expectations the exchange rate and the current account abstract a critical examination is undertaken of the relationship between the exchange rate and the current account in a small open economy theoretically the correlation between the exchange rate and the current account seems to be ambiguous in particular the association between movements in the exchange rate and the current account is likely to depend in an essential manner on the nature of exogenous disturbances affecting the two variables simultaneously lastly the question of the role of an optimal monetary policy and the choice of an exchange rate regime in an uncertain environment is raised

the impact of foreign capital inflows on domestic savings reexamined the case of argentina abstract since the beginning of the 1970 s several economists have argued that there is a negative relationship between foreign capital inflows f and domestic savings s this paper attempts to demonstrate that the framework used by these authors is not appropriate to analyze the impact of f on s the early empirical results may actually be a consequence of exogenous factors such as monetary and fiscal policies

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

foreign borrowing and macroeconomic adjustment to external shocks abstract this paper analyzes the impact of anticipated and unanticipated external shocks on the evolution of macroeconomic variables particularly foreign borrowing and on steady state stocks of capital and debt we find that the desired mode of adjustment to a shock is highly sensitive to its nature intertemporal substitution effects often dominate the pure wealth loss effect external disturbances will typically be intertemporally correlated in the real world the paper analyses the resulting implications for the dynamic smoothing of adjustment

occupational self selection a human capital approach to sex differences in occupational structure a rich and diverse literature exists concerning the distribution of labor incomes one approach namely that of human capital concentrates on lifetime accumulation paths of earnings capacity units human capital individual variations in human capital imply differences in earnings power thereby yielding strong implications concerning earnings distribution within a population despite its explanatory power the human capital model has been widely criticized one criticism centers on its inability to obtain inferences concerning occupational distribution the purpose of this paper is to alleviate at least some such criticism by applying the hedonic price approach so as to embed occupational choice into the human capital framework the significance is that neoclassical economic theory can be used to obtain implications concerning the determinants of occupational structure excerpt

fiscal policies in the world economy this paper uses a two country general equilibrium model of the world economy in order to analyze the effects of budget deficits and government spending on world rates of interest consumption and international indebtedness it demonstrates the difference between the effects of fiscal expenditures and tax cuts as well as between the effects of current policies and expected future policies it is shown that the qualitative effects of fiscal policies depend on whether the country introducing the policies runs a surplus or a deficit in its current account following the positive analysis of the short run and the steady state effects the paper concludes with a normative analysis of the welfare implications of budget deficits

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

terms of trade shocks and the balance of trade there is a harberger laursen metzler effect abstract according to the harberger laursen metzler hlm effect an exogenous increase in the terms of trade faced by a small open economy leads to an improvement in that country s trade balance in this paper structural vector autoregression techniques are used to investigate whether there is any systematic pattern in the responses of the trade balance to terms of trade shocks for a large number of small open economies two important results emerge first there is strong support in the data for the existence of an hlm effect second the response of the trade balance and real income to a terms of trade shock implied by the structural vector autoregression model are strongly consistent with those reported by mendoza 1995 from simulating a particular dynamic stochastic equilibrium model of a small open economy

measuring investment performance with a stochastic parameter regression model abstract this paper develops a generalization of the hildreth and houck 1968 random coefficient model for use in evaluating the macroforecasting ability of portfolio managers most studies have assumed that astute managers ignore the strength of the market trend and create a binary portfolio beta with one value during up markets and a lower value during down markets in contrast this paper examines a model in which the superior manager adjusts beta period by period according to changing market conditions the findings indicate that portfolio managers are not superior macroforecasters

tariffs real exchange rates and the trade balance in a two country world abstract an intertemporal model of a two country world in which optimizing agents consume three goods importables exportables and nontradables is developed to investigate a tariffs effects on real interest rates real exchange rates and the trade balance real interest rates and real exchange rates are shown to move asymmetrically across countries in response to a temporary tariff we also show that in contrast to the findings of two tradable good models a temporary tariff may actually worsen the trade balance of both deficit and surplus countries even when there are no cross country differences in tastes

deviations from purchasing power parity and capital flows abstract this article examines the implications of deviations from purchasing power parity ppp for an investor s portfolio decision and the consequent capital flows in a two country intertemporal model with complete financial markets in the presence of deviations form ppp investors from different nations hold disparate portfolios and the equilibrium that results is not a pooling one we solve eplicitly for asset demands and derive the relationship between the direction of capital flows and deviations from ppp in contrast to the small country assumption in the existing literature the world interest rate in this model is determined endogenously

an exploration in the theory of exchange rate regimes three exchange rate regimes a float a one sided peg and a cooperative peg are evaluated and compared in terms of efficiency and welfare levels the framework of analysis embodies country specific monies with the money of each country being used to transact in its commodity markets and its currency denominated bonds welfare levels depend only on consumption levels in the presence of perfect foresight all equilibrium allocations are pareto efficient in a floating exchange rate regime the perfect foresight equilibrium allocation coincides with an equilibrium of a costless barter economy the same result holds in a one sided peg if the pegging country s exchange rate stabilizing authority breaks even over time in a cooperative peg regime there is a different equilibrium allocation for each combination of exchange rate levels and monetary policies problems of policy coordination and conflicts in desired monetary policies are discussed

inflationary finance in an open economy abstract models of inflationary finance that consider trade and capital flows generally conclude that openness curtails the ability of governments to impose the inflation tax due to currency substitution this paper models two channels that allow central banks to increase inflation tax revenue by opening the economy first central banks can open the capital account subject to a reserve requirement on capital inflows revenue maximization produces a smaller reserve requirement on foreign capital inflows that on domestic deposits second central banks can impose prior import deposits to broaden the monetary base in order to use the inflation tax on imports as an alternative to tariff revenue

anticipated protectionist policies real exchange rates and the current account the case of rigid wages abstract in this paper we develop a general equilibrium model of an economy with short run unemployment to analyze how anticipated protectionist policies affect real exchange rates the current account and aggregate employment we find that a key transmission channel is the change in current employment induced by future changes in tariffs we show that the direction and magnitude of this effect will depend on relative factor intensities and on real exchange rate behavior if a future tariff generated a current real exchange rate appreciation and if nontradables are labor intensive the anticipation of protectionist policies will generate an increase in current employment

dynamics of the trade balance and the terms of trade in ldcs the s curve abstract in their analysis of the dynamic behavior of terms of trade and the trade balance backus kehoe and kydland found that the lead and lag correlation between these two variables is s shaped for a set of oecd countries furthermore they show that this s curve can be replicated by a two country dynamic general equilibrium model surprisingly the s curve also describes the dynamic relationship between terms of trade and the trade balance for a large set of ldcs this s curve can also be reproduced by a small open economy model which captures some important features of ldc economies the s curve is unexpectedly robust to variations in the key parameters of the model the model also captures the business cycle properties of the ldc data

capital mobility and the current account abstract this paper analyzes the effect of unanticipated changes in the terms of trade on consumption expenditures and the current account in a small open economy simple formulas are obtained for the covariances of changes in consumption expenditures the current account and the expected current account with changes in the terms of trade it is shown that if investment is uncorrelated with the terms of trade a necessary condition for unanticipated changes in the terms of trade to be correlated with changes in consumption expenditures and the expected current account is that the real expected return on foreign bonds differs from the real expected return on domestic bonds

terms of trade dynamics in asia an analysis of national saving and domestic investment responses to terms of trade changes in 14 asian ldcs abstract i estimate a three equation model of savings investment and growth on pooled time series data for 14 asian developing countries to explore terms of trade dynamic effects on the current account a terms of trade deterioration lowers aggregate saving and raises investment in the current year it also exerts a positive lagged effect on investment due to the unanticipated temporary nature of the terms of trade change the current account oscillates before returning gradually to its steady state level the model explains 65 per cent of the variance in the sample countries current accounts over the period 1962 1983

testing for nonstationarity of market risk an exact test and power considerations this paper reexamines the issue of common stock market risk stationarity by applying a newly available exact test for random walk regression coefficients for each eight year subperiod tested in the 1951 1974 interval betas for individual new york stock exchange listed stocks appeared to be nonstationary the statistical powers of the exact test and of locally most powerful tests are compared to the power of the test employed previ ously by sunder these power considerations are cited to explain the differences between test results obtained here and those reported by sunder

the determinants of private saving in india abstract this paper examines the determinants of private saving in the process of economic development in the light of the indian experience it is found that the saving rate rises with both the level and the rate of growth of disposable income the real interest rate on bank deposits has a significant positive impact but the magnitude of the impact is modest public saving seems to crowd out private saving but less than proportionately furthermore the spread of banking facilities in the economy and the inflation rate have a positive impact and changes in the external terms of trade a negative impact on private saving

the welfare effects of trade and capital market liberalization treatise on the welfare effects of trade and capital market liberalization consquenses of the capital account liberalization in the presence of trade restrictions specifies on the liberalization of trade in the presence of foreign borrowing constraints proves superiority of gradual liberalization of trade to an abrupt liberalization

a new test of the relationship between regulatory change in financial markets and the stability of beta risk of depository institutions the us economy experienced major regulatory changes in the banking and finance industry with the passage of five major acts over the period 1980 to 1991 this has generated an extensive literature investigating the effects of these changes on the us banking industry in particular this body of research has examined the share market reaction to regulatory changes as well as their impact on the risk return market value and profitability of banking industry stocks generally it has been found that the regulatory changes have had a substantial impact although the effect has not been uniform across all depository institutions this paper extends this literature by analysing the stability of a sample of eighteen us banking industry stock betas across five periods a pre regulatory change period a monetary experiment period a deregulation period a reregulation period and a post regulatory change period based on an analysis of weekly returns we find that the level of bank risk has increased further we also find a tendency towards greater beta instability in both the monetary experiment and deregulation samples the degree of beta instability is lowest in the pre regulatory change and post regulatory change samples overall the monetary experiment and regulatory change coincided with an increased tendency towards beta instability we also compare our results to a randomly selected control sample of non banks and find some more general effects of regulatory change on individual stock betas

the role of exchange rate for current account a panel data analysis abstract the goal of this paper is to address the role of the real effective exchange rate fundamentals misalignment and volatility for the current account using a panel data analysis for a set of 58 countries over the period of 1994 2014 the results suggest that exchange rate misalignment is relevant for current account adjustment where countries with a more appreciated depreciated exchange rate face a worse better current account performance regarding the role of other control variables current account adjustment is affected by the savings rate where higher lower values are associated with better worse current account performance corroborating the lessons from the consumption smoothing approach there is also evidence of a positive effect for the lagged current account persistence effect for emerging and less developed countries there is evidence of a significant role played by monetary independence where more less monetary independence is associated with better worse current account performance

trade taxes and the current account abstract we show that under some conditions a temporary import tariff improves the current account whereas a temporary export tax deteriorates it permanent import tariffs and export taxes have an identical although ambiguous effect on the current account

gender differences in first jobs for economists over the last several decades women have made substantial progress into traditionally maledominated professions reflecting this trend much recent research has focused on explaining the choice of profession and the gender composition of the workforce 5 23 16 however a focus on occupation choice may conceal interesting patterns within professions because a profession can include a number of different job types with a distinct mix of professional activities the dual labor market phenomenon of primary and secondary jobs may also be present although perhaps to a lesser extent within a particular profession 17 gender differences in composition of employment among the various jobs within a profession could thus affect the status pay and advancement of women in the occupation if women primarily place in secondary type jobs the advantages of entering a profession will be lower for women relatively little is known about career choice within a profession 15 in this paper we model the first job choice of economists among several careers and use data on new ph d economists over the last thirty years to examine whether career choices differ by gender over a period of low but increasing representation of women an advantage of our single profession analysis is that it contains a relatively homogeneous set of workers with quantitative human capital measures that other studies of job choice suggest are important 7 there is significant variation in career choices available within economics that permits possible market segmentation 2 there are research and teaching academic jobs and the government and private sectors employ large numbers of economists we find significant structural differences in the placements of male and female economists indicating that the choices of female economists differ from those of their male counterparts both within academia and between this and other sectors the economics profession provides a useful background to examine gender differences in the career choices of professionals in a male dominated occupation over the last 30 years the average number of ph d s conferred annually in the u s has increased from approximately 300 to over 800 reflecting increased opportunities for economists within economics departments and expansion of other academic government and private sector jobs at the same time the proportion

terms of trade shock and the current account in a monetary economy over the period 1973 81 the terms of trade of non oil developing countries deteriorated at about 2 per cent per annum this was accompanied by an increase in current account deficits in excess of 3 per cent above what they had been in the previous decade see khan and knight 1983 for a discussion these authors find the terms of trade shocks the major cause of the deficits this has led to a renewal of interest in the effects of changes in terms of trade for a small open economy the conventional wisdom first put forward by laursen and metzler 1950 and harberger 1950 emphasized the fact that a terms of trade worsening lowered real income which in turn lowered savings and worsened the current account the laursen metzler effect the recent reappraisal was initiated by obstfeld 1982 he showed in an infinite horizon optimizing framework with perfect capital mobilizing that if the discount rate was a function of the level of utility surpluses and not deficits accompany an unanticipated and permanent terms of trade worsening the long run level of the discount rate is tied down by the given world rate of interest this in turn fixes the long run level of utility the terms of trade shock tends to lower the level of utility and agents save to offset this across steady states there is only a substitution effect on the other hand if the discount rate is fixed and equal to the world interest rate then the economy adjusts to the terms of trade shock by immediately lowering real expenditure by the same amount as the decline in real income so that the current account is always balanced svensson and razin 1983 showed that in a two period framework this does not necessarily happen for the infinite horizon case they showed that if preferences were separable over time and the discount rate was increasing in instantaneous utility then obstfeld s results were indeed obtained in a two period overlapping generations model the results could be modified owing to the fact that human wealth and non human wealth are not perfect substitutes and a terms of trade shock affects these differently see matsuyama 1988 for a discussion but it is still true that an unanticipated permanent terms of trade shock has a one shot effect on the current account unless some ad hoc costs of adjustment are introduced see e g persson and svensson 1985 and matsuyama 1988 the uncertain lifetime model see e g frenkel and razin 1988 and matsuyama 1987 generates non trivial

the effect of government spending on the current account output and expenditures evidence from latin america abstract this paper examines the linkages between government expenditures and current account balances in several latin american economies over the period 1974 1984 in theory these linkages critically depend on private sector responses to changes in government expenditures on both the demand and supply sides the analysis provides evidence that the negative current account government expenditure linkage is much stronger in the event of a temporary shock to government expenditures than in the event of a permanent shock the source of this differential response appears to be primarily on the expenditure side suggesting that private sectors in latin america incorporate the present discounted value rather than simply the current value of government expenditures into their expenditure decisions

an investigation in the theory of foreign exchange controls a choice theoretic cash in advance model is constructed to examine foreign exchange controls while foreign exchange controls improve the trade balance and the balance of payments or exchange rate they reduce welfare for a distortion free small open economy this is because foreign exchange controls essentially place a quota on imports shocks to the terms of trade are shown to be transmitted negatively to the domestic economy when exchange controls are in effect devaluations are found not to have real effects finally it is argued that foreign exchange controls are not the optimal policy for attaining trade balance objectives

timing decisions and the behavior of mutual fund systematic risk the investment performance of professionally managed portfolios in general and mutual funds in particular has been the subject of considerable attention in finance fama 9 has suggested that overall portfolio performance be broken down in such a manner that the individual sources of performance can be identified two basic sources are 1 the ability of the portfolio manager to forecast price movements of individual common stocks relative to stocks in general selectivity or microforecasting and 2 the ability to forecast the direction of the stock market relative to fixed income securities timing or macroforecasting

tariff behavior in five european countries abstract this paper examines the time series properties of average tariff rates for denmark france sweden switzerland and the united kingdom for all five countries the tariff series contains a unit root however a complete description of the tariff rate series for each country suggests that tariff changes may have quite different effects on macroeconomic variables such as the trade balance in each of the five countries studied

critical debt and debt dynamics we study the debt dynamics and sustainable debt for an open economy which borrows from abroad in order to nance consumption to service the debt the country may exploit a renewable resource we show that there is for every resource stock r a critical level bh r of debt above which debt tends to in nity but below which it may be steered to zero we demonstrate how to compute bh r using an ode of steepest descent if the economy maximizes a discounted integral of utility depending on consumption and the resource stock the critical debt bh r may be reached in nite time in such a situation slight perturbations of the optimal consumption lead to insolvency the maximum principle ceases to be valid in this case 2000 elsevier science b v all rights reserved jel classixcation c61 f32 f34 o16

savings and the terms of trade under borrowing constraints the authors examine the extent to which permanent terms of trade shocks have an asymmetric effect on private savings using a simple three period model they show that if households expect to face binding constraints on borrowing in bad states of nature when the economy is in a long trough rather than a sharp peak savings rates will respond asymmetrically to favorable movements in the permanent component of the terms of trade in contrast with the predictions of conventional consumption smoothing models they test the asymmetric effects of terms of trade disturbances using an econometric model that controls for various standard determinants of private savings the results based on panel data for non oil commodity exporters of sub saharan africa for 1980 96 a group of countries for which movements in the terms of trade have traditionally represented a key source of macroeconomic shocks indicate that increases in the permanent component of the terms of trade measured using three alternative filtering techniques indeed tend to be associated with higher rates of private savings

the terms of trade and the current account the harberger laursen metzler effect the paper examines the effect of terms of trade changes on a small country s spending and current account assuming optimizing behavior in an intertemporal framework with perfect international capital mobility a temporary future terms of trade deterioration implies a deterioration improvement of the trade balance whereas a permanent terms of trade deterioration has an ambiguous effect depending on the rate of time preference nominal and real variables are considered via exact price indexes two periods and an infinite horizon are examined

transitory and permanent disturbances and the current account an empirical analysis in the intertemporal framework the intertemporal models of current account determination demonstrate that in the analysis of the current account balance of a country it is important to distinguish between transitory and permanent disturbances in income and relative prices this paper attempts to decompose the observed data on income and real exchange rate into transitory and permanent components and then uses the decomposed series to test the empirical validity of the predictions of the intertemporal models evidence from the united states and japan provide very limited support for the intertemporal models in terms of the effects of transitory and permanent changes in income on current account balance for both us and japan the study finds that permanent changes in real exchange rate have significant effects on the current account balance statistical tests find no evidence of hysteresis in the trading relations of the two countries

the dutch disease a disease after all many third world oil producers are encountering serious problems in building up a diversified export base while west european oil and gas producers netherlands united kingdom are suffering a decline in their traded goods manufacturing sector induced by real wage pressures it is becoming increasingly clear that high but temporary oil revenues may be somewhat ora mixed blessing the quip of the economist notwithstanding the mechanism behind this unbalance is clear enough part of the oil revenues is spent on non traded goods which leads to a real appreciation i e a rise in the relative price of non traded goods in terms of traded goods this in turn draws resources out of the non oil traded sector into the non traded goods producing sector corden and neary 1982 van wijnbergen 1980 one may say that this is an efficient response to the increase in income from oil production the united kingdom mexico egypt simply should move into oil derived industries and non traded goods and forget about their manufacturing sector until oil reserves are exhausted however many developing countries are hesitant to take this advice after all the post world war ii success stories in economic development involve without exception countries that promoted their traded goods sector aggressively moreover it is a well established stylised fact that technological progress is faster in the traded non sheltered sectors of an economy than in the non traded sector balassa 1964 is an early reference considering the hypothesis that technological progress rather than taking place exogenously with the passage of time is a function of accumulated experience the concern of countries like egypt mexico or indonesia is much easier to understand since solow 1957 and denison 1962 it is known that capital accumulation explain only a small part of economic growth if most of economic growth is caused by learning by doing induced technologica

life cycles oil cycles or financial reforms the growth in private savings rates in indonesia what goes steady with private savings this paper investigates reasons for the sustained growth in private savings in indonesia since 1970 in a period characterized by economic growth demographic

deterioration of the terms of trade and capital accumulation a reexamination of the laursen metzler effect abstract this paper analyzes the effect of both a permanent and a temporary deterioration in the terms of trade on a small open economy the model based on intertemporal optimization emphasizes the labor leisure choice and the role of capital accumulation the transitional dynamics is shown to depend upon the long run response of the capital stock to the terms of trade shock this consists of a negative substitution effect together with a positive income effect whether or not the laursen metzler effect holds depends upon whether the income effect dominates the substitution effect

terms of trade shocks and optimal investment another look at the laursen metzler effect conventional analyses of the effect of terms of trade shocks provide a misleading view of their impact on investment and the current account because capital goods imports are excluded from the analytical framework the author argues that such an exclusion is both arbitrary and unrealistic the author reexamines the consequences of permanent and transitory changes in terms of trade in a rational expectations model of a small open economy with intertemporally optimizing agents and with trade in both consumption and capital goods in this framework the responses to a permanent terms of trade improvement in unambiguous the long run capital stock and thus investment must rise and the current account must deteriorate exactly the opposite of the laursen metzler effect a transitory improvement in the terms of trade raises saving but has an uncertain effect on investment so the impact on the current account is generally ambiguous and is shown to depend on three factors the import contents on consumption and investment the duration of the windfall and the degree of intertemporal substitutability in both consumption and investment

trade in nominal assets and net international capital flows abstract nominal assets play a major role in international financial markets while trade in indexed bonds is limited as a result agents are exposed to both price and exchange rate uncertainty nonetheless previous research on net capital flows has assumed the presence of a risk free vehicle to intertemporal asset trade in this paper we develop a general equilibrium intertemporal model with trade limited to nominal bonds and equity we find that exposure to nominal risk dampens net capital flows thus making economies effectively more closed

marshallian recursive preferences and growth abstract although alfred marshall adhered to the classical doctrine of impatience he thought that the act of saving might itself confer utility we model this by making the discount factor a function of savings in addition to providing an intuitive rationale for increasing marginal impatience marshallian time preference has interesting implications for macroeconomics marshallian preferences lower interest rates by stimulating savings paradoxically it is possible for a tax cut to lower interest rates in a marshallian economy in a growth model with marshallian consumers a permanent increase in government expenditures causes super crowding out of consumption and reduces the steady state capital stock

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

tariffs interest rates and the trade balance in the world economy abstract a two commodity intertemporal framework is used to show that in contrast to the conventional wisdom both permanent and temporary tariffs may worsen the trade balance of a large country for a temporary tariff the key condition for this result is a low intertemporal elasticity of substitution in consumption when a temporary tariff worsens the trade balance the world real interest rate must fall if the tariff imposing country is running a deficit and rise if it is running a surplus temporary tariffs can only worsen the trade balance of a surplus country when international differences in tastes are important

tariffs and exchange rate dynamics redux abstract this paper builds a two country intertemporal macroeconomic model similar to one developed recently by obstfeld and rogoff imperfectly competitive producer consumers maximize an intertemporal utility function with consumption real money balances and output as arguments we use the framework to examine both the short run and steady state effects of the imposition of a tariff in one of the countries this results in a fall in the tariff imposer s output in both the steady state and in the short run a small tariff may make a country worse off contrary to the usual result under perfect competition spillover effects are also considered

can exchange rate variations or trade policy alter the equilibrium current account abstract paul krugman has pointed out that much work needs to be done before the intertemporal open economy model can replace the open economy is lm model as a guide to policy making the objective here is to take a step in this direction by examining if an exogenous increase in world demand for home goods as via trade policy can improve the equilibrium current account within an open economy intertemporal model in the process the paper explores the theoretical issue as to whether a variation in the real exchange rate can alter the difference between saving and investment the key idea is that uncovered interest parity plus some degree of mean reversion in the real exchange rate imply that a modern version of the laursen metzler harberger effect is operative the result is that a policy induced increase in the trade balance will alter the real exchange rate which in turn increases the difference between home saving and investment and thereby improves the equilibrium current account

exchange rate mean reversion from real shocks within an intertemporal equilibrium model abstract the post bretton woods era has been characterized by real exchange rates that exhibit mean reversion with mixed evidence as to whether this reversion is partial ppp never holds or essentially complete this paper generates these stylized facts theoretically by synthesizing a simple intertemporal open economy model with the elasticities approach to the current account a central feature of the model is the existence of non traded goods the model can generate partial or approximately complete mean reversion for the real exchange rate depending on parameter values if innovations in output are made up of permanent and temporary components in addition temporary output shocks generate a type of hysteresis wherein the short run path for the exchange rate permanently alters its long run equilibrium value

demand changes and real exchange rate dynamics in a finite horizon model with sectoral adjustment costs author affiliation hung ju chen department of economics national taiwan university 21 hsu chow road taipei 100 taiwan e mail hjc ntu edu tw corresponding author chen min hsu department of economics national taiwan university 21 hsu chow road taipei 100 taiwan e mail chenmin ntu edu tw acknowledgment we would like to acknowledge the financial support provided by the program for globalization studies at the institute for advanced studies in humanities national taiwan university grant 95r0064 ah03 03 we wish to express our sincere appreciation for helpful comments and suggestions provided by two anonymous referees the editor of the journal joshua aizenman been lon chen ming chia li tsunao okumura and elias sanidas as well as participants at the 2007 annual conference of the asia pacific economic association and the 2007 conference of korea and the world economy we also thank ke shaw lian for his assistance any errors within the work are our responsibility 1 introductionalthough the traditional macroeconomic models tend to explain economic fluctuations by focusing solely on supply shocks given that equilibrium is determined by both demand and supply it would seem obvious that changes in demand may also have important effects in terms of their contribution to economic oscillations changes in demand can easily occur particularly for those small open economies for example small open economies can be easily disturbed by external shocks such as terms of trade shocks through international trade 1 another example is the reduction in the mortality rate as a result of higher health investment both public and private and better healthcare during the economic development 2 for export orientated growth economies in particular such as those of hong kong and taiwan changes in either the terms of trade or the mortality rate can significantly influence economic performance impacting the real exchange rate investment output savings and the current account the phenomenon that life expectancy is steadily lengthening for most developing countries has led to the emergence of a growing number of studies on the impact of population aging 3 since an increase in life expectancy will change the expectation of lifetime utility it will directly affect households inter temporal decisions with regard to consumption and savings however previous studies tend to analyze the impact of mortality decline in a closed economy or in a small open economy with exogenous and constant factor prices 4in order to study the impact of mortality rate changes on the economic performance in an open economy we use the overlapping generations model with uncertain lifetime developed by yaari 1965 and blanchard 1985 to examine household savings behavior within this model agents live with a finite lifetime such that different types of agents simultaneously live in the economy 5 furthermore we extend the blanchard type model to a three good open economy composed of exportable importable and non traded goods to allow us to consider the dynamics of the real exchange rate when demand changes capital production and accumulation are also incorporated into the framework to facilitate an examination of the investment behavior of firms we assume that the economy uses both capital and labor to produce exportable goods and non traded goods while importable goods are imported from abroad capital is produced by the non traded sector and installation costs are incurred when capital is transported to the exportable sector 6 as indicated by morshed and turnovsky 2004 the inclusion of the sectoral adjustment costs of capital can generate persistent deviations from the long run equilibrium by the real exchange rate in response to demand changes 7 because the real exchange rate is playing a dual role of a non traded goods price and a capital price we are able to study the impact of population aging and terms of trade shocks on international capital flows in a small open economy with endogenous factor prices

trade policy adjustment in ldcs a short run view the article deals with the role of tariff protection and exchange rate policies in ldcs after a terms of trade shock has occurred and a new equilibrium is to be attained constraints concerning the domestic foreign and public sectors are specified it is shown that the optimal response to the shock depends on the domestic features of the economy as well as on its trade openness in particular protectionist attitudes may well be justified and anti trade policies may be helpful to ease adjustment

a shifting regimes approach to the stationarity of the market model parameters of individual securities recent studies indicate that the widespread assumption of parameter stationarity in empir ical applications of asset pricing models may be inappropriate this paper investigates the feasibility of modeling parameter instability as a sequence of persistent stable regimes reeursive residual and log likelihood techniques are combined to detect and locate shift points the results indicate that regime shifts are widespread frequent and often large enough to significantly effect empirical findings the nature of the shifts appears to be a rotation of the regression line indicating that correction of both alpha and beta parameters is required

bargaining and wage resistance in an open macroeconomic model this paper develops a model of an open economy in which wages and employment are determined by bargaining between firms and unions it can be regarded as an extension of an earlier paper ellis and fender 1985 to an open economy this allows us to investigate a number of contemporary issues in particular we shall explore some aspects of wage resistance the tendency for nominal wages to rise so as to offset either partially or totally any rise in the aggregate price level empirical evidence on wage resistance has been produced by sachs i980 who also shows that the assumption of real as opposed to nominal wage rigidity reverses the conclusions about the relative efficacy of monetary and fiscal policy in the fleming mundell model a number of other papers have incorporated wage resistance sometimes due to wage indexation see for example gray 1976 for analysis in a closed economy context and marston i982 modigliani and padoa schioppa 1978 and eichengreen i983 for open economy models in all these papers however wage resistance is assumed rather than derived from more basic assumptions about agents behaviour however some work has appeared recently which attempts to endogenise wage resistance in a closed economy by modelling union employer bargaining see for example mcdonald and solow i98i and ellis and fender i985

exchange rate based disinflation wage rigidity and capital inflows real exchange rate appreciation usually accompanies stabilization programs based on the exchange rate one thing that causes the real exchange rate to appreciate is the capital inflows that follow liberalization of the capital account and the financial market capital inflows cause the exchange rate to appreciate in part because of the resulting increase in expenditures this appreciation is exacerbated if there is some price rigidity and if control of the money supply is only partial all these conditions existed during chile s experiment with exchange rate based disinflation between 1978 and 1981 simulating what might have been the authors study how exchange rate based disinflation affects expenditures switching and reduction when wages are partially indexed in some segments of the labor market the paper also shows the extent to which a more flexible rule on wage indexing would have offset the adverse impact of lower capital flows on protected sector employment

debt relief and economic growth in mexico could external restraint and internal balance in mexico have been reconciled at levels of savings and investment that allowed satisfactory growth in output without the 1989 90 restructuring of debt what are the likely implications of mexico s brady deal on economic growth what are the macroeconomic effects of debt equity swaps this article develops and estimates a model to address these issues the analysis concludes that the 1989 90 agreement in mexico will contribute materially to macroeconomic stability and the restoration of economic growth copyright 1991 by oxford university press

productivity shocks non traded goods and optimal capital accumulation this paper considers the interaction of saving and investment in determining the current account for a small open economy subjected to productivity shocks by emphasizing the distinction between traded and non traded goods the analysis highlights the crucial role of the real exchange rate in macroeconomic adjustment our results demonstrate the importance of intertemporal substitution for determining the response of investment to anticipated productivity disturbances we also show how the correlation of movements in saving and investment following an anticipated disturbance depends critically on relative sectoral factor intensities

import prices export prices and the current account an asymmetry abstract we demonstrate that there is an important asymmetry between the effects of temporary import and export price shocks on the current account that is ignored in theoretical and empirical work this asymmetry is found to hold for u s and u k data

the macroeconomic dynamics of tariffs a symmetric two country analysis this paper examines the macroeconomic dynamics of tariffs the adverse microeconomic effects of tariffs have been exhaustively discussed in the international trade literature however there are still some debate and discussion on the effects of tariffs on the macroeconomy in the mainstream open economy macroeconomics literature it is argued that the impact of imposing a tariff is likely to be contractionary under flexible exchange rates 1 this view however has been challenged first by the cambridge economic policy group cripps and godley 3 and more recently by ford and sen 7 given the fact that commercial policies have recently returned to playing a more central role in policy debates this then leads to a revival of interest in the effects of tariffs on macroeconomic aggregates one important drawback of the analyses in the literature is that they all assume that the domestic economy faces a given world price of imports i e they focus exclusively on small open economies with virtually no attention being devoted to two country models 2 it is surely a question of relevance to examine the cross country impact of protection although considerable effort has been devoted to examine the international transmission of fiscal and monetary policies recently corden and turnovsky 2 svensson and van wijnbergen 13 little has been done on commercial policies in a two country framework 3 it is our intention therefore to relax the small country assumption to study the transmission effect of tariffs in this paper we discuss how likely a tariff will be beggar thy neighbor our main concern is the dynamic effects of a tariff on domestic and foreign aggregates we pay special attention to the distinction between anticipated and unanticipated permanent tariff changes 4 the case of a temporary tariff is also examined the analysis is conducted in a modified two country mun

measuring the effects of dollar appreciation on asia a favar approach abstract exchange rate shocks have mixed effects on economic activity in both theory and empirical var models in this paper we extend the empirical literature by considering the implications of a positive shock to the u s dollar in a factor augmented vector autoregression favar model for the u s and three large asian economies korea japan and china the favar framework allows us to represent a country s aggregate economic activity by a latent factor generated from a broad set of underlying observable economic indicators to control for global conditions we also include in the favar a global conditions index which is another latent factor generated from the economic indicators of major trading partners we find that a dollar appreciation shock reduces economic activity and inflation not only for the u s economy but also for all three asian economies this result which is robust to a number of alternative specifications suggests that in spite of their disparate economic structures and policy regimes the dollar appreciation shock affects the asian economies primarily through its impact on u s aggregate demand and this demand channel dominates the expenditure switching channel that affects a country s export competitiveness

terms of trade and current account dynamics a methodological critique this paper suggests that the recent intertemporal studies concerning the implications of terms of trade deterioration on the current account of a small open economy may suffer from significant methodological deficiencies the study demonstrates that while the assumption of a small open economy represents a legitimate modeling simplification the analysis of the impact of perturbation of the terms of trade on the current account of this small open economy is methodologically erroneous in particular the paper demonstrates that a given pattern of terms of trade deterioration may be associated with opposing evolutionary patterns of the current account of this small economy this paper argues that the methodology employed by several influential intertemporal studies concerning the relationship between the terms of trade and the current account of a small economy suffers from critical deficiencies it demonstrates that while the assumption of a small open economy confronting exogenously determined terms of trade represents a legitimate modeling simplification the analysis of the impact of perturbations of this terms of trade on the small open economy and on its current account is methodologically erroneous in particular the paper demonstrates that a small economy may experience diametrically opposing evolutionary patterns of the current account in association with a given pattern of terms of trade deterioration the paper suggests therefore that predictions based on this literature are in need of reassessment these intertemporal studies of the relationship between the terms of trade and the current account of a small economy have been conducted under the simplifying assumption that perturbations in the terms of trade are exogenous and do not affect the world interest rate 2 this approach may reflect a valid simplification as long as the study is concerned with exportable goods whose prices are insignificant in the determination of the general price level in the world economy however if the focus of the analysis is a small country that exports a group of commodities such as agricultural goods or industrial goods a change in the terms of trade for the small economy may reflect fundamental changes in the world relative prices that are

vertical product differentiation and the import demand function theory and evidence in this paper we use a model of vertical product differentiation to cast doubt on the general validity of the import demand function as specified in macroeconomic models the empirical importance of our theoretical concerns is then established according to our first hypothesis the share of a good s imports in total imports is non increasing in domestic wages if the country has comparative advantage in high quality varieties of this good the second hypothesis states that the share of a good s imports is increasing in non wage domes tic income if the country has comparative advantage in high quality varieties of this good

male female differences in occupational choice and the demand for general and occupation specific human capital a human capital model of occupational choice as demand for general and occupation specific human capital is developed to show how women s occupational choices vary with their lifetime labor force participation patterns the model is tested using data from the national longitudinal survey of mature women the major empirical finding is that women who take less home time choose occupations which require more human capital especially specific human capital women s occupations and wages are quite responsive to changes in their labor force participation patterns if women worked continuously their occupations and wages would be much closer to those of men

capital movements intersectoral resource shifts and the trade balance abstract in this paper i consider the interactions between the internal structure of the economy and its external balance in an intertemporal set up with perfect foresight a simple pattern emerges current account deficits are associated with depreciating real exchange rates the incorporation of real investments and government spendings change this pattern in a systematic way depending on factor intensities the composition of government spending and its timing

capital controls and fiscal policy in the world economy an intertemporal utility maximization framework is employed to model a world economy with capital controls the effects of fiscal policy in such an environment are examined several results emerge concerning the international transmission of fiscal policy under capital controls and the nature of comovements in macro economic aggregates such as output employment consumption and investment some of the paper s other results concern the implications of capital controls for ricardian equivalence the role of financing decisions in the international transmission process under capital controls and the effect of capital controls on the magnitude of fiscal induced fluctuations throughout the world economy contr6les des mouvements de capitaux et politique fiscale dans l conomie mondiale les auteurs utilisent une approche par la maximisation intertemporelle de l utilite pour modeliser une economie mondiale dans laquelle des controles sur les mouvements de capitaux existent ils examinent les effets de la politique fiscale dans un tel contexte on tire de ces analyses plusieurs resultats quant i la transmission internationale des effets de la politique fiscale et quant aux mouvements lies de certains agregats economiques comme les niveaux de production d emploi de consommation et d investissement certains autres resultats de cette analyse ont trait aux implications des controles des mouvements de capitaux sur l1 quivalence ricardienne au role des decisions de financement dans le processus international de transmission quand il y a controle des mouvements de capitaux et aux effets des controles sur les mouvements de capitaux sur la magnitude des fluctuations induites a travers l economie mondiale par la politique fiscale helpful comments from two anonymous referees are gratefully acknowledged discussion in workshops held at ucla duke university iowa state university queen s university vanderbilt university vpi and the university of western ontario has also been useful canadian journal of economics revue canadienine d economique xviii no 4 november novembre 1985 printed in canada imprime au canada 0008 4085 85 743 65 1 50 canadian economics association this content downloaded from 207 46 13 129 on mon 27 jun 2016 05 25 03 utc all use subject to http about jstor org terms 744 jeremy greenwood and kent p kimbrough

the terms of trade the real exchange rate and economic fluctuations this paper examines the relationship between terms of trade and business cycles using a three sector intertemporal equilibrium model and a large multicountry database results show that terms of trade shocks account for nearly one half of actual gdp variability the model explains weak correlations between net exports and terms of trade the harberger laursen and metzler effect and produces large and weakly correlated deviations from purchasing power parity and real interest rate parity terms of trade shocks cause real appreciations and positive interest differentials although productivity shocks have opposite effects the puzzle that welfare gains of international asset trading are negligible is left unresolved copyright 1995 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

does devaluation improve the current account this paper incorporates the link between devaluation foreign interest payments and the current acccount into a fairly general macroeconomic model in which exchange rate changes influence aggregate demand through exports imports and expenditures as well as aggregate supply via the cost of imported factors of production on the basis of avaliable statistical estimates of the behavioral and structural parameters of the model an attempt is mafe to assess the empirical importance of this link among others in a group of highly indebted industrial and developing countries by and large the empirical results indicate that high foreign debt and interest payments tend to reduce the short to medium run effect of devaluation on national income expecially in the ldcs but make little difference to its generally positive effect on the current account

terms of trade and national saving rates in asia abstract in recent theoretical work obstfeld and svensson and razin re examine the harberger laursen metzler effect of terms of trade changes on the balance of payments current account their models of intertemporal utility maximization indicate that individuals saving responses to a change in the terms of trade are ambiguous in theory from this they infer that the corresponding movements in the current account are also ambiguous however they ignore the positive rate of growth effect incorporated in the life cycle theory on the aggregate saving rate this paper presents an empirical analysis of the terms of trade effect on aggregate national saving rates in 14 asian developing countries over the period 1961 1981 it turns out to be significantly positive as the life cycle model predicts

dynamic analysis in the viner model of mercantilism abstract this paper models the central theme of mercantilism in jacob viner s interpretation power vs plenty in a framework of modern theory of international finance it is shown that in the viner model of mercantilism a nation with strong mercantilist sentiment ends up with large foreign asset accumulation and high consumption in the long run an import tariff leads to more foreign asset holding and more total consumption furthermore in the viner model the harberger laursen metzler effect exists unambiguously a permanent terms of trade deterioration causes a current account deficit in the short run

current accounts in debtor and creditor countries the authors reexamine a classic question in international economics what is the current account response to a transitory income shock such as a temporary improvement in the terms of trade a transfer from abroad or unusually high production to answer this question they construct a world equilibrium model in which productivity varies across countries and international borrowing and lending take place to exploit good investment opportunities despite its conventional ingredients the model generates the novel prediction that favorable income shocks lead to current account deficits in debtor countries and current account surpluses in creditor countries evidence from thirteen oecd countries broadly supports this theoretical prediction

terms of trade shocks and the current account in small island developing states abstract the paper investigates the dynamic relationship between external and internal shocks and the current account in selected small islands developing states external shocks defined as terms of trade fluctuations explain a significant proportion of the variation in the current account balances the external shocks have a temporary negative impact on the current account balances with a subsequent improvement generating a j curve type reaction in contrast real output shocks have a positive and significant effect on the current account

unit trust objectives and investor choice the widespread use by unit trusts of terms such as income gorwth or balanced portfolio to describe their investment aims suggests that such descriptions accurately characterize the type ans particularly the rist return characteristics of unit trust portfolios this study examines the usefulness of such objectives and finds little evidence that they are helpful to investors it is generally difficult if not impossible to distinguish on the basis of different objectives between the returns or the risk of unit trusts that invest predominantly in uk equities although objectives do distinguish between trusts that invest heavily in overseas or fixed interest securities attempts to identify a meaningful grouping or trusts on the basis of their return before and after adjustment for risk were unsuccessful

trade and capital account liberalization in a keynesian economy this paper analyzes the process of trade and capital account liberalization in a keynesian framework with unemployed resources previous studies on this subject have ignored the potential interactions between the liberalization process and the pre existing distortions in the economy this paper derives the optimal liberalization policy given the keynesian context and solves for explicit formulas for the import tariffs and the capital account tax in a two period general equilibrium model it is argued that a trade reform is likely to have recessionary effects in the short run if the capital account has already been liberalized

savings investment and international capital flows abstract the high correlation between national savings and domestic investment rateshas been interpreted as evidence that capital is not internationally mobile this paper surveys the theory and evidence on the relationship between savings and investment in a sample of 23 oecd countries a positive correlation between savings and investment rates is found in both the short and long runs however a wide variety of models generate such co movements in savings and investment in response to exogenous disturbances even under conditions of complete financial markets thus the savings investment correlation provides little evidence on the question of international capital mobility

uk unit trust performance 1980 1989 a passive time varying approach abstract this paper indirectly tests the efficient markets hypothesis by analysing the performance of 30 authorised unit trusts from 1980 through 1989 the risk return relationship of the funds is allowed to vary in a generalised manner thus allowing for passive structural change in underlying economic relationships our findings suggest that 21 of the 30 trusts in the sample were able to supply investment opportunities to the individual investor which were superior to a buy and hold strategy

on fiscal deficits the real exchange rate and the world rate of interest we use a full general equilibrium two country two period model with perfect capital markets and intertemporal optimization and perfect foresight underlying private consumer behaviour in both countries to analyse effects of pure fiscal policy we demonstrate that higher government budget deficits in one country caused by a cut in commodity taxes today balanced by an equal present value increase tomorrow will not be offset one for one by higher private savings because of pure substitution effects triggered by the change in the intertemporal terms of trade the tax change causes the country with the increased government deficit will therefore run a larger current account deficit which in turn unambiguously leads to higher world real interest rates whether a real appreciation results in the country with the higher deficit is shown to depend on the metzler condition for an undereffected transfer if we spend more on our goods than they spend on our goods on the margin government deficits will lead to an appreciation of the exchange rate of the country with the government deficit and vice versa

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

commodity windfalls polarization and net foreign assets panel data evidence on the voracity effect this paper examines the effects that windfalls from international commodity price booms have on net foreign assets in a panel of 145 countries during the period 1970 2007 the main finding is that windfalls from international commodity price booms lead to a significant increase in net foreign assets but only in countries that are ethnically homogeneous in highly ethnically polarized countries net foreign assets significantly decreased to explain this asymmetry the paper shows that in ethnically polarized countries commodity windfalls lead to large increases in government consumption expenditures and political corruption the paper s findings are consistent with theoretical models of the current account that have a built in voracity effect