investigating first stage exchange rate pass through sectoral and macro evidence from euro area countries in this paper we evaluate the first stage pass through namely the responsiveness of import prices to the exchange rate changes for a sample of euro area ea countries our study aimed to shed further light on the role of microeconomic factors versus macroeconomic factors in influencing the extent of the exchange rate pass through erpt as a first step we conduct a sectoral analysis using disaggregated import prices data we find a much higher degree of pass through for more homogeneous goods and commodities such as oil and raw materials than for highly differentiated manufactured products such as machinery and transport equipment our results confirm that cross country differences in pass through rates may be due to divergences in the product composition of imports the higher share of imports from sectors with lower degrees of pass through the lower erpt for an economy will be in a next step we investigate for the impact of some macroeconomics factors or common events experienced by ea members on the extent of pass through using the system generalised method of moments within a dynamic panel data model our estimates indicate that decline of import price sensitivity to the exchange rate is not significant since the introduction of the single currency our findings suggest instead that the weakness of the euro during the first 3 years of the monetary union significantly raised the extent of the erpt this outcome could explain why the sensitivity of import prices has not fallen since 1999 we also point out a significant role played by the inflation in the eurozone as the responsiveness of import prices to exchange rate fluctuations tends to decline in a low and more stable inflation environment overall our findings support the view that the extent of pass through is comprised of both macro and microeconomic aspects that policymakers should take into account

can we explain inflation persistence in a way that is consistent with the microevidence on nominal rigidity this paper adopts the impulse response methodology to under stand inflation persistence it has often been argued that existing models of pricing fail to explain the persistence that we observe we adopt a common general framework which allows for an explicit modelling of the distribution of contract lengths and for different types of price setting we also evaluate how far the theories are consistent with recent evidence on price and wage rigidity we find that allowing for a distribution of durations can take us a long way to solving the puzzle of inflation persistence but not all the way yet

oil price shocks and the macroeconomy this paper examines the impact of oil price shocks and attempts to explain why the rise in oil prices up to 2008 had little impact on the world economy it makes three main arguments first that oil prices have never been as important as is popularly thought second that the most important route through which oil prices affect output is monetary policy when oil prices pass through to core inflation monetary authorities raise interest rates slowing growth based on the second argument the third argument is that high oil prices have not reduced growth in recent years because they no longer pass through to core inflation so the monetary tightening previously seen in response to high oil prices is absent it also argues that oil prices had little impact on the global recession of 20089

exchange rate pass through in developing and emerging markets a survey of conceptual methodological and policy issues and selected empirical findings abstractglobal integration has increased the international linkages of financial markets for emerging market countries a key channel for the international transmission of inflation and economic cycles is from exchange rate movements to domestic prices known as exchange rate pass through erpt this article reviews the conceptual methodological and policy issues connected with erpt in emerging market and developing countries and critically surveys selected empirical studies a key contribution is to categorise and compare the heterogeneous methodologies used to extract erpt measures in the empirical literature single equation models and systems methods are contrasted frequent misspecifications that produce unreliable erpt estimates are highlighted the discerning policy maker needs to ascertain by which methods erpt measures were calculated the controls and restrictions applied and the time frame and stability of the estimates

commodity price pass through and inflation regimes abstract does an increase in the energy and commodity prices drive consumer prices the energy and commodity markets affect the inflation process through international trade this poses policy implications for monetary policy to forecast inflation and also smooth the impact of international relative price movements we investigate the pass through of a broad range of agricultural and energy commodity prices to inflation across different inflation regimes our distinctive regime varying methodology captures asymmetric response of inflation to the world commodity prices we establish the first evidence of the pass through of commodity prices to inflation across different periods of low and high inflation regimes and also stable and unstable inflation regimes the results show that the duration of staying in an unstable inflation regime is smaller in the commodity markets both short run and long run pass through of agricultural food and energy commodities are higher compared to other commodities the energy commodity particularly drives the inflation process for advanced economies emerging economies and also the european union countries overall the dynamics of inflation and commodity prices change in the inflation environment pointing to implications for conducting optimal monetary policy

exchange rate pass through to consumer prices in south africa evidence from micro data abstracta sizeable literature examines exchange rate pass through to disaggregated import prices but few micro studies focus on consumer prices this article explores exchange rate pass through to consumer prices in south africa for 2002 2007 using a unique data set of highly disaggregated data at the product and outlet level the empirical approach allows pass through to be calculated over various horizons for different goods and services the heterogeneity of pass through for food sub components is considerable switches between import and export parity pricing of maize are found significant for five out of ten food sub components using actual weights from the cpi basket overall pass through to the almost 63 per cent of the cpi covered is about 30 per cent after two years and higher for food

a three gap model of foreign transfers and the gdp growth rate in developing countries abstract a simplified macroeconomic framework is developed for the fiscal gap which is considered to be an important stumbling block for adjustment with growth in highly indebted developing countries distinctive characteristics of a fiscally constrained economy are compared with those of economies constrained either by the availability of savings or foreign exchange tentative implications for external conditionality accompanying debt relief measures are derived

a model of military spending and economic growth this paper investigates a model of militaryconflict between two regimes in which eachmay initiate combat in order to confiscateresources from the other conflict or thepotential for same results in wastefulmilitary spending which lowers growth foreach regime equilibrium military spendingis determined in a one shot game analysisof the one shot game is followed by a studyof the prospects for an equilibrium inwhich regimes lower military spending anddo not engage in combat in repeated play in this latter case military spending willbe decreased to a level just sufficient todeter deviations from the no combatequilibrium this minimum level increases and growth decreases with the internalpolitical instability of each regime moreover an exogenous increase in thedefensive capability of each regime mayeither increase or decrease growth depending upon the initial level ofmilitary spending and growth

motivations for aid to developing countries abstract this paper attempts to identify the underlying principles of aid allocation and particularly the balance of motivations as between the needs of recipient countries and the interests of donor countries two alternative models are fitted by cross country regressions to bilateral and multilateral aid flows to some 80 developing countries in 1969 1970 and 1978 1980 the first recipient need model assumes that all aid is given to compensate for shortfalls in domestic resources this model provides a reasonable explanation for the distribution of multilateral aid but it is clearly not applicable for bilateral aid flows the second donor interest model assumes that all aid serves only donor interests defined to cover political security investment and trade interests this model gives generally good explanations of bilateral aid but is a poor fit for multilateral aid the relative importance of the various donor interests differs sharply among donors the paper ends with an analysis of the shift in the balance of aid over the 1970s towards the recipient need element and with a reference to the sharp change in policy in the 1980s towards increasing emphasis on donor interest aid

exchange rate pass through exchange rate volatility and exchange rate disconnect abstract this paper explores the hypothesis that high volatility of real and nominal exchange rates may be due to the fact that local currency pricing eliminates the pass through from changes in exchange rates to consumer prices exchange rates may be highly volatile because in a sense they have little effect on macroeconomic variables the paper shows the ingredients necessary to construct such an explanation for exchange rate volatility in addition to the presence of local currency pricing we need a incomplete international financial markets b a structure of international pricing and product distribution such that wealth effects of exchange rate changes are minimized and c stochastic deviations from uncovered interest rate parity together it is shown that these elements can produce exchange rate volatility that is much higher than shocks to economic fundamentals and disconnected from the rest of the economy in the sense that the volatility of all other macroeconomic aggregates are of the same order as that of fundamentals

exchange rate pass through in south africa panel evidence from individual goods and services abstract this study estimates pass through for south africa using samples of final goods and services and homogenous imports estimated pass through to consumer goods prices is low roughly 16 per cent in the two years following an exchange rate change surprisingly it is somewhat higher for services deviations from long run ppp appear to disappear relatively quickly with a half life of about 16 months for imports pass through estimates are much higher averaging around 60 per cent but with wide source country variation finally there is virtually no support for a simple linear trend change in either pass through or in reversion to ppp during the sample

stabilising properties of discretionary monetary policies in a small open economy this article sets out a simple new keynesian open economy model and shows that the conduct of discretionary monetary policy in an open economy differs substantially from the closedeconomy framework the article shows analytically that the existence of the direct exchange rate channel in the open economy phillips curve impairs the perfect stabilising property of monetary policy in the face of demand side disturbances under domestic inflation targeting if cpi inflation is instead the target then the perfect stabilising property of monetary policy breaks down even in the absence of the direct exchange rate channel in the phillips curve

nominal price rigidity money supply endogeneity and business cycles abstract this paper investigates the ability of nominal price rigidity to explain the co movement of inflation with the cyclical component of output observed in the post war u s data a dynamic general equilibrium model is constructed with the introduction of monopolistic competition and nominal price rigidity in a standard real business cycle model allowing for an endogenous money supply rule it is then demonstrated that sticky price models can explain the observed associations between movements in inflation and output much better than flexible price models this result depends little on whether money supply is assumed to be endogenous or not

anticipated development assistance temporary relief aid and consumption behaviour of low income countries much debate about the effectiveness of foreign aid to developing countries focuses on the assumption that aid flows mainly enhance current consumption rather than being channelled into investment this paper seeks to establish what proportion of foreign assistance is used to finance current consumption the principal hypothesis to be tested is that aid transfers include very heterogeneous components with different marginal propensity to raise consumption estimating the average marginal propensity to consume of all the components of aid as is commonly done may lead to erroneous results the flow of foreign aid from high to low income countries can be classified into two types the first includes income transfers of a relief nature such as emergency and distress relief including drought related food transfers medical and refugee relief and balance of payments crisis support these transfers are generally a temporary response to unanticipated events or shocks to the economy they can be perceived as an attempt by the donor community to help finance what is denoted in the permanent income theory as transitory consumption friedman i957 in addition they can be viewed as an attempt to maintain a subsistence level of consumption by absorbing the shocks to income entirely by changes in savings the low level of savings however and the constraints on foreign borrowing lead to dependency on foreign transfers and prevent domestic savings from being the residual that is almost all of

arming as a strategic investment in a cooperative equilibrium to develop a positive economic theory of military spending this analysis focuses on a game theoretic general equilibrium model of international conflict in which consumption peaceful investment and military spending are endogenously determined the analysis illustrates that when there is repeated interaction between nations a game of threats and punishments generally will not support a disarmament outcome and that fluctuations in military spending can be an endogenous result of fluctuations in aggregate economic activity furthermore the analysis shows how the relation between aggregate economic activity and military spending qualitatively depends on whether governments are acting opportunistically or cooperatively copyright 1990 by american economic association

the structuralist theory of imported inflation an application to south africa this study emphasizes the importance of identifying the origin of inflation in the present context of inflation targeting by many emerging market and transition economies the analysis shows based on south african data how structural supply and demand inflation can be distinguished the results indicate that south africa s inflation experience between 1973q1 and 1998q4 is characterized by two monetary regimes during the first regime 1973q1 1984q4 the long run cause of inflation is demand pull the second regime 1987q1 1998q4 represents major changes to structural imported and cost push inflation the two year period 1985 1986 signifies structural change from the first to the second regime moreover the results in the second regime remain robust when the inflation model is subjected to new out of sample data until 2001q2 evidence of structural imported inflation in the second regime suggests that inflation should not entirely be squeezed out of the system nor should it necessarily be k

high exchange rate volatility and low pass through abstract two specifications of an open economy model are shown to generate high exchange rate volatility and low exchange rate pass through erpt in the model price discrimination causes erpt to be incomplete in both the short and the long run in the short run a small amount of nominal rigidities is enough to reduce erpt sharply still exchange rate depreciation worsens the terms of trade consistent with the evidence possible biases from omitted variables and measurement error in the erpt empirical literature due to data limitations are investigated using model generated time series estimates of erpt coefficients can be quite different from true parameters and are sensitive to the shocks driving the economies estimates can nonetheless detect key structural features of the models

low inflation pass through and the pricing power of firms abstract recently there has been a significant decline in the degree to which firms pass through changes in costs to prices a decline that is frequently characterized as a reduction in the pricing power of firms the decline appears to be associated with the decline in inflation in many countries the decline has important implications for monetary policy because it affects both forecasts of inflation and the effects of changes in monetary policy on inflation some have argued that the decline in pricing power helped to keep inflation low in the face of apparently strong demand pressures in the united states in the late 1990s this paper puts forth the view that the decline in pass through or pricing power is due to the low inflation environment that has recently been achieved in many countries first a microeconomic model of price setting is used to show that lower pass through is caused by lower perceived persistence of cost changes evidence is then presented showing that inflation is positively correlated with persistence of inflation suggesting that the low inflation itself has caused the low pass through an economy wide model consistent with the micromodel is then presented to illustrate how such changes in pricing power affect output and inflation dynamics in favorable ways but can disappear quickly if monetary policy and expectations change

the new keynesian phillips curve from sticky inflation to sticky prices the new keynesian phillips curve nkpc model of inflation dynamics based on forward looking expectations is of great theoretical significance in monetary policy analysis empirical studies however often find that backward looking inflation inertia dominates the dynamics of the short run aggregate supply curve this inconsistency is examined by investigating multiple structural changes in the nkpc for the u s between 1960 and 2005 employing both inflation expectations survey data and a rational expectations approximation we find that forward looking behavior plays a smaller role during the high and volatile inflation regime to 1981 than in the subsequent period of moderate inflation providing empirical support for sticky price models over the last two decades a break in the intercept of the nkpc is also identified around 2001 and this may be associated with u s monetary policy in that period

crime confiscation and frowth for and against leviathan this paper presents a dynamic general equilibrium model ofrent seeking in which the payoffs and the choices between productiveand non productive activity are endogenous the economy has the potential for endogenous growth but when agents can choose between confiscation and productive investment growth is no longer possible

exchange rate and utilization of free trade agreements focus on rules of origin abstract tariff rates under a free trade agreement fta are not necessarily used in the majority of trade even among members of an fta one of the causes of this phenomenon is the presence of rules of origin roos which require exporters to comply with specific conditions when utilizing an fta scheme to consider how roos should be designed so that exporters can more robustly use an fta scheme this paper investigates the effect of exchange rates on fta scheme utilization with a focus on roos exchange rates affect exporters compliance with roos by changing the so called value added ratio which is defined as 1 price of imported inputs from non fta member countries export product price based on a model of pricing to market we propose that an unexpected depreciation of exporters currency against importers currency improves the value added ratio through a rise in the export product s price which in turn enhances exporters utilization of an fta scheme we also show strong empirical support for the proposition using the detailed product level data on fta scheme utilization in korea s imports from association of south east asian nations asean countries

oil price pass through into inflation abstract this paper uses data from 19 industrialized countries to investigate oil price pass through into inflation across countries and over time a time varying pass through coefficient is estimated and the determinants of the recent declining effects of oil shocks on inflation are investigated the appreciation of the domestic currency a more active monetary policy in response to inflation and a higher degree of trade openness are found to explain the decline in oil price pass through

exchange rate pass through and inflation a nonlinear time series analysis abstract this paper investigates the relationship between the exchange rate pass through erpt and inflation by estimating a nonlinear time series model based on a simple theoretical model of erpt determination we show that the dynamics of erpt can be well approximated by a class of smooth transition autoregressive star models using the past inflation rate as a transition variable we employ several u shaped transition functions in the estimation of the time varying erpt to us domestic prices the estimation result suggests that declines in the erpt during the 1980s and 1990s are associated with lowered inflation

exchange rate pass through at the product level we use a detailed database to investigate exchange rate pass through at the product level for a large number of countries the empirical analysis suggests that pricing behaviours are dichotomous with complete pass through in around 25 of sectors and significant pricing to market in the remaining ones average long run pass through coef ficient is close to 80 this result hides a strong heterogeneity of pass through behaviours across sectors even when composition effects are controlled for average pass through varies across importing countries the econometric analysis shows that pass through tends to be higher in volatile environments in less developed countries in weakly integrated markets jel classification f12 f31 f41

gains from anchoring inflation expectations evidence from the taper tantrum shock abstract have improvements in monetary policy frameworks increased emerging market resilience to external shocks this paper exploits the may 2013 taper tantrum episode in the united states to study the reaction of 18 large emerging markets to an external shock conditioning on their degree of inflation expectations anchoring we find that while the tapering announcement negatively affected growth prospects regardless of the level of anchoring countries with weakly anchored inflation expectations experienced larger exchange rate pass through to consumer prices and higher inflation these findings suggest that gains in inflation expectations anchoring can improve central bank s policy trade offs when facing external shocks

monetary transmission mechanism in central and eastern europe surveying the surveyable this paper surveys recent advances in empirical studies of the monetary transmission mechanism mtm with special attention to central and eastern europe cee our results indicate that the strength of the exchange rate pass through substantially declined over time mainly due to a fall in inflation rates and to some extent due to the so called composition effect the asset price channel is weak and is likely to remain weak because of shallow stock and private bond markets and because of low stock and bond holdings of domestic household house prices may become an exception with higher levels mortgage lending and with high owner occupancy ratios while the credit channel could be a powerful channel of monetary transmission as new funds raised on capital markets are close to zero in cee it is actually not as both commercial banks and non financial corporations can escape domestic monetary conditions by borrowing from their foreign mother companies the moderately good news is however that those banks and firms are influenced by monetary policy in the euro area because their parent institutions are themselves subjected to the credit channel in the euro area

declining exchange rate pass through to u s import prices the potential role of global factors this paper documents a robust and sustained decline in exchange rate pass through to u s import prices from well above 0 5 during the 1970s and 1980s to around 0 2 over the last decade we attribute this decline to the rising prominence of competition from china a shift in import pricing behavior since the asian financial crisis and the reduced share of material intensive goods in u s imports we also find evidence that foreign exporters are increasingly setting their prices with an eye on u s prices these results in turn suggest a new and more general hypothesis linking the decline in pass through to the evolving nature of competition in global markets and structural changes in international production patterns

inflation targeting and exchange rate pass through this paper analyzes how endogenous imperfect exchange rate pass through affects inflation targeting optimal monetary policies in a new keynesian small open economy the paper shows that an inverse relation exists between the pass through and the insulation of the economy from foreign and monetary policy shocks and that imperfect pass through tends to decrease the variability of the terms of trade furthermore with cpi inflation targeting in the short run delayed pass through constrains monetary policy more than incomplete pass through and interest rate smoothing amplifies this effect when the pass through decreases the variability in economic activity tends to rise and the trade off between the stabilization of cpi inflation and output worsens in direct relation to how strictly the central bank is targeting cpi inflation in contrast with domestic inflation targeting optimal monetary policy is not constrained and opposite results occur consequently imperfect pass through favors the choice of domestic to cpi inflation targeting

are oil shocks inflationary asymmetric and nonlinear specifications versus changes in regime this paper identifies a structural break in core u s inflation phillips curves such that oil prices contributed substantially before 1981 but since that time pass through has been negligible this characterization is robust to a variety of re specifications and fits the data better than asymmetric and nonlinear oil price alternatives evidence does not support the hypotheses that declining energy intensity or deregulation of energy producing and consuming industries played an important role monetary policy did not itself become less accommodative of oil shocks but may have helped create a regime where inflation is less sensitive to price shocks more generally

guns butter and anarchy a state in the international system implicit in realism must allocate its limited resources between satisfying its intrinsically valued ends and the means of military power i formalize this guns versus butter problem in a simple infinite horizon model in which two states must continually decide how to allocate their resources and whether to attack the other state the analysis establishes sufficient conditions to ensure the existence of an equilibrium in which neither state attacks shows that there is a strictly pareto dominant pair of peaceful equilibrium payoffs characterizes the unique peaceful markov perfect equilibrium that yields them and describes the comparative statics of the equilibrium allocations more broadly the analysis also suggests that the notion of anarchy has little if any substantive significance distinctively related to international politics and that the problem of absolute and relative gains is superfluous

macro economic aspects of the effectiveness of foreign aid on the two gap model home goods disequilibrium and real exchange rate misalignment we construct an open economy disequilibrium model to assess the welfare effects of aid in different macroeconomic regimes aid is shown to have different effects in different unemployment regimes because it increases the social costs of wage price rigidities in the classical regime but decreases them in the keynesian unemployment regime a link is made with the two gap model but we highlight the role of real exchange rate misalignment failure to clear the nt goods market

exploring international differences in inflation dynamics abstract standard closed economy dsge models have difficulty replicating the persistence of inflation we use a multicountry dataset to establish some empirical regularities on persistence and volatility of aggregate consumer prices for 135 countries since 1993 we find both persistence and volatility to be low high in developed developing countries relative to the full sample average this pattern is also observed in low high inflation countries we then employ a two country dsge framework to investigate the extent to which structural open economy features such as incomplete exchange rate pass through the existence of nontraded goods and international financial market incompleteness can help in replicating the persistence and volatility of consumer prices our simulation results indicate that the model can replicate the degree of inflation persistence seen in the data for both developed and developing countries but cannot generate the low levels of volatility observed in developed economies

political regimes and economic growth arguments that relate regimes to growth focus on property rights pressures for immediate consumption and the autonomy of dictators while everyone seems to agree that secure property rights foster growth it is controversial whether democracies or dictatorships better secure these rights the main mechanism by which democracy is thought to hinder growth is pressure for immediate consumption which reduces investment only states that are institutionally insulated from such pressures can resist them and democratic states are not the main argument against dictatorships is that authoritarian rulers have no interest in maximizing total output these views are summarized in turn

survey measures of expected inflation and the inflation process the accuracy of inflation forecasts obtained from household and professional surveys has deteriorated noticeably of late to the extent that a simple autoregressive specification outperforms survey forecasts the decline in absolute and relative accuracy has taken place at about the same time as an apparent change in the inflation process projections of household forecasts on realized inflation suggests that households have not recognized this change for the professionals projections of expected inflation on headline inflation have changed but on core inflation have not by contrast projections of realized headline inflation on core have changed sharply

domestic politics and international conflict this paper explores the interactions between domestic politics and international conflict the analysis shows that electoral uncertainty associated with competition between political parties each representing a specific group of the electorate imparts a negative bias on the nation s military spending given military spending by other nations in turn electoral uncertainty lowers other nations incentive to arm as well in this context democratic institutions can be thought of as a possible precommitment mechanism that reduces the severity of conflict between nations and thereby increases the amount of resources available globally for consumption copyright 1994 by american economic association

globalization macroeconomic performance and monetary policy the paper argues that many of the exaggerated claims that globalization has been an important factor in lowering inflation in recent years just do not hold up globalization does however have the potential to be stabilizing for individual economies and has been a key factor in promoting economic growth the paper then examines four questions about the impact of globalization on the monetary transmission mechanism and arrives at the following answers i has globalization led to a decline in the sensitivity of inflation to domestic output gaps and thus to domestic monetary policy no ii are foreign output gaps playing a more prominent role in the domestic inflation process so that domestic monetary policy has more difficulty stabilizing inflation no iii can domestic monetary policy still control domestic interest rates and so stabilize both inflation and output yes iv are there other ways besides possible influences on inflation and interest rates in which globalization may have affected the transmission mechanism of monetary policy yes

another pass through bites the dust oil prices and inflation el presente articulo presenta evidencia de que el traspaso de los movimientos del precio del petroleo al nivel general de precios ha disminuido en forma importante en las ultimas decadas se encuentra que tal disminucion es generalizada para un amplio conjunto de paises luego de documentar correlaciones entre el indice de precios al consumidor y el precio del petroleo se utilizan dos estrategias de estimacion en un intento por identificar adecuadamente el efecto inflacionario de los shocks del petroleo primero se estima la curva de phillips tradicional para 34 paises aumentada de modo de incluir el petroleo y testear si existe quiebre estructural esta metodologia muestra una caida en el traspaso medio estimado para los paises industrializados y en menor medida para las economias emergentes segundo se estiman vectores autorregresivos en ventanas moviles para una submuestra de paises para los que existen datos suficientes se derivan funciones de impulso respuesta de la inflacion a los shocks petroleros y se interpretan las integrales como estimaciones del traspaso se encuentra que el efecto de los shocks petroleros sobre la inflacion se ha reducido en la mayoria de los doce paises de la muestra entre los factores que podrian explicar esta caida en nuestra opinion los mas importantes son que la intensidad economica del petroleo se ha reducido en el mundo que tambien ha disminuido el traspaso del tipo de cambio que el ambiente inflacionario es mas favorable y que el actual shock del precio del petroleo es el resultado de una solida demanda mundial estos factores ayudan a entender no solo por que el actual shock ha tenido efectos inflacionarios limitados sino asimismo por que sus consecuencias en el producto tambien han sido limitadas

aid the public sector and the market in less developed countries a reply the article in this journal by mosley et al i987 concludes its analysis of aid effectiveness as demonstrating inability of development aid over more than twenty years to provide a net increment to overall growth in the third world p 636 this note purports to show that this conclusion which is ostensibly distressing as the authors claim is not warranted the section of the study which is the basis of the conclusion cited and the subject of this note is a cross section regression analysis full details of which are shown in mosley et al table 3 the note is concerned with the relation between the dependent variable specified as the growth rate of real gdp per cent per annum hereafter gdp and aid specified as a percentage of gdp hereafter aid the aid results with only two significant positive coefficients in one subsample certainly give no basis for claiming aid effectiveness in terms of gdp growth the intention in this note is to interpret the results which are assumed to be valid this is made possible by the fact that the authors have helpfully provided the full input set of mean values derived from the raw data from this it is possible to calculate the gdp aid relationship for each country for the second and third period the procedure for deriving these relationships is as follows for each country the mean values of the time series of gdp and aid are extracted from the data for i 960 70 and for i 970 80 using i 960 70 as the base the signs of the change in the levels of the gdp and aid mean values between periods are recorded this is repeated for i980 4 with i970 80 mean values as the base the relationship between the two signs is an indication of the effect of aid on gdp in the period in which the change in levels is effected thus in the case of an increase in aid being combined with a decrease in gdp the latter must have fallen relatively to the former and aid effectiveness is negative mutatis mutandis for the other three sign combinations thus generating the appropriate gdp aid relationship for each country in each period a frequency distribution of the four sign combinations relating to the full sample is presented in table i since the signs of the changes in the levels of gdp and aid are derived by making explicit the arithmetic relationship implicit in the data they form a valid base from which to draw conclusions without requiring any test of

exchange rate pass through to import prices and monetary policy in south africa abstractunderstanding how import prices adjust to exchange rates helps anticipate inflation effects and monetary policy responses this article examines exchange rate pass through to the monthly import price index in south africa during 1980 2009 short horizon pass through estimates are calculated using both single equation equilibrium correction models and systems johansen models controlling for both domestic and foreign costs average pass through is incomplete at about 50 per cent within a year and 30 per cent in six months and in the long run from the johansen analysis including feedback effects is about 55 per cent there is evidence of slower pass through under inflation targeting pass through is found to decline with recent exchange rate volatility and there is evidence for asymmetry with greater pass through occurring for small appreciations

the pass through of beer taxes to prices evidence from state and federal tax changes i introduction alcohol excise taxes are a common form of taxation used by the federal government and state governments alike serving the dual purpose of raising revenue and protecting the public health through reduced consumption 1 from a policy perspective it is crucial to understand how alcohol taxes are passed through to prices if higher taxes are to be levied standard economic theory predicts that taxes are at most fully passed through in a competitive market where firms are price takers however the market for beer in the united states can be best categorized as an oligopoly and beer stands out as the most prevalent type of alcohol consumed in the country 2 theories in imperfect competition suggest various possibilities of tax shifting including over and under shifting to prices in oligopolistic markets as fullerton and metcalf 2002 discuss an over shifting of tax can occur because of both the existence of market power and the strategic behavior of firms under shifting is also possible when the burden of higher taxes is shifted to labor in the form of lower wages or to other factors of production ultimately the amount of the tax pass through is an empirical question and therefore the main goal of this study is to provide new estimates of the magnitude of the beer tax pass through to prices in the united states when legislators consider changing beer taxes precise and recent estimates of the pass through rate are required to understand how the tax change will affect retail prices to our knowledge there are only a few existing studies that empirically estimate the pass through rate of alcohol taxes to prices in the united states using quarterly state level data from 1982 to 1997 young and kwapisz 2002 find that taxes on beer spirits and wine are over shifted to retail prices specifically the authors estimate that a 1 increase in the tax per barrel of beer increases the retail beer price by a range of 1 67 1 88 kenkel 2005 uses the 2002 tax hike in alaska to perform before after analyses and concludes that alcohol taxes are more than fully passed through to prices kenkel finds that the average pass through rate for off premise consumption is 2 14 2 03 and 1 57 for budweiser bud light and heineken respectively although a novel study in various ways the lack of a control group and the study s focus just on alaska raises questions regarding the external validity of the results stehr 2007 uses price data from the third quarter editions of the american chamber of commerce research association accra from 1990 to 2004 and finds that the magnitude of the pass through of beer taxes to prices is 0 94 this point estimate suggests that beer taxes are almost fully passed through to prices and a confidence interval around the estimate includes values greater than one however stehr s study only includes state and year fixed effects in the model as additional control variables and excludes other potential determinants of both alcohol prices and taxes also it is unclear as to why the study only uses the third quarter editions of accra when tax changes may occur any time during the year reflecting on the existing studies in the united states it must be emphasized that the most recent data used ends in 2004 since then the beer industry has experienced two major mergers of leading producers sabmiller and coors in 2007 followed by anheuser busch and inbev in 2008 given this restructuring within the industry new estimates of the tax pass through rate are warranted in terms of studies outside the united states bergman and hansen 2010 analyze the tax pass through rate in denmark using the liquor tax cut in 2003 the beer tax increase in 1997 and the beer tax cut in 2005 the authors find evidence of over shifting during the incidence of tax hikes and under shifting during the events of tax cuts carbonnier 2013 studies differences between the ad valorem taxes and per unit excise taxes in france and finds that the per unit excise taxes are over shifted whereas ad valorem taxes are under shifted to prices

pass through of exchange rates and competition between floaters and fixers this paper studies how a rise in the share of u s imports from china or any country with a fixed exchange rate could disproportionately lower pass through of exchange rates to u s import prices we develop a theoretical model showing how changes in the competitive environment induce exporters from other countries to lower markups in response to a dollar depreciation thereby moderating pass through the model indicates that a particular local bias condition is necessary for this effect and that free entry amplifies it the model also produces an approximately log linear structural equation for pass through regressions including the china share panel regressions over 1993 2006 indicate that the rising share of trade from china or from all countries with fixed exchange rates can explain a decline in pass through by about onefifth of its size

asymmetries outliers and structural stability in the us gasoline market abstract by using a recently developed nonlinear cointegration methodology and a sample that encompasses more than thirty years of monthly data we investigate whether the transmission of crude oil price variations to gasoline prices in the us market is asymmetric i e depends on the sign of the change in the explanatory variable considering both the long and the short run the model is further extended by taking separately into account the effects of extreme and mild changes in crude oil prices this allows us to verify whether and to what extent the size and shape of any observed asymmetry in pricing is affected by the presence of outliers moreover given the substantial length of the sample considered we test for the possible presence of multiple structural breaks of unknown timing in the cointegrating vector our results indicate that the relationship between the prices of gasoline and crude oil has undergone a single structural break in the late 2008 and that after the break extreme observations have a non negligible role in shaping asymmetry

monopolistic competition and the effects of aggregate demand how important is monopolistic competition to an understanding of the effects of aggregate demand on output we ask the question at three levels can monopolistic competition by itself explain why aggregate demand movements affect output can it together with other imperfections generate effects of aggregate demand in a way that perfect competition cannot if so can it give an accurate account of the response of the economy to aggregate demand movements the answers are no yes and yes

sticky goods prices flexible asset prices monopolistic competition and monetary policy a monetary general equilibrium asset pricing model with sticky goods prices is developed goods prices are set by monopolistically competitive firms that maximize stock market value equilibria with underutilization of resources excess capacity in some states result in contrast to previous monetary asset pricing models the degree of competition affects capacity utilization monetary policy can affect output and resource utilization in addition to real asset prices depending upon the amount of information available to the monetary authority

imperfect credibility and inflation persistence in this paper we formulate a dynamic general equilibrium model with staggered nominal contracts in which households and rms use optimal ltering to disentangle persistent and transitory shifts in the monetary policy rule the calibrated model accounts quite well for the dynamics of output and insation during the volcker disinsation and implies a sacri ce ratio very close to the estimated value our approach indicates that insation persistence and substantial costs of disinsation can be generated in an optimizing agent framework without relaxing the assumption of rational expectations or relying on arbitrary modi cations to the aggregate supply relation jel classi cation e31 e32 e52

emerging floaters pass throughs and some new commodity currencies in spite of early skepticism on the merits of floating exchange rate regimes in emerging markets 8 of the 25 largest countries in this group have now had a floating exchange rate regime for more than a decade using parsimonious var specifications covering the period of floating exchange rates this study computes the dynamics of exchange rate pass throughs to consumer price indices we find that pass throughs have typically been moderate even though emerging floaters have seen considerable nominal and real exchange rate volatilities previous studies that set out to estimate exchange rate pass throughs ignored changes in policy regimes making them vulnerable to the lucas critique we find that within the group of emerging floaters estimated pass throughs are higher for countries with greater nominal exchange rate volatilities and that trade more homogeneous goods these findings are consistent with the pass through model of floden and wilander 2006 and earlier findings by campa and goldberg 2005 respectively furthermore we find that the indonesian rupiah the thai baht and possibly the mexican peso are commodity currencies in the sense that their real exchange rates are cointegrated with international commodity prices

the magnitude of menu costs direct evidence from large u s supermarket chains we use store level data to document the exact process of changing prices and to directly measure menu costs at five multistore supermarket chains we show that changing prices in these establishments is a complex process requiring dozens of steps and a nontrivial amount of resources the menu costs average 105 887 year per store comprising 0 70 percent of revenues 35 2 percent of net margins and 0 52 price change these menu costs may be forming a barrier to price changes specifically 1 a supermarket chain facing higher menu costs due to item pricing laws that require a separate price tag on each item changes prices two and one half times less frequently than the other four chains 2 within this chain the prices of products exempt from the law are changed over three times more frequently than the products subject to the law in principle fixed costs of changing prices can be observed and measured in practice such costs take disparate forms in different firms and we have no data on their magnitude so the theory can be tested at best indirectly at worst not at all alan blinder 1991 p 90

global dynamic inefficiency in the absence of international policy coordination a north south case abstract this paper demonstrates that decentralized behavior reflected in non coordinated resource pricing and investment strategies may lead to global dynamic inefficiency it is shown that in a north south world capital accumulation in the north reduces the social cost associated with the presence of labor market imperfections of the lewis type in the south whereas resource pricing in the south affects investment decisions in the north thus international policy coordination is required for attaining global dynamic efficiency

has the inflation process changed does it change inflation has been low in many countries for at least a decade but have inflation processes changed in ways that would help make low inflation permanent using both aggregate and disaggregated inflation data we find that the means of inflation processes have become smaller over the past two decades and that allowing for these changes in the mean their persistence has not declined much changes in monetary policy frameworks and recessions appear to have contributed to a reduction in the mean of inflation but do not appear to have a meaningful impact on persistence and there is some evidence that the shifts in inflation expectations are the proximate cause of the changes in the mean of inflation these findings suggest that policy makers should focus on maintaining credibility and carefully monitoring inflation expectations for any indication that they are rising stephen g cecchetti and guy debelle

brics how important is the exchange rate pass through this paper analyses the exchange rate pass through erpt into domestic consumer prices in brics brazil russia india china and south africa countries from mid 1990s onwards by using three different econometric approaches i e the single equation approach the var approach and the time varying parameter approach it is also studied the role of macroeconomic determinants in erpt our results suggest that a erpt is higher for the emerging markets with mostly floating exchange rates brazil russia and south africa than for the other brics countries b exchange rate explains on average around the 40 of the price variance for brazil russia and south africa and c inflation volatility exchange rate volatility and openness seem to be the key macroeconomic determinants in brics countries

monetary policy regime shifts and inflation persistence abstract using bayesian methods we estimate a markov switching new keynesian msnk model that allows shifts in the monetary policy reaction coefficients and shock volatilities with u s data we find that a more aggressive monetary policy regime was in place after the volcker disinflation and before 1970 than during the great inflation of the 1970s our estimates also indicate that a low volatility regime has been in place during most of the sample period after 1984 we connect the timing of the different regimes to a measure of inflation persistence

exchange rate pass through when market share matters the authors investigate the pass through from exchange rates to import prices when firms future demands depend on their current market shares they show that profit maximizing foreign firms may either raise or lower their dollar export prices when the dollar appreciates temporarily i e the pass through may be perverse and that current import prices may be more sensitive to expected future exchange rates than to current exchange rates they present evidence that suggests the behavior of expected future exchange rates may provide a clue to the puzzling recent behavior of u s import prices copyright 1989 by american economic association

why foreign economic assistance there is general agreement in the economics literature that resource flows among countries in response to market incentives enhance global economic efficiency and welfare in both rich and poor countries it has also been argued that in the presence of capital market imperfections the transfer of resources from developed country governments to the governments of developing countries on commercial terms either directly or through multilateral agencies can normally be expected to be welfare enhancing in both developed and developing countries 1 these arguments do not apply however to official development assistance that involves a substantial grant element two arguments have typically been used in support of transfers that include a grant component one set is based on the economic and strategic self interest of the donor country the second is based on the ethical or moral responsibility of the residents of wealthy countries toward the residents of poor countries both sets of arguments have been the subject of continuous challenge i argue in this article that neither the donor self interest nor the ethical responsibility argument can be rejected on logical or theoretical grounds i also assert that the empirical evidence in support of both the economic and the strategic self interest arguments is exceedingly weak the ethical responsibility arguments impose less burden on the empirical evidence but they are subject to continuous challenge by political theorists and moral philosophers donor self interest

sociopolitical and economic dimensions of development a cross section model 1 of the most important requisites of development is to cultivate those conditions which are appropriate for the generation of a surplus the distribution of which in turn usually generates friction among the various social classes and factions that advance claims to it thus modernization being a process of change has economic social political and institutional dimensions and the changes can result in sociopolitical instability which affects the continuation of the ability of the economy to grow and of the society to develop the objective of this paper is to test for a feedback mechanism that links all the dimensions of modernization together and the introduction of variables that can reflect it in a model and to present some results of an econometric investigation that recognizes this interaction estimation for the model is based on a sample of 104 noncommunist countries for the year 1967 that includes economic and noneconomic variables the model is used to predict the values of the per capita income and gross capital formation both within and outside of the sample period its predictive ability is remarkable as the statistics represented in the tables and charts demonstrate the model is also used in a number of simulations reflecting a variety of social and political conditions and scenarios in this relation it is found for example that the social and political atmosphere has profound effects on the economic evolution of a society the sociopolitical gap defined as the difference between actual sociopolitical envirnoments characterized by various degrees of instability and the sociopolitically stable environment characterized by no sociopolitical violence retards the development process the presence and the magnitude of this gap as well as the various trade offs lead the author to a conclusion of guarded pessimism in relation to the choices and future of developing countries an appendix lists the types of political violence identified as variables

can the shadow of the future harm cooperation abstract it is generally thought that in long term relationships high valuations of the future are conducive to cooperation in an intertemporal model of conflict however we demonstrate the possibility of the opposite effect a longer shadow of the future may harm cooperation in particular we show that the degree of inefficiency is positively related to i the agents valuation of the future ii potential growth rates in resources iii the size of initial resource endowments and iv the effectiveness of conflict

inflation dynamics in a small emerging market this study investigates the determinants of inflation in the dominican republic during 1991 to 2002 a period characterized by remarkable macroeconomic stability and growth by developing a parsimonious and empirically stable error correction model using quarterly observations the study finds that inflation is explained by changes in monetary aggregates real output foreign inflation and the exchange rate long run relationships in the money and traded goods markets are found to exist but only the disequilibrium from the money market exerts a significant impact on inflation

introduction to a special section on exchange rate pass through in developing and emerging markets abstractthe interest in exchange rate pass through erpt in emerging market and developing economies has burgeoned in the last two decades small open and trade dependent economies embody special features that can make it difficult to obtain reliable estimates of erpt this special section includes a survey of recent research in developing and emerging market countries on erpt focusing on the monetary policy relevance of erpt the frequent misspecifications that produce unreliable erpt estimates are highlighted many empirical issues raised in the survey are illustrated by the macro and the micro economic empirical studies on south africa sa included in this special section and an earlier published jds paper on erpt in sa

heterogeneity in price rigidity evidence from a case study using microlevel data we combine two data sets to study price rigidity the first consists of weekly time series of retail wholesale and spot prices for twelve products these time series contain two exogenous cost shocks we find that prices exhibit more rigidity in response to the second shock than the first the second data set consists of all publicly available information about the shocks content analysis of these information reveals that the first shock is larger and more persistent and the market has more information on it than the second we conclude therefore that prices are more flexible in response to cost shocks that are larger that are more persistent and on which market participants have more information

a new look at pass through abstract this paper examines the relationship between exchange rates and prices rather than assuming exchange rate changes are exogenous shocks that affect prices i use a long run restrictions var to identify shocks and explore the way domestic prices import prices and exchange rates react to a variety of shocks consumer price pass through is nearly complete in response to some shocks but low in response to others alternatively import prices and exchange rates typically respond in the same direction and pass through seems quick this supports the idea that import prices are set in the producer s currency and that lower cpi pass through is a result of changes in quantities or margins further down the supply chain

distributive politics and economic growth a crude distinction between economics and politics would be that economics is concerned with expanding the pie while politics is about distributing it in this paper we analyze the relationship between the two we focus on how an economy s initial configuration of resources shapes the political struggle for income and wealth distribution and how that in turn affects long run growth our main conclusion is that inequality is conducive to the adoption of growth retarding policies we derive this result from a simple political economy model of growth and present cross country evidence consistent with it the key feature of our model is that individuals differ in their relative factor endowments we distinguish between two types of factors an accumulated factor called capital and a nonaccumulated factor called labor growth is driven by the expansion of the capital stock which is in turn determined by individual saving decisions long run growth is endogenous as the aggregate production function is taken to be linearly homogeneous in capital and productive government services taken together the provision of government services is financed by a tax on capital because government services are productive a small tax on

swords or plowshares a theory of the security of claims to property this paper develops a general equilibrium model of the allocation of resources among appropriative and productive activities the model emphasizes the distinction between offensive weapons which are the instruments of predation and fortifications which provide defense against predation the analysis of this model shows how the equilibrium security of claims to property is determined the analysis focuses on the possibility of a nonaggressive equilibrium in which no resources are allocated to offensive weapons and claims to property are fully secure we also analyze the complex relation between economic welfare and the security of claims to property we find for example that a relatively poor agent could be better off in an equilibrium with less secure claims to property

frequency of price adjustment and pass through we empirically document using u s import prices that on average goods with a high frequency of price adjustment have a long run pass through that is at least twice as high as that of low frequency adjusters we show theoretically that this relationship should follow because variable mark ups that reduce long run pass through also reduces the curvature of the proflt function when expressed as a function of the cost shocks making the flrm less willing to adjust its price lastly we quantitatively evaluate a dynamic menu cost model and show that the variable mark up channel can generate signiflcant variation in frequency equivalent to 37 of the observed variation in the data on the other hand the standard workhorse model with constant elasticity of demand and calvo or state dependent pricing has di culty matching the facts

donor bias towards small countries an overlooked factor in the analysis of foreign aid and economic growth the consensus of the literature is that international cross sectional data do not reveal a stable relationship between foreign aid and economic growth a conclusion which weakens the case for giving aid however previous econometric analysis has not made allowance for the fact that larger countries grow faster but receive less aid in this paper it is demonstrated that when due allowance is made for the effects of country size a positive and significant relationship between aid and growth can be shown to exist

perceived inflation persistence this article constructs and estimates a measure called perceived inflation persistence that can be used to determine if professional forecasters inflation forecasts indicate there has been a change in inflation persistence this measure is built via the implied autocorrelation function that follows from the estimates obtained using a forecaster specific state space model findings indicate that u s perceived inflation persistence has changed since the mid 1990s with more consensus among forecasters at lower levels of persistence when compared to the autocorrelation function for actual inflation forecasters typically react less to shocks to inflation than the actual inflation data would suggest

non linear exchange rate pass through in industrial economies abstractthis article presents theoretical arguments for a nonlinear pass through relationship for import and export prices and investigates the relationship empirically the theoretical argument is based on the menu cost approach in which small absolute changes in exchange rates may not prompt price changes because the costs of doing so exceed the extra profits generated for firms involved in international trade this relationship is investigated empirically using quarterly data for the period 1979q1 2015q1 for a sample of 17 countries in the case of import prices evidence is found of nonlinear adjustment consistent with the theoretical model in 4 out of 17 cases in the case of export prices such a relationship is only evident for two economies in the sample however for both the import and export price cases a significant positive nonlinear relationship is found for the two largest economies in the sample i e the united states and japan

oil prices and inflation dynamics evidence from advanced and developing economies abstract we study the impact of fluctuations in global oil prices on domestic inflation using an unbalanced panel of 72 advanced and developing economies over the period from 1970 to 2015 we find that a 10 increase in global oil inflation increases on average domestic inflation by about 0 4 percentage points on impact with the effect vanishing after two years and being similar between advanced and developing economies we also find that the effect is asymmetric with positive oil price shocks having a larger effect than negative ones the impact of oil price shocks however has declined over time due in large part to a more credible monetary policy and less reliance on energy imports we further examine the transmission channels of oil price shocks on domestic inflation during the recent decades by making use of a monthly dataset from 2000 to 2015 the results suggest that the share of transport in the cpi basket and energy subsidies are the most robust factors in explaining cross country variations in the effects of oil price shocks during the period

should inflation targeting central banks respond to exchange rate movements abstract this paper examines whether it is optimal for inflation targeting central banks to respond to exchange rate movements the paper finds that exchange rate movements can provide a signal on the developments in the economy that the central bank cannot perfectly observe the results suggest that when the degrees of exchange rate pass through and international financial integration are high it is optimal for the central bank to pay more attentions to exchange rate movements these results however depend on two conditions 1 the ability of the central bank to observe the true exchange rate process and 2 the number of real frictions in the model economy

political variables in cross country growth analysis the recent boom in cross country growth analysis has renewed the empirical interest in political sources of economic growth a large number of studies have tested political variables in growth regressions and a very heterogenous set of variables has been proposed to measure economically relevant differences in the political systems of countries this paper distinguishes five categories of relevant political variables democracy government stability political violence policy volatility and subjective perception of politics for each of these categories the specification testing method and results of the most relevant studies are presented and are critically discussed the paper concludes that measures of democracy are least successful and measures of policy volatility and subjective perception of politics most successful as explanatory variables in cross country growth regressions