to float or to fix evidence on the impact of exchange rate regimes on growth we study the relationship between exchange rate regimes and economic growth for a sample of 183 countries over the post bretton woods period using a new de facto classification of regimes based on the actual behavior of the relevant macroeconomic variables in contrast with previous studies we find that for developing countries less flexible exchange rate regimes are associated with slower growth as well as with greater output volatility for industrial countries regimes do not appear to have any significant impact on growth the results are robust to endogeneity corrections and a number of alternative specifications borrowed from the growth literature

sudden stops financial frictions and labor market flows evidence from latin america abstract while the aggregate effects of sudden stops and international financial crises are well known the disaggregated channels through which they work are not well explored yet in this paper using job flows from a sectoral panel dataset for four latin american countries we find that sudden stops are characterized as periods of lower job creation and increased job destruction moreover these effects are heterogeneous across sectors we find that when a sudden stop occurs sectors with higher dependence on external financing experience lower job creation in turn sectors with higher liquidity needs experience significantly larger job destruction this evidence is consistent with the idea that dependence on external financing affects mainly the creation margin and that exposure to liquidity conditions affects mainly the destruction margin overall our results provide evidence of financial frictions being an important transmission channel of sudden stops and in the restructuring process in general

a new taxonomy of sudden stops which sudden stops should countries be most concerned about abstract this paper proposes a new taxonomy of sudden stops comprised of seven categories with definitions depending on the behavior of gross and net capital flows the incidence of different types of sudden stops is detailed over time and we relate the type of sudden stop to economic performance sudden stops in net flows associated with reductions in gross inflows are associated with larger falls in output than those where sudden starts in gross outflows dominate the paper further discusses the mechanisms that might result in sudden stops in gross flows that are not sudden stops in net flows such that purchases and sales in financial assets or liabilities do not require a sharp current account adjustment still it is found that sudden stops in gross inflows that do not provoke a sharp contraction in net flows may also be disruptive particularly sudden stops that are driven by other flows which include banking flows the results suggest new avenues for research and future policy analysis

sudden stops are global and local investors alike the main goal of this paper is to characterize the determinants of sudden stops caused by domestic vis a vis foreign residents are the decisions of domestic investors to invest abroad or of foreign investors to cut off funds from the domestic economy governed by the same set of determinants given the distribution of different types of sudden stop episodes over time and its different macroeconomic consequences the authors argue that the determinants may not be alike using an effective sample of 82 countries with annual information over the period 1970 2007 the analysis finds that global investors are less likely to stop bringing their capital when their economy is growing and the world interest rate is lower domestic agents are more willing to invest abroad if the macroeconomic performance of the domestic economy is poor high inflation the financial system is weak and there are high external savings current account surpluses increasing financial openness makes the domestic country more vulnerable to sudden stops caused by either local or global investors finally countries with higher shares of foreign direct investment are less prone to inflow driven sudden stops whereas the opposite holds for outflow driven sudden stops

racial segregation in the public schools and adult labor market outcomes the case of black americans residential segregation has played a central role in theories of minority entrepreneurship and in the diversification of the u s labor market racial diversity in public accommodations including schools has been an issue of continuous public policy debate at least since the u s supreme court s plessy versus ferguson decision 1896 this study applies theory from the literature on social capital to an examination of the role of racial segregation in the public schools of blacks during childhood on their adult likelihood to become self employed and their level of occupational status the model results indicate that after controlling for a number of individual household and metropolitan area factors lower rates of segregation during public schooling results in higher likelihood of wage salary employment and self employment among a cohort of black americans that attended public schools during the 1960s

central city crime and suburban economic growth this paper explores the relationship between inner city crime patterns and suburban income growth analysing data on 318 us counties for selected metropolitan statistical areas of 32 states within the united states from 1982 to 1997 the findings suggest that violent crime does seem to have a negative impact on close in suburbs with a less negative impact farther away from the central city becoming positive at some point while results are not as robust as we had hoped they are consistent with flight to further out suburbs rather than migration to different metropolitan areas in response to urban crime

productivity in the united states trends and cycles productivity growth in the us has taken a sharp downturn in recent years two experts provide a new body of comparative data on productivity since 1948 by major sector and industry the book analyzes 20 industries to highlight trends and fluctuations in productivity and to provide a better context for the discussion of policy options the authors set forth the causes of productivity advances based on growth accounting for the business economy as a whole they detail interindustry regressions with particular reference to the productivity slowdown since 1966 they look at both the traditional measure of productivity labor output per hour and the more recently developed measure of total factor productivity which takes into account capital as well as labor inputs the quarterly and annual data are used to relate changes to other basic variables such as factor prices unit costs and product prices an appendix presents data for 35 industries 42 references 8 figures 30 tables

sudden stops of capital flows do foreign assets behave differently from foreign liabilities abstract we study the determinants of sudden stops in capital flows to emerging markets using gross international asset and liability flows from the point of view of domestic residents we identify three types of situations countries that do not experience any type of sudden stops those who experience a sudden stop in inflows liabilities but no sudden stop in their net financial account of the balance of payments and countries who suffer a sudden stop in inflows and in their net financial account based on these three events we estimate a multinomial logit model and obtain two important results we find that developed countries have about the same probability of experiencing sudden stops in gross capital inflows as emerging economies moreover the probability of experiencing a sudden stop in gross inflows that winds up becoming a sudden stop in the financial account is affected by the behavior of a country s international assets countries whose agents possess assets abroad tend to repatriate them during periods of sudden stops in inflows while the economies of countries whose agents do not possess foreign assets are much more sensitive to the behavior of foreign investors a sudden stop in inflows can have very adverse effects on output and employment

declining productivity revisited secular trends or cyclical losses dickens 1982 argued that the productivity slowdown since the mid 1960s is cyclical and not a long term trend this letter tests the robustness of dickens conclusion specifically with respect to labor productivity

on the consequences of sudden stops our analysis shows a number of interesting empirical regularities first when we apply a simple definition of sudden stops we find that they have been a fairly common occurrence at least since the late 1970s second economic performance after a sudden stop can differ dramatically across countries depending on certain country characteristics we show that open economies and those that choose a floating exchange rate regime after a crisis recover fairly quickly from the output contraction that usually comes with the sudden stop whereas countries with liability dollarization recover more slowly these characteristics relate to how the economies adjust exports and imports during the aftermath of a sudden stop open economies that do not show much liability dollarization tend to show higher export growth and less import contraction than highly dollarized economies the paper is organized as follows the next section discusses our definition of sudden stops we then examine the stylized facts associated with sudden stops including their regional coverage and evolution over time a subsequent section proceeds to identify the key factors that explain the nature of the aftermath of a sudden stop in capital flows if sudden stops remain a recurrent feature of emerging market economies in years to come the issue of how to ensure a quick return of growth in the aftermath of a crisis will require attention policy recommendations focused on improving such ex post performance should go hand in hand with traditional prevention measures designed to avoid the crises we elaborate on these conclusions in the final section

overreaction in capital flows to emerging markets booms and sudden stops this paper applies the overreaction hypothesis of de bont and thaler de bont w thaler r 1985 does stock market overreact journal of finance 40 3 793 805 developed for stock price behavior to capital flows to emerging markets we find that a surge in capital flows or what we call a capital boom can predict future sharp contractions in capital flows or sudden stops we use a large list of possible economic fundamentals as control variables and the results show that the best predictor of a sudden stop is a preceding capital boom moreover the probability of a country undergoing a sudden stop increases considerably with the length of the boom this probability more than doubles when the boom is three years old and rises by three to four times when the boom lasts for four years these results are interesting for two reasons in the first place they contradict previous studies that emphasize worsening fundamentals as the ultimate cause of a sudden stop second they are of policy interest because of the enormous negative impacts that sudden stops have on the real economy

the productivity crisis secular or cyclical abstract contrary to current theory it is shown that some productivity lost in business cycle downturns is not regained in the upturn these losses account for most if not all of the recent productivity slowdown

does openness to trade make countries more vulnerable to sudden stops or less using gravity to establish causality openness to trade is one factor that has been identified as determining whether a country is prone to sudden stops in capital inflows several authors have offered empirical evidence that having a large tradable sector reduces the contraction necessary to adjust to a given cut off in funding such studies may however be subject to the problem that trade is endogenous we use the gravity instrument for trade openness which is constructed from geographical determinants of bilateral trade we find that openness indeed makes countries less vulnerable to crises and that the relationship is even stronger when correcting for the endogeneity of trade

rational contagion and the globalization of securities markets this paper argues that globalization may promote contagion by weakening incentives for gathering costly information and by strengthening incentives for imitating arbitrary market portfolios in the presence of short selling constraints the gain of gathering information at a fixed cost may diminish as markets grow moreover if a portfolio manager s marginal cost for yielding below market returns exceeds the marginal gain for above market returns there is a range of optimal portfolios in which all investors imitate arbitrary market portfolios and this range widens as the market grows numerical simulations suggest that these frictions can have significant implications for capital flows in emerging markets

ride the wild surf an investigation of the drivers of surges in capital inflows over the past 15 years gross inflows to industrial and developing countries have enjoyed a wild ride after reaching record highs in the run up to the global financial crisis they collapsed dramatically in 2008 09 as signs of global recovery reappeared capital inflows resumed although at different speeds the recovery in flows was faster and sharper in developing countries this paper aims at understanding the domestic and external drivers of these surges in gross inflows using quarterly data for 67 countries from 1975 to 2010 it finds that domestic and external factors have significant explanatory power in driving surges of inflows this finding holds for the sample of industrial countries whereas domestic factors play a significantly larger role in explaining surges to developing countries zooming into the findings shows that a financial booms tend to attract massive capital inflows b surges to either industrial or developing countries are driven by regional contagion and c strong growth and natural resource abundance are keys to attract inflows of foreign capital into developing countries

community differences in business births and business growths abstract the published literature relating to the location of a business tends to support two different kinds of theories 1 that business locations are selected to minimize costs or 2 that decision makers select locations because of personal preferences this study attempts to find explanations as to why certain communities have grown faster than others and to provide a model for the location decision of a start up business we find a negative correlation of two entrepreneurship measures to environmental factors that are usually considered to be desirable i e health care and the environment climate and terrain recreation and low crime we find a weak correlation between community attitudes and the entrepreneurship measures we also find a positive correlation of entrepreneurship with a high number of college graduates a negative correlation when a high proportion of the population is over age 65 population mobility and low unemployment are also positively correlated with the measures but those factors seem at least as likely to be results as to be causes of business births and business growth we believe that start ups are vital for any community that wishes to grow therefore the location decision of start up businesses seems important we propose a model of the location decision of a start up a model that emphasizes the individuality of the decision maker and the specific success requirements of the business the driving force behind a start up can be a decision maker s desire for personal gain a problem that begs a solution or a solution that is looking for a problem in some cases the reason for starting a business will dictate its location in other cases success requirements of the business will dominate we believe that researchers can gain a true understanding of the location decision only by considering both the preference of the decision maker and the requirements of the specific business

sharp reductions in current account deficits an empirical analysis abstract we study determinants and consequences of sharp reductions in current account imbalances reversals in low and middle income countries we pose two questions what triggers reversals and what factors explain how costly reversals are we find that both domestic variables such as the current account balance openness and the level of reserves and external variables such as terms of trade shocks us real interest rates and growth in industrial countries seem to play an important role in explaining reversals in current account imbalances we also find some evidence that countries with a less appreciated real exchange rate higher investment and more openness prior to the reversal tend to grow faster after a reversal occurs

exchange market mayhem the antecedents and aftermath of speculative attacks exchange market mayhem the antecedents and aftermath of speculative attacks this paper evaluates the causes and consequences of episodes of turbulence in foreign exchange markets using data from 1959 through 1993 for twenty oecd countries we consider the antecedents and aftermath of devaluations and revaluations flotations fixings and speculative attacks which may not be successful we find that realignments of fixed exchange rates are alike devaluations are preceded by political instability budget and current account deficits and fast growth of money and prices revaluations are mirror images of devaluations speculative attacks resemble devaluations but money growth and inflation are more endemic and there is no last minute attempt to tighten monetary policy in contrast few consistent correlations link regime transitions like flotations or fixings to macroeconomic or political variables transitions between exchange rate regimes are largely idiosyncratic and are neither consistently provoked ex ante by systematic imbalances nor typically justified ex post by subsequent changes in policy we conclude that there are no clear early warning signals of many speculative attacks and no easy solutions for policy makers barry eichengreen andrew k rose and charles wyplosz

the dampening effect of bank foreign liabilities on monetary policy revisiting monetary cooperation in east asia abstract this paper addresses the cost of formal monetary cooperation from the perspective of monetary policy effectiveness as banks tend to borrow from abroad in foreign currencies to fund domestic lending monetary policy may have a reduced effect on the credit market and the economy results derived from bank level data in east asia indicate that bank foreign liabilities significantly reduce the effectiveness of the credit channel of monetary policy implying a relatively low cost of giving up monetary autonomy

output volatility and openness to trade a reassessment many economists believe that while openness to trade increases average gdp growth rates it also raises output volatility by exposing countries to terms oftrade shocks this view does not take into account that commercial trade might also reduce financially related volatility once this is taken into account the relationship between exposure to trade and output volatility is still an open question this paper presents new empirical evidence that suggests that the net effect of trade openness on output volatility is stabilizing the results confirm that exposure to trade raises output volatility through the terms of trade channel as previously documented in the literature but also show that this is counteracted by a quantitatively larger stabilizing effect additional evidence is presented showing that the latter effect comes at least in part through the financial channel the methodology employed seeks to correct for the likely endogeneity of trade in this setting using gravity estimates as instrumental variables