Tomoe Moore

STOCK MARKET INTEGRATION FOR THE TRANSITION ECONOMIES: TIME-VARYING CONDITIONAL CORRELATION APPROACH

In this paper, we investigate the extent to which the three emerging Central Eastern European stock markets have become integrated with the aggregate eurozone market over the sample period from 1994 to 2006 by utilizing the dynamic conditional correlation. We find a higher level of the stock market correlation during the period after the Asian and Russian crises and also during the post-entry period to the European Union. It is found that financial market integration seems to be a largely self-fuelling process, depending on existing levels of financial sector development for the Czech Republic and Hungary.

Foreign Capital in a Growth Model

Within the mechanism of endogenous growth, this paper empirically investigates the impact of financial capital on economic growth for a panel of 60 developing countries, through the channel of domestic capital formation. By estimating the model for different income groups, it is found that while private FDI flows exert beneficial complementarity effects on the domestic capital formation across all income-group countries, the official financial flows contribute to increasing investment in the middle income economies, but not in the low income countries. The latter appears to demonstrate that the aid-growth nexus is supported in the middle income countries, whereas the misallocation of official inflows is more likely to exist in the low income countries, suggesting that aid effectiveness remains conditional on the domestic policy environment.

Financial Liberalization in India and a New Test of the Complementarity Hypothesis

This article reappraises the financial repression hypothesis for India in light of the partial liberalization of the financial sector in the early 1990s, using for the first time state‐of‐the‐art multivariate cointegration and vector error correction models (VECM). From this more robust testing procedure, we find that for the Indian economy over the sample period 1951–99, money and capital are complementary, suggesting that higher real interest rates will further raise the demand for money and lead to higher levels of investment. Furthermore, testing for a structural break in the early 1990s—to coincide with the liberalization of the financial sector in India—suggests that these reforms have not significantly changed the complementary relationship between money and capital. The policy implication is that further financial liberalization maybe required in India to enhance investment and economic growth.

Monetary Policy Rules for Transition Economies: An Empirical Analysis

In this paper, we innovatively apply both Taylor rule, where an interest rate is used as a policy reaction, and McCallum rule, where monetary base is considered as a policy instrument, for the new EU member states in analysing monetary policy reaction functions. For the Czech Republic, Poland, Slovakia and Slovenia, the Taylor rule is found to be suitable to exchange rate targeting, whereas the McCallum rule may be applicable to inflation targeting. Evidence also reveals that for Hungary and Romania, inflation targeting coexists with that of exchange rates taking account of both reactions of interest rates and money.

Portfolio Behaviour in a Flow of Funds Model for the Household Sector in India

We estimate a flow of funds model for the household sector in India, within the Almost Ideal Demand System (AIDS) framework, and examine the demand for money and the substitution effects between money and other financial assets. The restricted long-run model, obtained using cointegration techniques, provides stable equilibrium relationship between I(1) variables and broadly satisfies the axioms of rational choice in consumer demand theory. We find that financial sector reform exerts a significant impact on the interest rate structure and household portfolio preferences; specifically, there is strong substitutability among risk-free assets and a possible speculative effect in the stock market, while the exchange rate strongly influences the demand for money. These findings all have important policy implications.

Has entry to the European Union altered the dynamic links of stock returns for the emerging markets

This article investigates the impact of the entry to the European Union (EU) on the dynamic links between the stock market indices of Czech Republic, Hungary, Poland and Slovakia vs. those of the euro-zone by utilizing the international version of the feedback-trading model. Prior to entry, there was evidence of feedback trading with the euro-zone, however, this disappeared in the post-entry period with the exception of Slovakia. Evidence appears to demonstrate the emergence of financial integration of these transition economies within the EU.

The Impact of the Global Financial Crisis on Industry Growth

© 2014 The Authors. The Manchester School published by The University of Manchester and John Wiley & Sons Ltd. This is an open access article under the terms of the Creative Commons Attribution-NonCommercial License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited and is not used for commercial purposes.

Real Effect of Bank Efficiency: Evidence from Disaggregated Manufacturing Sectors

In this paper, we investigate the real effect of bank efficiency for the growth and market structure of 23 manufacturing sectors in a two‐dimensional panel framework. We use the cost and profit efficiency scores that are estimated based on the stochastic frontier model for 5850 banks. The robust finding is that industries that rely heavily on external finance grow faster and are enhanced by the creation of new enterprises in countries with efficient banking systems. Further evidence, however, reveals that the efficiency effect is mainly derived from the cost side during the financial crisis period.

Flow of funds and the impact of financial controls on bank portfolio behaviour: a study of India

This paper studies the flow of funds and portfolio behaviour of Indian banks from 1951 to 1994. In this period, financial controls such as variable reserve ratios were important constraints on bank behaviour, especially before liberalization took place in the early 1990s. We estimate a system of demand functions which uses as framework the Almost Ideal Demand System and which incorporates the reserve ratio regulations. Attention is paid to cointegration and to structural breaks. The estimated model provides coherent and plausible parameter estimates for prices and other variables. We find that a standard portfolio model can usefully be applied to the study of financial behaviour in a developing economy such as India, and some interesting policy implications can be drawn.

Other financial institutions' portfolio behaviour and policy implications: A study of India

Abstract Applied literature has largely neglected the asset decision of other financial institutions (OFIs), though it may possess important policy implications. In this paper, portfolio behaviour of OFIs in India is modelled by using the annual flow of funds data for 1951/52 to 1993/94. The long-run model of the Almost Ideal Demand System and the allied concepts of cointegration generated economically and statistically plausible results. We find a strong influence of interest rates on portfolio behavior, thereby the role of interest rates on resource allocation. The paper concludes that the macroeconomic management through monetary policy actions may not be unnecessarily limited through the channel of OFIs in the post-financial reform regime in India.