Basant K. Kapur

Alternative Stabilization Policies for Less-developed Economies

This paper presents a model of price stabilization applicable to less-developed economies. Distinctive features of the model are: (i) its explicit incorporation of a commercial banking system, (ii) its specification that the actual rate of inflation depends on inflationary expectations and on excess demand for output, and (iii) endogeneity of the growth rate of real output. Numerical simulations are also conducted. We demonstrate that stabilization through an initial increase in the average nominal interest rate paid on money holdings has significantly more favorable short-run effects on real output than does stabilization through an initial reduction in the rate of monetary expansion.

Formal and informal financial markets, and the neo-structuralist critique of the financial liberalization strategy in less developed countries

Abstract The neo-structuralist critique of the McKinnon–Shaw financial liberalization prescription rests fundamentally on the consideration that formal financial intermediaries have significantly higher reserve ratios than informal ones. However, the economic functions served by these reserves - in terms of ‘liquidity enhancement’ and ‘seignorage creation’ - are ignored. Incorporation of the latter function into the analysis leads to the complete neutralisation of the neo-structuralist critique, and incorporation of the former function produces the result that a financial liberalization is unambiguously welfare-increasing. Our optimizing framework also points up an important deficiency in neo-structuralist modelling of substitutions by asset-holders between formal-and informal-sector financial instruments.

Optimal Financial and Foreign-Exchange Liberalization of Less Developed Economies

This paper models a typical highly inflationary less developed economy, in which monetary forces are the result of three policy determinants: the rate of monetary expansion (µ), the interest rate on bank deposits (d), and the rate of depreciation of the real exchange rate (A…). The task confronting policy-makers is to reduce the equilibrium inflation rate without undue transitional sacrifice of the growth objective. We demonstrate that this optimally requires the precise coordination of all three instruments, with high but declining values of d and µ being adopted initially, and with A… being modulated so as to forestall excessive capital inflows and to influence favorably the evolution of relative input prices.

A short-term analytical model of the Singapore economy

Abstract The rapid economic transformation of the ‘newly industrializing countries’ has aroused considerable interest in their economic structure and functioning. This paper contributes to the discussion by seeking to anatomise the Singapore economy. The economys dynamism is reflected by the fact that, although our model is a short-term one, capital investment, both foreign and domestic, plays a central role in it. The model is also characterized by a novel specification of the export function, the inclusion of non-traded goods and of a sectorally segmented labor market, and a fairly comprehensive treatment of the financial system. The general equilibrium response of the model to various parameter shifts is investigated, and the factors responsible for the economys rapid development thereby elucidated.

Can faster income growth reduce well-being?

In his book Luxury Fever: Why Money Fails to Satisfy in an Era of Excess (1999) economist Robert Frank describes a number of significant trends in the U.S., and to a lesser extent in other industrial economies, since the late 1970s: rapidly rising incomes, for those at the upper end of the income scale, increasing hours of work, and increased consumerism (share of consumption of ‘status goods’). We demonstrate that the first development can parsimoniously account for the latter two. Our novel specification of the utility function simultaneously incorporates a relative-consumption effect for status goods and non-homotheticity of preferences between status and non-status goods, and we also allow for endogenous labour–leisure choice. It is possible that well-being has declined, notwithstanding the faster income growth, or at least not risen pari passu with the growth in earnings. Comparisons are made with other studies, and policy implications briefly discussed.

Problems of indexation in financially liberalized less developed economies

Abstract This paper constructs a short-run, dynamic model of a newly-liberalized less developed economy, and uses it to examine the policy options with respect to the indexation of key macro-economic variables. It concludes that ‘full indexation’ of the exchange rate, wage rate, and deposit rate of interest is likely to prove dynamically beneficial to the economy, provided that at the same time the monetary base is manipulated so as to maintain steady-state price stability.

Inflation and financial deepening: Comment

Abstract In a recent paper, Moore (1986) has criticized McKinnons (1976) analysis of the relationship between a countrys savings propensities and its money-income ratio on both logical and empirical grounds, and has proposed an alternative treatment. We argue here that Moores critique and proposed alternative, while containing useful insights, are theoretically and empirically problematic, and we propose a synthesis of McKinnons and Moores treatments. We also develop a simple growth model, based upon our synthesis, which is shown to generate certain significant implications for the neo-structuralist critique of the McKinnon-Shaw financial liberalization prescription.

The Role of Financial Institutions in Economic — Development — a Theoretical Analysis

The endemic ‘fragmentation’ of financial markets in less-developed countries (LDCs) is by now a widely documented fact.1 The phenomenon owes its origin primarily to governmental policies which foster the development of certain ‘priority’ sectors in the economy through the liberal provision of highly subsidised bank credit to them. Since a large portion of the available supply of credit is absorbed by these sectors, only a limited volume remains available for allocation to the remaining sectors of the economy, which are perforce constrained to pay much higher rates of interest on whatever loans are provided to them. The resultant wide dispersion in interest rates charged on bank loans, simply on account of differences in the sectoral allocation of these loans, constitutes the essence of the phenomenon of financial fragmentation.

Altruistic Reveries: Perspectives from the Humanities and Social Sciences

1 Introduction.- 2 Altruism and Its Limits.- 3 Mencius and the Possibility of Altruism in Early Chinese Philosophy.- 4 Altruism as the Condition of Subjectivity.- 5 Altruism, Risk and Sibling Rivalry.- 6 Empathy and Helping.- 7 Altruism or Social Exchange?.- 8 Economic Consequences of Altruism.- 9 Charitable Giving by Individuals: An Empirical Perspective.- 10 Altruism in Wartime: Self, and Others.- 11 The Classical Origins of Modern Altruism in Platos Dialogues.- 12 Conclusion.