Money Demand Stability under Currency Substitution: Some Recent Evidence

This study deals with the issue of independent monetary policy and the stability of the domestic money demand function in the presence of currency substitution and capital mobility in five Asian economies. It is argued that money demand will be less stable and more difficult to control in the presence of international variables. The money demand function is derived using the portfolio balance approach. The results from the cointegration analysis reveal that capital mobility and currency substitution are significant factors in the domestic money demand equations for Indonesia, Korea, Malaysia, Singapore, and Thailand. The results also show that the US dollar, Japanese yen, and British pound are used significantly by domestic residents together with the domestic currency in Indonesia, Korea, Singapore and Thailand. However, in the case of Malaysia, despite the existence of currency substitution for the US dollar and Japanese yen, there is no evidence of currency substitution between the domestic currency and British pound. Therefore, for these countries to have an effective monetary policy, the monetary authorities should take into account the two international factors

Substitution between Money and Near Monies in Switzerland

This paper investigates the substitutability between money and near-money assets during the period 1976 to 1996 in Switzerland. Financial developments have made a variety of instruments available to store wealth and conduct economic transactions. These developments have generated a near money component in households\u27 and businesses\u27 portfolio balances. It is important to evaluate the effect of near-money on money demand and the effectiveness of monetary policy. Towards this goal, five monetary assets: currency and demand deposits at commercial banks, demand deposits with the postal system, deposits on transaction accounts with banks, savings deposits and time deposits are considered. We evaluate the degree of substitutability among these assets using the Morishima elasticity. Results show that various monetary assets substitute for one another. Consistent with a high degree of diversification, the Morishima elasticity is significantly larger when adjustment takes place in the price of a relatively broader monetary asset as compared with a narrower one. Targeting a broad monetary aggregate captures a variety of assets that contribute to liquidity and aggregate demand, enhancing the effectiveness of monetary policy. Nonetheless, high elasticity of substitution between monetary assets has made it increasingly difficult to target money demand via changes in the interest rate. As a result, in 1999 the Swiss National Bank abandoned monetary targeting in favor of an expected inflation target

Efficiency and Productivity Analyses of Indonesian Manufacturing Industries

This study estimates the technical efficiencies and total factor productivity (TFP) growth in food, textile, chemical and metal products industries during 1993 to 2000 in Indonesia by using the stochastic frontier model. Furthermore, the determinants of inefficiency are also analyzed and the TFP growth is decomposed into technological progress, scale component, and efficiency growth. The results reveal that the food, textile, chemical and metal products sectors are on average 50.79%, 47.89%, 68.65% and 68.91% technically efficient respectively. It is noted that ownership contributed to technical inefficiency in the food sector; location and size contributed to technical inefficiency in the textile sector, whereas size, ownership and age contributed to inefficiencies in the chemical and metal products sectors. The estimates of TFP growth indicate that productivity in Indonesian manufacturing industries decreased at the rate of 2.73%, 0.26%, 1.65% and 0.5% in food, textile, and metal products respectively, whereas in the chemical sector, it increased at a rate of 0.5% during the period of the study. The decomposition of TFP growth indicates that the growths are driven positively by technical efficiency changes and negatively by technological progress in all four sectors

Efficiency Analysis of K-12 Public Education in Illinois

The public education system in the United States has received a great deal of attention from both constituents and policy makers alike over the past thirty years. Identifying less efficient school districts and examining the sources of inefficiency has important policy implications. School districts might improve efficiency by managing educational resources differently. In this paper, we estimate technical efficiency for all three types of school districts in the state of Illinois K-12 public education system. Technical efficiency in the Illinois school system averaged 90% for unit school districts, 85% for elementary school districts, and 82% for high school districts. We also investigate possible factors associated with inefficiency. The percentage of student enrollment that qualifies as low income and the size of the school district are positively related to inefficiency. School districts that have a larger percentage of teachers with advanced degrees are more efficient. Having a lower ratio of students per administrator in a school district increases technical efficiency

On Public Capital Investment and Economic Growth in Illinois

The present paper was written as an analysis of the proposed capital budget plan which is being considered by the State of Illinois and which has been a major item on the political agenda in the state for well approximately two years. In the spring of 2008, Southern Illinois University President Glenn Poshard asked Dr. Subhash C. Sharma of the Department of Economics at Southern Illinois University Carbondale to do an analysis of the proposed capital improvements plan which was being advocated by then Governor Rod Blagojevich and being considered by the Illinois General Assembly. The plan would make a major investment in infrastructure improvements in the state, and it would have been the first major capital plan to pass the General Assembly in almost a decade. It follows in the tradition of two other major capital improvements bills advocated by earlier Governors and passed by the Illinois General Assembly. In 1985 under the leadership of Governor James R. Thompson, the state passed the Build Illinois Plan, which claimed at the time to be the largest public works project in the state’s history. It was funded at $2.3 billion total. In 1999 at the beginning of his administration, Governor George Ryan initiated and the General Assembly passed a new capital budget called the Illinois FIRST plan for the infrastructure improvements and capital needs. Illinois FIRST was funded at$12 billion total. The current Illinois Works plan would follow in the footsteps of those two prior major investments made in infrastructure by the people of Illinois if it were to be approved. The plan is still being considered by the Illinois General Assembly, and this proposal or something like it will be one of the major items for consideration by the new Governor Pat Quinn and his administration

Technical Efficiency and Productivity Analysis in Indonesian Provincial Economies

By using the stochastic frontier methodology, this study investigates the technical efficiency and total factor productivity (TFP) growth in Indonesian provincial economies during the period from 1993 to 2000. In addition to the estimation of provincial technical efficiency, factors that contribute to technical inefficiency are also examined and the TFP growth is decomposed into technological progress, the scale component and the change in technical efficiency. The results reveal that average technical efficiency is only around 50%. Our results reveal that the mean years of schooling and sectoral differences affected technical efficiency. The TFP grew, on average, in the range from 1.65% to 5.43% with an average growth of 3.59%. In twenty out of twenty six provinces the TFP growth was driven by efficiency changes while in four provinces the TFP growth was driven by technological progress. Further, we note that the Asian crisis affected the TFP growth and the western provinces suffered from the crisis more than the eastern provinces

Cost efficiency, Economies of Scale, Technological Progress and Productivity in Indonesian Banks

This study estimates cost efficiency, scale economies, technological progress and productivity growth for Indonesian banks over the period 1993-2000. Overall the cost efficiency of all banks during this period was 69.82%. However, on average the efficiency of banks prior to the Asian crisis and after the Asian crisis were 79.67% and 53.40% respectively. Moreover, the results also indicate that private-owned banks and joint venture/foreign banks were more efficient than public-owned banks. Furthermore, as expected large banks tend to be more efficient as compared to smaller banks. Total factor productivity growth for Indonesian banks over the period 1993-2000 was -3.14%. However, before the Asian crisis, Indonesian banks productivity decreased by 1.48%, while after the crisis it decreased by 6.45%

Macroeconomic Interdependence and Integration in Africa

There is a renewed interest in the debate on integration in Africa since the creation of the Africa Union in 2002. This study investigates the feasibility of a full-fledge union in Africa from an economic standpoint. Towards this goal, we examine both the contemporaneous and dynamic relations in the short- and long-run among six key macro variables--consumer price level, gross domestic product, consumption, investment, trade flows and government expenditures--in eight African countries. In the quarterly data from 1976 to 2005, we observe the existence of common trends in real output, price level, private consumption, government consumption, investment and trade flows among these eight countries. In addition, we also note that there exist common cycles in real output, investment and trade flows for these countries. These two critical findings indicate the existence of some macroeconomic interdependence among these countries. Thus, the chances for success of integration in Africa driven by these eight countries are appreciable

Currency Substitution in Selected African Countries

This study investigates the presence of currency substitution in eight African countries--Egypt, Morocco, Nigeria, Ghana, Kenya, South Africa, Tunisia and Zambia--for the period 1976 to 2005 using both regional and US dollar as anchor currencies. We find that currency substitution is prevalent in Ghana and Nigeria when CFA franc is used as an anchor currency. However, when US dollar is used as an anchor currency there is no evidence of currency substitution in Ghana but we still observe the presence of currency substitution in Nigeria. Also we find presence of currency substitution in South Africa but not in Egypt when the US dollar is the anchor currency. For Kenya, Tunisia and Zambia there is no evidence of currency substitution irrespective of the anchor currencies considered. In the case of Morocco, we observe no evidence of currency substitution when the Egyptian pound is used as anchor currency but there is weak evidence of currency substitution when the US dollar is considered