balance sheet effects foreign reserves and public policies this paper shows that countries can use foreign reserves to enhance their domestic economies resilience to potential risks from balance sheet effects based on a theoretical model this paper demonstrates that the government can either deploy its foreign reserves to lend in foreign currency to the private sector or increase fiscal spending on domestic goods both these policy tools can remedy the bad equilibrium characterized by large scale domestic currency depreciation and very low aggregate investment but they diverge in how they stabilize the domestic economy and require different minimum amounts of foreign reserves targeted lending works by altering investors expectations of the domestic exchange rate and of firms net worth as long as foreign reserves are sufficient to cover the private sector s external debt this approach eliminates the bad equilibrium without an actual depletion of reserves in contrast fiscal spending increases the demand for domestic goods and affects the relative price leading to domestic exchange rate appreciation that subsequently increases firms net worth and facilitates investment

strategic trade and competition policies to assist distressed industries a country s unilateral incentive to use strategic trade policies typically conflicts with multilateral interests regarding such intervention i demonstrate that domestic and world interests can coincide if intervention is used to deter exit from a distressed domestic industry in particular a policy of government endorsed collusion between domestic firms can improve domestic welfare while avoiding the usual beggar thy neighbour effects associated with the use of trade policies it also may offer a more incentive compatible means of assisting distressed domestic firms since a unilateral incentive to intervene exists only where the

regulatory reform in the european community in 1985 the commission of the european community ec put forward 282 proposals for the completion of the internal market in the same year the european council of ministers adopted the single european act which enlarges the range of matters over which decisions can be taken at a qualified majority by the end of november 1991 the commission had formulated all proposals 217 of them have been approved by the council and around 70 percent of those have been implemented in national laws it is only in the area of indirect taxation that little harmonization has been achieved so far such a swift change in many regulations lies in stark contrast with the experience of the decade preceding the adoption of the single european act during which the european commission and council of ministers did not undertake significant changes of course the substitution of consensus by qualified majority as a decision rule in the council or at least the threat of it few

cost differences and survival in declining industries a case for picking winners abstract in this paper we examine the relationship between firms cost structures and the order of exit from declining industries we distinguish between two fundamental causes of demand decline namely a shrinkage of the consumer base and a decrease in consumers willingness to pay we show that it is not necessarily best to be small and flexible the order of exit in a market driven outcome depends on the manner in which demand shrinks we find that from a welfare perspective the order of exit determined by market forces is not necessarily desirable however simple rules for picking winners based on current unit cost profitability or productive efficiency do not provide sound guidance for policy

international financial contagion in currency crises abstract this paper examines the role of financial linkages especially through a common creditor in the propagation of emerging market crises during the 1990s using panel probit regressions on 41 emerging market countries it finds that financial linkages played a significant role in the spread of the mexican asian and russian crises the significance of financial linkages emerges after controlling for the role of domestic and external fundamentals trade spillovers and financial weaknesses in the affected countries a strong financial linkage to the crisis country of origin not only substantially raises the probability of contagion but also helps to explain the observed regional concentration of currency crises

global risk aversion and emerging market return comovements abstract utilizing the recently developed measure of global risk aversion by xu 2017 we show that global risk aversion is a significant determinant of international equity correlations consistently across all emerging markets examined the positive effect of risk aversion on emerging market comovements is particularly strong for south africa and turkey and is consistent with contagion effects the results underscore the importance of non cash flow shocks in models of contagion and portfolio risk

tax base variability and procyclical fiscal policy in developing countries abstract based on a sample of 56 countries we show that fiscal policy in the g7 countries appears to be acyclical while fiscal policy in developing countries is procyclical i e fiscal policy is expansionary in good times and contractionary in bad times to explain this puzzle we develop an optimal fiscal policy model in which running budget surpluses is costly because they create pressures to increase public spending given this distortion a government that faces large fluctuations in the tax base as is the case for developing countries will find it optimal to run a procyclical fiscal policy

european industrial policy and industrial policy in europe among the most vexing problems facing those concerned with the formation and implementation of industrial policy is deciding what it is why it exists and whether there ought to be more or less of it than exists at present any random collection of six economists is sure to produce at least a dozen different opinions on the subject not least because many economists have trouble in reconciling their gut reaction that industrial policy should not exist with the obvious fact that it does the vigorous debate that now rages between those who believe that industrial policy should and those that believe that it should not be consciously pursued by gov ernments is but a pale reflection of the true diversity of opinion that exists on the subject even amongst that group of economists who are enthusiastic about industrial policy the range of specific policy proposals that have been put forth is enormous and the debate within this group is no less active and acrimonious than that between the pros and antis following what is a clear if unintended character istic of many of the contributions to this debate this paper is devoted to complicating ratherthan simpli fying the issues in particular the question that we shall explore is whether there might be a type of industrial policy which should be applied at a supra national level although this question has been actively discussed in europe since the signing of the treaty of rome at least the revival of free marketideologies the looming menace of 1992 and recent discussions of european political union have all added a good deal of fuel to the fire more than a few ambitious european politicians have launched initiatives that apparently usurp national policy prerogatives and the response by many national governments has become increasingly angry and strident traditional liberalism struggled for years to define the boundaries of the state in terms of the

excess capacity and rationalisation in the west european synthetic fibre industry this paper examines the process of rationalisation in an international oligopoly confronted by persistent excess capacity and losses in particular it analyses the pattern of capacity reduction plant closures and product area withdrawals as the firms strove to restore their profitability it compares the actual pattern of rationalisation achieved between 1975 and 1981 with the predicted patterns of rationalisation based on theory both under a cartel with government intervention and in a competitive solution free from such intervention the paper is divided into four sections the first contains a brief outline of developments in the industry 1967 80 the second section examines the producer cartel and government intervention framework the third section is devoted to the development of a predicted competitive pattern of rationalisation finally the fourth section examines the actual pattern of rationalisation and compares this with both the cartel plus government intervention and the competitive pattern predictions

on the measurement of capacity utilization capacity utilization is usually defined as the ratio of actual output to the output corresponding to 1 the minimum point on the short run average total cost curve and 2 the point of tangency between the long run average total cost and short run average total cost curves in practice however capacity utilization is often measured as the ratio of actual to the maximum potential output consistent with a given capital stock this paper demonstrates how to estimate the theoretical measures of capacity utilization and examines the correlation between three measures of capacity utilization and the mcgraw hill estimates of capacity utilization using data from a sample of u s privately owned electric utilities for 1961 83 copyright 1989 by blackwell publishing ltd

from great depression to great credit crisis similarities differences and lessons the great depression of the 1930s and the great credit crisis of the 2000s had similar causes but elicited strikingly different policy responses while it remains too early to assess the effectiveness of current policy it is possible to analyse monetary and fiscal responses in the 1930s as a natural experiment or counterfactual capable of shedding light on the impact of current policies we employ vector autoregressions instrumental variables and qualitative evidence for 27 countries in the period 1925 39 the results suggest that monetary and fiscal stimulus was effective that where it did not make a difference it was not tried they shed light on the debate over fiscal multipliers in episodes of financial crisis they are consistent with multipliers at the higher end of those estimated in the recent literature and with the argument that the impact of fiscal stimulus will be greater when banking systems are dysfunctional and monetary policy is constrained by the zero bound miguel almunia agustin benetrix barry eichengreen kevin h o rourke and gisela rua

monetary policy options for mitigating the impact of the global financial crisis on emerging market economies though the hypothesis that exchange rate regimes fully predetermine monetary policy in the face of external shocks hardly finds any advocates on theoretical ground it has crept in the most of empirical research this study adopts a more discerning empirical approach that looks at monetary policy tools used in order to accommodate the recent financial crisis we investigated the gdp growth in 45 emerging market economies in the most intense phase of the crisis and found out that there is no clear difference in the growth performance between countries at the opposite poles of the exchange rate regime spectrum depreciation cum international reserve depletion outperforms the other policy options especially the rise in the interest rate spread we discovered certain complementarities between the information on the policy option and on exchange rate regime taking into account non gaussian settings we decided to use quantile regression which provide in addition more complete picture of relationship between the covariates and the distribution of the gdp growth

the determinants of work related training in britain in 1995 and the implications of employer size this study uses a familiar set of variables to characterize the determinants of training based around individual characteristics qualifications and workplace characteristics however it goes further by using data drawn from a recent quarter of the uk labour force survey and thus contains an up to date and extensive set of core variables the dependent variable used covers three subgroups those who have never been offered training by their current employer those who have been offered but did not receive training in the last three months and those workers who received training within the last three months the hypothesis that large employers not only provide more work related training but that they are also more willing to train workers with characteristics that indicate a lower probability of obtaining a return on any investment outlay is tested this was confirmed especially for male workers along with a range of results that mostly accord with previous studies into the determinants of uk em

overview of the special issue on policy implications of and lessons from the global financial crisis this paper reviews the special issue policy implications of and lessons from the global financial crisis and its themes global liquidity and the use of international reserves real and financial economic patterns before and during the global financial crisis

on crises contagion and confusion abstract since the tequila crisis of 1994 1995 the asian flu of 1997 and the russian virus of 1998 economists have been busy producing research on the subject of contagion yet few studies have examined empirically through which channels the disturbances are transmitted if there are indeed fundamental reasons for the spillovers we observe we attempt to fill this gap by analyzing how both trade links and the largely ignored financial sector links influence the pattern of fundamentals based contagion we examine the role of international bank lending the potential for cross market hedging and bilateral and third party trade in the propagation of crises

employer size and on the job training decisions the effect of employer size on labor market outcomes have been the subject of extensive although relatively recent research by economists it has been widely demonstrated that large and small firms exhibit a number of differential characteristics with regard to their employment relationships 29 42 employees at large firms have higher wages and fringe benefits 16 10 15 22 32 35 higher levels of job mobility within the firm 19 greater job stability 44 a greater tendency to have mandatory overtime rules 23 higher education levels 8 a more structured work environment 20 26 46 and higher levels of investments by the firm both in the form of search costs 4 5 and direct on the job training 6 10 while numerous theories exist that account for many of these relationships such as monitoring and on the job training models no single explanation has been able to account definitively for the observed empirical patterns clearly size of employer is a significant factor in the dynamics of labor markets that still requires much investigation the focus of this paper is on one particular aspect of employer size effects the observed higher training investments in large firms we propose and test a model in the human capital tradition of viewing on the job training ojt as an investment 9 36 38 39 42 which not only explains the greater investment in on the job training by larger firms but additionally generates predictions with regard to the allocation of the firm s resources across investment in people with different demographic characteristics these latter implications of the model facilitate empirical comparisons to alternative explanations our central hypothesis is that large employers exhibit different behavior from small employers with regard to the risk component of the investments in their employees other training decision models that have addressed firm behavior under uncertainty have done so in the context of monitoring difficulties introduced by either the higher opportunity cost of managers time 43 or diseconomies of scale in monitoring 16 in larger firms although both of these approaches

us trade and inventory dynamics we examine the source of the large fall and rebound in us trade in the recent recession while trade fell and rebounded more than expenditures or production of traded goods we find that relative to the magnitude of the downturn these trade fluctuations were in line with those in previous business cycle fluctuations we argue that the high volatility of trade is attributed to more severe inventory management considerations of firms involved in international trade we present empirical evidence for autos as well as at the aggregate level that the adjustment of inventory holdings help explain these fluctuations in trade

the wage effects of training in portugal differences across skill groups genders sectors and training types this article investigates the determinants and wage effects of training in portugal in a first stage we show that there are considerable differences in training participation across groups of workers with elder and low educated individuals participating substantially less in a second stage we show that training has a positive and significant impact on wages the estimated wage return is about 30 for men and 38 for women discriminating between levels of education and working experience and the public and private sector reveals important differences across categories of workers we find that women low educated workers and workers with long working experience earn larger returns from training the average effect of training is similar in the private sector and the public sector however differences across experience groups are larger in the private sector while differences across education groups are larger in the public sector we use three alternative classifications of training activities and f

the impact of trade union membership on training in britain in order to measure the union non union training differential in britain a recursive model of training participation and union membership is estimated using data taken from the 1989 labour force survey the results show a positive and significant effect of union membership on training participation in small establishments this is consistent with the hypothesis that any negative impact on employer provided training that might have arisen from the union wage mark up is outweighed by a positive influence exerted by unions through the exercise of collective voice and or reductions in labour turnover by contrast in establishments with 25 or more workers unions have no significant impact on training

firm sponsored training in regulated labour markets evidence from spain using data from the 1994 european community household panel survey the author examines who receives formal firm sponsored training in spain the author finds that the distribution of firm sponsored training in the work force is uneven and concentrated among more skilled workers in the upper deciles of the wage distribution the data show that the likelihood of receiving firm sponsored training for a low education employee is much lower also the better educated employees in high wage occupations of the largest establishments have higher probabilities of receiving specific training spain has a highly regulated labour market and the labour market frictions and institutions compress and distort the structure of wages however the results suggest that the highly compressed wage structure do not provide firms with the incentive to invest in general training

the rising resilience of emerging market and developing economies summary economic performance in many emerging market and developing economies emdes improved substantially over the past 20 years in the past decade emdes spent more time in expansion and had smaller downturns than advanced economies for the first time we document the history of emdes resilience over the past 60 years and investigate what factors have been associated with it we find that their improved performance since the 2000s is accounted for by both good policies and a lower incidence of external and domestic shocks better policies account for about three fifths of their improved resilience while less frequent shocks account for the remainder

job assignments signalling and efficiency this article analyzes a model in which information about a worker s ability is only directly revealed to the firm employing the worker other firms however use the worker s job assignment as a signal of ability three results recur throughout the analysis first wage rates tend to be more closely associated with jobs than with ability levels second there is frequently an inefficient assignment of workers to jobs i e even when a firm has complete information about a worker s output third the severity of this inefficiency tends to be negatively correlated with the level of firm specific human capital in the economy

why do firms train theory and evidence this paper offers a theory of training whereby workers do not pay for the general training they receive the superior information of the current employer regarding its employees abilities relative to other firms creates ex post monopsony power and encourages this employer to provide and pay for training even if these skills are general the model can lead to multiple equlibria in one equilibrium quits are endogenously high and as a result employers have limited monopsony power and provide little training while in another equilibrium quits are low and training is high using microdata on german apprentices we show that the predictions of our model receive some support from the data

managers investors and crises mutual fund strategies in emerging markets the authors address the trading strategies of mutual funds in emerging markets the data set they develop permits analyses of these strategies at the level of individual portfolios a methodologically novel feature of their analysis they disentangle the behavior of fund managers from that of investors for both managers and investors they strongly reject the null hypothesis of no momentum trading funds momentum trading is positive they systematically buy winners and sell losers contemporaneous momentum trading buying current winners and selling current losers is stronger during crises and stronger for fund investors than for fund managers lagged momentum trading buying past winners and selling past losers is stronger during noncrises and stronger for fund managers investors also engage in contagion trading selling assets from one country when asset prices fall in another these findings are based on data about mutual funds that represent only 10 percent of the market capitalization in the countries considered were it a larger share of the market finding counterparties for their trades the investors who buy when they sell and sell when they buy would be difficult and the premise that funds respond to contemporaneous returns rather than causing them would become tenuous

on the exposure of the bric countries to global economic shocks the financial crisis led to a deep recession in many industrial countries while large emerging countries recovered relatively quickly from the financial crisis their performance deteriorated in the last years despite the modest recovery in advanced economies the higher divergence of business cycles is closely linked to the chinese transformation during the crisis the chinese fiscal stimulus prevented a decline in gdp growth not only in that country but also in resource rich economies the chinese shift to consumption driven growth led to a decline in commodity demand and the environment became more challenging for many emerging markets this view is supported by bayesian vars specified for the bric brazil russia india and china countries the results reveal a strong impact of international variables on gdp growth in contrast to the other countries china plays a crucial role in determining global trade and oil prices hence the change in the chinese growth strategy puts additional reform pressure on countries with abundant natural resources

cross country experiences and policy implications from the global financial crisis the financial crisis of 2007 2008 is rooted in a number of factors some common to previous financial crises others new analysis of post crisis macroeconomic and financial sector performance for 58 advanced countries and emerging markets shows a differential impact of old and new factors factors common to other crises like asset price bubbles and current account deficits help to explain cross country differences in the severity of real economic impacts new factors such as increased financial integration and dependence on wholesale funding help to account for the amplification and global spread of the financial crisis our findings point to vulnerabilities to be monitored and areas of needed national and international reforms to reduce risk of future crises and cross border spillovers they also reinforce a sad state of knowledge much of how crises start and spread remains unknown stijn claessens giovanni dell ariccia deniz igan and luc laeven

when in peril retrench testing the portfolio channel of contagion abstract the impact of past gains and losses on international investors risk aversion is an important factor in the propagation of financial shocks across countries we first present a stylized model illustrating how changes in investors risk aversion affect portfolio decisions and stock prices we then examine empirically the behavior of international mutual funds when funds returns are below average they reduce their exposure to countries in which they were overweight and vice versa an index of financial interdependence that reflects the extent to which countries share overexposed funds helps explain the pattern of stock market comovement across countries and the pattern of contagion during crises

why do low educated workers invest less in further training several studies document that low educated workers participate less often in further training than high educated workers this article investigates two possible explanations low educated workers invest less in training because of 1 the lower economic returns to these investments or 2 their lower willingness to participate in training controlling for unobserved heterogeneity we find that the economic returns to training for low educated workers are positive and not significantly different from those for high educated workers however low educated workers are significantly less willing to participate in training we show that this lesser willingness to train is driven by economic preferences and personality traits

why do emerging economies borrow short term the authors argue that emerging economies borrow short term due to the high risk premium charged by international capital markets on long term debt they first present a model where the debt maturity structure is the outcome of a risk sharing problem between the government and bondholders by issuing long term debt the government lowers the probability of a liquidity crisis transferring risk to bondholders in equilibrium this risk is reflected in a higher risk premium and borrowing cost therefore the government faces a tradeoff between safer long term borrowing and cheaper short term debt second the authors construct a new database of sovereign bond prices and issuance they show that emerging economies pay a positive term premium a higher risk premium on long term bonds than on short term bonds during crises the term premium increases with issuance shifting toward shorter maturities this suggests that changes in bondholders risk aversion are important to understand emerging market crises

cross country causes and consequences of the crisis an update abstract we update rose and spiegel forthcoming rose and spiegel 2010 and search for simple quantitative models of macroeconomic and financial indicators of the great recession of 2008 09 we use a cross country approach and examine a number of potential causes that have been found to be successful indicators of crisis intensity by other scholars we check a number of different indicators of crisis intensity and a variety of different country samples while countries with higher income and looser credit market regulation seemed to suffer worse crises we find few clear reliable indicators in the pre crisis data of the incidence of the great recession countries with current account surpluses seemed better insulated from slowdowns

how resilient and countercyclical were emerging economies to the global financial crisis during the crises of the 1990s emerging economies usually lacked the policy tools to deal with external shocks that were available to advanced economies worldwide turbulent episodes found most emerging economies unable to perform countercyclical policies and in many cases their own vulnerabilities and poor institutional frameworks amplified negative external shocks leading to sharper recessions this paper shows that the 2008 2009 global financial crisis represents a structural break in the way emerging economies conduct their policies with more countercyclical policies pursued before and during the global crisis moreover breaking with the past emerging economies did not fall more than developed economies during the global financial crisis thus becoming more similar to developed economies the resilience of emerging economies during the 2008 2009 crisis might be partly attributed to a combination of sounder macroeconomic and financial policy frameworks with a shift towards safer domestic and international financial stances

labour contracts and efficiency in on the job training two sources of inefficiency in the provision of on the job training are examined an externality between firms which arises if there is imperfect competition between firms in the labor market and allocation inefficiency due to asymmetry of information about the value of the trained worker the second source of inefficiency may compound the first various contracts between the worker and the training firm are considered analysis of a simple example suggests that a contract in which the wage is chosen by the firm performs best according to the criteria of reducing both types of inefficiency copyright 1994 by royal economic society

testing the acemoglu pischke model in spain abstract the acemoglu pischke approach to training in imperfect labor markets predicts that wage compressions should shift incentives to invest in training from workers to firms this will increase firm sponsored general training when workers are unable to invest in training by themselves spain is on the top of the ranking of regulated labor markets however the training figures for spain indicate a poor effect of highly compressed wage structure on firm sponsored training

fiscal and monetary policies and the cost of sudden stops abstract this article investigates the effects of monetary and fiscal policies on output growth during sudden stop balance of payments crisis in emerging markets and developing countries sudden stops in capital flows and subsequent deep recessions are a frequent occurrence in these countries but there is no professional consensus and little systematic empirical evidence shedding light on the macroeconomic policy mix most likely to limit output losses during these episodes to address this issue we investigate 83 sudden stop crisis in 66 countries using a baseline empirical model to control for the various determinants of output losses during sudden stops we measure the marginal effects of policy on output losses and find strong evidence that monetary tightening rise in the discount rate or unsterilized rise in international reserves and discretionary fiscal contraction are significantly correlated with larger output losses following a sudden stop fiscal expansion is associated with smaller output losses following a sudden stop but monetary expansion has no discernable effect the macroeconomic policy mix associated with the least output loss during a sudden stop financial crisis is a discretionary fiscal expansion combined with a neutral monetary policy

robust capacity planning under uncertainty the existence of uncertainty influences the investment production and pricing decision of firms therefore capacity expansion models need to take into account uncertainty this uncertainty may arise because of errors in the specification statistical estimation of relationships and in the assumptions of exogenous variables one such example is demand uncertainty in this paper a cautious capacity planning approach is described for solving problems in which robustness to likely errors is needed the aim is to cast the problem in a deterministic framework and thereby avoid the complexities inherent in nonlinear stochastic formulations we adopt a robust approach and minimize an augmented objective function that penalises the sensitivity of the objective function to various types of uncertainty the robust or sensitivity approach is compared with friedenfelds equivalent deterministic demand method using numerical results from a large nonlinear programming capacity planning model it is shown that as ca

heterogeneous firms and the organization of production firms in the same industry exhibit systematic differences in the organization of production and the structure of employment entrepreneurial ability is the specific scarce input that limits the size of a firm this input must be allocated to two activities coordinating production and monitoring workers able entrepreneurs can convert calendar time into larger supplies of coordinating effort that enable them to assemble large firms greater ability implies a higher shadow price of time which increases the implicit costs of monitoring a dispersion of entrepreneurial abilities generates an equilibrium size distribution of firms differences in monitoring costs affect the choice of worker productivities the design of products and the organization of production the monitoring cost hypothesis advanced in this paper goes a long way in explaining the equilibrium of an industry containing heterogeneous firms that differ in size and behavior

globalization and developing countries a shrinking tax base abstract this paper evaluates the impact of globalisation on tax bases of countries at varying stages of development we see globalisation as a process that induces countries to embrace greater trade and financial integration this in turn should shift their tax revenue from easy to collect taxes tariffs and seigniorage towards hard to collect taxes value added and income taxes we find that trade and financial openness have a positive association with the hard to collect taxes and a negative association with the easy to collect taxes