foreign borrowing and macroeconomic adjustment to external shocks abstract this paper analyzes the impact of anticipated and unanticipated external shocks on the evolution of macroeconomic variables particularly foreign borrowing and on steady state stocks of capital and debt we find that the desired mode of adjustment to a shock is highly sensitive to its nature intertemporal substitution effects often dominate the pure wealth loss effect external disturbances will typically be intertemporally correlated in the real world the paper analyses the resulting implications for the dynamic smoothing of adjustment

the costs and benefits of foreign borrowing a survey of multi period models this article surveys the literature on multi period models of foreign borrowing to shed light on the issue of how much a country should borrow and under what circumstances there is a role for public intervention it identifies the essential structural elements of multi period models and draws out the ramifications of the alternative specifications adopted it discusses the insights and shortcomings of three classes of models non optimising optimising borrower and jointly optimising borrower and lender

non traded goods and the international transmission of fiscal policy abstract this paper looks at the effect of non traded goods on the international transmission of fiscal policy intertemporal movements in the price of non traded goods affect real interest rates differentially between countries the real interest rate effects of a fiscal expansion depend crucially upon both the composition of fiscal spending and the intertemporal elasticity of substitution with a high intertemporal elasticity of substitution in consumption a temporary fiscal expansion on non traded goods will lead consumer real interest rates to move in opposite directions between countries

fiscal spending the terms of trade and real interest rates this paper investigates the international movements in real interest rates and investment spending in response to a temporary fiscal expansion in one country it is shown that fiscal expansion may lead investment spending to be negatively correlated across countries this is because real interest rates relevant for investment purposes may move asymmetrically between countries in response to an expansion in fiscal spending the crucial factors which determine whether or not this occurs are a a transfer criterion which depends upon the spending propensities of the government relative to those of private consumers and b the intertemporal elasticity of substitution in consumption

toilet cleaning and department chairing volunteering a public service abstract who will do a job that nobody wants but that someone has to do the search for a volunteer is modelled as a war of attrition in which everyone is tempted to just wait for someone else to do it we show that the volunteer will be ceteris paribus the individual for whom the benefit cost ratio of performing the public service is largest the one most impatient to consume it or the one who stands to benefit from it the longest

structural adjustment and the construction sector abstract this paper adds a construction sector to a dynamic dependent economy model equipped with consumer tradeables and non tradeables sectors the model is used to study the response of the production structure relative prices and the trade balance to a favorable terms of trade shock under the benchmark assumptions of perfect intersectoral factor mobility a perfect international capital market and no adjustment costs for realistic relative capital intensities the model predicts a boom in the construction and consumer non tradeables sectors a contraction of the tradeables sector and no relative price changes the implications of relaxing those benchmark assumptions are discussed separately

a model of international asset pricing under imperfect commodity arbitrage abstract this paper examines the effect of imperfect international commodity arbitrage i e violation of the law of one price modeled as the existence of non traded goods on the structure of purchasing power risk optimal portfolio rules of the risk averse investors and the equilibrium yield relationship among assets the major results of the paper include i there are two separate sources of purchasing power risk i e relative price risk and inflation risk relative price risk is specific to the country in which the investor resides ii in a world of n countries investors may hold n 1 hedge portfolios as vehicles to hedge against purchasing power risk facing different relative prices investors residing in different countries display divergent portfolio behavior iii in equilibrium investors are compensated in terms of excess return for bearing not only the systematic world market risk but also the systematic inflation and relative price risks

deviations from purchasing power parity and capital flows abstract this article examines the implications of deviations from purchasing power parity ppp for an investor s portfolio decision and the consequent capital flows in a two country intertemporal model with complete financial markets in the presence of deviations form ppp investors from different nations hold disparate portfolios and the equilibrium that results is not a pooling one we solve eplicitly for asset demands and derive the relationship between the direction of capital flows and deviations from ppp in contrast to the small country assumption in the existing literature the world interest rate in this model is determined endogenously

tariffs real exchange rates and the trade balance in a two country world abstract an intertemporal model of a two country world in which optimizing agents consume three goods importables exportables and nontradables is developed to investigate a tariffs effects on real interest rates real exchange rates and the trade balance real interest rates and real exchange rates are shown to move asymmetrically across countries in response to a temporary tariff we also show that in contrast to the findings of two tradable good models a temporary tariff may actually worsen the trade balance of both deficit and surplus countries even when there are no cross country differences in tastes

capital mobility and the current account abstract this paper analyzes the effect of unanticipated changes in the terms of trade on consumption expenditures and the current account in a small open economy simple formulas are obtained for the covariances of changes in consumption expenditures the current account and the expected current account with changes in the terms of trade it is shown that if investment is uncorrelated with the terms of trade a necessary condition for unanticipated changes in the terms of trade to be correlated with changes in consumption expenditures and the expected current account is that the real expected return on foreign bonds differs from the real expected return on domestic bonds

international debt and world business fluctuations abstract the international transmission of real productivity disturbances is examined in an optimizing model with two countries each inhabited by an infinitely lived representative consumer producer we analyze the dynamics of output consumption investment interest rates and net external debt foreign productivity shocks can have positive or negative impacts on domestic output and international debt depending on the intertemporal distribution of the shocks transient foreign shocks are shown to be positively transmitted and lead to increased domestic indebtedness while permanent foreign shocks are negatively transmitted and lead to a decline in domestic indebtedness

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

the effect of government spending on the current account output and expenditures evidence from latin america abstract this paper examines the linkages between government expenditures and current account balances in several latin american economies over the period 1974 1984 in theory these linkages critically depend on private sector responses to changes in government expenditures on both the demand and supply sides the analysis provides evidence that the negative current account government expenditure linkage is much stronger in the event of a temporary shock to government expenditures than in the event of a permanent shock the source of this differential response appears to be primarily on the expenditure side suggesting that private sectors in latin america incorporate the present discounted value rather than simply the current value of government expenditures into their expenditure decisions

capital goods imports the real exchange rate and the current account conventional aggregate models of open economies typically rule out trade in capital goods but capital goods account for a major share of the world trade in 1990 they represented more than 40 percent of u s merchandise exports and more than 30 percent of its imports in the same year capital goods imports represented an average of roughly 30 of total imports for 82 industrial and developing countries and almost 9 percent of their gdp this report shows that the presence of imported capital goods greatly changes the short and long run effects of macoreconomic policies and external shocks on key macroeconomic variables using a rational expectations aggregate model with intertemporally optimizing agents and with trade in both consumption and capital goods it finds that the long run equilibrium of the economy displays a negative relationship between the real exchange rate and real output that is a real appreciation is associated with an increase in long run output and the capital stock with investment subject to adjustment costs the response to unanticipated permanent disturbances involves a changing real exchange rate and a non zero current account the author analyzes the macroeconomic consequences of changes in fiscal policy and of transfers of wealth from abroad he show that both have well defined long run effects on the capital stock and real output fiscal expansion in particular may have a long run crowding in effect on investment by constrast the impact of disturbances on the current account is ambiguous the author shows that it depends critically on the degree of intertemporal substitutability in both consumption and investment with the latter measured by the magnitude of investment adjustment costs

why real interest rates cost of capital and price earnings ratios vary across countries abstract this paper examines how productivity changes affect real rates of return and price earnings ratios in a small open economy the model provides conditions under which increased productivity in a country s traded goods sector causes prices of non traded goods to increase relative to the price of traded goods under these conditions real rates of interest decline and the production of certain non traded durable goods such as capital equipment and housing immediately increase this overconstruction has two effects first the increase in capital relative to labor in these sectors increases the marginal product of labor and hence immediately causes an increase in wages and the prices of non traded goods second an oversupply of capital goods and housing depresses their rental rates in the current period thereby increasing their price to rental ratios or equivalently their price earnings ratios

capital mobility and international sharing of cyclical risk this paper investigates whether the international globalization of financial markets allows for significant cross country risk sharing at the business cycle frequency we find that cross country risk sharing is still limited and this is unlikely to be the result of financial frictions that limit state contingent contracts part of the limited international risk sharing could be the consequence of frictions that de facto reduce the short term mobility of financial capital but even with these frictions we find significant divergence between model predictions and the data

determinants of the current account balance in the united states this article studies the role of public and private imbalances in the behaviour of the current account balance in the united states in the context of an intertemporal model the estimation evaluates the effects of public and private imbalances on the dynamics of the current account correlation coefficients support the ricardian equivalence higher budget deficit correlates with a reduction in private consumption and an increase in private savings government saving does not vary significantly with macroeconomic variables in the short or in the long run in contrast fluctuations in government investment vary significantly with a number of economic variables in the long and in the short run accordingly fluctuations in the budget deficit are likely to be driven by fluctuations in public investment in contrast to government savings private savings vary significantly with macro variables in the long and in the short run fluctuations in private investment appear less evident compared to that in privat

temporary and permanent government spending in an open economy some evidence for the united kingdom abstract this paper investigates the effects of government spending changes on a small open economy in an intertemporal substitution framework if agents internalize the government s budget constraint temporary and permanent spending have different implications for wealth and consequently different effects on output and the balance of trade estimation of these effects isolates the different channels through which government spending can influence economic activity main findings for the united kingdom are that government spending i crowds out private spending ii is directly productive and iii when rising permanently leads to a negative wealth effect which induces a large rise in work effort

the real exchange rate the capital stock and fiscal policy abstract this paper studies the joint determination of aggregate supply the real exchange rate and the current account in response to changes in government spending in a model where there is no uncertainty in the aggregate but where individuals are uncertain about their lives duration international capital mobility fixes the steady state capital stock and aggregate supply in a small country whereas in a large country the steady state capital stock is endogenous an increase in government spending is more likely to generate a real exchange rate depreciation in a small country since the loss of wealth associated with cumulated current account deficits does not increase rest of the world spending in the case of a large country current account deficits are wealth transfers to the rest of the world and increase foreign spending thus the normal long run response is an increase in the relative price of domestic output

budget deficits and the current account an intertemporal disequilibrium approach the objective of the present paper is to develop an intertemporal disequilibrium model of a monetary economy to explain the effects of fiscal policy on the current account we wish to emphasize the role of aggregate demand determined output fluctuations and flexible exchange rates within a microtheoretic optimizing framework furthermore the differing effects of monetary versus non monetary i e tax or bond finance of government expenditures are considered

import dependency and structural adjustment in sub saharan africa one of the effects of structural adjustment programs in sub saharan africa has been the reduction of imports in the face of scarce foreign exchange this article takes the analysis of import demand beyond the traditional income and price determinants to account for factors likely to be important to sub saharan african countries in the 1990s first the effect of demand on imports is reflected by the level of absorption rather than the less direct income variable second because adjustment programs may cut government consumption and through increases in interest rates reduce investment these components of absorption are also considered independently to assess their differential effect on imports third import barriers are often set in dollar terms to limit the use of foreign exchange because reliable and complete data for import restrictions are not available the ratio of exports to debt is included as an indicator of foreign exchange availability to reflect its effect on trade barriers and thus imports the findings suggest that this more comprehensive assessment of import demand will be needed if the size and even direction of changes in import demand in response to policy reform is to be understood and anticipated

the dutch disease a disease after all many third world oil producers are encountering serious problems in building up a diversified export base while west european oil and gas producers netherlands united kingdom are suffering a decline in their traded goods manufacturing sector induced by real wage pressures it is becoming increasingly clear that high but temporary oil revenues may be somewhat ora mixed blessing the quip of the economist notwithstanding the mechanism behind this unbalance is clear enough part of the oil revenues is spent on non traded goods which leads to a real appreciation i e a rise in the relative price of non traded goods in terms of traded goods this in turn draws resources out of the non oil traded sector into the non traded goods producing sector corden and neary 1982 van wijnbergen 1980 one may say that this is an efficient response to the increase in income from oil production the united kingdom mexico egypt simply should move into oil derived industries and non traded goods and forget about their manufacturing sector until oil reserves are exhausted however many developing countries are hesitant to take this advice after all the post world war ii success stories in economic development involve without exception countries that promoted their traded goods sector aggressively moreover it is a well established stylised fact that technological progress is faster in the traded non sheltered sectors of an economy than in the non traded sector balassa 1964 is an early reference considering the hypothesis that technological progress rather than taking place exogenously with the passage of time is a function of accumulated experience the concern of countries like egypt mexico or indonesia is much easier to understand since solow 1957 and denison 1962 it is known that capital accumulation explain only a small part of economic growth if most of economic growth is caused by learning by doing induced technologica

stabilization dynamics and backward looking contracts abstract exchange rate based stabilizations often result in an initial output expansion one explanation for this phenomenon has been that in the presence of inflation inertia a reduction in the nominal interest rate causes the domestic real interest rate to fall thus increasing aggregate demand this paper reexamines this issue in the context of an intertemporal optimizing model in contrast to previous results the analysis shows that if the intertemporal elasticity of substitution is smaller than the elasticity of substitution between traded and home goods a permanent reduction in the rate of devaluation leads to a fall in aggregate demand

terms of trade shocks and optimal investment another look at the laursen metzler effect conventional analyses of the effect of terms of trade shocks provide a misleading view of their impact on investment and the current account because capital goods imports are excluded from the analytical framework the author argues that such an exclusion is both arbitrary and unrealistic the author reexamines the consequences of permanent and transitory changes in terms of trade in a rational expectations model of a small open economy with intertemporally optimizing agents and with trade in both consumption and capital goods in this framework the responses to a permanent terms of trade improvement in unambiguous the long run capital stock and thus investment must rise and the current account must deteriorate exactly the opposite of the laursen metzler effect a transitory improvement in the terms of trade raises saving but has an uncertain effect on investment so the impact on the current account is generally ambiguous and is shown to depend on three factors the import contents on consumption and investment the duration of the windfall and the degree of intertemporal substitutability in both consumption and investment

profits markups and entry fiscal policy in an open economy in this paper we develop a general model of an imperfectly competitive small open economy there is a traded and non traded sector whose outputs are combined in order to produce a single final good that can be either consumed or invested we make general assumptions about preferences and technology and analyze the impact of fiscal policy on the economy we find that the fiscal multiplier is between zero and one and provide sufficient conditions for it to be increasing in the degree of imperfect competition we also are able to compare the multiplier under free entry and with a fixed number of firms and welfare a simple graphical representation of the model is developed

the growth and welfare consequences of differential tariffs this paper analyzes the impact of differential tariffs on consumption and investment in a specific factors model of a small open economy in which capital is accumulated over time particular attention is devoted to the welfare aspects highlighting the cost of the intertemporal distortions produced by protective trade policies several specific welfare propositions are obtained first tariff protection is shown to create short run benefits but long run costs in welfare second the second best policy for the two tariffs is characterized finally several propositions summarizing the implications of our analysis for tariff reform are derived

optimal taxation and debt in an open economy abstract we characterize the time profile of the optimal consumption tax in a small open economy under foreseen fluctuations in the taste for current consumption productivity or external interest rates we give conditions for the efficient tax to be lowered or raised when productivity rises taste fluctuations are parameterized to be equivalent to effective consumption price fluctuations we give conditions under which the optimal tax rises or falls with the effective price in contrast the optimal tax rate is invariant to changes in the interest rate the associated behavior of optimal debt is also characterized

anticipated budget deficits and the real exchange rate this paper explores the relationship between government budget deficits and the real exchange rate while the conventional view is that a deficit generates real exchange rate appreciation the experience of many small economies appears to contradict this belief in this model the impact of an announced future deficit depends on the elasticity of intertemporal substitution if it is high an announced deficit gives rise to immediate real exchange rate appreciation a deterioration in the trade balance and a fall in welfare of current generations when a low elasticity of intertemporal substitution exists however an announced deficit may generate a real depreciation with the opposite impact on the trade balance and welfare moreover in this case the announcement of a future deficit will increase the intertemporal volatility of the real exchange rate but leave its average value unaffected

the capital inflows problem revisited a stylized model of southern cone disinflation in the late 1970s countries in latin america s southern cone initiated attempts to lower domestic inflation rates through the progressive reduction of a preannounced rate of exchange rate devaluation the stabilization programs gave rise to massive capital inflows real exchange rate appreciation and current account deficits this paper develops a stylized intertemporal framework in which the effects of a credible preannounced disinflation scheme can be studied it is shown that even when agents have perfect foresight and markets clear continuously the capital inflows phenomenon and the associated real appreciation may result while unanticipated permanent inflation changes are neutral in the paper anticipated inflation is neutral only in exceptional circumstances a preannounced disinflation operates by altering the path of an expenditure based real domestic interest rate that depends on expected changes in the prices of liquidity services and nontradable consumption goods

world trade patterns economic disturbances and exchange rate management abstract this paper construct and analyzes a three country stochastic model of world trade the objectives of this paper are to investigate the propagation of economic disturbances worldwide and to analyze the nature of optimal exchange rate management on the part of a single country faced with monetary and real disturbances accurring in all its trade patterns the paper analyzes the roles of bilateral trade patterns the type of underlying stochastic disturbances i e monetary vs real and transsitory vs permanent and of the optimality criterion in determining the optimal exchange rate regime

can exchange rate variations or trade policy alter the equilibrium current account abstract paul krugman has pointed out that much work needs to be done before the intertemporal open economy model can replace the open economy is lm model as a guide to policy making the objective here is to take a step in this direction by examining if an exogenous increase in world demand for home goods as via trade policy can improve the equilibrium current account within an open economy intertemporal model in the process the paper explores the theoretical issue as to whether a variation in the real exchange rate can alter the difference between saving and investment the key idea is that uncovered interest parity plus some degree of mean reversion in the real exchange rate imply that a modern version of the laursen metzler harberger effect is operative the result is that a policy induced increase in the trade balance will alter the real exchange rate which in turn increases the difference between home saving and investment and thereby improves the equilibrium current account

exchange rate mean reversion from real shocks within an intertemporal equilibrium model abstract the post bretton woods era has been characterized by real exchange rates that exhibit mean reversion with mixed evidence as to whether this reversion is partial ppp never holds or essentially complete this paper generates these stylized facts theoretically by synthesizing a simple intertemporal open economy model with the elasticities approach to the current account a central feature of the model is the existence of non traded goods the model can generate partial or approximately complete mean reversion for the real exchange rate depending on parameter values if innovations in output are made up of permanent and temporary components in addition temporary output shocks generate a type of hysteresis wherein the short run path for the exchange rate permanently alters its long run equilibrium value

consumption and real exchange rates in dynamic economies with non traded goods abstract we examine the possibility that non traded goods may account for several striking features of international macroeconomic data large persistent deviations from purchasing power parity small correlations of aggregate consumption fluctuations across countries and substantial international real interest rate differentials a dynamic exchange economy is used to show that non traded goods in principle can account for each of these phenomena in the theory there is a close relation between fluctuations in consumption ratios and those in bilateral real exchange rates but we find little evidence for this relation in time series data for eight oecd countries

productivity shocks non traded goods and optimal capital accumulation this paper considers the interaction of saving and investment in determining the current account for a small open economy subjected to productivity shocks by emphasizing the distinction between traded and non traded goods the analysis highlights the crucial role of the real exchange rate in macroeconomic adjustment our results demonstrate the importance of intertemporal substitution for determining the response of investment to anticipated productivity disturbances we also show how the correlation of movements in saving and investment following an anticipated disturbance depends critically on relative sectoral factor intensities

credibility real interest rates and the optimal speed of trade liberalization abstract this paper investigates the effects of imperfectly credible trade liberalization programs on welfare and the allocation of resources we present a rational expectations model in which a government with limited access to international borrowing will abort a liberalization program if hard currency reserves are depleted too quickly the liberalization s lack of perfect credibility acts as a distortion which becomes rationally intensified under the typical first best policy of immediate liberalization a more gradual lowering of trade barriers leads to higher welfare and a greater probability that the program succeeds we derive the optimal speed of liberalization and the endogenous level of credibility

capital inflows external shocks and the real exchange rate abstract this paper examines the effects of a fall in world interest rates on capital flows and the real exchange rate in an optimizing framework with imperfect capital markets a permanent fall leads to a steady state reduction in net foreign assets and a real depreciation regardless of whether the country is initially a net creditor or net debtor on impact the real exchange rate appreciates in the net debtor case but may either appreciate or depreciate in the net creditor case the dynamics associated with a temporary shock depend not only on its duration but also on the initial asset position

consumption permanent income and financial wealth in canada empirical evidence on the intertemporal approach to the current account the intertemporal approach to the current account is rejected as a complete explanation of the canadian current account federal government fiscal policy plays an important role in the determination of the current account a private sector agent that treats its holdings of net liabilities of the federal government as net wealth accumulates the sum of these liabilities and the net liabilities of non residents as part of an intertemporally optimal plan this result indicates both fiscal policy and intertemporal considerations are important determinants of current account behaviour consommation revenu permanent et richesse financiere au canada resultats empiriques d une approche au compte courant mettant l accent sur la dimension intertemporelle cet article montre que l approche mettant l accent sur la dimension intertemporelle ne produit pas une explication complte du comportement du compte courant canadien i1 semble que la politique fiscale du gouvernement federal joue un r6le important dans la conformation du compte courant un agent economique prive composite qui traite son portefeuille de dettes nettes du gouvernement federal comme richesse nette va accumuler la somme de ces dettes et des dettes nettes des non residents dans le cadre de son plan intertemporel optimal les resultats montrent que la politique fiscale et des considerations intertemporelles sont des elements determinants du comportement du compte courant

current accounts in debtor and creditor countries the authors reexamine a classic question in international economics what is the current account response to a transitory income shock such as a temporary improvement in the terms of trade a transfer from abroad or unusually high production to answer this question they construct a world equilibrium model in which productivity varies across countries and international borrowing and lending take place to exploit good investment opportunities despite its conventional ingredients the model generates the novel prediction that favorable income shocks lead to current account deficits in debtor countries and current account surpluses in creditor countries evidence from thirteen oecd countries broadly supports this theoretical prediction

real interest rates home goods and optimal external borrowing the paper investigates the optimal time path of consumption and external borrowing in the dependent economy model the small country faces given world prices and a given world real interest rate the presence of a home goods sector implies that the relevant real interest rate appropriate to consumption decisions depends on the rate of change of the real price of home goods the paper shows how transitory disturbances in output or in the world real interest rate affect the time profile of consumption and the trade balance in particular it is shown that the presence of a home goods sector dampens the consumption effects of changes in the world interest rate

terms of trade shocks and the current account in small island developing states abstract the paper investigates the dynamic relationship between external and internal shocks and the current account in selected small islands developing states external shocks defined as terms of trade fluctuations explain a significant proportion of the variation in the current account balances the external shocks have a temporary negative impact on the current account balances with a subsequent improvement generating a j curve type reaction in contrast real output shocks have a positive and significant effect on the current account

the international linkage of real interest rates the european us connection abstract in this paper we present evidence on several questions regarding the movement in short term real interest rates in eight countries have ex ante real estates in the united states and europe been high during recent years has there been a link between us real rates and those in other countries can this link be quantified the basic finding in this paper is that real rates have climbed dramatically from the 1970s to the 1980s in both the european countries and the united states there is also strong evidence that there is a positive association between movements in us real rates and those in europe however european real rates typically do not move one for one with us real rates still leaving open the possibility that european monetary policy can influence domestic economic activity

macroeconomic adjustment under alternative lending arrangements abstract this paper investigates macroeconomic adjustment for a small open economy under alternative lending arrangements the arrangements considered all have the common feature of a link between international lending rates and measures of creditworthiness by employing an intertemporal maximizing model of a small open economy the paper analyzes adjustment paths for the stock of international debt the real exchange rate and consumption in response to economic shocks the paper finds that arrangements linking interest rates on lending to the outstanding stock of debt are consistent with a stable adjustment trajectory whereas arrangements linking interest rates to performance on the trade balance are likely to be unstable

large demographic shocks and small changes in the marriage market between 1958 and 1961 china experienced one of the worse famines in her history birth rates fell during these years and recovered immediately afterwards the famine also adversely affected the health of these cohorts this paper provides non parametric estimates of the total effects of the famine on the marital behaviour of famine affected cohorts in the rural areas of sichuan and anhui these reduced from estimates incorporate general equilibrium and heterogeneous treatment effects two important components of equilibrium marital behaviour next the paper uses a structural model of the marriage market the choo siow model to decompose observed marital outcomes into quantity and quality effects of the famine the structural estimates show that the famine substantially reduced the marital attractiveness of the famine born cohort the conclusion is that the small observed changes in marriage rates of the famine born cohorts are due to a substantial decline in their marital attractiveness controlling for changes in educational attainment does not change the conclusion

present value tests of an intertemporal model of the current account abstract this paper first demonstrates that in a simple intertemporal open economy model the current account is equal to the expected decline of the present discounted value of net output of a country net output is defined as gross domestic product less the sum of investment plus government spending it then uses econometric methods for present value models to analyze the current account for four countries in two of these countries the model does a satisfactory job of explaining the current account

comparative advantage and the gains from financial trade a reappraisal emerging market crises have suggested that a national benefit cost assessment of external financial liberalisation could well pro ve unfavourable this paper re examines the principle of comparative advantage in its application and international migration we distinguish between those arising in f inancial trade from the net transfer of capital and those deri ving from the contemporaneous exchange of f inancial claims or services of equivalent is on the contractual risk return characteristics of the financial claims exchanged this perspective is applied firstly to portfolio diversification gains arising from further international stock market integration secondly price risk management for developing countries in international primary commodity trade is discussed both applications imply the need for significant institutional development but could reali se approximately contemporaneous gains reminiscent both of those involved in merchandise trade and in the skills and product or service flows that baloo has emphasis ed in relation to fdi and international migration