This paper examines the extent to which local monetary policy stance determines the strength of US monetary policy international transmission to global equities. Using a sample of 35 countries, we document that US monetary policy surprises exert significant inverse effects on global equity returns. Our results suggest that countries whose policy rates are brought into line with that of the US are less sensitive to US monetary policy shocks only when they have a high and intermediate level of cross-border financial linkages, and only when they have a low and intermediate level of exchange rate volatility.

Recent advances in testing for the validity of Purchasing Power Parity (PPP) focus on the time series properties of real exchange rates in panel frameworks. One weakness of such tests, however, is that they fail to inform the researcher as to which cross-section units are stationary. As a consequence, a reservation for PPP analyses based on such tests is that a small number of real exchange rates in a given panel may drive the results. In this paper we examine the PPP hypothesis focusing on the stationarity of the real exchange rates in up to 25 OECD countries. We introduce a methodology that when applied to a set of established panel unit-root tests, allows the identification of the real exchange rates that are stationary. Our results reveal evidence of mean-reversion that is significantly stronger as compared to that obtained by the existing literature, strengthening the case for PPP.

This paper investigates the dynamics between key regulatory and supervisory policies and various aspects of commercial bank efficiency and performance for a sample of 22 EU countries over 2000–2008. In the first stage of the analysis we measure efficiency by employing the Data Envelopment Analysis (DEA) technique. In addition, we employ two distinct accounting ratios to capture the costs of intermediation (net interest margin) and cost effectiveness (cost-to-income ratio). Our regression framework includes truncated regressions and generalized linear models. Moreover, we carry out a sensitivity analysis for robustness using a fractional logit estimator. Our results show that strengthening capital restrictions and official supervisory powers can improve the efficient operations of banks. Evidence also indicates that interventionist supervisory and regulatory policies such as private sector monitoring and restricting bank activities can result in higher bank inefficiency levels. Finally, the evidence produced suggests that the beneficial effects of capital restrictions and official supervisory powers (interventionist supervisory and regulatory policies) on bank efficiency are more pronounced in countries with higher quality institutions.

This paper investigates the dynamics between the financial freedom counterparts of the economic freedom index drawn from the Heritage Foundation database and bank efficiency levels. We rely on a large sample of commercial banks operating in the 27 European Union member states over the 2000s. After estimating bank-specific efficiency scores using Data Envelopment Analysis (DEA), we develop a truncated regression model combined with bootstrapped confidence intervals to test our main hypotheses. Results suggest that the higher the degree of an economy’s financial freedom, the higher the benefits for banks in terms of cost advantages and overall efficiency. Our results also show that the effects of financial freedom on bank efficiency tend to be more pronounced in countries with freer political systems in which governments formulate and implement sound policies and higher quality governance.