MONETARY STUDIES

Research Papers

THEORY AND PRACTICE OF ECONOMICS

Tomas Ramanauskas
A MACROECONOMETRIC MODEL WITH THE FINANCIAL SECTOR FOR THE CASE OF THE LITHUANIAN ECONOMY (pdf)
AbstractIn this paper* we develop a medium-sized structural macroeconometric model with a simple financial block for the case of the Lithuanian economy. Special emphasis is put on the role of credit conditions during the boom and downturn episode. It is maintained in the model that both stocks and flows of credit have effects on the economy, and direct effects can also be amplified by financial accelerator and credit multiplier effects. The in-sample and short-term out-of-sample dynamics of the model system is reasonably close to the actual economic developments. The model correctly describes basic features of the internal devaluation environment during the crisis episode: a downward nominal adjustment of wages, deflating housing bubble, deleveraging pressures and a sharp real adjustment. The analysis confirms that without fiscal intervention and buoyant recovery of exports, the process of natural adjustment of past economic imbalances would have been considerably longer and more severe. The model serves as a basis for further, more elaborate shock and scenario analyses.  

Gindra Kasnauskienė, Lina Buzytė
EMIGRANTS‘ REMITTANCES AND THEIR IMPACT ON THE ECONOMY (pdf)
SummaryEmigrants’ remittances are private cash flows which are sent by emigrants to their relatives left in their home country. These transfers are usually periodic, nonmarket and unrequited. Despite the fact that emigrants remit only a few hundred dollars at a time, these flows have unique characteristics that imply a possibility of strong effects on an economy. The analysis of the Lithuanian and Polish economies shows such a relation too. To begin with, remittances can be measured as a sum of three components: workers‘ remittances, employee compensation and migrants‘ transfers. However, scientists believe that the most proper way to measure them is to use workers‘ remittances only. Also, while analyzing the developing countries as Lithuania and Poland it is acceptable to include employee compensation too. What is more, emigrants’ remittances have attracted the interest of researchers because of their extraordinary characteristics and potential impact on economic development. Remittances are constantly growing cash flows that are usually sent to developing countries. The basic reasons to remit are altruism and self-interest exchange. Moreover, these transfers are distinct from those of foreign direct investment or private capital. Remittances are less dependent on the global economic situation, which implies their continuous growth without significant downturns. In addition, emigrants’ remittances may have both advantages and drawbacks. First of all, they can reduce poverty, increase consumption and investment in a receiving country. Remittances can reduce the risk of income shocks and make it possible to exchange working hours into time for studies. However, remittances can cause some negative effects as Dutch disease or a country‘s dependence on remittances. Talking about empirical tests, the World Bank and the International Monetary Fund have conducted abundant scientific research and paper work on remittances. However, there is no common, globally accepted model to test the impact of emigrants’ remittances on an economy. The GDP growth per capita is usually used as a dependent variable in panel regressions where independent variables are chosen freely according to the theories of scientists. In this article, two European Union member states – Lithuania and Poland – are compared in order to analyze the impact of remittances on their economic growth. Despite the fact that these countries have great differences in the size and level of their economic development, they both are among the top countries receiving the biggest amounts of remittances. In 2009, Lithuania had one of the highest remittances-to-GDP ratios (3.14 per cent), while that of Poland was 1.8 per cent only. However, Poland with its USD 8.13 billion was the twelfth among the countries receiving the biggest absolute amounts of remittances. Moreover, Lithuania and Poland have a different structure of emigrants’ remittances. It should be noted that, in Lithuania, workers‘ remittances account for over 80 per cent of a total of remittances, while in Poland the employee compensations’ share is even 56.6 per cent. While analyzing the Lithuanian and Polish economies in respect of emigrants’ remittances, the GDP growth per capita is also chosen as a dependent variable. The exports to-GDP ratio, unemployment rate, private capital flows to GDP, foreign direct investment to GDP, inflation, percentage of tertiary school enrollment, labour force growth, labour productivity and, of course, the remittances-to-GDP ratio are independent variables. The hypothesis of the article states that the effect on economic growth caused by emigrants’ remittances is greater in Lithuania because this country receives bigger flows of remittances to its GDP compared with Poland. To sum up, the results of the analysis show that in both cases emigrants’ remittances are not statistically significant in the model that explains economic growth. Despite the fact that, in Lithuania, remittances have a negative impact on the GDP growth per capita, in Poland they influence it positively. These differences may occur because of the different structure of the remittances, disparity of the factors that drive remittances and the inequality in the efficiency of the use of these cash flows. In addition, the hypothesis is rejected because the research shows that the ratio of emigrants’ remittances to the GDP does not have a positive effect on greater impact of remittances.
 

HISTORY OF ECONOMICS

Vladas Terleckas
VILNIUS CREDIT COOPERATION IN 1978-1914 (pdf)
SummaryThis subject has never been touched on, historiography is not available. The paper was written based mainly on the initial sources – annual statements of Vilnius credit cooperatives published or kept in the Lithuanian State Historical Archives. It mainly focuses on the elucidation of the trends and peculiarities in the activities of credit savings societies, especially of the largest ones – Vilnius Society of Craftsmen and Small Traders and Vilnius Credit Savings Society, as well as of the factors behind them. In the article, the development of credit cooperation is related to changes in the Russian authorities’ approach to these credit institutions, the political and economic situation in the Empire. These issues have been more thoroughly analysed in the author’s monograph “Banking in Lithuania 1795–1915”. Therefore this paper almost does not deal with the management of credit savings societies and credit societies, the rights and responsibilities of members of their boards and councils and of their shareholders, regulation of the performance of their operations and allocation of profits. Most attention is devoted to the circumstances and initiators of the establishment of these societies, the development of the number of their shareholders, the social and national composition and the operation of these societies. The research carried out on the basis of the initial sources ascertained that before World War I on the territory of the present Vilnius, two types of credit co-operatives were in operation – shareholder credit savings societies and credit unions whose members were free from paying shares. The earliest to have been established (in 1878) was Verkiai Credit Saving Society. The second – Vilnius Credit Savings Society of Craftsmen and Small Traders – emerged after an interval of 20 years. Establishment of credit co-operatives intensified at the beginning of the 20th century, when three credit savings societies and two credit societies were founded. The paper has more thoroughly analysed the changes in the number of members of the three largest savings societies (Verkiai, Vilnius Craftsmen and Small Traders, Vilnius), their social and ethnic composition, and development of operation; the personal composition of their boards and councils has been ascertained. According to all performance indicators, Vilnius Credit Savings Society of Craftsmen and Small Traders and Vilnius Credit Savings Society held the leading positions not only in the city but in the Vilnius Governorate credit cooperation segment as well. According to the data of 1 January 1914, they accounted for 73 per cent of the deposits held by this Governorate’s credit savings societies and 56.3 per cent of their granted loans. At that time, the former had 7,455 members, the latter 1,905 members, who owed them almost 1 million rubles. They expanded their credit and deposit operations fast. The development of the Vilnius Credit Savings Society’s operation was uneven; due to nonpayments of its members it ceased granting loans and commenced winding-up procedures. Naujininkai Credit Savings Society and Naujoji Vilnia Credit Savings Society founded respectively in 1907 and 1912 were short of time for expanding their operations. On the eve of World War One all credit savings societies in the city had extended loans to a sizeable part of small traders (1.02 million rubles to 8,302 persons), which helped these balancing their currency flows and avoiding expensive services of moneylenders. In addition, the societies significantly contributed to the development of small business in the city, the increase of its economic potential, improvement of living conditions, etc.  

Survey Papers

Margarita Starkevičiūtė
MACROECONOMIC IMBALANCES: DETERMINANTS AND GLOBAL GOVERNANCE (pdf)
SummaryThe aim of the paper is to survey the academic and policy debate on the causes of macroeconomic imbalances and appropriate global governance to address the issue. The paper is organized as follows. Section 1 specifies the causes and implications of macroeconomic imbalances; section 2 analyses macroeconomic interdependencies, coordination and methodological, institutional and socio-cultural policy challenges of global governance and reviews other empirical papers and findings. The paper finds that macroeconomic imbalances are driven by a set of different factors – demographic trends, the stage of economic development, the structure of an economy, the gap between demand and supply. Therefore, it offers different policy implications from those usually specified and suggests that by means of fiscal policy alone it is not possible to ensure long term external sustainability. A way of assessing sustainability is to ask whether the current account and the underlying behaviour of the government and of the private sector, if continued, would entail the need for a drastic shift in the policies or a crisis (e.g., an exchange rate collapse or an external debt default). New innovative measures are needed to find long-term solutions and to address the causes of macroeconomic imbalances in the framework of new economic thinking, as globalisation, the EU enlargement and further development of the single market, as well as financial crises revealed the weakness of the economic theories. Furthermore, a new, broader definition of global governance is needed given the growing macroeconomic interdependence. The paper examines global economic governance arrangements and assesses recent theoretical debates providing an outline for the methodological, institutional and social reform of the macroeconomic coordination framework. It presents major methodological innovations proposed by the leading world economists – development of new models with a structure able to assess not only trade flows, but also ready to use channels of transmission for international financial integration, introduction of a new statistical approach based on the actual value contributed to a product from different countries in trade statistics, expansion of the use of the SDR basket and modification of its structure by increasing the share of emerging economies. Given the fact that the international global economic governance institutions have not been reformed since their establishment after World War II, while economy has undergone remarkable changes due to globalization and integration, a new institutional approach is needed. The paper examines the strengths and weaknesses of the current institutional arrangements of global economic governance and defines a new institutional framework as a joint effort to combine the expertise of respected international institutions like the IMF with the leadership of the governments given their sovereign rights granted by their citizens to set up international coordination policy, which is now done within the G20 framework. Recent studies find that democratic values and social capital play an important and direct role in shaping the size of macroeconomic imbalances. It is observed that new ways of cooperation need to be exploited and aid programmes for developing countries have to be incorporated in the framework of global economic governance. The paper contributes to the practical implementation of global governance by defining governance methods with regard to the causes of macroeconomic imbalances and macroeconomic policy coordination tools.

Other Publications

Anders Åslund
LESSONS FROM THE EAST EUROPEAN FINANCIAL CRISIS, 2008-10 (pdf)