to float or to fix evidence on the impact of exchange rate regimes on growth we study the relationship between exchange rate regimes and economic growth for a sample of 183 countries over the post bretton woods period using a new de facto classification of regimes based on the actual behavior of the relevant macroeconomic variables in contrast with previous studies we find that for developing countries less flexible exchange rate regimes are associated with slower growth as well as with greater output volatility for industrial countries regimes do not appear to have any significant impact on growth the results are robust to endogeneity corrections and a number of alternative specifications borrowed from the growth literature

nonlinear effects of exchange rate volatility on the volume of bilateral exports in this paper we investigate empirically the impact of exchange rate volatility on real international trade flows utilizing a 13 country data set of monthly bilateral real exports for 1980 1998 we compute one month ahead exchange rate volatility from the intra monthly variations in the exchange rate to better quantify this latent variable we find that the effect of exchange rate volatility on trade flows is nonlinear depending on its interaction with the importing country s volatility of economic activity and that it varies considerably over the set of country pairs considered copyright 2003 john wiley sons ltd

the theory of mixed demand functions abstract the properties of samuelson s mixed demand functions which express demand as a function of a mixed set of prices and quantities are derived by analyzing compensated or substitution effects and uncompensated effects the relationships between mixed demand functions and conditional or rationed demands are examined this provides insights on the behavioral implications of consumer theory for alternative demand specifications

arbitrary values good causes and premature verdicts abstract this paper offers an alternative interpretation of the conclusions kahneman and knetsch propose based on two contingent valuation cvm surveys the evaluation argues that while framing is important to cvm estimates the design implementation and empirical findings reported from these surveys do not support their judgments moreover with the exception of temporal embedding conventional economic descriptions of individual behavior can explain the response patterns that they suggest are at variance with standard value theory

modelling macroeconomic shocks in the cfa franc zone abstract in this paper we modify the method of blanchard and quah american economic review 79 1989 655 in order to estimate a structural var model appropriate for a small open economy in this way we identify shocks to output and prices in the members of the two monetary unions that make up the african cfa franc zone the costs of monetary union membership will depend on the extent to which price and output shocks are correlated across countries and the degree of similarity in the long run effects of the shocks on the macroeconomy the policy conclusions depend on the relative importance of different macroeconomic variables to policymakers and the speed with which a policymaker is able to respond to a shock

a new method of estimating risk aversion i show existing evidence on labor supply behavior places an upper bound on risk aversion in the expected utility model i derive a formula for the coefficient of relative risk aversion in terms of the ratio of the income elasticity of labor supply to wage elasticity and degree of complementarity between consumption and labor i bound the degree of complementarity using data on consumption choices when labor supply varies across states using labor supply elasticity estimates i find a mean estimate of 1 then show generating 2 requires that wage increases cause sharper labor supply reductions jel d81 j22

on the valuation of uncertainty in welfare analysis thisarticle developsa general model of private and public choice under temporal uncertainty the model incorporatesthe effectsof ris k preferencesand the pros pect of future learning into both the individual and aggregate valuationsof public projects the analys isprovidesnew ins ightson individual valuation itsimplicationsfor benefit cos t analys isand the characterization of paretoefficiency under uncertainty it also resolves some of the confusion in the option value and quasioption value literature private and public decisions typically involve many sources of uncertainty including uncertainty about prices income technology environmental quality health etc temporal uncertainty is also common where some of the risk 1 getsresolved over time due to learning additionally private and public decisions often exhibit some form of irreversibility implying that current choicescan affect the ability of decision makers to be flexible and to adjust their future choices in response to forthcoming information when uncertainty and irreversibility are both present welfare analys isgainscomplexity and importance although considerable progress has been made since weisbrod s seminal article a better understanding of the roles of uncertainty and irreversibility in welfare analys improve our ability aseconomis ts to communicate the importance of risk in project evaluation to public decision makers

measuring welfare effects of product contamination with consumer uncertainty abstract a methodology is developed for measuring consumer welfare loss from market demand due to contamination when information is imperfect comparison of behavior before and after awareness permits calculation of the cost of ignorance which occurs when news of contamination is withheld or undiscovered for a time as well as when excessive reporting and exaggeration cause overreaction avoidance costs are also calculated for consumers who consume less than they would with perfect information due to risk aversion the methodology is applied to analyzing the heptachlor crisis which reduced milk consumption in hawaii by over 80

one money one market the effect of common currencies on trade currency unions their dramatic effect on international trade a gravity model is used to assess the separate effects of exchange rate volatility and currency unions on international trade the panel data bilateral observations for five years during 1970 90 covering 186 countries includes 300 observations in which both countries use the same currency i find a large positive effect of a currency union on international trade and a small negative effect of exchange rate volatility even after controlling for a host of features including the endogenous nature of the exchange rate regime these effects statistically significant imply that two countries sharing the same currency trade three times as much as they would with different currencies currency unions like the european emu may thus lead to a large increase in international trade with all that that entails andrew rose

hard or soft pegs choice of exchange rate regime and trade in africa summary this paper revisits the link between fixed exchange rate regimes and trade in the context of africa s exchange rate arrangements differentiating the effects of hard pegs currency unions from conventional soft pegs using a novel dataset of exchange rate regime classification the paper augments the gravity model of bilateral trade flows with measures of currency unions and conventional pegged arrangements and benchmarks africa s experience against the rest of the world we find that in both samples currency unions and pegs increase trade vis a vis more flexible exchange rate arrangements through channels in addition to reduced exchange rate volatility however the effect is almost twice as large for africa in addition the trade generating effect of pegs is at least as large for africa as that of currency unions suggesting that pegs could present a viable option perhaps an alternative to currency unions to promote trade in the region

adjustment and economic performance under a fixed exchange rate a comparative analysis of the cfa zone abstract this paper examines the economic performance of the cfa franc zone versus non cfa countries in recent years a modified control group approach is used to compare the evolution of macro economic indicators in the cfa countries vis a vis other sub saharan african countries controlling for initial conditions changing exogenous internal and world environment and policy stance in addition our approach allows for a formal testing of whether zone membership is a random the implication of randomness i e no selection bias is that the cfa zone economies would have performed in the same fashion as the rest of sub saharan africa for example in the absence of the zone our results show that the randomness assumption is only valid for the cases of gdp growth and inflation for other indicators savings investment and export ratios to gdp the decision to participate in the zone is endogenous and is related to the expectation of improved economic performance subsequently in the estimation of the zone s effects on the latter group of indicators we corrected for the ensuing sample selectivity bias by estimating that status indicator participation versus non participation via a probit model our estimation results indicate a weakening competitive position of the cfa members during the second half of 1980s relative to the first half compared with the non cfa countries in terms of output growth as well as the performance of exports investment and savings the exception is domestic inflation with the cfa countries faring better on that front results for a longer term comparison the 1970s versus the 1980s are somewhat mixed while the estimated coefficients for the marginal effect of zone participation corroborates a better performance for the cfa zone over the group of comparators in terms of exports domestic savings and investment and inflation the zone failed to distinguish itself with regard to economic growth in the long run

is the income elasticity of environmental improvements less than one we estimated the income elasticity of environmental improvements for a number of european data sets the value of this parameter is consistently found to be less than one with few exceptions our findings are compared with state of the art contingent valuation studies from other countries we also compared our findings with those reported in the literature on charitable donations and corporate donations these studies show a similar pattern donations decrease as a percentage of income as income increases

measuring and analysing the effects of short term volatility in real exchange rates this paper examines short term volatility in the real effective exchange rates of industrial countries and its impact on their imports it yields three conclusions first volatility has not diminished as markets have gained experience with floating exchange rates the trend appears to be in the opposite direction for some countries second exposure to short term volatility has differed among countries japan and sweden have experienced much more than most other industrial countries third volatility appears to depress the volume of international trade this third finding is consistent with results reported by cushman and by akhtar and hilton and challenges earlier findings by hooper and kohlhagen

quality adjusted price indexes and the willig condition abstract this paper provides a graphical explanation of willig s condition for developing consistent price indexes for quality change the framework also describes how the single crossing condition generalizes the willig condition

weak complementarity path independence and the intuition of the willig condition abstract weak complementarity is usually invoked for valuing public goods using information on private goods however using uncompensated demands requires a second condition the willig condition this paper present an intuitive explanation of the willig condition and shows that the alternative versions are equivalent to a path independence condition for line integrals this condition is fulfilled for compensated demands but not uncompensated demands except in restrictive special cases it is shown that this is a type of quasi homotheticity and requires that the income flexibility of quality must equal the income elasticity of the weak complement the importance and restrictiveness of the willig condition are shown using three alternative functional forms

evaluating policy interventions with general equilibrium externalities abstract we report on the results of analytical and numerical models that describe the effects of non separable externalities or public goods on public policies with important general equilibrium consequences in the numerical exercise we calibrate a general equilibrium model with non separable air quality benefits in order to measure the excess burden and total net benefits of transportation and energy taxes in the 1995 u s economy the change in the physical level and the economic value in air quality associated with a given policy is a function of the substitution patterns between air quality and market goods that we assume the size of the deadweight loss due to pre existing distortions such as a tax on labor income is substantially affected by these substitution patterns

the welfare cost of uncertainty in policy outcomes this paper proposes a simple index of the welfare significance of uncertainty in the public goods resulting as policy outcomes our measure is the ex ante compensation an individual would require to accept an uncertain level of service compared to receiving the expected value of the distribution of possible values for that service our compensation measure is a function of the coefficient of relative risk aversion the variance in the measure of environmental service associated with policy and relevant for the individual and a set of conventional parameters that describe the properties of nonmarket benefit measures under conditions of certainty we would expect that the inverse virtual price elasticity of the for the environmental service and the square of the coefficient of relative variation are the primary factors influencing the size of our compensation index this abstract was borrowed from another version of this item

improving policy credibility is there a case for african monetary unions abstract this paper analyzes experience with monetary policy in africa focusing on countries that have participated in rule based regional monetary agreements cfa zone east african currency board and rand monetary area we show that african countries have generally lacked the political institutions necessary for governments to commit credibly on an individual basis to financial stability we argue that monetary unions can provide an alternative means of credible commitment to sound macroeconomic policies but only under certain conditions first exit from a union must be made costly by the existence of parallel regional agreements and or links to the financial and technical assistance of industrial countries second governance structures of monetary unions must be designed so as to maximize chances for enforcement of monetary rules and third if a state seeks to break the rules of a union other member governments must actively oppose such attempts

water quality violations and avoidance behavior evidence from bottled water consumption we examine the impact of poor water quality on avoidance behavior by estimating the change in bottled water purchases in response to drinking water violations using data from a national grocery chain matched with water quality violations we find an increase in bottled water sales of 22 percent from violations due to microorganisms and 17 percent from violations due to elements and chemicals back of the envelope calculations yield costs of avoidance behavior at roughly 60 million for all nationwide violations in 2005 which likely reflects a significant understatement of the total willingness to pay to eliminate violations

estimating risk preferences from deductible choice we develop a structural econometric model to estimate risk preferences from data on deductible choices in auto insurance contracts we account for adverse selection by modeling unobserved heterogeneity in both risk claim rate and risk aversion we find large and skewed heterogeneity in risk attitudes in addition women are more risk averse than men risk aversion exhibits a u shape with respect to age and proxies for income and wealth are positively associated with absolute risk aversion finally unobserved heterogeneity in risk aversion is greater than that of risk and as we illustrate has important implications for insurance pricing

on the adequacy of monetary arrangements in sub saharan africa we examine the economic rationale for monetary union s in sub saharan africa through the use of cluster analysis on a sample of 17 countries the variables used stem from the theory of optimum currency areas and from the fear of floating literature it is found that the existing cfa franc zone cannot be viewed as an optimum currency area cemac and uemoa countries do not belong to the same clusters and a core of the uemoa can be defined on economic grounds the results support the inclusion of the gambia ghana and sierra leone in an extended uemoa arrangement or the creation of a separate monetary union with the core of the uemoa and the gambia rather than the creation of a monetary union around nigeria finally the creation of the west african monetary zone wamz around nigeria is not supported by the data

fixed exchange rates and trade abstract a classic argument for a fixed exchange rate is its promotion of trade empirical support for this however is mixed while one branch of research consistently shows a small negative effect of exchange rate volatility on trade another more recent branch presents evidence of a large positive impact of currency unions on trade this paper helps resolve this disconnect our results which use a new data based classification of fixed exchange rate regimes show a large significant effect of a fixed exchange rate on bilateral trade between a base country and a country that pegs to it these results suggest an economically relevant role for exchange rate regimes in trade determination since a significant amount of world trade is conducted between countries with fixed exchange rates

is the proposed east african monetary union an optimal currency area a structural vector autoregression analysis summary this paper empirically assesses the suitability of the east african ea countries for a regional monetary union by testing for symmetry of the underlying structural shocks the results indicate that supply and demand shocks are generally asymmetric which does not lend strong support for forming a currency union in the ea region at the moment however the speed and magnitude of adjustment to shocks is similar across the countries therefore further integration of the economies might lead to more favorable conditions for a monetary union although evidence in favor of linking an ea currency to an external anchor is weak such support seems to favor the euro

a strictly concave non spliced giffen compatible utility function we propose a new bivariate utility function for the analysis of giffen behavior the function is strictly concave and twice continuously differentiable with marginal utilities that are strictly positive the function is defined by a single equation rather than by two or more spliced functional forms we contend that in the search for giffen compatible utility functions it is helpful to consider explicitly the elasticities of the consumer s marginal rate of substitution with respect to the quantities of the two goods