assessing the effects of tariff reform on u s food manufacturing industries the role of imperfect competition and intermediate inputs recent work indicates that the joint effects of intermediate input and final output tariff reforms on equilibrium in the differentiated final products sector are analytically ambiguous this issue is addressed empirically for disaggregate imperfectly competitive u s food manufacturing industries the input tariff effect dominates in most industries leading to increases in the number of u s firms and total industry output as a result of tariff reform this provides evidence that the existing u s tariff profile discriminates against domestic food manufacturers as input tariff effects outweigh the protection offered by output tariffs this conclusion is robust to changes in the degree of interfirm rivalry monopolistic competition or cournot oligopoly

relative price determination in the medium run the influence of wages productivity and international prices this work explores three critical assumptions of the balassa samuelson productivity differential model for the short and medium run wage equalization competitive labor markets and purchasing power parity the data reveal violations in these assumptions for france germany japan the u k and the u s significant wage and unit labor cost differentials exist across industries and traded and nontraded sectors and these differentials do not diminish over time the findings are consistent with the presence of industry and or sectoral specific human capital

monetary union price level convergence and inflation how close is europe to the usa abstract the pattern of price dispersion across european and us cities from 1990 to 2004 is documented there is a striking decline in dispersion for traded goods prices in europe most of which took place prior to the launch of the euro dispersion in the euro area is now quite close to that of the usa this evidence provides useful facts for future work assessing the importance of various developments in europe harmonization of tax rates convergence of incomes and labor costs liberalization of trade and factor markets and increased coherence of monetary policy

pro competitive effects of trade reform results from a cge model of cameroon abstract how likely is trade liberalization to produce efficiency gains in the presence of imperfect competition scale economies and higher than average wages in the modern sectors all common features in developing economies these features create a potential conflict to the extent that traditional notions of comparative advantage lead us to expect that the modern sectors will be squeezed with liberalization in this paper we investigate this issue by using an applied general equilibrium model calibrated to cameroonian data under perfect competition we find that the welfare effect is a wash since the beneficial consequence of expanded imports is offset by the reduction in employment in the modern high wage sectors under imperfect competition by contrast trade liberalization produces welfare gains of the order of 1 to 2 percent of income the key is the pro competitive effect of liberalization domestic firms in the modern sectors now perceive themselves as facing a higher elasticity of demand which spurs them to increase production

expenditure switching vs real exchange rate stabilization competing objectives for exchange rate policy this paper develops a view of exchange rate policy as a trade off between the desire to smooth fluctuations in real exchange rates so as to reduce distortions in consumption allocations and the need to allow flexibility in the nominal exchange rate so as to facilitate terms of trade adjustment we show that optimal nominal exchange rate volatility will reflect these competing objectives the key determinants of how much the exchange rate should respond to shocks will depend on the extent and source of price stickiness the elasticity of substitution between home and foreign goods and the amount of home bias in production quantitatively we find the optimal exchange rate volatility should be significantly less than would be inferred based solely on terms of trade considerations moreover we find that the relationship between price stickiness and optimal exchange rate volatility may be non monotonic

exchange rate exchange rate volatility and foreign direct investment in the light of the importance of foreign direct investment fdi for the promotion of economic development this paper examines the impact of the changes in the real exchange rate and its volatility on fdi examining japan s fdi by industries we found that the depreciation of the currency of the host country attracted fdi while the high volatility of the exchange rate discouraged fdi our results suggest the need to avoid over valuation of the exchange rate and to maintain stable but flexible exchange rate in order to attract fdi

imports as competitive discipline the role of the productivity gap abstract this paper addresses the impact of foreign competition on the competitive advantage of domestic firms and the role of trade policy in an endogenous growth framework it shows that the impact of foreign competition on r d and productivity depends on the industry s relative position trade liberalization promotes innovation and enhances welfare in mature industries but hinders growth and leads to market exit in infant industries with a large productivity gap in the latter case temporary protection promotes the survival of the firm and increases welfare at the margin hence we integrate the old argument for the temporary protection of infant industries with the notion that foreign competition fosters innovation and productivity

exchange rate pass through exchange rate volatility and exchange rate disconnect abstract this paper explores the hypothesis that high volatility of real and nominal exchange rates may be due to the fact that local currency pricing eliminates the pass through from changes in exchange rates to consumer prices exchange rates may be highly volatile because in a sense they have little effect on macroeconomic variables the paper shows the ingredients necessary to construct such an explanation for exchange rate volatility in addition to the presence of local currency pricing we need a incomplete international financial markets b a structure of international pricing and product distribution such that wealth effects of exchange rate changes are minimized and c stochastic deviations from uncovered interest rate parity together it is shown that these elements can produce exchange rate volatility that is much higher than shocks to economic fundamentals and disconnected from the rest of the economy in the sense that the volatility of all other macroeconomic aggregates are of the same order as that of fundamentals

domestic constraints on export led growth a case study of india abstract in light of the 1991 1993 indian policy reforms this paper assesses the feasibility of a strategy of manufacturing export led growth for india by means of simulation experiments using a nine sector seven income classes computable general equilibrium model developed for india s seventh plan period 1985 1990 the relative merits of this strategy are compared to those of an alternative open development strategy agricultural demand led industrialization under both a fixed and flexible exchange rate regime compared to earlier models the analysis adds disaggregated agricultural supply and income distribution and export demand response the results suggest that industrial growth can be self defeating by raising the relative price of domestic goods and thereby running into an export demand bottleneck hence if a step up in manufacturing exports is to contribute to a non inflationary acceleration of gdp growth it needs to be supplemented by adequate policies aimed at raising agricultural output and income

synergy and investment efficiency effects of trade and labor market distortions abstract an alternative mechanism by which trade and labor market distortions affect national income is introduced namely the effects of these distortions on the efficiency of investment for the typical structure of protection of developing countries the income losses due to reduced investment efficiency caused by trade distortions are likely to be many times larger than conventional losses the potential synergistic negative effects of combining trade and labor market distortions commonly observed in developing countries are also emphasized the main conclusion is that income losses of even moderate trade and labor distortions are likely to be much greater than usually presumed

oil depletion and development in cameroon a critical appraisal of the permanent income hypothesis this paper focuses on medium term policy options in the economic context of natural resource depletion in particular a novel approach for analyzing the impact of the permanent income hypothesis pih with a dynamic recursive computable general equilibrium cge model is employed the model is benchmarked in an oil producing country with declining production namely cameroon the results show that the pih renders public finances less vulnerable during the post oil transition however adopting the pih is not associated with substantial improvements in growth and household welfare in cameroon therefore the pih cannot be the only basis for better management of oil revenues in the country

exchange rate volatility and international trade a general equilibrium analysis abstract we analyze the relation between exchange rate volatility and the volume of international trade in a general equilibrium stochastic endowment economy with imperfect international commodity markets and treating both variables as endogenous even in the simplest model the sign of the relation depends on the source for the change in volatility for instance more volatility of the endowments and higher costs to international trade both boost exchange risk and lower welfare but the first increases the expected volume of trade while the second decreases trade note that even the inter equilibria relation between trade and welfare is ambiguous

choosing an exchange rate system abstract the focus of academic discussions of exchange rate policy has shifted in recent years the new literature on exchange rate regime choice emphasizes considerations relating to the problems of credibility in exchange rate targeting and the connections between exchange rate regime choices and choices of monetary and fiscal policy arguments for exchange rate targeting are reviewed under most circumstances and for most countries a system of freely floating exchange rates is likely to be a better choice than attempting to peg the exchange rate

systematic movements in real exchange rates in the g 5 evidence on theintegration of internal and external markets abstract many recent studies have documented the random behavior of real exchange rates this paper shows that real exchange rates defined for different sectors of an economy move closely together with one another even though each of the sectoral real exchange rates taken alone has a large random component the sectoral real exchange rates are tied together by internal price links due to factor mobility within each national economy any differences between real exchange rates which develop moreover can be explained almost entirely by productivity differentials at least in the long run this paper contrasts the strong ties which bind together prices from different sectors internally with ties that bind the prices of goods from the same sector internationally prices are shown to be much more highly correlated internally than externally because flexible exchange rates disrupt normal pricing relationships between goods from different countries

a model of relative national price levels under pricing to market abstract this paper proposes an alternative to the balassa samuelson theory of how relative price levels between countries are determined the theory is a general equilibrium formulation of a model where pricing to market arises endogenously from firm decisions it differs from balassa samuelson in that it centers on the distinction between segmented national goods markets rather than the distinction between traded and nontraded goods the paper also explores how balassa samuelson might be updated by combining it together with pricing to market elements applied to the case of a monetary union the theory offers an alternative explanation for the inflation differentials observed in emu it implies that such differentials may be a natural and enduring feature of a monetary union in which markets for goods and labor are less than fully integrated

purchasing power parity over two centuries abstract this paper re examines the purchasing power parity hypothesis for the dollar sterling exchange rate using the two centuries of data from lothian and taylor lt 1996 real exchange rate behavior the recent float from the perspective of the past two centuries journal of political economy 104 3 488 509 unlike lt we conclude that the dollar sterling rer is nonstationary implying a rejection of the long run ppp hypothesis the differences in our conclusions are explained by 1 sensitivity of adf unit root tests to the choice of lag length and or 2 the presence of significant time trends in the adf or phillips perron unit root test equations

the dutch disease in a developing country oil reserves in cameroon abstract noting that most of the literature on the dutch disease refers to developed countries this paper looks at the impact of an oil boom on a developing country when certain features of developing countries particularly the imperfect substitutability between domestic and imported goods are incorporated one of the standard dutch disease results can be reversed not all the traded goods sectors will contract a simulation with a computable general equilibrium model of cameroon reveals that the agricultural sector is most likely to be hurt whereas some of the manufacturing sectors will benefit this suggests possible areas for government intervention should it be warranted and may explain the differential performance between the agricultural and industrial sectors of oil exporting countries in the post 1973 period

can a real business cycle model without price and wage stickiness explain uk real exchange rate behaviour this paper establishes the ability of a real business cycle model to account for uk real exchange rate behaviour the model is tested by the method of indirect inference bootstrapping the errors to generate 95 confidence limits for a time series representation of the real exchange rate as well as for various key data moments the results suggest rbc models can explain real exchange rate movements

trade liberalization and unemployment theory and evidence from india abstract a widely held view among the public is that trade liberalization increases unemployment using state and industry level unemployment and trade protection data from india we find no evidence of any unemployment increasing effect of trade reforms in fact our state level analysis reveals that urban unemployment declines with trade liberalization in states with flexible labor markets and larger employment shares in net exporter industries moreover our industry level analysis indicates that workers in industries experiencing greater reductions in trade protection were less likely to become unemployed especially in net export industries our results can be explained within a theoretical framework incorporating trade and search generated unemployment and some institutional features of the indian economy

pass through in retail and wholesale this paper studies how prices comove across products firms and locations to gauge the relative importance of retailer versus manufacturer level shocks in determining prices i make use of a large panel data set on prices for a cross section of retailers in the u s i analyze prices at the barcode or universal product code upc level for individual stores i find that only 16 of the variation in prices is common across stores selling an identical product 65 of the price variation is common to stores within a particular retail chain but not across retail chains while 17 is completely idiosyncratic to the store and product product categories with frequent temporary sales exhibit a disproportionate amount of completely idiosyncratic price variation my results suggest that most of the observed price variation arises from retail level rather than manufacturer level demand and supply shocks however the behavior of prices is difficult to relate to observed variation in costs and demand at the retail level this suggests that retail prices may vary largely as a consequence of dynamic pricing strategies on the part of retailers or manufacturers rather than static demand and supply shocks this abstract was borrowed from another version of this item

exploring international differences in inflation dynamics abstract standard closed economy dsge models have difficulty replicating the persistence of inflation we use a multicountry dataset to establish some empirical regularities on persistence and volatility of aggregate consumer prices for 135 countries since 1993 we find both persistence and volatility to be low high in developed developing countries relative to the full sample average this pattern is also observed in low high inflation countries we then employ a two country dsge framework to investigate the extent to which structural open economy features such as incomplete exchange rate pass through the existence of nontraded goods and international financial market incompleteness can help in replicating the persistence and volatility of consumer prices our simulation results indicate that the model can replicate the degree of inflation persistence seen in the data for both developed and developing countries but cannot generate the low levels of volatility observed in developed economies

currency crises and monetary policy in an economy with credit constraints this paper presents a simple model of currency crises which is driven by the interplay between the credit constraints of private domestic firms and the existence of nominal price rigidities the possibility of multiple equilibria including a currency crisis equilibrium with low output and a depreciated domestic currency results from the following mechanism if nominal prices are sticky a currency depreciation leads to an increase in the foreign currency debt repayment obligations of firms and thus to a fall in their profits this reduces firms borrowing capacity and therefore investment and output in a credit constrained economy which in turn reduces the demand for the domestic currency and leads to a depreciation we examine the impact of various shocks including productivity fiscal or expectational shocks we then analyze the optimal monetary policy to prevent or solve currency crises we also argue that currency crises can occur both under fixed and flexible exchange rate regimes as the primary source of crises is the deteriorating balance sheet of private firms

exchange rate pass through and relative prices an industry level empirical investigation in this paper we explore the extent of exchange rate pass through for the usa uk and japan using a post bretton woods industry level dataset we investigate how different channels of exchange rate pass through affect domestic and import prices our analysis is suggestive of two channels of transmission and we find considerable variation in the extent of pass through across industries and countries

an examination of uncovered interest rate parity in segmented international commodity markets we examine the effect of segmented commodity markets on the relation between forward and future spot exchange rates in a dynamic economy we calculate the slope coefficient in our theoretical economy from regressing exchange rate changes on forward premia with reasonable parameter values the slope coefficient is less than unity however even for extreme parameters the slope is not less than zero as found in the data a negative slope coefficient in a nominal version of the model requires the covariance between monetary shocks and relative output shocks to be significantly negative in contrast to the covariance in the data one of the most studied relations in international finance is that between forward exchange rates and future spot rates empirical tests typically find that when one regresses changes in spot rates on forward premia the slope coefficient is less than one and often negative this result is called the forward bias anomaly and implies that the returns from investing in forward exchange contracts are predictable our objective is to examine the effect of segmentation of international commodity markets on the relation between the forward premium and the change in the spot rate segmentation of commodity markets is modeled by introducing a cost for transferring goods across countries giving rise to deviations from purchasing power parity ppp in this article we first derive the theoretical implications of the effect of segmentation on the forward bias in a dynamic general equilibrium model and then analyze a calibrated version of the model our analysis serves as a useful benchmark to study how much of the predictable deviations from uncovered interest parity uip can be explained by endogenous deviations from ppp

international deviations from the law of one price the role of search frictions and market share this article examines the size and persistence of international deviations from the law of one price in an industry with search frictions cost differences lead foreign and domestic firms to price differently within countries when local firms are more common in each country there are large and persistent price differences across countries large and persistent changes in international relative costs lead to large and persistent changes in international relative prices dynamic considerations imply that the amount of a cost shock firms pass through to prices is u shaped in the market share of firms receiving the shock

european product market integration after the euro using a detailed data set of prices of consumer goods in european cities from 1990 to spring 2003 we investigate the question of whether the introduction of the euro in january 1999 increased integration of consumer markets as reflected by consumer prices in fact we find no tendency for prices to converge after january 1999 this finding holds even when we control for a number of factors that might affect price dispersion on the other hand we find that there has been a significant reduction in price dispersion throughout the decade of the 1990s suggesting that efforts to reduce economic barriers initiated early in the decade may have in fact had the effect of significantly increasing the integration of consumer markets charles engel and john h rogers

mexican agricultural trade under the gatt expected effects from partially lifting tariff barriers on the mexican agricultural sector are investigated using a restricted profit function rpf approach short run and intermediate run effects of the implementation of gatt minimum tariff provisions on mexican agricultural trade are examined specification tests reveal the appropriateness of the rpf approach that exports should not be aggregated with non traded production into a single output and that the farm sector behaves as an almost price taking profit maximizing firm policy simulations suggest important short run changes in agricultural trade and chemical use and intermediate run changes in agricultural trade labour wage chemical use capital investments and net farm income

on sunk costs and trade liberalization in appled general equilibrium the authors argue that the rationalization gains often predicted by static applied general equilibrium models with imperfect competition and scale economies are artificially boosted by an unrealistic treatment of fixed costs they introduce sunk costs into one such model calibrated with real world data the authors show how this changes the oligopoly game in a way significant enough to affect both qualitatively and quantitatively the outcome of a trade liberalization exercise copyright 1996 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

consumer search price dispersion and international relative price fluctuations this article develops a model of consumer search consistent with the evidence of substantial price dispersion and time spent shopping within countries to study international deviations from the law of one price lop and relative price fluctuations search frictions lead firms to price discriminate across markets based on the opportunity cost of search which depends on the local wage with productivity and taste shocks estimated from the data deviations from the lop are as volatile and persistent as in the data fluctuations in relative wages real exchange rates and the terms of trade are also consistent with the data

carbon taxation and market structure a cge analysis for russia abstract russia is one of the world s major sources of carbon based energy as well as one its most intensive users introducing carbon taxes can lead to a reduction in emissions and encourage investment in energy efficiency we investigate the economic effects of carbon taxes on the russian economy under perfect competition and a cournot oligopoly in output markets the main findings are i substituting carbon taxes for labour taxes can yield a strong double dividend in russia however welfare gains strongly depend on the labour supply elasticity and elasticities of substitution between capital labour and energy ii under the assumption of a cournot oligopoly with homogenous products and symmetric firms in the markets for natural gas petroleum and chemical products metals and minerals welfare costs of the environmental tax reform can be higher than under perfect competition this is because introducing carbon taxes leads to a reduction in already sub optimal output thereby exacerbating pre existing distortions arising from imperfect competition iii furthermore increases in energy costs can result in higher mark ups in some markets because of less competition resulting from firms exit

the exchange rate and purchasing power parity extending the theory and tests abstract this paper analyzes the exchange rate in a no arbitrage or real business cycle equilibrium model and provides empirical evidence for this model vis a vis ppp our contribution is to show based on a generalization of the equilibrium model of exchange rates that i the test equation linking the exchange rate to fundamentals should allow for international heterogeneity in time preferences and risk attitudes as well as noise that is the model should not be tested as an exact relation ii empirical work should use levels of variables rather than first differences and iii tests on the existence of long run relations should be complemented by test on the signs of the coefficients our empirical work shows that as a long run relation the generalized model outperforms ppp moreover under the generalized model quarterly deviations from the estimated long term relation have a half life of only four to five quarters

are individual investors tax savvy evidence from retail and discount brokerage accounts using brokerage account data we analyze the tax awareness of individual investors we find strong evidence that taxes matter investors prefer to locate bonds and mutual funds in retirement accounts and in december harvest stock losses in their taxable accounts however investors also trade actively in their taxable accounts realize gains more frequently than losses and locate a material portion of their bonds in taxable accounts though taxes leave clear footprints in the data we analyze many investors could improve their after tax performance by fully capitalizing on the tax avoidance strategies available to equities while optimally locating their assets

purchasing power parity and the role of traded goods evidence from eu states in this paper the debate on purchasing power parity ppp is considered by providing results with disaggregated price data from european countries the disaggregation of the price data is important because it allows for the consideration of goods that are likely tradable e g fruits with goods that are not tradable e g hotel rooms the european focus is important because these results are able to shed light on the effect of the type of exchange rate regime member of exchange rate mechanism erm or not

exchange rates and traded goods prices abstract this paper presents a partial equilibrium model of the determination of domestic and export prices by a monopolistic competitive firm the model stresses the role of exchange rate uncertainty and expectations the most important result of the analysis is that the stochastic properties of deviations from the law of one price are crucially affected by the currency of denomination of export prices using data on domestic and dollar export prices of japanese goods i find that deviations from the law of one price are due to exchange rate surprises but also to price staggering and ex ante price discrimination

causes of nonlinearities in low order models of the real exchange rate abstract this paper investigates the extent to which modern dsge models which feature local currency pricing home bias nontraded goods and incomplete markets can generate nonlinear real exchange rate dynamics that are consistent with those found in the time series literature using data from the current floating period our key findings are as follows first if the true model can be appropriately characterized as a set of linear equations then linearity tests that utilize univariate autoregressions of the real exchange rate suffer from an omitted variables problem which leads them to overestimate the true incidence of nonlinearity consequently studies that fail to control for this problem may spuriously find evidence of nonlinearities in the data despite the fact that the data generating process may be linear second we propose a strategy that can largely eliminate this distortion finally we find that dsge models solved using higher order approximations are capable of generating true structural nonlinearities in real exchange rates both asymptotically and in short samples

international price dispersion in state dependent pricing models menu cost models predict a hump shaped relationship between real and nominal exchange rate volatility the hump occurs at higher values of nominal exchange rate volatility the higher trade costs and lower international substitution elasticities are these predictions accord well with the negative relationship between relative price and nominal exchange rate volatility i document using a data set of prices collected in eastern europe in a volatile environment in contrast trade costs must be sufficiently high or international substitution elasticities low in order for the model to account for the positive correlation between real and nominal exchange rate volatility in the aggregate data

the transition between energy efficient and energy inefficient states in cameroon i use a two state energy efficient inefficient markov switching dynamic model to study energy efficiency in cameroon in a novel manner employing yearly data covering 1971 to 2012 i find that th

real exchange rates in small open oecd and transition economies comparing apples with oranges abstract we find that productivity gains in tradables cause an appreciation of the real exchange rate via both tradable and nontradable prices in the cee 5 and have no affect in the baltic countries while they lead to a depreciation of the real exchange rate of tradables in oecd economies that overcompensates the appreciation due to nontradable prices rising net foreign liabilities lead to a real appreciation in the baltic countries instead of the expected depreciation found in oecd and cee 5 countries these differences are due to the different impact of the fundamentals on the real exchange rate depending on the time horizon studied

domestic market integration and regional economic growth china s recent experience from 1995 2011 summary this paper constructs an enhanced indicator for trade barrier and examines the endogenous relationship between market integration and regional economies across china from 1995 to 2011 beyond the current literature this study shows the endogenous relationship is significant reflecting a virtuous cycle domestic openness contributes to the economies in the central region more than in the other regions the feedback effect is stronger in the eastern and central regions than in the western and northeastern domestic openness and regional economies are adversely affected by state owned enterprises and government non productive expenditure several policy implications relevant to chinese economy are drawn from the findings

the influence of increased foreign competition on industrial concentration and profitability abstract this paper uses the chilean manufacturing censuses of 1967 and 1979 to examine the effects of the chilean reforms in the mid 1970s on market structure and performance the reforms substantially increased the concentration in industry and substantially reduced profitability these outcomes are interpreted in the light of hypotheses about the effect of potential entrants on market structure and on the pricing behavior of incumbents next a cross sectoral simultaneous equations model of structure and performance is estimated to isolate the contribution of import and export shares to cross sectoral variations in concentration and profitability and to test for structural change between the two censuses the analysis confirms that the liberalization of trade changed the way import and export shares determined profitability and supports the import discipline hypothesis

the limits of trade policy reform in developing countries trade reform is now raising some new issues this paper deals with three sets of questions first how can trade reform be sustained can governments convince business labor or consumers that trade reform will be lasting so as to forestall possible adverse reactions that would jeopardize the sustainability of the reform second what role should trade reform play when it is implemented in the context of macroeconomic instability are there potential conflicts between the standard desiderata for trade reform and the requirements of macro stability finally should we be worried about the consequences of trade reform in the imperfectly competitive market environments that characterize the developing economies

the comovement between output and prices abstract in this paper i analyze the comovement of us prices and output in the postwar period i use a new set of statistics to characterize the comovement between variables the statistics capture important information about the dynamics in the system the estimation procedure does not require assumptions about the order of integration or the types of assumptions needed for var decompositions i find that the comovement between output and prices is positive in the short run and negative in the long run i show that a model in which demand shocks dominate in the short run and supply shocks dominate in the long run can explain these empirical results while sticky price models with only demand shocks cannot

does exchange rate stability increase trade and welfare we develop a simple general equilibrium framework to study the effect of the exchange rate system on trade and welfare an important feature of the model is deviations from purchasing power parity caused by rigid price setting in buyers currency we find the following first exchange rate stability is not necessarily associated with more trade in a simple benchmark model with separable preferences and only monetary shocks trade is unaffected by the exchange rate system consistent with most evidence second both trade and welfare can be higher under either exchange rate system depending on preferences and on the monetary policy rules followed under each system finally in general there is no one to one relationship between the levels of trade and welfare across exchange rate systems

equilibrium exchange rates in transition economies taking stock of the issues in this paper we present an overview of a number of issues relating to the equilibrium exchange rates of transition economies of the former soviet bloc in particular we present a critical overview of the various methods available for calculating equilibrium exchange rates and discuss how useful they are likely to be for the transition economies amongst our findings is the result that the trend appreciation usually observed for the exchange rates of these economies is affected by factors other than the usual balassa samuelson effect such as the behaviour of the real exchange rate of the open sector and regulated prices we then consider three main sources of uncertainty relating to the implementation of an equilibrium exchange rate model namely differences in the theoretical underpinnings differences in the econometric estimation techniques and differences relating to the time series and cross sectional dimensions of the data the ensuing three dimensional space of real misalignments is probably a useful tool in determining the direction of a possible misalignment rather than its precise size copyright blackwell publishers ltd 2006

diversification effects of energy subsidy reform in oil exporters illustrations from kuwait abstract for oil exporters energy subsidy reform and economic diversification are critical policy responses to recent fundamental changes in the global oil market and oil price declines yet the relationship between them is little understood this article investigates linkages between energy subsidy reform and accelerating economic diversification away from hydrocarbons in a low oil price environment using illustrations from kuwait it employs an economy wide general equilibrium model with oligopolistic industrial structure the first of its kind for an economy in the middle east and north africa that embodies unique elements of the country s economic structure oil dependence public sector dominance subsidies sovereign wealth funds industrial collusive pricing behaviour and guest workers the article argues that contrary to common popular discourse kuwait s economy has a diversified economic base but this base fails to diversify export or government revenue needed for economic sustainability results show that weak economic diversification in oil exporters with a similar economic structure is not primarily due to dutch disease as dominant in the literature but to economic constraints and distortions that impair structural change and exacerbate overdependence on hydrocarbons labour and competition reforms relax some constraints achieving large efficiency gains that extend economy wide and can expand non energy tradable sectors the analysis has important policy implications first the potential role of pricing regulation in small economies in moderating economic impacts of negative oil shocks second in oil economies characterized by pervasive oligopolies microeconomic reform can be a channel to achieve efficiency and better diversification effects of subsidy reform

exchange rate pass through and the effects of tariffs on economic performance and welfare abstract we develop a stochastic two country general equilibrium model where prices are determined under conditions of monopolistic competition to examine the macroeconomic and welfare effects of tariffs on the world economy under alternative nominal rigidities producer currency pricing pcp and local currency pricing lcp where the exchange rate pass through is absent we find that the significance of export pricing for the effects of tariffs depends critically upon whether tariffs are anticipated or unanticipated in the former case both pcp and lcp yield the same outcome as do perfectly flexible prices although the mechanism whereby this is achieved is different in the latter case the effects of unanticipated permanent tariffs are highly sensitive to the pricing scheme adopted by exporters leading to a wide range of conflicting outcomes involving tradeoffs among key parameters

aggregate real exchange rate persistence through the lens of sectoral data a novel approach to analyzing real exchange rate rer persistence and its sources is presented using highly disaggregated data for a group of eu 15 countries it is shown that the distribution of sectoral persistence is highly heterogeneous and skewed to the right so that a limited number of sectors are responsible for the high levels of persistence observed at the aggregate level quantile regression has been employed to investigate whether traditional theories such as the lack of arbitrage due to nontradability or imperfect competition combined with price stickiness are able to account for the slow reversion to parity of rers

putting the new open economy macroeconomics to a test abstract this paper explores one way to extend the new open economy macroeconomics in an empirical direction adapting maximum likelihood procedures it estimates and tests an intertemporal small open economy model with monetary shocks and nominal rigidities results offer mixed support for a benchmark model where prices are assumed to be sticky in the currency of the buyer price stickiness seems to be an important element as overall results are poorer for versions of the model in which prices either are flexible or are sticky in the currency of the producer the benchmark model does a better job explaining some variables than others in particular it does a poor job explaining exchange rate movements