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Global current account imbalances have been one of the focal points of interest for policymakers during the last few years. Less attention has been paid, however, to the diverging current account balances of the individual euro area countries. In this paper we consider the dynamics of current account adjustment and the role of real exchange rates in current account determination in the EMU countries. After controlling for the effects of income growth, we find the relationship between real exchange rates and current accounts to be substantial in size and subject to nonlinear effects. We find that real exchange rates can offer further insights, beyond the effects of the income catch‐up process, relevant to current account determination in the EMU.

Recent advances in testing for the validity of Purchasing Power Parity (PPP) focus on the time series properties of real exchange rates in panel frameworks. One weakness of such tests, however, is that they fail to inform the researcher as to which cross-section units are stationary. As a consequence, a reservation for PPP analyses based on such tests is that a small number of real exchange rates in a given panel may drive the results. In this paper we examine the PPP hypothesis focusing on the stationarity of the real exchange rates in up to 25 OECD countries. We introduce a methodology that when applied to a set of established panel-unit-root tests, allows the identification of the real exchange rates that are stationary. We apply procedures that account for cross-sectional dependence. Our results reveal evidence of mean-reversion that is significantly stronger as compared to that obtained by the existing literature, strengthening the case for PPP. Moreover, our approach can be used to provide half-lives estimates for the mean-reverting real exchange rates. We find that the half-lives are shorter than the literature consensus and therefore that the PPP puzzle is less pronounced than initially thought.

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Since the mid-1990s the banking sector in the Latin American emerging markets has experienced profound changes due to financial liberalization, a significant increase in foreign investments, and greater merger activities often occurring following financial crises.The wave of consolidation and the rapid increase in market concentration that took place in most countries has generated concerns about the rise in banks' market power and its potential effects on consumers.This paper advances the existing literature by testing the market power (Structure-Conduct-Performance and Relative Market Power) and efficient structure (X-and scale efficiency) hypotheses for a sample of over 2500 bank observations in nine Latin American countries over 1997-2005. We use the Data Envelopment Analysis technique to obtain reliable efficiency measures. We produce evidence supporting the efficient structure hypotheses.The findings are particularly robust for the largest banking markets in the region, namely Brazil, Argentina, and Chile. Finally, capital ratios and bank size seem to be among the most important factors in explaining higher than normal profits for Latin American banks. concentrated markets and its effects on their conduct and profitability. Collusion activities, like other anticompetitive practices, can generate abnormal bank profits and ultimately burden consumers through, for example, higher than competitive loan rates, credit rationing, and the downgrading of banking services.Such considerations are typically formulated in the context of market-power explanations of bank performance. A popular market-power approach is the Structure-Conduct-Performance (SCP) paradigm, which implies that concentration lowers competition by fostering collusion among a handful of large banks in the market. A related market power theory is the Relative Market Power (RMP) hypothesis which suggests that firms with large market shares and well-differentiated products are more efficient and can earn supernormal profits. Another strand of literature, however, interprets the relationship between bank performance and concentration in terms of enhanced efficiency.The efficient structure hypothesis formalizes the concept that more efficient firms have lower costs, which in turn lead to higher profits. Therefore, with respect to the RMP, the causality is reversed in the sense that the most efficient firms will be able to increase their market share, resulting in higher concentration. Berger (1995) emphasises the need to include measures of estimated productive efficiency in the market power models of bank performance and distinguishes between X-efficiency 3 (ESX) and scale efficiency (ESS) hypotheses.The market power and efficient structure hypotheses have contrasting implications for regulation, particularly in relation to mergers and antitrust policies. If the evidence favors the efficient structure hypothesis, then mergers (and market concentration in general) are motivated by efficiency considerations, which should increase consumer and producer su...

This paper considers the presence of political budget cycles in Greece's municipalities. We construct a new dataset from primary sources and we find strong evidence of pre-electoral manipulation through increased expenditures and excessive borrowing. We use a dynamic panel data approach producing evidence of opportunistic behavior in local government finances. Our results are robust in the face of a series of controls including mayors running for reelection, their political alignment with the central government, and prolonged terms. Moreover, the results are robust to the exclusion of small sized municipalities and to the restriction of the time range of our investigation to the post-Maastricht period. We also consider whether opportunistic policies influence incumbents' reelection prospects finding that increased expenditures and election year opportunistic excesses are electorally rewarding. Our findings provide a characterization of opportunistic public finances management in Greek municipalities where electorally motivated budgetary decisions appear impervious to the various municipal reform attempts.

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