015

Longevity 11 Lyon 7-9 September 2015 Longeviy 11 Lyon 7-9 Sepember 2015 RISK SHARING IN LIFE INSURANCE AND PENSIONS wihin and across generaions Ragnar Norberg ISFA Universié Lyon 1/London School of Economics Email: ragnar.norberg@univ-lyon1.fr

More information

Measuring the Effects of Exchange Rate Changes on Investment. in Australian Manufacturing Industry

Measuring the Effects of Exchange Rate Changes on Investment. in Australian Manufacturing Industry Measuring he Effecs of Exchange Rae Changes on Invesmen in Ausralian Manufacuring Indusry Robyn Swif Economics and Business Saisics Deparmen of Accouning, Finance and Economics Griffih Universiy Nahan

More information

Usefulness of the Forward Curve in Forecasting Oil Prices

Usefulness of the Forward Curve in Forecasting Oil Prices Usefulness of he Forward Curve in Forecasing Oil Prices Akira Yanagisawa Leader Energy Demand, Supply and Forecas Analysis Group The Energy Daa and Modelling Cener Summary When people analyse oil prices,

More information

Premium Income of Indian Life Insurance Industry

Premium Income of Indian Life Insurance Industry Premium Income of Indian Life Insurance Indusry A Toal Facor Produciviy Approach Ram Praap Sinha* Subsequen o he passage of he Insurance Regulaory and Developmen Auhoriy (IRDA) Ac, 1999, he life insurance

More information

Can Individual Investors Use Technical Trading Rules to Beat the Asian Markets?

Can Individual Investors Use Technical Trading Rules to Beat the Asian Markets? Can Individual Invesors Use Technical Trading Rules o Bea he Asian Markes? INTRODUCTION In radiional ess of he weak-form of he Efficien Markes Hypohesis, price reurn differences are found o be insufficien

More information

INTRODUCTION TO FORECASTING

INTRODUCTION TO FORECASTING INTRODUCTION TO FORECASTING INTRODUCTION: Wha is a forecas? Why do managers need o forecas? A forecas is an esimae of uncerain fuure evens (lierally, o "cas forward" by exrapolaing from pas and curren

More information

DYNAMIC MODELS FOR VALUATION OF WRONGFUL DEATH PAYMENTS

DYNAMIC MODELS FOR VALUATION OF WRONGFUL DEATH PAYMENTS DYNAMIC MODELS FOR VALUATION OF WRONGFUL DEATH PAYMENTS Hong Mao, Shanghai Second Polyechnic Universiy Krzyszof M. Osaszewski, Illinois Sae Universiy Youyu Zhang, Fudan Universiy ABSTRACT Liigaion, exper

More information

Graduate Macro Theory II: Notes on Neoclassical Growth Model

Graduate Macro Theory II: Notes on Neoclassical Growth Model Graduae Macro Theory II: Noes on Neoclassical Growh Model Eric Sims Universiy of Nore Dame Spring 2011 1 Basic Neoclassical Growh Model The economy is populaed by a large number of infiniely lived agens.

More information

Explaining the NZ-Australian exchange rate occasional paper

Explaining the NZ-Australian exchange rate occasional paper Wespac $ Insiuional Bank April 2002 Explaining he NZ-Ausralian exchange rae occasional paper Paul Conway and Richard Franulovich Wespac Insiuional Bank PO Box 691 Wellingon New Zealand Phone (644) 381-1414

More information

SKF Documented Solutions

SKF Documented Solutions SKF Documened Soluions Real world savings and we can prove i! How much can SKF save you? Le s do he numbers. The SKF Documened Soluions Program SKF is probably no he firs of your supplier parners o alk

More information

Risk Modelling of Collateralised Lending

Risk Modelling of Collateralised Lending Risk Modelling of Collaeralised Lending Dae: 4-11-2008 Number: 8/18 Inroducion This noe explains how i is possible o handle collaeralised lending wihin Risk Conroller. The approach draws on he faciliies

More information

Debt Accumulation, Debt Reduction, and Debt Spillovers in Canada, 1974-98*

Debt Accumulation, Debt Reduction, and Debt Spillovers in Canada, 1974-98* Deb Accumulaion, Deb Reducion, and Deb Spillovers in Canada, 1974-98* Ron Kneebone Deparmen of Economics Universiy of Calgary John Leach Deparmen of Economics McMaser Universiy Ocober, 2000 Absrac Wha

More information

Can Austerity Be Self-defeating?

Can Austerity Be Self-defeating? DOI: 0.007/s07-0-0-7 Auseriy Can Auseriy Be Self-defeaing? Wih European governmens cuing back on spending, many are asking wheher his could make maers worse. In he UK for insance, recen OECD esimaes sugges

More information

Working Paper No. 482. Net Intergenerational Transfers from an Increase in Social Security Benefits

Working Paper No. 482. Net Intergenerational Transfers from an Increase in Social Security Benefits Working Paper No. 482 Ne Inergeneraional Transfers from an Increase in Social Securiy Benefis By Li Gan Texas A&M and NBER Guan Gong Shanghai Universiy of Finance and Economics Michael Hurd RAND Corporaion

More information

CURRENT ACCOUNTS IN THE EURO AREA: AN INTERTEMPORAL APPROACH. José Manuel Campa and Ángel Gavilán an. Documentos de Trabajo N.

CURRENT ACCOUNTS IN THE EURO AREA: AN INTERTEMPORAL APPROACH. José Manuel Campa and Ángel Gavilán an. Documentos de Trabajo N. CURRENT ACCOUNTS IN THE EURO AREA: AN INTERTEMPORAL APPROACH 2006 José Manuel Campa and Ángel Gavilán an Documenos de Trabajo N.º 0638 CURRENT ACCOUNTS IN THE EURO AREA: AN INTERTEMPORAL APPROACH CURRENT

More information

July 27, 2007. only due to developments in the USA but is also the upshot of investment decisions in the surplus countries.

July 27, 2007. only due to developments in the USA but is also the upshot of investment decisions in the surplus countries. Inernaional opics Curren Issues July 7, 7 US curren accoun defici: No reason o panic! Las year he US curren accoun closed wih a record defici of USD 811 bn or 6.1% of GDP. In 1991 i had sill been in balance.

More information

Financial Globalization and Exchange Rates. Philip R. Lane IIIS, Trinity College Dublin and CEPR

Financial Globalization and Exchange Rates. Philip R. Lane IIIS, Trinity College Dublin and CEPR Financial Globalizaion and Exchange Raes Philip R. Lane IIIS, Triniy College Dublin and CEPR Gian Maria Milesi-Ferrei Inernaional Moneary Fund and CEPR Ocober 2004 Absrac The founders of he Breon Woods

More information

Market Liquidity and the Impacts of the Computerized Trading System: Evidence from the Stock Exchange of Thailand

Market Liquidity and the Impacts of the Computerized Trading System: Evidence from the Stock Exchange of Thailand 36 Invesmen Managemen and Financial Innovaions, 4/4 Marke Liquidiy and he Impacs of he Compuerized Trading Sysem: Evidence from he Sock Exchange of Thailand Sorasar Sukcharoensin 1, Pariyada Srisopisawa,

More information

CURRENT ACCOUNTS IN THE EURO AREA: AN INTERTEMPORAL APPROACH. José Manuel Campa Angel Gavilán

CURRENT ACCOUNTS IN THE EURO AREA: AN INTERTEMPORAL APPROACH. José Manuel Campa Angel Gavilán CIIF Working Paper WP no 651 Sepember, 2006 CURRENT ACCOUNTS IN THE EURO AREA: AN INTERTEMPORAL APPROACH José Manuel Campa Angel Gavilán IESE Business School Universiy of Navarra Avda. Pearson, 21 08034

More information

Investor sentiment of lottery stock evidence from the Taiwan stock market

Investor sentiment of lottery stock evidence from the Taiwan stock market Invesmen Managemen and Financial Innovaions Volume 9 Issue 1 Yu-Min Wang (Taiwan) Chun-An Li (Taiwan) Chia-Fei Lin (Taiwan) Invesor senimen of loery sock evidence from he Taiwan sock marke Absrac This

More information

NBER WORKING PAPER SERIES IS THE U.S. CURRENT ACCOUNT DEFICIT SUSTAINABLE? AND IF NOT, HOW COSTLY IS ADJUSTMENT LIKELY TO BE?

NBER WORKING PAPER SERIES IS THE U.S. CURRENT ACCOUNT DEFICIT SUSTAINABLE? AND IF NOT, HOW COSTLY IS ADJUSTMENT LIKELY TO BE? NBER WORKING PAPER SERIES IS THE U.S. CURRENT ACCOUNT DEFICIT SUSTAINABLE? AND IF NOT, HOW COSTLY IS ADJUSTMENT LIKELY TO BE? Sebasian Edwards Working Paper 11541 hp://www.nber.org/papers/w11541 NATIONAL

More information

Glenn P. Jenkins Queen s University, Kingston, Canada and Eastern Mediterranean University, North Cyprus

Glenn P. Jenkins Queen s University, Kingston, Canada and Eastern Mediterranean University, North Cyprus COST-BENEFIT ANALYSIS FOR INVESTMENT DECISIONS, CHAPTER 3: THE FINANCIAL APPRAISAL OF PROJECTS Glenn P. Jenkins Queen s Universiy, Kingson, Canada and Easern Medierranean Universiy, Norh Cyprus Developmen

More information

Estimating Time-Varying Equity Risk Premium The Japanese Stock Market 1980-2012

Estimating Time-Varying Equity Risk Premium The Japanese Stock Market 1980-2012 Norhfield Asia Research Seminar Hong Kong, November 19, 2013 Esimaing Time-Varying Equiy Risk Premium The Japanese Sock Marke 1980-2012 Ibboson Associaes Japan Presiden Kasunari Yamaguchi, PhD/CFA/CMA

More information

Information technology and economic growth in Canada and the U.S.

Information technology and economic growth in Canada and the U.S. Canada U.S. Economic Growh Informaion echnology and economic growh in Canada and he U.S. Informaion and communicaion echnology was he larges conribuor o growh wihin capial services for boh Canada and he

More information

Option Put-Call Parity Relations When the Underlying Security Pays Dividends

Option Put-Call Parity Relations When the Underlying Security Pays Dividends Inernaional Journal of Business and conomics, 26, Vol. 5, No. 3, 225-23 Opion Pu-all Pariy Relaions When he Underlying Securiy Pays Dividends Weiyu Guo Deparmen of Finance, Universiy of Nebraska Omaha,

More information

Fifth Quantitative Impact Study of Solvency II (QIS 5) National guidance on valuation of technical provisions for German SLT health insurance

Fifth Quantitative Impact Study of Solvency II (QIS 5) National guidance on valuation of technical provisions for German SLT health insurance Fifh Quaniaive Impac Sudy of Solvency II (QIS 5) Naional guidance on valuaion of echnical provisions for German SLT healh insurance Conens 1 Inroducion... 2 2 Calculaion of bes-esimae provisions... 3 2.1

More information

International Financial Adjustment

International Financial Adjustment Inernaional Financial Adjusmen Pierre-Olivier Gourinchas Berkeley, CEPR and NBER Hélène Rey Princeon, CEPR and NBER Working Paper Version This Draf: April 3, 2006 Absrac The paper explores he implicaions

More information

Time Series Analysis Using SAS R Part I The Augmented Dickey-Fuller (ADF) Test

Time Series Analysis Using SAS R Part I The Augmented Dickey-Fuller (ADF) Test ABSTRACT Time Series Analysis Using SAS R Par I The Augmened Dickey-Fuller (ADF) Tes By Ismail E. Mohamed The purpose of his series of aricles is o discuss SAS programming echniques specifically designed

More information

Public finance: structural deficit, sensitivity and long-term sustainability

Public finance: structural deficit, sensitivity and long-term sustainability Direzione I STUDY VISIT ALBANIAN MINISTRY OF FINANCE Public finance: srucural defici, sensiiviy and Michele Posigliola Ouline of he presenaion Paricular look a he Ialian Sabiliy and Convergence Programme:

More information

The Interest Rate Risk of Mortgage Loan Portfolio of Banks

The Interest Rate Risk of Mortgage Loan Portfolio of Banks The Ineres Rae Risk of Morgage Loan Porfolio of Banks A Case Sudy of he Hong Kong Marke Jim Wong Hong Kong Moneary Auhoriy Paper presened a he Exper Forum on Advanced Techniques on Sress Tesing: Applicaions

More information

Revisions to Nonfarm Payroll Employment: 1964 to 2011

Revisions to Nonfarm Payroll Employment: 1964 to 2011 Revisions o Nonfarm Payroll Employmen: 1964 o 2011 Tom Sark December 2011 Summary Over recen monhs, he Bureau of Labor Saisics (BLS) has revised upward is iniial esimaes of he monhly change in nonfarm

More information

Do current account balances matter for competitiveness in the Euro Area?

Do current account balances matter for competitiveness in the Euro Area? Preliminary draf, do no quoe wihou he permission of he auhors Do curren accoun balances maer for compeiiveness in he Euro Area? Sefan Collignon* San Anna School of Advanced Sudies Piero Esposio** San Anna

More information

Term Structure of Prices of Asian Options

Term Structure of Prices of Asian Options Term Srucure of Prices of Asian Opions Jirô Akahori, Tsuomu Mikami, Kenji Yasuomi and Teruo Yokoa Dep. of Mahemaical Sciences, Risumeikan Universiy 1-1-1 Nojihigashi, Kusasu, Shiga 525-8577, Japan E-mail:

More information

Chapter 8 Student Lecture Notes 8-1

Chapter 8 Student Lecture Notes 8-1 Chaper Suden Lecure Noes - Chaper Goals QM: Business Saisics Chaper Analyzing and Forecasing -Series Daa Afer compleing his chaper, you should be able o: Idenify he componens presen in a ime series Develop

More information

A Note on Using the Svensson procedure to estimate the risk free rate in corporate valuation

A Note on Using the Svensson procedure to estimate the risk free rate in corporate valuation A Noe on Using he Svensson procedure o esimae he risk free rae in corporae valuaion By Sven Arnold, Alexander Lahmann and Bernhard Schwezler Ocober 2011 1. The risk free ineres rae in corporae valuaion

More information

Title: Who Influences Latin American Stock Market Returns? China versus USA

Title: Who Influences Latin American Stock Market Returns? China versus USA Cenre for Global Finance Working Paper Series (ISSN 2041-1596) Paper Number: 05/10 Tile: Who Influences Lain American Sock Marke Reurns? China versus USA Auhor(s): J.G. Garza-García; M.E. Vera-Juárez Cenre

More information

CEEP-BIT WORKING PAPER SERIES. The crude oil market and the gold market: Evidence for cointegration, causality and price discovery

CEEP-BIT WORKING PAPER SERIES. The crude oil market and the gold market: Evidence for cointegration, causality and price discovery CEEP-BIT WORKING PAPER SERIES The crude oil marke and he gold marke: Evidence for coinegraion, causaliy and price discovery Yue-Jun Zhang Yi-Ming Wei Working Paper 5 hp://www.ceep.ne.cn/english/publicaions/wp/

More information

JEL classifications: Q43;E44 Keywords: Oil shocks, Stock market reaction.

JEL classifications: Q43;E44 Keywords: Oil shocks, Stock market reaction. Applied Economerics and Inernaional Developmen. AEID.Vol. 5-3 (5) EFFECT OF OIL PRICE SHOCKS IN THE U.S. FOR 1985-4 USING VAR, MIXED DYNAMIC AND GRANGER CAUSALITY APPROACHES AL-RJOUB, Samer AM * Absrac

More information

Internal and External Factors for Credit Growth in Macao

Internal and External Factors for Credit Growth in Macao Inernal and Exernal Facors for Credi Growh in Macao Nicholas Cheang Research and Saisics Deparmen, Moneary Auhoriy of Macao Absrac Commercial banks are dominan eniies in he Macao financial secor. They

More information

Debt Relief and Fiscal Sustainability for HIPCs *

Debt Relief and Fiscal Sustainability for HIPCs * Deb Relief and Fiscal Susainabiliy for HIPCs * Craig Burnside and Domenico Fanizza December 24 Absrac The enhanced HIPC iniiaive is disinguished from previous deb relief programs by is condiionaliy ha

More information

Table of contents Chapter 1 Interest rates and factors Chapter 2 Level annuities Chapter 3 Varying annuities

Table of contents Chapter 1 Interest rates and factors Chapter 2 Level annuities Chapter 3 Varying annuities Table of conens Chaper 1 Ineres raes and facors 1 1.1 Ineres 2 1.2 Simple ineres 4 1.3 Compound ineres 6 1.4 Accumulaed value 10 1.5 Presen value 11 1.6 Rae of discoun 13 1.7 Consan force of ineres 17

More information

Determinants of Bank Long-term Lending Behavior in the Central African Economic and Monetary Community (CEMAC)

Determinants of Bank Long-term Lending Behavior in the Central African Economic and Monetary Community (CEMAC) Review of Economics & Finance Submied on 05/Jan./2012 Aricle ID: 1923-7529-2012-02-107-08 Consan, Fouopi Djiogap and Augusin Ngomsi Deerminans of Bank Long-erm Lending Behavior in he Cenral African Economic

More information

Monetary Policy & Real Estate Investment Trusts *

Monetary Policy & Real Estate Investment Trusts * Moneary Policy & Real Esae Invesmen Truss * Don Bredin, Universiy College Dublin, Gerard O Reilly, Cenral Bank and Financial Services Auhoriy of Ireland & Simon Sevenson, Cass Business School, Ciy Universiy

More information

The Economic Value of Medical Research

The Economic Value of Medical Research The Economic Value of Medical Research Kevin M. Murphy Rober Topel Universiy of Chicago Universiy of Chicago March 1998 Revised Sepember, 1999 Absrac Basic research is a public good, for which social reurns

More information

MALAYSIAN FOREIGN DIRECT INVESTMENT AND GROWTH: DOES STABILITY MATTER? Jarita Duasa 1

MALAYSIAN FOREIGN DIRECT INVESTMENT AND GROWTH: DOES STABILITY MATTER? Jarita Duasa 1 Journal of Economic Cooperaion, 8, (007), 83-98 MALAYSIAN FOREIGN DIRECT INVESTMENT AND GROWTH: DOES STABILITY MATTER? Jaria Duasa 1 The objecive of he paper is wofold. Firs, is o examine causal relaionship

More information

Multiple Structural Breaks in the Nominal Interest Rate and Inflation in Canada and the United States

Multiple Structural Breaks in the Nominal Interest Rate and Inflation in Canada and the United States Deparmen of Economics Discussion Paper 00-07 Muliple Srucural Breaks in he Nominal Ineres Rae and Inflaion in Canada and he Unied Saes Frank J. Akins, Universiy of Calgary Preliminary Draf February, 00

More information

What is a swap? A swap is a contract between two counter-parties who agree to exchange a stream of payments over an agreed period of several years.

What is a swap? A swap is a contract between two counter-parties who agree to exchange a stream of payments over an agreed period of several years. Currency swaps Wha is a swap? A swap is a conrac beween wo couner-paries who agree o exchange a sream of paymens over an agreed period of several years. Types of swap equiy swaps (or equiy-index-linked

More information

Chapter 9 Bond Prices and Yield

Chapter 9 Bond Prices and Yield Chaper 9 Bond Prices and Yield Deb Classes: Paymen ype A securiy obligaing issuer o pay ineress and principal o he holder on specified daes, Coupon rae or ineres rae, e.g. 4%, 5 3/4%, ec. Face, par value

More information

Finance and Economics Discussion Series Divisions of Research & Statistics and Monetary Affairs Federal Reserve Board, Washington, D.C.

Finance and Economics Discussion Series Divisions of Research & Statistics and Monetary Affairs Federal Reserve Board, Washington, D.C. Finance and Economics Discussion Series Divisions of Research & Saisics and Moneary Affairs Federal Reserve Board, Washingon, D.C. The Effecs of Unemploymen Benefis on Unemploymen and Labor Force Paricipaion:

More information

A One-Sector Neoclassical Growth Model with Endogenous Retirement. By Kiminori Matsuyama. Final Manuscript. Abstract

A One-Sector Neoclassical Growth Model with Endogenous Retirement. By Kiminori Matsuyama. Final Manuscript. Abstract A One-Secor Neoclassical Growh Model wih Endogenous Reiremen By Kiminori Masuyama Final Manuscrip Absrac This paper exends Diamond s OG model by allowing he agens o make he reiremen decision. Earning a

More information

Applied Econometrics and International Development Vol. 10-2 (2010) mail: idiluz@yeditepe.edu.tr

Applied Econometrics and International Development Vol. 10-2 (2010) mail: idiluz@yeditepe.edu.tr Applied Economerics and Inernaional Developmen Vol. 10-2 (2010) DETERMINANTS OF CURRENT ACCOUNT: THE RELATION BETWEEN INTERNAL AND EXTERNAL BALANCES IN TURKEY UZ, Idil 1 Absrac This paper considers he

More information

Faculdade de Economia da Universidade de Coimbra

Faculdade de Economia da Universidade de Coimbra Faculdade de Economia da Universidade de Coimbra Grupo de Esudos Moneários e Financeiros (GEMF) Av. Dias da Silva, 165 3004-512 COIMBRA, PORTUGAL gemf@fe.uc.p hp://gemf.fe.uc.p MICAELA ANTUNES & ELIAS

More information

Chapter 4: Exponential and Logarithmic Functions

Chapter 4: Exponential and Logarithmic Functions Chaper 4: Eponenial and Logarihmic Funcions Secion 4.1 Eponenial Funcions... 15 Secion 4. Graphs of Eponenial Funcions... 3 Secion 4.3 Logarihmic Funcions... 4 Secion 4.4 Logarihmic Properies... 53 Secion

More information

Factors Affecting Initial Enrollment Intensity: Part-Time versus Full-Time Enrollment

Factors Affecting Initial Enrollment Intensity: Part-Time versus Full-Time Enrollment acors Affecing Iniial Enrollmen Inensiy: ar-time versus ull-time Enrollmen By Leslie S. Sraon Associae rofessor Dennis M. O Toole Associae rofessor James N. Wezel rofessor Deparmen of Economics Virginia

More information

UNDERSTANDING THE DEATH BENEFIT SWITCH OPTION IN UNIVERSAL LIFE POLICIES. Nadine Gatzert

UNDERSTANDING THE DEATH BENEFIT SWITCH OPTION IN UNIVERSAL LIFE POLICIES. Nadine Gatzert UNDERSTANDING THE DEATH BENEFIT SWITCH OPTION IN UNIVERSAL LIFE POLICIES Nadine Gazer Conac (has changed since iniial submission): Chair for Insurance Managemen Universiy of Erlangen-Nuremberg Lange Gasse

More information

Double Entry System of Accounting

Double Entry System of Accounting CHAPTER 2 Double Enry Sysem of Accouning Sysem of Accouning \ The following are he main sysem of accouning for recording he business ransacions: (a) Cash Sysem of Accouning. (b) Mercanile or Accrual Sysem

More information

Journal Of Business & Economics Research September 2005 Volume 3, Number 9

Journal Of Business & Economics Research September 2005 Volume 3, Number 9 Opion Pricing And Mone Carlo Simulaions George M. Jabbour, (Email: jabbour@gwu.edu), George Washingon Universiy Yi-Kang Liu, (yikang@gwu.edu), George Washingon Universiy ABSTRACT The advanage of Mone Carlo

More information

Hiring as Investment Behavior

Hiring as Investment Behavior Review of Economic Dynamics 3, 486522 Ž 2000. doi:10.1006redy.1999.0084, available online a hp:www.idealibrary.com on Hiring as Invesmen Behavior Eran Yashiv 1 The Eian Berglas School of Economics, Tel

More information