Volume 8, No 1, June 1995
The Statistical Distribution of Short-Term Libor Rates Under Two Monetary Regimes
We present a statistical analysis of sterling libor interest rates in two monetary regimes: free-floating of sterling, prior to ERM entry, and the recent ERM regime. Our findings indicate that short-term interest rates follow a random walk with time-varying volatility and increments drawn from a kurtotic distribution. Moreover, we find that the process followed by the short rate is sensitive to the regime: interest rate changes observed in the floating rate regime are drawn from a distribution with much flatter tails (the Cauchy distribution) than for the ERM regime (t-distribution). This characterisation of the process followed by the short interest rate is inconsistent with existing pricing models for interest-rate-derivative securities, which assume either that short rates follow simple Geometric Brownian Motion, or that they are mean-reverting.
Business Cycles and Income Inequality in Greece
This paper examines the business cycle characteristics of various aggregate as well as disaggregate indexes of income inequality in Greece relative to real output, inflation and employment. The evidence suggests a tendency for overall inequality to move procyclically with GDP and inflation rate and countercyclically with the employment rate. Considerable uniformity is observed in the cyclical pattern of all aggregate indexes with respect to real output and employment cycles but a variable pattern in the case of inflation. The results are consistent with those derived form the disaggregate indexes.
Is There a Horizontal Money Supply Curve?
A "horizontal money supply curve" is often used to symbolize the situation where the central bank sets the lender of last resort and supplies the high-powered money necessary to validate the flow of new loans which are demanded, because it contrasts so directly with the vertical supply curve which is used to depict the situation where the broad money stock exchanges only when the authorities deliberately change the stock of high-powered money. This paper argues that such a device is misleading. Firstly, there are logical and theoretical objections to depicting flows by turning a stock curve through 90-degrees. The paper also raises some practical objections. A horizontal money supply curve is not able to show or to explore many of the interesting aspects of endogenous money. The paper suggests an alternative way of representing endogenous money which focuses explicitly upon flows.
The Demand for the Turkish Military Expenditure 1960-92
Turkey, a member of NATO, has over the past three decades allocated an appreciable share of its national income to defence which on average has been 4.6 percent of GDP yearly. Often the defence burden in Turkey has been greater than the NATO average despite the fact that it is the poorest member of the alliance. This paper models the demand for Turkish military expenditure for the period 1960-92 using an error correction approach. Results reported here suggest that Turkish military expenditure has, over the years, been influenced by a combination of both internal and external security concerns.