the choice of an optimum currency peg for a small open country abstract this paper explores the choice of an optimal exchange rate system in a monetary context with rational expectations it is related to the problem of the choice of an exchange rate regime heller 1978 and some trade oriented solutions black 1976 branson and katseli papaefstratiou 1978 lipschitz 1979 lipschitz and sundararajan 1980 but differs from these in that broad monetary considerations are stressed it assumes that a country must choose to peg to one of two major currencies or to a basket of the two but cannot float independently for optimum currency reasons mundell 1961 mckinnon 1963 in particular the approach puts the accent on the notion of international competition between national monies tullock 1973 klein 1975 in a rational expectations framework with national money demands and supplies causing changes in relative prices connolly and taylor 1979 dornbusch 1978 the specific question asked is to which if any of two reserve currencies say the us dollar and the pound sterling should a small open country peg in order to best insure domestic monetary stability e g stable home prices or in general is a basket peg composed of the two currencies preferable to a single currency peg

rationalizable conjectural equilibrium between nash and rationalizability abstract static equilibria can be viewed as steady states of recurring play of a game such steady states in which players do not perfectly observe the actions of others need not be nash equilibria this paper suggests a static solution concept rationalizable conjectural equilibrium that corresponds to such steady states to present it the basic model of a normal form game is enriched by specifying the signals that players get about others actions the solution is a profile of actions such that each player s action is optimal given that it is common knowledge that all players maximize utility given their signals journal of economic literature classification number c72

measuring and estimating exchange market pressure in the eu abstract this paper estimates a model of exchange market pressure for several eu currencies vis a vis the german mark over the period 1980 94 it differs from previous work in that we use principal components analysis to derive a measure of exchange market pressure rather than adding exchange rate and reserves changes or using ad hoc weighting schemes secondly we also try to explain movements in our measure of exchange market pressure by a wealth augmented monetary model the results suggest that exchange market pressure can indeed be explained by differential money growth the change in the long term interest rate differential real depreciation budget deficit and the current account for five members of the eu s exchange rate mechanism

optimum currency pegs for latin america the postwar economic record of latin america from 1950 to 1979 is a mixed one inflation rates range from a low of 3 percent in honduras panama and venezuela to highs of 120 percent in chile 67 percent in argentina and 37 percent in brazil further these rates have been stable in the low inflation countries with a standard deviation s d of about 4 percent while in chile argentina and brazil the standard deviations in the inflation rates were 1 15 percent 95 percent and 20 percent respectively monetary growth rates exhibit the same pattern low and stable in some countries high and unstable in others real growth rates range from lows of 1 percent in uruguay to highs of 9 percent in brazil and mexico for the eighteen latin american countries as a whole the inflation rate since 1950 has averaged 21 percent with a standard deviation of 30 percent monetary growth rates 29 percent s d of 25 percent and real growth rates 5 percent s d of 2 percent one striking fact emerges from a cursory examination of this historical record countries that peg to the u s dollar experience low and stable inflation rates while those that do not exhibit high and unstable inflation rates the choice to peg to the dollar is simultaneously a decision not to inflate more than the united states it is a clear signal regarding the future supply of local money similarly a decision to inflate more than the united states is simultaneously a choice not to have a fixed

a model of anonymous influence with anti conformist agents we study a stochastic model of anonymous influence with conformist and anti conformist individuals each agent with a yes or no initial opinion on a certain issue can change his opinion due to social influence we consider anonymous influence which depends on the number of agents having a certain opinion but not on their identity an individual is conformist anti conformist if his probability of saying yes increases decreases with the number of yes agents in order to consider a society in which both conformists and anti conformists co exist we investigate a generalized aggregation mechanism based on ordered weighted averages additionally every agent has a coefficient of conformism which is a real number in 1 1 with negative positive values corresponding to anti conformists conformists the two extreme values 1 and 1 represent a pure anti conformist and a pure conformist respectively and the remaining values so called mixed agents we consider two kinds of a society without mixed agents and with mixed agents who play randomly either as conformists or anti conformists for both cases of the model we deliver a qualitative analysis of convergence i e find all absorbing classes and conditions for their occurence

testing the multilateral version of purchasing power parity an application to burma and jordan under the sdr peg 1981 5 this paper derives the multilateral version of the classical purchasing power parity ppp hypothesis as it applies to the determination of the price level in a small open economy under a basket peg arrangement this is tested under the assumption of constant market clearing as well as that of slow price adjustment in the non traded good sector the result based on burma and jordan the currencies of which were pegged to the special drawing right sdr during 1981 5 supports the validity of the hypothesis namely that the price level in such an economy is determined by the currency share weighted average of the price levels in those countries whose currencies are included in the chosen basket

a monetary approach to the crawling peg system theory and evidence this paper develops and estimates a model of the joint determination of the exchange rate international reserves and the rate of inflation under a crawling peg system the framework presented which is an extension of previous work on the monetary approach generates short run deviations from purchasing power parity that occur simultaneously with movements in both international reserves and the exchange rate the model is estimated by full information maximum likelihood on the basis of quarterly data for brazil

on the optimal currency peg for developing countries abstract this paper suggests that while crawling peg exchange rates whether active or passive can be a valuable device for maintaining external balance in an inflationary environment they may be inferior to a common currency area in a number of ways particularly with respect to monetary stability and monetary integration evidence is presented on the stability of the french franc zone in west africa and on the now defunct dollar zone in latin america when such zones exist without restrictive exchange controls they should be preserved and strengthened when they exist only de jure with strict exchange controls adopting john williamson s crawling peg solution is superior since it can accommodate the levying of the inflationary tax without causing external imbalance due to a failure to adjust the exchange rate

efficiency and consistency for locating multiple public facilities abstract in the problem of locating multiple public facilities studied by barbera and bevia self selection consistent functions j econ theory 105 2002 263 277 locating public facilities by majority stability consistency and group formation games econ behav 56 2006 185 200 we offer simple necessary and sufficient conditions for efficiency decentralizability of efficient decisions in a game of community division and local public goods provision and a constructive algorithm for efficient and consistent decisions

monetary policy and exchange market pressure evidence from sub saharan africa the purpose of this study was to assess the impact of monetary policy on foreign exchange market pressure emp in developing country contexts for some selected countries in sub saharan africa ssa and to measure the ability of monetary policy to significantly address currency pressures that arise from trading on the global market this study was motivated by the fact that most of the ssa countries are developing economies that have negative net export positions and stand to lose significantly from consistently deteriorating foreign exchange position the study therefore employs a dynamic panel model to test the hypothesis that a tighter monetary policy stance lends strength to a currency and vice versa using 20 ssa economies for the period from 1991 to 2010 this study finds a negative and significant relationship between monetary policy and emp implying an easing of emp in the face of contractionary monetary policy the findings also point to significant relations between aggregate output levels o

a survey of the literature on the optimal peg abstract it is widely agreed that floating is not an appropriate exchange rate policy for most developing countries but in a world of generalized floating the question of exchange rate policy is not resolved by deciding to peg rather than to float it is also necessary to decide to what to peg this is the question of the optimal peg on which a significant literature has emerged since 1976 the present paper provides a survey of that literature section 2 summarizes the principal papers section 3 compares the objectives and rules advocated by different authors section 4 evaluates the alternative approaches arguing that in general the peg should be chosen to stabilize the nominal trade weighted effective exchange rate section 5 considers whether this criterion points to the sdr as a satisfactory peg

strong equilibrium in congestion games abstract 6 introduced the class of congestion games and proved that they always possess a nash equilibrium in pure strategies here we obtain conditions for the existence of a strong equilibrium in this class of games as well as for the equivalence of nash and strong equilibria we also give conditions for uniqueness and for pareto optimality of the nash equilibrium except for a natural monotonicity assumption on the utilities the conditions are expressed only in terms of the underlying congestion game form it turns out that avoiding a certain type of bad configuration in the strategy spaces is essential to positive results journal of economic literature classification numbers c71 c72 d62

a theory of buyer seller networks this paper introduces a new model of exchange networks rather than markets of buyers and sellers it begins with the empirically motivated premise that a buyer and seller must have a relationship a link to exchange goods networks buyers sellers and the pattern of links connecting them are common exchange environments this paper develops a methodology to study network structures and explains why agents may form networks in a model that captures characteristics of a variety of industries the paper shows that buyers and sellers acting strategically in their own self interests can form the network structures that maximize overall welfare

stable coalition structures with open membership and asymmetric firms i study games of coalition formation with open membership where firms form associations in order to decrease their costs before competing on the market according to previous analyses only the grand coalition forms at the nash equilibrium of such games i show that this result hinges on the assumption of symmetric firms i therefore introduce asymmetric firms in a game where only two associations can form i demonstrate that there exists a coalition proof nash equilibrium coalition structure in this game and that when the equilibrium involves two associations all the members of an association have a higher taste for this association than all nonmembers do journal of economic literature classification numbers c70 c72 l13

the choice of an optimum exchange currency regime for a small economy an econometric analysis abstract this paper investigates empirically the issue of a fixed versus a flexible exchange currency regime for a small economy the west african monetary union the econometric analysis implements a mundellian trade off between economic development and monetary stability which measures the main cost and benefit of the various exchange currency regimes examined the empirical results indicate that the fixed trade weighted basket peg is optimal by the tower and willet criterion and that it meets some of kenen s criteria for an efficient exchange currency regime

on the coalition proofness of the pareto frontier of the set of nash equilibria abstract this article shows that the pareto efficient frontier of the nash equilibrium set of games with strategic substitutes is coalition proof under the following conditions 1 the game has three players or alternatively a player s payoff depends on her own strategy and on the sum but not on the composition of other players strategies 2 an increase in a player s strategy either raises all other players payoffs monotonically or reduces them monotonically and 3 each player s payoff is strictly concave in her own strategy under these conditions the pareto dominance refinement is equivalent to the coalition proof nash equilibrium refinement journal of economic literature classification number c72

world trade patterns economic disturbances and exchange rate management abstract this paper construct and analyzes a three country stochastic model of world trade the objectives of this paper are to investigate the propagation of economic disturbances worldwide and to analyze the nature of optimal exchange rate management on the part of a single country faced with monetary and real disturbances accurring in all its trade patterns the paper analyzes the roles of bilateral trade patterns the type of underlying stochastic disturbances i e monetary vs real and transsitory vs permanent and of the optimality criterion in determining the optimal exchange rate regime

equilibria in a model with partial rivalry abstract in this paper we show that a non cooperative game with a finite set of players and common finite strategy sets possesses a strong nash equilibrium in pure strategies whenever individuals preferences satisfy independence of irrelevant choices anonymity and partial rivalry moreover if any of these assumptions is violated then even a pure strategy nash equilibrium may fail to exist further more we demonstrate that even with a continuum of players the same three assumptions yield the existence of a pure strategy strong nash equilibrium and in addition the equivalence of the sets of nash and strong nash equilibria in pure strategies journal of economic literature classification numbers c72 d62

balance of payments dynamics and exchange rate management abstract this paper studies the dynamics of the balance of payments in response to policy disturbances under the assumption that the central bank devalues the country s currency over time at a constant pre announced rate depending on the magnitudes of the parameters of the model i find that a given disturbance may result in qualitatively different short run behavior of the balance of payments accounts in each case however the adjustment process will lead the economy to a stable long run equilibrium provided the government finances its spending according to a certain set of rules

on non nash equilibria abstract i consider generalisations of the nash equilibrium concept based on the idea that in equilibrium the players beliefs should not be contradicted even if they could possibly be incorrect this possibility depends on the information about opponents behaviour available to the players in equilibrium therefore the players information is crucial for this notion of equilibrium called conjectural equilibrium in general and rationalizable conjectural equilibrium rubinstein wolinsky 1994 when the game and the players bayesian rationality are common knowledge in this paper i argue for a refinement of rationalizable conjectural equilibrium showing by propositions and by examples how this equilibrium notion works and how the suitable equilibrium concept depends on the players information journal of economic literature classification numbers c72 d83 d82

imperfect monitoring in communication networks individuals in many social networks imperfectly monitor other individuals network relationships this paper shows that in a model of a communication network imperfect monitoring leads to the existence of many inefficient equilibria reasonable restrictions on actions or on beliefs about others actions can however eliminate many of these inefficient equilibria even with imperfect monitoring star networks known to be efficient in many settings are shown to have desirable monitoring characteristics more generally this paper provides a formal framework in which to study incorrect perceptions as an equilibrium phenomenon in social networks

network effects and welfare cultures we empirically examine the role of social networks in welfare participation using data on language spoken at home to better infer networks within an area our empirical strategy asks whether being surrounded by others who speak the same language increases welfare use more for those from high welfare using language groups this methodology allows us to include local area and language group fixed effects and to control for the direct effect of being surrounded by one s language group these controls eliminate many of the problems in previous studies the results strongly confirm the importance of networks in welfare participation

self confirming equilibrium rium path of play thus if a self confirming equilibrium occurs repeatedly no player ever observes play that contradicts his beliefs even though beliefs about play at off path information sets need not be correct we characterize the ways in which self confirming equilibria and nash equilibria can differ and provide conditions under which self con firming equilibria correspond to standard solution concepts nash equilibrium and its refinements describe a situation in which i each player s strategy is a best response to his beliefs about the play of his opponents and ii each player s beliefs about the opponents play are exactly correct we propose a new equilibrium concept self confirming equilibrium that weakens condition ii by requiring only that players beliefs are correct along the equilibrium path of play thus each player may have incorrect beliefs about how his opponents would play in contingencies that do not arise when play follows the equilibrium and moreover the beliefs of different players may be wrong in different ways the concept of self confirming equilibrium is motivated by the idea that noncooperative equilibria should be interpreted as the outcome of a learning process in which players revise their beliefs using their observations of previous play suppose that each time the game is played the players observe the actions chosen by their opponents but that players do not observe the actions their opponents would have played at the information sets that were not reached along the path of play then if a self confirming equilibrium occurs repeatedly no player ever observes play that contradicts his beliefs so the equilibrium is self confirming in the weak sense of not being inconsistent with the evidence by analogy with the literature on the bandit problem e g rothschild 1974 one might expect that a non nash self confirming equilibrium can be the outcome of plausible learning processes this point was made by fudenberg and

external shocks and fiscal deficits in a monetary model of international reserve determination honduras 1960 83 results from single equation estimation of a standard monetary model suggest that central bank credit growth in excess of growth of money demand was the main source of international reserve losses in honduras during the 1960 83 period further 3 sls estimates suggest that increases in central bank credit growth were largely in response to rising external interest rates and decreases in the income terms of trade in addition income growth hence growth of money demand shows a strong positive response to the income terms of trade the fiscal deficit is found to have an insignificant impact on central bank credit growth

the flexible exchange basket a macroeconomic analysis abstract this paper constructs and analyzes a multi country stochastic equilibrium framework suitable for analyzing the behavior of an economy which pursues a flexible exchange basket policy the framework is general enough to accommodate the special cases of a multilateral floating exchange rates and b rigid basket regimes an important issue that is addressed in the present framework involves the composition of the optimal flexible basket versus that of the corresponding rigid basket such an investigation is carried out for various patterns of multilateral trade for various types of structural disturbances and for alternative optimality criteria

games of social interactions with local and global externalities abstract in this paper we present a result on the existence of pure strategies nash equilibrium which covers a large class of games with local and global social interactions the result highlights common features of well known games analyzed in the literature

an empirical inquiry into the short run dynamics of output prices and exchange market pressure abstract in this paper we develop a short run disequilibrium model for the interaction of output prices and exchange market pressure in this model we consider the trade off between movements in exchange rates and movements in international reserves and we also incorporate and test purchasing power parity as a long run hypothesis the specification adopted preserves the properties of the monetary approach to exchange rates and the balance of payments in the long run the theoretical model is applied to the small open economy of greece for the period 1975 1981

a universal construction generating potential games abstract strategic games are considered where each player s total utility is the sum of local utilities obtained from the use of certain facilities all players using a facility obtain the same utility therefrom which may depend on the identities of users and on their behavior if a trimness condition is satisfied by every facility then the game admits an exact potential conversely if a facility is not trim adding it to a potential game may destroy that property in both congestion games and games with structured utilities all facilities are trim under additional assumptions the potential attains its maximum which is a nash equilibrium of the game

exchange market pressure in postwar brazil an application of the girton roper monetary model this study applies lance girton and don roper s hereafter g r monetary model of exchange market pressure to the postwar brazilian monetary experience the model was designed specifically for the canadian managed float during the period 1952 62 the object of their model is to explain what they term exchange market pressure that is the pressure on foreign exchange reserves and the exchange rate when there exists an excess of domestic money supply over money demand in a managed floating exchange rate regime the basic theoretical proposition is that any such excess supply of money can be relieved by an exchange depreciation a loss in foreign reserves or in the context of a managed float by some combination of the two in this sense the g r managed float model used here is firmly rooted in the modern monetary approach to exchange rates and the balance of payments brazil provides a particularly good example for testing this approach not only because it is in many senses a unique example of a postwar managed float system but also because it can be treated as a small open economy in the sense that world prices and monetary conditions faced by brazil are taken as given this particularly suits the purpose of most modern monetary models which make this assumption and obviates the problems of monetary dependence and neutralization dealt with in the pioneering g r paper specifically the small country assumption permits us to devise a simple one country equation of managed floating which depends upon four essential ingredients 1 money demand 2 money supply 3 purchasing power parity and 4 monetary equilibrium 2 furthermore in brazil a much greater proportion of exchange market pressure was absorbed by exchange rate depreciation than in the canadian case where changes in reserves were large relative to exchange rate movements in short postwar brazil provides a singularly good opportunity to test the monetary model of exchange market pressure section i briefly states the essential elements of the monetary model and derives the equation to be tested for the brazilian experience from 1955 to 1975 section ii reports empirical results for the exchange market pressure model and section iii examines the applicability of the relative version of purchasing power parity for the time period considered section iv summarizes the results and discusses the merits of the monetary approach in light of the brazilian experience

monetarist perspectives of papua new guinea s hard currency strategy abstract this paper analyzes the performance of the hard currency strategy hcs which was the centerpiece of papua new guinea s png s post independence macroeconomic stabilization policies the main aims of the hcs were the maintenance of the convertibility and the purchasing power of the domestic currency whilst averting imported inflation and excessive foreign indebtedness the exchange market pressure variant of the monetary model augmented by a policy sensitivity variable yielded meaningful empirical results for png these results differ markedly from those observed for other countries the png results indicated that up to 1980 the hcs was more or less effective but thereafter a configuration of several adverse economic factors undermined the hcs active monetary policy failed to prop up the ailing hcs critics of hcs contended that hcs although a qualified success as an inti inflationary device failed to deliver growth and development in png these adverse aspects of the hcs have led to the recent calls to abandon it

a strategic model of social and economic networks we study the stability and efficiency of social and economic networks when self interested individuals can form or sever links first for two stylized models we characterize the stable and efficient networks there does not always exist a stable network that is efficient next we show that this tension persists generally to assure that there exists a stable network that is efficient one is forced to allocate resources to nodes that are not responsible for any of the production we characterize one such allocation rule the equal split rule and another rule that arises naturally from bargaining of the players

exchange rate indexation in a monetary model theory and evidence abstract using a familiar monetary model with nontraded goods we derive the stability properties of the price level and reserve stock when the exchange rate is partially or completely indexed to the home price level divided by foreign prices in the stable case it is shown that indexing results in a system with properties of both fixed and flexible regimes our method is to impose conditions of short run but not long run equilibrium in a discrete period model the model is tested with monthly data from brazil

correlated equilibria incomplete information and coalitional deviations this paper proposes new concepts of strong and coalition proof correlated equilibria where agents form coalitions at the interim stage and share information about their recommendations in a credible way when players deviate at the interim stage coalition proof correlated equilibria may fail to exist for two player games however coalition proof correlated equilibria always exist in dominance solvable games and in games with positive externalities and binary actions c 2008 elsevier inc all rights reserved

on the existence of a pure strategy nash equilibrium in group formation games abstract this paper provides sufficient conditions for the existence of pure strategy nash equilibrium in a class of games of group formation the use of potentials allows for a characterization of such an equilibrium

communication and coordination in social networks i model people in a coordination game who use a communication network to tell each other their willingness to participate the minimal sufficient networks for coordination can be interpreted as placing people into a hierarchy of social roles or stages initial adopters then followers and so on down to late adopters a communication network helps coordination in exactly two ways by informing each stage about earlier stages and by creating common knowledge within each stage we then consider two examples first we show that low dimensional networks can be better for coordination even though they have far fewer links than high dimensional networks second we show that wide dispersion of insurgents people predisposed toward participation can be good for coordination but too much dispersion can be bad although collective action depends on both social structure and individual incentives these integral aspects have been formalized separately in the fields of social network theory and game theory by considering them together this paper engages the classic question of which structures are conducive to coordination and shows that structure and strategy are related in a mutually interesting way here we consider a coordination game in which each person wants to participate only if others participate social structure is thought of as a communication network by which people tell each other their willingness to participate each person knows whether her neighbours in the network are willing but does not know about anyone else our model is thus a game of incomplete information in which each person given his local knowledge decides whether to participate the main result is a characterization of the minimal sufficient networks for coordination in terms of a hierarchy of social roles or stages initial adopters then followers and so on down to late adopters for example a communication network helps coordination in exactly two ways by informing each stage about earlier stages and by creating common knowledge within each stage we also consider two simple examples first we show that low dimension or strong link networks can be better for coordination even though they have far fewer links than high dimension or weak link networks second we show that wide dispersion of insurgents people predisposed toward participation can be good for coordination but too much dispersion can be bad this paper is built on the assumption that the most basic and common mechanism for coordination is the i ll go if you go mechanism individuals first communicate with each other about their preferences and then each individual chooses whether to participate or not hence a person s participation depends on what he knows about his neighbours it does not depend solely on their participation itself either through learning adaptation or social influence the physical analogies of contagion or diffusion are not

dynamics of monetary intervention under managed floating abstract this paper studies the dynamics of the money stock in the presence of official intervention under fixed exchange rates and certain types of managed floating in response to an external disturbance the long run change in the stock of domestic currency is found to be the largest in magnitude under fixed rates however in the context of the present model managed floating may entail relatively larger short run movements this is the case when foreign disturbances originate in the commodity market and under certain conditions even if they originate in the asset market

a note on the exchange market pressure the korean experience 1980 1987 this paper applies the exchange market pressure emp model to korea under a managed floating exchange rate we show that the emp model is superior to one concentrating solely on foreign reserve or exchange rate changes given that the balance of paymnets in korea experienced a drastic turn to surplus during the estimated period we checked the stability of the coefficients the results show that the coefficients have remained stable