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Browsing Peer-reviewed Journal Articles by Author "Lizardo, Radhames"
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Item Can Latin America Prosper by Reducing the Size of Government?(2009) Lizardo, RadhamesThis article examines the effect of government consumption on economic growth in 23 Latin American countries over the years 1974–2003. Employing the Armey Curve, we show that the typical Latin American government is spending beyond the optimal point. Using panel data and a fixed effects (FE) model, we find that increases in government consumption lead to unambiguous decreases in economic growth.Item Do Foreign Purchases of U.S. Stocks Help the U.S. Stocks Market?(2009) Lizardo, RadhamesThis paper investigates the relationship between the U.S. S&P 500 stock market and purchases of U.S. corporation stocks by foreign investors. Estimations using monthly data from 1978:1 to 2008:7 under various methodologies show that, controlling for asset prices (interest rates and the yield curve) and inflation, purchases of U.S. stocks by foreign investors have a positive and statistically significant impact on the U.S. stock market performance. We also show that their relationship is time variant. In a global world, the demand-side variable captured by the foreign appetite for U.S. stocks attenuates the negative effects associated with the domestic forces.Item Essential Healthcare Services and Economic Prosperity: Evidence from Cross-sectional and Time-series Data(2019) Lizardo, Radhames; David, BenitaThis paper examines the relationship between investments in healthcare services and economic development across the world. The motivation comes from the assertion of the 2015 Lancet Commission that “investment in surgical and anesthesia services is affordable, saves lives, and promotes economic growth” and the 2016 World Health Organization Bulletin 94:201-209F who indicates a strong explanatory power of per capita expenditure on health as a determinant of surgical volume, an essential healthcare service. Using several methodologies, we find support for the hypothesis that investment in surgical, anesthesia, and other essential healthcare services and beyond, promotes economic growth. Our finding suggests that, other things equal, an increase of 1% in healthcare expenditure per capita leads to an increase in economic prosperity varying from 0.22% to 0.88%.Item Exchange Rate Volatility in Latin American and the Caribbean Region: Evidence from 1985 to 2005(2009) Lizardo, RadhamesUsing a total of 28 Latin American and Caribbean countries, this study finds a negative relationship between trade and exchange rate volatility. The econometric tool for this specific analysis is the widely used gravity model, in a panel data context. A similar condition is detected between inbound foreign direct investment and exchange rate volatility. The results of the study support the hypothesis that significant exchange rate volatility has a negative impact on the economies of the region and that achieving exchange rate stability should be a goal of policy makers in the context of Latin America and the Caribbean.Item The Impact of Chinese Purchases of U.S Government Debt on the Treasury Yield Curve(2011) Lizardo, RadhamesExamining monthly data from May of 1985 to May of 2008, we find that increases in Chinese purchases of U.S government debt lead to decreases in Treasury yields. The effect is stronger as the maturity increases: a one percent increase in purchases of U.S. Treasuries by Chinese investors lowers the two-year (ten-year) Treasury yield by 10 to 38 basis points (39 to 55 basis points) on average, ceteris paribus . Overall, the demand-side variable capturing Chinese purchases of U.S. Treasuries improves the cointegrating properties of U.S. interest rates. In-sample and out-of-sample forecasts reinforce that the model with Chinese purchases greatly outperforms basic models of the yield curve. This study has implications for the business world since we document that Chinese investors contribute to lower U.S. Treasury yields and thus to lower U.S. interest rates in general.Item Monetary Policy Convergence in the NAFTA Region: Evidence from Cointegration Analysis and Contagion Effects(2013) Lizardo, RadhamesThis paper examines the evolving, time-variant, long-run equilibrium relationship among the target interbank interest rates of Canada, the United States and Mexico to assess whether or not monetary policy in the NAFTA region is truly converging, as suggested by the leaders of these countries at a recent meeting in Montebello, Canada. Only recently has is it become feasible to analyze monetary convergence in the NAFTA region, as rolling cointegration analysis requires long-term data, such as that used in this study for the period of 1997 through 2007. We also test for cross-border contagion effects from the financial difficulties faced by Countrywide Financial Corporation during the recent U.S. real estate meltdown. This study of empirical financial and economic phenomena employs multivariate cointegration test and, for robustness, calculates σ-convergence in the NAFTA region. Our findings support the hypothesis of monetary policy convergence in the region. In general, the analysis tends to confirm a broad, ongoing economic convergence in the NAFTA region. We also find support for the proposition of cross border contagion effects from the financial difficulties faced by Countrywide, which adds robustness to the presence of monetary convergence.Item Oil Price Fluctuations and U.S. Dollar Exchange Rates(2010) Lizardo, RadhamesAdding oil prices to the monetary model of exchange rates, we find that oil prices significantly explain movements in the value of the U.S. dollar (USD) against major currencies from the 1970s to 2008. Our long-run and forecasting results are remarkably consistent with an oil-exchange rate relationship. Increases in real oil prices lead to a significant depreciation of the USD against net oil exporter currencies, such as Canada, Mexico, and Russia. On the other hand, the currencies of oil importers, such as Japan, depreciate relative to the USD when the real oil price goes up.Item The Sustainability of the U.S. Current Account Deficit: Revisiting Mann’s Rule(2009) Lizardo, RadhamesUsing quarterly data from 1973 to 2008, we provide evidence that current account (CA) deficits exceeding 4.2% of GDP (“Mann's rule") do have a significant lowering effect on the U.S. dollar value against major currencies. Controlling for inflation, public debt, and a broad trade weighted index, excessive CA deficits have a negative long-run impact on the USD. Along the transition path, much faster speeds of adjustment to long-run equilibrium are found when current account deficits in excess of Mann's rule are considered: 20% of the deviations from the long-run equilibrium are corrected in a month against 8% or 9% without Mann's rule. This suggests that excessive values of the CA deficit are “priced in" in international foreign exchange markets. Contrary to earlier evidence in favor of CA sustainability, we conjecture that economic conditions have made investors more sensitive to bad news for the U.S. dollar.Item What Motivates China to Invest so Heavily in U.S. Treasury Securities?(2014) Lizardo, RadhamesThis paper attempts to shed light on the question: What motivates China to invest so heavily in U.S. Treasury securities, despite the fact that U.S. Treasuries provide real rates of return that are either close to zero or negative? Such an investment strategy can be perceived as economically irrational. A linkage can be presumed between China’s investment practices and the tactical decision to moderate the United States’ influence on economic, political, and military issues. We hypothesize, however, that China does not have a better investment option because holding an ever-increasing amount of U.S. dollar-based liquid assets gives China the ability to manage the value of the yuan in order to force its desired trade surpluses. In other words, China’s main mechanism to secure a positive trade balance and increase its foreign direct investment is by maintaining an undervalued currency, which requires an ever-increasing foreign-exchange reserve. From what we know, our study is the most comprehensive empirical examination of motivations for China’s heavy purchases of U.S. Treasury securities by analyzing nearly 25 years that begins in 1987 and covers the period over which China dramatically increased its holdings of these instruments.