We use non-performing loan ratio and insolvency risk to measure bank risk and construct panel data regression models to examine the effects of the interbank market rate, central-bank rate and bank-level lending rate on bank risk in China. Empirical results show that interbank market rate and the central-bank interest rate are positively correlated with bank risk, while the bank-level lending rate is negatively correlated with bank risk. We also analyse and explain the difference between the effects of the US interest rates and China's interest rates on its own bank risk. Finally, we put forward some policy implications.
Conventional specifications of import demand in LDCs have commonly been plagued by implausible and unstable parameter estimates. This paper shows the importance of imposing long-run income homogeneity and of including foreign exchange reserves when estimating import demand function for an LDC. Using several cointegration techniques, it is shown that there is one linear relationship among real imports, real income, relative import prices and real foreign exchange reserves. In addition, by employing stability tests for cointegrated systems by Hansen (1992a), the paper shows that only when foreign exchange reserves and long-run unit-income homogeneity are accounted for does a constant parameter, long-run equilibrium relation emerge for Pakistan. Also, the ensuing short-run dynamic model is constant and data-coherent. Finally, the study provides information on the speed of adjustment to equilibrium and the median and mean time lags of adjustments of real imports to changes in their determinants. The results indicate a quick response of real imports to changes in their determinants.Foreign exchange-reserves, import demand, cointegration,
This paper examines the long-run validity of purchasing power parity (PPP) for fourteen developing countries. The period examined is 1973:4 through 2002:8. The methods of Elliot, Rothemberg and Stock (1996), Kwiattkoski et al. (1992) and Geweke and Porter-Hudak (1983) are employed to detect the time series properties of exchange rates and consumer price indices of these countries. We find that these variables are nonstationary. We then utilize these data to test the PPP using both conventional and fractional approaches. Estimates of the cointegrating relations are obtained using estimators suggested by Stock and Watson (1993) and Phillips and Hanson (1990), respectively. The results are consistent with the argument that, during the recent floating exchange-rate period, PPP holds well, at least in a weak form, in developing countries where the general price level movements overshadow the factors causing deviations from the PPP.
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