Capital deepening

About: Capital deepening is a research topic. Over the lifetime, 5203 publications have been published within this topic receiving 230297 citations.

Southeastern Europe: Financial Deepening, Foreign Banks and Sudden Stops in Capital Flows

Abstract: Over recent years, rapid financial deepening has been observed in Southeastern Europe. While originally welcomed as a sign of financial development spurring growth, macrofinancial stability concerns emerged as inflationary pressures rose and current account deficits came close to or surpassed double-digit levels. However, until autumn 2008, stability risks remained contained. Since then, Southeastern European countries appear to have been confronted with a sudden stop of capital flows, creating an Asian-crisis-like scenario. While this seems to vindicate warnings that financial deepening had taken an unsustainable course, the drying up of capital flows has largely been reflecting contagion from the financial turmoil in mature markets. Against this background, the most recent events indicate that the strategy of fostering financial development based on fit and proper foreign banks does not automatically provide a guarantee for financial stability.

Simulating Alternative Social Security Responses to the Demographic Transition

Abstract: The U.S. and other western economies are experiencing dramatic changes in growth and age structure of their populations. Fluctuations in birth rates are the most important determinants of these changes in the post war period. This paper examines the dynamic effects of baby "booms" and baby"busts" on a range of economic variables using a perfect foresight life cycle simulation model. In addition to describing general transition (as opposed to simply long run) affects of fertility change, the paper considers alter-native Social Security policies for avoiding sharp increases in long run payroll tax rates. These include reductions in benefit replacement rates,advances in Social Security's retirement age, taxation of social security benefits, and the accumulation of a significant Social Security trust fund. According to the simulated demographic transitions, the savings inthe U.S. fertility currently underway can have very major impacts on long run factor returns and produce percipitous short term changes in saving rates. While Social Security policy has important effects on the simulated demographic transitions, these effects are of secondary importance to the long run level of economic welfare. Even if payroll tax rates rise dramatically, long run welfare (measured in terms of levels of adult consumption and leisure) is, nonetheless, substantially higher in the case of a sustained dropin the fertility rate. This reflects, in part, the decline in the number of dependent children per adult; while a sustained decline in the fertility rate eventually means a much larger ratio of elderly per capita, the decline in children per capita means an overall decline in the long run ratio of dependents to prime age workers in the economy. A second explanation for the simulated long run welfare gains is capital deepening associated with lower population growth rates.