bluuebunny/crossref_metadata_2025 huggingface dataset:
Forecasting U.S. Export and Import Prices and Volumes in a Changing World Economy
Authors: Hooper Peter
Published: August 2019

During the 1970's, the prediction error of U.S. trade forecasting models has increased substantially. This increase in forecasting error can be attributed in large part to upheavels in the internaional economic environment that have latered teh historical relationships (of the 1950's and 1960's) between U.S. trade flows and their income, relative price and cyclical determints. Over the past five years, world price inflation has accelerated, and divergences in inflation rates across countries have widened, accompanied by a transition from relatively stable to sharply fluctuating exchange rates. There have also been significant changes in the cyclical behavior of economic activity in industrial countries and in the purchasing power of developing countries. This paper describes the countruction and performance of the forecasting model that follows in the tradition of partial equilibrium econometric models of U.S. trade, but with several important modifications in light of these and other recent changes in the world economy.
The Identification of Destabilizing Foreign Exchange Speculation
Authors: Kohlhagen Steven W.
Published: August 2019

Ever since Nurke's (1944) claim that speculation was destabilizing in teh 1920s French franc market, theorists and empiricists have endeavored to explain what was meant by such a claim, show how one could identify the phenomenon, and present evidence that proved or disproved its existence in a variety of markets over various same periods. With the advent of generally floating exchange rates in the 1970s, there has been renewed interest in the subject in both the avademic and popular literature.
Estimating Consumer Import Demand Equations
Authors: Berner Richard
Published: August 2019

This paper examines alternative functional forms for consumer import demand functions for multi-country trade models. Two variants are compared.
Transfers and the Price Level Under Fixed, Free, and Indexed Exchange Rates--A Monetary Approach
Authors: Hanson James A.
Published: August 2019

This paper presents a comparative statics, monetary analysis of classical transwer problem under three different exchange rate regimes--fixed, floating and indexd. Specifically it compares, under the three different exchange arrangements, (1) the degree of which an unrequited transfer is completed in a small, open economy, (2) the domestic price level and resource allocation effects of the transwer, and (3) the form taken by the under effected portion of the transwer. The first two regimes serve as standards with which compare the increasingly popular indexing scheme.
The U.S. Activities of Foreign Banks: An Analytic Survey
Authors: Terrell Henry S. , Key Sydney J.
Published: August 2019

One of the most difnificant recent developments in both international banking, and the structure of banking within the United States, has been the rapid growth in the activies of foreign banks in the United States. This growth has resulted from an expansion of the activities of banks with existing U.S. operations as well as de novo entry into the U.S. market by additional foreign banks. The U.S. offices of foreign banks currently offer a broad range banking services to both foreign and domestic customers, and their increasing importance in U.S. markets has resulted in various legislative proposals to establish a uniform Federal policy concerning their activities.
The Stability of Income and Price Elasticities in U.S. Trade, 1957-1977
Authors: Hooper Peter
Published: August 2019

The sensitivity of the U.S. economy to international influences has increased significantly over the past two decades, with a rapid expansion of U.S. trade taking palce in an environment of divergent growth and inflation rates across countries and increasingly shart fluctuations in exchange rates. These developments have elicited a growing demand for accurate forecasting and policy analysis in the international sector of the economy. However, the development and improvement of analytical techniques has not kept page with that demand.
The Macroeconomic Effects of Commondity Market Disruptions in Open Economies
Authors: Van Duyne Carl
Published: August 2019

This paper analyze the macroeconomic effects of two of the principal causes of the commodity price boom in 1973-74: bad harvests and commodity speculation. The analysis uses dynamic, fixprice-flexprice model of the world economy operating under a reime of flexible exchange rates. Equilibrium in the market for commodities, the flexprice good, is a stock equilibrium like equalibrium in financial markets, so the spot price commodities and the spot exchange rate are determined simultaneously in asset markets, and bad harvests and commodity speculation initially affect prices through asset markets, broadly defined. Through goods markets, these prices changes in turn affect trade flows, capital flows, consumption, and over time, the stocks of real and financial assets.
A Portfolio-Balance Rational-Expectations Model of the Dollar-Mark Rate: May 1973 - June 1977
Authors: Dooley Michael P. , Isard Peter
Published: August 2019

This paper presents empirical evidence that month-to-month fluctuations in the dollar-Deutschemark exchange rate conform suitably to the predictions of a portfolio-balance model with a rational expectations. Unlike monetarist models of exchange-rate behavior, our approach emphasizes that the exchange rate between two currencies depends on the relative supplies of a wide range of financial assets denominated in those currencies, not only on the relative supplies of moneys. in this context we can distinhuish between the impacts on asset supplies -- and hence on exchange rates -- of three different policy instruments: changes in teh supply of base money, fiscal budget deficites, and officical exchange-market interventions.
U.S. Offices of Foreign Banks: The Recent Experience
Authors: Terrell Henry S. , Key Sydney J.
Published: August 2019

In our paper "The U.S. Activities of Foreign Banks: An Analytic Survey," written about one year ago, we analyzed the activities of foreign banks in the United States. The paper focused on the browth of the foreign banks' U.S. activities from November 1972 to May 1977, growth that was dramatic both by itself and in comparison with the growth of large domestic banks. The earlier paper also examined the role of foreign banks in major U.S. banking centers and the ability of the foreign banks to expand their activities into more than one state.
Distributed Lag Order Determination
Authors: Meese Richard
Published: August 2019

This paper is organized as follows: parameterization problems endemic to time series models are discussed in section one. New approaches to the parameterization problems are summarized and then applied to the problem of simulataneously estimating the length and the coefficients of a distributed lat regression model. The asymptotic properties of the new estimator of the distributed lag model (DLM) are examined in section two, and the small sample properties of the estimator are examined in section three using Mote Carlo experiments.
Optimal International Borrowing with Default
Authors: Freeman Richard T.
Published: August 2019

One of the most conspicuous developments in international finncial markets in the 1970's has been the rapid expansion of private lending to developing countries. Although private capital inflows to LDCs have undoubtedly been of great assistance in financing large current-account deficits, growing concern has been expressed over the ability of LDC borrowers to repay. In light of marked increases in the debt burden of many borrowing countries, observers in the international financial community have urged that banks exercise greater caution in their lending of this type. The prospect of more frequent default has also brought to public attention the urgent neeed for more complete information on private lending to LDC's and for improved analysis of the factors that may includes country default.
Assessing International Interdependence with a Multi-Country Model
Authors: Howe Howard , Hernandez-Cata Ernesto , Stevens Guy V. G. , Berner Richard , Carr Peter , Kwack Sung Y.
Published: August 2019

Policymakers have increasinly emphasized the interdependence of the world's economies. The major of this paper is to support this position with quantitative estimates of the importance of interdependence -- in this case for the effects of the monetary and fiscal policies of Japan, West Germany and the United States. The vehicle used for the simulations presented in this paper is a multi-country econometric model recently developed at the Board of Governors of the Federal Reserve System. The results using this model confirm the quantitative importance of a number of avenues of interdependence: (1) the direct effects of policies in one country on other economies, (2) the feedbacks of a policy change on the initiating country, mediated through changes in foreign variables, and (3) the effect of endogenizing certain variables, such as exchange rates, which are essential modeling the international influences on a given economy.
The Dynamic Effects of Exchange Market Intervention Policy: Two Extreme Views and a Synthesis
Authors: Henderson Dale W.
Published: August 2019

Under a regime of managed floating, one policy instrument available to authorities is exchange market intervention policy, purchases or sales of assets denominated in foreign currency in exchange for assets denominated in home currency. SInce, in general, an economy does not reach its new long-run equilibrium immediately following an exchange market intervention, a complete analysis ofthe effects of this policy must include description of the path followed by the economy as it adjusts to its new long-run equilibrium. This paper is a study of the dynamic effects of the particular type of intervention policy, a purchase of foreign money with home money.
Expected and Unexpected Changes in Exchange Rates
Authors: Isard Peter
Published: August 2019

Although the popular press constantly attributes jumps in exchange rates to unexpected economic statistics, the economics profession has made few if any serious attempts to distinguish empirically between the expected and unexpected factors that underlie exchange-rate movements. This paper focusses on several considerations that are relevant to drawing such a distinction. Section 2 briefly reviews the theoretical basis for presumption that changes in exchange rates since March 1973 have been predominantly unexpected. Section 3 discusses the factors that underlie the term structure of exchange-rate expectations and present a diagrammatic analysis of how unexpected news about different economic variable acan lead to different types of revisions in exchange-rate expectations and to unexpected jumps in observed exchange rates. Section 4 discusses the role of the current account. Section 5 draws some conclusions for empirical research.
Dynamic Factor Demand Schedules for Labor and Capital Under Rational Expectations
Authors: Meese Richard
Published: August 2019

Dynamic factor demand schedules for labor and capital are drived assumint a representative firm maximizes the present value of expected profit when factor inputs are subject to increasing marginal adjustment costs. The analysis is an extension of Sargent's (1978) one factor model of labor demand. The derived factor demand equations are jointly estimated with the autoregressive processes for the real wage and the rental price of capital, and the cross equation restrinctions imlied by the rational expactations hypothesis are imposed. Both the order of the factor price autoregressions and the structural parameters of the models are estimated. A hypothesis thest of the overidentifying restrings results in marginal rejection of the theoretical restrictions implied by the rational expectations hypothesis.
Expected and Unexpected Changes in Exchange Rates: The Roles of Relative Price Levels, Balance-of-Payments Factors, Interest Rates and Risk
Authors: Isard Peter
Published: August 2019

One of the central unresolved questions about exchange rate determination is how to fit balance-of-payemnts flows and risk factors into a rational expectations version of the asset equilibrium model. In addressing that question, this paper begins with the view that observerd changes in exchange rates predominantly reflect revisions in expectations in response to surprising new information and distinguishes in Section 1 between different types of revisions in the term structure of exchange rate expectations. Wealth variables and exchange risk are recognized to play important roles in portfolio decisions, and Section 2 describes how this provides a place for current-account flows in asset equilibrium models of exchange rate determination. Section 3 discusses the role and limitiations of rational expectations assumptions in tying down the level of the therm sutrcture of exchange rate expectations.
Private Sector Effects of Government Expenditures on Nontraded Goods versus Direct Employment of Labor in a Small Open Economy
Authors: Johnson Ronald
Published: August 2019

In this paper an examination is made of the employment and private sector output effects of a tax-financed increase in government purchases of nontraded goods versus an increase in direct fonvernemnt employment. The investigation is made in the onctext of a small open economy model where the governement sector pay a higher real wage than does the private sector. The conclusions are that an increase in government puchases of nontraded goods will lead to higher private sector employment, higher toal employment, and highter production in the private sector than an increase in governement employment.
Modeling Bilateral Exchange Rates in a Multi-Country Model
Authors: Stevens Guy V. G. , Berner Richard , Carr Peter , Hernandez-Cata Ernesto , Hooper Peter , Howe Howard , Kwack Sung Y. , Tryon Ralph W.
Published: August 2019

The Multi-Country Model (MCM), under development in the International Finance Division at the Federal Reserve Board, is a system of linked national macro-economic models, at the center of which is a medium-sized model of the U.S. economy. Linked to it, and to each other, are models for Canada, West Germany, Japan, the United Kingdom, and an abbreviated model representing the rest of the world. The country models are connected by trade and capital flows, interest rates and prices.
Endogenous Technological Change and International Technology Transfer In a Ricardian Trade Model
Authors: Pugel Thomas A.
Published: August 2019

Issues of technology creation and the international transfer of technology are increasingly important in domestic political debate in teh leading technology-creating countries and in international polical debate between these industrial countries and the developing countries. The discussions are hampered not only by the difficulties of defininf such concepts as technology, byt also by a scarcity of existing analysis, both theoretical and empirical.
Three Roles of the Forward Foreign Exchange Market
Authors: Kawai Masahiro
Published: August 2019

This paper sutdies the behavior of a foreign exchange trader in the forward foreign exchange market. The foreign exchange trader, who may be an export/import trading merchant, an international investor, or a commerical bank portfolio manager, is assumed to receive or pay fixed amounts of domestic and foregin currencies at a specified future date. Facing an uncertain spot exchange rate that will prevail on the future maturity date, he attempts to fix his foreign currency claims or obligaions in terms of the domestic currency by entering into a forward contract. Section II discusses the expected utility maximizing behavior or a risk averse foreign exchange trader and obtains the first order condition. It is shown in Section IIthat, if the foreign exchange trader's terminal wealth derived from all soruces other than foreign exchange transactions (spot and forward) in subject to uncertainty, then his demand for forward contracting can be decomposed into three distinctive parts--pure hedgeing, speculative hedging and pure speculation. Importance of pure hedging and pure speculation has been emphasized in the literature, but the concept of speculative hedging has not been fully investigated. Effects upon pure speculation of increases in absolute risk aversion, wealth, the expected spot rate and exchange rate uncertainty will be scrutinized in Section IV.
Factors Determining Exchange Rates: The Roles of Relative Price Levels, Balances of Payments, Interest Rates and Risk
Authors: Isard Peter
Published: August 2019

The paper focuses on an accounting framework that is useful for distinguishing between the effects on exchange rates of four seperate factors: relative prices levels, balances of payments, interest rates and risk. The framework rests upon an appoximate identity, developed in Section 2, which is transformed into a behavioral model of exchange rates in Section 3-6. Section 7 reports the results of applying the model in an attempt to explain the month-to-month behavior of the US dollar versus the Deutsche Mark during the 1975-79 period. Section 8 presents a summary and some conclusions.
Exchange Intervention Policy in a Multiple Country World
Authors: Canzoneri Matthew B.
Published: August 2019

Many economists have argued that countries experiencing large financial disturbances would enjoy more employment stability if exchange rates were fixed, while countries experiencing large goods market disturbances would have more employment stability if exchange rates were flexible. The arguments are usually made within the framework of a one or two country model, and the policy options considered are generally the two extreme cases of sixed and flexible exchange rates. So how are these arguments to be interprested in a multicountry world that eschews either policy extreme? Do they tell us which countries should form a currency union and stabilize a bilateral exchange rate? Do they explain when a single country should intervene against, say, a basket of currencies? Or do they only apply to a world stabilization effort?
The British Banking System's Demand for Cash Reserves
Authors: Howard David H.
Published: August 2019

There has been considerable controbersy in the United Kingdom about the most appropriate method of conducting monetary policy. This controversy has focused on the concept of the montary base and its present and potiential usefulness as an instrument of monetary policy. This paper is intended to help resolve this controversy by analyzying an important part of the monetary system in existence in the United Kingdow during the years 1973-1978 and referred to as the "present" system in this paper. First, a brief description of the relevant aspects of the British monetary system is presented. Next, a theoretical model of the banking system's demand for cash reserves (i.e., vault cash plus cash deposits as the Bank of England_ is developed. This models is estimated and conclusions are drawn based on the empirical results. It is found that in the present British monetary system, banks' demand for cash reserves is a well-defined and well-behaved function of bank deposit liabtilities and a few other observable variables. Thus a policy of achieving monetary growth targets by means of conventional open-market operations by the Bank of England -- that is, by manipulating the supply of monetary base -- appears to eb beasible under present circumstances, asuming that the demand for the montary base by nonbanks is also well defined.
Net Foreign Asset Positions and Stability in a World Portfolio Balance Model
Authors: Henderson Dale W. , Rogoff Kenneth S.
Published: August 2019

Can a flexible exchange rate regime be unstable in the absence of destabilizing speculation? Several writers have suggested that portfolio composition alone can be a source of dynamic instability. When the residents of an open economy have net claims denominated in foreign currency, a depreciation of the home currency reaises teh home currency value of their wealth, thereby increasing their demand for home-currency assets. However, when they have net debts denominated in foreign currency, this conventional stabilizing valuation effect is reversed. A depreciation has the "perverse" effect of lowering the home currency value of wealth, thereby reducing demand for home-currency assets. Furthermore, even if home residents have a positive net foreign asset position, a depreciation of the home currency can have a destabilizing valuatoin effect if foreign residents have a genative net foreing asset position )that is, if they have net debts denominated in the currency of the home country).
Oil Price Shocks in a Portfolio-Balance Model
Authors: Caprio Gerard , Clark Peter B.
Published: August 2019

In recent years oil price increases have often been associated with downward pressure on the foreign exchange value of the dollar. This correlation has produced some confusion -- among the public, market participants, policy makers, and even some economists -- about the reasons for such a relationship. Often we have heard and read that his relationship is paradoxical, since foreing countries, such as Japan and most of Europe, are much more dependent upon imported oil than is the United States. According to this view, one would expect the dollar to appreciate the following an oil price shock. Others have stated that there is no paradox, since the fate of a country's currency depends not upon the percentage of oil imports in toal oil consumption, but rather upon the absolute number of barrels imported. It would appear that this theory of exchange-rate determination is based on flow demands and supplies of currencies arising from a non-zero currency-account balance. Since the United States imports more oil than Germany, it is hardly suprising to the adgerents of this theory that the dollar depreciates relative to the mark following an increase in the price of oil.
The Impact of an Oil Price Increase on Aggregate Supply
Authors: Johnson Karen
Published: August 2019

The impact of an exogenous increase in the price of oil on aggregate supply is felt not only through its effect on the demand for oil but also through its effects on the demand for other factors. Except under special assumptions concerning the production technology, the price of one factor is an argument in the demand for all other factors. This paper will explore the impact of an increase in the price of oil, an imported, exogenously-priced input, on the demand for labor and on lanor market equilibrium under varying assumptions aboud the behavior of wages. The response of factor demands to an oil price "shock" will then be used to infer the effect of the shock on the aggregate supply schedule. In order to obtain unambigous solutions to the analysis, specific assumptions are made concerning production condictions. The paper does nto attempt to explain fully the impact of such an oil price shock. Tather, it highlights the possibility of a discrete change in labor demand (and therefore aggregate supply) behavior in response to such a shock when production involves fixed-coefficient relationships. The results reported here suggect that pre-oil price shock experience may provide little or no useful information about the elasticity of labor demand with respect to the real wage or of output with respect to the price level in the post-oil shock world.
Empirical Exchange Rate Models of the Seventies: Are Any Fit to Survive?
Authors: Meese Richard , Rogoff Kenneth S.
Published: August 2019

This study compares structural and time series models of exchange rate determination on the basis of their out-of-sample forecasting and explanatory power. We find that a random walk model would have outperformed all the other models as a predictor of the logarihm of major-country exchange rates during the 1970's.
The Vicious Circle Argument and Its Relevance for the Italian Economy
Authors: Lubitz Raymond
Published: August 2019

Since the oil shock of 1973 the Italian economy has experienced one of the highest inflation rates in the OECD area; also, over this period, the exchange rate of the lira has depreciated sharply. IN 1974 and 1976 Italy suffered two severe external payments crises which resulted in exceptional policy measures, external financial assistance, and the external imposition of economic policy conditions.
Transitory Terms-of-Trade Shocks and the Current Account: The Case of Constant Time Preference
Authors: Obstfeld Maurice
Published: August 2019

This paper emplys a simple intertemporal optimization model to study the effects of transitory fluctuations in a small country's terms of trade. The paper's analysis centers on the currecnt-account and utility paths induced by temporary terms-of-trade movements. An infinite planning horizon is postulated so taht the long-run dynamic consequences of price disturbances may be pursued.
Speculative Hyperinflations in Maximizing Models: Can We Rule Them Out?
Authors: Obstfeld Maurice , Rogoff Kenneth S.
Published: August 2019

Knife-edge stability is a common property of dynamic monetary models assuming perfect foresight or rational expectations. These models can be closed with the assumption that the economy's equilibrium lies on the unique convergent path (the saddlepath). While this empirically plausible assumption yields sensible results, aggregative models are not specified in sufficient detail to allow one prove that the saddlepath is the unique equilibrium path. Brock and Brock and Scheinkman have advanced models in which individual preferences are more fully specified and in which, under certain conditions, the uniqueness and stability of equilibrium can be rigorously demonstrated. This paper shows that these uniqueness conditions are economically unreasonable. Therefore, the question these maximizing models address remains unresolved.
J-Curves and Stability of the Foreign-Exchange Market
Authors: Freeman Richard T.
Published: August 2019

This paper considers certain aspects of the interactions of the exchange rate and current account during the adjustment of an open economy to an exogenous shock. Its special focus is on the character of the adjustment path when the current account reacts to an exchange-rate change in a delayed and staggered fashion - i.e., with a so-called J-curve response. The sudy is motivated by the frequent observation in recent populat accounts of exchange-market developments that some currencies -- such as the yen, for example -- have been especially volatile because of the presence of pronounced J-Curve effects. According to these accounts, transactors in the foreign presssures on the exchange rate in the same direction as that of the original shift. As a result, this perverse feedback between the exchange rate and current account will generate a movement of the exchange rate in the "wrong" direction, at least until lagged, stabilizing current-account reactions come into play. Some accounts have gone further to suggest that such a process may generate endogenous cycles that overshoot the ultimate equilibrium and may even give rise to a fundamentally unstable dynamic. In the latter case, some sort of intervention or other braking device is required to maintain the system within acceptable bounds.
Structural Lags and Stability in International Macromodels
Authors: Freeman Richard T.
Published: August 2019

One of the features of many popular international macromodels that is troublesome is their apparent sensitivity to very slight changes in assumptions and intial conditions. This is especially the case for models with an asset sector in which hodlings depend on the instantaneous expected rate of change of a variable, such as the exchange rate, and in which asset holders are taken to exhibit "myopic perfect foresight" in making their forecasts. Typically these models are only conditionally stable -- i.e., if they are distrubed from equilibrium, some free variable (often the current exchange rate) must accomplish a discrete, exactly correct jump so as to put the system on its unique stable trajectory to the new equilibrium. In the strict version of these models, even the slightest deviation from this path or the smallest error in this jump will lead -- in the absence of the intervention or other bounds of the system -- to its collapse through an explosive movement of the exchange rate and other related variables.
The Role of Intervention Policy in Open Economy Financial Policy: A Macroeconomic Perspective
Authors: Henderson Dale W.
Published: August 2019

This paper is an analysis of the extent to which alternative financial stabilization policies can be expected to dampen the ffects of shocks to macroeconmic equilibrium in open economies. According to the view emphasized here intervention policy is an integral part of open economy financial policy. Intervention operations have effects on macroeconomic variables which can be distinguished from those of monetary operations. Thus the specification of a financial policy regime is not complete until both the intervention and monetary policies of the financial authorities have been described. An alternative view according to which intervention operations have no effects so that the specification of a financial policy regime requires only a description of moentary policy is also discussed briefly.
How to Borrow Reasonably
Authors: Maroni Yves
Published: August 2019

It is axiomatic that a developing country, with a limited ability to increase domestic savings, may step up its rate of real economic growth by borrowing some of the savings of other countries to supplement its own. With these borrowings, such a country may increase its imports of goods and services to undertake additional development projects. As a result, a developing country attempting to step up growth is likely to have a deficit in the current account of its balance of payments and a net capital inflow.
The Swedish Economy in the 1970's: The Lessons of Accommodative Policies
Authors: Caprio Gerard
Published: August 2019

It is agreed among economists that, in the absence of any policy response, an oil price shock in an oil-importing country will produce a (presumably) temporaru increase in both inflation and unemployment. Freeman, Johnson, Blinder, Branco-Sachs, Buiter, Gordon, Phelps, and others have put forth models in which such a stagflationary response results from higher oil prices. Rather than a mere happenstance, the promulgaion of these models was attributable to the macreconomic events which took place in most oil-importing countries following teh large oil prices hikes of the 1970s. Economists were quick to point out that an oil price shock presents policy makers with a choice, to wit, whether to accomadate the shocks or to keep policy constant in the face of the stagflationary response. Those who endorsed the existence of a short-run trade-off between inflation and unemployment typically favored some type of accommodation, while those who denied the existence of a stable, short-run trade-off argued against accomodation.
The Demand for Swiss Monetary Assets
Authors: Johnson Karen
Published: August 2019

Since the breakdown of the Bretton Woods system and the change to flexible exchange rates, the Swiss franc has come to play an increasingly important role on international financial markets. The Swiss franc is generally included among the group referred to as "newly-emerging reserve currencies," and the Swiss National Bank (SNB) is often cited as an example for others to follow in prudent monetary policy management. Since 1975 the SNB has chosen to formulate its policy objective in terms of a monetary aggregate and has, as a result, raised the international importance of fluctuations in the Swiss money supply.
Wage Contracting, Exchange Rate Volatility, and Exchange Intervention Policy
Authors: Canzoneri Matthew B. , Underwood John M.
Published: August 2019

A frictionless model of the economy, with wages and prices moving each period to clear the labor and goods markets, is generally considered to be inconsistent with certain stylized facts about the real world. In such a models, employment and output adjust immediately to any economic disturbance; there is no persistence of effects, no business cycle. Also, money in neutral in such an economy, and if monetary disturbances are the primary source of exchange rate and price level movements, the model is incapable of explaining the apparent fact that exchange rates are more volatile than prices. Dornbusch's approach to his problem was to postulate that the goods market clears more slowly than the money market. Representing price stickiness by Phillips Curve, and assuming that the money market clears instantaneously, de dervied his celebrated "overshooting" result for exchange rates.
Alternative Approaches to General Equilibrium Modeling of Exchange Rates and Capital Flows: The MCM Experience
Authors: Hooper Peter , Haas Richard D. , Symansky Steven A. , Stekler Lois E.
Published: August 2019

Nearly a decade has passed since the international moentary system shifted from a regime of relatively fixed exchange rates to one of relatively flexible exchange rates among major industrial countries. Until recently any historical sample period long enough to provide meaningful statistical inference for quarterly macroeconomic modeling of open economies had to contend with this major shift in regimes. Sufficient data is available now to focus on the dermination of quarterly movements in exchange rates in the present environment of relatively flexible rates. However, some theoretical issues concerning the structural modeling of exchange rates in macoeconomic models are yet to be resolved.
Assessing Dynamic Properties of the MCM: A Simulation Approach
Authors: Haas Richard D. , Symansky Steven A.
Published: August 2019

This paper reports some simulations with the currenct version of the Federal Reserve Board's multi-country model (MCM). This exercise was undertaken largely to learn how changes to the MCM made over the last several years have affected its simulation properties and to extend our understanding of the model's policy implications. These changes include the addition of an oil sector, some revisions of trade equations, international accounts in the U.S., revised monetary sectors in Japan and Germany, as well as the way in which exchange rates are modeled.
OPEC's Surplus and Real Interest Rates
Authors: Gray Jo Anna , Hooper Peter
Published: August 2019

The paper begins, in section II, with a theoretical analysis of the relationship between OPEC's surplus and real interest rates. The analysis in intended to show that OPEC's surplus and real interest rate are endogenous variables, and that the observed relationship between the two depends on both the types of shocks impinging on the world economic system and the pattern of economic adjustment to these shocks. The results of this theoretical analysis also indicate that the correlation between OPEC's surplus and real interst rates may be expected to be positive in some circumstanes and negative in others.
Two Essays on Monetary Policy in an Interdependent World: I. Monetary Policy Games and the Consequences of Non-Cooperative Behavior ; II. Some Aspects of the Adjustment Problem in an Interdependent World
Authors: Canzoneri Matthew B. , Gray Jo Anna
Published: August 2019

In this paper we describe the games that may be played by policy markers in two structurally identical countries following a common external shock such as the oil price increase of 1973. The analysis has two objectives. The first is to investigate the nature of the inefficiencies associated with the non-copperative Nash solutions to these games. in our framework, whether the Nash soluion is too expansionary or too contractionary depands on structural features of the world economy. These structural features have changed over the post-war period and with them, it is argued, the inefficiencies associated with the Nash outcome. Thus, our analysis of the costs of non-cooperative behavior differs from previous work, particularly that of Hamada, which places its emphasis on the preferences of policy makers.
Purchasing Power Parity and Real After Tax Interest Rate Arbitrage
Authors: Howard David H. , Johnson Karen
Published: August 2019

This paper examines the relationship between the goods market and capital market arbitrage conditions. It is shown that in a well integrated international capital market in which investors are concerned with real after tax rates of return, purchasing power parity will not necessarily hold even in the long run even if all shocks are moentary in nature. In such a world, the real exchange rate is not independent of relative inflation rates. Alternative tax regimes are investigated and some informational eimpirical evidence is presented.
Exchange Rate Dynamics with Sluggish Prices Under Alternative Price Adjustment Rules
Authors: Obstfeld Maurice , Rogoff Kenneth S.
Published: August 2019

Recent research on the asset-market approach to exchange rates has incorporated short-run Keynesian price rigidities into models assuming rational expectations. These sticky-price models generally exhibit classical properties in the long run, but allow for temporary goods-market disequilibrium in response to real and monetary shocks taht are less than perfectly anticiapted. A critical element in these models is the mechanism determining how domestic goods prices adjust over time in response both to current and disequilibrium and to expectations of future events.
The Rise and Fall of Sterling: Testing Alternative Models of Exhange Rate Determination
Authors: Edison Hali J.
Published: August 2019

The purpose of this paper is threefold. Firstly, to model short run fluctuations and analyse the long run tendencies of the dollar-pound exchange rate over the current floating period. Secondly, to point out a number of shortcomings of existing rates. Thirdly, to apply the econometric method of starting from a general model and testing for simplifications as advocated by Hendry-Mizon and Davidson et al. One salient feature of this econometric approach when modelling the exchange rate is that the hypothesis that the long-run tendency of the exchange rate is toward Purchasing Power Parity, henceforth PPP, can be tested. This test relates to the restrictiongs on the estimated coefficients and is described in detail in section III.
The Impact of Supply Side Policy Rules on Exchange Rates, Interest Rates and the Terms of Trade: An Exploration Under Alternative Price Rules
Authors: Lawrence Colin
Published: August 2019

This paper explores how exogenous shifts in the rate of disembodied technical progress and exogenous supply side policies affect the exchange rate, the terms of trade, the nominal interest rate and the anticipated real rate of return. In particular the analysis focuses on the unvertainty as to whether agents perceive the supply shock to be permanent or not. I consider the role of sudden credible policies designed to improve productivity. The type of pricing rule adopted by agents in an uncertain environment is shown to play a central role in determining how domestic and international markets respond to supply shocks. For example if all prices are fully flexible, more credible supply side policy rules will induce less volatility in both nominal and real interest rates than less credible policy regimes. Also, credible policy rules will make both the exchange rate and nominal interest rate relatively more volatile under price countracts than under full price flexibility.
Productive and Counterproductive Cooperative Monetary Policies
Authors: Rogoff Kenneth S.
Published: August 2019

The main result of this paper is that, contrary to the usual conclusion (and presumption) of earlier analyses, increased monetary policy cooperation between two governements does nto automatically increase welfare in either country. In fact, welfare in one or both countries may be higher when central banks conduct their monetary policies independently. It is true that a cooperative regime does produce better responses to certain types of unanticipated disturbances (such as supply shocks or relative shifts in aggregate demand). But when monetary policy is fully discretionary, inter-central bank cooperation can also lead to systematically higher expected rates of inflation: private sector wage setters will choose higher rates of nominal wage growth if they rationally fear that the central banks will coordinate their efforts to lower real wages and raise employment. (The conflict between wage setters and central banks is generated by some type of labor market distortion which causes the natural rate of unemployment to be too high.) Therefore, monetary policy cooperation is unambigously beneficial only in institutional frameworks which eliminate or ameliorate the central banks' credibility problem vis-a-vis wage setters.
Oil Prices Effects in Theory and Practice
Authors: Marquez Jaime R.
Published: August 2019

Our purpose in this paper is to study theoretically and empicially the effects of oil price changes allowing for its feedback effects.
A Kalecki-Keynes Model of World Trade, Finance, and Economic Growth
Authors: Darity William A. , Fitzgerald E. V. K.
Published: August 2019

Borrowing from the insights of Michal Kalecki and John Maynard Keynes, this essay presents a highly-aggregative models of the world economy that highlights the crucial role of international credit flows in the short to medium term. The center nations (or the developed industrial nations) produce and export a capital good that is used in all sectors of the world economy while the Periphery (or the developing nations) produces an export good that is used only in productive sectors at the Center. The model also includes an international banking zone that allocates credit to the Center and the Periphery--with a preference for lending to the Center. The model displays certain crucial features of international economic interdependence, while simultataneously revealing the decisive role of investment and income distribution at the Center in determining flows of world trade and finance. In addition, the model facilitates exploration of the consequences of the current massive levels of state indebtedness held by Third World countries as well as the contraditions of the current interanational "liquidity crisis."
The Effects of Exchange-Rate Variability on Output and Employment
Authors: Canzoneri Matthew B. , Clark Peter B. , Glaessner Thomas C. , Leahy Michael P.
Published: August 2019

This paper is a theoretical analysis of the effects of exchange rate variability on a firm's employment and output decisions. In section 1, two contracting models are developed and the static effects are explored. In the Gray-Fischer-Conzoneri model, only exchange rate presidation errors have effects where as in the Mussa-Taylor model anticipated exchange rate movements also have effects. In section 2, the same contracting models are used to describe the dynamic effects. The time series properties of employment and output depend upon the time series properties of the exchange rate, the cost of the adjusting factor inputs, and the form of the labor contract. Also, exchange rate volatility can be profitably exploited by an individual firm that can adjust its output to price changes each period. In section 3, the implications of risk aversion are examined. Given an increase in exchange rate variability, a risk-averse firm will reduve its scale of operations if adjustment costs prohibit its responding to realizations of the exchange rate. However, if the firm is able to adjust it labor input in response to exchange rate movements, then it may well want to increase its scale of operations Aversion to the increased risk has to be weighed against the expected profitability of being able to exploit wider fluctuations in exchange rate.
Currency Substitution, Duality, and Exchange Rate Indeterminacy: An Empirical Analysis of the Venezuelan Experience
Authors: Marquez Jaime R.
Published: August 2019

We develop a currency substitution model to explain the 400 percent depreciation of the free market exchange rate of the Venezuelan bolivar. Applying duality theory, we find that currency sunstitution is necessary condidtion for such a depreciation. Using annual data for 1960-1980, we estimate the elasticity of currency subsitution for Veneuela, and we find that this elacticity is signnificantly greater than one.
Foreign Exchange Constraints and Growth Possibilities in LDCs
Authors: Marquez Jaime R.
Published: August 2019

One characteristic that many developing countries share is the substantial government participation in the economic development process through the setting of target for output growth and the dates to achieve them. As a result, the government plays a key role in determining the speed at which the economy's capital stock adjusts to the level implied by the growth target. naturally, the setting of these growth targets invovles taking into account a number of additional factors such as the distributional effects of growth, the level of education, natural resources, and national priorities. But, the aspect that concerns us here is teh interaction between the availabliity of foreign exchange resources and the speed of adjustment of capital stock.
U.S. Banks' Lending to Developing Countries: A Longer-Term View
Authors: Terrell Henry S. , Mills Rodney H.
Published: August 2019

There was very little net new lending by U.S. banks to developing countries in 1983-84, following the heavy lending of preceding years. When non-spontaneous lending to Brazil, Mexico and some other Latin American countries is deducted, there was an absolute decline in U.S. banks' claims on these countries. However, estimates of net new lending based on charges in outstanding claims understate the amount of net new lending to these countries in 1983-84 by an amount on the order of $3-1/2 billion. This is because outstanding claims were reduced by a number of factors other than repayments; such factors included loan charge-offs, sales of claims to non-bank investors, the exercise of official guarantees, and the statistical effects of exchange rate charges. Other aspects of U.S. bank lending to develop countries in 1983-84 were an increased concentration of the outstanding claims at the largest banks, and an increased concentration of the claims towards the public sector of the borrowing countries.
Currency Substitution and the New Divisia Monetary Aggregates: The U.S. Case
Authors: Marquez Jaime R.
Published: August 2019

The purpose of this paper is to examine the extent to which the behavior of aggregate money holdings is influenced by foreign exchange considerations, an influence that has been labeled as currency substitution. Knowledge of the extent to which monies of different countries can substitute for each other is important for the design and implementation of monetary policy. However, existing empirical analyses of currency substitutions rest on official estimates of money holdings which imply an infinite elasticity of substitution between different monetary assets. Analyses of economic monetary aggregates do not impose the assumption of infinite elasticity of substitution, but no foreign exchange considerations are allowed. This paper combines both approaches into a unified explanation of money demand behavior.