Financial Institutions

To understand why developing countries do not automatically benefit from financial globalization, both the need for a minimum institutional quality (the threshold hypothesis) and the possibility of varying volatility of different types of capital flows (the composition hypothesis) have been suggested. This paper contends that the two hypotheses are intimately linked, and provides supportive empirical evidence.

We survey the literature analyzing the price formation and trading process, and the consequences of market organization for price discovery and welfare. We offer a synthesis of the theoretical microfoundations and empirical approaches. Within this framework, we confront adverse selection, inventory costs and market power theories to the evidence on transactions costs and price impact. Building on these results, we proceed to an equilibrium analysis of policy issues.

There are five topics of debate that I will cover today: 1) Does inflation targeting improve economic performance? 2) Is inflation targeting consistent with the dual mandate? 3) Can central bank transparency go too far? 4) Would a price level target be better than an inflation target? 5) Would a point target be better than a target range?

In this address, I first describe the hallmarks of the Greenspan Fed and the advantages of this strategy that have produced such favorable economic outcomes. Then I look at how well the Fed might do after Greenspan and what challenges it might face. This discussion then leads naturally to suggestions for how the Fed should operate in the future to continue the excellent performance it has achived under Alan Greenspan.

This paper outlines a financial statement analysis for use in equity valuation. Standard profitability analysis is incorporated, and extended, and is complemented with an analysis of growth. The perspective is one of forecasting payoffs to equities. So financial statement analysis is presented first as a matter of pro forma analysis of the future, with forecasted ratios viewed as building blocks of forecasts of payoffs. The analysis of current financial statements is then seen as a matter of identifying current ratios as predictors of the future ratios that drive equity payoffs.