reevaluation and renegotiation of climate change coalitions a sequential closed loop game approach abstract major international environmental problems can be characterized as stock externality phenomena long term international environmental coalitions are subject to unexpected shocks certain shocks might have strong impacts on regional environmental policies and their commitments to the coalition the open loop solutions in optimal control problems and differential games cannot capture regions reactions to those shocks in this paper we develop a feasible modeling approach that uses the closed loop strategies to study the issues of reevaluation and renegotiation of climate change coalitions for the purpose we design an algorithm that decomposes a closed loop strategy into a sequence of open loop equilibria and implement the algorithm in the rice model am econ rev 86 1996 741 an integrated assessment model of climate change and economies we analyze policy and methodological implications of the closed loop strategies through simulations of the rice model

a general equilibrium model of pareto inferior trade abstract the paper presents a general equilibrium model in which an autarky allocation is pareto superior to a free trade allocation in this environment agents decisions regarding their choices of jobs and consumption are affected by wage and price fluctuations associated with these two regimes it is also found that the free trade equilibrium is unique and unstable when it is pareto inferior to autarky these extreme results point out the crucial significance of the incomplete markets assumption in true general equilibrium settings

uncertainty in currency mispricing abstractdeclaring a currency to be mispriced is fraught with uncertainties in this article these uncertainties are explicitly recognized in a model of pricing a homogeneous commodity around the world this allows for a common driver of prices due to a base currency effect and country specific factors that lead to departures from absolute ppp on account of income differences local taxes and charges etc this approach leads to estimates of currency mispricing whose significance can be tested in the usual way using big mac prices we show that the approach has advantages over the popular big mac index to currency valuation

appreciating the renminbi international pressure to revalue china s currency stems in part from the expectation that rapid economic growth should be associated with an underlying real exchange rate appreciation this hinges on the balassa samuelson hypothesis which sees growth as stemming from improvements in traded sector productivity and associated rises in wages and non traded prices yet despite extraordinary growth after the mid 1990s china s real exchange rate showed no tendency to appreciate until after 2004 we use a dynamic general equilibrium model to simulate the economy and show that during this period trade reforms and a rising national saving rate were offsetting forces in the presence of elastic labour supply we then examine the possible determinants of the striking transition to real appreciation thereafter noting mounting evidence that an improved rural term of trade has tightened china s labour market we show that should the chinese government bow to international pressure by appreciating the renminbi either via an extraordinary monetary contraction or via export disincentives the consequences would be harmful for both chinese and global interests

new estimates of the equilibrium exchange rate the case for the chinese renminbi we estimate the nominal equilibrium exchange rate eer of the chinese renminbi rmb vis a vis the us dollar from 1995 to 2009 while most of the recent empirical studies on the eer employ a cross country analysis country specific factors especially supply side real factors are not fully taken into consideration in estimating the eer to better reflect china s processing exports in the context of growing intra regional trade in asia we incorporate in the empirical analysis the source country breakdown data on import prices and input coefficients of intermediate inputs by constructing an annual new international input output iio table for the period from 1995 to 2009 the results show that the nominal eer of the rmb appreciates sharply from 2006 to 2009 suggesting that the current rmb exchange rate has been substantially undervalued and should be revalued by 74 per cent as of 2008 compared to the year 2004 level such sharp appreciation of the nominal eer corresponds to the dramatic increase in china s current account surplus from the mid 2000s especially against the united states which is ascribed to the significant improvement of china s intermediate input coefficients and to a lesser extent an increase in us import prices of intermediate inputs

a quantitative reassessment of the purchasing power parity hypothesis evidence from norway and the united kingdom summary annual data from norway and the united kingdom from 1874 to 1971 are used to reassess the empirical performance of the purchasing power parity ppp doctrine the simple version of the ppp relationship is supported by the data only if different short run dynamics during a floating rate period 1914 1928 is allowed for two sets of factors were found to be important in amending the simple ppp model these were short run cyclical variables affecting the adjustment towards the ppp equilibrium relationship and long run structural factors such as productivity and terms of trade within this expanded model the proportionality between the exchange rate and relative price levels could not be rejected

a note on the determinants of unexpected exchange rate movements abstract in this paper we study the relative importance of surprises in fundamentals in explaining unexpected exchange rate movements employing a unique survey dataset that contains matched exchange rate and interest rate expectations we are able to derive a number of interesting conclusions a variance decomposition of unexpected exchange rate movements into various components reveals that interest rate news is relatively unimportant but that changes in perceptions about risk premia and more importantly revisions of expectations with regard to future exchange rate levels are crucial in explaining unexpected exchange rate movements

optimal climate change adaptation and mitigation expenditures in environmentally small economies we study the optimal role of mitigation and adaptation strategies for environmentally small economies that is economies that are witnessing an exogenous increase in emissions to which they are contributing very little our results lead to three main conclusions first small economies should concentrate their environmental efforts if any on adaptation this is a recommendation based on cost effectiveness rather than on any idea about these economies indulging in free riding second environmentally small economies that are unable to spend enough on adaptation may end up spending less on mitigation in the long term owing to their impoverishment as a result of negative climate shocks third higher mitigation expenditures may arise not only as a result of greater optimal adaptation expenditures but also because of increased adaptation to the incentives for mitigation provided by richer countries for the simulations we use a calibrated optimal growth model for brazil chile and the united states

computing business as usual with a representative agent and a pollution externality abstract computing the no policy equilibrium business as usual in a representative agent ra model is complicated by the presence of a pollution externality since simple optimization internalizes the pollution cost many researchers use ad hoc methods but there is no way to know how reliable these are a solution is presented in which the ra model is divided into n identical components each identified with its own sub agent sub agents play a dynamic game leading to a nash equilibrium for sufficiently large n this approach keeps most of the pollution cost external and in the limit it is equivalent to a myopic firms model in which the entire cost is external this approach has the advantage of theoretical consistency and empirical applications indicate that it is easily implemented

climate policy and induced r d how great is the effect abstract carbon taxes or tradable permit systems to address climate change may induce research and development in energy related technologies we construct a single knowledge stock model of r d growth and climate to assess the importance of this effect the contribution of induced r d is shown to be very sensitive to i the duplication externality ii the feasibility of dedicated research subsidies to internalize inter firm knowledge spillovers iii the opportunity cost of r d iv the initial level of research expenditure and v the elasticity of substitution between energy and other factors of production in contrast the direction and scale of the inter temporal research spillover are of secondary importance we find strong support for rezai s 2011 argument that when the business as usual scenario no policy is modeled appropriately all externalities treated as external sacrifices for early generations associated with optimal climate policy are minor or non existent employing our preferred selections for the parameters we find that adding an induced r d component to the model increases the welfare impact of the first best policy optimally chosen carbon tax and research subsidies by an average value of more than 400 and of the second best policy carbon tax alone by approximately 22

was china the first domino assessing links between china and other asian economies abstract several commentators have suggested that competition from china in particular its 1994 devaluation and strong export performance during 1994 95 may have contributed to the asian crisis of 1997 98 we provide evidence against this view we show that the devaluation was not important in economic terms and china s strong export performance in 1994 95 was matched by other asian economies we also show that the period 1993 and 1996 was marked by relative stability in the export shares of china and other asian economies in various geographical regions and industries the paper concludes by outlining channels through which the asian crisis could affect china

the rmb debate empirical analysis on the effects of exchange rate shocks in china and japan for a better understanding of the ongoing debates on the rmb this paper investigates the effects of exchange rate shocks on output and the current account for china and japan we use structural vector auto regression models and find that yen appreciation reduces current account surpluses while having no strong effect on output in japan rmb appreciation on the other hand has an insignificant effect on the current account although it tends to reduce output in china for china dollar pricing with vertical trade integration seems responsible for the insignificant effect on the current account

descriptive prescriptive and second best approaches to the control of global greenhouse gas emissions a prescriptive second best approach is developed for determining the control of greenhouse gas emissions in an inter temporal multi region model of the world concerns about inter and intra generational equity are reflected in the rate of time preference and regional weights of a social welfare function choices are narrowed down by the ethical principle of anonymity a third dimension of equity inequality aversion is subject to greater variation the aggressiveness of recommended abatement can be made to bracket results for a common descriptive model by the choice of inequality aversion in this manner the perception of a sharp dichotomy between descriptive and prescriptive approaches is moderated

should chinese renminbi be blamed for its trade surplus a structural var approach during the recent years the renminbi rmb exchange rate issue has been at the centre of ongoing debate over the source of global current account imbalance especially with the united states the objective of this study is to contribute to the current discussion by providing some new evidence on china s exchange rate policy and the impacts of rmb devaluation revaluation on china s trade balance using a structural vector autoregression var approach the results indicate that the dynamic effect of exchange rate on china s trade balance is still very limited and china s balance of trade is mainly determined by the world demand and its trade performance with the latter being a result of its successfully maintained comparative advantage

the overvaluation of renminbi undervaluation we evaluate whether the renminbi rmb is misaligned relying upon conventional statistical methods of inference a framework built around the relationship between relative price and relative output levels is used we find that once sampling uncertainty and serial correlation are accounted for there is little statistical evidence that the rmb is undervalued even though the point estimates usually indicate economically significant misalignment the result is robust to various choices of country samples and sample periods as well as to the inclusion of control variables

intra industry trade and the variety of home products the authors provide a rigorous general equilibrium analysis of the welfare effects of international trade in the presence of differentiated home nontraded products as well as tradable products they extend the standard monopolisitic competition framework to incorporate differentiated nontraded products and demonstrate that in general the gains from trade proposition applies also to this framework however the authors also show that trade may reduce the variety of home products and thus abstracting from all sources of gains from trade other than variety effects they show that only in a very extreme case trade may make all countries worse off

increasing returns to scale and trade related industry enlargement abstract this paper provides a general condition for gains from trade with increasing returns to scale present whether internal or external to the firm without using restrictive or unrealistic side requirements and identifies and corrects a mistake in the literature

network effects without network externalities abstract the network externalities hypothesis postulates that consumers prefer to purchase brands which are bought by more consumers compared with brands with a low market share in this paper we show that increasing returns to scale in the production of complementary products can substitute for the network externalities assumption we develop a model for the computer industry in which the production of complementary software requires a large fixed cost of development relative to the cost of duplicating and marketing the software the increasing returns to scale in the production of software yields consumers behavior which is very similar to consumers who have preferences exhibiting network externalities

the determination of the real exchange rate the productivity approach abstract this paper explains deviations of exchange rates from purchasing power parity with the differences between countries of the relative growth rates of labor productivity between traded and nontraded sectors two cases are considered germany and japan versus their respective major trading partners the results show that the time series methodology yields a more favorable confirmation of the productivity differential model than the cross section regressions in the literature

the opportunity cost of climate policy aquestion of reference the cost of climate policy depends on the no policy alternative without which the opportunity cost of climate action cannot be determined this reference path has to reflect the current failure in the market for carbon emissions due to a negative externality private investment decisions do not consider the climate damage they entail agents overinvest in conventional capital and underinvest in climate capital internalization of climate damage lowers the private return to capital agents reduce investment in favor of mitigation and consumption optimal climate mitigation increases welfare of the present and the future simulation of the inefficient no policy scenario in dice 07 confirms that this point numerically author s abstract

exchange rate expectations and the pricing of chinese cross listed stocks abstract i show that the price discounts of chinese cross listed stocks american depositary receipts adrs and h shares to their underlying a shares indicate the expected yuan us dollar exchange rate the forecasting models reveal that adr and h share discounts predict exchange rate changes more accurately than the random walk and forward exchange rates particularly at long forecast horizons using panel estimations i find that adr and h share investors form their exchange rate expectations according to standard exchange rate theories such as the harrod balassa samuelson effect the risk of competitive devaluations relative purchasing power parity uncovered interest rate parity and the risk of currency crisis

a regional dynamic general equilibrium model of alternative climate change strategies outcomes and noncooperative equilibria this study finds that cooperative policies show much higher levels of emissions reductions than do noncooperative strategies that there are substantial differences in the levels of controls in both the cooperative and the noncooperative policies among different countries and that high income countries may be the major losers from cooperation jel h41 q4 q2 q20

chinese trade price and yuan s valuation this paper studies how the major economic events would have affected chinese yuan s nominal exchange rate against us dollar from 1989 to 2013 the traditional average treatment effect estimation methods cannot be used to consistently estimate yuan s pegged exchange rate we develop a new estimation strategy by combining a novel panel data method proposed by hisao ching and wan and the purchasing power parity theory based on this new estimation strategy we find that during the period of pegging to us dollar chinese yuan were undervalued before the 1997 asian financial crisis the pegged exchange rate regime starting from january 1994 made the yuan undervalued by 2 62 china s accession to wto caused yuan undervalued by 36 60 after the reform of chinese exchange rate policy in july 2005 the undervaluation of the yuan was reduced to only 0 76 yuan was undervalued again by 20 43 because of 2008 china s economy stimulus package the policy reform in june 2010 made yuan overvalued by 14 40 we conclude that chinese fixed exchange rate policy indeed undervalued the yuan especially after its accession to wto the recent reforms of chinese exchange rate policy made progresses in re evaluating the yuan

capital flows real exchange rate misalignment and ppp tests in emerging market countries the economic performance of emerging markets has significant impacts on economic growth and volatility of macroeconomic indicators in various countries emerging markets accounted for 20 43 of global exports during the period 1970 2005 and held 70 of global foreign reserves in recent years more than 50 of the exports from the euro area japan and the united states go to emerging markets and other developing countries the globalization of capital flows is facilitated by technological innovations and excellent information networks coupled with sharp increases in savings that are directed into financial instruments across borders the use of purchasing power parity ppp as a benchmark in exchange rate policy reforms assumes the existence of a stable relationship between the exchange rate and the ratio of price levels in two countries this article investigates whether or not long run ppp holds in emerging markets johansen s cointegration technique is used with annual data in analysing the relationsh