black markets for currency hoarding activity and policy reforms abstract in emerging market economies under development of financial markets leads to goods hoarding and foreign currency accumulation as forms of investment in this paper an asset market model supplemented by explicit treatment of smuggling and second economy activity is used to study the paths of black market exchange rates second economy prices hoarding stocks and privately held dollar balances following policy reforms we discuss conditions for overshooting and related dynamics of exchange rates and prices following official exchange rate adjustments price reforms and altered risks of monetary confiscation or currency reforms the saddlepath trajectory of financial adjustment is simulated using data from recent russian experience 1997 elsevier science b v

a search theoretic model of legal and illegal currency abstract using a search theoretic model of money we explore the conditions under which two currencies domestic and foreign will co exist despite legal restrictions on the use of foreign currency for internal trade we study how changes in government policy i e its enforcement of currency laws through fines or the rate of enforcement affects the acceptability of illegal currency the equilibrium value of both currencies and the implicit exchange rate first we construct a model with indivisible goods to show conditions under which legal currency is fully acceptable but illegal currency circulates with varying acceptability we then introduce bargaining to determine prices in legal and illegal currency we show that some enforcement polices can create multiple equilibria while others will not also some methods of enforcement are capable of driving the illegal currency out of circulation while others are not

exchange rate regime reforms with black market leakages abstract many countries have multiple exchange rate regimes with black or secondary currency markets operating alongside an exchange rate pegged or determined in interbank or auction markets leakages occur across these markets necessitating careful analysis of the dynamic effects of numerous policy instruments using a model with multiple exchange rates and leakages we trace the dynamic effects on official and parallel foreign exchange markets of exchange rate unification changes in foreign exchange surrender requirements taxes on trade and capital account transactions and official exchange rate devaluation simulations based on russia s recent experience demonstrate the qualitative importance of the results

dual exchange rates in europe and latin america this article uncovers some important empirical regularities surrounding the operation of formal dual exchange rates in europe and latin america in the 1970s and 1980s although there are some parallels between the european and latin american experiences there are also interesting differences in terms of the size and nature of the distortion created by two official exchange rates the response of the distortion to foreign interest rates real commercial exchange rates and domestic budget deficits and the motives for adopting this exchange rate regime empirical work on dual exchange rate regimes is made difficult by the transitory nature of these regimes and by frequent changes in institutional practices

capital markets and the exchange rate with special reference to the dollarization debate in latin america the paper reviews the main challenges faced by policymakers in emerging market economies em in light of recent financial crises and taking into account salient factors like the existence of partial dollarization imperfect credibility weak financial systems and contagion the standard theory of optimal currency areas is discussed and criticized for omitting the above factors when these factors are taken into account an extreme foreign exchange regime like dollarization is shown to become much more attractive the paper discusses the pros and cons of dollarization and among other things shows that the lack of a lender of last resort is not necessarily a major drawback in em the paper also discusses inflation targeting it in a formal model it is shown that it could be subject to credibility problems similar to those found in exchange rate based stabilization programs

on the complementarity of commercial policy capital controls and inflation tax this paper studies the optimal use of distortive policies aimed at raising a given real revenue in a general equilibrium framework in which lump sum taxes are absent the policies analysed are an inflation tax commercial policy and an implicit tax on capital inflows it is shown that we would tend to avoid activating an inflation tax for small revenue needs if the policy target were allocative we would tend to use only one policy instrument thus each policy has its own comparative advantage and their combined use is justified when the target is raising government revenue

exchange rate behavior with currency inconvertibility abstract the paper analyzes exchange rate dynamics in a world where the domestic currency is inconvertible into foreign currency and there is a black market for foreign exchange the official exchnage rate is thus set by policy but the black market rate is determined by portfolio balance the stock of domestic money changes with the reported current account and the stock of foreign assets of the private sector changes with smuggling and other unreported current account transactions the effects of capital and current account disturbances as well as the effects of changes in the level and the rate of crawl of the official rate on the black market premium and on the currency substitution ratio are analyzed in variants of the basic model

maximum score estimates of the determinants of residential mobility implications for the value of residential attachment and neighborhood amenities abstract this paper uses a semiparametric empirical technique maximum score to estimate the determinants of the decision of low income renters to move out of their dwelling the maximum score estimates prove to be far more precise than probit estimates the estimates are used to show that low income residents highly value remaining in their dwelling in addition these estimates are used to illustrate an alternative method to measure willingness to pay for neighborhood amenities which we argue to be superior to hedonic based wtp measures

real aspects of exchange rate regime choice with collapsing fixed rates abstract typical evaluations of the choice of exchange rate regime examine the performance of the real economy and assume that the regimes last indefinitely in contrast actual regimes are quite transitory this paper examines how the predictions of two popular models for the determination of some real economic variables must be modified when agents rationally perceive that a fixed rate regime will be transitory the models studied are simple stochastic versions of the models in dornbusch 1976 and flood and marion 1982

a note on dual foreign exchange markets with official rationing predetermined versus floating official exchange rate abstract this paper examines the relationship between the long run rate of inflation and the allocation of transactions between markets in economies that operate dual exchange market regimes and ration foreign exchange in the official market it shows that wider access of importers to the official market and wider access of exporters to the free market are associated with higher rates of inflation and vice versa the direction of causality among the various variables and thus the effects of economic policies depend on whether the official exchange rate is predetermined or floating

open economy macro policies and the micro foundation of labor market arrangements abstract in this paper we assume that risk neutral firms provide income insurance to risk averse workers through labor contracts however because of ad hoc transaction costs contracts are not fully contingent hence while contracts improve upon the allocation of risk they entail ex post production inefficiencies relative to a spot market where employment decisions are based upon realizes values of productivity shocks given this tradeoff there exists the possibility that both labor markets can coexist in equilibrium we analyze the effects of exchange rate policy on the distribution of agents across labor market arrangements and the expected utility of agents

testing producer perceptions of jointly beneficial best management practices for improved water quality this paper examines producer perceptions of jointly beneficial relationships among best management practices for improved water quality identifying producer tendencies to bundle these types of practices may increase adoption and lower the costs of voluntary adoption programmes particularly those relying on dissemination of information unlike previous studies perceived changes in environmental quality as well as perceived changes in profits are used to define jointly beneficial inputs the econometric model used in the analysis demonstrates that two of the three management practices considered are perceived to be jointly beneficial

an examination of the effects of government purchases in an open economy this paper examines the effects of permanent and transitory changes in government purchases in the context of a model of a small open economy that produces and consumes both traded and nontraded goods the model incorporates an equilibrium interpretation of the business cycle that emphasizes the responsiveness of agents to intertemporal relative price changes it is demonstrated that transitory increases in government purchases lead to an appreciation of the real exchange rate and an ambiguous change although a likely worsening in the current account while permanent increases have an ambiguous impact on the real exchange rate and no effect on the current account when agents do not know whether a given increase in government purchases is permanent or transitory the effect is a weighted average of these separate effects the weights depend on the relative variances of the transitory and permanent components of government purchases in the past few years a considerable amount of effort has been devoted to examining the effects of macroeconomic policy in an open economy such issues as exchange rate overshooting deviations from purchasing power parity sterilization and monetary control the effectiveness of monetary policy and the choice between alternative exchange rate regimes have been at center stage the models that have been employed to study these issues have run the spectrum from variants of the mundell fleming model such as dornbusch 1976 turnovsky 1981 and kimbrough 1983a to wage contracting and indexing models like bhandari 1982b and flood and marion 1982 to equilibrium models of the business cycle along the lines of bhandari 1982a saidi 1982 and kimbrough 1983b to the closely related intertemporal utility maximization models with money of helpman 1981 and stockman 1980 1983 one common thread that in a sense unifies all of these and other recent contributions is that they are concerned primarily with the effects of alternative monetary and exchange rate policies that the central bank might enact in light of the development and refinement during this period of the monetary approach to the balance of payments and the exchange rate it is not surprising i would like to thank phil brock jeremy greenwood gary zarkin and two anonymous

aggregate information and the role of monetary policy in an open economy a model of a small open economy in which agents trade in local goods markets and an economy wide asset market is developed purchasing power parity is assumed to hold at the aggregate level however because of local deviations from purchasing power parity agents possess differential information using this framework it is shown that when the exchange rate is flexible monetary policy can influence the distribution of real output by altering the information content of the exchange rate however when monetary policy is committed to fixing the exchange rate by a feedback rule the distribution of real output is independent of the particular exchange rate rule chosen the stability of real output under the two regimes is compared and it is demonstrated that regardless of the stability of domestic monetary policy a flexible exchange rate regime is superior in this respect possible qualifications and extensions of these results are also discussed

the information content of the exchange rate and the stability of real output under alternative exchange rate regimes abstract when the exchange rate is flexible and thus responds to market forces it provides agents with useful information while when it is fixed by a feedback rule it does not the implications of this asymmetry for the stability of real output under the two regimes is discussed it is shown that whenever shocks are predominantly of one variety or when domestic monetary shocks accompanied by one real shock a flexible exchange rate does a better job of stabilizing real output than does a fixed exchange rate these results undermine arguments favoring fixed exchange rates because they discipline monetary policy in addition it is demonstrated that managed floating rules and exchange rate feedback rules are irrelevant for the distribution of real output

dynamic stability in a model of dual exchange rates abstract the dynamic stability of a small open economy operating under a regime of dual exchange rates is shown to depend on residents net foreign asset position this result is in contrast to the economy s dynamic behavior under unified fixed rate and flexible rate regimes where stability is unrelated to net foreign asset position

striving to be green the adoption of total quality environmental management many firms are undertaking environment friendly organizational change by applying the philosophy of total quality management with its emphasis on reducing waste and increasing efficiency their objective is to improve their management of pollution and increase customer satisfaction this article investigates the factors that lead to total quality environmental management tqem by large firms we find that internal considerations stemming from a firm s technical capability size absolute and relative to competing firms extent of operations and volume of past emissions are strongly associated with the tqem adoption decision the first four factors are proxies for the firm s costs and capabilities of adopting tqem while the fifth factor is related to the benefits from increasing efficiency and waste reduction and thus proxies for internally generated demand for tqem the desire to improve a firm s image with customers earning good will with regulators and the anticipation of future regulations do not a

black markets for foreign exchange real exchange rates and inflation abstract the black market foreign exchange premium is a tax on exports creating a conflict between the financing of government spending and the allocative goal of stimulating exports the premium is solved for in a model that includes private portfolio choice dual exchange markets and money financing of the fiscal deficit the inflationary implications of switching to floats as a means of unifying official and black market rates are then analyzed inflation could rise substantially if the lost revenues from exports are replaced with a higher tax on money the paper is motivated with examples from sub saharan africa

anticipated shocks and the acceleration hypothesis the implication of wage indexation in his well cited contribution sachs 14 sets up a macromodel embodying the wage setting process perfect foresight and the portfolio balance feature it examines the exchange rate and current account responses to unanticipated fiscal expansion under alternative wage indexation rules he finds that in the nominal wage rigidity no wage indexation model the exchange rate depreciation coincides with a current account deficit in the real wage rigidity full wage indexation case the exchange rate again depreciates with a current account deficit and appreciates with a surplus 14 744 45 sachs s result is consistent with kouri s 12 acceleration hypothesis a current account deficit is accompanied by currency depreciation and conversely after the publication of the dorbusch and fischer 8 paper the literature on acceleration hypothesis has shifted from unanticipated shocks to anticipated shocks dorbusch and fischer 8 find that a negative correlation between the exchange rate and the current account prevails prior to the implementation of anticipated shocks consequently their conclusion indicates the acceleration hypothesis is not held when the economy experiences anticipated shocks bhandari 4 and papell 13 claim that the status of current account and the response of exchange rate can have either a positive or a negative correlation in response to anticipated shocks based on the fact that sachs 14 does not deal with the anticipated disturbances the first purpose of this paper thus tries to shed light on whether the alternative wage indexation schemes will affect the validity of the acceleration hypothesis in response to an anticipated fiscal expansion in an interesting paper aoki 1 bases on the modified dorbusch 7 model and examines the exchange rate responses to anticipated supply shocks he finds that an entirely different type of exchange rate adjustment pattern misadjustment path can arise when economic vari

exchange rate regimes in transition italy 1974 in order to explain the behavior of the lira during the operation of the italian two tier exchange market in 1973 74 we develop a model of exchange rate regimes in transition on the assumption that the market will set exchange rates so as to eliminate speculative profits at the time of transition the model indicates that expectations of a transition combined with uncertainty about the nature of the post transition regime can cause a jump in exchange rates at the moment of transition as well as volatile exchange rate movements prior to the transition the model suggests that the perceived temporariness of an exchange rate regime should be treated as a market fundamental

exchange rate differential and balance of payments under dual exchange markets abstract this paper develops a model of an economy that uses two exchange markets an official market in which the exchange rate is determined by central bank intervention and a free market in which the exchange rate is determined by market forces the official market handles selected imports and exports while the free market handles the remaining imports and exports and capital transactions the model is used to discuss the effects of various policies on the differential between the free and the official exchange rates and on the balance of payments

materials price increases and aggregate adjustment in an open economy a stochastic approach abstract this paper develops a stochastic macroequilibrium frameworks to analyze the differing implications of alternative types of input price disturbances the distinctions between expected and unexpected permanent and transitory nominal and real disturbances are considered the introduction of input disturbances involves a more elaborate modelling of the supply side of the economy both constant returns to scale and decreasing returns to scale technologies are considered the analysis highlights the sensitivity of the macroeconomic impacts of input price shocks to their specific type the analytical results obtained are not unambiguous and are supplemented with numerical simulations

terms of trade and exchange rate regimes in developing countries abstract since friedman essays in positive economics university of chicago press chicago 1953 157 203 an advantage often attributed to flexible exchange rate regimes over fixed regimes is their ability to insulate more effectively the economy against real shocks i use a post bretton woods sample 1973 96 of 75 developing countries to assess whether the responses of real gdp real exchange rates and prices to terms of trade shocks differ systematically across exchange rate regimes i find that responses are significantly different across regimes in a way that supports friedman s hypothesis the paper also examines the importance of terms of trade shocks in explaining the overall variance of output and prices in developing countries

world business cycles under fixed and flexible exchange rates this paper studies the behavior of monthly industrial production indices during the recent periods of fixed and flexible exchange rate s the central conclusions are as follows industrial production indices are subject to stochastic trend growth the variances of the monthly growth rates are higher in the flexible exchange rate period than in the fixed exchange rate period and are related to the degree of openness and to national income more open economies tend to experience more variability while richer more diversified economies experience less and output movements have been correlated across countries under both exchange rate regimes and there is evidence of a world business cycle copyright 1988 by ohio state university press

optimal foreign exchange rate policy for a small open economy abstract this paper examines optimal exchange rate policy for a small open economy which faces temporary and pemanent real and nominal disturbances it demonstrates that exchange rate stabilization is desirable if most diturbances are nominal if most disturbances are real then stabilization should be greater 1 the greater the fraction of exchange rate variance accounted for by permanent disturbances 2 the greater the information available to firms in setting the wage 3 the greater the fraction of exchange rate variance attributed to domestic productivity shocks compared with foreign relative price shocks and 4 the more elastic is labor supply

black and official exchange rates in morocco an analysis of their long run behaviour and short run dynamics 1974 1992 using vector error correction vec model estimation on monthly data from morocco for the period january 1974 to december 1992 this article tests the hypothesis that there is a long run stable relationship between the official and the black market exchange rates for us dollars we also examine the short run dynamics in the relationship between the two markets the econometric results indicate that the two exchange rates are cointegrated furthermore we reject weak exogeneity in the case of the official exchange rate but fail to reject it in the case of the black market rate granger causality tests show that the black market rate causes the official exchange rate the results seem to support the efficiency hypothesis suggesting that participants in the black market are able to anticipate changes in the official exchange rate the findings also suggest that morocco s decision in january 1993 to introduce only current account convertibility and keep controls on capital accounts was wise

reserve and exchange rate cycles abstract many latin american countries appear locked into cycles of reserve loss devaluation and temporary reserve gains this paper shows how a dual exchange rate system with leakages may generate cycles in reserves and the premium between official and parallel exchange rates we study the dynamics of these cycles and their asymptotic behavior both analytically and numerically

exchange rate policy and price level changes casualty tests for turkey in the post liberalisation period the purpose of the present study is to examine the relationship between exchange rate changes and price level changes in turkey during the 1980s using some modified granger causality tests during this period turkish exchange rate policy was characterised by considerable flexibility in contrast to the long standing policy of fixing the exchange rate until a foreign exchange crisis necessitated devaluation the weight of the evidence presented suggests that granger causality runs from price level changes to exchange rate changes but that there is not feedback causality from exchange rate changes to price level changes this conclusion is not altered by the inclusion of a money supply variable thus for turkey exchange rate adjustment does not seem to have created a vicious cycle of currency depreciation leading to inflation as is often feared whether this result will hold for other developing countries which adopt flexible exchange rate regimes will require further testing

dollars for sale exchange rate policy and inflation in africa abstract in africa the government is often the main provider of foreign exchange acquired through aid or via a nationalized mining sector although a parallel market is also usually active a policy of indexing the official exchange rate on the parallel one is destabilizing while a nominal anchor policy has the opposite effect using the case of nigeria these stylized facts are interpreted in the light of an analytical model with rational expectations the case of guinea is also presented as an example of where the nominal anchor policy has succeeded

distribution of parallel exchange rates in african countries abstract this paper investigates the distribution of parallel exchange rates in african countries using exploratory data analysis techniques and model fitting stable laws are fitted to empirical distributions using the maximum likelihood estimation method empirical evidence supports the stable hypothesis these distributions are positively skewed and have tails that are much heavier than gaussian counterparts the stable hypothesis is further supported by the converging variance test which suggests that these distributions have infinite variance

openness relative prices and macro policies abstract this paper analyzes the role of relative prices in the conduct of wage indexation monetary policy and exchange rate policy in a small economy producing traded and nontraded goods under a managed float exchange rate regime it is shown that the beneficial effect of using relative prices in addition to aggregate prices as indicators for the conduct of the above policies increases with openness the response of policies to relative prices rises with openness and has dampening effects on the volatility of deviations from purchasing power parity

inflationary rigidities and orthodox stabilization policies lessons from latin america orthodox stabilization programs in latin american countries have been notoriously unsuccessful in combating inflation despite the imposition of stringent cuts in government deficits in most cases inflation came down only slowly and temporarily with concomitant declines in growth and employment the bolivian program one of the only latin american successes is contrasted with those of argentina brazil chile and mexico the problems of dealing with chronic inflation are compared with those of hyperinflationary countries and the influence of price and wage rigidities expectations and credibility is explored the study shows that fiscal restraint is a necessary but not sufficient condition for success and that sound management of nominal variables the exchange rate and money supply are also necessary the critical role of credibility is linked with price and wage rigidities in the chronic inflation countries whereas the unsuitability of hyperinflation is seen to increase the credibility of and thus the potential for successful stabilization programs

optimal government finance policy and exchange rate management in a stochastically growing open economy abstract optimal monetary policy is analyzed in a stochastic small open economy consisting of risk averse representative agents the analysis shows how optimal monetary policy should be directed toward an optimal interest rate target this target which maximizes the intertemporal utility of the representative agent is determined by balancing off the marginal gains of a higher interest rate on increased growth and the future consumption it generates against the marginal losses stemming from a reduction in the holdings of real money balances the paper shows how an appropriately set monetary growth rate eliminates the need for continuous intervention in the exchange market

exploiting decision heuristics and it in the design of a dss for voluntary agri environmental programs abstract low participation rates by farmers in voluntary agri environmental programs may depend on rationally bounded ex ante estimates of the negative effect of program enrollment on farm income uncertainty and the presence of information transaction costs may lead to the use of heuristics by farmers to reduce adoption decision costs this paper describes how lennart a net based decision support system dss has been designed to exploit the use of heuristics and provide low cost access to information the model has been developed to evaluate the effects of agronomic measures on farm income and on the leaching of nutrients from cultivated fields a subsidy program for catch crop cultivation in southern sweden served as the basis for development of the dss and is used throughout the paper for purposes of illustration

adjustment to monetary policy and devaluation under two tier and fixed exchange rate regimes abstract the purpose of this paper is to determine whether a two tier exchange rate regime is more effective than a fixed rate regime in increasing a country s ability to pursue an independent monetary policy the analysis compares adjustment to a monetary policy and to a devaluation in the two exchange rate regimes in a portfolio model under imperfect assets substitutability it is shown that a two tier exchange rate regime is capable of reducing the current account effects of monetary injection or devaluation only in the long run in the short run however we can get a larger current account response under a two tier regime these results reflect the trade off between quantity and price adjustment

exchange rate rules black market premia and fiscal deficits the bolivian hyperinflation with dual exchange rates where a managed official exchange rate co exists with a floating black market rate a given budget deficit may be consistent with many different inflation rates rather than two which is the normal result in closed economy systems further all these inflation equilibria are saddle point stable a policy of adjusting the official exchange rate towards the black market rate may cause the economy to converge to a high inflation saddle point stable equilibrium where money inflation elasticity exceeds unity the analytics are motivated and illustrated by the bolivian hyperinflation of 1984 1985

money prices and the current account in a dual exchange rate regime abstract this paper examines the behavior of money prices and the current account in a dual exchange rate regime where all current account transactions take place at a pegged official rate and all capital account transactions occur at a freely floating financial rate the adjustment of a small open economy to a monetary disturbance under this regime is compared to that found under unified fixed and flexible rates the results concerning the behavior of the economy under dual rates are shown to apply also to an economy operating with fixed rates and controls on the international movement of capital

special exchange rates for capital account transactions the governments of developing countries are constrained in the effective implementation of domestic policy by the interlinkages of national and international financial markets domestic macroeconomic conditions are influenced by the interaction of national and world interest rates and prices and through the impact of real exchange rates on employment the domestic responses to changes in these factors are often strong and rapid this article suggests that dual rates can indeed be used successfully as a strictly transitory policy to offset sudden shocks in capital markets the article develops models which indicate why these dual systems are able to prevent inflationary or recessionary pressures caused by a misaligned exchange rate in the short term while free capital account rates can cut the flow of capital flight however a dual rate system cannot prevent a possibly equivalent loss of foreign reserves that will ultimately result because of the impact of the overvaluation of the commercial rate on the trade balance in the longer term a dual rate system with a misaligned commercial rate exacerbates the government s deficit ultimately real wages must be cut and real interest rates raised to generate sufficient foreign exchange to finance the external debt thus a dual rate works well if the commercial rate is maintained close to the equilibrium level

smoothed binary regression quantiles this paper extends results regarding smoothed median binary regression to general smoothed binary quantile regression discusses the interpretation of the resulting estimators under alternative assumptions and shows how they may be used to obtain semiparametric estimates of counterfactual probabilities the estimators are applied to a model of labour force participation of married women in the usa we find that the elasticity with respect to non labour income is significantly negative only for women that belong to the middle of the conditional willingness to participate wtp distribution in comparing the quantile models with parametric logit and semiparametric single index specifications we find that the models agree closely for women around the centre of the wtp distribution but there are considerable disagreements as we move towards the tails of the distribution copyright 2006 john wiley sons ltd

the transmission of disturbances under alternative exchange rate regimes with optimal indexing the paper develops a general stochastic macroeconomic model that can be used to study the international transmission of disturbances under four alternative exchange rate systems uniform flexible exchange rates uniform fixed exchange rates and two versions of two tier exchange rates the analysis makes two general points first one cannot assume stability of structure when assessing the consequences of alternative exchange rate regimes for example the slope of the aggregate supply curve and the rationally formed expectations in the asset markets can respond dramatically to the government s choice of exchange rate regime second exchange rate regimes that provide full insulation from foreign disturbances may nevertheless be inferior to other regimes in terms of their ability to maximize social welfare

a comparison of parametric and semiparametric estimates of the effect of spousal health insurance coverage on weekly hours worked by wives summary health insurance in the usa for most of the non aged population is provided as a fringe benefit that is received by an adult family member as part of his or her compensation package in husband and wife households health insurance is more likely to be part of the husband s compensation package than the wife s compensation package however when a husband does not have employer provided health insurance his wife may seek health insurance through an employer because health insurance through one s employer typically requires that a worker is a full time employee spousal health insurance coverage for wives is predicted to influence their labour supply decisions parametric and semiparametric statistical models using march 1993 cps data show wives without spousal health benefits are more likely to work full time than those who do have spousal health benefits 1998 john wiley sons ltd employer provided health insurance is the dominant mechanism by which individuals in the usa under the age of 65 gain access to health care and insure their families and themselves against the financial burden caused by the costs of treating chronic and acute health conditions the most recent published data from the current population survey show that in 1995 84 6 of the us population was covered by public or private health insurance and employer provided health insurance was the dominant form of coverage in that year 70 3 of the population was covered by private health insurance and 87 of those individuals 61 1 of the total population gained health insurance benefits through a family member that received these benefits from a current or former employer us bureau of the census 1996 relatively few part time jobs provide health insurance benefits in 1992 23 of employees working 34 hours per week or less received health insurance through their employer whereas 70 of full time more than 34 hours week employees had employer provided health insurance i hypothesize that wives who do not have health insurance coverage through their husband s employer are more likely to work full time in order to obtain health insurance for themselves and for other family members than are wives who have health insurance through their husband s employer support for this proposition is found using both parametric and semiparametric estimation methods using cps data from march 1993 i find women without spousal coverage were less likely to be out of the labour force than women with spousal coverage among working

government debt economic activity and transmission of economic disturbances this paper analyzes the effects of government debt on output and the trade bala nce in a two country rational expectations model of the world economy it is shown that perceived changes in government debt do not affect the level of economic activity but unperceived changes in the home country s government debt are correlated positively with its output and negatively with its trade balance unperceived increases in the foreign country s government debt however have a positive impact on the home country s output and the trade balance empirical evidence from the u s is consistent with most of the implications of the model copyright 1987 by ohio state university press

parametric and semi parametric estimation of the binary response model of labour market participation this paper compares the familiar probit model with three semiparametric estimators of binary response models in an application to labour market participation of married women this exercise is performed using two different cross section data sets from switzerland and germany for the swiss data the probit specification cannot be rejected and the models yield similar results in the german case the probit model is rejected but the coefficient estimates do not vary substantially across the models the predicted choice probabilities however differ systematically for a subset of the sample the results of this paper indicate that more work is necessary on specification tests of semiparametric models and on simulations using these models

the black market for dollars in brazil the model of the black market for dollars focuses on the interaction of portfolio decisions relevant to the holding of asset stocks and the determinants of net flows of dollars associated with tourism and smuggling a partial equilibrium model of the black market shows that the level of the premium is determined by the official real exchange rate and the official depreciation adjusted interest differential as well as seasonal factors associated with tourism expectations of future exchange rate changes under rational expectations are shown to affect the current level of the black market premium the empirical evidence provides ample support for the role of the key determinants of the premium as well as for an important seasonal pattern the magnitude of the seasonal variation is evidence of the imperfect substitutability between black dollars and cruzeiro assets in portfolios

the welfare costs of price controls for cars and color televisions in poland contrasting estimates of rent seeking from recent experience the welfare costs of price controls can vary enormously depending on the method of allocating the goods in shortage and the possible rent seeking costs that may result with full rent dissipation the welfare loss from price controls on polish color televisions in 1989 was about ten times the standard estimates of distortion costs which ignore rent seeking and was more than 100 percent of the value of domestic producers sales the methods of allocating cars however did not result in rent seeking costs the domestic price controls were an unintended implicit subsidy to imports subsidies for cars were estimated at 43 percent and for color televisions at 22 percent

inflation dynamics and the parallel market for foreign exchange abstract pinto 1990 in world bank economic review 3 321 338 showed that unification of official and parallel market exchange rates may lead to an increase in steady state inflation because of the fiscal impact of real official exchange rate changes this paper shows how this and other comparative static and stability results in pinto 1990 are reversed under the assumption that official exchange rate devaluation reduces money creation in the economy it is argued that this was the case for uganda in the 1980s and we give a simple rule of thumb for estimating when unification will increase or decrease steady state inflation

a joint framework for analysis of agri environmental payment programs this article presents an approach for simultaneously estimating farmers decisions to accept incentive payments in return for adopting a bundle of environmentally benign best management practices using the results of a multinomial probit analysis of surveys of over 1 000 farmers facing five adoption decisions in a voluntary program we show how the farmers perceptions of the desirability of various bundles change with the offer amounts and with which practices are offered in the bundle we also demonstrate an estimator for the mean minimum willingness to accept for the adoption of a practice conditional on the cost share offers for other practices agri environmental payment programs play an important part in improving the environmental performance of agriculture claassen and horan batie lynch and smith smith feather and cooper claassen et al federallevel interest in developing these programs is currently strong for example the 2002 farm act calls for a five fold increase in funding for the usda s environmental quality incentives program eqip this article focuses on voluntary programs designed along the lines of the eqip which provides incentive payments to encourage producers to adopt environmentally benign land management practices such as nutrient management manure management and integrated pest management for policy making purposes it would be useful to know the sensitivity of the producer s decision to enroll in response to a schedule of potential incentive payments and to which practices are bundled together such information can be used to assess the costs of encouraging farmers to try various environmentally benign management practices commonly known as best management practices or bmps eqip offers the farmer a suite of bmps to choose from existing published research cooper and keim modeled the probability of farmer adoption of bmps as a function of the incentive payment with each practice be

extracting information from asset prices the methodology of emu calculators abstract this paper develops a particular technique for extracting market expectations from asset prices we use the term structure of interest rates to estimate the probability the market attaches to the event that a country italy joins the european monetary union at a given date the case of italy is interesting because in the survey regularly conducted by reuters the probability that italy joins emu in 1999 has fluctuated in the first months of 1997 between 0 07 and 0 15 while during the same period the measures computed by financial houses which are based on the term structure of interest rates ranged between 0 5 and 0 8 the paper proposes a new method for computing these probabilities and shows that the discrepancies between survey and market based measures are not the result of market inefficiencies but depend on an incorrect use of the term structure to compute probabilities the technique proposed in the paper can also be used to distinguish between convergence of probabilities and convergence of fundamentals that is to find out whether an observed reduction in interest rate spreads signals a higher probability of joining emu at a given date or simply reflects improved fundamentals it could also be applied more generally to extract from assets prices information on imminent changes in an exchange rate regime

devaluation exchange controls and black markets for foreign exchange in developing countries abstract this paper analyzes the response of external balance indicators to anticipated devaluation in a model incorporating the movement of black market exchange rates under rational expectations the analysis is then extended to the case of devaluation cycles to examine the behavior of black market rates and official trade statistics in the face of persistent inflation that appreciates the real exchange rate and motivates periodic devaluation the data confirm the predicted response of the black market rate to devaluation as well as the sensitivity of official exports data to movements in the black market rate

monetary and real shocks productive capacity and exchange rate regimes where producers may diversify internationally international diversification is shown to inuuce a positive correlation between the volatility of productivity shocks and investment in the presence of a phillips curve the expected gnp is lower under a floating exchange rate regime than under a fixed exchange rate regime this result applies both for real and monetary shocks attempts to reduce foreign direct investment by capital controls will tend to reduce welfare without affecting our results regarding the ranking of exchange rate regimes implies that in the presence of market power uncertainty tends to reduce investment in the first part of the paper i demonstrate the international diversi fication of production modifies this result foreign direct investment tends to offset the impact of market power on the concavity of the profit function by weakening the relative price effect associated with output changes and by increasing the flexibility of adjusting the variable input hence international diversification of production is shown to induce a positive correlation between the volatility of productivity shocks and investment the second part of the paper utilizes the framework presented in section i to re examine the welfare ranking of exchange rate regimes in the presence of capital mobility as is well appreciated a one dimensional answer regarding the merits of a fixed exchange rate regime will not do justice to the host of issues relevant for making the choice between exchange rate regimes the second part of the paper focuses on one aspect of the debate the linkages between volatility domestic and foreign direct investment and productive capacity a frequent argument in favour of exchange rate stability relates to the potential cost of exchange rate volatility which may work to increase the cost of international trade and to reduce its volume yet efforts to detect the adverse effects of exchange rate volatility on trade volumes in the last two decades have not delivered clear cut results in fact the experience of international trade among the united states canada europe and japan suggests that there is no natural

the role of information acquisition and financial markets in international macroeconomic adjustment abstract international macroeconomic adjustment to money supply aggregate expenditure and relative demand disturbances is analyzed within a framework which emphasizes the role of information agents are unable to directly observe disturbances and may become fully informed about disturbances only by purchasing information we analyze how relative price and exchange rate adjustment depends on the variances of the underlying disturbances while taking into account the incentive to acquire information we also discuss the conditions which are necessary to preclude a free rider problem whereby uninformed agents are able to extract from observation of financial market conditions the exact information of the information buyers

optimal monetary policy endogenous supply and rational expectations abstract in this paper we demonstrate that the choice of monetary policy regime will affect the variability of output when private agents in forming their supply decisions take into account the authority s selection of a policy rule a striking feature of the analysis is that the choice between policy rules in sargent wallace 1975 framework but with endogenous aggregate supply depends only on the variability of aggregate demand under each rule and not on the variability of aggregate supply it follows that the choice of monetary policy rules reduces to the problem analyzed by poole 1970 in the stochastic keynesian structure

unification of dual exchange markets abstract this paper develops the model of an economy under a dual exchange system comprising an official market with a crawling exchange rate and a free market with a floating exchange rate after analyzing the behavior of the economy under the dual system the paper discusses the effects that switching to a unified floating system or a unified crawling peg system has on the exchange rate and on the balance of payments particularly in the short run the paper shows that these effects depend on the composition of the private sector s portfolio at the time of unification which in turn depends on the various policies that were followed while the economy was under the dual system

insulation properties of a two tier exchange market in a portfolio balance model when countries peg their currencies to those of their major trading partners they expose themselves to interest sensitive and speculative capital flows that can undermine their ability both to maintain their exchange rate and to pursue an independent monetary policy some countries notably france italy and the belgo luxembourg economic union bleu experimented with two tier exchange rates in the early 1970s in the hopes of insulating their economies from the effects of international capital flows while at the same time protecting foreign trade from exchange rate fluctuations france and italy soon abandoned the experiment but the bleu continues to maintain separate exchange markets with separate exchange rates for current and capital account transactions the commercial exchange rate which relates to the market for current account transactions is generally pegged by the authorities the financial exchange rate determined in the market for capital account transactions is usually free to fluctuate 1 this paper investigates how well a two tier exchange market insulates a small open economy from foreign disturbances taking into account recent developments in the theory of exchange rate determination work by branson 1977 dornbusch 1976 and kouri 1976 suggests that the short run equilibrium value of the exchange rate is determined along with interest rates by demand and supply in the markets for financial assets this asset market or portfolio balance approach to exchange rate determination is particularly well suited to a study of the two tier exchange market one can view the financial exchange rate as a relative asset price it is among the variables that equilibrate asset markets and it is determined in the short run in those asset markets previous theoretical work on the two tier exchange market has generally been within the mundellian framework the financial exchange rate has been treated as equating a flow demand and supply of foreign exchange the asset market approach has the advantage of carefully distinguishing between stocks and flows in particular it treats demands for assets as stock demands that are realized instantaneously so that actual holdings of assets always reflect the desired composition of the portfolio disturbances to portfolio equilibrium create immediate stock adjustments as portfolios are rebalanced causing instantaneous changes in endogenous market clearing variables in addition disturbances alter the rate of accumulation the flow of financial assets over time portfolio balance models of two tier exchange rates can be found in dornbusch 1976 and decaluwe and steinherr 1976 but they differ from the one presented here dornbusch partitioned the exchange market so that interest income a current account transaction was channelled through the financial market that segmentation yields a different expected rate of return on foreign

export adjustment to currency depreciation in the presence of parallel markets for foreign exchange the experience of selected sub saharan african countries in the 1980s the primary focus of this study is an empirical investigation of the implications of parallel exchange markets for export adjustment to official currency depreciation an econometric model incorporating the features of exchange control and credit constraint was estimated using pooled data from 13 sub saharan african countries a rise in the parallel currency premium was found to adversely affect official exports and the estimates suggest that official depreciations which are launched in the presence of large exchange rate misalignment and which succeed in reducing the latter are likely to exert greater favourable effects on export performance than otherwise equivalent depreciations

capital controls and international trade finance abstract this paper studies the effects of prohibiting individuals from holding foreign assets but of allowing firms to trade in foreign assets only up to what is needed to finance export and import activities although firms can perform arbitrage between domestic and foreign financial markets the distortions in asset markets are not fully arbitraged away but instead are transmitted to domestic goods markets the dynamics and steady state responses to a variety of shocks are crucially affected by capital controls even in the presence of capital controls the volatility of domestic interest rates can be substantial

semiparametric distribution free testing of the expectations hypothesis in a parimutuel gambling market the expectations hypothesis maintains that a current forward or futures price should be an unbiased forecast of the expected future price this article tests the expectations hypothesis in the parimutuel gambling market for greyhound racing using parametric and semiparametric estimators parimutuel gambling markets are similar to speculative asset markets in many regards conventional maximum likelihood tests of asset pricing require a priori specification of the statistical distribution governing agents expectations distributional misspecifications may bias conventional tests the semiparametric estimators applied in this article overcome these problems and in addition maintain consistency under heteroscedasticity the results reject the expectations hypothesis

determinants of the spread in a two tier foreign exchange market abstract the determinants of the spread between the commercial and financial exchange rates are analyzed in a two tier exchange market model derived from utility maximization contrary to popular belief it is found that domestic policy and non policy variables have no effect on the spread only foreign factors matter

on the viability of monetary unions abstract this paper contrasts the notion of optimality with that of viability of monetary unions and attempts to provide a positive analysis of the latter by dwelling upon herbert simon s work on models of bounded rationality a macro model developed by frenkel and aizenman is appended to the above theoretical framework and it is shown that viability is strictly related to certain specific properties of the economy