5 results
2 - International finance and economic development
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- By Paul Krugman, MIT and CEPR, Richard E. Baldwin, Institut Universitaire des Hautes Etudes Internationales, Genève and CEPR, William H. Branson, Princeton University and CEPR
- Edited by Alberto Giovannini, Columbia University, New York
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- Book:
- Finance and Development
- Published online:
- 05 November 2011
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- 25 March 1993, pp 11-28
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Summary
Although the 1980s was a decade of enormous activity in international financial markets, little of this activity translated into net resource transfers from capital-rich to capital-scarce countries. Indeed, as a result of the debt crisis resource transfers generally went from South to North. As the 1990s begin, however, the prospects for substantial external finance for development seems brighter, at least in some areas. In Europe, Portugal and Spain have recently attracted substantial inflows of external capital; it is widely believed, although some are sceptical, that reforming Eastern European nations may also be able to attract considerable external finance. In North America, Mexican economic reforms and the prospect of a free trade agreement have enabled that nation to resume voluntary access to the world capital market, with large inflows of direct investment in particular. In both the European and North American context, capital inflows have been widely seen both as a vote of confidence in the future economic growth of the recipients and as a key force propelling those growth prospects.
Some observers (e.g. Hale, 1991) have gone further and suggested that with the victory of the West in the Cold War, the stage is now set for a second golden age of capitalism. In this new golden age, the optimists suggest, international net capital flows may again rise to levels as a share of world product comparable to those in the pre- World War I era, and a worldwide convergence of per capita income will be the result.
17 - Commodity prices as a leading indicator of inflation
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- By James M. Boughton, International Monetary, William H. Branson, Princeton University
- Edited by Kajal Lahiri, State University of New York, Albany, Geoffrey H. Moore, Columbia University, New York
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- Book:
- Leading Economic Indicators
- Published online:
- 05 June 2012
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- 25 January 1991, pp 305-338
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Summary
Changes in commodity prices have long played an important indicative role in analyses of global economic conditions, principally because of their importance for developing countries. More than seventy countries derive at least 50 percent of their export earnings from nonfuel primary commodities; another twenty derive the majority of their export earnings from fuels (see IMF, 1988, pp. 104–5). Changes in the terms of trade for these countries typically arise largely from changes in world commodity prices. Recently, however, attention has also been drawn to the importance of changes in commodity prices as indicators of changes in inflationary conditions affecting industrial countries. For example, the World Economic Outlook recently began to include an analysis comparing percentage changes in an index of forty primary commodity prices with the aggregate inflation rate of the seven largest industrial countries (see IMF, 1988, p. 11). The task of this chapter is to examine the usefulness of commodity prices as a leading indicator of inflation in the large industrial countries as a group.
An early exponent of focusing on commodity prices in this context was Robert Hall. In his 1982 book, Hall argued in favor of basing U.S. monetary policy on a commodity standard, with the commodities chosen on the basis of the closeness of their historical fit against the cost of living. Bosworth and Lawrence (1982) also emphasized the role of commodity prices as a contributor to the rise in inflationary pressures during the 1970s.
Discussion
- Edited by Rudiger Dornbusch, Mario Draghi
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- Book:
- Public Debt Management
- Published online:
- 05 July 2011
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- 30 November 1990, pp 82-93
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Summary
This complex and interesting paper explores the relationships among the ability of a government to ‘precommit’ and the optimal degree of debt indexation and maturity structure. The paper is essentially a series of examples using a government budget constraint and a loss function, with no specified model of how the economy works, so it is not clear how general the results are. But the results are intuitively clear. Precommitment and indexation are good, but not perfect, substitutes; indexation seems to me to be a form of precommitment. With precommitment, long debt is optimal, because it allows maximum flexibility in using the inflation tax to smooth the path of the tax burden once uncertainty about shocks is resolved. Without precommitment, the optimal maturity structure becomes shorter, to reduce the temptation on the government to use the inflation tax unexpectedly.
The paper is sufficiently complex that I had to spend quite a bit of time working through the models to see the results. Part of the difficulty comes from the authors' tendency to discuss results before deriving them. But part also is in the complexity of the problems being studied. So before I come to some critical questions at the end of this comment, I will provide a brief reader's guide to the paper, going over the model, the structure of the paper, and the results.
4 - Factor mobility, uncertainty and exchange rate regimes
- Edited by Marcello De Cecco, Alberto Giovannini
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- Book:
- A European Central Bank?
- Published online:
- 05 February 2012
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- 25 May 1989, pp 95-130
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Summary
Early contributions to the theory of ‘Optimal Currency Areas’ focused on the different efficacy of stabilization policy in different nominal exchange rate regimes, and on the relevance of imperfect factor mobility to the economy's ability to respond to disturbances in the presence of nominal rigidities (Mundell, 1961; McKinnon, 1963). The debate on the desirability of fixed exchange rates has since focused on stabilization policy, disregarding the microeconomics of factor reallocation.
Issues of factor mobility have been studied in the real trade literature but, in most cases, under certainty. Recent advances in the microeconomic theory of costly reallocation under uncertainty have shown that the degree of uncertainty about the future, as well as the size of adjustment costs, is an important determinant of the propensity to reallocate resources in response to disturbances. The more uncertain is their environment, the greater should be the reluctance of rational economic agents to undertake adjustments that may ex-post be regretted.
In order to provide new theoretical foundations to the old arguments for and against nominal exchange rate stability, these partial-equilibrium insights would have to be combined with a better understanding of the sources of macroeconomic instability and of the stabilizing role of monetary policy in different exchange rate regimes. Any analysis of stabilization policy presupposed instability in the environment and should, consequently, take explicit account of uncertainty. This paper takes a first step towards this new area of research.
4 - The limits of monetary coordination as exchange rate policy
- Edited by Ryuzo Sato, Julianne Nelson
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- Book:
- Beyond Trade Friction
- Published online:
- 22 March 2010
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- 28 April 1989, pp 41-62
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Summary
Introduction: The argument outlined
Proposals for coordinating monetary policy in order to stabilize nominal or real exchange rates, or to target monetary policy on the nominal exchange rate, assume, explicitly or implicitly, that (a) exchange rate fluctuations are, on balance, harmful to the economy, and that (b) monetary policy can productively reduce the amplitude of these fluctuations. The main objective of this chapter is to examine the analytical basis and empirical evidence for these assumptions. The conclusion is that both hold only some of the time. This means that a coordination agreement would have to define when the assumptions hold, a difficult task, indeed. Further, proposals for a formal international conference to implement a coordination agreement – a “new Bretton Woods” – assume that this is at least politically feasible. Toward the end of the chapter I argue that this is not the case, and that the failed World Economic Conference of 1933 is a more apt metaphor than Bretton Woods.
Movements in the real exchange rate of the dollar have had substantial effects on employment and output in U.S. manufacturing industries. At the level of all manufacturing, the elasticity of response of employment to the real exchange rate (up is appreciation) is –0.14. Thus a real appreciation of the dollar of 60 percent from 1980 to 1985 reduced manufacturing employment by 8.4 percent, or 1.7 million jobs.