D M Nachane

Wages and Prices in Europe: A Test of the German Leadership Thesis

ZusammenfassungLöhne und Preise in Europa. Ein Test der These von der Vorherrschaft der Bundesrepublik. — Die Autoren prüfen die These, da\ das EuropÄische WÄhrungssystem (EWS) der Bundesrepublik zur Führung bei der InflationsbekÄmpfung verhalf. Dabei werden zwei AnsÄtze verwendet. Bei dem ersten wird die Bedeutung der deutschen Inflationserwartungen für die Erwartungen in anderen EWS-LÄndern untersucht, beim zweiten die Kointegration zwischen der Inflation in Deutschland und der in anderen EWS-LÄndern. Zur Kontrolle werden einerseits die Daten aus der Zeit vor Errichtung des EWS verwendet und andererseits die Daten des Vereinigten Königreichs, das am Wechselkursmechanismus des EWS nicht partizipierte. Die Ergebnisse sind zwar in mancher Hinsicht günstig, können aber nicht endgültig eine deutsche Führungsrolle im EWS bestÄtigen. Mit Hilfe der Kointegrationstechniken wird au\erdem gezeigt, da\ die KaufkraftparitÄt für das EWS nicht kennzeichnend war.RésuméLes revenus et les prix en Europe: Un test de la thèse de la prédominance allemande. — Cette étude a l’intention de vérifier la thèse que le système monétaire européen (SME) a fait se former la prédominance allemande dans la lutte contre l’inflation. Il y a deux tests. D’abord, on a examiné l’importance des expectations de l’inflation allemande pour les expectations aux autres pays du SME, puis on a examiné la cointégration de l’inflation en RFA avec celle aux autres pays. On emploie deux systèmes de contrÔle: les données avant la fondation du SME et les données pour la Grande Bretagne qui n’a pas été membre du SME. Les résultats étant favorables à beaucoup d’autres aspects ne peuvent pas confirmer le rÔle prédominant de la RFA dans le SME. En utilisant des techniques de cointégration on a aussi trouvé que la parité du pouvoir d’achat n’a pas caractérisé le SME.ResumenSalarios y precios en Europa : un test de la tesis del lidemgo alemán. — En este trabajo se examina la tesis que el Sistema Monetario Europeo (SME) constituye un vehículo para el liderazgo alemán en materia de política antiinflacionaria. Se emplean dos enfoques. En uno de ellos se estudia la relevancia de las expectativas inflacionarias en Alemania para las expectativas en otros países miembros del SME, en el otro se examina empirícamente la cointegraciÔn entre la inflatión en Alemania y la de otros países del SME. Para ello se utilizan dos controles: datos para el período anterior al SME y datos para el Reino Unido, país no miembro del SME. Los resultados, si bien favorables en relatión a ciertos aspectos, no confÏrman en Última instancia la tesis del liderazgo alemân en el SME. Asimismo, se demuestra que, utilizando técnicas de cointegración, el SME no está caracterizado por la paridad del poder de compra.

An Empirical Analysis of the Off-Balance Sheet Activities of Indian Banks

The article traces the determinants of off-balance sheet activities in the Indian banking sector. Using data for the period 1996 to 2004, the article finds that not only regulatory factors, but also market forces captured by banks-specific characteristics and macro-economic conditions are at work in the diffusion pattern of off-balance sheet (OBS) activities. From the regulatory standpoint, while capital adequacy is dominant in the case of public sector banks, non-performing assets seem to he a prime concern for foreign banks, in addition to public sector banks. Among others, at the bank-specific level, size is an important consideration for public sector and foreign banks, while profits are a prime mover only for new private banks. Finally, the macro-economic environment seems to have played an important role in affecting OBS diffusion, more so for public sector and new private banks.

India's trade balance in the 1980s an econometric analysis

The paper is an examination of Indias trade balance in the 1980s. The approach attempted is of examining the bilateral trade balances of India with nine trading partners from the non-communist bloc. The long-run equilibrium relations are studied via two VAR models in Johansens multivariate cointegration framework. Five hypotheses of interest are singled out for attention. The nominal and real exchange rates consistently emerge as important influences on the trade balance. However, as the exchange rates fail weak exogeneity tests, policy implications are not clear cut.

Trend and cyclical decoupling: new estimates based on spectral causality tests and wavelet correlations

The issue of decoupling of emerging market economies (EMEs) (especially in the Asian region) from the developments in advanced economies has become a subject of lively debate in recent years. Basically, decoupling seems to comprise three sub-hypotheses: (i) growth spillovers from advanced countries to EMEs decreasing progressively in importance, (ii) business cycles in EMEs becoming less synchronized with those of the advanced world and (iii) strengthening of growth spillovers and cyclical synchronization among the EMEs as a group. The received literature fails to distinguish adequately between the trend and cyclical aspects of the decoupling relationship. We resort to two frequency domain methods (nonstationary spectral causality testing and wavelet correlations), which seem to offer a neat separation of trend and cyclical decoupling. Based on a sample of seven EMEs from the Asian region (including the two large EMEs – China and India), we uncover strong evidence favouring both trend and cyclical decoupling.

Harmonic Regression Models: A Comparative Review with Applications

Strongly periodic series occur frequently in many disciplines. This paper reviews one specific approach to analyzing such series viz. the harmonic regression approach. In this paper the five major methods suggested under this approach are critically reviewed and compared, and their empirical potential highlighted via two applications. The out-of-sample forecast comparisons are made using the Superior Predictive Ability test, which specifically guards against the perils of data snooping. Certain tentative conclusions are drawn regarding the relative forecasting ability of the different methods.

Forecasting interest rates: a comparative assessment of some second-generation nonlinear models

Modeling and forecasting of interest rates has traditionally proceeded in the framework of linear stationary methods such as ARMA and VAR, but only with moderate success. We examine here three methods, which account for several specific features of the real world asset prices such as nonstationarity and nonlinearity. Our three candidate methods are based, respectively, on a combined wavelet artificial neural network (WANN) analysis, a mixed spectrum (MS) analysis and nonlinear ARMA models with Fourier coefficients (FNLARMA). These models are applied to weekly data on interest rates in India and their forecasting performance is evaluated vis-à-vis three GARCH models [GARCH (1,1), GARCH-M (1,1) and EGARCH (1,1)] as well as the random walk model. Both the WANN and MS methods show marked improvement over other benchmark models, and may thus hold out several potentials for real world modeling and forecasting of financial data.

CREDIT RATING AND BANK BEHAVIOUR IN INDIA: POSSIBLE IMPLICATIONS OF THE NEW BASEL ACCORD

The paper examines the impact of credit rating on capital adequacy ratios of Indian state-owned banks using quarterly data for the period 1997:1 to 2002:4. To this end, a multinomial logit model with multi credit rating indicators as dependent variable is estimated. The variables that can impinge upon capital adequacy ratio have been used as explanatory variables. Two separate models — one for long-term credit rating and another for short-term credit rating — have been estimated. The paper concludes that, both for short-term as well as for long-term ratings, capital adequacy ratios are an important factor impinging on credit rating of Indian state-owned banks.

Dynamic stochastic general equilibrium (DSGE) modelling in practice: identification, estimation and evaluation

ABSTRACT In recent years, dynamic stochastic general equilibrium (DSGE) models have come to play an increasing role in central banks, as an aid in the formulation of monetary policy (and increasingly after the global crisis, for maintaining financial stability). DSGE models, compared to other widely prevalent econometric models (such as vector autoregressive or large-scale econometric models), are less a-theoretic and with secure micro-foundations based on the optimizing behaviour of rational economic agents. Additionally, the models in spite of being strongly tied to theory, can be ‘taken to the data’ in a meaningful way. A major feature of these models is that their theoretical underpinnings lie in what has now come to be called as the New Consensus Macroeconomics (NCM). This paper concentrates on the econometric structure underpinning such models. Identification, estimation and evaluation issues are discussed at length with a special emphasis on the role of Bayesian maximum likelihood methods.

Methodology of the Social Sciences in the Age of Complexity: Unity, Autonomy or Integration?:

The principle of ‘unity of sciences’ (comprising natural, social and human sciences) has a long history. While the term ‘unity’ lends itself to various interpretations, in recent years it is generally understood as ‘methodological unity’. In opposition to the ‘unity’ viewpoint, several social scientists have argued for the methodological autonomy of social sciences. This article attempts to analyze the reasons behind the triumph of the ‘unity’ principle around the 1960s, and how it ushered in an era of formalism in social sciences, especially economics. Dissatisfaction with formalism, in general, and Bourbakism, in particular, in recent years has prompted the search for alternative methodologies in the social sciences, with complexity theory offering much promise. JEL: A12, B41

Global Crisis, Financial Institutions and Reforms: An Indian Perspective

The relationship between finance and economic growth has witnessed a lively controversy and sharp divisions among schools of economic thought. However, even within the broad consensus recognizing the role of financial systems for economic development, important areas of disagreement persist, viz. the type of financial system most conducive to growth, private versus public ownership of financial institutions, the degree of regulation and supervision, the role of financial innovations and the pace and extent of financial liberalization. The Latin American crises of the 1980s and 1990s, the Asian financial crisis and the current global recession have once again brought the critical role of financial institutions under the scanner and introduced some important caveats to the consensus. The present chapter aims to take stock of some of these issues in the Indian context. While it is certainly not being claimed that the Indian experience is representative of the entire South Asian region, it is nevertheless felt that some of the lessons drawn here would have some relevance transcending their immediate context.