international transfers the relative price of non traded goods and the current account this paper considers the role of the relative price of non traded goods and the current account in the adjustment of a small open economy to the receipt of an international transfer the paper shows that the economy s macroeconomic adjustment to the transfer depends upon the relative capital intensities of the traded and non traded sectors of the economy as well as on the duration of the transfer the paper provides a new interpretation of france s current account surplus in the 1870s that accompanied the payment of reparations to germany following the franco prussian war and of germany s trade deficit in the 1920s that accompanied reparations payments associated with the first world war

non traded goods and the international transmission of fiscal policy abstract this paper looks at the effect of non traded goods on the international transmission of fiscal policy intertemporal movements in the price of non traded goods affect real interest rates differentially between countries the real interest rate effects of a fiscal expansion depend crucially upon both the composition of fiscal spending and the intertemporal elasticity of substitution with a high intertemporal elasticity of substitution in consumption a temporary fiscal expansion on non traded goods will lead consumer real interest rates to move in opposite directions between countries

deficits and intergenerational welfare in open economies this paper deals with public debt in open economies extending diamond s overlapping generations model to a small open economy as well as an international equilibrium of two large economies it focuses on the intergenerational welfare redistributions caused by an increase in public debt triggered by a temporary government budget deficit and shows how these redistributions differ in open and closed economies the interplay between the deficits in the government budget and the current account is also analyzed it is shown how a single period with a government deficit can be followed by a sequence of periods with a deficit in the current account

an examination of the effects of government purchases in an open economy this paper examines the effects of permanent and transitory changes in government purchases in the context of a model of a small open economy that produces and consumes both traded and nontraded goods the model incorporates an equilibrium interpretation of the business cycle that emphasizes the responsiveness of agents to intertemporal relative price changes it is demonstrated that transitory increases in government purchases lead to an appreciation of the real exchange rate and an ambiguous change although a likely worsening in the current account while permanent increases have an ambiguous impact on the real exchange rate and no effect on the current account when agents do not know whether a given increase in government purchases is permanent or transitory the effect is a weighted average of these separate effects the weights depend on the relative variances of the transitory and permanent components of government purchases in the past few years a considerable amount of effort has been devoted to examining the effects of macroeconomic policy in an open economy such issues as exchange rate overshooting deviations from purchasing power parity sterilization and monetary control the effectiveness of monetary policy and the choice between alternative exchange rate regimes have been at center stage the models that have been employed to study these issues have run the spectrum from variants of the mundell fleming model such as dornbusch 1976 turnovsky 1981 and kimbrough 1983a to wage contracting and indexing models like bhandari 1982b and flood and marion 1982 to equilibrium models of the business cycle along the lines of bhandari 1982a saidi 1982 and kimbrough 1983b to the closely related intertemporal utility maximization models with money of helpman 1981 and stockman 1980 1983 one common thread that in a sense unifies all of these and other recent contributions is that they are concerned primarily with the effects of alternative monetary and exchange rate policies that the central bank might enact in light of the development and refinement during this period of the monetary approach to the balance of payments and the exchange rate it is not surprising i would like to thank phil brock jeremy greenwood gary zarkin and two anonymous

inflation and optimal price adjustment under monopolistic competition this paper considers a model of a monopolistically competitive industry with a large number of firms producing imperfect substitutes there is an exogenous inflation rate and each firm must pay a fixed cost every time it adjusts its nominal price it is shown that under quite general conditions there exists a continuum of periodic and synchronized equilibria each one associated with a different frequency of price adjustment consequently the same frequency of price adjustment is compatible with a full range of inflation rates copyright 1992 by the london school of economics and political science

dual exchange rate systems and capital controls an investigation abstract the welfare aspects of dual exchange rate systems are analyzed in this paper the requirement that domestic financial transactions with the rest of the world be undertaken at a special foreign exchange rate is found to be equivalent to levying a tariff on this class of international transactions hence a dual exchange rate system and capital controls are shown to be essentially identical in light of the above statements the dual exchange rate system should be regarded as a form of commercial policy and be evaluated in this context by applying the applicable standard real trade theorems

the real exchange rate the capital stock and fiscal policy abstract this paper studies the joint determination of aggregate supply the real exchange rate and the current account in response to changes in government spending in a model where there is no uncertainty in the aggregate but where individuals are uncertain about their lives duration international capital mobility fixes the steady state capital stock and aggregate supply in a small country whereas in a large country the steady state capital stock is endogenous an increase in government spending is more likely to generate a real exchange rate depreciation in a small country since the loss of wealth associated with cumulated current account deficits does not increase rest of the world spending in the case of a large country current account deficits are wealth transfers to the rest of the world and increase foreign spending thus the normal long run response is an increase in the relative price of domestic output

the terms of trade and the current account the harberger laursen metzler effect the paper examines the effect of terms of trade changes on a small country s spending and current account assuming optimizing behavior in an intertemporal framework with perfect international capital mobility a temporary future terms of trade deterioration implies a deterioration improvement of the trade balance whereas a permanent terms of trade deterioration has an ambiguous effect depending on the rate of time preference nominal and real variables are considered via exact price indexes two periods and an infinite horizon are examined

reducing the size of the public sector workforce institutional constraints and human consequences in guinea public sector employment reduction programmes have become an important component of economic reform efforts in sub saharan africa this article examines the fiscal institutional and human consequences of an employment reduction programme in the west african state of guinea while fiscal benefits appear to have been marginal and compensation schemes well targeted the human costs of the programme were significant due to long spells of unemployment among retrenched workers

consumption and real exchange rates in dynamic economies with non traded goods abstract we examine the possibility that non traded goods may account for several striking features of international macroeconomic data large persistent deviations from purchasing power parity small correlations of aggregate consumption fluctuations across countries and substantial international real interest rate differentials a dynamic exchange economy is used to show that non traded goods in principle can account for each of these phenomena in the theory there is a close relation between fluctuations in consumption ratios and those in bilateral real exchange rates but we find little evidence for this relation in time series data for eight oecd countries

effects of government spending on the current account with endogenous time preference this paper extends a previous model to set up a small open economy with perfect capital mobility and examines the effects of an unanticipated permanent rise in public spending on the optimal rates of private consumption and the current account the novelty of the paper is consideration of the relationship between private and public consumption in the household s utility function as well as endogenous rates of time preference it is found that the key factor determining the adjustment patterns of private consumption and the current account is the marginal utility of private consumption and of public spending which results from endogenous recursive preferences

money banking and the determination of real and nominal exchange rates the authors consider a model where spatial separation limited communication and stochastic relocation create a role for banks and country specific currencies the same factors also permit a deviation from the law of one price the authors examine how monetary policies influence real and nominal rates of exchange and real and nominal rates of interest under both fixed and flexible exchange rate regimes they also demonstrate that both regimes are characterized by an indeterminacy of both the real and the nominal rate of exchange copyright 1997 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

capital controls and fiscal policy in the world economy an intertemporal utility maximization framework is employed to model a world economy with capital controls the effects of fiscal policy in such an environment are examined several results emerge concerning the international transmission of fiscal policy under capital controls and the nature of comovements in macro economic aggregates such as output employment consumption and investment some of the paper s other results concern the implications of capital controls for ricardian equivalence the role of financing decisions in the international transmission process under capital controls and the effect of capital controls on the magnitude of fiscal induced fluctuations throughout the world economy contr6les des mouvements de capitaux et politique fiscale dans l conomie mondiale les auteurs utilisent une approche par la maximisation intertemporelle de l utilite pour modeliser une economie mondiale dans laquelle des controles sur les mouvements de capitaux existent ils examinent les effets de la politique fiscale dans un tel contexte on tire de ces analyses plusieurs resultats quant i la transmission internationale des effets de la politique fiscale et quant aux mouvements lies de certains agregats economiques comme les niveaux de production d emploi de consommation et d investissement certains autres resultats de cette analyse ont trait aux implications des controles des mouvements de capitaux sur l1 quivalence ricardienne au role des decisions de financement dans le processus international de transmission quand il y a controle des mouvements de capitaux et aux effets des controles sur les mouvements de capitaux sur la magnitude des fluctuations induites a travers l economie mondiale par la politique fiscale helpful comments from two anonymous referees are gratefully acknowledged discussion in workshops held at ucla duke university iowa state university queen s university vanderbilt university vpi and the university of western ontario has also been useful canadian journal of economics revue canadienine d economique xviii no 4 november novembre 1985 printed in canada imprime au canada 0008 4085 85 743 65 1 50 canadian economics association this content downloaded from 207 46 13 129 on mon 27 jun 2016 05 25 03 utc all use subject to http about jstor org terms 744 jeremy greenwood and kent p kimbrough

global effects of national stabilization policies under fixed and floating exchange rates this paper deals with international effects of two types of stabilization policies monetary expansion directed towards the demand side and a reduction in payroll taxes directed towards the supply side the analysis focuses on employment relative prices and welfare issues it rests on a simple intertemporal general equilibrium model of two countries that includes a specific micro theory of money under floating exchange rates a country s employment is insulated from both policies abroad but its consumption generally changes under fixed exchange rates no such insulation prevails while monetary expansion is generally expansionary reduced payroll taxes constitute a beggar thy neighbor policy in both systems the welfare of a country may decrease although its employment increases an immiserizing expansion may occur

the current account and the optimal government debt abstract in this paper we analyze the optimal response of the current account and the government debt to real disturbances permanent and temporary lumpsum taxes are not feasible and the government income is raised according to the ramsey rule for optimum taxation we show that permanent disturbances have no effects on either the private or the government current account if initially there are no deficits starting off from the same initial situation both the private sector and the government develop a deficit on current account in response to a temporary disturbance

real interest rates home goods and optimal external borrowing the paper investigates the optimal time path of consumption and external borrowing in the dependent economy model the small country faces given world prices and a given world real interest rate the presence of a home goods sector implies that the relevant real interest rate appropriate to consumption decisions depends on the rate of change of the real price of home goods the paper shows how transitory disturbances in output or in the world real interest rate affect the time profile of consumption and the trade balance in particular it is shown that the presence of a home goods sector dampens the consumption effects of changes in the world interest rate

where has all the education gone in sub saharan africa employment and other outcomes among secondary school and university leavers abstract anecdotal evidence and generalisations abound concerning the employment outcomes of secondary school and university leavers but there is very little solid accurate information on what these groups in african countries do after they have completed their education using tracer surveys this paper presents comprehensive time series information on the activity profiles of representative samples of secondary school leavers and university graduates in malawi tanzania uganda and zimbabwe the paper shows that much of the anecdotal evidence surrounding the labour market outcomes of these groups is spurious while employment outcomes are generally much better than expected the tracer surveys highlight the enormous challenges of educating and subsequently utilising secondary school leavers and university graduates in an efficient and effective manner in low income african countries in particular given the paucity of new employment opportunities in the formal sector much more needs to be done in o

education employment and earnings of secondary school and university leavers in tanzania evidence from a tracer study this study uses a tracer survey of secondary school completers in tanzania to analyse the impact of educational qualifications on labour market earnings we show that the rates of return to the highest educational qualifications for wage employees are not negligible and at the margin provide an investment incentive however we find little evidence of human capital effects in the earnings determination process for the self employment sector introducing controls for father s educational background and a set of school fixed effects designed to proxy for school quality and potential labour market network effects reduces the estimated rates of return to educational qualifications a comparison of our results with the available evidence from other countries in the region suggest that despite an extremely small secondary and university education system the private rates of return to education in the tanzanian wage employment sector are comparatively low

do small menu costs explain large business cycles abstract the menu cost approach to business cycle theory is amended for the costs of adjusting factor demand this modification drastically reduces the size of the social externality commonly associated with small menu costs the existence of menu or other small adjustment costs is hence not likely to have explanatory power for large scale economic fluctuations

on endogenously staggered prices taylor s model of staggered contracts is an influential explanation for nominal inertia and the persistent real effects of nominal shocks however in standard imperfect competition models if agents are allowed to choose the timing of pricing decisions they will typically choose to synchronize this paper provides a simple model of imperfect competition which produces stable staggering our argument relies on strategic interaction at two levels between firms within an industries and across industries and produces a continuum of staggered price equilibria these equilibria are strict and hence stable under a simple adaptive learning process an enduring problem for business cycle theory is an explanation for the persistent effects of nominal shocks explaining persistence is particularly problematic for theories based on nominal shocks as opposed to real shocks this is because rational expectations implies that nominal shocks themselves cannot be serially correlated since nominal shocks are the deviation of realized nominal magnitudes from expected values in two important papers taylor 1979 1980 provided an argument as to why a nominal shock can have persistent effects taylor s argument required two important assumptions first he assumed that firms could adjust prices only in alternate periods an assumption which may be justified by menu or information costs taylor s second assumption was that price setting was staggered half the firms were constrained to adjust prices in odd periods while the other half were allowed to adjust prices in even periods these two assumptions combined to provide dramatic results on nominal inertia the adjustment of prices to a nominal shock is slow and hence output effects are long lasting taylor s results on persistence arise due to strategic complementarity between price setting decisions this implies that each firm s optimal price is an increasing function of the aggregate price level if a shock arrives in an even period firms in the even cohort will not adjust fully to the nominal shock since firms in the odd cohort have fixed prices in the current period furthermore with rational expectations the even cohort also takes into account the fact that its own failure to adjust fully will also make for partial adjustment in future periods this elegant story has made taylor s model possibly the most influential of new keynesian models by providing a dynamic setting within which small nominal rigidities may result in persistent nominal inertia