evasion and time consistency in the taxation of capital income evasion and time inconsistency have been prominent concerns in discussions of capital income taxation both theoretical and applied this paper establishes a link between them suggesting a potentially useful role for evasion additional to those previously identified by committing to relatively lax enforcement the government may be able to alleviate the welfare loss implied by its inability to commit to the tax rate the scope for this role proves strikingly wide it is optimal for the government to facilitate the evasion of the capital income taxes that it chooses to impose whenever the time consistent tax rate exceeds that which would be optimal if the government could commit to it copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

capital controls global liquidity traps and the international policy trilemma the zero bound on interest rates introduces a new dimension to the trilemma in international policy the openness of the international financial market might render monetary policy ineffective even within a system of fully flexible exchange rates because shocks that lead to a liquidity trap in one country are propagated through financial markets to other countries however the effectiveness of monetary policy can be restored by the imposition of capital controls we derive the optimal response of monetary policy to a global liquidity trap in the presence of capital controls we show that even though capital controls might facilitate effective monetary policy capital controls are not generally desirable in terms of welfare

foreign exchange market intervention and reserve accumulation in emerging asia is there evidence of fear of appreciation abstract asian central banks react more strongly to currency appreciations than depreciations and more to nominal effective exchange rates neers than to bilateral us dollar rates this rationalizes the relative exchange rate stability and the sustained reserve accumulation in the region

the determinants of female recruitment each year the net effect of transitions between jobs and between employment and non employment is that there has been a steady rise in the proportion of women and part timers in employment in britain the determinants of one particular transition namely recruitment are analysed using 1983 data in the light of existing theories about female employment the conclusions are that recruitment of women and part timers is promoted by the expansion of those occupations in which women are traditionally more concentrated by their low pay and conditions in relation to men and by the greater availability of married women for recruitment the buffer mechanism wherein firms are hypothesized to hire more female labour when unemployment is low and to hoard male labour in recessions finds no empirical support

foreign direct investment and the dark side of decentralization countries differ in their government architecture some countries are characterized by a high degree of concentration of fiscal administrative judicial executive and lawmaking powers whereas others have decentralized many functions and responsibilities of government to different jurisdictions and various levels of government the cross country differences in the organization of government are also not static but have been subject to substantial change in many countries the co existence of different organizational patterns of government has created an important debate regarding the determinants of particular government structures as well as questions regarding the optimality of different forms of organization

trilemma stability and international macroeconomic archetypes this paper uses the simple geometry of the classic open economy trilemma to introduce a new gauge of the stability of international macroeconomic arrangements the new stability gauge reflects the simultaneity of a country s choices of exchange rate fixity financial openness and monetary sovereignty so the new gauge is bounded and correspondingly non gaussian we use the new stability gauge in nonlinear panel estimates to examine the post bretton woods period and we find that trilemma policy stability is linked to official holdings of foreign exchange reserves in low income countries we also find that the combination of fixed exchange rates and financial market openness is the most stable arrangement within the trilemma and middle income countries have less stable trilemma arrangements than either low or high income countries the paper also characterizes international macroeconomic arrangements in terms of their semblance to definitive policy archetypes and it uses the trilemma constraint to provide a new gauge of monetary sovereignty

on the effects of monetary policy in vietnam evidence from a trilemma analysis during and after the 2008 2009 global financial crisis the growth cycle of vietnam s economy has shifted from an average annual growth rate of 7 8 to an average annual growth rate of 5 6 with a high level of macroeconomic instability and uncertainty from 2009 till 2016 related studies have speculated that the operations of monetary policies during this period were not effective in recovering the economic growth and stabilizing the overall price level and total output level this paper provides the first empirical examination of this speculation using the trilemma framework our empirical results show that the state bank of vietnam has had adopted a set of policies aiming at maintaining exchange rate stability and interest rate independence while easing the restrictions on capital inflows the combination of these three monetary policy approaches is found to violate the rule of trilemma consequently exchange rate and interest rate policies became less effective and failed to stabilize the economy in response to the global economic recession

incentive compatible regulation of foreign owned subsidiaries a tax simulation for the jamaican bauxite industry abstract in 1974 jamaica replaced the corporate income tax on multinationals in the bauxite sector with a production levy on bauxite in order to increase tax revenue the results were mixed tax revenue jumped initially but the multinationsl quickly started shifting production elsewhere we model jamaica s taxation problem assuming that it has incomplete information about the multinationals costs and derive the optimal incentive compatible tax mechanism we simulate and compare the effects on output and tax revenue of the actual and the incentive compatible tax regimes and conclude that there might be substantial benefits to implementing an incentive mechanism

foreign direct investment intra firm trade and ownership structure abstract asymmetric information about true opportunity cost in trade between a multinational and its foreign affiliate can alleviate the hold up problem in foreign direct investment selling shares in the affiliate to locals is also beneficial because it increases the parent multinational s information rent that is protected from a host government s confiscatory taxation

quantitative restrictions in the presence of cost based informational asymmetries this study introduces a cost based informational asymmetry into a two period model where a domestic incumbent firm s behavior in the first period affects the entry decision of a foreign firm in the second period the effects of import quota policy within this environment are examined and compared to the standard full information effects when quota quantities are set exogenously the standard effects of quota policy may be significantly altered depending on whether or not policy induces the domestic firm to signal cost structure for example higher quotas may discourage foreign entry because of the induced signaling effects of quota policy recognition that incomplete information is the rule rather than the exception when decisionmakers interact in an international setting has stimulated an emerging literature on the effects of trade policy in the presence of informational failures particularly germane to the present study are those papers that introduce an informational asymmetry into an international model of imperfect competition the majority of this literature examines the sensitivity of optimal strategic trade policy to information failures within a brander spencer 1985 model where the domestic and foreign firms compete for export sales to a third market and either the domestic or foreign government employs export subsidies collie and hviid 1993 qiu 1994 maggi 1995 brainard and martimort 1997 wright 1998 collie and hviid 1994 on the other hand allow for domestic consumption and consider optimal import policy in the presence of a foreign monopolist analysis that focuses on the positive effects of trade policy in the presence of informational failures is more limited one such example is a study by hartigan 1994 which considers the effects of antidumping duties to date however there has been no analysis of how and whether the introduction of an informational failure alters the effects of quantitative restrictions to trade the aim of the present study is to extend the existing literature by examining the effects of a quantitative restriction to trade in the presence of a cost based informational asymmetry within a standard two period entry model 2 during the initial time period a domestic firm supplies the home market and

national ownership requirements and transfer pricing abstract this paper examines the interaction between a national ownership requirement and transfer pricing it turns out that where indigenization implies managerial control by domestic owners it may result in greater retained profits and a more intensive use of domestic resources

large investors regulatory taking and investor state dispute settlement abstract this paper offers an economic analysis of an international investor state dispute settlement regime isds in markets with large investors it identifies a reason for strategic overinvestment by the domestic industry leading to permissive regulation in the absence of isds an ideal investor state dispute settlement arrangement efficiency oriented transaction cost free with untouchable fully reliable and unbiased judges has positive and negative effects in this framework it generates an equal level playing field for domestic and foreign investors but it magnifies an existing overinvestment problem and may reduce world welfare the results explain anecdotal evidence according to which isds that protects foreign investors is liked by the domestic industry and disliked by other interest groups in the host country

favoring domestic firms in procurement contracts abstract this paper studies the rationale for giving preference to domestic firms in the award of government contracts when the regulator is interested in maximizing domestic welfare it is seen that in the absence of comparative advantages the regulator should discriminate in favor of the domestic firms because foreign firms profits do not enter in domestic welfare furthermore i show that the form of the discrimination function depends on the mechanism being used in order to simplify the implementation of an optimal policy the regulator should choose mechanisms based on second price auctions

procurement auctions with entry of bidders abstract in procurement auctions with a fixed number of bidders there is a tradeoff between cost efficiency and rent extraction an optimal mechanism therefore entails distortions of effort laffont and tirole 1987 if potential suppliers must sink an entry investment before they can participate in the auction then decreasing the firms rent may imply reduced entry we show that if potential bidders are uninformed before entry commitment to a plain nondistortive auction is optimal in contrast if potential bidders learn all their private information before entry the optimal mechanism entails the same distortions as in laffont and tirole s static model

intertemporal market effect on gender earnings differentials lawyers in canada 1970 80 the conventional methodology for decomposition of cross sectional earnings differentials is extended to include a market effect on intertemporal changes in earnings and to analyse the changes in gender differentials over time the integrated cross sectional and intertemporal methodology is illustrated by a decomposition of the change in the earnings differential that occurred during the 1970s between male and female lawyers in canada an unprecedented rate of growth in the supply of lawyers during the 1970s in canada was associated with changes in the gender earnings differential in the legal profession this rapid supply growth had an almost negligible net impact on female earnings but a negative impact of 15 on the male earnings this explains the narrowing of the earnings differential by almost 30 over the decade although three fifths of the gender differential in 1970 and half of the differential in 1980 were attributable to the differences in the characteristics of the two groups these chang

explaining exchange rate volatility an empirical analysis of the holy trinity of monetary independence fixed exchange rates and capital mobility abstract this paper uses a panel of data from twenty two countries between 1967 and 1992 to explain exchange rate volatility focusing on potential tradeoffs between fixed exchange rates independent monetary policy and capital mobility i use monetary models to parameterize monetary divergence and factor analysis to measure capital mobility exchange rate volatility is loosely linked to both monetary divergence and the degree of capital mobility interestingly exchange rate volatility is significantly correlated with the width of the explicitly declared exchange rate band even after taking monetary divergence and capital mobility into account

privatization policy in an international oligopoly this paper studies privatization policy in an international oligopoly the argument that equal treatment of foreign investors will be detrimental to domestic welfare by shifting profits from domestic to foreign firms is shown to be less relevant in privatization auctions than in greenfield fdi models since these profi ts hifts are partly paid for by the foreign firms in the bidding competition effects of local equity requirements trade and investment policies are also studied it is for instance shown that small local equity requirements are likely to be beneficial but large ones are counterproductive by preventing welfare enhancing foreign acquisitions

trade multinationals and transfer pricing regulations recent years have seen the introduction of profit comparisons by national tax authorities to cope with multinationals profit shifting activities the authors argue that a country that switches from price related transfer pricing rules to profit related measures can reduce imports without changing firms transfer prices the trade effect makes the change of transfer pricing rules a potential instrument of protectionism and strategic trade policy

social contracts as assets a possible solution to the time consistency problem this paper presents a new solution to the time consistency problem that appears capable of enforcing ex ante policy in a variety of settings in which other enforcement mechanisms do not work the solution involves formulating a social contract institution or agreement that specifies the optimal ex ante policy the social contract is effectively sold by succesive old generations to successive young generations who pay for the social contract through the payment of taxes both old and young generations have an economic incentive to fulfill the social contract for the old generation breaking the social contract makes the social contract valueless and the generation suffers a capital loss by not being able to sell it for the young generation the economic advantage of purchasing the existing social contract exceeds its price as well as the economic gain from setting up the a new social contract

incentive compatible regulation of a foreign owned subsidiary abstract transfer prices are administered charges for intra firm transfers of factors of production for a multinational firm transfer prices for international transfers provide the means to redistribute costs and increase global profits given variations in national tax and profit repatriation policies local regulation of a subsidiary may thus be necessary to limit the welfare costs of strategic transfer pricing prusa journal of international economics 1990 28 155 172 characterizes the welfare maximizing regulations for a monopoly subsidiary that induce the firm to report transfer prices truthfully we show however that it can be more efficient to implement regulations that encourage the firm to misrepresent its true transfer costs

the economics of joint ventures in less developed countries the paper examines the microeconomic partial equilibrium behavior of joint ventures established between transnational corporations and domestic partners in less developed countries it focuses on issues relating to resource allocation and profit distribution under various institutional scenarios the analysis places special emphasis on the role of bargaining power transfer pricing stock ownership and profit shares of the parties and the responsiveness of joint ventures to national development goals some of the results apply to wholly owned subsidiaries of transnational corporations local firms and licensing arrangements which emerge as special cases

capital income and profit taxation with foreign ownership of firms abstract this paper establishes optimal rules for capital income and profits taxation in the open economy with or without foreign ownership of domestic firms we show that if there are constraints on the feasibility of profits taxation both saving and investment taxes generally enter the optimal tax package if instead profits can be fully taxed then source based investment taxes vanish if domestic firms are in part owned by foreigners then source based investment taxes can be used to shift income away from these to domestic citizens and they may even be used to finance lump sum transfers to domestic residents

endogenous transfer pricing and the effects of uncertain regulation abstract a scenario is constructed under which a multinational firm mnf faces a threat of a penalty the probability of which is based on the mnf s transfer price given this scenario the mnf s optimum transfer price could be in the interior and simultaneous interaction of the transfer price and real variables exists increased surveillance of the transfer price makes the mnf move its transfer price towards the arm s length price and checks fiscal abuses but it worsens the international allocation of resources even though the cost advantage of the exporting country increases still the impact on global welfare is ambiguous

capital controls in brazil stemming a tide with a signal controls on capital inflows have been experiencing a renaissance since 2008 with several prominent emerging markets implementing them in recent years we focus on brazil which instituted five changes in its capital account regime in 2008 2011 using the synthetic control method we construct counterfactuals i e brazil with no policy change for each of these changes we find no evidence that any tightening of controls was effective in reducing the magnitudes of capital inflows but we observe some modest and short lived success in preventing further declines in inflows when the capital controls were relaxed we hypothesize that price based capital controls only perceptible effect is to be found in the content of the signal they broadcast regarding the government s larger intentions and sensibilities in the case of brazil its left of center government s willingness to remove controls was perceived as a noteworthy indication that the government was not as hostile to the international financial markets as many expected it to be

work history patterns and the occupational attainment of women one of the main differences between the labour market behaviour of men and women lies in the discontinuity of labour force attachment exhibited by most women over their lifetime largely but not exclusively for the purpose of raising a family these interruptions to their labour market experience constitute an important influence on the labour market position of women and provide a potentially important factor in the explanation of their labour market disadvantate skills are obtained to a considerable extent through labour market experience and may be blunted in periods of absence from the labour force in addition absence from the labour force removes an individual labour market and may thereby reduce the probability of gaining extry to the better jobs on re entry the objectives of this paper are firstly to describe the various work history patterns exhibited by u k women and secondly to quantify the effect of these life cycle factors on the occupational attainment occupational progress and earnings of women the data source is the national training survey nts which provides a unique retrospective longitudinal data set on the work histories of over 50 000 individuals for details see manpower services commission 1976 this abstract was borrowed from another version of this item

concentration trends and profitability in us manufacturing a comment 1991 concentration trends and profitability in us manufacturing a comment applied economics vol 23 no 4 pp 717 720

for a few dollars more reserves and growth in times of crises abstract based on a dataset of 112 emerging economies and developing countries this paper addresses the question whether the accumulation of international reserves has effectively protected countries during the 2008 09 financial crisis more specifically the paper investigates the relation between international reserves and the existence of capital controls we find that the level of reserves matters countries with high reserves relative to short term debt suffered less from the crisis particularly when associated with a less open capital account this suggests some degree of complementarity between reserve accumulation and capital controls

a theory of expropriation and deviations from perfect capital mobility there are many reasons why commodity trade fails to equate the rewards to factors of production in different countries consequently there is an incentive for factor movements between countries while movements of factors especially capital are important in the world economy they have not been sufficient to equate factor returns among countries the failure of capital flows to equate returns to capital is frequently attributed to political risks and left outside the sphere of economic analysis specifically investments abroad especially in ldc s are said to be more subject to the risk of expropriation or at least to unpredictable changes in the tax and exchange control regime adopted by the host country fears of foreign investors have often been realised williams i975 estimates that about 20 of the value of foreign investments carried into or made during i956 72 in ldc s was expropriated without compensation in this period in the past researchers in disciplines other than economics have been responsible for most of the analysis of expropriations we argue that an important set of economic considerations affect the nature of these impediments to capital mobility and this paper provides a theory of expropriation based on maximising behaviour by host countries and investors we use this theory to identify industry and national characteristics increasing the threat of expropriation and implying large deviations from equal returns on capital and to examine host country and home country policies minimising distortions from the threat of expropriation three broad conclusions follow from the analysis first the threat of expropriation can significantly distort the international allocation of capital even if the act of expropriation is relatively rare in the extreme acts of expropriation would never occur in a world of perfect foresight and rational decision making yet actions by investors to ensure that countries do not expropriate would be distorting second the ability of a country s government to expropriate foreign investments may actually reduce its welfare furthermore a host may be better off if home governments can retaliate against an expropriating country indeed an increase in the penalty imposed on an expropriating country may increase its welfare a government s power to expropriate after investments are made may alasdair smith and an associate editor made numerous valuable suggestions we would also like to thank g m grossman r w jones l a sjaastad n h stern and j e stiglitz for comments much of eaton s work on this paper was completed while he was a visitor at the graduate institute for international studies geneva an earlier version of this paper appeared under the same title as rpds

macro prudential policies the global financial cycle and the real exchange rate abstract this paper examines whether a global financial cycle originating from center economies affects the real exchange rates in peripheral economies and to what extent macro prudential policies can isolate peripheral economies from this external shock we build a dynamic stochastic general equilibrium dsge model to describe how macro prudential policies mitigate the fluctuations of the real exchange rate in a small open economy in response to external shocks in which households are subject to liquidity constraints using a sample of 37 emerging and small advanced economies we show that a counter cyclical macro prudential policy implementation is effective in mitigating the fluctuations in the real exchange rates caused by a u s interest rate shock

host country policy transfer pricing and ownership distribution in international joint ventures a theoretical analysis abstract this paper develops a simple model of an international joint venture in which the ownership shares are endogenously determined as the outcome of nash bargaining between a multinational firm and a host firm it shows how tax subsidy policy by the host country s government and transfer pricing of inputs by the multinational firm may influence the equity distribution of the joint venture insofar as the optimal level of these policies is dependent on the primitives the model generates empirical hypotheses regarding the impact of the primitives on the equity distribution

part time work and returning to work after the birth of the first child 1990 part time work and returning to work after the birth of the first child applied economics vol 22 no 9 pp 1137 1148

competition for natural resources and the hold up problem we study the role of competition for the hold up problem in foreign direct investment in resource based industries the host country government is not only unable to commit not to expropriate investment ex post but also unable to commit to the provision of local resources in the case of competition for local resources this dual commitment problem triggers higher investment levels and increases host country revenues but hurts profits of international investors

foreign direct investment and host country policies a rationale for using ownership restrictions abstract this paper examines host governments motivation for restricting ownership shares of multinational firms mnfs in foreign direct investment fdi projects an mnf with a productivity advantage is willing to invest in a host country the host government wants to capture the mnf s surplus yet cannot observe it due to the mnf s private information about its firm specific advantage in contrast a joint venture jv partner might observe this surplus depending on its ownership share the host government can alleviate its informational constraints by using ownership restrictions to force a jv this calls into question the wisdom of calls for liberalizing fdi flows by the wholesale elimination of domestic jv requirements we show that the optimal mechanism involves ownership restrictions that decrease as the size of the mnf s firm specific advantage increases

an incentive compatible approach to the transfer pricing problem abstract this paper offers an alternative approach to regulating certain types of transfer pricing if the multinational enterprise s transfer price decision is not regulated it will manipulate the transfer price in order to maximize net global profit traditional approaches argue for ad hoc penalty schedules to mitigate manipulative transfer pricing in contrast this paper offers an incentive compatible approach which explicitly incorporates the informational asymmetries that encourage misreports the model has the desirous feature that the optimal regulatory policy has self enforcing properties that is the firm will find it profit maximizing to report true costs

negative net foreign asset positions and stability in a world portfolio balance model abstract negative net foreign asset positions have been associated with a troublesome stability problem in flexible exchange rate regimes in this paper a symmetrically specified two country portfolio balance model is employed to provide some perspective on this problem it is concluded that negative net foreign asset positions do not constitute an independent source of instability instability can arise only under nonrational expectations or because of destabilizing speculation

the influence of wages and house prices on british interregional migration decisions this paper considers the paradox of a consistent net outflow of people from areas of high job creation and wages over the past 20 years and suggests the explanation that different individuals have different motivations for moving the labour force survey indicates that workers moving for job reasons have migrated to areas of low unemployment and high nominal wages however the inflow into such areas has been more than compensated for by an outflow of people moving for non job reasons a logit analysis of destination choice indicates that job movers are attracted to areas with high wages but are not affected by high house prices in such areas in contrast active non job movers are deterred from areas of high house prices regional house price differences do not influence the destination choice of homemakers or the terminally sick but they do influence the destination choice of retirees all groups prefer to travel the least distance when moving

decentralization and transfer pricing under oligopoly this paper presents a simple model of a partially decentralized multinational firm mnf in competition with a rival firm it is shown that transfer pricing can be used as a rent shifting device by the mnf to compete with the rival this arises because the mnf headquarters uses the transfer price to manage different subsidiaries the specific value of the transfer price chosen by the mnf depends on whether the rival firm produces the intermediate good the final good or both and whether the rival is integrated or not in particular both decentralization and competition with a fully integrated rival result in lower transfer prices

policy cooperation among benevolent governments may be undesirable this paper presents a simple counterexample to the belief that policy cooperation among benevolent governments is desirable it also explains circumstances under which such counterexamples are possible and relates them to the literature on time inconsistency since the work of hamada 1976 investigating the effects of increasing policy cooperation among countries has been a major topic in international economics a standard conclusion of this work is that increasing policy cooperation among countries is desirable in a seminal paper rogoff 1985 has challenged this view using a simple monetary model rogoff shows that cooperation among policy makers can lead to a lower level of welfare than noncooperation does rogoff s result has caused much consternation among those who advocate policy cooperation and his work has been criticized along several dimensions for example some authors including canzoneri and henderson 1988 have noted that a key assumption in rogoff s model is that the objective function of each country s policy maker does not coincide with the objective function of its residents indeed if in his model policy makers maximize the welfare of their country s residents the counterexample is overturned and cooperation strictly dominates noncooperation this feature leads some to interpret rogoff s result as simply saying that if policy makers form a coalition against the private sector they may be worse off than if they do not others such as neck and dockner 1988 have claimed that rogoff s result depends on private agents acting strategically under this interpretation rogoff s result is relevant to say economies with a large trade union but not to economies with a large number of competitive private agents in a somewhat different vein persson 1988 and especially devereux 1986a b have questioned the significance of welfare comparisons across different institutional regimes in a model without a solid foundation for the behavioural relationships this paper presents a simple model in which governments are benevolent but cooperation is still undesirable the model is a two country version of fischer s 1980 optimal tax model in it private agents are competitive in that each agent takes both prices and government policies as uninfluenced by his actions and each government maximizes the welfare of its country s residents in the paper the two different regimes cooperative and noncooperative

multinationals multi plant economies and the gains from trade a general equilibrium model of a multinational enterprise based on economies of multi plant operation is developed these economies are modelled as arising from the existence of a joint input whose productivity in each production facility is independent of the number of facilities maintained by a firm the multinational thus offers the world increased technical efficiency by eliminating the duplication of the joint input that would occur with independent national firms since this technical efficiency may come at the expense of increased market power the full determinants of home country host country and world welfare are considered

tax competition and leviathan abstract attitudes towards downward pressure on tax rates from international tax competition depend on attitudes towards government this paper synthesises the two extremes which as in other areas of public finance have dominated the debate typically being presented as stark alternatives the view of government as a leviathan from which tax competition emerges as a useful constraint on policy makers and the view of government as a benevolent maximiser of their citizens welfare from which it emerges as a source of inefficiency conditions are derived under which when policy makers are neither entirely benevolent nor wholly self serving tax coordination benefits the representative citizen

government procurement and international trade abstract we model the bidding for a government contract in which there is imperfect competition each bidder is better informed about his own costs than either his rival bidders or the government and the distribution of the domestic firms costs differs from the distribution of foreign firms costs because of comparative advantage effects we find that the government minimizes its expected procurement cost by operating a price preference policy not necessarily purchasing from the lowest bidder

foreign subsidiary transfer pricing and tariffs in the transfer pricing literature horst 12 concludes that the multinational firm mnf will generally charge a low transfer price ltp while other authors are ambivalent on this question this paper shows that less than whole ownership over the subsidiary generally makes the mnf change its transfer pricing strategy from desiring a ltp to wanting a high transfer price htp the conditions for an htp are fairly broad so that we are more likely to observe it than has been suggested in the literature the mnf literature also presumes that the host country loses revenue due to an htp however this view ignores the effects of tariffs on a government s revenue if tariff revenue is included an htp can increase the host country s revenue

the empirics of international monetary transmission identification and the impossible trinity the transmission of monetary policy across borders is central to many open economy models research has tried to evaluate the impossible trinity through estimating international interest rate linkages under alternative exchange rate regimes using realized base country interest rates such interest rates include anticipated and endogenous elements which need not propagate internationally we compare international interest rate responses under pegged and non pegged regimes to identified unanticipated and exogenous u s interest rate changes and realized u s interest rate changes we find important differences in estimated transmission from the two sets of measures identified interest rate changes demonstrate a greater concordance with the impossible trinity than realized rate changes

large versus small foreign exchange interventions abstract we use non temporal threshold analysis to investigate the exchange rate effects of large versus small interventions more than two decades of official daily data on intervention in the jpy usd market facilitate our analysis we find no evidence that small interventions exert a discernible influence on the exchange rate while large interventions significantly influence the exchange rate in the theoretically consistent manner we conclude that small interventions may not be considered a determinant of the exchange rate while large interventions constitute an important element in our understanding and modeling of the exchange rate

exchange rate policies in asia in an era of financial globalisation an empirical assessment ebbs and flows of capital have complicated macroeconomic policy management for all emerging market and developing economies emdes regardless of whether they have adopted flexible or managed exchange rate regimes in the light of the renewed interest in the trilemma versus dilemma debate we contribute to the related literature by presenting an empirical analysis of exchange rate flexibility and intervention for selected asian emdes over the time period 2001 2016 in addition to estimating augmented frankel wei regressions we employ a generalised auto regressive conditional heteroscedasticity garch model to assess the extent of foreign exchange fx intervention and whether there exist any asymmetries in the way countries intervene our results show that although there is greater flexibility in exchange rates there is evidence of some countries potentially using fx intervention to manage currency movements we also find evidence of asymmetry in intervention where exchange rate volatility responds more emphatically to fx sales than purchases

central banks and macroeconomic policy choices relaxing the trilemma abstract macroeconomic policy choices in open economies are constrained by the trilemma according to which the objectives of exchange rate stability monetary independence and capital mobility cannot be attained jointly this paper shows that foreign exchange interventions provide an effective instrument to relax the trilemma an active reserve policy allows central banks to pursue independent monetary and exchange rate policies when the capital account is liberalised we use the framework of the portfolio balance model to show that exchange market interventions may substitute for capital controls both allow a country to achieve the other two objectives of the trilemma our empirical analysis of a large country panel data set covering the period 1970 2010 confirms this theoretical insight the weighted sum of the three trilemma objectives increases in the degree of foreign exchange market intervention the capacity to relax the trilemma constraint has increased over time and has been most effective in emerging markets

optimal strategic trade policy under asymmetric information abstract when cost is private information in the brander spencer model the home government is confronted by a decision of choosing between two policy options a menu of policies and a uniform policy the former induces separation and so reveals the cost information to the foreign competitors the latter helps the weak firm by concealing the cost information the main result from this study is that policy menu is preferred to uniform policy under cournot competition while the opposite occurs under bertrand competition

the impact of fx central bank intervention in a noise trading framework abstract in this paper we analyse the effectiveness of the direct central bank interventions using a new effectiveness criterion to this aim we investigate the effects of central bank interventions cbi in a noise trading model with chartists and fundamentalists we first estimate a model in which chartists extrapolate past returns and fundamentalists forecast a mean reverting dynamics of the exchange rate towards a fundamental value then we investigate the role of central bank interventions for explaining the switching properties between the two types of agents we find evidence that in the medium run interventions increase the proportion of fundamentalists and therefore exert some stabilizing influence on the exchange rate

foreign exchange intervention in emerging markets a survey of empirical studies nowadays foreign exchange interventions occur in emerging market economies whereas empirical studies on interventions mainly refer to advanced economies however interventions in emerging markets are different from those in advanced economies they occur regularly and central banks have considerable leverage derived from relatively high reserves some non sterilisation the central bank s information advantage and capital controls consequently these interventions often successfully impact the level and volatility of exchange rates nevertheless more research on interventions in emerging markets is needed analysing the influence of heterogeneous institutional circumstances examining the role of central bank communication and using high frequency data

spillovers and international competition for investments abstract two jurisdictions compete to attract shares of the investment budget of a large multinational enterprise whose investments confer positive spillovers on national firms the firm has private information about its efficiency and about spillovers it is shown that the firm may be harmed by tax competition relative to a cooperative tax agreement tax competition may induce excessive investments in the country where the positive spillover effects are lowest also with sufficiently asymmetric spillovers investments under competition will be excessively spread out not properly concentrated to the country where spillovers would be largest

a mechanism design approach to transfer pricing by the multinational firm abstract this paper is about how multinationals choose transfer prices and optimal production levels in the presence of differential corporate income tax rates and local ownership requirements a key featrure of the model is that there is an asymmetric information problem between a parent and its foreign subsidiary we examine the interaction between ownership structure corporate taxes and bargaining power transfer prices induce underproduction compared to the full information case when the parent has the bargaining ability when bargaining is controlled by the subsidiary overproduction obtains the model is used to illustrate how governmental objectives can be accomplished without direct regulation of the transfer price

merger policy in open economies abstract we extend farrell and shapiro s 1990 analysis of horizontal mergers to the case of an open economy we show how the rules for approving a merger ought to be adapted to account for the fact that the regulator is only concerned with domestic welfare that is ignores the effect of the merger on foreign firms and consumers we also explore the consequences of this externality in a model of a single market which includes consumers and producers of different countries in particular we provide conditions under which a decentralized process of evaluating merger proposals a la farrell shapiro can survive the externality mentioned above

optimal regulation of mnes and government revenues the paper analyses the optimal regulation of multinational enterprises mnes by a host government interested in maximizing tax revenues when the mne has private information about its benefits of controlling the enterprise it is shown that the optimal mechanism involves restricting the mnes ownership of the enterprise and setting a ceiling on the transfer price of an input that the mne provides that is above the known production cost of the input for low realizations of the benefits of control the mne transfers control to a domestic partner while for high realizations it retains control

part time versus full time work and child care costs evidence for married mothers this paper contributes to the analysis of female labour supply by accounting for both child care costs and differences in part time and full time work an ordered probit model is used to examine the impact of child care costs on the work status of married mothers data are drawn from the canadian national child care survey and the labour market activity survey the results from this paper show the degree to which child care subsidies may have differential impacts on part time and full time work decisions by mothers the child care cost elasticities for part time and full time employment are reported to be 0 21 and 0 71 respectively

promoting fair competition in public procurement abstract if a government cares for local firms profit but not for foreign firms foreign firms will be discriminated against when competing for government procurement contracts foreign firms will be chosen less often and when chosen earn less profit than local firms we analyze a more central authority s policies against such discrimination given a situation in which a government has private information on product quality and the competing firms have private information on own costs necessary and sufficient conditions for free revelation of quality information are derived finally optimal policy when these conditions are not satisfied is characterized and discussed

fear of appreciation abstract in recent years the term fear of floating has been used to describe exchange rate regimes that while officially flexible in practice intervene heavily to avoid sudden or large depreciations however the data reveals that in most cases and increasingly so in the 2000s intervention has been aimed at limiting appreciations rather than depreciations often motivated by the neo mercantilist view of a depreciated real exchange rate as protection for domestic industries as a first step to address the broader question of whether this view delivers on its promise we examine whether this fear of appreciation has a positive impact on growth performance in developing economies we show that depreciated exchange rates indeed lead to higher growth but that the effect rather than through import substitution or export booms as argued by the mercantilist view works largely through the deepening of domestic savings and capital accumulation

does foreign exchange intervention matter the portfolio effect until recently there was an unusual degree of consensus among economists that intervention by central banks in the foreign exchange market did not offer an effective or lasting instrument for affecting the exchange rate at least not independently of monetary policy this consensus was largely shared among policymakers and participants in the financial markets as well the 1982 g 7 economic summit at versailles commissioned a study of intervention known as the jurgenson report which found that the effects were small and transitory at most we think that the time is ripe for new statistical testing of the question many policymakers and foreign exchange traders believe that the intervention operations that have taken place since the plaza agreement of september 1985 have had an effect especially when operations are coordinated moreover the theoretical case against the effectiveness of intervention is not as clear as a reading of the economics literature might suggest the academic literature is predicated on the distinction between intervention operations that are sterilized and those that are allowed to affect the money supply we study the intervention operations that actually took place between 1982 and 1988 regardless of whether they were sterilized however we do begin in section i with a review of the issues involved 2 there are two possible channels through which intervention whether sterilized or not can influence the foreign exchange rate the portfolio and the expectations channels intervention can even if sterilized influence exchange rates through the portfolio channel provided foreign and domestic bonds are considered imperfect substitutes in investors portfolios intervention operations that for example increase the current relative supply of mark to dollar assets which private investors are obliged to accept into their portfolios will force a decrease in the relative price of mark assets 3 intervention can also influence exchange rates regardless of whether foreign and domestic bonds are imperfect substitutes through the expectations channel the public information that central banks are intervening in support of a currency or are planning to intervene in the future may under certain conditions cause speculators to expect an increase in the price of that currency in the future speculators react to this information by buying the currency today bringing about the change in the exchange rate today in sections ii and iii we describe the econometric problems that arise in the standard portfolio balance estimation equation we derive an alternative portfolio balance dominguez kennedy school of government harvard university 79 j f kennedy street cambridge ma 02138 frankel department of economics university of california 787 evans hall berkeley ca 94720 we thank three anonymous referees for valuable comments and suggestions julia marsh and julia lowell for research assistance and franz scholl at the bundesbank jean pierre roth at the swiss national bank and officials at the u s treasury and the board of governors of the federal reserve system for making the daily intervention data available 1many of the econometric results finding little or no effect were reported in kenneth s rogoff 1984 and dale w henderson and stephanie sampson 1983 2for authoritative statements see henderson 1984 or maurice obstfeld 1990 3the exchange rate reaction to an increase in the relative supply of outside foreign assets may be reduced if there is an increase in their expected rate of return that induces a corresponding increase in demand

optimal regulation of multinationals under collusion this paper analyses the optimal collusion proof mechanism for the regulation of multinational firms mnfs in foreign direct investment fdi projects there is a host country with a profitable investment opportunity either a multinational firm mnf or a local firm lf can undertake this project nonetheless due to its firm specific advantage and the mnf has the potential to create a larger surplus the host government faces an informational constraint such that it cannot observe the extra surplus the mnf can generate using this set up karabay 2010 shows that employing foreign ownership restrictions to force a joint venture jv can help the host government to partially overcome its information disadvantage in this paper we extend karabay 2010 by studying the host government s optimal regulatory policy when the mnf and the lf can collude it turns out collusion imposes no cost on the host government and the expected welfare attained in the absence of collusion can still be secured under collusion

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

regulation of multinational firms with two active governments a common agency approach abstract when a government agency imposes cost based taxes regulations on a multinational with private cost information it may initiate countervailing regulations by another of the governments with which the multinational interacts we analyze the problem of optimal regulation of a multinational under incomplete cost information via trade taxes by multiple governments as a problem of common agency with adverse selection by focusing on the game played by the competing governments we characterize the equilibrium trade taxes and show that the non cooperative behavior of the governments not only reduces aggregate national welfare but also reduces firm profits

multinational firms global strategies host country indigenisation of ownership and welfare abstract this paper examines the costs and benefits that may arise when host countries aim to indigenise the ownership of foreign subsidiaries it is shown that there may be an optimal level of indigenisation beyond which the marginal social costs of such policies will exceed the corresponding benefits the analysis also shows that the optimum indigenisation may depend among other things on whether the subsidiary is autonomous or fully controlled by the parent company a further result is that if the subsidiaries equity is purchased by private firms or individuals the privately optimum level of indigenisation is likely to be greater than the socially optimum

negotiated trade restrictions with private political pressure we consider a home government with political pressure to restrict trade the foreign country is compensated with a portion of the tariff revenues or quota rents but cannot directly observe the political pressure abroad in this setting the two countries negotiate over the volume of trade and transfer of rents depending on the level of political pressure we determine globally optimal incentive compatible trade policies in which the home government has no incentive to overstate or understate the pressure for protection

debt shifting and ownership structure abstract previous theoretical studies on the debt shifting behavior of multinationals have assumed affiliates of multinationals to be wholly owned we develop a model that allows a multinational firm to determine both the leverage and ownership structure in affiliates endogenously a main finding is that affiliates with minority owners have less debt than wholly owned affiliates and therefore a less tax efficient financing structure this is due to an externality that arises endogenously in our model where costs and benefits of debt shifting are shared asymmetrically between minority and majority owners our findings provide a theory framework for recent empirical findings

downward occupational mobility and part time women workers 1988 downward occupational mobility and part time women workers applied economics vol 20 no 4 pp 485 495

exchange rate management in emerging markets intervention via an electronic limit order book this paper describes and analyzes the implementation of a crawling exchange rate band on an electronic trading platform the placement of limit orders at the central bank s target rate serves as a credible policy statement that may coordinate beliefs of market participants we find for our sample that intervention increases exchange rate volatility and spread for the next minutes but that intervention days show a lower degree of volatility and spread than non intervention days we also show for intraday data that the price impact of interbank order flow is smaller on intervention days than on non intervention days these stabilizing effects however rely on the conditions of large currency reserves and the existence of capital controls an electronic market seems to support this goal

regulating a monopolist with unknown costs we consider the problem of how to regulate a monopolistic firm whose costs are unknown to the regulator the regulator s objective is to maximize a linear social welfare function of the consumers surplus and the firm s profit in the optimal regulatory policy prices and subsidies are designed as functions of the firm s cost report so that expected social welfare is maximized subject to the constraints that the firm has nonnegative profit and has no incentive to misrepresent its costs we explicitly derive the optimal policy and analyze its properties in their classic papers dupuit 2 and hotelling 5 considered pricing policies for a bridge that had a fixed cost of construction and zero marginal cost they demonstrated that the pricing policy that maximizes consumer well being is to set price equal to marginal cost and to provide a subsidy to the supplier equal to the fixed cost so that a firm would be willing to provide the bridge this first best solution is based on a number of informational assumptions first the demand function is assumed to be known to both the regulator and to the firm while the assumption of complete information may be too strong the assumption that information about demand is as available to the regulator as it is to the firm does not seem unnatural a second informational assumption is that the regulator has complete information about the cost of the firm or at least has the same information about cost as does the firm this assumption is unlikely to be met in reality since the firm would be expected to have better information about costs than would the regulator as weitzman has stated an essential feature of the regulatory environment i am trying to describe is uncertainty about the exact specification of each firm s cost function in most cases even the managers and engineers most closely associated with production will be unable to precisely specify beforehand the cheapest way to generate various hypothetical output levels because they are yet removed from the production process the regulators are likely to be vaguer still about a firm s cost function 12 p 684 as this observation suggests it is natural to expect that a firm would have better information regarding its costs than would a regulator the purpose of this paper is to develop an optimal regulatory policy for the case in which the regulator does not know the costs of the firm one strategy that a regulator could use in the absence of full information about costs is to give the firm the title to the total social surplus and to delegate the pricing decision to the firm in pursuing its own interests which would then be to maximize the total social surplus the firm would adopt the same marginal cost pricing strategy that the regulator would have imposed if the regulator had

who is afraid of political risk multinational firms and their choice of capital structure this paper investigates how multinational firms choose the capital structure of their foreign affiliates in response to political risk we focus on two choice variables the leverage and the ownership structure of the foreign affiliate and we distinguish different types of political risk such as expropriation unreliable intellectual property rights and confiscatory taxation in our theoretical analysis we find that as political risk increases the ownership share tends to decrease whereas leverage can both increase or decrease depending on the type of political risk using the microdatabase direct investment of the deutsche bundesbank we find supportive evidence for these different effects