is protectionism on the rise assessing national trade policies during the crisis of 2008 to understand the role of trade policies in the crisis of 2008 this paper constructs the overall trade restrictiveness indices for a wide range of countries using their tariff schedules in 2008 and 2009 the index summarizes the trade policy stance of a country taking into account the share of each good in trade as well as its corresponding import demand elasticity results show that there is no widespread increase in protectionism via tariff policies since the global financial crisis has unfolded while many countries have adjusted tariffs upward on selected products only a handful of countries such as malawi russia argentina turkey and china focus on products that have significant impacts on trade flows the united states and the european union by contrast rely mainly on anti dumping duties to shield domestic industries overall while the rise in tariffs and anti dumping duties in these countries may have jointly caused global trade to drop by as much as us 43 billion during the crisis period it explains less than 2 percent of the collapse in world trade

money anticipated changes and policy effectiveness the lucas sargent wallace l s w proposition states that expected policy changes have no influence on real economic variables even in the short run see robert lucas 1972 and thomas sargent and neil wallace 1975 one form of empirical test of the l s w proposition the neutrality proposition began with robert barro s 1977 1978 seminal articles supporting the neutrality proposition however more recent papers including those by david small 1979 john makin 1982 and frederic mishkin 1982a b have reexamined the relationships between anticipated and unanticipated money vs output unemployment and inflation and have found evidence suggesting that anticipated monetary changes do have real effects all of the above cited studies use expectations procedures which estimate for example a money growth equation over the entire period under consideration however this approach assumes that when expectations are being formed at the beginning of the period economic agents have the relevant information for the entire period in this note i reexamine the impact of expected vs unexpected monetary changes focusing on the informational restrictions actually faced by economic agents when formulating expectations the structure of the model used here is similiar to the models of barro and mishkin a measure of real output is assumed to be a function of a policy variable and a vector of predetermined variables the policy variable can be decomposed into anticipated and unanticipated components algebraically

credit constraints equity market liberalizations and international trade abstract this paper provides evidence that credit constraints are an important determinant of international trade flows i exploit shocks to the availability of external finance and examine the impact of equity market liberalizations on the export behavior of 91 countries in the 1980 1997 period i show that liberalizations increase exports disproportionately more in financially vulnerable sectors that require more outside finance or employ fewer collateralizable assets this result is not driven by cross country differences in factor endowments and is independent of simultaneous trade policy reforms moreover it obtains with equal strength in the full panel of countries as well as in both panel and event study analyses of countries which removed capital controls during the sample period finally the effects of liberalizations are more pronounced in economies with initially less active stock markets indicating that foreign equity flows may substitute for an underdeveloped domestic financial system similarly opening equity markets has a greater impact in the presence of higher trade costs caused by restrictive trade policies

off the cliff and back credit conditions and international trade during the global financial crisis abstract we study the collapse of international trade flows during the global financial crisis using detailed data on monthly us imports we show that credit conditions were an important channel through which the crisis affected trade volumes by exploiting the variation in the cost of capital across countries and over time as well as the variation in financial vulnerability across sectors countries with higher interbank rates and thus tighter credit markets exported less to the us during the peak of the crisis this effect was especially pronounced in sectors that require extensive external financing have limited access to trade credit or have few collateralizable assets exports of financially vulnerable industries were thus more sensitive to the cost of external capital than exports of less vulnerable industries and this sensitivity rose during the financial crisis the quantitative implications of our estimates for trade volumes highlight the large real effects of financial crises and the potential gains from policy intervention

credit market imperfections and patterns of international trade and capital flows this paper offers two simple models to illustrate how corporate governance contractual enforcement and the balance sheet condition of the business sector etc can affect the patterns of international trade and capital flows in the presence of credit market imperfections jel d52 f15 f21 f40

the random walk hypothesis of the exchange rate abstract we show that the exchange rate can follow a random walk without assuming risk neutrality we are thus able to derive a random walk hypothesis for the exchange rate which is associated with a risk premium that may differ from zero

supply chains global financial shocks and firm behaviour towards liquidity needs driven by the increasingly important role of supply chains in global production this paper studies empirical association between global credit market shocks and firm behaviour towards liquidity needs across countries and industries focusing on the adjustment of working capital financing we find two pieces of supporting evidence from international firm level panel data covering the period 2002 i 2012 iv first for industries where specific investment in the input supplier customer relationship is large firms are more exposed to credit market shocks we find that measures of global credit market shocks are negatively associated with trade receivables trade payables and inventories conditional on the level of contract intensity in the industries where firms operate second firms in emerging markets are more vulnerable to credit market shocks than are firms in developed countries we are also able to verify the economic significance of sales growth operating cash flows cash stock and firm size in the overall adjustment our findings highlight the importance of balance sheet contagion along supply chains during the 2007 09 global financial crisis

exchange rate pass through and credit constraints abstract the macroeconomic evidence of the short term impact of exchange rates on exports and prices is notoriously weak this paper examines the microfoundations of this disconnect i study the response of firms export and price setting decisions to fluctuations in exchange rates and credit conditions using firm level survey data financially constrained firms pass through exchange rate changes to prices at almost twice the rate of unconstrained firms similarly their export volumes are about twice as sensitive to exchange rate fluctuations the effect of borrowing constraints is particularly strong during the recent financial crisis

trade credit and cross country predictable firm returns we investigate the role of trade credit links in generating cross border return predictability between international firms using data from 42 countries from 1993 to 2009 we find that firms with high trade credit located in producer countries have stock returns that are strongly predictable by the returns of their associated customer countries this behavior is especially prevalent for firms with high levels of foreign sales and is robust to a variety of controls to better understand this effect we develop an asset pricing model in which firms in different countries are connected by trade credit links the model has further predictions about this phenomenon including stronger predictability during periods of high credit constraints and high uninformed trading volume we find supportive empirical evidence for these results

cultural proximity a source of trade flow resilience while the significant influence of cultural proximity on bilateral trade flows has been extensively documented in the literature its possible role in times of crisis has not yet been raised relying on a panel estimation of a gravity model incorporating cultural proximity parameters we evidence the existence of a significant surge in the impact of the different components of cultural proximity during economic recession the trade resilience among countries sharing a cultural bond is not a pure composition effect as it also appears within product categories to understand this unexpected effect we discuss different mechanisms that emphasise the potential mitigating influence of cultural proximity on some determinants of the trade collapse namely the uncertainty shock the increased moral hazard and the emergence of ethnocentric preferences

the impact of banking deregulation on inbound foreign direct investment transaction level evidence from the united states abstract we evaluate the effects of state level banking deregulation that resulted in improved access to cheaper local finance on foreign firms investing in the u s we provide direct micro level evidence from u s inbound foreign direct investment transactions showing that interstate banking but not intrastate branching deregulation increased the number of transactions reduced the average transaction value and boosted overall investment by foreign multinationals we also show that lower cost of local credit and greater local bank competition in each state following the interstate banking deregulation are potential mechanisms that stimulated fdi activity finally we demonstrate that after the adoption of the interstate banking deregulation both the number and the average value of transactions increased in industries that are more dependent on external finance relative to industries that are less dependent

extra credit bank finance and firm export status in germany this paper estimates the exporter premium in bank lending we examine credit relationships in germany covering all loans of more than 1 5 million euro over the period from 2005 to 2010 having controlled for a wide range of other firm and bank characteristics our results indicate that exporting firms take out loans around 15 percent larger than those of nonexporters

stabilization policies in an explosive economy announcements and expectations abstract the article studies an economy where the option of inflating away the debt becomes attractive because a sequence of budget deficits has raised the stock of debt to a point where the expenditure cuts or tax increases required to stabilize the economy are politically hard to sell the dynamic of the economy is characterized by the interplay between policy announcements and private agents behaviour in reply to them

explaining the fame of friedman s presidential address it is noted that although in fact it lacks the revolutionary content commonly ascribed to it friedman s presidential address to the american economic association is very highly regarded as an original and formative contribution it is argued that close attention to the literature shows that it was not initially seen as original and only after an interval of five years did the idea of its revolutionary status retrospectively but suddenly become widely accepted the explanation of this change of view is considered four explanations are suggested one involving terminological confusion one involving a change in theoretical priorities and two involving debates of the 1970s which although they did not in fact do so appeared to build on friedman s presentation and by this appearance gave it an undeserved stature

tax subsidies to owner occupied housing an asset market approach inflation reduces the effective cost of homeownership and raises the tax subsidy to owner occupation this paper presents an asset market model of the housing market and estimates how changes in the expected inflation rate affect the real price of houses and the equilibrium size of the housing capital stock simulation results suggest that the accelerating inflation of the 1970s which substantially reduced homeowners user costs could have accounted for as much as a 30 percent increase in real house prices persistent high inflation rates could lead ultimately to a sizable increase in the stock of owner occupied housing

manufacturers expections of prices and quantities new zealand experience 1964 87 most empirical work on expectations has focused on price expectations this paper extends that work by evaluting the properties of manufacturers expectations of a range of nominal and real variables the data for this study consist of individual firm responses to the new zealand institute of economic research s quaterly tendency survey over an unusally long period of 24 years from 1964 to 1987 measures of accuracy bias and effiency are constructed and the results indicate that the properties fo expectations differ across variables and conclusions drawn from empirical studies of price expectations should not be generalized manufacturers are more accurate at forecasting changes in prices than quantities the mainstream rational expectations hypothesis is rejected for most of the quantity variables but the case for rejection was not so clear for expectations of prices and costs the results are consistent with the view that price expectations behave more like plans than forecasts firms views about co

financial markets the pattern of industrial specialization and comparative advantage evidence from oecd countries due to underlying technological and organizational differences industries differ in their need for external finance since services provided by the financial sector are largely immobile across countries the pattern of industrial specialization should be influenced by the level of financial development among oecd countries we find a strong causal effect of the financial sector on industrial specialization further the financial sector is a source of comparative advantage in a way consistent with the hecksher ohlin vanek model results are also presented on which aspects of financial systems are important for specialization and comparative advantage

bank linkages and international trade abstract we uncover a new channel through which international finance is related to trade the formation of international bank linkages increases exports bank linkages are measured for each pair of countries in each year as a number of bank pairs in these two countries that are connected through cross border syndicated lending using a gravity approach to model trade for 66 countries over 24 years with a full set of fixed effects source year target year source target we find that new connections between banks in a given country pair lead to an increase in trade flows between these countries in the following year and to trade diversions from countries competing for similar imports we conjecture that the mechanism for this effect is the role bank linkages play in reducing export risk and present evidence supporting this conjecture in particular using industry level trade data and controlling for country pair year and industry fixed effects we find that new bank linkages have larger impacts on trade in industries which tend to be subject to more export risk for u s banks we can show that bank linkages are positively associated with foreign letter of credit exposures

withstanding financial crises would trade partners help or hurt abstarctthis article provides new empirical evidence on the losses of real activity caused by various financial shocks spillover effects due to foreign trade linkages deserve special attention to this end we estimate a modify auto regressive process and a seemingly unrelated regression equations estimator is used to account for the dependency of one s country growth on its trade weighted partners growth we run estimations on a set of currency collapses banking crises and sovereign defaults in 49 advanced and developing countries from 1978 to 2011 the trade weighted foreign demand effect mitigated the economic downturn following a banking or a sovereign debt crisis in all countries while only the advanced ones benefited from it after a currency collapse trade based spillover effects make banking crises more costly in the developing countries in those that liberalize their financial account it contrasts with what is observed during currency or sovereign debt crises

finance and trade a cross country empirical analysis on the impact of financial development and asset tangibility on international trade summary this paper investigates the interplay between financial development asset tangibility and international trade using industry level data on firms dependence on external finance and firms asset tangibility for 27 industries in 42 countries we find that economies with higher levels of financial development have higher export shares and trade balance in industries with more intangible assets using the same dataset we also show that the interplay between property rights protection and asset tangibility influences the pattern of trade higher levels of property rights protection lead to higher export shares and trade balance in industries with more intangible assets

dynamic determinacy and the existence of sunspot equilibria this paper relates the existence of stationary sunspot equilibria in the vicinity of a conventional stationary state to the phase diagram surrounding the latter we find that the local condition required for a unique equilibrium path returning to the stationary state following any slight disturbance of initial conditions is also sufficient to exclude stationary sunspot equilibria in the stationary state s immediate vicinity in that sense an eigenvalue condition familiar from dynamic analysis can tell us something about the possibilities of local sunspot activity as well journal of

import dynamics and demands for protection what kinds of changes in foreign competition lead domestic industries to seek import protection to address this question this paper uses detailed monthly u s import data to investigate changes in import composition during a 24 month window immediately preceding the filing of a petition for protection a decomposition methodology allows a comparison of imports from two groups of countries supplying the same product those that are named in the petition and those that are not the same decomposition can be applied to products quite similar to the imports in question but not subject to a petition the results suggest that industries typically seek protection when faced with a specific pattern of shocks first a persistent positive relative supply shock favors imports from named countries second a negative demand shock hits imports from all sources just prior to domestic industries petition for protection the relative supply shock is a broad one it applies both to named commodities and to the comparison product group the import demand shock by contrast is narrow hitting only named products the latter shock is also large import growth over the two year window is 15 percentage points lower in named products than in reference products with most of this gap arising in the final two quarters before the petition the negative import demand shock appears to be a key event in the run up to the filing of a petition it has been missed by previous studies using more aggregated data

exchange rate differential and balance of payments under dual exchange markets abstract this paper develops a model of an economy that uses two exchange markets an official market in which the exchange rate is determined by central bank intervention and a free market in which the exchange rate is determined by market forces the official market handles selected imports and exports while the free market handles the remaining imports and exports and capital transactions the model is used to discuss the effects of various policies on the differential between the free and the official exchange rates and on the balance of payments

improving the availability of trade finance in low income countries an assessment of remaining gaps conditions in trade finance markets have returned to normality along the main global routes after the global financial crisis of 2008 9 the structural difficulties of poor countries in accessing trade finance have however not disappeared and might have been worsened trade finance markets are characterized by a greater selectivity in risk taking flight to quality customers and a re focusing of global trade finance suppliers banks towards their largest customers in developed countries in that environment it seems that the lower end of the market has been struggling to obtain affordable finance with the smaller companies in the smaller poorer countries most affected this is an area where statis tics are difficult to find and causality hard to establish the paper takes a critical look at some of the recent available mostly survey based information suggesting that a significant trade finance market gap exists in sub saharan africa and poor countries in developing asia it looks at policy steps that are being taken to alleviate in part this situation

global sourcing and credit constraints this paper incorporates credit constraints into a model of global sourcing and heterogeneous firms following antras and helpman 2004 heterogeneous firms decide whether to outsource or integrate input suppliers financing of fixed organizational costs requires borrowing with credit constraints and collateral based on tangible assets the party that controls intermediate inputs is responsible for these financing costs sectors differ in their reliance on external finance and countries vary in their financial development the model predicts that increased financial development decreases the share of integration relative to outsourcing in a country the effect is more pronounced in sectors with a high reliance on external finance however this effect is mitigated by higher productivity tfp and headquarter intensity empirical examination confirms the predictions of the model an improvement in financial development from the 25th to the 75th percentile in industries at the 75th percentile in finance dependence relative to those at the 25th percentile is associated with a 16 8 decrease in the median share of us intra firm imports an increase in tfp from the 25th to the 75th percentile in the tfp triple interactions increase the share of us intra firm imports at the median by 3 2 an increase in headquarter intensity from the 25th to the 75th percentile in the headquarter intensity triple interactions increase the share of us intra firm imports at the median by 21

export credit guarantees and export performance an empirical analysis for germany recent literature finds that exporters are particularly vulnerable to financial market frictions as a consequence exports may be lower than their efficient levels for this reason many countries support exporters by underwriting export credit guarantees the empirical evidence on the effects of those policies is however very limited in this paper we use sectoral data on export credit guarantees issued by the german government we investigate whether those guarantees indeed do increase exports and whether they remedy the export restricting effect of credit market imperfections both on the sectoral and on the export market levels exploiting the sectoral structure of a rich three way panel data set of german exports we control for unobserved heterogeneity on the country year sector year and country sector dimensions we document a robust export increasing effect of guarantees there is some evidence that the effect is larger for export markets with poor financial institutions and in sectors that rely more on external finance

change and stability in superpower rivalry we investigate the dynamics of superpower rivalry participants in policy debates within each state use information about expected future threats and economic costs to influence other policy actors and this process of sophisticated reaction links the security policies of these two states into a single rivalry system analysis of vector autoregression models of u s and soviet military expenditures and diplomatic hostility and u s gross national product supports the hypothesis that these policies approximate the behavior of unitary rational states capable of forming rational expectations of each other s future behavior the dynamic response of this system to a wide range of exogenous shocks or innovations reveals the underlying stability of this rivalry system the military expenditures of both states exhibit a cyclical response to innovations with a shorter u s cycle this lack of synchronization creates several problems for analysis and for policy change

a new database on the structure and development of the financial sector this article introduces a new database of indicators of financial structure and financial development across countries and over time the database is unique in that it combines a wide variety of indicators that measure the size activity and efficiency of financial intermediaries and markets it improves on previous efforts by presenting data on the public share of commercial banks introducing indicators of the size and activity of nonbank financial institutions and constructing measures of the size of bond and primary equity markets this article introduces a new database the first to provide comprehensive measures of the development structure and performance of the financial sector this database is the first to define and construct indicators of the size and activity of nonbank financial intermediaries such as insurance companies pension funds and non deposit money banks it is also the first to include indicators of the size of primary equity markets and primary and secondary bond markets in constructing the database authors carefully deflate measures and match stock and flow variables

classical monetary theory new and old the distinctive features of so called new classical monetary theory may be listed as 1 rational expectations 2 quantity th eory of money 3 interest policy indeterminancy 4 market clearin g 5 neutral money and 6 monetary policy ineffectiveness this p aper investigates whether these features actually represent the tradi tion of classical and neoclassical economics since richard cantillon the result is largely negative new classical economics is a mis nomer keynes however with all his effort to create a revolution r emained actually quite close to the tradition copyright 1987 by ohio state university press

export market exit and financial health in crises periods abstract this paper uses rich firm level data for the uk to investigate the link between firms financial health and export exit paying attention to the erm currency crisis and the global financial crisis our results show that deterioration in the financial position of firms has increased the hazard of export exit during the 2007 09 crisis but has no significant effect on the early 1990s crisis we also explore the extent to which firms in financially vulnerable industries face greater sensitivity of export exit to financial conditions we conclude that firms in sectors with great reliance on external finance experience higher hazards of exiting the export market during the 2007 09 crisis

did financial frictions stifle r d investment in europe during the great recession abstract we investigate the role of financial frictions in r d spending in a large sample of european firms our identification strategy exploits the contraction in credit supply that followed the 2008 09 global financial crisis and 2012 euro area sovereign debt crisis together with differences in financial frictions across firms and industries to identify a causal effect of financial constraints on investment in innovation we show that firms that are more likely financially constrained in industries more dependent on external finance invest disproportionally less in r d during periods of tight credit supply smaller private firms with weaker balance sheets also have a lower share of r d in total investment suggesting r d drops more than total investment during these crisis episodes these results are robust to different proxies of financial constraints and fixed effects identification strategies

the impact of the yuan dollar exchange rate on mexican manufacturing exports to the us a cointegration approach this paper makes use of three econometric methods and three time intervals to evaluate the long term effects of several key variables on mexican manufacturing exports to the us the evidence across econometric techniques and sample periods systematically indicates that i a real depreciation of the yuan dollar exchange rate reduces mexican manufacturing exports by lowering the price of chinese goods in the us market ii a depreciation of the peso dollar real exchange rate generates a strong supply side effect due to the high import content of mexican manufacturing exports which ultimately leads to lower rather than higher sales in the us and iii external demand and labour productivity are positively related to manufacturing exports whereas real wages are negatively related therefore a falling external demand for mexican manufacturing products or a real depreciation of the chinese currency could to some extent be offset by increasing labour productivity faster than wages these findings reflect two fundamental problems of the mexican economy i low investment in high quality formal instruction and proper training programs which gives rise to severe bottleneck points for faster labour productivity growth and ii excessive reliance of the export oriented manufacturing industry on foreign suppliers of intermediate inputs

trade finance matters evidence from the covid 19 crisis this study documents a substantial decline in the exports of major trading nations taking place in march 2020 accounting for product specific seasonality and annual trends the data suggest a drop by 38 per cent in france about a quarter in turkey and germany and 12 per cent in the us relative to their historical averages detailed export data from turkey disaggregated by financing terms show another striking pattern flows using bank intermediation which eliminates or reduces the risk of non payment or non arrival of prepaid goods such as letters of credit or documentary collection appear to have been much more resilient to the current downturn relative to flows using other financing terms these findings suggest that access to trade finance is vital during times of heightened uncertainty the author s 2020 published by oxford university press for permissions please e mail journals permissions oup com

an international evaluation of the fisher hypothesis using rational expectations the fisher hypothesis that the real rate of interest is invariant with respect to changes in the expected rate of inflation has been the subject of intense empirical scrutiny for many years 3 5 9 13 16 17 21 22 23 24 26 several recent studies have sought to model and measure the impact of other variables besides the expected rate of inflation on the real rate of interest 3 5 16 17 18 19 25 and two papers fama 4 and lahiri and lee 15 are notable for their attempts to model expectations rationally the purposes of this paper are two fold to develop explicit rational expectations models for forecasting inflation and to evaluate the fisher hypothesis for long term interest rates in the united kingdom west germany italy and the united states an empirical evaluation of the fisher hypothesis requires a variable which measures inflationary expectations optimal arima box jenkins models for consumer price inflation are derived for each country and forecasts of long term inflation are calculated inflationary expectations computed in this fashion are weakly rational since these forecasts make optimal use of the information contained in the available inflation history

evidence for the effect of monitoring costs on foreign direct investment abstract a proposed reason for the significant inverse relationship between distance both physical and cultural and foreign direct investment is the increased costs for a parent firm to monitor an affiliate when there is greater distance between them we provide the first direct test of this hypothesis using o net data on occupational skills to construct industry level measures of the importance of monitoring related skills we exploit this cross industry variation to examine whether physical and cultural distances have a greater impact on cross border m a in industries where monitoring related skills are more important using data on worldwide cross border m a activity from 2005 through 2014 we find significant evidence for the effect of monitoring costs on cross border m a activity we also show that the relatively low importance of monitoring related costs in manufacturing industries compared to those in other sectors is an important factor in explaining why cross border m a in manufacturing is so large despite its relatively small share in most countries

credit contraction and international trade evidence from chilean exporters summary using data of chilean exporting firms this paper studies the effect of the financial crisis on the extensive and intensive margin of export in the aftermath of the crisis the negative effect of the crisis on exports is highly heterogeneous the evidence shows that larger exporters belonging to industries more dependent on overall credit have suffered disproportionately more during the crisis in terms of export growth but less in terms of entry and exit this has important policy implications as public policy aiming at stimulating trade credit may not be as effective if overarching credit conditions remain subdued

the international credit channel of u s monetary policy transmission to developing countries evidence from trade data abstract in a large sector level bilateral trade dataset we find robust evidence supporting a broad international credit channel of u s monetary policy transmission to developing countries we show that u s monetary policy has a significant effect on the sectoral composition of developing countries exports financially more vulnerable sectors have a significantly more negative exposure of their trade to a tight u s monetary policy especially in financially less developed exporting countries or during significant u s tightening periods moreover we identify both a monetary policy dependence mechanism and a financial dollarization mechanism through which u s monetary policy can influence the sectoral composition of developing countries exports

foreign direct investment and external financing conditions evidence from normal and crisis times this paper investigates the effects that external financing conditions in source and destination countries have on foreign direct investment fdi in normal and crisis times using a difference in differences approach we find that source and destination countries financial development have a strong positive impact on the relative volume of fdi in financially vulnerable sectors in normal times on the other hand during the 2008 2010 global financial crisis the relative volume of fdi in financially vulnerable sectors fell relatively more in financially developed source and destination countries most notably if these countries experienced a credit crisis

adjustment costs and rational expectations an application to a tobacco export model the effect of adjustment costs on international trade has been captured in an ad hoc fashion in past analysis whereas a certainty environment is many times assumed in this article adjustment costs are explicitly considered in the modeling procedure of tobacco exports from greece and rational expectations are introduced the results are consistent with considerable price competition and a large difference between immediate and long run responses due to adjustment costs that explain in part the evolution of tobacco exports from greece and suggest that higher elasticities might be found in international trade if adjustment costs are properly treated

when is quality of financial system a source of comparative advantage abstract dominant theories of trade tend to ignore the role of finance as a source of comparative advantage on the other hand the finance literature places financial institutions as a driver of economic growth this paper unites these two competing schools of thought in a general equilibrium framework for economies with high quality institutions defined by the competitiveness of the financial sector the quality of corporate governance and the level of property rights protection finance is passive on the other hand for economies with low quality institutions the quality of the financial system is an independent source of comparative advantage interestingly the conventional measure of financial development the size of the financial market relative to gdp does not adequately capture the underlying quality of financial institutions in addition free trade may reduce the aggregate income in south financial capital tends to flow from south to north

sophisticated reaction in the u s soviet arms race evidence of rational expectations because of the pervasive security rivalry between the united states and the soviet union information about the expected future behavior of the rival state proves useful to domestic political actors competing to influence budgetary allocations this article examines the hypothesis that in the aggregate this process of sophisticated reaction approximates the behavior of two unitary rational actors capable of forming rational expectations of each other s behavior this rational expectations arms race model implies that the military expenditure series of arms racers should be independent in the granger causal sense but that their residuals should be correlated contemporaneously the latter prediction is inconsistent with bureaucratic process models or alternative expectational formulations and empirical analysis of u s and soviet yearly military expenditures is provided that supports the predictions of the rear model finally some implications of this intimate linkage between the domestic policy processes of these two rival superpowers are briefly discussed

global stability and the choice of policy targets under rational expectations abstract it is shown that if the supply of capital is properly incorporated in a macromodel with rational expectations the government cannot peg its expenditures wholly in real terms since otherwise the economy will be globally unstable

trade finance and the great trade collapse pieces of evidence that support the trade finance channel first we show that export prices rose relative to domestic manufacturing prices across a large number of countries second we find that import and export prices of goods shipped by sea which are likely to be affected most by trade finance contractions rose disproportion ately more than those shipped by air or land

unification of dual exchange markets abstract this paper develops the model of an economy under a dual exchange system comprising an official market with a crawling exchange rate and a free market with a floating exchange rate after analyzing the behavior of the economy under the dual system the paper discusses the effects that switching to a unified floating system or a unified crawling peg system has on the exchange rate and on the balance of payments particularly in the short run the paper shows that these effects depend on the composition of the private sector s portfolio at the time of unification which in turn depends on the various policies that were followed while the economy was under the dual system

on the consistency of backward looking expectations the case of the cobweb in dynamic models of economic fluctuations backward looking expectations with systematic forecasting errors are inconsistent with rational behaviour in non linear dynamic models exhibiting seemingly unpredictable chaotic fluctuations however simple habitual rule of thumb backward looking expectation rules may yield non zero but nevertheless non systematic forecasting errors in a chaotic model expectational forecasting errors may have zero autocorrelations at all lags even for rational agents patterns in these forecasting errors may be very difficult to detect especially in the presence of small noise backward looking expectations are then not necessarily inconsistent with rational behaviour we investigate whether simple expectation schemes such as naive or adaptive expectations can be consistent with rational behaviour in the simplest of all non linear dynamic economic models the non linear cobweb model

a precursor to muth tinbergen s 1932 model of rational expectations this paper describes a model published in 1932 in which explicitly rational expectations are used to study a dynamic problem of intertemporal inventory allocation the model is very similar to muth 1961 except that the stochastic process in the latter is serially correlated whereas in tinbergen s model the disturbances are serially uncorrelated hence tinbergen was able to solve a rational expectations model thirty years before muth s much more well known contribution copyright 1991 by royal economic society

covered interest parity a high frequency high quality data study profitable deviations from covered interest parity cip represent riskless arbitrage opportunities and so indicate market ineffic iency previous empirical work on cip uses noncontemporaneously sampl ed data and reports mixed results this paper uses high frequency te n minute high quality data gathered personally by the author in th e london foreign exchange market to test the cip condition the resu lts overwhelmingly support the market efficiency hypothesis copyright 1987 by the review of economic studies limited

to aggregate pool or neither it is well known that even if all forecasters are rational unbiasedness tests using consensus forecasts are inconsistent because forecasters have private information however if all forecasters face a common realization pooled estimators are also inconsistent in contrast we show that when predictions and realizations are integrated and cointegrated microhomogeneity ensures that consensus and pooled estimators are consistent therefore contrary to claims in the literature in the absence of microhomogeneity pooling is not a solution to the aggregation problem we reject microhomogeneity for a number of forecasts from the survey of professional forecasters therefore for these variables unbiasedness can only be tested at the individual level