Alex Mourmouras

Managing financial crises: the experience in East Asia

The Asian financial crisis of 1997-98 was one of the most dramatic economic events of recent times, which raised many questions regarding the appropriate policy response to financial crises. This paper reviews the experience of this crisis, focusing on the overall strategy of crisis management and the way that strategy was implemented, including with regard to official and private financing, structural reforms, and monetary and fiscal policies.

Capital Flows to Transition Economies: Master or Servant?

This paper discusses the forces driving capital flows in the transition countries of Central and Eastern Europe (CEE). It argues that various influences – specifically, the real exchange rate history and trend and the factor intensity of production – can combine to motivate very large capital inflows. These inflows can either undermine attempts at monetary restraint or force excessive appreciations. They can also render the economy highly vulnerable to shifts in market sentiment. The policy implications of the analysis are awkward: exposure to global capital markets sets up difficult dilemmas for policy and leads to vulnerabilities that can be reduced but not eliminated.

Conservationist government policies and intergenerational equity in an overlapping generations model with renewable resources

Abstract This paper shows that in overlapping generations models incorporating renewable natural resources, competition may lead to perpetually declining living standards in environments in which it is technically feasible to achieve intergenerationally equitable distributions of consumption. First- and second-best conservationist government policies are examined. These include forced nationalization of the entire stock of natural capital, government open market purchases and sales of natural capital, taxation of industrial use of resources, and subsidies to private investments in natural capital.

Vested Interests in a Positive Theory of IFI Conditionality

Understanding of the domestic political environment is key to building broad country ownership and the successful implementation of reform programs supported by international financial institutions (IFIs). But recipient countries are not unitary actors: policymakers are influenced by special interest groups (SIGs) opposing reforms, leading to distorted policies. Using a new model of the financial relations between a benevolent IFI and a sovereign borrower subject to influence by SIGs, we analyze the determinants and welfare impacts of conditional and unconditional assistance. While conditionality may raise IFI welfare, economize on the amount of assistance, and lower domestic distortions, it may not always raise recipient country welfare. Recipient governments are always better off if assistance is provided unconditionally.

Institutions, Program Implementation, and Macroeconomic Performance

This paper assesses empirically the links among a countrys institutions and political environment, its implementation of IMF-supported programs, and macroeconomic performance in a sample of 197 programs approved between 1992 and 2002. We find that a stronger institutional and political environment is associated with better macroeconomic outcomes, especially at longer time horizons. This direct beneficial effect of institutions on macroeconomic outcomes is in addition to their indirect effect through better program implementation. We also find that program implementation exerts an independent influence on macroeconomic outcomes, especially over shorter time horizons of up to two years. Better-implemented programs are associated with lower inflation and with initially weaker but ultimately stronger external and fiscal outcomes, but with a statistically insignificant impact on economic growth.

Optimal reserve requirements, deposit taxation, and the demand for money

Abstract We study welfare and equivalence relationships between two schemes for financing a recurrent real expenditure: reserve-requirement-augmented seigniorage (RRS) and seigniorage deposit tax combinations (SD). The model we employ includes overlapping generations, fiat currency, and a risky physical asset. Its implications depend critically on whether it is specified so as to be ‘diversifying’ - so that fiat currency has value when the expenditure is financed via optimal taxation of asset returns. If the specification is diversifying, RRS is broadly equivalent to SD, and an interior reserve ratio can be part of an optimal financing scheme. If it is not, the best RRS scheme involves an extreme reserve ratio, produces a hyperinflation, and is Pareto-dominated by a pure deposit tax scheme.

Conditional Lending Under Altruism

We analyze how the altruism of an international financial institution (IFI) towards its lowincome member countries (LICs) alters the effectiveness of its loans. We study IFI loans to a credit-constrained LIC. The IFIs repayment policy is determined by the interplay of its concerns for the welfare of the loan recipient and its fiduciary responsibilities to creditor countries. If the IFI is unable to commit to repayment terms in advance, conditional loans are superior to unconditional loans. Thus, IFI altruism and the inability to commit are sufficient reasons to equip loans with conditions. Conditional loans produce an efficient allocation of resources, so altruism is not a fundamental reason that loans fail to increase welfare.

Economic growth and development : a dynamic dual economy approach

Overview.- Part I. Introduction to Economic Growth.- Neoclassical Growth Theory.- Extensions to Neoclassical Growth Theory.- Two Sector.- Growth Models.- Part II. Dual Economies.- Wage and Fertility Gaps in Dual Economies.- Physical Capital in Dual Economies.- A Complete Dual.- Economy.- Urbanization.- Conclusion.

ASEAN Financial Integration

The establishment of the ASEAN Economic Community (AEC) at end-2015 has brought into sharp focus the issue of financial and economic integration in the region. This paper takes stock of ASEAN’s financial integration and prospects. ASEAN integration could accelerate in the years ahead; it will likely be a safe, gradual process consistent with the “ASEAN way” of consensus decision-making. Properly phased and sequenced, closer financial integration has the potential to help increase real incomes and accelerate real convergence within ASEAN and narrow the region’s gap with advanced Asia. Realizing the promise of financial integration will require ASEAN countries to make long-term investments in financial infrastructure. Policymakers can draw on the experience of their more advanced peers and of other regions. Gradualism and safeguards should not be excuses for inaction or financial protectionism. Reliance on flexible policy frameworks and a strengthened and tested regional financial safety net should be part of the agenda. Closer engagement with the Fund could also help.

The Political Economy of Conditional and Unconditional Foreign Assistance; Grants vs. Loan Rollovers

Improving the effectiveness of financial assistance programs is a priority of international financial institutions (IFIs). This paper examines the effectiveness of alternative assistance instruments in a dynamic political economy framework. Economic policies of the receiving country are distorted by the influence of a domestic interest group. The assistance-providing IFI aims at reducing these distortions. The IFI provides assistance either as grants or loans, and either conditionally on reducing policy distortions or unconditionally. The paper shows that, other things constant, one-time grants are more effective than loan rollovers when assistance is unconditional, but that the opposite is true when assistance is conditional.