the phillips curve the persistence of inflation and the lucas critique evidence from exchange rate regimes comment we present evidence from the united states and the united kingdom that the persistence of price inflation is significantly higher under managed exchange rate regimes than under gold based fixed exchange rate regimes these differences are also reflected in expectations augmented phillips curves we use a two country macro model with forward looking price setters to demonstrate that higher monetary accommodation of inflation and exchange rate accommodation of inflation differentials increase inflation persistence the evidence does not contradict this hypothesis it supports the hypothesis of forward looking price setters and highlights the empirical significance of the lucas critique jel e31 e42 f33

marketing orders grading errors and price discrimination some marketing orders allow an agricultural industry to regulate the flow of product to market we examine a more common but less controversial aspect of marketing orders the setting and enforcement of grades and show that purposefully introducing error into the grading process reduces farmers incentives to produce high quality product thus partially sustaining the adverse selection problem that would exist in the absence of grades because demand for high quality product is generally inelastic relative to demand for low quality product grading error can increase industry profit in principle an industry can achieve through grading error the same allocation of product between high and low quality outlets as attainable through direct volume regulation copyright 2002 oxford university press

real effects of collapsing exchange rate regimes an application to mexico this paper examines the impact of a collapsing exchange rate regime on output in an open economy in which shocks to capital flows and exports predominate a sticky price rational expectations model is used to compare the variability of output under the collapsing regime to that under alternative fixed and flexible regimes output is found to

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

german dominance in the ems evidence from interest rates abstract the paper presents an empirical analysis of german dominance and asymmetries in the ems based on a dynamic system of equations explaining national money market interest rates the hypothesis of strict german dominance of the ems is rejected however there are some noticeable asymmetries in the ems germany is a relatively strong player and has been the least dependent country in the early phase of the system since 1983 german independence has diminished in contrast france throughout and italy in the early phase of the ems have been relatively weak players in the system

conservative central banks and nominal growth exchange rate and inflation targets a framework is developed in which inflation biases with different target variables are compared a nominal growth target measured in consumer prices may yield less stabilization bias than a nominal income growth target exchange rate and inflation targets result in less stabilization bias than an income growth target the more important the terms of trade stabilization persistence in output causes excessive stabilization of productivity shocks and of shocks to the terms of trade under discretion an inflation weight conservative central bank is more likely under an inflation target than under an exchange rate target and less likely under a nominal income growth target

international monetary regimes and incidence and transmission of macroeconomic shocks evidence from the bretton woods and modern floating periods this paper investigates the relationship between international monetary regimes and incidence and transmission of macroeconomic shocks within the context of an open economy macro model empirical results confirm monetary interdependence and lower incidence of monetary discretion under fixed exchange rates the average magnitude and dispersion of supply shocks in bretton woods and the subsequent float is comparable however the average magnitude and dispersion of real demand shocks under bretton woods seems higher overall the international monetary regime may pose important constraints to policymakers in open economies economists have long recognized the role of a flexible exchange rate regime in insulating economies and allowing independent pursuit of monetary policy however experience with floating rates in the post bretton woods period led many to question the merits of flexible rates with increased volatility in nominal and real exchange rates and the implied effects of this volatility on international trade flows although fixed rates reduce uncertainty and transaction costs compared with flexible rates these benefits may be outweighed by increased output volatility due to sticky prices and increased international interdependence if countries face idiosyncratic shocks independent monetary policy is needed to stabilize the domestic economy theoretical work on the effects of international monetary regimes has been inconclusive helpman 1981 dornbusch 1983 turnovsky 1983 and others provide evidence that exchange rate arrangements cannot be ranked unambiguously in terms of their impact on macroeconomic stability or domestic welfare instead several studies have analyzed macroeconomic performance under different historical exchange rate arrangements using macroeconomic data from the bretton woods and the subsequent floating regime baxter and stockman 1988 found no clear relationship between exchange rate flexibility and output stability or synchronization of the business cycle using bivariate vector autoregressions vars bayoumi and eichengreen 1994 analyzed the standard

the impact of oil prices on bioenergy emissions and land use we evaluate how alternative future oil prices will influence the penetration of biofuels energy production greenhouse gas ghg emissions land use and other outcomes our analysis employs a global economy wide model and simulates alternative oil prices out to 2050 with and without a price on ghg emissions in one case considered based on estimates of available resources technological progress and energy demand the reference oil price rises to 124 by 2050 other cases separately consider constant reference oil prices of 50 75 and 100 which are targeted by adjusting the quantity of oil resources in our simulations higher oil prices lead to more biofuel production more land being used for bioenergy crops and fewer ghg emissions reducing oil resources to simulate higher oil prices has a strong income effect so decreased food demand under higher oil prices results in an increase in land allocated to natural forests we also find that introducing a carbon price reduces the differences in oil use and ghg emissions across oil price cases

pegged exchange rate regimes a trap this paper studies the empirical and theoretical association between the duration of a pegged exchange rate and the cost experienced upon exiting the regime we confirm empirically that exits from pegged exchange rate regimes during the past two decades have often been accompanied by crises the cost of which increases with the duration of the peg before the crisis we explain these observations in a framework in which the exchange rate peg is used as a commitment mechanism to achieve inflation stability but multiple equilibria are possible we show that there are ex ante large gains from choosing a more conservative not only in order to mitigate the inflation bias from the well known time inconsistency problem but also to steer the economy away from the high inflation equilibria these gains however come at a cost in the form of the monetary authority s lesser responsiveness to output shocks in these circumstances using a pegged exchange rate as an anti inflation commitment device can create a trap whereby the regime initially confers gains in anti inflation credibility but ultimately results in an exit occasioned by a big enough adverse real shock that creates large welfare losses to the economy we also show that the more conservative is the regime in place and the larger is the cost of regime change the longer will be the average spell of the fixed exchange rate regime and the greater the output contraction at the time of a regime change

monetary union and the assignment problem proposals for the creation of an independent central bank in a european monetary union do not always take into account the interactions between monetary and fiscal policy this analysis describes a system of two similar economies forming either a joint fiscal and monetary union or a simple monetary union policy authorities aim to achieve target values for inflation and the budget balance if the monetary and fiscal authorities pursue their targets independently of each other there is a risk that unstable interactions will be set up the results indicate a hazard of the separation of monetary and fiscal management

exchange rate behaviour under the ems regime was there any systematic change abstract most empirical studies fail to detect any systematic effects of the ems regime on the economic performance of member countries this reveals the difficulty of constructing controlled experiments which can distinguish what is due to the ems from that due to common external pressures we argue that the crucial step is to examine the exchange rates distribution since no performance improvements will appear if exchange rate behaviour does not change within the ems we find that there are changes in the third and fourth moments which imply that ems currencies have become more fragile and susceptible to shocks particularly negative shocks relative to non ems currencies

time consistent collection of optimal seigniorage a unifying framework this paper reviews the existing literature on the time consistency problem of seigniorage collection when monetary policy is determined by optimal taxation considerations it develops a unifying accounting framework and suggests a general measure for seigniorage which encompasses the standard measures employed in the literature in addition the ex ante optimal solution to the optimal taxation problem is derived and interpreted in relation to the ramsey principle we show that the different recommendations of the public finance literature i e the friedman rule of optimal deflation moderately positive inflation and seigniorage maximizing inflation are specific solutions to the optimal taxation problem the paper continues with a formal illustration of the time consistency problem of the ex ante optimal policy and the characterization of the time consistent solution under discretion as possible solutions to the time consistency problem we consider reputational forces institutional reforms that establish central bank independence and specific ways of asset and debt management in particular it is formally shown that a modified version of the asset and debt management scheme suggested by persson persson and svensson is not only necessary but also sufficient for optimality although this did not hold in their model

long term forecasts for energy commodities price what the experts think the ability to forecast energy prices in the long term is important for a wide range of reasons from the formulation of countries energy and transportation policies to the defensive strategies of nations to investment decisions within the private sector despite the importance of these predictions however forecasters and market pundits face a difficult challenge when trying to forecast over the long term while statistical models can credibly rely on assumptions about the relationship between variables in the short term they are frequently less reliable in the long term as political and technological transformations profoundly change how the economy works over time towards improving long term predictions for energy commodities this paper uses the elicitation and aggregation of experts beliefs to put forward forecasts for crude oil and natural gas prices by incentivizing experts to tell the truth and minimising their own biases through the application of the bayesian truth serum with this approach we generated both short term and long term forecasts and used the short term forecast to validate the quality of the experts predictions

on becoming more flexible exchange rate regimes in latin america and the caribbean abstract this paper examines the shift from fixed to more flexible exchange rate regimes among countries in latin america and the caribbean in contrast to most traditional approaches the one followed here recognizes that fixed rates can be and often are adjusted but argues that policy makers incur a political cost from devaluation at the same time flexible exchange rates even managed ones may be very volatile with persistent misalignment a stylized model of regime choice is developed based on the perceived losses from exchange rate misalignment incurred under fixed versus more flexible regimes the model is estimated for a sample of 24 countries over the period 1978 1992 and empirical results are quite supportive misalignments proxied by current account deficits and moderate to high rates of inflation were associated with a move to more flexible rates during 1978 1986 misalignment indicators appear to have mattered less during 1987 1992 however there appears to have been a major reduction in the perceived difficulty of managing flexible rates during this period the paper then cautions against attributing differences in economic growth between groups of countries to their exchange regime the central point here is that the endogeneity of regime choice introduces selection biases into the samples of countries with fixed and with more flexible exchange regimes

dynamic supply response and welfare effects of technological change on perennial crops the case of cocoa in malaysia modern biotechnology will generate crops with higher yields and enhanced resistance to pests and diseases in the case of perennial crops the age composition of the present stand the farmers willingness to invest and the yield profiles of old and new trees determine the speed of adoption of the new technology and the timing of the effects on supply and demand conditions we adapt conventional welfare measures to account for these factors in the assessment of research induced supply shifts the application to cocoa in malaysia shows that consumers and adopting producers gain and non adopters lose overall 72 of the welfare gains go to the consumers copyright 2001 oxford university press

long term oil prices abstract in this paper we propose a model to estimate and simulate long term oil prices our model is based on properties of demand and supply for oil and it is able to reproduce historical real oil prices well we use the model to estimate and simulate future real oil price scenarios the results show that if we are not able to significantly increase demand elasticity the yearly real oil price change can reach 12 in the years following the peak production level without taking a scarcity rent into account until peak production level is reached the long term real oil price changes stemming from fundamental supply and demand changes are expected to be negative our simulation results based on an expected peak production year of 2020 and a scarcity rent of 3 suggest an expected real crude oil price of 169 bbl in 2040 for comparison the eia outlook predicts a real oil price of 141 bbl for the same year we also provide an on line appendix that allows the readers to change the assumptions underlying our analysis and see the results immediately

capital controls and balance of payments crises abstract the theory of balance of payments crises shows that under perfect foresight a system of fixed exchange rate is not sustainable in the presence of diverging economic policies in this paper it is shown how and why capital controls succeed in maintaining the principle of a fixed but adjustable parity both cases of a devaluation and a revaluation are considered and a condition for a parity change to be credible is presented

delegation in international monetary policy games abstract in this paper we show that delegation of monetary policy to an independent and more conservative central banker is an optimal policy in a multi country framework with monetary spillovers among countries even in the absence of time inconsistency credibility issues we also study the welfare implications of delegating monetary policy and extend our analysis to the case of coordination of monetary policies

modelling long term oil price and extraction with a hubbert approach the lopex model abstract the lopex l ong term o il p rice and ex traction model generates long term scenarios about future world oil supply and corresponding price paths up to the year 2100 in order to determine oil production in non opec countries the model uses hubbert curves hubbert curves reflect the logistic nature of the discovery process and the associated constraint on temporal availability of oil extraction paths and world oil price path are both derived endogenously from opec s intertemporally optimal cartel behaviour thereby opec is faced with both the price dependent production of the non opec competitive fringe and the price dependent world oil demand world oil demand is modelled with a constant price elasticity function and refers to a scenario from acropolis poles lopex results indicate a significant higher oil price from around 2020 onwards compared to the reference scenario and a stagnating market share of maximal 50 to be optimal for opec

political and institutional factors in regime changes in the erm an application of duration analysis this paper analyses the functioning of the european exchange rate mechanism erm to that end we apply duration models to estimate an augmented target zone model explicitly incorporating political and institutional factors into the explanation of european exchange rate policies the estimations are based on quarterly data of eight currencies participating in the erm covering the complete history of the european monetary system our results suggest that both economic and political factors are important determinants of erm currency policies concerning economic factors the money supply the real exchange rate the interest rate in germany and the central parity deviation would have negatively affected the duration of a given central parity while credibility and the price level in germany would have positively influenced such duration regarding political variables elections central bank independence and left wing administrations would have increased the probability of maintaining the current regime while unstable governments would have been associated with more frequent regime changes moreover we show how the political augmented model outperforms the model which just incorporates pure economic determinants both in terms of explanatory power and goodness of fit

banking crises and exchange rate regimes is there a link the authors investigate the links between banking crises and exchange rate regimes using a comprehensive data set that includes developed and developing countries over the last two decades in particular they examine whether the choice of exchange rate regime affects the likelihood cost and duration of banking crises empirical results indicate that adopting a fixed exchange rate diminishes the likelihood of a banking crisis in developing countries but once a banking crisis occurs its real costs in terms of forgone output growth are higher for countries with more stringent exchange rate requirements the duration of crises seems not to be affected by exchange rate policy instead it is influenced mainly by the size of the credit boom before the crisis

monetary policy and the exchange rate the british monetary authorities began the decade with a commitment to a policy of decelerating monetary growth as the centrepiece of their economic strategy a policy of outright benign neglect towards the exchange rate was a stated accompaniment by the end of 1990the centrepiece of policy was adherence to the exchange rate mechanism of the ems albeit initially within the wider band option although the commitment to counter inflationary policy objectives and to a nominal anchor as a means of achieving these remained the same the anchor had been changed at the intermediate target level there had been a revolution

a survey of the literature on the optimal peg abstract it is widely agreed that floating is not an appropriate exchange rate policy for most developing countries but in a world of generalized floating the question of exchange rate policy is not resolved by deciding to peg rather than to float it is also necessary to decide to what to peg this is the question of the optimal peg on which a significant literature has emerged since 1976 the present paper provides a survey of that literature section 2 summarizes the principal papers section 3 compares the objectives and rules advocated by different authors section 4 evaluates the alternative approaches arguing that in general the peg should be chosen to stabilize the nominal trade weighted effective exchange rate section 5 considers whether this criterion points to the sdr as a satisfactory peg

aspects of the optimal management of exchange rates abstract this paper shows that the choice of the optimal exchange rate regime depends on the stochastic shocks affecting the economy the higher the variance of real shocks the larger the desirability of fixity of exchange rates the desirability of exchange rate flexibility increases the larger are the variances of the shocks to the demand for money to the supply of money to foreign prices and to purchasing power parities when the economy produces traded and non traded goods the desirability of exchange rate flexibility diminishes the higher is the relative share of non traded goods and the lower are the elasticities of demand and supply of the two goods

the choice of an exchange rate system and macroeconomic stability the recent theoretical literature regarding the choice of an exchange rate system has focused on how the choice of an exchange rate regime will affect the stability of the economy while the methodology and emphasis of the various theoretical arguments differ the common thread that runs through all is the notion that the appropriate exchange rate system will differ with the nature of the disturbance to the economy the substantive differences existing among the various studies are to a certain extent due to different criteria used for exchange system choice it is not surprising that one s beliefs with regard to the effect of exogenous shocks on exchange system choice will be sensitive to the objective function used for instance fischer 1977 and frenkel and aizenman 1982 focus on the minimization of real consumption shocks and derive the result that the greater the domestic money shocks the more likely is a float alternatively flood 1979 and aizenman 1983 with an objective of minimizing domestic price shocks conclude that the greater the domestic money shocks the more preferred is a fixed exchange rate while the evidence presented below will indicate which approach is more consistent with actual country practice we should first consider the rationale behind the criteria considered fischer appeals to basic micro theory when he says that concavity of utility functions expressed as a function of consumption justifies concern with the stability of consumption but it is not obvious that price stability is of itself undesirable

political business cycles and macroeconomic credibility a survey there is clear evidence that government popularity and election performance is affected in part by economic performance suggesting that governments may manipulate the economy to political advantage simple models incorporating adaptive expectations which allowed the government to exploit this relationship were developed in the 1970s but fell out of fashion with the advent of new classical economics however modern theories of the political business cycle which are closely related to the macroeconomic policy game literature assume rational expectations and lead to forms of political business cycle driven by the existence of uncertainty of one type or another the international evidence suggests that some aspects of the theories apply although definitive conclusions are as we might expect hard to come by

credibility and disinflation in the european monetary system analysis of interest differentials in the european monetary system has suggested a widespread lack of credibility of the exchange rate mechanism in the sense that in most countries the implicit expected rate of devaluation was significant and not far short of inflation differentials vis a vis the deutschmark we present and test a model in which prices reflect expectations of exchange rate behaviour the results provide mixed evidence that price setting in countries which participated in the erm was influenced by the exchange rate discipline

who wants the euro and why economic explanations of public attitudes towards a single european currency the paper looks at whether public attitudes towards a single european currency held in the european union member states reflect a rational evaluation of the involved benefits and costs it finds that they do the looser monetary and fiscal policy was in the past and the more time a country spent in the ems the more citizens welcome the euro attitudes towards the euro do not seem consistent with attitudes towards a european central bank however upon closer scrutiny opponents of a single currency appear to be less consistent and less rational in their responses than proponents

delegation in a general equilibrium model of customs unions abstract a difference in the objectives of members of a customs union may be a unifying rather than a divisive force if countries outside the union behave strategically one union member may want to delegate to its partner the ability to set the common external tariff we demonstrate these results in the context of a pure exchange general equilibrium trade model we show that if tariffs are strategic substitutes the union country which is relatively less well endowed in the exported good may be willing to delegate to its partner which behaves more aggressively in setting the union s policy the delegation decision is reversed if tariffs are strategic complements the model extends the standard results on the appropriate level of the union policy by adding another dimension that of the optimal decision making agent

exploring different views of exchange rate regime choice the empirical distinction between de facto and de jure exchange rate regimes raises a number of interesting questions which factors may induce a de facto peg why do countries enforce a peg but do not announce it why do countries break their promises we show that a stable socio political environment and an efficient political decision making process are a necessary prerequisite for choosing a peg and sticking to it challenging the view that sees the exchange rate as a commitment device policymakers seem rather concerned with regime sustainability in the face of adverse economic and socio political fundamentals

the effectiveness of monetary policy anchors firm level evidence analyses of monetary policy posit that exchange rate pegs inflation targets and central bank independence can help anchor private sector inflation expec tations yet there are few direct tests of this argument we offer cross national micro level evidence on the effectiveness of monetary anchors in controlling private sector inflation concerns using firm level data from eighty one countries approximately 10 000 firms we find evidence that international anchors exchange rate commit ments correlate significantly with a substantial reduction in private sector concerns about inflation while domestic anchors inflation targeting and central bank inde pendence do not our conjecture is that private sector inflation expectations are more responsive to exchange rate anchors because they are more transparent more con straining and more costly than domestic anchoring arrangements the literature on monetary policy highlights the role of monetary institutions in stabilizing private sector inflation expectations central bank independence cbi inflation targeting it and fixed exchange rates pegs are widely viewed as insti tutions that have the capacity to mitigate private sector concerns that policymak ers will exploit them after they have locked in their price wage and investment decisions while other empirical research explores the institutional correlates of inflation and its variability yielding mixed results we use firm level data in our study to directly assess the impact of monetary anchors on private sector inflation concerns we find evidence that pegs mitigate firm owners concerns with infla tion but that domestic anchors such as it and cbi are uncorrelated with our micro indicators of inflation expectations considerable research has investigated the use of it cbi and pegs as institu tions that establish monetary policy credibility whereas these anchors are expected

credibility and exchange rate management in developing countries abstract the paper discusses the role of credibility factors in the conduct of exchange rate policy in developing countries the analysis is based on a simple framework in which policymakers are concerned about inflation and external competitiveness price setters in the nontradable sector of the economy engage in a strategic game against the authorities the model generates a devaluation bias which undermines the credibility of a fixed exchange rate the role of reputational factors signaling considerations and joining a currency union as possible solutions to this bias is examined

endogenous changes in the exchange rate regime a bureaucratic incentive model public choice submits that legal changes can be endogenous in such a way that they are manipulated by bureaucrats who want to maximize rents from transactions with various interest groups this paper takes the change in exchange rate regimes to empirically examine the premise it offers a two stage method in which we first show that the exchange rate is influenced by interest group pressures and subsequently that the 1990 market average regime mar as a phase in policy in korea was introduced mainly to serve bureaucratic incentives this method is expected to be useful to a host of countries for various studies attempting to test a possible existence of bureaucratic or other hidden motivations behind any isolated event of policy change

business cycle convergence in emu a first look at the second moment we analyse the dynamics of the standard deviation of demand and supply shocks as well as of the demand component of gdp across countries in the european monetary union emu this analysis allows us to evaluate the patterns of cyclical comovement in emu and compare them the cyclical performance of the new members of the eu and other oecd countries we make use of sigma convergence methods to identify synchronization patterns in business cycles the eurozone has converged to a stable lower level of dispersion across business cycles during the end of the 80s and the beginning of the 90s the new eu members have also experienced a strong pattern of convergence from 1998 to 2005 when a strong divergence trend appears an enlargement of the emu to 22 members would not significantly decrease its optimality as a currency area there is evidence for some europe specific characteristics as compared to global comovements in business cycles authors abstract

importing credibility through exchange rate pegging this paper employs an optimal taxation framework in order to study the credibility of monetary policy making in an open economy since inflation is in part uncontrollable due to stochastic disturbances the authority s actions cannot be monitored perfectly when the exchange rate floats thus implying that reputational forces may become ineffective in contrast pegging the nominal exchange rate to a low inflation currency allows perfect monitoring because the exchange rate is in principle controllable for this reason exchange rate pegging may import credibility and result in the best reputational equilibrium even though the authority retains the discretion to devalue unexpectedly

seigniorage and the case for national money in countries with high rates of inflation there is typically movement away from the use of the local currency the paper analyzes the costs and benefits of using a local currency with emphasis on the seigniorage foregone by using a foreign money even if it should be desirable for a country to fix its exchange rate it still loses seigniorage if it does not use its own money the case for using a foreign money then turns largely on the superior discipline imposed on domestic policymakers by removing their control over the money supply alternative methods of imposing discipline are discussed estimates of the amount of seigniorage raised by different governments are presented seigniorage amounts in some cases to about 10 percent of government revenue estimates are also presented of both the annual flow and one time stock costs of giving up use of domestic currencies and instead using the dollar the flow cost is typically about 1 percent of gnp and the stock cost is around 10 percent of gnp

global oil gas depletion an overview abstract the world s production of conventional hydrocarbons will soon decline hydrocarbon shortages are inevitable unless radical changes occur in demand or in the supply of non conventional hydrocarbons the details are as follows global conventional oil supply is currently at political risk this is because the sum of conventional oil production from all countries in the world except the five main middle east suppliers is near the maximum set by physical resource limits should middle east suppliers decide to substantially curtail supply the shortfall cannot be replaced by conventional oil from other sources world conventional oil supply will soon be at physical risk the middle east countries have only little spare operational capacity and this will be increasingly called upon as oil production declines elsewhere large investments in middle east production if they occur could raise output but only to a limited extent a partial exception is iraq but even here there would be significant delays before prospects are confirmed and infrastructure is in place if demand is maintained and if large investments in middle east capacity are not made the world will face the prospect of oil shortages in the near term even with large investments resource limits will force middle east production to decline fairly soon and hence also global conventional oil production the date of this resource limited global peak depends on the size of middle east reserves which are poorly known and unreliably reported best estimates put the physical peak of global conventional oil production between 5 and 10 years from now the world contains large quantities of non conventional oil and various oil substitutes but the rapidity of the decline in the production of conventional oil makes it probable that these non conventional sources cannot come on stream fast enough to fully compensate the result will be a sustained global oil shortage for conventional gas the world s original endowment is probably about the same in energy terms as its endowment of conventional oil since less gas has been used so far compared to oil the world will turn increasingly to gas as oil declines but the global peak in conventional gas production is already in sight in perhaps 20 years and hence the global peak of all hydrocarbons oil plus gas is likely to be in about 10 or so years

labour markets and monetary union a strategic analysis this paper shows that the effects of a monetary union depend on several labour market features in particular the switch from national monetary policies to a common monetary policy usually affects both inflation and unemployment even when all structural parameters of the economy and of unions and policymakers preferences remain the same the benchmark case of a monetary union between identical countries suggests that the switch to a monetary union is likely to make labour unions more aggressive increasing unemployment qualifications to this result are provided under alternative institutional scenarios like cross country asymmetries pre union erm membership and wage leadership

systemic conflict and regional monetary integration the case of europe existing explanations of european monetary integration emphasizing economic interdependence issue linkage institutions and domestic politics take a predominantly regional approach in the international monetary thesis developed here i argue that u s policy disturbances transmitted through the international monetary system created compelling incentives for european states to cooperate on exchange rate and monetary policy i develop a general theory of macroeconomic power based on open economy macroeconomics and show how the exercise of such influence can drive regional monetary integration this article then tests the international thesis with reference to monetary integration within the european union by examining four periods in which the united states acted to stabilize the international monetary system and seven episodes in which it disrupted the system european governments and central banks reduced regional monetary cooperation when the united states supported system stability and strengthened it after each episode of disruption the evidence thus strongly supports the inference that the link is causal

an empirical analysis of economic performance under the marketing order for raisins this study utilizes a dynamic econometric model of the california raisin industry to compare predictions of prices production profits and related measures under the volume control program with predictions under several no control scenarios the outcomes are evaluated in relation to performance criteria proposed by a usda study team the twenty two year comparisons suggest that the public interest may have been well served by the raisin volume control program or at worst there was no significant welfare loss

loss of monetary discretion in a simple dynamic policy game abstract we analyze a simple policy game featuring monetary credibility problems and argue that loss of monetary discretion is not advantageous two elements form the basis of our analysis firstly we endogenize the source of credibility problems and secondly we consider a dynamic framework where credibility problems are not time invariant by doing this we are able to demonstrate that credibility problems are temporary and in steady state the government has removed these through sound policies a binding policy rule will only serve as an obstacle towards this steady state

political cycles and exchange rate based stabilization fixed exchange rates implemented to increase credibility and attract foreign investment or as an alternative approach to stabilization in high inflation economies have been shown to be successful in expanding economic activity and correcting inflation in the short term but often lead to undesirable outcomes in the medium to long term although there is a wealth of literature documenting the boom bust cycles associated with the adoption of a nominal anchor no adequate explanation has been proffered as to governments repeatedly choosing policies that are self defeating the authors address this question with a political economy explanation based on the notion of a self interested government for which short term stabilization is attractive in the face of incentives posed by the electoral cycle if the election coincides with the boom phase of an exchange rate based stabilization incumbent governments increase the likelihood of gaining reelection and the bust phase will develop if at all only after the contest the authors thus suggest a modified version of the traditional political business cycle from the standpoint of a self interested office seeking government exchange rate based stabilizations can make good political sense empirical results based on an analysis of eighteen latin american countries from 1970 to 1999 support the insights of the argument movements towards a more fixed exchange rate are greater than three times more likely in a preelection period than in other stages of the electoral cycle

the limits of independence and the policy of the ecb it is argued that the european central bank s independence is not as secure as it seems and that as a result it has appreciable institutional incentives to protect and enhance its position it follows that its behaviour should not be understood as being solely determined by the pursuit of price stability one consequence is that certain points on which it has been criticised on the basis that its approach makes for ineffective monetary policy might be better understood as often effective attempts to protect its position another is that making a central bank or any other institution completely independent may be much harder than it seems and failed attempts which come close are not necessarily to be preferred even by the advocates of independence to less ambitious designs

a variant of the hubbert curve for world oil production forecasts abstract in recent years the economic and political aspects of energy problems have prompted many researchers and analysts to focus their attention on the hubbert peak theory with the aim of forecasting future trends in world oil production in this paper a model that attempts to contribute in this regard is presented it is based on a variant of the well known hubbert curve in addition the sum of multiple hubbert curves two cycles is used to provide a better fit for the historical data on oil production crude and natural gas liquid ngl taking into consideration three possible scenarios for oil reserves this approach allowed us to forecast when peak oil production referring to crude oil and ngl should occur in particular by assuming a range of 2250 3000 gigabarrels gb for ultimately recoverable conventional oil our predictions foresee a peak between 2009 and 2021 at 29 3 32 1 gb year

inflationary finance under discrepion and rules inflationary finance involves first the tax on cash balances from expected inflation and second a capital levy from unexpected inflation from the standpoint of minimizing distortions these capital levies are attractive ex post to the policymaker in a full equilibrium two conditions hold 1 the monetary authority optimizes subject to people s expectations mechanisms and 2 people form expectations rationally given their knowledge of the policymaker s objectives the outcomes under discretionary policy are contrasted with those generated under rules in a purely discretionary regime the monetary authority can make no meaningful commitments about the future behavior of money and prices under an enforced rule it becomes possible to make some guarantees hence the links between monetary actions and inflationary expectations can be internalized there is a distinction between fully contingent rules and rules of simple form a simple rule allows the internalization of some connections between policy act ion and inflationary expectations but discretion permits some desirable flexibility of monetary growth this abstract was borrowed from another version of this item

public debt indexation and denomination with an independent central bank abstract this paper examines the interaction between public debt management and the design of monetary institutions the analysis shows that delegation of monetary policy to an independent central bank is more effective in containing inflationary expectations than the use of foreign currency or inflation indexed debt if delegation of monetary policy is viable the optimal policy is to issue nominal debt this increases the sensitivity of taxes and output to unexpected inflation thus minimizing the inflation needed to offset supply shocks evidence on central bank independence debt composition and output variability suggests that the normative argument has some positive content

purchasing power parity under the european monetary system abstract using reduced rank cointegration analysis this study examines whether exchange rate realignments are effective in extenuating the deviations from purchasing power parity ppp under the european monetary system ems in contrast to previous studies more positive evidence for the ppp hypothesis is found the difference in findings can be attributed partly to the statistical technique used the correction of the finite sample bias and the adjustment for realignment effects in general the results of this study support that currency realignments of the ems have been effective in maintaining ppp among its member countries

the role of policymakers reputation in the ems disinflations abstract it is frequently argued that the ems itself in connection with the high anti inflation reputation of the german bundesbank is responsible for the inflation reduction and convergence which member countries have experienced based on the game theoretical model of backus and driffill 1985 american economic review 75 530 538 an empirical measure of the government s reputation for fighting inflation is derived by using a bayesian learning approach time varying estimates of these counterinflation reputation measures are computed for the original ems member countries and for a control group of major non ems countries the paper finds that only the smaller ems participants have gained anti inflation reputation during the ems period

credibility may require discretion not rules abstract we reexamine the common argument that rules produce greater credibility than discretion rules limit the actions of agents restricting observations of the agents preferences or types in a second best world where rules cannot be everlasting a regime of discretion in some periods may produce superior credibility and dominate a regime of rules

exchange rate regimes and inflation only hard pegs make a difference abstract using data from a large sample of developing countries from 1985 to 2001 we confirm that hard pegs currency boards or a shared currency reduce inflation and money growth there is no evidence that soft pegs confer any monetary discipline after other factors are controlled for inflation triggers regime switches under hard pegs monetary growth is unaffected by fiscal deficits or by inflation shocks under soft pegs as under floats increased fiscal deficits and positive inflation shocks are associated with higher monetary growth the apparently slower per capita output growth under hard pegs is explained by their geographical distribution jel classification f41

the advantage of tying one s hands ems discipline and central bank credibility abstract it is often argued that the ems is an effective disciplinary device for inflation prone countries in europe since it forces the respective policy makers to pursue more restrictive monetary policies than they would otherwise it is not clear however why these countries should submit themselves to such discipline this paper argues that to answer this question appropriately one must consider that ems membership brings potentially large credibility gains policy makers in inflation prone countries the reason is that not only it attaches an extra penalty to inflation in terms of real appreciation but makes the public aware that the policy maker is faced with such penalty and thus helps to overcome the inefficiency stemming from the public s mistrust of the authorities

partisan and electoral motivations and the choice of monetary institutions under fully mobile capital central bank independence and pegged exchange rates have each been viewed as solutions to the inflationary bias resulting from the time inconsistency of discretionary monetary policy while it is obvious that a benevolent social planner would opt for such an institutional solution it is less obvious that a real world incumbent facing short term partisan or electoral pressures would do so in this article i model the choice of monetary institutions from the standpoint of a survival maximizing incumbent it turns out that a wide range of survival maximizing incumbents do best by forfeiting control over monetary policy while political pressures do not in general discourage monetary commitments they can influence the choice between fixed exchange rates and central bank independence i highlight the importance of viewing fiscal policy and monetary policy as substitutes and identify the conditions under which survival maximizing incumbents will view fixed exchange rates and central bank independence as substitutes in so doing i provide a framework for integrating other contributions to this volume

to be or not to be in monetary union a synthesis article i nfo monetary union can benefit countries suffering from policy credibility problems if it eliminates the inflation bias and also allows for more efficient management of certain shocks but it also carries costs as some stabilization may be feasible even in the absence of credibility and this may be more than what an individual country can hope for in a monetary union in this paper we combine the stabilization and credibility branches of the currency union literature and construct a simple welfare criterion that can be used to evaluate alternative monetary arrangements we produce examples where monetary union may be welfare improving even for low modest levels of inflation bias 2 3 as long as business cycles are not too a synchronized across countries

transparency reputation and credibility under floating and pegged exchange rates this paper shows that if the cost of importing foreign inflation and real exchange rate shocks are not too high then the equilibrium nominal exchange rate regime for a country with a credibility problem is a peg under which credibility is higher and inflation is lower than under a float this holds true although devaluations of the pegged rate are assumed to be costless the reason is that as realized inflation is not perfectly controllable planned inflation under a float is private information in contrast since the exchange rate can be perfectly controlled pegging resolves the private information problem is more transparent and makes reputation more effective

explaining the transition between exchange rate regimes this paper studies the transition between exchange rate regimes using a markov chain model with time varying transition probabilities the probabilities are parameterized as nonlinear functions of variables suggested by the currency crisis and optimal currency area literature results using annual data indicate that inflation and to a lesser extent output growth and trade openness help explain the exchange rate regime transition dynamics

business cycles and the exchange rate system some international evidence this paper investigates the differences in time series behavior of key economic aggregates under alternative exchange rate systems we use a postwar sample of 49 countries to compare the behavior of output consumption trade flows government consumption spending and real exchange rates under alternative exchange rate systems pegged floating and cooperative systems such as the ems we then examine evidence from two particular episodes involving canada and ireland of changes in the exchange rate system aside from greater variability of real exchange rates under flexible than under pegged nominal exchange rate systems we find little evidence of systematic differences in the behavior of macroeconomic aggregates or international trade flows under alternative exchange rate systems these results are of interest because a large class of theoretical models implies that the nominal exchange rate system has important effects on a number of macroeconomic quantities

exogenous oil supply shocks how big are they and how much do they matter for the u s economy abstract the paper proposes a new measure of exogenous oil supply shocks the timing the magnitude and the sign of this measure may differ greatly from current state of the art estimates it is shown that only a small fraction of the observed oil price increases during oil crisis periods can be attributed to exogenous oil production disruptions exogenous oil supply shocks cause a sharp drop of u s real gdp growth after five quarters rather than an immediate and sustained reduction in economic growth and a spike in cpi inflation after three quarters overall exogenous oil supply shocks made remarkably little difference for the evolution of the u s economy since the 1970s although they did matter for some historical episodes

decentralization and inflation commitment collective action or continuity do political and fiscal decentralization make it easier or harder to control inflation statistical analysis of average annual inflation rates in a panel of 87 countries in the 1970s and 1980s found no clear relationship between decentralization and the level of inflation political decentralization however does appear to reduce change in countries relative inflation rates over time by creating additional veto players federal structure may lock in existing patterns of monetary policy whether inflationary or strict among the mostly developed countries that started with low inflation inflation tended to increase more slowly in federations than in unitary states among the mostly developing countries that started with high inflation inflation tended to increase faster in the federations there is evidence that political decentralization locks in a country s degree of practical central bank independence whether high or low and the relative hardness or softness of budget constraints on subnational governments

opec and demand response to crude oil prices abstract this paper investigates demand response to crude oil price movements before and after the recent global financial and economic crisis it employs several market power indices to structurally estimate price elasticities a newly developed market power index for crude oil markets is implemented in this approach opec is the central player and acts as a dominant producer in the global oil market we quantify how a change in market structure such as changes in marginal cost of production would contribute to market power exercise of opec and have an ultimate impact on price elasticity of demand for oil our price elasticity predictions fall in a range reported in the literature however estimates for pre crisis deviate from the post crisis ones in fact demand response to crude oil prices has almost doubled during the crisis this severe change in price response can be associated with record price levels caused by supply shortages and surge in alternative renewable energy resources the key advantages of this methodology over the existing literature are that it is simple to use and estimates price elasticity using a competition framework without specifying demand supply function s and utilizes commonly observable market variables that can be applied to any admissible data frequency

the time path of scarcity rent in the theory of exhaustible resources there is now a consensus in the literature on resource economics that a depletable resource should command a price in excess of its marginal extraction cost simply to reflect the opportunity cost of using a unit of it today rather that conserving it for the future but how this excess is to change along an optimal or competitive equilibrium path of resource use is still an unresolved question this might at first seem puzzling since according to the fundamental theorem of economics of exhaustible resources or hotelling i 93 i rule on an optimal path price minus marginal extraction cost also termed interchangeably as scarcity rent user cost or royalty should steadily grow over time at the social rate of discount however the literature contains sharply contrasting views on the subject for example kay and mirrlees 1975 have argued that since along an optimal path the scarcity rent grows exponentially as a finite stock of a resourcexnears exhaustion then situations in which the resource stock is still very large and yet the price greatly exceeds the marginal extraction cost should indicate that the price is significantly above its optimal level and that the resource is overconserved in stark contrast to this view heal i976 has argued that as the resource stock nears exhaustion the difference between price and marginal cost or what he termed social cost of extraction falls monotonically to zero hanson i980 analyses the same model as heal s but unlike heal who assumes the unit extraction cost to be convex he postulates it to be concave and yet like heal concludes that the scarcity rent will be monotonically declining over time solow and wan i976 analyse a still different situation where resource deposits differ in quality and the unit extraction cost increases as higher grade deposits are exhausted and extraction proceeds to lower grades they show that along an optimal path the shadow price of a resource must rise at the real rate of interest despite differential extraction costs but that the difference between price and the marginal extraction cost or what they call degradation charge declines monotonically over time to zero these sharply differing conclusions suggest that far from being resolved the question of how scarcity rent changes over time is much in want of a close scrutiny the need for such a scrutiny becomes even stronger once it is noted

can equilibrium models explain nominal exchange regime non neutrality evidence from the european monetary system abstract in a recent paper alan stockman argues that the finding that real exchange rate variability id higher under flexible nominal exchange rate systems than under fixed nominal exchange rate systems typically interpreted as evidencee of price stickiness is consistent with equilibriu models stockman s theory we argue predicts that the formation of the european monetary system should have had no effect on the real exchange rate variability of its members we test this prediction and interpret our findings as evidence in support of stockman s theory although not as evidence that equilibrium models can account for nominal exchange regime non neutrality jel f31

on the imperfect substitutability of policy regimes exchange rate targetting vs policy coordination abstract exchange rate targetting is always an imperfect substitute for explicit policy coordination but succeeds when economies are either structurally dissimilar with symmetric shocks or structurally symmetric with dissimilar shocks a joint commitment then generates economies of scale in interventions

the procompetitive effect of demand enhancing check off programs this article explores demand enhancing check off programs and how such programs may influence both private programs as well as industry market structure under duopoly a firm may increase its sales through privately funding product quality improvements however such endogenous sunk costs may also be used to exclude a rival industry funded check off programs affect firms strategies and can be procompetitive the rationale lies not only in how the check off enhancement is perceived by consumers but also in the way the check off s crowding out effect reduces the ability of a firm to use its private expenditures to bar a rival s market access

a long run view of the european monetary system abstract this papaer analyzes the exchange rates and consumer price indices of six countries participating in the european monetary system ems during the entire period of floating exchange rates the analysis shows that most of these real exchange rates have unit roots even when one allows for the possibility of a structural break at the time of the advent of the ems further proces and exchange rates are not co integrated during the ems period the data suggest that the 12 realignments of the ems have not served fully too offset the member countries inflation differentials

fixed versus flexible exchange rates which provides more fiscal discipline abstract conventional wisdom holds that fixed rates provide more fiscal discipline than do flexible rates in this paper we show that this wisdom need not hold in a standard model in which fiscal policy is endogenously determined by a maximizing fiscal authority the claim that fixed rates induce more discipline stresses that sustained adoption of lax fiscal policies must eventually lead to an exhaustion of reserves and thus to a politically costly collapse of the peg hence under fixed rates bad behavior today leads to punishment tomorrow under flexible rates bad behavior has costs as well the difference is in the intertemporal distribution of these costs flexible rates allow the effects of unsound fiscal policies to manifest themselves immediately through movements in the exchange rate hence bad behavior today leads to punishment today if fiscal authorities are impatient flexible rates by forcing the costs to be paid up front provide more fiscal discipline and higher welfare for the representative private agent the recent experience of sub saharan countries supplies evidence that matches the predictions of the model

are bilateral remittances countercyclical by putting together a relatively large data set on bilateral remittances of emigrants this paper is able to shed light on the important hypothesis of smoothing the smoothing hypothesis is that remittances are countercyclical with respect to income in the worker s country of origin the recipient of the remittance while procyclical with respect to income in the migrant s host country the sender of the remittance the econometric results confirm the hypothesis this affirmation of smoothing is important for two reasons first it suggests that remittances should be placed on the list of criteria for an optimum currency area second it brings into doubt plans by governments in some developing countries to harness remittances for their own use in that government spending in these countries generally fails the test of countercyclicality which remittances pass

a long run view of german dominance and the degree of policy convergence in the ems i introduction when the european monetary system ems was established in march 1979 the member countries agreed to gradually move to a european monetary union emu at the maastricht summit on december 9 10 1991 the member nations signed an agreement outlining the requirements and a timetable for monetary union building upon the framework specified in the 1989 delors report the maastricht agreement outlines a three stage transition to a common european monetary policy 1 the achievement of a high degree of monetary policy convergence among the member countries is crucial if a common monetary policy is to be initiated the ems already provides a framework in which monetary policy actions can be coordinated but have member nations actually coordinated their actions or have they conducted independent policies some have claimed that the bundesbank has dominated monetary policy in the ems one explanation is that by tying domestic monetary policy to that of germany other countries policymakers enhance their own credibility for instance giavazzi and pagano 1988 have argued that because the bundesbank is known to follow a consistent credible anti inflation policy tying policy to that of germany should enhance one s reputation a natural question to ask therefore is to what degree have monetary policies in the ems converged to that conducted by germany a finding of complete convergence among ems monetary policies would imply that the member countries have converged to one common monetary policy in studies examining the credibility hypothesis which clearly is linked to the notion of monetary policy convergence fratianni and von hagen 1990c and burdekin westbrook and willett 1993 rejected this hypothesis 2 to consider the prospects for the success of emu one must know whether and to what degree there has been a transmission of policy actions within the ems the question of whether germany has set the direction of monetary policy for the ems is a natural focus and has been the subject of recent study fratianni and von hagen 1990a 1990b 1990c von hagen and fratianni 1990 and kutan 1991 1992 all reject the hypothesis that german monetary policy actions dominate the monetary policy decisions of other ems countries 3 while germany is found to be an important player in setting monetary policy its actions are not independent of other members in contrast to this conclusion karfakis and moschos 1990 and macdonald and taylor 1991 argue that non german ems members policies are related closely to german policy changes and that german policy actions do not respond to those taken by the central banks of other ems countries this study tests for policy convergence among ems countries within a long run framework using cointegration procedures using both short term interest rates and the monetary base as measures of monetary policy our aim is to determine the number of shared common stochastic trends among ems monetary policies and test whether a complete convergence of policies has been achieved in the ems rejection of complete convergence a finding of two or more shared common trends indicates that some countries policies are set independently at least in the long run if this is true then the notion that the bundesbank dominates ems policy is rejected such a result also suggests that any credibility gain from tying policy to that of germany is probably outweighed by other considerations such as domestic growth or international competitiveness looking ahead our results indicate that ems monetary policies have not converged we also investigate the short run connection among policy measures using a longer sample than in previous work our results from this analysis indicate that while german policy actions influence monetary policy in other ems countries in the short run there is substantial policy interaction among ems members the format of the paper is as follows section ii discusses some methodological issues concerning the use of interest rates and the monetary base as indicators of policy actions

fiscal rules and government borrowing costs international evidence we find that the adoption of numerical fiscal rules reduces government borrowing costs in a sample of 101 advanced and developing countries for 1985 2010 we apply a variety of propensity score matching methods to address the self selection problem of policy adoption and find strong evidence that fiscal rules have large and significant treatment effects on lowering government borrowing costs in both international and domestic financial markets the results are robust to changes in country sample and alternative estimation methodology and are consistent with fiscal rules helping to build policy credibility by reducing the probability of default and the risk premium on government debt that compensates lenders for this possibility jel e43 g12 h60

who is afraid of political instability abstract an unstable macroeconomic environment is often regarded as detrimental to economic growth among the sources contributing to such instability much of the blame has been assigned to political issues this paper empirically tests for a causal and negative long run relation between political instability and economic growth but finds no evidence of such a relationship sensitivity analysis indicates that there is a contemporaneous negative relationship but also that in the long run and ignoring institutional factors the group of african countries plays the determining role

open economy macroeconomics developments in theory and policy this paper views developments in open economy macroeconomics through the lens of the debate over european monetary unification the empirical tendency for nominal exchange rate regimes to affect the variability of nominal and real exchange rates alike can be rationalized by sticky price theories or models of asset market liquidity effects but plausible liquidity models have difficulty generating enough persistence to match the data thus the macroeconomic stabilization costs of forgoing the exchange rate realignment option seem pertinent it is argued that our theories of efficiencies due to a common currency remain unsatisfactory despite recent advances the paper concludes by reviewing theories of currency crisis

fiscal discipline and the choice of exchange rate regime conventional wisdom claims that fixed exchange rates provide more fiscal discipline than do flexible rates but the recent experiences in europe the record of sub saharan countries in the 1980s and the history of stabilization attempts in latin america cast empirical doubts on this wisdom to explore this puzzle we present a standard intertemporal model with perfect capital mobility and price flexibility in which fiscal policy is endogenously determined by a maximizing fiscal authority

world crude oil and natural gas a demand and supply model abstract this paper examines world markets for crude oil and natural gas over the period 1918 1999 it analyzes the time series properties of output and prices and estimates demand and supply elasticities during 1918 1973 and 1973 1999 oil and gas prices were stable during the first period they became volatile afterwards reflecting deep changes in the market structure following the oil shock in 1973 demand price elasticities were too low however demand income elasticities were high supply price elasticities were also too low the elasticity estimates help to explain the market power of the oil producers and price volatility in response to shocks and corroborate elasticity estimates in energy studies

fewer monies better monies in the aftermath of emerging market crises from russia to asia and latin america there is a quest for better monetary arrangements that are more crisis proof fixed rates are out flexible rates are in with a policy focus on inflation targeting but there is of course the alternative of abolishing exchange rates all together this paper revisits the issue of dollarization or currency boards to review what arguments in the debate stand up the case for flexible exchange rates emphasizes the need for a tool to accomplish relative price adjustment this paper argues that in an intertemporal perspective most shocks require financing in the capital market rather than adjustment moreover countries frequently do not use their flexible rate to play a cyclical role and as a result only a pay a premium for the option to depreciate but do not take advantage of the flexibility on the contrary they engineer systematic overvaluation in the context of inflation targeting