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Volume 5, Number 3 / September 2001 , Pages 155-224
Multinational Finance Journal, 2001, vol. 5, no. 3, pp. 155-173 |
Ephraim Clark , Middlesex University, U.K.    Corresponding Author
Radu Tunaru , Middlesex University, U.K.

This paper presents a model that measures the impact of political risk on portfolio investment when the political risks are multivariate and correlated across countries. The multivariate approach generalizes the single country model but retains most of its characteristics in terms of its ability to price political risk based on the stochastic process of exposure to loss and the expected frequency of loss causing events. The methodology is compatible with modern portfolio theory, straightforward to apply and can accommodate the traditional techniques in political risk assessment for the estimation of the relevant parameters.

Keywords : geometric Brownian motion; insurance policy; Poisson arrival process; portfolio investment; political risk
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Multinational Finance Journal, 2001, vol. 5, no. 3, pp. 175-200 |
Angela Huang , Reserve Bank of New Zealand, New Zealand    Corresponding Author
Dimitri Margaritis , University of Waikato, New Zealand
David Mayes , Bank of Finland, Finland

Ten years of inflation targeting in New Zealand is used to test whether monetary policy conforms to the simple rules that have been recommended in the literature. While a Taylor rule with the standard parameters used in the US describes New Zealand monetary policy quite well, the Reserve Bank has focused more strongly on price stability, as required by its Policy Targets Agreements. Monetary policy is better described by targeting the future inflation rate as forecast by the Bank than by current inflation as in the Taylor rule. However, restricting the description of policy to the information available at the time of setting policy does not result in a much-improved explanation. There is a ‘smoothing’ element to the Bank’s policy rather than an immediate response to every small fluctuation. There is also insufficient evidence to suggest that monetary policy has been asymmetric in treating upside inflationary pressures differently from those towards deflation

Keywords : central banks; inflation-targeting; monetary policy rules
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Multinational Finance Journal, 2001, vol. 5, no. 3, pp. 201-224 |
Asjeet S. Lamba , The University of Melbourne, Australia    Corresponding Author
Isaac Otchere , The University of Melbourne, Australia

This paper provides the first comprehensive analysis of the dynamic relationships between the South African and major world equity markets during May 1988 - May 2000. Using a multivariate cointegration framework and vector error-correction modeling the results indicate that there is a long-run relationship between the South African market and major developed markets. Over the full sample period, the US, Canada and Australia exert the most influence on South Africa, while the influence of Japan is minimal. The subperiod analysis shows that, during the Apartheid period, a long-run equilibrium relationship between South Africa and the major developed markets did not exist. In contrast, during the post-Apartheid period, the long-run relationship has become strong and statistically significant for all the major developed markets, except Japan. Overall, the results imply that South Africa is now much more economically and financially integrated with major developed markets, and that the removal of Apartheid has played a significant role in this process

Keywords : co-integration; emerging markets; South Africa; vector errorcorrection model
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