estimating the impact of currency unions on trade solving the glick and rose puzzle does leaving a currency union reduce international trade this paper uses a historical approach to re examine the puzzling large apparent impact of currency unions on trade i find that the early time series estimates were driven by the gradual decaying of colonial trade ties and other major geopolitical factors including warfare communist takeovers and ethnic cleansing episodes my methodology which carries lessons for other uses of gravity equations in policy analysis yields point estimates of currency unions on trade that are not statistically distinct from zero

monetary union price level convergence and inflation how close is europe to the usa abstract the pattern of price dispersion across european and us cities from 1990 to 2004 is documented there is a striking decline in dispersion for traded goods prices in europe most of which took place prior to the launch of the euro dispersion in the euro area is now quite close to that of the usa this evidence provides useful facts for future work assessing the importance of various developments in europe harmonization of tax rates convergence of incomes and labor costs liberalization of trade and factor markets and increased coherence of monetary policy

the decoupling of farm programs revisiting the wealth effect recent reforms of agricultural policies in developed countries have introduced direct payments as replacements for traditional production enhancing instruments whereas these new instruments can in principle influence production through several channels current empirical studies show no significant impact on production direct payments mainly increase land values in this article we revisit the evaluation of the coupling effects passing through the wealth of agricultural households the initial wealth of these agents while mainly being in the form of land asset holding is always assumed to be fixed to the contrary we show theoretically and through an empirical simulation exercise that once the impact of farm programs on initial wealth is properly accounted for the measure of the coupling effects is not as negligible as found in previous studies copyright 2010 oxford university press

adoption of organic farming in germany and austria an integrative dynamic investment perspective farm level adaptation to changing economic environments is often slower than expected technological innovations for instance are frequently adopted at a later date than the net present value of investment suggests this can be explained by a model of investment under uncertainty which consistently accounts for uncertainty sunk costs and the flexibility of investment timing its essential conclusion is that due to temporal opportunity costs critical incremental cash flows that trigger investments might be higher than those needed for simple cost recovery this accounts for an ostensible reluctance to invest economic hysteresis in this article we demonstrate how slow conversion to organic farming in general and the different rates of conversion in germany and austria in particular can be explained by the new investment theory

simple solutions to the initial conditions problem in dynamic nonlinear panel data models with unobserved heterogeneity i study a simple widely applicable approach to handling the initial conditions problem in dynamic nonlinear unobserved effects models rather than attempting to obtain the joint distribution of all outcomes of the endogenous variables i propose finding the distribution conditional on the initial value and the observed history of strictly exogenous explanatory variables the approach is flexible and results in simple estimation strategies for at least three leading dynamic nonlinear models probit tobit and poisson regression i treat the general problem of estimating average partial effects and show that simple estimators exist for important special cases copyright 2005 john wiley sons ltd

the excess sensitivity of layoffs and quits to demand excessive layoffs in bad times and excessive quits in good times both stem from the same weakness in practical employment arrangements the specific nature of worker firm relations creates a situat

sectorial wages and the real exchange rate abstract this paper considers a multi sector economy subject to exogenous demand shocks that alter the equilibrium structure of relative prices and relative wages contracts set nominal wages in advance of the realization of stochastic shocks formulae for optimal sectorial wages indexation rules are provided these optimal rules alter the absolute and the relative structure of sectorial nominal wages the rules depend on the heterogeneity of the skill distribution the effects of shocks on the real exchange rate and on real wages are determined and the limited role of second best nominal exchange rate policy is analyzed

real wages and the terms of trade alternative indexation rules for an open economy wage indexation attempts to fix real wages throughout the length of labor contracts regardless of the source of price fluctuations many of the economic disturbances experienced recently in industrial countries have called for changes in real wages especially those disturbances altenng the terrns of trade between domestic and foreign goods this paper examines the desirability of indexation when such changes in the terms of trade occur there are two real wages in an open economy producing a product differentiated from those abroad the nominal wage deflated by the price of the domestic good and by a price index composed of domestic and foreign goods the producer responds to one real wage and labor responds to the other when the terrns of trade change these two real wages diverge so that fixing one real wage through indexation still allows the other real wage to vary this article will examine the effects of this

supply shocks wage indexation and monetary accommodation this paper develops a unified framework for the analysis of wage indexation and monetary policy in the presence of supply shocks we first present simple formulae for the optimal wage indexation rule and for the optimal money supply rule in order to set the stage for an evaluation of departures from the optimal policy rules we first analyse two extreme cases a rule that stabilizes employment and a rule that stabilizes the real wage the analysis of these two extreme cases provides the ingredients for the evaluation of various rules for wage indexation and for monetary targeting we examine the implications of indexing wages to i nominal gnp ii the cpi and iii the value added price index as well as the implications of targeting the money supply to these alternative three indicators it is shown that the various indexation rules bear a dual relation to the various monetary targeting rules the welfare ranking of the various rules depends on whether the elasticity of the demand for labor exceeds or falls short of the elasticity of labor supply if the demand for labor is more elastic than the supply then policy rules that stabilize employment produce a smaller welfare cost than policy rules that stabilize the real wage in that case indexing wages to nominal gnp results in a smaller welfare cost than indexing to value added price index which in turn produces a smaller cost than indexation to the cpi because of the dual relation between monetary policy and wage indexation it follows that under the same circumstances monetary policy that targets nominal gnp produces a smaller welfare cost than policy that targets the value added price index which in turn results in a smaller cost than the policy that targets the cpi this ranking is reversed when the elasticity of the supply of labor exceeds the elasticity of demand this abstract was borrowed from another version of this item

trade creation and diversion revisited accounting for model uncertainty and natural trading partner effects summary the effect of preferential trade agreements ptas on trade flows is subject to model uncertainty stemming from the diverse and even contradictory effects suggested by the theoretical pta literature the existing empirical literature has produced remarkably disparate results and the wide variety of empirical approaches reflects the uncertainty about the correct set of explanatory variables that ought to be included in the analysis to account for the model uncertainty that surrounds the validity of the competing pta theories we introduce bayesian model averaging bma to the pta literature statistical theory shows that bma successfully incorporates model uncertainty in linear regression analysis by minimizing the mean squared error and by generating predictive distributions with optimal predictive performance once model uncertainty is addressed as part of the empirical strategy we find strong evidence of trade creation trade diversion and open bloc effects our results are robust to a range of alternative empirical specifications proposed by the recent pta literature copyright 2010 john wiley sons ltd

one money one market the effect of common currencies on trade currency unions their dramatic effect on international trade a gravity model is used to assess the separate effects of exchange rate volatility and currency unions on international trade the panel data bilateral observations for five years during 1970 90 covering 186 countries includes 300 observations in which both countries use the same currency i find a large positive effect of a currency union on international trade and a small negative effect of exchange rate volatility even after controlling for a host of features including the endogenous nature of the exchange rate regime these effects statistically significant imply that two countries sharing the same currency trade three times as much as they would with different currencies currency unions like the european emu may thus lead to a large increase in international trade with all that that entails andrew rose

did the euro common currency increase or decrease business cycle synchronization for its member countries we use two variants of markov switching models to assess changes in output synchronization since the creation of the euro out of eight eurozone countries investigated only one the netherlands has synchronization increased since euro adoption supporting the endogenous optimal currency area argument of frankel and rose however in three other cases business cycle synchronization actually fell since the euro s creation thus the endogeneity of the optimal currency area criteria can go both ways adopting a common currency may increase synchronization for nations ready for a common currency but it can lower synchronization for nations that are far from synchronized before monetary unification

how much intraregional exchange rate variability could a currency union remove the case of asean 3 abstract a multilateral currency union removes intraregional exchange rates but not the union rate the pre union intraregional exchange rate variability is thus latent a two step procedure is developed to measure this the measured variables are used to model inflation and intraregional trade growth of individual union members counterfactual simulations of the union impact are carried out using the resulting models application to asean 3 shows that the intraregional variability mainly consists of short run exchange rate shocks that the variability significantly affects inflation and intraregional trade of major asean 3 members and that a union would reduce inflation and promote trade regionwide

winners and losers from the uro abstract using the synthetic control method this paper estimates the effect of having joined the monetary union on the income per capita of six early adopters of the euro our estimates suggest that while the income per capita of belgium france germany and italy would have been higher without the euro that of ireland would have been considerably lower in contrast the netherlands would have been as well off without the euro we show that these estimates are not contingent on our choice of baseline control groups growth predictors and pre treatment period in addition we use the insights from the literature on the economic determinants of the costs and benefits of monetary unions to explain our estimates we find that early euro adopters with a business cycle more synchronized to that of the union and more open to intra union trade or migration lost less or gained more from the euro a key role in increasing post euro income losses of union members has been played by the integration of capital markets

benefits from mutual restraint in a multilateral monetary union summary we show that monetary union can enhance price stability for its member countries even if none of them has a long history of stable prices and independent monetary policy as is the case in a number of monetary union initiatives among developing countries the positive effect obtains because the opportunistic objectives of one country s policy makers are kept in check at the union level by other members with disparate objectives we calibrate the model to evaluate the proposed monetary union in the east african community the empirical results show that the mutual restraint on monetary policy is an important determinant of the expected benefit from an eac monetary union

how much do decoupled payments affect production an instrumental variable approach with panel data how much decoupled payments such as direct payments in the u s affect agricultural production remains an open empirical question with implications for policy using data from multiple years of the census of agriculture we exploit a provision of the 2002 farm act that departed from previous policy by making oilseeds eligible for direct payments thus increasing payments to areas that historically produced more oilseeds our instrumental variable estimates in contrast to ols estimates suggest that changes in payments over the period 2002 to 2007 had little effect on aggregate production at the zip code level copyright 2012 oxford university press

dependency of organic farms on direct payments in selected eu member states today and tomorrow this paper examines the development of the role of government support in the financial situation of organic farms in selected western and eastern european countries contrasting dependency on direct payments with that of conventional farms and assessing the impact of foreseeable changes in the political and economic environment the results show that direct payments play an important role in the financial viability of organic farms in both western and eastern european countries the level of specific support for organic farming is put into perspective as other support payments and market returns contribute larger shares to total farm revenue in all the countries analysed modelling analyses show that support payments will continue to play an important role in the profitability of organic farms in western europe after implementation of the 2003 reform of common agricultural policy in the eu for organic farmers in eastern european countries the importance of support payments increases strongly with eu accession as first pillar payments are introduced and environmental payments are expanded significantly

phasing out of environmentally harmful subsidies consequences of the 2003 cap reform abstract subsidies linked to production have been classified as environmentally harmful by the oecd a core element of the eu 2003 common agricultural policy cap reform is to decouple income support from production this paper estimates the environmental consequences of this policy reform an agricultural sector model using a modified version of the positive mathematical programming method depicts the complex natural structural and political relationships of austrian farming changes in management measures can be analyzed with respect to their environmental effects by using appropriate indicators simulation results show that the 2003 cap reform will reduce the average cost of production and may improve environmental conditions regarding soil water and greenhouse gases when compared to a scenario without reform thus the new cap is likely to bring about outcomes which the previous reform agenda 2000 promised but did not deliver

imperfect factor mobility and the distribution of income abstract when labor is imperfectly mobile between industries workers may have a special interest in commercial policies that increase the price of the output of the industry in which they are employed this proposition is investigated in a two good model in which the degree of labor mobility is measured by the elasticity of a convex input transformation curve the existence of such a transformation curve is justified by a model in which individual workers have differing relative and absolute efficiencies in different industries the results are extended to the case of many industries

energy prices substitution and optimal borrowing in the short run an analysis of adjustment in oil importing developing countries this paper builds a normative framework to evaluate three questions to what extent the increases in indebtedness of developing countries was excessive or simply the result of a perfectly rational strategy what borrowing strategies can be expected in the future as the developing countries revise their expectations about the length of time between shocks what is the derived demand to be faced by multilateral institutions providing some amount of concessionary credit the framework used here consists of a short term model traded and nontraded goods prices are flexible and the exchange rate is allowed to float an optimal borrowing rule is derived by maximizing a welfare function over the planning period that period defined by the expected number of years of oil price stability after the shock is short

economic effects of currency unions we develop a new instrumental variable iv approach to estimate the effects of different exchange rate regimes on bilateral outcomes the basic idea is that the characteristics of the exchange rate between two countries are partially related to the independent decisions of these countries to peg explicitly or de facto to a third currency notably that of a main anchor this component of the exchange rate regime can be used as an iv in regressions of bilateral outcomes we apply the methodology to study the economic effects of currency unions the likelihood that two countries independently adopt the currency of the same anchor country is used as an instrument for whether they share a common currency we find that sharing a common currency enhances trade increases price comovements and decreases the comovement of real gross domestic product shocks

currency unions and trade how large is the treatment effect currency unions and trade what can the data say the impact of a common currency on trade can be grossly mismeasured if countries that belong to currency unions are systematically different from those that do not and if the relationship between trade and its observable determinants is complex i argue that such complications are plausible and likely to distort the empirical results of a recent economic policy paper by andrew rose issue 30 2000 pp 7 45 using techniques designed to be robust in this situation i find that the effects of common currency on international trade are considerably less dramatic and much less precisely estimated torsten persson i have always maintained that the measured effect of a single currency on trade appears implausibly large but i am not convinced by torsten persson s diagnosis and proposed solution i apply a variety of estimation techniques to a new larger data set where many more instances of currency union creation and abandonment make it possible to rely on time series as well as cross sectional evidence the results are similar to my earlier ones the effect of a single currency on trade is large andrew rose

dynamics of trade liberalization policy abstract this paper analyzes the dynamics of trade liberalization policies in the presence of adjustment costs the discussion focuses on modeling the nature of those costs and the interaction between wages and resource reallocation during the adjustment also it highlights the role that human capital plays in the adjustment process

the impact of coupled and decoupled government subsidies on off farm labor participation of u s farm operators with the 1996 farm act the united states introduced payments that were designed to be decoupled labor allocation choices are likely to be affected by receipt of payments and income from off farm jobs has been the major source of income for most farm households for sometime this article examines whether the 1996 change has affected the off farm labor participation of farm households we conclude that the observed increase in off farm participation of farm operators who received payments was not the result of the 1996 policy change government payments whether coupled or decoupled have a negative effect on off farm labor participation

will farmers trade profits for stewardship heterogeneous motivations for farm practice selection we investigate the trade off agricultural producers face between profits and stewardly activities when selecting farm practices instead of the profit maximization framework we model producer behavior in an expanded utility framework built on production technology and including two utility components self and social interests the framework introduces inherent heterogeneity and social environmental motivations into farmer behavior based on this model we hypothesize that there are farmers that are willing to forego some profit to engage in stewardly farm practices with an empirical study we provide evidence that some farmers are willing to make this sacrifice results are consistent with the multi utility hypothesis

interactions between cap agricultural and agri environmental subsidies and their effects on the uptake of organic farming we analyze the effects of the interactions that the two pillars of the european union common agricultural policy market support and rural development have on farmers uptake of organic farming practices special attention is given to the 2003 reform which substantially altered the relative importance of the two types of support by decoupling direct agricultural payments from the production of a specific crop in our empirical analysis we study the case of sweden making use of the variation in the timing of farmers decisions regarding participation in support programs we estimate a dynamic non linear unobserved effects probit model to account for unobserved individual heterogeneity and state dependence our results indicate the existence of a negative effect of the market support system in place when organic farming techniques were adopted before the 2003 reform however this effect is reversed by the introduction of decoupling furthermore the effects of support differ between certified and non certified organic production both pillars have significant effects on non certified organic farming whereas certified organic farming is exclusively driven by agro environmental subsidies

real interest rates home goods and optimal external borrowing the paper investigates the optimal time path of consumption and external borrowing in the dependent economy model the small country faces given world prices and a given world real interest rate the presence of a home goods sector implies that the relevant real interest rate appropriate to consumption decisions depends on the rate of change of the real price of home goods the paper shows how transitory disturbances in output or in the world real interest rate affect the time profile of consumption and the trade balance in particular it is shown that the presence of a home goods sector dampens the consumption effects of changes in the world interest rate

on the distribution of exchange rate regime treatment effects on international trade abstract this paper provides evidence of heterogeneous treatment effects on trade for six different types of exchange rate regime transitions utilizing data on 218 643 country pair year observations all together previous research mainly focused on the currency union effect on trade and widely assumed that country pairs with identical observable characteristics receive the same effect we test the hypothesis of a homogeneous treatment effect empirically and find substantive statistical support for the presence of effect heterogeneity moreover we characterize the probability distribution of effect heterogeneity among observationally equivalent country pairs by way of a random coefficients model we estimate selected features of the empirical distributions of the treatment effects for each of the six different types of exchange rate regime transitions under two different sets of assumptions about the probability distribution of effect heterogeneity our findings suggest that the immediate effects on trade from switching to an exchange rate regime different from the one in the outset have wide waists and exhibit large positive extreme values we estimate the probability of two countries to experience an immediate positive effect on the growth of bilateral trade due to the adoption of any new exchange rate regime tighter or not to be approximately one half

farmers adoption of integrated crop protection and organic farming do moral and social concerns matter we investigate empirically the role of moral and social concerns in farmers decision to adopt integrated crop protection ip and organic farming of a survey questionnaire has been sent to 1286 fruit growers and vegetable producers located in the french areas of alpes de haute provence hautes alpes and vaucluse analysis of individual responses n 243 shows that although economic concerns play a strong role a significant number of respondents give high importance to moral and social ones we also examine how these considerations matter according to different crop protection strategies that is conventional farming ip and of using a multinomial logistic regression we find that 1 social concerns e g showing to others one s environmental commitment drive both ip and of adoption 2 moral concerns e g do not feel guilty about one s choices increase the probability of organic farming adoption only and 3 farmers who give high importance to economic concerns e g cutting production costs are less likely to adopt of

optimal wage indexation foreign exchange intervention and monetary policy this paper deals with the design of optimal monetary policy and with the interaction between the optimal degrees of wage indexation and foreign exchange intervention the model is governed by the characteristics of the stochastic shocks which affect the economy and by the information set that individuals possess because of cost of negotiations nominal wages are assumed to be precontracted and wage adjustments follow a simple indexation rule that links wage changes to observed changes in price the use of the price level as the only indicator for wage adjustments may not permit an efficient use of available information and may result in welfare loss the analysis specifies the optimal set of feedback rules that should govern policy aiming at the minimization of the welfare loss these feedback rules determine the optimal response of monetary policy to changes in exchange rates interest rates and foreign prices the adoption of the optimal set of feedback rules results in the complete elimination of the welfare cost arising from the simple indexation rule and from the existence of nominal contracts since optimal policies succeed in the elimination of the distortions issues concerning the nature of contracts and the implications of specific assumptions about disequilibrium positions become inconsequential the analysis then proceeds to examine the interdependence between the optimal feedback rules and the optimal degree of wage indexation it is shown that a rise in the degree of exchange rate flexibility raises the optimal degree of wage indexation one of the key conclusions is the proposition that the number of independent feedback rules that govern a policy must equal the number of independent sources of information that influence the determination of the undistorted equilibrium thus it is shown that with a sufficient number of feedback rules for monetary policy there may be no need to introduce wage indexation it is also shown that an economy that is not this abstract was borrowed from another version of this item

disaggregated trade and disaggregated currency unions a ranking of common currency effects andrew rose has long argued that a common currency has a large effect on increasing trade recently rose has called into question the reliability of this conclusion as new techniques have emerged for estimating gravity equations this article uses the sector specific gravity model developed by anderson and yotov 2010a to investigate if disaggregated trade can provide a reliable estimate of a common currency s effect disaggregating trade alone is insufficient to obtain a reliable estimate of a currency union regardless of econometric technique when the effect of a common currency on trade is uniform across all unions disaggregating the universe of currency unions with individual effects provides a reliable ranking of currency unions independent of estimation method by the effect that each union s currency has on increasing trade these rankings differ across sectors

the development of and prospects for organic farming in the uk abstract the organic sector in the uk is booming with the largest ever wave of farm conversions underway consumer demand is currently growing faster than supply the evidence regarding the factors that have been critical now and in the past in causing producers to establish organic systems is reviewed this review draws on the authors own work as well as that of other researchers in europe and the usa in the second part of the paper we report on a recent study of the factors that prompt organic producers to abandon registered organic production this analysis is based on a survey of producers formerly registered with the soil association who have left the scheme since 1990 finally the paper considers the current policy regime with respect to organic farming the scope for the continued growth of the sector and the debate regarding the design of future policy