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

estimating the impact of currency unions on trade solving the glick and rose puzzle does leaving a currency union reduce international trade this paper uses a historical approach to re examine the puzzling large apparent impact of currency unions on trade i find that the early time series estimates were driven by the gradual decaying of colonial trade ties and other major geopolitical factors including warfare communist takeovers and ethnic cleansing episodes my methodology which carries lessons for other uses of gravity equations in policy analysis yields point estimates of currency unions on trade that are not statistically distinct from zero

economics in the former soviet union o ne of the most notable but least discussed aspects of the halting attempts during the past six years to reform the economies of the soviet union and now those of its successor states has been the prominent role played by professional economists not since the mid 1920s has the soviet political leadership felt so strongly the need to draw upon the expertise of the economics profession to help determine its course of action the resurgence in the importance of economics has been reflected at the highest political levels of the ussr in the powerful posts held over the past few years by academic economists such as leonid abalkin stanislav shatalin yegor gaidar and many others 2 at lower levels as well economists have been leading voices in the public debate publishing articles in the popular press and helping to shape public opinion this political clout marks a major change in status of economists in the ussr for some 60 years until the initiation of economic reforms under irecent events have rendered much familiar terminology regarding the former ussr anachronistic in addition to historical references we will for convenience continue to use the terms soviet and soviet union to refer to the present day russian federation and any other republics of the former union 2abalkin a member of the soviet now russian academy of sciences and director of the academy s institute of economics was a deputy prime minister under gorbachev shatalin another academician was a member of gorbachev s presidential council and an author of the famous shatalin plan for economic reform gaidar former director of the institute of economic policy was appointed deputy prime minister of the russian federation under boris yeltsin in the fall of 1991

will business cycles in the euro area converge a critical survey of empirical research this survey of business cycle synchronization in the european monetary union focuses on two issues have business cycles become more similar and which factors drive business cycle synchronization we conclude that business cycles in the euro area have gone through periods of both convergence and divergence still there is quite some evidence that during the 1990s business cycle synchronization in the euro area has increased higher trade intensity is found to lead to more synchronization but the point estimates vary widely the evidence for other factors affecting business cycle synchronization is very mixed

international taxation and the direction and volume of cross border m as we show that the parent subsidiary structure of multinational firms created by cross border mergers and acquisitions is affected by the prospect of international double taxation specifically the likelihood of parent firm location in a country following a cross border takeover is reduced by high international double taxation of foreign source income at the same time countries with high international double taxation attract smaller numbers of parent firms a unilateral elimination of worldwide taxation by the united states is simulated to increase the proportion of parent firms locating in the united states following cross border mergers and acquisitions from 53 to 58

is the cfa franc zone an optimum currency area summary in this paper we explore the features of the cfa franc zone and compare them to those of the economic and monetary union emu by operationalizing the criteria for an optimum currency area a structural vector autoregression method is used in modeling national outputs as determined by global regional and country specific shocks we find that domestic outputs of the cfa franc zone countries are strongly influenced by country specific shocks while regional shocks are far more important in european countries that have joined the emu the results suggest that the cfa franc zone countries are structurally different from each other and thus are more likely to be subjected to asymmetric shocks they do not appear to form an optimum currency area and the monetary union may have been a costly arrangement for the member countries unless they are compensated with some other benefits

correlation of business cycles in the euro zone in this short article we use a simple diferences in diferences technique to investigate whether bilateral correlation of business cycles increased more amongst members of the european monetary union emu after the implementation of the euro than amidst other oecd economies we present evidence suggesting this to be the case importantly this higher correlations appear to be the result of the common monetary policy per se and not of higher bilateral trade

bilateral trade and the eurozone evidence from new member countries the question of whether and how much currency unions increase bilateral trade among their members has garnered much attention since rose s seminal article the answer is as pertinent now as ever for both the eurozone s existing and future members as the financial crisis shook the very foundations of the european monetary union emu and brought its shortcomings into the spotlight this paper analyses the issue using the gravity equation with country pair and time fixed effects for a sample of the four new members of the emu slovakia slovenia malta and cyprus which has to the author s knowledge not been studied thus far due to their recent joining and controls drawn from the european union this paper finds a positive relationship between joining the emu and trade with emu partners but not with non emu partners

monetary union price level convergence and inflation how close is europe to the usa abstract the pattern of price dispersion across european and us cities from 1990 to 2004 is documented there is a striking decline in dispersion for traded goods prices in europe most of which took place prior to the launch of the euro dispersion in the euro area is now quite close to that of the usa this evidence provides useful facts for future work assessing the importance of various developments in europe harmonization of tax rates convergence of incomes and labor costs liberalization of trade and factor markets and increased coherence of monetary policy

international portfolio reallocation diversification benefits and european monetary union abstract we investigate the determinants of bilateral international equity and bond portfolio reallocation across a large cross section of countries spanning over two sample periods 1997 2001 and 1997 2005 we find that the strongest drivers are the marginal diversification benefits arising from the pure asset component and the initial degree of underweight this evidence suggests that global portfolio reallocations over the asset boom and bust period were determined by optimal diversification considerations we also find that due to economic and monetary union emu the weight assigned by euro area investors to investment in euro area countries increased significantly in equity and fixed income portfolios with a trade diverting effect against the british bond market

real sources of european currency policy sectoral interests and european monetary integration in the thirty years before economic and monetary union was achieved european currency policies varied widely among countries and over time in this article i argue that the sectoral impact of regional exchange rate arrangements in particular their expected real effects on european trade and investment exerted a powerful influence on the course of european monetary integration the principal benefit of fixing european exchange rates was facilitation of cross border trade and investment within the european union eu the principal cost of fixed rates was the loss of national governments ability to use currency policy to improve their producers competitive position empirical results indeed indicate that a stronger and more stable currency was associated with greater importance of manufactured exports to the eu s hard currency core while depreciations were associated with an increase in the net import competition faced by the country s producers this suggests a powerful impact of real factors related to trade and investment and of private interests concerned about these factors in determining national currency policies

estimating the effects of free trade agreements on international trade flows using matching econometrics abstract this paper provides the first cross section estimates of long run treatment effects of free trade agreements on members bilateral international trade flows using nonparametric matching econometrics our nonparametric cross section estimates of ex post long run treatment effects are much more stable across years and have more economically plausible values than corresponding ols cross section estimates from typical gravity equations we provide plausible estimates of the long run effects of membership in the original european economic community eec and the central american common market cacm between 1960 and 2000 and the estimates confirm anecdotal reports of these agreements effectiveness

the impact of monetary union on macroeconomic integration evidence from west africa data from 19 african nations is used to investigate the hypothesis that monetary union represented in this case by the cfa franc zone augments the extent of macroeconomic integration the paper covers two key dimensions of integration the volume of bilateral trade and the magnitude of cross country business cycle correlation restricting our attention to a part of the world in which for historical reasons monetary union membership is exogenous to economic characteristics we can test whether the large single currency effects claimed by a rose apply within a sample of less developed countries

friedman redux external adjustment and exchange rate flexibility milton friedman argued that flexible exchange rates facilitate external adjustment recent studies find surprisingly little robust evidence that they do we argue that this is because they use composite multilateral exchange rate regime classifications which often mask heterogeneous bilateral relationships between countries constructing a novel bilateral exchange rate regimes data set for 181 countries over 1980 2011 we find a statistically strong relationship between exchange rate flexibility and the speed of external adjustment our results are supported by several natural experiments of exogenous changes in bilateral exchange rate regimes and by monte carlo simulations which show that tests based on standard multilateral regime classifications tend to have low statistical power

the influence of fundamentals on exchange rates findings from analyses of news effects as we survey the literature of macroeconomic news in the foreign exchange market we can by now look back on nearly 30 years of research the first studies which analysed news effects on exchange rates were established in the early 1990s see for example dornbusch almost at the same time meese and rogoff published their influential paper revealing the forecasting inferiority in exchange rates of structural models against the random walk this finding has shocked the pillars of exchange rate economics and thus cast general suspicion on research focusing on fundamentals in this field the eventual rising popularity of event studies can partly be attributed to the re establishment of the raison d etre of exchange rate economics this work focuses on systematically surveying this literature with particular respect to its primary goal i e shedding light on the analytical value of fundamental research thus its major findings are first fundamental news does matter whereas non fundamental news matters to a lesser degree second news influences exchange rates via two separated channels i e incorporating common information into prices directly or indirectly based upon order flow third with a few exceptions the impact of fundamental news on exchange rates is fairly stable over time

managing the dollar has the plaza agreement mattered this paper considers whether the plaza agreement of september 1985 marked the beginning of a fundamental shift in the exchange rate policy regime for the united states the former west germany and japan the paper uses a simple monetary model of the open economy to illustrate how the exchange rate responses to news about the trade balance when the government authorities gear policy toward resolving external imbalances the paper finds that u s dollars exchange rates against the japanese yen and the west german mark respond strongly to news about the u s trade deficit during the period following the plaza agreement but not during the period preceding the agreement this evidence evaluated in the context of the simple model suggests that the plaza agreement marked a significant shift toward more active government management of exchange rates copyright 1991 by ohio state university press

income distribution and price controls targeting a social safety net during economic transition abstract during the ongoing post communist economic transitions the relative well being of many people is changing rapidly and governments are not well positioned to accurately measure individual living standards under such circumstances continued price controls over basic consumer goods within the state sector and the associated queuing can form a serviceable device for targeting poor people for subsidies with a fixed price state sector and free price parallel markets rich people might choose to avoid queues and shop in the free markets while poor people would prefer to pay low nominal prices and queue in the state sector the targeting of subsidies through queues therefore can be accomplished even if the government has no information concerning individual income or living standards when the alternative to price controls is a poorly targeted explicit social safety net the resource cost of queues might be more than offset by an improvement in the targeting of subsidies

honey the currency union effect on trade hasn t blown up as the value of real bilateral trade between countries i and j at time t cu is a dummy variable which is unity if i and j sharethe same currency at time t z is a vector of controls given by an augmentedgravity model c are the associate nuisance coefficients and is a hopefully well behaved residual my chief finding was that was large and robust mypoint estimate was 1 2 implying that currency union is associated with atripling since exp 1 2 3 of trade in his paper in this issue volker nitsch provides three pieces of value added first he finds and corrects a number of data errors in my original data set second he shows that adding extra controls to my empirical setup disaggregating bycurrency unions and adjusting for missing data affects the results he concludesthat the effect of currency union on trade is smaller than my original estimates has not been reliably estimated and may be zero

the euro and its impact on the number size performance and regional spread of european mergers and acquisitions mccarthy k j and dolfsma w the euro and its impact on the number size performance and regional spread of european mergers and acquisitions regional studies the macroeconomic effects of the euro have been extensively studied the literature has however paid significantly less attention to the microeconomic consequences and few authors have considered if and how the euro has impacted firm level decision making this paper explores if how and in what way the euro has impacted one firm level decision whether to merge with or acquire another firm this paper builds a sample of 19 362 acquisitions announced in the period 1990 2014 it shows that the euro has dramatically increased the number size and performance of european mergers and acquisitions importantly it also notes that the euro has altered the geographic spread of european acquisitions the paper reports that since the introduction of the euro acquirers have made increasingly distant acquisitions and have preferred targets in periphera

financial integration gdp correlation and the endogeneity of optimum currency areas the paper analyses the relationship between trade financial integration and business cycle synchronization in the euro area the introduction of the euro has had a noticeable impact on european financial markets evidence that capital market integration exerts a positive effect on output correlation has two major implications first it corroborates the hypothesis of the endogeneity of optimum currency areas whereby after joining a monetary union countries better meet standard oca criteria second it provides european policy makers with yet another reason to pursue financial integration in the euro area and in prospective members as well

spatial spillovers in the development of institutions abstract we examine spatial spillovers in institutional development dependent variables are institutional measures reflecting politics law and governmental administration the explanatory variable of interest is the level of institutions in bordering countries a spatial lag of the dependent variable our spatial model directly leads to the identification strategy for the endogenous spatial lag we implement new results in spatial econometrics to counter missing data problems usually rife in spatial empirics spatial institutional spillovers are statistically significant and economically important a counter factual exercise the non existence of the ussr reveals large direct and indirect spillovers numerous robustness exercises bolster conclusions including yearly cross section regressions fixed effects estimates and adding many extra explanatory variables moreover we provide a new theoretical result showing the robustness of estimates in the presence of omitted variables we extend the core model allowing different effects for better and worse neighbors using inverse distance weights estimating the spatial durbin model and using polity s institutional measure

games of monetary and fiscal interactions in the emu abstract this paper constructs various models of the emu and ecb when member countries have different objectives voting in pursuit of national interest can yield moderate and stable inflation the metaphor of walsh type contracts implements a monetary policy rule that averages the member countries most preferred rules in a repeated relationship where a country suffering a large adverse shock can use political bargaining to subvert the ecb s commitment the optimal rule should incorporate some flexibility to forestall that finally freedom of national fiscal policies undermines the ecb s monetary commitment this may justify fiscal constraints like the stability and growth pact

out in the cold iceland s trade performance outside the european union and european monetary union although entering currency and customs unions involve both costs and benefits an increasing body of research is finding that the benefits in terms of international trade creation are remarkably large focusing simply on the european monetary union emu rather than the broad range of currency unions studied by other authors we find that the trade impact of emu is smaller but still substantial our findings suggest that the iceland s trade could increase by about 60 and that the trade to gdp ratio could rise by 12 percentage points should iceland join the european union and emu copyright 2006 oxford university press

trade integration and business cycle convergence is the relation robust across time and space in this paper we investigate the relationship between trade intensity and the business cycle correlation using a panel data set taken from 24 countries over the period 1959 2003 most previous studies did not account for the possibility that the business cycle correlation may be influenced by unobservable country pair specific effects our estimates using both fixed and random effects methodologies suggest that trade intensity and the business cycle correlation are positively related to one another however detailed investigation shows that this relationship exists mainly for the european countries

an optimum currency area odyssey abstract the theory of optimum currency areas was conceived and developed in three highly influential papers written by mundell 1961 mckinnon 1963 and kenen 1969 those authors identified characteristics that potential members of a monetary union should ideally possess in order to make it feasible to surrender a nationally tailored monetary policy and the adjustment of an exchange rate of a national currency we trace the development of optimum currency area theory which after a flurry of research into the subject in the 1960s was relegated to intellectual purgatory for about 20 years we then discuss factors that led to a renewed interest into the subject beginning in the early 1990s milton friedman plays a pivotal role in our narrative friedman s work on monetary integration in the early 1950s presaged subsequent optimum currency area contributions mundell s classic formulation of an optimal currency area was aimed in part at refuting friedman s strong case for floating exchange rates and friedman s work on the role of monetary policy had the effect of helping to revive interest in optimum currency area analysis the paper concludes with a discussion of recent analytical work using new keynesian models which has the promise of fulfilling the unfinished agenda set out by the original contributors to the optimum currency area literature that is providing a consistent framework in which a country s characteristics can be used to determine its optimal exchange rate regime

endogenous oca analysis and the early euro experience some have argued that the endogenous responses to the formation of a currency area are so strong that one need not worry about optimum currency area conditions ex ante we argue that this is much too strong a conclusion we draw on a number of recent studies to evaluate the endogeneity experiences of the eurozone in three major areas trade flows business cycle synchronisation and structural reforms to improve labour and product market flexibility simple before and after comparisons are insufficient for analysis of endogeneity the experiences of non euro western european economies suggest that broader trends also had considerable influence on trade and business cycle patterns while trade rose substantially within the eurozone it also rose with and among other european economies we argue that political economy considerations tend to dampen the magnitude of endogeneity efforts on structural reforms and that meeting conditions for entry may be a more powerful mechanism in this than are subsequent endogenous responses we also discuss a number of areas for further research

on the persistence of rationing following liberalization a theory for economies in transition abstract many economic theorists and policy makers argue that a rapid liberalization in which prices are allowed to equilibrate supply and demand is critical for a successful transition in the formerly socialist economies yet despite the advantages of market clearing prices many local governments in these economies have kept their prices for basic goods low and induced rationing in the state sector this paper develops a theory explaining why a local government chooses either a low state price that induces rationing or a higher price that clears the market the theory predicts that a necessary condition for a local government representing its constituents interests to set a market clearing price is that the private sector is monopolistic while a market clearing price in the state sector curtails private monopoly power it also implies that the state price is higher than in the rationing regime it is shown that a local government s marginal benefit of restraining private monopoly power is higher than the marginal costs of higher state prices when there is an increase in either state sector costs or private capacity this implies that a local government is more prone to set a market clearing price as its costs increase and as private capacity grows furthermore when there are at least two private firms and the private sector is monopolistic a local government that sets a market clearing price also stabilizes private sector pricing

workers of the world unite franchise extensions and the threat of revolution in europe 1820 1938 abstract we test the hypothesis that the extension of the voting franchise in europe was related to the threat of revolution we contend that international diffusion of regime contention and information about revolutionary events happening in neighboring countries generate the necessary variation in the perceived threat of revolution using two samples of european countries covering the period from 1820 to 1938 we find robust evidence which is consistent with the threat of revolution hypothesis we also find some evidence that war triggered suffrage reform

trade creation and diversion revisited accounting for model uncertainty and natural trading partner effects summary the effect of preferential trade agreements ptas on trade flows is subject to model uncertainty stemming from the diverse and even contradictory effects suggested by the theoretical pta literature the existing empirical literature has produced remarkably disparate results and the wide variety of empirical approaches reflects the uncertainty about the correct set of explanatory variables that ought to be included in the analysis to account for the model uncertainty that surrounds the validity of the competing pta theories we introduce bayesian model averaging bma to the pta literature statistical theory shows that bma successfully incorporates model uncertainty in linear regression analysis by minimizing the mean squared error and by generating predictive distributions with optimal predictive performance once model uncertainty is addressed as part of the empirical strategy we find strong evidence of trade creation trade diversion and open bloc effects our results are robust to a range of alternative empirical specifications proposed by the recent pta literature copyright 2010 john wiley sons ltd

one money one market the effect of common currencies on trade currency unions their dramatic effect on international trade a gravity model is used to assess the separate effects of exchange rate volatility and currency unions on international trade the panel data bilateral observations for five years during 1970 90 covering 186 countries includes 300 observations in which both countries use the same currency i find a large positive effect of a currency union on international trade and a small negative effect of exchange rate volatility even after controlling for a host of features including the endogenous nature of the exchange rate regime these effects statistically significant imply that two countries sharing the same currency trade three times as much as they would with different currencies currency unions like the european emu may thus lead to a large increase in international trade with all that that entails andrew rose

hard or soft pegs choice of exchange rate regime and trade in africa summary this paper revisits the link between fixed exchange rate regimes and trade in the context of africa s exchange rate arrangements differentiating the effects of hard pegs currency unions from conventional soft pegs using a novel dataset of exchange rate regime classification the paper augments the gravity model of bilateral trade flows with measures of currency unions and conventional pegged arrangements and benchmarks africa s experience against the rest of the world we find that in both samples currency unions and pegs increase trade vis a vis more flexible exchange rate arrangements through channels in addition to reduced exchange rate volatility however the effect is almost twice as large for africa in addition the trade generating effect of pegs is at least as large for africa as that of currency unions suggesting that pegs could present a viable option perhaps an alternative to currency unions to promote trade in the region

global output growth and volatility spillovers this article examines discernable patterns of real gross domestic product gdp growth co movements across 29 countries using consistent time series data 1912 2008 of these countries only 12 are found to form three statistically significant groupings i e g6 six organization for economic co operation and development oecd european countries g4 four anglo saxon countries and g2 two major asian countries one may then conclude that inter alia geographical proximity cultural ties and the level of socio economic and financial ties among countries determine the global systematic co movements of growth rates our results indicate that any recession in the us initially engulfs other anglo saxon countries as well as g6 and g2 countries before exerting its adverse knock on effects to the rest of the world a multivariate generalized autoregressive conditional heteroscedasticity mgarch model is also used to examine the transmission of gdp growth across these three groups and their corresponding vol

the culture of policy making in the transition from socialism price policy in mongolia in this article we argue that the history of policy making can deeply influence current economic policy decisions in reforming socialist countries history s impact lies beyond the rigidity of inherited organizations it acts separately from the inherited allocation of power and property rights notions and practices that are a product of past historical experience are an autonomous force in the development of policy and they endure even when policymakers deeply desire change many labels could be attached to the phenomena we describe we have chosen the word culture because the most common interpretation of that term captures the essence of what we hope to convey the central element of culture a common set of beliefs and practices resulting from a shared historical experience is exactly the phenomenon on which we focus as explained in section ii our treatment of culture is consistent with standard methodology applied to a setting in which informational and learning processes are all important in fact our conclusions on mongolian price policy exemplify douglass c north s point that the historically derived perceptions of the actors shape the choices that they make and the imperfect and fumbling efforts of the actors reflect the difficulties of deciphering a complex environment with the available mental constructs ideas theories and ideologies 2 the article s stimulus was provided by observation of the tortuous progress of price reform in mongolia with much fanfare mongolia s government proclaimed a policy of rapid and complete price liberalization the commitment to liberalization was both genuine and widespread there was a general aspiration within society to move to a market economy however in the turn from abstraction to action the details of legislation the rules embodied in regulations and policy

long run growth and volatility which source really matters the aim of the article is to analyse the relationship between long run growth and business cycle volatility in particular the main purpose of this article is to identify which source of volatility is most detrimental to growth using cross country data from 1970 to 2000 and several indicators of volatility such as inflation exchange rate government expenditure output and investment volatility this article shows that although all these measures of volatility are remarkably harmful for growth business cycle investment volatility is the main source that hampers long run growth this relation is robust to different measures of business cycle and to different sub samples of countries

competition and privatization amidst weak institutions evidence from mongolia mongolia s mass privatization program was implanted in a country that lacked the very basic institutions of capitalism this paper examines the effects of competition and ownership on the efficiency of the newly privatized enterprises using a representative sample of enterprises and controlling for possible selection biases competition has quantitatively large effects perfectly competitive firms having nearly double the efficiency of monopolies enterprises with residual state ownership appear to be more efficient than other enterprises reflecting an environment where the government was pressured to focus on efficiency and institutions gave little voice to outsider owners jel p0 l1 l33 o12

north south and distance in the gravity model abstract it is generally assumed that distance in the gravity model strictly reflects frictions impeding bilateral trade however distances north south could also reflect differences in factor endowment that provide opportunities for profitable trade this paper investigates the hypothesis that if we control for distance in the ordinary sense differences north south promote international trade the hypothesis receives ample support moreover the significance of differences north south survives a battery of robustness tests concerning period distinctions between differences in latitude north north north south and south south and controls for other measures of differences in factor endowment such as differences in per capita output and differences in average temperature rainfall and seasonal range in temperature the impact of differences north south on bilateral trade has also been falling this decline in turn might be partly responsible for the weakening of the influence of distance that has been occurring since world war ii this last hypothesis receives confirmation as well finally the paper examines the impact of internal distance and remoteness on trade since both variables are country specific this is done by studying their impact on the country fixed effects themselves in the earlier estimates internal distance turns out to have a far greater impact than remoteness by an order of 10

the effects of exchange rate volatility on agricultural trade i extend cho sheldon and mccorriston s 2002 analysis of the effect of exchange rate volatility on agricultural trade among the g 10 countries to a broad sample of developed and developing nations i replicate their original finding that exchange rate volatility has a large negative impact on agricultural trade between g 10 members after controlling for agricultural export subsidies which are correlated with exchange rate volatility i show that the original impact declines by half using the extended sample i find that the effect of exchange rate volatility is much larger for developing country exporters than for developed exporters copyright 2008 oxford university press

e m u effects in global cross border banking we demonstrate that the european monetary union emu increases cross border depositing but not lending among emu countries by 31 while being a member of the european union eu increases cross border loans by 49 cross border deposit volumes are unaffected

distance language religion and the law of one price evidence from canada and nigeria we examine the impact of physical distance language and religion on law of one price lop deviations across interwar canadian and modern nigerian cities the data comprise monthly average retail prices for narrowly defined goods collected by national statistical agencies we find that differences in the fraction of the city population sharing a common language and religion have a significant impact on lop deviations the impact of language differences is consistent with a recently developed theory in which both trade costs and differences in signal noise ratios contribute to lop deviations

exchange rate regimes and international trade evidence from the classical gold standard era in this paper we show that the spread of the classical gold standard in the late nineteenth century increased international trade flows this positive effect was compounded whenever a group of countries formed a monetary union applying the gravity model of trade to more than 1 100 country pairs during the 1870 1910 period we find that two countries on gold would trade 60 percent more with each other than with countries on a different monetary standard moreover a monetary union would more than double bilateral trade flows our findings are relevant for current discussions on alternative monetary arrangements for the twenty first century

causes of world trade growth in agricultural and food products 1951 2000 a demand function approach the objective of the present study is to analyse the causes of the growth of international agricultural and food trade in volume terms from 1951 to 2000 the results suggest that income growth has been the principal reason for this expansion while exchange rate stability and the real price of agricultural products played only a minor role multilateral trade liberalization and trade costs given their long term stability are not elements that could have stimulated their growth finally the intensive liberalization of trade which took place in various economic regions especially in europe became a key factor in promoting agricultural trade among the countries participating in regional trade agreements the study results also indicate that the determinants of trade growth for these goods were different to those for other goods and other periods

the internationalization of inventive activity a gravity model using patent data this paper discusses the extent and the determinants of the internationalization of european inventive activity between 1990 and 2004 using an innovative method to treat the information contained in the european patent office s patstat database the observed level of internationalization of inventive activities while being rather low has steadily increased over time the amount of collaboration between actors residing in different countries is assessed by means of a gravity model as it is familiar in the literature on international trade the amount of bilateral collaboration is positively affected by the presence of a common language and a common border and by the common participation in the european union participation in the euro zone is also found to have a marginally negative effect international collaboration is negatively affected by distance with estimated elasticities that are significantly smaller than the ones that characterize international trade contrary to the rumors about the death of distance this effect has become stronger in recent years

the benefits and costs of monetary union in southern africa a critical survey of the literature with the 14 members of the southern african development community sadc having set the objective of adopting a common currency for the year 2018 an expanding empirical literature has emerged evaluating the benefits and costs of a common currency area in southern africa this paper reviews that literature focusing on two categories of studies 1 those that assume that a country s characteristics are invariant to the adoption of a common currency and 2 those that assume that a monetary union alters an economy s structure resulting in trade creation and credibility gains the literature reviewed suggests that a relatively small group of countries typically including south africa satisfies the criteria necessary for monetary unification the literature also suggests that in a monetary union comprising all sadc countries and a regional central bank that sets monetary policy to reflect the average economic conditions e g fiscal balances in the region the potential losses i e higher inflation from giving up an existing credible national central bank a relevant consideration for south africa could outweigh any potential benefits of trade creation resulting from a common currency

measurement of the unexpected us trade deficit abstract monthly announcements from 1980 through 1992 of the us overall and bilateral balance of trade figures and revisions of previous announcements are examined in detail the unexpected trade deficit is measured as the difference between the announced overall trade deficit and the median survey measure from money market services survey expectations are found to incorporate publicly available information a surprisingly large trade deficit is associated with expectations of larger future trade deficits unexpected bilateral trade balances and revisions of previous overall balances which are released at the same time as the overall trade deficit significantly influence the canadian dollar and some us stock market indexes

the euro and corporate valuations in this paper we study the changes in corporate valuations induced by the adoption of the euro as the common currency in europe we use corporate level data from seventeen european countries of which eleven adopted the euro we show that the introduction of the euro has increased tobin s q ratios by 17 1 in the euro area countries that previously had weak currencies part of the increase in corporate valuations is explained by the decrease in interest rates and by the decrease in the cost of equity the increases in tobin s q are larger for firms that would be harmed by currency devaluations the author 2008 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oxfordjournals org oxford university press

evaluation of currency regimes the unique role of sudden stops this paper tackles two established puzzles in international macroeconomics literature the first is the lack of systematic differences in the macroeconomic performance across exchange rate regimes the second is the absence of a clear empirical relationship between macroeconomic performance and capital account liberalization we suggest that these negative findings may be due to empirical methods that fail to account for a latent economic crisis state influenced by exchange rate and capital account regimes and to allow that latent variable to influence the growth effects of policy regimes in practice we model and estimate the latent state of the economy as a crisis probability our proposed framework of analysis allows exchange rate and capital market liberalization regimes to have both a direct effect on short term growth and an indirect effect on growth that is channelled through their effects on the crisis probability the empirical decomposition of the total effect into two conflicting effects helps resolve the puzzles assaf razin and yona rubinstein

the nonlinear impact of currency unions on bilateral trade abstract most gravity model specifications assume that a currency union varies the level of bilateral trade between members by a constant proportion we demonstrate that a common currency also alters the slope of the relationship between bilateral trade and member country gdps

fixed exchange rates and trade abstract a classic argument for a fixed exchange rate is its promotion of trade empirical support for this however is mixed while one branch of research consistently shows a small negative effect of exchange rate volatility on trade another more recent branch presents evidence of a large positive impact of currency unions on trade this paper helps resolve this disconnect our results which use a new data based classification of fixed exchange rate regimes show a large significant effect of a fixed exchange rate on bilateral trade between a base country and a country that pegs to it these results suggest an economically relevant role for exchange rate regimes in trade determination since a significant amount of world trade is conducted between countries with fixed exchange rates

currency unions and trade how large is the treatment effect currency unions and trade what can the data say the impact of a common currency on trade can be grossly mismeasured if countries that belong to currency unions are systematically different from those that do not and if the relationship between trade and its observable determinants is complex i argue that such complications are plausible and likely to distort the empirical results of a recent economic policy paper by andrew rose issue 30 2000 pp 7 45 using techniques designed to be robust in this situation i find that the effects of common currency on international trade are considerably less dramatic and much less precisely estimated torsten persson i have always maintained that the measured effect of a single currency on trade appears implausibly large but i am not convinced by torsten persson s diagnosis and proposed solution i apply a variety of estimation techniques to a new larger data set where many more instances of currency union creation and abandonment make it possible to rely on time series as well as cross sectional evidence the results are similar to my earlier ones the effect of a single currency on trade is large andrew rose

the effect of the euro on foreign direct investment abstract in this paper the recent effect of the european monetary union on inward fdi flows is examined using a difference in differences approach the estimated results show that the introduction of the euro raised inward fdi flows by approximately 16 within the euro area by approximately 11 to non members and weakly by around 8 from non member countries into the euro area moreover the geographical effects of the euro are explored the results show partial agglomeration tendencies for the euro area there are also some indications of increased importance of vertical specialization in the sample

a note on economic news and intraday exchange rates abstract measured with intraday data in a 1987 1991 sample period the mark dollar exchange rate was affected by unanticipated information about the trade deficit and the consumer price index the exchange rate showed no significant response to news about money supply industrial production the producer price index or unemployment trade deficit surprises were negatively correlated with the value of the dollar as expected cpi surprises showed a positive correlation as would be predicted by sticky price models of exchange rates the market s reaction to the 8 30am trade deficit announcement was complete by 9am but the market s response to the cpi announcement was not as immediate no significant reaction had occurred by 9am and the spot price did not fully digest the information until 1pm significant responses were present in the 9am 11am and noon hours alternate measures of currency returns failed to explain this delayed response

trade costs 1870 2000 what has driven trade booms and trade busts in the past century and a half was it changes in global output or in the costs of international trade to address this question we derive a micro founded measure of aggregate bilateral trade costs based on a standard model of trade in differentiated goods these trade costs gauge the difference between observed bilateral trade and frictionless trade in terms of an implied markup on retail prices of foreign goods thus we are able to estimate the combined magnitude of tariffs transportation costs and all other macroeconomic frictions that impede interna tional trade but that are inherently difficult to observe we use this measure to examine the growth of global trade between 1870 and 1913 its retreat from 1921 to 1939 and its subsequent rise from 1950 to 2000 we find that trade cost declines explain roughly 55 percent of the pre world war i trade boom and 33 percent of the post world war ii trade boom while a precipi tous rise in trade costs explains the entire inter

the effect of competition on trade evidence from the collapse of international cartels how do changes in competitive intensity affect trade patterns some cartels may find it advantageous to eliminate cross hauling and divide markets geographically we exploit a quasi natural experiment associated with increased antitrust enforcement to determine if market division strategies were used in seven recently prosecuted international cartels since antitrust activity is unlikely to affect spatial patterns of demand and supply other than through its effect on the competitive environment enforcement induced changes are ideally suited to study the effect of competition on trade patterns analyzing the cartels individually and as a group we find no significant change in spatial patterns of trade following cartel breakup in particular there is no systematic change in the effect of distance on trade these results suggest that cross hauling is not uncommon under collusion and hence that the existence of cross hauling by itself does not provide evidence of effective competition

popular attitudes toward free markets the soviet union and the united states compared random samples of the moscow and new york populations were compared in their attitudes towards free markets by administering identical telephone interviews in the two countries in may 1990 although the soviet respondents were somewhat less likely to accept exchange of money as a solution to personal problems and although their attitudes toward business were less warm the authors found that the soviet and american respondents were basically similar in some very important dimensions in their attitudes toward fairness income inequality and incentives and in their understanding of the working of markets copyright 1991 by american economic association

regionalism in standards good or bad for trade regional agreements on standards have been largely ignored by economists and unconditionally blessed by multilateral trade rules the authors find theoretically and empirically that such agreements increase trade between participating countries but not necessarily with the rest of the world adopting a common standard in a region that is harmonization boosts exports of excluded industrial countries to the region but it reduces exports of excluded developing countries possibly because developing country firms are hurt more by an increase in the stringency of standards and benefit less from economies of scale in integrated markets mutual recognition agreements are more uniformly trade promoting unless they contain restrictive rules of origin in which case intra regional trade increases at the expense of trade with other especially developing countries the authors propose a modification of international trade rules to strike a better balance between the interests of integrating and excluded countries

what lies beneath the euro s effect on financial integration currency risk legal harmonization or trade abstract although recent research shows that the euro has spurred cross border financial integration the exact mechanisms remain unknown we investigate the underlying channels of the euro s effect on financial integration using data on bilateral banking linkages among twenty industrial countries in the past thirty years we also construct a dataset that records the timing of legislative regulatory harmonization policies in financial services across the european union we find that the euro s impact on financial integration is primarily driven by eliminating the currency risk legislative regulatory convergence has also contributed to the spur of cross border financial transactions trade in goods while highly correlated with bilateral financial activities does not play a key role in explaining the euro s positive effect on financial integration

global trade and the maritime transport revolution abstract what is the role of transport improvements in globalization we argue that the nineteenth century is the ideal testing ground maritime freight rates fell on average by 50 while global trade increased 400 from 1870 to 1913 we estimate the first indices of bilateral freight rates and directly incorporate these into a standard gravity model we also take the endogeneity of bilateral trade and freight rates seriously and propose an instrumental variables approach the results are striking we find no evidence that the maritime transport revolution was the primary driver of the late nineteenth century global trade boom

on the distribution of exchange rate regime treatment effects on international trade abstract this paper provides evidence of heterogeneous treatment effects on trade for six different types of exchange rate regime transitions utilizing data on 218 643 country pair year observations all together previous research mainly focused on the currency union effect on trade and widely assumed that country pairs with identical observable characteristics receive the same effect we test the hypothesis of a homogeneous treatment effect empirically and find substantive statistical support for the presence of effect heterogeneity moreover we characterize the probability distribution of effect heterogeneity among observationally equivalent country pairs by way of a random coefficients model we estimate selected features of the empirical distributions of the treatment effects for each of the six different types of exchange rate regime transitions under two different sets of assumptions about the probability distribution of effect heterogeneity our findings suggest that the immediate effects on trade from switching to an exchange rate regime different from the one in the outset have wide waists and exhibit large positive extreme values we estimate the probability of two countries to experience an immediate positive effect on the growth of bilateral trade due to the adoption of any new exchange rate regime tighter or not to be approximately one half

the mirage of exchange rate regimes for emerging market countries this paper argues that much of the debate on choosing an exchange rate regime misses the boat it begins by discussing the standard theory of choice between exchange rate regimes and then explores the weaknesses in this theory especially when it is applied to emerging market economies it then discusses a range of institutional traits that might predispose a country to favor either fixed or floating rates and then turns to the converse question of whether the choice of exchange rate regime may favor the development of certain desirable institutional traits the conclusion from the analysis is that the choice of exchange rate regime is likely to be of second order importance to the development of good fiscal financial and monetary institutions in producing macroeconomic success in emerging market countries this suggests that less attention should be focused on the general question whether a floating or a fixed exchange rate is preferable and more on these deeper institutional arrangements a focus on institutional reforms rather than on the exchange rate regime may encourage emerging market countries to be healthier and less prone to the crises that we have seen in recent years

the myth of decoupling the decoupling hypothesis is the idea that business cycles in emerging market economies have become more independent from business cycles in advanced economies in recent years decoupling essentially amounts to a structural break in the degree of business cycle interdependence between the two groups of economies and it can be tested as such we develop an innovative measure of business cycle interdependence based on the euclidean distance available at the annual frequency which allows for a proper test for a structural break in a graphical setup we also make use of a standard econometric test both approaches point to the same conclusion there has been no decoupling in recent years if anything the degree of business cycle interdependence has become stronger

disaggregated trade and disaggregated currency unions a ranking of common currency effects andrew rose has long argued that a common currency has a large effect on increasing trade recently rose has called into question the reliability of this conclusion as new techniques have emerged for estimating gravity equations this article uses the sector specific gravity model developed by anderson and yotov 2010a to investigate if disaggregated trade can provide a reliable estimate of a common currency s effect disaggregating trade alone is insufficient to obtain a reliable estimate of a currency union regardless of econometric technique when the effect of a common currency on trade is uniform across all unions disaggregating the universe of currency unions with individual effects provides a reliable ranking of currency unions independent of estimation method by the effect that each union s currency has on increasing trade these rankings differ across sectors

advancing the design of a dynamic petro dollar currency basket this study offers organization of petroleum exporting countries opec member nations a crude oil pricing currency basket based on currency liquidity in contrast with prior emphasis on opec trading patterns motivating the search for an alternative us dollar pricing of crude oil is the significant and inverse relationship r 0 82 p 0 01 between the us dollar major currencies index and crude oil price over the period january 1999 march 2009 a dynamically weighted petro dollar currency basket is proposed based on the five currency claims us dollar euro british pound japanese yen and swiss franc and their varying proportions of foreign exchange reserves held by central banks the major currencies us dollar index is compared against the proposed petro dollar index to reveal an average us 8 1 billion annual gain in favor of the petro dollar currency basket offering opec members a revenue stream of diversified and highly liquid currencies to transition away from complete dependence on the us dollar crude oil pricing the proposed petro dollar crude oil pricing schema offers opec a crude oil price dynamically denominated in currencies reflecting the global use and importance of crude oil this paper concludes with implementation issues facing a move toward the dynamically weighted petro dollar crude oil pricing schema

has the euro changed the business cycle abstract in contrast to the notion that the exchange rate regime is non neutral there is little evidence that emu has systematically changed the european business cycle in fact we find the volatility of macroeconomic variables largely unchanged before and after the introduction of the euro exceptions are a strong decline in real exchange rate volatility and a considerable increase in cross country correlations to account for this finding we develop a two country business cycle model which is able to replicate key features of european data in particular the model correctly predicts a limited effect of emu on standard business cycles statistics however further analysis reveals that the euro has changed the nature of the cycle through its impact on the transmission mechanism cross country spillovers have become relatively more domestic shocks relatively less important in accounting for economic fluctuations under emu this explains why there is little change in unconditional volatilities