the early history of modern ecological economics abstract this paper provides a historical perspective for the discussion on ecological economics as a special field of research by studying the historical background of ecological economics the present discussions and tensions inside the field might become easier to understand and to relate to the study is inspired by other studies of the emergence of new research areas done by sociologists and historians of science and includes both cognitive and social aspects macro trends and the role of individuals the basis for the paper is a combination of literature studies and interviews with key researchers from the field the story opens with the emergence of the new environmental agenda in the 1960s which was influenced by the scientific development in biology and ecology then it is outlined how the environmental challenge was met by economics in the 1960s around 1970 the basic ideas of ecological economics were given modern formulations but it took a long gestation period from the beginning of the 1970s to the end of the 1980s before ecological economics took shape during this gestation period the personal relationships between the actors were formed and the meetings that were decisive for the formal establishment of ecological economics took place

optimal voting rules under uncertainty the theory of constitutional choice of voting rules developed by buchanan and tullock is an extended to an explicit decision theoretic form voters in the constitutional position choose what they believe will be their optimal share or majority rule for making social decisions by maximizing their individual expected utility from the anticipated social decisions under conditions of uncertainty the rule that maximizes expected social benefits depends upon 1 the expected distribution and intensity of preferences on future issues and 2 the decisionmaking procedures and costs decisionmaking and external costs are shown to be interrelated following this analysis failure to pass laws imposes external costs in the same way that passing them does so that the optimal majority may be lower when desirable laws are viewed as changing over time decisionmaking costs depend upon the way in which voters are persuaded to support or oppose bills upon the distribution of preferences on bills and on vote trading possibilities if vote trading is almost costless a wide range of decision rules has nearly equal social benefits finally the model is used to discuss optimal voting rules for several decisionmaking bodies

the phillips curve the persistence of inflation and the lucas critique evidence from exchange rate regimes comment we present evidence from the united states and the united kingdom that the persistence of price inflation is significantly higher under managed exchange rate regimes than under gold based fixed exchange rate regimes these differences are also reflected in expectations augmented phillips curves we use a two country macro model with forward looking price setters to demonstrate that higher monetary accommodation of inflation and exchange rate accommodation of inflation differentials increase inflation persistence the evidence does not contradict this hypothesis it supports the hypothesis of forward looking price setters and highlights the empirical significance of the lucas critique jel e31 e42 f33

real sources of european currency policy sectoral interests and european monetary integration in the thirty years before economic and monetary union was achieved european currency policies varied widely among countries and over time in this article i argue that the sectoral impact of regional exchange rate arrangements in particular their expected real effects on european trade and investment exerted a powerful influence on the course of european monetary integration the principal benefit of fixing european exchange rates was facilitation of cross border trade and investment within the european union eu the principal cost of fixed rates was the loss of national governments ability to use currency policy to improve their producers competitive position empirical results indeed indicate that a stronger and more stable currency was associated with greater importance of manufactured exports to the eu s hard currency core while depreciations were associated with an increase in the net import competition faced by the country s producers this suggests a powerful impact of real factors related to trade and investment and of private interests concerned about these factors in determining national currency policies

german dominance in the ems evidence from interest rates abstract the paper presents an empirical analysis of german dominance and asymmetries in the ems based on a dynamic system of equations explaining national money market interest rates the hypothesis of strict german dominance of the ems is rejected however there are some noticeable asymmetries in the ems germany is a relatively strong player and has been the least dependent country in the early phase of the system since 1983 german independence has diminished in contrast france throughout and italy in the early phase of the ems have been relatively weak players in the system

economic specialization versus ecological diversification the trade policy implications of taking the ecosystem approach seriously abstract the author contrasts the economic principle of specialization found in trade theory with the ecological principle of diversification that underlies the ecosystem approach to natural resource use he argues that current ecosystem decline is a consequence of the over extension of the principle of specialization from the factory setting to nature when the specialization principle is applied wholeheartedly to natural systems to speed up their delivery of desired commercial products it leads to ecosystem simplification loss of integrity and stress this occurs for example in modern approaches to forest management when clearcutting and replanting with genetically modified seeds occurs with heavy inputs of fertilizers herbicides and pesticides what is required is a re balancing of the application of the principle of specialization with the principle of diversification as occurs when forests are managed according to an ecosystem based approach this re balancing occurs at the level of production however not at the level of trade consequently the focus of environmental reform must be production policy not trade policy

conservative central banks and nominal growth exchange rate and inflation targets a framework is developed in which inflation biases with different target variables are compared a nominal growth target measured in consumer prices may yield less stabilization bias than a nominal income growth target exchange rate and inflation targets result in less stabilization bias than an income growth target the more important the terms of trade stabilization persistence in output causes excessive stabilization of productivity shocks and of shocks to the terms of trade under discretion an inflation weight conservative central bank is more likely under an inflation target than under an exchange rate target and less likely under a nominal income growth target

international monetary regimes and incidence and transmission of macroeconomic shocks evidence from the bretton woods and modern floating periods this paper investigates the relationship between international monetary regimes and incidence and transmission of macroeconomic shocks within the context of an open economy macro model empirical results confirm monetary interdependence and lower incidence of monetary discretion under fixed exchange rates the average magnitude and dispersion of supply shocks in bretton woods and the subsequent float is comparable however the average magnitude and dispersion of real demand shocks under bretton woods seems higher overall the international monetary regime may pose important constraints to policymakers in open economies economists have long recognized the role of a flexible exchange rate regime in insulating economies and allowing independent pursuit of monetary policy however experience with floating rates in the post bretton woods period led many to question the merits of flexible rates with increased volatility in nominal and real exchange rates and the implied effects of this volatility on international trade flows although fixed rates reduce uncertainty and transaction costs compared with flexible rates these benefits may be outweighed by increased output volatility due to sticky prices and increased international interdependence if countries face idiosyncratic shocks independent monetary policy is needed to stabilize the domestic economy theoretical work on the effects of international monetary regimes has been inconclusive helpman 1981 dornbusch 1983 turnovsky 1983 and others provide evidence that exchange rate arrangements cannot be ranked unambiguously in terms of their impact on macroeconomic stability or domestic welfare instead several studies have analyzed macroeconomic performance under different historical exchange rate arrangements using macroeconomic data from the bretton woods and the subsequent floating regime baxter and stockman 1988 found no clear relationship between exchange rate flexibility and output stability or synchronization of the business cycle using bivariate vector autoregressions vars bayoumi and eichengreen 1994 analyzed the standard

exchange rate behaviour under the ems regime was there any systematic change abstract most empirical studies fail to detect any systematic effects of the ems regime on the economic performance of member countries this reveals the difficulty of constructing controlled experiments which can distinguish what is due to the ems from that due to common external pressures we argue that the crucial step is to examine the exchange rates distribution since no performance improvements will appear if exchange rate behaviour does not change within the ems we find that there are changes in the third and fourth moments which imply that ems currencies have become more fragile and susceptible to shocks particularly negative shocks relative to non ems currencies

pegged exchange rate regimes a trap this paper studies the empirical and theoretical association between the duration of a pegged exchange rate and the cost experienced upon exiting the regime we confirm empirically that exits from pegged exchange rate regimes during the past two decades have often been accompanied by crises the cost of which increases with the duration of the peg before the crisis we explain these observations in a framework in which the exchange rate peg is used as a commitment mechanism to achieve inflation stability but multiple equilibria are possible we show that there are ex ante large gains from choosing a more conservative not only in order to mitigate the inflation bias from the well known time inconsistency problem but also to steer the economy away from the high inflation equilibria these gains however come at a cost in the form of the monetary authority s lesser responsiveness to output shocks in these circumstances using a pegged exchange rate as an anti inflation commitment device can create a trap whereby the regime initially confers gains in anti inflation credibility but ultimately results in an exit occasioned by a big enough adverse real shock that creates large welfare losses to the economy we also show that the more conservative is the regime in place and the larger is the cost of regime change the longer will be the average spell of the fixed exchange rate regime and the greater the output contraction at the time of a regime change

monetary union and the assignment problem proposals for the creation of an independent central bank in a european monetary union do not always take into account the interactions between monetary and fiscal policy this analysis describes a system of two similar economies forming either a joint fiscal and monetary union or a simple monetary union policy authorities aim to achieve target values for inflation and the budget balance if the monetary and fiscal authorities pursue their targets independently of each other there is a risk that unstable interactions will be set up the results indicate a hazard of the separation of monetary and fiscal management

unit roots and granger causality in the ems interest rates the german dominance hypothesis revisited abstract the aim of this paper is twofold first it shows that a sufficient conditions for unit roots found in ar systems to persist in var systems amount to granger non causality in any direction among the variables involved this implies that a necessary condition for the disappearance of one unit root in a var system implies granger causality in at least one direction b for first order models with non explosive variables granger causality is also sufficient for cointegration and c causality and cointegration inference are strongly affected by the omission of an important causing variable second our new analytical framework allows us to formulate and test several new variations of the so called german dominance hypothesis in a unified cointegrating framework which we define as strong semi strong and weak types 1 and 2 german dominance in addition we allow for the possibility that the dominant player may lie outside the ems so that we introduce and test the us dominance hypothesis

time consistent collection of optimal seigniorage a unifying framework this paper reviews the existing literature on the time consistency problem of seigniorage collection when monetary policy is determined by optimal taxation considerations it develops a unifying accounting framework and suggests a general measure for seigniorage which encompasses the standard measures employed in the literature in addition the ex ante optimal solution to the optimal taxation problem is derived and interpreted in relation to the ramsey principle we show that the different recommendations of the public finance literature i e the friedman rule of optimal deflation moderately positive inflation and seigniorage maximizing inflation are specific solutions to the optimal taxation problem the paper continues with a formal illustration of the time consistency problem of the ex ante optimal policy and the characterization of the time consistent solution under discretion as possible solutions to the time consistency problem we consider reputational forces institutional reforms that establish central bank independence and specific ways of asset and debt management in particular it is formally shown that a modified version of the asset and debt management scheme suggested by persson persson and svensson is not only necessary but also sufficient for optimality although this did not hold in their model

on becoming more flexible exchange rate regimes in latin america and the caribbean abstract this paper examines the shift from fixed to more flexible exchange rate regimes among countries in latin america and the caribbean in contrast to most traditional approaches the one followed here recognizes that fixed rates can be and often are adjusted but argues that policy makers incur a political cost from devaluation at the same time flexible exchange rates even managed ones may be very volatile with persistent misalignment a stylized model of regime choice is developed based on the perceived losses from exchange rate misalignment incurred under fixed versus more flexible regimes the model is estimated for a sample of 24 countries over the period 1978 1992 and empirical results are quite supportive misalignments proxied by current account deficits and moderate to high rates of inflation were associated with a move to more flexible rates during 1978 1986 misalignment indicators appear to have mattered less during 1987 1992 however there appears to have been a major reduction in the perceived difficulty of managing flexible rates during this period the paper then cautions against attributing differences in economic growth between groups of countries to their exchange regime the central point here is that the endogeneity of regime choice introduces selection biases into the samples of countries with fixed and with more flexible exchange regimes

the implications of mean variance optimization for four questions in international macroeconomics abstract the hypothesis of mean variance optimization has powerful implications transcending particular methods used for variance covariance estimation 1 for conventional estimates of risk aversion substitutability between domestic and foreign securities is close to perfect in the sense that risk premiums are small in magnitude a few basic points and thus cannot explain much bias in forward rates 2 nevertheless as long as risk aversion is not zero foreign exchange intervention still affects the level of the exchange rate proportionately at least to asset supply changes 3 current account deficits also have effects 4 finally dollar depreciation should not be accompanied by appreciation of the mark against the franc

capital controls and balance of payments crises abstract the theory of balance of payments crises shows that under perfect foresight a system of fixed exchange rate is not sustainable in the presence of diverging economic policies in this paper it is shown how and why capital controls succeed in maintaining the principle of a fixed but adjustable parity both cases of a devaluation and a revaluation are considered and a condition for a parity change to be credible is presented

delegation in international monetary policy games abstract in this paper we show that delegation of monetary policy to an independent and more conservative central banker is an optimal policy in a multi country framework with monetary spillovers among countries even in the absence of time inconsistency credibility issues we also study the welfare implications of delegating monetary policy and extend our analysis to the case of coordination of monetary policies

resilience in the dynamics of economy environment systems the ecological concept of resilience has begun to inform analysis of change in economy environment systems the linkages between resilience and the stability of dynamical systems are discussed along with its role in understanding of the evolution of such systems particular linkages discussed include those between resilience biodiversity and the sustainability of alternative states recent developments in modelling the resilience of joint economy environment systems suggest the advantages of analysing change in the system as a markov process the transition probabilities between states offering a natural measure of the resilience of the system in such states it is argued that this emergent property of the collaboration between ecology and economics has far reaching implications for the way we think about model and manage the environmental sustainability of economic development

monetary policy and the exchange rate the british monetary authorities began the decade with a commitment to a policy of decelerating monetary growth as the centrepiece of their economic strategy a policy of outright benign neglect towards the exchange rate was a stated accompaniment by the end of 1990the centrepiece of policy was adherence to the exchange rate mechanism of the ems albeit initially within the wider band option although the commitment to counter inflationary policy objectives and to a nominal anchor as a means of achieving these remained the same the anchor had been changed at the intermediate target level there had been a revolution

political and institutional factors in regime changes in the erm an application of duration analysis this paper analyses the functioning of the european exchange rate mechanism erm to that end we apply duration models to estimate an augmented target zone model explicitly incorporating political and institutional factors into the explanation of european exchange rate policies the estimations are based on quarterly data of eight currencies participating in the erm covering the complete history of the european monetary system our results suggest that both economic and political factors are important determinants of erm currency policies concerning economic factors the money supply the real exchange rate the interest rate in germany and the central parity deviation would have negatively affected the duration of a given central parity while credibility and the price level in germany would have positively influenced such duration regarding political variables elections central bank independence and left wing administrations would have increased the probability of maintaining the current regime while unstable governments would have been associated with more frequent regime changes moreover we show how the political augmented model outperforms the model which just incorporates pure economic determinants both in terms of explanatory power and goodness of fit

credibility and disinflation in the european monetary system analysis of interest differentials in the european monetary system has suggested a widespread lack of credibility of the exchange rate mechanism in the sense that in most countries the implicit expected rate of devaluation was significant and not far short of inflation differentials vis a vis the deutschmark we present and test a model in which prices reflect expectations of exchange rate behaviour the results provide mixed evidence that price setting in countries which participated in the erm was influenced by the exchange rate discipline

political business cycles and macroeconomic credibility a survey there is clear evidence that government popularity and election performance is affected in part by economic performance suggesting that governments may manipulate the economy to political advantage simple models incorporating adaptive expectations which allowed the government to exploit this relationship were developed in the 1970s but fell out of fashion with the advent of new classical economics however modern theories of the political business cycle which are closely related to the macroeconomic policy game literature assume rational expectations and lead to forms of political business cycle driven by the existence of uncertainty of one type or another the international evidence suggests that some aspects of the theories apply although definitive conclusions are as we might expect hard to come by

who wants the euro and why economic explanations of public attitudes towards a single european currency the paper looks at whether public attitudes towards a single european currency held in the european union member states reflect a rational evaluation of the involved benefits and costs it finds that they do the looser monetary and fiscal policy was in the past and the more time a country spent in the ems the more citizens welcome the euro attitudes towards the euro do not seem consistent with attitudes towards a european central bank however upon closer scrutiny opponents of a single currency appear to be less consistent and less rational in their responses than proponents

delegation in a general equilibrium model of customs unions abstract a difference in the objectives of members of a customs union may be a unifying rather than a divisive force if countries outside the union behave strategically one union member may want to delegate to its partner the ability to set the common external tariff we demonstrate these results in the context of a pure exchange general equilibrium trade model we show that if tariffs are strategic substitutes the union country which is relatively less well endowed in the exported good may be willing to delegate to its partner which behaves more aggressively in setting the union s policy the delegation decision is reversed if tariffs are strategic complements the model extends the standard results on the appropriate level of the union policy by adding another dimension that of the optimal decision making agent

exploring different views of exchange rate regime choice the empirical distinction between de facto and de jure exchange rate regimes raises a number of interesting questions which factors may induce a de facto peg why do countries enforce a peg but do not announce it why do countries break their promises we show that a stable socio political environment and an efficient political decision making process are a necessary prerequisite for choosing a peg and sticking to it challenging the view that sees the exchange rate as a commitment device policymakers seem rather concerned with regime sustainability in the face of adverse economic and socio political fundamentals

the effectiveness of monetary policy anchors firm level evidence analyses of monetary policy posit that exchange rate pegs inflation targets and central bank independence can help anchor private sector inflation expec tations yet there are few direct tests of this argument we offer cross national micro level evidence on the effectiveness of monetary anchors in controlling private sector inflation concerns using firm level data from eighty one countries approximately 10 000 firms we find evidence that international anchors exchange rate commit ments correlate significantly with a substantial reduction in private sector concerns about inflation while domestic anchors inflation targeting and central bank inde pendence do not our conjecture is that private sector inflation expectations are more responsive to exchange rate anchors because they are more transparent more con straining and more costly than domestic anchoring arrangements the literature on monetary policy highlights the role of monetary institutions in stabilizing private sector inflation expectations central bank independence cbi inflation targeting it and fixed exchange rates pegs are widely viewed as insti tutions that have the capacity to mitigate private sector concerns that policymak ers will exploit them after they have locked in their price wage and investment decisions while other empirical research explores the institutional correlates of inflation and its variability yielding mixed results we use firm level data in our study to directly assess the impact of monetary anchors on private sector inflation concerns we find evidence that pegs mitigate firm owners concerns with infla tion but that domestic anchors such as it and cbi are uncorrelated with our micro indicators of inflation expectations considerable research has investigated the use of it cbi and pegs as institu tions that establish monetary policy credibility whereas these anchors are expected

credibility and exchange rate management in developing countries abstract the paper discusses the role of credibility factors in the conduct of exchange rate policy in developing countries the analysis is based on a simple framework in which policymakers are concerned about inflation and external competitiveness price setters in the nontradable sector of the economy engage in a strategic game against the authorities the model generates a devaluation bias which undermines the credibility of a fixed exchange rate the role of reputational factors signaling considerations and joining a currency union as possible solutions to this bias is examined

business cycle convergence in emu a first look at the second moment we analyse the dynamics of the standard deviation of demand and supply shocks as well as of the demand component of gdp across countries in the european monetary union emu this analysis allows us to evaluate the patterns of cyclical comovement in emu and compare them the cyclical performance of the new members of the eu and other oecd countries we make use of sigma convergence methods to identify synchronization patterns in business cycles the eurozone has converged to a stable lower level of dispersion across business cycles during the end of the 80s and the beginning of the 90s the new eu members have also experienced a strong pattern of convergence from 1998 to 2005 when a strong divergence trend appears an enlargement of the emu to 22 members would not significantly decrease its optimality as a currency area there is evidence for some europe specific characteristics as compared to global comovements in business cycles authors abstract

importing credibility through exchange rate pegging this paper employs an optimal taxation framework in order to study the credibility of monetary policy making in an open economy since inflation is in part uncontrollable due to stochastic disturbances the authority s actions cannot be monitored perfectly when the exchange rate floats thus implying that reputational forces may become ineffective in contrast pegging the nominal exchange rate to a low inflation currency allows perfect monitoring because the exchange rate is in principle controllable for this reason exchange rate pegging may import credibility and result in the best reputational equilibrium even though the authority retains the discretion to devalue unexpectedly

labour markets and monetary union a strategic analysis this paper shows that the effects of a monetary union depend on several labour market features in particular the switch from national monetary policies to a common monetary policy usually affects both inflation and unemployment even when all structural parameters of the economy and of unions and policymakers preferences remain the same the benchmark case of a monetary union between identical countries suggests that the switch to a monetary union is likely to make labour unions more aggressive increasing unemployment qualifications to this result are provided under alternative institutional scenarios like cross country asymmetries pre union erm membership and wage leadership

seigniorage and the case for national money in countries with high rates of inflation there is typically movement away from the use of the local currency the paper analyzes the costs and benefits of using a local currency with emphasis on the seigniorage foregone by using a foreign money even if it should be desirable for a country to fix its exchange rate it still loses seigniorage if it does not use its own money the case for using a foreign money then turns largely on the superior discipline imposed on domestic policymakers by removing their control over the money supply alternative methods of imposing discipline are discussed estimates of the amount of seigniorage raised by different governments are presented seigniorage amounts in some cases to about 10 percent of government revenue estimates are also presented of both the annual flow and one time stock costs of giving up use of domestic currencies and instead using the dollar the flow cost is typically about 1 percent of gnp and the stock cost is around 10 percent of gnp

systemic conflict and regional monetary integration the case of europe existing explanations of european monetary integration emphasizing economic interdependence issue linkage institutions and domestic politics take a predominantly regional approach in the international monetary thesis developed here i argue that u s policy disturbances transmitted through the international monetary system created compelling incentives for european states to cooperate on exchange rate and monetary policy i develop a general theory of macroeconomic power based on open economy macroeconomics and show how the exercise of such influence can drive regional monetary integration this article then tests the international thesis with reference to monetary integration within the european union by examining four periods in which the united states acted to stabilize the international monetary system and seven episodes in which it disrupted the system european governments and central banks reduced regional monetary cooperation when the united states supported system stability and strengthened it after each episode of disruption the evidence thus strongly supports the inference that the link is causal

loss of monetary discretion in a simple dynamic policy game abstract we analyze a simple policy game featuring monetary credibility problems and argue that loss of monetary discretion is not advantageous two elements form the basis of our analysis firstly we endogenize the source of credibility problems and secondly we consider a dynamic framework where credibility problems are not time invariant by doing this we are able to demonstrate that credibility problems are temporary and in steady state the government has removed these through sound policies a binding policy rule will only serve as an obstacle towards this steady state

the limits of independence and the policy of the ecb it is argued that the european central bank s independence is not as secure as it seems and that as a result it has appreciable institutional incentives to protect and enhance its position it follows that its behaviour should not be understood as being solely determined by the pursuit of price stability one consequence is that certain points on which it has been criticised on the basis that its approach makes for ineffective monetary policy might be better understood as often effective attempts to protect its position another is that making a central bank or any other institution completely independent may be much harder than it seems and failed attempts which come close are not necessarily to be preferred even by the advocates of independence to less ambitious designs

inflationary finance under discrepion and rules inflationary finance involves first the tax on cash balances from expected inflation and second a capital levy from unexpected inflation from the standpoint of minimizing distortions these capital levies are attractive ex post to the policymaker in a full equilibrium two conditions hold 1 the monetary authority optimizes subject to people s expectations mechanisms and 2 people form expectations rationally given their knowledge of the policymaker s objectives the outcomes under discretionary policy are contrasted with those generated under rules in a purely discretionary regime the monetary authority can make no meaningful commitments about the future behavior of money and prices under an enforced rule it becomes possible to make some guarantees hence the links between monetary actions and inflationary expectations can be internalized there is a distinction between fully contingent rules and rules of simple form a simple rule allows the internalization of some connections between policy act ion and inflationary expectations but discretion permits some desirable flexibility of monetary growth this abstract was borrowed from another version of this item

public debt indexation and denomination with an independent central bank abstract this paper examines the interaction between public debt management and the design of monetary institutions the analysis shows that delegation of monetary policy to an independent central bank is more effective in containing inflationary expectations than the use of foreign currency or inflation indexed debt if delegation of monetary policy is viable the optimal policy is to issue nominal debt this increases the sensitivity of taxes and output to unexpected inflation thus minimizing the inflation needed to offset supply shocks evidence on central bank independence debt composition and output variability suggests that the normative argument has some positive content

purchasing power parity under the european monetary system abstract using reduced rank cointegration analysis this study examines whether exchange rate realignments are effective in extenuating the deviations from purchasing power parity ppp under the european monetary system ems in contrast to previous studies more positive evidence for the ppp hypothesis is found the difference in findings can be attributed partly to the statistical technique used the correction of the finite sample bias and the adjustment for realignment effects in general the results of this study support that currency realignments of the ems have been effective in maintaining ppp among its member countries

the role of policymakers reputation in the ems disinflations abstract it is frequently argued that the ems itself in connection with the high anti inflation reputation of the german bundesbank is responsible for the inflation reduction and convergence which member countries have experienced based on the game theoretical model of backus and driffill 1985 american economic review 75 530 538 an empirical measure of the government s reputation for fighting inflation is derived by using a bayesian learning approach time varying estimates of these counterinflation reputation measures are computed for the original ems member countries and for a control group of major non ems countries the paper finds that only the smaller ems participants have gained anti inflation reputation during the ems period

credibility may require discretion not rules abstract we reexamine the common argument that rules produce greater credibility than discretion rules limit the actions of agents restricting observations of the agents preferences or types in a second best world where rules cannot be everlasting a regime of discretion in some periods may produce superior credibility and dominate a regime of rules

living to spend another day exploring resilience as a new fourth goal of ecological economics abstract the three main goals of ecological economic theory seek to predict and prevent system breakdowns however chaos theory and human uncertainty ignorance guarantee that shocks breakdowns and catastrophes like covid 19 will increasingly occur due to converging environmental resource crises the challenge then is designing a resilient safe fail economy that can endure adapt to and successfully recover from breakdowns and avoid collapse to date little attention has been paid in ecological economics to the implications of resilience for broader economic decisions affecting the design of global civilization this paper provides a general introduction to resilience and an argument for why it should become a much larger focus of ecological economic research going forward five arguments are advanced for why resilience should not be subsumed under an existing goal including that efforts to build resilience have the potential to both complement and contradict the other three goals especially efficiency the resilience alliance s adaptive cycle highlighting the cost to resilience of increasing scale and complexity meshes readily with ecological economist s own critiques of growth encouraging increased collaboration between these transdisciplines the need to further study these tensions provides justification for adding resilient design as a distinct fourth policy goal to core ecological economic theory

democracy dictatorship and decision costs this paper tries to help bridge the inductive and the deductive traditions in the study of democracy i identify two empirical patterns which i call the paradox of conflict and the paradox of decision importance more conflict ridden societies are both less likely to be democracies and when democratic more likely to be consensual rather than majoritarian similarly important revolutionary regime transforming decisions are less likely to be democratic but when democratic they are more likely to be consensual i use a decision cost minimizing model of democracy to explain those patterns the model is developed out of the metaphor of institutions as decision producing firms attempting to maximize quality and minimize cost of those decisions its main intellectual source is the transaction cost minimizing view of organizations but the formalism owes most to buchanan and tullock s calculus of consent

exchange rate regimes and inflation only hard pegs make a difference abstract using data from a large sample of developing countries from 1985 to 2001 we confirm that hard pegs currency boards or a shared currency reduce inflation and money growth there is no evidence that soft pegs confer any monetary discipline after other factors are controlled for inflation triggers regime switches under hard pegs monetary growth is unaffected by fiscal deficits or by inflation shocks under soft pegs as under floats increased fiscal deficits and positive inflation shocks are associated with higher monetary growth the apparently slower per capita output growth under hard pegs is explained by their geographical distribution jel classification f41

the advantage of tying one s hands ems discipline and central bank credibility abstract it is often argued that the ems is an effective disciplinary device for inflation prone countries in europe since it forces the respective policy makers to pursue more restrictive monetary policies than they would otherwise it is not clear however why these countries should submit themselves to such discipline this paper argues that to answer this question appropriately one must consider that ems membership brings potentially large credibility gains policy makers in inflation prone countries the reason is that not only it attaches an extra penalty to inflation in terms of real appreciation but makes the public aware that the policy maker is faced with such penalty and thus helps to overcome the inefficiency stemming from the public s mistrust of the authorities

partisan and electoral motivations and the choice of monetary institutions under fully mobile capital central bank independence and pegged exchange rates have each been viewed as solutions to the inflationary bias resulting from the time inconsistency of discretionary monetary policy while it is obvious that a benevolent social planner would opt for such an institutional solution it is less obvious that a real world incumbent facing short term partisan or electoral pressures would do so in this article i model the choice of monetary institutions from the standpoint of a survival maximizing incumbent it turns out that a wide range of survival maximizing incumbents do best by forfeiting control over monetary policy while political pressures do not in general discourage monetary commitments they can influence the choice between fixed exchange rates and central bank independence i highlight the importance of viewing fiscal policy and monetary policy as substitutes and identify the conditions under which survival maximizing incumbents will view fixed exchange rates and central bank independence as substitutes in so doing i provide a framework for integrating other contributions to this volume

exchange rate stabilization in the erm identifying european monetary policy reactions abstract we develop the structural var models for european countries france denmark and germany during the erm period to examine the monetary policy reactions especially the within erm exchange rate stabilization in addition to analyzing the impulse responses and variance decomposition we present the full monetary reaction function in an interpretable manner without introducing additional assumptions the results suggest some asymmetry in exchange rate stabilization non german exchange rate stabilization is stronger than german exchange rate stabilization but do not support the hypothesis that german monetary policy was independent of the erm

to be or not to be in monetary union a synthesis article i nfo monetary union can benefit countries suffering from policy credibility problems if it eliminates the inflation bias and also allows for more efficient management of certain shocks but it also carries costs as some stabilization may be feasible even in the absence of credibility and this may be more than what an individual country can hope for in a monetary union in this paper we combine the stabilization and credibility branches of the currency union literature and construct a simple welfare criterion that can be used to evaluate alternative monetary arrangements we produce examples where monetary union may be welfare improving even for low modest levels of inflation bias 2 3 as long as business cycles are not too a synchronized across countries

transparency reputation and credibility under floating and pegged exchange rates this paper shows that if the cost of importing foreign inflation and real exchange rate shocks are not too high then the equilibrium nominal exchange rate regime for a country with a credibility problem is a peg under which credibility is higher and inflation is lower than under a float this holds true although devaluations of the pegged rate are assumed to be costless the reason is that as realized inflation is not perfectly controllable planned inflation under a float is private information in contrast since the exchange rate can be perfectly controlled pegging resolves the private information problem is more transparent and makes reputation more effective

a quest for the economics of sustainability and the sustainability of economics abstract this paper briefly reviews key insights from natural resource and environmental economics ecological economics and industrial ecology in an effort to identify the major contributions of these fields to the understanding and promotion of sustainable development each is based on overlapping worldviews methods and tools their synthesis and extension subsumed under the rubric of natural economics is suggested as a new thrust in environmental research offering valuable guides to policy making an early illustration of the application of natural economics in new zealand is presented

decentralization and inflation commitment collective action or continuity do political and fiscal decentralization make it easier or harder to control inflation statistical analysis of average annual inflation rates in a panel of 87 countries in the 1970s and 1980s found no clear relationship between decentralization and the level of inflation political decentralization however does appear to reduce change in countries relative inflation rates over time by creating additional veto players federal structure may lock in existing patterns of monetary policy whether inflationary or strict among the mostly developed countries that started with low inflation inflation tended to increase more slowly in federations than in unitary states among the mostly developing countries that started with high inflation inflation tended to increase faster in the federations there is evidence that political decentralization locks in a country s degree of practical central bank independence whether high or low and the relative hardness or softness of budget constraints on subnational governments

eco localism and sustainability abstract economic sustainability is best secured by the creation of local or regional self reliant community economies this is the central argument of eco local economic theory drawing on the experience of local currencies community corporations regional food economies and other locally oriented efforts eco local theory presents a new analysis of the economy of place it focuses on locally symbiotic capital positive externalities of self reliance and negative externalities of long distance trade and its specific concepts and analyses of the economy efficiency and economies of scale and consumption and welfare given its specific values and assumptions it is an economic theory of the social economy that is compatible with but distinct from ecological economics

rational and self fulfilling balance of payments crises speculative attacks on a pegged exchange rate must sometimes occur ifasset price paths are to be free of abnormal profit opportunities suchattacks are fully rational as they reflect the market s response to aregime breakdown that is inevitable the authors shows that under someexpectations about policy balance of payments crises can also be purely self fulfilling events in such cases even a permanently viableregime may collapse and the economy will possess multiple equilibriacorresponding to different subjective assessments of the probability ofa crisis the behavior of the domestic interest rate will naturally reflect the possibility of a speculative attack copyright 1986 by american economic association

can equilibrium models explain nominal exchange regime non neutrality evidence from the european monetary system abstract in a recent paper alan stockman argues that the finding that real exchange rate variability id higher under flexible nominal exchange rate systems than under fixed nominal exchange rate systems typically interpreted as evidencee of price stickiness is consistent with equilibriu models stockman s theory we argue predicts that the formation of the european monetary system should have had no effect on the real exchange rate variability of its members we test this prediction and interpret our findings as evidence in support of stockman s theory although not as evidence that equilibrium models can account for nominal exchange regime non neutrality jel f31

on the imperfect substitutability of policy regimes exchange rate targetting vs policy coordination abstract exchange rate targetting is always an imperfect substitute for explicit policy coordination but succeeds when economies are either structurally dissimilar with symmetric shocks or structurally symmetric with dissimilar shocks a joint commitment then generates economies of scale in interventions

on democracy and debt as we explained there is really little a priori reasoning for a clear prediction that authoritarian regimes will incur more foreign debt in fact some other empirical literature reveals that such regimes will face a higher supply price for such debt anderson presents a study of a single year using an admittedly crude measure of authoritarianism that finds that such regimes do issue more debt

in search of optimum relative unanimity this paper formulates a simple mathematical framework for the selection of an optimum relative unanimity collective decision rule the approach is first to identify the benefits of moving from a rule of simple majority towards a rule of full unanimity then the costs of moving from simple majority rule towards unanimity are identified finally the issue of an optimal decision rule is mathematically solved

political systems and distortions an empirical study this paper studies empirically why price distortions are more prevalent in some countries than in others we find no significant difference between democracies and dictatorships but frequent regime changes reduce distortions political systems factional subordinate that encourage redistributive activities rda tend to have more distortions allowing for different effects of rda in democracies and dictatorships there is a positive and significant effect of rda on distortions in dictatorships in democracies distortions destroying lobbying seems more important since no significant relation between rda and distortions can be found

asymmetric monetary policy effects in emu this paper develops a semi structural modelling approach to study asymmetric monetary transmission in europe a system of dynamic equations containing reaction functions for monetary policy as well as output gap and inflation equations is simultaneously estimated for france germany and italy we find asymmetries on the demand side in the strength of interest rate transmission and on the supply side in the effects of the output gap on inflation the responses are similar in germany and italy and generally stronger than in france out of sample tests do not find a structural break in the transmission mechanisms prior to the establishment of the european monetary union

a long run view of the european monetary system abstract this papaer analyzes the exchange rates and consumer price indices of six countries participating in the european monetary system ems during the entire period of floating exchange rates the analysis shows that most of these real exchange rates have unit roots even when one allows for the possibility of a structural break at the time of the advent of the ems further proces and exchange rates are not co integrated during the ems period the data suggest that the 12 realignments of the ems have not served fully too offset the member countries inflation differentials

fixed versus flexible exchange rates which provides more fiscal discipline abstract conventional wisdom holds that fixed rates provide more fiscal discipline than do flexible rates in this paper we show that this wisdom need not hold in a standard model in which fiscal policy is endogenously determined by a maximizing fiscal authority the claim that fixed rates induce more discipline stresses that sustained adoption of lax fiscal policies must eventually lead to an exhaustion of reserves and thus to a politically costly collapse of the peg hence under fixed rates bad behavior today leads to punishment tomorrow under flexible rates bad behavior has costs as well the difference is in the intertemporal distribution of these costs flexible rates allow the effects of unsound fiscal policies to manifest themselves immediately through movements in the exchange rate hence bad behavior today leads to punishment today if fiscal authorities are impatient flexible rates by forcing the costs to be paid up front provide more fiscal discipline and higher welfare for the representative private agent the recent experience of sub saharan countries supplies evidence that matches the predictions of the model

a long run view of german dominance and the degree of policy convergence in the ems i introduction when the european monetary system ems was established in march 1979 the member countries agreed to gradually move to a european monetary union emu at the maastricht summit on december 9 10 1991 the member nations signed an agreement outlining the requirements and a timetable for monetary union building upon the framework specified in the 1989 delors report the maastricht agreement outlines a three stage transition to a common european monetary policy 1 the achievement of a high degree of monetary policy convergence among the member countries is crucial if a common monetary policy is to be initiated the ems already provides a framework in which monetary policy actions can be coordinated but have member nations actually coordinated their actions or have they conducted independent policies some have claimed that the bundesbank has dominated monetary policy in the ems one explanation is that by tying domestic monetary policy to that of germany other countries policymakers enhance their own credibility for instance giavazzi and pagano 1988 have argued that because the bundesbank is known to follow a consistent credible anti inflation policy tying policy to that of germany should enhance one s reputation a natural question to ask therefore is to what degree have monetary policies in the ems converged to that conducted by germany a finding of complete convergence among ems monetary policies would imply that the member countries have converged to one common monetary policy in studies examining the credibility hypothesis which clearly is linked to the notion of monetary policy convergence fratianni and von hagen 1990c and burdekin westbrook and willett 1993 rejected this hypothesis 2 to consider the prospects for the success of emu one must know whether and to what degree there has been a transmission of policy actions within the ems the question of whether germany has set the direction of monetary policy for the ems is a natural focus and has been the subject of recent study fratianni and von hagen 1990a 1990b 1990c von hagen and fratianni 1990 and kutan 1991 1992 all reject the hypothesis that german monetary policy actions dominate the monetary policy decisions of other ems countries 3 while germany is found to be an important player in setting monetary policy its actions are not independent of other members in contrast to this conclusion karfakis and moschos 1990 and macdonald and taylor 1991 argue that non german ems members policies are related closely to german policy changes and that german policy actions do not respond to those taken by the central banks of other ems countries this study tests for policy convergence among ems countries within a long run framework using cointegration procedures using both short term interest rates and the monetary base as measures of monetary policy our aim is to determine the number of shared common stochastic trends among ems monetary policies and test whether a complete convergence of policies has been achieved in the ems rejection of complete convergence a finding of two or more shared common trends indicates that some countries policies are set independently at least in the long run if this is true then the notion that the bundesbank dominates ems policy is rejected such a result also suggests that any credibility gain from tying policy to that of germany is probably outweighed by other considerations such as domestic growth or international competitiveness looking ahead our results indicate that ems monetary policies have not converged we also investigate the short run connection among policy measures using a longer sample than in previous work our results from this analysis indicate that while german policy actions influence monetary policy in other ems countries in the short run there is substantial policy interaction among ems members the format of the paper is as follows section ii discusses some methodological issues concerning the use of interest rates and the monetary base as indicators of policy actions

fiscal rules and government borrowing costs international evidence we find that the adoption of numerical fiscal rules reduces government borrowing costs in a sample of 101 advanced and developing countries for 1985 2010 we apply a variety of propensity score matching methods to address the self selection problem of policy adoption and find strong evidence that fiscal rules have large and significant treatment effects on lowering government borrowing costs in both international and domestic financial markets the results are robust to changes in country sample and alternative estimation methodology and are consistent with fiscal rules helping to build policy credibility by reducing the probability of default and the risk premium on government debt that compensates lenders for this possibility jel e43 g12 h60

open economy macroeconomics developments in theory and policy this paper views developments in open economy macroeconomics through the lens of the debate over european monetary unification the empirical tendency for nominal exchange rate regimes to affect the variability of nominal and real exchange rates alike can be rationalized by sticky price theories or models of asset market liquidity effects but plausible liquidity models have difficulty generating enough persistence to match the data thus the macroeconomic stabilization costs of forgoing the exchange rate realignment option seem pertinent it is argued that our theories of efficiencies due to a common currency remain unsatisfactory despite recent advances the paper concludes by reviewing theories of currency crisis

fiscal discipline and the choice of exchange rate regime conventional wisdom claims that fixed exchange rates provide more fiscal discipline than do flexible rates but the recent experiences in europe the record of sub saharan countries in the 1980s and the history of stabilization attempts in latin america cast empirical doubts on this wisdom to explore this puzzle we present a standard intertemporal model with perfect capital mobility and price flexibility in which fiscal policy is endogenously determined by a maximizing fiscal authority

fewer monies better monies in the aftermath of emerging market crises from russia to asia and latin america there is a quest for better monetary arrangements that are more crisis proof fixed rates are out flexible rates are in with a policy focus on inflation targeting but there is of course the alternative of abolishing exchange rates all together this paper revisits the issue of dollarization or currency boards to review what arguments in the debate stand up the case for flexible exchange rates emphasizes the need for a tool to accomplish relative price adjustment this paper argues that in an intertemporal perspective most shocks require financing in the capital market rather than adjustment moreover countries frequently do not use their flexible rate to play a cyclical role and as a result only a pay a premium for the option to depreciate but do not take advantage of the flexibility on the contrary they engineer systematic overvaluation in the context of inflation targeting