estimation of de facto flexibility parameter and basket weights in evolving exchange rate regimes a new technique for estimating countries de facto exchange rate regimes synthesizes two approaches one approach estimates the implicit de facto basket weights in an ols regression of the local currency value rate against major currency values here the hypothesis is a basket peg with little flexibility the second estimates the de facto degree of exchange rate flexibility by observing how exchange market pressure is allowed to show up here the hypothesis is an anchor to the dollar or some other single major currency but with a possibly substantial degree of exchange rate flexibility around that anchor it is important to have available a technique that can cover both dimensions inferring anchor weights and the flexibility parameter we test the synthesis technique on a variety of fixers floaters and basket peggers we find that real world data demand a statistical technique that allows parameters and regimes to shift frequently accordingly we here take the next step in estimation of de facto exchange rate regimes endogenous estimation of parameter breakpoints following bai and perron jel numbers f31 f41

a conditional variance tale from an emerging economy s freely floating exchange rate this article studies daily return and volatility dynamics in the exchange rate of an emerging market economy turkey over the recent floating period we use generalized autoregressive conditional heteroscedastic garch and fractionally integrated garch figarch models with various error distributions findings show that a parsimonious figarch model with an asymmetric error distribution characterizes the daily turkish lira tl returns against us dollar and euro considerably well we find statistically significant asymmetry and peakedness in conditional returns and time varying volatility with long range dependence in conditional volatility long memory finding is robust to different specifications for the conditional returns as well as possible shifts in the return and volatility dynamics over sub periods results in the article show that despite the decline in volatility over the course of the recent float tl returns are still wild compared to developed economies exchange rates during the same period

why democracies produce efficient results by applying the standard tools of microeconomic analysis i argue that democratic markets work as well as economic markets in particular i show that previous work has greatly exaggerated the existence of principal agent and informational problems in electoral markets and has drawn incorrect conclusions

reassessing the effectiveness of industrial policy in indonesia can the neoliberals be wrong abstract the neoliberal interpretation of the indonesian state suggests that industrial policy was incoherent subject to rent seeking and irrelevant to indonesia s post 1966 development success a more nuanced micro historical analysis of the state s interventions demonstrates that this oversimplification misses political elite objectives to overcome the ekonomi kolonial by using the power of the state and selective intervention to create a strong integrated diversified and outward oriented industrial economy ekonomi nasional empirical analysis presented here suggests that indonesia has largely achieved this objective it also suggests that industrial policy has been more important than the neoliberal argument permits

the mirage of floating exchange rates this note summarizes some of the highlights of my longer paper with guillermo calvo fear of floating many emerging market countries have suffered financial crises one view blames soft pegs for these crises adherents to that view suggest that countries move to corner solutions hard pegs or floating exchange rates we analyze the behavior of exchange rates reserves and interest rates to assess whether there is evidence that country practice is moving toward corner solutions we focus on whether countries that claim they are floating are indeed doing so we find that countries that say they allow their exchange rate to float mostly do not there seems to be an epidemic case of fear of floating

examining crop price effects on production decision and resource allocation an ex ante approach this article examines the output price effects on the us crop production employing an ex ante approach to the differential systems of input demand and output supply the estimation results of the

oligarchy democracy inequality and growth abstract this paper analyses the dynamics of inequality democratization and economic development in a political economy model of growth where education is both the engine of growth and a determinant of political participation in a context with imperfect capital markets we investigate the incentives for an educated oligarchy to subsidize the poor s education and to initiate a democratic transition we characterize the equilibrium patterns of political institutions income distribution and growth as a function of the initial income and inequalities in particular we identify circumstances under which the elite promotes the endogenous emergence of a middle class for purely political economy reasons a simple linear infinite horizon framework is then presented in this setting we discuss the importance of historical dependence for long run social stratification and redistribution

bureaucracy and growth a cross national analysis of the effects of weberian state structures on economic growth the role of bureaucratic authority structures in facilitating economic growth has been a sociological concern since max weber s classic contributions almost 100 years ago using a recent and original data set we examine the characteristics of core state economic agencies and the growth records of a sample of 35 developing countries for the 1970 1990 period our weberianness scale offers a simple measure of the degree to which these agencies employ meritocratic recruitment and offer predictable rewarding long term careers we find that these weberian characteristics significantly enhance prospects for economic growth even when we control for initial levels of gdp per capita and human capital our results imply that weberianness should be included as a factor in general models of economic growth they also suggest the need for more attention by policymakers to building better bureaucracies and more research by social scientists on variations in how state bureaucracies are organized

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

welfare impacts of alternative biofuel and energy policies an open economy equilibrium model is derived to investigate the effects of energy policy on the u s economy with emphasis on corn based ethanol a second best policy of a fuel tax and ethanol subsidy is found to approximate fairly closely the welfare gains associated with the first best policy of an optimal carbon tax and tariffs on traded goods the largest economic gains to the u s economy from these energy policies arise from their impact on u s terms of trade particularly in the oil market conditional on the current fuel tax an optimal ethanol mandate is superior to an optimal ethanol subsidy copyright 2011 oxford university press

the comparative politics of corruption accounting for the east asian paradox in empirical studies of corruption growth and investment abstract numerous empirical studies demonstrate that corruption reduces investment and or slows growth but how robust are these relationships this question is answered by conducting a series of crosscountry regression tests using four different corruption datasets we find that corruption slows growth and or reduces investment in most developing countries particularly small developing countries but increases growth in the large east asian newly industrializing economies the latter finding provides solid empirical support to a country case literature that explains the east asian paradox the combination of high corruption and high growth in terms of stable and mutually beneficial exchanges of government promotional privileges for bribes and kickbacks

balance of payments crises under inflation targeting abstract this paper analyzes a small open economy model under inflation targeting it shows why such a monetary regime is vulnerable to speculative attacks that take place over a short period rather than instantaneously the speed at which the regime collapses and the extent of reserve losses are increasing in the central bank s explicit or implicit commitment to intervene in the foreign exchange market attacks are therefore ranked from most to least severe as follows exchange rate targeting cpi inflation targeting domestic nontradables inflation targeting and money targeting under inflation targeting the size of the attack is increasing in the tradables consumption share

income distribution and macroeconomics this paper analyzes the role of wealth distribution in macroeconomics through investment in human capital it is shown that in the presence of credit markets imperfections and indivisibilities in investment in human capital the initial distribution of wealth affects aggregate output and investment both in the short and in the long run as there are multiple steady states this paper therefore provides an additional explanation for the persistent differences in per capita output across countries furthermore the paper shows that cross country differences in macroeconomic adjustment to aggregate shocks can be attributed among other factors to differences in wealth and income distribution across countries

classifying exchange rate regimes deeds vs words abstract most of the empirical literature on exchange rate regimes uses the imf de jure classification based on the regime announced by the governments despite the recognized inconsistencies between reported and actual policies in many cases to address this problem we construct a de facto classification based on data on exchange rates and international reserves from all imf reporting countries over the period 1974 2000 which we believe provides a meaningful alternative for future empirical work on the topic the classification sheds new light on several stylized facts previously reported in the literature in particular we find that the de facto pegs have remained stable throughout the last decade although an increasing number of them shy away from an explicit commitment to a fixed regime hidden pegs we confirm the hollowing out hypothesis but show that it does not apply to countries with limited access to capital markets we also find that pure floats are associated with only relatively minor nominal exchange rate volatility and that the recent increase in the number of de jure floats goes hand in hand with an increase in the number of de facto dirty floats fear of floating

carbon abatement in the fuel market with biofuels implications for second best policies a carbon tax on fuel would penalize carbon intensive fuels like gasoline and shift fuel consumption to less carbon intensive alternatives like biofuels since biofuel production competes for land with agricultural production a carbon tax could increase land rents and raise food prices this paper analyzes the welfare effect of a carbon tax on fuel consisting of gasoline and biofuel in the presence of a labor tax with and without a biofuel subsidy the market impacts of a carbon tax are also compared with that of a subsidy findings show that if a carbon tax increases biofuel demand the tax interaction effect due to higher fuel prices is exacerbated by higher land rent and food prices and greater erosion of the carbon tax base thus the second best optimal carbon tax for fuel is lower with biofuel in the fuel mix especially if biofuel is subsidized

neo liberal reforms and illiberal consolidations the indonesian paradox market oriented policy agendas have enjoyed a remarkable influence in indonesia for almost four decades yet attempts to impose these agendas in any systematic fashion have proven uncertain and inconclusive this is not simply a case of successful resistance to reform by entrenched interests rather the deepening of market capitalism and global integration has in many instances appeared to consolidate authoritarian politics and predatory economic relationships even in the wake of economic crisis and dramatic political change these basic frameworks of power remain largely intact such paradoxes raise important questions about the relationships between markets institutions and political and social power we examine how market reforms have been resisted and even hijacked to consolidate predatory state and private oligarchies we look at the way such entrenched interests have been reorganised in the face of fundamental institutional changes including the collapse of authoritarian rule and the decentra

the alcohol program the rational for the launching of the alcohol program from sugarcane in brazil in the mid 1970 s is described as an answer to the first oil crisis as well as a solution to the problem of the fluctuating sugar prices in the international market the technical characteristics of ethanol as a fuel are given as well as a discussion of the evolution of the cost of production environmental and social consequences regarding costs ethanol production was close to 100 dollars a barrel in the initial stages of the program in 1980 falling rapidly due to economies of scale and technological progress to half that value in 1990 followed by a slower decline in recent years considering the hard currency saved by avoiding oil importation through the significant displacement of gasoline by ethanol and the decrease in the amount of external debt that the displaced oil importation was able to provide it is possible to demonstrate that the alcohol program has been an efficient way of exchanging dollar debt by national currency subsidies which are paid by the liquid fossil fuel users even with this economic gains for society the continuity of the program is difficult to maintain two solutions to this problem are discussed internal expansion of the use of ethanol and exports to industrialized countries where it could be used as an octane enhancer the main attractiveness of the program the reduction of co2 emissions as compared to fossil fuels is stressed mainly as a solution for industrialized countries to fulfill their commitments with the united nations framework climate change convention

removing distortions in the u s ethanol market what does it imply for the united states and brazil we analyze the impact of trade liberalization and removal of the federal tax credit in the united states on ethanol markets using a multimarket international ethanol model we find that u s trade barriers have been effective in protecting the ethanol industry under current policy there is separability of the u s ethanol market from world markets with trade liberalization the ethanol market deepens making it less susceptible to price volatility the effect of trade liberalization extends beyond ethanol markets affecting agricultural markets the results show that the impact of removal of the tax credit overrides the impact of the tariff removal copyright 2008 oxford university press

exchange rate volatility across financial crises abstract this paper studies the impact of global financial turmoil on the exchange rate policies in emerging countries spillovers from advanced financial markets to currencies in emerging countries are likely to be exacerbated during crisis periods to test this hypothesis we assess the exchange rate policies by currencies volatility and investigate their relationship to a global financial stress indicator measured by the volatility on global markets we introduce the possibility of nonlinearities by running smooth transition regressions over a sample of 21 emerging countries from january 1994 to september 2009 the results confirm that exchange rate volatility does increase more than proportionally with the global financial stress for most countries in the sample we also evidence regional contagion effects spreading from one emerging currency to other currencies in the neighboring area

on the form of transfers to special interests an important question in political economy concerns the form of transfers to special interests the chicago view is that political competition leads politicians to make such transfers efficiently the virginia position is that lack of information on the part of voters leads politicians to favor inefficient sneaky methods of redistribution this paper analyzes the form of transfers in a model of political competition in which politicians have incentives to make transfers to special interests it shows that when voters have imperfect information about both the effects of policy and the predispositions of politicians inefficient methods of redistribution may be employed

redistributive politics and economic efficiency the political process often compensates the losers from technical change or international competition in an economically inefficient way namely by subsidizing or protecting declining industries instead of encouraging the movement of resources to other more productive uses we find that a dynamic inconsistency in the game of redistributive politics contributes to this outcome to achieve economically efficient outcomes it is necessary that those making economically inefficient choices not be given offsetting transfers but the political process distributes income on the basis of political characteristics which are in general different from the economic characteristics that are rewarded by the market we identify circumstances in which the inefficient choosers have desirable political characteristics and are therefore immune from threats of having to face the economic consequences of their choices

estimating the influence of u s ethanol policy on plant investment decisions a real options analysis with two stochastic variables abstract u s ethanol policies have contributed to changes in the levels and the volatilities of revenues and costs facing ethanol firms the implications of these policies for optimal investment behavior are investigated through an extension of the real options framework that allows for the consideration of volatility in both revenue and cost components as well as the correlation between them the effects of policy affecting plant revenues dominate the effects of those policies affecting production costs in the absence of these policies much of the recent expansionary periods would have not existed and market conditions in the late 1990s would have led to some plant closures we also show that regardless of plant size u s ethanol policy has narrowed the distance between the optimal entry and exit curves implying a more narrow range of inactivity and indicative of a more volatile evolution for the industry than would have existed otherwise

equilibrium political budget cycles political business cycle theories generally rely on nominal rigidities and voter myopia this paper offers an equilibrium theory that preserves some basic insights from earlier models though with significant refinements the political budget cycle emphasized here is in fiscal policy rather than output and inflation it arises via a multidimensional signal process one can consider the welfare implications of proposals to mitigate the cycle and the effects of altering the electoral structure copyright 1990 by american economic association

the impact of ethanol production on us and regional gasoline markets abstract this study quantifies the impact of increasing ethanol production on wholesale retail gasoline prices employing pooled regional time series data from january 1995 to march 2008 we find that the growth in ethanol production kept wholesale gasoline prices 0 14 gallon lower than would otherwise have been the case the negative impact of ethanol on retail gasoline prices is found to vary considerably across regions the midwest region has the biggest impact at 0 28 gallon while the rocky mountain region had the smallest impact at 0 07 gallon the results also indicate that the ethanol induced reduction in gasoline prices comes at the expense of refiners profits we find a net welfare loss of 0 5 billion from the ethanol support policies in multiple markets

terms of trade and exchange rate regimes in developing countries abstract since friedman essays in positive economics university of chicago press chicago 1953 157 203 an advantage often attributed to flexible exchange rate regimes over fixed regimes is their ability to insulate more effectively the economy against real shocks i use a post bretton woods sample 1973 96 of 75 developing countries to assess whether the responses of real gdp real exchange rates and prices to terms of trade shocks differ systematically across exchange rate regimes i find that responses are significantly different across regimes in a way that supports friedman s hypothesis the paper also examines the importance of terms of trade shocks in explaining the overall variance of output and prices in developing countries

institutions and investors the politics of the economic crisis in southeast asia the most dramatic development in the international political economy during the 1990s the asian economic crisis deserves our attention given that asia s rapid economic rise spawned so many debates in the literature it is peculiar that a radical interruption to asia s economic development has not engendered more theoretical argument among political scientists economists have engaged in furious and productive debate but have been unable to deal with the political dimensions of the crisis in this article i make a strong claim about the importance of politics in explaining one of the big puzzles in the overall saga why the investment reversal was greater in some countries than in others i argue that a tight focus on political institutions yields a remarkable degree of analytic purchase in explaining why some countries coped better than others during the crisis specie cally i stress the distribution of veto authority highlighting the way this shaped the overall character of the policy environment and in turn affected investors i identify two policy syndromes rigidity and volatility that are at opposite ends of a continuum and are severely suboptimal for investors particularly during times of crisis i show that these two syndromes can be directly linked to the institutional framework of government the wider the dispersal of veto authority the greater the risk of policy rigidity conversely the tighter the concentration of veto authority the greater the risk of policy volatility these two policy syndromes bear directly on the differing responses of governments to the crisis much of the best literature on the asian crisis has come from economists and falls into one of three theoretical clusters variants of e rst generation currency crisis models that emphasize imbalances in macroeconomic fundamentals variants of

do food and oil prices co move abstract this paper studies co movements between world oil prices and global prices for corn soybean and wheat using copulas several copula models with different conditional dependence structures and time varying dependence parameters were considered empirical results for weekly data from january 1998 to april 2011 showed weak oil food dependence and no extreme market dependence between oil and food prices these results support the neutrality of agricultural commodity markets to the effects of changes in oil prices and non contagion between the crude oil and agricultural markets however dependence increased significantly in the last three years of the sampling period even though upper tail dependence remained insignificant indicating that food price spikes are not caused by positive extreme oil price changes these results have implications for policy design risk management and hedging strategies

how cynical can an incumbent be strategic policy in a model of government spending abstract when parties with different preferences compete for election strategic manipulation of state variables for electoral purposes can occur even with rational voters this paper presents a model in which government resources can be used productivity for the benefit of everybody or unproductively for the benefit of the ruling party s constituency a government more inclined to unproductive spending may choose to collect public resources inefficiently in order to produce the importance of spending decisions in the election the model highlights the strategic role of policy decisions that affect incentives and constraints faced by future governments and their impact on election results

education democracy and growth abstract this note presents a model of endogenous growth where redistribution determined by a political equilibrium is in the form of public education it is shown that there need not be a negative relationship between growth and redistribution as public education increases the level of human capital in the conomy and at the same time tends to produce a more even income distribution

determinants of exchange rate regime switching abstract exchange rate policy in many emerging markets shifts between a stronger and weaker commitment to peg this observation raises the following questions which we address in our paper does intervention policy exhibit switching and if so what causes policy to shift the theoretical literature increasingly points to the critical importance of financial fundamentals chinn m d kletzer k m 2001 imperfect information domestic regulation and financial crises in glick r moreno r spiegel m eds financial crises in emerging markets cambridge university press cambridge pp 196 237 dooley 2000 chang r velasco a 2005 monetary policy and the currency denomination of debt a tale of two equilibria kennedy school of government working paper series harvard university cambridge massachusetts among others direct empirical validation to date is limited however although relevant intuitions come from duration and indicators literature kaminsky g l reinhart c m vegh c a 2004 when it rains it pours procyclical capital flows and macroeconomic policies nber macroeconomics annual national bureau of economic research inc domac i peria m s 2003 banking crises and exchange rate regimes is there a link journal of international economics 61 41 72 tudela m 2004 explaining currency crises a duration model approach journal of international money and finance 23 799 816 we use a panel of quarterly data starting 1985 through 2004 for 14 countries mainly from latin america and east asia and adopt a novel two step empirical strategy first we apply regime switching methods to two simple indices of central bank exchange rate policy this generates likelihoods of high and low intervention in the second step we establish the variables that determine these probabilities we find strong evidence that the economy s balance sheet and economic performance determine the likelihood of switching in the exchange rate regime specifically an increase in reserve currency debt relative to assets raises potential capital losses from devaluation and reduces the probability of switching to a low intervention regime as does a decline in growth the purpose here is not to present an alternative regime classification levy yeyati e sturzenegger s 2005 classifying exchange rate regimes deeds vs words european economic review 49 1603 1635 reinhart c m rogoff k 2004 the modern history of exchange rate arrangements a reinterpretation quarterly journal of economics available at http www puaf umd edu faculty papers reinhart papers htm but to establish the relative importance of different constraints on the central bank which has policy implications the empirical approach and specification is flexible to whether intervention is discrete or gradual and to whether or not the central bank sterilizes

understanding the gains from wage flexibility the exchange rate connection we study the gains from increased wage exibility and their dependence on exchange rate policy using a small open economy model with staggered price and wage setting two results stand out i the impact of wage adjustments on employment is smaller the more the central bank seeks to stabilize the exchange rate and ii an increase in wage exibility often reduces welfare and more likely so in economies under an exchange rate peg or an exchange rate focused monetary policy our ndings call into question the common view that wage exibility is particularly desirable in a currency union

terms of trade and real exchange rates the canadian evidence abstract this paper presents empirical evidence linking the canada us real exchange rate with the terms of trade using recently developed econometric methods for nondashstationary data we find that the real exchange rate is cointegrated with terms of trade variables and that causality runs from the terms of trade to the exchange rate we then construct a simple exchange rate equation that satisfies several specification tests and performs better than a random walk in post sample forecasting experiments the results suggest that much of the variation in the real exchange rate is attributable to movements in the terms of trade and that the influence of monetary factors is secondary

implicit bands in the yen dollar exchange rate this article attempts to identify implicit exchange rate regimes for the yen dollar exchange rate to that end we apply a sequential procedure that considers both the dynamics of exchange rates and central bank interventions to data covering the period from 1971 to 2003 our results suggest that implicit bands existed in two subperiods april december 1980 and march october 1987 the latter coinciding with the louvre accord furthermore the study of the credibility of such implicit bands indicates the high degree of confidence attributed by economic agents to the evolution of the yen dollar exchange rate within the detected implicit band rate thus lending further support to the relevance of such implicit bands

why a stubborn conservative would run a deficit policy with time inconsistent preferences a conservative government in favor of a low level of public consumption knows that it will be replaced by a government in favor of a larger level of public consumption we show that the resulting level of public consumption is in between the levels the two governments would choose if each were in power both in the present and in the future in particular we show that if the conservative government is more stubborn in a particular sense than the succeeding government the conservative government will borrow more than it would had it remained in power in the future

the power to tax analytical foundations of a fiscal constitution preface 1 taxation in constitutional perspective 2 natural government a model of leviathan 3 constraints on base and rate structure 4 the taxation of commodities 5 taxation through time income taxes capital taxes and public debt 6 money creation and taxation 7 the disposition of public revenues 8 the domain of politics 9 open economy federalism and taxing authority 10 toward authentic tax reform prospects and prescriptions epilogue notes selected bibliography index

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

decompositions of corn price effects implications for feed grain demand and livestock supply this article examines how corn prices affect the demand for feed grains and the supply of livestock outputs the differential approach to the theory of the multiproduct firm is employed to examine ex ante decisions about feed grain demand and livestock supply the estimation results suggest that livestock producers have little flexibility in adjusting the demand for corn in response to an increase in corn prices the substitutable relationship between corn and distillers grains contributes to alleviating pressures on feed costs in response to high corn prices in addition the estimation results highlight that the composition of livestock supply can be altered by changes in livestock prices on the basis of the estimated elasticities the decompositions of profit maximizing input demand are conducted to examine the effects of changes in corn prices on feed grain demand and livestock supply the decomposition results reveal that an increase in corn prices reduces corn demand but raises the demand for distillers grains mainly due to the substitution effects of corn price changes the decomposition results also show that an increase in the price of corn reduces cattle supply but raises the supply of chicken and pork due to the output relationships in supply

an empirical inquiry into the role of sectoral diversification in exchange rate regime choice abstract whether sectoral diversification affects the exchange rate regime choice and the mechanisms through which this effect might work are largely unknown this study identifies two mechanisms through which sectoral diversification and exchange rate regime choice may be related namely the external shock absorption and rent seeking mechanisms a direct effect of diversification on regime choice is also hypothesized using a panel dataset covering 91 countries over the period 1985 2006 the paper runs a horse race among these potential channels the results show that diversification is associated with flexible regimes in countries experiencing greater external shocks additionally countries characterized by higher levels of corruption and lower levels of diversification opt for fixed regimes suggesting that a fixed regime may shield the powerful elites from international competition there is also weak evidence of the direct effect of diversification in adopting flexible regimes

empirical evidence on the strength of the monetary transmission mechanism in canada an aggregate approach abstract this paper examines the transmission of monetary policy in canada it emphasizes the transmission through interest rates and the exchange rate rather than through changes in monetary aggregates and provides empirical evidence on the strength of these channels using a highly aggregated structural model implications of these structural equations for the dynamic effects of monetary policy are explored through a simulation analysis

the spillover effects of biofuel policy on participation in the conservation reserve program abstract this paper studies the spillover effects of rising biofuel production on participation in the conservation reserve program landowner participation decisions are modeled using a real options framework we develop a land use decision model that captures biofuel driven structural changes in market demand and derive threshold conditions that trigger participation in the program we then quantify the impacts of biofuel production on participation at both the national and state levels using monte carlo simulations the model is also used to analyze how changes in the persistence of the biofuel production boom and in the volatility of farming returns affect conservation participation decisions policy implications of the results are discussed

dynamic interfeed substitution implications for incorporating ethanol byproducts into feedlot rations abstractthis study examines interfeed substitution with a focus on the relationship between distiller s dried grain with solubles ddgs and traditional feed grains the dynamic linear logit model is used for the empirical analysis of interfeed substitution the estimation results reveal that an increase in livestock and poultry outputs reduces the relative shares of corn and soybean meal to ddgs the estimated adjustment rate indicates that the demand for feed grains is responsive in the short run with about 37 of the long run response this study also finds that the demand for corn and soybean meal remains inelastic even in the long run showing the possibilities that livestock and poultry producers face high feed costs in response to an increase in the prices of corn and soybean meal the pressures on feed costs can be alleviated by the substitutable relationship between ddgs and corn but the substitution of ddgs for corn has a potential to provide livestock and poultry with different nutritional con

is bioenergy trade good for the environment we analyze the impacts of bioenergy trade on greenhouse gas emissions using a two good three factor model bioenergy is an agricultural good used as a substitute for fossil fuels in industry governments tax domestic pollution without international coordination we assume that northern countries have higher labor productivity than southern ones and that agriculture is less pollution intensive than industry after taxation we show that whereas southern countries impose a lower tax rate than northern ones they do not necessary have a competitive advantage in industry and that compared to autarky trade liberalization either increases or decreases worldwide emissions depending on regional comparative advantages

democratisation and growth this article challenges cross sectional findings that democracy has a negligible effect on growth we employ a new dataset of political transitions during the third wave of democratisation and examine the within effect of democratisation in countries that abandoned autocracy and consolidated representative institutions the panel estimates imply that on average democratisations are associated with a 1 increase in annual per capita growth the dynamic analysis reveals that while during the transition growth is slow in the medium and long run it stabilises at a higher level this evidence favours development theories of democratic rule and friedrich hayek 1960 s idea that the merits of democracy appear in the long run leading politicians and commentators have argued that democratisation will bring prosperity and growth into pariah and economically poorly performing countries 1 others however remain sceptical pointing to the mixed and inconclusive empirical evidence the old debate dating back to plato and aristotle on which political regime is socially and economically optimal arises again this debate is not purely academic and philosophical as it has important policy implications in the last thirty years the world has experienced an unprecedented move towards democratic institutions influential policy makers and scholars urge western authorities to foster democratic movements in totalitarian countries see the economist article philosophers and kings june 19th 2003 yet the question remains will democratisation bring economic growth to assess the average growth effect of a successful democratic transition we analyse the evolution of annual real per capita gdp growth before and after incidents of permanent democratic reform in the 1960 2003 period in our analysis we exploit a newly constructed dataset of permanent democratisations during the so called third wave of democratisation and the 1990s when many former socialist countries moved towards representative rule the panel results reveal new evidence that contrast with the previous mainly cross sectional work first conditioning on time invariant country characteristics and global shocks a permanent democratisation is associated with approximately a one half to one per cent increment in annual real per capita gdp growth second a dynamic j shaped effect emerges with considerable though not this article is a major revision of an earlier paper titled aristotle was right stable democracy fosters

the economics of brazil s ethanol sugar markets mandates and tax exemptions sugarcane in brazil is processed into sugar and or ethanol often in flex plants that can switch between the two products we develop an economic model of flex plants export demands and two domestic fuel demand curves for a blend of ethanol with gasoline consumed by conventional cars and ethanol consumed only by flex cars we analyze the market impacts of the following policies the blend mandate fixing gasoline prices below world prices the high gasoline tax and a higher tax exemption for ethanol blended with gasoline because brazilian and u s ethanol prices have become linked a change in brazilian ethanol policy or a shock in world sugar markets can now impact u s ethanol and corn prices we show that in theory each policy analyzed has an ambiguous impact on ethanol and sugar prices empirically however a low gasoline tax and a high tax exemption for ethanol used in the fuel blend reduce ethanol and sugar prices this contradicts conventional wisdom overall we find that policy reforms implemented in 2010 offset the ethanol price increase by about 27 due to outward shifts in fuel transportation and sugar export demand curves and due to a reduced sugarcane supply caused by bad weather our model illustrates the importance of brazil s ethanol policies on world commodity markets it also provides insight into how the brazilian government can adjust policies to better control domestic inflation while minimizing impacts on investment

how democracy affects growth abstract this paper introduces a new methodology to examine the empirical relationship between democracy and economic growth democratic institutions are assumed to affect growth through a series of channels we specify and estimate a full system of equations determining growth and the channel variables results suggest that democracy fosters growth by improving the accumulation of human capital and less robustly by lowering income inequality on the other hand democracy hinders growth by reducing the rate of physical capital accumulation and less robustly by raising the ratio of government consumption to gdp once all of these indirect effects are accounted for the overall effect of democracy on economic growth is moderately negative our results indicate that democratic institutions are responsive to the demands of the poor by expanding access to education and lowering income inequality but do so at the expense of physical capital accumulation

decentralization and corruption evidence across countries the relationship between decentralization of government activities and the extent of rent extraction by private parties is an important element in the recent debate on institutional design the theoretical literature makes ambiguous predictions about this relationship and it has remained virtually unexamined by empiricists the authors make a first attempt at examining the issue empirically by looking at the cross country relationship between fiscal decentralization and corruption as measured by a number of different indices their estimates suggest that fiscal decentralization in government spending is significantly associated with lower corruption moreover they find that the origin of a country s legal system for example civil versus common legal code performs extremely well as an instrument for decentralization the estimated relationship between decentralization when so instrumented and corruption is even stronger the evidence suggests a number of interesting areas for future work including investigating whether there are specific services for which decentralized provision has a particularly strong impact on political rent extraction and understanding the channels through which decentralization succeeds in keeping corruption in check

interest rate volatility in emerging markets we use high frequency interest rate data for a group of latin american and asian countries to analyze the behavior of volatility through time we focus on volatility comovements across countries our analysis relies on univariate and bivariate switching volatility models we compare the results from the switching models with those from rolling standard deviation models we argue that the switching models are superior our results indicate that high volatility episodes are in general short lived lasting from 2 to 7 weeks we also find some evidence of interest rate volatility comovements across countries

corruption and democracy abstract most models and empirical tests of the relationship between corruption and democracy assume corruption falls as democracy matures yet recent theoretical developments and case evidence suggest an inverted u relationship between the two although so far no one has tested for this relationship by drawing on a panel data set covering a large number of countries between 1982 1997 substantial empirical support is found for an inverted u relationship between the durability age of democracy and corruption fortunately the turning point in corruption occurs rather early in the life of new democracies between 10 12 years

sources of inefficiency in a representative democracy a dynamic analysis this paper studies the efficiency of policy choice in representative democracies it extends the citizen candidate model of democratic policy making to a dynamic environment equilibrium policy choices are shown to be efficient in the sense that in each period conditional on future policies being selected through the democratic process there exists no alternative current policy choices which can raise the expected utilities of all citizens however policies that would be declared efficient by standard economic criteria are not necessarily adopted in political equilibrium the paper argues that these divergencies are legitimately viewed as politicalfailures

impacts of a united states biofuel policy on new zealand s agricultural sector abstract the rise in oil prices has spurred interest in biofuels policies in the united states like the renewable fuel standard rfs have led to an expansion of ethanol production while the new zealand government has mandated a minimum level of biofuel sales the research used a partial equilibrium model of international trade to quantify the price and farmgate income effects of the us rfs policy the goal was to examine the competition between food and biofuel production and to quantify the impact of the policy on the agricultural sector in new zealand the rfs policy has a significant impact on corn prices but a small effect on livestock prices and production there thus appears to be little conflict between food and fuel uses for corn at the level of the rfs mandate new zealand s pasture based livestock sector benefits from the use of corn for ethanol production it receives better prices for its products but does not face the same input cost increases as competitors the results suggest that new zealand faces an interesting decision it could support investment in biofuels research or benefit from the biofuels boom through the indirect impacts on demand and prices for meat and milk

financial instability in latin america in this paper i deal with a number of issues related to financial instability in latin america i first discuss from a macroeconomic research perspective what i believe are some of the most important policy issues faced by the latin american nations these include the effectiveness of controls on capital inflows the effect of exchange rate depreciation on output and the international transmission of the business cycle second i argue that the economic research agenda on latin america should not ignore history in latin america more so than in any other region in the world there has been a self destructing tendency for repeating history 2003 elsevier ltd all rights reserved

land allocation effects of the global ethanol surge predictions from the international fapri model we quantify the emergence of biofuel markets and its impact on world agriculture using the multimarket multicommodity international fapri model the model incorporates trade offs between biofuel feed and food production and consumption and international feedback effects of the emergence through world prices and trade we shock the model with exogenous changes in ethanol demand first in the united states then in brazil and other countries and compute shock multipliers for land allocation decisions for important crops and countries the brazilian ethanol expansion using sugarcane has fewer consequences on existing arable land allocation than the u s ethanol expansion does using corn feedstock

how are exchange rates managed evidence of an anchor based heuristic central banks often intervene in the foreign exchange market to obtain desirable exchange rates how this is done has remained totally opaque although central banks are likely to adopt a satisficing rather than optimizing strategy as they need to intervene frequently in a timely manner under incomplete information in this paper we propose a simple exchange rate management rule that spreads the volatilities originated from the anchor currencies among the exchange rates with the domestic currency we test out this rule on 10 currencies and find the empirical evidence consistent with the proposed anchor based heuristic

the making of economic policy a transaction cost politics perspective economic policymaking as a political process the normative approach to policy analysis the positive view of political economy a synthesis the policy process in real time a theme transaction costs the transaction cost politics framework political outcomes and economic efficiency transaction cost analysis in politics mechanisms to cope with transaction costs in politics national differences two case studies to illustrate transaction cost politics tax and expenditure reform in the united states the gatt and national trade politics some reflections and suggestions some lessons for the policy process the role of the economist concluding comments appendix multiprincipal multitask agencies

the dynamics of a newly floating exchange rate the turkish case in recent years many emerging market economies have switched or are in the process of switching to a floating exchange rate regime most of these economies have a history of high inflation and a high level of foreign currency denominated debt therefore the stability of the exchange rate and the dynamics of its volatility are more crucial than before this paper analyses the dynamics of exchange rate in turkey in the aftermath of recent float in february 2001 the turkish experience is a particularly important one and provides valuable lessons for other countries as the central bank is trying to simultaneously contain the volatility of exchange rate and pursue an implicit inflation targeting policy the reported findings indicate that the central bank policies accompanied with favourable external factors were effective in taming the volatility of the exchange rate in a relatively short period of time however there is a significant real appreciation of the currency during the same period given the

ethanol and trade an analysis of price transmission in the us market abstract this paper examines the price transmission mechanisms between domestic ethanol and imported ethanol in the us market using a multivariate johansen approach the data and model support one cointegrating relationship between the prices of domestically produced ethanol imported ethanol and other relevant products gasoline crude oil and corn the rejection of weak exogeneity of the imported ethanol price and corn price implies that these two prices would adjust to changes in the price linkage those empirical findings indicate that the impact of eliminating trade barriers on the imported ethanol price would spillover to the domestic ethanol price and subsequently to corn price

the impacts of biofuel targets on land use change and food supply a global cge assessment this study analyzes the long term impacts of large scale expansion of biofuels on land use change food supply and prices and the overall economy in various countries or regions using a global computable general equilibrium model augmented by a land use module and detailed representation of biofuel sectors the study finds that an expansion of global biofuel production to meet currently articulated or even higher national targets in various countries for biofuel use would reduce gross domestic product at the global level however the gross domestic product impacts are mixed across countries or regions the expansion of biofuels would cause significant land re allocation with notable decreases in forest and pasture lands in a few countries the results also suggest that the expansion of biofuels would cause a reduction in food supply although the magnitude of the impact on food supply at the global level is not as large as perceived earlier it would be significant in developing countries like india and those in sub saharan africa agricultural commodities such as sugar corn and oil seeds which serve as the main biofuel feedstocks would experience significant increases in their prices in 2020 compared with the prices at baseline due to the expansion of biofuels to meet the existing targets

voting on the budget deficit this paper analyzes a model in which a group of rational individuals votes over the composition and time profile of public spending all voters agree that a balanced budget is ex ante optimal however if there is disagreement between current and future majorities a balanced budget is not a political equilibrium under majority rule under certain conditions a majority of the voters favors a budget deficit and the equilibrium deficit is larger the greater is the polarization among voters copyright 1990 by american economic association

distributive politics and economic growth a crude distinction between economics and politics would be that economics is concerned with expanding the pie while politics is about distributing it in this paper we analyze the relationship between the two we focus on how an economy s initial configuration of resources shapes the political struggle for income and wealth distribution and how that in turn affects long run growth our main conclusion is that inequality is conducive to the adoption of growth retarding policies we derive this result from a simple political economy model of growth and present cross country evidence consistent with it the key feature of our model is that individuals differ in their relative factor endowments we distinguish between two types of factors an accumulated factor called capital and a nonaccumulated factor called labor growth is driven by the expansion of the capital stock which is in turn determined by individual saving decisions long run growth is endogenous as the aggregate production function is taken to be linearly homogeneous in capital and productive government services taken together the provision of government services is financed by a tax on capital because government services are productive a small tax on

impacts of trade liberalizations under the uruguay round on the world sugar market the impacts of the uruguay round policy provisions on the world sugar market show that these policies will stabilize the world sugar price at slightly higher levels than in the baseline global sugar consumption will increase as a result of the income growth caused by the uruguay round economic resources will be allocated more efficiently among the sugar industries of the various countries however the impacts on the sugar industries in countries with strong producer supports will be rather small because the negotiation process of the uruguay round has accommodated the changes in sugar policies already implemented by individual countries in the past few years low cost sugar producing countries will benefit from the higher world sugar price and consumers in countries with protected markets will benefit from lower domestic prices

financial markets in times of stress abstract in this paper we examine which markets are most synchronized internationally and exhibit the greater extent of co movement we focus on daily data for four asset markets bonds equities foreign exchange and domestic money market our sample covers 35 developed and emerging market countries during 1997 1999 the extent of co movement and responsiveness to external shocks is examined in different ways to measure the response of these markets to adverse external shocks we date the peaks in domestic interest rates and bond spreads and the largest daily declines in equity prices and assess the extent of clustering around the same period we also analyze which markets show evidence of greatest co movement in general irrespective of whether there are adverse shocks or not

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

emerging floaters pass throughs and some new commodity currencies in spite of early skepticism on the merits of floating exchange rate regimes in emerging markets 8 of the 25 largest countries in this group have now had a floating exchange rate regime for more than a decade using parsimonious var specifications covering the period of floating exchange rates this study computes the dynamics of exchange rate pass throughs to consumer price indices we find that pass throughs have typically been moderate even though emerging floaters have seen considerable nominal and real exchange rate volatilities previous studies that set out to estimate exchange rate pass throughs ignored changes in policy regimes making them vulnerable to the lucas critique we find that within the group of emerging floaters estimated pass throughs are higher for countries with greater nominal exchange rate volatilities and that trade more homogeneous goods these findings are consistent with the pass through model of floden and wilander 2006 and earlier findings by campa and goldberg 2005 respectively furthermore we find that the indonesian rupiah the thai baht and possibly the mexican peso are commodity currencies in the sense that their real exchange rates are cointegrated with international commodity prices

sterilization of short term capital inflows through lower interest rates reductions in international interest rates are a major cause of capital flows to emerging economies increases in domestic interest rates are a frequent policy response to the resulting price increases this is often unsuccessful the paper suggests a theoretical explanation based on distinctive features of emerging financial markets including imperfect asset substitutability and imperfect capital mobility for some sectors of the economy it concludes that the appropriate policy response to capital inflows may be lower interest rates

food vs fuel the effect of biofuel policies the rise in food commodity prices since 2004 which reached record highs in 2008 has coincided with the tripling of corn ethanol production from 15 billion liters bl to 50 bl over the 2004 2010 period this has spurred the food vs fuel debate and raised questions about the extent to which biofuels have contributed to the increase in food crop prices estimates of the impact of observed levels of biofuel production differ widely across studies and lie between 20 and 60 hochman et al 2011 biofuel production in the united states us has surged as a result of government policies like the renewable fuel standard rfs volumetric ethanol excise tax credit veetc for blenders of ethanol and tariffs that restrict the imports of sugarcane ethanol the rfs authorized by the energy independence and security act eisa of 2007 has set ambitious targets of increasing biofuel production sixfold to 136 bl by 2022 with over 60 of it to be met by advanced biofuels produced using non corn starch based feedstocks a 0 12 liter veetc is provided to blenders of ethanol to reduce their costs of meeting the rfs while a tariff of 0 14 liter and an ad valorem tariff of 2 5 were enacted to prevent transfer of the tax credit to ethanol producers in brazil the current veetc and import tariff expired in 2011 with increasing federal debt and concerns about the impact of these policies on food and feed prices political support for the

has democracy slowed growth in asia summary has democracy slowed growth in asia while there are a number of reasons to suggest that it has no one has tested this hypothesis hypotheses linking asia s democracies and autocracies to growth are tested in a within panel regression framework that controls for country fixed effects global time fixed effects the other major variables affecting growth and for endogeneity between the right hand side regressors the democracy slows growth hypothesis is tested against the toughest counterfactual the bureaucratically capable authoritarian regimes of east asia s developmentally minded governments findings reject the democracy slows growth hypothesis and show that democracy causes growth and investment to rise

the impact of biofuel growth on agriculture why is the range of estimates so wide the rapid expansion of biofuel production has generated considerable interest within the body of empirical economic literature that has sought to understand the impact of biofuel growth on the global food economy while the consensus within the literature is that biofuel emergence is likely to have some effect on future world agricultural market there is a considerable range in the estimated size of the impact despite the importance of this topic to policy makers there has been no study that has tried to reconcile the differences among various outlook studies this paper undertakes an in depth review of some key outlook studies which quantify the impacts of biofuels on agricultural commodities and which are based on either general equilibrium ge or partial equilibrium pe modeling approaches we attempt to reconcile the systematic differences in the estimated impacts of biofuel production growth on the prospective prices and production of three major feedstock commodities maize sugar cane and oilseeds across these studies despite the fact that all models predict positive impacts on prices and production there are large differences among the studies our findings point to a number of key assumptions and structural differences that seem to jointly drive the variations we observe across these studies the differences among the pe models are mainly due to differences in the design of scenarios the presence or absence of biofuel trade and the structural way in which agricultural and energy market linkages are modeled the differences among the ge models are likely to be driven by model assumptions on agricultural land supply the inclusion of the byproducts and assumptions on crude oil prices and the elasticity of substitution between petroleum and biofuels

public policies pressure groups and dead weight costs abstract this paper presents a model of competition among special interest groups for political influence each active group exerts pressure to affect its taxes and subsidies where activities of different groups are related by the equality between total tax collections and total tax subsidies the dead weight costs and benefits of taxes and subsidies play a major role in our model an increase in the dead weight cost of taxation encourages pressure by taxpayers while an increase in the dead weight costs of subsidies discourages pressure by recipients various applications of the analysis are discussed