Monetary conditions, investment, government consumption, public expenditure and financial markets are major issues, which play a major role in any economic activity. The current issue contains five papers that largely cover the issues cited.

The first paper, "Monetary Conditions Index in Singapore", uses bound test approach for cointegration analysis, to verify the stability of Singaporean real Gross Domestic Product (GDP), to construct the monetary conditions index over the quarterly period 1981:1-2004:4. The authors have concluded that the bounds test confirms a long-run equilibrium relationship between the output and its determinants, namely the short-term and long-term interest rate, exchange rate, claims on private sector, and share prices. Results reveal evidence of cointegration between these variables in both short and long run. The authors also verified the stability of Singaporean output demand function to construct the Monetary Conditions Index (MCI), and how the Monetary Authority of Singapore responds to exchange rate changes, and whether the policy responses differ. The study has evidently showed that the actual monetary stance reacts corresponding to the MCIs.

The second paper, "Economic Growth, Investment and Government Consumption in Italy: A VAR Analysis", uses a multivariate time series analysis of output growth rate, investment and government consumption in Italy from 1950 to 2005. The author found that the empirical results are consistent with the prediction of the Solow growth model, while they do not support the family of endogenous growth models according to which government consumption is a determinant of long-run economic growth.

The third paper, "Wagner's Law in Malaysia: A New Empirical Evidence", uses Malaysia as a case study to test the existence of Wagner's Law. The author found the existence of long-run cointegrating relationship and short-runbut not long-runcausality between economic development and government expenditure in Malaysia.

The fourth paper, "Modeling Household Demand: An AIDS Model", studies demand side effects, if there are any. For that purpose, household expenditure is modeled by Almost Ideal Demand System (AIDS) and data are estimated decomposing the crisis period into two sub-periods. The estimation results note some changes in cross-price elasticities of goods in question.

The fifth paper, "Financial Market Integration in India: Conceptual and Empirical Issues", presents a comprehensive review of the literature on the subject. A range of studies investigating the convergence of markets within India and also their convergence with the world markets seem to have mixed results. The author concludes that despite the mixed result, it is observed that the financial sector reforms have been successful in strengthening the interlinkages between the markets.

- S V Seshaiah
Consulting Editor