bluuebunny/crossref_metadata_2025 huggingface dataset:
Deposit Insurance Assessments on Deposits at Foreign Branches of U.S. Banks
Authors: Marquardt Jeffrey C.
Published: August 2019

Under current law, domestic deposits of federally insured banks are subject to a 1/12th of one percent per annum insurance assessment, while foreign deposits are not. This paper examines the arguments for and against extending this assessment to foreign branch deposits of insured banks, which in the aggregate amount to more than $200 billion. These arguments are based on real or imagined effects on FDIC revenues, the competitive position of various types of U.S. banks, international lending, bank capital format ion, the functioning of the international interbank markets, the general efficiency of resource allocation, and the "fairness" of assessment allocations. These arguments depend critically on assumptions about the incidence of an extension of the FDIC assessment.The arguments are individually evaluated under assumptions about likely incidence effects on loan and deposit customers in a three sector--money center banks, foreign banks, and regional and smaller banks--collar banking system. In general, assuming all loan and deposit schedules are somewhat but not perfectly elastic in the neighborhood of equilibrium, the likely effects of an extension of the FDIC assessment can be summarized as follows: (1) slight increase in domestic deposit rates and volumes of U.S. and foreign-chartered banks; (2) slight decline in foreign branch deposit rates and volumes of U.S.-chartered and insured banks; (3) slight increase in deposit rates and volumes at foreign offices of foreign-chartered banks; (4) slight increase in interbank rates; and (5) slight increases in loan rates and a slight decline in the aggregate loan volume of the dollar banking system. The distribution of the decline in aggregate volume would depend on the elasticities of various Loan demand functions. It is also likely that the total deposits of the dollar banking system would decline slightly. The sectoral distribution of this effect would again depend on the elasticities of demand schedules.
Macroeconomic Instability of the Less Developed Country Economy when Bank Credit is Rationed
Authors: Spigelman David Frederic
Published: August 2019

During the early 1980s, many less developed countries (LDCs) experienced a phenomenon which is not readily explicable using conventional macroeconomic theory: accelerating inflation coupled with output contraction. Moreover, arguments based on supply shocks do not adequately explain the performance of the LOCs over this period. In explaining the apparent anomaly of accelerating inflation coupled with output contraction, the model developed here assigns an important role to the availability of bank credit.In many LDCs, the government fixes interest rates on bank deposits and loans. If rates on loanable funds are set below market clearing levels, this leads to credit rationing. Generally, firms must pay wages to workers in advance of the receipts from sales. Bank credit is needed to finance the hiring of labor when there are few alternative sources of finance. Loan availability can thus have a crucial impact on the supply of output. The credit constraint is exacerbated when the government's fiscal deficit instigates inflationary pressure. In response, households reduce deposit holdings leading to a contraction in loan availability and recession.Initially, the fiscal deficit and the money supply are assumed to be exogenously determined. Later, the analysis examines a feedback effect of inflation leading to increases in the fiscal deficit and further inflationary pressure. As inflation accelerates, individuals try to shift out of money balances and into inflation hedges contracting the real money supply, real loan availability, and output. Thus the model suggests an explanation for the vicious circle of accelerating inflation and declining output which is observed in many LDCs.
International Duopoly with Tariffs
Authors: Fisher Eric , Wilson Charles A.
Published: August 2019

This paper analyzes the effects of a tariff on price-setting duopolists who cannot segment geographically distinct markets; hence, commercial policy has effects in domestic and foreign markets. Although each firm's payoff function is discontinuous, there is a unique equilibrium for an arbitrary tariff. We find that a tariff serves to increase the profits of both the domestic and foreign producer. Moreover, the profits of both firms rise monotonically with the tariff.
The Simultaneous Equations Model with Generalized Autoregressive Conditional Heteroskedasticity: The SEM-GARCH Model
Authors: Harmon Richard
Published: August 2019

In this paper I generalize the standard simultaneous equations model by allowing the innovations of the structural equations to exhibit Generalized Autoregressive Conditional Heteroskedasticity (GARCH). I refer to this new specification as the SEM-GARCH model. I develop two estimation strategies: LIM-GARCH, a limited information estimator, and FIM-GARCH, a full information estimator. I show that these estimators are consistent and asymptotically normal. Following Weiss (1986) I show that when the errors in the SEM-GARCH process are incorrectly assumed to be conditionally normal the likelihood function is still maximized at the true parameters, given certain regularity conditions. This results in the asymptotic variance-covariance matrix being more complex than the usual inverse of the information matrix.
Econometric Modeling of Consumers' Expenditure in Venezuela
Authors: Campos Julia , Ericsson Neil R.
Published: August 2019

Starting from a theoretical model with optimizing economic agents, we develop a highly parsimonious econometric model of consumers' expenditure on non-durables and services in Venezuela for 1970-85. Disposable income, liquidity, and inflation determine expenditure in an economically sensible fashion. The empirical model is robust and has constant, well-determined parameter estimates. In specifying it, econometric methodology plays a fundamental role, and we address issues of empirical model design and evaluation, cointegration, exogeneity, policy analysis, and encompassing. Using the last concept, a large class of expectations and VAR models is found to be incompatible with the data. In particular, Hall's (1978) hypothesis (derived from the life cycle-permanent income hypothesis) that expenditure is a random walk and only predictable from its own past is firmly rejected. The empirical model provides a clear interpretation for why that is so.
International Comparisons of Labor Costs in Manufacturing
Authors: Hooper Peter , Larin Kathryn A.
Published: August 2019

This paper presents a comparative study of the level of unit labor costs in the manufacturing sectors of several countries. The paper begins by surveying earlier estimates of relative productivity and unit labor cost levels and evaluating the various methodologies that have been used in previous studies. Empirical estimates of the levels of foreign unit labor costs in dollars are derived based on labor compensation translated into dollars at nominal exchange rates and labor productivity translated into dollars at purchasing power parity exchange rates. These estimates are compared with results obtained in earlier studies. The results show that the level of unit labor costs in the United States has fluctuated significantly in recent years, predominantly with fluctuations in the nominal exchange rate. As of early 1988, unit labor costs in the United States had dropped well below the average level of other industrialized countries but were significantly above the level in a representative newly industrialized country, Korea.
Panic, Liquidity and the Lender of Last Resort: A Strategic Analysis
Authors: Donaldson R. Glen
Published: August 2019

This paper develops a model in which panics are caused by the strategic behavior of agents who temporarily monopolize the supply of privately controlled cash reserves. The decision to exercise this "monopoly power" results in localized "corners" on the money market and hence an abrupt alteration in the rate of exchange between cash and non-monetary assets. This sudden appearance of a premium on liquidity produces the dramatic increase in interest rates, decrease in security prices and wave of "contagious" bank runs which are characteristic of panics. Since the nonzero probability of a panic's occurrence reduces the expected rate of return on bank deposits, individuals respond to the threat of this outcome by hoarding otherwise productive resources. As this has the effect of reducing investmentÂ­-and therefore output, consumption and government tax revenue--deposit insurance and an institutionalized of lender of last resort (which prevents panics by ensuring that the supply of legal tender is sufficiently elastic to guarantee competitive behavior among private holders of cash reserves) emerge endogenously as the result of utility maximizing behavior.
Nominal Interest Rate Pegging Under Alternative Expectations Hypotheses
Authors: Gagnon Joseph E. , Henderson Dale W.
Published: August 2019

Nominal interest rate pegging leads to instability in an IS-LM model with a vertical long-run Phillips curve and backward-looking inflation expectations. However, it does not lead to instability in several large multicountry econometric models, primarily because these models have nonvertical long-run Phillips curves. Nominal interest rate pegging leads to price level and output indeterminacy in a model with staggered contracts and rational expectations. However, when a class of money supply rules with interest rate smoothing is introduced, and interest rate pegging is viewed as the limit of interest rate smoothing, the price level and output are determinate.
An Algorithm To Solve Dynamic Models
Authors: Coleman Wilbur John
Published: August 2019

This paper presents an algorithm to solve recursive systems, formulated in discrete or continuous time, which have an endogenous state variable. The basis of the algorithm is a fixed point equation in the function from the state variables to the control variables.
The United States as a Heavily Indebted Country
Authors: Howard David H.
Published: August 2019

According to data published by the Department of Commerce, the U.S. net international investment position (roughly the net external debt position with its sign reversed) at the end of 1987 was a negative $368 billion. This sum represents a deterioration of about $100 billion from the end-1986 level. The sharp downward plunge in the United States' net international investment position in recent years is, of course, a reflection of the large current account deficits recorded during most of the 1980s. In this paper, the U.S. net external debt position is examined and compared with the experience of other countries. The paper then proceeds to analyze the dynamic process of external debt accumulation. Concepts of external debt "stability" and "sustainable" external deficits are discussed. Next, a simulation model is developed with which various illustrative scenarios--involving alternative assumptions about exchange rates and demand growth--for the U.S. external accounts are generated and compared. Using these scenarios as background, the U.S. external adjustment process is discussed. Policy implications are then addressed, including the usefulness of focusing on the trade balance, rather than the current account, as the key indicator of external adjustment.
U.S. Policy on the Problems of International Debt
Authors: Truman Edwin M.
Published: August 2019

This paper discusses the problems of international debt from the point of the of the evolution of U.S. policy. The first section presents a brief historical review of the international debt problems of the 1980s. The next section examines the situation as of early 1989: progress as well as continuing concerns are discussed. In the final section, some thoughts on the prospects for the debt problems are presented.
A Forward-Looking Multicountry Model: MX3
Authors: Gagnon Joseph E.
Published: August 2019

This is paper discusses the theoretical structure and empirical properties of MX3, a multicountry macroeconometric model with rational expectations. MX3 is a medium-sized quarterly model of the United States, Japan, and West Germany. The primary objective of the model is to analyze the effect of fiscal and monetary rules on national economies in an international context. By incorporating rational expectations into almost all of the model's behavioral equations, MX3 takes a large step toward addressing the "Lucas critique" of model-based policy analysis.
The U. S. and U.K. Activities of Japanese Banks: 1980-1988
Authors: Terrell Henry S. , Dohner Robert S. , Lowrey Barbara R.
Published: August 2019

In addition to dominating the list of the world's largest banks, Japanese banks currently account for about two-fifths of measured international banking assets of all banks. Between year-end 1984 and year-end 1988 Japanese banks accounted for slightly over one-half of the measured growth of total international banking activity. A large proportion of their international assets are at their branches in the United Kingdom and their agency and branch offices in the United States.This paper analyzes the U.S. and U.K. activities of Japanese banks. The paper integrates the activities of the Japanese banks in these two markets with the regulatory environment for banks in Japan, with Japan's overall external financial position, as well as with business opportunities in the two host country markets. The paper concludes that the domestic regulatory environment in Japan, including restraints on interest rates, and possible quantitative restraints, has had an important impact on the activities of Japanese banks in these two foreign markets.Japanese banks appear to have adjusted to their domestic regulatory environment by using their London branches as a flexible funding source, and their branches and agencies in the United States as substitutes for their head offices in extending commercial and industrial loans to Japan-based companies as well as a substitute location for large interbank trading activities. In both markets Japanese banking offices are large net borrowers from unrelated banks because of the constraints on raising funds in their home market.
Determinants of Japanese Direct Investment in U.S. Manufacturing Industries
Authors: Mann Catherine L.
Published: August 2019

The rapid rise in Japanese owned assets in the United States and the substantial fall of the dollar against the yen naturally raises the question of whether there is a causal relationship between Japanese direct investment and the yen/dollar exchange rate.This paper contributes in two ways to the analysis of the direct investment-exchange rate link. First, it presents a hybrid model of direct investment which incorporates insights from both portfolio balance models and industrial-organization-based models of direct investment. Second, it tests and compares these three models of direct investment using data for Japanese direct investment in 12 U.S. manufacturing sectors.The results suggest that familiar I-0 determinants of industry profitability attract Japanese direct investment into U.S. manufacturing. Lower raw material costs, more profitable investment opportunities (as measured particularly by growing markets, presence of valuable patents, and more highly concentrated production structure), as well as trade barriers all significantly increase Japanese direct investment in U.S. manufacturing industries.Portfolio balance factors also affect the demand for U.S. assets. Greater Japanese internal and external savings and reduced profitability of alternative assets (including ownership stakes in Japanese domestic industries) lead to significant increases in direct investment transactions in U. S. industries.There is no evidence that the exchange rate alone is a significant determinant of Japanese direct investment in U.S. manufacturing.
Tariffs and the Macroeconomy: Evidence From the USA
Authors: Rose Andrew K. , Ostry Jonathan D.
Published: August 2019

This paper examines the macroeconomic impact of tariffs. The effects of unilateral tariff changes are reviewed in a variety of theoretical models. Three different sets of data are consistent with the hypothesis that tariff rates have no significant effect on a system consisting of the real exchange rate, the real trade balance, and real output (both foreign and domestic).
Why Hasn't Trade Grown Faster Than Income? Inter-Industry Trade Over the Past Century
Authors: Gagnon Joseph E. , Rose Andrew K.
Published: August 2019

Over the past century, the ratio of international trade to GDP has not grown substantially for most major OECD economies. We conjecture that growth in intra-industry trade has been offset by a decline in intra-industry trade. Inter-industry trade may have declined either because of biased growth in factor inputs so that factor proportions have become more similar, or because preferences have become more similar with rising per capita income.
Three-Factor General Equilibrium Models: A Dual, Geometric Approach
Authors: Irwin Douglas A.
Published: August 2019

This paper develops dual, geometric techniques for two popular three-factor general equilibrium models: the specific-factor model and the Krueger model of economic development. Several comparative static exercises from international trade theory illustrate how these models easily lend themselves to geometric exposition.
Why has Trade Grown Faster than Income?
Authors: Rose Andrew K.
Published: August 2019

Trade of the OECD countries has grown faster than income during the postwar period. This paper tests a number of different hypotheses for the observed growth in the trade/income ratio. For small open economies, increases in real output and international reserves, as well as declines in tariff rates are associated with growth in the ratio. There are important differences in the behavior of the trade ratio across time and country size.
Foreign Currency Operations: An Annotated Bibliography
Authors: Edison Hali J.
Published: August 2019

This paper is an annotated bibliography of recent research on foreign exchange market intervention. Most of the paper is devoted to empirical studies of the effectiveness of intervention.The paper describes the analytical framework within which most of this research has been conducted. Researchers have identified two principal channels through which sterilized intervention has its effects: the portfolio balance channel and the expectations or signalling channel. The great bulk of formal statistical tests of the effectiveness of sterilized intervention operating through the portfolio balance channel (influencing the relative supplies of bonds denominated in different currencies) have not found a quantitatively significant effect for sterilized intervention. In all of the much smaller number of studies of the expectations channel (influencing the expected future exchange rate), intervention has been found to have at least some statistically significant effect; most of these studies do not assess the quantitative significance of the effects that researchers found.
Is National Treatment Still Viable? U.S. Policy in Theory and Practice
Authors: Key Sydney J.
Published: August 2019

National treatment, which precludes the use of rules that discriminate between foreign and domestic firms, seeks to ensure equality of competitive opportunity for foreign firms entering or operating in a host country. National treatment is a generally accepted principle for international trade in financial services. It is the basis for commitments by the twenty-four countries belonging to the Organization for Economic Cooperation and Development (OECD) and for the current negotiations on trade in services in the Uruguay Round of the General Agreement on Tariffs and Trade (GATT). This paper provides an analysis of national treatment and alternative principles in the context of the banking sector, with the U.S. experience as an example.The first section of the paper presents a conceptual analysis of national treatment and of principles that go beyond national treatment that have been used or proposed to govern domestic market access for foreign firms. The second section discusses the development and application of the U.S. policy of national treatment in the context of the conflicting demands created by the internationalization of banking and a host-country regulatory structure that differs significantly from that of other major industrial countries. The treatment of nonbanking activities and interstate activities of foreign banks that operate banking offices in the United States are used as examples of the U.S. approach. The final section presents the conclusions.
Terms of Trade, The Trade Balance, and Stability: The Role of Savings Behavior
Authors: Gavin Michael K.
Published: August 2019

In conventional models of the open economy, the impact on the trade balance of a change in the terms of trade depends upon whether the Marshall-Lerner condition on demand elasticities is satisfied. This paper shows that, in a model which incorporates rational savings behavior, the link between the Marshall-Lerner condition and stability may survive intact or may be severed, depending upon the precise formulation of savings behavior.
In Search of the Liquidity Effect
Authors: Leeper Eric Michael , Gordon David B.
Published: August 2019

A short-run negative relationship between monetary aggregates and interest rates--the "liquidity effect"--is central to popular, political, and academic discussions of monetary policy. This paper searches for this empirical relationship. We use monthly U.S. data since 1954 to ask if the characterization of the liquidity effect is sensitive to: (i) changes in sample period; (ii) conditioning the correlations on additional variables; (iii) assuming money growth is exogenous, and (iv) treating monetary changes as anticipated or unanticipated.The correlations change significantly with each of the four variations. We conclude that a successful search for the liquidity effect requires careful identification of private and policy behavior.
EMS Interest Rate Differentials and Fiscal Policy: A Model with An Empirical Application to Italy
Authors: Craig R. Sean
Published: August 2019

This paper develops a model showing how EMS interest rate differentials are influenced by fiscal policy. For countries like Italy, with large budget deficits, the commitment to a stable EMS exchange rate can entail costly fiscal adjustment. If the government believes these costs to be excessive, it may choose to adopt a more inflationary monetary policy and realign periodically. It is this possibility that the policy of targeting the stable exchange rate will be abandoned in favor of one with periodic EMS realignments that contributes to the interest differential.Estimation of the model indicates that fiscal variables explain part of the Italian-German interest differential, and co-integration tests reveal that this relationship holds over the long-run. These results imply that the Italian-German interest differential is likely to persist in the second stage of European Monetary Union (EMU) if Italy fails to reduce its budget deficit, providing support for the view that fiscal convergence is a necessary element of EMU.
How Pervasive is the Product Cycle? The Empirical Dynamics of American and Japanese Trade Flows
Authors: Gagnon Joseph E. , Rose Andrew K.
Published: August 2019

This paper looks for dynamic patterns in international trade flows using multilateral American and Japanese data disaggregated to the four-digit SITC level. Little evidence is found of product-cycle dynamics between 1962 and 1988; rather, goods that begin the sample in surplus (deficit) tend to remain in surplus (deficit) throughout the sample.
Explaining the Volume of Intraindustry Trade: Are Increasing Returns Necessary?
Authors: Davis Donald R.
Published: August 2019

The recent theoretical literature has suggested that increasing returns to scale are necessary to account for the volume of intraindustry trade among developed economies. The present paper shows that such trade can arise quite naturally in a setting with constant returns to scale.An example is developed with "perfectly-intraindustry goods," in which countries with identical endowments and arbitrarily small technical differences nonetheless trade substantial amounts of goods of identical factor intensity. This is extended to a case with factor price equalization, fully determinate trade and the possibility of substantial intraindustry trade. Finally, we develop the simplest possible model that can give a unified account of interindustry and intraindustry trade, while allowing a straightforward comparison with standard Heckscher-Ohlin results. A striking feature of the last example is that intraindustry trade attains a maximum at a point where countries have identical factor endowment ratios.Increasing returns, in short, are not necessary to explain intraindustry trade.
Parameter Constancy, Mean Square Forecast Errors, and Measuring Forecast Performance: An Exposition, Extensions, and Illustration
Authors: Ericsson Neil R.
Published: August 2019

Parameter constancy and a model's mean square forecast error are two commonly used measures of forecast performance. By explicit consideration of the information sets involved, this paper clarifies the roles that each plays in analyzing a model's forecast accuracy. Both criteria are necessary for "good" forecast performance, but neither (nor both) is sufficient. Further, these criteria fit into a general taxonomy of model evaluation statistics, and the information set corresponding to a model's mean square forecast error leads to a new test statistic, forecast-model encompassing. Two models of U.K. money demand illustrate the various measures of forecast accuracy.
Did the Debt Crisis of the Oil Price Decline Cause Mexico's Investment Collapse?
Authors: Warner Andrew M.
Published: August 2019

This paper proposes a simple investment model that permits a test of the relative importance of Mexico's terms of trade decline, the reversal in net capital inflows, and the debt overhang, in explaining Mexico's investment decline in the early 1980's. The paper uses previously unexploited sectoral investment data between 1981 and 1985 to estimate the quantitative importance of these explanations. The data indicate that the main microeconomic mechanism driving the investment decline was the rise in the relative price of investment goods and further that the deterioration in Mexico's international terms of trade explains most of the increase in this relative price. Our preferred estimate is that about two-thirds of the investment decline was attributable to the terms of trade decline, while the termination of capital inflows explains the remaining third. The paper finds little evidence in favor of other debt crisis effects such as the debt-overhang effect or several other more subtle effects that have been proposed in the literature.
External Adjustment in Selected Developing Countries in the 1990s
Authors: Helkie William L. , Howard David H.
Published: August 2019

An analytic and accounting framework is presented for examining the evolution of the external positions of eight developing countries: Argentina, Brazil, Chile, Korea, Mexico, Peru, the Philippines, and Venezuela. The framework is used to analyze the historical paths of external debts in these countries. Then, under fairly conventional baseline specifications, and assuming that no other relevant factors change significantly, projections for the debt-export ratios in these eight developing countries are generated, using the analytic framework and a simple simulation model. The baseline projections indicate cases in which external adjustment might be warranted. Through the simulation of some alternative scenarios, the analysis then suggests ways and means of effecting the necessary adjustments, including a rough idea of what magnitudes might be involved.
Does World Investment Demand Determine U.S. Exports?
Authors: Warner Andrew M.
Published: August 2019

An important but apparently neglected fact about U.S. exports is that export variation over time is dominated by variation in exports of capital goods and industrial supplies rather than consumer goods. This fact suggests that world investment demand rather than world consumption demand may be an important yet neglected determinant of U.S. exports. This paper documents a remarkably robust statistical relationship between U.S. exports and world investment demand, and shows that controlling for world investment changes other aspects of traditional export demand equations. To the extent that world investment behaves differently than world consumption, this finding may lead to a revision of current thinking about the ultimate determinants of U.S. exports and the mechanisms through which world economic shocks are transmitted to the U.S. economy.
Fiscal Implications of the Transition from Planned to Market Economy
Authors: Craig R. Sean , Mann Catherine L.
Published: August 2019

The transition from a centrally planned to a market-based economic system should change fundamentally the roles of government and public enterprises in the East-Central European countries of Hungary, Poland, and the Czech and Slovak Federated Republic (CSFR). The size of government should diminish, and that of the private sector increase, as subsidies, which are difficult to justify at market prices, are phased out. Taxes in centrally planned economies tend to be highly distortionary relative to those in market economies, making a restructuring of the tax system desirable to improve efficiency and growth prospects. These changes, in combination with competitive pressures and the objective of eventual membership in the European Community, should cause expenditure and tax systems in East-Central Europe to resemble the Western European model. This paper attempts to establish the extent to which these systems are moving towards the Western European model and the structure of taxes and expenditures likely to result. It also identifies risks to the reform process resulting from pressures on budget balances during the transition, as tax revenues decline and countries are reluctant to phase out subsidies to unprofitable enterprises.
Stochastic Behavior of the World Economy under Alternative Policy Regimes
Authors: Gagnon Joseph E. , Tryon Ralph W.
Published: August 2019

This paper uses a multicountry econometric model with rational expectations to analyze the effects of alternative monetary policy regimes on the stability of various macroeconomic variables in the face of stochastic shocks to the economy. The policy regimes use a short-term interest-rate instrument to respond to deviations of various target variables from their targeted values. The principal conclusions are that there are significant tradeoffs between stabilizing output and stabilizing prices, and that more aggressive targeting can lead to large increases in interest-rate variability with only small reductions in the variability of the target variable.
The Adequacy of the Data on U.S. International Financial Transactions: A Federal Reserve Perspective
Authors: Stekler Lois E. , Truman Edwin M.
Published: August 2019

This paper was prepared for the meeting of the Panel on International Capital Transactions of the National Research Council (National Academy of Sciences), April 23, 1992. There are well-documented inadequacies in the data on U.S. international capital flows, cross-border holdings of assets, and investment income. In order to set priorities for data improvements, it is necessary to evaluate our needs for information, survey possible additions and alternatives to the current data collection system, and weigh the costs and benefits of proposed improvements.This paper focuses on only one facet of these issues, the needs of the Federal Reserve for more accurate and complete data on U.S. international financial transactions. The Federal Reserve uses such data in three basic areas: first, in formulating monetary policy, second, in meeting its supervisory responsibilities, and third, in analyzing the implications of economic and financial developments for the U.S. economy and financial system. The paper concludes with a set of recommendations for improving the quality, coverage, and usefulness of the data on U.S. international financial transactions.
Foreign Exchange Policy, Monetary Policy, and Capital Market Liberalization in Korea
Authors: Lindner Deborah J.
Published: August 2019

In this paper, I investigate the interactions between foreignÂ­ exchange policy, monetary policy, and developments in Korean capital markets. A large increase in Korea's external position, combined with a relatively inflexible exchange rate, led to very large potential increases in money growth between 1986 and 1989. The sterilization of the foreign exchange intervention required an unprecedented monetary tightening on other fronts--a tightening that could have created serious distortions in the financial markets had direct credit controls been utilized. Consequently, the use of open market operations, rediscount policy, and reserve requirements was expanded and adapted to be more responsive to other market rates.In addition to its sterilization efforts in 1986-89, the Korean government allowed the won to appreciate against the dollar and liberalized some capital outflows, thereby reducing the external pressure for money growth. Additionally, in March 1990, the government introduced a more flexible exchange rate system that will help reduce future external pressure on the money supply. However, because daily changes in spot rates are currently limited, pressure on the money stock may occur again if market pressures for exchange rate changes exceed the allowed bands.
Measuring International Economic Linkages with Stock Market Data
Authors: Ammer John , Mei Jianping
Published: August 2019

The covariance between domestic and foreign equity return innovations is decomposed into components associated with news about future real and financial variables. In an application to fifteen national stock markets, we find that news about future dividend growth tends to be more highly correlated than contemporaneous output measures, suggesting that there are lags in the international transmission of real economic shocks. In addition, results from a longer sample period suggest that both real and financial linkages between the U.S. and the U.K. appear to have increased after the Bretton Woods currency arrangement was abandoned in the early 1970's.
Macroeconomic Stabilization through Monetary and Fiscal Policy Coordination: Implications for European Monetary Union
Authors: Bryson Jay H.
Published: August 2019

In a two-country model, we consider the implications of monetary and fiscal policy coordination for macroeconomic stabilization. We show that the optimal regime is one of monetary and fiscal policy coordination under flexible exchange rates. In the context of the European Community, this suggests that the desire to fix exchange rates may not be costless. In addition, we show that, under an asymmetric demand shock, fiscal coordination requires a relatively high degree of flexibility in fiscal policy. This suggests that limits on the flexibility of fiscal policies, as suggested in the Delors Report, may hinder macroeconomic stabilization.
Political and Economic Consequences of Alternative Privatization Strategies
Authors: Mann Catherine L. , Lenway Stefanie , Utter Derek
Published: August 2019

The different approaches to large-scale privatization in Hungary, Poland, and the Czech Republic imply somewhat different patterns of corporate governance--that is, ownership, monitoring, and control of firms. Corporate governance affects economic incentives within the firm, and therefore economic performance of the firm. Similarly, patterns of ownership implied by the programs affect the distribution of gains from reform. Privatizing the large enterprises will importantly influence resource allocation, employment, and output. Consequently, the patterns of corporate governance embodied in the privatization strategies could affect macroeconomic performance and the development of constituencies in favor of or against continued reforms.
A Comparison of Some Basic Monetary Policy Regimes for Open Economies: Implications of Different Degrees of Instrument Adjustment and Wage Presistence
Authors: Henderson Dale W. , McKibbin Warwick J.
Published: August 2019

Monetary policy regime combinations are compared for symmetric and asymmetric temporary shocks to money demand, goods demand, and productivity. In every region, the interest-rate instrument is either kept constant or changed to eliminate (full instrument adjustment) or reduce (partial instrument adjustment) the gap between actual and desired values for an intermediate target: the money supply, nominal income, or output plus inflation. Nominal wage persistence may be absent (Contract hypothesis) or present (Phillips hypothesis and Taylor hypothesis). There are analytical and simulation results from a two-region workhorse model and simulation results from the McKibbin-Sachs Global model. The ranking of regime combinations depends not only on the ultimate target and the source of shocks but also on the degrees of instrument adjustment and wage persistence.
The Dollar as an Official Reserve Currency Under EMU
Authors: Leahy Michael P.
Published: August 2019

This paper analyzes official reserve-holding behavior in the EU countries in an attempt to assess the effect EMU might have on official holdings of dollar reserves. A wide range of projections are presented for the effect of EMU on the overall demand for reserves, some based on earlier research results and some on new estimates. In the estimation and simulation of the behavior of EU countries in the last half of the 1980s, the contributions of country-specific factors appear to swamp the systematic components that had been isolated in earlier research. Earlier research results are also used to assess the effect of EMU on the currency composition of reserves. It is argued that official dollar holdings could decline on the order of 35 percent or more from current dollar holdings, although the range of uncertainty is quite large.
Trade Barriers and Trade Flows Across Countries and Industries
Authors: Lee Jong-Wha , Swagel Phillip
Published: August 2019

We use disaggregated data on trade flows, production, and trade barriers for 41 countries in 1988 to examine the political and economic determinants of non-tariff barriers, as well as the impact of protection (both tariff and non-tariff) on trade flows. We use an econometric framework that allows for the simultaneous detennination of trade barriers and trade flows. Our results are consistent with political-economy theories of the determinants of protection: even after accounting for industry-specific factors, nations tend to protect industries that are weak, in decline, and threatened by import competition. Countries also give more protection to large industries; these might be thought of as politically important. Nations use tariffs, non-tariff barriers, and exchange rate controls as complementary instruments of protection.
The Real Exchange Rate and Fiscal Policy During the Gold Standard Period: Evidence from the United States and Great Britain
Authors: Kaminsky Graciela Laura , Klein Michael
Published: August 2019

We study the determinants of the dollar/pound real exchange rate from 1879 to 1914 focusing on the role of fiscal policy. We present a simple dynamic model of the real exchange rate to frame our analysis. The econometric results are based upon the decomposition of the sources of the innovation of the real exchange rate drawn from a structural vector autoregression model. We find little evidence that changes in tariffs and government spending affected the real exchange rate. There is some stronger empirical evidence that shocks to deficits were associated with the fluctuations in the real exchange rate.
A Distributed Block Approach to Solving Near-Block-Diagonal Systems with an Application to a Large Macroeconometric Model
Authors: Faust Jon , Tryon Ralph W.
Published: August 2019

This paper demonstrates two advantages of well-known block variants of standard algorithms for solving nonlinear systems. First, if a problem is sufÂ­ficiently close to block-diagonal, block algorithms may offer significant speed advantages on a single processor. Second, block Jacobi algorithms can easily and efficiently be distributed across multiple processors. We illustrate the use of a distributed block Jacobi algorithm to solve a large nonlinear macroeÂ­conometric model. For our application, on a four-processor Unix server, the algorithm achieves a speedup factor of more than 6 over the standard algoÂ­rithm on a single processor. A speedup factor of about 2 is due to the added efficiency of the block algorithm on a single processor, and the remaining factor of 3 results from distributing the work over four processors.
Real Shocks and Real Exchange Rates in Really Long-Term Data
Authors: Rogers John Harold
Published: August 2019

There is little consensus concerning the sources of fluctuations in real exchange rates. In this paper I assess the nature of the shocks that drive the real U.S. dollar-U.K. pound exchange rate, analyzing 130 years of data. I first show that wars, which are examples of a (transitory) real shock, are significant. I next use an alternative empirical approach, in which I identify various types of real and nominal shocks. I find that output shocks and monetary shocks account for approximately the same percentage of the variance of the real exchange rate over short horizons. The monetary shock is decomposed into monetary base and money multiplier shocks and the output shock is decomposed into supply and demand shocks. Essentially all of the effect of the combined output shock is due to the demand shock. The effect of the monetary shock is accounted for by both money multiplier shocks and monetary base shocks in roughly equal amounts. Thus, the paper suggests that the contributions of real and monetary shocks are roughly equal overall, while shedding light on the nature of those shocks.
Strategic Returns to International Diversification: An Application to the Equity Markets of Europe, Japan, and North America
Authors: Ammer John , Mei Jianping
Published: August 2019

We undertake a decomposition of the risk factor loadings of fifteen national stock market returns from 1972 to 1990, using a variant of the Campbell-Shiller (1988) linearization. We find considerable variation among countries in the relative importance of a cash flow component and a discount rate component in determining the beta with the world equity index return and with other risk factors. Also, the international heterogeneity we find in factor loadings suggests that a global portfolio allows substantial hedging opportunities, presumably deriving from differences in underlying economic structure.
Import Prices and the Competing Goods Effect
Authors: Swagel Phillip
Published: August 2019

I use disaggregated U.S. data from 1978 to 1988 to examine the impact of changes in the prices of imported manufactured goods on corresponding domestic prices--the "competing goods effect." I use an econometric specification which allows for product differentiation between domestic and imported goods, and provides measures of exchange rate pass-through and economies of scale.I find that the impact of import prices on domestic prices varies substantially by industry, with statistically significant effects in nine of nineteen two-digit SIC manufacturing categoric:s. However, even where the effects are statistically significant, they are typically small in economic terms. On the whole, I do not find support for the anecdotal evidence that firms in US manufacturing industries take advantage of the reduced competitive discipline of higher ilnport prices. Because import prices are not a substantial determinant of domestic prices in the U.S., this implies that the consequent danger of imported inflation is small.
Do Taxes Matter for Long-Run Growth? Harberger's Superneutrality Conjecture
Authors: Mendoza Enrique G. , Milesi-Ferreti Gian Maria , Asea Patrick K.
Published: August 2019

Harberger's supemeutrality conjecture contends that, although in theory the mix of direct and indirect taxes affects investment and growth, in practice growth effects of taxation are negligible. This paper provides evidence in support of this view by testing the predictions of endogenous growth models driven by human capital accumulation. Theoretical analysis highlights implications of different taxes for growth and investment in these models. The empirical work is based on cross-country regressions and numerical simulations, using a new methodology for estimating aggregate effective tax rates. Results show significant investment effects from income and consumption taxes that are consistent with small growth effects. The results are robust to the introduction of other growth determinants.
Supply-Side Sources of Inflation: Evidence From OECD Countries
Authors: Loungani Prakash , Swagel Phillip
Published: August 2019

We evaluate the merits of the "supply-side" view under which inflation results from sectoral shocks, and compare it with the "classical" view in which inflation results from aggregate factors such as variations in money growth. Using a panel VAR methodology applied to data for 13 OECD countries, we find support for a multi-shock view of inflation: supply-side shocks are statistically significant determinants of inflation, even after taking into account aggregate demand factors. While oil prices are the dominant supply-side influence, other measures such as the skewness of relative price changes are important as well. At short horizons, an innovation to skewness leads to an increase in inflation of 0.5 percentage points. As suggested by the classical view, money growth plays an increasingly important role as the time horizon lengthens.
A Century of Trade Elasticities for Canada, Japan, and the United States
Authors: Marquez Jaime R.
Published: August 2019

Virtually all that is known about the behavior of imports rests on studies estimating income and price elasticities with postwar data. But anyone examining the evolution of trade over the last century cannot avoid asking whether the postwar period provides enough information to characterize that behavior. Indeed, the literature ignoring that past offers a large range of elasticity estimates suggesting that the role of income and prices in determining imports is not known with any precision. This paper offers the first analysis ofthat role using data since 1890 for Canada, Japan, and the United States. Estimating the elasticities of the most popular model in the literature with 1890-1992 data, I find that income and prices do not affect imports whereas the opposite conclusion arises with postwar data. The difference in results stems from changes in the composition of expenditures between domestic and foreign products. As an alternative, I consider several models consistent with both optimization and the time-series properties ofthe data. These models predict substantial secular changes in income and price elasticities and confirm the importance of optimization for characterizing the behavior of imports.
Regional Patterns in the Law of One Price: The Roles of Geography vs. Currencies
Authors: Engel Charles , Rogers John Harold
Published: August 2019

We find evidence that the law of one price (LOOP) holds more nearly for country pairs that are within geographic regions than for country pairs that are not. These findings are established using consumer price data from 23 countries (including data from eight North American cities.) We find that failures of LOOP are closely related to nominal exchange rate variability, suggesting a link to sticky nominal prices. We also find that distance can explain failures of LOOP, suggesting the failures arise from imperfect market integration. However, these two sources do not explain all of the failures of LOOP. We speculate that integrated marketing and distribution systems within regions cause LOOP to hold more nearly intraregionally. We present a formal model of marketing and distribution to illustrate this hypothesis.