electoral competition in heterogeneous districts this paper considers a model of elections in which parties compete simultaneously for multiple districts i show that if districts are heterogeneous then a unique two party equilibrium exists under plurality rule in which further entry is deterred the equilibrium requires that parties choose noncentrist policy platforms and not converge to the ideal policy of the median voter these characteristics are consistent with empirical observation in contrast to those of single district models necessary and sufficient conditions for the existence of the equilibrium are then characterized and related to duverger s law the existence of multiple party equilibria in this environment is also considered

current account deficits and debt accumulation in latin america debate and evidence abstract in this paper i examine competing explanations for the behavior of latin america s current account in the 1970s and 1980s after briefly reviewing the focus of various economists on internal or external factors i outline a financial breakdown view which stresses the role of the changing availability of capital during this period of time i then turn to econometric work which 1 establishes the plausibility of viewing capital availability as a constraint on the current account and 2 offers some support for all three views of the determinants of latin america s current account

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

modelling the potency of stabilization policy for the solomon islands 1978 1q 1992 4q a feasible modelling approach to stabilization policy analysis for the solomon islands economy is proposed and implemented a small macroeconomic model is developed to encompass the macro targets of real growth inflationand balance of payments and to relate economic performance to stabilization policies the estimation and testing results for 1978 1q to 1992 4q confirm that the model is capable of quantifying the potency of policy instruments and the effects of external shocks on macroeconomic outcomes by applying deterministic and stochastic simulation techniques to conduct policy sensitivity experiments it is found to be feasible to relate macroeconomic scenarios to given policy packages in a what if spirit among the findings of interest are that a money financed increase in government spending yields expansionary but non inflationary effects and an interest rate policy reform is a potentially plausible policy option it is concluded that this modelling approach is feasible for policy analysis f

modeling exchange rate passthrough after large devaluations large devaluations are generally associated with large declines in real exchange rates burstein eichenbaum and rebelo 2005 argue that the primary force causing these declines is often the slow adjustment in the price of nontradable goods and services we develop a model which embodies two complementary forces that account for the large declines in the real exchange rate that occur in the aftermath of large devaluations the first force is sticky nontradable goods prices instead of simply assuming that nontradable goods prices are sticky we develop conditions under which this phenomenon can emerge as an equilibrium outcome the second force is the impact of real shocks that often accompany large devaluations these real shocks lead to a decline in the price of nontradable goods relative to traded goods we argue that sticky nontradable goods prices generally play an important role in explaining post devaluation movements in real exchange rates however there are cases in which sticky nontradable goods prices are not sustainable as an equilibrium phenomenon in these cases real shocks are the primary driver of real exchange rate movements j e l classification f31

devaluation investment and growth in ldcs abstract this paper examines the short and long run effects of devaluation in a model where following structuralist theories investment is treated as output of a composite good produced by combining domestic and imported components in fixed proportions introducing investment goods of this type alters a number of results most notably the marshall lerner condition is neither necessary nor sufficient for an expansionary outcome and under simple and plausible conditions a devaluation may worsen the payments balance

chronicle of currency collapses re examining the effects on output abstract the impact of currency collapses i e large nominal depreciations or devaluations on real output remains unsettled in the empirical macroeconomic literature this paper provides new empirical evidence on this relationship using a dataset for 108 emerging and developing economies over the period 1960 2006 we provide estimates of how these episodes affect growth and output trend our main finding is that currency collapses are associated with a permanent output loss relative to trend which is estimated to range between 2 and 6 of gdp however we show that such losses tend to materialize before the drop in the value of the currency which suggests that the costs of a currency crash largely stem from the factors leading to it taken on its own i e ceteris paribus we find that currency collapses tend to have a positive effect on output more generally we also find that the likelihood of a positive growth rate in the year of the collapse is over two times more likely than a contraction and that positive growth rates in the years that follow such episodes are the norm finally we show that the persistence of the crash matters i e one time events induce exchange rate and output dynamics that differ from consecutive episodes

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

spatial equilibrium with entry this paper examines spatial equilibrium in political competition when established parties choose their platforms competitively while rationally anticipating entry of a vote maximizing third party the resulting equilibrium is substantially different from the hotelling median equilibrium established parties are spatially separated and third parties will generally lose the election this provides one theoretical explanation for the stability of two party systems namely that non cooperative behavior between established parties can effectively prevent third parties from winning

the recurrent cost problem in the least developed countries the manifestation of the recurrent cost problem at the micro and macro levels is continuing if not worsening least development the article examines the causes of the recurrent cost problem and shows that there is no one simple cause and that responsibility lies in varying degrees between the least developed country governments and their aid partners given the diversity of the possible causes of the recurrent cost problem a broad package of measures including domestic policy changes and international support measures are proposed

growth oriented adjustment programs a statistical analysis after the fall in average per capita gdp growth that took place in the 1980s adjustment lending programs supported by the international monetary fund imf and the world bank wb were launched in response to the deteriorating external environment the purpose of this paper is to evaluate and to assess statistically the extent to which adjustment programs supported by the imf and the wb have restored growth the evaluation relied on a large sample of countries 93 and controls for some of the statistical difficulties associated with measuring the effectiveness of adjustment programs the paper reviews the environment under which imf wb lending took place the rationale for adjustment lending and the distribution of adjustment loans through time the results of the statistical evaluation suggest that after controlling for external factors and for initial conditions growth is not higher in countries that receive imf wb funds but that investment was significantly lower than for non recipient countries the paper also examines further long term growth prospects

the determinants of import demand in trinidad and tobago 1967 84 1988 the determinants of import demand in trinidad and tobago 1967 84 applied economics vol 20 no 3 pp 303 313

do nominal devaluations lead to real devaluations in ldcs abstract devaluation or depreciation of nominal exchange rate is a policy to boost exports however since any favorable effects of devaluation could be offset by its inflationary effects one must consider real devaluation this note investigates whether nominal devaluation leads to real devaluation by employing a relatively new method of cointegration and error correction modeling

defending against speculative attacks it is risky but it can pay off abstract while currency crises are typically considered to be painful and costly events a closer look reveals that economic developments after a speculative attack differ considerably monetary authorities can play a central role in determining the economic course and costs of currency crises they have to decide whether to defend or not to defend the domestic currency giving rise to three different types of crises i an immediate depreciation if the central bank does not intervene and either ii a successful defense or iii an unsuccessful defense in the case of an intervention we find that a central bank has two options to mitigate the costs of speculative attacks namely an immediate depreciation and a successful defense if a central bank intervenes she might be able to stabilize the exchange rate only temporarily and risks to ultimately fail facing the worst of the three scenarios with the highest economic costs

are currency devaluations effective a panel unit root test abstract using a panel unit root test with real exchange rate volatility measures this paper shows that currency devaluation leads to a short run contractionary effect for the crisis affected asian economies in addition devaluation is ineffective in the long run in influencing aggregate output

withstanding financial crises would trade partners help or hurt abstarctthis article provides new empirical evidence on the losses of real activity caused by various financial shocks spillover effects due to foreign trade linkages deserve special attention to this end we estimate a modify auto regressive process and a seemingly unrelated regression equations estimator is used to account for the dependency of one s country growth on its trade weighted partners growth we run estimations on a set of currency collapses banking crises and sovereign defaults in 49 advanced and developing countries from 1978 to 2011 the trade weighted foreign demand effect mitigated the economic downturn following a banking or a sovereign debt crisis in all countries while only the advanced ones benefited from it after a currency collapse trade based spillover effects make banking crises more costly in the developing countries in those that liberalize their financial account it contrasts with what is observed during currency or sovereign debt crises

behavior of output during currency crises abstract this paper documents the behavior of output and its association with other macroeconomic variables in 195 episodes of currency crises in developing countries during 1970 2000 we find that about 60 of the crises are contractionary while the rest are expansionary crises are one and a half times more likely to be contractionary in emerging markets than in other developing economies the number of contractionary crises or their severity does not increase in the 1990s economies which experience capital inflows in the years prior to the crisis or an increase in external debt burden during the crisis are more likely to slow down during crises while those with restrictions on capital flows prior to the crisis or are more open to international trade are less likely to do so the results are robust to different ways of measuring changes in output during crises

how central banks prepare for financial crises an empirical analysis of the effects of crises and globalisation on international reserves central banks international reserve holdings have increased significantly in the recent past while traditional models fail to explain this accumulation of reserves the more recent literature argues that reserves are used as a lifejacket against currency crises however research so far has neglected the question whether and how central banks change their precautionary reserve holdings after the country was affected by a currency crisis this paper tests the hypothesis that central banks revise their reserve policy in the aftermath of currency crises a dynamic panel data model is estimated for developing and industrial countries covering the period from 1975 to 2003 the evidence suggests that currency crises induce a permanent increase of reserves this effect is particularly strong for recent currency crises since the asian financial crisis

worldwide economic recoveries from financial crises through the decades abstract the profiles of economic recoveries after a financial crisis are identified through a self organizing map covering 104 countries during 1973 2017 first and surprisingly only 55 of the 276 events belong to the usual v u l classification new s shaped bounce back recoveries d oomed ones and double dip m occur in 23 18 and 4 of the cases respectively second the frequencies of profiles vary with the crisis type countries development and location and over time third unlike government spending supporting domestic credit liquidity foreign trade or else the exchange rate after the crisis may help activity bounce back

do real exchange rate appreciations matter for growth the impact of exchange rate changes on growth a long standing key issue in international macroeconomics has received renewed attention in recent years owing to weaker growth rates and the debate on currency wars the connection between real exchange rates and growth remains however an unsettled question in the academic literature we fill this gap by providing an empirical assessment based on a broad sample of emerging and advanced economies we assess the impact of appreciations productivity booms and capital inflows surges using a propensity score matching approach to address causality issues appreciations associated with higher productivity have a larger impact on growth than those associated with capital inflows furthermore appreciations per se tend to have a negative impact on growth we provide a simple theoretical model that delivers a contrasted growth appreciation pattern depending on the underlying shock the model also implies adverse effects of shocks to international capital flows so concerns about an appreciation are not inconsistent with concerns about a depreciation while the presence of an externality through firms destruction leads to inefficient allocations addressing the inefficiency does not dampen exchange rate movements

the effects of imf programs in the third world debate and evidence from latin america abstract this article reviews the debate about the effects of imf sponsored stabilization programs in the third world after examining recent studies by fund economists results of a new study on a latin american country set are presented in this research imf programs are associated with insignificant changes in the current account significant improvements in the overall balance of payments increases in inflation mixed effects on growth and a strong and consistent pattern of reduction in labor share of income the latter result is incorporated into a distribution oriented critique of fund policy

recovery from a currency crisis some stylized facts abstract using a comprehensive data set of over 100 developing countries this paper examines how economies recover from a currency crisis some of the regularities found are listed below first it takes less than 3 years for the gdp growth rate to fully recover its tranquil period average the level of gdp however remains permanently below its initial trend suggesting that the shocks underlying a crisis are persistent second the credit crunch problem lasts much longer than the reduction in the gdp growth rate third the pre crisis credit expansion and reserve inadequacy which have been widely recognized as the main causes of a crisis also are closely related to the extent of the post crisis recession fourth crisis episodes that are caused mainly by illiquidity rather than by insolvency tend to exhibit a sharp recovery

simultaneous estimation of production functions and capital stocks for developing countries estimation of production functions is important for both forecasting and planning purposes in developing countries the lack of data especially on capital stocks hampers econometric work and leads to the use of crude methods in the estimation of production functions in this paper we propose a method equally useful for the estimation of production functions when there are no data on capital stock and for the recovery of capital stock from the estimated production function a simulation analysis demonstrates the optimal properties of the technique which is subsequently applied to the estimation of aggregate production functions for a number of countries at different stages of development

the macroeconomics of trade liberalization abstract this paper analyzes the short run macroeconomic consequences of trade liberalization in ldcs it is shown that linkages between the tradables and nontradables sectors the effect of imported inputs on the economy s productive structure and certain patterns of factor substitution can go a long way toward explaining the perverse contractionary effects frequently seen in liberalization programs

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

the timing of stabilizations abstract a unified framework is developed for examining stabilization from high inflation in a stochastic environment optimality conditions for the delay in the adoption of a stabilization program and its possible abandonment are derived and analyzed the anticipation of external aid is shown to reinforce delay in the implementation of a stabilization also conditionality agreements become necessary to ensure that the administration of external aid will increase the probability of success of the program the presence of speculative activity reinforces delay in the implementation of stabilizations and is found to necessitate otherwise unnecessary frontloading of adjustment

stabilization the political economy of overkill abstract this paper considers whether national and international aspects of the imf s stabilization programmes during the 1970s and early 1980s have resulted in a process of overkill or in other words a process of economic retrenchment which went much further than was strictly necessary in terms of what could have been regarded as reasonable objectives in the international context the author describes how the attack on inflation has become an end in itself at the expense of other stated objectives of the imf thus creating a distortion of its priorities the paper discusses errors of diagnosis which have led to this disorientation and explains why deflationary policies should not be regarded as a panacea the paper then considers the nead for equity and efficiency in the distribution of the political and economic costs of adjustment the next section of this paper discusses the assumptions underlying the imf s treatment of fund members and to what extent even handedness in the application of stabilization measures may result in inequality of burden sharing among borrowers problems related to monetarist theories and the consequent policies are examined followed by a consideration of the dangers involved in devising straightforward performance criteria in the form of precise monetary targets that can readily be monitored by the imf this means of evaluating the national adjustment policies success is seen to be unsatisfactory viz the frequency of stand by arrangement breakdowns and mistakes in forecasting the paper concludes that the concept of unilateral adjustment is not an acceptable basis for imf supervision of the international monetary system in addition care should be taken to avoid overkill in determining the degree and character of adjustment needed in stabilization programmes one possible solution to the extra burden imposed on the ldcs might be a liberalization of the compensatory financing facility with the objective of applying the same kind of regime to imports as to exports

application of stochastic simulation and policy sensitivity techniques to a macroeconomic model of uganda stochastic simulation techniques are applied to study a small macroeconomic model of uganda previously studied using deterministic simulations it was found that stochastic simulations sometimes reverse single shot policy rankings arrived at using deterministic procedures in general policy effects are rather sensitive to the exact parameters and error term of the model and hence to the true structure of the ugandan economy policy sensitivity experiments yield results which suggest that the financial policy stance is crucial to the potency of budgetary policy more importantly the results help distinguish between the problem and favourable instruments in a number of policy packages applicable to uganda

currency crises are they all the same abstract the plethora of currency crises around the world has fueled many theories on the causes of speculative attacks the first generation models focus on fiscal problems while the second generation models emphasize countercyclical policies and self fulfilling crises in the 1990s models pinpoint to financial excesses with the crisis of argentina in 2001 models of sovereign default have become popular again while the theoretical literature has emphasized variety the empirical literature has supported the one size fits all models this paper contributes to the empirical literature by assessing whether the crises of the last 30 years are of different varieties

can orthodox stabilization and adjustment work lessons from new zealand 1984 90 most debate about the efficacy of orthodox stabilization programs such as those of the international monetary fund has been fruitless first rarely are these programs fully implemented or sustained for long periods second defenders and critics of the programs hold differing premises about the nature of capitalist economies the debate is therefore not about the appropriate balance of supply and demand side measures but rather about what sort of supply and demand side measures will address the supply and demand side problems that each group perceives the results of an orthodox stabilization program which incorporated demand and supply side elements and which was fully implemented and sustained by the new zealand government from 1984 to 1990 reveal the limits to orthodox programs new zealand a primary product exporter suffers from a structural imbalance of payments and from an external debt burden equal in scale to that of the latin american and other highly indebted less developed countries ldcs but it does not have the serious supplyside constraints on growth that critics claim typify underdeveloped economies this makes new zealand an appropriate test of the typical orthodox stabilization program despite the fact that its administrative capacity political will domestic support and access to external resources were far in excess of those of the typical would be ldc stabilizer new zealand achieved only a precarious macroeconomic and international payments stability moreover as the case of new zealand demonstrates inflation control and financial liberalization policy components of orthodox plans have contradictory consequences for payments balance this suggests that long term stabilization in new zealand and elsewhere cannot be achieved solely by internal reforms

on the effect of devaluation during stabilization programs in ldcs this paper is a cross section study of the effect of real devaluations on capacity utilization during stabilization programs in ldcs it finds that such devaluations had a significant negative effect on output as predicted in many recent papers this was not because devaluation caused a rise in aggregate saving but more because of a sharp contraction in investment external factors such as terms of trade and the capacity to import had a significant positive impact while monetary and fiscal policy played only a minor role copyright 1992 by mit press

minor candidates as kingmakers we consider a sequential entry model with three candidates who cannot commit to any policy announcement during the campaign the study focuses on how a minor candidate who wins only when unopposed influences the electoral outcome we show that unless the condorcet winner i e the winner in every pairwise vote coincides with the grand winner i e the winner of the three candidate competition the minor candidate is a kingmaker in the sense that his preferred rival wins regardless of the order of the entry decisions to influence the outcome the minor candidate could either i enter strategically without any chance to win or ii enter if and only if the condorcet winner already has entered

towards a new early warning system of financial crises abstract this paper develops a new early warning system ews model based on a multinomial logit model for predicting financial crises it is shown that commonly used ews approaches which use binomial discrete dependent variable models are subject to what we call a post crisis bias this bias arises when no distinction is made between tranquil periods when economic fundamentals are largely sound and sustainable and crisis post crisis periods when economic variables go through an adjustment process before reaching a more sustainable level or growth path we show that applying a multinomial logit model which allows distinguishing between more than two states is a valid way of solving this problem and constitutes a substantial improvement in the ability to forecast financial crises the empirical results reveal that for a set of 20 open emerging markets for the period 1993 2001 the model would have correctly predicted a large majority of crises in emerging markets

imf supported stabilization programs and their critics evidence from the recent experience of egypt abstract the imf supported stabilization and structural adjustment programs implemented by egypt in the 1990s were successful in meeting their objectives and when compared with earlier attempts and the experience of other developing countries the authorities undertook a sharp reduction in the government s overall deficit and its central bank financing allowing for increased credit availability to the private sector within a framework of a rapidly decelerating monetary expansion despite initiating comprehensive market reforms that significantly improved the environment for private investment the response of the private sector has been disappointing it is argued that until institutional regulatory and political constraints are removed egypt will not join the group of high investing and fast growing economies

economic costs of alternative monetary policy responses to speculative currency attacks abstract the outcome of a speculative attack on the foreign exchange rate can be classified into three cases i immediate depreciation of the nominal exchange rate ii successful defense or iii failed defense this paper explores which of these outcomes yields the lowest cost in terms of output and unemployment in the short and medium run ex ante the outcome of a speculative attack is uncertain therefore the appropriate response of monetary authorities to a speculative attack depends on the cost of an immediate depreciation compared with that of the expected outcome of a currency defense our empirical analysis focuses on a sample of 73 emerging and developing countries over the 1960 2011 period our results indicate that an immediate depreciation is the policy response that is associated with a lower expected output loss and unemployment in the short run and it tends to be expansionary in the medium run a defense if successful entails insignificant costs in the short run but unlike an immediate depreciation a successful defense is not expansionary in the medium run if a defense fails large output losses and an increase in unemployment ensue at least in the short run

exchange rate management and stabilization policies in developing countries abstract we outline three channels via which a devaluation has a direct contractionaly impact on the aggregate supply side of the economy local currency costs of intermediate imports wage indexing in the presence of food imports and reduced volume of real credit to firms contractionary effects via the supply side are more damaging than krugman taylor effects via aggregate demand since a cut in aggregate supply leads to upward pressure on inflation while a cut in aggregate demand tends to abate inflation upward pressure on inflation may over time threaten the increase in competitiveness a nominal devaluation also intends to achieve we also discuss the implications of a substantial foreign debt we demonstrate that a successful devaluation raises the real in terms of domestic goods debt service burden causing a krugman taylor like contractionary effect on aggregate demand we then analyse the effects of a preannounced slowdown of the rate of depreciation our results of course do not imply that a devaluation should never be considered they do suggest however that a devaluation is likely to be an ineffective tool for demand management since it may cut aggregate supply as much or more in the short run

adjustment with growth abstract this paper describes and examines simple versions of the analytical approaches employed by the international monetary fund and the world bank in designing adjustment programs that support their lending activities in the case of the bank this means essentially a variant of the two gap growth model and for the fund a model derived from the monetary approach to the balance of payments an attempt is also made to merge the fund and bank approaches within a consistent framework to demonstrate their complementarity

evaluating the effect of imf lending to low income countries the purpose of this paper is twofold to apply to a group of low income borrowers from the imf the most commonly used technique for measuring the independent effects on economic developments of imf support and to develop a minimum set of diagnostic tests for determining whether necessary conditions for using the methodology exist the modified control group methodology is used to measure the effect of imf support on three key variables output growth inflation and the external debt rservice ratio the sample comprises adjustment programs begun during 1986 1991 supported by the imf s enhanced structural adjustment facility esaf the distinguishing feature of the modified control group approach is the estimation of a policy counterfactual policies that would have been followed in the absence of imf support against which to compare actual policies and resulting outcomes using this approach for the esaf the sample reveals statistically significant beneficial effects of imf support on output growth and the debtrservice ratio but no effects on inflation diagnostic tests of these results rarely if ever reported in the literature are shown to be critical in interpreting the validity of the results of assessments of adjustment lending for this sample at least the diagnostic tests cast doubt on the reliability of estimates of the effects of imf supported programs using panel data in a modified control group model the most obvious and manageable modifications to the

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

stagflationary effects of monetary stabilization policies a quantitative analysis of south korea this paper presents a macro model of the korean economy that focuses on short run macro economic adjustment and more in particular on the transmission channels of monetary policy between the financial and the real sector of the economy in addition to the usual link between monetary policy and aggregate demand via investment the link between monetary policy and the supply side of the economy via the financing of working capital with borrowed funds is incorporated this link can potentially reverse the short run impact of tight money on inflation and aggregate the impact on output both export prices and domestic prices show a significant sensitivity to cost of financing working capital this credit supply side link gives a stagflationary bias to restrictive credit policies the empirical relevance of this phenomenon is strongly supported by the simulation results derived with the model structurally section 2 of the paper focuses on the real sector part of the model section 3 discusses the financial sector in section 4 different monetary stabilization packages are simulated using the model presented in sections 2 and 3 and alternative policy measures are discussed the simulation runs show strong short run stagflationary effects of tight money policies

the modern history of exchange rate arrangements a reinterpretation we develop a novel system of reclassifying historical exchange rate regimes one key difference between our study and previous classifications is that we employ monthly data on market determined parallel exchange rates going back to 1946 for 153 countries our approach differs from the imf official classification which we show to be only a little better than random it also differs radically from all previous attempts at historical reclassification our classification points to a rethinking of economic performance under alternative exchange rate regimes indeed the breakup of bretton woods had less impact on exchange rate regimes than is popularly believed

the effect of imf programs on labor abstract previous studies find that imf programs have negative effects on income distribution the international monetary fund and latin america economic stabilization and class conflict westview press boulder 1987a world dev 15 1987b 365 world dev 28 2000 1031 no study however has used parametric methods to control for nonrandom selection using a dynamic version of the heckman selection model i study the effect of imf programs on the labor share of income from manufacturing my conclusions are supported by 2 095 observations of 110 countries during 1961 93