cash debt buy backs and the insurance value of reserves abstract the absence of terms of trade contingent instruments in international capital markets combined with differences in risk aversion between commercial creditors and ldc borrowers has important consequences for the welfare effects of cash debt buy backs in such circumstances secondary market prices fail to reflect the insurance value reserves have to debtors but not to creditors therefore the country buying back debt with reserves ends up unambiguously worse off even if it succeeds in capturing the full secondary market discount prevailing before the buy back

audience costs and the dynamics of war and peace we estimate audience costs and examine their substantive effects on the evolution of interstate disputes by using an infinitely repeated and dynamic game of crisis escalation unlike past efforts our approach estimates country specific audience cost parameters without relying on proxy variables such as democracy measures contrary to intuition increases in a country s audience costs encourage it to initiate disputes in equilibrium because the costs serve as a commitment device during the subsequent crisis incentivizing the country to stand firm and coercing its opponent to back down nonetheless the results demonstrate that larger audience costs would result in more peace worldwide as they also discourage potential opponents from initiating disputes beyond regime type we find that a free press provisions for executive appointment or removal and historical rivalries are also important determinants of audience costs

central bank independence economic behavior and optimal term lengths the authors parameterize central bank independence in terms of partisanship and term length focusing on the implications of alternative policy structures for real economic activity while long terms of office for the central banker can reduce the role of electoral surprises term lengths that are too long are costly if societal preferences are subject to permanent shifts the appointment of a conservative central banker increases the optimal term length and leads to lower average inflation but need not increase the volatility of output copyright 1996 by american economic association

systemic politics and the origins of great power conflict why do great powers fight one another this obviously central and seemingly simple questionleadsdirectlytooneofthemostfrustrating gaps in the empirical literature on international conflict great powers are states whose interests and capabilities extend beyond their immediate neighbors more so than other states they shape and respond to thestructureoftheinternationalsystem thatstructure is typically implicated in systemic wars which evolve from the interactions of all of the major states in the system yet somehow if the conflict literature is to be believed those same states cease to be driven by systemic interests and systemic imperatives in the long stretches of time between systemic wars in typical statisticalmodelsofconflict theyarepooledwithallofthe other states in the system under the assumption that theyrespondinthesamewaytothesamestimuli which aretypicallybothlocalanddyadic 1 becausenoonecan predict with certainty whether a given crisis between great powers will be resolved without bloodshed or explodeintoasystemicwar however arguingthatonly systemic wars have systemic causes is unsustainable the main barrier to understanding the systemic origins of great power conflict is that systemic theories of international politics are notoriously vague in the

drift control of international reserves abstract we develop a model of optimal reserve holdings where the reserve authority controls the upward and downward drift of international reserves and chooses the trigger points that induce changes in drift we argue that this drift control model better describes the dynamic behavior of reserves than does the popular buffer stock model we present an innovative mathematical tool for analyzing the drift control based on martingale stopping theory since the reserve authority has more instruments with drift control than with a buffer stock strategy it can manage reserves at significantly lower cost

evaluating debt repurchases what are the alternatives to investment abstract a general model of debt repurchases is built which reconciles most points raised in the literature on buybacks the inclusion of assets alternative to domestic investment is shown to be of crucial importance in the analysis and leads to the reversal of some previous results it is shown that investment necessarily rises following a buyback independently of the source of the funds used the condition that determines whether or not buybacks are an attractive solution to the debtor is derived it is shown to depend on the price at which debt can be bought and on an interest differential effect

general deterrence between enduring rivals testing three competing models general deterrence unlike immediate deterrence has rarely been analyzed in a systematic comparative manner we outline a research design for doing so by studying the circumstances under which in a set of enduring rivalries challengers are likely to initiate militarized disputes we indicate the conceptual and operational steps necessary to make and empirically compare predictions stemming from three often competing theoretical frameworks rational deterrence a general model of rational conflict initiation and a cognitive psychological model of behavior emphasizing risk orientation and misperception the results of probit analysis on a pooled time series of enduring rivalries since 1945 provide support for hypotheses from each of the different theoretical models

strategic interaction and the statistical analysis of international conflict although strategic interaction is at the heart of most international relations theory it has largely been missing from much empirical analysis in the field typical applications of logit and probit to theories of international conflict generally do not capture the structure of the strategic interdependence implied by those theories i demonstrate how to derive statistical discrete choice models of international conflict that directly incorporate the theorized strategic interaction i show this for a simple crisis interaction model and then use monte carlo analysis to show that logit provides estimates with incorrect substantive interpretations as well as fitted values that can be far from the true values finally i reanalyze a well known game theoretic model of war bueno de mesquita and lalman s 1992 international interaction game my results indicate that there is at best modest empirical support for their model

optimal inflation contracts and inflation targets with uncertain central bank preferences accountability through independence this paper examines some problems which arise when monetary policy is delegated to an independent central bank and where the central bank s preferences are unknown two key conclusions emerge from the paper first even with optimal targets or contracts central bank independence may not always be desirable because central banks may have distorted preferences relative to society second if the delegation solution is preferable and the independent central bank responds to information about supply shocks the central bank may be made more accountable by allowing it to set its own inflation targets i e by making it goal independent

efficient secrecy public versus private threats in crisis diplomacy this paper explores when and why private communication works in crisis diplomacy conventional audience cost models suggest that state leaders must go public to reveal information in interstate crises because leaders cannot enhance their credibility by tying their hands if domestic audiences cannot observe their private signals i present a crisis bargaining game where both the sender and the receiver of signals have a domestic audience the equilibrium analysis demonstrates that a private threat albeit of limited credibility can be equally compelling as a fully credible public threat secrecy works in crisis diplomacy despite its informational ine cacy because secrecy insulates leaders from domestic political consequences when they capitulate to a challenge to avoid risking unwarranted war the logic of e cient secrecy may shed light on the unaccounted history of private diplomacy in international crises the alaska boundary dispute illustrates this logic

on central bank independence and the stability of policy targets it is argued that impediments to the establishment of an independent central bank arise in the presence of unstable policy targets changing policy targets may occur with an officemotivated policymaker this differs from politico economic models where targets change depending on the partisanship of the politicians in office in the model the principal faces a tradeoff between the credibility benefits of an independent central bank and the flexibility to pursue shifts in his policy targets allowed by a regime of policy discretion an empirical section addresses the issue of the correlation between central bank independence and the stability of policy targets

secret buy backs of ldc debt we analyze the buy back of its debt by an ldc contrary to previous analyses of this subject we assume that the debtor can hide its transactions behind the veil of a fictitious operator the banks we assume cannot discriminate intra bank transactions from buy backs by the debtor itself with this assumption the lenders set the price by rationally taking account of the country s incentive to repurchase its debt will the debtor undertake a buy back of its debt the answer is a qualified yes large buy backs will take place

estimation of dynamic discrete choice models in continuous time with an application to retail competition this paper provides a method for estimating and solving dynamic discrete choice models in a continuous time framework that is computationally light the method is particularly useful in dynamic games in the proposed framework players face a standard dynamic discrete choice problem at decision times that occur stochastically the resulting stochastic sequential structure naturally admits the use of ccp methods for estimation and makes it possible to compute counterfactual simulations for relatively high dimensional games we apply our techniques to examine the impact of walmart s entry into the retail grocery industry showing that even the threat of entry by walmart has a substantial eect on market structure

rational deterrence theory and comparative case studies several recent books have argued that comparative case studies of crises demonstrate the failure of rational deterrence theory they have offered certain empirical generalizations as substitutes this paper shows that such contentions are unwarranted first the empirical generalizations are impressive as historical insights but they do not meet the standards for theory set out by the most sophisticated case study analysts themselves second the tests of rational deterrence used in the case studies violate standard principles of inference and the ensuing procedures are so biased as to be useless rational deterrence then is a more successful theory than portrayed in this literature and it remains the only intellectually powerful alternative available case studies are essential to theory building more efficiently than any other methods they find suitable variables suggest middle range generalizations for theory to explain and provide the prior knowledge that statistical tests require their loose constraints on admissible propositions and suitable evidence are appropriate and even necessary for these tasks these same characteristics however inevitably undermine all attempts to construe case study generalizations as bodies of theory or tests of hypotheses

domestic opposition and signaling in international crises this article explores the effect of domestic political competition on the escalation of international crises it combines an incomplete information model of crisis bargaining with a simple model of two party electoral choice one state has two strategic actors a government and an opposition party both of which declare openly whether they support the use of force to alter the status quo the rival state updates its beliefs and selects its strategy in response to both signals the parties payoffs depend upon a retrospective evaluation by the domestic electorate the model shows that the inclusion of a strategic opposition party decreases the ex ante probability of war by helping to reveal information about the state s preferences this finding has important implications for research on democracy and international conflict since it suggests a mechanism through which democratic states can overcome informational asymmetries which have been identified as a central obstacle to negotiation

central bank independence and macroeconomic performance some comparative evidence this note uses information on a sample of sixteen oecd countries to assess the relationship between central bank independence and macroeconomic performance as previous work suggests politically controlled central banks are more likely to pursue policies that lead to high and variable inflation however the authors find little evidence that political control of central bank policy has any impact on measures of the level or variability of growth unemployment or the ex ante real interest rate copyright 1993 by ohio state university press

rationalist explanations for war realist and other scholars commonly hold that rationally led states can and sometimes do fight when no peaceful bargains exist that both would prefer to war against this view i show that under very broad conditions there will exist negotiated settlements that genuinely rational states would mutually prefer to a risky and costly fight popular rationalist and realist explanations for war fail either to address or to explain adequately what would prevent leaders from locating a less costly bargain essentially just two mechanisms can resolve this puzzle on strictly rationalist terms the first turns on the fact that states have both private information about capabilities and resolve and the incentive to misrepresent it the second turns on the fact that in specific strategic contexts states may be unable credibly to commit to uphold a mutually preferable bargain historical examples suggest that both mechanisms are empirically plausible

domestic audience costs in international relations an experimental approach what makes international threats credible recent theories point to domestic audience costs the domestic price a leader would pay for making foreign threats and then backing down this article provides the first direct evidence of audi ence costs the analysis based on experiments embedded in public opinion surveys shows that audience costs exist across a wide range of conditions and increase with the level of escalation the costs are evident throughout the population and espe cially among politically active citizens who have the greatest potential to shape government policy finally preliminary evidence suggests that audience costs arise because citizens care about the international reputation of the country or leader these findings help identify how and under what conditions domestic audiences make commitments credible at the same time they demonstrate the promise of using ex periments to answer previously intractable questions in the field of international relations

u s soviet chinese relations routine reciprocity or rational expectations international relations theorists disagree about whether great power behaviors reflect bureaucratic routine or reciprocity recently some have suggested that these behaviors result from great powers rational expectations rather than from simple routine or reciprocity the debate is flawed in several respects the quasi experimental studies of great power behavior suffer from specification and measurement errors furthermore most studies of great power behavior focus exclusively on the superpowers without adequately appreciating china s role in world politics we present an improved analysis that recognizes the potential effects of chinese behavior and ameliorates the methodological flaws in existing work the results indicate that the behaviors of the united states the soviet union and china are a relatively stable mix of bureaucratic routine and reciprocity the results also indicate complex asymmetrical connections among u s soviet u s chinese and soviet chinese relations consistent with the notion of a strategic triangle

median voter preferences central bank independence and conservatism this paper studies how the independence and theconservatism of a central bank relate to the structureand stability of the median voter preferences this isdone by means of a model of endogenous delegationwhere an opportunistic policy maker chooses themonetary regime independence and conservatism tomaximise the welfare of the median voter the resultsshow that a high degree of inflation aversion ofmonetary policy is not necessarily associated with ahigh degree of central bank independence a high andstable degree of inflation aversion of society i e of the median voter may lead to establish a dependentcentral bank which is highly inflation averse this suggests that the negativecorrelation between inflation and central bankindependence indices detected by several empiricalstudies may reflect a link between inflation and somedeep features of social preferences

central bank independence centralization of wage bargaining inflation and unemployment theory and some evidence abstract this paper proposes a conceptual framework to investigate the effects of central bank independence of the degree of centralization of wage bargaining and of the interaction between those institutional variables on real wages unemployment and inflation in a framework in which unions are averse to inflation this aversion moderates union s wage demands as they attempt to induce the central bank to inflate at a lower rate an increase in the degree of centralization of wage bargaining a decrease in the number of unions triggers two opposite effects on real wages unemployment and inflation it reduces the substitutability between the labor of different unions and therefore the degree of effective competition between them this reduced competition effect raises real wages unemployment and inflation but the decrease in the number of unions also strengthens the moderating effect of inflationary fears on the real wage demands of each union this strategic effect lowers real wages unemployment and inflation for sufficiently inflation averse unions the interaction between those two effects produces a calmfors driffill type relation between real wages and centralization the paper analyzes the effects of central bank independence on the position and the shape of this relation as well as on inflation and unemployment the paper features two mechanisms one of which is novel through which monetary institutions have real effects the model implies that if there is a single union social welfare is maximized when the central bank attaches a zero weight to inflation but when the number of unions is larger than one this result is no longer true in general empirical evaluation of some of the theoretical implications using data from 19 developed economies is for the most part supportive of those implications