money output and income velocity this paper attempts to assess empirically the contribution of three structural shocks monetary institutional financial and fiscal and technological to output and velocity fluctuations in the national bank era and the post 1973 period to identify these shocks we impose only long run restrictions derived from a monetary growth model we find that higher money growth increases decreases velocity in the first second period depending crucially on the resulting changes in the transactions frequency credit enhancing financial or expansionary fiscal shocks have a permanent positive effect on velocity and a himp shaped effect on output whereas technological shocks cause velocity to decrease in the short run and output to move to a permanently higher level

exporting europe s trade policy there are three well known observations about the current regional trade policy of europe the first one is the central role played by the european union in the worldwide spreading of regional agreements the second is the new policy of signing bilateral deep regional trade agreements the third is the growing demand for harmonisation of international and domestic trade regulations we show that the combination of these three trends results in europe increasingly weighing on the policy decisions of its trade partners in particular with regard to their trade policies the european hegemonic influence which can be viewed as europe exporting its policy models is extending to all partners in preferential trade agreements not only the accession candidates it has two main broad manifestations a prescriptive approach to push bilateral partners into regional agreements among themselves and a tendency to diffuse european rules in its bilateral agreements with its partners we review the various provisions of the agreements through which this influence operates although this policy can be viewed as desirable in some instances it also generates actual and potential future costs for developing countries as well as posing non trivial dangers to the process of multilateral liberalisation and to the building of appropriate policies for the partner countries

measuring the economic impact of monetary union the case of okinawa data from okinawa s monetary union with the united states in 1958 and with japan in 1972 are used to obtain a quantitative indication of how monetary union might affect the behavior of nominal and real shocks across two economies with monetary union the variance of the real exchange rate between two economies declines and their business cycle linkage becomes stronger a var analysis of output and price data for okinawa and japan further indicates that the contribution of asymmetric nominal shocks in business cycles becomes smaller monetary union thus seems to facilitate both nominal and real convergence

missed opportunities the wto trade policy review for the east african community the east african community eac comprising kenya tanzania and uganda came into force on 7 july 2000 with a common external tariff cet established in january 2005 this trade policy review tpr of the eac is timely as all three countries had implemented significant trade liberalisation since the late 1980s while the cet represented an asymmetric change kenya and tanzania essentially reduced tariffs whereas uganda increased tariffs the tpr provides considerable information on the cet and on trade and related policies in each of the member countries however the eac and the tpr missed a number of opportunities the eac included no coordinated export promotion or investment provisions while the tpr says little on the potential for intra regional trade and nor does it address the position of the eac in the economic partnership agreements epas being negotiated with the eu this review concentrates on these omissions to explore the implications of the eac for developments in trade policy in the region

evidence on the cross country transmission of monetary shocks the international transmission of monetary shocks between the us and canada is explored focusing on real variables such as consumption investment employment and the bilateral trade balance along with measures of us and canadian money the empirical analysis examines the impact of a monetary shock in one country on real activity in both countries the long run analysis provides evidence of cointegration among the variables and suggests that money plays an important role in the equilibrium relationships between the two countries variance decompositions and impulse response functions reveal interesting avenues of real transmission in the short run the short run analysis provides strong evidence that us monetary shocks affect real activity in both the usa and canada the analysis also indicates that canadian monetary disturbances affect canadian and us real activity and that many of these effects are similar in magnitude to the effects of us monetary shocks the importance of the nominal exchange rate

output inflation and stabilization in a small open economy evidence from mexico abstract we study the sources of fluctuation in output and inflation for mexico considering fiscal real money growth exchange rate and asset market disturbances which are identified using an estimable equilibrium model incorporating important features of high inflation economies changes in inflation are influenced by all shocks while output growth is explained by real fiscal and asset shocks the results lend strong support to the fiscal view of inflation and to a lesser degree support the balance of payments view we also find that higher inflation and higher budget deficits cause each other to spiral upward

does joint modelling of the world economy pay off evaluating global forecasts from a bayesian gvar we analyze how modeling international dependencies improves forecasts for the global economy based on a bayesian gvar with ssvs prior and stochastic volatility to analyze the source of performance gains we decompose the predictive joint density into its marginals and a copula term capturing the dependence structure across countries the gvar outperforms forecasts based on country specific models this performance is solely driven by superior predictions for the dependence structure across countries whereas the gvar does not yield better predictive marginal densities the relative performance gains of the gvar model are particularly pronounced during volatile periods and for emerging economies

the transmission mechanism of business cycles among germany japan the uk and the usa the study analyses the interdependent relationships of business cycles among four major countries using la var methods the results are compared with results obtained using a standard var model for the total sample 1962 1995 it is found that the economies of individual countries move independently and that inter dependence is weak however causality from the usa to japan and from japan to germany can be observed it is also found that the ripple effect differs in the first 1962 1973 and second 1973 1995 sample periods a change in the international ripple effect on the business cycle may have occurred at the time of the first oil crisis these results are almost robust to the empirical techniques employed in the analysis

sources procedures and microeconomic effects of innovation fabio arcangeli paul david frank engelman christopher freeman massimo moggi richard nelson luigi orsenigo nathan rosenberg michele salvati g n von tunzelman two anonymous referees and the participants at the meeting of the committee on distribution growth and technical progress of the italian national research council cnr rome november 16 1985 have helped with various redraftings a particularly grateful acknowledgment is for the insightful and patient help of moses abramovitz this work has been undertaken at the science policy research unit spru university of sussex as part of the research program of the designated research centre sponsored by the economic and social research council esrc earlier support to the research that led to this paper by the italian national research council cnr is also gratefully acknowledged the statistical research has been undertaken with the assistance of stephano brioschi ilaria fornari and giovannu prennushi

edwin mansfield s contributions to the economics of technology abstract edwin mansfield s contributions to the economics of technology are summarized from the early 1960s through his death in 1997 mansfield s methodology is discussed as are his contributions on the diffusion of technical innovation the effect of firm size on innovation the role of academic and basic research in increasing innovation and productivity international technology transfer and the inaccuracy of technological forecasts the economics profession s evaluation of the relative importance of mansfield s work is presented using as evidence citation counts of his works collected from the social science citation index ssci identified as among mansfield s most important contributions are his work on the importance of academic research for industrial innovations his empirical estimation of the rates of diffusion of different innovations and his estimation of the private and social returns from investments in industrial innovations finally we present mansfield s advice on the future of the economics of technology

federal credit private credit and economic activity the federal open market committee has been monitoring total domestic nonfinancial debt since early 1983 the evidence reported in this paper shows that the federal and non federal private components of the debt have significantly different impacts on economic activity thus monitoring total debt rather than its major subcomponents implies that the federal open market committee is ignoring important information contained in a more disaggregated analysis copyright 1990 by ohio state university press

academic research and industrial innovation the purpose of this study is to estimate the extent to which technological innovations in various industries have been based on recent academic research and the time lags between the investment in recent academic research projects and the industrial utilization of their findings because no attempt to my knowledge has been made to estimate the social rate of return from academic research we also make some rough and tentative estimates of this sort while the results are subject to many limitations discussed below they should be of interest to public policy makers concerned with science and technology as well as to

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

the dynamic effects of aggregate demand and supply disturbances we interpret fluctuations in gnp and unemployment as due to two types of disturbances disturbances that have a permanent effect on output and disturbances that do not we interpret the first as supply disturbances the second as demand disturbances demand disturbances have a hump shaped mirror image effect on output and unemployment the effect of supply disturbances on output increases steadily over time peaking after two years and reaching a plateau after five years

income effects on the trade balance this paper investigates the income effects on the trade balance with particular attention to the distinction between permanent and transitory disturbances for the united states japan germany and the united kingdom in all four countries movements in the trade balance have mostly been associated with transitory changes in income the latter also are negatively associated with the trade balance in marked contrast permanent changes in income have little to do with the trade balance these results are examined in light of intertemporal models and real business cycle models copyright 1996 by mit press

atheoretical macroeconometrics a critique abstract the spurious nature of the restrictions used to identify many macroeconometric models has led some researchers to advocate a style of econometric inquiry that is less dependent on prior theoretical restrictions of the sort that were central to the approach of the cowles commission this development which we call atheoretical macroeconometrics is summarized and evaluated in the current paper it is contrasted with an updated version of the cowles commission approach we conclude that while some of the exercises of atheoretical macroeconometrics are valid those that have attracted the most attention and appear the most innovative exogeneity testing impulse response analysis and policy analysis using estimated vector autoregressions are based on incorrect analysis

on the sources of business cycles in the g 7 abstract this paper examines sources of cyclical movements in output inflation and the term structure of interest rates in the g 7 it employs a novel identification approach which uses the sign of the theoretical cross correlation function in response to shocks to catalog orthogonal disturbances we find that demand shocks are the dominant source of output and inflation fluctuations in several of the g 7 countries the proportion of term structure variability explained by different structural sources does not depend on the horizon apart from the us and canada structural shocks are nearly uncorrelated across countries

financial integration and international business cycle co movement international business cycle transmission through integrated financial markets occurs through wealth and balance sheet effects balance sheet effects lead to business cycle convergence but wealth effects lead to divergence this paper shows empirically that debt market integration has a positive effect on co movement implying that balance sheet effects are the main conduit for international transmission through integrated debt markets equity market integration has a negative effect implying that wealth effects are the main channel for international transmission through integrated equity markets distinguishing between wealth and balance sheet effects resolves some key discrepancies between empirical and theoretical findings in international macroeconomics

changes in economic instability in 19th century america in contrast to the twentieth century over the nineteenth century economic fluctuations became increasingly severe this paper uses a structural vector autoregression estimated on ante and postbellum data to distinguish the influences of changes in the nature or magnitude of the disturbances from those of changes in the response of the system to shocks i e changes in structure in contributing to this increased economic instability the increased cyclical severity in the postbellum period is found to have been the result of greater sensitivity to monetary disturbances rather than of larger or more volatile shocks copyright 1993 by american economic association

economic partnership agreements between sub saharan africa and the eu a development perspective this paper draws on hinkle and schiff 2003 it analyses the planned economic partnership agreements epas between the eu and sub saharan africa ssa from a development perspective it does not take a position on whether ssa should enter into epas with the eu rather it starts from the notion that the process of forming epas is unlikely to be reversed and examines the conditions that will maximise ssa s benefits from the epas if this notion is correct then the analysis presented in the paper applies on the other hand pascal lamy the eu trade commissioner made a proposal at the may 2004 g 90 summit in dakar that might lead to a change in the epa process he proposed that the g 90 a group consisting of acp and non acp ldc countries should not have to make concessions at the wto doha round of multilateral trade negotiations i e he proposed a free round for the g 90 this proposal opens the door to the possibility that the same might apply to the acp countries in the eu acp negotiations and that the epa process might be reversed the paper considers the key issues raised by the planned epas their relationship to the wto s doha round and the eu s everything but arms initiative the changes needed to make the epas internally consistent the domestic reforms in ssa that would need to accompany trade liberalisation in both goods and services and the potential effects of the epas on regional integration in ssa the epas will pose a number of policy challenges for ssa countries including restructuring of indirect tax systems reduction of mfn tariffs liberalisation of service imports on an mfn basis and related regulatory reforms in the services sector and liberalisation of trade in both goods and services within the regional trading blocs in ssa the paper also finds that the epas provide an opportunity to accelerate regional and global trade integration in ssa to realise the potential development benefits of the planned epas two steps are essential first the eu must as it has stated truly treat the epas as instruments of development subordinating its commercial interests in the agreements to the development needs of ssa second the ssa countries need to implement a number of epa related trade policy reforms however the latter is far from certain given the lack of reform momentum in ssa

does trade integration cause convergence abstract using a business cycle model we analyse the conditions for trade integration to produce economic convergence we find large stable economies with integrated structures are likely to diverge but smaller more volatile or less well integrated economies will converge the symmetry of shocks is unimportant

dynamic effects of financial intermediation over the business cycle ping wang this paper provides a empirical evidence that the financial intermediation disturbances can generate business cycles we examine three countries whose financial sectors are fully developed but quite distinct in their institutional and regulatory circumstances thus we can infer whether financial intermediation disturbances differ across dissimilar financial environments we find that the dynamic responses of output to financial intermediation shocks exhibit similar patterns in all cases studied however the various institutional and regulatory circumstances have generated different propagation mechanisms transmitting the financial disturbance to output in ways that lead the magnitudes of the responses to deviate across economies jel e32 e44 i introduction does the financial sector veil the real economy although some economists such as lucas 1988 argue that financial factors are over stressed there is a growing literature that theoretically cultivates the channels through which financial intermediation can influence economic fluctuations and long run growth rather than focus on the traditional monetary transmission mechanism this literature plants itself in the microfoundations of asymmetric information and contract theory the new financial intermediation literature stems from seminal works by diamond 1984 townsend 1983a 1983b and boyd and prescott 1986 that demonstrate that in the presence of private information and costly state verification it is optimal for borrowing and lending to be conducted under financial intermediary arrangements these ideas were then extended by williamson 1987 to show how disturbances in the financial intermediation sector can generate business cycle fluctuations essentially when investment projects become more risky or difficult to evaluate loan supply falls and business cycle movements emerge 1 moreover other financial intermediation impulses are likely to be important as well these include changes to the institutional framework or the regulatory environment and any other event that enhances or hinders the intermediaries capacity to allocate capital efficiently among competing alternative uses e g financial innovation yet despite the theoretical rhetoric on the importance of financial intermediation to output fluctuations the empirical relevance of financial intermediation remains an unsettled question this paper brings us one step closer to the solution by econometrically identifying structural financial intermediation disturbances and estimating their effect on output movements in three major industrialized countries germany the united kingdom and the united states we choose these three advanced economies not only because their financial sectors are fully developed but also because their distinct banking structures and regulatory environments are capable of generating and transmitting financial intermediation disturbances in different ways that is the depth of financial intermediation is relatively similar across countries therefore the cross country analysis allows us to focus on the ability of financial intermediation to generate short run cycles and to draw some suggestive insights regarding the role of regulatory and institutional factors across countries the existing empirical evidence linking financial factors to real economic activity has involved noticing statistical correlations between some financial variables and some real variables goldsmith 1969 using data from 1860 to 1963 showed that there is a positive relationship between economic development and the size of the financial sector kuznets 1971 in a cross section study of 57 developed and developing economies found that the share of banking insurance and real estate in gross domestic product rises as income increases mckinnon 1973 showed that the ratios of private credit to national income and a broad monetary aggregate to national income are positively related to per capita income

an empirical analysis on capital flows the case of korea and mexico this paper discusses causes of capital flows in korea and mexico both countries received substantial amounts of foreign capital in the late 1980s and early 1990s international capital helped these countries achieve a higher standard of living and faster economic growth however undesirable macroeconomic effects such as appreciation of real exchange rate and widening current account deficits usually accompany foreign capital inflows the vector autoregressive var method is applied to investigate the underlying shocks causing the capital inflows the main findings are that the u s business cycle and shocks to foreign interest rates account for more than 50 of capital inflows to both countries in the past two decades

international business cycles the authors estimate a dynamic two country model in which economic fluctuations are driven by a worldwide supply shock country specific supply shocks and relative fiscal money and preference shocks identification is achieved using only long run restrictions based on a theoretical model the main results are 1 supply shocks particularly country specific ones are very important in generating international business cycles and 2 although the post 1973 flexible exchange rate period has been inherently more volatile there are no differences in transmission properties of economic disturbances across exchange rate regimes for the endogenous variables they focus on copyright 1993 by american economic association

limited participation in international business cycle models a formal evaluation in this paper we study the role of limited asset market participation lamp for international business cycles we show that when limited participation is introduced into an otherwise standard model of international business cycles the performance of the model improves signi cantly especially in matching cross country correlations to perform formal evaluation of the models we develop a novel statistical procedure that adapts the test of vuong 1989 to dsge models and accounts for the possibility that models are misspeci ed based on this test we show that the improvements brought out by lamp are statistically signi cant leading a model with lamp to outperform a representative agent model furthermore when lamp is introduced a model with complete markets is found to do better than a model with no trade in nancial assets a well known favorite in the literature our results remain robust to the inclusion of investment speci c technical change

international business cycles world region and country specific factors the paper investigates the common dynamic properties of business cycle fluctuations across countries regions and the world we employ a bayesian dynamic latent factor model to estimate common components in macroeconomic aggregates output consumption and investment in a 60 country sample covering seven regions of the world the results indicate that a common world factor is an important source of volatility for aggregates in most countries providing evidence for a world business cycle we find that region specific factors play only a minor role in explaining fluctuations in economic activity we also document similarities and differences across regions countries and aggregates jel f41 e32 c11 c32

government spending and the real exchange rate i study the effect of government spending on the real exchange rate in an open economy version of the sidrauski model with a time varying rate of time preference that introduces complementarity between consumption at different points in time i show that a balanced budget fiscal expansion causes a real depreciation and a current account surplus if the expansion falls on traded goods if the increase falls instead on nontraded goods both the stylized results of a real appreciation and a current account deficit and the perverse result of an appreciation and a surplus can occur

trade and business cycle synchronization in oecd countries a re examination this paper re examines the relationship between trade intensity and business cycle synchronization for 21 oecd countries in the period 1970 2003 instead of using instrumental variables we estimate a multivariate model including variables capturing specialization and similarity of economic policies we confirm that trade intensity affects synchronization but the effect is much smaller than previously reported other factors like specialization and convergence in monetary and fiscal policies have a similar impact on business cycle synchronization as trade intensity the effect of trade on synchronization is not driven by outliers however the impact of trade on synchronization is not robust across deciles c 2007 elsevier b v all rights reserved

refinements on macroeconomic modeling the role of non separability and heterogeneous labor supply abstract this paper proposes a dynamic stochastic general equilibrium model characterized by heterogenous labor schedules and non separability between consumption and labor in the utility function the model successfully describes output consumption investment and interest rates after a monetary expansion the proposed formulation improves on standard models by using preferences favored by the data and by requiring investment adjustment costs and habit formation parameters more in line with the micro based evidence

can government enforcement permanently alter fertility the case of china i introduction in developing countries per capita output growth objectives are often stymied by high birth rates 1 traditional values ignorance of birth control technology and labor intensive farming are all factors which contribute to high fertility rates for those reasons many developing countries experiencing high birth rates adopt population control policies while most programs combine educational efforts with some form of persuasion many also provide strong economic disincentives to high fertility 2 of particular interest from this vantage point is the experience of the people s republic of china which stands alone in its use of quotas on child bearing decisions 3 china s population control policy began with a massive campaign in 1953 reversing an earlier pro natalist stance however that campaign was curtailed by the political turmoil arising from the great leap forward and the cultural revolution population control programs resumed in 1970 with the issuance and enforcement of three reproductive norms late marriage longer spacing between births and fewer children in 1979 the authorities went even further allowing each household to have only one child interest in china s experience arises not only from the severity of the restrictions but also due to the government s ability to enforce them the feasibility of enforcing these restrictions is a result of the deep penetration of the communist party into most aspects of an individual s life including its control over housing employment and salaries 4 however despite the government s extensive involvement in birth planning those who study chinese demography have debated the extent to which government policies are responsible for the large fertility decline in the 1970s 5 this paper uses recent advances in economic theory and econometrics to quantitatively assess the main sources of fertility fluctuations in china specifically we employ a model with endogenous fertility choice which modifies the framework of razin and ben zion 1975 and barro and becker 1989 6 in contrast to other papers we focus on the relationship between government enforcement of population control policies and fertility outcomes we also allow the fertility rate to be affected by 1 household preferences including alterations in taste as well as in education health care and the changing role of women and 2 production technology which mostly captures changes in agricultural output or income we perform simple comparative static analysis to examine long cycles in fertility and output and characterize the transitional dynamics which govern short cycles easterlin 1968 and lee and loschky 1987 provide nice discussions of long fertility cycles the long run steady state predictions will be used to identify the empirical structural vector autoregression var system as well as interpret the underlying structural disturbances additionally the transitional dynamics results can be compared to the estimated dynamic structure finally we employ a structural var as in blanchard and quah 1989 and ahmed ickes wang and yoo 1993 to econometrically disentangle the relative contributions of policy and economic development factors to changes in fertility growth the structural disturbances include a change in the government s enforcement power a technological advance in agricultural production and a preference shift toward a higher fertility rate all of which are capable of generating both short and long cycles in fertility and output we find that government enforcement power has a significant negative effect on fertility accounting for about one third of the variance of the forecast error for fertility growth after the first year an expansion in agricultural output on the other hand yields a short run positive impact on fertility growth and is responsible for almost one fifth of fertility growth variations furthermore while theoretically all shocks have the potential to generate long cycles only preference shifts have statistically significant long run effects

anomalies foreign exchange most all behavior can be explained by assuming that agents have stable well defined preferences and make rational choices consistent with those preferences in markets that eventually clear an empirical result qualifies as an anomaly if it is difficult to rationalize or if implausible assumptions are necessary to explain it within the paradigm this column will present a series of such anomalies readers are invited to suggest topics for future columns by sending a note with some reference to or better yet copies of the relevant research comments on anomalies printed here are also welcome the address

prices and output in the mexican economy emperical testing of alternative hypotheses abstract this paper derives and compares alternative formulations of price and output formation for the mexican economy over the period 1961 1981 a structuralist type model with working capital is found to dominate its monetarist and keynesian counterparts a breakdown of the causes of inflation is offered and some simulations are carried out to highlight some trade offs among real wages the real exchange rate real interest rates and output

the currency substitution hypothesis and relative money demand in mexico and canada the author estimates demand for dollars relative to domestic currency in mexico and canada using 1 a multivariate model with a relative money demand equation and 2 single equation models including an error correction representation he also analyzes the models encompassing properties the anomalous correlation between the mexican dollarization ratio and expected peso depreciation implies that convertibility risk was associated with holding mexidollars under this interpretation higher expected depreciation coincides with a drop in relative demand for dollars because there is the possibility that the government will forcibly convert mexdollars when these central bank liabilities rise and foreign reserves run low several testable alternative explanations are rejected copyright 1992 by ohio state university press

are correlations of stock returns justified by subsequent changes in national outputs abstract in an integrated world capital market the same pricing kernel is applicable to all securities we apply this idea to the stock returns of different countries we investigate the underlying determinants of cross country stock return correlations first we determine for a given measured degree of commonality of country outputs what should be the degree of correlation of national stock returns we propose a framework that contains a statistical model for output and an intertemporal financial market model for stock returns we then attempt to match the correlations generated by the model with measured correlations our results show that under the hypothesis of market segmentation the model correlations are much smaller than observed correlations however assuming world markets are integrated our model correlations can be matched with observed correlations

a traditional interpretation of macroeconomic fluctuations under the traditional interpretation of macroeconomic fluctuations aggregate demand shocks move output and prices in the same direction while aggregate supply shocks move output and prices in opposite directions this paper examines the joint behavior of u s output unemployment prices wages and nominal money and asks whether it is consistent with this interpretation the answer is a qualified yes

reserve accumulation and financial crises from individual protection to systemic risk abstract this paper provides a new perspective on the relationship between countries international reserve holdings and financial crises while the local view holds that reserves may prevent domestic crises it overlooks that the accumulation of reserves relaxes the financing constraint of the reserve currency country and may cause a financial crisis in the centre which is transmitted globally according to this global view reserve accumulation might destabilize the international financial system since the crisis affects all countries alike the accumulation of reserves imposes a negative externality on non accumulating countries we integrate this idea in a theoretical model of the optimal amount of reserves and illustrate the gap between local and global optimality the consideration of systemic risk lowers the demand for reserves moreover if a supranational authority determines the optimal level of reserves it internalizes the negative externality and accumulates fewer reserves a macroprudential tax on reserve hoardings might implement the socially optimal solution our calibration analysis shows that these considerations are economically significant they lower the optimal amount of reserves in the benchmark case by 45

imitation costs and patents an empirical study it has long been recognised that the costs of imitating new products have an important effect on the incentives for innovation in a market economy as arrow i962 and others have pointed out if firms can imitate an innovation at a cost that is substantially below the cost to the innovator of developing the innovation there may be little or no incentive for the innovator to carry out the innovation in their discussions of the innovation process economists frequently have called attention to the major role played by the costs of imitation but there has been little or no attempt to measure these costs to test various hypotheses concerning the factors influencing them or to estimate their effects in this paper we report some findings of what seems to be the first study of this topic in addition we present data regarding the effects of patents on imitation costs and on the rate of innovation

the trade and fiscal impact of eu acp economic partnership agreements on west african countries abstract the european union is currently negotiating free trade agreements called economic partnership agreements epas with african countries as part of the cotonou agreement between the european union and african caribbean and pacific countries the paper empirically assesses the impact of the epas on trade flows and government revenue for 14 west african countries the results indicate that the decline in import duties due to the preferential tariff elimination might be of some cause for concern and that complementary fiscal and economic policies have to be implemented before or at the time the epas come into force

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

macroeconomic fluctuations in developing countries some stylized facts this paper documents the main stylized features of macroeconomic fluctuations and business cycle regularities for a group of 12 developing countries cross correlations between domestic industrial output and a large group of macroeconomic time series including government revenue and expenditure wages inflation money velocity private sector credit international trade and exchange rates are presented the effects of industrial country economic conditions on output fluctuations in these countries are also analyzed the robustness of the results is examined using three detrending procedures a modified hodrick prescott filter the baxter king band pass filter and a nonparametric technique overall the results show some similarities between macroeconomic fluctuations in developing and industrial countries e g procyclical real wages and counter cyclical variation in government expenditure but also some important differences in business cycle characteristics e g countercyclical variation in the velocity of monetary aggregates

sectoral fluctuations in mexico and the 1993 recession the sectoral fluctuations that occurred during mexico s 1993 recession are studied the 1993 recession differed from other recessions in that it was preceded by a period of low inflation and positive government surplus our empirical analysis suggests that slowdowns in natural resource intensive sectors were partially responsible for the 1993 recession in mexico

are devaluations contractionary in mena countries currency depreciation reduces aggregate supply by raising cost of imported inputs and increases aggregate demand by increasing its net export component depending on the relative strength of the two effects depreciation could be expansionary or contractionary we employ the bounds testing approach to cointegration and error correction modelling to evaluate the effects of exchange rate depreciation on output growth both in the short and in the long run across a sample of mena countries exchange rate fluctuations are found to be important to fluctuations in real output growth in the short run anticipated exchange rate depreciation may induce long run expansionary or contractionary effects on output supply consistent with theory s predictions the expansionary effect of unanticipated depreciation is only transitory on output growth nonetheless unanticipated depreciation is found to have a contractionary effect on output growth in the long run via an increase in the cost of imported inputs

assessing the impact of nigeria s naira depreciation on output and inflation empirical evidence in support of the argument that keeping real exchange rate persistently devalued may lead to a permanent higher level of inflation have been provided kamin 1985 calvo et al 1994 however probably because of the relatively recent origin of serious exchange rate depreciation in sub saharan africa countries especially nigeria when compared with other regions e g latin america and asia not many studies have been reported on the subject the existing studies on effect of persistent exchange rate depreciation in nigeria are based on either regression or simulation approach rather than var approach this present study intends to fill these gaps by not only focusing the study on nigeria but also adopting restricted vector autoregressive model thereby providing basis for comparison with existing results obtained for other countries this abstract was borrowed from another version of this item

currency substitution in mexico the dollarization problem the term dollarization will be interpreted in this paper as the degree to which real and financial transactions are performed in dollars relative to those realized in domestic currency an obvious choice for measuring the degree of dollarization in the economy is the proportion of dollars to domestic currency circulating at any point in time this concept of dollarization is closely related to the literature on currency substitution which explains the conditions under which foreign money balances will be held and adapted to expected changes in relative risks and returns among the various currencies the general idea of several representative recent papers see 6 9 12 is that monetary policy will be ineffective in a country where foreign currencies are regarded as good substitutes for domestic currency an implication of this hypothesis is that the elasticity of substitution between domestic and foreign currencies is likely to increase in periods when the exchange rate is floating hence if the issue of currency substitution is empirically relevant one of the stronger arguments for floating exchange rates greater national monetary independence is seriously weakened

changes in the effects of monetary policy on disaggregate price dynamics abstract based on a time varying factor augmented vector autoregression we demonstrate that the propagation mechanism of monetary policy disturbances differs across disaggregate components of personal consumption expenditures while many disaggregate prices rise temporarily in response to a monetary tightening in the early part of the sample there is no evidence of a price puzzle at the aggregate level the share of disaggregate prices that exhibit the price puzzle diminishes from the early 1980s onwards there also is evidence of a substantial decline in the dispersion of disaggregate price responses over time this gradual decrease in cross sectional heterogeneity of disaggregate price responses is associated with a dampening effect on aggregate real economic activity and a stronger effect on the aggregate price level we illustrate by means of a multi sector sticky price model augmented by a cost channel how key structural parameters would have had to change to match this evolution of sectoral price dynamics

macro economic fluctuations in developing countries this article documents the main stylized features of macroeconomic fluctuations for 12 developing countries it presents cross correlations between domestic industrial output and a large group of macroeconomic variables including fiscal variables wages inflation money credit trade and exchange rates also analyzed are the effects of economic conditions in industrial countries on output fluctuations in the sample developing countries the results point to many similarities between macroeconomic fluctuations in developing and industrial countries procyclical real wages countercyclical variation in government expenditures and some important differences countercyclical variation the velocity of monetary aggregates their robustness is examined using different detrending procedures

an empirical assessment of currency devaluation in east asian countries the hypothesis of contractionary devaluation has received surprisingly strong empirical support especially in the context of latin american countries in this paper we study whether it applies equally well in seven east asian countries when we use the pre 1997 crisis data and the trade weighted exchange rate we find no evidence of contractionary devaluations in fact currency devaluation appears strongly expansionary in several countries this is contrasted to the case of chile and mexico where the evidence of devaluation is persistent we find that the results are somewhat sensitive to the definition of the exchange rate and the period of estimation

technological change and market structure an empirical study it has long been recognized that technological change is one of the major forces influencing an industry s market structure karl marx stressed this fact over a century ago like marx many economists including arthur burns 1936 and john kenneth galbraith 1967 have been convinced that technological change tends to increase plant sizes and the level of industrial concentration others like john blair 1972 have argued that although such a trend existed in the past it has been reversed since world war ii because of a fundamental change in the nature of technological advance whereby centralizing technologies have been displaced and superceded by decentralizing technologies in recent years there has been a revival of interest in the effects of technological change on market structure richard nelson and sidney winter 1978 have formulated a computer model and richard levin 1980 has estimated an econometric model both aimed at representing these effects in general these models seem to suggest that a relatively rapid rate of technological change in a particular industry is likely to result in a relatively high level of concentration however these authors are careful to point out that their results are preliminary and tentative although the effects of technological change on market structure are of fundamental importance to both economic analysis and public policy it is surprising how little systematic study has been devoted to them we know little or nothing about the effects of the various process and product innovations that have occurred in recent years in various industries and we have very little information concerning the relationship between the rate of technological change in a particular industry and the changes in the industry s market structure my purpose in this paper is to try to begin filling these notable gaps

sources and propagation of international output cycles common shocks or transmission abstract this paper studies the generation and transmission of international cycles in a multi country model with production and consumption interdependencies two sources of disturbance are considered and three channels of propagation are compared technology disturbances which are mildly correlated across countries are more successful than government expenditure disturbances in reproducing actual data the presence of a common component to the shocks and of production interdependencies appear to be crucial in quantitatively matching the properties of the data

on the real effects of inflation and inflation uncertainty in mexico we estimate an augmented multivariate garch m model of inflation and output growth for mexico at business cycle frequencies the main findings are 1 inflation uncertainty has a negative and significant effect on growth 2 once the effect of inflation uncertainty is accounted for lagged inflation does not have a direct negative effect on output growth 3 however as predicted by friedman and ball higher average inflation raises inflation uncertainty and the overall net effect of average inflation on output growth in mexico is negative that is average inflation is harmful to mexican growth due to its impact on inflation uncertainty 4 the mexican presidential election cycle significantly raises inflation uncertainty both during the year of the election and the year following the election which has correspondingly negative effects on output growth

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