structural gaiatsu international finance and political change in japan argues that the principal contributor to changes in japan s political economy is the decline of japanese governmental control over capital flows and foreign exchange rates brought about by structural gaiatsu or direct foreign pressure differs from previous analysis of gaiatsu by arguing that international capital and market forces generate gaiatsu not foreign governments and that its influence has been worldwide as well as deeper and more ongoing than bilateral negotiating sessions and joint communiques related to trade discusses how the change has catalyzed a major increase in foreign direct investment by japanese owned corporations a reduction in government s ability to control corporate behavior a diminution of intra corporate linkages conflict within national economic policies and the increased penetration of the japanese economy by foreign financial institutions describes how the change has resulted in an emerging socio economic gap in japan between individuals groups and organizations demonstrates how the japanese experience suggests the transformative power of global capital markets on national political economies particularly those that have been interventionist in nature

capacity choice counters the coase conjecture the coase conjecture 1972 is the proposition that a durable goods monopolist who sells over time and can quickly reduce prices as sales are made will price at marginal cost subsequent work has shown that in some plausible cases that conjecture does not hold we show that the coase conjecture does not hold in any plausible case in particular we examine that conjecture in a model where there is a vanishingly small cost for production capacity and the seller may augment capacity in every period in the gap case any positive capacity cost ensures that in the limit as the size of the gap and the time between sales periods shrink the monopolist obtains profits identical to those that would prevail when she could commit ex ante to a fixed capacity given a standard condition on demand those profits are at least 29 8 of the full static monopoly optimum

third world indebted industrialization international finance and state capitalism in mexico brazil algeria and south korea the past fifteen years have seen two important developments in the international economic system the rapid industrialization of many less developed countries ldcs and their increasing indebtedness to private financial institutions massive bank loans have been used to fund industrial growth in many ldcs international financial markets have replaced multinational corporations as the third world s most important source of private foreign capital in four major borrowing countries mexico brazil algeria and south korea the process of indebted industrialization has its roots in the internationalization of finance the increasing role of the state and the use of funds raised on the international capital markets to finance industrial development the results include rapid expansions of ldc industrial production and ldc exports of manufactured products as well as the formation of an implicit partnership between private financial institutions and state capitalist elites in the third world

power and the control of capital this essay reviews three recent books on the political economy of finance in postcolonial asia and latin america and suggests a framework for examining the relationship between political power and varying patterns of control over investment resources the stress is on the constraints different controllers of capital can impose on state leaders the conditions under which policymakers can subvert these constraints and how conflicts within the state over the trajectory of policy are mediated by who or what supplies critical investment resources and the institutional channels through which the resources flow

partisan governments the international economy and macroeconomic policies in advanced nations 1960 93 this article examines the impact of parties domestic institutions and the international economy on the conduct of monetary and fiscal policies using time series cross section data from nineteen oecd countries for the years between 1960 and the mid 1990s the results are as follows partisan governments have affected alone and in interaction with the organization of labor markets the pattern of macroeconomic management still their impact has varied over time partly as a function of economic conditions but fundamentally as a function of the degree of financial liberalization and the exchange rate system in place after following broadly similar macroeconomic policies in the 1960s oecd governments pursued divergent monetary and fiscal policies in response to the economic slowdown of the 1970s even when they initially adopted countercyclical measures conservative governments quickly favored tight monetary policies and strove to achieve fiscal discipline by contrast taking advantage of generalized capital controls and floating exchange rates socialist cabinets embraced demand management policies in a systematic fashion mostly through budget deficits in corporatist countries and through both loose monetary and loose fiscal measures in noncorporatist settings as financial liberalization progressed in the early 1980s partisan and institution led differences in macroeconomic policies waned across countries

interests and the wall of ideas germany s eastern trade policy after unification since 1989 germany s domestic and international environments have experienced significant changes thus it is reasonable to expect that the country s long standing foreign and domestic policies will adapt to novel challenges and pressures this article examines eastern trade policy an area in which one might expect to observe a greater degree of government intervention postunification in fact no such adaptation has taken place this empirical puzzle lends itself to analysis based on the interaction of interests institutions and ideas unification altered the prevailing constellation of material economic interests in germany as well as parliamentary electoral institutions however the events of 1989 to 1990 left untouched dominant ideas that shaped the west german political economy as well as crucial sets of domestic and international institutions linked to those ideas the authors conclude that the absence of an interventionist trade response stems from continuity at the nexus of ideas and insti

simple monetary policy rules and exchange rate uncertainty abstract we analyze the performance and robustness of some common simple rules for monetary policy in a new keynesian open economy model under different assumptions about the exchange rate model adding the exchange rate to an optimized taylor rule that responds to cpi inflation gives only small improvements in terms of economic stability in most model configurations the taylor rule is also slightly more robust to uncertainty about the exchange rate model than are rules that respond to the rate of exchange rate depreciation our results thus indicate that the taylor rule is sufficient to stabilize a small open economy also under exchange rate model uncertainty

pricing to market in swedish exports fluctuations in prices of swedish exports to five countries are investigated in this paper we test whether there are systematic differences between prices to different markets and whether relative export prices are affected by macroeconomic conditions in destination countries the test results indicate that deviations from no pricing to market and neutrality of money are quite common and persistent over a sample of 15 years long run monetary neutrality is rejected in almost half of the cases in most cases the degree of pricing to market is also affected by aggregate demand in export markets

ideas versus resources explaining the flat tax and pension privatization revolutions in eastern europe and the former soviet union this article examines the rapid spread of pension privatization and the flat tax in former communist countries to understand why new policy ideas take hold and to elucidate the role played by mater

the political economy of the euro crisis this article introduces the special issue on the political economy of the euro crisis which aims to improve our understanding of the causes consequences and implications of the highly unusual nature of this crisis a financial crisis among developed countries within a supranational monetary union the article provides a brief chronology of the crisis discusses its underlying causes and reviews the ways in which comparative and international political economy can help us understand the crisis the article then discusses the individual and collective contributions of the articles in the special issue and discusses possible future research paths on the political economy of the euro crisis we conclude with a brief discussion of how a political economy perspective informs our understanding of the long term prospects for the eurozone and european integration

increasing returns to scale in financial intermediation and the non neutrality of government policy a general equilibrium model of imperfectly competitive financial intermediaries is constructed and used to study the effects of some standard policy experiments one time increases in the growth rate and in the level of the stock of money have non neutral and sometimes surprising effects on interest rates the quantity of intermediated borrowing and lending the number of intermediary firms inflation and the price level optimal government macroeconomic policy is shown to reflect a tradeoff between public sector frictions and the capital market distortion created by increasing returns to scale and imperfect competition in private intermediation

market shares financial constraints and pricing behaviour in the export market a structural dynamic model of price and quantity adjustment is estimated on time series data for exports and export prices two sources of dynamics are considered customer markets and preset prices as predicted by the customer market model the market share adjusts slowly after a change in the relative price and financial conditions affect prices prices are found to be sticky in the sense that they do not reflect the most recent information about costs and exchange rates a parsimoniously parameterized structural model explains about 90 of the variation in market share and the relative price

price discrimination by u s and german exporters the insensitivity of the u s trade balance to the sharp depreciation of the dollar in the past three years has revived interest in the relationship between exchange rates and the trade balance a central issue in most analyses of the relation between the current account and the exchange rate concerns the price adjustment process the simple integrated competitive market model predicts that local currency prices should change in proportion to the nominal exchange rate for a country too small to influence world prices the relationship between local currency import prices and exchange rates has been referred to as the pass through relationship in the empirical literature in international economics if the proportional relationship between import prices and exchange rates holds pass through is said to be complete accounts of recent u s experience cite the failure of dollar prices of imported goods to rise in proportion to exchange rates i e incomplete pass through as an important factor in explaining the persistence of the trade deficit unfortunately observations on pass through alone provide limited insight into the behavior of markets since incomplete pass through is consistent with at least two fundamentally different paradigms one is the standard competitive model of trade in which the law of one price holds but exchange rate fluctuations are associated with large changes in import demand due to other factors for example if dollar appreciation is correlated with increases in world demand and industry marginal cost is increasing then pass through will be less than complete the other is an imperfectly competitive model in which exporters are capable of price discriminating across destination markets a phenomenon paul krugman 1987 has labeled pricing to market in this model incomplete pass through is typically associated with fluctuations in the markup of price over marginal cost on exports 2 these fluctuations in markups are believed to be countryspecific they do not reflect the behavior of prices to other export destinations both models are plausible explanations of recent u s experience unfortunately it is impossible to distinguish between these competing models using only information on import prices and exchange rates for a single country in order to distinguish between the competing models an empirical analysis of goods prices and exchange rates must be capable of measuring either marginal cost or the markup over marginal cost either of these tasks poses formidable empirical problems much of the empirical literature in industrial organization has been concerned with precisely these issues since markups are an important measure of the competitiveness of industries

revisiting the single european act and the common wisdom on globalization the european program of liberalization launched by the single european act sea of 1987 is commonly seen as a powerful instance of globalization trends of economic integration liberalization and international institution building this article revisits the origins of the sea to argue that the extent and success of its liberalizing program depended on a causally distinct push for european institutional reform a retracing of concrete political patterns behind the sea greatly strengthens broader statistical and theoretical challenges to the notion of strong universal trends of globalization

leaning right and learning from the left diffusion of corporate tax policy across borders there is an increased focus in comparative politics and international relations on how choices of governments are dependent on choices made by other governments the authors argue that although the relationship between policy choices across countries is often labeled as either diffusion or competition in many cases the theoretical mechanisms underpinning these labels are unclear in this article the authors build a model of social learning with a specific application to the diffusion of corporate tax reductions the model yields predictions that are differentiable from existing models of tax competition specifically the authors argue that social learning is most likely in the wake of tax policy cuts by left governments they test the model using an existing data set of corporate tax rate changes and an author created data set of changes in tax legislation covering 20 organisation for economic co operation and development countries the authors empirical findings show that social learning is an important determinant of corporate tax policy making

societal preferences partisan agents and monetary policy outcomes if different producer groups have divergent interests concerning macroeconomic policies how do societal preferences translate into state policy outcomes i develop and test a party as agent framework for understanding the importance of societal preferences with regard to monetary policy under capital mobility following the principal agent model political parties function as agents for different societal principals rightist parties tend to represent internationally oriented business groups with preferences for monetary convergence while leftist parties do the same for domestically oriented groups preferring monetary autonomy under capital mobility i present statistical evidence showing that oecd leftist governments have been associated with more monetary autonomy and currency variability than their rightist counterparts even after controlling for basic economic indicators such as inflation the statistical evidence also shows that societal group size tends not to explain either autonomous monetary policy choices or exchangerate stability thus even large and wealthy societal groups may be unable to obtain their preferred policy outcome when their respective partisan agents do not hold government power

small states in big trouble state reorganization in australia denmark new zealand and sweden in the 1980s in australia denmark new zealand and sweden in the 1980s coalitions of politicians fiscal bureaucrats and capital and labor in sectors exposed to international competition allied to transform the largest single nontradables sector in their society the state particularly the welfare state they exposed state personnel and agencies to market pressures and competition to reduce the cost of welfare and other state services the impetus for change came from rising foreign public and private debt rising public debt levels and expensive welfare states interacted to create a tax wedge between employers wage costs and workers received wages this undercut international competitiveness worsening current account deficits and leading to more foreign debt accumulation two factors explain variation in the degree of reorganization in each country differences in their electoral and constitutional regimes and the willingness of left parties to risk splitting their core constituencies introduction of market pressures is an effort to go beyond the liberalization of the economy common in industrial countries during the 1980s and both to institutionalize limits to welfare spending and to change the nature of statesociety relations away from corporatist forms of interest intermediation in short not just less state but a different state

voting for change calculation community and euro referendums referendum votes on adoption of the euro in denmark 2000 and sweden 2003 provide unprecedented natural experiments through which to study the political economy of money using exit polling data and multinomial logit statistical models that allow us to separate preferences for the euro from preferences for the european union eu we test economic calculation and political community as determinants of individual level preferences over adoption of the euro we find that calculation operates most clearly where as in sweden the choice of a fixed versus a floating exchange rate regime is at stake while community exerts strong effects across the two cases we would like to thank krister andersson jerry cohen robert fishman jennifer fitzgerald jeff frieden eric helleiner jacques hymans lars jonung kate mcnamara jennifer wolak and the anonymous reviewers for helpful comments and helga sverrisdottir for outstanding research assistance we are grateful to jens wagner of the danish data archive and torbja rn berglund of the swedish social science dataservice for providing the data used in this note neither these individuals nor their respective agencies are responsible for the interpretations contained herein

de globalization theories predictions and opportunities for international business research de globalization now a distinct possibility would induce a significant qualitative shift in strategies structures and behaviors observable in international business ib coming to terms with this qualitative shift would require ib research to develop a much deeper integration of politics the key driver of de globalization to support such integration this paper introduces two relevant theories of de globalization from political science liberalism and realism both predict de globalization under current conditions but lead to different expectations about the future world economy liberalism suggests a patchwork of economic linkages while realism predicts the emergence of economic blocs around major countries this paper discusses the resulting opportunities in three areas of ib research political strategies and roles of multinational enterprises mnes global value chains and the role of the national context for political strategies and roles there is a need to explore how regular business activities and deliberate political agency of mnes affect the political sustainability of globalization for value chains questions include their future reach and specialization changes in organizational forms and the impact of political considerations on location decisions research opportunities on national contexts relate to their ability to sustain globalization and their connection with economic and military power

doctors with borders occupational licensing as an implicit barrier to high skill migration research on the political economy of immigration overlooks the specificity of human capital in skilled occupations and its implications for immigration preferences and policymaking conclusions that skilled americans are unconcerned about labor market competition from skilled migrants build on a simple dichotomy between high and low skill migrants in this article we show that natives turn to occupational licensing regulations as occupation specific protectionist barriers to skilled migrant labor competition in practice high skill natives face labor market competition only from those high skill migrants who share their occupation specific skills licensure regulations ostensibly serve the public interest by certifying competence but they can simultaneously be formidable barriers to entry by skilled migrants from a collective action perspective skilled natives can more easily secure sub national occupation specific policies than influence national immigration policy we exploit the unique structure of the american medical profession that allows us to distinguish between public interest and protectionist motives for migrant physician licensure regulations we show that over the 1973 2010 period states with greater physician control over licensure requirements imposed more stringent requirements for migrant physician licensure and as a consequence received fewer new migrant physicians by our estimates over a third of all us states could reduce their physician shortages by at least 10 percent within 5 years just by equalizing migrant and native licensure requirements this article advances research on the political economy of immigration and highlights an overlooked dimension of international economic integration regulatory rent seeking as a barrier to the cross national mobility of human capital and the public policy implications of such barriers

death of the partisan globalization and taxation in south america 1990 2006 correcting the relative lack of attention to the revenue side of public finance this article examines to what extent globalization constrains partisan tax policy the author hypothesizes that political ideology is still a good predictor of taxation in the neoliberal era advancing this argument against the prominent globalization thesis that global economic pressures have supplanted political ideology as the driving force of revenue policy although research in developed democracies identifies a resilient link between partisanship and policy outcomes the impact of the drastic neoliberal transition on partisan policy making in the developing world remains poorly understood using time series cross section data to evaluate partisan taxation in south america the author finds that partisanship is a reliable indicator of tax revenue in the neoliberal era counterintuitively however the promarket right generates more tax revenue than the interventionist left the author argues that this previously unexpec

pricing to market in a small open economy the determinants of norwegian import prices of manufactures are investigated over the period 1970 1 1991 4 multivariate cointegration analysis establishes a long run relationship between import prices foreign prices the exchange rate and domestic unit labour costs normalized on import prices the long run elasticities are 0 63 foreign prices and the exchange rate and 0 37 domestic costs deviations from this relationship are highly significant in a structural import price equation which also contains positive effects of growth in domestic demand and inflation as well as a negative effect from the norwegian unemployment rate the estimated parameters appear reasonably stable within the sample

exchange rate theory and practice this volume grew out of a national bureau of economic research conference on exchange rates held in bellagio italy in 1982 in it the world s most respected international monetary economists discuss three significant new views on the economics of exchange rates rudiger dornbusch s overshooting model jacob frenkel s and michael mussa s asset market variants and pentti kouri s current account portfolio approach their papers test these views with evidence from empirical studies and analyze a number of exchange rate policies in use today including those of the european monetary system

investing in the peace economic interdependence and international conflict research appears to substantiate the liberal conviction that trade fosters global peace still existing understanding of linkages between cone ict and international economics is limited in at least two ways first cross border economic relationships are far broader than just trade global capital markets dwarf the exchange of goods and services and states engage in varying degrees of monetary policy coordination second the manner in which economics is said to inhibit cone ict behavior is implausible in light of new analytical insights about the causes of war we discuss and then demonstrate formally how interdependence can ine uence states recourse to military violence the risk of disrupting economic linkages particularly access to capital may occasionally deter minor contests between interdependent states but such opportunity costs will typically fail to preclude militarized disputes instead interdependence offers nonmilitarized avenues for communicating resolve through costly signaling our quantitative results show that capital interdependence contributes to peace independent of the effects of trade democracy interest and other variables students of world politics have long argued that peace is a positive externality of global commerce theorists like montesquieu and kant and practitioners like woodrow wilson asserted that economic relations between states pacify political interaction mounting evidence in recent years appears to substantiate these claims multiple studies many identie ed with the democratic peace link interstate trade with reductions in militarized disputes or wars 1 while we concur with the evolving

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

public inflation aversion and the political economy of macroeconomic policymaking do the macroeconomic priorities of citizens differ across countries if so what accounts for this variation and what are its consequences for explanations of the choice of monetary institutions macroeconomic policy and international monetary cooperation this article uses survey data from twenty advanced economies to examine individual preferences about macroeconomic priorities the analysis establishes three key findings first the results suggest that economic context defined by inflation and unemployment performance has a substantial impact on the public s economic objectives in a way that is broadly consistent with the specification of utility loss functions in the theoretical political economy literature second the results suggest that there is significant cross country variation in inflation aversion controlling for economic context third some of this variation is accounted for by national level factors affecting the aggregate costs of inflation and unemployment these results have significant implications for optimal monetary policymaking the explanation of variation in economic outcomes and for accounts of the choice of institutional frameworks for policymaking i thank the bank of england the center for basic research in the social sciences and the institution for social and policy studies for research support and jim alt andrew bailey bill bernhard lawrence broz john freeman jeff frieden jim granato shigeo hirano david lake jeff lax simon price rose razaghian ron rogowski david stasavage gabriel sterne mike tomz jim vreeland the editor and two anonymous reviewers for helpful comments all views expressed are those of the author and do not represent those of the bank of england

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

the origins of persistent current account imbalances in the post bretton woods era why do some countries run persistent current account surpluses why do others run deficits often over decades leading to enduring global imbalances such persistent imbalances are the root cause of many financial crises and a major source of international economic conflict we propose that differences in wage bargaining institutions explain a large share of imbalances through their effect on the trade balance in countries with coordinated wage bargaining wage growth in export industries can be restrained to ensure competitiveness leading to persistent trade surpluses we estimate the contribution of these institutions to trade balances in organisation for economic co operation and development oecd member countries since 1977 and find ample support for our hypothesis contrary to much of the literature the choice of fixed or floating exchange rate regimes has only a small effect on trade or current account balances in other words internal adjustment in surplus countries via wage bargaining institutions trumps external adjustment by deficit countries

errors in import demand estimates based upon unit value indexes disaggregated import demand elasticity estimates based on import unit value indexes are used in virtually all trade policy simulation models however unit value indexes have been criticized especially by kravis and lipsey 1974 to examine the effect of using unit value indexes on estimates of disaggregated import demand elasticities this paper compares regression results using unit value indexes with results using u s bureau of labor statistics import price indexes for several detailed trade categories based on quarterly data for 1978 88 results show that using unit value indexes does not greatly affect estimated import demand elasticities

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

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

economic actors lobbying influence on the prospects for war and peace political scientists and economists have long been interested in the role of special interests in the policymaking process in the past few years a series of important new books have argued forcefully that the lobbying activities of economic actors have an important influence on the prospects for war and peace all of these analyses claim that whether economic actors enhance or decrease the likelihood of conflict ultimately depends on the domestic political balance between economic actors who have a strong vested interest in pushing for peace versus those that do not i advance two contrary arguments at least among the advanced states i posit there are no longer any economic actors who will be favorable toward war and who will lobby the government with this preference all of the identified mechanisms that previously contributed to such lobbying in these states have been swept away with the end of colonialism and the rise of economic globalization in particular i show that the current structure of the global economy now makes it feasible for foreign direct investment to serve as an effective substitute for conquest in a way that was not possible in previous eras my second argument concerns those economic actors in advanced states with a preference for peace i posit that it has become unnecessary for them to directly lobby the government to avoid war on economic grounds because economic globalization the accumulation of decisions by economic actors throughout the globe now has sufficiently clear economic incentives for leaders

international institutions and domestic compensation the imf and the politics of capital account liberalization certain governments have been faster than others in relaxing their restrictions on the cross border movement of capital how can we explain the timing and extent of financial liberalization across countries since the 1970s we argue that imf stabilizationprogramsprovideawindowofopportunityforgovernmentstoinitiatefinancialreforms butthatpolicymakers are more likely to seize this opportunity when welfare expenditures are high large loans from the imf shield policy makers from the costs of financial reform while welfare expenditures provide credibility to the government s ex ante promises of compensation to individuals who are harmed by the reforms we test this hypothesis on data for 87 countries from 1975 to 2002 we employ a spatial autoregressive error sample selection model which accounts for the nonrandom participation of countries in imf programs as well as the processes of international policy diffusion the results provide strong support for the interactive effect of imf programs and domestic welfare expenditures on financial liberalization

asset specificity and the political behavior of firms lobbying for subsidies in norway previous research into endogenous trade policy has described extensively the political incentives of firms with specific assets but no studies have shown directly that firms behave as predicted we adopt insights from transaction costs economics to develop measures of asset specificity and to investigate how variation in these measures affects the political behavior of firms in particular we examine the lobbying choices of norwegian firms in the 1980s given available subsidy funds from norway s oil boom and some government decisions in the 1970s firms with more specific assets faced potentially greater losses from adjusting to new activities in the face of competitive pressures and thus had greater incentives to lobby for subsidies to protect themselves joint contacting of parliament and government on behalf of firm interests by representatives of both management and labor should be particularly likely where firms had specific assets data analysis shows that asset specificity as indicated by r d intensity and job immobility predicts joint contacting independently of plausible alternative explanatory variables like firm size and export orientation

the evidence of strategic pricing policies of turkish textile exports this paper examines the strategic pricing behaviour pricing to market ptm policies of textile exports in the 1990s for a hyperinflation country turkey whose currency has been depreciating continually for the last two decades the findings show that turkish textile export categories exhibit evidence of strategic pricing behaviour when the turkish textiles export data is analysed for different frequencies the results show that evidence of strategic pricing behaviour is observed in response to changes in real exchange rates for textile exports for closer lagging periods and strategic pricing behaviour diminishes with further lagging periods also evidence of strategic pricing behaviour is observed in a more recurrent fashion with higher frequency data three month periods than with relatively lower frequency data six month and 12 month periods another interesting finding is that turkish textile exporters prefer to increase their prices as a reaction if they had adjusted their prices in an overshoot

export price responses to exogenous exchange rate movements the export price responses to three different exogenous exchange rate movements are investigated using data on swedish exports of automobiles and kraft paper to three destination countries a pric

international macroeconomic policy coordination when policymakers do not agree on the true model the authors relax the assumption of the literature on international coordination that policymakers know the true model t wo countries will still be able to agree on a cooperative policy pack age that each believes will improve the objective function relative t o the nash noncooperative solution however the bargaining solution may move the target variables in the wrong direction these points ar e illustrated with monetary and fiscal multipliers taken from simulat ions of ten leading econometric models out of 1 000 possible combina tions of models that could represent u s beliefs non u s beliefs and the true model monetary coordination improves u s welfare in on ly 546 cases copyright 1988 by american economic association

national tax systems versus the european capital market capital taxation alberto giovannini the current structure of taxes on capital income across ec countries can be exploited by corporations to reduce tax burdens skilled individuals can indulge in tax avoidance too the liberalization of capital movements stands to turn tax avoidance into a cottage industry this article provides a primer on capital income taxes and describes strategies which reduce the tax burden from a policy perspective the question is how to avoid massive tax evasion after 1992 there is no need to harmonize if the right taxation principle is adopted two principles are contrasted the territorial principle according to which taxes are levied on domestic investment irrespective of the country of residence of the beneficiary and the worldwide principle according to which taxes are levied on domestic savings irrespective of where they are invested it is shown that the worldwide principle involves much fewer distortions than the territorial principle a strict application of this principle would effectively solve the problem of tat evasion in europe without requiring full harmonization of the tax systems its full implementation would require the abolition of withholding taxes the elimination of tax deferrals which are quite pervasive throughout europe and an in depth review of blocking and secrecy laws

democracy and markets the case of exchange rates the relationships between the workings of democratic institutions and currency markets are studied severa competing propositions about how political re equilibration affects currency markets are derived and tested the results support the view that democratic politics affects currency markets expectations and uncertainty about electoral outcomes and government survival affect the probability of switching between currency market equilibria additionally opinion polls about chief executive performance have a direct effect on the probabilities of switches between currency regimes suggesting that these polls cause currency traders to revise their expectations about the stability of governments and or the contents of public policies electoral institutions mitigate the impact of politics on currency market equilibria political effects are weaker in countries with proportional representation electoral systems than in countries with majority plurality systems there is less evidence that central bank independence consensual corporatist systems or political coherency reduces the effect of politics on currency markets he study of democracy and markets is at the heart of political economy understanding how political equilibration and economic equilibration are related is one of the main challenges facing this field the size and nature of currency markets make them especially important cases substantively with globalization currency markets have become important constraints on elected governments reducing their room to maneuver analytically in comparison to most goods markets currency markets are informationally efficient asset markets with distinctive equilibria today s exchange rate is determined by currency traders fully informed expectations about tomorrow s exchange rate the sensitivity of these markets to the arrival of new information therefore makes them particularly well suited for studying the effects of political news and uncertainty on economic equilibration 1 this article demonstrates there are informationally relevant political factors insofar as exchange rate determination is concerned factors that directly affect the transition probabilities between currency market equilibria moreover these factors vary in important ways across democracies some electoral institutions lessen the effects of politics on currency

the origins of financial openness a study of current and capital account liberalization theory we assess the determinants of the national regulation of international finance or the comparative degree of national financial openness or closure hypotheses partisanship interacts with a nation s factor endowments to account in part for different international financial policies by governments of the same partisan hue methods we offer a quantitative measure of international financial openness or current and capital account regulation for 21 member countries of the organization for economic cooperation and development for 1950 88 we use regression analysis employing panel corrected standard errors to discover the determinants of financial openness results our main finding is that political partisanship substantially explains openness but does so in complex ways differences in both political institutional arrangements and types of political economy also account for part of the differences in international financial regulation

growth volatility and financial liberalization we examine the effects of both equity market liberalization and capital account openness on real consumption growth variability we show that financial liberalization is mostly associated with lower consumption growth volatility our results are robust surviving controls for business cycle effects economic and financial development the quality of institutions and other variables countries that have more open capital accounts experience a greater reduction in consumption growth volatility after equity market openings we also find that financial liberalizations are associated with declines in the ratio of consumption growth volatility to gdp growth volatility suggesting improved risk sharing our results are weaker for liberalizing emerging markets but we never observe a significant increase in real volatility moreover we demonstrate significant differences in the volatility response depending on the size of the banking and government sectors and certain institutional factors

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

invested interests the politics of national economic policies in a world of global finance capital moves more rapidly across national borders now than it has in at least fifty years and perhaps in history this article examines the effects of capital mobility on different groups in national societies and on the politics of economic policymaking it begins by emphasizing that while financial markets are highly integrated within the developed world many investments are still quite specific with respect to firm sector or location it then argues that contemporary levels of international capital mobility have a differential impact on socioeconomic groups over the long run increased capital mobility tends to favor owners of capital over other groups in the shorter run owners and workers in specific sectors in capital exporting countries bear much of the burden of adjusting to increased capital mobility these patterns can be expected to lead to political divisions about whether or not to encourage or increase international capital market integration the article then demonstrates that capital mobility also affects the politics of other economic policies most centrally it shifts debate toward the exchange rate as an intermediate or ultimate policy instrument in this context it tends to pit groups that favor exchange rate stability against groups that are more concerned about national monetary policy autonomy and therefore less concerned about exchange rate stability similarly it tends to drive a wedge between groups that favor an appreciated exchange rate and groups that favor a depreciated one these divisions have important implications for such economic policies as european monetary and currency union the dollar yen exchange rate and international macroeconomic policy coordination

competing commitments technocracy and democracy in the design of monetary institutions in this article i refine and expand the agenda for research on monetary institutions first i evaluate the analyses and research designs presented in this special issue of international organization out of this evaluation several ideas about how to produce a third generation of research on this topic emerge specific ideas include how to create a better synthesis with certain branches of economics such as information economics broaden the welfare criteria on which institutional choices are made deepen the analyses of coalitional and other political processes on which the choice of institutions are based and strengthen the tests that are offered in support of these choices in the second part of this article i explore questions of how popular sovereignty over economic policy and institutional choice are achieved i show that the institutional regimes proposed in the special issue are in a sense democratic as long as the public s perceived consensus about economic policies and macroeconomic outcomes is real however if as new work suggests there is genuine dissensus about policy and macroeconomic objectives it is no longer clear that the regimes proposed in the special issue are democratic in the conclusion i briefly discuss a possible crisis of imagination in institutional design