bank incentives economic specialization and financial crises in emerging economies abstract we model the vulnerability of an economy to a financial crisis as arising from the interaction of the degree of economic specialization and bank debt financing the probability of a financial crisis is shown to increase in the degree of economic specialization bank debt financing has the beneficial effect of lowering the degree of economic specialization by increasing access to financing of investment opportunities that would not have been financed due to wealth constraints of entrepreneurs financial access effect however bank debt financing induces risk shifting incentives leverage effect the net effect on the probability of a financial crisis depends on which of these two effects dominates we show that commonly employed mechanisms in managing financial crises particularly bailouts induce an additional agency cost by distorting bank incentives to concentrate loans in specific sectors bank debt concentration effect we propose a tax based ex ante solution mechanism that simultaneously induces optimal investment and eliminates the bank debt concentration effect implementation issues and empirical policy implications are also discussed

modeling aggregate manufactured exports for some asian newly industrialized economies a central question in studies of the asian newly industrialised economies has been whether the extremely rapid export growth of these countries can be viewed as primarily a phenomenon of income elastic export demand or of fast expanding export supply in the face of highly price elastic demand this paper provides evidence to show that while high income elasticities of export demand are detected using a conventional simultaneous model this may conceal the presence of important product differentiation and product innovation effects on export demand these are then captured using a measure of the total resource base copyright 1995 by mit press

banking panics information and rational expectations equilibrium this paper shows that bank runs can be modeled as an equilibrium phenomenon we demonstrate that some aspects of the intuitive story that bank runs start with fears of insolvency of banks can be rigorously modeled if individuals observe long lines at the bank they correctly infer that there is a possibility that the bank is about to fail and precipitate a bank run however bank runs occur even when no one has any adverse information extra market constraints such as suspension of convertibility can prevent bank runs and result in superior allocations banking panics were a recurrent phenomenon in the united states until the 1930s they have re emerged as a source of public concern and much theoretical research recently in this paper we provide an information theoretic rationale for bank runs the traditional story is that contagion is an important aspect of bank runs the idea seems to be that when the general public observes large withdrawals from the banking system fears of insolvency grow resulting in even larger withdrawals of deposits in our model some individuals withdraw because they get information that future returns are likely to be low uninformed individuals observing this also have an incentive to liquidate their investments in addition some individuals need to withdraw deposits for other than informationally based reasons thus if the random realization of such a group of individuals is unusually large then the uninformed individuals will be misled and will precipitate a run on the bank the technology is such that a large volume of withdrawals involves liquidation costs consequently runs on the bank do impose social costs a mechanism that may reduce these costs in our model is to suspend convertibility if withdrawals are high however those individuals who need to withdraw their assets for liquidity reasons are worse off ex post our model provides a rationalization for restrictions in demand deposits that were widespread prior to 1929 friedman and schwartz 7 suggest that restrictions of payments ensured

cyclical and causal relations between real wages and employment in the eu this paper analyses and compares the joint behaviour of real wages and employment over the business cycle in the european union eu economies using both annual and quarterly data since 1960 further investigation of the cointegrating properties and the existence of causal effects in the real wage employment relation is undertaken by employing appropriate var models the evidence suggests weak procyclical or acyclic behaviour of real wages relative to cyclical employment in the quarterly data and stronger procyclicality in the annual data thus confirming the dunlop tarshis result for the majority of the eu economies with a few exceptions no cointegrating relations were detected while the granger causality tests suggest either weak or lack of unidirectional causality finally the sensitivity analysis showed that the filtering method has not much influence on the results but the choice of deflator may overturn them in certain cases

why do bank runs look like panic a new explanation this paper demonstrates that even if depositors are fully rational and always choose the pareto dominant equilibrium when there are multiple equilibria a bank run may still occur when depositors expectations on the bank s fundamentals do not change more specifically a bank run may occur when depositors learn that noisy bank specific information will be revealed or when they learn that precise bank specific information will not be revealed the results in this paper are consistent with the empirical evidence about bank runs it also implies that suspension of convertibility can improve the efficiency of bank runs

wage determination in the uk this paper offers a sysnthesis of a number of important complementary theories of wage determination the model is estimated and tested with respect to its long run and dynamic properties applying johansen s 1998 fiml estimation procedure the maximum eigenvalue and the trace tests suggested two cointegrating vectors and estimated and another the underlying theoritical model we combined both vectors and estimated in a second step an error correction model which was satisfactory with regard to its in sample and out of sample performance none of the assumptions for ols estimation were violated and the recursive estimation revealed model stability additionally the forecasting ability of the model was satisfactory the main feauture of this model is that conflict elements are of parmount in the uk wage determination

government taxes and banking crises abstract this paper analyzes the effectiveness of different government policies to prevent the emergence of banking crises in particular we study the impact on welfare of using taxpayers money to recapitalize banks government injection of money into the banking system through credit lines the creation of a buffer and taxes on financial transactions the tobin tax we illustrate the trade off between these policies and derive policy implications

international investment positions a cross sectional analysis abstract we explore some empirical properties of the level and composition of gross international investment positions in a cross section of countries we find that more open countries with larger domestic financial markets tend to hold greater quantities of foreign assets and liabilities there is some evidence that cross holdings are positively correlated with inflation volatility but negatively correlated with terms of trade volatility

consumption smoothing and the current account evidence for france 1970 1996 abstract this paper estimates a simple consumption smoothing model of the french current account and examines its capacity to predict recent developments in france s external performance the model views the current account as a buffer through which private agents can smooth consumption over time in response to temporary disturbances to output investment and government expenditure the empirical results indicate that the model performs well overall and predicts correctly the sharp turnaround in france s external accounts observed in the past 3 years a feature of the data that conventional models of trade flows based on income and relative price variables appear unable to explain

causes of capital flows in developing countries abstract this paper investigates the causes of capital flows in four developing countries mexico chile korea and malaysia using structural decomposition analysis it finds that the recent resurgence in capital movements is largely due to external reasons such as decreases in the world interest rate or recession in industrial countries domestic factors including country specific productivity shocks and demand shocks are relatively less important another interesting finding is that the fundamental causes of capital flows differ little across the countries under study these results suggest that developing countries need to pay attention to the financial arrangements associated with capital flows and to exchange rate policy as well as macroeconomic fundamentals to avoid financial crises in a world of increased capital mobility

the demand for ldc exports of manufactures estimates from hong kong exports of manufactures from developing countries are generally believed to be sensitive to changes in the level of income in the developed countries their major market this belief is grounded on both casual observation especially from the experience of recent recessions and on extensive econometric evidence of low price elasticities and high income elasticities of demand for ldc exports in developed countries this paper argues that both casual observation and previous econometric evidence are misleading the aim of the paper is to show the order of magnitude of the bias contained in previous econometric estimates of price and income elasticities of demand for ldc exports of manufactures due to neglect of supply side influences previous econometric work has neglected the supply side of ldc exports for the simple reason that it is difficult to model it is difficult to model properly the supply of aggregate ldc exports since the determinants of export supply differ from country to country even for a single country modelling export supply is complicated since in addition to foreign demand and domestic supply exports are determined in part by domestic demand for exportables furthermore in most ldcs the incentive to export is strongly influenced by complex and continually changing industrial and trade policy measures there is one major exception hong kong one of the developing world s largest and most successful exporters of manufactured goods the manufacturing sector in hong kong is almost completely specialised exporting 95 of output consequently domestic demand plays no part in determining the volume of exports furthermore factor markets and the manufacturing sector are almost completely free from government intervention the main exception being the textile export restraints imposed at the insistence of importing countries the voluntary restraint agreements vras to which hong kong is subject no doubt affect the composition of exports but not necessarily the volume of aggregate exports if resources in the restrained sectors can easily be redeployed elsewhere in the economy judging from past export growth rates the vras do not appear to have had a significant effect on aggregate export growth in hong kong the results reported below also suggest that hong kong has effectively circumvented the trade barriers it faces the hong kong manufacturing sector in many ways resembles a firm in the

international capital mobility what do national saving investment dynamics tell us abstract we interpret the relationship between national saving and investment in the long run as reflecting a solvency constraint and interpret the ease with which a country can run current account imbalances in the short run before it has to ultimately reverse the transaction at some future date to satisfy the solvency constraint as being positively related to the degree of international capital mobility we apply panel error correction techniques to data for 20 oecd countries from 1960 to 1999 we find that saving and investment display a long run cointegration relationship that is consistent with the interpretation that a long run solvency constraint is binding for each country over time however deviations from this long run equilibrium relation have become more persistent which suggests that capital mobility has increased

empirical analysis of macroeconomic time series var and structural models abstract var and structural econometric models have complementary roles in the modelling of macroeconomic time series a constant parameter var provided it is statistically well specified constitutes a valid basis for testing hypotheses of dynamic specification exogeneity and a priori structure thus facilitating model evaluation as well as suggesting a potentially efficient model development strategy deterministic e g trends and regime shifts and stochastic e g integrated variables non stationarities are analysable within this framework and the johansen maximum likelihood procedure for cointegrated systems is used in an analysis of the determination of earnings prices productivity and unemployment in the u k

is there persistence in the growth of manufactured exports evidence from newly industrializing countries abstract applying cointegration techniques in a panel data setting we document persistent growth of manufactured exports from certain developing countries to complement the investigation of persistence measured by the country fixed effects we analyze asymmetries in income elasticities for all developing countries the decline in exports with world income contraction is sharper than is the rise on the upswing the decline is however especially pronounced for countries with low or negative persistence the results are consistent with long term buyer supplier relationships that create insiders and outsiders in manufactured goods trading exports are also influenced by the transactional infrastructure proxied by telecommunications penetration

segmented trends and non stationary time series since the influential work of charles r nelson and charles plosser 1982 many empirical studies have concluded that macroeconomic time series are difference stationary this paper proposes the segmented trend model as an alternative in which the series is the sum of a nonstationary trend and a stationary cycle and where the trend shows infrequent shifts the paper proposes tests between the difference stationary and segmented trends models and applies these to the data of nelson and plosser in general the results indicate that prices are difference stationary but quantities follow segmented trend processes copyright 1989 by royal economic society

fundamentals panics and bank distress during the depression we assemble bank level and other data for fed member banks to model determinants of bank failure fundamentals explain bank failure risk well the first two friedman schwartz crises are not associated with positive unexplained residual failure risk or increased importance of bank illiquidity for forecasting failure the third friedman schwartz crisis is more ambiguous but increased residual failure risk is small in the aggregate the final crisis early 1933 saw a large unexplained increase in bank failure risk local contagion and illiquidity may have played a role in pre 1933 bank failures even though those effects were not large in their aggregate impact

demand and supply factors in the determination of nie exports a reply in their comment on muscatelli srinivasan and vines msv i992 athukorala and riedel challenge our conclusions regarding the estimated longrun elasticities of export demand for hong kong and our suggestion that estimating a system of export demand and supply could provide a solution to the normalisation problem unfortunately by focusing only on a subset of the issues raised by msv athukorala and riedel tend to ignore some of the key econometric evidence against their preferred small country assumption and their chosen normalisation price dependent export demand there are three key pieces of evidence which tend to point against the small country assumption first let us turn to the normalisation issue as athukorala and riedel note least squares methods such as the phillips hansen procedure will not yield estimates of cointegrating vectors which are independent of normalisation and that is why msv point out that the phillips hansen procedure may only alleviate not solve the normalisation problem ideally when estimating a simultaneous cointegrated model scm one should attempt to test and impose identifying restrictions on the h matrix in a johansen type multi variate var framework

wage determiniation in the uk further empirical results using conintegraion the present paper examines the long run behaviour of two types of wage models for the uk over the preiod 1996 1 1989 2 these models differing in their theoretical construction are estimated and explored using various tests for cointegration the hall 1986 1989 model is based on saragan s 1964 wage specification while the arestis and skott 1993 and arestis and biefang frisancho mariscal 1993 model is concerned with distributional and wage efficeincy theortical effects both models exhibit at least one economically sensible long run relationship for wage determination with significant and correctly signed parameters and show expected proportionality between wages and productivity further the arestis and skott 1993 model shows the effects of effciency wage elements on effort

the empirical modelling of nie exports an evaluation of different approaches this article investigates the current debate regarding the robustness of estimates of export demand and supply elasticities for ldcs and nies obtained by recent empirical studies the empirical findings reported in the article suggest that price elasticities of demand are indeed low and that there are strong and significant income effects on export demand furthermore using a variety of modelling approaches we demonstrate that the choice of estimation method and normalisation need not lead to drastically different conclusions regarding the size of the price elasticity of demand for nie exports whilst this points against the small country assumption usually made regarding ldc nie exports we argue that the preferred development strategy for ldcs need not necessarily be an inward oriented one this is because the large estimated income market growth elasticities in the demand equations may be due to the presence of supply side influences which have been the focus of attention of the new theories of i

capital flows to developing countries this article focuses on the determinants of the large portfolio flows from the united states to latin american and asian countries during 1988 92 cointegration techniques reveal that both domestic and global factors explain bond and equity flows to developing countries and represent significant long run determinants of portfolio flows the article also investigates the dynamics of portfolio flows by estimating seemingly unrelated error correction models global and country specific factors are equally important in determining the long run movements in equity flows for both asian and latin american countries while global factors are much more important than domestic factors in explaining the dynamics of bond flows u s interest rates are a particularly important determinant of the short run dynamics of portfolio especially bond flows to developing countries

unemployment in britain male unemployment in britain has risen from around 2 per cent in the 1950s to around 17 per cent in 1985 see figure 1 the figures are for male unemployment because there is no consistent series for women 1 even more remarkably unemployment has fallen in only three years out of the last twenty 1973 1978 and 1979 to account for this we need a model that explains both changes in the natural or non accelerating inflation rate of unemployment nairu and deviations from it we use a three equation supply side model centred on the labour market this has two main features the first concerns the determination of employment in the short run the labour demand function that we use cuts through the fruitless debate now raging especially in europe as to whether current unemployment is classical or keynesian according to the classical view employment is too high because real wages are too high according to the keynesian view real wages are not binding and unemployment is high because the product market does not clear with prices too high relative to nominal demand the whole debate is set in the framework of perfect competition yet in perfect competition prices are set by impersonal forces and it is not clear what could possibly stop prices clearing the market it is much more reasonable to think of prices as being set by imperfectly competitive firms existing prices being the best they can think of given the demand they face in this context firms demand for labour will depend on both the real product wage and the level of real aggregate demand this is the demand function we estimate and it conforms both to common sense and to the data however this does not imply that employment can be made to grow without limit by pumping up real demand for in the medium term when price surprises are eliminated our model determines three variables employment real wages and real demand on the basis of three equations an employment equation a price equation and a wage equation thus in the medium term there is a natural level of employment and corresponding to this a natural level of real aggregate demand the second key feature of our model concerns the medium term determination of unemployment in the medium term the planned mark up of wages over prices in wage settlements must be consistent with the mark up of prices over wage costs in employers pricing behaviour for if wage setters try to set real product wages higher than is consistent with employers pricing behaviour this generates ever increasing inflation thus the key to understanding unemployment in the medium term is the behaviour of wage setters if events occur that push them towards too high real wages then unemployment has to rise to offset these influences we shall call these influences wage pressure variables or push factors and they are clearly crucial in understanding unemployment the variables here include the social security system employment protection

demand and supply factors in the determination of nie exports a simultaneous error correction model for hong kong a comment v a muscatelli t g srinivasan and d vines 1992 purported to refute j riedel s 1988 finding that hong kong is a small price taking country in world markets this comment shows however that muscatelli srinivasan and vines s results are due entirely to an unjustifiable restriction they imposed on the estimated export demand equation and not the result of using a superior estimation technique as they asserted copyright 1994 by royal economic society

long run price and income elasticities of demand for hong kong exports a structural cointegrating var approach this article revisits a system of export volume and price equations to estimate the long run price and income effects in the demand for hong kong s exports using a recently developed restricted cointegrating var approach it tests theorybased restrictions and obtains estimates of the long run structural coefficients the estimation results provide supporting evidence for the theory based restrictions and suggest that the demand for hong kong s exports is both price and income elastic this article is therefore able to present a long run model of hong kong s exports that is both theory and data consistent and long run elasticities that are economically interpretable the short run properties of the model are illustrated by means of persistence profiles which confirm the cointegrating vectors tendency of convergence

trade as the engine of growth in developing countries revisited economic growth in developed countries since the mid 1970s the only way to keep the engine of ldc growth beating at a satisfactory rate so the argument goes is to turn to an alternative source of fuel this lewis argues lies in trade among the developing countries which he asserts can take up the slack left by mdcs more developed countries as mdcs slow down 1980 p 560 pessimism about demand for ldc exports in developed countries markets is a recurrent theme in the development literature also familiar is the approach taken by lewis to dismiss past successes of ldcs in world trade by declaring the alleged engine of past growth to be no longer operating satisfactorily the intellectual foundations of the import substitution strategy laid in the 1950s by prebisch myrdal and most importantly nurkse rested on similar grounds arguing that the demand for periphery countries exports in the 20th century is far weaker than it was in the 19th century trade was dismissed as an engine of growth a function nurkse alleged it had served in the 19th century the solution prescribed in the 1950s was to look inward in effect to scrap the trade engine altogether lewis remedy coming two decades later when most importsubstitution possibilities in many ldcs have been all but exhausted retains the trade engine but seeks an alternative source of fuel to drive it the classic critique by irving kravis 1970 of nurkse s thesis of trade as a faltering engine of growth showed that export expansion did not serve in the nineteenth century to differentiate successful from unsuccessful countries p 850 this followed from two findings first that successful 19th century countries showed few signs of export dominated growth second that unsuccessful periphery countries enjoyed export expansion in the second half of the 19th century of the same order of magnitude as the temperate regions of recent settlement this led kravis to conclude that a more warranted metaphor

small system modelling of real wages inflation unemployment and output per capita in italy 1970 1994 the relationships between real wages output per capita inflation and unemployment in italy between 1970 and 1994 are modelled using a cointegrated vector autoregression there is evidence of a change in the underlying equilibria and in the dynamic evolution of the variables probably associated with the substantial changes in many sectors of the italian economy after 1979 alternative ways to model structural change in the italian labour market are considered in adopting a split sample approach the results favour an hysteresis interpretation of unemployment

the effects of additive outliers on tests for unit roots and cointegration this article discusses the properties of the univariate dickey fuller test and the johansen test for the cointegrating rank when there exist additive outlying observations in the time series we provide analytical as well as numerical evidence that additive outliers may produce spurious stationary hence the dickey fuller test will reject a unit root too frequently and the johansen test will indicate too many cointegrating vectors the results easily generalize to models with temporary change outliers through an empirical example we discuss how additive and temporary change outliers can be detected in practice and we show how dummy variables can be used to remove the influence of such extreme observations

on the effectiveness of capital controls the experience of colombia during the 1990s abstract this paper analyzes the effectiveness of capital controls in colombia the evidence presented points towards a relative inability of the measures adopted to reduce the level of capital inflows nonetheless the evidence suggests that non remunerated deposits have been successful in inducing a recomposition of foreign liabilities in favor of long term maturities it is likely that this is a positive result as it has made the country less vulnerable to a reversal in capital flows in this sense controls may be viewed as an effective way of internalizing the negative externality imposed by short term maturities

understanding interdependence the macroeconomics of the open economy list of figureslist of tablesintroduction1the endogeneity of exchange rate regimes32exchange rate behavior under alternative exchange rate arrangements343panel one money for how many 844exchange rates prices and external adjustment in the united states and japan1075the dynamic optimizing approach to the current account theory and evidence1696international capital mobility in the 1990s2017a retrospective on the debt crisis2628trade liberalization in disinflation2919inflation and growth in an integrated approach31310panel the outlook for stabilization and reform in central and eastern europe36811international cooperation in the making of national macroeconomic policies where do we stand 39112the political economy of monetary union44813what do we need to know about the international monetary system 509conference participants531author index535subject index543

banking panics the role of the first come first served rule and information externalities this paper proposes that both the first come first served rule and information externalities are important in causing contagious bank runs the first come first served rule creates a negative payoff externality among depositors this payoff externality forces depositors to respond to early noisy information such as failures of other banks therefore failures of a few banks may trigger runs on other banks contagious runs may occur even if i depositors choose the pareto dominant equilibrium when there are multiple equilibria and ii the deposit contract is chosen to maximize depositor welfare the feasibility of reforming the fdic to impose market discipline is also investigated

the cyclical behaviour of european bank capital buffers using an unbalanced panel of accounting data from 1997 to 2004 and controlling for individual bank costs and risk we find capital buffers of the banks in the eu15 have a significant negative co movement with the cycle for banks in the accession countries there is significant positive co movement capital buffers of commercial and savings banks and of large banks exhibit negative co movement those of co operative and smaller banks exhibit positive co movement speeds of adjustment are fairly slow we interpret these results and discuss policy implications noting that negative co movement of capital buffers will exacerbate the pro cyclical impact of basel ii

sectoral cointegration structural break and agriculture s role in the chinese economy in 1952 92 a var approach a var model is constructed to study the sectoral cointegration relationship in china as a primary sector of the economy agriculture is found to be a growth engine throughout the data period 1952 92 although its contribution to gdp declined steadily over time this evidence is consistently found in both the long run and the short run models of a var in contrast the growth of non agricultural sectors had little effect on agriculture in 1952 77 however a structural break is found under the economic reforms 1977 92 when industry and other non agricultural sectors started to cause agriculture to grow

money and output under alternative exchange rate regimes in the usa abstract economic theory suggests that the effects of money on output will depend on the exchange rate regime this paper examines the relationship between money and output under fixed and flexible exchange rates in the usa johansen s maximum likelihood estimation method is utilized to test for cointegration in a system consisting of money the interest rate prices the trade balance and output during 1959 1971 and 1973 1990 with the exchange rate included in the analysis fo the second period the results indicate that the variables are cointegrated suggesting the existence of long run equilibrium relationships between the domestic and external variables vaiance decompositions reveal a much larger role for money in explaining forecast error vaiance of output during the flexible exchange rate period money and the interest rate explain a substantial proportion of the variances of the trade balance and the exchange rate this suggests that effects on the exchange rate and trade balance are an important component of the transmission mechanism of monetary policy jel f41

bank runs and currency run in a system without a safety net argentina and the tequila shock abstract this paper tests the random withdrawals vs informed based theories of bank runs in the context of the bank panic that took place in argentina as a consequence of the mexican devaluation of december 20 1994 this evidence is unique in several ways it is the case of a contemporary banking system with virtually no explicit safety net a currency board with no deposit insurance scheme and a case in which the bank runs were triggered by a currency run the findings of the paper provide support to the informed based theories and show that depositors are concerned with the impact of a currency run on bank solvency

the saving investment correlation puzzle is still a puzzle abstract a number of simulation studies claim to have solved the feldstein horioka puzzle by demonstrating that a high time series correlation between saving and investment naturally arises from business cycle shocks this paper uses panel data of saving and investment controlled for business cycle shocks to empirically test the significance of cyclical shocks productivity fiscal and the terms of trade shocks in explaining a high saving investment correlation the estimation results reveal that conventional aggregate shocks only partially explain the high saving investment correlation moreover country differences in the size of the gnp and the non traded sector do not significantly affect the saving investment correlation the saving investment correlation puzzle remains a puzzle after all

bank runs in the free banking period free banks in the united states issued private banknotes without discretionary restriction of entry previous research suggests explanations for noteholders relatively large losses and the substantial number of banks that closed the authors examine these hypotheses and the hypothesis that contagious runs were important the evidence provides no support for the importance of wildcat banking due to par versus market valuation of bond reserves episodic but not general support for the importance of declining bond prices and support for contagion effects and contemporaries knowledge of them with little or no impact on the number of banks that closed copyright 1994 by ohio state university press

a traditional interpretation of macroeconomic fluctuations under the traditional interpretation of macroeconomic fluctuations aggregate demand shocks move output and prices in the same direction while aggregate supply shocks move output and prices in opposite directions this paper examines the joint behavior of u s output unemployment prices wages and nominal money and asks whether it is consistent with this interpretation the answer is a qualified yes

uninsurable shocks and international income convergence the dynamics of production and income growth across countries or across regions within the same country are often thought to give evidence on whether returns to accumulation are increasing constant or decreasing at the local level when poor countries or regions are found to grow no faster than richer ones such lack of convergence is viewed as unfavorable evidence for models in which technology offers high returns to accumulation in relatively capital poor locations see e g paul romer 1987 when population growth saving or investment rates and other determinants of long run income levels in the neoclassical model are controlled for residual income differences across countries and across regions within the same country appear to vanish slowly but significantly over time this suggests that local returns to accumulation are decreasing if the reference theoretical model takes technology to be uniform across locations features unexplained and permanent differences in saving behavior and eliminates or limits capital mobility across locations these assumptions clearly oversimplify reality in various respects and a particular one is considered here 2 the theory that motivates empirical work on income convergence either takes saving propensities as exogenously given or else models them in terms of individual optimization under certainty random variability is essential to every empirical regression equation of course and real data are better represented by a stochastic steady state with ongoing uncertainty than by steady convergence toward steady state uniformity see e g danny quah 1993 to explore the possible role of exogenous and uninsurable income sources in the joint determination of savings behavior and income dynamics here i allow consumption and savings to draw on possibly stochastic location specific income sources which are independent of past accumulation at the local level and which remain relevant as the aggregate economy grows returns to accumulation are assumed to be constant both over time and cross sectionally thus ruling out decreasing returns to accumulation as the driving force of income convergence and ensuring that potential capital mobility need not induce actual capital flows under the common assumption of constant saving propensities this framework predicts that incomes should converge over time if the relative importance of nonaccumulated income is crosssectionally heterogeneous when individuals optimize their savings in light of the size and composition of their accumulated and nonaccumulated income sources consumption smoothing behavior leads to persistent but stationary dynamics for relative incomes and consumption levels the concluding section briefly discusses the extent to which these saving based insights may be applicable to international or interregional income dynamics

price formation in an open economy theory and evidence for the united kingdom 1951 1991 price formation is an increasingly important part of modern macroeconomics however the empirical literature on price setting is diverse and confused this paper uses cointegration techniques to test theories of price setting on uk aggregate data for 1951 91 we find i domestic prices are determined by both domestic costs and world prices and ii at the macroeconomic level prices are related to marginal cost rather than average or normal cost

intra nie competition in exports of manufactures this paper provides empirical evidence on the extent to which the asian newly industrialised economies nies compete in world export markets our results support existing studies which emphasise the importance of allowing for intra ldc competition in modelling an individual developing country s exports whilst the asian nies are regarded as a model for other developing countries to emulate one has to consider whether such an expansion in export supply would be at the expense of oecd economies or whether it will lead to a deterioration in the terms of trade of the developing countries as a group

welfare effects of an export tax thailand s rice premium an empirically based applied general equilibrium model is used to study the welfare and distributional effects of an export tax when the implementing country possesses some monopoly power in the world market a method is demonstrated through which a general equilibrium model can be used to find the optimal value of a tax or subsidy the approach makes it possible to conduct the welfare analysis of a particular intervention in an explicit second best context to study its income distributional implications and to explore the sensitivity of the results to variations in key behavioral parameters structural assumptions and the government s distributional objectives copyright 2001 oxford university press

an analysis of the disaggregated manufacturing exports of the asian nies to eec usa and japan this paper examines the export performance of the four asian newly industrialized economics nies by modelling their bilateral export flows to three main oecd blocks the usa japan and the european community our estimated export demand models reveal interesting asymmetries between these three areas of destination which do not emerge from previous aggregate empirical studies of nie export performance

is more information always better experimental financial markets with cumulative information abstract we study the value of information in financial markets by asking whether having more information always leads to higher returns we address this question in an experiment where information about an asset s intrinsic value is cumulatively distributed among traders we find that only the very best informed traders i e insiders significantly outperform less informed traders however there is a wide range of information levels from zero information to above average information levels where additional information does not yield higher returns the latter result implies that the value of additional information need not be strictly positive

demand and supply factors in the determination of nie exports a simultaneous error correction model for hong kong this paper considers the issue of whether a small developing economy such as hong kong faces a perfectly elastic demand for its exports of manufactured goods we construct a simultaneous demand and supply system which is estimated using full information maximum likelihood methods and which allows us to clearly identify demand and supply factors in determining export volumes and prices our empirical findings differ from previous studies conducted with this data set in that they suggest that even a small dynamic newly industrialized economy such as hong kong may not face infinitely elastic demand for its manufactured goods we also advance some reasons to explain why the small country assumption may not be applicable in the case of most industrialized economies

inequality and the us import demand function in this paper we build a model of trade in vertically differentiated products and find that income inequality can affect the demand for imports even in the presence of homothetic preferences the empirical importance of changes in inequality on the demand for imports is then assessed by examining panel data for 36 developing and developed countries for the 1980 1997 period we find significant evidence supporting our prediction that inequality has a large influence on the demand for imports moreover we find that in line with the predictions of our theoretical model this influence is positive for high income countries countries that produce the high quality variety of the vertically differentiated product and negative for low income countries countries that produce the low quality variety of the vertically differentiated product

the new open economy macroeconomics a survey since the 1995 publication of obsteld and rogoff s redux model there has been an outpouring of research on open economy dynamic general equilibrium models that incorporate imperfect competition and nominal rigidities this paper offers an interim survey of this recent literature 2001 elsevier science b v all rights reserved

demand elasticities in international trade are they really low the authors analyze the u s demand for bangladeshi imports for products restricted under the multifiber arrangement because bangladesh is only a small supplier of these products and latin american and asian countries can supply close substitutes the authors expected a high elasticity of demand for bangladeshi imports and they found consistently high estimates based on statistically significant coefficients their finding accords with trade theorists prejudice that small countries can essentially behave as price takers but conflicts with the empirical literature view that demand elasticities are low rarely exceeding 3 and generally between 1 and 2 the authors analysis differs from the existing literature in three ways they derive a set of estimation equations from an explicit utility maximization model and use the estimated parameters of the utility function to obtain the marshallian own price and cross price elasticities as well as the income elasticity of demand they take explicit account of u s imports from competitors of bangladesh relying directly on competitors prices and they use highly disaggregated data that make the unit value of exports a better proxy for price than using aggregated export data commonly used in this literature the authors outline their theoretical model for deriving their estimated equations in section 1 preliminarily determine who bangladesh s competitors are in section 2 and estimate the demand equation derived in section 1 and derive the price and income elasticities facing bangladesh in section 3

internationalization and changes in tax policy in oecd countries the importance of domestic veto players this article examines the role that economic and political factors played in tax reform in organization for economic cooperation and development oecd countries from 1986 to 1990 some writers argue that economic integration forced states to reform their tax systems the authors findings indicate that economic openness had an indirect effect on the level of change in marginal tax rates the institutional structure of a country was most important countries that had only one veto player or only one institution or party whose approval was necessary for a bill to become law enacted more sweeping reform than states that had more than one veto player these results suggest that even when international or domestic economic factors might dictate a change in policy reform will not be as sweeping in countries in which agreement among several institutions and or parties is necessary

panic bank runs we provide experimental evidence that panic bank runs occur in the absence of problems with fundamentals and coordination failures among depositors the two main culprits identified in the literature depositors withdraw when they observe that others do so even when theoretically they should not our findings suggest that panic also manifests itself in the beliefs of depositors who overestimate the probability that a bank run is underway loss aversion has a predictive power on panic behavior while risk or ambiguity aversion do not

capital flows to developing countries long and short term determinants this article focuses on the determinants of the large portfolio flows from the united states to latin american and asian countries during 1988 92 cointegration techniques reveal that both domestic and global factors explain bond and equity flows to developing countries and represent significant long run determinants of portfolio flows the article also investigates the dynamics of portfolio flows by estimating seemingly unrelated error correction models global and country specific factors are equally important in determining the long run movements in equity flows for both asian and latin american countries while global factors are much more important than domestic factors in explaining the dynamics of bond flows u s interest rates are a particularly important determinant of the short run dynamics of portfolio especially bond flows to developing countries copyright 1997 by oxford university press

optimal bank transparency increasing transparency is recurrently offered as a centerpiece of bank regulation we study a competitive banking sector whose illiquid assets are funded by short term debt that must be refinanced we show that welfare is a nonmonotonic function of the level of transparency increasing transparency fosters efficient liquidation but has an adverse effect on rollover risk given the level of risk banks may compensate this adverse effect by taking more risk these offsetting effects render an intermediate level of transparency optimal moreover the existence of negative social externalities of bank failures calls for making banks more opaque rather than more transparent

the current impasse in research on optimum currency areas abstract the only visible advance in the theory of the optimum currency area oca since mundell wrote in 1961 is the proposal of new criteria for determining the optimal size of a currency area the paper first tries to substantiate this general assessment and then argues that the fault lies in the profession s unwillingness to adopt a formal analysis of the subject divorced from the policy aspects we could make considerable progress in analysing the oca by merely following our usual procedure of defining a general welfare function to be compared if not maximised under different well specified conditions furthermore any move in this direction would take us far beyond the current enumeration of criteria for an oca

dynamic structural models and the high ination period in brazil modelling the monetary system in this paper we develop a linear structural dynamic econometric model for the high ination period in brazil the main goal is to obtain a parsimonious model that accounts for a complex dynamic present in the monetary system during the period describing therelationships among output ination rate interest rates and real money we start the analysis after the cruzado plan cast in 1986 following a progressive strategy in deriving the econometric model the results show that we can identify a long run money demand equation and the model describes parsimoniously and in detail the relationship among the variables despite all the instability present in the second half of the 1980 s in brazil with special attention to the role played by nominal wage ination in determining the dynamics observed in price ination

exchange rate variability and the export demand for malaysia s semiconductors an empirical study this article examines the effects of exchange rate variability on export demand for semiconductors which is the largest sub sector of electronics industry in malaysia as reported by malaysian industrial development authority mida 2004 the empirical results which are estimated based on the johansen s multivariate cointegration tests and error correction model suggest that there is a unique long run relationship among quantities of export relative price real foreign income and real exchange rate variability the major finding of this article is that the variability of real exchange rate has some effect on semiconductor exports in both the long run and the short run in the light of rapid advances in technology in the global markets for electronics products the findings are useful to policy makers for the design and target of appropriate exchange rate and industrial policies to enhance the export competitiveness of semiconductor industry

modelling relative price variability and aggregate inflation in the united kingdom the relationship between relative price variability and aggregate inflation in the uk is used to illustrate a number of issues in econometric modelling methodology the rigorous evaluation of models especially testing for congruence and encompassing is emphasized the valuable role of recursive estimation methods in assessing model adequacy is demonstrated attention is drawn to the potential limitations of single equation and univariate analysis of time series data and a recently proposed modelling strategy for analyzing nonstationary variables with cointegrating relationships based on sequential reductions of a congruent var is applied to a small system involving inflation and relative price variability

suspension of payments bank failures and the nonbank public s losses abstract we present evidence on the effects of suspensions of payments from an episode that is close to a controlled experiment for examining those effects in 1861 about 44 of the banks in wisconsin closed 81 of the banks in illinois closed and noteholders suffered substantial losses the historical record suggests that an effective suspension of payments in wisconsin but not in illinois may explain the difference our statistical evidence indicates that the suspension of payments increased the probability of a bank remaining open by about 21 percentage points and decreased noteholders losses by about 14 cents per dollar

contagion and bank failures during the great depression the june 1932 chicago banking panic the authors examine the social costs of asymmetric information induced bank panics in an environment without government deposit insurance their case study is the chicago bank panic of june 1932 the authors compare the ex ante characteristics of panic failures and panic survivors despite temporary confusion about bank asset quality on the part of depositors during the panic which was associated with widespread depositor runs and bank stock price declines the panic did not produce significant social costs in terms of failures among solvent banks copyright 1997 by american economic association

modelling nie exports aggregation quantitative restrictions and choice of econometric methodology the current debate regarding the robustness of estimates of export demand and supply elasticities for nies is examined by modelling manufactured exports from korea the results suggest that normalisation of the export demand function for price rather than quantity is an important issue in estimating export demand functions of small countries and that estimates of export demand elasticities at high levels of aggregation are subject to potentially powerful biases when the aggregate consists of categories which are subject to quantitative restrictions if proper modelling procedures are followed it is likely that the small country assumption will find far more empirical support than it has hitherto

stationary time varying risk premia in forward foreign exchange rates abstract there is mounting evidence that forward foreign exchange rates contain time varying risk premia however this evidence is from tests for which statistical inference is based on asymptotic distribution theory furthermore it is uncertain whether risk premia evolve as stationary or nonstationary processes this paper applies two exact small sample pointwise most powerful invariant statistical tests to determine 1 whether forward exchange rates contain time varying risk premia and 2 whether the time varying risk premia are stationary or nonstationary these tests finds strong evidence that forward exchange rates contain stationary time varying risk premia during the recent float evidence from the interwar float is mixed

testing long run purchasing power parity under exchange rate targeting abstract the present paper exploits the idea that empirical estimates of the long run ppp relationship may compound two distinct influences coming from the behavior of market participants and policy makers when the latter are targeting the exchange rate this tends to bias tests of long run ppp against its acceptance the validity of the theoretical arguments is assessed by drawing on the experience of two european union countries greece and france for the post bretton woods period estimation biases due to the omission of policy effects are found to be significant only in the case of greece for france our test results provide evidence bearing on the effectiveness of the competitive disinflation strategy pursued by the french authorities