analyzing nutritional impacts of policies an empirical study for malawi summary widespread malnutrition in developing countries calls for appropriate strategies presupposing good knowledge about nutritional impacts of policies little previous work has been carried out in this direction especially with respect to micronutrients we use representative household data from malawi and develop a demand systems approach to estimate income and price elasticities of food demand and nutrient consumption these estimates are applied for policy simulations given multiple nutritional deficiencies income related policies are better suited than price policies to improve nutrition while consumer price subsidies for maize improve calorie and mineral consumption they can worsen vitamin consumption in urban areas

the economics of iron deficiency abstract this paper examines the evidence for a causal relationship between iron deficiency and a variety of functional consequences with economic implications motor and mental impairment in children and low work productivity in adults to the extent that we can be confident that iron deficiency does cause a consequence with economic implications this effect is quantified in economic terms illustrative calculations for 10 developing countries suggest that the median value of annual physical productivity losses due to iron deficiency is around 2 32 per capita or 0 57 of gdp median total losses physical and cognitive combined are 16 78 per capita 4 05 of gdp using a cost of 1 33 per case of anemia prevented from one of the few effectiveness studies of national fortification allows us to calculate the benefit cost ratio for long term iron fortification programs the median value is 6 1 for the 10 countries examined and rises to 36 1 including the discounted future benefits attributable to cognitive improvements this paper improves on previous work by including a much more thorough survey of the quantitative magnitudes involved and by incorporating effects of iron deficiency on cognition however more research is needed to verify the accuracy of the assumptions needed for this type of analysis

state dependent pricing invoicing currency and exchange rate pass through abstract we analyze exchange rate pass through and volatility of import prices in a dynamic framework where firms are subject to menu costs and decide on price adjustments in response to exchange rate innovations the exchange rate pass through and import price volatility then depend on the invoicing currency in combination with functional forms of cost and demand functions in particular there is lower pass through less frequent price adjustments and lower price volatility when prices are set in the importer s currency than when prices are set in the exporter s currency

twin dollarization and exchange rate policy abstract this paper develops a small open economy general equilibrium model with nominal rigidities to study twin dollarization in east asian economies a phenomenon where firms borrow in us dollars and also set export prices in us dollars in this model we endogenize both the currency of liability denomination and the currency of export pricing we show that a key factor that affects firms dollarization decisions is exchange rate policy twin dollarization is an optimal strategy for all firms when exchange rate flexibility is limited which implies that a fixed exchange rate regime may lead to an equilibrium with twin dollarization furthermore we find that twin dollarization can reduce the welfare loss caused by the fixed exchange rate regime as it helps to cushion the economy against domestic nominal risk

network effects homogeneous goods and international currency choice new evidence on oil markets from an older era conventional wisdom has it that network effects are strong in markets for homogenous goods leading to the dominance of one settlement currency in such markets the dominance of the us dollar in global oil markets is said to epitomize this phenomenon we question this presumption with evidence for earlier periods showing that several national currencies have simultaneously played substantial roles in global oil markets european oil import payments before and after world war ii were split between the dollar and non dollar currencies mainly sterling differences in use of the dollar across countries were associated with trade linkages with the united states and the size of the importing country that several national currencies could simultaneously play a role in international oil settlements suggests that a shift from the current dollar based system toward a multipolar system in the period ahead is not impossible

hedging against commodity price inflation stocks and bills as substitutes for futures contracts this study is concerned with the influence of changes in commodity prices on security prices the study is motivated by the observation that stochastic changes in commodity prices represent a risk to each consumer investor and that attempts to deal with these risks may be reflected in the demand for securities and ultimately in their prices and rates of return if security rates of return do reflect information regarding relative price change risk it should be possible to extract that information from the price and returns history of the securities following this reasoning we attempt to form portfolios of stocks and u s treasury bills that hedge against price changes of various commodities this approach differs from previous studies on hedging because we attempt to hedge against price changes in individual commodities not macro aggregates our empirical results however indicate that the history of stock and bill returns contains very little information regarding relative price changes so that our attempts to hedge against commodity price

the arbitrage pricing model and returns on assets under uncertain inflation the impact of inflation on equilibrium returns in capital markets has been the subject of several articles in recent years chen and boness 1 friend landskroner and losq 4 long 7 and roll 13 have all constructed general equilibrium models which incorporate the impact of uncertain inflation on returns all of these authors have derived models in a mean variance world utilizing methodologies similar to that first utilized by mossin 9 or merton 8 the basic underlying tenet of mean variance analysis is that for any given level of expected return investors wish to minimize the variance of return in mean variance equilibrium models the only risk that cannot be diversified away is the covariance of an asset s return with the market return assets which have the same covariance with the market have the same equilibrium required return thus in a mean variance world if each member of the following pairs of assets had the same covariance with the market each member would have the same expected return a a stock which was a perfect hedge against inflation versus one which was not b a stock which was a perfect hedge against oil price changes versus one which was not c a security that hedged against interest rate changes versus one which did not in this article we break out of the limitations of the mean variance assumptions by utilizing the arbitrage pricing theory apt of ross 15 16 17 this

exchange rate pass through in south africa panel evidence from individual goods and services abstract this study estimates pass through for south africa using samples of final goods and services and homogenous imports estimated pass through to consumer goods prices is low roughly 16 per cent in the two years following an exchange rate change surprisingly it is somewhat higher for services deviations from long run ppp appear to disappear relatively quickly with a half life of about 16 months for imports pass through estimates are much higher averaging around 60 per cent but with wide source country variation finally there is virtually no support for a simple linear trend change in either pass through or in reversion to ppp during the sample

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

three questions about sunspot equilibria as an explanation of economic fluctuations it is by now well known that the sort of difference equations that characterize the equilibrium conditions of an infinite horizon competitive economy may have solutions in which the endogenous variables fluctuate in response to sunspot variables that is to random events that in fact have nothing to do with economic fundamentals and so do not directly affect the equilibrium conditions it is possible to view such sunspot equilibria as a representation of an actual phenomenon economic fluctuations not caused by exogenous shocks to fundamentals but rather by revisions of agents expectations in response to some event which revised expectations become self fulfilling early discussions of such solutions sometimes suggested that a more rigorous derivation of the requirements for equilibrium might yield additional restrictions that would eliminate the sunspot solutions from the set of true equilibria the demonstration by karl shell 1977 david cass 1981 and costas azariadis 1981 that sunspot equilibria can exist in a rigorously formulated intertemporal equilibrium model namely the overlapping generations model of samuelson has shown that this is not always the case nevertheless many economists remain skeptical about the reasonableness of the sunspot hypothesis as a possible explanation of actual economic fluctuations and for quite general reasons independent of judgments about the empirical plausibility of any particular models i discuss here three such general reasons for skepticism

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

a triangular purchasing power parity hypothesis we propose a triangular purchasing power parity ppp analytical framework which is theoretically justified and empirically validated the mechanisms and channels through which a seemingly mystery relationship emerges are deliberated and examined which renders significant implications to international monetary economics finance and business the de facto peg of the rmb to the us dollar together with trade activities and arrangements causes a triangular ppp effect that the dollar euro exchange rate is not a function of the relative prices in the us and euroland instead it becomes a function of the relative prices in the people s republic of china prc and euroland the results are supportive of triangular ppp in a three economy world of the us euroland and prc

an empirical analysis of the renminbi exchange rates and cross border trade settlement we introduce a gravity model to the currency choice for cross border trade settlement and the heckman selection model to estimate the impact of the exchange rate on the cross border trade settlement of the renminbi rmb we analyse bilateral exchange rates using panel data of china and 182 rmb settlement countries or areas from 2009 to 2014 we find that regardless the choice stage or scale stage of rmb cross border trade settlement the appreciation of the rmb does not necessarily promote rmb cross border trade settlement this result holds when we take geographic differences into account and split the settlement of cross border trade into merchandise and service trade we further investigate the channels through which exchange rate influences the cross border trade settlement of rmb and we find that the appreciation of rmb impedes enterprises from choosing rmb as their settlement currency by reducing the scale of export to rmb settlement areas whereas it speeds up rmb cross border trade settlement by increasing the scale of china s import from rmb settlement areas we find that china s economic strength supports the development of rmb cross border trade settlement however the geographical distance between china and the rmb settlement areas may inhibit cross border trade settlement in rmb

common stocks as hedges against shifts in the consumption or investment opportunity set the purpose of this paper is to explore the potential of using common stocks as hedges against unanticipated shifts over time in investors consumption or investment opportunity sets the generalized or multiperiod capital asset pricing model capm developed in different forms by merton 1973 long 1974 richard 1977 and breeden 1979 forms the basis for this exploration in this model shifts in investors consumption or investment opportunity sets are caused by changes in the stochastic elements of the state of the world that affect investor taste for wealth the state of the world is defined in terms of the level of state variables so that unanticipated changes in the levels of the state variables imply or are associated with changes in the state of the world the analysis of this paper does not constitute a test of the generalized capm because hedging potential is a necessary but not sufficient condition for the generalized capm to improve upon the traditional two factor model the existence of hedging potential is of interest in itself howthis paper contains an investigation of the potential for using nyse stocks as hedges against changes in the consumptioninvestment opportunity set we perform this investigation under two characterizations of a multiperiod or generalized capital asset pricing model we find sufficient crosssectional dispersion in common stock return covariances with unanticipated changes in real gnp the price level and aggregate consumption that hedge portfolios offer meaningful hedging potential in the portfolioformation period the positive hedging potential persists out of the portfolio formation period but is strongly significant only for consumption

a model of relative national price levels under pricing to market abstract this paper proposes an alternative to the balassa samuelson theory of how relative price levels between countries are determined the theory is a general equilibrium formulation of a model where pricing to market arises endogenously from firm decisions it differs from balassa samuelson in that it centers on the distinction between segmented national goods markets rather than the distinction between traded and nontraded goods the paper also explores how balassa samuelson might be updated by combining it together with pricing to market elements applied to the case of a monetary union the theory offers an alternative explanation for the inflation differentials observed in emu it implies that such differentials may be a natural and enduring feature of a monetary union in which markets for goods and labor are less than fully integrated

toward a theory of international currency we use the framework of random matching games and develop a two country model of the world economy in which two national currencies compete and may be circulated as media of exchange there are multiple equilibria which differ in the areas of circulation of the two currencies in one equilibrium the two national currencies are circulated only locally in another one currency is circulated as an international currency there is also an equilibrium in which both currencies are accepted internationally we also find an equilibrium in which the two currencies are directly exchanged we first characterize the existence conditions of these equilibria in terms of the relative country size and the degree of economic integration and then use an evolutionary approach to equilibrium selection to explain the evolution of the international currency as the two economies become more integrated some welfare implications are also discussed for example a country can improve its national welfare by letting its own currency circulate internationally provided the domestic circulation is controlled for when the total supply is fixed however a resulting currency shortage may reduce the national welfare

nutrient consumption and household income in rural mexico we estimate the income elasticity for a variety of macro and micronutrients using a sample of poor rural households in mexico the nutrientincome elasticity is estimated using both parametric and semiparametric methods a special focus is placed on the nonlinearity of the relationship between nutrient intake and income and on measurement error and endogeneity issues one major finding is that income elasticity for calories is close to zero when we control for measurement error issues for some nutrients namely fats vitamin a and c calcium and heme iron we find a sizeable positive income elasticity robust to the choice of the estimator and percentiles at which it is evaluated these nutrients are also those for which we find the largest deficiency in our sample in addition we find that for the poorest households in our sample the deficiency of total energy protein and zinc is not accompanied by a positive income elasticity

exchange rate pass through and inflation a nonlinear time series analysis abstract this paper investigates the relationship between the exchange rate pass through erpt and inflation by estimating a nonlinear time series model based on a simple theoretical model of erpt determination we show that the dynamics of erpt can be well approximated by a class of smooth transition autoregressive star models using the past inflation rate as a transition variable we employ several u shaped transition functions in the estimation of the time varying erpt to us domestic prices the estimation result suggests that declines in the erpt during the 1980s and 1990s are associated with lowered inflation

exchange rate pass through at the product level we use a detailed database to investigate exchange rate pass through at the product level for a large number of countries the empirical analysis suggests that pricing behaviours are dichotomous with complete pass through in around 25 of sectors and significant pricing to market in the remaining ones average long run pass through coef ficient is close to 80 this result hides a strong heterogeneity of pass through behaviours across sectors even when composition effects are controlled for average pass through varies across importing countries the econometric analysis shows that pass through tends to be higher in volatile environments in less developed countries in weakly integrated markets jel classification f12 f31 f41

economics of biofortification micronutrient malnutrition affects billions of people world wide causing serious health problems different micronutrient interventions are currently being used but their overall coverage is relatively limited biofortification that is breeding staple food crops for higher micronutrient contents has been proposed as a new agriculture based approach yet as biofortified crops are still under development relatively little is known about their economic impacts and wider ramifications in this article the main factors that will influence their future success are discussed and a methodology for economic impact assessment is presented combining agricultural nutrition and health aspects ex ante studies from india and other developing countries suggest that biofortified crops can reduce the problem of micronutrient malnutrition in a cost effective way when they are targeted to specific situations projected social returns on research investments are high and competitive with productivity enhancing agricultural technologies these promising results notwithstanding biofortification should be seen as a complement rather than a substitute for existing micronutrient interventions since the magnitude and complexity of the problem necessitate a multiplicity of approaches further research is needed to corroborate these findings and to address certain issues still unresolved at this stage

measuring the intensity of competition in export markets abstract this paper develops an approach to measuring the intensity of competition in international markets using readily available data on destination specific values and quantities of exports at the seven digit industry level the intensity of competition a group of exporters faces in a particular export market is measured by the residual demand elasticity the group faces this elasticity is identified by exchange rate shocks which rotate the supply relation of the source country export group relative to competitors located in other countries we apply this method to german exports of beer and us exports of linerboard paper the resulting estimates of market power appear to be plausible and consistent with other indicators of competition e g market shares the number of competitors providing support for the applicability of our framework in measuring competition in international markets

partial multidimensional inequality orderings abstract the paper investigates how comparisons of multivariate inequality can be made robust to varying the intensity of focus on the share of the population that are more relatively deprived it is in the spirit of sen 1970 s partial orderings and follows the dominance approach to making inequality comparisons by focusing on those below a multidimensional inequality frontier we are able to reconcile the literature on multivariate relative poverty and multivariate inequality some existing approaches to multivariate inequality actually reduce the distributional analysis to a univariate problem either by using a utility function first to aggregate an individual s multiple dimensions of well being or by applying a univariate inequality analysis to each dimension independently one of our innovations is that unlike previous approaches the distribution of relative well being in one dimension is allowed to affect how other dimensions influence overall inequality our methods are also robust to choices of individual utility or aggregation functions we apply our approach to data from india and mexico to show inter alia how dependence between dimensions of well being can influence relative poverty and inequality comparisons between two populations

hyteresis in import prices the beachhead effect this paper shows that temporary real exchange rate fluctuations can have persistent hysteretic effects on trade specifically when market entry costs are sunk sufficiently large exchange rate shocks alter domestic market structure and thereby induce hysteresis this simple result has strong implications for exchange rate theory t rade policy and estimation of trade equations empirical evidence su ggests that the recent dollar overvaluation induced hysteresis in u s import prices namely the aggregate pass through equation of exchange rates to import prices shifted in the 1980s the shift s nature and timing is broadly consistent with the hysteresis hypothesis copyright 1988 by american economic association

invoicing currency in international trade an empirical investigation and some implications for the renminbi to play the role of a unit of account an international currency must be a currency widely used to invoice international trade this paper investigates the determinants of the use of currencies in trade invoicing and evaluates the potential of the renminbi for the denomination of cross border transactions in the asia pacific region in particular we develop a simple model and establish the evidence showing that there is a convex relationship between the invoicing share of a currency and the economic size of its issuing country because of a coalescing effect and thick market externalities we use the ratio of the foreign exchange fx turnover share of a currency to the global gdp share of its issuing country as a proxy for the size of thick market externalities which we argue reflects capital account openness financial development and exchange rate stability of the country this ratio is very small for the renminbi compared with the ratios for established international currencies our quantitative analysis suggests that the renminbi can be a major invoicing currency in the region only if china sufficiently opens up its capital account and liberalises its financial sector we also draw a parallel between the renminbi and the euro and forecast the invoicing share of the renminbi in the asia pacific region if the renminbi market attained the same degree of thickness as the euro

imported inputs and invoicing currency choice theory and evidence from uk transaction data a significant proportion of international trade is in intermediate goods this paper considers theoretically and empirically how exporters dependence on imported inputs affects their choice of invoicing currency the model predicts that exporters that depend more on foreign currency denominated inputs are less likely to price in their home currency i test this and other theoretical results using a novel dataset that covers uk trade transactions with non eu countries i find considerable support for the model s predictions a 10 percentage point higher share of foreign currency denominated inputs is associated with a 20 percentage point higher probability of pricing in the same foreign currency relative to the producer s currency

pricing of exports and exchange rate uncertainty this paper examines the implications of different pricing cum invoicing strategies available to an exporting firm that sells its product in domestic and foreign markets when the exchange rate is uncertain the firms decisions are made sequentially throughout the decision making process the firm receives new information about the distribution of the random exchange rate the information arrives after output decisions have been made but before setting prices and allocating sales the authors state conditions that lead to the dominance of invoicing exports in the importer s currency over the alternative invoicing strategies copyright 1991 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

commodity contracts and common stocks as hedges against relative consumer price risk evidence provided here suggests that investors could have identified ex ante portfolios that hedge against uncertainty in the prices of three major categories of consumption food shelter and transportation this finding has implications for the practical impor tance of multi period capital asset pricing theories that assume investors can identify such hedge portfolios the study also provides some surprising evidence about the usefulness of common stocks and commodity futures contracts in hedging against specific price infla tion certain combinations of common stocks serve as effective hedges but combinations of commodity futures contracts contribute nothing to hedging ability

pass through of exchange rates and purchasing power parity abstract in this paper we develop and test two hypotheses about purchasing power parity ppp the first is that changes in the price of traded goods relative to domestic substitutes will affect the ppp relation due to the partial pass through of exchange rates the second is that ppp should hold on forward rather than spot exchange rates due to hedging by firms which implies that the interest rate differential should enter the ppp relation for spot rates using quarterly data for several countries we find support for both these hypotheses though the magnitude of the interest rate effect is very small

the evolution of price dispersion in the european car market car prices in europe are characterized by large and persistent differences across countries the purpose of this paper is to document and explain this price dispersion using a panel data set extending from 1980 to 1993 we first demonstrate two main facts concerning car prices in europe i the existence of significant differences in quality adjusted prices across countries with italy and the u k systematically representing the most expensive markets 2 substantial year to year volatility that is to a large extent accounted for by exchange rate fluctuations and the incomplete response of local currency prices to these fluctuations these facts are analysed within the framework of a multiproduct oligopoly model with product differentiation the model identifies three potential sources for the international price differences price elasticities generating differences in markups costs and import quota constraints local currency price stability can be attributed either to the presence of a local component in marginal costs or to markup adjustment that is correlated with exchange rate volatility the latter requires that the perceived elasticity of demand is increasing in price we find that the primary reason for the higher prices in italy is the existence of a strong bias for domestic brancs that generates high markups for the domestic firm fiat in the u k higher prices are mainly attributed to better equipped cars and or differences in the dealer discount practices the import quota constraints are found to have a significant impact on japanese car prices in italy france and the u k with respect to local currency price stability a large percentage of the documented price inertia can be attributed to local costs and a smaller fraction to markup adjustment that is indicative of price discrimination based on these results we conjecture that the emu will substantially reduce the year to year volatility observed in the car price data but without further measures to increase european integration it will not completely eliminate existing cross country price differences

unanticipated inflation and the value of the firm abstract evidence presented here indicates that the relationship between stock returns and unexpected inflation differs systematically across firms the differences are shown to be consistent with cross sectional variation in firms nominal contracts monetary claims and depreciation tax shields the differences are also partially explained by proxies for underlying firm characteristics that could create interaction between unexpected inflation and operating profitability finally much if not most of the differences appear to arise because unexpected inflation is correlated with changes in expected aggregate real activity the effects of which tend to vary across firms according to their systematic risk

price discrimination and markups in export markets abstract imperfect competition in international markets is one of the key explanations for why prices of similar goods might differ among destination countries this paper develops an empirical model to examine the presence of price discrimination stemming from imperfect competition in the international market for a country s exports the model is used to examine the export behavior of taiwanese exporters of footwear the generalized supply relation allows identification of deviations from competitive pricing in each export market in addition the model provides insights into the extent of exchange rate pass through finally the model is modified in order to estimate the effect of the voluntary export restraint imposed in the u s on footwear imports from taiwan

explaining the exchange rate pass through in different prices abstract this paper examines the performance of a variety of new open economy macroeconomic models in explaining the exchange rate pass through in a wide range of prices quantitative versions of different models are used to derive the dynamic response of various prices to an exchange rate shock predicted responses are compared with the evidence based on var models to examine how well different models fit the data the results show that the best fitting model incorporates a number of features highlighted by different strands of the literature sticky prices sticky wages distribution costs and a combination of local lcp and producer currency pricing pcp

the relevance of standard estimates of rates of return to schooling for education policy a critical assessment abstract this paper examines the accuracy and usefulness of estimated rates of return to schooling based on the standard human capital model of becker and mincer regarding accuracy it investigates whether failure to account for differences in ability and school quality lead to significant biases estimates using ghanaian data confirm this possibility even when accurate estimated rates of return to additional years of schooling may have limited policy implications more useful for governments are rates of return to investments in school quality the paper uses data on cognitive skills to estimate rates of return to three types of school quality improvements

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

exchange rate pass through when market share matters the authors investigate the pass through from exchange rates to import prices when firms future demands depend on their current market shares they show that profit maximizing foreign firms may either raise or lower their dollar export prices when the dollar appreciates temporarily i e the pass through may be perverse and that current import prices may be more sensitive to expected future exchange rates than to current exchange rates they present evidence that suggests the behavior of expected future exchange rates may provide a clue to the puzzling recent behavior of u s import prices copyright 1989 by american economic association

effects of a mandatory local currency pricing law on the exchange rate pass through abstract this paper discusses whether law 28300 of 2004 that required peruvian firms to express their prices in peru s currency in a context of high price dollarization affected the exchange rate pass through erpt we hypothesize that the enactment of the law introduced menu costs for firms that used to set their prices in dollars prompting several of them to make a permanent switch to pricing in local currency using disaggregated consumer price index cpi data we find that following passage of the law the erpt was completely offset for non durable goods with dollarized prices and partially offset for durable goods with dollarized prices these effects may vary due to differences in imported component shares market power and markup pricing

goods prices and exchange rates what have we learned import prices typically change by a smaller proportion than the exchange rate between the exporting and importing country recent research indicates that common currency relative prices for similar goods exported to different markets are highly correlated with exchange rates between those markets this evidence suggests that incomplete pass through is a consequence of third degree price discrimination while distance matters for market segmentation borders have independent effects the source of the border effect has not been clearly identified furthermore there is little evidence yet to suggest substantial market power is implied by the observed price discrimination

micro macro and strategic forces in international trade invoicing synthesis and novel patterns abstract the currency used in invoicing international trade matters for the impact of exchange rate movements in the presence of price rigidities we present stylized facts on specific macro micro and other drivers of invoicing based on 45 million canadian import transactions four main results emerge first a large share of invoicing takes place in vehicle currencies that are neither the exporters nor the importers second we document a novel link between the size of individual transactions and invoicing both the absolute value of a transaction and its relative size at the industry level matter third the exchange rate plays an important role along three dimensions exchange rate volatility exchange rate regime and currency transaction volumes in foreign exchange markets finally we confirm the role of the market share of an exporting country at the industry level our results identify the most salient patterns in order to guide further developments in theoretical models of invoicing currency choice

import prices and invoice currency evidence from chile abstract we use transaction level customs data to document that a large majority of chilean imports are invoiced in dollars regardless of country of origin and sector we study the implications of this fact for the determination of exchange rate pass through erpt to border prices we find that the special role of the dollar in international trade has real effects but bilateral exchange rates with respect to exporter currencies also matter in the medium term in particular exchange rate fluctuations against the dollar account for most of the erpt in the short run and are still relevant after two years however the cumulative erpt with respect to the exporter country s currency increases with time and after two years accounts for most of the erpt to border prices

a comparison of inflation forecasts interest rate models provide slightly better monthly forecasts and substantially better eight and fourteen month forecasts of inflation than a univariate time series model the livingston surveys underestimate eight and fourteen month inflation rates especially during the high inflation period of 1978 81 in contrast eight and fourteen month inflation forecasts extrapolated from one month interest rates show little bias and track ex post eight and fourteen month inflation rates better than the survey forecasts

pricing to market currency invoicing and exchange rate pass through to producer prices abstract in this paper we examine producer prices to shed light on a number of outstanding issues in the understanding of price adjustment in the face of fluctuating exchange rates first we provide results that link two closely related literatures on firm characteristics and exchange rate pass through and currency of invoicing and pass through we show that there is significant within and across industry heterogeneity in the currency of invoice of exports of canadian goods to the u s and further in the degree of pass through to producer prices next we exploit the fact that we observe firms that sell the same good to both the domestic and export markets often in different currencies to difference out the common marginal cost component of the prices this allows us to relate markups to exchange rate movements and we find evidence that pricing to market is most prominent when firms are setting export prices in u s dollars

international dimensions of optimal monetary policy abstract this paper provides a baseline general equilibrium model of optimal monetary policy among interdependent economies with monopolistic firms and nominal rigidities an inward looking policy of domestic price stabilization is not optimal when firms markups are exposed to currency fluctuations such a policy raises exchange rate volatility leading foreign exporters to charge higher prices vis a vis increased uncertainty in the export market as higher import prices reduce the purchasing power of domestic consumers optimal monetary rules trade off a larger domestic output gap against lower consumer prices optimal rules in a world nash equilibrium lead to less exchange rate volatility relative to both inward looking rules and discretionary policies even when the latter do not suffer from any inflationary or deflationary bias gains from international monetary cooperation are related in a non monotonic way to the degree of exchange rate pass through

does exchange rate stability increase trade and welfare we develop a simple general equilibrium framework to study the effect of the exchange rate system on trade and welfare an important feature of the model is deviations from purchasing power parity caused by rigid price setting in buyers currency we find the following first exchange rate stability is not necessarily associated with more trade in a simple benchmark model with separable preferences and only monetary shocks trade is unaffected by the exchange rate system consistent with most evidence second both trade and welfare can be higher under either exchange rate system depending on preferences and on the monetary policy rules followed under each system finally in general there is no one to one relationship between the levels of trade and welfare across exchange rate systems

the use of market data and accounting data in hedging against consumer price inflation this paper examines the use of alternative information sets in the construction of inflation hedge portfolios the study is motivated by consideration of the investor s problem in a multiperiod world several authors e g merton 1973 and breeden 1979 have shown that in a multiperiod setting optimal investment behavior will in general involve holding portfolios that can be used to hedge against changes in certain relevant states of nature one potentially relevant state of nature is the rate of inflation in general prices jones 1982 and elton gruber and rentzler 1983 in contrast to prior related research the empirical results indicate that it is possible to construct inflation hedge portfolios successfully if certain accounting information is used however portfolios constructed on the basis of historical security price information do not serve as effective hedges one contribution of this paper is to demonstrate the potential usefulness of accounting information to a price taking investor although financial statements play an important role in the setting of equilibrium

in which currency should exporters set their prices this paper studies the choice of price setting currency for an exporter faced with the choice of setting price in his own in the importers or a third currency under exchange rate uncertainty we establish that sufficient conditions on demand and cost functions for exchange rate pass through to be less than unity under certainty are also sufficient conditions for price setting in the importer s currency to yield the highest expected profit under exchange rate uncertainty under the same conditions on demand and cost functions setting price in the importer s currency maximizes expected utility when risk aversion and forward currency markets are introduced

earnings schooling ability and cognitive skills conventional estimates now available for a large number of countries generally indicate that the social returns to education are positive large and competitive with returns to investment in physical capital that such estimates are good guides for public resource allocation has however been questioned the heart of the problem lies in the interpretation of the positive relationship between the education and the earnings of workers whether as the conventional estimates assume the coefficient of the education variable in the earnings function measures the effect on the productivity of workers of human capital acquired in school it has been hypothesized that education in part or instead represents screening for native ability and motivation or credentialism and that as a consequence conventional measures of the social benefit of education are substantially upward biased 2 in this paper we attempt to distinguish the influence on earnings of cognitive achievement native ability and years of education as a means of adjudicating the human capital screening and credentialist hypotheses our econometric analysis is based on two rigorously comparable micro data sets from kenya and tanzania generated by surveys of the urban wage labor force specifically for this study these data sets contain the usual variables found in earnings function estimates of the benefits of schooling individual earnings years of education and years of employment experience in addition they contain two variables measures of the worker s cognitive skills and of his or her reasoning ability not previously found in studies of developing countries and only rarely found in studies of the education earnings relationship in developed countries 3 with these variables we can estimate the direct effects on earnings of cognitive skills ability and years of schooling by using them to estimate educational production functions and educational attainment functions and linking these functions with the earnings function in a recursive framework we can also assess the various indirect effects on earnings of ability and years of schooling having data sets from two countries very similar with respect to size resource endowments structure of production and employment and level of development means that not only can we subject our results to the usual statistical tests but we can also assess their replicability both kenya and tanzania have nearly achieved the objective of universal primary education while university enrollments remain at less than 1 percent of the relevant age group the important policy issues re boissiere development research department the world bank 1818 h street washington d c 20433 knight institute of economics and statistics oxford university sabot williams college williamstown ma 01267 we are grateful to the educational testing service of princeton for the design of tests used in this study and to j armitage j behrman j hausman d hendry d jamison and an anonymous referee for their insights and advice helpful comments were also received from participants in seminars at oxford and yale universities the views presented here are our own they should not be interpreted as reflecting those of the world bank george psacharopoulos 1973 1981 contains a listing of 44 countries in which rate of return studies had been conducted and of the estimates obtained 2for instance kenneth arrow 1973 mark blaug 1976 samuel bowles and herbert gintis 1976 john riley 1979 michael spence 1976 and lester thurow 1975 3for attempts to control for ability and or for cognitive achievement in studies for the united states see jere behrman et al 1980 gary chamberlain and zvi griliches 1977 griliches and william mason 1972 michael olneck 1977 paul taubman and terence wales 1974 taubman 1975 and david wise 1975 see also the survey articles by griliches 1977 1979 in most instances the data refer to special subgroups in the population and clear distinction cannot be made between natural ability and cognitive skills acquired in school

ironing out deficiencies evidence from the united states on the economic effects of iron deficiency iron deficiency reduces productive capacity in adults and impairs cognitive development in children in 1943 the united states government required the fortification of bread with iron to reduce iron deficiency in the working age population during world war ii this nationwide fortification of grain products increased per capita consumption of iron by 16 percent i find that areas with lower levels of iron consumption prior to the mandate experienced greater increases in income and school enrollment in the 1940s a long term followup suggests that adults in 1970 with more exposure to fortification during childhood earned higher wages

developmental drivers of nutritional change a cross country analysis summary we utilize a rich cross country data set to understand within country changes in nutrition with a focus on the role of general developmental factors we find that economic growth is a strong predictor of nutritional performance as is growth in food production although only in more food insecure countries we find no evidence that infrastructure is directly important but greater asset ownership improved access to health services higher rates of female secondary education and lower fertility rates are all strong predictors of improvements in nutrition we show that national success stories are largely consistent with these findings

analysis on the determinants of currency invoicing in korean trade we investigate the determinants of currency invoicing in trade using import and export transactions data between korea and its 30 major trading partners from 2000 to 2013 we find a noticeably different pattern of currency invoicing from advanced countries for example a large market share of korean exporters in partner countries does not guarantee more use of the korean won in currency invoicing this might be attributed to a low degree of korean won s internationalisation and the strong coalescing effect we also observe that the higher the level of industry product differentiation the weaker the coalescing motive in addition we verify that the share of invoicing in the currency of korea s trading partner tends to be higher when the partner country has i a larger trade volume ii higher level of financial development iii lower inflation and lower price volatility and iv its own currency with lower transaction costs

equivalence results for optimal pass through optimal indexing to exchange rates and optimal choice of currency for export pricing firms sometimes write price lists or catalogs for their exports so they set prices for a period of time and do not adjust prices during that interval in response to changes in their environment the firm sets the price either in its own currency or the importer s currency this paper draws a simple link between the choice of currency and the pricing decision of a firm that changes prices in response to all shocks specifically if the latter firm s price has a lower variance in terms of its own currency than the importer s currency then the firm with a price list will set the price in its own currency and otherwise it will set price in the foreign currency this relationship is established by consideration of the firm with a price list as a special case of a firm that indexes its export price to the exchange rate jel f4 f1