Heather D. Gibson

The scope and limits of financial liberalisation in developing countries: A critical survey

This article reviews the growing literature on financial reform in developing countries. We draw both on the theoretical contributions outlining the case for and against liberalisation as well as on the experience of many developing countries with liberalisation. We argue that the existence of market failures in financial markets hampers the liberalisation process and indeed suggests that the simple liberalising strategy envisaged in much of the literature is inappropriate. We argue instead for an alternative strategy which integrates some aspects of liberalisation with the development of appropriate financial institutions designed to serve best the needs of the real economy.

Business Cycle Correspondence in the European Union

This paper examines whether there exists a close correspondence in the business cycles of the EU economies. We focus on the timing and magnitude of business cycles and propose criteria for defining close correspondence. We suggest that any correspondence that does exist is confined to the EU core and that, contrary to some of the existing literature, there exists a clear core-periphery distinction. This makes us less optimistic about the prospects for EMU if it is not accompanied by institutional arrangements that take into account the differences between EU economies.

Takeover risk and the market for corporate control: the experience of British firms in the 1970s and 1980s

Abstract This paper investigates the determinants of takeovers in a large sample of UK quoted companies. We focus on the channels through which the market for corporate control monitors company performance and discretionary managerial behaviour. Our results are consistent with the view that the market for corporate control disciplines poorly performing companies, and suggest that this effect is quantitatively important: a one standard deviation increase in profitability is associated with a fall in the conditional probability of takeover of 25%. However, we find no evidence that firms without apparent profitable investment opportunities are more likely to be taken over if managers increase investment or reduce dividends, contrary to the predictions of the free-cash-flow theory of takeovers.

Takeover Risk and Dividend Strategy: A Study of UK Firms

The authors investigate the relationship between a companys dividend strategy and its risk of takeover. Their results from a large panel of U.K. quoted companies suggest that higher dividend payments are associated with a significantly lower conditional probability (hazard) of takeover. Moreover, firms that wish to avoid takeover would be better to distribute the marginal L1 of earnings in dividends rather than investing it in the company. The authors consider two explanations for these findings. They suggest that the presence of an active market for corporate control could encourage firms to raise dividends to maintain shareholder loyalty. Copyright 1998 by Blackwell Publishing Ltd

Leading inflation indicators for Greece

Abstract This paper investigates whether leading indicators of inflation can be found for the Greek economy since this can help identify turning points in inflation. This is of great importance for Greece since the prime concern of current monetary policy is to reduce inflation and to stabilise it at low levels so as to meet the relevant Maastricht criterion. The underlying assumption is that inflation, like output, is cyclical, with peaks and troughs defining clear inflation cycles. Using the methodology initially established by Burns and Mitchell (1946, Measuring Business Cycles, Columbia University Press) for identifying peaks and troughs in the business cycle, we develop individual leading indicators as well as composite indices for inflation. We also assess their usefulness in ‘predicting’ downswings and upswings of inflation.

The Balance Sheet Channel of Monetary Policy Transmission: Evidence from the United Kingdom

This paper examines the cash flow sensitivity of investment using a panel of UK manufacturing firms to investigate the existence of a balance sheet channel. In addition to examining the impact of cash flow in different subsamples based on company size or financial policy, we investigate the extent to which investment becomes more sensitive to cash flow in periods of monetary tightness by employing a narrative indicator constructed for the United Kingdom. The results indicate that cash flow sensitivity in financially constrained firms is higher during periods of tight monetary policy and that financial constraints weaken with financial market sophistication.

European Monetary Union and Macroeconomic Policy in Southern Europe: the Case for Positive Integration

This paper discusses the prospects of Greece, Portugal and Spain completing stage 1 of the Delors plan. Much of the academic literature on the removal of capital controls seeks to extend the experience of the ERM countries in the 1980s. We argue that its applicability for southern Europe is not straightforward, because these countries have not had the same experience of operating the ‘old’ ERM with capital controls, and examine the implications for these countries of removing capital controls for macroeconomic, and especially, fiscal policy. Intermediate institutional arrangements may be necessary and we consider how EC-wide measures may help these countries in this transitional phase. For the next phase of European integration, the focus of the EC should be on developing appropriate public institutions at the European level to promote positive integration.

Financial conditions and economic activity: the potential impact of the targeted long-term refinancing operations (TLTROs)

Abstract This article explores the relationship between financial conditions and real economic activity in the euro area as a whole and for Greece in particular. We use a financial conditions index (see Angelopoulou et al. 2014) which is constructed using a wide range of prices, quantities, spreads and survey data in line with theory. We update the indices and use them within a VAR framework to estimate the potential impact of the targeted long-term refinancing operations (TLTROs) on aspects of economic activity. Our results suggest that financial conditions do have a significant effect on economic activity, and thus the TLTROs, to the extent that they are designed to improve financial conditions, will provide a boost to the real economy.

Economic Theory and the Limits to Financial Liberalization: Domestic Financial Liberalization in Greece, Portugal and Spain

In the post-war era, moves towards domestic financial liberalization began in the 1970s and took place in a variety of countries with different levels of economic and financial development. An early example is the UK, which in 1970–1 undertook a series of measures aimed at increasing competition in the banking industry. In the 1970s and early 1980s, a number of Latin American countries, such as Chile, Argentina and Uruguay, liberalized their financial markets, albeit without much success. Spain started to liberalize in the 1970s while Greece and Portugal followed suit in the 1980s.

Deindustrialisation and the Balance of Payments

Over the last three decades, the United Kingdom has been experiencing a severe process of deindustrialisation measured by the relative and absolute loss of jobs in industry. A relative decline in the share of industrial employment in total employment has been a common occurrence in other advanced industrialised countries but the absolute loss of jobs in the UK started sooner, and has been more severe, than anywhere else in the world. Industrial employment peaked in 1966 and since then four million jobs have been lost in manufacturing and nearly five million in industry (which includes mining, construction and public utilities). In 1966, the level of industrial employment was 11.5 million, today it is 6.6 million; the level of manufacturing employment was 9.1 million, today it is 5.1 million. All industries have been affected and all regions of the country. By contrast, in countries such as Canada, the USA, Japan and Italy, manufacturing employment was increasing in the 1960s, 1970s and 1980s. Belgium, France, Germany and Holland have experienced job losses in industry, but not to the extent of the UK. A comparison of the experience of the OECD countries in recent years is shown in Table 15.1.