macroeconomic interdependence under capital controls abstract this paper studies the international transmission of monetary and fiscal disturbances under capital controls the results are contrasted with those that obtain under perfect capital mobility under perfect capital mobility permanent and unanticipated changes in domestic fiscal and monetary policies have no real effects abroad and the adjustment is instantaneous in contrast under capital controls these disturbances are transmitted abroad and adjustment occurs only over time the dynamic adjustment of the world economy is characterized by a negative co movement of domestic and foreign variables such as consumption the real interest rate and the real exchange rate

tariffs and employment an intertemporal approach this paper studies the effects of tariffs in a two period two good macroeconomic model the first period is characterized by unemployment and either nominal or real wage rigidities in the second period all prices are flexible and markets clear consumer behavior is based on intertemporal optimization the effects of a temporary and an anticipated tariff on the exchange rate and employment are derived and discussed both fixed and flexible exchange rate regimes are considered some attention is also given to alternative policies as ways of increasing employment copyright 1989 by royal economic society

dual exchange rates in europe and latin america this article uncovers some important empirical regularities surrounding the operation of formal dual exchange rates in europe and latin america in the 1970s and 1980s although there are some parallels between the european and latin american experiences there are also interesting differences in terms of the size and nature of the distortion created by two official exchange rates the response of the distortion to foreign interest rates real commercial exchange rates and domestic budget deficits and the motives for adopting this exchange rate regime empirical work on dual exchange rate regimes is made difficult by the transitory nature of these regimes and by frequent changes in institutional practices

making sense of the competitiveness debate the debate over national competitiveness is marked by some basic misperceptions with few exceptions those who use the term have a crude essentially mercantilist view of world trade in which competition among nations is just like competition between corporations not only do the authors and readers of reports on national competitiveness usually not understand comparative advantage they are unaware of the most basic adding up constraints economists however find it hard to believe that seemingly well informed people can really be this naive and assume that there must be more sophisticated ideas lying behind what they say the rationales offered by economists in turn offer false comfort to the would be sophisticates who like the term competitiveness they believe that they have transcended conventional economic theory when the fact is that they have failed to comprehend it in short the actual level of discussion is lower than any of the participants imagines copyright 1996 by oxford university press

tariff liberalization policy and financial restrictions abstract the purpose of this paper is to assess how restrictions on capital mobility affect adjustment to a tariff liberalization policy this is done by comparing the adjustment process under free and restricted convertibility of foreign assets in a regime where the commercial exchange rate is pegged it is shown that starting from an equilibrium characterized by significant scarcity of foreign assets a policy of simultaneous liberalization of both current and capital account would cause a larger drop in domestic goods prices than would the short run effects of tariff liberalization alone in such an economy the effect of liberalization of capital controls is to generate current account surplus whereas tariff liberalization generates current account deficit

tariffs capital controls and equilibrium real exchange rates a general equilibrium intertemporal model with optimizing consumers and producers is developed to analyse how the equilibrium real exchange rate rer reacts to changes in the degree of restrictions to intra and intertemporal trade in particular the effects of changes in the level of import tariffs and of changes in taxes on foreign borrowing on the path of equilibrium rers are investigated in the case of import tariffs both temporary and anticipated changes are considered it is shown that in this intertemporal framework equilibrium real exchange rates can exhibit interesting and convoluted behaviour in particular results that contradict the traditional wisdom can be obtained a number of extensions are also discussed tarifs douaniers controles sur les flux de capitaux et taux de change reels d equilibre l auteur developpe un moddle d equilibre general inter temporel dans lequel consom mateurs et producteurs optimisent pour analyser les reactions du taux de change reel d equilibre aux changements dans le degre de restriction du commerce intra et inter temporel en particulier l auteur analyse les effets de changements dans le niveau des tarifs douaniers sur les importations et des taxes sur les emprunts a l etranger sur le sentier d equilibre du taux de change reel dans le cas des tarifs a l importation l auteur examine a la fois les changements temporaires et anticipes on montre que dans ce cadre intertemporel le comportement des taux de change reels d equilibre est interessant et contournm les resultats obtenus contredisent ceux suggeres par la sagesse conventionnelle l auteur discute aussi un certain nombre d extensions de ces resultats

dynamic stability under a dual exchange rate regime with neutral intervention operations abstract this paper examines the dynamic stability under dual exchange rates with neutral intervention operations it is shown that the relationship between the stability properties and the residents net foreign asset position depends crucially on the impact of foreign assets on the current account and that regardless whether the domestic economy is in a net creditor of debtor position it is not possible for the system to have an infinite number of stable paths

competitiveness indices and developing countries an economic evaluation of the global competitiveness report developing countries policy makers worry about national competitiveness and closely watch indices ranking international competitive performance this paper analyzes from a development economics perspective if competitiveness is a legitimate concern and if the leading indices deserve the attention they get it assesses the best known index the global competitiveness report of the world economic forum and finds deficiencies at several levels its definitions are too broad the approach biased and the methodology flawed many qualitative measures are vague redundant or wrong these weak theoretical and empirical foundations reduce the value of the indices for analytical or policy purposes

adjustment policies in developing countries a reassessment this paper analyzes policy responses to external shocks of the 1973 76 and 1979 81 periods in developing economies grouped according to the level of industrialization and the policies applied it is shown that outward oriented economies relied largely on export promotion and import substitution to offset the balance of payments effects of external shocks in both periods inward oriented economies failed to apply such output increasing policies of adjustment rather they financed the balance of payments effects of external shocks by foreign loans in the 1974 76 period and had to take deflationary measures in 1979 81 when their increased indebtedness limited the possibilities for further borrowing the policies applied led to rates of economic growth substantially higher in outward oriented than in inward oriented economies with growth rates in 1983 averaging 5 percent in the first case and practically nil in the second

technology and competitiveness this paper reviews the literature on technology and competitiveness first the concept of the international competitiveness of a country and various theoretical approaches on the relationship between trade and growth are discussed then a number of empirical studies of the impact of technology as evidenced by r d patents etc on exports are examined the final section summarizes the evidence and considers the lessons for policy copyright 1996 by oxford university press

fiscal policy monetary targets and the price level in a centrally planned economy an application to the case of china this paper presents a planned economy monetary model of china a money supply equation links changes in broad money to government transactions evaluated at official prices the demand for real money balances by consumers equals the nominal demand for money deflated by an unobserved true price index the model explains money demand as the divergence between the then official and true price indices changes in the money supply are explained by government transactions while money demand is explained by real income and the anticipated true rate of inflation the true rate of inflation is 2 5 times the official rate copyright 1987 by ohio state university press

dynamic stability in a model of dual exchange rates abstract the dynamic stability of a small open economy operating under a regime of dual exchange rates is shown to depend on residents net foreign asset position this result is in contrast to the economy s dynamic behavior under unified fixed rate and flexible rate regimes where stability is unrelated to net foreign asset position

dual exchange rate systems and capital controls an investigation abstract the welfare aspects of dual exchange rate systems are analyzed in this paper the requirement that domestic financial transactions with the rest of the world be undertaken at a special foreign exchange rate is found to be equivalent to levying a tariff on this class of international transactions hence a dual exchange rate system and capital controls are shown to be essentially identical in light of the above statements the dual exchange rate system should be regarded as a form of commercial policy and be evaluated in this context by applying the applicable standard real trade theorems

measuring macroeconomic performance in the oecd a comparison of european and non european countries abstract we study the macroeconomic performance of 19 oecd countries over the period 1970 1990 performance is defined in terms of the ability of a country s macroeconomic managers to provide four services to their citizens a high level of real gdp per capita a low rate of inflation a low rate of unemployment and a favorable trade balance we use linear programming techniques to construct a best practice macroeconomic performance frontier and to measure the performance of each country in each year relative to the frontier we then add two environmental disamenities carbon and nitrogen emissions to the service list and repeat the analysis to see if the performance rankings change throughout the analysis emphasis is placed on a comparison of the performance of 14 european oecd countries with that of five non european oecd countries we find that performance rankings do change and that the relative performance of the european countries declines when the environmental disamenities are added to the service list

exchange rate regimes in transition italy 1974 in order to explain the behavior of the lira during the operation of the italian two tier exchange market in 1973 74 we develop a model of exchange rate regimes in transition on the assumption that the market will set exchange rates so as to eliminate speculative profits at the time of transition the model indicates that expectations of a transition combined with uncertainty about the nature of the post transition regime can cause a jump in exchange rates at the moment of transition as well as volatile exchange rate movements prior to the transition the model suggests that the perceived temporariness of an exchange rate regime should be treated as a market fundamental

exchange rate differential and balance of payments under dual exchange markets abstract this paper develops a model of an economy that uses two exchange markets an official market in which the exchange rate is determined by central bank intervention and a free market in which the exchange rate is determined by market forces the official market handles selected imports and exports while the free market handles the remaining imports and exports and capital transactions the model is used to discuss the effects of various policies on the differential between the free and the official exchange rates and on the balance of payments

on the methodology of the world competitiveness report abstract a nation with its natural resources human capabilities research and educational institutions government organizations financial systems and cultural and social values provides an environment in which firms are created organized and managed the competitive environment a nation provides influences the performance of its firms at home and abroad therefore it is of prime importance for both governments and firms to study the competitive environment of a country in comparison with those of the others the world competitiveness report wcr a report annually produced by the institute for management development imd and the world economic forum wef both based in switzerland is a study that rates and ranks the competitiveness of a certain group of countries oecd plus 15 newly industrialized countries and is a widely quoted study in the international media although some essence of its methodology is given for a general understanding details are not provided perhaps for proprietary reasons since the report is a commercial enterprise itself the objective of this paper is to uncover the methodology used by the wcr for this purpose the methodological information provided in the wcr is used to the fullest extent however for the steps where the information is missing or when different interpretations are possible an approach based on mathematical programming is employed to guess the methodology

measuring the national competitiveness of southeast asian countries national competitiveness is a measure of the relative ability of a nation to create and maintain an environment in which enterprises can compete so that the level of prosperity can be improved this paper proposes a methodology for measuring the national competitiveness and uses the 10 southeast asian countries for illustration the basic idea is to deconstruct the complicated concept of national competitiveness to measurable criteria the observations data on the criteria are then aggregated according to their importance to obtain an index of national competitiveness for data collected from questionnaire surveys a calibration technique has been devised to alleviate bias due to personal prejudice in data aggregation the importance is expressed by both a priori weights and a posteriori weights these two types of weights consistently show that singapore malaysia and thailand have the highest national competitiveness while myanmar cambodia and laos are the least competitive countries the performance of each country in every criteria measured also provides directions for these countries to make improvements and for investors to allocate resources

plan and market in china s agricultural commerce this article examines interactions between markets and state commercial planning in the context of china s agricultural sector it begins with a discussion of recent trends in agricultural planning and commerce in china and then presents a theoretical model that analyzes the way that a mixed commercial system of the sort observed in china functions the theoretical analysis suggests that a mixed system is sustainable and can have desirable efficiency and distributional effects markets however limit the range of sustainable plans and in the presence of markets state planning may no longer directly influence production and consumption behavior

product differentiation and the treatment of foreign trade in computable general equilibrium models of small economies this paper examines the treatment of exports and imports and external closure rules adopted in recent single country computable general equilibrium models of small economies the paper presents a simple one sector analytic model which captures the major features of the multi sector counterpart used in applied models the paper derives graphical and algebraic solutions to the model and shows that unlike some earlier external closures this one gives rise to a well behaved price taking economy the model is also useful to illustrate the role of elasticities in popular trade theoretic models that include traded and non traded goods

output effects of a tariff under flexible exchange rates abstract a tariff s impact on output is shown to depend on the asset market structure if foreigners do not hold the domestic asset as is generally assumed in the previous literature the tariff induced current account surplus creates a large enough currency appreciation that demand for domestic output falls when foreigners hold the domestic asset the current account surplus results in an international transfer of assets which allows a smaller currency appreciation the more similar are asset preferences across countries the smaller is the appreciation and therefore the greater is the likelihood that domestic output will increase

adjustment to monetary policy and devaluation under two tier and fixed exchange rate regimes abstract the purpose of this paper is to determine whether a two tier exchange rate regime is more effective than a fixed rate regime in increasing a country s ability to pursue an independent monetary policy the analysis compares adjustment to a monetary policy and to a devaluation in the two exchange rate regimes in a portfolio model under imperfect assets substitutability it is shown that a two tier exchange rate regime is capable of reducing the current account effects of monetary injection or devaluation only in the long run in the short run however we can get a larger current account response under a two tier regime these results reflect the trade off between quantity and price adjustment

money prices and the current account in a dual exchange rate regime abstract this paper examines the behavior of money prices and the current account in a dual exchange rate regime where all current account transactions take place at a pegged official rate and all capital account transactions occur at a freely floating financial rate the adjustment of a small open economy to a monetary disturbance under this regime is compared to that found under unified fixed and flexible rates the results concerning the behavior of the economy under dual rates are shown to apply also to an economy operating with fixed rates and controls on the international movement of capital

dual exchange rates capital controls and sticky prices abstract it is often argued that capital controls are an appropriate policy response to the exchange rate overshooting which occurs when asset markets adjust more rapidly than goods markets in this paper an intertemporal disequilibrium model of an open economy is developed in which the effect of capital controls is examined the results are contrasted with recent studies by adams and greenwood 1985 and obstfeld 1986 in which capital controls are evaluated within a purely equilibrium framework and thus inevitably take the form of a welfare reducing distortion

special exchange rates for capital account transactions the governments of developing countries are constrained in the effective implementation of domestic policy by the interlinkages of national and international financial markets domestic macroeconomic conditions are influenced by the interaction of national and world interest rates and prices and through the impact of real exchange rates on employment the domestic responses to changes in these factors are often strong and rapid this article suggests that dual rates can indeed be used successfully as a strictly transitory policy to offset sudden shocks in capital markets the article develops models which indicate why these dual systems are able to prevent inflationary or recessionary pressures caused by a misaligned exchange rate in the short term while free capital account rates can cut the flow of capital flight however a dual rate system cannot prevent a possibly equivalent loss of foreign reserves that will ultimately result because of the impact of the overvaluation of the commercial rate on the trade balance in the longer term a dual rate system with a misaligned commercial rate exacerbates the government s deficit ultimately real wages must be cut and real interest rates raised to generate sufficient foreign exchange to finance the external debt thus a dual rate works well if the commercial rate is maintained close to the equilibrium level

the short run impact of fluctuating primary commodity prices on three developing economies columbia ivory coast and kenya abstract computable general equilibrium models are used to study the short run impact of fluctuating primary commodity prices on the economies of columbia ivory coast and kenya the results indicate that these economies are destabilized by primary commodity price fluctuations unless governments act to hold real domestic absorption constant to achieve this however would require foreign exchange reserves in excess of the level normally available to these governments for the purpose of stabilizing domestic economic activity

oil price shocks and policy responses in the post reform chinese economy this study analyses the impact of the 1986 oil price shock on china and the policy options for accommodating the shock a computable general equilibrium model is used to capture the complex interactions in the chinese economy in response to the shock interpreted in the theoretical framework of the booming sector model the results of the model provide insights on both the real and monetary effects of the shock and suggest that a combination of policy instruments such as a cut in real absorption depreciation of the official exchange rate and tight monetary control are required to facilitate adjustment

the assessment international competitiveness the concept of international competitiveness as applied to national economies is a popular one politicians businessmen and economists alike re fer to it in day to day discussion when looking at the external export import market share or trade balance performance of different countries indi cators are produced showing changes in or levels of various countries competitiveness e g the relative price or cost indices regularly published by the imf and the oecd or the absolute measures produced by organizations such as the geneva world economic forum and the lausanne institute for management development governments of ten instigate research on the matter as for instance in the case of the 1993 us competitiveness policy council orthe 1995 eu competitiveness advisory group yet it has recently been argued by paul krugman that competitiveness is a meaningless word when applied to national economies and the obsession with competitiveness is both wrong and dangerous krugman 1994 p 44 apositionkrugman forcefully reaffirms in his contribution to this issue of the oxford review of economic policy

monetary policy under dual exchange rates abstract this paper finds that the introduction of dual exchange rates gives the monetary authority greater independence from external constraints than it would otherwise enjoy the monetary authority is able to influence the level of aggregate demand in the short run and to sterilize the effects of temporary foreign disturbances in addition the paper finds that dual rates insulate the domestic economy fully from foreign interest rate changes but do not provide insulation from speculative disturbances

the balance of trade and exchange rates theory and contemporary evidence from tourism abstract the purpose of this study is to investigate the effects of exchange rate depreciations and appreciations on the tourism trade balance specifically we employed linear and nonlinear autoregressive distributed lag ardl cointegration techniques to analyze the extent to which currency depreciations and appreciations affect the united states u s bilateral tourism trade with canada mexico and the united kingdom u k the results showed that the depreciation of the u s dollar subsequently improves the u s trade balance with all three trading partners however while the appreciation of the u s dollar deteriorates the u s bilateral tourism trade balance with canada and the u k it does not ultimately affect the u s bilateral tourism trade with mexico in the long term these results provide evidence contradicting the j curve theory supporting the postulations of the ml condition theoretical and policy implications are discussed within the realms of j curve theory marshall lerner ml condition international trade and tourism

insulation properties under dual exchange rates this paper reviews the insulation properties of a dual exchange rate regime it is shown that in general a dual regime is not successful in insulating the economy from monetary and real shocks of domestic and foreign origin the existence of incomplete segmentation of markets as well as the role played by real exchange rate changes as channels of transmission of disturbances to real equilibrium output are discussed

stabilisation strategies in primary commodity exporting countries a case study of chile abstract a range of stabilisation options are considered to enable the chilean economy to accomodate a reduction in world copper prices these include macroeconomic wage and trade devaluation protection export subsidies policies using a multisectoral model the paper checks the ability of these option to reach employment and current account targets while quantifying their implications for other macroeconomic and structural variables each option is efficient in some degree in meeting one target while violating the other external and internal equilibrium cannot however be simultaneously achieved without cuts in both money wages and real absorption trade policies in themselves are insufficient

asset markets exchange rates and economic integration a synthesis preface part i introduction 1 an agenda part ii modeling an open economy 2 the structure of the model 3 solving the model 4 comparative statics goods market disturbances 5 comparative statics asset market and compound disturbance 6 dynamics under pegged and flexible exchange rates part iii extending the model 7 claims caveas and simplifications 8 on money income and insulation 9 expectations speculation and exchange rate stability 10 on the specification of fiscal policy part iv analyzing interdependence 11 a two country model 12 similarities and symmetries in goods and asset markets 13 comparative statics in the two country model part v the theory of financial integration 14 dimensions of integration 15 market integration interdependence and monetary policy under pegged exchange rates 16 the analytics of a monetary union 17 market integration interdependence and fiscal policy under pegged exchange rates 18 fiscal policy in a monetary union appendixes glossary index

dual exchange rates under pegged interest rate and balance of payments crisis this paper develops a model of dual exchange rates and pegged interest rate it shows that under perfect asset substitutability the financial exchange rate dynamics is unrelated to current account imbalances it also demonstrates that if the emergence of a current account deficit is expected to give rise to a devaluation of the commercial exchange rate there will be an instantaneous depreciation of the financial exchange rate and further depreciation along the adjustment path this is in sharp contrast to the established result that under dual rates a current account deficit is associated with an appreciating financial rate jel e52 f31

a stochastic model of incomplete separation between commercial and financial exchange markets abstract this paper constructs a framework that is suitable for the analysis of a dual exchange market regime characterized by intermarket leakage the model incorporates the fact that in reality certain proportions of both trade account and service account items are settled in the financial market on account of both legally sanctioned leakage and fraudulent transactions the model is utilized to investigate the dynamic and static properties of the economy with respect to the degrees of export import and service account leakage as well as with respect to other parameters of interest

trade and capital account liberalization in a keynesian economy this paper analyzes the process of trade and capital account liberalization in a keynesian framework with unemployed resources previous studies on this subject have ignored the potential interactions between the liberalization process and the pre existing distortions in the economy this paper derives the optimal liberalization policy given the keynesian context and solves for explicit formulas for the import tariffs and the capital account tax in a two period general equilibrium model it is argued that a trade reform is likely to have recessionary effects in the short run if the capital account has already been liberalized

insulation properties of a two tier exchange market in a portfolio balance model when countries peg their currencies to those of their major trading partners they expose themselves to interest sensitive and speculative capital flows that can undermine their ability both to maintain their exchange rate and to pursue an independent monetary policy some countries notably france italy and the belgo luxembourg economic union bleu experimented with two tier exchange rates in the early 1970s in the hopes of insulating their economies from the effects of international capital flows while at the same time protecting foreign trade from exchange rate fluctuations france and italy soon abandoned the experiment but the bleu continues to maintain separate exchange markets with separate exchange rates for current and capital account transactions the commercial exchange rate which relates to the market for current account transactions is generally pegged by the authorities the financial exchange rate determined in the market for capital account transactions is usually free to fluctuate 1 this paper investigates how well a two tier exchange market insulates a small open economy from foreign disturbances taking into account recent developments in the theory of exchange rate determination work by branson 1977 dornbusch 1976 and kouri 1976 suggests that the short run equilibrium value of the exchange rate is determined along with interest rates by demand and supply in the markets for financial assets this asset market or portfolio balance approach to exchange rate determination is particularly well suited to a study of the two tier exchange market one can view the financial exchange rate as a relative asset price it is among the variables that equilibrate asset markets and it is determined in the short run in those asset markets previous theoretical work on the two tier exchange market has generally been within the mundellian framework the financial exchange rate has been treated as equating a flow demand and supply of foreign exchange the asset market approach has the advantage of carefully distinguishing between stocks and flows in particular it treats demands for assets as stock demands that are realized instantaneously so that actual holdings of assets always reflect the desired composition of the portfolio disturbances to portfolio equilibrium create immediate stock adjustments as portfolios are rebalanced causing instantaneous changes in endogenous market clearing variables in addition disturbances alter the rate of accumulation the flow of financial assets over time portfolio balance models of two tier exchange rates can be found in dornbusch 1976 and decaluwe and steinherr 1976 but they differ from the one presented here dornbusch partitioned the exchange market so that interest income a current account transaction was channelled through the financial market that segmentation yields a different expected rate of return on foreign

exchange rate regime reforms with black market leakages abstract many countries have multiple exchange rate regimes with black or secondary currency markets operating alongside an exchange rate pegged or determined in interbank or auction markets leakages occur across these markets necessitating careful analysis of the dynamic effects of numerous policy instruments using a model with multiple exchange rates and leakages we trace the dynamic effects on official and parallel foreign exchange markets of exchange rate unification changes in foreign exchange surrender requirements taxes on trade and capital account transactions and official exchange rate devaluation simulations based on russia s recent experience demonstrate the qualitative importance of the results

a dynamic model of tariffs output and employment under flexible exchange rates abstract a portfolio balance model of the open economy with imperfectly flexible wages and rational expectations is used to analyze the macroeconomic effects of commercial policy previous analyses have led to the counterintuitive and almost inconceivable conclusion that under flexible exchange rates a tariff is contractionary by considering a tariff in a dynamic setting and focusing on the process of adjustment it is shown that there may exist a tradeoff between a tariffs short run and long run effects in certain circumstances a tariff imposed under flexible exchange rates increases output and employment initially while reducing them subsequently