deficit finance and monetary dynamics in brazil and mexico abstract the paper develops a model of seigniorage in an open economy linking inflation the government budget and the external balance it introduces financial markets and interest rates in the traditional cagan style model of inflationary dynamics and it evaluates the experiences of brazil and mexico the model relates inflation in the 1980s to interest payments on the external public debt the paper also argues that inflationary finance has been combined with very fast growth of domestic debt setting the stage in brazil for unsustainable domestic debt growth in the sargent wallace style the collor plan stopped this process temporarily

the interest rate management and sterilization hypotheses for the uk under fixed exchange rates this study uses the vector autoregressive var technique and granger s definition of causality to examine the interest rate management and sterilization hypotheses of uk for the period 1955 i to 1974 iv our findings show that neither the long term government bond yield nor long term treasury bill rate of uk can be considered as a policy determined variable since each is subject to feedback from uk and us monetary and income variables in regard to the sterilization hypothesis our results indicate that the uk domestic credit is an exogenous variable with respect to uk foreign reserves and interest rates this result supports the implication of the monetary approach to the balance of payments that there was no sterilization in the uk during the fixed exchange rate period

fiscal deepening versus financial underdevelopment which accounts for the payments problems this paper records an attempt to establish a reasonably stable relationship between the domestic government budget deficit and the balance of payments using both monetarist and keynesian formulations a large sample of countries is classified in three groups on the basis of an index measuring the level of indebtedness and pooled time series regression analysis is carried out to substantiate the fiscal deepening hypothesis according to this hypothesis the largest impact of the deficit on external balance occurs in debt ridden countries regardless of the state of financial development because the deficit can better substitute for the domestic credit component of the monetary base in such cases

tradeable permits missing markets and technology this paper examines the effects of missing markets heterogeneous pollutants and the pollution technology of firms on the efficacy of transferable pollution permits under the assumption of perfect competition in all markets we show that if firms can substitute among pollutants then setting the optimal number of permits for only one pollutant will not in general lead to an efficient outcome the degree of the inefficiency will depend on the information set available to the regulator and the substitutability among pollutants by firms when establishing transferable pollution rights regulators should therefore consider the technology of firms if firms discharge pollutants in the same fixed proportions then the regulator need only set a market for one of the pollutants to ensure an efficient outcome where firms can substitute among pollutants however establishing a market for only one pollutant provides an incentive for firms to substitute to unregulated ones this is an important policy issue as substitutability among pollutants within and across production processes may dampen the dynamic advantages of a tradeable permit policy

evaluating the net gains from the cfa franc zone membership a different perspective abstract this paper deals with the membership gains derived by the cfa franc zone member countries after briefly discussing the current institutional framework of the franc zone rules we use the partial pooled reserves methodology developed by dodsworth to compute the net gains derived from cfa franc countries actual data of the operations account were used for the first time for the computation the net membership gains were calculated for both the western african monetary union umoa and the central african cfa franc zone we conclude that when the opportunity costs of maintaining the operations account at the french treasury are taken into consideration especially the interest rate costs and the exchange rate risks the evidence shows that overall there are more net losers than gainers in the cfa franc zone with the 65 reserves pooling for the study period 1975 1988

current account deficits and debt accumulation in latin america debate and evidence abstract in this paper i examine competing explanations for the behavior of latin america s current account in the 1970s and 1980s after briefly reviewing the focus of various economists on internal or external factors i outline a financial breakdown view which stresses the role of the changing availability of capital during this period of time i then turn to econometric work which 1 establishes the plausibility of viewing capital availability as a constraint on the current account and 2 offers some support for all three views of the determinants of latin america s current account

booming sector economic activity in paraguay 1973 86 a case of dutch disease the primary purpose of this study is to investigate the applicability of the dutch disease model as a means of explaining the changing sectoral composition of output for paraguay in the period 1973 86 the consequences of booming sector activity for 1 the distribution of income as it affects wages and 2 the in stability of export earnings for paraguay are examined the dutch disease model predicts that the consequences of booming activity will include a contraction of non booming sector activity as well as a real appreciation of the exchange rate these outcomes are tested in several single and multiple equation estimable models for the case of paraguay

exchange rates inflation and the sterilization problem germany 1975 1981 when the goals of internal and external macroeconomic equilibrium are in conflict sterilized intervention in the foreign exchange market may provide an independent policy instrument through which the central bank can resolve its dilemma in the short run this paper is concerned with the west german bundesbank s use of sterilization during the recent years of exchange rate flexibility the paper asks whether the bundesbank pursued sterilization during the years 1995 1981 and whether sterilized foreign exchange intervention exerts a significant influence on the exchange rate in the german case estimation of a stylized bundesbank reaction function suggests an affirmative answer to the first of these questions to assess the efficacy of sterilized intervention a structural portfolio balance model of german asset markets and prices is estimated dynamic perfect foresight simulations of the empirical model are used to ascertain whether imperfect substitutability between foreign and domestic bonds is sufficient to allow the bundesbank to attain independent internal and external goals over the short run of about a month the model s verdict is that the bundesbank has little if any power to influence the exchange rate over that time span without altering current or expected future money market conditions this abstract was borrowed from another version of this item

exchange market pressure in paraguay 1963 88 monetary disequilibrium versus global and regional dependency the relevance of the monetary approach to exchange market pressure for paraguay s small open economy is compared to that of two competing keynesian structural approaches which emphasize respectively global and regional dependency effects estimation results for the three models including formal comparisons using nonnested hypothesis tests and forecast accuracy staistics suggest that the explanatory power of the monetary model is dominated by that of the regional dependency model with the global dependency model having an intermediate degree of applicability this result is intuitive given the extreme dependency of the paraguayan economy on argentina and brazil

lag length selection and tests of granger causality between money and income one of the most widely accepred relationships in macroeconomics is the positive relationship between the rate of growth of the money supply and the rate of growth of income a diversity of opinion arises however with the attempt to identify a causal relationship between these variables while friedman and schwartz 1963 initiated the empirical investigation of money income causality sims 1972 made the most significant contribution to this literature with a practical application of the criterion developed by granger 1969 for identifying a causal relationship since the appearance of sims s approach and an alternative one advanced by sargent 1976 many researchers have applied these techniques to the investigation of the causal relationship between money and income l with two exceptions hsiao 1981 and mcmillin and fackler 1984 these researchers have arbitrarily chosen the lengths of their distributed lags the purpose of this paper is to test for granger causality between money and income this paper differs from previous work in that considerably more attention is focused on the effect of the lag specification on the test results in particular we investigate the extent to which rules of thumb arbitrary lag specifications and

the demand for international reserves and monetary equilibrium some evidence from developing countries traditionally two alternative explanations have been offered for the behavior of international reserves through time on the one hand the literature on the demand for international reserves postulates that reserves movements respond to discrepancies between desired and actual reserves onthe other hand according to the monetary approach to the balance of payments changes in international reserves will be related to excess demands or excess supplies for money the purpose of this paper is to empirically integrate these two basic explanations for international reserves movements this is done by estimating a dynamic equation that explicitly allows reserves movements to reflect the monetary authority s excess demand for international reserves and the public s excess demand for money the results obtained using a sample of 23 developing countries that maintained a fixed exchange rate during period 1965 1972 confirm the hypothesis that reserves movements respond both to monetary factors and to differences between actual and desired reserves these results indicate that the exclusion of monetary considerations from the dynamic analysis of international reserves will yield biased coefficients this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

real exchange rate targeting and inflation in turkey an empirical analysis with policy credibility abstract in this paper we make an empirical investigation into the conflict among objectives under a real exchange rate policy i e between the trade balance and domestic inflation this occurs when the nominal exchange rate is managed to achieve a certain level of the real exchange rate in order to main external competitiveness our empirical analysis draws on the turkish case whereby the exchange rate has been the key policy instrument since the 1980s the results from the simulation experiments with a well defined macromodel where the devaluation expectations are explicitly considered indicate moderate inflationary consequences of a real exchange rate policy based on the relative purchasing power parity ppp rule in turkey moreover a real exchange rate appreciation is found to be contractionary these are common characteristics of the demand determined output case another major conclusion is that the exchange rate policy can provide an anchor for price stability only if it is credible

external disturbances and the independence of monetary policy under the crawling peg in colombia abstract this study examines the impact of external economic disturbances and the independence of monetary policy in colombia a five equation econometric model is estimated the results indicate that external occurrences have had a significant impact on colombian prices and output contrary to the assumptions of the monetary approach to the balance of payments a substantial portion of foreign reserve flows were sterilized and the short run balance of payments offset to domestic credit expansion was less than complete

dutch disease economics and the colombian export boom abstract dutch disease models predict a primary export boom may result in deindustrialization due to an appreciating real exchange rate this paper examines the effects on the colombian economy of large increases in foreign exchange earnings from coffee and illegal drug exports as predicted by dutch disease models the relative price of nontraded goods rose and the real exchange rate appreciated once the boom was over both were slow to return to previous levels nontraded sectors are shown to have increased their growth rates during the boom years while traded goods experienced slower growth non coffee exports also grew more slowly econometric estimation shows that the real exchange rate was sensitive to the price of coffee and fiscal expansion that sectoral production adjusts to the exchange rate and level of absorption as predicted and that non coffee exports respond to changes in the real exchange rate and foreign demand the paper concludes with a discussion of economic policy in response to the export boom

assessment economic policy towards the environment the article presents an overview and assessment of economic policy toward the environment the first part reviews the core theoretical literature a classification of environmental externalities differentiated by institutional contexts is presented conventional economic theory approaches are reviewed with their associated strong informational assumptions these are then relaxed demonstrating why cooperative solutions to global externalities may prove hard to achieve having reviewed the theoretical nature of environmental problems the article then turns to policy options including privatization taxes and marketable permits and presents a number of suggestions for future policy copyright 1990 by oxford university press

fiscal deficits output growth and inflation targets in ghana abstract inflation appears to be the macro problem for which no antidote has been found under the economic recovery programme it is possible that either a wrong diagnosis has been made of the problem or that certain factors within the economy are preventing inflation from staying within target levels using an error correction model ecm the paper estimates an inflation equation for ghana the convenience of this model is in the fact that all the data series exhibit an autoregressive scheme of order one that is they are i 1 series in such an instance the granger engle theorem shows that the ecm provides the most efficient model further the ecm unveils some of the short run dynamics which are missing in other estimation techniques the results of the econometric regression show that inflation in ghana either in the long run or short run is influenced more by output volatility than by monetary factors an examination is made of the consistency of fiscal deficit the hypothesis is that an unsustainable fiscal policy would make government miss some macroeconomic targets it is shown that in 1985 and 1989 fiscal policy was consistent inflation was well within target in 1985 for 1986 1988 the government did not maintain consistent fiscal deficits and inflation in those years was well above targets it is recommended that to control inflation in ghana more attention should be paid to supply factors further government should pursue consistent fiscal policies

a comparison of lag length selection techniques in tests of granger causality between money growth and inflation evidence for the us 1959 86 this paper employs the granger test to examine the causal relationship between growth in the money supply and inflation for the us over the period 1959 to 1986 alternative procedures including bo

the economic effects of windfall gains in export earnings 1975 1978 abstract this paper reviews the effects of recent dramatic increases in beverage prices 1975 1978 on a sample of countries that are highly dependent on these commodities in most countries the increase in producer prices was restricted allowing substantial sums to accrue to the central government and the commodity organizations the countercyclical impact of fiscal policy was often limited by the rise in development spending this policy stance and the lack of monetary restraint contributed to a substantial rise in imports consequently in many of the sample countries the external reserve position in 1978 was little better than before the windfall gain

coffee export booms and monetary disequilibrium some evidence for colombia the theoretical models that analyse the monetary consequences of export booms show that under a regime of fixed exchange rates they affect not only the demand for money via real income but also the money supply via foreign exchange accumulation within this theoretical framework this study proposes an empirical approach to determine whether the coffee booms of the second half of the 1970s and mid 1980s led to excess money supply in the colombian economy the findings provide evidence in favour of a direct association between coffee export booms and excess money supply implying that external disturbances jeopardize the ability of the economic authorities to carry out successful monetary policy

correlated uncertainty and policy instrument choice abstract for two decades environmental economists have generally maintained that benefit uncertainty is irrelevant for choosing between price and quantity instruments but that cost uncertainty matters with the identity of the efficient instrument depending upon the relative slopes of the marginal benefit and cost functions but in the presence of simultaneous correlated uncertainty such policy instrument recommendations may be inappropriate with plausible values of relevant parameters the conventional identification of a price instrument will be reversed to favor instead a quantity instrument the opposite reversal from the choice of a quantity instrument to a price instrument seems less likely to occur

expansion of the economic frontier paraguayan growth in the 1970s abstract the rapid growth of the paraguayan economy over the last decade is analyzed in terms of the expansion of agricultural production and an increase in construction activity construction of the itaipu dam the world s largest hydroelectric project has provided employment and spurred private construction a government colonization programme and spontaneous brazilian immigration has brought new land into production favourable international prices for paraguayan exports and funds from the itaipu project swelled foreign reserves and served to maintain the paraguayan currency at an already overvalued rate the paper argues that the overvaluation combined with extensive smuggling undermined incentives for investment in manufacturing and deprived the government of revenues needed to finance infrastructure for sustained economic growth and development

strategic control of growth in a system of cities abstract this paper provides an analysis of the supply restriction model of growth controls growth controls in such a model harm consumers while enriching landowners and they will only be adopted if landowners have political power in the model this power is manifested in the city government s use of a social welfare that takes both landlord and consumer welfare into account since cities cannot be small if the supply restriction inherent in growth controls is to have an impact strategic interactions must be considered in the analysis of city choices a general model is presented and an extended example based on leontief preferences is then considered comparative static analysis of nash equilibria in the leontief case shows that perturbations of preferences or other characteristics of a single city can have important spillover effects that alter the choices of all cities in the region

the balance of payments offset to monetary policy monetarist portfolio balance and keynesian estimates for mexico and venezuela three balance of payments equations are specified and estimated for mexico and venezuela while a large offset is found for venezuela there is no evidence of a significant offset for mexico in the 1970s however it is shown that from 1951 to 1970 the offset was close to minus one suggesting there was structural change in the 1970s the estimated offset for venezuela in the keynesian equation is smaller than that in the monetarist equation supporting arguments that the latter is biased toward minus one however the long run offset is minus one in accord ance with both approaches copyright 1986 by ohio state university press

the coase theorem and coalitional stability it is the contention of this paper that the coase theorem has yet to be formulated and proved in a rigorous manner the problem addressed is that of strategic coalitional behaviour when more than two agents are involved in the externality it is shown that there are examples for which non efficient allocations are stable in the sense of aumann maschler bargaining sets thereby vitiating the coase theorem hence a proper formulation of the coase theorem must exclude bargaining set stability it is our contention that the coase theorem which asserts that with zero transaction costs and zero income effects the identical pareto efficient allocation of resources will emerge regardless of the initial assignment of property rights has yet to be formulated and proved in a rigorous manner the problem addressed here is that of strategic coalitional behaviour when more than two agents are involved in the externality for the coase theorem to hold in such situations two conditions are important first assuming that the maximum joint payoff can be effected only by the formation of the grand coalition e g by the merger of all parties involved in the externality the grand coalition must be stable second only the grand coalition must be stable for if some other coalition is also stable then the latter may form instead of the grand coalition so that a pareto optimal allocation need not obtain the point of this note is to show that a rigorous statement of the coase theorem must exclude bargaining set notions of coalitional stability because

causal analyses between exports and economic growth in developing countries this study investigates the prima facie causal relationship between the exports and output growth in 30 developing countries over the period from 1960 to 1988 in a multivariate framework the information set considered for the output and exports models are domestic output exports labour and capital and exports domestic output exchange rate and foreign output respectively this study indentities a feedback prima facie causal relationship between exports and output growth in five countries export growth prima facie causes output growth in another six countries output growth prima facie causes export growth in a further eight countries and no causal relationship was observed between export growth and output growth in the remaining 11 countries we also found that in 15 countries the foreign exchange rate prima facie caused export growth and that in 12 countries world output caused export growth

is zoning a negative sum game zoning is well known as a key instrument of planning regulation which is environmental regulation in its broadest sense zoning in terms of economic theorisation is normally justified by the pigovian welfare economics theses of market failure notably

monetary policy and inflation under the crawling peg some evidence from vars for colombia abstract this paper investigates the effects of monetary policy under the crawling peg in colombia utilizing granger causality tests variance decompositions and impulse response functions from vars several alternative lag selection criteria are used to specify the lag structures of the vars variations in domestic credit appear to affect the balance of payments but not the exchange rate in colombia suggesting that the crawling peg has functioned more like a fixed than a flexible exchange rate the size of the balance of payments offset is relatively large but the models differ on its size domestic credit appears to have a weak effect on national output neither domestic credit nor the exchange rate play much of a role in explaining variation in inflation in colombia inflation appears to be primarily inertial and the result of demand shocks the results are consistent with the recent difficulties encountered in maintaining monetary targets in colombia and the persistence of inflation under contractionary monetary policy

short run independence of monetary policy under a pegged exchange rates system an econometric approach abstract in this paper we focus on the loss of independence of monetary policy due to the substitutability of domestic and foreign assets and estimate it for seven main industrial countries under a bretton woods period for that we develop a structural model of the economy which includes the behavior of the monetary authorities and we consider three different estimates of independence of monetary policy we find that when exchange rate expectations variables are left out of the equations then the three estimates widely diverge which emphasizes the error we can make if we just consider one type of estimate on the other hand when these variables are introduced in the model the three estimates indicate that a large amount of independence exists

causality analysis and multivariate autoregressive modelling with an application to supermarket sales analysis abstract this paper describes a modelling methodology for multivariate stochastic processes the concept of multiple causality is discussed and a procedure to detect multiple causality is suggested the data of a major canadian supermarket is analyzed and a multivariate autoregressive model for this supermarket is constructed and estimated several empirical findings are reported

environmental aspects of water price formation an empirical investigation of the cost of ground water protection this paper tries to develop a scarcity price for groundwater resources in the federal republic of germany frg the present legal framework in the frg is based on quantity regulation this framework as well as the quantitative structure of demand and supply is analysed in the absence of market values a model calculation for water protection is carried out to estimate the scarcity price of water according to this model calculation the average water price should be twice as high as it is the implications of such a price development for the demand side are being analysed

on the monetary macro dynamics of colombia and mexico abstract this paper investigates the dynamic interrelationship among money growth inflation and output growth for colombia and mexico on the basis of implementation of a vector autoregression methodology the evidence for colombia generally shows autonomous output growth and money growth behavior and an important role for money shocks in accounting for variations in inflations a different pattern of results emerged for mexico there are strong two way feedbacks among money growth and inflation and a less autonomous output growth behavior than in colombia

the short run relation between growth and inflation in latin america reply sebastian edwards uses a new unexpected money variable based on the addition of the contemporaneous fiscal deficit to my autoregressive money growth equations to argue that 1 in brazil and chile there is no significant relationship between unexpected money growth and output growth 2 unexpected money growth has different estimated effects on output in colombia peru and mexico and these effects substantially exceed those estimated in brazil and chile and 3 thus my 10 percent rule for the effect of unexpected money growth on output growth does not hold in addition edwards incorporates the terms of trade in his output equations and finds they are important in the case of chile and mexico finally edwards takes issue with my use of lagged inflation to explain output edwards and i use somewhat different data not only in terms of sources but also edwards often uses m2 rather than ml in reporting his best results however edwards and my basic results are broadly similar compare his table 1 and my original tables 1 and 4 this is encouraging and in general makes it seem not worth quibbling over the differences in data however there is one difference which affects the results that i will discuss later the inclusion of the fiscal deficit in the money growth equation is a key difference in our work as i pointed out in my earlier article fiscal and monetary policy often are closely related in latin america thus it is not surprising that edwards finds the deficit divided by lagged money is a significant factor in explaining money growth however the point is not to explain money growth but to estimate a relationship which the public could have been using to predict how much money and thus nominal aggregate demand has grown since the last observation on the money stock 2 it strains credulity to assume that in latin america the budget deficit could be used by the public to estimate money growth contemporaneously data on the cash deficit usually are available publicly only with a long lag moreover many alternative versions of a deficit involving creative accounting methods are reported for example for many years in colombia the reported deficit which is available with about a one quarter lag treated both the unspent portion of the budget and the accounting profits from the revaluation of the local currency value of exchange reserves as income procedures which caused great confusion inside as well as outside the government despite such problems the cash deficit still might be useful as a monetary growth predictor for example it may be correlated with some other easily available contemporaneous indicator of money growth however its usefulness can best be judged from a comparison of the results when the deficit is used only as the money growth predictor to determine unexpected money a constrained equation with those obtained when it is used as an additional independent variable an unconstrained equation a test robert barro has suggested in another context world bank the views and interpretations expressed in this article are my own and should not be attributed to the world bank its affiliated organizations or to any individual acting in their behalf edwards also uses the seemingly unrelated regression technique to take into account possible interrelationships in the error terms across countries judging from the reported t statistics this procedure did not improve the fits greatly 2surprisingly the deficit is not significant in explaining domestic credit in mexico this result and the estimated negative relationship between edwards domestic credit series and output suggest a problem in the domestic credit variable

assessing the relative merits of development charges and transferable development rights in an uncertain world traditionally regulatory instruments have been used to achieve planning objectives however emerging market based policy instruments such as transferable development rights a quantity based app

economic impacts of el nino southern oscillation evidence from the colombian coffee market el nino southern oscillation enso is a naturally occurring phenomenon that affects weather around the world past enso episodes have had severe impacts on the economy of colombia we study the influence of enso on colombian coffee production exports and price our structural econometric specification is consistent with an economic model of the market for colombian coffee which in the short run is characterized by a downward sloping demand curve and by a vertical supply curve we show that el nino i e positive shocks to enso is beneficial for colombian production and exports and decreases the real price of colombian coffee on the contrary la nina i e negative shocks to enso depresses colombian coffee production and exports and increases price however the overall impact of enso shocks is small both in the short run and in the long run shocks to international demand for colombian coffee are more relevant than supply side shocks in colombia in explaining the dynamics of the price of colombian coffee our results suggest that a given coffee price shock can have beneficial detrimental or negligible effects on the colombian economy depending on its underlying cause as a consequence policy responses to coffee price shocks should be designed by looking at the causes of the shocks

natural resource dependence a macroeconometric model for the united arab emirates this study constructs a macroeconometric model to analyse the problems of regions that exhibit dependence on nonrenewable resources e g oil the role of the oil sector in the uae and the extent to which it subsidizes the rest of the economy is evaluated the macroeconometric model constructed consists of four sectors has 25 equations and is evaluated and calibrated employing dynamic simulation techniques counter factual and policy experiments are carried out and the instruments targets approach is used to analyse the impact of the oil sector the article highlights the continued dependence of the uae economy on oil and the urgency to diversify the economy and securing more nonhydrocarbon sources of revenue

urban growth controls transitional dynamics of development fees and growth boundaries abstract this paper investigates how development fees and urban growth boundaries affect urban development when the short run construction supply function is upward sloped i e convex development costs whereas the policies are equivalent in the traditional static model dynamic analysis reveals important differences out of the steady state in particular the development fee that is efficient in the steady state is also dynamically efficient in contrast the long run efficient urban growth boundary generates inefficiently fast development out of the steady state the results are robust with or without location rents and perfect or myopic foresight assumptions

an examination of the objectives of monetary policy in four developing economies abstract this paper presents a model of monetary policy in developing economies which is estimated for mexico korea india and zambia the model is designed to identify both the goals and patterns of policy in these economies the results demonstrate that the authorities in these economies respond to foreign reserve flows partially sterilizing their impact in three countries they also respond to domestic variables accomodating seasonal variation and growth or price changes

autoregressive modelling and money income causality detection abstract a step wise procedure based on granger s concept of causality and abaike s final prediction error criterion is suggested as a practical means to identify the order of lags of each variable in a multivariate autoregressive process the model seems useful because it can serve as a reduced form formulation to avoid imposing often spurious or false restrictions of the model it also provides a reasonably powerful test of causality the idea is applied to u s postwar money and income data it is found that between m1 and gnp a bivariate feedback model fits the data best between m2 and gnp a one way causal model from money to income performs better diagnostic checks applied to our model seem to indicate the adequacy of our approach

electricity as a traded good abstract electric power has traditionally been classified as a non traded good produced and consumed within the country of origin more recently electricity has been traded across national borders and in certain cases viz bhutan has been the dominant export in other situations it is used to repay debts owed to neighboring countries this paper investigates the role of electricity as the primary export analyzes its valuation and then goes on to evaluate the impact on the terms of trade we conclude that in the medium term the electric power exporting economy would be better off developing its manufacturing sector to diversify its exposure and to protect its trade interests the case of bhutanese hydro electricity exports to india is studied and the change in trade advantage with every increase in power tariff is ascertained it is found that a 1 26 annual increase in non food consumer prices is correlated with a 1 increase in electricity export tariff while the causality from electric power tariff to indian manufactures prices is not established statistically a change in manufactures prices feeding back into consumer prices in bhutan is statistically significant suggestions are offered for bhutan to reduce dependence on indian imports and to diversify its export market exposure

transferable discharge permits and the control of stationary source air pollution a survey and synthesis comment the author challenges a strategy for transferable air discharge permits proposed by t h tietenberg in 1980 on the grounds that parties other than existing or new sources of pollution can participate in a free market and effectively remove portions of the environment from further development a party with sufficient financial resources to stockpile emission rights could be an environmentalist bent on improving air quality or an industrialist planning his own future expansion both would stifle industrial growth tietenberg responds by exploring how stockpiling affects allocation efficiency since industrial stockpiling will eventually produce revenues he suggests denying market access to environmental groups dck

trade and payments regime and the balance of payments in ghana abstract by 1982 the ghanaian economy was in the doldrums facing a severe foreign exchange constraint this state of the economy was attributed partly to the trade and exchange rate policies which had created distorsions and disincentives against exporting in particular and production in general since 1983 ghana has for the second time embarked on a trade and payments liberalization program this study examines the effect of the changing trade and payments regime on the balance of payments of ghana it provides some answers as to why the first liberalization episode was not sustained it also contrasts the experience of controlled and liberalized trade regime episodes the paper concludes by providing some lessons from the ghanaian experience

price and monetary convergence in currency unions the franc and rand zones abstract theory suggests that a currency union will impose significant macroeconomic disciplines on its members the law of one price for example should lead to convergence of price levels at least for what may be regarded as tradeable goods likewise arbitrage would imply convergence of interest rates this paper looks at the two main surviving currency unions the franc and rand zones in africa to see whether and to what extent these generally accepted propositions find confirmation in the data each of the african currency unions has a dominant or core member france in the case of the franc zone and the republic of south africa rsa in the case of the rand zone our focus is on the small members in the periphery and for them there is the additional presumption that inflation and interest rates will be imported from the core despite some rather wide short run divergences and although convergence is slow we find that in the long run consumer price inflation is largely determined in the core the limited evidence available suggests that uncontrolled interest rates also converge to core country levels jel f31

economic adjustment and exchange rates in developing countries in spite of the attention paid exchange rates in recent economic debates on developing countries relatively few studies have systematically analyzed in detail the various ramifications of exchange rate policy in these countries in this new volume from the national bureau of economic research leading economists use rigorous models to tackle various exchange rate issues while also illuminating policy implications that emerge from their analyses the volume divided into four main sections addresses the role of exchange rates in stabilization programs and the adjustment process the importance of exchange rate policy during liberalization reform in developing countries exchange rate problems relevant and unique to developing countries illustrated by case studies and the problems defining measuring and identifying determinants of real exchange rates authors of individual papers examine the relation between commercial policies and exchange rates the role of exchange rate policy in stabilization programs the effectiveness of devaluations as a policy tool and the interaction between exchange rate terms of trade an capital flow this research will not only prove crucial to our understanding of the role of exchange rates in developing countries but will clearly set the standard for future work in the field

the timing of monetary and price changes and the international transmission of inflation this paper presents a theoretical and empirical investigation into timing relationships between variables within and across industrialized countries the main empirical results of our analysis are 1 domestic monetary expansion appears to lead inflation in the sense that money granger causes prices without feedback contradicting an implication of the monetary approach to the balance of payments 2 hardly any significant timing relationship exists between domestic and foreign rates of inflation during the fixed exchange rate period providing no evidence for a generalized law of one price 3 some sterilization of official reserve inflows was successfully performed by the non reserve central banks except for canada 4 u s interest rates granger cause foreign rates providing evidence of some international transmission via asset markets

the short run dynamics of prices and the balance of payments the purpose of this study is to analyze theoretically and empirically the short run behavior of prices and the balance of payments in a small open economy with a fixed exchange rate following the presentation of the theoretical framework the experience of mexico during 1950 73 is analyzed the model is based on what is known as the monetary approach to the balance of payments this approach as is frequently presented deals with long run equilibrium situations when all relative prices are fixed this long run equilibrium view was applied to test empirically the theory for several countries 2 using the assumption that there are no serious barriers to the international movement of capital and that all goods are traded 3 these assumptions imply that goods and capital markets are perfectly arbitraged and therefore that price levels and interest rates in all the countries always move together

2 the institutional structure of production 1 prize lecture to the memory of alfred nobel december 9 1991 this abstract was borrowed from another version of this item

can an oil discovery lead to a recession a comment on eastwood and venables in a recent paper in this journal eastwood and venables ev present an analysis of the macroeconomic consequence of an oil discovery in an open economy model which assumes perfect international capital mobility rational exchange rate expectations and sluggish adjustment of domestic goods prices in this note the authors attempt to reconcile this apparent contradiction in the literature in particular the authors show that ev s results hinge crucially on their failure to allow for a direct impact of higher oil wealth on money demand even when all the oil revenue accrues to the government this should raise private sector wealth through the anticipated reduction in future tax liabilities in any case the authors find it difficult to conceive a situation in which an oil discovery will raise spending but leave money demand permanently unaffected the purpose of this note is to show the important implications of this observation for the effects of an oil discovery when appropriate monetary accommodation does not take place

booming sector and de industrialisation in a small open economy this paper presents a theoretical analysis of the dutch disease the phenomenon whereby a boom in one traded goods sector squeezes porfitability in other traded goods sectors both by directly bi

diversification of macroeconomic risk and international integration of capital markets the case of mexico this article tests the arbitrage pricing theory in the context of the unstable macroeconomic years in mexico 1977 87 using information on returns on assets available to domestic investors primarily stocks traded at the local stock exchange an attempt is made to ascertain the extent to which these assets have offered premia for a set of proposed sources of risk the pervasive factors that play an important role in asset pricing in mexico are unexpected inflation unexpected money growth innovations in the standard poor s 500 price series and innovations in the dollar oil price a residual market factor is obtained using the mcelroy and burmeister model given that these risks get premia over and above the riskless rate expected rates of return in mexico have been higher during the years of erratic macroeconomic conditions mexico is not considered to be well integrated with the international capital markets because local sources of risk such as inflation are not priced in the united states whereas international sources of uncertainty such as oil price shocks are priced locally but not in the united states capital markets are becoming increasingly important in developing countries because of the international debt problem it seems unlikely that semi industrial nations will be able to raise substantial amounts of funds in the international financial markets the development and growth of modern domestic capital markets will allow these economies to tap additional savings and to improve the allocation of scarce funds organized and liquid capital markets are a vital factor in promoting overall development they provide a means of allocating capital to alternative private and public projects and they furnish essential information for evaluating investment undertakings ross 1978 black 1988

international transmission of us macroeconomic policy and the inflation record of western europe abstract the interaction between monetary policy government budget deficits and inflation is examined for the four largest western european economies comprising france italy the united kingdom and west germany in order to assess the possible impact of us macroeconomic policy past us monetary base growth deficits and inflation rates are included in the set of explanatory variables for each of the european countries empirical results for the 1962 2 1985 4 sample period reveal interplay between domestic monetary and fiscal policy to be augmented by a significant impact of the us variables across all four countries in the sample

uncertainty and the choice of policy instruments a note on baumol and oates propositions baumol and oates propositions the irrelevancy of benefit uncertainty and the importance of cost uncertainty on the choice between a tax and a system of marketable permits are limited to a large number case in which the opportunities for victims of pollution to participate in a permit market are non existent however with the evolution of environmental groups and coalitions of victims in neighborhoods the large number case can easily transform into a small number case this paper shows that when the pollution standard set at what appears to be optimal ex ante is excessively lenient the system of marketable permits offers such groups a flexibility to buy pollution permits in a competitive market and destroy them until the optimal solution is realized in the reverse situation however baumol and oates propositions are unambiguously valid

coffee money and inflation in colombia abstract the purpose of this paper is to analyse the relationship between coffee money inflation and international competitiveness in colombia the basic hypothesis being investigated is that higher lower prices of coffee will tend to result through the accumulation of international reserves in higher lower inflation in turn this higher inflation will generate for a given rate of devaluation of the nominal exchange rate a reduction of the real exchange rate with the consequent loss of competitiveness in the non coffee tradable goods sector a dutch disease type of model is developed to discuss analytically the relationship between coffee prices money creation and competitiveness in the short and long run empirical results for 1952 1980 are presented these results support the hypothesis that there has been a positive relationship between the price of coffee money creation and inflation in colombia

the short run impact of fluctuating primary commodity prices on three developing economies columbia ivory coast and kenya abstract computable general equilibrium models are used to study the short run impact of fluctuating primary commodity prices on the economies of columbia ivory coast and kenya the results indicate that these economies are destabilized by primary commodity price fluctuations unless governments act to hold real domestic absorption constant to achieve this however would require foreign exchange reserves in excess of the level normally available to these governments for the purpose of stabilizing domestic economic activity

a re examination of the monetary model of exchange market pressure canada 1963 1988 in re evaluating the performance of the girton and roper 1977 two country monetary model of exchange market pressure emp for canada estimates are provided for an extended specification that allows for unrestricted dynamics results show the hypothesized negative effect of domestic credit growth on emp to be supported throughout the relevance both of the dynamics and of the hypothesized unitary tradeoff between exchange rate and international reserve movements for bank of canada policy is demonstrated for the sequence of fixed and floating exchange rate regimes contained in the 1963 1 1988 1 sample

external shocks and fiscal deficits in a monetary model of international reserve determination honduras 1960 83 results from single equation estimation of a standard monetary model suggest that central bank credit growth in excess of growth of money demand was the main source of international reserve losses in honduras during the 1960 83 period further 3 sls estimates suggest that increases in central bank credit growth were largely in response to rising external interest rates and decreases in the income terms of trade in addition income growth hence growth of money demand shows a strong positive response to the income terms of trade the fiscal deficit is found to have an insignificant impact on central bank credit growth

infrastructure financing and urban development abstract historically additions to public infrastructure necessitated by urban growth have been financed under a cost sharing approach in the last several decades however financing of growth has increasingly relied on land use exactions where new residents pay for the cost of incremental infrastructure despite the emergence of a formal growth control literature there has been virtually no formal analysis of the connection between infrastructure financing and urban development to provide such an analysis this paper investigates three different schemes for financing incremental infrastructure within an urban growth model the analysis compares an impact fee scheme to two types of cost sharing schemes deriving the effects on urban growth and land values of switching to the impact fee scheme the efficient financing scheme is also identified

policy inference using var models policy inference using var models i introduction macroeconomics has a long tradition of examining the response of macroeconomic variables to shocks in alternative policy measures much recent work in this area has been based on the empirical regularities between variables found in vector autoregressive var models the var results in turn have been used to investigate the impact of changes in different policy variables var modeling procedures have been used to test the relative effects of changes in money interest rates broad credit measures and fiscal actions on economic activity 1 moreover because var analysis does not require the specification of an underlying theoretical model it also has been used to study the linkages among macroeconomic variables across national borders 2 although debate over the alleged atheoretical nature of vars continues for example see cooley and leroy 1985 leamer 1985 and braun and mittnik 1985 var models are frequently used for policy analysis how the dynamic specification of a var model is generated and how the dynamics may influence the resulting policy recommendation is the subject of this study while modeling the dynamic relationship among macro variables is a longstanding subject relatively few studies have tested for the effects of alternative lag structures on a given model to our knowledge there has been little systematic analysis of the sensitivity of policy effects to changes in the lag structure of a given var model 3 in this paper we investigate this specification problem using a simple four variable var model similar in spirit to sims s 1980b 4 this model consists of quarterly observations for money real output prices and nominal short term interest rates for the period 1960 through 1985 in selecting this model we opt to focus on the impacts of lag specification on policy inferences derived from a given var model in doing so we ignore the effects of altering the specification in terms of variables included or excluded this approach seems reasonable however since our purpose is to investigate the effects of lag structure not specification problems in general to compare the policy conclusions derived from the alternative dynamic structures we use six different lag selection criteria these criteria briefly described in section ii vary the bias efficiency tradeoff inherent in such statistical procedures section iii discusses the estimation of the var model using the alternative dynamic structures comparison of policy recommendations derived from the models is presented in section iv using variance decompositions anticipating that discussion the evidence from our model suggests that policy recommendations are very sensitive to changes in the dynamic structure conclusions close the paper in section v ii lag length selection procedures many previous researchers have chosen to impose equal lag lengths on each of the variables in their models 5 this approach produces parameter estimates that may suffer from bias or inefficiency depending on whether the model is under or over parameterized we use six different approaches to determine the lag specification five are based on statistical criteria with the exact criteria listed in table i for comparability we also employ the nonstatistical ad hoc procedure of arbitrarily fixing the maximum lag on all variables to be four quarters one of the statistical approaches used is the standard f test 6 the f test imposes zero restrictions on lags beyond some point and tests this restricted model against a more general lag structure the f statistic is calculated sequentially until adding another lag does not statistically improve the fit of the model two of the selection procedures use a mean squared error criterion these are mallows s 1973 c sub p statistic and akaike s 1970

market power and transferable property rights the appeal of using markets as a means of allocating scarce resources stems in large part from the assumption that a market will approximate the competitive ideal when competition is not a foregone conclusion the question naturally arises as to how a firm might manipulate the market to its own advantage this paper analyzes the issue of market power in the context of markets for transferable property rights first a model is developed that explains how a single firm with market power might exercise its influence this is followed by an examination of the model in the context of a particular policy problem the control of particulate sulfates in the los angeles region

equity in infrastructure finance when are impact fees justified to the extent that impact fee financing of infrastructure replaces the property tax it shifts payment from owners of existing property to parties associated with newly devel oping property rapid growth in a community is often cited as justification for this shift a model of intergenerational equity is proposed based on benefit principle taxation and capitalization of tax costs and infrastructure benefits the study concludes that rapid growth per se need not bur den existing property owners unfairly unantici pated rapid growth on the other hand can lead to excess tax burdens on existing residents that may appropriately be mitigated through impact fees jel r11

assessing the impact of nigeria s naira depreciation on output and inflation empirical evidence in support of the argument that keeping real exchange rate persistently devalued may lead to a permanent higher level of inflation have been provided kamin 1985 calvo et al 1994 however probably because of the relatively recent origin of serious exchange rate depreciation in sub saharan africa countries especially nigeria when compared with other regions e g latin america and asia not many studies have been reported on the subject the existing studies on effect of persistent exchange rate depreciation in nigeria are based on either regression or simulation approach rather than var approach this present study intends to fill these gaps by not only focusing the study on nigeria but also adopting restricted vector autoregressive model thereby providing basis for comparison with existing results obtained for other countries this abstract was borrowed from another version of this item

an examination of the monopoly zoning hypothesis there have been several studies that have investigated the effect of zoning on housing prices one hypothesis is that the restrictiveness of zoning laws will vary with the monopoly power of a town the degree of monopoly power varies with the number of towns in the urban area urban areas with few zoning jurisdictions are likely to have higher housing prices than more fragmented urban areas previous research on this topic has shown mixed results the results in this article suggest that towns with more monopoly power do tend to have significantly higher housing prices than more fragmented urban areas

responding to the coffee crisis what can we learn from price dynamics an econometric model of coffee price dynamics is specified and estimated to capture the evolution of coffee prices at the farm wholesale and retail levels it investigates the historical influence of the international coffee agreement ica through its effects on yield and planting decisions in the short run the ica caused brazilian farm prices to become disconnected from international prices the ica helped coffee producers to better incorporate current world price information into planting decisions this created a price cycle that did not exist in non ica periods the low coffee prices experienced since the disintegration of the ica are consistent with low supply response to price information asymmetric price transmission at the retail level helped roasters and retailers benefit from upstream price interventions our results urge caution when considering future coffee price interventions

scarcity rents for water a valuation and pricing model for most natural resources the existence of scarcity and the extent of the scarcity rent can be readily determined at least conceptually that portion of the resource price in excess of extraction costs signals scarcity and defines the value of the resource in situ drawing on hotelling s 1931 treatment heal 1976 pindyck 1978 and hanson 1980 among others have used various forms of this relationship to analyze efficient extraction and consumption of natural resources given clear ownership no externalities and the existence of viable markets competitive market processes will establish the efficient level of this rent and thus the efficient time path of extraction and consumption in the absence of clear ownership rights and markets however scarcity value frequently goes unrecognized water resources provide an important example of this phenomenon given the growing apparent shortages in both urban and agricultural uses government agencies typically own the resource or otherwise have free access to it and need only cover extraction treatment and distribution costs ignoring scarcity rents in water pricing means that water prices are too low thereby inducing excessive extraction capacity investment and consumption even if water utilities were aware of the concept and importance of scarcity rent the absence of marketdetermined water prices makes the valuation of scarcity rents very difficult most water supply utilities obtain water from sources that have a recognized finite capacity this occurs where the withdrawal rates exceed the current rate of recharge a similar situation exists when utilities approach their legal entitlement to some given water source such as california water authorities now face with respect to their colorado river rights the anticipated higher cost for water implies a scarcity rent howe 1979 78ff on use of existing cheaper water sources today the usual lack of markets in water makes this rent implicit but it exists just as with oil or diamonds or any scarce natural resource this c st is completely distinct from outlays for exploration development transmission treatment and distribution which as out ofpocket costs readily become embedded in conventional water prices scarcity rent could arise with or without economies or diseconomies of scale in extraction or distribution it

the economic theory of zoning a critical review municipal zoning regulations are the most important way in which local governments affect housing markets numerous studies have been undertaken to analyze the impact of zoning on housing and land prices on population density and on welfare however despite the volume of previous research there is little agreement on the effects of zoning or how to properly analyze those effects several papers have reviewed the empirical literature on zoning this review focuses on the theory of zoning specifically on how zoning is modeled especially whether zoning is embedded in an urban model and the implications derived from these models for the impact of zoning on welfare and housing prices we divide the effects of zoning on economic agents into six broad categories supply side effects demand side effects tiebout effects externality effects endogenous zoning and rent seeking behavior supply side effects concern how zoning affects the suppliers of housing services and the land market demand side effects concern how zoning affects consumers choice of the optimal consumption bundle especially the choice of housing characteristics tiebout effects result from consumer mo

external shocks and adjustment in a mineral dependent economy a short run model for zambia abstract standard dutch disease analyses would suggest that mineral price declines reverse the effects of mineral booms in particular that the real depreciation caused by the fall in export prices helps revive the traded sectors notably manufacturing zambia s experience however shows that the sectoral impacts of external shocks are much more complex to investigate the tradeoffs inherent in economic adjustment policies including those currently advocated by the international monetary fund imf we use a multisector general equilibrium model the study shows that policies even those directed at a specific sector have indirect but not necessarily benign effects on the rest of the country

money income and causality in the united kingdom an empirical reexamination since the reduced form econometric exercises of friedman and meiselman 2 considerable research has been undertaken to determine the nature of the relationship running from money to income as well as the importance of reverse causation from income to money using an empirically testable defintion of causality proposed by granger 4 sims 7 developed an econometric technique to test for unidirectional causality in a two variable system in an application to u s nominal gnp and money data from 1949 iii to 1968 iv he reported that the main empirical finding is that the hypothesis that causality is unidirectional from money to income agrees with the postwar u s data whereas the hypothesis that causality is unidirectional from income to money is rejected 7 p 540 to examine the generality of sims s results williams goodhart and gowland 8 w g g undertook a similar study using u k data from 1958 i to 1971 iii a period when the bretton woods fixed exchange rate system prevailed they found that neither the causal relationship from money to income nor reverse causality from

the international liquidity explosion and worldwide inflation the evidence from sterilization coefficient estimates abstract many commentators have pointed to the huge us payments deficits and international liquidity explosion of the early 1980s as the major cause of the concomitant rapid rates of monetary expansion abroad and subsequent acceleration of worldwide inflation this international monetarist interpretation rests however on the assumption of only limited sterilization of reserve inflows by foreign monetary authorities this paper uses the major econometric estimates of sterilization coefficients to calculate the implied contributions of the reserve increases of this period to foreign monetary expansion these suggest that the reserve increases did in fact make a non trivial contribution to global monetary expansion but that for most countries they were not the dominant cause

foreign debt accumulation financial and fiscal effects and monetary policy reactions in developing countries abstract this paper analyzes the effects of the current account of government and government guaranteed foreign debt on the one hand and net foreign liabilities or the cumulated current account deficit on the other hand in a sample of 26 developing countries while the cumulated current account deficit generates stabilizing forces pissibly through financial and wealth effects large amounts of government and government guaranteed debt produce destabilizing effects by stimulating capital flight i also find that monetary policy reactions are stabilizing in the case of the cumulated current account deficit but desstabilizing in the case of a build up of government and government guaranteed foreign debt jel f32 f34

is africa different abstract africa s macroeconomic response to external shocks was significantly differrent from that of other developing countries during 1976 1986 nonparametric tests that correct for differing initial conditions indicate significantly lower economic growth in african economies average inflation was also significantly lower while current account deficits were larger economic policies in african countries are characterized by significantly larger budget deficits and government current expenditure as a share of gross domestic product and by greater inward orientation african economies in the cfa franc zones are distinguished by relatively lower inflation budget deficits and less reduction in investment gnp ratios

landing fees vs harvest quotas with uncertain fish stocks a revised version of this paper was published in the journal of environmental economics and management volume 43 issue 2 march 2002 pages 325 338

exchange market pressure in korean an application of the girton roper monetary model note korea s exchange rates have been changing daily since its adoption of the flexible exchange rate system in february 1980 the purpose of this paper is to examine the simultaneous adjustment of both exchange rates and the balance of payments in korea the girton roper 1977 model of exchange market pressure is applied the model draws on a combination of the monetary approach to the balance of payments johnson 1972 and to exchange rate determination frenkel and johnson 1978 the main theoretical proposition of the girton roper hereafter g r model states that an excess domestic supply of money will cause some combination of currency depreciation and an outflow of foreign reserves the g r model of exchange market pressure was designed for the canadian managed float during the period from 1952 to 1962 connolly and silveira 1979 took the g r model and applied it to the brazilian experience for the period from 1955 to 1975 modeste 1981 used the same model to explain the monetary experience of argentina in the 1970s korean experience provides another good opportunity to test theoretical propositions of the g r version of the monetary approach to managed floating first of all korea fits the model of exchange market pressure because the country can be treated as a small open economy which takes foreign prices as given in addition changes in korea s exchange rates can be considered to be the product of market pressure since the korean won is linked to a multicurrency basket the exchange rate of the korean won is determined largely by the exchange rate formula which relies on both the special drawing right sdr basket and korea s own currency basket it is according to this formula that the bank of korea establishes daily the exchange rate in terms of the intervention currency the u s dollar l

inflation and monetary policy in selected west and central african countries abstract this paper studies the conduct and performance of monetary policy in five west and central african countries cameroon cote d ivoire gabon ghana and nigeria the first three are members of the cfa zone and maintain a fixed peg vis a vis the french franc the other two have recently opted for a more flexible exchange rate regime no general conclusion can be drawn on the monetary policy exchange rate policy nexus estimates of the offset coefficient are significantly different from negative one but var estimation results on the ability of the monetary authority to pursue an independent inflation target are mixed the monetary authorities of ghana and nigeria sterilize the accumulation of net foreign assets to a limited degree no such evidence exists for cfa zone members

the inflationary effects of stochastic resource revenues in resource rich economies with less well developed financial markets this article develops a simple dynamic stochastic general equilibrium dsge model to illustrate how economies that face restrictions in their ability to alter both government spending and taxation in the short run and cannot borrow easily perhaps because of incomplete internal capital markets can find external fluctuations in resource revenues producing unexpected variations in their internal money supply and ultimately in their inflation rate the main channels for these effects run through the government budget and through the country s balance of payments position the model is calibrated to illustrate the case of iran

economic growth in africa abstract this paper draws on the recent endogenous growth methodology to study the factors behind differences in per capita growth rates across africa the results indicate that various economic factors including initial conditions investment population growth trade orientation inflation financial development and the growth of the government sector contribute significantly to economic growth in addition to economic variables we find the degree of political freedom to be a significant contributor to economic growth finally we find some evidence that economic growth by the members of the cfa franc zone has not fared well in comparison to other african countries

taxing tourism and subsidizing non tourism a welfare enhancing solution to dutch disease abstract using a combined analysis of a general equilibrium and a partial equilibrium this study models the impacts of a combined policy tool based on taxing tourism and subsidizing non tourism in a tourism dependent destination the results suggest that such a policy tool while widely discussed in economics literature may not be suitable for a tourism destination as it might have adverse effects on local welfare