Ruby P. Kishan

Bank Size, Bank Capital, and the Bank Lending Channel

This paper provides evidence of a credit channel and a bank ending channel of monetary policy in the United States from 1980 to 1995. We test for bank loan supply shifts by segregating banks according to asset size and capital leverage ratio. The loan growth of small (under

An evaluation of federal reserve forecasting

300M) undercapitalized (capital-asset ratio

An Evaluation of Federal Reserve Forecasting: Reply

Abstract This paper examines the accuracy, reliability and efficiency of U.S. Federal Reserve System green book forecasts, which form the basis for policy discussions at the Feeral Open Market Committee meetings. Poor forecasting combined with activist policy making could well result in poor policy performance. We find evidence that some of the Feds forecasts can be improved, and we investigate some explicit modifications intended to improve on the Fed forecasts.

Further Evidence on Monetary and Fiscal Policy Coordination

This paper explains why Jansen and Kishan (1996) and Joutz and Stekler differ in their evaluation of Federal Reserve forecasts. We show that these differences are due to differences in the data employed in the two papers, and point out some features of the raw data.

Monetary asset quality and substitutability

The extent to which fiscal and monetary policies respond to inflation and unemployment and the degree to which policy makers coordinate their policies have important implications for their usefulness as instruments of economic stabilization. Using a framework of minimizing a policy makers loss function, subject to the state of the economy, this paper tests for the joint determination of monetary and fiscal policies. Our results show that the pre-Reagan/Bush and pre-Volcker/Greenspan eras can be characterized by a noncooperative game between the two policies. For the Reagan/Bush and Volcker/Greenspan regimes, our results are consistent with a cooperative game in which fiscal policy dominates and monetary policy accommodates. Our results also have implications for the possibility of future cooperation by policy makers.

Does FDI Really Affect Employment In Host Countries?: Subsidiary Level Evidence

Abstract This paper utilizes a user-cost-dependent direct utility function to estimate elasticities of substitution (ES) between monetary assets. Unlike other ES studies, the generalized Fechner-Thurstone (GFT) utility function employed incorporates changes in monetary asset quality. The ES results show low substitutability between assets. These estimates have important implications for simple summation in forming monetary aggregates and for policy transmission through the liabilities issued by financial intermediaries.

EXTERNAL MACROECONOMIC IMBALANCES AND FOREIGN DIRECT INVESTMENT INFLOWS TO DEVELOPING COUNTRIES

Despite significant flows of Foreign Direct Investment (FDI) and the perceived benefits (i.e. in terms of economic growth and innovation of productive techniques) that this type of flows can have on the receiving economies, very little has been learned about its potential contribution to employment generation in the host countries. The difficulty in measuring the impact of FDI on employment generation stems from the fact that these flows that tend to generate higher levels of economic activity and employment can potentially also lead to employment losses that may occur from increased competition, technological improvements that make production relatively more capital intensive, or from the use of different business practices. We examine the relevance of FDI in generating employment in host countries by estimating the impact on changes in subsidiary employment caused by changes—in the level of foreign investment in such subsidiary. Using Javorcik and Sparteneau (2005) approach, we measure FDI as the change in a subsidiarys assets controlled by a given MNC from another country. We use annual data derived from the OSIRIS database to create a sample of 5,641 subsidiaries operating in 66 host countries during the 2006-2008 time period and estimate a simple labor market specification using pooled OLS regression techniques with robust standard errors to correct for cluster sampling. Our results indicate that the heralded positive impact that FDI should have on employment at the subsidiary level is not a typical occurrence, but it does exist under specific circumstances. We show that the FDI has a positive effect on subsidiary employment in host countries located in the Americas, and when FDI originates from Asian-based MNCs. We also find a positive effect on subsidiary employment for FDI in the manufacturing and mining sectors, when FDI comes from a MNC headquartered in a low- and middle-income country, and when the subsidiaries operate in low- and middle-income countries. Furthermore, the analysis shows that FDI has a positive impact on subsidiary employment generation for companies that reduce their disinvestment, and for subsidiaries operating in countries where the country-level FDI as a share of GDP is smaller. These findings suggest that countries and policymakers should take these factors into consideration when formulating policies to enhance employment opportunities in their countries through higher levels of FDI, but it is not realistic for countries with different characteristics to expect the same effect on employment from foreign investment.

Bank asset allocation: the effectiveness of market monitoring

We employ relative size of International Monetary Fund (IMF) credit as a proxy for interdependent macro variables that are associated with external macroeconomic imbalances or balance of payment (BOP) crisis to investigate how they impact foreign direct investment (FDI) inflows. Relative size of IMF credit as a share of gross domestic product sends two mixed signals to multinational enterprises (MNEs). First, it is a signal that a country is facing an actual or potential BOP crisis. Second, countries that seek IMF credit typically agree to implement a set of “IMF conditionality” before financial credit is disbursed. This may signal to MNEs that policy reforms that must accompany IMF financial credit may result in ex ante positive economic outlook and stability. We find that relative size of IMF credit is negatively (positively) correlated with FDI inflows to developing countries below (above) a threshold value of economic freedom. The main implication of these findings is that MNEs may view developing countries with below average index of economic freedom as lacking institutional capabilities to implement recommended IMF policy reforms when faced with an actual or potential BOP crisis. Our results are robust across alternative model specifications and consistent with the theory of catalytic finance. (JEL F21, F23, F33)

Bank capital and loan asymmetry in the transmission of monetary policy

Purpose - – The purpose of this paper is to study the effectiveness of market discipline on banks’ risk-taking behavior based on how swiftly banks respond to market information. Design/methodology/approach - – A simplified incentive model provides the necessary justification for two types of market disciplines: first, monitoring by uninsured market participants, and second, risk premium in terms of interest spread required by risk-averse depositors. Panel data regression is carried out for both surviving and failed US banks for the period 1999:Q4-2007:Q3 to examine the role of market discipline, bank capital, and macroeconomic shocks. Findings - – The paper finds that banks which failed during 2007:Q4-2010:Q4 suffered from fundamental weaknesses in their asset quality relative to the surviving banks prior to the crisis. Originality/value - – The paper focusses on two questions: In what circumstance does market monitoring exist? And how can market incentives affect banking firms’ actions? The first question is studied in a simplified incentive model that provides justification for two types of market discipline. Given that, the effectiveness of market discipline is empirically tested, using the US banking data in the period leading up to a surge in the number of bank failures in 2007-2010. The papers results show that failed institutions with large size were relatively less responsive to early warning signals of declining uninsured deposits and rising deposit spread.