the political economy of bilateral bailouts imf loans during times of financial crisis often occur in conjunction with bilateral financial rescues these bilateral bailouts are substantial in size and a central component of international cooperation during financial crises we analyze the political economy of bilateral bailouts and study the trade offs that potential creditor governments experience when other countries find themselves in financial distress creditor governments want to stabilize crisis countries by providing additional liquidity particularly if the crisis country is economically or politically important to them but they are constrained by domestic politics politicians aim to balance these countervailing pressures they provide bailouts when their own economy is exposed to negative spillover effects and when the crisis country is important for geostrategic military or political reasons domestic economic and political constraints on the other hand limit their ability to bail out other countries we test our hypotheses using an original data set on bilateral bailouts by the g7 countries to countries that experienced financial crises between 1975 and 2010 the findings of our statistical analysis support our theoretical argument and contribute to a deeper understanding of international cooperation s complex structure during financial crises

bridging the gaps credits adoption and inequality we examine here the role of credits on technology adoption and inequality from the perspective of developing countries utilizing a model of exogenous growth with heterogeneous labor and technical progress embodied in physical capital we find that credits can contribute to a faster adoption and to reducing income inequality thus a virtuous cycle of credits a shorter technological gap less inequality and economic growth is feasible to be created when there is full liquidity in the market when credits are constrained the cycle loses virtuosity where the economy can lose up to two points in growth due to credit constraints

clarifying the foreign aid puzzle a comparison of american japanese french and swedish aid flows this study explores the donor side of debates revolving around the proper role of foreign assistance as a foreign policy tool by empirically testing for the aid determinants of four industrial democracies france japan sweden and the united states a pooled cross sectional time series design is employed to assess the impacts of six sets of variables on aid flows to thirty six african states during the 1980s three sets of these variables humanitarian need strategic importance and economic potential are constructed using data traditionally employed in empirical foreign aid studies three additional sets of variables cultural similarity ideological stance and region are constructed from data that regional specialists consider to be important in the foreign aid equation although no two cases are alike one can nevertheless draw some tentative conclusions about the nature of the foreign aid regime of the final cold war decade of the 1980s on the basis of several cross national patterns in short the results 1 contradict rhetorical statements of northern policymakers who claim that foreign aid serves as an altruistic foreign policy tool designed to relieve humanitarian suffering 2 confirm the expected importance of strategic and ideological factors in a foreign aid regime heavily influenced by the cold war and 3 underscore the importance of economic particularly trade interests in northern aid calculations

financial intermediation and endogenous growth an endogenous growth model with multiple assets is developed agents who face random future liquidity needs accumulate capital and a liquid but unproductive asset the effects of introducing financial intermediation into this environment are considered conditions are provided under which the introduction of intermediaries shifts the composition of savings toward capital causing intermediation to be growth promoting in addition intermediaries generally reduce socially unnecessary capital liquidation again tending to promote growth

testing the response of consumption to income changes with noisy panel data this paper tests the rational expectations lifecycle model of consumption against i a keynesian model and ii the rational expectations lifecycle model with imperfect capital markets the tests are based upon the relative responsiveness of consumption to income changes that can be predicted from past information and income changes that cannot he predicted the tests allow for measurement error in income the results reject the keynesian model and generally support the lifecycle model but the results are not sufficiently precise to rule out the possibility that some households are liquidity constrained measurement error has a strong influence on the relationship between consumption and income

the imf a bird s eye view of its role and operations the international monetary fund imf is the world s premier international financial institution with 184 member countries and active programmes in a significant number of them at any one time the fund attracts a great deal of attention much of it critical but the discussion is often polemic in style strongly held but frequently opposing views are expressed this survey attempts to examine in an objective way the theory and evidence relating to the fund s operations many aspects of the empirical research are relatively recent and a universal consensus is yet to emerge as a consequence there is scope for disagreement to persist however the research is also gradually clarifying many important issues the format for the survey is to examine the life cycle of imf arrangements what makes a country turn to the fund for assistance should the imf be lending what influences the outcome of negotiations and the design of programmes are imf programmes effective and why do some countries make prolonged use of imf resources for completeness there is also some discussion of the history of the imf the extent to which fund policies have been influenced by advances in economic theory and the fund s systemic role important organisational and governance issues are also covered briefly although primarily adopting an economist s perspective the survey reflects the growing recognition that in order to understand the imf s operations economics has to be combined with politics examining the imf is an exercise in applied political economy copyright 2007 the author journal compilation 2007 blackwell publishing ltd

growth accounting with investment specific technological progress a discussion of two approaches two approaches taken to the embodiment question are compared and discussed quantitative theory and traditional growth accounting the two approaches give very different estimates for the contribution of investment specific technological advance to economic growth therefore the approach taken matters it is argued that the measures used in traditional growth accounting to gauge the importance of investment specific technological progress have little economic content unlike the measure obtained from quantitative theory

the estimation of surprise models and the surprise consumption function in the first part of the paper we outline a method for estimating a class of models in which news or surprises appear and expectations are formed rationally the method is an extension of the errors in variables method of mccallum and wickens as a by product some of pagan s results on the circumstances under which the commonly used two step method of estimating surprise models is efficient are shown to be a consequence of well known theorems on the efficiency of sub system estimation when a subset of equations are exactly identified in the second part of the paper the method is applied to hall s random walk model of consumption which is extended to allow for stochastic interest rates and for leisure and government spending to be substitutes for private spending the extended formulation is a great deal more successful at capturing the salient features of the data we also derive approximate restrictions across the parameters of the model due to the rational expectations hypothesis but find that they are marginally rejected by the data finally we evaluate the ability of the life cycle with rational expectations model to encompass alternative models

habit formation in consumer preferences evidence from panel data this paper tests for the presence of habit formation using household data a simple model of habit formation implies a condition relating the strength of habits to the evolution of consumption over time when the condition is estimated with food consumption data from the panel study on income dynamics the results yield no evidence of habit formation at the annual frequency this finding is robust to a number of changes in the specification it also holds for several proxies for nondurables and services consumption created by combining psid variables with weights estimated from consumer expenditure survey data

an empirical model of labor supply in a life cycle setting this paper formulates and estimates a structural intertemporal model of labor supply using theoretical characterizations derived from an economic model of lifetime behavior a two step empirical analysis yields estimates of intertemporal and uncompensated substitution effects which provide the information needed to predict the response of hours of work to life cycle wage growth and shifts in the lifetime wage path

adjustment costs durables and aggregate consumption abstract previous tests of the permanent income hypothesis pih have focused on either non durables or durables expenditures in isolation this paper studies consumer purchases of non durables and durables as the outcome of a single optimization problem it is shown that with non separability in utility the presence of adjustment costs of changing durables stocks may affect the time series properties of both components of expenditure an econometric test of the pih based on the model developed in the paper is both more efficient and less prone to bias than those in some previous studies however this test confirms earlier rejections of the pih in aggregate quarterly data

the scope of imf conditionality international organizations are governed by two parallel sets of rules formal rules which embody consensual procedures and informal rules which allow exceptional access for powerful countries a new data set drawn from the imf s records of conditionality provides an opportunity to study the bargaining process within an important international organization and answer questions about the institution s autonomy i find evidence of u s influence which operates to constrain condition ality but only in important countries that are vulnerable enough to be willing to draw on their influence with the united states in ordinary countries under ordinary circumstances broad authority is delegated to the imf which adjusts conditionality to accommodate local circumstances and domestic political opposition the imf has refrained from exploiting the vulnerability of particular countries to maximize the scope of conditionality international organizations have become increasingly important actors in inter national politics they have proliferated have expanded in membership have acquired new legal enforcement powers and have extended their reach into the details of domestic political economy in their member states af ew including the international monetary fund imf or simply the fund command significant resources and wield considerable authority some critics have argued that these international organizations are sufficiently autonomous to create a democratic def icit at the international level as they pursue a vision of undemocratic liberal ism 1 other critics have argued that international organizations are nothing more than instruments in the hands of powerful states 2 these critiques of course cannot simultaneously be true and both run into difficulties the puzzle that the rogue agency view cannot explain is why the principals have chosen to delegate so much authority in principal agent terms this view posits that both screening and monitoring have failed the principals are unable to select agents with preferences similar to their own and are unable

a new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the business cycle abstract this paper introduces a general procedure for decomposition of non stationary time series into a permanent and transitory component allowing both components to be stochastic the permanent component is shown to be a random walk with drift and the transitory or cyclical component is a stationary process with mean zero the decomposition methodology which depends only on past data and therefore is computable in real time is applied to the problem of measuring and dating business cycles in the portwar u s economy we find that measured expansions and contractions are of roughly equivalent duration and that our dating of cyclical episodes tends to lead the traditional nber dating and to a lesser extent the growth cycle chronology of zarnowitz and boschan 1977

a non definitive guide to the imf the recent book by james r vreeland the international monetary fund politics of conditional lending is meant to provide a definitive guide to the organization this review article argues that it falls well short of this ambitious aim it is already somewhat dated it is almost entirely about imf lending largely neglecting surveillance arguably the fund s most important activity and although it provides a useful survey of the literature its critique of imf lending is based on interpretations of the empirical evidence and arguments of some imf critics many of which are questionable the book also suffers from various confusions and misunderstandings it is therefore an unreliable guide to the organization

inequality leverage and crises the paper studies how high leverage and crises can arise as a result of changes in the income distribution empirically the periods 1920 1929 and 1983 2007 both exhibited a large increase in the income share of the rich a large increase in leverage for the remainder and an eventual financial and real crisis the paper presents a theoretical model where these features arise endogenously as a result of a shift in bargaining powers over incomes a financial crisis can reduce leverage if it is very large and not accompanied by a real contraction but restoration of the lower income group s bargaining power is more effective

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

the permanent income hypothesis estimation and testing by instrumental variables the permanent income hypothesis with rational expectation is restated estimated and tested by an instrumental variables technique on the postwar u s aggregate time series data the hypothesis is accepted on a consumption series which includes service flows from consumer durables if the consumption series is the one in the national income and product accounts the hypothesis is decisively rejected an explanation is suggested to reconcile the conflicting test results

multiple bgps in a growth model with habit persistence this paper establishes multiple balanced growth paths in an otherwise standard competitive growth model without externality or distortions and with households preference dependent upon how his her consumption compares to a habit stock formed by his her own past consumption the key feature in our model is that consumption forms habits in combination with existing habits this model establishes multiple equilibria because habit persistence induces an internal intertemporal complementarity effect among consumption flows with current consumption reinforcing future consumption as a result there exist two balanced growth paths with one path exhibiting low consumption and habits and high economic growth and the other path exhibiting high consumption and habits and low growth that is not necessarily a development trap both steady states are saddles but global indeterminacy arises where a high balanced growth path co exists with a low balanced growth path where the two equilibrium paths cannot be pareto ranked and history need not matter for the selection of the equilibrium path

price and volatility spillovers in scandinavian stock markets abstract new evidence is provided on price and volatility spillovers among the danish norwegian swedish and finnish stock markets the impact of good news market advances and bad news market retreats is described by a multivariate exponential generalized autoregressive conditionally heteroskedastic egarch model volatility transmission is asymmetric spillovers being more pronounced for bad than good news significant price and volatility spillovers exist but they are few in number

multicointegration in us consumption data the present study tests for the existence of multicointegration between real per capita private consumption expenditure and real per capita disposable personal income in the usa in doing so the study exploits the fact that the flows of disposable income and consumption expenditure on the one hand and the stock of consumers wealth which can be considered as cumulative past discrepancies between the flows of income and expenditure on the other hand can be thought of as a stock flow model in which multicointegration is likely to occur recently developed i 2 techniques are applied for testing for multicointegrating relations and find supporting evidence for the existence of multicointegration in us consumption data

household debt and income inequality 1963 2003 i construct an economy with heterogeneous agents that mimics the time series behavior of the earnings distribution in the united states from 1963 to 2003 agents face aggregate and idiosyncratic shocks and accumulate real and financial assets i estimate the shocks that drive the model using data on income inequality aggregate income and measures of financial liberalization i show how the model economy can replicate two empirical facts the trend and cyclical behavior of household debt and the diverging patterns in consumption and wealth inequality over time while business cycle fluctuations can account for the short run changes in household debt its prolonged rise of the 1980s and the 1990s can be quantitatively explained only by the concurrent increase in income inequality

the new economics of organization over the last ten years or so an important new approach to the study of organizations has emerged within economics it is perhaps best characterized by three elements a contractual perspective on organizational relationships a theoretical focus on hierarchical control and formal analysis via principal agent models this paper provides political scientists with an overview of the new economics of organization and explores its implications for the study of public bureaucracy so far positive political theory has not contributed much to our understanding of public bureaucracy in part this is due to the unsympathetic treatment that rational modeling and most other modes of quantitative analysis have long received from students of public administration the other side of the coin however is that positive theorists have not made much of an effort to develop theories of bureaucracy their concerns have centered around two basic mechanisms of social choice voting and markets and they have devoted little systematic attention to a third mechanism that is clearly important for understanding how societies and other aggregates make collective decisions this third and relatively unexplored mechanism is hierarchy movement toward a positive theory of hierarchies would fill a serious gap in the social choice literature while at the same time making a theoretical contribution that strikes to the essence of public bureaucracy indeed of all organizations in fact significant steps toward a positive theory of hierarchies have very recently been taken but by economists not political scientists in small numbers of course economists made contributions to the study of public bureaucracy some time ago with the pioneering works of downs 1967 tullock 1965 and niskanen 1971 but this new wave of theoretical work is different it is already a large complex body of literature that is the focus of innovation and excitement among a growing number of economists and it reflects an unusual degree of theoretical coherence and cumulative effort work in this tradition tends to receive orientation from a distinctive economic approach to the analysis of organizations an approach perhaps best characterized by three elements a contractual perspective on organizational relationships a focus on hierarchical control and formal analysis via principal agent models this approach has emerged from recent attempts to move beyond the neoclassical theory of the firm which assumes away all organizational considerations to a theory of economic organizations that can explain why firms corporations and other enterprises behave as they do propo

testing the life cycle hypothesis with a norwegian household panel this article reports the results of progressive refinements in the models used to test the permanent income hypothesis these tests are undertaken with a household panel constructed from diaries by the norwegian central bureau of statistics the data combine detailed expenditure and price information with income and wealth data from the government s tax files for 1975 1977 using a model that takes account of relative price change and demographic variables recognizes the effects of durables and incorporates explicit recognition of the effects of differences in the timing of observations or income innovations and spending the results indicate that the data are consistent with the permanent income life cycle hypothesis

the contributions of angus deaton angus deaton was awarded the 2015 sveriges riksbank prize in economic sciences in memory of alfred nobel for his analysis of consumption poverty and welfare this article reviews his contributions to economics

estimation of the depreciation rate of physical and r d capital in the u s total manufacturing sector i introduction numerous studies on production and cost the sources of productivity and endogenous growth have recognized the pivotal role of the physical capital stock studies at various levels of aggregation over assets and industries have emphasized the crucial role of investment in plant and equipment in the growth of demand and productive capacity it is clearly recognized by economists and policymakers that knowledge capital approximated by rd 1986 to measure the depreciation rates of the stock of rd 1980 in the literature on dynamic demand models such an approach was first adopted by epstein and denny 1980 and more recently by kollintzas and choi 1985 for a single capital good and on a theoretical level in bernstein and nadiri 1987a 1987b the paper is organized as follows the specification of the model is presented in section ii section iii is devoted to a discussion of the data and to the presentation of the parameter estimates of the model in section iv we present the empirical results for the depreciation rates for physical and r d capital and compare them with those reported in the literature we compare the physical capital stock estimates generated by our model with the official capital stock estimates produced by u s department of commerce bureau of economic analysis in this section we also present our estimates of the decomposition of gross investment into replacement and expansion investment for both physical and r d capital these decompositions are important from the vantage point of public policy analysis

money talks supplementary financiers and international monetary fund conditionality what explains the changes in international monetary fund imf conditionality i argue that imf conditionality agreements are influenced by supplementary financiers the imf regularly relies on external financing to supplement its loans to countries facing payments imbalances as a result these supplementary financiers are able to exercise leverage over the imf and the design of its conditionality programs i consider the influence of one type of supplementary financier private financial institutions on imf conditionality conclusions are supported by a data set of 249 conditionality arrangements coded according to their terms and two case studies

the international organization of third world debt third world debt grew very rapidly in the 1970s many states faced with sharply higher costs for energy and manufactured imports borrowed aggressively in unregulated offshore capital markets but what constrains sovereign states to repay this debt to commercial banks creditors do not turn to their home states to enforce payment rather the supervision of sovereign debt is largely a function of commercial banking arrangements especially lenders syndicates and the international monetary fund s conditional lending this political structure which involves unified private sanctions has ensured that no state defaults unless it is insolvent or is willing to accept a radical rupture in its international commercial relationships when the problem is insolvency creditors routinely convene ad hoc conferences in conjunction with an imfapproved stabilization program creditors can renegotiate debt service schedules and provide new financing if necessary these arrangements are distinctive among international economic regimes because they rely on nonstate actors as the primary source of rules norms and procedures

imf conditionality as a screening device a theoretical model is developed in which adoption of an imf programme signals a country s productivity it is assumed that there are two types of country one with a high return on investment and the other with a low return the country s type is known only to itself in the presence of a debt overhang the high productivity country may choose not to undertake the investment despite it being socially efficient to do so in this case the creditor would like to offer the country some debt reduction but the low productivity type will also benefit from the debt reduction this problem can be avoided if the country has sufficient resources to engage in a debt buyback in order to gain the debt relief only the high productivity type would be prepared to sacrifice current resources for the debt reduction and thus a separation of the types is achieved this is similar to an argument found in acharya and diwan 1993 we argue however that it is unlikely that a heavily indebted country will have sufficient resources for a buyback if the country is credit constrained an alternative screening mechanism is to undertake an imf programme in return for debt reduction and possibly an imf loan this mechanism can be the equilibrium outcome even if the programme creates only disutility for the country s policy makers

does buffer stock saving explain the smoothness and excess sensitivity of consumption one of the lasting contributions to modernday consumer theory is the idea that consumption is determined by the expected value of lifetime resources or permanent income the modern day specification of this concept is typically presented as a special case of intertemporalchoice theory where felicity functions are quadratic labor income is stochastic there are no restrictions on borrowing consumers have infinite horizons and expectations are formed rationally we refer to this model as the permanentincome hypothesis pih although the pih has considerable intuitive appeal a series of influential papers published after its inception revealed two notable discrepancies between the model s predictions and aggregate data first the model predicts that consumption growth should be more volatile than income growth if aggregate income growth has positive serial correlation as the quarterly data suggest it does yet aggregate consumption growth is in fact much smoother than aggregate income growth angus deaton 1987 john y campbell and deaton 1989 jordi gali 1991 second the pih predicts that consumption changes should be orthogonal to predictable or lagged income changes yet the coffelation between consumption growth and lagged income growth has been found to be one of the most robust features of aggregate data for example marjorie a flavin 1981 alan s blinder and deaton 1985 campbell and n gregory mankiw 1989 orazio p attanasio and guglielmo weber 1993 thus aggregate consumption growth has been described as exhibiting two puzzles it is both excessively smooth relative to current labor income growth and excessively sensitive to lagged labor income growth 2 in response to these and other empirical anomalies researchers have recently sought out modifications of the pih framework chief ludvigson federal reserve bank of new york 33 liberty street new york ny 10045 michaelides university of cyprus p o box 20537 1678 nicosia cyprus a previous version of this paper appeared under the title can we explain the consumption excesses yet aggregate consumption implications of buffer stock saving behavior for many helpful comments we thank orazio attanasio dave backus ben bernanke john y campbell christopher carroll todd clark angus deaton pierreolivier gourinchas bo honore james kahn martin lettau costas meghir christina paxson steve pischke andrew samwick christopher sims mark watson guglielmo weber michael woodford steve zeldes and two anonymous referees conference participants at the national bureau of economic research summer workshop on the aggregate implications of microeconomic consumption behavior july 1998 the tmr workshop on saving and pensions center tilburg university march 1999 and the new york area macroeconomics workshop october 1998 seminar participants at columbia university insead the new york federal reserve university college london london business school city university business school university of cyprus tel aviv university and jeffrey brown for excellent research assistance the views expressed are those of the authors and do not necessarily reflect those of the federal reserve bank of new york or the federal reserve system any errors or omissions are the responsibility of the authors 1 note that the important insight of danny quah 1990 that individuals may be better able than econometricians to distinguish short run from long run innovations to their income cannot resolve the excess smoothness puzzle laid out in campbell and deaton 1989 these authors show that in the context of the pih excess sensitivity and excess smoothness are the same phenomena in addition campbell 1987 demonstrates that superior information of the type emphasized by quah will show up in households saving behavior and using this information allows the econometrician to control for the agent s private information when predicting income since excess sensitivity is well established and controlling for saving does not eliminate it see campbell and deaton 1989 the observed smoothness of consumption cannot be explained by superior information on the part of permanent income consumers see deaton 1992 for further discussion 2 philippe bacchetta and stefan gerlach 1997 and ludvigson 1999 document another kind of excess sensitivity the correlation between consumption growth and predictable changes in consumer credit although we do not explore these findings here ludvigson finds that a bufferstock model with time varying liquidity constraints can replicate such a correlation

why is consumption so smooth for thirty years it has been accepted that consumption is smooth because permanent income is smoother than measured income this paper considers the evidence for the contrary position that permanent income is in fact less smooth than measured income so that the smoothness of consumption cannot be straightforwardly explained by permanent income theory the paper argues that in postwar u s quarterly data consumption is smooth because it responds with a lag to changes in income

finance inequality nexus the long and the short of it financial development affects income inequality differently in the short and in the long term investigating oecd countries from 1870 2011 we find in the short run an improvement in financial development tends to reduce inequality while in the long run more finance contributes to more inequality the short run effect concurs with theories advocating financial development increases the availability of financial services primarily for the poor however this effect becomes nil within a few years results thus imply that policies aimed at reducing inequality through improving access of the poor to finance need to be carefully designed to ensure longevity of impact

the high politics of imf lending analysts have long suspected that politics affects the lending patterns of the international monetary fund imf but none have adequately specified or systematically tested competing explanations this paper develops a political explanation of imf lending and tests it statistically on the developing countries between 1985 and 1994 it finds that political realignment toward the united states the largest power in the imf increases a country s probability of receiving an imf loan a country s static political alignment position has no significant impact during this period suggesting that these processes are best modeled dynamically an analysis of two subsamples rejects the hypothesis that the imf has become less politicized since the end of the cold war and suggests that the influence of politics has actually increased since 1990 the behavior of multilateral organizations is still driven by the political interests of their more powerful member states

read my lips the role of information transmission in multilateral reform design abstract context specific knowledge is crucial to crafting multilateral reform programs nonetheless local knowledge often consists of unverifiable information thus the quality of countries reports depends on the conflict of interests faced by the recipient and the multilateral we compare the performance of a delegation scheme against a centralization scheme we find that recipients discretion in the choice of reforms delegation should only be increased when the countries local knowledge is strictly more important than the multilateral s information conversely a reduction in the conflict of interests may lead the multilateral in to allowing the recipient less freedom in designing reforms centralization our empirical results support these theoretical predictions

explaining institutional change policy areas outside options and the bretton woods institutions i propose and test a theoretical framework that explains institutional change in international relations like firms in markets international institutions are affected by the underlying characteristics of their policy areas some policy areas are prone to produce institutions facing relatively little competition limiting the outside options of member states and impeding redistributive change in comparison institutions facing severe competition will quickly reflect changes in underlying state interests and power to test the theory empirically i exploit common features of the bretton woods institutions the international monetary fund and world bank to isolate the effect of variation in policy area characteristics the empirical tests show that despite having identical membership and internal rules bargaining outcomes in the bretton woods institutions have diverged sharply and in accordance with the theory

permanent income liquidity and expenditure on automobiles evidence from panel data several recent papers have tested the permanent income cum rational expectations hypothesis using data on nondurable or semidurable consumption we show how this approach can be extended to the case of durables an application to panel data on automobile expenditures reveals no evidence against the permanent income hypothesis this result is unchanged in subsamples segregated by family holdings of liquid assets

international negotiations and domestic politics the case of imf labor market conditionality what is the role of international organizations ios in the formulation of domestic policy and how much influence do citizens have in countries negotia tions with ios we examine these questions through a study of labor related condi tionality in international monetary fund imf loans using new data from imf loan documents for programs from 1980 to 2000 we test to see if citizens economic interests influence imf conditionality we examine the substance of loan conditions and identify those that require liberalization in the country s domestic labor market or that have direct effects on employment wages and social benefits we find evi dence that democratic countries with stronger domestic labor receive less intrusive labor related conditions in their imf loan programs we argue that governments con cerned about workers opposition to labor related loan conditions negotiate with the imf to minimize labor conditionality we find that the imf is responsive to domes tic politics and citizens interests

on us politics and imf lending abstract the political factors shaping imf lending to developing countries have attracted attention in recent empirical work this goes in particular for the role and influence of the us however scant formal modelling makes interpretation of empirical results difficult in this paper we propose a model in which the us acts as principal within the imf and seeks to maximize its impact on the policy stance of debtor countries we derive an optimal loan allocation mechanism which leads to the testable hypothesis that the probability of an imf loan is increasing in the amount of political concessions countries make a political concession is defined as the distance between a country s bliss point and its actual policy stance measured relative to the us we introduce a bliss point proxy and demonstrate that our hypothesis is strongly supported in the data moreover we show that not accounting for bliss points may lead to endogeneity bias in empirical work

volatility and growth credit constraints and the composition of investment abstract how does uncertainty and credit constraints affect the cyclical composition of investment and thereby volatility and growth this paper addresses this question within a model where firms engage in two types of investment a short term one and a long term one which contributes more to productivity growth because it takes longer to complete long term investment has a relatively less cyclical return but it also has a higher liquidity risk the first effect ensures that the share of long term investment to total investment is countercyclical when financial markets are perfect the second implies that this share may turn procyclical when firms face tight credit constraints a novel propagation mechanism thus emerges through its effect on the cyclical composition of investment tighter credit can lead to both higher volatility and lower mean growth evidence from a panel of countries provides support for the model s key predictions

imf lending programs participation and impact abstract participation in imf programs has been an option that more and more developing countries have exercised in recent years in this paper a detailed analysis of such participation over the period 1976 1986 provides a number of insights into the motivations for and the macroeconomic effects of such participation participation is driven by a combination of past performance present external influences and sluggish adjustment of developing countries the ability to predict which countries will participate in the imf program is quite good with nearly 90 percent of variation in such choices accounted for by the explanatory variables employed increased participation has as contemporaneous effects a reduction in economic growth and domestic investment and an improvement in the current account lagged effects of increased participation on economic growth and domestic investment are positive and in most estimates quantitatively greater than the contemporaneous effects there is also evidence of significantly lower public investment an increased budget surplus and real depreciation of the exchange rate with increased participation results for domestic credit creation and government current expenditure although they have a sign consistent with more austere policy cannot be shown to be significantly different from those not participating

the sensitivity of consumption to transitory income estimates from panel data on households we investigate the stochastic relation between income and consumption specifically consumption of food within a panel of about 2 000 households our major findings are 1 consumption responds much more strongly to permanent than to transitory movements of income 2 the response to transitory income is nonetheless clearly positive 3 a simple test independent of our model of consumption rejects a central implication of the pure life cycle permanent income hypothesis the observed covariation of income and consumption is compatible with pure life cycle permanent income behavior on the part of80 percent of families and simple proportionality of consumption and income among the remaining 20 percent as a general matter our findings support the view that families respond differently to different sources of income variations in particular temporary income tax policies have smaller effects on consumption than do other more permanent changes in income of the same magnitude this abstract was borrowed from another version of this item

the catalytic effect of lending by the international financial institutions for many less developed countries ldcs and countries in transition cits external financing is frequently an effective constraint on economic growth and development capital inflows may be used to overcome shortages of domestic saving thereby permitting higher levels of investment as well as shortages of foreign exchange thereby permitting larger quantities of imports

congressional politics of financing the international monetary fund we address the question of how international public goods are financed by analyzing voting in the u s congress on legislation to increase the u s contri bution to the international monetary fund imf we argue that legislators are more likely to vote in favor of an increase 1 the more campaign contributions they obtain from banks that specialize in international lending and 2 the greater the share of high skilled proglobalization workers in their districts the first argu ment supports the inference that a financially strong imf mitigates the risks of international lending to the benefit of the lending banks the second reflects our claim that voters view the imf as a positive force for global economic integration that following stolper samuelson reasoning benefits high skilled workers lastly we analyze imf loan decisions and find modest support for the claim that imf policy reflects the interests of major international banks overall our results sug gest that private actors within the united states have individual stakes in funding the imf the primary mandate of the international monetary fund imf or fund is to safeguard the stability of the global financial system an international public good the imf obtains the resources it needs for its stabilization operations from mem ber governments with large members contributing most of the funds in this arti cle we analyze the politics of funding the imf from the perspective of its largest contributor the united states rather than treating the united states as a single entity with a unified national interest at the fund we consider the preferences of political actors within the united states who exert power over financing the

independent actor or agent an empirical analysis of the impact of u s interests on international monetary fund conditions abstract in this paper we analyze whether international monetary fund imf conditionality is exclusively designed to be in line with observable economic indicators or whether it is partly driven by the imf s major shareholder the united states a panel data analysis of 206 letters of intent from 38 countries submitted during the period april 1997 through february 2003 revealed that the number of conditions on an imf loan depended on a borrowing country s voting pattern in the un general assembly closer allies of the united states and other group of 7 g7 countries received imf loans with fewer conditions especially prior to elections these results are relevant to current public policy debates on the role and process of setting imf loan conditions and provide broader insight into the influence of the united states and other g7 countries on international institutions

consumption and portfolio choice under internal multiplicative habit formation this paper explores the optimal consumption and investment behavior of an individual who derives utility from the ratio between his consumption and an endogenous habit we obtain closed form policies under general utility functionals and stochastic investment opportunities by developing a nontrivial linearization to the budget constraint this enables us to explicitly characterize how habit formation affects the marginal propensity to consume and optimal stock bond investments we also show that in a setting that combines habit formation with epstein zin utility consumption no longer grows at unrealistically high rates at high ages and investments in risky assets decrease

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

global horse trading imf loans for votes in the united nations security council we investigate whether temporary members of the united nations security council receive favorable treatment from the international monetary fund imf using panel data for 197 countries over the period from 1951 to 2004 our results indicate a robust positive relationship between temporary security council membership and participation in imf programs even after accounting for economic political and country specific factors there is also evidence that security council membership reduces the number of conditions included in imf programs imf loans seem to be a mechanism by which the major shareholders of the fund can win favor with voting members of the security council

blanchard s model of consumption an empirical study this article derives several empirically testable implications for blanchard s consumption model which has been widely used in analytical macroeconomic research cointegration methods are applied the parameter that measures the life horizon of households is estimated and the consumption model is tested quarterly canadian data are used there is no empirical evidence against the assumption that households behave as if they live forever within blanchard s framework blanchard s model of consumption is strongly rejected by the data however

testing for excess sensitivity in consumption a state space unobserved components approach this paper tests the joint rational expectations permanent income hypothesis using a state space unobserved components model to specify anticipated and unanticipated elements of permanent transitory and seasonal components of the income path and measure their relationships with consumption the results do not find significant excess sensitivity however a similar test that accounts for seasonality using x 11 adjusted data does thus indicating that seasonal filtering may be responsible for previous empirical rejections of the theory since the model includes consumption information in estimating the different components of income it also improves upon univariate investigations of the relative magnitudes of permanent and transitory disturbances to the income path

international evidence on the persistence of economic fluctuations abstract this paper presents new evidence on the persistence of fluctuations in real gnp we estimate two measures of persistence nonparametrically using post war quarterly data from canada france germany italy japan the united kingdom and the united states we compare these estimates with monte carlo results from various ar 2 processes for six out of seven countries the point estimates indicate that a 1 shock to output should change the long run unvariate forecast of output by well over 1 low order arma models yield similar conclusions finally we examine the persistence in relative outputs of different countries

new evidence on excess sensitivity of household consumption the monthly salaries and allowances of korean government employees are known in advance but vary greatly throughout the year using a korean monthly panel data set the present study examines how nondurable consumption expenditures in households headed by government employees respond to predictable income changes the study finds a moderate excess sensitivity in consumption that can be attributed to about 9 of the households further analysis shows that these 9 of the households have lower committed expenditures and are likely inattentive consumers

the permanent income hypothesis and consumption durability analysis based on japanese panel data the permanent income hypothesis with durability of commodities is tested on a panel of about 2 000 japanese households for several commodity groups under static expectations about real interest rates and for some class of utility functions consumption which is a distributed lag function of current and past expenditure follows a martingale main empirical results are i the durability of commodities usually classified as services is substantial ii the hypothesis applies to about 85 percent of the population consisting of wage earners and iii income changes explain only a small fraction of the movements in expenditure

risk sharing and industrial specialization regional and international evidence the authors provide empirical evidence that risk sharing enhances specialization in production to the best of their knowledge this well established and important theoretical proposition has not been tested before the empirical procedure is summarized as follows first the authors construct a measure of specialization in production and calculate an index of specialization for each of the european community ec and non ec oecd countries u s states canadian provinces japanese prefectures latin american countries and regions of italy spain and the united kingdom then they estimate the degree of capital market integration a measure of risk sharing within each of these groups of regions the ec countries the non ec oecd countries the united states canada japan italy spain and the united kingdom and rely on another author s estimate for latin america finally they perform a regression of the specialization index on the degree of risk sharing controlling for relevant economic variables they find a positive and significant relation between the degree of specialization of individual members of a group of countries provinces states or prefectures and the amount of risk that is shared within the group the authors perform regressions using variables such as shareholder rights and the size of the financial sector relative to gdp as instruments for the amount of inter regional risk sharing these regressions confirm that risk sharing facilitated by a favorable legal environment and a developed financial system is a direct causal determinant of industrial specialization this abstract was borrowed from another version of this item

global communications and national power life on the pareto frontier regime analysis has focused on issues of market failure the resolution of which depends upon knowledge and institution building global communications regimes however have been concerned either with issues of pure coordination or with coordination problems with distributional consequences outcomes have been decided by the underlying distribution of national power in those areas where power was asymmetrically distributed and there was no agreement on basic principles and norms radio broadcasting and remote sensing no regime was formed in those areas where distributional issues could not be unilaterally resolved allocation of the radio spectrum and telecommunications regimes were created although both principles and rules changed with alterations in national power capabilities

the deaton paradox in a long memory context with structural breaks this article contributes to the permanent income hypothesis pih and excess consumption smoothness debate in the context of fractional integration we show that the excess consumption smoothness result is a consequence of the quarterly data frequency commonly employed in the empirical work in fact the i 1 hypothesis is rejected for the income process with monthly data in favour of a fractional integration order lower than 1 moreover if a structural break is taken into account we observe a substantial reduction in the degree of consumption smoothness especially after the break found in 1975

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