Mahmood Pradhan

Financial Indicators and Financial Change in Africa and Asia

Deregulation of the financial system often proceeds in tandem with macroeconomic stabilization centered on monetary and other financial targets. This paper presents a model where there may be conflict between these processes. The indicator properties of some financial variables may be rendered unstable by the liberalization process. However, other, carefully selected financial aggregates may contain information about economic activity that is useful to policy makers during stabilization. Data from a group of selected African and Asian countries is examined. These are broadly consistent with the predictions of the model, while highlighting the importance of macroeconomic and financial stability for the success of financial reforms.

Monetary Aggregation: A Reconciliation of Theory and Central Bank Practice

Monetary assets have different characteristics which make them more or less useful in facilitating transactions. Academic economists have consistently argued that these differences should be incorporated in monetary aggregates by assigning assets different weights. However, central banks continue to use conventional aggregates with equal weights for all assets. For a transactions model of money, which the academic view implicitly embodies, weighted aggregates, although imperfect, are certainly superior. However, once this structural model is abandoned in favor of alternatives where monetary assets play a different role, central banks` continued use of simple sum measures of money may be justified.

Debt-equity swaps as bond conversions: implications for pricing☆

Abstract This paper demonstrates that debt-equity swaps are equivalent to bond conversions. They can therefore be valued using the conventional valuation formula for convertible bonds, although account must be taken of the minimum duration of the equity investment once a swap has taken place. This implies that the swap involves the substitution of default risk for a combination of equity and exchange rate risk, and this has to be taken into account when valuing the swap. We provide an illustration of the valuation formula.