mundell meets poole managing capital flows with multiple instruments in emerging economies abstract we study the optimal management of capital flows in a small open economy model with financial frictions and multiple policy instruments the paper reports two main findings first both foreign exchange intervention fxi and macroprudential policies are tools complementary to the monetary policy rate that can greatly reduce inflation and output volatility in a scenario of capital outflows second the optimal policy mix depends on the underlying shock driving capital flows fxi takes the leading role in response to foreign interest rate shocks while macroprudential policy becomes the prominent tool for domestic risk shocks these results blend the policy prescriptions of mundell 1968 who stated that policies should be paired with the objectives on which they have the most influence and poole 1970 who showed that the optimal policy instrument ultimately depends on the underlying shock hitting the economy

monetary policy strategies for latin america the authors examine possible monetary policy strategies for latin america that may help lock in the gains the region attained in the fight against inflation in the 1990s instead of focusing the debate about the conduct of monetary policy on whether the nominal exchange rate should be fixed or flexible the focus should be on whether the monetary policy regime appropriately constrains discretion in monetary policymaking three basic frameworks deserve serious discussion as possible long run strategies for monetary policy in latin america the authors examine the advantages and disadvantages of a hard exchange rate peg monetary targeting and inflation targeting in light of monetary policy s recent track record in several latin american countries looking for clues about which of the strategies might be best suited to economies in the region the answer it depends on the country s institutional environment some countries appear not to have the institutions to constrain monetary policy if discretion is allowed in those countries there is a strong argument for hard pegs including full dollarization that allow little or no discretion to monetary authorities in countries such as chile which can constrain discretion inflation targeting is likely to produce a monetary policy that keeps inflation low yet appropriately copes with domestic and foreign shocks monetary targeting as a strategy for latin america is not viable because of the likely instability of the relationship between inflation and monetary aggregates of which there is ample international evidence no monetary strategy can solve the basic problems that have existed in latin american economies for a long time the authors welcome the recent move in latin american countries toward inflation targeting but say no policy will succeed unless government policies also create the right institutional environment

the speculative efficiency hypothesis the hypothesis that forward prices are the best unbiased forecast of future spot prices is often presented in the economic and financial analysis of futures markets this paper considers the hypothesis independently of its implications for rational expectations or market efficiency and in order to stress this fact the term speculative efficiency is used to characterize the state envisaged under the hypothesis if a market is subject to efficient speculation the supply of speculative funds is infinitely elastic at the forward price that is equal to the expected future spot price the expected future spot price is a market price determined as the solution to the underlying rational expectations macroeconomic model although the paper is primarily concerned with testing this hypothesis in the foreign exchange market the methodology introduced in the paper is of general application to all futures markets this abstract was borrowed from another version of this item

disability and self employment evidence for the uk this article examines the self employment decision for disabled and nondisabled workers in the uk using labour force survey lfs data it is found that self employment may provide an important means by which those with work limiting disabilities can accommodate their impairment

monetary policy and exchange rate volatility in a small open economy we lay out a small open economy version of the calvo sticky price model and show how the equilibrium dynamics can be reduced to a simple representation in domestic inflation and the output gap we use the resulting framework to analyse the macroeconomic implications of three alternative rulebased policy regimes for the small open economy domestic inflation and cpi based taylor rules and an exchange rate peg we show that a key difference among these regimes lies in the relative amount of exchange rate volatility that they entail we also discuss a special case for which domestic inflation targeting constitutes the optimal policy and where a simple second order approximation to the utility of the representative consumer can be derived and used to evaluate the welfare losses associated with the suboptimal rules

changes in wage discrimination against people with disabilities 1984 93 a group of health impaired workers who self report in the survey of income and program participation that their productivity is not affected by their impairment is used to separately measure the effects of discrimination from the effects of poor health on earnings in 1984 and 1993 the results indicate that in 1984 only 3 7 percentage points of the earnings gap is due to discrimination and the amount of discrimination did not decrease by 1993 although discrimination did not change over the 1984 to 1993 period the negative effects of poor health on the earnings of people with disabilities fell substantially

the determinants of earnings a behavioral approach we survey the determinants of earnings and propose a framework for understanding labor market success we suggest that the advantages of the children of successful parents go considerably beyond the benefits of superior education the inheritance of wealth or the genetic inheritance of cognitive ability we suggest that noncognitive personality variables such as attitudes towards risk ability to adapt to new economic conditions hard work and the rate of time preference affect both earning and the transmission of economic status across generations

real wage rigidities and the new keynesian model most central banks perceive a trade off between stabilizing inflation and stabilizing the gap between output and desired output however the standard new keynesian framework implies no such trade off in that framework stabilizing inflation is equivalent to stabilizing the welfare relevant output gap in this paper we argue that this property of the new keynesian framework which we call the divine coincidence is due to a special feature of the model the absence of nontrivial real imperfections we focus on one such real imperfection namely real wage rigidities when the baseline new keynesian model is extended to allow for real wage rigidities the divine coincidence disappears and central banks indeed face a trade off between stabilizing inflation and stabilizing the welfare relevant output gap we show that not only does the extended model have more realistic normative implications but it also has appealing positive properties in particular it provides a natural interpretation for the dynamic inflation unemployment relation found in the data

how much should inflation targeters care about the exchange rate abstract a dsge model is used to examine whether including the exchange rate in the central bank s policy rule can improve economic performance smoothing the exchange rate helps both financially robust economies and financially vulnerable emerging economies in handling risk premium shocks and given a small weight placed on the exchange rate the effects on inflation and output volatility are minimal with demand and cost push shocks financially vulnerable economies are especially likely to benefit from exchange rate smoothing due to perverse movements of the exchange rate they experience when hit by demand shocks and being more prone to risk premium shocks

two targets two instruments monetary and exchange rate policies in emerging market economies abstract this paper examines the case for using two instruments the policy interest rate and sterilized foreign exchange market intervention in emerging market countries seeking to stabilize inflation and output while attenuating disequilibrium currency movements we estimate policy reaction functions for central banks documenting that indeed both instruments tend to be deployed we show that whether discretionary monetary policy or inflation targeting is preferable depends on the volatility of shocks relative to the central bank s time inconsistency problem the use of fx intervention as a second instrument improves welfare under both regimes but more so under inflation targeting overall a regime of two way sterilized intervention cum inflation targeting can result in better outcomes in the presence of imperfect capital mobility asset substitutability yielding similar gains to a discretionary policy while still delivering the inflation target

monetary policy and welfare in a small open economy this paper analyzes optimal monetary policy in a small open economy featuring monopolistic competition and nominal rigidities it shows that the utility based loss function for this economy can be written as a quadratic expression of domestic inflation output gap and real exchange rate the presence of an internal monopolistic distortion and a terms of trade externality drives optimal policy away from domestic inflation targeting and affects the optimal level of exchange rate volatility when domestic and foreign goods are close substitutes for each other the optimal policy rule implies lower real exchange rate volatility than a domestic inflation targeting regime the reverse is true when the elasticity of substitution between goods is low

why do firms train theory and evidence this paper offers a theory of training whereby workers do not pay for the general training they receive the superior information of the current employer regarding its employees abilities relative to other firms creates ex post monopsony power and encourages this employer to provide and pay for training even if these skills are general the model can lead to multiple equlibria in one equilibrium quits are endogenously high and as a result employers have limited monopsony power and provide little training while in another equilibrium quits are low and training is high using microdata on german apprentices we show that the predictions of our model receive some support from the data

ncaa enforcement and competitive balance in college football this article investigates the effects of national collegiate athletic association ncaa enforcement on the competitive balance of major college football conferences in the context of the standard empirical crime model using an unbalanced panel describing 11 major division ia football conferences from 1953 through 2003 ncaa enforcement efforts in the form of investigations and probations and the severity of punishment measured as the average length of probations imposed are found to have opposite but not necessarily offsetting effects on competitive balance greater levels of enforcement in a conference improve competitive balance on the other hand greater severity of punishment reduces competitive balance the empirical evidence indicates that these changes take approximately five years to be fully dissipated overall the empirical results indicate that on average the net effect of ncaa enforcement is an improvement in competitive balance

labor market discrimination against hispanic and black men h ispanic american men have lower average wage rates than white non hispanics in 1975 the average white non hispanic male wage earner in the united states earned 5 97 an hour mexican men earned 4 31 72 as much as white non hispanics puerto rican men earned 4 52 76 as much and cuban men earned 5 33 89 as much as white non hispanics by way of comparison black men s average wages in 1975 were 4 65 78 of the white male wage several possible reasons for the hispanics lower wages come to mind among them are age and education geographic location immigration language difficulties and discrimination for example as shown in table 1 mexicans and puerto ricans are younger on average than the white non hispanic population and earnings tend to rise with age hispanics have lower average levels of education than white non hispanics and wages are positively associated with education many mexican americans live in the southwest where prices are relatively low moreover hispanics are more likely to be recent immigrants and to lack fluency in english than white non hispanics and so to be at a disadvantage in the labor market in addition there is a widespread belief that hispanics suffer from employment discrimination and cannot obtain the wages that their human capital would command if they were non hispanic whites how much of the wage differentials described above are due to each of these factors and to other inter group differences in wage related characteristics in particular how much impact does labor market discrimination have on the average hispanic man s wage and how does this compare with discrimination against blacks this paper provides answers to these questions a few other efforts have been made to analyze the relative earnings of hispanic and white nonhispanic men using 1960 and 1970 census data fogel 1966 poston and alvirez 1973 poston alvirez and tienda 1976 long 1977 and gwartney and long 1978 we use more recent data from the 1976 survey of income and education this data set enables us to measure wage rates more accurately and to specify the wage function more completely than does the census unlike previous analysts in estimating the wage function we take account of possible selectivity bias due to the distinction between average wage offers and average observed wages thus we hope to obtain a more accurate and up to date measure of labor market discrimination against hispanic men section ii explains the method used to separate the minority white non hispanic wage differential into the portions due to differences in average characteristics and the portion due to differences in unobserved factors and discrimination taking into account the possibility of selectivity bias in the observed wage sample section iii describes the data used in the study and the specification of the wage equation the breakdown of the observed wage differentials into components due to differences in participation in the wage and salary sector local price levels average characteristics and discrimination are presented in section iv section v summarizes our findings and discusses their implications for efforts to improve the economic situation of hispanics in the united states

market power inflation targeting and commodity currencies abstract the commodity currency literature highlights the robust exchange rate response to fluctuations in global commodity prices that occurs for major commodity exporters the magnitude of the response however varies widely across countries and over time horizons this paper examines the real exchange rates of 51 commodity exporters over the period from 1980 to 2010 and finds that in the long run a higher degree of market power in the world commodity trade can reduce the exchange rate response while in the short run an inflation targeting regime can amplify it these differential impacts across countries and horizons are of particular relevance for monetary policy making and for trade strategy in commodity abundant economies

disability gender and the labour market in wales jones m k latreille p l and sloane p j 2006 disability gender and the labour market in wales regional studies 40 823 845 wales exhibits high rates of disability and inactivity and a higher incidence of mental health problems than other parts of britain using data from the welsh local labour force survey 2001 the results indicate that the low participation rate of the disabled in wales is partly attributable to their having fewer qualifications marginal effects suggest education could be a potent remedy for improving their labour market status in terms of the pay differential between disabled and non disabled individuals it would appear that disabled women in wales suffer disproportionately to disabled men only in the case of women is there evidence consistent with the presence of discrimination but this estimate is relatively small jones m k latreille p l et sloane p j 2006 l invalidite le genre et le marche du travail au pays de galles regional studies 40 823 845 le pa

does education raise productivity or just reflect it education has an important effect on wages but it not clear whether this is because education raises productivity or because education is simply a signal of ability we implement a number of existing tests for discriminating between these two explanations and find that they do not support the signalling hypothesis however we have severe reservations about these results and we propose an alternative test based on changes in education incentives caused by changes in the minimum school leaving age in the 1970s using this idea we find that uk data appear to strongly support the human capital explanation an important issue in the economics of education is that an individual s education has an effect on wages paid in the labour market for example blundell et al 2003 uses detailed education and subsequent earnings information for a cohort of male individuals born in 1958 to estimate that the returns to a uk degree typically of 3 year duration relative to graduating from high school at 18 with 2 a level qualifications a necessary but not sufficient condition for admission to university is a 24 wage premium human capital explanations pioneered by becker 1962 and schultz 1963 suggest that the correlation between education and wages is due to education enhancing productivity however earnings may rise in response to education not because of any effect on productivity but simply because education may act as a signal of productivity employers believing that education is correlated with productivity will screen workers for their education and pay higher wages to the more educated the employers beliefs will be confirmed by their experience if it is the case that high productivity individuals signal this by choosing high levels of education it will be optimal for individuals to behave in this way if the cost of acquiring education is less for high productivity individuals than it is for low productivity individuals thus under reasonable conditions the market will be characterised by a separating equilibrium where higher productivity individuals choose higher levels of education than lower productivity workers and earn correspondingly higher wages the theory is largely due to spence 1973 1979 and the subsequent empirical literature was reviewed by groot and oosterbeek 1994 riley 2001 provides an excellent modern survey chevalier harmon and walker are fellows of iza in bonn and are affiliated with the institute for the study of social change issc in dublin this paper is part of the issc policy evaluation programme chevalier and walker are also affiliated with the centre for the economics of education at the london school of economics lse the support of all of these bodies for facilitating our collaboration is acknowledged harmon is grateful to university college london for their hospitality during his nuffield foundation new career development fellowship in the social sciences comments from steve machin and three anonymous referees greatly improved the exposition of this paper we are also grateful to richard blundell and to seminar participants at the lse and the tinbergen institute in amsterdam for their comments and to vincent o sullivan for excellent research assistance the usual disclaimer applies

disability and the labour market an analysis of british males this paper attempts using data from the british labour force survey 1996 to examine to what extent differences in labour market outcomes between able bodied and disabled men may be attributed to differences in endowments of human capital and associated productivity differences both labour force participation and selectivity corrected human capital equations are estimated and decomposition techniques applied to them using the methodology of baldwin and johnson baldwin m johnson w g 1994 labor market discrimination against men with disabilities journal of human resources xxix 1 winter 1 19 the employment effects of wage discrimination against the disabled are also estimated evidence of both substantial wage and participation rate differences between able bodied and disabled men are found which have implications for the operation of the 1995 disability discrimination act

interpreting wage gaps of disabled men the roles of productivity and of discrimination using the uk labour force survey we study wage gaps for disabled men after the introduction of the disability discrimination act we estimate wage gaps at the mean and at different quantiles of the wage distribution and decompose them into a part explained by differences in workers and job characteristics a part that can be ascribed to health related reduced productivity and a residual part the large original wage gaps reduce substantially when we control for differences in education and occupation although significant residuals remain however when we isolate productivity differences between disabled and nondisabled workers the residual wage gap becomes insignificant in most cases

new labour and the labour market the recent run of good macroeconomic news masks mounting evidence that worklessness is increasingly concentrated on selected individuals households and socio economic groups and in geographical areas these distributional aspects have been overlooked or ignored over the last 20 years but we believe they now form the most pressing labour market and social problems facing this administration we focus on what we view as the government s selected priorities the concentration of unemployment on certain individuals groups and areas increasing inactivity especially marked among less educated older men low pay persistence of low wages and its relationship with job loss and the distribution of work across households and child poverty many of these problems leave lasting scars on individuals so that successful intervention may beneficially change an individual s life chances we examine the evidence on each of these issues and the current state of policy aimed to reduce their scale or intensity copyright 2000 by oxford university press

tools for managing financial stability risks from capital inflows abstract we examine whether macroprudential policies and capital controls can enhance financial stability in the face of the risks typically associated with large capital inflows we construct new indices of foreign currency fx related prudential measures domestic prudential measures and financial sector specific capital controls for 51 emerging market economies over the period 1995 2008 our results indicate that both capital controls and fx related prudential measures are associated with a lower proportion of fx lending in total domestic bank credit and with a lower proportion of portfolio debt in total external liabilities other prudential policies appear to help restrain the intensity of aggregate credit booms experience from the global financial crisis suggests that prudential and capital control policies in place during the boom enhanced economic resilience during the bust

health a source of bias in labor supply models the inconsistency of the labor supply estimates using nonexperimental data has led to the costly income maintenance experiments that have taken place in various parts of the country in addition to being costly the analyses of experimental data also have their share of econometric problems 1 both experimental and nonexperimental studies face the problems of sample selection model specification and variable measurement in order to determine what effects the variables of interest have on labor supply all relevant factors must be included one of these control variables namely health is often included in a form which results in biased estimates in this paper we hope to show that the analysis of experimental and nonexperimental labor supply data must carefully address the health variable problem before meaningful estimates can be obtained in general three treatments emerge in the literature no control for health is used a binary variable which we shall call a disability variable is included in the model as an exogenous variable or the disability variable is used as a partitioning criterion to obtain a sample of able bodied men or women the disability variable is often the response to the question does your health prevent you from working altogether or does your health limit the kind or amount of work you could do this study will examine the bias created by each of these approaches and will suggest a method of measurement for health which does not produce biased estimates 2 health and labor supply

is it signalling exchange intervention and the dollar deutschemark rate abstract the portfolio balance channel for sterilised intervention is tested by examining the effects of changes in relative asset supplies on the dollar deutschemark rate during the 1980s in contrast to previous studies we control for any signalling effects of central bank intervention and find a weak but statistically significant portfolio balance influence on the exchange rate