salvaging gresham s law the good the bad and the illegal contrary to the claims of arthur rolnick and warren weber gresham s law is not a fallacy nor does it rest on the unrealistic assumption of an operational fixed disequilibrium exchange rate between two economically distinct monies here i interpret gresham s law as a result of coercive legal tender laws aimed at discouraging agents from discriminating among alternative monies such laws can systematically drive good money out of circulation by placing buyers and sellers in a prisoner s dilemma in which the use of bad money represents a unique noncooperative equilibrium i offer some historical examples which are not readily explainable using rolnick and weber s proposed alternative to gresham s law copyright 1996 by ohio state university press

an empirical exploration of the world oil price under the target zone model abstract this paper investigates the behavior of the world oil price based on the first generation target zone model using anecdotal data during the period of 1988 1999 we found that opec has tried to maintain a weak target zone regime for the oil price our econometric tests suggest that the movement of the oil price is not only manipulated by actual and substantial interventions by opec but also tempered by market participants expectations of interventions as a consequence the non linear model based on the target zone theory has very good forecasting ability when the oil price approaches the upper or lower limit of the band

privatisation in developing countries a review of the evidence and the policy lessons privatisation is widely promoted as a means of improving economic performance in developing countries however the policy remains controversial and the relative roles of ownership and other structural changes such as competition and regulation in promoting economic performance remain uncertain this article reviews the main empirical evidence on the impact of privatisation on economic performance in developing economies the evidence suggests that if privatisation is to improve performance over the longer term it needs to be complemented by policies that promote competition and effective state regulation and that privatisation works best in developing countries when it is integrated into a broader process of structural reform

state and time contingent switches of exchange rate regime abstract recent papers have analysed the effects of britain s return to gold in 1925 one line of argument has been that the return to gold was a state contingent regime switch an alternative view is that it was time contingent this paper shows that these approaches are not mutually exclusive the solution for the exchange rate is derived in a model where a switch to a fixed rate takes place either when a state contingent trigger is reached or at a fixed time whichever is the sooner state contingent and time contingent elements are thus combined within the same model

the origins and development of the northeast asian political economy industrial sectors product cycles and political consequences theories of the product cycle hegemony and the world system are used to analyze the creation and development of the northeast asian political economy in this century japan south korea and taiwan have each developed in a particular relationship with the others the three taken together form a hierarchical constantly interacting political economic unit during the period of colonial rule japan was unique in building an imperial economic unit marked by a strong role for the state whether in tokyo or taipei by a tight integral unking of all three nations into a communications and transport network running toward the metropole and by a strategy of both using the colonies for agricultural surpluses and then locating industries there after 1945 a diffuse american hegemony replaced japan s unilateral system but elements of the prewar model have survived strong states direct economic development in south korea and taiwan here termed bureaucratic authoritarian industrializing regimes both countries are receptacles for japan s declining industries and both countries develop in tandem if in competition with each other the most recent export led competition has seen taiwan succeed where south korea has temporarily failed leaving seoul in an export led trap burdened with rapidly increasing external debt taiwan furthermore has industrialized relatively free of social disruption whereas korean society resisted its transformation at japanese hands and remains more rebellious today there can be one japan and one taiwan but not two or many of either in the world economy

realignment risk and currency option pricing in target zones abstract this paper extends the krugman target zone model by including a realignment mechanism various properties of that realignment mechanism are discussed the movement of the exchange rate is governed both by a wiener process on fundamental and by a poisson jump process with endogenous realignment size the realignment mechanism is such that except in cases where a speculative attack occurs no jump in fundamental is needed to accompany the jump in the exchange rate a risk neutral valuation of currency options is constructed some properties of option values under realignment risk are illustrated by numerical results

exchange rate behaviour under the ems regime was there any systematic change abstract most empirical studies fail to detect any systematic effects of the ems regime on the economic performance of member countries this reveals the difficulty of constructing controlled experiments which can distinguish what is due to the ems from that due to common external pressures we argue that the crucial step is to examine the exchange rates distribution since no performance improvements will appear if exchange rate behaviour does not change within the ems we find that there are changes in the third and fourth moments which imply that ems currencies have become more fragile and susceptible to shocks particularly negative shocks relative to non ems currencies

target zones and exchange rate dynamics this paper develops a simple model of exchange rate behavior under a target zone regime it shows that the expectation that monetary policy will be adjusted to limit exchange rate variation affects exchange rate behavior even when the exchange rate lies inside the zone and is thus not being defended actively somewhat surprisingly the analysis of target zones turns out to have a strong formal similarity to problems in option pricing and investment under uncertainty

on the economics of private money abstract the application of laissez faire to the monetary system is a key ingredient of important proposals for monetary reform both new and old that seek to discipline government creation of money through competition this paper provides an overview of issues to be encountered in the construction of theoretical models of private monetary economies including consideration of market imperfections that have been hypothesized to arise in these systems further some descriptive history of the less regulated monetary systems of 19th century new york is undertaken with an emphasis on discussing the nature of market generated banking and monetary institutions in light of these critiques

public sector expenditures and financial crisis in chile abstract working with official government statistics this paper shows that imf stabilization guidelines which blame inflation and balance of payments disequilibrium on fiscal deficits are incorrect in the case of chile there government spending has for the most part been held in check during the military government however there are leading and lagging expenditure areas within the government military spending has steadily increased while social expenditures have been cut the latter point directly contradicts the official government position

privatization and democracy the effects of regime type in the developing world what is the effect of regime type on privatization of state owned enterprises the authors investigate the relationship between regime type and privatization through a panel data set for 76 developing countries from 1987 to 1994 the results show that contrary to most studies that claim that authoritarian regimes are better able to ignore societal interests opposed to economic measures that impose austerity democracies privatize more than authoritarian regimes moreover challenging conventional interpretations that claim that economic difficulties contribute to state sell offs the authors find that privatization is most likely in wealthier developing democracies whose budgets operate with current account surpluses hence authoritarian regimes provide neither the right nor the correct model for countries wishing to pursue unpopular economic policies

stochastic saddlepoint systems stabilization policy and the stock market abstract we examine the effects of introducing stochastic shocks into a linear rational expectations model with saddlepoint dynamics generated by a forward looking asset price we derive the fundamental differential equation governing the path of the asset price as a function of the sluggish variable the equation does not admit closed form solutions in general but we provide a complete qualitative characterization of the solution paths which are symmetric about equilibrium these are the relevant solutions to consider in the presence of symmetric boundary conditions we present an application of the analysis to fiscal stabilization policy where public expenditures are only adjusted when gnp moves outside a threshold around a target level the impact of such a policy on the level of the stock market is considered and it is shown how the market will anticipate such state contingent policy changes whether the expectations are stabilizing or not is shown to depend on whether the stock market is positively or negatively correlated with gnp

the susan b anthony dollar and the theory of coin note substitutions this paper analyzes governments attempts to replace circulating notes with coins it argues that because of network externalities in currency systems a government cannot simply offer a new coin such as the susan b anthony dollar to the public and expect it to circulate even when the coin note substitution would benefit the economy for such a substitution to succeed a government may need to force the adoption of the coin by withdrawing the competing bill from circulation copyright 1994 by ohio state university press

how smooth is price discovery evidence from cross listed stock trading abstract the adjustment to parity can be nonlinear for a cross listed pair convergence may be quicker when the price deviation is sufficiently profitable we propose a threshold error correction model ecm to gauge the market respective information shares of canadian listings traded on the toronto stock exchange tsx and the new york stock exchange nyse since dynamics may alternatively be gradual we further generalize the threshold framework to a smooth transition ecm the empirical implications are as follows first the tsx and the nyse appear to have integrated over time second parity convergence accelerates upon discounts on the cross listings on the nyse third we find a larger feedback from the nyse if the price gap exceeds the threshold required arbitrage return fourth informed traders tend to cluster on the nyse upon discounts on the cross listings fifth information share and threshold are affected by the relative degree of private information market friction and liquidity measures firm level characteristics and aggregate risks

state divestiture as a policy instrument in developing countries abstract reducing the size and role of the public sector in developing countries and emphasizing prices and markets as allocative mechanisms has led to increased privatization measures of which divestiture has been the most common variant the paper examines this experience and indicates that ownership transfer is neither a necessary nor sufficient condition for achieving more efficient use of resources in the design of divestiture the weighting given to enhancing freedom of entry and intensity of competition remains critical at the same time the paper notes the existence of multiple constraints including profitability and capital market limitations that continue to impede the implementation of divestiture measures the conditions for divestiture to be both appropriate and successful are shown to be restrictive

measuring market integration foreign exchange arbitrage and the gold standard 1879 1913 a major question in the literature on the classical gold standard concerns the efficiency of international arbitrage authors have examined efficiency by looking at the spread of the gold points gold point violations or the flow of gold or by tests of various asset market criteria including speculative efficiency and interest arbitrage these studies have suffered from many limitations both methodological and empirical we offer a new methodology for measuring market integration based on nonlinear theoretical models and threshold autoregressions we also compile a new high frequency series of continuous daily data from 1879 to 1913 we can derive reasonable econometric estimates of the implied gold points and price dynamics the changes in these measures over time provide an insight into the evolution of market integration

on the mean reverting properties of target zone exchange rates a cautionary note abstract we estimate a franc mark target zone model and find a very limited honeymoon effect monte carlo experiments calibrated with the estimates caution against the use of standard linear tests for non mean reversion as indirect tests of the target zone model

central bank interventions and exchange rate band regimes abstract this paper presents an endogenous switching regression model for the exchange rate process where the switch is defined by the central bank criteria functions for intervening we study the signal effect of interventions on the exchange rate using norwegian daily data on official interventions we first find that interventions seemed to have been more effective in moving the exchange rate in the expected desired direction in the regime when the exchange rate was kept away from the edges of the band this type of intervention regime also reduces significantly the conditional volatility of the exchange rate thus when the exchange rate was near the weakest edge of the currency band its conditional variance was significantly larger than when it was moving around its central parity finally we show that in order to obtain consistent estimates intervention variables cannot enter as exogenous variables in the conditional mean or conditional variance of the exchange rate

dynamics of intra ems interest rate linkages anumber of previous studies have questioned the dominant role of germany within the european monetary system ems these conclusions are often based on empirical findings that the interest rates of ems member countries are not affected by german interest rates even in the long run in this study we demonstrate that intra ems interest rate differentials vis a vis germany exhibit mean reverting behavior characterized by long memory dynamics in a system incorporating six ems countries and one non ems country the u s a estimates from a fractional error correction model suggest the presence of short run intra ems monetary policy interdependencies but validate the german dominance hypothesis in the long run

modelling probabilities of devaluations i show why when the realized rates of depreciation within the exchange rate band are regressed on a given information set and conditioned on ex post actual no realignment a la drift adjustment a peso problem is still encountered the reason is that the frequency of realignments in the data need not be the same as the frequency of the even small subjective probabilities that a realignment may take place i suggest an alternative approach to solve the peso problem and provide consistent estimates my estimates of the expected realignment rates are greater than the ones obtained using the drift adjustment method

the evolution of a free banking system the institutional features of models of unregulated monetary systems have often been arbitrarily and implausibly assumed this paper instead provides realistic grounding for important features by constructing a logical evolutionary account of free banking sophisticated and orderly arrangements are shown to emerge from competition and the pursuit of less costly methods of payment the emergence of standardized commodity money is followed by the development in turn of basic money transfer banking easily transferable bank liubilities and clearinghouses the features of an evolved free banking system differ from those assumed in recent models of competitive payments systems

assessing the credibility of a target zone evidence from the ems this paper provides some new evidence on the credibility of the exchange rate mechanism erm of the european monetary system ems the study differs from previous research in the literature in three main respects first the main contribution is the use of several credibility indicators some of which have never been applied before to all of the currencies under study this allows one to strengthen the results obtained in this paper second a longer period than that of previous studies is analysed covering the complete ems history third a comparison has been made of the prediction qualities of the different indicators in order to explore their ability to capture the main erm events realignments changes in the fluctuations bands and speculative pressures fourth the indicators are applied to the experience of the new modified erm linking the currencies of non euro area member states to the euro showing the relevance of this approach in the near future with the enlargement of the european union

testing the limits of privatization argentine railroads abstract just how far can privatization be pushed and with what consequences based on a study of argentine railroads this paper concludes that even large unprofitable firms in developing countries faced with market failures can be privatized but the gains from doing so depend on how badly the state enterprise was performing to begin with and the potential for introducing competition in the market and for the market the broader lesson is that when both market failures and government failures are present a public private solution is preferable to a purely private or a purely public solution privatization is not a panacea but potentially a palliative when it comes to reducing subsidies or coping with regulatory failures

a reexamination of the uncovered interest rate parity hypothesis abstract it is now widely known that the uncovered interest rate parity uip hypothesis which states that forward exchange rates are unbiased predictors of future spot exchange rates is generally rejected by empirical evidence we show in this paper by means of a cox et al 1985 model extended to a two country economy that a careful examination of the no arbitrage principle leads to a different formulation for this hypothesis roughly speaking this new formulation states that the expected future spot exchange rate is equal to the forward exchange rate multiplied by a term premium whose closed form expression can be derived moreover this multiplicative term premium reduces to 1 i e the standard uip hypothesis holds if and only if conditional variances are deterministic in short we show that rejection of the standard uip hypothesis is not surprising as long as arch effects have been evidenced in exchange rate data as a by product we provide a parametric and tractable specification for the so called risk premium i e the component of the expected exchange rate in excess of the forward exchange rate

volatility regime switching in european exchange rates prior to monetary unification abstract several theoretical models suggest that the mere announcement of entering a currency union in the future triggers instantaneous changes in exchange rate volatility first this paper develops a markov switching framework by which in fact volatility regime switching in foreign exchange rates can be detected for all currencies in the run up to the european monetary union emu second the paper attributes the currency specific volatility regime switches to decisive economic institutional and political factors prior to emu all in all the empirical results suggest that for future emu accession countries volatility regime switching models provide a useful tool for a broad range of financial applications e g for the pricing of currency options or for the construction of emu probability calculators

antitrust economics and consumer protection economics in policy and litigation why the disparity the lag in the use of microeconomics in consumer protection policy and litigation as compared with the use of microeconomics in antitrust competition policy and litigation has at least three causes a considerably shorter period of intellectual development the specific historical origins and culture of the u s federal trade commission ftc where this disparity is especially noticeable and the splintering of consumer protection responsibilities across a very large number of federal and state agencies this paper will expand on these themes and discuss their implications including the opportunities for expanded research in the area of consumer protection economics jel b12 b13 b21 d18 l41

do states free ride in antitrust enforcement i introduction recent research has examined the role of state governments in the united states in antitrust enforcement over the past 20 years what has not been explored is the extent to which states make strategic decisions on their involvement in antitrust litigation in particular while most state antitrust cases involve purely local matters a significant number of these concern more than one state states then need to decide whether to invest in leading an investigation or letting other states take the lead and participating in some lesser role which includes simply signing on to a settlement we view the decision by a state to delay entry into antitrust litigation to be a type of free tiding behavior 1 in this paper we analyze this issue of free riding by states in antitrust activity ii previous literature one of the defining characteristics of a pure public good is the nonexcludability of the benefits from its consumption as benefits can be received by individuals without having to pay for the goods this nonexcludability creates the possibility for a free rider problem as a consequence of this free tiding behavior the private market cannot exact a price for this good and this may mean the private market will provide a suboptimal amount of the good free riders are usually used as justification for government intervention into the private market to allocate these so called public goods in order to correct the market failure while this behavior would seem rational it is not easily observed so the extent of free riding is not generally known researchers have employed experimental game evidence to measure the extent of free riding with results ranging from none to an extreme amount factors found in this literature that appear to decrease the degree of free riding behavior under certain conditions include smaller group size isaac walker and thomas 1984 experience through repeated game play fischbacher and gachter 2010 pregame communication among participants and an ability to exclude players from the group or other sanctions delmas and keller 2005 while the free rider problem and the experimental evidence have focused on private market decision makers it is straightforward to extend these behaviors to self interested governments one possibility is that governments reduce the amount of certain appropriations as a result of private contributions becker and linsday 1994 find a considerable degree of government free riding behavior in the context of appropriations to public higher education institutions an alternative source of free riding does not involve the private sector but is between government activities particularly those with significant spillover effects lee 1988 considers the issue of free riding among countries in their efforts devoted to fighting terrorism more recently sav 2010 finds a similar impact chati and kehoe 2007 provide a theoretical discussion of what they call a free rider problem among members of a monetary union in their fiscal and regulatory policies caused by an inability of the monetary authority to commit to their policies sigman 2002 finds that water pollution control is affected by the degree of spillovers crossing international borders somewhat closer to the focus of this paper konisky and woods 2010 investigate whether u s states free tide in environmental regulatory actions their results are somewhat mixed while they report some impact in reducing state enforcement of the clean air act in their counties adjacent to international borders they do not find this pattern in counties bordering other u s states a recent theoretical paper by choi and gerlach 2012 raises the concern that national antitrust enforcement in a global economy with multi market contact among exporters may be suboptimal due to free riding on the antitrust activity of other countries however no empirical evidence is provided

the political economy of privatization in developing countries abstract privatization in ldcs refers here to the sale or leasing of assets in which the state has a majority interest and the contracting out of publicly provided services privatization is in part a response to the need for fiscal austerity its pace and scope will be determined importantly by the way in which the public sector was built privatization is easier to implement than has been supposed because its austerity and equity costs are relatively small compared to those of broader structural adjustment processes in which it is commonly situated however the payoffs from privatization are relatively small too there is high opportunity cost in time and management for the complicated task of preparing public assets for sale capital market thinness characterizes ldcs and popular capitalism does not appear to be a realistic option in ldcs privatization is likely to be entangled in regional and ethnic conflicts these may be as consequential for formulating and implementing programs as are the critical coalitions that form between economic sectors such as capital and labor or importers and exporters we believe that privatization is not a linear or ineluctable process indeed many privatizations may be implemented in the absence of a commitment to market forces but where the state seeks to redefine the instruments and scope of its interventionism

exchange rate dynamics under state contingent stochastic process switching this paper offers a closed form solution of a process switching problem i e switching the exchange rate regime from free floating to a completely fixed one an example of such regime change is the adoption of the euro in contrast to previous studies on the subject this paper analyzes a specific case when foreign exchange market participants consider both the euro locking rate and locking date as uncertain preceding the locking the exchange rate is determined by three factors fundamental market expectations for the euro locking rate and date the model is used to examine the conditions under which the exchange rate volatility is mitigated by the prospect of locking

the suppression of state banknotes a reconsideration george selgin it is generally believed that congress in imposing a prohibitive 10 tax on state banknotes in 1865 made the public better off by doing away with inferior brands of currency while simultaneously helping finance the civil war by stimulating bond sales to national banks in truth the tax served neither purpose the true purpose of the 10 tax was not to enhance bond sales or to improve the quality of the currency but to offset the inflationary effects of greenbacks and national banknotes in the long run the public might have been better off had state banks retained their right to issue currency jel g21 n21 let us have a bank currency that will be recognized in the next town a currency that will be recognized in new york philadelphia boston new orleans chicago or any other part of the united states representative john f farnsworth illinois april 28 1864 congressional globe 38th congress 1st session 1934 i f the national banks with the great advantages which they enjoy cannot compete successfully with the state banks it simply shows that the latter subserve better the interests of the business community and should not be destroyed representative francis kernan new york february 16 1865 congressional globe 38th congress 2d session 833 i introduction during the civil war a 10 tax was placed on any issuance of notes of state chartered or incorporated banks deliberately forcing state banks out of the paper currency business and making the regulation and issuance of currency a prerogative of the federal government and of federally chartered national banks this paper reexamines the congressional decision to suppress state banknotes american monetary historians have conventionally viewed the decision as reflecting 1 the public s intolerable disgust with an unregulated currency hammond 1957 11 compare dunbar 1922 220 and 2 the government s desire to boost the demand for national bank charters so as to expand the market for its debt e g hughes and cain 1998 373 74 dowd 1992 230 i plan to argue that neither view accounts adequately for the 10 tax the first view in particular begs important questions that have gone unaddressed if state banknotes were clearly inferior to national banknotes why was a prohibitive tax needed to drive them out of circulation just how were consumers supposed to benefit from having their choices restricted i explore several responses to these questions and ultimately conclude that consumers considered some state banknotes to be just as desirable as their national bank counterparts i argue that the 10 tax served not to overcome any banknote market failure but to force the withdrawal of relatively high quality state banknotes i then proceed to show that the tax was not needed to secure adequate bond sales to national banks proponents of the tax were striving not to increase the number of applications for national bank charters but to limit growth in the aggregate money stock i conclude by suggesting that because state banks of issue could have accommodated market demands that national banks failed to satisfy consumers might have been better served had state banknotes been allowed to survive ii the chase plan when the first shots of the american civil war were fired at fort sumter the paper currency of the united states consisted of over 200 million in banknotes issued by nearly 1 500 state chartered banks the quality of these banknotes varied according to their issuers management and regulatory environment 1 some banknotes circulated at par only near their source and at fluctuating discounts elsewhere so that persons carrying notes from state to state risked incurring currency exchange losses of the sort borne by international travelers today a few were subject to especially heavy discounts or were refused altogether because their issuers solvency was in question

privatization and economic growth an empirical investigation from a sample of developing market economies this paper explores the economic determinants of privatization programmes and the macroeconomic impact of this institutional reform on the growth rate of the gdp a sample of thirty five developing market economies is considered over the 1988 92 period probit and tobit models are used to identify the determinants of successful privatization programmes then regressions are run where probabilities probit and expected values tobit are successively included as additional regressors beside the potential influence of other economic policy variables a significant positive effect is highlighted giving evidence of the importance of divestiture the economic effect is found to be stronger when this institutional reform took place in industry or infrastructure

financial markets views about the euro swiss franc floor exchange rates and option prices incorporate market participants views about the credibility and the effects of exchange rate targets i present a model to determine exchange rates under policy targets that can be used to price options the model is estimated with euro swiss franc exchange rate and options price data in the first few months of the minimum exchange rate policy the implied survival probability of the policy for a 3 month horizon was typically less than 75 over time the credibility increased and this probability reached 95 in august 2014

gresham s law or gresham s fallacy gresham s law often takes two forms the rule that bad money drives out good money and a qualified version of that rule that requires a fixed exchange rate between the two monies yet history contr

speculative anticipations of sterling s return to gold was keynes wrong the view held by keynes that there was a speculative appreciation of sterling prior to its return to the gold standard has been challenged by gregor smith and todd smith who argue that expectations of return must have weakened the currency the authors demonstrate that the positive but decreasing trend displayed in the exchange rate data is consistent with a pattern of autoregressive convergence in fundamentals and that this continues to be true when there is a positive speculative element based on expectations of an early return hence the key features of the data seem compatible with keynes s views copyright 1994 by royal economic society

validity of purchasing power parity for selected latin american countries linear and non linear unit root tests abstract the aim of this study is to examine empirically the validity of ppp in the context of unit root tests based on linear and non linear models of the real effective exchange rate of argentina brazil chile colombia mexico peru and venezuela for this purpose we apply the harvey et al 2008 linearity test and the non linear unit root test kruse 2011 the results show that the series with linear characteristics are argentina brazil chile colombia and peru and those with non linear characteristics are mexico and venezuela the linear unit root tests indicate that the real effective exchange rate is stationary for chile and peru and the non linear unit root tests evidence that mexico is stationary in the period analyzed the results show support for the validity of ppp in only three of the seven countries

the laissez faire bias of managed floating abstract the government of a small open economy trying to manage its exchange rate faces a time consistency problem if markets expect implementation of the optimal linear intervention rule the government will be tempted to defect knowing this markets will expect less activism and in the discretionary equilibrium this is what they get how far this credibility problem can shift discretionary policy towards a free float is shown in two popular models of floating rates one way of offsetting the laissez faire bias of discretionary policy is to appoint a relatively conservative central banker but as the time period of policy action and precommitment shrinks towards zero the required conservative bias is found to go towards infinity other institutional features such as central bank reputation contracts and intermediate targets may be crucial for successful exchange rate management

mrs thatcher s economic policies 1979 1987 mrs thatcher s economic policies 1979 87 kent matthews and patrick minford mrs thatcher inherited a weak economy whose poor performance she attributed to policies of cosy consensus lax discipline high inflation and pervasive inefficiency these she sought to banish forever the authors stress the astuteness with which this radical programme was pursued rather than launching an immediate and grand assault on all fronts mrs thatcher picked off enemies one by one each victory consolidating her position for the next attack only when inflation was clearly under control could more radical supply side measures be introduced matthews and minford argue that the recession of 1980 81 was caused not by tight domestic demand but by external and supply side shocks subsequently tight monetary and fiscal policy did have powerful effects both in achieving rapid inflation reduction and in holding unemployment above its equilibrium level once serious supply side policies were introduced they had a significant effect on productivity growth and on the equilibrium rate of unemployment matthews and minford conclude that the latter was halved between 1981 and 1986 by which date it stood at 1 6 million or roughly half of actual unemployment whilst unemployment may slowly fall towards its equilibrium level the authors do not recommend fiscal or monetary expansion to accelerate this adjustment rather they advocate further supply side measures and deregulation to help markets achieve this transition

economic stabilization conditionality and political stability imf conditionality is seldom so important that it dominates all other considerations for political stability imf stabilization programs often shift benefits from one group to another they expose elites to charges of selling the sovereignty of their countries the imposition of imf conditions particularly subsidy cuts may lead to sharp outbreaks of civil disorder nonetheless the imf provides resources that make adjustment easier and thus may lessen the chances of political instability for a country imf programs are seldom implemented fully as negotiated and the penalties for partial compliance are not great debtor countries have more flexibility in imposing austerity measures and the economic constraints are less binding than often assumed the very availability of alternatives to imf programs results in internal divisions because some favor debt repudiation and others oppose it groups now contend over solutions to the debt problems of their countries

clustering in crude oil prices and the target pricing zone hypothesis abstract this paper studies the target pricing zone tpz hypothesis for crude oil by examining price clustering in the dollar digit it is hypothesized that price clustering occurs within an established tpz if opec is able to defend the upper and lower bounds through output changes the results show that prices strongly cluster around the dollar digit value of 9 within the tpz sub periods but not outside the sub periods furthermore the degree of clustering declines when production capacity utilization is high and when production significantly exceeds quotas consistent with opec s inability to defend the zone nine centered clustering also results in lower contemporaneous and next day volatility these results support the target pricing zone hypothesis of crude oil

testing nonlinear forecastability in time series theory and evidence from the ems abstract this paper proposes a procedure based on nearest neighbour predictors for testing the existence of nonlinear forecastable dependencies in time series an empirical application to ems exchange rates illustrates the performance of the test

exchange rate dynamics in anticipation of time contingent regime switching modelling the effects of a possible delay abstract the procedure of fixing a currently floating exchange rate at a given and publicly announced future date has a broad range of applications based on a continuous time monetary exchange rate model with flexible prices this paper analyzes exchange rate dynamics during the transition from floating to fixed rates in a situation in which market participants are uncertain about adherence to the fixing date and in which they take account of a possible delay in the regime switch the closed form solutions derived here allow us to quantify announcement effects as well as effects on the exchange rate variance caused by news that significantly changes the market s assessment of uncertainty

exchange rates under ems target zones an econometric investigation this study tests krugman s model on exchange rate target zones using four old ems exchange rates those of the currencies of belgium france italy and the netherlands against the deutsche mark vast theoretical literature is available but there are very few empirical studies testing the main results of krugman s model namely the honeymoon effect smooth pasting and the overall s curved relationship between fundamental and exchange rate the present study supports the honeymoon effect but does not find any evidence in support of smooth pasting or of an s curved relationship between the exchange rate and fundamentals for the belgian franc french franc and italian lira against the deutsche mark the dutch guilder very closely follows movements in the german mark throughout the period 1981 90 end of month exchange rates and euro currency interest rates data are used

estimating credibility in colombia s exchange rate target zone abstract this paper analyzes credibility in the colombian exchange rate target zone a model of imperfect credibility in the spirit of bertola and svensson bertola g svensson l 1993 stochastic devaluation risk and the empirical fit of target zone models review of economic studies 60 689 712 is derived and estimated using colombian data the main feature of the model is that central parity depreciation expectations are endogenous with respect to the position of the exchange rate inside the target zone the krugman krugman p 1991 target zones and exchange rate dynamics quarterly journal of economics 56 3 669 682 perfectly credible setup is a particular case of this general model a key implication of the model is that depreciation expectations rise rather than fall as the exchange rate approaches the upper band using the method of simulated moments msm to estimate the structural parameters underlying the model i find evidence suggesting that colombia s exchange rate target zone is properly described by a model of this nature

continuous time model of uncovered interest parity with regulated jump diffusion interest differential this study investigates to what extent can an exchange rate model built on uncovered interest parity uip match the empirical features of the exchange rate and the interest differential data this article presents a continuous time model of uip in which the interest differential evolves following regulated jump diffusion simulation experiments show that the model is capable of matching several important features of the data inclusion of jumps improves the model to capture persistent dynamics of interest differential and fat tails in exchange rate returns compared to simple diffusion processes

privatization and the logic of coalition building a comparative analysis of state divestiture in turkey and the united kingdom privatization has emerged as a global phenomenon during the 1980s rather paradoxically however the extent of privatization both in terms of the scale of divestitures as well as the pace of implementation has with notable exceptions remained quite restricted this article seeks to develop a framework for explaining the pattern of limited privatization the central argument is that the possibilities for utilizing privatization as an instrument for mobilizing an electoral coalition and establishing a form of popular capitalism are rather remote in the context of most developing countries alternative forms of privatization involving direct sale to domestic or foreign corporations are either not feasible or politically unattractive the u k experiment is in many ways unique the conditions that facilitated extensive privatization in the united kingdom are not likely to be reproduced in other national contexts in the third world the author attempts to demonstrate the validity of this argument via

on the imperfect substitutability of policy regimes exchange rate targetting vs policy coordination abstract exchange rate targetting is always an imperfect substitute for explicit policy coordination but succeeds when economies are either structurally dissimilar with symmetric shocks or structurally symmetric with dissimilar shocks a joint commitment then generates economies of scale in interventions

asymmetric information and optimal bank reserves one traditional argument in favor of bank reserve requirements holds that since a b ank and its depositors are asymmetrically informed as to the bank s reserve position and its portfolio the bank will hold too few reserves and too risky a port folio this being the case presumably a central banking authority is equipped t o impose and to monitor a minimal reserve requirement yielding a pareto superior outcome this paper analyzes this position in the context of a formalmodel and shows that at least for some parameters of the model there is such a case for a minimal reserve requirement copyright 1987 by ohio state university press

resistance redistribution and investor friendliness abstract poor communities sometimes resist private investment and destroy economic surplus even if the government has the willingness and ability to redistribute we interpret such acts of resistance as demands for redistribution destruction contains credible information about how the affected group values surplus and such information is used by the government in implementing the optimal redistribution policy the extent of destruction is increasing in the extent of political marginalization of the affected group resistance not only destroys economic surplus it also mutes the investor s incentives to create surplus the government uses a tax subsidy on the investor to maximize weighted social surplus and we show that the possibility of destruction may force the government to be too soft in its negotiations with the investor we discuss several policy instruments that have the potential to improve welfare these include compensation floor for the affected group legal or financial protection for the investor and licensing fees for the investor

the lifetime of a unilateral target zone some extended results abstract in dumas and svensson journal of international economics 36 1994 467 the lifetime of a krugman quarterly journal of economics 106 1991 669 682 type target zone model is found to be extremely long this paper shows that the lifetime of the identical target zone regime can be much lower when real disturbances occur in particular the mean lifetime is found to be very low when real disturbances occur and the real exchange rate elasticity of the demand for domestic goods is very low it is also shown that allowing for monetary disturbances to have real effects has very little effect on the lifetime the results indicate the conditions under which real disturbances might trigger currency crises

explaining the demand for free bank notes abstract this paper explains why the risky notes of banks established during the free banking era 1837 1863 were demanded even when relatively safe specie gold and silver coin was an alternative free bank notes were demanded because they were priced to reflect the expected value of their backing the empirical evidence supports this explanation specifically in new york wisconsin and indiana the expected value of backing was sufficient for free bank notes to circulate at par which they did in minnesota the backing for notes was very poor they exchanged well below par being treated as small denomination securities

state banks and the national banking acts measuring the response to increased financial regulation 1860 1870 the national banking acts and their supporting legislation led to 263 state bank closures and 934 charter conversions between 1863 and 1870 this paper measures and analyzes these sudden changes using the period s first complete bank level census the data suggest that the national capital requirements prevented many existing banks from converting to a national charter whereas a tax on state bank notes was responsible for the large number of closures the legislation also prevented new national banks from replacing closed state banks and instead encouraged note and security brokers to open new banks in developing areas along the manufacturing belt

politics of economic liberalization in india abstract attempts at liberalizing india s import substitution model of development have had a mixed record some success in changing the policy regime highlights the role of a new technocratic leadership that has received support from both indian business groups and from external aid agencies conversely popular sectors within india including the rank and file of the ruling party the organized workers in the public sector and the numerically significant middle and lower peasantry have registered their opposition while the government remains committed to liberalizing the economy the momentum has slowed down and given the pressures of electoral politics a populist economic program has been simultaneously readopted it appears that the marriage of political and economic liberalism may not be an easy one in countries like india

state antitrust enforcement in the us and implications for small business entry and relocation this article examines the impact of the important yet little studied state level antitrust enforcement activity on entry and relocation behaviour by small us firms feinberg and husted 2011 have shown that this enforcement especially nonhorizontal cases may be viewed by potential entrants as a negative aspect of the state business climate however they did not pursue a more disaggregate analysis of small firm entry behaviour nor did they investigate different responses between manufacturing wholesaling and retailing firms another related issue is the extent to which state cases filed in tandem with federal investigations have the same impact on establishment entry as do purely independent cases these considerations are dealt with in this article the author uses annual state level data from the statistics of us business to examine entry and relocation reactions to state antitrust enforcement by firms within three small business categories 1 19 employees 20 99 employees 100 499 employees g

the political economy of economic liberalization two of the major policy problems facing governments of developing countries in the 1 980s have been unsustainable external and internal disequilibria and implementation of politically feasible stabilization cum liberalization programs which become necessary to correct these imbalances this article discusses these crises and subsequent policy reform the analysis suggests that balance of payments and fiscal deficits are frequently the result of use of an incorrect accounting system in a fixed exchange rate economy and of public sector expansion beyond its economically feasible size that governments usually seek to liberalize their economies during a crisis to regain control when the growth of the transfer state has led to generalized tax resistance avoidance or evasion that reduction of the government role will be required to alleviate these crises that sharp departures from past policies rather than gradual reform may be politically necessary and that contrary to the current technocratic opinion on this matter the sequencing of a consistent and credible package of reforms which will most effectively reduce the costs of adjustment is initial liberalization of domestic capital markets simultaneous with cuts in the fiscal deficit followed by floating the exchange rate and then commodity market liberalization with the growing importance of internal monetary fund imf stabilization and world bank structural adjustment programs there has been concern about the proper sequencing of the standard stabilization cum liberalization measures contained in these packages in particular there is grave concern at the very mixed and in some cases disastrous effects of liberalization attempts on incomes and employment in the southern cone of latin america in the late 1970s and early 1 980s much of the existing discussion of the order of liberalization is conducted within the traditional technocratic framework which seeks to determine the welfare cost minimizing deployment of policies in the standard stabilization and 1 this assumes a benevolent and well informed government maximizing a social welfare function

exchange rate discounting abstract economists often describe nominal exchange rates as forward looking so that they reflect discounted expected future fundamentals this study applies a method for identifying the discount rate involved without knowing or measuring fundamentals identification arises from assumptions on the stochastic process followed by fundamentals combined with non linearity arising from expected future regime changes two applications yield evidence against the present value model in the form of discount rates which are negative and statistically significant

transition probabilities in a problem of stochastic process switching extant solutions for state contingent process switching use first passage time densities or differential equations we alternatively employ transition probabilities these conditional likelihood functions also have obvious appeal for econometric analyses as well as derivative pricing and decision making under absorption and extinction

the political economy of chinese style privatization motives and constraints summary the paper examines how the privatization of chinese state owned enterprises soes can be successfully triggered and completed by identifying the motives of local government leaders and the constraints that face them during transition we conclude that first whether local governments are motivated to privatize their soes depends on if the ownership transfer is expected to stimulate sufficiently high growth of local tax revenues without sacrificing the bureaucrats private control benefits second a specific privatization program can succeed only if it manages to satisfy the managerial cooperation constraint the workers compensation constraint and the bank debt servicing constraint the motives cum constraints political economy approach offers an important explanation for the pace and scope of the ongoing chinese style privatization