Giving and Receiving Foreign Aid: Does Conflict Count?

Of what relative importance are strategic motivators for bilateral aid donors, and how important is a recipient’s geographic proximity to conflict relative to previously examined economic and political motivators? We find that donors have historically responded to balanced incentives to reduce recipient poverty and further donor political and economic goals. Every bilateral donor conditions aid on conflict. The United States allocates large amounts of development aid to countries bordering a conflict, both pre- and post-Cold War. However, controlling for development levels and donor economic and political interest, most donors reduce aid to a recipient with an in-house or nearby intense conflict.     

Motivation Models of Australia's Bilateral Aid Program: The Case of Indonesia∗

This paper is concerned with the question: what motivates Australia's provision of overseas aid to Indonesia? The econometric results on time series data obtained by testing a recipient need and a donor interest model suggest both these concerns are relevant to Australian aid decisons on Indonesia To determine which model dominates, non-nested tests were conducted; these indicated acceptance of the recipient need model and rejection of the donor interest model. Thus Australia's aid to Indonesia was found to be determined by recipient need rather than donor interest.     

An Evaluation of Friedman's Monetary Instability Hypothesis

In this article, I examine what I call Milton Friedman's Monetary Instability Hypothesis. Drawing on Friedman's work, I argue that there are two main components to this view. The first component is the idea that deviations between the public's demand for money and the supply of money are an important source of economic fluctuations. The second component of this view is that these deviations are primarily caused by fluctuations in the supply of money rather than the demand for money. Each of these components can be tested independently. To do so, I estimate an otherwise standard New Keynesian model, amended to include a money demand function consistent with Friedman's work and a money growth rule, for a period from 1875 to 1963. This structural model allows me to separately identify shocks to the money supply and shocks to money demand. I then use variance decompositions to assess the relative importance of shocks to the supply and demand for money. I find that shocks to the monetary base can account for up to 28% of the fluctuations in output whereas money demand shocks can account for less than 1% of such fluctuations. This provides support for Friedman's view.     

Money,inflation, and output growth: Does the aggregate demand-aggregate supply model explain the international evidence?

Money, Inflation, and Output Growth: Does the Aggregate Demand-Aggregate Supply Model Explain the International Evidence? - Using annual post-war data for 32 countries, it is shown that output and the price level are positively related along the aggregate supply and negatively related along the aggregate demand curve. This implies that the negative correlation between inflation and growth simply means that the price level has been countercyclical as aggregate supply shocks domi-nated aggregate demand shocks. It is also shown that money growth has positive and permanent effects on inflation, but may affect output only in the short run: in the long run, money is probably neutral.     

Nominal Wage Contracts, Adjustment Costs and Real Persistence of Monetary Shocks

This paper describes a model in which monetary shocks have persistent real effects. Starting from the limited participation model of Christiano (1991) with capital adjustment costs as suggested by Dow (1995) it is confirmed that costs of equipment installation and restrictions on consumer portfolio choices alone cannot account for the observed effects of monetary policy. However, after introducing nominal wage contracts as a third friction, the model generates real effects of monetary shocks. It is shown that these real effects are highly persistent for a realistic size of adjustment costs and strongly autocorrelated money growth shocks which are typical for Europe.     

Dynamics of Money Market Interest Rates in Ghana: Time-Frequency Analysis of Volatility Spillovers

As the second longest practicing inflation targeting economy in Africa, it is of interest to investigate the degree to which policy interest rate influences other money market rates so as to gauge the overall effectiveness of monetary policy transmission in Ghana. This study evaluates the degree of connectedness among money market rates and also determines the most dominant money market rate(s) in Ghana. The basic finding is that the monetary policy rate has a low-to-moderate influence on volatility dynamics of other money market rates in Ghana across historical time-interval and time-frequency domains. This is a reflection of a generally weak capability of policy interest rate to drive other market rates in Ghana. Both monetary policy rate and Treasury bill rate are net transmitters of shocks, while interbank, lending and saving rates are net receivers of shocks in the money market. However, the Treasury bill emerges as the largest shock transmitter in the money market, across all forecast horizons and analytical domains. The lending rate is the largest shock recipient in the money market, largely from the Treasury bill rate which suggests ample evidence of fiscal dominance in Ghana. The study accentuates the exigency for monetary and fiscal policies to expeditiously address the domestic structural bottlenecks, especially in the financial sector and the fragile fiscal profile, in order to strengthen policy transmission in Ghana.     

价格非平衡变化的机理：一个新凯恩斯主义的解释

本文构建了一个具有粘性价格的一般均衡模型，分析不同商品价格非平衡变化的现象。分析表明，当经济中不同商品的价格调整具有异质性时，货币冲击将导致灵活价格产品的价格水平变化超过货币增长率，表现为不同的商品价格调节快慢不同。货币冲击将拉动粘性价格产品的产出增加，表现为货币非中性。相对价格的变化使得消费支出发生结构性转移，导致灵活价格产品的需求下降。财政冲击也具有类似的效应，它将拉动价格不平衡上涨，并带动产出上升，同时会挤出消费。这种价格非平衡变化的机制很好的解释了我国2007—08年发生的所谓的“结构性通货膨胀”现象。     

Market Interaction and Pro-Social Behavior: An Experimental Study

When actions generate negative externalities for third parties, incentives exist to pass these “morally costly” decisions to others. In laboratory experiments, we investigate how market interaction affects allocations when the right to divide a sum of money between oneself and a passive recipient is commoditized. Allocation to recipients is reduced by more than half when determined by subjects who purchase or keep the right to make the division as compared to a control where subjects are directly assigned the right. Sellers report accurate beliefs about recipient allocations and do not report feeling less responsible the more often they sell the allocation right. The market allocates the right to make divisions more frequently to buyers who allocate more to recipients, but sellers who allocate less to recipients tend to sell less often. Selection cannot solely explain the results, suggesting market interaction itself may directly impact behavior.     

Basic needs: Some unsettled questions

Though the large basic needs literature has clarified some issues related to anti-poverty strategies, it has also raised others. This paper identifies some of these unsettled questions: (1) who is to determine basic needs? (2) do basic needs refer to the conditions for a full, long and healthy life or to a specific bundle of goods and services that are deemed to provide opportunity for these conditions? (3) what is the purpose of participation? what form should it take? how does a right to participate (if it exists) relate to the political/administrative structures necessary for efficient implementation of basic needs approach? (4) what is the relationship between the redistribution approach to development and the basic needs approach? does the basic needs approach require fundamental systemic change, or is it a palliative? (5) what is the relation between meeting basic needs as an end in itself and as an instrument for developing human resources? (6) in what manner should international support for basic needs approaches be mobilized? (7) what is the relation between poverty eradication and reducing income inequalities?     

The role of China in global external imbalances: Some further evidence

The large imbalances in the current account positions of the US and the Asian economies are seen by most scholars as the main threat to an orderly development of the global economy. While the opinions on the most likely evolution of these imbalances and on their sustainability do differ across observers, ranging from catastrophic to rather optimistic views, almost all agree that some adjustment will have to take place in the near future, and that this adjustment will involve, among other things, a rebalancing of saving and demand across the globe. As an outcome of this process, China shall increasingly supplement the US in the role of engine of global economic growth.Using a global macroeconometric model, we examine the impact on this adjustment process of a number of shocks originating in the Chinese economy, including an expansionary fiscal shock, a revaluation of the renmimbi, and an expansion of internal demand following an acceleration in the process of rural–urban migration. The analysis focuses on two related points: how will these shocks affect the medium-run evolution of transpacific imbalances, and what will their impact be on global economic growth. The simulations allow us to track the impact of these shocks on the different poles of the world economy, and to assess their relative contribution to the task of reducing global imbalances without interrupting global economic growth.     

Effect of Money Supply on Real Output and Price in China

Over the past 30 years, China has achieved remarkable long-term economic growth. Using quarterly data, we study the effects of money supply on real output and inflation in China between 1993 and 2008. To this end, we use money supply shocks afler filtering out the expected component of the money supply. Our findings provide evidence supporting the asymmetric effect of positive and negative money supply shocks on real output and inflation in China. That is, real GDP growth in China responds to negative money supply shocks but not positive money supply shocks. In addition, inflation responds to positive money supply shocks but not negative money supply shocks. We conclude that the People＇s Bank of China＇ s policy of steady monetary growth appears to be appropriate. Our study offers important policy implications for China.     

Discussion of “Relating Product Prices to Long‐Run Marginal Cost: Evidence from Solar Photovoltaic Modules”

My discussion of Reichelstein and Sahoo (2018) is organized into three parts. First, what is the context for this work? That is, what are the energy and climate stakes? Second, what does the paper do? I will re‐work the equation defining the components of long‐run marginal cost to better reflect what is actually estimated and to better highlight some important choices about how the different components are modeled. Third, and most importantly, how do the results inform business decisions and policy choices regarding energy and climate? What more do we need?     

Deflation,Productivity Shocks and Gold: Evidence from the 1880–1914 Period

In this paper we examine the sources and impact of deflation on the growth experiences of the four dominant countries on the gold standard in the period 1880–1913: the United States, The United Kingdom, France and Germany. We distinguish between good deflation, (driven by positive aggregate supply shocks) and bad deflation (driven by aggregate demand shocks). We use an empirical Blanchard/Quah model which decomposes the behaviour of prices, output and the money stock into the impact of shocks such as a world price level shock, a domestic supply shock, and domestic demand shocks including a shock to the domestic gold stock. Our key finding is that the European economies were essentially classic in the sense that output was mainly supply driven and that money was neutral even when country specific gold stocks are included. In the United States, however, we observe both good and bad deflation.     

Asymmetric behavior of unemployment rates: Evidence from the quantile covariate unit root test

Mixed results for unemployment dynamics are reported in many studies using linear or non-linear unit root tests. A possible explanation is that the literature focuses on the average behavior of unemployment and assumes that the speed of adjustment towards its long-run equilibrium is constant, regardless of the magnitudes and signs of shocks. This paper seeks to re-examine the dynamics of the unemployment rates in terms of shocks for 12 OECD countries. A newly developed quantile unit root test by Galvao (2009) is applied to show potential asymmetric responses of unemployment to shocks over various quantiles, depending on the size and sign of the shocks that hit the unemployment rate. Our results suggest that generally, the unemployment rates are not only stationary but also exhibit obvious asymmetric behavior, in the sense that in the lower quantiles, negative shocks with large absolute value tend to induce faster speed of adjustment towards the long-run equilibrium, while in the upper quantiles, large positive shocks do not, and hysteresis exists. These findings can explain why unemployment rates display the behavior of fast rises and slow falls.     

Price‐Setting Behavior of Korean Firms†

This paper investigates a pattern of price revision by firms in Korea and sheds light on the cause of price stickiness by providing reliable statistical estimates for calibration of the parameters of the widely‐used macro‐models. Based on firm‐level survey data and using a probit model, we identify the firm characteristics or market conditions that discourage firms from carrying out state‐dependent price adjustment. We also estimate the factors driving firms to engage in state‐dependent adjustment rather than wait until the next scheduled revision under three different shocks: demand, general cost and exchange rate shocks. We find a few interesting features, as follows. First, price revision by Korean firms tends to be time‐dependent rather than state‐dependent, with a sizable dispersion across sectors and firm sizes. Second, the pattern of price revision in Korea is not significantly different from that in selected advanced economies. Third, the reason why firms favor time‐dependent price adjustments appears to be endogenous, accounted for by a number of market institution variables. Fourth, in response to shocks, Korean firms tend to wait until the next periodically scheduled revision rather than make a state‐dependent price adjustment, unless marginal costs are affected significantly by the shock, and state‐dependent revisions are often significantly delayed when they do occur.     

汤敏：防止热钱涌入 应放缓人民币升值

2008年，中国面临的通货膨胀压力越来越大，人民币持续升值，股市暴跌，存款准备金率已经上调到17．5％，这一系列问题困扰着当前的中国经济。我们在讨论这些问题时，无法避开与之伴生的另一个话题一热钱大量涌入中国。热钱在中国到底有多少？热钱在中国到底要干什么？本期“经济学人”栏目邀请了中国发展研究基金会副会长汤敏和著名经济学家钟朋荣，听听他们对热钱的看法。     

Adjustment dynamics and the natural rate: an account of UK unemployment

This paper challenges what is the standard account of UK employment,namely that the major swings in unemployment over the past 25years are due predominantly to movements in the underlying empiricalnatural rate of unemployment (NRU). Our analysis suggests thatthe UK NRU has remained reasonably stable through time and thatthe medium-run swings in unemployment are due, instead, to veryprolonged after-effects of persistent (transitory but long-lasting)shocks. We argue that (i) past UK labour market shocks haveprolonged after-effects on unemployment due to interactionsamong different lagged adjustment processes in the labour market;(ii) many of the important shocks that have hit the UK labourmarket over the past 25 years have been persistent; and (iii)the persistence of the shocks is complementary to the persistenceof the lagged adjustment processes in generating movements ofUK employment.     

Aid-for-trade facilitation

‘Aid for Trade’ is an ongoing and high-profile discussion associated with the Doha negotiations of the World Trade Organization. It also relates to questions of how best to achieve the Millennium Development Goals. Questions remain, however, about whether foreign aid spent on trade facilitation increases trade flows of developing countries. Does it work differently from aid in general? Using detailed data on aid flows from the OECD, the analysis here estimates the relationship between specific types of aid and trade flows, both globally and of the aid recipients. The findings indicate that aid spent on promoting trade is positively associated with global trade. For most types of such aid-for-trade facilitation, it is relatively more strongly associated with recipient exports than their imports. In contrast ‘other’ types of aid are more strongly associated with recipient imports. Based on elasticities estimated over 16 years of trade and aid data for 40 donor countries and about 170 country trading pairs, our results suggest that a 1% increase in aid-for-trade facilitation (of about US220 million in 2008) correlates to about US 220 million in 2008) correlates to about US 290 million of additional exports from the aid receiving countries.     

An SVAR Model of Fluctuations in U.S. Migration Flows and State Labor Market Dynamics

Large internal migration flows are typically viewed as evidence of flexible U.S. labor markets adjusting to asymmetrical regional demand shocks. Yet, amenity-induced migration flows suggest that they may not necessarily facilitate adjustment to demand shocks and instead may be destabilizing. This paper employs a structural vector autoregression model with long-run identifying restrictions to account for both labor-demand and labor-supply shocks in examining the role of migration in U.S. regional labor-market fluctuations. The results reveal that less than one-half of innovations in state migration flows are responses to labor-demand shocks. It is not until the third period that migrants fill a majority of demand-induced jobs in a typical state, while it takes about 7 to 8 years for migration flows to fully adjust to labor-demand shocks. The extent of the migration response also has implications for how much state and local economic development policies benefit original residents.     

Business Cycle Fluctuations,Large Macroeconomic Shocks,and Development Aid

We examine the cyclical properties of development aid using bilateral data for 22 donors and 113 recipients during 1970–2005. We find that bilateral aid flows are on average procyclical with respect to the business cycle in both donor and recipient countries. While aid outlays contract sharply during severe downturns in donor countries, they rise steeply when aid-receiving countries experience large adverse shocks. Our findings suggest that development aid may play an important cushioning role in developing countries, but only during times of severe macroeconomic stress. Our results are robust to alternate definitions of aid flows, specifications, and estimation techniques.