Foreign Capital and Finland : Central government's first period of reliance on international financial markets, 1862-1938

The main objective of the study is to evaluate the Finnish central government s foreign borrowing between the years 1862 and 1938. Most of this period was characterised by deep capital market integration that bears resemblance to the liberal world financial order at the turn of the millennium. The main aim is to analyse the credit risk associated with the state and its determination by evaluating the world financial market centres perception of Finland. By doing this, the study is also expected to provide an additional dimension to Finland s political and economic history by incorporating into the research the assessments of international capital markets regarding Finland during a period that witnessed profound political and economic changes in Finnish society. The evaluation of the credit risk mainly relies on exchange-rate risk free time series of the state s foreign bonds. They have been collected from quotations in the stock exchanges in Helsinki, Hamburg, Paris and London. In addition, it investigates Finland s exposure to short-term debt and Moody s credit ratings assigned to Finland. The study emphasises the importance of the political risk. It suggests that the hey-day of the state s reliance on foreign capital markets took place during last few decades of the 19th century when Finland enjoyed a wide autonomy in the Russian Empire and prudently managed its economy, highlighted in Finland s adherence to the international gold standard. Political confrontations in Finland and, in particular, in Russia and the turbulence of the world financial system prevented the return of this beneficial position again. Through its issuance of foreign bonds the state was able to import substantial amounts of foreign capital, which was sorely needed to foster economic development in Finland. Moreover, the study argues that the state s presence in the western capital markets not only had economic benefits, but it also increased the international awareness of Finland s distinct and separate status in the Russian Empire and later underlined its position as an independent republic.

Essays on Russia's Economic Transition

This study comprises an introductory section and three essays analysing Russia's economic transition from the early 1990s up to the present. The papers present a combination of both theoretical and empirical analysis on some of the key issues Russia has faced during its somewhat troublesome transformation from state-controlled command economy to market-based economy. The first essay analyses fiscal competition for mobile capital between identical regions in a transition country. A standard tax competition framework is extended to account for two features of a transition economy: the presence of two sectors, old and new, which differ in productivity; and a non-benevolent regional decision-maker. It is shown that in very early phase of transition, when the old sector clearly dominates, consumers in a transition economy may be better off in a competitive equilibrium. Decision-makers, on the other hand, will prefer to coordinate their fiscal policies. The second essay uses annual data for 1992-2003 to examine income dispersion and convergence across 76 Russian regions. Wide disparities in income levels have indeed emerged during the transition period. Dispersion has increased most among the initially better-off regions, whereas for the initially poorer regions no clear trend of divergence or convergence could be established. Further, some - albeit not highly robust - evidence was found of both unconditional and conditional convergence, especially among the initially richer regions. Finally, it is observed that there is much less evidence of convergence after the economic crisis of 1998. The third essay analyses industrial firms' engagement in provision of infrastructure services, such as heating, electricity and road maintenance. Using a unique dataset of 404 large and medium-sized industrial enterprises in 40 regions of Russia, the essay examines public infrastructure provision by Russian industrial enterprises. It is found that to a large degree engagement in infrastructure provision, as proxied by district heating production, is a Soviet legacy. Secondly, firms providing district heating to users outside their plant area are more likely to have close and multidimensional relations with the local public sector.

Essays on macroeconomic effects of fiscal policy rules

Economic and Monetary Union can be characterised as a complicated set of legislation and institutions governing monetary and fiscal responsibilities. The measures of fiscal responsibility are to be guided by the Stability and Growth Pact, which sets rules for fiscal policy and makes a discretionary fiscal policy virtually impossible. To analyse the effects of the fiscal and monetary policy mix, we modified the New Keynesian framework to allow for supply effects of fiscal policy. We show that defining a supply-side channel for fiscal policy using an endogenous output gap changes the stabilising properties of monetary policy rules. The stability conditions are affected by fiscal policy, so that the dichotomy between active (passive) monetary policy and passive (active) fiscal policy as stabilising regimes does not hold, and it is possible to have an active monetary - active fiscal policy regime consistent with dynamical stability of the economy. We show that, if we take supply-side effects into ac-count, we get more persistent inflation and output reactions. We also show that the dichotomy does not hold for a variety of different fiscal policy rules based on government debt and budget deficit, using the tax smoothing hypothesis and formulating the tax rules as difference equations. The debt rule with active monetary policy results in indeterminacy, while the deficit rule produces a determinate solution with active monetary policy, even with active fiscal policy. The combination of fiscal requirements in a rule results in cyclical responses to shocks. The amplitude of the cycle is larger with more weight on debt than on deficit. Combining optimised monetary policy with fiscal policy rules means that, under a discretionary monetary policy, the fiscal policy regime affects the size of the inflation bias. We also show that commitment to an optimal monetary policy not only corrects the inflation bias but also increases the persistence of output reactions. With fiscal policy rules based on the deficit we can retain the tax smoothing hypothesis also in a sticky price model.

Dynamics of inflation expectations in the euro area

The present study examines empirically the inflation dynamics of the euro area. The focus of the analysis is on the role of expectations in the inflation process. In six articles we relax rationality assumption and proxy expectations directly using OECD forecasts or Consensus Economics survey data. In the first four articles we estimate alternative Phillips curve specifications and find evidence that inflation cannot instantaneously adjust to changes in expectations. A possible departure of expectations from rationality seems not to be powerful enough to totally explain the persistence of euro area inflation in the New Keynesian framework. When expectations are measured directly, the purely forward-looking New Keynesian Phillips curve is outperformed by the hybrid Phillips curve with an additional lagged inflation term and the New Classical Phillips curve with a lagged expectations term. The results suggest that the euro area inflation process has become more forward-looking in the recent years of low and stable inflation. Moreover, in low inflation countries, the inflation dynamics have been more forward-looking already since the late 1970s. We find evidence of substantial heterogeneity of inflation dynamics across the euro area countries. Real time data analysis suggests that in the euro area real time information matters most in the expectations term in the Phillips curve and that the balance of expectations formation is more forward- than backward-looking. Vector autoregressive (VAR) models of actual inflation, inflation expectations and the output gap are estimated in the last two articles.The VAR analysis indicates that inflation expectations, which are relatively persistent, have a significant effect on output. However,expectations seem to react to changes in both output and actual inflation, especially in the medium term. Overall, this study suggests that expectations play a central role in inflation dynamics, which should be taken into account in conducting monetary policy.

New Evidence on the Properties of the Financial Statement Information Pricing Process

This study contributes to our knowledge of how information contained in financial statements is interpreted and priced by the stock market in two aspects. First, the empirical findings indicate that investors interpret some of the information contained in new financial statements in the context of the information of prior financial statements. Second, two central hypotheses offered in earlier literature to explain the significant connection between publicly available financial statement information and future abnormal returns, that the signals proxy for risk and that the information is priced with a delay, are evaluated utilizing a new methodology. It is found that the mentioned significant connection for some financial statement signals can be explained by that the signals proxy for risk and for other financial statement signals by that the information contained in the signals is priced with a delay.

Antioxidants, weight change and risk of type 2 diabetes

The incidence of type 2 diabetes has increased rapidly worldwide. Obesity is one of the most important modifiable risk factors of type 2 diabetes: weight gain increases and weight loss decreases the risk. However, the effects of weight fluctuation are unclear. Reactive oxygen species are presumably part of the complicated mechanism for the development of insulin resistance and beta-cell destruction in the pancreas. The association of antioxidants with the risk of incident type 2 diabetes has been studied in longitudinal prospective human studies, but so far there is no clear conclusion about protective effect of dietary or of supplementary antioxidants on diabetes risk. The present study examined 1) weight change and fluctuation as risk factors for incident type 2 diabetes; 2) the association of baseline serum alpha-tocopherol or beta-carotene concentration and dietary intake of antioxidants with the risk of type 2 diabetes; 3) the effect of supplementation with alpha-tocopherol or beta-carotene on the risk of incident type 2 diabetes; and on macrovascular complications and mortality among type 2 diabetics. This investigation was part of the Alpha-Tocopherol, Beta-Carotene Cancer Prevention (ATBC) Study, a randomized, double-blind, placebo-controlled prevention trial, which has undertaken to examine the effect of alpha-tocopherol and beta-carotene supplementation on the development of lung cancer, other cancers, and cardiovascular diseases in male smokers aged 50-69 years at baseline. Participants were assigned to receive either 50 mg alpha-tocopherol, 20mg beta-carotene, both, or placebo daily in a 2 x 2 factorial design experiment during 1985-1993. Cases of incident diabetes were identified through a nationwide register of drug reimbursements of the Social Insurance Institution. At baseline 1700 men had a history of diabetes. Among those (n = 27 379) with no diabetes at baseline 305 new cases of type 2 diabetes were recognized during the intervention period and 705 during the whole follow-up to 12.5 years. Weight gain and weight fluctuation measured over a three year period were independent risk factors for subsequent incident type 2 diabetes. Relative risk (RR) was 1.77 (95% confidence interval [CI] 1.44-2.17) for weight gain of at least 4 kg compared to those with a weight change of less than 4 kg. The RR in the highest weight fluctuation quintile compared to the lowest was 1.64 (95% CI 1.24-2.17). Dietary tocopherols and tocotrienols as well as dietary carotenoids, flavonols, flavones and vitamin C were not associated with the risk of type 2 diabetes. Baseline serum alpha-tocopherol and beta-carotene concentrations were not associated with the risk of incident diabetes. Neither alpha-tocopherol nor beta-carotene supplementation affected the risk of diabetes. The relative risks for participants who received alpha-tocopherol compared with nonrecipients and for participants who received beta-carotene compared with nonrecipients were 0.92 (95% CI 0.79-1.07) and 0.99 (95% CI 0.85-1.15), respectively. Furthermore, alpha-tocopherol or beta-carotene supplementation did not affect the risk of macrovascular complications or mortality of diabetic subjects during the 19 years follow-up time. In conclusion, in this study of older middle-aged male smokers, weight gain and weight fluctuation were independent risk factors for type 2 diabetes. Intake of antioxidants or serum alpha-tocopherol or beta-carotene concentrations were not associated with the risk of type 2 diabetes. Supplementation with of alpha-tocopherol or beta-carotene did not prevent type 2 diabetes. Neither did they prevent macrovascular complications, or mortality among diabetic subjects.