This thesis investigates whether the short end of the term structure has the ability to predict the future movements in short term rates and the inflation rate using data from a developing country: the case of Jordan. A number of econometric techniques are employed to examine the predictability of the term structure and to deal with the low quality data. In order to examine the ability of the term structure to predict the future movements in short term rates, the validity of the Expectations Hypothesis (EH) is tested. The EH implies that the term spread is an optimal predictor of the future changes in short term rates. For the empirical testing, two sets of data are used; the term structure in the Jordanian interbank market and the term structure in the primary market. The information content of the term structure about inflation rate is examined by investigating whether there is a long run equilibrium relationship between the short term rates and the inflation rate; that is, testing the Fisher Hypothesis, and between the domestic term spread and the inflation rate. Moreover, given that the exchange regime in Jordan is pegged to the US Dollar, the information content of the US term spread is also examined. The cointegration analysis is the only technique that provides evidence that the EH holds. In addition, it provides evidence that the domestic and the US term spreads contain some information about the inflation rate. As a result of dealing with low quality data, the Monte Carlo simulation provides evidence that the size distortion of the Dickey Fuller (DF) test becomes larger as the noise increases in the data and faster as the sample size becomes bigger. This evidence supports the literature that discusses the size distortion of the DF test.

The thesis focuses on the potential adoption of the inflation targeting (IT) regime in Egypt. Basically, it aimed at answering the following questions. (1) Should the central bank of Egypt shift to IT or continue with the current monetary policy framework, monetary aggregate targeting (MAT). (2) What the optimal policy horizon (OPH) should central bank choose to target inflation, (3) Does modelling inflation using models that allow for time-varying conditional variance, skewness and kurtosis helps in better understanding of inflation uncertainty? The main results of the thesis show that: (1) To answer the first question, the stability of velocity of money in circulation and money multiplier has been analysed using variance ratio tests and found unstable. Therefore, we could conclude that the current MAT framework cannot achieve its ultimate goal of price stability and it is believed that shifting to IT framework is highly recommended. (2) Concerning the OPH, the results show that the OPH is largely dependent on the nature of the shock and on a central bank’s preferences over goals. Thus, for different kinds of the shocks, even if they are generally classified of the same type, the concern of the central bank about other policy objectives affects the policy horizon. With respect to shock persistence, the results demonstrate that the horizon increases with the persistence of the shock as persistent shock distributed over many period in comparison with transitory and less persistent shocks. (3) To answer the third question, the methodology proposed by Leon, Rubio, and Serna (2005) for modelling nonconstant conditional second, third and fourth moments is applied. The results indicate that models with nonconstant second, third and fourth moments are superior to models with time invariant volatility, skewness and kurtosis.

State ownership in banking has received considerable coverage in the academic literature. However, there are a very few recognised case studies of state ownership of banks in developed countries. This thesis explores how bank ownership structure affects capital allocation efficiency within developed countries. This paper uses a new dataset comprises of 306 large private and public banks in 35 major developed and emerging markets in the 1990’s to provide a bank-level empirical analysis on government ownership of banks. This study focuses on bank lending pattern during election years to determine political influence on government owned banks amongst both developed economies and emerging markets. By utilizing annual data on both fixed effect and dynamic panel estimation techniques, evidence suggests that during election years government owned banks increase their lending compared to private banks in developed economies which contradicts findings from previous study. Key macroeconomic variables have been used to check for robustness of the results.

The principal objective of this thesis is to evaluate appropriate measures of inflation which are to be applicable for implementing monetary policy in developing countries. The first essay attempts to assess real effects of high inflation episodes for Indonesia, Malaysia and Pakistan. In order to investigate the real effects of high inflation episodes, the study adopts an indicator for the inflationary real effect, named inflationary real response (IRR), which is the difference between the expected and output-neutral inflation. Both the expected and output-neutral inflation are computed as the decomposition of shocks induced in the vector autoregressive (VAR) model. The main finding of this chapter is that there is a positive real effect in economic growth in the period after high inflation. The second essay investigates the responses of real output and inflation to oil price, aggregate supply and demand shocks in the four Asian developing countries; Indonesia, Malaysia, Pakistan, and Thailand. The structural VAR model is used to identify the different shocks and to explore the relative contributions of these shocks in explaining macroeconomic fluctuations. It is found that oil price shocks have negligible effects on economic activities for all the examined countries. However, aggregate supply and demand shocks are key sources of variation in output and inflation. The final essay examines whether the central bank should target a broader measure of the price index that incorporates stock prices alongside the prices of current goods and services. The primary contribution of this chapter is the estimation of a price index that can be efficiently utilised by central banks aiming to minimise output volatility. The results suggest that the central bank should use a price index that gives a sizeable weight to the fundamental component of stock prices to minimise output gap variance.

Operational risk management is considered one of the most important areas of risk management, particularly in the financial services sector. In recent years, financial institutions and regulators have concentrated their efforts and resources on how to measure and manage these risks before they cause great losses as evidenced in cases of Barings Bank and Allied Irish Bank. Most studies on operational risks focus more on the creation of sophisticated mathematical models for measuring rather than managing operational risks. As a consequence, this study explores the under-researched issue of the management of operational risks of Thai commercial banks. Four categories of Thai banks classified by shareholder type represented sample cases for investigation. Methodologies applied in this research were qualitative and quantitative. Given the absence of prior research in the subject area relating to emerging markets like Thailand, a qualitative multiple case studies methodology was used initially to develop theoretical propositions. The capabilities of Thai banks and external and internal factors related to operational management were assessed to provide an in-depth understanding of operational performance, the basis of an operational risk management framework and to provide a method of determining a bank's capital adequacy requirements. Following this, quantitative research was employed to complement, substantiate and extend the qualitative research. In particular, this quantitative analysis examined the relationship between national and corporate cultural dimensions against the operational risk management of Thai banks and also tested principal relationships of the proposed operational risk management framework. The findings revealed a number of key success factors for managing operational risks the financial sector, such as the strong commitment of the Board of Directors and Management, the establishment of an independent operational risk management unit, stat! participation and the central bank's control and support. With regards to external and internal factors, the study also gave some suggestions for Thai commercial banks to prepare for the implementation of the Capital Accord (Basel II) by the end of 2008 on the basis of the mutual interest between regulators and stakeholders. Several findings emerged that are discussed at length which have managerial implications for Thai and international banking. Practical tools and a theoretical framework are discussed that can be utilised by those operational risk management disciplines within Thai banking. The results support the theoretical framework proposed by BBA (1999) and Basel (200 1a) that all categories of Thai banks are adopting the Standardised Approach that utilises a 'bottom-up' process in measuring capital adequacy charges. A model of operational risk for Thai commercial banks is proposed to help in the management of operational risk and the thesis concludes by identifying practices in operational risk that are key to success for sound long-term operational risk management.

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