exchange rates and the fiscal theory of the price level abstract this paper addresses exchange rate determination under a nominal interest peg in a two country cash in advance model under two types of cash in advance constraints if both governments peg the nominal interest rate on domestic bonds there is a continuum of equilibria each consistent with different nominal exchange rates and real resource allocations the well known finding of equilibrium uniqueness under a nominal interest rate peg in a closed economy does not survive in a multi country multi currency setting

hedging sudden stops and precautionary contractions abstract even well managed emerging market economies are exposed to significant external risk the bulk of which is financial at a moment s notice these economies may be required to reverse the capital inflows that have supported the preceding boom while capital flows crises are sudden nonlinear events sudden stops their likelihood fluctuates over time the question we address in the paper is how should a country react to these fluctuations depending on the hedging possibilities the country faces the options range from pure self insurance to hedging the sudden stop jump itself in between there is the more likely possibility to hedge the smoother fluctuations in the likelihood of sudden stops the main contribution of the paper is to provide an analytically and empirically tractable model that allows us to characterize and quantify optimal contingent liability management in a variety of scenarios we show with a concrete example that the gains from contingent liability management can easily exceed the equivalent of cutting a country s external liabilities by 10 of gdp

globalization and emerging markets with or without crash we analyze the effects of financial and trade globalization on the likelihood of financial crashes in emerging markets while trade globalization always makes crashes less likely financial globalization may make them more likely especially when trade costs are high pessimistic expectations can be self fulfilling and lead to a collapse in demand for goods and assets such a crash comes with a current account reversal and drops in income and investment lower income countries are more prone to such demand based financial crises a quantitative evaluation shows our model is consistent with the main stylized facts of financial crashes in emerging markets

modelling energy technologies in a competitive market abstract energy economic models must predict the mix of energy technologies in competitive energy markets we examine a market composed of several competing technologies with geographically heterogeneous cost distributions an approach for determining both the market share and average market cost of energy produced by these technologies is derived the formalism developed which is based on a conditional least cost distribution function can be used to correct the convertional logit treatment of these quantities in several existing models and to better interpret empirical data in order to determine more realistic cost distribution functions for energy technologies

private sector risk and financial crises in emerging markets investment necessary for growth is risky and often requires external financing we present a model in which capital market imperfections separate countries into a safe credit club of industrial countries with low interest rates and steady credit access and a risky club of emerging markets with high interest rates and volatile access in an emerging market a large negative productivity shock interacts with credit market imperfections to trigger a severe contraction in external lending domestic agents react with widespread default we calibrate to south korean parameters and argue that the 1998 financial crisis could have been the downside of risky investment financed in imperfect capital markets

exchange rate crises and fiscal solvency this paper combines insights from generation one currency crisis models and the fiscal theory of the price level ftpl to create a dynamic ftpl model of currency crises the initial fixed exchange rate policy entails risks due to an upper bound on government debt and stochastic surplus shocks agents refuse to lend into a position for which the value of debt exceeds the present value of expected future surpluses policy switching usually combined with currency depreciation restores fiscal solvency and lending this model can explain a wide variety of crises including those involving sovereign default we illustrate by explaining the crisis in argentina 2001

assessing green energy economy stimulus packages evidence from the u s programs targeting renewable energy the paper provides a comprehensive empirical assessment of american stimulus policies aimed at renewable energy re technologies we use an indicator based methodology to assess progress with respect to energy environmental and socio economic issues resulting from re stimulus programs linked to the american recovery and reinvestment act and review and analyze the emerging but scattered literature overall our results indicate that stimulus programs have had a positive effect on the re sector this is despite the fact that they were originally planned to work in combination with a greenhouse gas cap and trade system which has not been implemented from the methodological perspective our approach is resource intensive and our analysis highlights numerous challenges notably related to causality and additionality despite these limitations this research improves our understanding of the broad effects and impacts of re stimulus programs

bailouts time inconsistency and optimal regulation a macroeconomic view a common view is that bailouts of firms by governments are needed to cure inefficiencies in private markets we propose an alternative view even when private markets are efficient costly bankruptcies will occur and benevolent governments without commitment will bail out firms to avoid bankruptcy costs bailouts then introduce inefficiencies where none had existed although granting the government orderly resolution powers which allow it to rewrite private contracts improves on bailout outcomes regulating leverage and taxing size is needed to achieve the relevant constrained efficient outcome the sustainably efficient outcome this outcome respects governments incentives to intervene when they lack commitment

the use of blanket guarantees in banking crises policymakers often use guarantees on bank liabilities to prevent or contain bank runs during systemic banking crises but their success has been debated using a sample of 42 episodes of banking crises this paper finds that blanket guarantees do help to reduce liquidity pressures on banks but only partially since they do not stem withdrawals from non residents withdrawals following the announcement of guarantees are much more pronounced for non resident liabilities than for foreign currency denominated deposits which may also be held by residents suggesting that the results on non residents are not driven by foreign currency risk but by concerns about the government s ability and commitment to honor the guarantee to non resident liability holders

collusion and overlending i introduction for a long time have korean companies been engaged in unbridled expansionism financed through loans inefficient octopus style management and over and duplicate investment thus expediting the structural failure of the economy this failure to concentrate on profits consolidation and efficiency provided the fuse to the bankruptcy bombs that triggered the foreign exchange and economic crises the collusion between the conglomerates financial sector and politicians made this financial monopoly possible chosun ilbo december 26 1997 collusion and overlending in the korean financial sector may be best illustrated by the above editorial highlight of chosun ilbo the most read newspaper in korea its 1997 financial crisis is primarily triggered by continual bankruptcies of chaebols conglomerates which with assistance from politicians had borrowed heavily from financial institutions in financing their investment projects 1 unlike some other asian countries experiencing problems in their financial sector due to shifts in investment projects toward real estates such as japan hong kong and thailand chaebols in korea concentrated mostly on manufacturing activities 2 in this study we establish a tractable model of overlending with three key players namely chaebols financial institutions and politicians as highlighted in chosun ilbo the model is designed to achieve two primary goals that are crucial for matching some key observations during the korean turmoil first we illustrate how overlending can be an equilibrium outcome with collusion between chaebols and politicians when the economic environment is favorable this occurs despite that such a collusion distorts normal borrowing lending operation by causing a discernible shift in loan composition from more to less productive investment projects second we show that as the economic environment gradually deteriorates there can be a shift from a collusion to a no collusion equilibrium the combination of deterioration in fundamentals and expectations of an equilibrium shift can trigger economy wide financial crisis more specifically we construct a simple principal supervisor agent model of corruption and overlending the principal is the formal authority of loan decision making of a financial institution or in short the financial institution the supervisor is a politician who serves as the informational intermediary in the borrowing lending arrangement via his her connections and networking 3 the agent is a chaebol of an unknown type which seeks for external financing of a set of risky projects a politician s favorable signal about the borrowing chaebol s overall performance would grant the approval of the loan to finance an array of risky projects whose returns depend on idiosyncratic shocks that cannot be washed out in aggregation within the chaebol as an outside alternative to making the loan the financial institution can invest in the world capital market where a fixed rate of return is guaranteed this portfolio decision depends on a comparison of the expected average returns on the given set of risky projects with the safe returns on investments in the world capital market while both the chaebol s type and the state of nature are unobservable to the financial institution we for simplicity assume that politician s connections and networking can fully uncover the true type of the chaebol this valuable information possessed by the politician is one that the financial institution has an incentive to purchase but a low type chaebol has an incentive to conceal whether the politician ends up revealing truthfully this information depends on how much to obtain from the lender in terms of general support versus how much to gain from the borrower in terms of bribes or side payments when a low type chaebol has the politician on its side information is distorted and a collusion equilibrium arises

demand pull technology push and government led incentives for non incremental technical change abstract rising expectations about future demand for new technologies increase the incentives for investments in innovation by enlarging payoffs to successful innovations how well does this notion of demand pull apply to non incremental technological change when demand is largely attributable to actions by governments in this case inventors of the most important inventions did not respond positively to strong demand pull policies filing of highly cited patents declined precipitously just as demand for wind power created a multi billion dollar market three explanations for this apparent inconsistency with the demand pull hypothesis played a role 1 the rapid convergence on a single dominant design limited the market opportunity for non incremental technical improvements 2 even though the policies implemented were stringent enough to stimulate demand uncertainty in their longevity dampened the incentives for inventions that were likely to take several years to pay off and 3 alternative explanations such as declining r d funding and weakening presidential engagement on energy appear to have been important

are green hopes too rosy employment and welfare impacts of renewable energy promotion in view of pressing unemployment problems policy makers across all parties jump on the prospects of renewable energy promotion as a job creation engine which can boost economic well being our analytical model shows that initial labor market rigidities in theory provide some scope for such a double dividend however the practical outcome of renewable energy promotion might be sobering our computable general equilibrium analysis of subsidized electricity production from renewable energy sources res e in germany suggests that the prospects for employment and welfare gains are quite limited and hinge crucially on the level of the subsidy rate and the financing mechanism if res e subsidies are financed by labor taxes welfare and employment effects are strictly negative for a broad range of subsidy rates the use of an electricity tax to fund res e subsidies generates minor benefits for small subsidy rates but these benefits quickly turn into significant losses as the subsidy rate exceeds some threshold value

assets and liabilities and scottish independence scottish independence implies an economic future that is different from remaining in the united kingdom the economic debate largely comes down to whether this would leave scots better or worse off by most measures scotland s current economic standing is very similar to that of an average uk region output per head income and unemployment are almost all exactly the same as the average uk region this is not surprising given the economic and social integration and shared institutions and is consistent with the idea of conditional convergence this suggests that after controlling for differences in institutions and other characteristics so called initial conditions countries tend to converge to similar levels of income 1 however if scotland becomes an independent nation some of the shared uk assets liabilities and institutions would need to be divided up this would change the initial conditions for scotland and the rest of the uk and therefore we would be likely to see a different economic future for both regions see barro and sala i martin 1991

firm incentives to promote technological change in pollution control reply abstract the process of technological change in pollution control is broken into three basic steps innovation diffusion and optimal agency response firm incentives to promote these steps are then examined under five regulatory regimes direct controls emission subsidies emission taxes free marketable permits and auctioned marketable permits on a relative basis emission taxes and auctioned permits provide the highest firm incentives to promote technological change at times free permits generate lower incentives direct controls which are common regulatory tools usually provide the lowest relative firm incentives to promote technological change

sterilization costs and exchange rate targeting abstract we examine the movements of exchange rates and capital inflows in an environment where an optimizing central bank pursuing the joint goals of inflation and output targeting engages in costly sterilization activities our results predict that when faced with increased sterilization costs the central bank will choose to limit its sterilization activities allowing target variables such as the nominal exchange rate to adjust we then test the predictions of a linearized version of the saddle path solution to the model for a cross country panel of developing countries we use ols iv and gmm specifications to allow for the endogeneity of capital inflows our results confirm that monetary policy does respond to sterilization costs

balance of payments crises in a cash in advance economy the author shows that a flexible prices sidrauski type model with a cash in advance constraint is capable of depicting some of the phenomena associated with a balance of payments crisis like the onesrecently observed in argentina and mexico current accounts deficits and appreciation of the real exchange rat e it is also shown that these phenomena become exacerbated as the rate of devaluation before the crisis occurs becomes smaller copyright 1987 by ohio state university press

fiscal deficits exchange rate crises and inflation this paper extends earlier work on unsustainable monetary policies by endogenizing the regime switch that ultimately restores sustainability within this framework we analyse exchange rate based stabilization programmes and show how constraints on central bank borrowing during an exchange crisis influence timing and nature of the post collapse equilibrium such constraints introduce non neutralities more restrictive pre collapse credit policies increase the post collapse inflation rate external shocks can destroy consistency between fiscal programmes and inflation targets causing reserve losses exchange rate changes and higher inflation balance of payments crises are the mechanism through which fiscal imbalances translate into higher inflation rather than an alternative explanation of it this paper deals with inflation fiscal deficits and exchange rate policy in high inflation countries the experience of the past decade has presented a series of puzzles for example countries attempting to stabilize inflation through an exchange rate freeze often saw inflation accelerate after the collapse of the experiment to levels well above those observed before the programme was implemented another puzzle concerns the relation between inflation and balance of payments crises in many countries a bop crisis forcing a change in exchange rate policy often led to a persistent increase in inflation liviatan and piterman 1984 this has led to doubts about the relevance of fiscal deficits in explaining inflationary episodes leading many to see bop crises as an independent explanation of inflation but this apparent relation is a puzzle a bop crisis cum devaluation can at most explain a jump in the price level but not a sustained increase in inflation in this paper we demonstrate that these puzzles can be explained fully by drawing on the public finance approach to inflation initiated by phelps 1973 thus the fiscal versus bop controversy is not a real one our analysis shows that bop crises and exchange rate shifts are part of the mechanisms through which fiscal imbalances translate into higher inflation rather than alternative explanations to make these points we present a simple open economy model to analyse the transition to a fixed exchange rate regime discuss sustainability and demonstrate what happens when policy measures are inconsistent and the fixed regime unsustainable we also demonstrate how the constraints under which the central bank has to operate the exchange rate regime influence the timing of the attack the post collapse inflation rate and the effects of pre collapse fiscal policy on the post collapse equilibrium the analysis builds on the work of sargent and wallace 1982 and liviatan 1984 on unsustainable monetary policies cf buiter 1988 1989 and drazen and helpman 1987 for open economy variants contrary to this literature we link the timing of the regime switch towards sustainable policies to rational speculative behaviour rather than assuming it to be exogenous the introduction of rational speculators forcing a regime switch draws on the literature on speculative attacks on central bank reserves initiated by 8i

health reform health insurance and selection estimating selection into health insurance using the massachusetts health reform approximately 49 9 million people in the united states lack health insurance denavas walt proctor and smith 2011 one potential driver of uninsurance is asymmetric information on health risk between insurers and the insured asymmetric information can distort available insurance contracts as in rothschild and stiglitz 1976 or it can raise premiums for the relatively healthy as in akerlof 1970 both distortions result in in efficiently low levels of insurance coverage predicated at least in part on concerns about adverse selection the state of massachusetts passed health reform in april 2006 aimed at achieving near universal health insurance coverage the massachusetts approach is considered a model for national health reform the patient protection and affordable care act ppaca signed in march 2010 a central feature of both reforms is a mandate that individuals obtain health insurance or pay a penalty the massachusetts mandate allows us to examine whether there was adverse selection into health insurance before the reform in contrast existing literature generally examines adverse selection among employer sponsored plans e g cutler and reber 1998 einav finkelstein and cullen 2010 which is less relevant for policy our simple empirical methodology is based on the observation that the direction of selection depends on the difference between the cost of the marginal enrollee and the cost of those who already have insurance if the cost of the marginal enrollee is below the average cost of those who are already insured selection is adverse if the cost of the marginal enrollee is above the average cost of those who are already insured selection is advantageous therefore as demonstrated by einav finkelstein and cullen 2010 the sign of the slope of the average cost curve captures selection we use the massachusetts reform to provide an exogenous shift in coverage that identifies the slope of the average cost curve we find that counties with larger increases in coverage over the reform period face the smallest increase in average hospital costs for the insured population consistent with adverse selection into insurance before reform additional results that incorporate cross state variation and data on health measures provide further evidence for adverse selection

accounting for the east asian crisis a quantitative model of capital outflows in small open economies to what degree can the qualitative and quantitative aspects of the east asian crisis be accounted for within a dynamic general equilibrium model this paper investigates that question using a framework in which the crisis itself is modeled as an exogenous shock to the country risk premium this exercise has empirical discipline because the scale of the shock can be measured by the movement in the reported risk premium we calibrate a quantitative sticky price dynamic general equilibrium model of a small open economy to match the features of three east asian economies thailand korea and malaysia we identify a shock to the country risk premium using published data from international bond markets and identify shortrun monetary policy using observed domestic interest rates we find that the modeled response to the observed increase in external interest rates substantially matches macroeconomic data on prices and quantities at the aggregate and sectoral level however the model has more difficulty explaining the large exchange rate devaluations that occurred in those economies

macroeconomic regime switches and speculative attacks this paper explains a currency crisis as an outcome of a switch in how monetary policy and fiscal policy are coordinated the paper develops a model of an open economy in which monetary policy starts active fiscal policy starts passive and in a particular state of nature monetary policy switches to passive and fiscal policy switches to active the probability of the regime switch is endogenous and changes over time together with the state of the economy the regime switch is preceded by a sharp increase in interest rates and causes a jump in the exchange rate the model predicts that currency composition of public debt affects dynamics of macroeconomic variables furthermore the model is consistent with evidence from recent currency crises in particular small seigniorage revenues

growth and adjustment in east asia and latin america this paper compares the experience of growth performance and macroeconomic adjustment between east asia and latin america over the period from 1970 to 2000 we find that the difference in growth performance between two regions are largely attributed to the differences in fundamental growth factors such as investment rate human resources fertility institutional quality macroeconomic stability and the degree of trade openness we also discuss the role of quality of education and differences in inequality between the two regions balance of payments crisis shocks have also contributed significantly to the differences of growth performance across regions the adjustment from balance of payments crises shows that the growth rates tend to be lowered only temporarily following a crisis and then rebound to the pre crisis levels thereby existing the typical v type pattern of adjustment from crises has been in both east asia and latin american crisis episodes however often a balance of payments crisis is associated with a large decline of growth rates and developed into another crisis in the future we estimate the determinants of the output costs of crises and find that international liquidity financial soundness real exchange rate depreciation and monetary policy play a critical role in reducing output losses from crises

long term payoffs of near term low carbon deployment policies abstract recent climate change negotiations indicate that near term policies to address climate change are likely to vary across countries with countries employing a range of different policy options one option frequently mooted at the national level is to promote via policy the deployment of low carbon technologies promoting the deployment of low carbon technologies can involve a near term cost if such technologies are more expensive overall or require more upfront capital than emitting alternatives however it lowers future costs of emissions abatement by reducing emissions in the near term and potentially accelerating rates of improvement in targeted low carbon technologies we derive a globally cost effective near term international technology investment strategy to achieve a long term climate goal and show that it employs a diversified international technology investment portfolio across countries we also explore the degree to which independent national technology deployment policies align with collaboratively determined regimes we show that conditions exist under which there are substantial gains to international cooperation in the deployment of diverse low carbon technologies and also circumstances in which domestic outcomes align with the global outcome

the challenges of determining the employment effects of renewable energy abstract the benefits of promoting renewable energy are regularly claimed to be energy security climate change mitigation and job creation while the first two benefits are generally accepted the impact of renewable energy on employment is still disputed this paper presents a discussion of the various factors that influence the analysis of renewable energy and its impact on employment the advantages and disadvantages of input output methods and analysis methods are discussed as well as the issues surrounding the measurement of job creation a critical evaluation of the literature reveals factors that should be considered when completing a study about renewable energy and employment labour intensity of renewables cost increases and availability of investments counting job losses job quality and skills model assumptions and sources of information analytical studies using extensive surveys were found to be more appropriate for regional studies while input output methods were better suited to national and international studies

learning and complementarities in speculative attacks we study a model where the aggregate trading of currency speculators reveals new information to the central bank and affects its policy decision we show that the learning process gives rise to coordination motives among speculators leading to large currency attacks and introducing non fundamental volatility into exchange rates and policy decisions we show that the central bank can improve the ex ante effectiveness of its policy by committing to put a lower weight ex post on the information from the market and that transparency may either increase or decrease the effectiveness of learning from the market depending on how it is implemented

financial crises and balance of payments crises a simple model of the southern cone experience abstract this paper starts from a simple model of the domestic banking sector and develops the potentially destabilizing macroeconomic consequences of its role in intermediating foreign capital inflows both financial and balance of payments crises may result reminiscent of the southern cone experience

on the optimality of interest rate smoothing abstract this paper studies some continuous time cash in advance models in which interest rate smoothing is optimal we consider both deterministic and stochastic models in the stochastic case we obtain two results of independent interest i we study what is to our knowledge the only version of the neoclassical model under uncertainty that can be solved in closed form in continuous time and ii we show how to characterize the competitive equilibrium of a stochastic continuous time model that cannot be computed by solving a planning problem we also discuss the scope for monetary policy to improve welfare in an economy with a suboptimal real competitive equilibrium focusing on the particular example of an economy with externalities

economic effects of renewable energy expansion a model based analysis for germany abstract the increasing utilization of renewable energy sources res is a major energy policy strategy in many countries worldwide germany is a forerunner in the deployment of res and has ambitious goals for the future the support and use of renewables affects the economy it creates business opportunities in sectors producing renewable energy facilities but comes with costs related to supporting its deployment this paper analyses and quantifies the net balance of economic effects associated with renewable energy deployment in germany until 2030 to this end we use a novel model the sectoral energy economic econometric model this is an econometric multi country model which for germany contains a detailed representation of industries including 14 renewable energy technology sectors our results show that renewable energy expansion can be achieved without compromising growth or employment the analysis reveals a positive net effect on economic growth in germany net employment effects are small but also positive their size depends strongly on labour market conditions and policies results at the industry level indicate the size and direction of the need for restructuring across the sectors of the germany economy

learning large deviations and recurrent currency crises this article studies a version of obstfeld s journal of international economics 43 1997 61 77 escape clause model the model is calibrated to produce three rational expectations equilibria two of these equilibria are e stable and one is unstable dynamics are introduced by assuming that agents must learn about the government s decision rule it is assumed they do this using a stochastic approximation algorithm it turns out that as a certain parameter describing the sensitivity of beliefs to new information gets small the algorithm converges to a small noise diffusion process the dynamics of exchange rate changes are then characterized using large deviation techniques from freidlin and wentzell random perturbations of dynamical systems second edition berlin springer verlag 1998 these methods describe the sense in which the limiting distribution of exchange rate changes is approximated by a two state markov switching process where the two states correspond to the two e stable equilibria the model is calibrated to the exchange rate histories of argentina brazil and mexico currency crises in these countries resemble the predicted escape routes of the model a key feature of these escape routes is that expectations of a devaluation erupt suddenly without large contemporaneous shocks this is consistent with evidence showing that crises are often poorly anticipated by financial markets

when is it optimal to abandon a fixed exchange rate the influential krugman flood garber kfg model of balance of payment crises assumes that a fixed exchange rate is abandoned if and only if international reserves reach a critical threshold value from a positive standpoint the kfg rule is at odds with many episodes in which the central bank has plenty of international reserves at the time of abandonment we study the optimal exit policy and show that from a normative standpoint the kfg rule is generally suboptimal we consider a model in which the fixed exchange rate regime has become unsustainable due to an unexpected increase in government spending we show that when there are no exit costs it is optimal to abandon immediately when there are exit costs the optimal abandonment time is a decreasing function of the size of the fiscal shock for large fiscal shocks immediate abandonment is optimal our model is consistent with evidence suggesting that many countries exit fixed exchange rate regimes with still plenty of international reserves in the central bank s vault copyright 2008 wiley blackwell

technological learning in energy environment economy modelling a survey abstract this paper aims at providing an overview and a critical analysis of the technological learning concept and its incorporation in energy environment economy models a special emphasis is put on surveying and discussing through the so called learning curve both studies estimating learning rates in the energy field and studies incorporating endogenous technological learning in bottom up and top down models the survey of learning rate estimations gives special attention to interpreting and explaining the sources of variability of estimated rates which is shown to be mainly inherent in r d expenditures the problem of omitted variable bias the endogeneity relationship and the role of spillovers large scale models survey show that despite some methodological and computational complexity related to the non linearity and the non convexity associated with the learning curve incorporation results of the numerous modelling experiments give several new insights with regard to the analysis of the prospects of specific technological options and their cost decrease potential bottom up models and with regard to the analysis of strategic considerations especially inherent in the innovation and energy diffusion process in particular the energy sector s endogenous responses to environment policy instruments top down models

demand for money in thailand after a brief review of recent literature new estimates on a long run of annual observations of the thai demand for all the standard measures of money are presented the results demonstrate that the demand for real money balances is a stable function of a scale variable and a coherent measure of opportunity cost with all the properties predicted by economic theory

asset prices and twin crises abstract emerging market crises have been characterized by two key features i banking crises generally precede currency crises and ii asset prices decline in advance of currency crises this paper argues that asset prices provide a key link between banking and currency crises it is shown that a prospective currency crisis due to an unanticipated increase in the public debt triggers an asset price decline banks exposure to asset prices in turn deteriorates their balance sheets and precipitates a banking crisis under the assumption of government bailout of banks it is shown that the twin crises are self fulfilling and their time line follows i and ii described above the timing of currency crisis is decreasing in the ratio of government s bailout to banks loss of capital

government finance in the wake of currency crises we address three questions i can classical models be reconciled with the fact that many crises are marked by high rates of depreciation and small increases in seignorage revenue ii what are the implications of different financing methods for post crisis rates of inflation and depreciation iii how do governments pay for the fiscal costs associated with currency crises to study these questions we use a general equilibrium model in which prospective government deficits trigger a currency crisis we then use our model in conjunction with fiscal data to interpret government financing in the wake of three recent currency crises korea 1997 mexico 1994 and turkey 2001

technologies energy systems and the timing of co2 emissions abatement an overview of economic issues abstract this paper provides an overview of economic issues involved in timing limitations on co2 emissions from energy systems it highlights issues relating to technology availability development and diffusion and the inertia of energy systems as being particularly important the paper sets this in the context of wider uncertainties surrounding the problem and briefly considers other aspects relevant to timing the paper is stimulated by the debate in the usa about optimal abatement paths in particular recent claims that it would be economically preferable to defer such abatement action in favour of measures that support technology development but do not affect emission trends for many years this paper categorizes the various economic issues involved and concludes that for each economic argument that has been advanced to justify deferring emission constraints there are counter vailing economic arguments that could be used in support of rapid near term emissions abatement rational policy lies between these extremes a policy of deferring all emissions abatement exposes economic systems and industries as well as the environment to significantly greater costs and risks than those arising from a more balanced approach furthermore the modelling studies that have been used to justify deferring emissions abatement do so because they embody the economic factors favourable to delay and largely neglect the countervailing issues to the point where their results have little relevance to the overall problem of timing emissions abatement

international reserves and global interest rates abstract in this paper we study the relationship between foreign currency international reserve holdings and global interest rates to guide empirical work we solve a simple small open economy model with money where the central bank manages international reserves to smooth inflation over time this model shows that changes in interest rates are positively related to the target level of reserves as a consequence interest rate hikes increase reserve transfers defined as the change in international reserves net of the interest earned on reserves using quarterly data for 75 countries between 2000 and 2013 we document a positive relationship between interest rate changes and reserve transfers as a share of gdp that is consistent with the model

the narrow moving band the dutch disease and the competitive consequences of mrs thatcher notes on trade in the presence of dynamic scale economies abstract this paper presents a model of trade in which comparative advantage instead of being determined by underlying attributes of countries evolves over time through learning by doing in this model arbitrary patterns of specialization once established tend to become entrenched over time the model sheds light on three widely held views that do not make sense in more conventional models first is the view that temporary protection of selected sectors can permanently alter the pattern of comparative advantage in the protecting country s favor second is the view that seemingly favorable developments such as the discovery of exportable natural resources may lead to a permanent loss of other sectors and reduce welfare in the long run third is the possibility that a temporary overvaluation of a currency due to tight money can lead to a permanent loss of competitiveness in some sectors

the private and public economics of renewable electricity generation generating electricity from renewable sources is more expensive than conventional approaches but reduces pollution externalities analyzing the tradeoff is much more challenging than often presumed because the value of electricity is extremely dependent on the time and location at which it is produced which is not very controllable with some renewables such as wind and solar likewise the pollution benefits from renewable generation depend on what type of generation it displaces which also depends on time and location without incorporating these factors cost benefit analyses of alternatives are likely to be misleading other common arguments for subsidizing renewable power green jobs energy security and driving down fossil energy prices are unlikely to substantially alter the analysis the role of intellectual property spillovers is a strong argument for subsidizing energy science research but less persuasive as an enhancement to the value of installing current renewable energy technologies

quantitative approaches to fiscal sustainability analysis this case study of fiscal sustainability in turkey after the crisis in 2001 reviews and extends quantitative approaches to fiscal sustainability analysis and brings them together in a user friendly tool applicable in a data sparse environment it combines a dynamic simulations approach with a steady state consistency approach it also incorporates user defined stress tests and stochastic simulations to deal with uncertainty and it derives the future distribution of debt output ratios evaluating the fiscal adjustment required to stabilize them value at risk analysis shows that considerable risks remain unless explicit feedback rules from debt surprises to the primary surplus are implemented

currency crises and contingent liabilities a contingent liability is a future spending commitment that is realized with some probability international organizations emphasize the dangers of contingent liabilities when providing advice why one answer is obvious if significant contingent liabilities are realized they commit governments to substantial fiscal costs there is a further reason by taking on a contingent liability the government can increase the probability of the underlying shock taking place this paper describes how the issuance of government guarantees and the methods by which they are financed affect the probability of crises taking place it also discusses the determinants of post crisis inflation and depreciation

speculative attacks with unpredictable or unknown foreign exchange reserves during a currency crisis speculators usually do not know the value of a central bank s foreign exchange reserves in this paper i show that modelling speculators as having imperfect knowledge of reserves enriches the predictions of the classical model of specula tive attacks with realistic lags in reserve reporting and costs to unsuccessful speculation successful speculative attacks will involve a jump depreciation unsuccessful attacks may occur attacks may occur when fundamentals are improving attacks may not be preceded by large increases in interest rates and fixed exchange rates may be abandoned with no attack and no decline in the money supply jel classification f3 1 attaques speculatives quand les reserves de devises etrangeres sont soit imprevisibles soit inconnues au cours d une crise monetaire les speculateurs ne connaissent pas normalement la valeur des reserves de devises etrangeres que la banque centrale a en main ce memoire montre qu une modelisation des speculateurs en postulant qu ils ont une connaissance imparfaite des reserves permet d enrichir les predictions du modele classique des attaques speculatives a partir d une evaluation realiste des delais dans les rapports sur la quantite de reserves et des couits d une speculation ratee on deter mine que les attaques speculatives reussies vont impliquer que se produise une deprecia tion discontinue que des attaques speculatives ratees puissent se produire que des attaques peuvent se produire quand les donnees fondamentales s ameliorent que des at taques ne peuvent pas etre precedees par de fortes augmentations des taux d interet et que des taux de change fixes peuvent etre abandonnes sans attaques et sans chute dans

green jobs economic impacts of renewable energy in germany abstract the labor market implications of large investment into renewable energy re are analyzed in this text although a growing re industry can be observed in germany the overall effect of large increases of re based electricity and heat generating technologies on the german economy require a careful model based analysis the applied model panta rhei has been used among others to evaluate the german energy concept in 2010 it takes positive and negative impacts of re into account the paper shows the overall effects under different assumptions for fossil fuel prices domestic installations and international trade the results are sensitive to assumptions on the development of re world markets and german exports to these markets almost all of these scenarios exhibit positive net employment effects under medium assumptions net employment of re expansion will reach around 150 thousand in 2030 only with assumptions for german re exports below today s level net impacts are slightly negative gross employment will increase from 340 thousand in 2009 to between 500 and 600 thousand in 2030

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

technological change and the timing of mitigation measures we use a coupled carbon cycle and energy systems engineering model to analyze the future time path of carbon emissions under an illustrative co2 concentration stabilization limit of 550 ppm our findings confirm the emission pattern as found by wre global emissions rise initially pass through stabilization in order to decline in the second half of the 21st century we show that for a given co2 concentration target emission trajectories within an intertemporal optimization framework depend mainly on two factors the discount rate and the representation of technological change as either static or dynamic we obtain a similar near term emission time path as wre when using a model with static technology and a discount rate of 7 we obtain a trajectory with lower emissions in the near term when using a lower discount rate and or treating technology dynamics endogenously in the model we briefly outline a model that endogenizes technological change through learning curves we then compare differences in emission trajectories between alternative model formulations of technological change they are sufficiently small as to be of secondary importance when compared to treating co2 concentration stabilization as an inter temporal optimization problem or not whereas our results confirm the computational results of wre we arrive nonetheless at different policy conclusions if long term emission reduction is the goal we cannot follow business as usual even in the short term action needs to start now action does not necessarily mean aggressive short term emission reductions but rather enhanced r d and technology demonstration efforts that stimulate technological learning these are the necessary preconditions that long term reduction targets can be met with improved technology and at costs lower than today we close by pointing out two further critical issues uncertainty and the possible mismatch between the world of economic models and that of climate policy

endogenous deposit dollarization this paper explores sources of deposit dollarization unrelated to standard moral hazard arguments we argue that the equal treatment of peso and dollar claims on a bank in the event of default can induce banks to attract dollar deposits above the socially desirable level the distortion arises because dollar depositors are the only source of default risk in the model but they share the burden of the default with peso depositors as interest rates cannot be set contingent to the unobserved level of deposit dollarization the incentive to dollarize is reinforced by common banking system safety nets such as deposit and bank insurance our findings suggest that regulators in bi currency economies should depart from the currency blind benchmark and instead distinguish across currencies in a way that prevents undesirable currency mismatches even in the absence of moral hazard related to the relaxation of market discipline

rational and self fulfilling balance of payments crises speculative attacks on a pegged exchange rate must sometimes occur ifasset price paths are to be free of abnormal profit opportunities suchattacks are fully rational as they reflect the market s response to aregime breakdown that is inevitable the authors shows that under someexpectations about policy balance of payments crises can also be purely self fulfilling events in such cases even a permanently viableregime may collapse and the economy will possess multiple equilibriacorresponding to different subjective assessments of the probability ofa crisis the behavior of the domestic interest rate will naturally reflect the possibility of a speculative attack copyright 1986 by american economic association

the great divide and beyond financial architecture in transition a growing and deepening divide has opened up between transition countries where economic development has taken off and those caught in a vicious cycle of institutional backwardness and macroeconomic instability this great divide is visible in almost every measure of economic performance gdp growth investment government finances growth in inequality general institutional infrastructure and increasingly in measures of financial development strategies for financial development have differed dramatically across countries and over time offering interesting opportunities to study the links between real and financial sector development

do national level policies to promote low carbon technology deployment pay off for the investor countries abstract national level policies to promote deployment of low carbon technologies have been suggested and used as a means to reduce greenhouse gas emissions in the context of international climate change mitigation the long term benefits of such policies in the context of international climate change mitigation depend on their effects on near term emissions abatement and resultant long term technological change that will reduce abatement costs of achieving global mitigation goals there is also an argument that these policies might foster early mover advantages in international low carbon technology markets we first review the factors that could influence such benefits and use a global integrated assessment model to present an illustrative example to understand the potential magnitude of these benefits we find that reductions in long term abatement costs might not provide sufficient incentives to justify policies to promote the deployment of low carbon technologies in particular the emerging higher risk and currently expensive alternatives we also find that early mover advantages can potentially provide substantial benefits but only if these advantages are both strong and persistent our results suggest a role for international cooperation in low carbon technology deployment to address the existence of free riding opportunities in the context of global climate change mitigation

second mover advantages in the strategic adoption of new technology under uncertainty abstract this paper introduces technological uncertainty into a timing game of new technology adoption it is shown that the timing neither necessarily involves first mover advantages in precommitment equilibria reinganum review of economic studies xlviii 1981 395 405 nor rent equalization due to the threat of preemption fudenberg and tirole review of economic studies lii 1985 383 401 rather there may be second mover advantages because of informational spillovers furthermore the model predicts that the equilibrium payoffs will typically be discontinuous and non monotonic in the probability that the new technology is profitable a welfare analysis reveals several market failures and suggests that policy intervention should adequately depend on the nature of uncertainty and the rate of technological progress

anticipated devaluations currency flight and direct trade controls in a monetary economy mendation for a country facing a balance of payments deficit this advice is often resisted by country governments instead direct trade controls such as tariffs quotas and subsidies are frequently used in this paper i propose an economic explanation for the reluctance to devalue and the use of trade controls namely the currency flight that can be expected to occur if the devaluation is anticipated in an effort to avoid or offset the effects of this currency flight countries may use direct controls i shall analyze the properties of using import tariffs and export subsidies with or without an anticipated devaluation to affect the balance of payments and obtain the social optimum

a model of crises in emerging markets this paper presents a perfect foresight model of speculative attacks on emerging markets credit constrained governments are assumed to have two objectives to accumulate liquid assets in order to self insure against shocks to national consumption and to insure poorly regulated domestic financial markets this policy regime generates endogenous fiscal deficits defined to include the growth of contingent liabilities the model sets out a sequence of yield differentials consistent with capital inflows followed by anticipated speculative attacks the model suggests that a common shock generated capital inflows to emerging markets in asia and latin america after 1989

endogenous financial intermediation and real effects of capital account liberalization abstract we consider lending and investment under asymmetric information in a small developing economy we allow different forms of financial contracts to arise endogenously financial intermediaries mitigate a moral hazard problem in investment choice through costly monitoring we then examine the impact of opening the capital account on both welfare and the structure of lending contracts liberalizing the capital account may improve or worsen the efficiency of financial intermediaries leading to an improvement or worsening of the aggregate composition of investment projects we show that efficient financial intermediaries in the closed economy are neither necessary nor sufficient for a capital account liberalization to improve welfare

the dynamics of a complex system the exchange rate crisis in southeast asia abstract we investigate the dynamics of the exchange rate market just after and prior to the 1997 crisis the return of the exchange rate is well characterized by a power law with the relaxation exponent to vary significantly across countries

strategic complementarities and the twin crises the economic literature has emphasized the role of strategic complementarities in generating banking crises and currency crises motivated by evidence from recent financial crises we study a model where strategic complementarities exist not only within a group of creditors or within a group of currency speculators but also between the two groups the additional type of strategic complementarities generates a vicious cycle between banking crises and currency crises this vicious cycle magnifies the correlation between the two crises and destabilizes the economy we discuss some empirical implications and policy implications and in particular show that due to the interaction between the banking sector and the currency market a lender of last resort might not be able to prevent bank runs

long term debt and optimal policy in the fiscal theory of the price level the fiscal theory says that the price level is determined by the ratio of nominal debt to the present value of real primary surpluses i analyze long term debt and optimal policy in the fiscal theory i find that the maturity structure of the debt matters for example it determines whether news of future deficits implies current inflation or future inflation when long term debt is present the government can trade current inflation for future inflation by debt operations this tradeoff is not present if the government rolls over short term debt the maturity structure of outstanding debt acts as a budget constraint determining which periods price levels the government can affect by debt variation alone in addition debt policythe expected pattern of future state contingent debt sales repurchases and redemptionsmatters crucially for the effects of a debt operation i solve for optimal debt policies to minimize the variance of inflation i find cases in which long term debt helps to stabilize inflation i also find that the optimal policy produces time series that are similar to u s surplus and debt time series to understand the data i must assume that debt policy offsets the inflationary impact of cyclical surplus shocks rather than causing price level disturbances by policy induced shocks shifting the objective from price level variance to inflation variance the optimal policy produces much less volatile inflation at the cost of a unit root in the price level this is consistent with the stabilization of u s inflation after the gold standard was abandoned

collapsing exchange rate regimes some linear examples abstract we construct a pair of linear examples to study the collapse time of a fixed exchange rate regime the first example is a perfect foresight continuous time model which allows calculation of the exact collapse time and the tracking of reserves the second example is a discrete time stochastic model which yields an endogenous probability distribution over the collapse time and produces a forward discount of the exchange rate

presidential address debt and money financial constraints and sovereign finance economic analyses of corporate finance money and sovereign debt are largely considered separately i introduce a novel corporate finance framing of sovereign finance based on the analogy between fiat liabilities for sovereigns and equity for corporations the analysis focuses on financial constraints at the country level making explicit the trade offs involved in relying on domestic versus foreign currency debt to finance investments or government expenditures this framing provides new insights into issues ranging from the costs and benefits of inflation optimal foreign exchange reserves and sovereign debt restructuring

the two faces of market support how deployment policies affect technological exploration and exploitation in the solar photovoltaic industry the recent years have seen a strong rise in policies aiming to increase the diffusion of clean energy technologies while there is general agreement that such deployment policies have been very effective in bringing technologies to the market it is less understood how these policies affect technological innovation to shed more light on this important question we conducted comparative case studies with a global sample of 9 firms producing solar photovoltaic pv modules complemented by in depth interviews with 16 leading pv industry experts we propose that on the one hand policy induced market growth serves as an important catalyst for innovative activity as it raises the absolute level of firm investments in technological exploration on the other hand however deployment policies create an incentive for firms pursuing more mature technologies to shift their balance between exploitation and exploration toward exploitation firms focusing on less mature technologies cannot tap the potentials of exploitative learning to the same extent as those with more mature technologies therefore stimulating strong market growth may raise the barrier to market entry for less mature technologies we conclude that when designing deployment policies great care should be taken to avoid adverse effects on technological diversity and a premature lock in into more established technologies

preemption and rent equalization in the adoption of new technology we study the adoption of a new technology to illustrate the effects of preemption in games of timing we show that the threat of preemption equalizes rents in a duopoly but that this result does not extend to the general oligopoly game if the gain to preemption is sufficiently small then the optimal symmetric outcome which involves late adoption is an equilibrium this contrasts with reinganum s result that in precommitment equilibria there must be diffusion we develop a new and richer formalism for modeling games of timing which permits a continuoustime representation of the limit of discrete time mixed strategy equilibria

fiscal imbalances and the dynamics of currency crises abstract this paper analyzes links between the fiscal theory of the price level ftpl and the first generation models after krugman journal of money credit and banking 11 1979 311 325 exploring the idea that a synthesis between the two can become a new framework to analyze the fiscal dimension of currency crises working in a simple synthetic framework we show how external nominal shocks can cause a fiscal imbalance and undermine currency stability resolve two well known paradoxes of the first generation model discuss the role of seigniorage revenues and illustrate how fiscal and interest rate policies interact to determine the magnitude and the timing of speculative attacks and devaluations

impact of public policy uncertainty on renewable energy investment wind power and the production tax credit abstract it is generally understood that the pattern of repeated expiration and short term renewal of the federal production tax credit ptc causes a boom bust cycle in wind power plant investment in the us this on off pattern is detrimental to the wind industry since ramp up and ramp down costs are high and players are deterred from making long term investments it is often assumed that the severe downturn in investment during off years implies that wind power is unviable without the ptc this assumption turns out to be unsubstantiated this paper demonstrates that it is not the absence of the ptc that causes the investment downturn during off years but rather the uncertainty over its return specifically it is the dynamic of power purchase agreement ppa negotiations in the face of ptc renewal uncertainty that drives investment volatility with contract negotiations prevalent in the renewable energy industry this finding suggests that reducing uncertainty is a crucial component of effective renewable energy policy the ptc as currently structured is not the only means existing or potential for encouraging wind power investment using data from a survey of energy professionals various policy instruments are compared in terms of their perceived stability for supporting long term investment

stabilization with exchange rate management stabilization programs in open economies typically consist of two stages in the first stage the rate of currency devaluation is reduced but the fiscal adjustment does not eliminate the fiscal deficit that causes growth of debt and loss of reserves making a future policy change necessary only later at a second stage is this followed by either an abandonment of exchange rate management or by a sufficiently large cut in the fiscal deficit we study how different second stage policy changes affect economic dynamics during the first stage these changes include tax increases budget cuts on traded and nontraded goods and increases in the growth rate of money

the recent growth of international reserves in developing economies a monetary perspective abstract the massive accumulation of international reserves in developing economies is a puzzling recent development in the world economy this paper studies reserve accumulation as the outcome of a simple model in which the central bank smooths inflation i explore the view that central banks accumulate reserves to face large fiscal shocks that need monetary financing central bank revenues are obtained through inflation but inflation is distortionary as a result the central bank optimally accumulates international reserves in order to spread the costs associated with inflation over time a simple numerical exercise for an average developing economy using data between 1970 and 2009 yields fast growth of international reserves

the mirage of exchange rate regimes for emerging market countries this paper argues that much of the debate on choosing an exchange rate regime misses the boat it begins by discussing the standard theory of choice between exchange rate regimes and then explores the weaknesses in this theory especially when it is applied to emerging market economies it then discusses a range of institutional traits that might predispose a country to favor either fixed or floating rates and then turns to the converse question of whether the choice of exchange rate regime may favor the development of certain desirable institutional traits the conclusion from the analysis is that the choice of exchange rate regime is likely to be of second order importance to the development of good fiscal financial and monetary institutions in producing macroeconomic success in emerging market countries this suggests that less attention should be focused on the general question whether a floating or a fixed exchange rate is preferable and more on these deeper institutional arrangements a focus on institutional reforms rather than on the exchange rate regime may encourage emerging market countries to be healthier and less prone to the crises that we have seen in recent years

financial liberalization and banking crises in emerging economies abstract financial liberalization often leads to financial crises this link has usually been attributed to poorly designed banking systems an explanation that is largely static in this paper we develop a dynamic explanation by modelling the evolution of a newly liberalized bank s opportunities and incentives to take on risk over time the model reveals that even if a banking system is well designed in the sense of having good long run properties many countries will enjoy an initial period of rapid low risk growth and then enter a period with an elevated risk of banking crisis this transition emerges because of the way in which the degree of foreign competition the marginal product of capital and the bank s own net worth simultaneously evolve

prospective deficits and the asian currency crisis this paper argues that a principal cause of the 1997 asian currency crisis was large prospective deficits associated with implicit bailout guarantees to failing banking systems the expectation that these future deficits would be at least partially financed by seigniorage revenues or an inflation tax on outstanding nominal debt led to a collapse of the fixed exchange rate regimes in asia we articulate this view using a simple model whose key feature is that a speculative attack is inevitable once the present value of future government deficits rises we present empirical evidence in support of the key assumptions underlying our interpretation of the crisis