financial liberalization urban unemployment and welfare some implications of the artificial low interest rate and the high wage rate policies in ldcs abstract this paper investigates how the low interest rate policy in the commercial banking sector affects the urban unemployment in a small open harris todaro model the rate of urban unemployment unambiguously declines the volume of it shrinks if the rural to urban employment rate and the urban unemployment rate are sufficiently high relative to the wage elasticity of agricultural labor demand the national income increases if agriculture is dominant in the domestic production in such an economy the financial liberalization advocated by the mckinnon shaw school may aggravate the welfare even if it eliminates the financial repression

modelling money demand in open economies over the modern floating rate period the role of open economy factors in influencing domestic money demand in major industrial countries over the modern floating rate period is examined the theoretial model for the empirical analysis is derived from a general two country portfolio balance framework that determines the demand for domestic and foreign monetary and non monetary assets in each country the ecm estimates indicate that capital mobility plays an important role in the money demand function in all seven counteries considered currency substitution in contrast is not an important phenomenon

tariff liberalization policy and financial restrictions abstract the purpose of this paper is to assess how restrictions on capital mobility affect adjustment to a tariff liberalization policy this is done by comparing the adjustment process under free and restricted convertibility of foreign assets in a regime where the commercial exchange rate is pegged it is shown that starting from an equilibrium characterized by significant scarcity of foreign assets a policy of simultaneous liberalization of both current and capital account would cause a larger drop in domestic goods prices than would the short run effects of tariff liberalization alone in such an economy the effect of liberalization of capital controls is to generate current account surplus whereas tariff liberalization generates current account deficit

tariffs capital controls and equilibrium real exchange rates a general equilibrium intertemporal model with optimizing consumers and producers is developed to analyse how the equilibrium real exchange rate rer reacts to changes in the degree of restrictions to intra and intertemporal trade in particular the effects of changes in the level of import tariffs and of changes in taxes on foreign borrowing on the path of equilibrium rers are investigated in the case of import tariffs both temporary and anticipated changes are considered it is shown that in this intertemporal framework equilibrium real exchange rates can exhibit interesting and convoluted behaviour in particular results that contradict the traditional wisdom can be obtained a number of extensions are also discussed tarifs douaniers controles sur les flux de capitaux et taux de change reels d equilibre l auteur developpe un moddle d equilibre general inter temporel dans lequel consom mateurs et producteurs optimisent pour analyser les reactions du taux de change reel d equilibre aux changements dans le degre de restriction du commerce intra et inter temporel en particulier l auteur analyse les effets de changements dans le niveau des tarifs douaniers sur les importations et des taxes sur les emprunts a l etranger sur le sentier d equilibre du taux de change reel dans le cas des tarifs a l importation l auteur examine a la fois les changements temporaires et anticipes on montre que dans ce cadre intertemporel le comportement des taux de change reels d equilibre est interessant et contournm les resultats obtenus contredisent ceux suggeres par la sagesse conventionnelle l auteur discute aussi un certain nombre d extensions de ces resultats

money demand in open economies a currency substitution model for venezuela abstract this paper investigates the extent to which domestic money balances in venezuela are influenced by foreign exchange considerations to this end individuals are assumed to choose the levels of foreign and domestic money that minimize the borrowing costs associated with a given level of monetary services the solution to this optimization problem yields a closed form demand function for domestic money that allows for foreign exchange considerations this specification is estimated and the results point to an elasticity of currency substitution in excess of one conditioned on these estimates the paper estimates the risk premium for the period 1981 82 prior to the collapse of the exchange rate system in 1983

tariffs real exchange rates and the trade balance in a two country world abstract an intertemporal model of a two country world in which optimizing agents consume three goods importables exportables and nontradables is developed to investigate a tariffs effects on real interest rates real exchange rates and the trade balance real interest rates and real exchange rates are shown to move asymmetrically across countries in response to a temporary tariff we also show that in contrast to the findings of two tradable good models a temporary tariff may actually worsen the trade balance of both deficit and surplus countries even when there are no cross country differences in tastes

welfare effects of liberalization reforms with distortions in financial and labor markets abstract liberalization can have ambiguous effects on welfare and produce unexpected macroeconomic changes because of conflicting effects stemming from distortions in other markets both within the same period and across time this approach presents a two period intertemporal model of a small open economy to examine the welfare effects of removing one distortion financial repression tariffs while others wage and price rigidity remain in place the equilibrium conditions from this model are used to derive welfare effects of various liberalization policies and to determine optimal levels of the policy variables

monetary policy dollarization and parallel market exchange rates the case of the dominican republic abstract excessive money creation may give rise to inflation tax revenues and to a depreciation of the domestic currency this in turn leads to a shift away from the domestic currency into a foreign currency e g the us dollar hence the term dollarization from the domestic monetary authority s point of view dollarization is an unwelcomed phenomenomn thus the monetary authorities will attempt to arrest the dollarization phenomenon while maintaining the excessive money growth this paper develops and tests a model which analyzes the effects of monetary policy on dollarization and the parallel market exchange rates

employment unemployment and demand shifts in local labor markets this paper analyzes the effects of demand shifts within and between local labor markets on unemployment and employment outcomes observed in those markets the demand shifts are calculated from sales growth data at the firm and industry levels the results show that in general employment and wage adjustments by firms are primarily driven by shifts in labor demand demand shifts between local areas account for large fractions of the observed variation in unemployment and employment rate levels and changes across areas within area shifts cause much smaller and insignificant amounts of unemployment and only if they are between industry copyright 1991 by mit press

anticipated protectionist policies real exchange rates and the current account the case of rigid wages abstract in this paper we develop a general equilibrium model of an economy with short run unemployment to analyze how anticipated protectionist policies affect real exchange rates the current account and aggregate employment we find that a key transmission channel is the change in current employment induced by future changes in tariffs we show that the direction and magnitude of this effect will depend on relative factor intensities and on real exchange rate behavior if a future tariff generated a current real exchange rate appreciation and if nontradables are labor intensive the anticipation of protectionist policies will generate an increase in current employment

the welfare effects of trade and capital market liberalization treatise on the welfare effects of trade and capital market liberalization consquenses of the capital account liberalization in the presence of trade restrictions specifies on the liberalization of trade in the presence of foreign borrowing constraints proves superiority of gradual liberalization of trade to an abrupt liberalization

modelling money demand in open economies the case of selected asian countries while early work on money demand estimation focused primarily on the importance of domestic variables many studies in later years have suggested that foreign variables also influence the domestic demand for money in an open economy with the rapid financial market liberalization in some of the asian economies in the last couple of decades open economy factors have become very important in the determination of money demand therefore this paper aims to ascertain the degree to which foreign opportunity cost variables influence money demand in the philippines singapore and south korea cointegration analysis is performed and an error correction model estimated using quarterly time series data the empirical results support the inclusion of foreign opportunity cost variables in the money demand function

trade taxes and the current account abstract we show that under some conditions a temporary import tariff improves the current account whereas a temporary export tax deteriorates it permanent import tariffs and export taxes have an identical although ambiguous effect on the current account

response of the equilibrium real exchange rate to real disturbances in developing countries abstract using a simple dependent economy framework this paper outlines the links between the equilibrium real exchange rate and some of its fundamental exogenous determinants mainly terms of trade movements and commercial policy changes drawing on existing studies of trade flows in developing countries it is possible to derive plausible quantitative ranges for the response of the equilibrium real exchange rate to both external and policy induced shocks the results should be particularly relevant in designing real exchange rate targets and rules that allow for movements in the equilibrium real exchange rate in response to various shocks

the theory of commercial policy in a monetary economy with sticky wages abstract in a two country two commodity two factor international trade model the monetary sector is introduced by way of a transaction constraint under the assumption of fixed nominal wages in the domestic country import tax and export subsidies imposed by the domestic country have opposite effects on employment under the small country assumption money supply policy has no effect on the exchange rate

tariffs employment and the current account real wage resistance and the macroeconomics of protectionism using a standard complete specialization model of a small open economy within a rigorous intertemporal optimization framework and with contract based wage rigidity we show that permanent tariffs lead to a current account deterioration and a fall in employment contradicting most of the literature on macroeconomic effects of import tariffs the crucial factor in this complete reversal of standard results is the impact of tariffs on domestic real product wages via wage indexation temporary tariffs will have less of a negative impact on the ca or potentially even a positive impact because they increase the consumption rate of interest the terms at which future consumption can be traded for current consumption and so increase private savings extensions towards incorporating a more general production structure investment and the use of tariff revenues to provide wage subsidies are presented this abstract was borrowed from another version of this item

international currency substitution and the income velocity of money abstract this paper presents new empirical evidence on the degree to which international currency substitution destabilizes domestic money demand it also provides an explanation of some apparent discrepancies among previous empirical studies of currency substitution this explanation hinges on the distinction between the elasticity of currency substitution and the cross elasticity of money demand a large small value of one elasticity does not imply a large small value of the other a large cross elasticity is required for currency substitution to destabilize domestic money demand the empirical evidence presented here is consistent with the view that these cross elasticities are typically small

the terms of trade and the current account the harberger laursen metzler effect the paper examines the effect of terms of trade changes on a small country s spending and current account assuming optimizing behavior in an intertemporal framework with perfect international capital mobility a temporary future terms of trade deterioration implies a deterioration improvement of the trade balance whereas a permanent terms of trade deterioration has an ambiguous effect depending on the rate of time preference nominal and real variables are considered via exact price indexes two periods and an infinite horizon are examined

sectoral shifts and cyclical unemployment a substantial fraction of cyclical unemployment is better characterized as fluctuations of the frictional or natural rate than as deviations from some relatively stable natural rate shifts of employment demand between sectors of the economy necessitate continuous labor reallocation since it takes time for workers to find new jobs some unemployment is unavoidable this paper presents evidence that most of the unemployment fluctuations of the seventies unlike those in the sixties were induced by unusual structural shifts within the u s economy simple time series models of layoffs and unemployment are constructed that include a measure of structural shifts within the labor market these models are estimated and a derived natural rate series is constructed

the substitutability of equities and consumer durable goods a portfolio choice approach the stock market crash of october 1987 led many economists to lower their forecast of gnp growth for 1988 the rationale was that the loss of wealth that resulted from the crash would force asset holders to reduce their consumption expenditures yet a major slowdown in economic growth was not realized in the months following the crash gamer 11 explains this fact in terms of the life cycle hypothesis of consumption he argues that the potential adverse effect of stock market losses on planned consumption would be spread out over the entire lifetime of asset holders so that the immediate effect of the crash on the level

real disturbances the current account and the exchange rate the case of a tariff abstract this paper examines the effects of an unanticipated tariff on the current account and the exchange rate it is demonstrated that if nontraded goods and importables are substitutes complements in excess demand the imposition of a tariff will may lead to a current account surplus deficit and an appreciation depreciation of the domestic currency the model can be extended to analyze the effects of other real disturbances on the current account and the exchange rate

the effects of foreign exchange risk and return on the demand for domestic balances abstract this paper provides an empirical evidence regarding the effects of foreign exchange risk and return on the demand for domestic balances unlike earlier studies which examine only one effect and thus may have been subjected to a misspecification problem this paper includes both foreign exchange risk and return as explanatory variables in the money demand equation the results lend limited support to the hypothesis that foreign exchange risk negatively affects money demand and strongly indicate that foreign exchange return has a negative effect on the demand for domestic balances thus currency substitution seems to be relevant not just in developed economies but in developing economies subject to foreign exchange controls as well

tariffs and the current account the role of initial distortions from an initial position of laissez faire temporary tariffs have been shown to improve the current account however if tariffs are initially positive as in many actual economies temporary tariffs will magnify an existing distortion and therefore lower real income during protectionist periods optimizing agents may wish to smooth the path of consumption relative to income by foreign borrowing if the intertemporal elasticity of substitution is sufficiently low temporary tariffs may actually worsen the current account

devaluation levels versus rates abstract in a context of infinitely lived families a la sidrauski where consumers are lump sum compensated for the inflation tax and there is no capital mobility it is shown that a devaluation improves while an increase in the rate of devaluation deteriorates the balance of payments

unravelling the mystery of regional unemployment in finland b ockerman p 2003 unravelling the mystery of regional unemployment in finland reg studies 37 331 340 the study explores the determination of regional unemployment in finland the evaluation of regional labour markets is based on unique linked panel data that is created by matching the conventional economic fundamentals with the measures based on gross flows of jobs and workers the striking empirical finding is that the reorganization of labour markets lowers the unemployment rate in the finnish regions in other words the reallocation of labour resources seems to be good for regional employment b ockerman p 2003 demystifier le chomage re gional en finlande reg studies 37 331 340 cette etude cherche a examiner la determination du chomage regional en finlande l evaluation des marches du travail est fonde e sur des donnees uniques rassemblees aupres des e chantillons permanents liees et obtenues en mettant en rapport les fondements economiques conventionnels avec les mesures basees sur l

tariffs and exchange rate dynamics redux abstract this paper builds a two country intertemporal macroeconomic model similar to one developed recently by obstfeld and rogoff imperfectly competitive producer consumers maximize an intertemporal utility function with consumption real money balances and output as arguments we use the framework to examine both the short run and steady state effects of the imposition of a tariff in one of the countries this results in a fall in the tariff imposer s output in both the steady state and in the short run a small tariff may make a country worse off contrary to the usual result under perfect competition spillover effects are also considered

the macroeconomics of trade liberalization abstract this paper analyzes the short run macroeconomic consequences of trade liberalization in ldcs it is shown that linkages between the tradables and nontradables sectors the effect of imported inputs on the economy s productive structure and certain patterns of factor substitution can go a long way toward explaining the perverse contractionary effects frequently seen in liberalization programs

productivity shocks non traded goods and optimal capital accumulation this paper considers the interaction of saving and investment in determining the current account for a small open economy subjected to productivity shocks by emphasizing the distinction between traded and non traded goods the analysis highlights the crucial role of the real exchange rate in macroeconomic adjustment our results demonstrate the importance of intertemporal substitution for determining the response of investment to anticipated productivity disturbances we also show how the correlation of movements in saving and investment following an anticipated disturbance depends critically on relative sectoral factor intensities

currency substitution and instability in the world dollar standard comment myron ross correctly points out in his comment that u s price inflation is better predicted by the american money supply mlus than by the broader ten country world money supply mlw over the whole statistical time series from 1960 to 1980 provided in mckinnon s 1982 article specifically he showed that american price inflation is more highly correlated with mlus lagged one or two years than with mlw similarly lagged however mckinnon s present tense assertion that in general growth in the world money supply is a better predictor of american price inflation than is american money growth applies only to the weak dollar standard of the 1970 s and early 1980 s as his preceding discussion intended but failed to indicate clearly only in this later period of volatile exchange rates and price level instability in the united states do alternative hard currencies such as the yen and deutsche mark become competitive as international stores of value and units of account hence international currency substitution associated with the ebb and flow of speculation against or for the dollar significantly destabilized the demand for mlus in the 1970 s and 1980 s and only in this later period might one expect the sum of these internationally substitutable monies ml to predict world and perhaps even american price inflation better than does mlus in contrast during the strong dollar standard of the 1950 s and 1960 s the dollar was unchallenged as international money exchange rates were by and large convincingly fixed speculation for or against the dollar was incapable of substantially altering u s interest rates or of directly affecting the demand for mlus because cyclical international influences did not then destabilize the demand for dollars mlus was by itself a fairly efficient predictor of american prices thus ross s statistical results for the period 1960 to 1980 show somewhat greater predictive strength in mlus compared to ml because the 1960 s data outweigh the dissimilar data of the 1970 s let us instead partition the sample of imf data around the year 1970 whence began the transition from fixed to fluctuating exchange rates and the maturation of alternative monetary systems in europe and japan after applying similar statistical correlation procedures to those used by ross we show a striking structural shift in the world s monetary system the explanatory power of mlw increases sharply as that of mlus declines moderately tan 1982 for the early period of 1960 to 1970 table 1 shows simple correlation coefficients between annual percentage changes in money supplies and changes in american and world wholesale price indices the mlus provides a good explanation of u s prices and of world prices one to two years hence whereas the broader definition of mlw in which mlus enters with a 50 percent weight does surprisingly poorly being insignificantly correlated with american or world prices apparently money growth in industrial countries other than the united states was not then an independent source of worldwide inflationary pressure during the strong dollar standard table 2 shows the same simple correlations between percentage changes in prices and money for the weak dollar standard of stanford university please note that a typographical error giving the last word in the original title as market appeared on the cover of the june 1982 issue of this review the title was correct in the table of contents and on the article

stock market dispersion and unemployment abstract the sectoral shifts hypothesis advanced by lilien 1982 and davis 1987 suggests that unemployment is in part the result of resources being reallocated from declining to expanding sectors of the economy using u s data from 1931 to 1987 we test this hypothesis by constructing an index measuring the dispersion among stock prices from different industries we find that lagged values of this index significantly affect unemployment we show that the stock market dispersion index is less contaminated by aggregate demand influences than lilien s employment dispersion index which makes our test less vulnerable to the abraham and katz 1986 critique

the impact of young workers on the aggregate labor market an increase in the share of youth in the working age population of one state or region relative to the rest of the united states causes a sharp reduction in that state s relative unemployment rate and a modest increase in its labor force participation rate this is inconsistent with many theories of the labor market but can be easily explained by a model of frictional unemployment with on the job search the theory makes strong predictions regarding the behavior of wages which are shown to be consistent with the data the paper also reconciles its findings with an existing body of apparently contradictory empirical evidence

international factor mobility minimum wage rates and factor price equalization a synthesis this paper examines the behavior of a small open economy facing perfectly elastic supply curves for some of its productive factors in particular the paper derives some comparative statics properties of such economies compares them with the properties of otherwise identical economies in which all factor prices are determined endogenously and investigates the relationship between factor price rigidities factor price equalization and the pattern of specialization among the new results which are proved it is shown that as more and more factor price rigidities are imposed on an economy it comes closer to a state of factor price equalization

trade taxes and economic welfare abstract for a small country with no domestic distortions trade taxes are generally viewed as welfare reducing this note shows that in certain cases a temporary trade tax may raise welfare in the present although it must lower welfare over the entire planning horizon

a stable demand for money despite financial crisis the case of venezuela the demand for broad money in venezuela is investigated over a period of financial crisis and substantial exchange rate fluctuations the analysis shows that there exist a long run relationship between real money real income inflation the exchange rate and an interest rate differential that remains stable over major policy changes and large shocks the long run properties emphasize that both inflation and exchange rate depreciations have negative effects on real money demand whereas a higher interest rate differential has positive effects the long run relationship is finally embedded in a dynamic equilibrium correction model with constant parameters these results have implications for a policy maker in particular they emphasize that with a high degree of currency substitution in venezuela monetary aggregates will be very sensitive to changes in the economic environment

capital movements intersectoral resource shifts and the trade balance abstract in this paper i consider the interactions between the internal structure of the economy and its external balance in an intertemporal set up with perfect foresight a simple pattern emerges current account deficits are associated with depreciating real exchange rates the incorporation of real investments and government spendings change this pattern in a systematic way depending on factor intensities the composition of government spending and its timing

temporary import quota and the current account this paper studies the effects of a temporary import quota on the real exchange rate and the current account response is determined by the interaction between two opposing forces the intertemporal relative price effect tends to improve the current account while the wealth the intertemporal relative price effect tends to improve the current account while the wealth effect contributes to a deterioration for a sufficiently low degree of intertemporal consumption substitution the wealth effect is shown to dominate in this event the current account deteriorates in response to a temporary quota and improves only after the quota is lifted

the beveridge curve and regional disparities in canada the beveridge curve establishes an inverse relationship between the unemployment rate and the vacancy rate it has been documented and discussed at length by blanchard and diamond 1989 for the united states the unemployment vacancy relationships of the canadian economy and its regions are considered this analysis reveals some important distinctions in the behaviour of the regional baveridge curves and some interesting similarities at the aggregate level the observations are not strikingly different from those of blanchard and diamond for the us economy

trade and capital account liberalization in a keynesian economy this paper analyzes the process of trade and capital account liberalization in a keynesian framework with unemployed resources previous studies on this subject have ignored the potential interactions between the liberalization process and the pre existing distortions in the economy this paper derives the optimal liberalization policy given the keynesian context and solves for explicit formulas for the import tariffs and the capital account tax in a two period general equilibrium model it is argued that a trade reform is likely to have recessionary effects in the short run if the capital account has already been liberalized

fertility and the real exchange rate we use a quinquennial data set covering 87 countries between 1975 and 2005 to investigate empirically the relationship between fertility and the real effective exchange rate theoretically a country experiencing a decline in its fertility rate can be expected to experience a real depreciation we test and confirm this hypothesis controlling for a number of other potential determinants we find a statistically significant and robust link between fertility and the exchange rate our point estimate is that a decline in the fertility rate of one child per woman is associated with a depreciation of approximately 15 in the real effective exchange rate on utilise une base de donnees quinquennales pour 87 pays entre 1975 et 2005 afin d etudier empiriquement la relation entre fecondite et taux de change reel effectif theoriquement un pays qui fait l experience d un declin dans le taux de fecondite peut s attendre a une depreciation reelle on teste et on confirme que c est le cas en controlant un certain nombre d autres determinants potentiels il existe une relation significative et robuste entre fecondite et taux de change un declin du taux de fecondite d un enfant par femme est associea une depreciation d a peu pres 15 dans le taux de change reel effectif

the cleansing effect of recessions the authors investigate industry response to cyclical variations in demand production units that embody the newest process and product innovations are continuously being created and outdated units are being destroyed although outdated units are the most likely to turn unprofitable and be scrapped in a recession they can be insulated from the fall in demand by a reduction in creation the structure of adjustment costs plays a determinant role in the responsiveness of those two margins the calibrated model matches the relative volatilities of the observed manufacturing job creation and destruction series and their asymmetries over the cycle copyright 1994 by american economic association

exchange rate volatility and currency substitution abstract this paper employs a conventional small open economy portfolio balance macromodel to unveil new implications of currency substitution increased substitutability between foreign and domestic currency is found to affect the response of the exchange rate of both asset market and commodity market shocks in particular the extent of exchange rate overshooting and undershooting depends on the degree of currency substitution