temporary import and export quotas and the current account abstract this paper provides a comprehensive analysis of temporary import and export quotas in a two period optimization model imposing much weaker restrictions on preferences and production technologies than in the existing literature we demonstrate that under net substitutability the imposition of a temporary quota which reduces imports by a small amount improves the current account and causes an appreciation of the real exchange rate if the initial equilibrium is quota restricted the effects of tightening the quota are ambiguous by contrast under substitutability a tightening of export quotas necessarily leads to a current account deficit regardless of the nature of the initial equilibrium

real exchange rate dynamics with nominal parities structural change and overshooting abstract the relationship between structural changes that require a modification of the steady state level of the real exchange rate is examined in terms of a model of staggered prices and real wealth effects although wealth effects are necessary for overshooting it is shown that their actual values are of no particular relevance in fact overshooting is shown to be more likely the smaller is the real wealth effect in the demand for tradables a key and counterintuitive result is that overshooting is more likely the higher is the frequency of price changes

complexity in structured finance we study complexity in the market for securitized products a market at the heart of the financial crisis of 2007 9 the complexity of these products rose substantially in the years preceding the financial crisis we find that securities in more complex deals default more and have lower realized returns the worse performance is economically meaningful a one standard deviation increase in complexity represents an 18 increase in default on aaa securities however yields of more complex securities are not higher indicating that investors did not perceive them as riskier our results are consistent with complexity obfuscating security quality

the non dynamic equivalence of monetary and exchange rate rules under imperfect capital mobility and rational expectations abstract in the present paper we introduce a model in which the dynamic adjustment of the real exchange rate and other real variables depends on whether the economy follows a monetary or an exchange rate rule this result stands in opposition to the monetarist models of the open economy where there is a dynamic equivalence between the two rules

exchange rate based stabilization imperfect competition and supply side effects abstract this paper studies exchange rate based stabilization programs in the context of a dynamic general equilibrium model for a small open economy that incorporates imperfect competition a backward looking wage setting and an endogenous labor supply in contrast to previous results the analysis shows that a permanent disinflation leads to a sustained expansion in the domestic sector and a slow inflation convergence this study also shows that a temporary stabilization replicates a boom recession cycle these results suggest that a backward looking wage setting and an endogenous labor supply are the key ingredients for reproducing the stylized facts of exchange rate based stabilization

a neoclassical model of the balance of payments this paper analyses the transitory and long run effects of devaluation and tariffs as well as the effects of alterations in the domestic money supply and the terms of trade for a small country on fixed exchange rates these issues are investigated in a self contained dynamic optimization model of the sort popularized by brock 1974 1975 familiar results in the trade literature are thereby explicated for the nonspecialist who is nonetheless familiar with brock s work there are some new results regarding the role played by income and substitution effects in determining the consequences of terms of trade shifts this paper introduces a perfect foresight optimizing model of the monetary approach to the balance of payments for a small country on fixed exchange rates the model is then used to analyse the effects on the balance of payments of devaluation of a tariff and of changes in the terms of trade the effects of devaluation tariffs and changes in the terms of trade have been analysed previously within the framework of nonoptimizing models dornbusch 1973 1980 and anderson and takayama 1977 have studied the effect of devaluation mussa 1974 1976 anderson and takayama 1978 1981 and batra and ramachandran 1980 have studied the effect of tariffs and rodriguez 1976 batra and ramachandran 1980 and anderson and takayama 1981 have studied the effect of changes in the terms of trade optimizing models in which real balances appear as an argument in the utility function are increasingly popular in international economics the general approach was inspired by sidrauski 1967 and brock 1974 1975 recent contributions to the trade literature using this framework include dornbusch and mussa 1975 calvo 1980 1981 liviatan 1981 and obstfeld 1981 a 1981 b 1982 the purpose of this paper is to translate the conventional small country fixed exchange rate model into this framework the results are generally congruent with those in the nonoptimizing literature which suggests that the money in the utility function approach works well here compared to the nonoptimizing literature the real advance is that price adjustment and price expectations are endogenous and rational among the benefits are that one need not postulate the ad hoc price adjustment mechanism used by anderson and takayama nor the backward looking and hence irrational permanent income formulation used by rodriguez furthermore there has been controversy over the balance of payments effects of a shift in the terms of trade while the model s predictions on this issue are theoretically ambiguous the model shows that the answer depends crucially on the magnitude of income effects this clarifies the conditions required for a terms of trade shift to improve or worsen the balance of payments

exchange rate policies and endogenous time preference a dynamic analysis of a small open economy abstract the effects of exchange rate policies are examined for a small open economy with endogenous rate of time preference using optimizing framework and introducing money into the utility function it is shown that a depreciation of the domestic currency generates a surplus in the current account it also leads to an increase in consumption and a decrease in the holdings of real balances in the long run

the dollarization of a small economy within a utility maximizing framework we study the effects of replacing the national currency with the dollar in a small open economy the impact effect is a drop in the levels of liquidity and wealth the economy reaccumulates real balances by reducing consumption and showing a trade surplus the welfare implications of the program depend on the social rate of time preference and the inflation rate differential we show that the u s can improve both its own welfare and that of the small country s by bribing it into switching currencies we study how these results change with the introduction of capital mobility

analysis of the financial performance in the slovenian tourism economy this paper aims to analyze the difference in financial performance of the different tourism economy activities in slovenia the analysis was performed for the period 1995 2009 we analyzed the financial indicators on the basis of the official company accounts data the nominal financial data are deflated by the statistical deflator for value of inflation in order to obtain real values of financial indicators over the analyzed years we included financial indicators that are related to the business performance of enterprises in the slovenian tourism economy the research hypothesis was tested using quantitative analysis employing nonparametric kruskal wallis test and wilcoxon mann whitney test of the secondary data used the empirical analysis confirmed that there are significant differences in financial performance among different tourism economy activities in slovenia

a quantitative model of sovereign debt bailouts and conditionality in times of sovereign debt crises international financial institutions provide temporary financial support contingent on the implementation of specific macroeconomic policies this paper develops a model of sovereign debt and default with endogenous participation rates in bailout programs conditionality enters as a constraint on fiscal policy in the model the insurance character of bailouts generates incentives for debt accumulation quantitative results suggest that bailouts prevent sovereign defaults in the short run but may come at a cost of a greater default probability in the long run increasing the intensity of conditionality lowers the bailout participation rate and generates a hump shaped pattern of sovereign default risk

integrating forecasting and cge models the case of tourism in scotland abstract information about current and forecast levels of tourism and its contribution to the economy is important for policy making by businesses and governments traditional forecasting methods can provide reasonable forecasts in the context of predictable changes however forecasting becomes problematic in the context of both predictable changes and less predictable domestic or international shocks this paper demonstrates the ways in which an integrated model combining traditional forecasting methods and quantifiable forecasts from a computable general equilibrium model can be used to examine combinations of events the model is applied to scotland and combines tourism indicators with structural time series forecasting and cge impact analysis results are provided for changes in exchange rates income of major origin countries and a positive shock to tourism demand to demonstrate the integrated model s ability to take account of the multiple events that affect tourism destinations

voluntary sovereign debt exchanges we show that some recent sovereign debt restructurings were characterized by i the absence of missed debt payments prior to the restructurings ii reductions in the government s debt burden and iii increases in the market value of debt claims for holders of the restructured debt since both the government and its creditors are likely to benefit from such restructurings we label these episodes as voluntary debt exchanges we present a model in which voluntary debt exchanges can occur in equilibrium when the debt level takes values above the one that maximizes the market value of debt claims in contrast to previous studies on debt overhang in our model opportunities for voluntary exchanges arise because a debt reduction implies a decline of sovereign default risk this is observed in the absence of any effect of debt reductions on future output levels although voluntary exchanges are pareto improving at the time of the restructuring we show that eliminating the possibility of conducting voluntary exchanges may improve welfare from an ex ante perspective thus our results highlight a cost of initiatives that facilitate debt restructurings

the argentine stabilization plan of december 20th abstract in this paper an analytical model is developed to incorporate the essential characteristics of the stabilization plan implemented in argentina in january 1979 the model is based upon a set of simplifying assumptions that only approximate the complexity of the real world it is assumed that the expectations of inflation and the degree of excess demand or supply in the non traded goods market are the main intermediate determinants of the rate of inflation in that market the rate of change of prices of traded goods being determined by the external inflation together with the rate of devaluation treating thus the external rate of inflation as exogenous the only instrument available for influencing the rate of inflation in the long run is the rate of devaluation since the model assumes a fixed exchange rate regime the money supply is endogenous and hence unsuitable as an instrument of economic policy

stabilization with liberalization an evaluation of ten years of chile s experience with free market policies 1973 1983 the recent post 1973 economic experience of chile has attracted considerable attention both from professional economists and from the media most observers have been particularly impressed by the sharp contrasts observed in chile in such a short period of time for example in 1973 chile had one of the highest rates of inflation in the world over 600 whereas in 1981 it experienced one of the lowest rates of inflation 9 5 also in 1975 real gnp declined by 12 9 but during 1977 80 real gnp grew at an average rate of 8 5 per annum in 1982 however the country faced a new recession with real gnp dropping by 14 5 in 1983 the gnp was reduced further by 2 3 the fact that these episodes developed while the military government was actively pursuing free market oriented policies that greatly liberalized the economy adds considerable interest to the chilean case 2 the year 1973 marked an important turning point in chile s economic and political history in september of that year the military took over the government from president salvador allende and a period of dramatic economic changes began chile was transformed from an economy isolated from the rest of the world with strong government intervention into a liberalized world integrated economy where market forces were left free to guide most of the economy s decisions the period 1973 81 was characterized by important achievements inflation was greatly reduced the government deficit was virtually eliminated the economy went through a dramatic liberalization of its foreign sector tariffs were reduced to a uniform 10 level and prices including interest rates were full liberalized probably one of the most interesting aspects of the chilean economy during this period is that major

events in indonesia exploring the limits to formal tourism trends forecasting methods in complex crisis situations the desire to know the future is as old as humanity for the tourism industry the demand for accurate foretelling of the future course of events is a task that consumes considerable energy and is of great significance to investors this paper examines the issue of forecasting by comparing forecasts of inbound tourism made prior to the political and economic crises that engulfed indonesia from 1997 onwards with actual arrival figures the paper finds that current methods of forecasting are not able to cope with unexpected crises and other disasters and that alternative methods need to be examined including scenarios political risk and application of chaos theory the paper outlines a framework for classifying shocks according to a scale of severity probability type of event level of certainty and suggested forecasting tools for each scale of shock

non defaultable debt and sovereign risk abstract we quantify gains from introducing limited financing through non defaultable debt into a model of equilibrium sovereign risk for an initial sovereign spread of 4 2 introducing the possibility of issuing non defaultable debt for up to 10 of aggregate income reduces immediately the spread to 1 5 and implies a welfare gain equivalent to a permanent consumption increase of 0 8 nevertheless the spread reduction achieved by the introduction of non defaultable debt is short lived our findings shed light on different aspects of proposals to introduce common euro area sovereign bonds that could be virtually non defaultable

neglected risks financial innovation and financial fragility abstract we present a standard model of financial innovation in which intermediaries engineer securities with cash flows that investors seek but modify two assumptions first investors and possibly intermediaries neglect certain unlikely risks second investors demand securities with safe cash flows financial intermediaries cater to these preferences and beliefs by engineering securities perceived to be safe but exposed to neglected risks because the risks are neglected security issuance is excessive as investors eventually recognize these risks they fly back to the safety of traditional securities and markets become fragile even without leverage precisely because the volume of new claims is excessive

debt dilution and sovereign default risk we measure the effects of debt dilution on sovereign default risk and study debt covenants that could mitigate these effects we calibrate a baseline model with endogenous debt duration and default risk in which debt can be diluted using data from spain we find that debt dilution accounts for 78 percent of the default risk in the baseline economy and that eliminating dilution increases the optimal duration of sovereign debt by almost 2 years eliminating dilution also increases consumption volatility but still produces welfare gains the debt covenants we study could help enforcing fiscal rules

an applied general equilibrium analysis of the economic effects of tourism in a quite small quite open economy a computable general equilibrium model is used to project the effects of tourism on the industrial and regional structures of the australian economy the most striking conclusion is that queensland usually thought to be the most tourism oriented of the australian states would be a net loser from an economy wide expansion of tourism as well as having a relatively large share of its gsp accounted for by tourist oriented activities queensland is also relatively heavily dependent on agriculture and mining traditional export sectors which are crowded out by the expansion of international tourism

how safe are european safe bonds an analysis from the perspective of modern credit risk models abstract several proposals for the reform of the euro area advocate the creation of a market in synthetic securities backed by portfolios of sovereign bonds most debated are the so called european safe bonds or esbies proposed by brunnermeier et al 2017 the potential benefits of esbies and other bond backed securities hinge on the assertion that these products are really safe in this paper we provide a comprehensive quantitative study of the risks associated with esbies and related products using an affine credit risk model with regime switching as vehicle for our analysis we discuss a recent proposal of standard and poors for the rating of esbies we analyse the impact of model parameters and attachment points on the size and the volatility of the credit spread of esbies and we consider several approaches to assess the market risk of esbies moreover we compare esbies to synthetic securities created by pooling the senior tranche of national bonds as suggested by leandro and zettelmeyer 2019 the paper concludes with a brief discussion of the policy implications from our analysis

tourism demand modelling and forecasting a review of recent research abstract this paper reviews the published studies on tourism demand modelling and forecasting since 2000 one of the key findings of this review is that the methods used in analysing and forecasting the demand for tourism have been more diverse than those identified by other review articles in addition to the most popular time series and econometric models a number of new techniques have emerged in the literature however as far as the forecasting accuracy is concerned the study shows that there is no single model that consistently outperforms other models in all situations furthermore this study identifies some new research directions which include improving the forecasting accuracy through forecast combination integrating both qualitative and quantitative forecasting approaches tourism cycles and seasonality analysis events impact assessment and risk forecasting

recent experience with commercial bank debt reduction has the menu outdone the market abstract debt reduction at market terms has been criticized as too expensive from the point of view of the debtor the recent reduction agreements following the menu approach are partially concerted but they also possess some elements of voluntariness this raises two issues a what is the conceptual justification for such financial arrangements and b based on recent evidence to what extent have these arrangements reduced the cost of debt reduction in a review of six recent menu driven debt reduction agreements we find that the debtors achieved a far better financial result than would have been feasible with simple market buybacks

backward looking indexation credibility and inflation persistence abstract inflation persistence is a stylized fact after disinflation standard staggered prices models show very little or no inflation persistence and hence are of little use when inflation is sticky in this paper i present a model that on the one hand is consistent with the evidence of sticky inflation and on the other can be directly incorporated into modern intertemporal optimizing models the model modifies calvo s calvo g 1983a staggered contracts and exchange rate policy in j a frenkel ed exchange rates and international economics university of chicage press chicago il calvo g 1983b staggered wages in a utility maximization framework journal of monetary ecomomics 12 3 383 393 exclusively forward looking model and includes a backward looking component it encompasses the two extreme cases of purely forward and backward looking price setting i show how the model can be used in open economy stabilization programs this is not the first model including a form of backward indexation in a staggered prices setting however it has the advantage of keeping the analytical elegance of the calvo model while enhancing its dynamics

currency substitution and the real exchange rate the utility maximization approach abstract this paper studies the currency substitution hypothesis with rational expectations in terms of a sidrauski type model where domestic and foreign money enter the utility function it shows that contrary to liviatan 1981 the approach does not necessarily contradict calvo and rodriguez 1977 furthermore the impact of monetary stabilization policy is fully characterized with flexible and pre fixed rates for an extension of dornbusch and mussa 1975 a brief analysis of the optimal quantity of money is also provided

procyclical leverage and value at risk the availability of credit varies over the business cycle through shifts in the leverage of financial intermediaries empirically we find that intermediary leverage is negatively aligned with the banks value at risk var motivated by the evidence we explore a contracting model that captures the observed features under general conditions on the outcome distribution given by extreme value theory evt intermediaries maintain a constant probability of default to shifts in the outcome distribution implying substantial deleveraging during downturns for some parameter values we can solve the model explicitly thereby endogenizing the var threshold probability from the contracting problem

sovereign default private sector creditors and the ifis abstract the data reveal that emerging market sovereign borrowing from international financial institutions ifis is small intermittent and countercyclical compared to that from private sector creditors the ifi loan contracts offered to sovereigns differ from the private ones in that they are more enforceable and have conditionality arrangements attached to them taking these contractual differences as given this paper builds a quantitative model of a sovereign borrower and argues that better enforceability of ifi loan contracts is the main institutional feature that explains the size and cyclicality while conditionality accounts for the intermittency of borrowing from the ifis

temporary stabilization predetermined exchange rates the paper analyzes the impact of a stabilization policy based on a temporary reduction in the rate of devaluation against a background in which a constant rate of devaluation has no real effects it is shown that the temporary policy does and furthermore that the real effects tend to become bigger in absolute value as the horizon of the temporary policy is shortened the central discussion is carried out in terms of a one good cash in advance model with perfect capital mobility and ramsey type consumers results are extended to account for home goods and variable velocity the roles of capital mobility and banking liberalization are briefly discussed

sovereign debt repurchases no cure for overhang troubled debtor countries do not gain by repurchasing external bank debt at market discount even if a buyback would stimulate investment by relieving debt overhang the reason is that buybacks allow creditors to reap more than 100 percent of any efficiency gains that might result from increased investment we show that open market buybacks provide a benchmark for evaluating more complex negotiated buyback deals by comparing any given deal with a hypothetical market buyback of the same size one can derive upper and lower bounds on the gain to the country we apply our model to the 1990 mexican debt deal

safe asset scarcity and aggregate demand safe asset scarcity and aggregate demand ricardo j caballero emmanuel farhi mit harvard university pierre olivier gourinchas university of california at berkeley january 26 2016 this paper was presented at the 2016 aea meetings in the session global reserve assets in a low interest rate world a1 we thank olivier blanchard gita gopinath and our discussant mark gertler for their comments caballero mit department of economics 77 massachusetts avenue building e52 528 cambridge ma 02139 phone 617 253 0489 email caball mit edu farhi department of economics harvard university littauer 318 1805 cambridge street cambridge ma 02138 usa phone 617 496 1835 email efarhi fas harvard edu gourinchas uc berkeley dept of economics 697d evans hall 3880 berkeley ca 94720 phone 510 643 3783 email pog berkeley edu

on the outcome of inconsistent programs under exchange rate and monetary rules abstract this paper studies the case of inconsistent programs of monetary policy that is programs incompatible in the long run with a given budget deficit so that at some point in the future there is an eventual crisis and demise of the program all of which is from the outset anticipated by the public the context is one of a small open economy with perfect foresight in which two sets of possibilities are analyzed i a monetary or an exchange rule for the conduct of monetary policy and ii presence or absence of capital mobility it is found that while the choice of the rule is unimportant restrictions on capital mobility determine a very different response for the case of either rule concerning side effects of the program on non monetary variables and on the post crisis level of country indebtedness

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

sovereign debt guarantees and default lessons from the uk and ireland 1920 1938 abstract we study the daily yields on irish land bonds listed on the dublin stock exchange during the years 1920 1938 we exploit irish events during the period and structural differences in land bonds to tease out a measure of investors credibility in a uk sovereign guarantee using ireland s default on intergovernmental payments in 1932 we find a premium of about 43 basis points associated with uncertainty about the uk government guarantee we discuss the economic and political forces behind the irish and uk governments decisions pertaining to the default our finding has implications for modern day proposals to issue jointly guaranteed sovereign debt further in view of all the historical circumstances it is not equitable that the irish people should be obliged to pay away these moneys eamon de valera 12 october 1932

the capital inflows problem revisited a stylized model of southern cone disinflation in the late 1970s countries in latin america s southern cone initiated attempts to lower domestic inflation rates through the progressive reduction of a preannounced rate of exchange rate devaluation the stabilization programs gave rise to massive capital inflows real exchange rate appreciation and current account deficits this paper develops a stylized intertemporal framework in which the effects of a credible preannounced disinflation scheme can be studied it is shown that even when agents have perfect foresight and markets clear continuously the capital inflows phenomenon and the associated real appreciation may result while unanticipated permanent inflation changes are neutral in the paper anticipated inflation is neutral only in exceptional circumstances a preannounced disinflation operates by altering the path of an expenditure based real domestic interest rate that depends on expected changes in the prices of liquidity services and nontradable consumption goods

welfare gains of bailouts in a sovereign default model abstract we examine the welfare effects of bailouts in economies exposed to sovereign default risk when a government of a small open economy requests a bailout from an international financial institution it receives a non defaultable loan of size g that comes with imposed debt limits the government endogenously asks for the bailout during recessions and repays it when the economy recovers hence the bailout acts as an imperfect state contingent asset that makes the economy better off the bailout duration is endogenous and increases with its size the bailout size creates non trivial tradeoffs between receiving a larger amount of relatively cheap resources precisely in times of need on the one hand and facing longer lasting financial constraints and accumulated interest payments on the other hand we characterize and quantify these tradeoffs and document that welfare gains of bailouts are hump shaped in the size of bailout loans

temporary stabilization policy abstract the effects of a temporary slowdown in the rate of expansion of money supply are studied under ramsey lucas and money superneutrality assumptions it is shown that such a policy expands consumption and leads to capital decumulation and current account deficits in the short run the model is a benchmark case in which temporary policy is always detrimental to welfare connection with the policy credibility issue is briefly discussed

dynamics of the exchange rate in anticipation of pegging abstract this paper studies an economy in which agents expect the current floating rate regime to be interrupted on a specific future date by a transitional fixed rate policy when the new peg is not revealed in advance the path of the floating rate in anticipation of pegging is determined by the interaction between what agents perceive to be the objectives and the constraints of the central bank the paper highlights the role of the pegging date the duration of the fixed rate interval the quantity of reserves available to the authorities and the nature of policies expected after pegging is terminated

balance of payments dynamics and exchange rate management abstract this paper studies the dynamics of the balance of payments in response to policy disturbances under the assumption that the central bank devalues the country s currency over time at a constant pre announced rate depending on the magnitudes of the parameters of the model i find that a given disturbance may result in qualitatively different short run behavior of the balance of payments accounts in each case however the adjustment process will lead the economy to a stable long run equilibrium provided the government finances its spending according to a certain set of rules

how effective are sovereign bond backed securities as a spillover prevention device abstract brunnermeier et al 2017 propose the introduction of sovereign bond backed securities sbbs in the euro area it and other papers address how the securitisation would insulate senior security holders from actual default related losses this article generalises the assessment by using the var based diebold yilmaz 2012 spillover index methodology to assess potential attenuation of the spillover of shocks in holding period returns across asset markets from the introduction of sbbs this is made possible by employing sbbs yields estimated from historical euro area member state sovereign bond yields using monte carlo methods as described in schonbucher 2003 the econometric results show that i sbbs tranching protects senior sbbs holders by reducing the spillover of shocks from the higher risk peripheral member states to it ii spillovers from high risk sovereigns to a weighted portfolio are much higher than those to the senior sbbs iii a smaller junior sbbs tranche reduces spillover from it to the senior sbbs and iv rolling window analysis indicates that the spillover of shocks from the junior tranche to the senior tranche declines during a period of financial stress

global trends in interest rates abstract the trend in the world real interest rate for safe and liquid assets fluctuated close to 2 for more than a century but has dropped significantly over the past three decades this decline has been common among advanced economies as trends in real interest rates across countries have converged over this period it was driven by an increase in the convenience yield for safety and liquidity and by lower global economic growth

currency trade and capital flows in general equilibrium this paper studies currency trade and capital flows in a one good general equilibrium exchange model with utility maximizing individuals the effects of both monetary and endowment shocks are examined it is shown that both can cause trade and capital flows the model is a two country version of the twostate optimizing model used recently by leroy 1984a 1984b to study the effects of monetary and endowment shocks in a closed economy each country issues its own currency real and nominal bonds and equity shares each receives an endowment of a perishable consumption good the demand for money is generated by entering real balances into the utility function as in dornbusch and mussa 1975 calvo 1981 liviatan 1981 obstfeld 1981a 1981b 1982 razin 1981 stockman 1983 and michener 1984 each country holds both currencies an assumption made only by liviatan both monetary growth and endowments of the consumption

the unholy trinity of financial contagion over the last 20 years some financial events such as devaluations or defaults have triggered an immediate adverse chain reaction in other countries which we call fast and furious contagion yet on other occasions similar events have failed to trigger any immediate international reaction we argue that fast and furious contagion episodes are characterized by the unholy trinity i they follow a large surge in capital flows ii they come as a surprise and iii they involve a leveraged common creditor in contrast when similar events have elicited little international reaction they were widely anticipated and took place at a time when capital flows had already subsided

a cheap lunch for emerging markets removing international financial market imperfections with modern financial instruments summary this paper develops a market based procedure to significantly reduce the indebtedness of emerging markets by applying an asset backed security approach to a pool of emerging market bonds in an extensive simulation study based on historical data the cumulated interest savings over a horizon of 10 years amount to about 20 of the credit sum on average with a standard deviation of 8 and up to 44 for individual countries dependent on the internal distribution of the surplus the theoretical structure of the transaction is explicitly derived in cooperation with professionals from major commercial banks and it implies only negligible implementation cost the implementation requires neither institutional reforms nor debt forgiveness but can supplement or substitute previous measures

the economic impact of on screen tourism the case of the lord of the rings and the hobbit the economic impacts of on screen tourism are particularly interesting and research in this area can provide useful information to governments making decisions regarding subsidising film production and forming relevant marketing strategies no reliable and systematic approach for measuring the economic impacts of on screen tourism currently exists and this study is the first to evaluate the overall economic impacts of on screen tourism by comparing the impacts of two series of films the lord of the rings and the hobbit both filmed in new zealand a new approach combining econometric and computable general equilibrium modelling techniques is used in the assessment the results show that the lord of the rings did not significantly impact on the tourism and economy of new zealand while the hobbit trilogy had a significant positive impact which may be due to effective marketing strategies and media convergence

stabilization policies in developing countries what have we learned abstract the paper reviews the recent experience with stabilization programmes in latin america in the light of traditional and monetarist models of inflation and the exchange rate the traditional model links both inflation and payments problems to budget deficits the monetarist model too believes that inflation is caused by fiscal deficits but it takes a more optimistic view of stabilization full purchasing power parity and perfect capital mobility make stabilization just a question of the appropriate exchange rate policy and the proper rate of domestic credit creation the traditional view is substantially right as a long run model but it fails in the dynamics the monetarist model is as we know now fundamentally wrong as a short run description of the possibilities of inflation control there is need and room for a paradigm that places emphasis on the debt money mix in financing the budget on the stickiness of inflation rates and on the place of short run real exchange rate and real interest rate variations that these are key features of the transition phase is amply borne out by the devasting and unsuccessful experiences with monetarist stabilization in argentina chile and brazil

the impacts of temporary but anticipated tourism spending an application to the glasgow 2014 commonwealth games an extensive literature attempts to identify the economic impact of tourism expenditure while input output methods have been widely applied these may not always be appropriate for such applications and there is a growing use of more flexible computable general equilibrium cge approaches this paper uses a multi period scottish cge model to estimate the system wide effects of the temporary tourism expenditure related to the glasgow 2014 commonwealth games we quantify the sensitivity of our results to model specification focusing in particular on how investment and consumption decisions are made and shifted over time to accommodate the temporary tourism shock as part of this analysis we identify the pre announcement period that optimises the present value of the economic impact whilst the empirical results apply to a specific event our results have implications for similar analyses applied to mega events and other temporary phenomena affecting tourism expenditure such as terrorism attacks or epidemics

credit rationing and capital accumulation this paper develops a dynamic partial equilibrium analysis of how financial policy affects capital accumulation when bank loans are rationed and subsidized the underlying specification of intertemporal behavior is critical loan policy often has qualitatively different effects on capital accumulation in overlapping generations and infinite horizon models it is also shown that in the infinite horizon case the results are extremely sensitive to the timing of private sector expectations policies that promote reduce capital accumulation when unanticipated induce capital decumulation accumulation when anticipated copyright 1991 by the london school of economics and political science

devaluation levels vs rates and balance of payments in a cash in advance economy abstract this paper investigates the consequences of the currency devaluation both in levels and rates on the balance of payments in a cash in advance economy with finite horizons endogenous capital accumulation and international capital immobility in this context a once and for all currency devaluation induces a balance of payments surplus whereas a sustained increase in the rate of devaluation produces in principle an ambiguous effect on the balance of payments if however non restrictive assumptions on some structural parameters are made an increase in the devaluation rate leads to a balance of payments surplus the exact opposite of calvo s result j int econ 11 2 1981 165

r and the global economy abstract this paper provides a synthesis of explanations for why the natural rate of interest r has fallen over the last several decades demographic factors declining productivity slower output growth and increasing inequality likely all have been important factors perhaps less recognized is the role of increasing global demand for safe assets particularly by foreign investors suggestive empirical evidence is presented showing that foreign demand for u s safe assets particularly government provided assets has increased dramatically and may now be playing a much larger role in the determination of u s interest rates than in the past in addition the buildup before the 2007 2009 financial crisis of quasi government and privately supplied safe assets held by both domestic and foreign investors rendered the financial system more vulnerable to shocks that adversely affected the perceived degree of safeness they provided

political shocks international reserves and the real exchange rate the argentine case abstract exogenous shocks to international reserves are introduced as an indicator for exchange rate adjustments these reserves shocks are identified for argentina in the 1970s and they appear to have been induced by political upheavals as well as by changes in the external terms of trade granger and modified sims causality tests indicate that the shocks to reserves did lead the real exchange rate from the seemingly erratic series of mini and maxi devaluations a rule of crawling galloping peg is estimated with the reserves shocks as significant independent variables that affected the pace of devaluations the crawling peg used as an instrument to pursue an international reserves target was the channel through which changes in the political and economic environment of the country were transmitted to fluctuations of its real exchange rate

sovereign default and the sustainability risk premium effect abstract we analyze the joint determination of interest rate risk and debt sustainability for governments with fiscal imbalances because higher interest rates imply increased debt services they worsen the government s financial situation and increase the probability of sovereign default thus higher interest rates eventually lead to a decrease in the real demand for government bonds which imposes an additional constraint on government debt sustainability

does tourism support supply side structural reform in china abstract a supply side structural reform ssr has been carried out in china since late 2015 with a view to reducing overproduction in selected products such as coal iron and steel this paper examines whether the development of international tourism in china could support ssr using an multi methods approach that combines an econometric model and a computable general equilibrium model it finds that the development of tourism can reduce the outputs of overcapacity industries and reallocate surplus labour to tourism related industries the calibration of 30 provincial cge models demonstrates that the impact of tourism on reform in provinces with severer industry overcapacities is much stronger this study contributes to the literature on the spillover effects of tourism on non tourism sectors through its combination of econometric and cge models practical implications are also presented

esbies safety in the tranches it is well known that rational bubbles can be sustained in balanced growth path of a deterministic economy when the return to capital r is equal to the growth rate g when there is a lack of stores of value bubbles can implement an e cient allocation this paper considers a world where r auctuates over time due to shocks to the marginal productivity of capital then bubbles further e ciency though they cannot implement orst best while bubbles can only be sustained when r g in a deterministic economy r g on average in a stochastic economy fiscal policy improves welfare by adding an extra asset where only the elderly contribute to shifting resources between investment and consumption in a bubbly economy oscal policy allows part of that burden to be shifted to the young contrary to common wisdom trade in bubbly assets implements intergenerational transfers while oscal policy implements intragenerational transfers hence while bubbles and oscal policy are perfect substitutes in the deterministic economy oscal policy dominates bubbles in a stochastic economy for plausible parameter values a higher degree of dynamic ine ciency should lead to a higher sovereign debt

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

exchange rate indexation in a monetary model theory and evidence abstract using a familiar monetary model with nontraded goods we derive the stability properties of the price level and reserve stock when the exchange rate is partially or completely indexed to the home price level divided by foreign prices in the stable case it is shown that indexing results in a system with properties of both fixed and flexible regimes our method is to impose conditions of short run but not long run equilibrium in a discrete period model the model is tested with monthly data from brazil

the fundamentals of safe assets abstract we study what makes government bonds a safe asset building on a sample of monthly changes in government bond yields in 40 advanced and emerging countries we analyse the sensitivity of yields to country specific fundamentals interacted with changes in global risk vix we find that inertia whether the bond behaved as a safe asset in the past and good institutions foster a safe asset status while the size of the debt market is also significant reflecting the special role of the us within advanced and emerging markets drivers are heterogeneous with external sustainability in particular being relevant for the latter countries after the global financial crisis finally the safe asset status does not appear to depend on whether the change in global risk is driven by financial shocks rather than by us monetary policy

the exact timing of the collapse of an exchange rate regime and its impact on the relative price of traded goods as of february 28 1983 ninety four countries are classified as having a fixed exchange rate regime 38 are pegged to the u s dollar 13 to the french franc 14 to the special drawing right and 24 to different baskets of currencies the choice of a fixed exchange rate peg implies a specific monetary discipline namely monetary growth equal to the growth rate of the currency or currencies to which a country is pegged monetary policy is thus subject to an exchange rate rule rather than to either a monetary growth rule or alternatively to discretionary policy a fixed exchange rate is a specific case of an active crawling peg where the preannounced rate of change in the exchange rate is zero active crawling peg rules whereby the exchange rate is adjusted downward by a preannounced amount over a specified period of time have been practiced in various places particularly in latin america recent experiments include argentina beginning december 1978 brazil during the 1980 calendar year chile from february 1978 to june 1979 jamaica from may 1978 to may 1979 portugal from august 1977 to june 1979 and uruguay beginning october 1978 1 at times the prean

reserves and the managed float a search for the essentials we examine the stability of rules that determine the rate of devaluation as a function of the level of reserves the analysis is conducted in terms of an overlapping generations and a sidrauski type model with rational expectations and without capital mobility on the whole the analysis confirms results by rodriguez 1981 in a substantially different model by which high speeds of adjustment tend to provoke instability

long duration bonds and sovereign defaults abstract this paper extends the baseline framework used in recent quantitative studies of sovereign default by assuming that the government can borrow using long duration bonds this contrasts with previous studies which assume the government can borrow using bonds that mature after one quarter we show that when we assume that the government issues bonds with a duration similar to the average duration of sovereign bonds in emerging economies the model generates an interest rate that is substantially higher and more volatile than the one obtained assuming one quarter bonds this narrows the gap between the predictions of the model and the data which indicates that the introduction of long duration bonds may be a useful tool for future research about emerging economies our analysis is also relevant for the study of other credit markets

the sovereign bank diabolic loop and esbies we propose a simple model of the sovereign bank diabolic loop and establish four results first the diabolic loop can be avoided by restricting banks domestic sovereign exposures relative to their equity second equity requirements can be lowered if banks only hold senior domestic sovereign debt third such requirements shrink even further if banks only hold the senior tranche of an internationally diversified sovereign portfolio known as esbies in the euro area context finally esbies generate more safe assets than domestic debt tranching alone and insofar as the diabolic loop is defused the junior tranche generated by the securitization is itself risk free

temporary capital controls in a balance of payments crisis abstract this paper analyzed the effect of anticipated temporary capital controls ina balance of payments crisis using a model based on intertemporal optimization the anticipation of the controls affects the economy from the beginning of the crisis usually creating a current account deficit a speculative attack can occur just before the controls are imposed but a transitory period of capital inflows is also possible a speculative attack is less likely when the fiscal deficit is small or when the level of reserves is high at the time the controls are imposed

the shortage of safe assets in the us investment portfolio some international evidence this paper develops a bayesian global var gvar model to track the international transmission dynamics of two stylized shocks namely a supply and demand shock to us based safe assets our main findings can be summarized as follows first we find that positive supply sided shocks lead to pronounced increases in economic activity which spills over to foreign countries the impact of supply sided shocks can also be seen for other quantities of interest most notably equity prices and exchange rates in europe second a demand sided shock leads to an appreciation of the us dollar and generally lower yields on us securities forcing investors to shift their portfolios towards foreign fixed income securities this yields sizable positive effects on us output equity prices and a general decrease in financial market volatility

current account effects of a temporary change in government expenditure a perfect foresight model of intertemporal utility maximization is used to analyze the current account effects of a temporary increase in government spending the relationship between the marginal utility of private consumption and the supply of public goods in the economy is shown to play a crucial role in determining the qualitative nature of the optimal current account response the link between the timing of the policy change and the magnitude of the current account effect is also examined

current account adjustment and retained earnings abstract this paper develops a formal strategy to calculate current accounts with retained earnings re on equity investment and analyzes their adjustment during the global financial crisis re are the part of companies profits which is reinvested and not distributed to shareholders as dividends international statistical standards treat re on foreign direct investment and re on portfolio investment differently while the former enter the current and financial account the latter do not we show that this differential treatment strongly affects current accounts of several advanced economies frequently referred to as financial centers with large positions in equity portfolio investment our empirical analysis finds that the differential treatment of re alters the interpretation of current account adjustment for the global financial crisis

how did highly indebted poor countries become highly indebted reviewing two decades of debt relief how did highly indebted poor countries become highly indebted after two decades of debt relief efforts a set of theoretical models predict that countries with unchanged long run savings preferences will respond to debt relief with a mixture of asset decumulation and new borrowing a model also predicts that a high discount rate government will choose poor policies and impose its inter temporal preferences on the entire economy reviewing the experience of highly indebted poor countries compared with that of other developing countries the author finds direct and indirect evidence of asset decumulation and new borrowing associated with debt relief the ratio of the net present value of debt to exports rose strongly over 1979 97 despite the debt relief efforts average policies in highly indebted poor countries were generally worse than those in other developing countries nor were wars more likely in highly indebted poor countries over time there has been an important shift in financing for highly indebted poor countries away from private and bilateral nonconcessional sources to the international development association and other sources of multilateral concessional financing but this implicit form of debt relief also failed to reduce debt in net present value terms although debt relief is done in the name of the poor the poor are worse off if debt relief creates incentives to delay reforms needed for growth