real and nominal effects of monetary policy shocks we employ the identification scheme of kahn kandel and sarig 2002 to analyse the impact of canadian monetary policy on ex ante real interest rates and inflationary expectations first we decompose nominal interest rates into ex ante real rates and inflationary expectations using the methodology of blanchard and quah 1989 then we estimate a recursive var model with innovations in a monetary aggregate and the overnight target interest rate as alternative measures of monetary policy shocks we find that a negative policy shock raises both nominal and ex ante real interest rates lowers inflationary expectations and real industrial output and appreciates the canadian dollar les auteurs utilisent le scheme d identification de kahn kandel et sarif 2002 pour analyser les impacts de la politique monetaire canadienne sur les taux d interet reels ex ante et sur les anticipations d inflation d abord ils decomposent les taux d interet nominaux entre taux d interet reel ex ante et anticipation d inflation en utilisant la methodologie de blanchard et quah 1989 ensuite ils calibrent un modele var recursif avec des innovations dans l agregat monetaire et le taux directeur en tant que mesures alternatives des chocs dans la politique monetaire on decouvre qu un choc monetaire negatif tend a accroitre et le taux d interet nominal et le taux reel ex ante a reduire les anticipations d inflation et le produit industriel reel et a faire s apprecier le dollar

bank loan portfolios and the monetary transmission mechanism abstract we study the portfolio behavior of bank loans following a monetary tightening and find that real estate and consumer loans sharply decrease while commercial and industrial c i loans increase these responses are compared with responses following non monetary shocks which also reduce output but keep interest rates roughly unchanged during such a non monetary downturn c i loans sharply decrease while real estate and consumer loans show no substantial response these responses together with the responses of relevant lending rates are hard to reconcile with a decline in the supply of c i bank loans during a monetary downturn as stressed by the bank lending channel several arguments are presented explaining why the supply of c i loans may actually increase after a monetary contraction

perfect equilibria in a trade liberalization game the credibility of temporary protection is examined in a simple infinite horizon perfect information game of timing in which the domestic government uses the threat of future liberalization to induce the domestic firm to invest all pure strategy subgame perfect equilibria are cyclical and surprisingly one of them implements optimal temporary protection however this equilibrium fails to pass another credibility criterion called renegotiation proof the game has a unique stationary subgame perfect equilibrium in mixed strategies copyright 1990 by american economic association

real and money wages output and inflation in the semi industrialized world recent structuralist ideas about real and money wage changes are reviewed addressing six questions 1 in an economy closed to trade do real wage increases cause output to rise or fall 2 if output is at an upper bound what are the roles of real wage and wealth movements in macro adjustment 3 taking effective demand into account do money wage cuts stimulate employment 4 in an open economy does money wage reduction or devaluation make output rise 5 at an output bound what are the respective roles of wage reduction and monetary restraint in slowing inflation 6 if inflation is driven by cost with output below capacity how do wage dynamics affect stabilization programmes based on de indexation and price freezes institutional factors suggest that wage cutting may be a counterproductive answer to all these policy questions in semi industrialized economies

the money supply and nominal agricultural prices in the early 1970s food and agricultural prices in the united states rose substantially faster than other prices now early in the 1980s farm prices are depressed relative to other prices in the economy numerous explanations of the behavior of nominal agricultural prices in the past decade have been offered these explanations may be broadly divided into two categories the first is the structuralist explanation it argues that real shocks in selected sectors of the economy such as global crop failures raise prices of certain goods these price increases are later validated or accommodated by expansions in the money supply so that the prices of other goods need not decline in contrast monetarist inflation explanations argue that autonomous increases in the money supply lead or cause the price increases and do not just occur ex post to accommodate real shocks ultimately both explanations recognize that without monetary expansion no long run inflation can occur the fundamental difference is

credible commitment and success with public enterprise reform abstract this paper studies why some efforts at public enterprise reform fail and why others succeed economic reforms are intended to increase efficiency and thus help sustain long term growth yet many governments have had difficulty sustaining the reforms they initiated and have reintroduced rigid controls over markets and enterprises this is because either in the process of implementation the government discovers that the costs of carrying the reform further are greater than the expected efficiency gains or the public is skeptical that the new policies can be sustained and does not take the actions necessary for the gains to be realized this paper develops a new institutionalist framework and employs various measures of policy commitment and net gain from continued reform to analyze these issues the paper suggests ways in which the potential success or failure of a reform can be assessed with implications for the steps that reformers might take to increase the chances of success

modelling the potency of stabilization policy for the solomon islands 1978 1q 1992 4q a feasible modelling approach to stabilization policy analysis for the solomon islands economy is proposed and implemented a small macroeconomic model is developed to encompass the macro targets of real growth inflationand balance of payments and to relate economic performance to stabilization policies the estimation and testing results for 1978 1q to 1992 4q confirm that the model is capable of quantifying the potency of policy instruments and the effects of external shocks on macroeconomic outcomes by applying deterministic and stochastic simulation techniques to conduct policy sensitivity experiments it is found to be feasible to relate macroeconomic scenarios to given policy packages in a what if spirit among the findings of interest are that a money financed increase in government spending yields expansionary but non inflationary effects and an interest rate policy reform is a potentially plausible policy option it is concluded that this modelling approach is feasible for policy analysis f

macroeconomic policy in a two party system as a repeated game this paper considers the interaction of two parties with different objectives concerning inflation and unemployment and rational and forward looking wage setters if discretionary policies are followed an economic cycle related to the political cycle results in equilibrium this cycle is significantly different from the traditional political business cycle reputational mechanisms due to the repeated interaction of the two parties and the public or commitments to a common policy rule can improve upon the discretionary outcome by reducing or eliminating the magnitude of the economic fluctuations

on passive money there are two ways in which the quantity of money may be included in a general equilibrium system as a datum whose value is fixed exogenously or as an unknown whose value is determined by the equilibrium system itself let them be called active money and passive money respectively current monetary theory uses the first approach the ricardo walraskeynes tradition in general equilibrium models is clearly of the activemoney variety this is also true of the more contemporary versions such as patinkin s well known system 1965 apart from the main stream of thought however a number of analyses exist which imply passive money the gold standard model as it is usually expounded belongs to this class the price of gold in terms of money is given while the stock of money is endogenously determined by the set of equilibrium conditions the form in which the quantity of money adapts to its equilibrium level differs according to the institutional mechanism convergence is assured through monetization and demonetization of gold in the pure goldcurrency system and through convertibility of notes into gold and vice versa in the gold standard system with paper money in either case the money supply is allowed to conform to its equilibrium volume this kind of monetary system in which the money price of a certain product or commodity is a datum and the quantity of money a dependent magnitude may be denoted in general as a commodity standard

cash setting the call loan rate and the liquidity effect in canada in this paper we use the vector autoregression method to examine the effects of monetary policy in canada including in particular the empirical evidence of the liquidity effect we use the excess cash reserves of the chartered banks and the surprise component of excess cash reserves as measures of liquidity shocks to monetary policy are measured by the orthogonalized innovations to the liquidity variables and by the orthogonalized innovations to the call loan rate we find that the effects of these shocks conform to monetary policy shocks and the results support the presence of the liquidity effect in canada

resistance to reform status quo bias in the presence of individual specific uncertainty comment why do governments so often fail to adopt policies which economists consider to be efficiency enhancing our answer to this question relies on uncertainty regarding the distribution of gains and losses from reform we show that there is a bias towards the status quo and hence against efficiency enhancing reforms whenever some of the individual gainers and losers from reform cannot be identified beforehand there are reforms which once adopted will receive adequate political support but would have failed to carry the day ex ante the argument does not rely on risk aversion irrationality or hysteresis due to sunk costs jel d72 f13 why do governments so often fail to adopt policies that economists consider to be efficiency enhancing this is one of the fundamental questions of political economy the answer usually relies on what may be

food supply and inflation abstract the paper presents an analytic version of the latin american structuralist theory of inflation it emphasizes the difference between the productive sectors of the economy and draws attention to the fact that the inflationary process is closely linked to inconsistent claims for shares in income it describes a keynesian economy with two three sectors real desired wages are rigid money is passive it is shown that the structuralist hypotheses are capable of generating disequilibria that can lead to constantly rising prices without any built in mechanism to offset them steady inflation can only persist if workers allow their real wage to be kept below target as the workers try to catch on the model will blow up an accelerating inflation can be observed in many latin american countries during periods when wage settlements aimed at restoring inflation losses escaped the government control the paper also explores the implications of foreign trade it shows that under structuralist hypotheses external disequilibria cannot be corrected through exchange rate devaluations alone and it examines the stagflationary impacts of an increase in the price of imported intermediates

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

the transition to a market economy pitfalls of partial reform we present a theory of a partial economic reform of a planned economy similar to the one that took place in russia since 1988 and in china earlier in such a reform some markets are liberalized in the sense that producers can sell output to whomever they want including private firms at free prices but at the same time must sell to state firms at state prices we show that such a reform can result in a substantial diversion of subsidized inputs away from state firms and toward private firms even when state firms value these inputs more the result may be a reduction of total output the simple analysis sheds light on many consequences of the soviet reform such as breakdown of coordination of production increased state policing of delivery quotas prohibitions of trading cooperatives and opposition to privatization the model also explains why partial reform failed in russia but worked in china

entrepreneurial moral hazard and bank monitoring a model of the credit channel abstract this paper develops a model of the choice between bank and market finance by entrepreneurial firms that differ in the value of their net worth the monitoring associated with bank finance ameliorates a moral hazard problem between the entrepreneurs and their lenders the model is used to analyze the different strands of the credit view of the transmission of monetary policy in particular we derive the empirical implications of a broad credit channel and compare them to those obtained when the model is extended to incorporate some elements of the bank lending channel

the macroeconomic determinants of emigrant remittances abstract this paper considers the macroeconomic determinants of migrants remittances to their countries of origin in contrast to some previous analyses we find using data for egypt that both exchange rate and interest rate differentials are important in attracting remittance flows through official channels we also find that imports financed through remittance earnings have a very high income elasticity which suggests either that these imports are consumer durables and luxury goods or that they are undertaken by higher income groups

reform in hungary abstract the paper examines reform issues facing hungary concentrating on sequencing the liberalisation of domestic markets international trade and demonopolisation creating competitive conditions in product and factor markets is a precondition for the success of other reforms trade liberalisation could play a key role but is constrained by the large debt so demonopolisation is a critical first step if privatisation is to be undertaken quickly there is an argument for making transfers proportional to the implied asset value of state pensions and reducing subsequent pension payments

the structuralist explanation in the theory of inflation abstract this paper argues that three main elements form the basis of both the latin american and the european branches of the structuralist school of inflation theory these elements are 1 relative prices that change when economic structure changes 2 downward inflexibility of some money prices and 3 a passive money supply closing the deflationary gap caused by price increases the only difference between the two branches is what they consider to be the main cause of structural change the object of this paper is to show that models worked out by latin american structuralists during the 1960s and models developed recently by european structuralists have a common reduced form and describe similar inflationary processes

a note on the optimal rate of growth of international reserves the current reform of the international monetary system rests on the conception that the nominal quantity of external reserves taken in the aggregate must provide the flexible element in the adjustment between the supply of and the demand for real international liquidity carried to its logical conclusion this principle implies the adoption of a passive money system in the international sphere the nominal quantity of money ceases to be an exogenous datum to which prices and wages must conform and becomes a dependent variable having an equilibrium level 1 the new reserve assets are destined to satisfy the long run needs for reserve growth 2 yet as is well known the evaluation of such needs presents appreciable difficulties in itself this estimation problem is not new it was explicitly discussed in the report of the gold delegation appointed in 1929 to examine the trends in the gold demand and supply the method used by the delegation is worth recalling it is based upon the double assumption that 1 the monetary demand for gold is proportional to the quantity of money and 2 the demand for money is proportional to the aggregate value of transactions the second part of this hypothesis reflects obviously the quantity theory in its classical form the first part expresses instead an institutional situation in those years the countries under the gold standard used to maintain by virtue of law or of convention a margin of gold cover against the total amount of notes and of central bank sight liabilities the combination of the two ratios led the delegation to estimate the need for gold reserves as a fixed proportion of the total value of transactions

the virtues of gradualism and legitimacy in the transition to a market economy this paper presents a simplified model of sectoral restructuring in eastern europe a move towards allocative efficiency is desired by the reform minded government but the shift to higher productivity which such efficiency requires would lead to massive layoffs and labour reallocation in the transition period we look at the impact of political constraints unanimity and or majority worker approval on reform proposals when the government faces a heterogeneous workforce holding private information on relative outside opportunities when the budgetary consequences of exit compensations are so important as to make partial reforms preferable to full reforms gradualism emerges as the optimum in a dynamic context without government commitment it is also shown that under democratic majority rule a government in control of the agenda of reforms can win majority approval for plans which end up hurting majority interests intertemporally by threatening to switch majorities in future reform proposals this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

bank capital firm liquidity and project quality abstract we construct an economy where a two way interaction between bank capital and project quality propagates negative shocks to technology or regulation by shrinking the available liquidity and the scale of their activity a contraction in bank loans discourages entrepreneurs from sustaining the set up effort of high quality projects inducing them to shift to low quality ones the deterioration in project quality erodes the value of bank assets and hence banks capitalization and loanable funds lack of information in the secondary market for bank assets amplifies the propagation

house prices borrowing constraints and monetary policy in the business cycle i develop a general equilibrium model with sticky prices credit constraints nominal loans and asset prices changes in asset prices modify agents borrowing capacity through collateral value changes in nominal prices affect real repayments through debt deflation monetary policy shocks move asset and nominal prices in the same direction and are amplified and propagated over time the financial accelerator is not constant across shocks nominal debt stabilises supply shocks making the economy less volatile when the central bank controls the interest rate i discuss the role of equity debt indexation and household and firm leverage in the propagation mechanism finally i find that monetary policy should not target asset prices as a means of reducing output and inflation volatility

economic growth financial evolution and the long run behavior of velocity a general equilibrium model is presented in which buyers and sellers find it increasingly difficult to make private credit arrangements as economic activity spreads into new markets hence the demand for money increases as the structure of production and trade becomes more complex at the same time however financial innovations allow agents to economize on their cash balances together these effects of technological progress account for two empirical regularities the u shaped pattern in velocity and the ever increasing share of productive resources devoted to the private financial sector that are associated with the process of real economic growth

the effects of wage distortions on the transition abstract before the reforms the chinese government had strong distributional objectives which it pursued mainly by direct controls over state enterprise wage rates and hiring decisions during the reform period similar controls over state enterprises continued but use of them had to reflect competition with the new nonstate sector that was mostly free from these controls based on these distributional considerations alone we can explain 1 a decline in the skills of workers in the state sector as the most able workers leave 2 higher productivity in the nonstate sector which consists of the most able workers 3 accounting losses in the state sector reflecting the transfer of tax revenue to finance higher wage payments to the unskilled and 4 restructuring within the state sector to reduce the distortions to relative wage rates

reform in eastern europe how can the new governments of eastern europe succeed in moving from centrally planned to freemarket economies this incisive report identifies and describes the major policy choices to be made and discusses what will work and what will not reform in eastern europe provides a comprehensive easily read statement of reform policy that stands in the mainstream of modern western economics based on their experience with stabilization policies in other countries the authors show how eastern europe can reduce unemployment during the painful adjustment process create effective and socially acceptable mechanisms to subject enterprises to market discipline and replace barter trade under cmea with market based international trade

informational benefits of international treaties international treaties allow a minister in one country to learn about the beliefs held by a minister in another country so allowing each to make better decisions when the net benefits of environmental policy are uncertain a country which participates in negotiating an environmental treaty or which supports strong environmental action thereby provides information to another country that such action can be worthwhile this dimension of international environmental agreements helps explain why countries negotiate treaties why these treaties often implement the nash non cooperative equilibrium why agreement to a treaty by a country deemed not particularly favorable to it can strengthen environmental action and why treaties may invoke a minimum participation clause the informational mechanism we discuss holds even if physical spillovers are absent and even if monitoring and enforcement are infeasible our approach can explain additional phenomena how requirements for approval by several bodies within a country can increase support for a policy and why simultaneous action can lead to better outcomes than sequential action

alternate approaches to the political economy of endogenous trade liberalization abstract trade liberalization is puzzling from the perspective of standard political economy models why would a government find it optimal to remove protection that it previously found optimal to impose this paper reviews two types of approaches to answering this question approaches that view liberalization driven by strenghtened anti protection forces and approaches that view liberalization driven by an erosion of pro protection forces

the political economy of trade liberalization in the transition abstract baldwin and baldwin 1996 review explanations for trade liberalization in developed market economies in particular exchange of market access appears important hillman and moser 1996 for economies in transition technological inferiority and contemporaneous privatization distinctly form part of the scenario for trade liberalization and are basic ingredients in a model describing liberalization policies we begin here with background observations and proceed to a model which ties together politically constrained trade liberalization opportunities and privatization of technologically disadvantaged enterprises the model draws on a more extensive presentation in hillman et al 1996

empirical evidence on the strength of the monetary transmission mechanism in canada an aggregate approach abstract this paper examines the transmission of monetary policy in canada it emphasizes the transmission through interest rates and the exchange rate rather than through changes in monetary aggregates and provides empirical evidence on the strength of these channels using a highly aggregated structural model implications of these structural equations for the dynamic effects of monetary policy are explored through a simulation analysis

policy designs in a dynamic model of infant industry protection abstract this paper takes the neoclassical infant industry model allows agents to respond to future expectations and reveals previously unexplained relationships between protection and outcome policy which projects to protect the industry until international competitiveness may not necessarily succeed consistent to the mixed empirical evaluations to guarantee success protection has to last longer however for success to be an equilibrium protection can last shorter decline after take off is also an equilibrium when adjustment speed is bounded increasing the protection rate is not isomorphic to decreasing its duration in policy design adjustment speed critical industry scale and policy duration are all relevant

insulating countries against fluctuations in domestic production and exports an analysis of compensatory financing schemes abstract for several years the imf has operated a compensatory financing facility cff whose aim is to smooth out the effects of a shortfall in export receipts in a particular country in 1981 the facility was extended to cover imports of foodstuffs with the objective of reducing food insecurity the purpose of this paper is to provide a theoretical analysis of the cff interpreted as an international scheme whose object is to stabilise some domestic policy target such as consumption by providing loans based on the value or volume of a country s exports or imports the paper shows that under certain assumptions the imf s cff for exports provides net gains to individual countries the extension of the scheme to include food imports could provide further gains but only if it is appropriately redesigned

is there a cost channel of monetary policy transmission an investigation into the pricing behavior of 2 000 firms the paper exploits a unique panel covering some 2 000 italian manufacturing firms and 14 years of data on individual prices and individual interest rates paid on several types of debt to address the question of the existence of a channel of transmission of monetary policy operating through the effect of interest expenses on the marginal cost of production it has been argued that this mechanism may explain the dimension of the real effects of monetary policy give a rationale for the positive short run response of prices to interest rate increases the price puzzle and call for a more gradual monetary policy response to shocks we find robust evidence in favor of the presence of a cost channel of monetary policy transmission proportional to the amount of working capital held by each firm the channel is large enough to have non trivial monetary policy implications

credit market imperfections and the heterogeneous response of firms to monetary shocks this paper assesses the bank lending channel interpretation of evidence on the heterogeneous response of firms to monetary shocks to do so the author develops a quantitative general equilibrium model of the bank lending channel with imperfect credit markets the calibrated model s steady state supports a common identification strategy adopted in the literature small firms are credit constrained and large firms are not for some parameter values the model reproduces the cyclical observations viewed as supporting the lending view of the monetary transmission mechanism and for others it does not the parameter values consistent with the lending view appear to be implausible

bank loan portfolios and the canadian monetary transmission mechanism following a monetary tightening bank loans to consumers decrease this is true for both mortgage and non mortgage loans and it is true for a tightening by the bank of canada that is and is not a response to a tightening by the federal reserve system in contrast business loans increase following a monetary tightening the per verse response of business loans cannot be explained by an increase in the demand for funds due to a reduction in real activity these results are consistent with a change in bank portfolio behaviour in favour of business loans in response to a monetary tightening portefeuilles de prets bancaires et le mecanisme de transmission monetaire canadien a la suite d une restriction monetaire les prets bancaires aux consommateurs chutent c est vrai tant pour les prets hypothecaires que non hypothecaires et c est vrai pour une restric

the political economy of restructuring and privatization in eastern europe this paper reports some of the recent research in the political economy of transition in central and eastern europe with special emphasis on restructuring and privatization this line of research is concerned with the political feasibility of reform packages and the effect of political constraints on the design of reforms political constraints appear to play a major role in economic transition 2 in poland transition started with a homogeneous solidarity led government enjoying great legitimacy l balcerowicz the finance minister who had launched reform in january 1990 had however to leave office and part of his policies are now being reversed parliament is fragmented government duration is becoming increasingly short workers are striking against privatization plans czechoslovakia is breaking up partly because the slovak population is not ready to follow the rhythm of reforms initiated by v klaus in prague the support for e gai dar s transition program in russia has dwindled among the population conservative forces are gathering momentum alarming neonazi manifestations in east germany are an indicator of the low tolerance of the population for the changes imposed on them some countries are doing better hungary is doing comparatively well with a more stable political situation and relative successes in reforms allowing it to attract foreign direct investment china is experiencing a rapid expansion of the non state sector and smooth advances in the reform process in a context of sustained economic growth qian and xu 1992 these two countries

budgetary and financial policy potency amid structural bottlenecks evidence from uganda abstract most policy analysts implicitly relax the assumption that structural bottlenecks distinctively exist in developing economies in this paper some bottlenecks are identified and modeled to augment a small model of uganda the baseline and augmented model variants are estimated and tested on aggregate data 1963 1985 and their results are compared the magnitudes and signs of the short run estimates and long run multipliers from the two variants show that bottlenecks constrain the potency of stabilization policy in general the hypothesized effects of structural elements are validated for the aggregate supply and foreign balance schedules of the economy while orthodox budgetary and financial policies are major players on the aggregate demand side it is proposed that policy makers in uganda should pay more attention to supply side issues especially with respect to the food and export sectors

application of stochastic simulation and policy sensitivity techniques to a macroeconomic model of uganda stochastic simulation techniques are applied to study a small macroeconomic model of uganda previously studied using deterministic simulations it was found that stochastic simulations sometimes reverse single shot policy rankings arrived at using deterministic procedures in general policy effects are rather sensitive to the exact parameters and error term of the model and hence to the true structure of the ugandan economy policy sensitivity experiments yield results which suggest that the financial policy stance is crucial to the potency of budgetary policy more importantly the results help distinguish between the problem and favourable instruments in a number of policy packages applicable to uganda

currency of denomination and the measurement of export instability the widespread and unexpected absence of statistically significant relationships in analyses of the causes and consequences of export instability has generated attempts to refine measurement of variable sets recently it has been suggested that country rankings are sensitive to the choice of currency numeraire this article investigates the significance of the choice of numeraire for a sample of 66 developing countries the results suggest that the conventional approach of denominating export earnings in terms of us dollars is not seriously deficient and that the selection of an appropriate form of trend correction remains an important consideration

bank loan components and the time varying effects of monetary policy shocks the impulse response function irf of an aggregate variable is time varying if the irfs of its components are different from each other and the relative magnitudes of the components are not constant two conditions likely to be true in practice we model the behaviour of loan components and document that the induced time variation for total loans is substantial which helps to explain why studies describing total loans have had such a hard time finding a robust response of total bank loans to a monetary tightening

the informational role of commodity prices in formulating monetary policy a reexamination abstract this paper reexamines the issue of whether commodity prices provide useful information for formulating monetary policy through the application of a recent development in time series methodology developed by toda and yamamoto j econometrics 66 1995 225 250 we found that commodity prices signal the future direction of the economy

economic reform and dynamic political constraints in this paper we examine the impact of political constraints on economic reform plans with special reference to the transition from centrally planned to market economies we analyse the problem of an agenda setting reform minded government facing a bureaucracy or industrial sector for which allocative efficiency requires redundancies and an increase in work intensity the government also tries to minimize the rents conceded to its heterogeneous workforce we examine two types of political constraints unanimity rule and majority rule both in a one period and a two period horizon the main results are the following first of all we show how adverse selection and time consistency may generate the widely observed feature of gradualism as an ingredient of an optimal reform second under a majority rule it is shown to be possible for the government to obtain a majority vote for a reform scheme that intertemporally hurts majority interests indeed the government can improve rent extraction through the strategic use of the threat of future proposals the group which expects to be in the minority tomorrow may accept concessions while its votes can be used to extract rents from another group these results suggest that in a dynamic context democratic constraints should not be overestimated as an obstacle against efficiency enhancing economic reforms the results of this paper may throw some light on the political economy of current reforms in eastern europe governments and political decision makers in general always face political constraints when elaborating reform proposals they know that the need to overcome potential opposition from various groups of the population constrains proposals for change political constraints vary depending on the specific institutional structure of society and are clearly different under a military dictatorship than under a parliamentary democracy the role of political constraints seems particularly important in eastern europe today where new democratic governments face the huge task of achieving the transition to a market economy while the introduction of democracy may have removed some important obstacles to economic change namely the veto power of a powerful nomenclatura under communist one party rule fears are expressed that it could potentially jeopardize economic reforms which may during the transition period hurt a majority of the population what can economic theory tell us about optimal economic reform under political constraints this paper starts addressing this ambitious question by looking at structural reform focusing on a restructuring of economic sectors which requires massive redundancies and a significant rise in labour productivity our model illustrates the case of planning

relative prices and money a vector autoregression on brazilian data recent data on brazilian agricultural prices industrial prices and money supply are analyzed in a vector autoregression the empirical findings show strong one way granger type causality from money supply to agricultural prices while feedback is observed between industrial prices and money supply under the usual monetarist ordering of contemporaneous innovation covariance agricultural prices do not adjust faster than industrial prices to a shock in the money supply

determinants of taiwan s trade liberalization the case of a newly industrialized country abstract this paper attempts to account for the success of policy reform in taiwan s trade liberalization through an investigation of the periods 1986 92 and 1992 95 the objective is to undertake an empirical examination of haggard et al s the political feasibility of adjustment in developing countries development centre of the oecd oecd paris 1995 strategies for minimizing the political costs involved in implementing policy reforms empirical evidence supports the haggard et al arguments that is indirect compensation is used to facilitate the implementation of trade liberalization for downstream industries while the speed of trade liberalization within certain specific industries is comparatively slow furthermore in a democratic regime the pressure brought to bear by well organized domestic interest groups along with the pressure from international interest groups can strongly influence the pattern of trade liberalization policies

monetary shocks in the g 6 countries is there a puzzle les auteurs cherchent a clarifier la dynamique du mecanisme de transmission de la politique monetaire l identification des chocs de politique monetaire est au coeur de ce genre d analyse divers chercheurs ont reussi recemment a isoler de tels chocs en imposant des restrictions de suridentification a des modeles vectoriels autoregressifs var

time inconsistency of protectionist programs protectionist trade policies have long been advocated as second best instruments to achieve certain national objectives in situations where there is a market imperfection in essence protection provides time and resources for firms to undertake cost reducing investments recently there has been an emergence of new arguments to justify the implementation of a national industrial policy to encourage investment and to ensure the competitiveness of targeted industries also at the theoretical level a new argument known as strategic trade policy has emerged according to this argument protectionism gives domestic firms strategic advantage against foreign firms to capture a greater share of export markets where rents are not competed away actually the performance of protectionist programs has been grim industries have not adapted and protection has had to be renewed again and again arguments justifying protection have avoided this issue by implicitly assuming that authorities can credibly precommit to eliminate protection this is a very strong assumption in fact government actions are not exogenous but they are rather the result of an optimization process or they are best responses to political pressures as stressed in the public choice literature 2 therefore if authorities capitulate to protectionist pressures in the present they are unlikely to resist them in the future in the event that the targeted firm would not have adapted the inability of authorities to precommit to the unconditional elimination of protection generates a trade off for the firm if during the program the firm does not invest sufficiently in cost

the benefits of lending relationships evidence from small business data this paper empirically examines how ties between a firm and its creditors affect the availability and cost of funds to the firm we analyze data collected in a survey of small firms by the small business administration the primary benefit of building close ties with an institutional creditor is that the availability of financing increases we find smaller effects on the price of credit attempts to widen the circle of relationships by borrowing from multiple lenders increases the price and reduces the availability of credit in sum relationships are valuable and appear to operate more through quantities rather than prices

international r d rivalry and industrial strategy this paper presents a theory of government intervention which provides an explanation for industrial strategy policies such as r d or export subsidies in imperfectly competitive international markets domestic net welfare is improved by the capture of a greater share of the output of rent earning industries although the subsidy ridden noncooperative international equilibrium is jointly suboptimal behaviour of governments and firms is modelled as a three stage subgame perfect nash equilibrium the assumption that the government is the first player in this game allows it to influence equilibrium outcomes by altering the set of credible actions open to firms

tariffs subsidies and welfare with endogenous policy abstract it is a well established proposition of trade theory that in the absence of directly trade related distortions or policy goals subsidies are superior to tariffs for achieving any economic or non economic objective this paper shows that once the endogeneity of the distortion or non economic objective is allowed for the welfare ranking of various policies can be reversed the particular model analyzed is one where the level of non economic objectives that have to be fulfilled itself depends on the policy tools considered to fulfill them with this arises from the public good nature of tariffs compared to subsidies