the american business cycle continuity and change in recent decades the american economy has experienced the worst peace time inflation in its history and the highest unemployment rate since the great depression these circumstances have prompted renewed interest in the concept of business cycles which joseph schumpeter suggested are like the beat of the heart of the essence of the organism that displays them in the american business cycle some of the most prominent macroeconomics in the united states focuses on the questions to what extent are business cycles propelled by external shocks how have post 1946 cycles differed from earlier cycles and what are the major factors that contribute to business cycles they extend their investigation in some areas as far back as 1875 to afford a deeper understanding of both economic history and the most recent economic fluctuations seven papers address specific aspects of economic activity consumption investment inventory change fiscal policy monetary behavior open economy and the labor market five papers focus on aggregate economic activity in a number of cases the papers present findings that challenge widely accepted models and assumptions in addition to its substantive findings the american business cycle includes an appendix containing both the first published history of the nber business cycle dating chronology and many previously unpublished historical data series

preferential trading arrangements as strategic positioning abstract we analyze a three country model of trade negotiations in which countries can form bilateral free trade areas bilateral customs unions or a trilateral preferential trading arrangement and can continue negotiating after reaching an agreement in contrast to the literature on multilateral bargaining the set of agreements can form a nonpartitional network while in contrast to the network literature players can reach multilateral agreements patient enough countries only reach bilateral agreements if insiders gain more than outsiders which allows them to manipulate the status quo in subsequent negotiations however a hub and spoke pattern may then emerge and insiders then dissipate the advantages of strategic positioning we also use variants on the model to explain why a us commitment not to bargain bilaterally sustained progress at gatt negotiations and the rarity of open access preferential trading arrangements

the federal funds rate and the channels of monetary transmission the authors show that the interest rate on federal funds is extremely informative about future movements of real macroeconomic variables then they argue that the reason for this forecasting success is that the funds rate sensitively records shocks to the supply of bank reserves that is the funds rate is a good indicator of monetary policy actions finally using innovations to the funds rate as a measure of changes in policy the authors present evidence consistent with the view that monetary policy works at least in part through credit i e bank loans as well as through money i e bank deposits copyright 1992 by american economic association

some empirical evidence on the effects of shocks to monetary policy on exchange rates this paper investigates the effects of shocks to u s monetary policy on exchange rates we consider three measures of these shocks orthogonalized shocks to the federal funds rate orthogonalized shocks to the ratio of nonborrowed to total reserves and changes in the romer and romer index of monetary policy in sharp contrast to the literature we find substantial evidence of a link between monetary policy and exchange rates specifically according to our results a contractionary shock to u s monetary policy leads to i persistent significant appreciations in u s nominal and real exchange rates and ii significant persistent deviations from uncovered interest rate parity in favor of u s interest rates

backward stealing and forward manipulation in the wto abstract motivated by the structure of wto negotiations we analyze a bargaining environment in which negotiations proceed bilaterally and sequentially under the most favored nation mfn principle we identify backward stealing and forward manipulation problems that arise when governments bargain under the mfn principle in a sequential fashion we show that these problems impede governments from achieving the multilateral efficiency frontier unless further rules of negotiation are imposed we identify the wto nullification or impairment and renegotiation provisions and its reciprocity norm as rules that are capable of providing solutions to these problems in this way we suggest that wto rules can facilitate the negotiation of efficient multilateral trade agreements in a world in which the addition of new and economically significant countries to the world trading system is an ongoing process

evidence on the cross country transmission of monetary shocks the international transmission of monetary shocks between the us and canada is explored focusing on real variables such as consumption investment employment and the bilateral trade balance along with measures of us and canadian money the empirical analysis examines the impact of a monetary shock in one country on real activity in both countries the long run analysis provides evidence of cointegration among the variables and suggests that money plays an important role in the equilibrium relationships between the two countries variance decompositions and impulse response functions reveal interesting avenues of real transmission in the short run the short run analysis provides strong evidence that us monetary shocks affect real activity in both the usa and canada the analysis also indicates that canadian monetary disturbances affect canadian and us real activity and that many of these effects are similar in magnitude to the effects of us monetary shocks the importance of the nominal exchange rate

factor models and time varying parameter framework for forecasting exchange rates and inflation a survey a survey of models used for forecasting exchange rates and inflation reveals that the factor based and time varying parameter or state space models generate superior forecasts relative to all other models this survey also finds that models based on taylor rule and portfolio balance theory have moderate predictive power for forecasting exchange rates the evidence on the use of bayesian model averaging approach in forecasting exchange rates reveals limited predictive power but strong support for forecasting inflation overall the evidence overwhelmingly points to the context of the forecasts relevance of the historical data data transformation choice of the benchmark selected time horizons sample period and forecast evaluation methods as the crucial elements in selecting forecasting models for exchange rate and inflation

deforestation in the brazilian amazon comparing the impacts of macroeconomic shocks land tenure and technological change the paper examines the current relevance of the set of variables reported in the literature as driving deforestation in the brazilian amazon the analysis uses a computable general equilibrium cge model adapted to capture regional economic structures and the environmental processes specific to tropical areas the paper compares the impact on deforestation in the brazilian amazon of changes in real exchange rate modifications in agricultural tax and support policies reductions in transportation costs arising from investment in infrastructure in the amazon changes in land tenure regimes and technological change in agriculture affecting productivity and agronomic sustainability

optimal tariffs and the choice of technology discriminatory tariffs vs the most favored nation clause abstract we compare the effects of optimal tariffs on the technology choice of exporters under the discriminatory tariffs regime and the most favored nation mfn clause it is shown that a lower marginal cost mc technology will be chosen in equilibrium under the mfn clause as a result the importing country s long run welfare increases with the adoption of mfn while in most cases the exporting countries welfare decreases however ex post technology choice the importing country prefers discriminatory tariffs this result therefore highlights the role of mfn as a commitment mechanism to resolve a time inconsistency problem facing the importing country

monetary policy foreign exchange policy and delayed overshooting this paper provides an explanation for delayed overshooting puzzle based on foreign exchange policy s reaction to monetary policy for canada in which ample interactions between monetary and foreign exchange policies are found foreign exchange policy reaction mitigates the initial effects of monetary policy shocks on the exchange rate as the effects of the monetary policy shocks are more prolonged than that of the foreign exchange policy reaction the maximum effect is found in delay

economic and ecological perspectives on agriculture in the eastern amazon abstract there are more than five million people that depend on subsistence agriculture for livelihood in the brazilian amazon using a case study approach we show that intensive approaches to agriculture can offer advantages over extensive style shifting cultivation and ranching in terms of productivity net returns and job and tax generation we then use our data to illustrate how the availability of land labor and capital affects the adoption of intensive agricultural practices in the eastern amazon

is the wto passe the wto has delivered policy outcomes that are very different from those likely to emerge out of the recent wave of preferential trade agreements ptas should economists see this as an efficient institutional hand off where the wto has carried trade liberalization as far as it can manage and is now passing the baton to ptas to finish the job this paper surveys a growing economics literature on international trade agreements and argues on this basis that the wto is not passe rather and subject to some caveats this survey of research to date suggests that the wto warrants strong support while a more cautious view of ptas seems appropriate

interpreting the macroeconomic time series facts the effects of monetary policy existing theory and evidence on the effects of monetary policy are reviewed substantial room for disagreement among economists remains new evidence based on multivariate time series studies of several countries is presented while certain patterns in the data consistent with effective monetary policy are strikingly similar across countries others particularly the tendency of interest rate increases to predict high inflation are harder to reconcile with effective monetary policy

brazilian policies that encourage deforestation in the amazon this paper shows that general tax policies special tax incentives the rules of land allocation and the agricultural credit system all accelerate deforestation in the amazon these policies increase the size of land holdings and reduce the chances of the poor to become farmers the following are the key provisions i the virtual exemption of agricultural income from income taxation makes agriculture a tax shelter ii rules of public land allocation provide incentives for deforestation because the rules used in determining the security of a claim and its land area encourage land clearing iii the progressive land tax contains provisions that encourage the conversion of forest to crop land or pasture iv the tax credit scheme aimed toward corporate livestock ranches subsidizes inefficient ranches established on cleared forest land and v subsidized credit is available for sudam approved ranches

external shocks u s monetary policy and macroeconomic fluctuations in emerging markets estimated structural vars show that external shocks are an important source of macroeconomic fluctuations in emerging markets furthermore u s monetary policy shocks affect interest rates and the exchange rate in a typical emerging market quickly and strongly the price level and real output in a typical emerging market respond to u s monetary policy shocks by more than the price level and real output in the u s itself these findings are consistent with the idea that when the u s sneezes emerging markets catch a cold at the same time u s monetary policy shocks are not important for emerging markets relative to other kinds of external shocks

what does the bank of japan do to east asia abstract in recent policy debates some have argued that expansionary monetary policy in japan can increase real output in japan and in japan s neighbors while others have warned that it is a beggar thy neighbor policy in this paper we estimate structural vector autoregressions to assess the effects of japanese monetary policy shocks we find that the effects of japanese monetary policy shocks on macroeconomic variation in east asia have been modest and difficult to reconcile with the beggar thy neighbor view we estimate that the asian crisis was preceded by expansionary monetary policy shocks in japan but we fail to find support for the view that these shocks contributed to the crisis

the determinants of reforestation in brazil this article analyses the main determinants of reforestation in brazil during the 1980s and 1990s in the year 2000 brazil had the sixth largest planted forests area in the world the planted forests in brazil saw a huge increase from 1960 to 1985 since then however that stock has decreased but the demand for roundwood continues to increase that situation will result in a scarcity of roundwood from reforestation in brazil in few years the expected roundwood scarcity motivates an econometric study to compare market forces and economic policies in stimulating the reforestation in brazil considering the main firms reforesting in brazil it can be pointed out that small and medium farmers have been planting forests while private or public programmes are present otherwise large wood based firms consider factors other than prices such as their future demand for roundwood to be more important in their planting decisions those results cast doubts about the efficiency of the market price system in solv

the mfn clause welfare and multilateral cooperation between countries of unequal size abstract this paper analyzes mfn in a competing exporters model of trade between three countries with unequal endowments and shows that mfn yields higher aggregate welfare than tariff discrimination even as it makes low income countries worse off furthermore in a repeated game of tariff cooperation multilateral free trade is easier to sustain under mfn punishments relative to discriminatory ones this conclusion holds even when tariff discrimination takes the form of bilateral trade agreements overall the analysis shows that from the viewpoint of low income countries mfn and multilateral tariff cooperation are complementary in nature

are global trade negotiations behind a fragmented world of gated globalization abstract we show that global trade negotiations can prevent global free trade in a simple model where global tariff negotiations precede sequential free trade agreements ftas we show fta formation can expand all the way to global free trade in the absence of global tariff negotiations but global free trade never emerges when global tariff negotiations precede fta formation this result arises precisely because global tariff negotiations successfully elicit concessions from negotiating countries moreover global tariff negotiations can produce a fragmented world of gated globalization where some countries form ftas that eliminate tariff barriers among themselves while outsiders continue facing higher tariffs

nash in nash tariff bargaining abstract we provide an equilibrium analysis of the efficiency properties of simultaneous bilateral tariff negotiations in a three country model of international trade we consider the setting in which discriminatory tariffs are allowed and we utilize the nash in nash solution concept of horn and wolinsky 1988 we allow for a general family of political economic country welfare functions and assess efficiency relative to these welfare functions we establish a sense in which the resulting tariffs are inefficient and too low so that excessive liberalization occurs from the perspective of the three countries

to bi or not to bi differences between spillover estimates from bilateral and multilateral multi country models abstract asymptotic analysis and monte carlo simulations show that spillover estimates obtained from widely used bilateral such as two country var models are in general less accurate both in terms of bias and mean squared error than those obtained from multilateral such as global var models in particular the accuracy of spillover estimates obtained from bilateral models depends on two aspects of economies integration with the rest of the world first accuracy worsens as direct bilateral transmission channels become less important for example when the spillover sender accounts only for a small share of the spillover recipient s overall integration with the rest of the world second accuracy worsens as indirect higher order spillovers and spillbacks become more important for example when the spillover recipient is more integrated with the rest of the world overall empirical evidence on the global output spillovers from us monetary policy is consistent with these generic results spillover estimates obtained from two country var models are systematically smaller than those obtained from a global var model and the differences between spillover estimates obtained from two country var models and a global var model are more pronounced for economies for which the us accounts for a smaller share of their overall trade and financial integration with the rest of the world and for economies which are more integrated with the rest of the world overall

canadian monetary policy will the checklist approach ever get us to price stability the purpose of this paper is to investigate whether the checklist approach that the bank of canada has followed in one way or another over the last two decades is likely to lead us to the stated objective of price stability the analysis of canadian monetary policy is performed through the estimation of a bayesian var model of a set of important canadian macroeconomic variables in their international context to estimate the model the authors borrowed form c sims 1989 but they also transposed his methodology to take into account canadian features the results suggest that the exchange rate has been high on the checklist of the bank of canada over the years and that rather the bank should concentrate its attention on broad monetary aggregates if it really wants to deliver price stability

stochastic trends and economic fluctuations are business cycles mainly the result of permanent shocks to productivity this paper uses a long run restriction implied by a large class of real business cycle models identifying permanent productivity shocks as shocks to the common stochastic trend in output consumption and investment to provide new evidence on this question econometric tests indicate that this common stochastic trend cointegration implication is consistent with postwar u s data however in systems with nominal variables the estimates of this common stochastic trend indicate that permanent productivity shocks typically explain less than half of the business cycle variability in output consumption and investment copyright 1991 by american economic association

economic determinants of the timing of preferential trade agreement formations and enlargements preferential trade agreements ptas have proliferated over the past 60 years while a small number of recent studies have examined empirically the economic determinants of the likelihood of a pair of countries having a pta this study explains empirically the timing of all pta formations and enlargements from 1950 through 2006 using duration analysis our main and novel goal is to predict in and out of sample a substantive share of these 1 560 pta events using a parsimonious model with mainly economic variables taking selection dynamics into account our analysis reveals that we can predict correctly in sample the actual year of entry into force for 26 of the 1 560 bilateral pta formations enlargements in the period 1950 2006 among 10 518 pairings of 146 countries using only a few economic and political variables moreover we can predict correctly in sample 57 of these pta events within a 10 year window leading up to the event using this model the model also performs well out of sample for the near term 82 but not if the out of sample period is very long we conclude with an evaluation of the model s ability to predict the timing of the north american free trade agreement the european union s formation and enlargements and the model s ten most likely post 2006 pta events jel f14 f15

property rights and deforestation in the brazilian amazon this paper focuses on the impact of property rights insecurity on deforestation in the brazilian legal amazon deforestation is considered as a risk management strategy property rights insecurity reduces the present value of forests and fosters forest conversion into agricultural and pasture lands moreover deforestation is the consequence of strategic interactions between landowners and squatters landowners clear the forest preventively in order to assert the productive use of land and to reduce the expropriation risk squatters invade land plots clear the forest and may afterwards gain official recognition with formal property titles a particular attention is paid to the measure of land property rights insecurity in the brazilian context it is assumed that property rights insecurity has a multidimensional character taken into account by the number of homicides related to land conflicts and expropriation procedures principal component analysis allows synthesising such information an econometric model of deforestation is estimated on a panel dataset on the 1988 2000 period and the nine states of the brazilian legal amazon the hypothesis that insecure land property rights contribute to higher rates of deforestation is not rejected when the simultaneity bias between insecure property rights and deforestation is addressed this result questions the modality of the brazilian land reform that considers forested areas as unproductive and thus open for expropriation procedures

narrative and var approaches to monetary policy common identification problems abstract romer and romer romer c d romer d h 1989 does monetary policy matter a new test in the spirit of friedman and schwartz in blanchard o j fischer s eds nber macroeconomics annual 1989 mit press cambridge ma pp 121 170 romer c d romer d h 1994 monetary policy matters journal of monetary economics 34 75 88 adopted a narrative approach to address the identification problems in time series models of monetary policy based on federal reserve documents the romers created a dummy variable equal to one in periods when the federal reserve contracted in response to perceived inflationary pressures this paper shows 1 the dummy variable is predictable from past macroeconomic variables reflecting the endogenous response of policy to the economy 2 unpredictable changes in the dummy do not generate dynamic responses that look like the effects of monetary policy the identification problems that plague time series models also afflict the narrative approach

economic impacts of el nino southern oscillation evidence from the colombian coffee market el nino southern oscillation enso is a naturally occurring phenomenon that affects weather around the world past enso episodes have had severe impacts on the economy of colombia we study the influence of enso on colombian coffee production exports and price our structural econometric specification is consistent with an economic model of the market for colombian coffee which in the short run is characterized by a downward sloping demand curve and by a vertical supply curve we show that el nino i e positive shocks to enso is beneficial for colombian production and exports and decreases the real price of colombian coffee on the contrary la nina i e negative shocks to enso depresses colombian coffee production and exports and increases price however the overall impact of enso shocks is small both in the short run and in the long run shocks to international demand for colombian coffee are more relevant than supply side shocks in colombia in explaining the dynamics of the price of colombian coffee our results suggest that a given coffee price shock can have beneficial detrimental or negligible effects on the colombian economy depending on its underlying cause as a consequence policy responses to coffee price shocks should be designed by looking at the causes of the shocks

political accountability and the room to maneuver a search for a causal chain many studies of the room to maneuver make no provision for popular evaluation of policy they assert rather than demonstrate popular satisfaction with policy choices and macroeconomic outcomes the authors present a framework that explicitly models channels for popular preferences to influence policies and outcomes results for economic policy making in britain do not support the room to maneuver thesis in the authors sample 1981 to 1997 the british government was responsive to changes in political evaluations and its policy choices effectively fed back into popular evaluations of government policy however this accountability mechanism worked outside the real economy shifts in popular evaluations induced changes in policy but had no impact on inflation and economic growth government capacity to shape macroeconomic outcomes was limited and popular influence over economic policy was ineffectual this form of accountability probably existed because british citizens had difficulty gauging the real impacts of their government s policies

liquidity exchange rates and business cycles abstract this paper presents a two country two good two currency model to study the role of liquidity effects in exchange rate determination and the international transmission of economic fluctuations the model provides an exchange rate equation which is different from the simple purchasing powerparity law of exchange rate determination both monetary injections and real disturbances can lead to exchange rate fluctuations and comovements of interest rates prices and output of the two economies whether the covariances of variables in the two countries are positive negative or zero depends critically upon the substitutability of the two consumption goods in consumers preferences

profit shifting and trade agreements in imperfectly competitive markets profit shifting and trade agreements in imperfectly competitive markets do new rationales for trade agreements arise once imperfectly competitive markets are allowed we consider several trade models that feature imperfectly competitive markets and argue that the basic rationale for a trade agreement is in fact the same rationale that arises in perfectly competitive markets in all of the models that we consider and whether or not governments have political economic objectives the only rationale for a trade agreement is to remedy the inefficient terms of trade driven restrictions in trade volume we also show that the principles of reciprocity and nondiscrimination continue to be efficiency enhancing in these settings

third country effects of regional trade agreements does regionalism negatively impact non members to answer this question we examine the effect of regional trade agreements rtas on imports from non members and the tariffs that they face using data from six rtas in latin america and europe we do not find evidence that implementation of the regional agreements is associated with trade diversion from third countries to regional members using detailed industry data on preference margins and most favoured nation mfn tariffs for three trade agreements in latin america over 12 years we find that greater preference margins do not significantly reduce imports from third countries we also look at the effect of preferences on external tariffs we find evidence that preferential tariff reduction tends to precede the reduction of external mfn tariffs in a given sector offering evidence of tariff complementarity overall the results suggest that regionalism does not significantly harm non members

the dynamic impacts of monetary policy an exercise in tentative identification it is currently popular to identify monetary policy shocks with innovations in some measure of reserves or in the federal funds rate these assumptions about the interest elasticity of the supply of or demand for reserves imply monetary policy shocks that produce dynamic responses of macroeconomic variables that are anomalous relative to traditional monetary analyses this paper tentatively identifies supply and demand shocks in the markets for reserves and m2 for the 1980s and contrasts them with results for the 1970s in the later period identified monetary policy shocks have dynamic impacts that are fully consistent with traditional analyses

in search of the liquidity effect abstract a short run negative relationship between monetary aggregates and interest rates the liquidity effect is central to discussions of monetary policy this paper searches for this empirical relationship we investigate whether the characterization of the liquidity effect is sensitive to i changes in sample period ii conditioning the correlations on past information iii assuming money growth is exogenous and iv treating monetary changes as anticipated or unanticipated the correlations change substantially in each case we conclude that the traditional analysis and modern models which rely completely on demand side behavior cannot explain the observed correlations a successful characterization of the liquidity effect requires identification of both private and policy behavior

multilateral trade bargaining and dominant strategies motivated by general agreement on tariffs and trade bargaining behavior and renegotiation rules we construct a three country two good general equilibrium model of trade and examine multilateral tariff bargaining under the constraints of nondiscrimination and multilateral reciprocity for a general representation of government preferences we identify the bargaining outcomes that can be achieved using dominant strategy proposals for all countries in our analysis dominant strategy outcomes emerge when tariff proposals are followed by multilateral rebalancing the resulting bargaining outcome is efficient relative to government preferences if and only if the initial tariff vector positions the initial world price at its politically optimal level

contracting with externalities the paper studies inefficiencies arising in contracting between one principal and n agents when the utility of each agent depends on all agents trades with the principal when the principal commits to a set of publicly observable bilateral contract offers the arising inefficiency is due entirely to the externalities imposed on non signers in contrast when the principal s offers are privately observed the distortion is due to the externalities given agents equilibrium trades comparison of the two externalities determines the relative efficiency of the two contracting regimes in both cases we show that when n is large each agent can be treated as non pivotal provided that appropriate continuity assumptions are satisfied we also study the case in which the principal can condition each agent s trade on other agents messages we characterize the set of such mechanisms in which each agent s participation is voluntary when the principal can commit to any such mechanism she implements the first best outcome while threatening each deviator with the harshest possible punishment however in the presence of noise that goes to zero slower than n goes to infinity in the limit we obtain a generally inefficient outcome in which each agent feels non pivotal

domestic policies national sovereignty and international economic institutions to what extent must nations cede control over their economic and social policies if global efe ciency is to be achieved in an interdependent world this question is at the center of the debate over the future role of the wto formerly gatt in the realm of labor and environmental standards in this paper we establish that the market access focus of current wto rules is well equipped to handle the problems associated with choices over labor and environmental standards in principle with relatively modest changes that grant governments more sovereignty not less these rules can deliver globally efe cient outcomes i introduction to what extent must nations cede control over their economic and social policies if global efe ciency is to be achieved in an interdependent world at a broad level this question probes the limits of any international economic institution whether geared toward real or e nancial concerns that is designed to promote global efe ciency while respecting national sovereignty naturally the answer depends upon the particular problem that the institution is meant to solve in other words the answer depends upon the inefe ciency that would arise under unilateral policy choices at a more specie c level this question is at the center of the debate concerning the appropriate scope of the world trade organization wto formerly gatt recently member countries have considered ways to broaden the wto s orientation beyond conventional trade policy measures to include labor and environmental standards there are now initiatives to introduce the issue of labor standards directly onto the negotiating agenda of the wto with the purpose of creating a wto social clause the social clause would specify a set of minimum international labor standards and then permit restrictions to be placed against imports from countries not complying with these minimum standards with regard to environmental policies a wto committee on trade and environment has been established to identify the relationships between trade and environmental measures and to

identifying monetary policy in a small open economy under flexible exchange rates abstract previous empirical study on the effects of monetary policy shocks in small open economies has generated puzzling dynamic responses in various macroeconomic variables this paper argues that these puzzles derive from an identification of monetary policy that is inappropriate for such economies to remedy this it is proposed that a structural model be estimated to explicitly account for the features of the small open economy such a model is applied to canada with tightly estimated results overall the dynamic responses to the identified monetary policy shock are consistent with standard theory and highlight the exchange rate as a transmission mechanism

national treatment at the wto the roles of product and country heterogeneity this paper analyzes the world trade organization s wto s national treatment nt clause in a two country model where quality of goods and or market size are heterogenous across countries when market size is symmetric across countries a reciprocal nt agreement i benefits the high quality country ii hurts the low quality country and iii delivers higher aggregate world welfare however such an agreement can arise in equilibrium if the high quality country s market is relatively bigger and the quality gap between goods is small i e goods are sufficiently alike the qualitative nature of these results does not change when quality is endogenously determined

exchange rate stabilization in the erm identifying european monetary policy reactions abstract we develop the structural var models for european countries france denmark and germany during the erm period to examine the monetary policy reactions especially the within erm exchange rate stabilization in addition to analyzing the impulse responses and variance decomposition we present the full monetary reaction function in an interpretable manner without introducing additional assumptions the results suggest some asymmetry in exchange rate stabilization non german exchange rate stabilization is stronger than german exchange rate stabilization but do not support the hypothesis that german monetary policy was independent of the erm

the transmission of international shocks to the uk estimates based on a time varying factor augmented var the aim of this paper is to gauge the importance of foreign demand supply and interest rate shocks on the uk economy and assess how their role has changed over time to that end we devise a time varying factor augmented var model that captures the relationship between 17 industrialised countries and the uk and accounts for any temporal evolution in this relationship the response of uk macroeconomic variables to a foreign interest rate shock is estimated to have changed significantly since the early 1990s international demand shocks play an important role in driving world and uk real activity especially during the recent recession

the transmission of international shocks a factor augmented var approach the empirical literature on the transmission of international shocks is based on small scale vars in this paper we use a large panel of data for 17 industrialized countries to investigate the international transmission mechanism and revisit the anomalies that arise in the empirical literature we propose a factor augmented var favar that extends the model in bernanke boivin and eliasz 2003 to the open economy the main results can be summarized as follows first the dynamic effects on the uk economy of an unanticipated fall of short term interest rates in the rest of the world are real house price inflation investment gdp and consumption growth peak after one year wages peak after two years cpi and gdp deflator inflation peak during the third year second a positive international supply shock makes the distribution of the components of the uk consumption deflator negatively skewed third in response to a domestic monetary shock we find no evidence of the exchange rate and liquidity puzzles and little evidence of the forward discount and price anomalies

us monetary policy and global banking flows abstract this note investigates the impact of us monetary policy on us global bank leverage and cross border us dollar denominated banking flows using us monetary policy shocks identified based on narrative sources and the federal reserve s greenbook forecasts romer and romer 2004 compared to bruno and shin 2015 who employ standard recursive monetary policy identification techniques we find that leverage declines more quickly and to a much larger extent after a monetary tightening suggesting that declines in the availability of debt finance play a significant role in the propagation of monetary policy via the banking system the decline in international flows of dollar denominated bank funding is also larger using the externally identified monetary policy measure as is the degree of us dollar appreciation by expanding the baseline model into bilateral vars for 36 countries we find that the retrenchment of cross border banking flows after us monetary contraction is much larger in response to the externally identified monetary policy shocks which is consistent with the results of the aggregate model by looking at country groups it is observed that banking outflows after us monetary contraction are more pronounced in the case of emerging market economies than in the case of advanced economies

opportunism in multilateral vertical contracting nondiscrimination exclusivity and uniformity comment an input supplier selling to competing downstream firms would benefit from publicly committing at the outset to all contracts efficient commitment however would require complete contracts the authors study instead bilateral contracting without commitment regarding others terms each firm then fears that the supplier might opportunistically renegotiate another s contract to increase bilateral profit at the firm s expense the authors show that nondiscrimination clauses generally cannot curb such third party opportunism even with symmetric firms to reassure firms crude forms of commitment may be adopted this could explain the pervasiveness of exclusivity arrangements and the striking uniformity and intertemporal rigidity of franchise contracts copyright 1994 by american economic association

china s export growth and the china safeguard threats to the world trading system is there evidence from china s pre wto accession period that newly imposed u s or eu import restrictions deflect chinese exports to third markets the authors examine this question by drawing on a newly constructed data set of u s and eu product level import restrictions on chinese trade imposed between 1992 and 2001 and estimate their impact on chinese exports to 38 alternative markets there is no systematic evidence that the import restrictions imposed during this period resulted in chinese exports surging to such alternate destinations to the contrary there is weak evidence of a chilling effect on china s exports to third markets

monetary policy and foreign price disturbances under flexible exchange rates a stochastic approach the analysis of monetary policy under flexible exchange rates has received extensive treatment during recent years particular attention has been devoted to the role of exchange rate expectations with a general conclusion being that many of the propositions of the traditional static flemingmundell model see fleming 8 and mundell 19 require substantial modification once such expectations are taken into account see 5 21 24 with few exceptions the analysis has been carried out in a deterministic framework the usual assumption made is that any monetary expansion that is introduced is initially ex ante unanticipated but having taken place it is then ex post expected to be permanent this assumption underlies for example the recent contribution by dornbusch 5 and much of the subsequent work that stems from it l this assumption while very natural is also a polar one in practice agents in the economy may attempt to anticipate monetary policy and the policies themselves

multi lateral trade negotiations and the most favored nation clause abstract this paper considers the interaction between private information and the most favored nation clause in trade negotiations it demonstrates that by aggregating uncertainty over a number of trading partners the most favored nation clause may offer a welfare improvement over a set of bilateral trade negotiations this improvement is shown to be most pronounced when a large number of countries are involved in negotiations

monetary policy shocks and foreign investment income evidence from a large bayesian var abstract this paper assesses the transmission of monetary policy in a large bayesian vector autoregression based on the approach proposed by banbura et al 2010 the paper analyzes the impact of monetary policy shocks in the united states and canada not only on a range of domestic aggregates trade flows and exchange rates but also foreign investment income the analysis provides three main results first a surprise monetary policy contraction has a statistically important impact on both gross and net foreign investment income flows in both countries against the background of growing foreign wealth and investment income this result provides preliminary evidence that foreign balance sheet channels might play an increasingly significant role for monetary transmission second the impact of monetary policy on foreign investment income flows differs considerably across asset categories and over time suggesting that the investment instruments and the currency denomination of a country s foreign assets and liabilities are potentially relevant for the way in which monetary policy affects the domestic economy finally the results support existing evidence on the effectiveness of large vector autoregressions and the bayesian shrinkage approach in eliminating price and exchange rate puzzles

a reconsideration of the uncovered interest parity relationship abstract this paper argues that the uncovered interest parity uip relationship is distinct from and more important than the unbiasedness of forward exchange rates as predictors of future spot rates the standard finding that the slope estimate b is roughly 3 in regressions of s t on t 1 s t 1 implies rejection of unbiasedness but not necessarily uip the hypothesis that monetary authorities manage interest rates so as to smooth their movements while also resisting changes in exchange rates is attractive conceptually and is capable of explaining not only the b 3 finding but also several other notable features of the data

fiscal imbalances and the dynamics of currency crises abstract this paper analyzes links between the fiscal theory of the price level ftpl and the first generation models after krugman journal of money credit and banking 11 1979 311 325 exploring the idea that a synthesis between the two can become a new framework to analyze the fiscal dimension of currency crises working in a simple synthetic framework we show how external nominal shocks can cause a fiscal imbalance and undermine currency stability resolve two well known paradoxes of the first generation model discuss the role of seigniorage revenues and illustrate how fiscal and interest rate policies interact to determine the magnitude and the timing of speculative attacks and devaluations

erratum to multilateral trade negotiations bilateral opportunism and the rules of gatt wto abstract trade negotiations occur through time and between the governments of many countries an important issue is thus whether the value of concessions that a government wins in a current negotiation may be eroded in a future bilateral negotiation to which it is not party we identify rules of negotiation that serve to protect the welfare of governments that are not participating in the bilateral negotiation our main finding is that the two central principles of gatt wto nondiscrimination mfn and reciprocity preserve the welfare of nonparticipating governments and therefore offer a first line of defense against bilateral opportunism

natural resource management and economywide policies in costa rica a computable general equilibrium cge modeling approach a computable general equilibrium cge model is used to trace the effects of government policies on costa rican forests in the presence of incomplete markets the results indicate that correcting the market failure would as expected reduce deforestation more interestingly in the presence of the market failure lowering the tax on unskilled labor reduces deforestation because people gain employment in other parts of the economy taxation of other produced goods changes the incentives for deforestation for example a tax on agricultural products elevates the relative price of capital and shifts resources away from the capital intensive industrial sector toward the agricultural and forest sectors as a result such a tax increases deforestation

free trade networks abstract the paper examines the formation of free trade agreements ftas as a network formation game we consider an n country model in which possibly asymmetric countries trade differentiated industrial commodities we show that if all countries are symmetric the complete fta network is pairwise stable and it is the unique stable network if industrial commodities are not highly substitutable we also compare ftas and customs unions cus as to which of these two regimes facilitates global trade liberalization noticing that unlike cus each signatory of an fta can have another fta without consent of other member countries

effects of usd euro parity on a small open economy evidence from turkey this study assesses the effect of usd euro parity on a small open economy where exports are predominantly denominated in euros and imports are denominated in usd empirical evidence from turkey suggests that a positive change in the usd value of the euro appreciates the local currency decreases inflation and increases output

the relative importance of foreign and domestic disturbances for aggregate fluctuations in the open economy switzerland 1964 1981 abstract this paper studies whether the advent of floating exchange rates served to insulate switzerland from economic shocks of foreign origin it estimates a vector autoregression comprising four swiss and three world aggregate time series and interprets the results in terms of the properties of the vector moving average representation implied by the estimates the chief finding is that foreign shocks explain most of the systematic variation of the swiss variables in both regimes

macroeconomic policy exchange rate dynamics and optimal asset accumulation the paper develops a model of exchange rate and current account determination for a small economy peopled by infinitely lived utility maximizing households in this setting a central bank purchase of foreign exchange has no real effects when central bank foreign reserves earn interest at the world rate and proceeds are returned to the public in contrast an increase in the monetary growth rate does have real effects even in the long run the model developed here implies that an increase in government spending may lead to a surplus on current account the external adjustment process predicted by the model is one in which consumption real balances and external assets all rise or fall simultaneously