The author argues that the preponderance of theoretical reasoning and empirical evidence suggests a positive first order relationship between financial development and economic growth. There is evidence that the financial development level is a good predictor of future rates of economic growth, capital accumulation, and technological change. Moreover, cross-country, case-style, industry level and firm-level analysis document extensive periods when financial development crucially affects the speed and pattern of economic development. The author explains what the financial system does and how it affects, and is affected by, economic growth. Theory suggests that financial instruments, markets and institutions arise to mitigate the effects of information and transaction costs. A growing literature shows that differences in how well financial systems reduce information and transaction costs influence savings rates, investment decisions, technological innovation, and long-run growth rates. A less developed theoretical literature shows how changes in economic activity can influence financial systems. The author advocates a functional approach to understanding the role of financial systems in economic growth. This approach focuses on the ties between growth and the quality of the functions provided by the financial systems. The author discourages a narrow focus on one financial instrument, or a particular institution. Instead, the author addresses the more comprehensive question: What is the relationship between financial structure and the functioning of the financial system?

/pdf/financial-development-and-economic-growth-views-and-agenda-1isr9l81uu.pdf

Financial development and economic growth : views and agenda

IN HIS SURVEY ON RATIONAL EXPECTATIONS, R. Shiller indicates that the difficulty of obtaining explicit solutions for linear difference models under rational expectations may have hindered their use [14, p. 27]. The present paper attempts to remedy that problem by giving the explicit solution for an important subclass of the model Shiller refers to as the general linear difference model. Section 1 presents the form of the model for which the solution is derived and shows how particular models can be put in this form. Section 2 gives the solution together with the conditions for existence and uniqueness. 1. THE MODEL The model is given by (la), (lb), and (1c) as follows:

https://www.jstor.org/stable/pdfplus/1912186.pdf

The solution of linear difference models under rational expectations

Part 1 Empirical evidence on money and output: introduction some basic correlations estimating the effect of money on output summary. Part 2 Money in a general equilibrium framework: introduction the Tobin effect money in the utility function summary appendix - the MIU approximation problems. Part 3 Money and transactions: introduction shopping-time models cash-in-advance models other approaches summary appendix - the CIA approximation problems. Part 4 Money and public finance: introduction bugdet accounting equilibrium seigniorage optimal taxation and seigniorage Friedman's rule revisited nonindexed tax systems problems. Part 5 Money and output in the short run: introduction flexible prices sticky prices and wages a framework for monetary analysis inflation persistence summary appendix problems. Part 6 Money and the open economy: introduction the Obstfeld-Rogoff two-country model policy coordination the small open economy summary appendix problems. Part 7 The credit channel of monetary policy: introduction imperfect information in credit markets macroeconomic implications does credit matter? summary. Part 8 Discretionary policy and time inconsistency: introduction inflation under discretionary policy solutions to the inflation bias is the inflation bias important? do central banking institutions matter? lessons and conclusions problems. Part 9 Monetary-policy operating procedures: introduction from instruments to goals the instrument-choice problem operating procedures and policy measures problems. Part 10 Interest rates and monetary policy: introduction interest-rate rule and the price level interest rate policies in general equilibrium models the term structure of interest rates a model for policy analysis summary problems.

Monetary Theory and Policy

We develop a novel system of re-classifying historical exchange rate regimes. One difference between our study and previous classification efforts is that we employ an extensive data base on market-determined parallel exchange rates. Our 'natural' classification algorithm leads to a stark reassessment of the post-war history of exchange rate arrangements. When the official categorization is a form of peg, roughly half the time our classification reveals the true underlying monetary regime to be something radically different, often a variant of a float. Conversely, when official classification is floating, our scheme routinely suggests that the reality was a form of de facto peg. Our new classification scheme points to a complete rethinking of economic performance under alternative exchange rate regimes. Indeed, the breakup of Bretton Woods had a far less dramatic impact on most exchange rate regimes than is popularly believed. Also, contrary to an influential empirical literature, our evidence suggests that exchange rate arraignments may be quite important for growth, trade and inflation. Our newly compiled monthly data set on market-determined exchange rates goes back to 1946 for 153 countries.

/pdf/the-modern-history-of-exchange-rate-arrangements-a-qgjj929jrt.pdf

The Modern History of Exchange Rate Arrangements: A Reinterpretation

Recent theoretical models of entry predict that, in the presence of sunk costs, current market participation is affected by prior experience This paper quantifies the effect of prior exporting experience on the decisions of Colombian manufacturing plants to participate in foreign markets It develops a dynamic discrete-choice model of exporting behavior that separates the roles of profit heterogeneity and sunk entry costs in explaining plants' exporting status Sunk costs are found to be significant and prior export experience is shown to increase the probability of exporting by as much as sixty percentage points Copyright 1997 by American Economic Association

The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs

The monetary dynamics of hyperinflation: A note

The following sections are included:INTRODUCTIONSPECIFICATION ISSUES IN TRADE MODELLINGECONOMETRIC ISSUES IN TRADE MODELLINGESTIMATES OF PRICE AND INCOME ELASTICITIES AND RELATED POLICY ISSUESCONCLUDING OBSERVATIONSREFERENCES

Income and Price Effects in Foreign Trade

This paper reexamines the issue of the existence of threshold effects in the relationship between inflation and growth, using new econometric techniques that provide appropriate procedures for estimation and inference. The threshold level of inflation above which inflation significantly slows growth is estimated at 1-3 percent for industrial countries and 7-11 percent for developing countries. The negative and significant relationship between inflation and growth, for inflation rates above the threshold level, is quite robust with respect to the estimation method, perturbations in the location of the threshold level, the exclusion of high-inflation observations, data frequency, and alternative specifications.

https://papers.ssrn.com/sol3/Delivery.cfm/WPIEA1102000.pdf?abstractid=879840&mirid=1&type=2

Threshold Effects in the Relationship Between Inflation and Growth

This paper re-examines the issue of the existence of threshold effects in the relationship between inflation and growth, using new econometric techniques that provide appropriate procedures for estimation and inference. The threshold level of inflation above which inflation significantly slows growth is estimated at 1-3 percent for industrial countries and 11-12 percent for developing countries. The negative and significant relationship between inflation and growth, for inflation rates above the threshold level, is quite robust with respect to the estimation method, perturbations in the location of the threshold level, the exclusion of high-inflation observations, data frequency, and alternative specifications.

/pdf/threshold-effects-in-the-relationship-between-inflation-and-1w173paq2v.pdf

The behavior of private investment in developing countries has obvious implications, both for long-term development and for the design of shorter-term stabilization programs. What determines the rate of private investment and how this rate responds to changes in government policies are questions of considerable importance to policymakers and academics alike. For example, would a tightening of monetary policy result in a fall in real private capital formation or in no change? Similarly, would an increase in government capital expenditures have a negative or positive effect on private investment? Clearly, any meaningful analysis of growth in developing countries must take into account questions of this nature. Although private investment behavior in industrial countries has been studied extensively, there is as yet little systematic evidence on this subject for developing countries. In this paper a model of private investment in developing countries is formulated to analyze the empirical relations between private investment and some of its main determinants. The exercise focuses on the influences that variations in bank credit and in government capital formation have on the private sector's investment decisions. The concentration on these two factors allows an explicit treatment of the issue of real and financial "crowding out," a subject over which there is considerable controversy. Furthermore, the analysis attempts to make an empirical distinction between public investment related to the development of infrastructure, which is likely to be complementary with private investment, and other types of government investment, which may substitute for private capital formation. The model is estimated for 24 developing countries by using a data set for private and public investment that was specially constructed for this exercise. Data on the public sector--properly defined to include the general government, autonomous institutions, and nonfinancial state enterprises--are not readily available and must be assembled from different sources. The empirical results indicate that it is possible to identify a fairly well-behaved private investment function for developing countries. The principal policy-related conclusions of the study are twofold. First, changes in bank credit to the private sector have a significant effect on private investment, such that a reduced flow of real credit to the private sector, for whatever reason, causes real private investment to decline. Second, an increase in the infrastructural component of government capital formation (represented by various empirical proxies) raises private investment, but similar increases in other kinds of public investment appear to result in some crowding out. /// Le comportement de l'investissement privA© dans les pays en dA©veloppement a, de toute A©vidence, des rA©percussions tant sur le dA©veloppement A long terme que sur l'A©laboration des programmes de stabilisation A plus court terme. Quels sont les facteurs dA©terminant le taux de l'investissement privA© et comment ce taux rA©agit-il aux modifications de la politique appliquA©e par les pouvoirs publics? Ce sont lA des questions qui revAatent une importance considA©rable tant pour les responsables de la politique A©conomique que pour les thA©oriciens. Par exemple, un resserrement de la politique monA©taire se traduira-t-il par une baisse de la formation de capital dans le secteur privA©, en valeur rA©elle, ou n'aura-t-il aucun effet sur cette variable? De mAame, une augmentation des dA©penses d'investissement de l'Etat aura-t-elle un effet nA©gatif ou positif sur l'investissement privA©? Il est clair que, pour Aatre valable, toute analyse de la croissance dans les pays en dA©veloppement doit tenir compte des questions de cette nature. S'il est vrai que le comportement de l'investissement privA© dans les pays industrialisA©s a fait l'objet d'A©tudes approfondies, rares sont les analyses qui ont A©tA©, jusqu'A prA©sent, systA©matiquement consacrA©es A ce sujet dans le cas des pays en dA©veloppement. Dans ce document, un modA¨le de l'investissement privA© dans les pays en dA©veloppement a A©tA© construit en vue d'analyser la relation empirique existant entre l'investissement privA© et certains de ses principaux dA©terminants. L'analyse est principalement consacrA©e A l'influence que les variations du crA©dit bancaire et de la formation de capital dans le secteur public exercent sur les dA©cisions du secteur privA© en matiA¨re d'investissement. Etant donnA© qu'elle porte principalement sur ces deux facteurs, l'analyse permet d'examiner de maniA¨re explicite le phA©nomA¨ne d'A©viction rA©elle et financiA¨re, question qui est largement controversA©e. En outre, l'analyse cherche A A©tablir une distinction empirique entre l'investissement public qui est liA© au dA©veloppement de l'infrastructure, et qui, selon toute vraisemblance, est un complA©ment de l'investissement privA©, et d'autres types d'investissement public qui peuvent se substituer A la formation de capital dans le secteur privA©. Le modA¨le est estimA© pour 24 pays en dA©veloppement A partir d'une sA©rie de donnA©es relatives A l'investissement privA© et public qui a A©tA© A©tablie spA©cialement aux fins de cette analyse. Les donnA©es relatives au secteur public, dA©fini de maniA¨re A inclure l'administration gA©nA©rale, les institutions autonomes et les entreprises d'Etat non financiA¨res, ne sont pas directement disponibles et doivent Aatre A©tablies au moyen de renseignements provenant de diffA©rentes sources. Selon les rA©sultats empiriques, il est possible d'identifier, pour les pays en dA©veloppement, une fonction de l'investissement privA© possA©dant d'assez bonnes propriA©tA©s. Les conclusions principales de l'A©tude, sur le plan de la politique A©conomique, sont les suivantes: en premier lieu, les variations du crA©dit bancaire au secteur privA© ont sur l'investissement privA© une incidence significative, telle que, si le montant du crA©dit accordA© au secteur privA© diminue, en valeur rA©elle, pour n'importe quelle raison, l'investissement privA© aura, lui-aussi, tendance A diminuer en valeur rA©elle. En deuxiA¨me lieu, une augmentation de la composante infrastructure de la formation de capital dans le secteur public (reprA©sentA©e par diffA©rentes variables empiriques de remplacement) aura pour effet d'accroA®tre l'investissement privA©; en revanche, une augmentation analogue d'autres types d'investissement public semble avoir, dans une certaine mesure, un effet d'A©viction sur les investissements du secteur privA©. /// El comportamiento de la inversiA³n privada en los paA­ses en desarrollo tiene repercusiones obvias tanto sobre el proceso de desarrollo a largo plazo como para la formulaciA³n de programas de estabilizaciA³n a mAis corto plazo. CuAiles son los factores que determinan el coeficiente de inversiA³n privada y de quA© manera reacciona A©ste ante las variaciones de las polA­ticas nacionales son interrogantes que revisten una importancia considerable tanto para las autoridades como para los teA³ricos. Por ejemplo, Â?ocasionarA­a una polA­tica monetaria mAis restrictiva un descenso en la formaciA³n real de capital privado? Igualmente, Â?un aumento del gasto de capital del sector pAoblico tendrA­a una repercusiA³n negativa o positiva en la inversiA³n privada? Evidentemente, en todo anAilisis del crecimiento econA³mico de los paA­ses en desarrollo se deben tener en cuenta interrogantes de esta naturaleza. Si bien el comportamiento de la inversiA³n privada en los paA­ses industriales ha sido estudiado detalladamente, son muy pocos los anAilisis sistemAiticos consagrados a este tema en el caso de los paA­ses en desarrollo. En este trabajo se formula un modelo de inversiA³n privada en los paA­ses en desarrollo con el fin de analizar las relaciones empA­ricas entre la inversiA³n privada y algunos de sus principales determinantes. El anAilisis se concentra en la influencia sobre las decisiones del sector privado en materia de inversiA³n de las variaciones del crA©dito bancario y de la formaciA³n de capital por parte del sector pAoblico. Al concentrarse en estos dos factores es posible efectuar un anAilisis explA­cito de la "exclusiA³n" (crowding out) real y financiera, tema que ha suscitado grandes controversias en estos Aoltimos tiempos. AdemAis, mediante el anAilisis se trata de establecer una diferencia empA­rica entre la inversiA³n pAoblica destinada al desarrollo de la infraestructura, la cual en general es un complemento de la inversiA³n privada, y otros tipos de inversiA³n pAoblica, los cuales pueden sustituir a la formaciA³n privada de capital. El modelo se ha estimado para 24 paA­ses en desarrollo usando una serie de datos sobre inversiA³n privada y pAoblica preparada especialmente para los fines del presente anAilisis. Los datos sobre el sector pAoblico --que segAon esta definiciA³n incluye las administraciones pAoblicas, las entidades autA³nomas y las empresas estatales no financieras-- no son fAiciles de obtener y se los ha extraA­do de diferentes fuentes. Los resultados empA­ricos indican que es posible identificar una funciA³n de inversiA³n privada bastante especA­fica para los paA­ses en desarrollo. Son dos las principales conclusiones del estudio en materia de polA­tica: en primer lugar, las variaciones del crA©dito bancario al sector privado tienen una repercusiA³n considerable en la inversiA³n privada, motivo por el cual toda reducciA³n de la corriente de crA©dito real al sector privado --cualquiera sea el motivo-- ocasiona una disminuciA³n de la inversiA³n privada real. En segundo lugar, un aumento del componente infraestructural de la formaciA³n de capital pAoblico (componente representado por diferentes variables empA­ricas) da lugar a un aumento de la inversiA³n privada, mientras que aumentos similares en las otras categorA­as de inversiA³n pAoblica parecen traer aparejada una cierta "exclusiA³n".

https://link.springer.com/content/pdf/10.2307%2F3866797.pdf

Government Policy and Private Investment in Developing Countries (Politique des pouvoirs publics et investissement privÃ© dans les pays en dÃ©veloppement) (PolÃ­tica estatal e inversiÃ³n privada en los paÃ­ses en desarrollo)

Mohsin S. Khan

Papers

The monetary dynamics of hyperinflation: A note

Income and Price Effects in Foreign Trade

Threshold Effects in the Relationship Between Inflation and Growth

Threshold Effects in the Relationship Between Inflation and Growth

Government Policy and Private Investment in Developing Countries (Politique des pouvoirs publics et investissement privÃ© dans les pays en dÃ©veloppement) (PolÃtica estatal e inversiÃ³n privada en los paÃses en desarrollo)

Mohsin S. Khan

Papers

The monetary dynamics of hyperinflation: A note

Income and Price Effects in Foreign Trade

Threshold Effects in the Relationship Between Inflation and Growth

Threshold Effects in the Relationship Between Inflation and Growth

Government Policy and Private Investment in Developing Countries (Politique des pouvoirs publics et investissement privÃ© dans les pays en dÃ©veloppement) (PolÃ­tica estatal e inversiÃ³n privada en los paÃ­ses en desarrollo)

Government Policy and Private Investment in Developing Countries (Politique des pouvoirs publics et investissement privÃ© dans les pays en dÃ©veloppement) (PolÃtica estatal e inversiÃ³n privada en los paÃses en desarrollo)