does exchange rate variability depress trade flows evidence from error correction models this paper examines the impact of exchange rate volatility on the trade flows of the g 7 countries in the context of a multivariate error correction model the error correction models do not show any sign of parameter instability the results indicate that the exchange rate volatility has a significant negative impact on the volume of exports in each of the g 7 countries assuming market participants are risk averse these results imply that exchange rate uncertainty causes them to reduce their activities change prices or shift sources of demand and supply in order to minimize their exposure to the effects of exchange rate volatility this in turn can change the distribution of output across many sectors in these countries it is quite possible that the surprisingly weak relationship between trade flows and exchange rate volatility reported in several previous studies are due to insufficient attention to the stochastic properties of the relevant time series copyright 1993 by mit press

one switch utility functions and a measure of risk consider the relative attractiveness to a decision maker of two financial gambles as the wealth of that individual varies it may seem reasonable that either one alternative should be preferred for all wealth levels or that there exists a unique critical wealth level at which the decision maker switches from preferring one alternative to the other decreasing risk aversion is not sufficient for this property to hold we identify the small class of utility functions for which it does we show how the property leads naturally to a measure of risk the results of this paper apply equally well to discounting functions for cash flows one switch discount functions permit at most one change in preference between cash flows as all payoffs are deferred in time

is there a role for biofuels in promoting energy self sufficiency and security a cge analysis of biofuel policy in thailand given the rising price of crude oil some developing countries including thailand are looking towards developing their domestic renewable energy resources in particular biofuels however there are concerns about the possible adverse effects such a policy strategy would have on key variables such as sectoral output land allocation and the effects of prices particularly food prices this study develops a computable general equilibrium cge model of the thailand economy that features enhancements of the energy sector and uses it to analyze the government s recent renewable energy development plan this plan aims to increase domestic energy use from renewable sources to replace fossil fuel imports the study simulated specific policies contained in the plan among other things we found that promoting biofuel use causes a rapid increase in the price of biofuel and biofuel feedstock in the short run whereas these prices only increase slightly in the long run due to more elastic supplies the prices of food and other products marginally increase implying that food security is not undermined by the policy on the basis of the findings the study recommends a review of some of the targets because they were found to be rather high and a phasing in of others

has the european monetary system led to more exports evidence from four european union countries abstract we attempt to investigate whether the exchange rate mechanism erm period has coincided with an increase in intra eu exports we conclude that this has not been the case but it is likely that the elimination of nominal exchange rate variability arising from a single currency will boost intra european union trade

symmetric pass through of tariffs and exchange rates under imperfect competition an empirical test abstract this paper examines the effect of tariffs and exchange rates on u s prices of japanese cars trucks and motorcycles in particular we test whether the long run pass through of tariffs and exchange rates are identical the symmetry hypothesis we find that this hypothesis is easily accepted in our sample we also find that the pass through relation varies across products ranging from about 0 6 for trucks to unity for motorcycles these coefficients have very different implications for trade policy we explain the results based on demand cost and institutional conditions in each industry

broadly decreasing risk aversion this paper considers decision making in the presence of two additive risk sources with no restrictions on the relation between the two risks a utility function is said to exhibit broad dara if and only if a rise in wealth always decreases the magnitude of the risk premium for one of the risks vis a vis the other a condition on utility functions giving this property is derived utility must be of the linear plus exponential form it is shown that certain problems involving portfolios and risk averse firms give unambiguous comparative statics if and only if utility exhibits broad dara

high exchange rate volatility and low pass through abstract two specifications of an open economy model are shown to generate high exchange rate volatility and low exchange rate pass through erpt in the model price discrimination causes erpt to be incomplete in both the short and the long run in the short run a small amount of nominal rigidities is enough to reduce erpt sharply still exchange rate depreciation worsens the terms of trade consistent with the evidence possible biases from omitted variables and measurement error in the erpt empirical literature due to data limitations are investigated using model generated time series estimates of erpt coefficients can be quite different from true parameters and are sensitive to the shocks driving the economies estimates can nonetheless detect key structural features of the models

exchange rate volatility exchange rate regime and trade volume evidence from the uk us export function 1889 1999 abstract this paper investigated the impact of exchange rate volatility and exchange rate regime on the british exports to the united states using data for the period 1889 1999 the empirical findings suggest that neither exchange rate volatility nor the different exchange rate regimes that spanned the last century had an effect on export volume

is the sticky price assumption reasonable for exchange rate models abstract the testable implications of sticky price exchange rate models are discussed the empirical examples suggest that the predetermined or sticky price assumption employed in recent asset models of exchange rate determination appears to be appropriate for germany japan the united states and the united kingdom

thailand s low carbon scenario 2050 the aim cge analyses of co2 mitigation measures climate change and co2 mitigation have become increasingly important environmental issues recently thailand has proposed policies on ghg mitigation such as thailand s nationally appropriate mitigation action nama which aims at ghg mitigation in the energy sector this study used the computable general equilibrium cge model called aim cge model to analyse ghg mitigation measures under emission trading and carbon capture and storage ccs technology in thailand results show that the international free emission trading policy can drive more ghg reduction by decreasing energy supply and demand and increasing prices of emissions the ccs technologies would balance emission reduction but they would reduce energy efficiency improvement and renewable energy utilization in the energy security aspect the policy options in this study would improve energy security energy import dependency and co benefits of ghg mitigation in forms of improving local air quality results are also helpful to ghg mitigation policy in developing countries

purchasing power parity over two centuries abstract this paper re examines the purchasing power parity hypothesis for the dollar sterling exchange rate using the two centuries of data from lothian and taylor lt 1996 real exchange rate behavior the recent float from the perspective of the past two centuries journal of political economy 104 3 488 509 unlike lt we conclude that the dollar sterling rer is nonstationary implying a rejection of the long run ppp hypothesis the differences in our conclusions are explained by 1 sensitivity of adf unit root tests to the choice of lag length and or 2 the presence of significant time trends in the adf or phillips perron unit root test equations

import pricing and the trade balance in a popular model of exchange rate determination abstract this paper extends a popular model of exchange rate determination to include an import pricing relationship that is consistenc with imperfect competition in the importable sector the analysis highlights how import pricing behavior and aggregate macroeconomic relationships interact in determining the dynamics of the exchange rate the price of imports and the trade balance a basic prediction of the analysis is that an increase in the substitutability of imported product varieties in the domestic market will raise the responsiveness of the exchange rate and dampen the responsiveness of the trade account to monetary shocks

macroeconomic modeling for assessing sustainability of bioethanol production in thailand abstract the development of bioethanol can bring about socio economic and environmental impacts to support the sustainability analysis of bioethanol development and the decision making on bioethanol promotion in thailand this study aims at assessing the socio economic and environmental effects of bioethanol production using recursive dynamic computable general equilibrium cge modeling the assessment is carried out based on the bioethanol production targets in thailand s alternative energy development plan aedp 2015 capturing cassava ethanol and molasses ethanol simulation scenarios are set up to incorporate the role of bioethanol support policies such as tax reduction production efficiency improvement and widening the price gap between gasoline and gasohol into the analysis the results show that increasing bioethanol production together with improving the efficiency of feedstock cultivation is the most efficient way to enhance economic growth however the higher production and consumption would also lead to more irrigation water demand and air emissions the presentation of bioethanol support policies role in promoting bioethanol along with widespread socio economic and environmental effects focus are novel not only are the results useful for the decision making towards sustainable bioethanol development the methods presented in this study should also be a guideline for other socio economic and environmental impact assessment schemes

a contextual uncertainty condition for behavior under risk suppose that your choice between uncertain financial prospects is made more difficult by two independent contextual uncertainties concerning the size of your existing wealth one contextual uncertainty has a greater spread than the other if you could resolve one of these contextual uncertainties before making your choice would you rather it be the larger or the smaller in this paper we explore the intuitive notion that it ought to be more advantageous to resolve larger rather than smaller contextual uncertainties the utility function for wealth uw aw be cwa b c 0 is the only utility function that satisfies this condition and that is also increasing and risk averse at all wealth levels

the effects of real exchange rate risk on international trade abstract by assuming real profit maximization and uncertain prices as well as exchange rates we conclude that it is uncertain percentage changes in the real exchange rate that are risky in international trade empirical estimation of fourteen bilateral trade flows among industrialized countries finds a significant negative effect on trade quantity from such risk in a number of these cases the expectation variable has a positive effect in a larger number of cases significant price effects from the expectation variable are fewer and from risk are negligible

adjustment costs uncertainty and the behavior of the firm this paper examines the effects of demand and cost uncertainty on a firm s investment output and pricing decisions but unlike most earlier studies in which demand and cost are simply not known at the time an output or pricing decision is made here i consider uncertainties over future demand and costs it will be seen that the effects of such uncertainties depend critically on the characteristics of the firm s adjustment costs i treat demand uncertainty in a dynamic context by letting the market demand function shift randomly but continuously through time according to a stochastic process this means that today s demand is known exactly but future demand may be larger or smaller and has a variance that increases with the time horizon likewise uncertainty over factor costs is characterized by treating those variables as stochastic processes i combine this characterization of uncertainty with a dynamic model of the firm in which some factor inputs can be adjusted freely in response to stochastic demand changes but other factors are quasi fixed in that adjustment costs are incurred when they are changed in this model the firm s price and output are random processes but we can examine the firm s behavior in expected value terms of interest is whether the presence of uncertainty should cause competitive or monopolistic firms to invest and produce more or less than they would otherwise how the effects of uncertainty are influenced by the presence of risk aversion and how the use of inventories can alter the impact of uncertainty on capacity and sales of course these questions have been addressed by others in the past among the earliest studies of demand uncertainty are those of edwin mills 1959 1962 and samuel karlin and charles carr 1962 mills examined a single period monopolistic firm that sets both output and price and showed that additive demand uncertainty i e the demand function is of the form q q p u where u is a random variable leads to a lower price if marginal cost is constant so that the firm reduces the expected loss from discarding unsold production karlin and carr confirmed for both the static case and the multiperiod case with inventory carryover that additive uncertainty tends to reduce the price and increase the output of a risk neutral firm while multiplicative uncertainty does the opposite other papers have been concerned with the way in which the error term enters the demand function additively multiplicatively or nonlinearly the implications of choosing price ex ante instead of output the implications of risk aversion and the use of inventories for example agnar sandmo 1971 and david baron 1970 showed that a risk averse competitive firm will produce less when the price is a random variable or subject to an additive error term but a riskneutral firm will not alter its production hayne leland 1972 extended these results to a monopolistic firm whose demand can depend in a general way on a random error term for example q q p u and showed that uncertainty reduces the production of a

strong one switch utility the linear plus exponential utility function has received increasing attention of late as a particularly attractive family for evaluating additive gambles for wealth in addition to its ability to reflect increasing appreciation for money risk aversion and decreasing risk aversion it is consistent with a risk return representation in which return is measured by expected value in this paper we present a new condition strong one switch that characterizes the linear plus exponential family

macroeconomic impacts of bioenergy production on surplus agricultural land a case study of argentina this paper assesses the macroeconomic impacts in terms of gdp trade balance and employment of large scale bioenergy production on surplus agricultural land an input output model is developed with which the direct indirect and induced macroeconomic impacts of bioenergy production and agricultural intensification which is needed to make agricultural land become available for bioenergy production are assessed following a scenario approach the methodology is applied to a case study of argentina the results of this study reveal that large scale pellet production in 2015 would directly increase gdp by 4 imports by 10 and employment by 6 over the reference situation in 2001 when accounting for indirect and induced impacts gdp increases by 18 imports by 20 and employment by 26 compared to 2001 agricultural intensification reduces but does not negate these positive impacts of bioenergy production accounting for agricultural intensification the increase in gdp as a result of bioenergy production on surplus agricultural land would amount to 16 20 in imports and 16 in employment compared to 2001

currency composition of international bonds the emu effect abstract we analyze the impact that the launch of the emu had on the currency denomination of private international bond issues in 1990 2006 using micro level data our stylized model predicts that the introduction of the euro would lead to an increase in the share of euro denominated debt and a decline in the share of dollar denominated debt issued by firms located in countries outside both the united states and the euro area moreover our model predicts that the euro effect would be particularly pronounced for nonfinancial firms our empirical results are consistent with these predictions in addition we find that among nonfinancial firms the impact on new issuers is larger than on seasoned issuers extending the model to allow for differences in issuance volumes across future monetary union countries prior to integration we also predict larger increases in euro denominated issuance among firms from smaller monetary union countries we confirm this prediction for international bond issues by euro area firms

the short run behaviour of prices and output in the exportables sector the case of german machinery abstract the paper addresses the issues raised by the simultaneity between the supply function and the domestic and foreign demand for exportables analysing the microeconomic foundations of the simultaneous price and output decisions of a firm which operates in the exportables sector of an open economy facing a domestic and a foreign demand for its output a specific characteristic of the model is that it allows for the possibility of price discrimination which is suggested by the observed divergencies in the behaviour of domestic and export prices the famework developed is used to investigate the recent behaviour of prices and output in two industries of the german manufacturing sector

exchange rates and traded goods prices abstract this paper presents a partial equilibrium model of the determination of domestic and export prices by a monopolistic competitive firm the model stresses the role of exchange rate uncertainty and expectations the most important result of the analysis is that the stochastic properties of deviations from the law of one price are crucially affected by the currency of denomination of export prices using data on domestic and dollar export prices of japanese goods i find that deviations from the law of one price are due to exchange rate surprises but also to price staggering and ex ante price discrimination

the response of the us export prices to changes in the dollar s effective exchange rate further evidence from industry level data the relationship between the dollar s effective exchange rate and the export price indexes for 13 two digit us manufacturing industries is analysed to determine i which industry adjusts its dollar export price to dampen or amplify the effect of the exchange rate fluctuations on the foreign currency price of its exports and ii whether the response of the export price index to appreciation and depreciation of the exchange rate is asymmetric for several industries evidence consistent with dampening the foreign currency price of exports in an asymmetric fashion is found the implications of the results for the price competitiveness of the industries studied is discussed

changes in background risk and risk taking behaviour economic decision making under uncertainty often takes place in the presence of multiple risks and in markets that are less than complete as a consequence choices about endogenous risks sometimes must be made while simultaneously facing one or more immutable exogenous background risks that are not under the control of the agent and that are independent of endogenous risks it is somehow natural to assume that an exogenous deterioration in background wealth will cause an individual to take more care elsewhere if we define a deterioration for example as making the individual poorer by removing a fixed amount of initial wealth we know from pratt 1964 that decreasing absolute risk aversion dara of an individual s von neumann morgenstern utility function yields this natural result if on the other hand background wealth becomes riskier due to the addition of a zero mean risk that is also statistically independent of all other risks behavior will be more risk averse if and only if preferences are risk vulnerable as defined by gollier and pratt 1996 risk vulnerability described below in section 4 is a stronger notion than dara and includes proper risk aversion pratt and zeckhauser 1987 and standard risk aversion eeckhoudt and kimball 1992 kimball 1993 as particular cases but a deterioration in background wealth may encompass more complicated distribution changes than the introduction of another statistically independent risk in this paper we examine background wealth deteriorations that take the form of both general firstand second degree stochastic dominance changes in risk fsd and ssd respectively in particular we determine conditions that are both necessary and sufficient for each of these two types of background risk changes to imply more risk averse behavior on the part of the individual for the case of fsd changes this condition turns out to be ross stronger characterization of decreasing absolute risk aversion in the case of general ssd changes in the distribution of background wealth the condition derived is a stronger version in ross sense of the conditions characterizing preferences that are locally risk vulnerable in the sense of gollier and pratt the necessary and sufficient conditions derived are fairly restrictive upon preferences however if we take as positive behavior that individuals act in a more risk averse manner whenever the distribution of background wealth deteriorates these conditions place canonical limits upon appropriate utility representations at the very least they

adjustment costs and pricing to market theory and evidence abstract this paper develops an adjustment cost model of pricing to market the model consists of a monopolist who supplies an identical nondurable good to two foreign markets it is shown that the degree of pricing to market increases with the relative importance of the transitory component in exchange rates customs data from 1978 through 1987 on u s and canadian imports of seven german commodities are used to estimate the model s parameters and test its over identifying restrictions

some stronger measures of risk aversion in the small and the large with applications the arrow pratt measures of risk aversion for von neumann morgenstern utility functions have become workhorses for analyzing problems in the microeconomics of uncertainty they have been used to characterize the qualitative properties of demand in insurance and asset markets to examine the properties of risk taking in taxation models and to study the interaction between risk and life cycle savings problems to name just a few applications equally importantly they have generated the linear risk tolerance class of utility functions which has provided canonical examples in such diverse areas as portfolio theory and the theory of teams despite these successes there have been a number of areas for which the results have been weaker than hoped it is natural to use the risk aversion measures to compare the behavior of individuals in risky choice situations for example consider the individual portfolio choice problem in a two asset world with a riskless asset and a risky asset if individual a has a uniformly higher arrow pratt coefficient of risk aversion than individual b then b will always choose a portfolio combination with more wealth invested in the risky asset but suppose that both assets are risky now there is no obvious sense in which the more risk averse individual can be said to hold a less risky portfolio but it seems strange that such a simple alteration should destroy the analytics which support the basic intuition similarly consider the basic insurance problem if one individual a is more risk averse than another b in the arrow pratt sense it follows that a will pay a larger premium to insure against a random loss than will b typically though an individual evaluates partial rather than total insurance that is only some gambles can be insured against and others must be retained in this case even when the gambles which are retained are independent from those which are insured it is no longer true that the individual whose arrow pratt measure of risk aversion is higher will pay a larger insurance premium the situation is no better when we consider comparative statics exercises for a single individual decreasing absolute risk aversion in the sense of arrow and

export pricing flexible exchange rates and divergence in the prices of traded goods abstract a model of firm pricing where customers adjust slowly to price differences is extended to an exporting firm under flexible exchange rates the foreign currency price the firm sets determines both current net revenue and the rate of investment in market share real exchange rate changes lead to price revisions but the protracted adjustment of customers prompts a smaller price response to transitory changes in the real exchange rate the model accounts for observed variations in traded goods prices across countries and the failure of exporting firms to pass through exchange rate changes but in contrast to static models does not predict frequent reallocation of traded goods production

economy wide impacts of biofuels in argentina abstract argentina is one of the world s largest biodiesel producers and the largest exporter using soybeans as feedstock using a computable general equilibrium model that explicitly represents the biofuel industry this study carries out several simulations on two sets of issues i international markets for biofuel and feedstock such as an increase in prices of soybean soybean oil and biodiesel and ii domestic policies related to biofuels such as an introduction of biofuel mandates both sets of issues can have important consequences to the argentinean economy the simulations indicate that increases in international prices of biofuels and feedstocks would increase argentina s gross domestic product and social welfare increases in international prices of ethanol and corn also can benefit argentina but to a lesser extent the domestic mandates for biofuels however would cause small losses in economic output and social welfare because they divert part of biodiesel and feedstock from exports to lower return domestic consumption an increase in the export tax on either feedstock or biodiesel also would lead to a reduction in gross domestic product and social welfare although government revenue would rise

biofuels and economic development a computable general equilibrium analysis for tanzania abstract biofuels could offer new economic opportunities for low income countries we use a recursive dynamic computable general equilibrium model of tanzania to evaluate different biofuels production options and estimate their impacts on growth and poverty our results indicate that maximizing the poverty reducing effects of biofuels production in countries like tanzania will require engaging and improving the productivity of smallholder farmers evidence shows that cassava based ethanol production is more profitable than other feedstock options cassava also generates more pro poor growth than sugarcane based systems however if smallholder yields can be improved rather than expanding cultivated land then both sugarcane and cassava out grower schemes generate similar pro poor outcomes we conclude that in so far as the public investments needed to establish a biofuels industry are consistent with other development needs then producing biofuels will enhance economic development in countries like tanzania

precautionary saving in the small and in the large the theory of precautionary saving is shown to be isomorphic to the arrow pratt theory of risk aversion making possible the application of a large body of knowledge about risk aversion to precautionary saving and more generally to the theory of optimal choice under risk in particular a measure of the strength of the precautionary saving motive analogous to the arrow pratt measure of risk aversion is used to establish a number of new propositions about precautionary saving and to give a new interpretation of the dreze modigliani substitution effect copyright 1990 by the econometric society

exchange rates and prices the adjustment of relative prices to exchange rate movements is explained in an industrial organization approach given labor costs in the respective currencies exchange rate movements change costs for firms selling in the home market and thus disturb the industry equilibrium the extent of absolute and relative price adjustment is shown to depend on market integration product substitutability the relative number of domestic and foreign firms and the market structure the impact of exchange rates on prices is illustrated in a variety of approaches including the cournot a dixit and j stiglitz 1977 and s salop 1979 models some empirical evidence is offered in support of the theory copyright 1987 by american economic association