speculative attacks unique equilibrium and transparency abstract models with multiple equilibria are a popular way to explain currency attacks morris and shin 1998 have shown that in the context of those models unique equilibria may prevail once noisy private information is introduced in this paper we apply the method of morris and shin to a broader class of probability distributions and show using the technique of iterated elimination of dominated strategies that their results continue to hold even if we allow for sunspots and individual uncertainty about strategic behavior of other agents we provide a clear exposition of the logic of this model and we analyze the impact of transparency on the probability of a speculative attack for the case of uniform distribution of noisy signals we show that increased transparency of government policy reduces the likelihood of attacks

speculative attacks and the information role of the interest rate this paper models currency attacks as carried out by speculators who condition their actions on private signals about the state and on the market clearing interest rate besides affecting speculators payoffs this interest rate also provides an endogenous public signal for a plausible type of investment strategies the dual role of the interest rate allows the model to explain abrupt and intense speculative attacks solely via economic fundamentals without resorting to sunspot variables this result underlies a novel policy implication an official intervention in the foreign exchange market may reinforce a currency peg by influencing the precision of public information jel d82 d84 f31

models of currency crises with self fulfilling features the discomfort a government suffers from speculation against its currency determines the strategic incentives of speculators and the scope for multiple currency market equilibria after describing an illustrative model in which high unemployment may cause an exchange rate crisis with self fulfilling features the paper reviews some other self reinforcing mechanisms recent econometric evidence seems consistent with the practical importance of these mechanisms

determinants of international trade flows this paper models and estimates import demand and demand for export functions for 19 industrial countries although primary emphasis is placed on the period of generalized floating exchange rates 1972 through 1980 estimates are also provided for the fixed exchange rate years 1957 1970 thus making possible a comparison between the two eras aside from the conventional income and price variables the paper assesses the effect of variations in the exchange rate and in the expected exchange rate on real trade flows additionally it estimates an unrestricted lag structure of the effect of price and exchange rate variations on imports

long run price elasticities and the marshall lerner condition revisited abstract in estimating trade elasticities most previous researchers employed nonstationary data and ols or 2sls method with new developments in the literature this paper uses stationary data and johansen s cointegration analysis to provide new trade elasticities for almost 30 countries

bilateral j curve between india and her trading partners india a land of over one billion people and one of the newly emerging industrial powers in the world is going through a slow but steady metamorphism for centuries india has played a major role in the international trade it was not uncommon to see her ships carrying silk and spices across the arabian seas and bringing back machine made textile invasions of india first by mughals and latter by the british through the east india company were all trade oriented india s presence in the world trade is relatively small at this time but is gaining momentum after independence in 1947 india for a brief period experimented with socialism the five year plans were mainly focused towards building infrastructure and development of small scale agriculture based industries the industrial development even though extremely important for growth played a secondary role the foreign investment was encouraged but only in the selected sectors of the economy however threat of nationalization a large bureaucracy corruption lack of understanding of the indian business practices and the requirement that a major share holder must be an indian national discouraged foreign capital investment in india during 1991 1992 india adopted a policy of trade liberalization to attract foreign capital and to encourage non resident indians to invest in their home country government of india established a separate unit within the home ministry whose main function was to expedite processing of applications india also relaxed the requirement that a major partner be an indian national india provided export subsidies to the exporters in terms of cash as well as foreign exchange so that they could import machines and raw materials exports responded to the trade liberalization and increased from 44 041 crores of rupees in 1991 1992 to 141 603 crores in 1998 1999 where one crore is equivalent to ten million in us dollar terms at a current exchange rate of 42 48 rupees per dollar this translates to an increase from 10 37 billion to 33 34 billion over eight years india also anticipates that through a major increase in the information technology mainly software industry her exports will increase to 90 billion by 2005 the trade liberalization has been accompanied by changes in the monetary policies the inflation rate has been reduced from about 12 to 9 per year the interest rates have declined from 14 to 10 and the exchange rate has been allowed to respond to market forces as a result from 1991 1992 to 1998 1999 the rupee has declined from 19 62 rupees per dollar to 42 48 rupees per dollar by december 2000 rupee had further devalued to 46 25 per dollar with a hope that it will further boost india s exports and improve her trade balance however the impact of currency depreciation on the trade balance is not instantaneous indeed there is ample evidence in the literature that after currency depreciation the trade balance worsens in the short run before improving in the long run since this pattern of movement of the trade balance over time resembles the letter j magee 1973 labelled it the j curve phenomenon magee argued that after devaluation contracts that are in transit at old exchange rates dominate the short run response of the trade balance over time new contracts at new prices begin to exert their favourable impact at this stage elasticities may increase leading to an eventual improvement in the trade balance of course the delayed response could also be due to lags in the process of increasing the production of exportables junz and rhomberg 1973 have identified five lags namely recognition lags decision lags delivery lags replacement lags and production lags only after the realization of these lags the trade balance could improve early studies that tried to investigate the impact of currency depreciation on the trade balance relied upon estimating the marshall lerner condition the condition

volatility of short term capital flows and private investment in emerging markets abstract using micro level panel data the paper analyses the impacts of short term capital flow volatility on new fixed investment spending of publicly traded real sector firms in three major emerging markets argentina mexico and turkey the empirical results including sensitivity tests suggest that increasing volatility of capital inflows has an economically and statistically significant negative effect on new investment spending of private firms accordingly a 10 per cent increase in capital flow volatility reduces fixed investment spending in the range of 1 1 7 2 3 15 and 1 per cent in argentina mexico and turkey respectively

do countries falsify economic data strategically some evidence that they might we find evidence supporting the hypothesis that countries at times misreport their economic data in a strategic manner among those suspected are countries with fixed exchange rate regimes high negative net foreign asset positions or negative current account balances which corroborates the intuition developed with a simple economic model we also find that countries with bad institutional quality rankings and those in africa middle east eastern europe and latin america release economic data of questionable veracity our evidence calls for models with public signals to consider strategic misinformation and for establishing independent statistical agencies to assure the delivery of high quality economic data

determinants of international trade flows the case of developing countries abstract the question of magnitude and the time path of the trade flows to changes in the exchange rates and to changes in the price level is of emitent practical importance to assess the above proposition a distributed lag structure is imposed on the relative prices and on the effective exchange rate as the determinants of trade flows then import and export demand functions are estimated for a sample of developing countries using the almon procedure the empirical findings appeared to sustain orcutt s early conjecture that trade flows adjust differently to different price stimuli more precisely it was found that imports and exports reactions were quicker and the total response time was shorter when an exchange rate rather than relative prices caused a change in international prices

not your grandfather s imf global crisis productive incoherence and developmental policy space the response by the international monetary fund imf and developing country national governments to the current global financial crisis represents a moment of what i term productive incoherence which has displaced the constraining neoliberal coherence of the past several decades productive incoherence refers to the proliferation of inconsistent and even contradictory strategies and statements by the imf that to date have not congealed into any sort of new organised regime those who see continuity at the imf emphasise the reassertion of the imf s authority the reiteration of pro cyclical policy adjustment and the maintenance of existing governance patterns within the institution in contrast evidence of discontinuity includes a world now populated by increasingly autonomous states in the south the normalisation of capital controls and fund conditionality programmes that are inconsistent in key respects in the face of this evidence it is best to understand the current conjuncture as an interregnum that is pregnant with new development possibilities

is there a j curve abstract if the response of the value of the trade balance to movements in the real exchange rate is described by a j curve then a real depreciation initially worsens a balance of trade deficit only improving it over time this paper investigates whether a j curve can be detected in the last twenty five years of american data no statistically reliable evidence of a stable j curve is detected the model is checked extensively to support this finding

sovereign defaults information investment and credit abstract why would a sovereign government immune from bankruptcy procedures and with few assets that could be seized in the event of a default ever repay foreign creditors and correspondingly why do foreign creditors lend to sovereigns this paper finds general conditions under which even in the absence of sanctions lending to sovereigns can emerge in a single shot game furthermore it shows that positive borrowing can be sustained both in pooling and separating equilibria in this way it makes clear that neither sanctions nor reputation considerations the two classical explanations are necessary to enforce repayment information revelation is the crucial mechanism for these results the repayment default decision is interpreted as a signal used by the government to communicate information to domestic and foreign agents about the fundamentals of the economy governments repay to affect agents expectations about them a default through its effect on expectations about fundamentals can generate a decline in foreign and domestic investment and a credit crunch in domestic credit markets governments repay to avoid these costs but may default in equilibrium when hit by a negative shock

do devaluations improve the trade balance the evidence revisited do devaluations improve the trade balance the evidence revisited this paper reexamines the effectiveness of devaluation in trade balance adjustment the question is addressed in a framework which improves the previous empirical literature in several respects the evidence indicates that devaluations have been a successful tool in inducing trade balance adjustment in particular nominal devaluations are found to result in significant real devaluations that last for at least three years and the real devaluation induces significant trade flows that are distributed over a two to three year period the evidence comes from two different samples 1953 73 and 1975 84 involving twenty seven countries and sixty devaluation episodes 1 introduction do devaluations affect real magnitudes in particular the trade balance a devaluation may effect the trade balance through two channels devaluation of the real exchange rate and a direct effect on domestic absorption the traditional approach stresses the first channel a nominal devaluation is assumed to change the real exchange rate a relative price and thus improve competitiveness in turn if relative prices the terms of trade in a two country two good model affect the trade balance devaluation will be successful in the sense of improving the trade balance ceteris paribus the absorption effect becomes the sole or most important channel in the monetary approach in a world in which all goods and assets are perfect substitutes prices are exogenously given for the small country and wages and prices are flexible in both nominal and real terms a devaluation increases the price level by the same percentage the increase in the price level reduces real balances and thus domestic absorption dornbusch 1973 883 has argued that if such a real balance effect is not present then it might stand to reason that the effects of devaluation are negligible not that there must be other powerful avenues through which it exerts its effects emphasis added the controversy over the effects of devaluation on the trade balance arises because according to frenkel and johnson 1976 42 the monetary approach rejects the emphasis given to the role of relative prices in the analysis of devaluation global monetarists argue that neither of the links in the chain postulated by the traditional approach is likely to hold in practice see laffer 1977 the major disagreement centers on the question of the effectiveness of nominal devaluation to affect the real exchange rate and the importance of the latter in influencing trade flows theoretical arguments have not settled the issue the question is as strongly debated today as it was forty years ago see for example branson 1983 katseli 1983 kaldor 1983 nashashibi 1983 and mckinnon 1981 nor does it seem that the available empirical evidence leads to a consistent answer the best known studies cooper 1971 laffer 1977 salant 1977 miles 1979 gylfason and risager 1984 reach contradictory conclusions 1 cooper and gylfason and risager find that devaluations improve the trade balance or current account while laffer and miles conclude exactly the opposite salant finds that devaluations improve the trade balance but not as often as the overall balance of payments in the face of such diverse findings frenkel 1984 suggests that a reexamination of the issue would be useful indeed himarios 1985 shows that a close examination of miles s widely quoted study reveals serious deficiencies that once addressed lead to opposite results this paper provides new evidence concerning the effectiveness of devaluation in trade balance adjustment the approach differs from past studies in several respects it differs from cooper s laffer s and salant s studies in that it accounts for the effects of other variables that affect the trade balance

trade flows relative prices and effective exchange rates a var on ethiopian data the dynamic response of trade flows to price and effective exchange rate changes is examined via var using quarerly data from ethiopia for the period 1973 i 1985 iv the results show one way granger causality running from prices and exchange rates to imports and exports without significant feedback imports and exports exhibit similar response patterns to unexpected changes in relative prices and exchange rates the responses of imports and exports are larger and the adjustment takes longer when relative prices rather than exchange rates caused a change in international prices in the long run changes in prices account for a larger percentage of the forecast error variances in imports and exports than exchange rate changes it is shown that devaluation may have an initial adverse effect on the trade balance

discrepancies in international data an application to china hong kong entrepot trade before discussing discrepancies in international data it is essential to talk about the sources of the data the principal source for global trade statistics is the united nations un that agency relies on the trade statistics reported by its member countries the obvious discrepancy in these reports is that what country a says it sends to country b is not the same as what country b says it receives from a such differences in what the exporting and importing countries report is not just a feature of developing countries these discrepancies are pervasive in industrial countries as well for example since 1989 the united states has abandoned its attempt to keep track of exports to canada and now just relies on canadian data on its imports from the united states see robert feenstra 1997 table 2 prior to this action the united states underreported its exports to canada by more than 10 percent as compared to the canadian value this illustrates the general principle that the information collected by the importer which is often collecting tariff revenues and therefore has an incentive to record imports accurately is usually viewed as more accurate than that collected by the exporter there are then two problems with the un data it contains different information from the exporting and importing countries and it is expensive at least by the standards of lowbudget academic work progress on the first of these problems has been made by statistics canada in the world trade database wtdb that agency obtains the un trade data and then attempts to resolve the differences between the exporters and importers providing a single number for the value of each disaggregate good sent from country a to b these data are distributed on cd rom but are still fairly expensive by academic standards to make progress on the second problem the statistics canada data set for an early set of years 1970 1992 is distributed by the national bureau of economic research nber for a nominal fee also in cd rom format see feenstra et al 1997 in view of the widespread use of these data distributed by the un statistics canada or the nber it is worth asking how well the statistics canada database resolves the differing reports by the exporters and importers to take a particularly important example consider u s trade with china in 1996 the united states reported a deficit with china of 39 5 billion while the chinese reported a value of the u s deficit of 10 5 billion these two figures differ by 29 billion or a factor of three times at the heart of these differing values is the treatment of goods shipped through hong kong which remains a separate entity from china for customs purposes to what extent does statistics canada resolve the differences between these reported trade values to arrive at some credible value of bilateral trade unfortunately this issue is not resolved at all the values given in the statistics canada wtdb for chinese exports to the united states are very close to those reported by china and are much less than those reported by the united states this is contrary to the general principle stated above of treating the exporter s record of trade as less accurate than the importer s record on the other hand the u s official figures for imports from china are too high because they include the feenstra department of economnics university of california davis ca 95616 haas school of business university of califomia berkeley and national bureau of economic research hai department of economics fort lewis college and china centre for economic research beijing university woo and yao department of economics university of califomia davis we thank li yan jin hongman and jiang xiaozhu from the customs general administration people s republic of china for assisting with the study from which the results reported here are drawn

the us china trade imbalance will revaluing the rmb help much abstract the large us china trade imbalance is regularly blamed on the undervalued rmb using an estimated model of the trade balance we find that improvements in the trade balance are likely to be modest for plausible revaluations

cheap talk and the fed a theory of imprecise policy announcments this paper examines the problem faced by the federal reserve in announcing its private information about its future policies because it would like to manipulate expectations and pursue a time inconsistent policy the fed cannot reveal its policy objectives precisely and credibly it can however communicate some information about its goals through the cheap talk mechanism of vincent crawford and joel sobel making announcements that are imprecise and only giving ranges within which these goals may lie copyright 1989 by american economic association

taiwan s exports and trade imbalance against us and japan an empirical analysis the persistence of the bilateral trade surplus between taiwan and the usa and the bilateral trade deficit between taiwan and japan despite the significant appreciation or depreciation of the nt dollar during the early 1980s to the mid 1990s renewed interest to seek explanations for these phenomena to assess the above proposition a polynomial distributed lag pdl method is imposed on the impact of changes in the real exchange rate on the bilateral trade structure particularly export demand and trade imbalance between taiwan the usa and japan from 1981 to 1998 the empirical findings show that 1 the real income factors have important effects on the real exports in both cases 2 the real exchange rates and the real imports are not major determinants of the export demand from taiwan to the usa but they do play an important role on the real exports from taiwan to japan 3 the real exchange rate has significant effect on the real trade surplus with the usa and on trade deficit with japan but the real

signaling in a global game coordination and policy traps this paper introduces signaling in a global game so as to examine the informational role of policy in coordination environments such as currency crises and bank runs while exogenous asymmetric information has been shown to select a unique equilibrium we show that the endogenous information generated by policy interventions leads to multiple equilibria the policy maker is thus trapped into a position in which self fulfilling expectations dictate not only the coordination outcome but also the optimal policy this result does not rely on the freedom to choose out of equilibrium beliefs nor on the policy being a public signal it may obtain even if the policy is observed with idiosyncratic noise

managing capital accounts in emerging markets lessons from the global financial crisis abstract the global financial crisis forcefully highlighted the importance of curbing the impact of large and volatile capital inflows on growth and financial stability in developing countries it led the imf to reconsider its long standing rejection of capital controls yet its new macroeconomic policy first approach has to be reconciled with the hybrid nature of banking activity and its role in transmitting global shocks a consideration of dominant actors and strategies of intermediating capital inflows offers distinct policy options ranging from carefully designed central bank strategies to institutional changes that realign bank incentives towards longer horizons and sustainable growth models

efficient use of information and social value of information this paper analyzes equilibrium and welfare for a tractable class of economies games that have externalities strategic complementarity or substitutability and heterogeneous information first we characterize the equilibrium use of information complementarity heightens the sensitivity of equilibrium actions to public information raising aggregate volatility whereas substitutability heightens the sensitivity to private information raising cross sectional dispersion next we define and characterize an efficiency benchmark designed to address whether the equilibrium use of information is optimal from a social perspective the efficient use of information reflects the social value of aligning choices across agents finally we examine the comparative statics of equilibrium welfare with respect to the information structure the social value of information is best understood by classifying economies according to the inefficiency if any in the equilibrium use of information we conclude with a few applications including production externalities beauty contests business cycles and large cournot and bertrand games

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

real exchange rate levels and economic development theoretical analysis and econometric evidence according to the development approach to exchange rates competitive currencies have been a key factor in most east and southeast asian successful growth strategies there is also today an important empirical literature that relates overvaluations to low per capita growth rates while the econometric literature on this issue is relatively rich theoretical analysis of channels through which real exchange rate levels could affect economic development are very scarce this paper intends to contribute to the debate by bringing more theoretical elements and providing new econometric evidence to the connections between real exchange rate levels and development

toward a more reliable picture of the economic activity an application to argentina abstract we advocate a dynamic factor model to provide alternative measures of output data using indirect information from economic indicators we apply the method to show evidence of a significant gap between estimated and official measures of argentine gdp since 2007

using privileged information to manipulate markets insiders gurus and credibility access to private information is shown to generate both the incentives and the ability to manipulate asset markets through strategically distorted announcements the fact that privileged information is noisy interferes with the public s attempts to learn whether such announcements are honest it allows opportunistic individuals to manipulate prices repeatedly without ever being fully found out this leads us to extend sobel s 1985 model of strategic communication to the case of noisy private signals our results show that when truthfulness is not easily verifiable restrictions on trading by insiders may be needed to preserve the integrity of information embodied in prices