carbon leakage and capacity based allocations is the eu right competitiveness and carbon leakage are major concerns for the design of co2 emissions permits markets in the absence of a global carbon tax and of border carbon adjustments output based allocation is a third best solution and is actually implemented australia california new zealand the eu has followed a different route free allowances are allocated to existing or new capacities in proportion to a benchmark independent of actual production this paper compares these two schemes in a formal setting and shows that the optimal one is in fact a combination of both schemes or output based allocation alone if uncertainty is limited a key assumption of our analysis is that the short term import pressure depends both on the existing capacities and the level of demand which is typical in capital intensive and internationally traded sectors a calibration of the model is used to discuss the eu scheme for the cement sector in the third phase of the eu ets 2013 2020 this allows for a quantification of various policies in terms of welfare investment production company profits public revenues and leakage

should a carbon tax be differentiated across sectors abstract if some but not all countries are cooperating to reduce co2 emissions one could make the following argument a high carbon tax for carbon intensive tradeable sectors in the cooperating countries will reduce the production of goods from these sectors and therefore co2 emissions in the cooperating countries however this will to a large extent be counteracted by increased production of such goods in the countries that have no climate policy and since it is only total co2 emissions from all countries that are relevant for the climate there is no point in a policy that simply relocates co2 emissions from the cooperating countries to the countries that have no climate policy according to this line of reasoning carbon intensive tradeable sectors should thus face a lower carbon tax than other sectors of the economy this paper shows that a carbon tax should not be differentiated across sectors in the economy provided one can use import and export tariffs on all traded goods it is also shown that such a differentiation of carbon taxes is optimal for the cooperating countries if they are prevented from using tariffs on the traded goods however informational or political factors constraining the use of tariffs are likely also to constrain the possibility of differentiating carbon taxes between sectors

exclusive contracts and protection of investments we consider the effect of a renegotiable exclusive contract restricting a buyer to purchase from only one seller on the levels of noncontractible investments undertaken in their relationship contrary to some informal claims in the literature we find that exclusivity has no effect when all investments are fully specific to the relationship i e are purely internal exclusivity does matter when investments affect the value of the buyer s trade with other sellers i e have external effects we examine the effects of exclusivity on investments and aggregate welfare and the private incentives of the buyer seller coalition to use it

crises and exchange rate regimes time to break down the bipolar view we revisit the link between crises and exchange rate regimes err using a panel of 90 developed and developing countries over the period 1980 2009 we find that corner err are not more prone to crises compared to intermediate err this finding holds for different types of crises banking currency and debt and is robust to a wide set of alternative specifications consequently we clearly break down the traditional bipolar view countries that aim at preventing crisis episodes should focus less on the choice of the err and instead implement sound structural macroeconomic policies

financial collapse a lesson from the great depression abstract we analyze financial collapses such as the one that occurred during the u s great depression from the perspective of a monetary model with multiple equilibria the multiplicity arises from the presence of a strategic complementarity due to increasing returns to scale in the intermediation process intermediaries provide the link between savers and firms who require working capital for production fluctuations in the intermediation process are driven by variations in the confidence agents place in the financial system from a positive perspective our model matches quite closely the qualitative changes in important financial and real variables the currency deposit ratio ex post real interest rates deflation and production over the great depression period an experience often attributed to financial collapse further we assess whether the policy prescription advocated by friedman and schwartz adding liquidity to the banking system through increases in the money supply would have overcome strategic uncertainty and thus avoided a financial collapse

exchange rate regimes banking and the non tradable sector abstract this paper presents a small open economy two good version of the diamond and dybvig model with cash constraints to analyze the implications on banking of different exchange rate regimes and monetary policies i show that fixed exchange rates with a central bank providing liquidity in local currency imply pareto efficiency with conditions for a run equilibrium stronger than in the literature in a flexible exchange rate regime multiple equilibria may not be eliminated in particular for very a expansive monetary policy there exists an equilibrium where a fraction of patient consumers purchases dollars in the interim period which constitutes a partial currency run a dollarized banking system without international short run credit may also implement the efficient allocation under certain conditions

climate policy and fiscal constraints do tax interactions outweigh carbon leakage climate policymaking faces twin challenges of carbon leakage and public sector revenue requirements a large literature advocates the use of carbon dioxide co2 pricing and recycling the revenues to lower distorting taxes as a way to minimize costs in this paper we explore the implications of labor tax interactions for the cost effectiveness of border adjustments and other measures to cope with leakage we find that for plausible values of labor supply elasticities the cost savings from revenue recycling are significant from 15 to 25 percent the cost savings from anti leakage measures are generally smaller but also significant particularly for small coalitions or more binding reduction targets tax interactions further enhance the cost savings from border adjustments but make other measures like rebates or exemptions less attractive

the cross country implications of alternative climate policies abstract because of worldwide growing concerns about global climate change great interest has been expressed in the potential of alternative climate policies to reduce global carbon emissions in this paper we compare cross country implications of alternative climate policies including unilateral and multilateral climate policies our main findings are as follows firstly there are large differences in cross country effects of alternative unilateral climate policies when the same given carbon emission reductions are achieved in each abating country respectively meanwhile cross border externalities undermine efficiency of unilateral climate policies secondly there are significant differences in cross country implications of alternative multilateral climate policies when the same global emission reductions are allocated in several different ways among abating countries thirdly it is difficult to reach a stable global climate treaty since any abating country has the incentive to argue for small carbon emission reductions finally multilateral climate policies can reduce the negative impacts of cross border externalities but cannot cure all cross border externalities looking ahead it will be a great policy challenge for the world to reduce carbon emissions in a cost effective way

information acquisition coordination and fundamentals in a financial crisis abstract this paper reconciles the two explanations of a financial crisis the self fulfilling prophecy and the fundamental causes in an empirically relevant framework by explicitly modeling the costly voluntary acquisition of information about fundamentals in a variant of diamond and dybvig diamond d dybvig p 1983 bank runs deposit insurance and liquidity journal of political economy 91 401 419 the model exhibits strategic complementarity in information acquisition in the partial run equilibrium investors engage in costly evaluation of projects so that banks with lower return projects fail there also exist the classic full run and no run equilibria in which there is no project evaluation investors coordination on a specific equilibrium is triggered by a self fulfilling prophecy so financial crises are seen as both fundamentals based and self fulfilling prophecies based phenomena

government taxes and banking crises abstract this paper analyzes the effectiveness of different government policies to prevent the emergence of banking crises in particular we study the impact on welfare of using taxpayers money to recapitalize banks government injection of money into the banking system through credit lines the creation of a buffer and taxes on financial transactions the tobin tax we illustrate the trade off between these policies and derive policy implications

a critical review of contagion risk in banking the recent financial crisis has focused the attention of scholars and policymakers on how to improve financial stability through better macro prudential regulation and supervision in this paper we compare the existing theoretical and empirical literature on contagion through the banking system it is argued that the structure of the interbank market the size of banks the linkages among them the level of correlation of their investments and the transparency of the regulator are key factors in determining the possibility of contagion we discuss the different findings and present avenues for future research

financial fragility and the exchange rate regime abstract we study financial fragility exchange rate crises and monetary policy in a model of an open economy with diamond dybvig banks the banking system the exchange rate regime and central bank credit policy are seen as parts of a mechanism intended to maximize social welfare if the mechanism fails banking crises and speculative attacks on the currency become possible we compare currency boards fixed rates and flexible rates with and without a lender of last resort a currency board cannot implement a social optimum in addition it allows bank runs to occur a fixed exchange rate system may implement the social optimum but is more prone to bank runs and exchange rate crises than a currency board a flexible rate system implements the social optimum and eliminates runs provided that the exchange rate and credit policies of the central bank are appropriately designed journal of economic literature classification numbers f3 e5 g2

mitigation of adverse effects on competitiveness and leakage of unilateral eu climate policy an assessment of policy instruments the european union eu has developed a strategy to mitigate climate change by cutting greenhouse gas ghg emissions and fostering low carbon technologies however the risk of implementing unilateral policies is that distortive effects are generated at the global scale affecting world energy prices international competitiveness and the geographical allocation of carbon intensive production processes using a dynamic cge model we assess the rate of carbon leakage and adverse impacts on competitiveness in a number of scenarios over the period 2010 2050 according to the model results we highlight two major issues first in the case of a unilateral eu climate policy carbon leakage and negative effects on competitiveness are quite serious anti leakage measures can only mitigate leakage and adverse economic impacts on competitiveness in a limited way on the contrary an optimality analysis addressing the environmental effectiveness cost effectiveness and political feasibility of alternative policy solutions reveals that the eu long term decarbonisation strategy by investing in energy efficiency and renewable energy might ensure protection of vulnerable manufacturing activities while enhancing the competitiveness of technologically advanced industries

intra firm bargaining under non binding contracts we present a new methodology for studying the problem of intra firm bargaining based on the notion that contracts cannot commit the firm and its agents to wages and employment we develop and analyse a general non cooperative multilateral bargaining framework between the firm and its employees and consider outcomes which are immune to renegotiations by any party equilibrium firm profits are characterizable as both a weighted average of a neo classical non bargaining firm s profits and a generalization of shapley value for a corresponding cooperative game furthermore the resulting payoffs induce economically significant distortions in the firm s input and organizational design decisions

the efficiency cost of protective measures in climate policy despite recent achievements towards a global climate agreement climate action to reduce greenhouse gas emissions remains quite heterogeneous across countries energy intensive and trade exposed eite industries in industrialized countries are concerned on stringent domestic emission pricing that puts them at a competitive disadvantage against producers of similar goods in other countries with more lenient emission regulation this paper focuses on climate policy design in the united states of america us and compares the economic implications of four alternative protective measures for us eite industries i output based rebates ii exemptions from emission pricing iii energy intensity standards and iv carbon intensity standards using a large scale computable general equilibrium model we quantify how these protective measures affect competitiveness of us eite industries we find that protective measures can improve common trade related competitiveness indicators such as revealed comparative advantage or relative world trade shares but at the same time may lead to a decline in the output value for eite industries because of negative income effects the economy wide cost of emission abatement under protective measures increase as compared to uniform emission pricing stand alone such that the gains of protective measures for eite exports may be more than compensated through losses in domestic eite demand

a model of financial crises in emerging markets recent events in mexico asia russia and brazil have underscored that a satisfactory explanation of financial crises in emerging markets remains elusive not too long ago the prevailing view was that crises were the inevitable outcome of ongoing fiscal imbalances coupled with fixed exchange rates but this first generation view pioneered by krugman 1979 has fallen out of fashion because in many crises the crucial fiscal disequilibria were absent and as obstfeld 1994 has argued currency crises have sometimes occurred even though central banks had more than enough resources to prevent them witness much of europe in the early 1990s obstfeld put forward a second generation view in which central banks may decide to abandon an exchange rate peg when the unemployment costs of defending it become too large this new perspective implied that crises could be driven by self fulfilling expectations since the costs of defending the peg may themselves depend on anticipations that the peg will be maintained but obstfeld s emphasis on mounting unemployment and domestic recession while appropriate for the erm 1992 crisis was at odds with the facts in mexico in 1994 and east asia in 1997 asian

unilateral climate policy design efficiency and equity implications of alternative instruments to reduce carbon leakage abstract global cost effectiveness of unilateral emission abatement can be seriously hampered by carbon leakage we assess three widely discussed proposals for leakage reduction carbon motivated border tax adjustments industry exemptions from carbon regulation and output based allocation of emission allowances we find that none of these measures amounts to a magic bullet when both efficiency and equity criteria matter compared to unilateral emission pricing alone border carbon adjustments are most effective in leakage reduction and promotion of global cost effectiveness but can markedly exacerbate regional inequality exemptions and output based allocation tend to avoid distributional pitfalls but are less effective in leakage reduction and global cost savings exemptions may even decrease global cost effectiveness of unilateral emission abatement

how amsterdam got fiat money abstract a fiat money system was introduced in the seventeenth century by a prominent public bank of the time the bank of amsterdam employing data from the bank s archives we show that bank money became a more attractive transactions medium following a 1683 policy change which unbundled the bank s account balances from a right to redeem these balances in coin balances not matched by a redemption right became fiat this change also stabilized the value of bank money as a unit of account freed the bank from defensive open market operations and promoted seigniorage collection

dynamic climate policy under firm relocation the implications of phasing out free allowances the allocation of free allowances for firms within the european union emissions trading scheme was found to lead to substantial overcompensation which is why some stakeholders recently called for phasing out of free allowances in the near term this paper analyzes the consequences of phasing out free allowances in a two period model when one country unilaterally implements climate policies a carbon price induces firms to invest in abatement capital but may lead to the relocation of some firms the regulator addresses the relocation problem by offering firms transfers i e free allowances conditional on maintaining the production in the regulating country if transfers are unrestricted in both periods then the regulator implements the first best by equalizing the carbon price with the marginal environmental damage and using transfers to prevent any relocation however if transfers in the future period are restricted the planner optimally implements a declining carbon price path with the first period price exceeding the marginal environmental damage a high carbon price triggers investments in abatement capital and thus creates a lock in effect with a larger abatement capital stock firms are less affected by carbon prices in the future and therefore less prone to relocate in the second period

equity market and foreign capital i present a model that demonstrates that the market mechanism is not always effective in stabilizing an open equity market foreign capital inflows create multiple equilibria in the equity market which may simultaneously trigger a currency crisis as well as an equity market crash even if the equity market is well developed l auteur presente un modele qui montre que le mecanisme de marche n est pas toujours efficace pour stabiliser un marche ouvert d actions les influx de capitaux etrangers creent de multiples equilibres dans le marche des actions qui peuvent simultanement engendrer une crise de la monnaie et un effondrement du marche des actions meme si le marche des actions est bien developpe

banking crises and liquidity in a monetary economy abstract this study investigates banks liquidity provision using the lagos and wright model of monetary exchange with aggregate uncertainty we show that banks sometimes exhaust their cash reserves and fail to satisfy their depositors needs for consumption smoothing we also show that banking crises can be eliminated by a rate of return equalizing policy under perfect risk sharing but the first best outcome can be only achieved with the friedman rule these results cannot be obtained with other monetary models e g overlapping generations models we also derive a rich array of non trivial effects of inflation on equilibrium deposits the probability of banking crises and banks portfolios

carbon abatement and international spillovers carbon abatement policies in large open economies affect both the allocation of domestic resources and international market prices a change in international prices implies an indirect secondary burden or benefit for all trading countries based on simulations with a large scale computable general equilibrium model of global trade and energy use we show that international spillovers have important welfare implications for carbon abatement policies designed to meet exogenous emission reduction targets we present a decomposition of the total welfare effect of carbon abatement policies into a primary domestic market effect at constant international prices and a secondary international spillover impact as a result of changes in international prices this decomposition reveals the extent to which domestic abatement costs are increased or decreased as a result of the impact of carbon abatement on international prices

carbon leakage grandfathering as an incentive device to avert firm relocation emission allowances are sometimes distributed for free in an early phase of a cap and trade scheme to reduce adverse effects on the profitability of firms this paper investigates whether grandfathering can also be used to avert the relocation of firms to countries with lower carbon prices we show that under certain conditions relocation can be averted in the long run even if the grandfathering scheme is phased out over time and immediate relocation is profitable in its absence this requires that the permit price triggers sufficient investments into low carbon technologies or abatement capital that create a lock in effect which makes relocation unprofitable

accounting for the east asian crisis a quantitative model of capital outflows in small open economies to what degree can the qualitative and quantitative aspects of the east asian crisis be accounted for within a dynamic general equilibrium model this paper investigates that question using a framework in which the crisis itself is modeled as an exogenous shock to the country risk premium this exercise has empirical discipline because the scale of the shock can be measured by the movement in the reported risk premium we calibrate a quantitative sticky price dynamic general equilibrium model of a small open economy to match the features of three east asian economies thailand korea and malaysia we identify a shock to the country risk premium using published data from international bond markets and identify shortrun monetary policy using observed domestic interest rates we find that the modeled response to the observed increase in external interest rates substantially matches macroeconomic data on prices and quantities at the aggregate and sectoral level however the model has more difficulty explaining the large exchange rate devaluations that occurred in those economies

markets for ownership the prevailing economic theory of the firm based on a property rights perspective has demonstrated that ownership by dispensable outside parties is an inefficient outcome relative to ownership by productive agents in order to better understand observed patterns of ownership this paper considers the outcome of ma rkets for ownership that operate prior to production taking place the main result is that outside parties will often become the equilibrium asset owners this is precisely because but for ownership such parties would not earn rents in contrast productive agents earn rents even when they do not own assets given that their contribution is complementary with other productive agents their willingness to pay for ownership is less than that of an outside party this result is robust to the introduction of moderate levels of inefficiency arising from outside ownership and to a consideration of opportunities for re sale before production begins the main conclusion drawn is that the nature of the operation of markets for ownership stands alongside incentive effects as important predictors of firm boundaries journal of economic literature classification numbers d23 l22

aftermath of banking crises effects on real and monetary variables abstract this paper models the effects of a banking crisis and in particular distinguishes between a short term crisis such as a banking panic and a longer term crisis such as a banking insolvency using an optimizing framework it shows that depositors shift from deposits into cash in both types of crises which results in an increase in the interest rates on deposits and loans and a contraction in output and consumption however when the crisis is resolved in a finite time period there is an intertemporal substitution of consumption and consumption is postponed until the crisis is resolved this in turn results in a further decline in the demand for money availability of credit and output

distinguishing panics and information based bank runs welfare and policy implications in this paper we contrast panics and information based bank runs in an effort to provide a robust and empirically plausible model of how bank runs are triggered the model of information based runs is characterized by two sided asymmetric information the bank cannot observe the true liquidity needs of the depositors while depositors are asymmetrically informed about bank asset quality we also examine the relative degrees of risk sharing provided by bank deposit contracts and traded equity contracts we show that the choice of deposit or equity depends on the attributes of and information about the underlying investment returns

unilateral climate policy and competitiveness economic implications of differential emission pricing unilateral emission reduction commitments raise concerns on international competitiveness and emission leakage that result in preferential regulatory treatment of domestic energy intensive and trade exposed industries our analysis illustrates the potential pitfalls of climate policy design which narrowly focuses on competitiveness concerns about energy intensive and trade exposed eite branches the sector specific gains of preferential regulation in favour of these branches must be traded off against the additional burden imposed on other industries beyond burden shifting between industries differential emission pricing bears the risk for substantial excess cost in emission reduction as policy concedes too low carbon prices to eite industries and thereby foregoes relatively cheap abatement options in these sectors from the perspective of global cost effectiveness we find that differential emission pricing of eite industries hardly reduces emission leakage since the latter is driven through robust international energy market responses to emission constraints as a consequence the scope for efficiency compared to uniform pricing is very limited only towards stringent emission reduction targets will a moderate price differentiation achieve sufficient gains from leakage reduction to offset the losses of diverging marginal abatement cost

renegotiation and information revelation over time the case of optimal labor contracts the paper analyzes the issue of commitment in grossman and hart s model of optimal labor contracts under asymmetric information about firm profitability we extend their framework by allowing employment to vary over time at equidistant intervals when both parties can precommit ex ante not to renegotiate the contract this replicates the grossman hart outcome each subperiod when precommitment is not possible information revealed through the contract can create pareto improving renegotiation opportunities and the issue of optimal information revelation arises the paper analyzes the impact of ex post pareto improving renegotiations on the optimal contract

informational contagion of bank runs in a third generation crisis model abstract this paper highlights the international spread of bank runs in a third generation model of financial crises through an informational channel banks short term liabilities include loans granted by foreign creditors who have imperfect information about the liquidation costs of banks assets a bank panic in a country induces lenders to downgrade early liquidation yields in other countries and thus to require higher interest rates to enable their banks to roll over their maturing debt those banks become therefore more prone to self fulfilling depositors runs the paper then studies the effect on contagion of increased transparency and bailouts

a theory of buyer seller networks this paper introduces a new model of exchange networks rather than markets of buyers and sellers it begins with the empirically motivated premise that a buyer and seller must have a relationship a link to exchange goods networks buyers sellers and the pattern of links connecting them are common exchange environments this paper develops a methodology to study network structures and explains why agents may form networks in a model that captures characteristics of a variety of industries the paper shows that buyers and sellers acting strategically in their own self interests can form the network structures that maximize overall welfare

border carbon adjustment and trade retaliation what would be the cost for the european union unilateral climate policy such as carbon pricing represents an additional cost to the economy especially to energy intensive industrial sectors as well as those exposed to international competition a border carbon adjustment bca is often presented as an attractive policy option for countries that wish to go ahead without waiting for a global climate agreement we used the computable general equilibrium model mirage to simulate the impact of the introduction of a bca on imports of energy intensive products in eu and efta countries and to evaluate the exports their main trade partners would lose given that a bca is a trade measure it might cause disputes at the world trade organization wto if the bca is considered illegal the losses suffered by some partners may justify trade retaliations at that point it would be likely that prohibitive retaliatory tariffs target sensitive products in the eu which are often related to the european agricultural sector these trade measures would limit the drop in production in the energy intensive and trade exposed eite sectors but at the expense of the other sectors nevertheless neither the bca nor retaliation would have sizeable impacts on real income or gdp in the eu or on the retaliators while leading to a small decrease in global emissions

cost effective unilateral climate policy design size matters given the bleak prospects for a global agreement on mitigating climate change pressure for unilateral abatement is increasing a major challenge is emissions leakage border carbon adjustments and output based allocation of emissions allowances can increase effectiveness of unilateral action but introduce distortions of their own we assess antileakage measures as a function of abatement coalition size we first develop a partial equilibrium analytical framework to see how these instruments affect emissions within and outside the coalition we then employ a computable general equilibrium model of international trade and energy use to assess the strategies as the coalition grows we find that full border adjustments rank first in global cost effectiveness followed by import tariffs and output based rebates the differences across measures and their overall appeal decline as the abatement coalition grows in terms of cost the coalition countries prefer border carbon adjustments countries outside the coalition prefer output based rebates

how bad are twins output costs of currency and banking crises we investigate the output effects of banking and currency crises in emerging markets focusing on whether twin crises entail especially large losses recent literature emphasizes the costs of financial crises and suggests that twin crises are particularly damaging to the real economy using a panel data set for 1975 97 we find that currency banking crises are very costly reducing output by about 5 8 8 10 over a 2 4 year period the cumulative loss of both types of crises is therefore very large we do not find however additional feedbacks or interactive effects associated with twin crises further damaging the economy

currency elasticity and banking panics theory and evidence existing models of banking panics contain no role for monetary factors and fail to explain why some banking systems experienced panics while others did not a monetary model is constructed where seasonal variations in the demand for liquidity and credit play a critical role in generating banking panics these panics occur when there are restrictions on the issue of currency in private banks but they do not occur if banks are unrestricted empirical evidence from canada and the united states for the period 1880 1910 is largely consistent with the predictions of the model

parcelling virtual carbon in the pollution haven hypothesis the methodology proposed in this paper allows us to parcel the pollution haven hypothesis phh into a bi regional input output framework to analyse whether the specialisation of countries in different stages of production and or in final goods trading generates an increase or a decrease in global emissions as a consequence of international trade we apply the model to the spain china trade relationship as it existed in 2005 finding a phh of 29 667 ktco2 if this trade had not existed so each country had met its demand for intermediate and final goods global emissions would have been reduced by these 29 667 ktco2 of this phh 43 5 corresponds to imports of final goods 32 4 is related to imports of intermediate goods for the last stage of production the remainder 24 1 is caused by global value chains gvc between the countries only 3229 ktco2 of phh emissions are linked to domestic emissions from the sector in which the imports are produced the rest is explained by domestic linkages or successive rounds of domestic production which supports the existence of an indirect phh together with a trade growth in the last years the fall of trade barriers would have implied a transformation of global production chains that have boosted global emissions

robust technology policy against emission leakage the case of upstream subsidies asymmetric regulation of a global pollutant between countries can alter the competitiveness of industries and lead to emissions leakage which hampers countries welfare in order to limit leakage governments consider supporting domestic trade exposed firms by subsidizing their investments in abatement technology the suppliers of such technologies tend to be less than perfectly competitive particularly when both emissions regulations and advanced technologies are new in this context of twin market failures we consider the relative effects and desirability of subsidies for abatement technology we find a more robust recommendation for upstream subsidies than for downstream subsidies downstream subsidies tend to increase global abatement technology prices reduce pollution abatement abroad and increase emission leakage on the contrary upstream subsidies reduce abatement technology prices and hence also emissions leakage

money banking and capital formation we consider a monetary growth model in which banks arise to provide liquidity in addition there is a government that issues not only money but interest bearing bonds these bonds compete with capital in private portfolios when the government fixes a constant growth rate for the money stock we show that there can exist multiple nontrivial monetary steady states one of these steady states is a saddle while the other can be a sink moreover paths approaching a steady state can display damped endogenous fluctuations and development trap phenomena are common across different steady states low capital stocks are associated with high nominal interest rates the latter signal the comparative inefficiency of the financial system also increases in the steady state inflation rate can easily reduce the steady state capital stock journal of economic literatureclassification numbers e13 e44 e50 g20 o16

the making of the turkish financial crisis abstract at the turn of the century the turkish economy was in need of an urgent stabilization in order to halt a treacherous process of inflation unsustainable public debt accumulation and increasing financial fragility resulting from irresponsible policies and lack of fiscal discipline that had been endemic since the early 1980s the stabilization program launched with support from the imf has however failed to deliver its promises plunging the economy into an unprecedented recession largely because of serious shortcomings in its design as well as in crisis intervention which appears to have drawn no useful lessons from recent crises in emerging markets

downscaling heterogeneous household outcomes in dynamic cge models for energy economic analysis abstract downscaling methods for dynamic computable general equilibrium models are developed and analyzed the methods produce outcomes for a variety of different household types by downscaling the aggregate quantities from an economic growth model with a representative household this approach uses household survey data and long term population projections for different household types to compare the performance of the downscaling methods vs a general equilibrium model with multiple household groups under a variety of conditions including demographic change technological change and a carbon tax both recursive dynamic and forward looking downscaling methods produce results that approximate well a multiple household model run the recursive dynamic downscaling method is applied to an illustrative example estimating impacts of a carbon tax on aggregate co 2 emissions and the energy demand of different household groups for a middle of the road development scenario

contracting with externalities the paper studies inefficiencies arising in contracting between one principal and n agents when the utility of each agent depends on all agents trades with the principal when the principal commits to a set of publicly observable bilateral contract offers the arising inefficiency is due entirely to the externalities imposed on non signers in contrast when the principal s offers are privately observed the distortion is due to the externalities given agents equilibrium trades comparison of the two externalities determines the relative efficiency of the two contracting regimes in both cases we show that when n is large each agent can be treated as non pivotal provided that appropriate continuity assumptions are satisfied we also study the case in which the principal can condition each agent s trade on other agents messages we characterize the set of such mechanisms in which each agent s participation is voluntary when the principal can commit to any such mechanism she implements the first best outcome while threatening each deviator with the harshest possible punishment however in the presence of noise that goes to zero slower than n goes to infinity in the limit we obtain a generally inefficient outcome in which each agent feels non pivotal

can debt crises be self fulfilling abstract several papers argue that debt crises can be the result of self fulfilling expectations that no one will lend to a country triggering default and rationalizing the refusal to lend i show these coordination failures can be eliminated by a combination of state contingent securities and a mechanism that allows investors to promise to lend only if enough other investors do so as well this suggests that runs on the debt of a single borrower such as the government can be eliminated and that self fulfilling features are more plausible when externalities among many decentralized borrowers allow for economy wide debt runs to occur

financial fragility liquidity and asset prices we define a financial system to be fragile if small shocks have disproportionately large effects in a model of financial intermediation we show that small shocks to the demand for liquidity cause either high asset price volatility or bank defaults or both furthermore as the liquidity shocks become vanishingly small the asset price volatility is bounded away from zero in the limit economy with no shocks there are many equilibria however the only equilibria that are robust to the introduction of small liquidity shocks are those with non trivial sunspot activity

currency crises and contingent liabilities a contingent liability is a future spending commitment that is realized with some probability international organizations emphasize the dangers of contingent liabilities when providing advice why one answer is obvious if significant contingent liabilities are realized they commit governments to substantial fiscal costs there is a further reason by taking on a contingent liability the government can increase the probability of the underlying shock taking place this paper describes how the issuance of government guarantees and the methods by which they are financed affect the probability of crises taking place it also discusses the determinants of post crisis inflation and depreciation

the costs of compliance a cge assessment of canada s policy options under the kyoto protocol canada has committed itself under the kyoto protocol to reduce greenhouse gas emissions between 2008 and 2012 on average by six per cent from the base 1990 level as of 2009 however canada s greenhouse gas emissions are far above its 1990 level which calls for stringent short term policy measures if canada is to meet its legally binding commitment this paper uses a multi region multi commodity static general equilibrium model to quantify the economic impacts of alternative compliance strategies for canada in the context of climate policies undertaken by other kyoto parties the numerical results confirm fears by canadian policymakers of substantial economic adjustment costs should canada fulfill its kyoto commitments solely through domestic action however a rigorous use of the project based cdm on top of international emissions trading could allow canada to live up to its international climate policy commitment at politically much more tolerable costs

robust predictions for bilateral contracting with externalities the paper studies bilateral contracting between one principal and n agents when each agent s utility depends on the principal s unobservable contracts with other agents we show that allowing deviations to menu contracts from which the principal chooses bounds equilibrium outcomes in a wide class of bilateral contracting games without imposing ad hoc restrictions on the agents beliefs this bound yields for example competitive convergence as n in environments in which an appropriately defined notion of competitive equilibrium exists we also examine the additional restrictions arising in two common bilateral contracting games the offer game in which the principal makes simultaneous offers to the agents and the bidding game in which the agents make simultaneous offers to the principal

equilibrium vertical foreclosure the authors formulate a complete but analytically simple equilibrium model of vertical mergers to evaluate the logic of standard vertical foreclosure claims and the criticisms made of those claims the model includes incentives of the integrated firm and unintegrated input suppliers to exclude rivals and the potential holdout problem in this fully specified model vertical foreclosure can emerge in equilibrium copyright 1990 by american economic association

vertical integration in the presence of upstream competition we analyse vertical integration when there is upstream competition and compare outcomes to the case where upstream assets are owned by a single agent i e upstream monopoly in so doing we make two contributions to the modelling of strategic vertical integration first we base industry structure namely the ownership of assets firmly within the property rights approach to firm boundaries second we model the potential multilateral negotiations using a fully specified non cooperative bargaining model designed to easily compare outcomes achieved under upstream competition and monopoly given this we demonstrate that vertical integration can alter the joint payoffs of integrating parties in ex post bargaining however this bargaining effect is stronger for firms integrating under upstream competition than upstream monopoly we also consider the potential for integration to internalise competitive externalities in manner that cannot be achieved under non integration we demonstrate that ex post monopolization is more likely to occur when there is an upstream monopoly than when there is upstream competition our general conclusion is that the simple intuition that the presence of upstream competition can mitigate and reduce the incentives for socially undesirable vertical integration is misplaced and depending upon the strength of downstream competition i e product differentiation the opposite could easily be the case journal of economic literature classification number l42

trade from resource rich countries avoids the existence of a global pollution haven hypothesis abstract free trade agreements are currently receiving much attention in the media and politics one important question concerning free trade is its effect on the environment for example in carbon dioxide emissions the goal of this paper is to provide evidence on the validity of the pollution haven hypothesis using a multi regional input output approach for six regions and the rest of the world as a whole our findings indicate that in the period from 1995 to 2009 international trade has allowed the global economy to reduce its overall co2 emissions compared to a hypothetical situation without international trade the total amount of emissions saved was 15 06 gt in the period under consideration however not all of the seven regions in our model have been able to reduce their co2 emissions through trade global value chains have led to china becoming a pollution haven for other regions and its exports have increased world emissions to 1 28 gt co2 in 2008 however what allows a net saving of emissions on a global scale is the supply of energy and natural resources from a set of peripheral economies which in our geographical categorization are mostly integrated in the region of the rest of the world

money banking and the determination of real and nominal exchange rates the authors consider a model where spatial separation limited communication and stochastic relocation create a role for banks and country specific currencies the same factors also permit a deviation from the law of one price the authors examine how monetary policies influence real and nominal rates of exchange and real and nominal rates of interest under both fixed and flexible exchange rate regimes they also demonstrate that both regimes are characterized by an indeterminacy of both the real and the nominal rate of exchange copyright 1997 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

economic and environmental impact analysis of carbon tariffs on chinese exports as an alternative measure for the proposal of border tax adjustments btas advocated by the countries that seek to abate co2 emissions hereafter referred to as abating countries export carbon tax ect voluntarily conducted by the developing countries has been widely discussed in recent years this paper uses the multi regional and multi commodity computable general equilibrium cge model and the gtap8 1 database to investigate the economic and environmental effects of carbon tariffs on chinese exports the following three policy scenarios are considered 1 the abating countries implement cap and trade emission programs without btas 2 the unilaterally abating countries levy import tariffs and export subsidies on non abating countries and 3 the abating countries implement unilateral climate policies combined with ect imposed by china the ect policy of china is evaluated with a carbon price set at 17 us t co2 results illustrate that the ect voluntarily implemented by china is ineffective in reducing its domestic co2 emissions moreover ect merely has a minor impact on global emissions finally the competitiveness of china s energy intensive and trade exposed eite industries suffers substantial losses if export tariffs are imposed however china s gains in terms of welfare and gross domestic product gdp would be slightly improved if an ect policy is implemented compared to the scenario where china is subjected to btas levied by the abating coalition in the light of the tradeoff between tariff revenue for welfare and competiveness losses of the eite industries it is therefore difficult to conclude that carbon tariff on chinese exports is an alternative policy to btas

banks and liquidity crises in emerging market economies abstract this paper presents and analyzes a simple banking model in which banks have access to international capital markets and domestic asset markets the model generates two types of equilibria a no default equilibrium and a mixed equilibrium in the no default equilibrium all banks are symmetric and always solvent while in the mixed equilibrium some banks can be internationally illiquid and default simultaneously the latter equilibrium captures the basic features of banking crises after financial liberalization in emerging market economies in this case a large capital inflow leads to high asset price volatility and magnifies a banking crisis

opportunism in multilateral vertical contracting nondiscrimination exclusivity and uniformity comment an input supplier selling to competing downstream firms would benefit from publicly committing at the outset to all contracts efficient commitment however would require complete contracts the authors study instead bilateral contracting without commitment regarding others terms each firm then fears that the supplier might opportunistically renegotiate another s contract to increase bilateral profit at the firm s expense the authors show that nondiscrimination clauses generally cannot curb such third party opportunism even with symmetric firms to reassure firms crude forms of commitment may be adopted this could explain the pervasiveness of exclusivity arrangements and the striking uniformity and intertemporal rigidity of franchise contracts copyright 1994 by american economic association

incomplete contracts vertical integration and supply assurance this paper extends the analysis of transactions cost models of vertical integration to multilateral settings its main focus is on supply assurance concerns which arise when several downstream firms are competing for inputs in limited supply integration reduces supply assurance concerns for an integrating firm but it may increase them for others therefore to explain the scope of any firm one must consider the overall network of production and distribution relations three fundamental questions are addressed 1 what are the effects of different integration structures 2 what are the determinants of the socially efficient integration structures 3 in what way do equilibrium integration structures differ from socially efficient structures

monetary stability and liquidity crises the role of the lender of last resort we study an economy where agents are subject to liquidity demand shocks and banks arise endogenously to insure consumers against these shocks in this environment we evaluate the desirability of a lender of last resort who can provide liquidity loans to banks in distress in the absence of a lender of last resort the economy has a unique stationary equilibrium the introduction of unlimited and costless lender of last resort services allows the economy to achieve a steady state allocation that is pareto optimal however this economy also displays a continuum of hyperin ationary equilibria we then explore restrictions on the provision of lender of last resort services that rule out such monetary instability while preserving some of the e ciency obtained by unrestricted lender of last resort services when the lender of last resort charges an interest rate on liquidity loans the economy has a unique steady state equilibrium and when the interest rate charged is high enough no hyperin ationary equilibria arise finally when the lender of last resort faces an upper bound on loanable funds there is again a unique long run equilibrium and when the upper bound on loanable funds is small enough hyperin ationary equilibria are ruled out

a strategic model of social and economic networks we study the stability and efficiency of social and economic networks when self interested individuals can form or sever links first for two stylized models we characterize the stable and efficient networks there does not always exist a stable network that is efficient next we show that this tension persists generally to assure that there exists a stable network that is efficient one is forced to allocate resources to nodes that are not responsible for any of the production we characterize one such allocation rule the equal split rule and another rule that arises naturally from bargaining of the players

why are there large differences in performances when the same carbon emission reductions are achieved in different countries great interest has been in unilateral climate policies given present difficulty of establishing stable global coordinated agreements in this paper we investigate underlining factors explaining large differences in performances when the same carbon emission reductions are achieved in different abating countries to this end we develop a new multi country general equilibrium model incorporating six countries or world regions two goods six production inputs capital mobility energy mobility and international trade meanwhile we adopt two performance indicators with carbon leakage representing environmental efficiency and carbon emission abatement costs revealing cost effectiveness our findings are as follows firstly there are large differences in performances among these unilateral climate policies as evidenced by large differences in leakage rates and carbon emission abatement costs secondly the new global climate treaties to replace the kyoto protocol should be able to induce more carbon emission reductions in countries with low carbon emission reduction costs since such setting contributes to global cost savings finally developed countries have high carbon emission abatement costs compared with large developing countries china and india in this paper implying that there should be trade off mechanisms between efficiency and equity regarding how to allocate carbon emission reductions among countries

strategic complementarities and the twin crises the economic literature has emphasized the role of strategic complementarities in generating banking crises and currency crises motivated by evidence from recent financial crises we study a model where strategic complementarities exist not only within a group of creditors or within a group of currency speculators but also between the two groups the additional type of strategic complementarities generates a vicious cycle between banking crises and currency crises this vicious cycle magnifies the correlation between the two crises and destabilizes the economy we discuss some empirical implications and policy implications and in particular show that due to the interaction between the banking sector and the currency market a lender of last resort might not be able to prevent bank runs

time consistency of optimal monetary and fiscal policy in a small open economy abstract this paper characterizes conditions under which optimal monetary and fiscal policy is time consistent in a stylized small open economy with a flexible foreign exchange rate regime it shows that these conditions depend on the way in which leisure is assumed to enter preferences and or on the process which productivity is assumed to follow this paper further argues that these conditions may fail to be sufficient if the small open economy implements a fixed foreign exchange rate regime thus a credible fixed exchange rate regime does not necessarily help render optimal policy time consistent

a note on the credibility of bank run preventing devaluation policies in this note i provide a notion of a credible devaluation policy in the context of the chang and velasco 2000 model i show that when the long term asset is illiquid enough a flexible exchange rate policy is credible it is also shown that there exists a non trivial range for the liquidation value of the long term investment technology for which the same policy is not credible finally i propose a different flexible exchange rate regime which is shown to be credible

dynamic coordination and the optimal stimulus policies this article studies stimulus policies in a simple macroeconomic model featuring a dynamic coordination problem that arises from demand externalities and fixed costs of investment in times of low economic activity firms face low demand and hence have lower incentives for investing which reinforces their low demand expectations in a benchmark case with no shocks the economy might get trapped in a low output regime and a social planner would be particularly keen to incentivise investment at times of low economic activity however this result vanishes once shocks are considered

introduction context issues and contributions from the asian financial crisis the russian default and the brazilian devaluation argentina s president menem recommended that his country officially replace the peso with the u s dollar motivating this proposal was a desire to strengthen the credibility of argentine monetary arrangements although argentina had maintained a currency board since 1991 interest rate differentials between peso denominated and dollar denominated debt widened during periods of financial turmoil indicating that the market perceived a significant probability of devaluation menem s proposal which closely followed the successful inauguration of the european monetary union stirred interest throughout the americas particularly in mexico and a year later in ecuador to some dollarization in mexico offered a guarantee against periodic peso devaluation and seemed a reasonable adjunct to the north american free trade agreement others howevel cited four years of relatively low exchange rate volatility and a reduction in the mexican inflation rate as support for current arrangements an independent central bank and a floating peso ecuador s president jamil mahuad announced his intentions to dollarize in january 2000 as a means of restoring monetary credibility to a battered economy although 80 percent of ecuadorian assets are already dollar denominated the decision prompted rioting these events illustrate the importance of a perennial question in open economy macroeconomics what type of monetary and exchange rate arrangements best promote the economic welfare of a country robert mundell 1961 first posed the question when he attempted to define an optimal currency area oca his work produced a rich debate within the economics profession ishiyama 1975 but seemed to have only a tangential influence on the policy debates of the 1960s and 1970s a period of limited international capital mobility as capital mobility in

bilateral control with vertical contracts when a manufacturer contracts secretly with competing retailers he is subject to opportunism and linear or non linear tariffs may not allow the manufacturer to maintain monopoly prices to analyse the effects of rpm o brien shaffer 1992 use a concept of contract equilibrium which concentrates on pairwise deviations thereby questioning the robustness of the analysis this paper emphasises the distinction between the contract equilibrium and standard non cooperative concepts we advocate for some caution in the use of the former concept as if overlooks an inexistence problem we then confirm the intuition that rpm can help solve the manufacturer s commitment problem this confirms that o brien shaffer s insight is robust and validates the courts reluctance against rpm

carbon control policies competitiveness and border tax adjustments abstract several propositions have recently been made to use border tax adjustments btas to address the loss of competitiveness induced by unilateral stringent domestic pollution control policies this paper explores in a general equilibrium framework the sectoral and welfare implications of a unilateral domestic ghg control policy combined with a bta scheme using the canadian economy as an illustration we assess the extent to which btas achieve their objectives and analyze the impacts of different methods of recycling the bta proceeds to support domestic industries our simulation results suggest that imposing btas on the imports of non fossil and energy intensive products reduces or removes completely the negative competitiveness impacts that domestic industries suffer from the use of the proceeds of the btas to support domestic energy intensive industries improves their competitiveness and more importantly in some cases overprotects them as it allows them to even increase their output in comparison to the benchmark without emissions control our results also shed light on the existence of heterogeneity in the composition of energy intensive industries as far as the recycling method of the bta proceeds is concerned energy intensive industries that are more oriented toward the domestic market are better off with the recycling of the bta proceeds towards gross output than towards exports alone finally abstracting from the environmental benefits of reduced emissions we find that a bta entails a higher welfare cost to households

sources of emission reductions market and policy stringency effects abstract international trade and economic development affect air emissions previous studies have decomposed their effects into scale composition and technique effects while the scale and composition effects occur through market responses the technique effect is a policy stringency influence through the mix of environmental policies this study analyzes whether the market or policy stringency effects are more prominent previous studies have been unable to adequately separate the market and policy stringency effects to independently measure the technique effect we use two indicators of policy stringency i e shadow prices of energy and industrial energy prices these policy stringency measures are treated as endogenous the effects on six types of air emissions are estimated utilizing a sector specific international panel dataset that includes newly industrialized and former transition economies the empirical results show that the major source of emissions reductions is the policy stringency effect through carbon related policies pollution offshoring to countries with weaker carbon related regulation has a minor role in the reduction of air emissions

fiscal and monetary policies and the cost of sudden stops abstract this article investigates the effects of monetary and fiscal policies on output growth during sudden stop balance of payments crisis in emerging markets and developing countries sudden stops in capital flows and subsequent deep recessions are a frequent occurrence in these countries but there is no professional consensus and little systematic empirical evidence shedding light on the macroeconomic policy mix most likely to limit output losses during these episodes to address this issue we investigate 83 sudden stop crisis in 66 countries using a baseline empirical model to control for the various determinants of output losses during sudden stops we measure the marginal effects of policy on output losses and find strong evidence that monetary tightening rise in the discount rate or unsterilized rise in international reserves and discretionary fiscal contraction are significantly correlated with larger output losses following a sudden stop fiscal expansion is associated with smaller output losses following a sudden stop but monetary expansion has no discernable effect the macroeconomic policy mix associated with the least output loss during a sudden stop financial crisis is a discretionary fiscal expansion combined with a neutral monetary policy