global liquidity through the lens of monetary aggregates this paper examines how the financial activities of non financial corporations nfcs in international markets potentially affects domestic monetary aggregates and financial conditions monetary aggregates reflect in part the activities of nfcs who channel capital market financing into the domestic banking system thereby influencing funding conditions and credit availability periods of capital inflows are also those when the domestic currency is appreciating and such periods of rapid exchange rate appreciation coincide with increases in the central bank s foreign exchange reserves increasing the stock of narrow money the paper examines economic significance of cross country panel data on monetary aggregates and other measures of non core bank liabilities non core liabilities that reflect the activities of nfcs reflect broad credit conditions and predict global trade and growth

candidate reputations and the incumbency effect abstract a major shortcoming of the classical median voter model is that its central prediction convergence of platforms to the median voter s ideal is seldom observed one reason is that the classical model neglects the importance of voter expectations as a determinant of votes here we associate voters expectations about candidates with past as well as current candidate pronouncements and assume that incumbents whose actions are consistent with their reputations are perceived as less risky than challengers in equilibrium candidates choose distinct platforms typically neither adopts the median voter s ideal point either candidate may win depending on how well the incumbent s reputation reflects current voter tastes and how relatively risky the electorate perceives the challenger to be

temporal stability of stated preferences for endangered species protection from choice experiments abstract benefit transfer methods rely on past models and results so it is important to know whether economic values are stable over time or are subject to change either because of the reliability of the methodology or due to actual preference changes the temporal stability of willingness to pay wtp has been tested extensively for contingent valuation but rarely for stated preference choice experiments ce we use data from two identical ce surveys on different samples from the same population that occurred 17 months apart spring 2009 and fall 2010 to estimate and compare mean wtp and preference parameters associated with threatened and endangered marine species protection our models account for both preference and scale heterogeneity and the results suggest both types of heterogeneity matter tests of preference stability suggest stable preferences between 2009 and 2010 furthermore wtp values estimated from both surveys are not statistically different this provides evidence that economic values estimated using ce methods are temporally stable

the transactions demand for money in a two currency economy abstract in this paper the model of the transactions demand for money of baumol 1952 is extended to an economy where transactions are conducted in two currencies the currency substitution hypothesis that the domestic demand for domestic money depends on the expected rate of depreciation as well as the domestic rate of interest and level of income is derived from the model in addition several new insights into the implications of currency substitution are provided

why democracies produce efficient results by applying the standard tools of microeconomic analysis i argue that democratic markets work as well as economic markets in particular i show that previous work has greatly exaggerated the existence of principal agent and informational problems in electoral markets and has drawn incorrect conclusions

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

on the feasibility of unpopular policies under re election concerns 1 introduction a common concern about political decision making is that re election motives lead incumbent politicians to select policies that although popular among the electorate are inferior to available less popular alternatives this concern reflected in the notions such as demagogy and mob rule implies that politicians may be penalized for choosing policies that they believe to be the best but ironically are rewarded for choosing popular policies that they do not necessarily believe to be the best in this paper i study this common concern through a series of models 1 for the main model that i will study politicians differ only in utility from holding office the main result is that strong re election motives on the part of the incumbent politicians in general do not render efficient and unpopular policies infeasible in fact i will show that under very general conditions voters voting decisions do not depend on whether the incumbents have chosen popular policy options nor are incumbents policy decisions responsive to policy popularity we may call this result the irrelevance or neutrality of policy popularity note that voters only have limited information and there is a possibility that the unpopular policy may be superior to its alternatives voters would take their policy opinions as tentative and be willing to revise them upon the arrival of new information then an incumbent s re election chances will not deteriorate simply because of her choice of unpopular policies foreseeing this incumbents with even strong re election motives will not find it beneficial to choose popular but inefficient polices 2 to convey the above ideas i will examine an infinite horizon political agency model along the line pioneered by barro 1973 there are two important ingredients in this model first politicians are of two types strong and weak both types of politicians are concerned about both social welfare and the utility gained from holding office whereas the strong type puts a smaller weight on the latter each politician s type is the politician s private information if the politicians were homogeneous the choice between different incumbents would be inconsequential if their heterogeneity were public information voters would not need the politicians past records to infer their preferred future policies in either case the question of policy manipulation would no longer exist in section 6 i will introduce a third type of politicians the second ingredient is a proper modelling of a policy that could be unpopular but potentially superior a policy is popular when more voters think that the policy will yield a welfare greater than those of its alternatives such a policy s popularity reflects its ex ante efficiency as perceived by the electorate the incumbent politician nevertheless observes an additional imperfect information signal about the likely efficacy of the policy 3 therefore a popular policy might be interim inefficient whereas an unpopular policy might be interim efficient one crucial assumption for the policy popularity irrelevance result is that the only difference among politicians is their utility derived from holding office this suggests that for policy popularity to be relevant other sorts of heterogeneity among politicians are needed suppose for instance that the public believes with some probability that the incumbent is ignorant in the sense that she knows about different policy options even less than the public does then a choice of an unpopular policy might signal the incumbent s ignorance an incumbent who is informed but with a strong re election motive might then reject the unpopular policy even if it is interim efficient the rest of the paper is organized as follows section 2 introduces the model section 3 prepares preliminaries for later sections section 4 establishes the efficient perfect bayesian equilibrium under the assumption that voters vote for the candidate who has a greater probability of being strong

variability of the japanese money stock links to the u s and the october 1979 policy change abstract mckinnon s currency substitution model predicts that variable u s money growth causes greater variability of foreign money growth contrary to this thesis the variability of japan s monetary targets is found to be inversely related to the variability of u s m1

an economic model of representative democracy this paper develops an approach to the study of democratic policy making where politicians are selected by the people from those citizens who present themselves as candidates for public office the approach has a number of attractive features first it is a conceptualization of a pure form of representative democracy in which government is by as well as of the people second the model is analytically tractable being able to handle multidimensional issue and policy spaces very naturally third it provides a vehicle for answering normative questions about the performance of representative democracy

the variability of inflation a new approach and some new empirical evidence abstract this note tests the variability of inflation using a new simple approach and pooled cross country oecd data 1960 1980 the estimated equation reported shows that the variability of inflation depends upon the variability of money supply over time

testing benefits transfer of forest recreation values over a twenty year time horizon we conduct a functional benefit transfer over 20 years of total willingness to pay based on carborne forest recreation in 52 forests using a mixed logit specification of a random utility model and geographic information systems to allow heterogeneous preferences across the population and for heterogeneity over space results show that preferences for some forest attributes such as species diversity and age as well as transport mode have changed significantly over the period updating the transfer model with present total demand for recreation improves the error margins by an average of 282 average errors of the best transfer model remain 25

interpretation and temporal stability of cv bids for wildlife existence a panel study existence values are playing an increasingly important role in wildlife preservation decisions but little is known about how these values behave over time and value estimates may often be misinterpreted panel study results suggest that although existence values may be relatively stable many individuals respond to contingent valuation by bidding their fair share or for the satisfaction from contributing to a good cause such as environmental quality although payment of fair share may represent a lower bound estimate of existence value payment for a good cause may or may not be closely related to the value of the resource itself

an empirical analysis of hunting lease pricing and value of game in sweden game species generate considerable benefits to society in terms of hunting values tourism and maintenance of ecosystem balance this paper seeks to estimate hunting values for multiple hunted species by disentangling the role of wildlife harvesting opportunities from other factors that affect hunting lease prices we examine the determinants of hunting lease prices in sweden using both spatial and nonspatial econometric techniques our analysis confirms considerable hunting values for fallow deer and wild boar also the study reveals the presence of spatial spillovers in lease prices implying that landowners have little scope for exerting monopoly power on the hunting lease market

monetary integration and currency substitution in the ems the case for a european monetary aggregate abstract this paper examines the phenomenon of cross currency substitution and the validity of monetary aggregation within the european monetary system using non parametric methods which exploit the relationship between intergroup substitution and separability the separability property is tested using the methodology developed by varian the nonparametric approach to demand analysis econometrica 50 945 974 1982 nonparametric tests of consumer behaviour review of economic studies 51 99 110 1983 and is violated in the case of most european countries suggesting that the hypothesis of zero currency substitution which forms the basis of national monetary aggregation should be rejected the results do however validate the use of monetary aggregates for the ems as a whole and i use a standard parametric demand for money approach to compare the performance of an ems divisia index with that of simple sum aggregates during the 1980s and 1990s

inside money and the open economy abstract this paper presents a theoretical model of a world economy with international capital mobility non substitutable national currencies and flexible exchange rates an essential feature of the model is that individuals face a non trivial choice between real assets intermediated through banks inside money and unbacked currency outside money real shocks affect the relative demand for inside as opposed to outside money the money multiplier and are transmitted internationally through capital markets thereby affecting money stocks price levels and output abroad the analysis provides a possible explanation for the pattern of comovements in money supplies inflation rates and output levels across countries

impact of macroeconomic policies upon agricultural trade and international agricultural development international commodity markets in the early 1980s have experienced a severe cyclical downturn high real rates of interest have discouraged stock holding and disinflation has caused asset market participants to shift out of commodities into financial assets this is only the most recent bout of turbulence since we passed from the stable bliss of the 1950s and 1960s the basic question is whether this instability results from a seemingly unending series of shocks or is there a more general basic explanation which transcends individual events

on the form of transfers to special interests an important question in political economy concerns the form of transfers to special interests the chicago view is that political competition leads politicians to make such transfers efficiently the virginia position is that lack of information on the part of voters leads politicians to favor inefficient sneaky methods of redistribution this paper analyzes the form of transfers in a model of political competition in which politicians have incentives to make transfers to special interests it shows that when voters have imperfect information about both the effects of policy and the predispositions of politicians inefficient methods of redistribution may be employed

equilibrium political budget cycles political business cycle theories generally rely on nominal rigidities and voter myopia this paper offers an equilibrium theory that preserves some basic insights from earlier models though with significant refinements the political budget cycle emphasized here is in fiscal policy rather than output and inflation it arises via a multidimensional signal process one can consider the welfare implications of proposals to mitigate the cycle and the effects of altering the electoral structure copyright 1990 by american economic association

is the income elasticity of environmental improvements less than one we estimated the income elasticity of environmental improvements for a number of european data sets the value of this parameter is consistently found to be less than one with few exceptions our findings are compared with state of the art contingent valuation studies from other countries we also compared our findings with those reported in the literature on charitable donations and corporate donations these studies show a similar pattern donations decrease as a percentage of income as income increases

influences of international factors on us prices a theoretical and empirical analysis employing an open economy framework the present article argues that international forces would have important implications for us price behaviour even prior to the 1970s when the us international sector was relatively small a distributed lag price equation that declineates between domestic and foreign impulses is derived the model is estimated using quarterly data over the 1959 1979 period when international reserves as a measure of world liquidty were subject to relatively little noise the study finds that growths of us import prices and exports positively affected us price inflation over the entire sample period but not during pre 1971 period on the other hand while world liquidity measured by worldwide international reserves did not appear to influence us price for the whole period examined its effect is found to be positive over the fixed exchange rate era the mean lag of this foreign impulse is estimated at 6 quarters 2 quarters larger than that of domestic liquidity as measured by m1 th

protecting capital from itself u s attempts to regulate the eurocurrency system in 1979 and 1980 the u s government attempted to regulate the eurocurrency system in order to stabilize the international monetary and financial systems and for u s domestic monetary purposes the conflict between the u s government especially the treasury department and the federal reserve board and u s based transnational banks tnbs illustrates tnbs contradictory interests which are neither self evident nor easily discernible even to tnbs themselves the state comes to play a mediating role vis a vis tnbs in an only partially successful attempt to transform contradictory interests into coherent policy resulting in conflict between the state and tnbs the origins of u s regulatory initiatives are rooted in multilateral attempts to supervise banks between 1974 and 1978 and the failure of such coordination during the 1978 dollar crisis from the conflict between u s officials and u s tnbs emerge varying concepts of tnbs interests after examining the reasons for the failure of the u s proposals i conclude by suggesting some implications of tnbs contradictory interests for statist and social conflict theories of the advanced capitalist state few theories of the state have adequately taken into account the complexity and contradictory interests of transnational capital

domestic politics and international conflict this paper explores the interactions between domestic politics and international conflict the analysis shows that electoral uncertainty associated with competition between political parties each representing a specific group of the electorate imparts a negative bias on the nation s military spending given military spending by other nations in turn electoral uncertainty lowers other nations incentive to arm as well in this context democratic institutions can be thought of as a possible precommitment mechanism that reduces the severity of conflict between nations and thereby increases the amount of resources available globally for consumption copyright 1994 by american economic association

a theory of self fulfilling political expectations abstract in their pursuit of being re elected politicians might not choose high quality policies but just conform to popular wisdom the larger are the office spoils and the more precise is an incumbent s knowledge of voter opinion the more likely that she will resort to such populism my main result is that the public s trust or distrust in politicians behavior may be self fulfilling when voters assess the quality of an incumbent politician they will compare her policy choices with their own prior opinion if voters think that the incumbent was just trying to conform a failure to do so will be even more damaging for the incumbent s election chances however this only increases the incumbent s incentives to conform which indeed confirm voters skepticism loosely put a skeptic voter attitude tends to generate conformist politicians while a trusting attitude tends to generate confident ones

incumbent performance and electoral control in the pure theory of electoral competition citizens compare the platforms of the candidates and vote for the one whose platform is preferred candidate strategies are identified with promises about future performance in office models of this sort have been developed in both static mckelvey 1975 and dynamic kramer 1977 i settings and all appear to have the property that if the set of alternatives is large enough in some sense equilibrium platforms rarely exist but these models have another feature that is quite as disturbing as their instability in the static setting discussed by mckelvey little attention is paid to the possibility that once in office the politician s preferences may diverge from those of his constituents and that he may therefore choose policies at variance from his platform instead it is simply assumed that promises will be kept whether or not such behavior is congruent with the interest of the officeholder it is sometimes argued that an enforcement mechanism may exist to discipline politicians for failing to keep promises but without a specification of the mechanism it is not obvious that it would be in the interests of the

currency substitution and speculative attacks on a currency board system abstract a currency board arrangement cba is supposed to be robust against attacks currency substitution complicates life with controversial implications for floating versus fixed exchange rate regimes after reporting evidence of currency substitution in hong kong a monetary model incorporating currency substitution is used to estimate the shadow exchange rate and the probability of speculative attack on the hong kong dollar a decomposition analysis of a markov switching model indicates that the no attack regime was the most durable one this implies that hong kong s quasi cba was relatively robust against both speculative attacks and currency substitution

endogenous real exchange rate fluctuations in an optimizing open economy model abstract this paper constructs a simple intertemporal model of a small open economy inhabited by forward looking agents in which endogenous fluctuations in the real exchange rate can arise in equilibrium i e fluctuations that are not linked to movements in economic fundamentals the key condition for the main results is the assumption that the marshall lerner condition does not hold i e that the country s exports and imports are inelastic to its real exchange rate it is shown that given that the marshall lerner condition fails there exist periodic equilibria and or stationary sunspot equilibria in the neighborhood of the stationary state

currency substitution foreign inflation and terms of trade dynamics this paper incorporates rational expectations full price flexibility and currency substitution into the usual small economy model taking explicit account of inflation abroad not only will the steady state terms of trade be affected by an increase in the rate of monetary expansion when the inflation rate abroad is assumed to be nonzero but its dynamic path may also be different from the usual case in which inflation abroad is ignored it has been shown that if the import demands are relatively inelastic the terms of trade will undershoot their equilibrium value if the import demands are elastic the terms of trade will overshoot the key to these diametrically opposite results is the degree of ultimate deterioration in the terms of trade which in turn turn on the size of the two import demand elasticities

moose hunting values in sweden now and two decades ago the swedish hunters revisited this paper is based on two national contingent valuation studies dealing with the extent and economic values of hunting in sweden the first valuation study was conducted in 1987 and the second in 2006 both the game resource and the hunter community have undergone changes in the two decades covered by the surveys an important purpose of the latter survey was to repeat relevant parts of the former one which created a rare opportunity to compare valuations covering a very long time span moose hunting value and its determinants were compared between the two studies showing that significant changes have taken place our analysis suggests caution in using results from old contingent valuation studies for e g benefits transfer exercises

international monetary flows and stability in foreign exchange markets 1988 international monetary flows and stability in foreign exchange markets applied economics vol 20 no 5 pp 611 622

the rules of the game international money in historical perspective no world central bank issues a separate currency for commerce across national boundaries instead a system of national monies works more or less well in providing a medium of exchange and unit of account for current international transactions as well as a store of value and standard of deferred payment for longer term borrowing and lending how do national governments and banking institutions interact to provide international money for merchants and investors by necessity this monetary interaction changes with time place political circumstances and financial technology to better understand its historical evolution let us follow robert mundell and distinguish between a monetary system and a monetary order

currency substitution and instability in the world dollar standard comment myron ross correctly points out in his comment that u s price inflation is better predicted by the american money supply mlus than by the broader ten country world money supply mlw over the whole statistical time series from 1960 to 1980 provided in mckinnon s 1982 article specifically he showed that american price inflation is more highly correlated with mlus lagged one or two years than with mlw similarly lagged however mckinnon s present tense assertion that in general growth in the world money supply is a better predictor of american price inflation than is american money growth applies only to the weak dollar standard of the 1970 s and early 1980 s as his preceding discussion intended but failed to indicate clearly only in this later period of volatile exchange rates and price level instability in the united states do alternative hard currencies such as the yen and deutsche mark become competitive as international stores of value and units of account hence international currency substitution associated with the ebb and flow of speculation against or for the dollar significantly destabilized the demand for mlus in the 1970 s and 1980 s and only in this later period might one expect the sum of these internationally substitutable monies ml to predict world and perhaps even american price inflation better than does mlus in contrast during the strong dollar standard of the 1950 s and 1960 s the dollar was unchallenged as international money exchange rates were by and large convincingly fixed speculation for or against the dollar was incapable of substantially altering u s interest rates or of directly affecting the demand for mlus because cyclical international influences did not then destabilize the demand for dollars mlus was by itself a fairly efficient predictor of american prices thus ross s statistical results for the period 1960 to 1980 show somewhat greater predictive strength in mlus compared to ml because the 1960 s data outweigh the dissimilar data of the 1970 s let us instead partition the sample of imf data around the year 1970 whence began the transition from fixed to fluctuating exchange rates and the maturation of alternative monetary systems in europe and japan after applying similar statistical correlation procedures to those used by ross we show a striking structural shift in the world s monetary system the explanatory power of mlw increases sharply as that of mlus declines moderately tan 1982 for the early period of 1960 to 1970 table 1 shows simple correlation coefficients between annual percentage changes in money supplies and changes in american and world wholesale price indices the mlus provides a good explanation of u s prices and of world prices one to two years hence whereas the broader definition of mlw in which mlus enters with a 50 percent weight does surprisingly poorly being insignificantly correlated with american or world prices apparently money growth in industrial countries other than the united states was not then an independent source of worldwide inflationary pressure during the strong dollar standard table 2 shows the same simple correlations between percentage changes in prices and money for the weak dollar standard of stanford university please note that a typographical error giving the last word in the original title as market appeared on the cover of the june 1982 issue of this review the title was correct in the table of contents and on the article

testing for temporal reliability in contingent valuation with time for changes in factors affecting demand we develop a temporal reliability test of the contingent valuation method separate random samples were administered the same telephone survey five years apart in the retest respondents have less favorable attitudes toward the environment given this result a temporally reliable contingent valuation would find lower willingness to pay we find that the estimates are temporally reliable after accounting for attitudes which have changed over the five year period values are not significantly different five years apart this study provides additional evidence that use of the contingent valuation method can provide useful information for environmental policy analysis

evaluating the empirical evidence for currency substitution a case study of the demand for sterling in europe currency substitution has important implications for the cost of european monetary union if it is significant it will help to reduce costs of convergence to a single currency this paper informs the policy debate by testing for its existence on a consistent european database making use of cointegration methods the results demonstrate that in the two types of models tested there is no clear evidence of currency substitution in either the short or the long run and that therefore currency substitution between sterling and ec currencies cannot be relied upon as a mechanism or an aid to reduce the costs of monetary convergence copyright 1994 by royal economic society

monetary expansion and real exchange rate dynamics this paper examines the effect of a change in the rate of monetary expansion on the dynamics of the real exchange rate under fully flexible domestic prices and a floating exchange rate the model is similar in structure to an ealier paper by calvo and rodriguez the main difference being that in our model consumers have an infinite planning horizon and long run perfect foresight one of the main findings is that an increase in the rate of monetary expansion has the impact effect of creating a real appreciation of the exchange rate and a deterioration of the balance of payments contrary to the results of calvo and rodriguez

economic policy economic performance and elections this paper explores the role of reelection pressures in determining economic policy by assuming that voters are uncertai n as to the efficacy of different policies a reelection process is derived that depends on both a politician s past policies and the level of economic activity during his time in office it is shown th at the less uncertain are voters as to which policy is best the more likely is a politician to manipulate policy for reelection purposes manipulation entails implementing the policy that is more likely to be well received rather than the one that maximizes income copyright 1993 by american economic association

valuing environmental goods and services using benefit transfer the state of the art and science abstract the purpose of this special issue of ecological economics is to elucidate the state of the art and science of environmental benefit transfer and to assist in the design and reporting of future benefit estimation research compiling the insights of thirty two international experts from seven countries the special issue reviews the latest developments in transfer techniques as well as ongoing efforts to standardize and validate them taken together the papers in this special issue provide fresh answers to some long standing questions offer original research insights on state of the art issues and identify fruitful areas for future research this introductory paper provides background and context for the issues addressed by the contributing authors its purpose is to place the interdisciplinary thinking contained here in a comparative context highlighting the need for integration and collaboration to maintain the momentum that has propelled environmental benefit transfer into a widely used approach for estimating the economic value of environmental goods and services worldwide

currency substitution and nonlinear error correction in taiwan s demand for broad money we modify the conventional money demand function by including a real exchange rate variable to reflect the effect of currency substitution empirical evidence indicates that the variable is crucial to the long run stability of taiwan s money demand after finding the failure of a linear error correction model ecm in describing the dynamics of taiwan s money demand we apply a nonlinear ecm to examine its dynamics and support the appropriateness of the nonlinear model empirically

international influences on the u s economy summary of an exchange in currency substitution and instability in the world dollar standard 1982 ronald mckinnon hypothesized that shifts in international portfolio preferences for dollar assets including bonds destabilized the effective demand for money in the united states from the dollar depreciation of 1971 73 to the great dollar appreciation of 1981 83 these demand shifts were telegraphed by large changes in the dollar exchange rate against other hard currencies they signaled sudden inflation in the united states when the dollar was unexpectedly weak and deflation when the dollar became strong in addition mckinnon argued this ebb and flow in the demand for dollar assets provoked foreign central banks but not the u s federal reserve system to adjust their money growth rates to mitigate these exchange fluctuations consequently since 1970 annual percentage growth in world mi the sum of percentage growths in dollars marks yen sterling and so on fluctuated more than annual money growth in the united states the resulting international business cycle had a first order impact on american income and prices other than discussing some suggestive money and price data for ten industrial countries mckinnon provided no formal econometric testing of his theory this note summarizes an exchange between mckinnon and tan m t and radcliffe warga and willett r w w prompted by the latter s 1984 econometric test of mckinnon s hypothesis copies of the full exchange including new econometric work are available from the authors consider the single equation econometric technique of explaining u s prices or incomes by current or lagged changes in u s ml all authors agree that there was a significant deterioration in the fit of this basic monetary equation from the fixed exchange rate period of 1958 69 to the era of floating rates from 1972 to 1982 by itself american money growth now gives a less satisfactory explanation of cyclical fluctuations in nominal income or prices but how can changing international asset preferences be represented statistically in a mixed exchange rate regime of dirty floating one proxy variable is money growth in the rest of the industrial world mlrow mckinnon 1982 originally hypothesized that world money inclusive of mlrow has a stronger impact on american prices than u s money by itself but this conjecture turns out to be true only for american and world tradable goods prices as approximated by the wholesale price index wpi see mckinnon tan 1983 radcliffe warga and willett correctly pointed out that the influence of mlrow is not helpful in predicting changes in u s nominal gnp myles wallace 1983 showed that domestic price indices such as the american cpi or gnp deflator which have large nontradable components are not well explained by world money r w w s objection is important because monetary variables

another visit to the cagan model of money demand the latest russian experience abstract this paper investigates empirically the cagan style money demand function for russia during the recent hyperinflation era 1992 1994 using the johansen multivariate cointegration test results indicate that rate of change of exchange rate currency depreciation is required in the demand function for real m2 and real currency in order to obtain a stationary long run relationship error correction model results show that there exists a bidirectional causality between real money balances and determinants of real money demand including currency depreciation exchange rate sensitivity of the demand for money indicates currency substitution

voting on the budget deficit this paper analyzes a model in which a group of rational individuals votes over the composition and time profile of public spending all voters agree that a balanced budget is ex ante optimal however if there is disagreement between current and future majorities a balanced budget is not a political equilibrium under majority rule under certain conditions a majority of the voters favors a budget deficit and the equilibrium deficit is larger the greater is the polarization among voters copyright 1990 by american economic association

currency substitution and economic monetary aggregates abstract existing analyses of currency substitution rely on the assumption that domestic monetary assets are perfect substitutes for each other the present paper examines empirically the currency substitution hypothesis using divisia monetary aggregates which relax the perfect substitutability assumption used in earlier work the empirical results support the hypothesis of currency substitution for the united states

a model of political competition with citizen candidates the authors develop a model of electoral competition in which citizens choose whether or not to run as candidates a winner implements her favorite policy the equilibrium number of candidates depends negatively on the cost of running and positively on the benefits of winning for some parameter values all equilibria under plurality rule have exactly two candidates whose positions are distinct two candidate elections are more likely under plurality rule than under a runoff system the candidates positions are less differentiated under a runoff system there exist equilibria under both systems in which some candidates have no chance of winning

portfolio theory and currency substitution one of the major reasons friedman 1953 and johnson 1972 advocated flexible exchange rates was to eliminate supply side monetary substitutability which can incapacitate domestic monetary policy however contributors to the currency substitution literature including miles 1978 girton and roper 1981 and mckinnon 1982 have argued that when economic agents hold both domestic and foreign monies variations in foreign interest rates or expected future exchange rates can make domestic money demand functions unstable as economic agents shift resources in response to changes in prospective relative returns as a result they and others have claimed that flexible exchange rates may not secure domestic monetary autonomy l the major purpose of this paper is to demonstrate the conditions under which foreign and domestic monies are substitutes in demand when economic agents have motives to hold both and to contrast the determinants of currency substitutability with those of the more general concept of asset substitutability importantly it is demonstrated that the usual portfolio theoretic justification for including opportunity cost variables such as foreign interest rates foreign inflation rates or expected