comments on hodrick and srivastava in their paper the covariation of risk premiums and expected future spot exchange rates robert hodrick and sanjay srivastava provided a useful analysis of one of the key questions that have occupied the center stage of research in exchange rate economics in recent years various attempts have been made to account for the determinants and the statistical properties of the discrepancies between forward exchange rates and expected future spot rates a discrepancy which is frequently referred to as the risk premium in an earlier work e fama 1984 found that the covariance between the risk premium and the expected rate of change of the exchange rate was negative in their own contribution hodrick and srivastava clarify the theoretical circumstances under which the finding of the negative covariance can be rationalized and they demonstrate by means of alternative econometric techniques that fama s findings are robust in my subsequent comments i discuss some of the theoretical issues underlying the analysis as well as additional aspects concerning the empirical work

the real exchange rate conundrum the case of central america abstract this paper evaluates alternative measures of the real exchange rate for mexico and central american countries bilateral and multilateral real exchange rates using the consumer price index wholesale price index and gross domestic product deflator are calculated there are often significant differences between the bilateral and multilateral measures of the real exchange rate real exchange rates based on consumer price indexes and gross domestic product deflators were found to be more closely related to each other than either one was to the wholesale price index

exchange rate systems and investor preferences i introduction dissatisfaction with the performance in the 1980s of floating exchange rates has lead to renewed interest in a system of target zones for foreign exchange rates or a partial return to fixed exchange rates consideration of these proposals raises many of the same questions about the economic effects of fixed vs flexible exchange rates that were addressed in the late 1960s and early 1970s although there are several issues of interest both at the macroeconomic level and at the level of the individual investor in this paper we focus on only one do floating exchange rates increase the riskiness of international investment positions so that investors would prefer the distribution of returns existing under a fixed exchange rate regime this question whether international financial transactions are more risky under floating than under fixed rates was a major point of controversy in the debate over the adoption of floating exchange rates for a review of the arguments see for example friedman 1953 or halm 1970 once again this issue has arisen mckinnon 1988 86 argues i hypothesize that a floating exchange market is socially inefficient because private foreign exchange traders face a huge gap in relevant information the relative future purchasing powers of national fiat monies none of which has any intrinsic value are highly uncertain thus the assessments of international investors of whether dollar or yen or mark assets provide the best combination of yield and safety are unnecessarily volatile we might suppose then that this excess volatility will reduce international investment activity relative to what a fixed rate regime would encourage mckinnon is by no means alone in the belief that floating exchange rates add an undesirable level of risk to international investment positions see edison and melvin 1990 for a review of this literature however there has been little empirical work done on whether the move to floating rates did in fact add an undesirable level of risk our study is intended to shed light on this issue specifically we ask which group of risk averse investors prefers the distribution of returns under a fixed exchange rate regime and which prefers the distribution of returns under a floating exchange rate regime we begin by using a stochastic dominance approach to investigate exchange rate risk for twelve countries from the viewpoint of an investor holding currencies both u s and non u s investors are considered and we explore the risk taking characteristics of those investors who would prefer one regime to another we find that the fixed rate regime should be overwhelmingly preferred by all risk averse investors holding currencies next we consider the uncovered returns on foreign stocks again we consider both the u s and non u s investor we find that the floating rate regime should be preferred by all risk averse investors this finding for uncovered stock portfolios indicates that floating rates have not created a level of risk that investors consider excessive before proceeding we should address the problem of comparing two alternative exchange rate systems over two different time periods the greater variability of flexible exchange rates in the 1970s and 1980s compared to the earlier pegged rates is not entirely attributable to the change in the nominal exchange rate regime the 1970s and 1980s were characterized by more frequent and more serious real shocks to the global economy than was true of the 1950s and 1960s because of this difference we cannot assert based on a retrospective view of real returns to investors under alternative exchange rate systems that investors would generally prefer one exchange rate regime to another

from physical to human capital accumulation inequality and the process of development this paper develops a growth theory that captures the replacement of physical capital accumulation by human capital accumulation as a prime engine of growth along the process of development it argues that the positive impact of inequality on the growth process was reversed in this process in early stages of the industrial revolution when physical capital accumulation was the prime source of growth inequality stimulated development by channelling resources towards individuals with a higher propensity to save as human capital emerged as a growth engine equality alleviated adverse effects of credit constraints on human capital accumulation stimulating the growth process this research develops a growth theory that captures the endogenous replacement of physical capital accumulation by human capital accumulation as a prime engine of economic growth in the transition from the industrial revolution to modern growth the proposed theory offers a unified account for the effect of income inequality on the growth process during this transition it argues that the replacement of physical capital accumulation by human capital accumulation as a prime engine of economic growth changed the qualitative impact of inequality on the process of development in the early stages of the industrial revolution when physical capital accumulation was the prime source of economic growth inequality enhanced the process of development by channelling resources towards individuals whose marginal propensity to save is higher in the later stages of the transition to modern growth as human capital emerged as a prime engine of economic growth equality alleviated the adverse effect of credit constraints on human capital accumulation and stimulated the growth process the proposed theory unifies two fundamental approaches regarding the effect of income distribution on the process of development the classical approach and the credit market imperfection approach 1 the classical approach was originated by smith 1776 and was further interpreted and developed by keynes 1920 lewis 1954 kaldor 1957 and bourguignon 1981 according to this approach saving rates are an increasing function of wealth and inequality therefore channels resources towards individuals whose marginal propensity to save 1 the socio political economy approach provides an alternative mechanism equality diminishes the tendency for socio political instability or distortionary redistribution and hence it stimulates investment and economic growth see the comprehensive survey of benabou 1996b

doubts about the mckinnon standard f or over ten years ronald mckinnon has advocated a new monetary system centered on fixed exchange rates between the japanese yen the german mark and the u s dollar unperturbed by the collapse of the fixed exchange rate system in 1971 73 mckinnon was already arguing in 1974 for new monetary arrangements based on rigidly fixed rates but built on stronger foundations world monetarism rather than national monetary discretion mckinnon 1974 since then he has refined his plan for monetary integration under rigidly fixed exchange rates a gold standard without gold as he recently called it mckinnon 1987b his proposal has fallen on fertile soil because the dramatic volatility in exchange rates makes the financial press and the business community grasp for ready answers mckinnon s scheme seems to solve the problem of currency instability and to judge from his presentation there are only merits and not one shortcoming in fact however there is little theoretical or empirical basis for his standard to support this criticism i will summarize first several of mckinnon s key propositions and prescriptions and then review these in a critical spirit proposition 1 the belief that real exchange rates affect the current account is a false doctrine real expenditure changes triggered by exchange rate movements offset gains in competitiveness current account imbalances should be adjusted by fiscal policies not real exchange rates proposition 2 fixed exchange rates are superior to flexible exchange rates as a means of adjusting to real disturbances and to achieve price stability

poverty and landownership the author studies how landownership affects labor allocation income distribution and poverty in less developed countries he focuses on three prototypes of ownership classes landlords smallholders and landless people agents are identical except for their ownership of assets on the basis of optimizing behavior they divide into urban workers in the modern sector urban workers in the informal sector agricultural laborers subsistence farmers and landlords the impact of land reform on production and poverty depends on the amount of fertile land per capita a more egalitarian distribution of landownership reduces poverty where land is scarce but not where land is abundant copyright 1992 by american economic association

financial inclusion and poverty a tale of forty five thousand households abstractusing a new nationally representative survey data covering approximately 45 000 indian households we examine the effects of financial inclusion on poverty we construct a multidimensional

contract length monetary policy and exchange rate variability abstract this paper investigates the dependence of exchange rate variability on average contract length in the goods market when changes in the money supply are the driving force for movements in the exchange rate it is shown that in general an increase in average contract length will increase the volatility of the exchange rate we then discuss how changes in the money supply process affect average contract length besides providing an explanation for changes in the conditional variance of the exchange rate our results are interesting in the light of the changes in monetary control procedures implemented by the federal reserve board in october 1979 and the consequent increase in exchange rate volatility

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

female headed households and female maintained families are they worth targeting to reduce poverty in developing countries controversy exists over whether to target public and private sector programs to female headed households in developing countries in the attempt to combat poverty and social disadvantage the issues related to the definition and measurement of female headship and the importance of the concept for development policy are discussed a systematic review is then presented of the empirical evidence on the relation between female headship and poverty if female headed households tend to be poorer on average than other households headship should seriously be considered as a potentially useful criterion for targeting antipoverty interventions especially in developing countries where means testing is not feasible the authors examine the potential costs and benefits of targeting female headship and review the experience of chile one of the few countries which has targeted female headship through government intervention and the only one which has evaluation data available the analysis of the project experience is used along with a review of the empirical evidence to answer the question of the desirability and efficiency of targeting female headship in order to reduce poverty in developing countries

the price of experience we identify a key role of factor supply driven by demographic changes in shaping several empirical regularities that are a focus of active research in macro and labor economics in particular demographic changes alone can account for the large movements of the return to experience over the last four decades for the differential dynamics of the age premium across education groups emphasized by katz and murphy 1992 for the differential dynamics of the college premium across age groups emphasized by card and lemieux 2001 and for the changes in cross sectional and cohort based life cycle profiles emphasized by kambourov and manovskii 2005 jel d91 e24 i23 j11 j24 j31

are some groups more vulnerable to macroeconomic shocks than others hypothesis tests based on panel data from peru abstract which socio economic groups are most vulnerable to welfare declines during a macroeconomic shock after clarifying the difference between poverty and vulnerability this paper presents an analytical framework and applies it to panel data from peru major findings are 1 households with better educated heads are less vulnerable 2 female headed households are no more vulnerable than male headed households 3 households with more children are more vulnerable 4 transfer networks that assist the poor in relatively stable periods do not protect them during a major shock unless they originate from outside peru and 5 peru s social security program is targeted neither to vulnerable nor to poor households but other transfer programs are better targeted

external adjustments and exchange rate flexibility some evidence from u s data this paper examines the role of the exchange rate in u s external adjustments the results show that the exchange rate is an important transmission channel of influence on prices and with longer lags on income and the trade balance the effects of the exchange rate and relative prices on the trade balance are not symmetric even in the long run exchange rate feedback is insignificant and makes little difference in trade balance adjustment there are also indications that the response of relative prices to the exchange rate shifted in recent years such changes seem to help explain the persistence of the u s trade deficit in recent years for multilateral trade but not bilateral trade with japan or germany copyright 1991 by mit press

the cyclicality of the opportunity cost of employment the flow opportunity cost of moving from unemployment to employment consists of forgone public benefits and the forgone consumption value of nonworking time we construct a time series of the opportunity cost of employment using detailed microdata and administrative or national accounts data to estimate benefits levels eligibility take up consumption by labor force status hours taxes and preference parameters the opportunity cost is procyclical and volatile over the business cycle the estimated cyclicality implies far less unemployment volatility in leading models of the labor market than that observed in the data irrespective of the level of the opportunity cost

intergenerational household formation female labor supply and informal caregiving a bargaining approach children s provision of in kind services to their elderly parents informal caregiving represents an important form of economic transfers to the elderly in this paper we develop and estimate a joint model of informal caregiving and labor force participation decisions of adult daughters who have a frail elderly parent in a broader framework of intergenerational household formation parent and daughter agree to a nash bargaining rule as the solution to the household formation and intrahousehold decision making process however rather than severed relationships the threat point is given by a noncooperative equilibrium defined in terms of voluntary contributions toward a public good the parental well being maximum likelihood parameter estimates derived from the simultaneous multiequation endogenous switching model are generally consistent with expectations our results indicate that competing demands on daughters time reduce both coresidence and informal caregiving we also find that intergenerational coresidence is an important mode of assistance to elderly persons a simulation based on the estimated parameters suggests that public programs designed to meet the long term care needs of elderly persons by subsidizing formal home care services may have substantial effects on intergenerational living and care arrangement decisions

changes in job instability and insecurity using monthly survey data this article provides evidence on changes in short term job instability and insecurity using the survey of income and program participation monthly measures from this data set are contrasted with annual measures from the survey of income and program participation and the panel study of income dynamics neither data set shows an increase in job turnover during the 1980s and 1990s we also examine indicators of increased insecurity these include the probability that a job ends involuntarily is followed by a spell of nonemployment or that the subsequent job has lower wages these indicators of insecurity also show no upward trend

income distribution and macroeconomics this paper analyzes the role of wealth distribution in macroeconomics through investment in human capital it is shown that in the presence of credit markets imperfections and indivisibilities in investment in human capital the initial distribution of wealth affects aggregate output and investment both in the short and in the long run as there are multiple steady states this paper therefore provides an additional explanation for the persistent differences in per capita output across countries furthermore the paper shows that cross country differences in macroeconomic adjustment to aggregate shocks can be attributed among other factors to differences in wealth and income distribution across countries

real exchange rate volatility and exchange rate regimes evidence from long term data abstract using over one hundred years of historical data for the uk canadian japanese and french us real exchange rates we find that real exchange rate volatility is greater for flexible exchange rate periods than for fixed rate periods

labor shortages on small landholdings in malawi implications for policy reforms abstract a simple linear programming model of representative smallholder households is used to investigate the sources of relative scarcity of labor and land in malawi the paradox of on farm labor shortages on small landholdings can be explained by the multiple constraints smallholders face these multiple constraints including lack of finance concerns for food security and others lead to suboptimal allocations of household resources in turn the low returns to labor and land contribute to household food insecurity and a vicious cycle of poverty the findings of the paper provide a clear signal to policymakers and research and extension institutions that these constraints are all linked and addressing one cannot be effective without addressing the others

political vs currency premia in international real interest differentials a study of forward rates for 24 countries abstract different approaches to quantifying the degree of capital mobility for a cross section of currencies particularly saving investment correlations and tests of real interest parity have appeared to show a surprisingly low degree of financial integration we use a new data set forward rate data for 24 countries including many small industrialized countries and seven ldcs to decompose the real interest differential into two parts the covered interest differential or political premium and the real forward discount or currency premium the latter in turn can be decomposed into the exchange risk premium and expected real depreciation we find a high degree of capital mobility across political boundaries for most of the g 11 countries plus hong kong and singapore for our sample period of 1982 to 1987 even for most of the other ldcs and smaller industrialized countries for which covered interest parity clearly fails the political premium is not as big a component of the real interest differential as the currency premium france would appear to have higher capital mobility than most by the criterion of real interest differentials but is seen in fact to have low capital mobility by the criterion of covered interest differentials a clear example of the superiority of the latter criterion

the effects of the unemployment insurance payroll tax on wages employment claims and denials abstract following a 13 year period when all employers in washington paid the same unemployment insurance ui tax rate washington was forced to adopt an experience rated tax system in 1985 we use this natural experiment to explore both tax incidence and the effects of experience rating we find that industry average tax rates are largely passed on to workers through lower earnings however our estimates imply that a firm can shift much less of the difference between its tax rate and the industry average rate our results also indicate that experience rating reduces turnover and ui claims and increases claim denials

occupational and job mobility in the us we propose a new methodology to measure worker mobility across occupations and jobs in the us building on the limited longitudinal dimension of monthly cps data for the period 1979 2006 we find that about 3 5 of male workers employed in two consecutive months report different three digit occupations this rate is procyclical mildly rising in the 1980s and falling after 1995 we also revise upward current estimates of aggregate job to job mobility since 1994 from 2 7 to 3 2 of employment per month despite extreme similarity of average levels and time series behavior occupational and job mobility are only weakly correlated

job matching and propagation in the u s labor market the vacancy unemployment ratio and employment react sluggishly to productivity shocks we show that the job matching model in its standard form cannot reproduce these patterns due to excessively rapid vacancy responses extending the model to incorporate sunk costs for vacancy creation yields highly realistic dynamics creation costs induce entrant firms to smooth the adjustment of new openings following a shock leading the stock of vacancies to react sluggishly

financial access and exclusion in kenya and uganda abstract policy emphasis has recently shifted to finance for all given evidence that financial sector development contributes to growth but effects on poverty do not arise from pro poor provision we argue that given this policy goal analyses of barriers to access must be country specific and go beyond the emphasis on transactions costs to incorporate the effects of social institutions since these contribute to discrimination this paper uses data from financial access surveys carried out in 2006 in kenya and uganda to investigate the socio economic demographic and geographical factors influencing access to and exclusion from formal semi formal and informal financial services

shifting fortunes the political economy of financial liberalization in nigeria abstract on the recommendation of the world bank nigeria began to liberalize its financial sector in 1986 contrary to the prediction of financial repression theory savings and investment decline in the wake of banking deregulation by 1995 the nigerian financial system was in a state of collapse the paper locates the main failure of nigeria s financial deregulation in the political and institutional setting of reform the institutional mechanisms needed to supervise and regulate banking under the new system were absent while private sector banking capacities were weak moreover financial liberalization was quickly captured by a clientalist state as a means of reallocating rents to strategic constituents an additional precipitating factor was macroeconomic instability the paper points to the importance of incorporating political and institutional variables into any model of financial reform or transformation

informal financial markets under liberalization in four african countries abstract this paper presents survey evidence from four countries on how informal financial agents serve market niches that banks cannot readily reach their methodologies are effective in keeping down transaction costs and default risk relative to banks although informal agents exercise monopoly power in dualistic markets liberalization of repressive financial policies has had little effect on formal financial deepening while informal finance has continued to grow the paper concludes that informal financial institutions are an important vehicle for mobilizing household savings and financing small businesses and it recommends that informal finance be better integrated into financial development strategies

monetary and exchange rate policies for international financial stability a proposal w v ithout a common monetary standard the remarkable integration of western european north american and the industrialized asian economies in both commodity trade and financial flows is less efficient and becoming untenable dissatisfaction with wildly fluctuating relative currency values euphemistically called floating or flexible exchange rates is a prime cause of the resurgence in protectionism in 1986 87 the overvalued yen forced japanese industrialists to close factories retire workers and write off once valuable investments in plant and equipment this parallels what their american counterparts were forced to do between 1981 and 1985 when the dollar suddenly became overvalued similarly the paring down of the british manufacturing base was precipitated when the pound unexpectedly became a strong petrocurrency in 1979 81 in agriculture japan and european countries are determined to insulate their domestic prices of farm products from unsettling international influences including volatile fluctuations in the yen dollar or mark dollar exchange rates thus unless exchange stability is first achieved the american government s attempt to broaden the general agreement on tariffs and trade to encompass agriculture and services is likely to fail but what keeps the three major industrial blocs from developing a common monetary standard to prevent exchange rate fluctuations although many people

human capital and unemployment dynamics why more educated workers enjoy greater employment stability why do more educated workers experience lower unemployment rates and lower employment volatility empirically these workers have similar job finding rates but much lower and less volatile separation rates than their less educated peers we argue that on the job training being complementary to formal education is the reason for this pattern using a search and matching model with endogenous separations we show that investments in match specific human capital reduce incentives to separate but leave the job finding rate essentially unaffected the model generates unemployment dynamics quantitatively consistent with the data finally we provide novel empirical evidence supporting the mechanism studied in the paper this article is protected by copyright all rights reserved

big bad banks the winners and losers from bank deregulation in the united states we assess the impact of bank deregulation on the distribution of income in the united states from the 1970s through the 1990s most states removed restrictions on intrastate branching which intensified bank competition and improved bank performance exploiting the cross state cross time variation in the timing of branch deregulation we find that deregulation materially tightened the distribution of income by boosting incomes in the lower part of the income distribution while having little impact on incomes above the median bank deregulation tightened the distribution of income by increasing the relative wage rates and working hours of unskilled workers

international trade with forward futures markets under exchange rate and price uncertainty abstract the paper examines a risk averse firm s decisions on the level of trade when the exchange rate and the commodity price are uncertain and the extent of forward exchange and commodity futures commitments first we verify the separation theorem and the full double hedging theorem second we investigate the implications of the existence of both forward foreign exchange and commodity futures markets in comparison to the case where only one or no market is available to the firm the second exercise enables us to focus on conditions under which establishing forward futures arrangements promotes international trade

the decline of job loss and why it matters there is considerable evidence that american workers face lower risks of job loss in recent years than 10 20 or 30 years earlier i summarize some of the evidence for this claim and explain why the decline of job loss matters my attention centers on unwelcome job loss employer initiated separations that lead to unemployment temporary or persistent drops in earnings and other significant costs for job losers since there is no fully satisfactory statistic for the incidence of job loss i consider several measures and data sources

widowhood and poverty in rural india some inferences from household survey data abstract this paper examines the relationship between widowhood and poverty in rural india based on national sample survey data on consumer expenditure in terms of standard poverty indices based on household per capita expenditure there is no evidence of widows being disproportionately concentrated in poor households or of female headed households being poorer than male headed households these findings also apply in terms of adult equivalent consumption for any reasonable choice of equivalence scales poverty indices for different household types however are quite sensitive to the level of economies of scale even relatively small economies of scale imply that the incidence of poverty among single widows widows living with unmarried children and female household heads all of whom tend to live in relatively small households is higher than in the population as a whole

employment hours and earnings consequences of job loss us evidence from the displaced workers survey data are used from the 1984 2016 displaced workers surveys dws to investigate the incidence and consequences of job loss 1981 2015 these data show a record high rate of job loss in the great re

financial development growth and the distribution of income a paradigm is presented in which both the extent of financial intermediation and the rate of economic growth are endogenously determined financial intermediation promotes growth because it allows a higher rate of return to be earned on capital and growth in turn provides the means to implement costly financial structures thus financial intermediation and economic growth are inextricably linked in accord with the goldsmith mckinnon shaw view on economic development the model also generates a development cycle reminiscent of the kuznet hypothesis in particular in the transition from a primitive slow growing economy to a developed fast growing one a nation passes through a stage in which the distribution of wealth across the rich and poor widens

declining labor turnover and turbulence abstract the rate of job loss has been on a secular decline for the last four decades or longer changes in demographics or industry composition do not account for the trend this paper seeks to identify the possible sources of the decline using a simple search and matching model with two types of workers experienced and inexperienced where the former type faces a risk of skill loss during unemployment the calibrated model suggests that a higher risk of skill loss during unemployment results in a lower job separation rate because workers accept lower wages in exchange for job security various other potential hypotheses are also examined

currency substitution and instability in the world dollar standard comment myron ross correctly points out in his comment that u s price inflation is better predicted by the american money supply mlus than by the broader ten country world money supply mlw over the whole statistical time series from 1960 to 1980 provided in mckinnon s 1982 article specifically he showed that american price inflation is more highly correlated with mlus lagged one or two years than with mlw similarly lagged however mckinnon s present tense assertion that in general growth in the world money supply is a better predictor of american price inflation than is american money growth applies only to the weak dollar standard of the 1970 s and early 1980 s as his preceding discussion intended but failed to indicate clearly only in this later period of volatile exchange rates and price level instability in the united states do alternative hard currencies such as the yen and deutsche mark become competitive as international stores of value and units of account hence international currency substitution associated with the ebb and flow of speculation against or for the dollar significantly destabilized the demand for mlus in the 1970 s and 1980 s and only in this later period might one expect the sum of these internationally substitutable monies ml to predict world and perhaps even american price inflation better than does mlus in contrast during the strong dollar standard of the 1950 s and 1960 s the dollar was unchallenged as international money exchange rates were by and large convincingly fixed speculation for or against the dollar was incapable of substantially altering u s interest rates or of directly affecting the demand for mlus because cyclical international influences did not then destabilize the demand for dollars mlus was by itself a fairly efficient predictor of american prices thus ross s statistical results for the period 1960 to 1980 show somewhat greater predictive strength in mlus compared to ml because the 1960 s data outweigh the dissimilar data of the 1970 s let us instead partition the sample of imf data around the year 1970 whence began the transition from fixed to fluctuating exchange rates and the maturation of alternative monetary systems in europe and japan after applying similar statistical correlation procedures to those used by ross we show a striking structural shift in the world s monetary system the explanatory power of mlw increases sharply as that of mlus declines moderately tan 1982 for the early period of 1960 to 1970 table 1 shows simple correlation coefficients between annual percentage changes in money supplies and changes in american and world wholesale price indices the mlus provides a good explanation of u s prices and of world prices one to two years hence whereas the broader definition of mlw in which mlus enters with a 50 percent weight does surprisingly poorly being insignificantly correlated with american or world prices apparently money growth in industrial countries other than the united states was not then an independent source of worldwide inflationary pressure during the strong dollar standard table 2 shows the same simple correlations between percentage changes in prices and money for the weak dollar standard of stanford university please note that a typographical error giving the last word in the original title as market appeared on the cover of the june 1982 issue of this review the title was correct in the table of contents and on the article

excess returns and official intervention some cross country evidence this paper presents a simple model of foreign exchange market intervention which shows that such intervention introduces positive structure into exchange rate changes evidence linking this structure to observable filter rule profits is also provided

externalities in economies with imperfect information and incomplete markets this paper presents a simple general framework for analyzing externalities in economies with incomplete markets and imperfect infonnation by identifying the pecuniary effects of these externalities that net out the paper simplifies the problem of determining when tax interventions are pareto improving the approach indicates that such tax interventions almost always exist and that equilibria in situations of imperfect information are rarely constrained pareto optima it can also lead to simple tests based on readily observable indicators of the efficacy of particular tax policies in situations involving adverse selection signaling moral hazard incomplete contingent claims markets and queue rationing equilibria traditional discussions of externalities have emphasized the distinction between technological externalities in which the action of one individual or firm directly affects the utility or profit ofanother and pecuniary externalities in which one individual s or firm s actions affect another only through effects on prices while the presence of technological externalities imply in general that a competitive equilibrium may not be pareto efficient pecuniary externalities hy themselves are not a source of inefficiency the fact that prices change has of course important consequences there are both distributional and allocational effects but the distribution effects net out gains for example hy firms whose prices increase are precisely offset by losses e g to individuals who must pay higher prices and there are no welfare losses from the allocation effects as long as the price changes involved are small if firms are maximizing profits and individuals are maximizing utility both facing prices that correctly refiect opportunity costs then standard envelope theorem arguments imply that changes in profits or utility induced by changes in allocations resulting from any small change in prices are negligible

is job stability in the us falling reconciling trends in the current population survey and panel study of income dynamics this article considers whether two commonly used sources of information on employer tenure the panel study of income dynamics and the current population survey yield systematically different trends in employer tenure little evidence of a discrepancy between the data sets in the 1980s or 1990s is found when comparable samples variable definitions and time frames are used neither data set shows a significant trend in the share of workers with 1 year or less of tenure while both data sets show an increase in the fraction of men with less than 10 years of tenure starting in the late 1980s

optimal loan contracts and floating rate debt in international lending to ldcs abstract most ldc debt is at floating interest rate and the wisdom of this choice is analyzed here for a prototype ldc complete insurance requires repayment to increase with export revenues and import prices since the latter variables are positively correlated with libor floating rate debt yields better risk sharing than fixed rate debt and induces more investment in the ldc when default is possible repayment becomes contingent on the cost of sanctions is renegotiation states and some renegotiation costs are likely to be incurred fixed rate debt would have reduced the occurrence of default in the 80s but only marginally

has job stability declined yet new evidence for the 1990 s we update the evidence on changes in job stability through the mid 1990s using recently released current population survey data for 1995 that parallel earlier job tenure supplements in the aggregate job stability declined modestly in the first half of the 1990s moreover the relatively small aggregate changes mask rather sharp declines in stability for workers with more than a few years of tenure nonetheless the data available to this point do not support the conclusion that the downward shift in job stability for more tenured workers and the more modest decline in aggregate job stability reflect long term trends

exchange rate uncertainty and us bilateral fresh fruit and fresh vegetable trade an application of the gravity model in order to analyse the effect of exchange rate uncertainty we apply an empirical gravity equation to two sets of us bilateral trade data fresh fruit over the period 1976 1999 for a panel of 26 countries and fresh vegetables over the period 1976 2006 for a panel of nine countries based on panel estimation methods and using both a moving sd measure and the peree and steinherr 1989 measure of exchange rate uncertainty the results show that us bilateral fresh fruit trade has been negatively affected by exchange rate uncertainty we also find some evidence that the exchange rate between the us dollar and the currencies of latin american trading partners accounts for most of the negative impact of exchange rate uncertainty on bilateral trade flows in fresh fruit in contrast when using panel estimation methods and both measures of exchange rate uncertainty we find no statistically significant evidence for any negative effect of exchange rate uncertainty on us bilateral fresh vegetable trade however

turbulence and unemployment in a job matching model according to ljungqvist and sargent 1998 high european unemployment since the 1980s can be explained by a rise in economic turbulence leading to greater numbers of unemployed workers with obsolete skills these workers refuse new jobs due to high unemployment benefits in this paper we reassess the turbulence unemployment relationship using a matching model with endogenous job destruction in our model higher turbulence reduces the incentives of employed workers to leave their jobs if turbulence has only a tiny effect on the skills of workers experiencing endogenous separation then the results of ljungqvist and sargent 1998 2004 are reversed and higher turbulence leads to a reduction in unemployment thus changes in turbulence cannot provide an explanation for european unemployment that reconciles the incentives of both unemployed and employed workers jel e24 j64

persistence of employment fluctuations a model of recurring job loss standard models of employment fluctuations cannot reconcile the unemployment rate s remarkable persistence with the high job finding rates found in worker flows data a matching model emphasizing high hazard rates among newly formed firm worker matches can resolve this shortcoming in the model matches are experience goods consequently newly employed workers face higher hazard rates following a job loss workers may experience several short lived jobs before finding stable employment at an aggregate level an initial burst of job loss precipitates a steady flow of recurring job loss a simulation shows that this recurring job loss can account for the fact that the unemployment rate remains elevated for as much as 4 or 5 years following an initial jump intuitively the labour market frictions associated with the difficult and time consuming process of matching unemployed workers with appropriate jobs represent an appealing way to enhance conventional dynamic general equilibrium models of economic fluctuations that generally exhibit very little internal propagation of business cycle shocks 1 nevertheless although conventional matching models such as the canonical mortensen and pissarides 1994 model successfully explain many other important features of the labour market they fail to explain the high degree of persistence observed in the u s unemployment rate the primary reason for this failure is that data on labour market flows show that unemployed workers actually find jobs quite quickly therefore following a shock that triggers a burst of job loss the high job finding rate implies that the unemployment rate in these models returns quite rapidly back toward its average level this represents a significant obstacle to the notion that frictions in the labour market account for much of the propagation of business cycle shocks this paper asserts that existing matching models fail to capture an important feature of the labour market that can reconcile the dramatic persistence of the unemployment rate with the evidence of high job finding rates specifically although unemployed workers find jobs quickly the newly found jobs often last only a short time after an initial job loss a worker may experience several short lived jobs before settling into more stable employment this recurring job loss slows the pace at which the unemployment rate returns to its normal level following an adverse shock

why did the average duration of unemployment become so much longer there has been a substantial increase in the average duration of unemployment relative to the unemployment rate in the u s over the last 30 years we evaluate the performance of a standard job search model in explaining this phenomenon in particular we examine whether the increase in within group wage inequality and the decline in the incidence of unemployment can account for the increase in unemployment duration the results indicate that these two changes can explain a significant part of the increase over the last 30 years although the model fails to match the behavior of unemployment duration during 1980s

human capital specificity evidence from the dictionary of occupational titles and displaced worker surveys 1984 2000 measures of four basic skills constructed from the dictionary of occupational titles are used to examine the source of human capital specificity the measures are used to characterize the skill portfolio of each job and to construct distance measures between jobs wage losses in the displaced worker surveys are shown to be more closely associated with switching skill portfolios than switching industry or occupation code per se these switches represent large decreases in the skill portfolio in the postdisplacement job the recent evidence for industry specific capital is reexamined the results suggest a difference between fluid and crystallized skills

exposure to exchange rate movements abstract this paper suggests an approach to measuring a firm s exposure which depends on the stochastic relationship between the firm s real rate of return and exchange rate movements using a simplified two country model exposure is shown to depend on the extent to which individual asset prices adjust with exchange rates the distribution of such adjustments between countries and the relationship between domestic inflation and exchange rate movements while the distribution of real and nominal positions across countries is also a determinant of exposure it is shown that purely domestic firms no foreign assets or liabilities will typically be exposed

exchange rate management the role of target zones the essence of the regime of unmanaged floating that prevailed among the major currencies from march 1973 until the plaza agreement in 1985 was that the exchange rate was treated as a residual in the process of macroeconomic policy determination admittedly there were occasions such as october 1976 in the case of the pound sterling and october 1978 in the cases of both the u s dollar and the swiss franc when particular countries became so concerned with a misalignment of their currency that they were forced to abandon benign or malign neglect but such incidents were episodic views about a proper or desirable level of the exchange rate played no systematic role in policy formulation section i explains why i judge the performance of unmanaged floating to have been unsatisfactory section ii lists the real social benefits that exchange rate flexibility can afford which should be preserved by any reformed system section iii describes the target zone proposal and explains why it would preserve the real benefits of flexibility while overcoming the weaknesses of unmanaged floating section iv sketches a possible set of comprehensive principles for policy coordination of which target zones would be one natural element

occupational specificity of human capital we find that returns to occupational tenure are substantial everything else being constant 5 years of occupational tenure are associated with an increase in wages of 12 20 moreover when occupational experience is taken into account tenure with an industry or employer has relatively little importance in accounting for the wage one receives this finding is consistent with human capital being occupation specific

does access to formal finance matter for welfare and inequality micro level evidence from nigeria using a treatment effects model decomposition techniques and representative household data from nigeria we study the welfare and inequality implications of access to formal finance while improving household welfare formal access to finance increases inter household inequalities despite ameliorating the inequality enhancing effect of urban residence and enhancing the inequality ameliorating effect of greater educational attainment the positive effect of access to formal finance on inequality is smaller than the effect of unobserved household characteristics indicating that welfare and equality enhancing strategies should follow a holistic approach as opposed to one focusing on one isolated policy variable at a time

a theory of trickle down growth and development this paper develops a model of growth and income inequalities in the presence of imperfect capital markets and it analyses the trickle down effect of capital accumulation moral hazard with limited wealth constraints on the part of the borrowers is the source of both capital market imperfections and the emergence of persistent income inequalities three main conclusions are obtained from this model first when the rate of capital accumulation is sufficiently high the economy converges to a unique invariant wealth distribution second even though the trickle down mechanism can lead to a unique steady state distribution under laissez faire there is room for government intervention in particular redistribution of wealth from rich lenders to poor and middle class borrowers improves the production efficiency of the economy both because it brings about greater equality of opportunity and also because it accelerates the trickle down process third the process of capital accumulation initially has the effect of widening inequalities but in later stages it reduces them in other words this model can generate a kuznets curve

urban growth and uninsured rural risk booming towns in bust times abstract rapid urbanization also happens when economic growth and urban job creation are absent such as in africa and latin america during the eighties why do some countries urbanize faster while having worse economic growth this paper finds that higher aggregate agricultural risk induces rural urban migration providing an additional channel to explain the urbanization trend uninsurable expected risk will lead to rural urban migration as a form of ex ante insurance if households are liquidity constrained and cannot overcome adverse shocks the effect is robust to controlling for the traditional view of urbanization driven by industrialization and to several alternative explanations such as government spending

is greater exchange rate flexibility stabilizing some evidence from us data abstract this paper examines the hypothesis that greater exchange rate flexibility is stabilizing in external adjustment processes the results indicate that floating exchange rates tend to magnify changes in relative prices without stabilizing income as the trade balance adjusts

the effect of exchange rate variability on trade the case of the west african monetary union s imports abstract the west african monetary union during the period of this study 1976 1982 comprised six countries benin burkina faso co te d ivoire niger senegal and togo since their common currency the cfa franc has been pegged to the french franc at an unchanged rate since 1948 the entire nominal exchange rate variability that traders in the region face is due to movements in the french franc with respect to other currencies in the face of exchange rate risk that is not always coverable trade should be adversely affected using three measures of variability in the nominal effective exchange rate index this paper finds that exchange rate variability has not affected the union s real imports or the diversification of trade away from the franc zone

exchange rate dynamics under gradual portfolio and commodity price adjustment abstract this paper studies exchange rate dynamics within the context of a model that allows for gradual portfolio and commodity price adjustment the model encompasses as a special limiting case the orthodox portfolio balance model wherein portfolio adjustment is instantaneous the focus of the paper is on the process of adjustment to a once and for all open market operation under a bond financed government budget deficit the generalized portfolio balance model which we formulate generates a varied menu of adjustment paths for the exchange rate and the aggregate price level which are more successful than the orthodox instantaneous portfolio equilibrium models in accomodating the divergent experiences of various countries

financial development and economic growth views and agenda this critique argues that the preponderance of theoretical reasoning and empirical evidence suggests a positive first order relationship between financial development and economic growth the body of work would push even most skeptics toward the belief that the development of financial markets and institutions is a critical and inextricable part of the growth process and away from the view that the financial system is an inconsequential sideshow responding passively to economic growth many gaps remain however and the paper highlights areas in acute need of additional research

are workers permanently scarred by job displacements this paper investigates whether workers suffer lasting scars following job displacements using david t ellwood s 1982 terminology scars represent persistent effects whereas blemishes are transitory adjustments which dissipate over time more precisely dislocated individuals are defined as scarred if they continue to earn less or to be unemployed more than their nondisplaced counterparts even after the conclusion of a several year adjustment period