Joseph P. Joyce

Financial Globalization and Banking Crises In Emerging Markets

Bank crises in emerging economies have been a feature of the recent global crisis, and their incidence has increased in the post-Bretton Woods era. This paper investigates the impact of financial globalization on the incidence of systemic bank crises in 20 emerging markets over the years 1976–2002 using measures of de facto and de jure financial openness. An increase in foreign debt liabilities contributes to an increase in the incidence of crises, but foreign direct investment and portfolio equity liabilities have the opposite effect. A more liberal de jure capital regime lowers the incidence of banking crises, while a regime of fixed exchange rates increases their frequency. The results of the econometric analysis is consistent with the experience of East European and central Asian emerging markets, which attracted a relatively large proportion of capital flows in the form of debt in recent years and have been particularly hard hit by the global financial crisis.

Money, income and prices under fixed exchange rates: Evidence from causality tests and VARs

This paper investigates the impact of changes in monetary variables on the domestic and foreign sectors, the determinants of central bank policy, and the response to foreign monetary changes in Mexico and India. Multivariate Granger-causality tests, variance decompositions and impulse response functions are utilized to examine propositions regarding causal relationships among key economic variables. The results indicate that domestic monetary policy did not affect output in either country. A substantial balance of payments offset to changes in domestic credit was found in India, but not for Mexico. The Mexican central bank pursued an accommodative monetary policy, but did not sterilize. In India, the central bank sterilized, but did not respond to income or price fluctuations. Output responded in each country to changes in foreign money.

The IMF and the Liberalization of Capital Flows

Using data from a panel of developing economies from the 1982-98 period, the claim that the International Monetary Fund precipitated financial crises during the 1990s by pressuring countries to liberalize their capital accounts prematurely is evaluated. Examining whether the changes in the regime governing capital flows took place during participation in IMF programs, evidence finds that IMF program participation is correlated with capital account liberalization episodes during the 1990s. Alternative indicators of capital account openness were used to test the robustness of the results by comparing the economic and financial characteristics of countries that decontrolled during IMF programs with those of countries who did so independently to determine whether decontrol was premature.

Real and nominal determinants of real exchange rates in Latin America: Short-run dynamics and long-run equilibrium

This article analyses the factors that determine the long-run real exchange rate in Argentina, Colombia and Mexico, distinguishing between real and nominal determinants. Cointegration analysis is utilised to establish that the real exchange rate has an equilibrium relationship with real variables (the terms of trade, capital flows, productivity, and government share of GDP) which excludes nominal variables (nominal exchange rate, money) and central bank intervention. Variance decompositions reveal that among the real variables that determine the real exchange rate, the terms of trade and productivity explain much of the variation in the real exchange rates. When nominal variables are included in the model, the nominal exchange rate accounts for most of the variation in the real exchange rates of all three countries. The impulse response functions are broadly consistent with theoretical predictions and shocks to the nominal variables have only transitory effects on the real exchange rate.

A true test: do IMF programs hurt the poor?

This article analyses the effect of IMF programs on poverty with data from 82 countries during 1985-2000. Two indicators of poverty, infant mortality rates and the human development index (HDI), are utilized, and the effects of the IMFs concessionary and nonconcessionary programs are investigated, as well as economic and institutional factors. The results show that the IMFs programs have no significant direct impact on poverty. Growth and good institutions, however, both have significant impacts, lowering infant mortality and increasing the HDI. The Funds concessionary programs increase the impact of growth on lowering infant mortality, while the nonconcessionary programs lower the impact of growth on the HDI. “Where a great proportion of the people are suffered to languish in helpless misery, that country must be ill policed, and wretchedly governed; a decent provision for the poor is the true test of civilization.” -Samuel Johnson, 1791 “… once a country was in crisis, IMF funds and programs not only failed to stabilize the situation but in many cases actually made things worse, especially for the poor.” -Joseph Stiglitz, 2002

Time Present and Time Past: A Duration Analysis of Imf Program Spells

The programs of the International Monetary Fund were originally designed to provide short-term assistance to countries implementing policies to address balance of payments disequilibria. In recent decades, however, the Fund has instituted new facilities with longer time horizons, while many developing countries have adopted consecutive programs. As a result, the length of time spent by countries in IMF programs has grown, and in some cases has extended over a decade. This paper analyzes the IMF program spells for a group of emerging economies over the period of 1982 to 1997. Duration models are used to investigate the time dependence of the failure rate of the spells and the factors that affect the duration of program spells. The hazard ratio of program spells has a non-monotonic shape, first rising and then falling over time. Program duration is extended for those countries with lower per-capita income, exports concentrated in primary goods, landlocked geographic status, and stable legal processes.

Money and output under alternative exchange rate regimes in the USA

Abstract Economic theory suggests that the effects of money on output will depend on the exchange rate regime. This paper examines the relationship between money and output under fixed and flexible exchange rates in the USA. Johansens maximum likelihood estimation method is utilized to test for cointegration in a system consisting of money, the interest rate, prices, the trade balance and output during 1959–1971 and 1973–1990, with the exchange rate included in the analysis fo the second period. The results indicate that the variables are cointegrated, suggesting the existence of long-run equilibrium relationships between the domestic and external variables. Vaiance decompositions reveal a much larger role for money in explaining forecast error vaiance of output during the flexible exchange rate period. Money and the interest rate explain a substantial proportion of the variances of the trade balance and the exchange rate. This suggests that effects on the exchange rate and trade balance are an important component of the transmission mechanism of monetary policy. (JEL F41).

Asset bubbles, monetary policy and bank lending in Japan: an empirical investigation

Asset prices rose rapidly in Japan during the latter half of the 1980s, and then declined as quickly in the early 1990s. Their behaviour is consistent with the existence of speculative ‘bubbles’ in these markets. This paper investigates the dynamic relationships among stock and land prices in Japan, output, and monetary and bank lending variables. The results of causality tests and variance decompositions are reported for two time periods, 1972#1501985 and 1986#1501991. The price bubbles affected each other in the first period, although the size of this impact is dependent on the choice of variables in the VARs. In the bubble period, there is strong evidence that the stock market bubble was determined by its own past and also influenced the land market bubble, accounting for a significant proportion of the variance of the land market bubble. However, neither output, the money supply nor the lending variables were significant in the causality tests or in explaining the variation of the two assset bubbles.

An examination of the objectives of monetary policy in four developing economies

Abstract This paper presents a model of monetary policy in developing economies, which is estimated for Mexico, Korea, India and Zambia. The model is designed to identify both the goals and patterns of policy in these economies. The results demonstrate that the authorities in these economies respond to foreign reserve flows, partially sterilizing their impact in three countries. They also respond to domestic variables, accomodating seasonal variation and growth or price changes.

The Adoption, Implementation and Impact of IMF Programs: A Review of the Evidence

This paper evaluates the literature on the lending programs of the IMF. The first section deals with the initiation of a Fund program, which has been shown to be influenced by political and institutional variables. A second focus of research analyzes the design and implementation of Fund supported polices, since many programs are often not successfully completed. The third issue surveyed is the impact of IMF policies on the economy of the borrowing government. The effect of Fund programs on private capital flows is also examined. The last section presents issues that merit further research.