Balances of payments and exchange markets: A lost correspondence

The article presents an accounting framework capable of consistently describing on a worldwide scale international money (euro-currency) markets. It also shows that, in such a framework, interest rates on international money markets need not be explained by econometric models specific to such international markets, but could simply result from the appropriate aggregation of national econometric models. Finally, the author emphasizes that in a world in which a country's money can be created by the banking systems of other countries, the correspondence between a country's balance of payments equilibrium and the foreign exchange market for its own money is no longer valid.     

Trade,structure and linkages in Costa Rica: An input-output approach

Input-output tables for Costa Rica are used first to assess the country's trade performance; it is argued that trade with the rest of Central America has produced a Costa Rican comparative advantage in consumer durables. The paper then uses the input–output tables to examine the economy's structure, which is shown to be block triangular. Finally, measures of linkages are derived from the tables and a critique of the growth-inducing linkage mechanism is presented.     

贸易结算货币的新选择:稳定的篮子货币——对“金砖五国”货币合作的探讨

文章研究"金砖五国"货币合作的可能形式,构建了稳定的篮子货币作为贸易结算货币,为货币合作提供政策建议。文章首先考察了汇率之间的关系,认为一种货币的加权几何平均汇率能够消除不同货币表示币值的差异,在此基础上构建了篮子货币指数;其次研究了篮子货币波动最小的货币权重的选取,通过最优化方法获得最优权重;最后模拟计算了"金砖五国"篮子货币的权重,并探讨了如何把篮子货币最优权重转化为具体的货币篮子,同时给出了篮子货币和各国货币之间的汇率关系。     

Debt and capital accumulation in a two-sector model with non-traded goods

The paper examines optimal debt and capital accumulation for an open economy which faces an imperfect international capital market. The major finding is that the optimal pattern of debt and capital accumulation is affected by relative factor intensities. Factor intensities determine whether substitution or complementary relationships exist between debt and capital. The relationship between the country's net wealth and its two components financial and productive are also determined by factor intensities.     

Two implications of habit formation for international trade

A country's choice set of trade policies becomes very constrained when its consumers are subject to habit formation. Free trade may, in fact, lie outside the choice set. Furthermore, the rise in import elasticities' values over time can be attributed to habit formation.     

Trade prices and supply in the UK economy

Current account imbalances are a major source of instability in the world monetary and trading system. Measures to correct these imbalances have largely involved adjustments to exchange rates. In the international trade literature, when the current account is in deficit, the Marshall-Lerner condition is sufficient for a successful devaluation. However, this partial equilibrium condition — apart from being based on the assumption that supply elasticities are infinite — abstracts from how the domestic economy responds to the change in relative prices. In this paper we develop a model of price and output determination in an open economy with imperpectly competitive markets, and draw a distinction between goods which are exported and those which are supplied to the domestic market. This means that we have to determine jointly both export prices and the domestic price of house sales. We show that as long as there is no money illusion in the labour market a fall in the nominal exchange rate raises domestic and export prices proportionally and leaves trade volumes unaffected. However, shifts in domestic absorption relative to overseas demand — by changing relative prices — cause shifts in the relative supply of exports and domestically sold goods and affect the trade balance. Thus fiscal and monetary measures directed towards reducing domestic absorption are more likely to be successful in correcting current account imbalances than exchange rate depreciation.     

Long-run determinants of the Irish real exchange rate

Smooth adjustment to real exchange rate shifts is one of the major challenges facing the Irish economy under EMU. Rather than assume purchasing power parity, the long-run real exchange rate is modelled as time-varying, being determined by relative output levels, the terms of trade and the net foreign asset position. It is shown that these factors account for a large proportion of the long-run movement in the Irish real exchange rate.     

Terms of trade and domestic distribution: Export-led growth with abundant labour

A general equilibrium macro model is constructed to explore effects of export-led growth policies on the terms of trade and the domestic distribution of a developing region with abundant labour. This region, the South, trades with another, the North; they have different technologies and supplies of factors. It is shown that under certain conditions of dualism in the production of goods and of abundant labour supply in the South, an increase in the volume of exports from the South may bring about a sustained worsening of the South's terms of trade with the North even if this increase in exports is due to a positive shift in demand from the North. This change in the terms of trade is accompanied by a sustained loss of purchasing power of wages within the South. These results take place in a Walrasian stable market. When technologies are more homogenous and labour less abundant, the results are reversed: increased exports will take place together with improvements in terms of trade and a tendency to equalise factor prices between the regions. The results argue for coordination of domestic and international policies with special attention to technologies and labour markets.     

Regulatory Entry Barriers,Rent Shifting and the Home Market Effect

This paper introduces regulatory entry barriers in a model of the home market effect. The entry barriers generate local rents that have unexpected but significant implications. First, the home market effect is magnified. Second, when countries are sufficiently unequal in size and rents are sufficiently large, symmetric reductions in trade costs reduce welfare in the small country. Third, entry barriers increase the large country's market size and, surprisingly, can increase its welfare. Fourth, a unilateral increase in trade protection shifts foreign rents to the home country. This rent‐shifting effect amplifies the standard production relocation motive for trade policy intervention.     

Efficiency properties of strategies market games: An axiomatic approach

The paper investigates the conditions under which an abstractly given market game will have the property that if there is a continuum of traders then every noncooperative equilibrium is Walrasian. In orther words, we look for a general axiomatization of Cournot's well-known result. Besides some convexity, continuity, and nondegeneracy hypotheses, the crucial axioms are: anonymity (i.e., the names of traders are irrelevant to the market) and aggregation (i.e., the net trade received by a trader depends only on his own action and the mean action of all traders). It is also shown that the same axioms do not guarantee efficiency if there is only a finite number of traders. Some examples are discussed and a notion of strict noncooperative equilibrium for anonymous games is introduced.     

Dynamic stability in a model of dual exchange rates

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

Market power of firms and exchange-rate fluctuations

This paper explores the potential of firms to restrict industry outputs (market power) in oligopolistically organized markets where domestic firms compete with foreign ones. Within a stochastic price-setting supergame framework, market power is shown to be lower in general with flexible exchange rates for the following reasons. (i) The conditions that the fully collusive outcome—oligopolists maximizing joint profits — is sustainable in equilibrium become stronger if the exchange rate fluctuates, provided that fluctuations are sufficiently small. (ii) Even if full collusion can be sustained, industry outputs will be higher on the average with flexible than with fixed exchange rates.     

Price controls in an open economy

Wage and price controls have been increasingly called for as Western economies have experienced periods of stagflation. Part of their attractiveness has been due to the belief that they are an appropriate instrument to deal with a country's unsatisfactory balance-of-payments position. This paper evaluates the appropriateness of an incomes policy in an open economy. An optimally structured incomes policy, derived for a simple inflation model, is examined under alternative exchange rate regimes. The model, in the tradition of models by Gordon, Hicks, and Okun, is characterized by two output markets-one a flexible price market and one characterized by markup pricing-and by a single labor (input) market. This model is then used as the constraint set in a dynamic optimization problem. Both analytical and simulation results are presented. The results suggest that a direct price control program is not appropriate in an open economy.     

Tax rebating of exports and the balance of payments

Tax rebating has recently been given heavy emphasis as a means of improving a country's balance of payments and recommendations have been made for the substitution of taxes that are fully rebated on exports for taxes that are only partly rebated or are not rebated at all. This paper gives the conditions under which tax rebating would improve a country's balance of payments. It shows that whether tax rebating of exports improves the balance of payments or not depends upon the size of the price elasticity and of the import component of exports. It then shows that, with the available evidence concerning the size of the price elasticities and of the import components in a number of European countries, export rebating may harm rather than improve their balances of payments.     

SYNCHRONIZATION OF ECONOMIC SHOCKS BETWEEN GULF COOPERATION COUNCIL AND UNITED STATES,EUROPE, JAPAN,AND OIL MARKET: CHOICE OF EXCHANGE RATE REGIME†

Using a structural vector autoregression (SVAR) with block exogeneity, this study examines the impacts of external shocks originating from the United States, the European Union, Japan, and the oil market as well as those of the regional shocks, on the oil‐rich countries of the Gulf Cooperation Council (GCC), viewed as a prospective monetary union. It takes into account the implications of the shock impacts for selecting an appropriate common exchange rate arrangement. The SVAR variance decomposition and impulse response analyses strongly underscore the relative impacts of the global shocks over the regional ones. The findings imply that the world's two major currencies, the U.S. dollar and the euro, should figure highly in a GCC's common basket of currencies. Accordingly, a transitional movement to a more flexible exchange rate arrangement such as a basket peg may be desirable for these trade‐dependent economies in the long run, as is argued in the optimal currency literature for developing countries. (JEL E52, O52, C22)     

Choice of currency basket weights and its implications on trade balance

This paper seeks to find an optimal choice of currency basket weights for emerging economies that peg their currencies to a currency basket, and to examine the long-run relationship between the real exchange rates of a group of trading partners. A general equilibrium model is set up to establish an optimal set of currency basket weights, coupled with the choice of fiscal policy, to simultaneously stabilize trade balance and aggregate price level of an economy. This optimal set of weights is a weighted average of two sets of weights; each targets at one policy goal (stabilizing either balance of trade or aggregate price level) at a time. Empirical studies including vector autoregression (VAR) analysis and cointegration analysis on the long-run relationship between the Thai baht and the real exchange rates of its major trading partners are presented.     

EXCHANGE RATE PROBLEMS IN NATIONAL ACCOUNTING OF DEVELOPING COUNTRIES*

Developing countries which typically have import surpluses and inflationary pressures because of insufficient savings are prone to use indirect taxes on imports (Tm) and subsidization of exports (Sx) in order to prevent deterioration of the balance of trade. If these substitutes for devaluation are included in the net indirect tax component of product at current market prices (Ym) the import surplus is likely to be understated, and Ym upward biased. This distortion will be avoided if imports and exports are measured at effective exchange rates (ER), that is, at official rates (OR) plus Tm and Sx respectively, and if (Tm - Sx) is deducted from the net indirect tax component of Ym. Only in this manner become imports and exports consistent with the other uses and resources at market prices and can be articulated with them. At base-year prices the volume index of product at OR diverges from that of ER to the degree that the composition of imports and exports in regard to tax and subsidy rates computed ad valorem significantly changes. Such a case is similar to that of the price indexes of imports and exports moving in diverging proportions: the trade balance at base-year prices will differ from that at current prices. The resulting discrepancies in national accounts have led to proposals of deflating, for example, exports by the price index of imports. Suchlike approaches are incompatible with the principle of national accounting that prices are supposed already to measure substitution values. Deflating exports by import prices means reintroducing substitution values, as does, for example, deflation of incomes by a consumer price index. Correspondingly, since the trade balance at ER conceptually expresses the value of imports at domestic market prices as compared to the corresponding domestic market value of exports, and if at ER the trade balance diverges from that at OR, the former balance has an important meaning (as has the trade balance at base-year prices as compared to that at current prices) and the resulting discrepancy between the two measures should not be removed merely for the sake of accounting smoothness. In contrast to the market price approach, the measurement of product at base-year factor cost is indifferent to the measurement of the trade balance at ER and at OR. It is, therefore, proposed in countries in which part of import taxation and export subsidization substitutes for devaluation, to record imports and exports in the national accounts at effective exchange rates, and to correct the net indirect tax component of product correspondingly. Imports and exports at official exchange rates should be shown within the balance of payments, and the latter separately as a memorandum item.     

双边贸易、外汇市场规模、网络外部性与美元的国际地位——基于国别(地区)市场的实证研究

美元堪称世界的"霸权"货币,其地位的维持要借助在位货币的优势和外力支持,本文通过面板模型对美元国际地位的影响因素进行了实证分析。在静态面板模型中发现,一国(地区)同美国的实际进出口贸易额、一国(地区)外汇市场规模对美元的国际地位均产生重要的正面影响,这表明一国(地区)与美国的实际进出口贸易额越大或一国(地区)外汇市场越发达,该国(地区)对美元的需求量越大。随后的动态面板模型不仅支持了上述结论,而且发现前一期外汇市场的实际货币交易量也是影响美元充当主要国际货币的重要因素,一国(地区)前一期外汇市场的实际货币交易量越大,其越青睐于持有美元,美元在该国(地区)的地位就越高。这一结论证实了网络外部性效应所发挥的重要作用。     

The exchange rate pass-through into import prices: the case of Japanese meat imports

Japan is a traditional net importer of food products in general and meat products in particular. Japanese meat imports come from a few countries thus making Japan potentially very sensitive to the swings in one or a few bilateral exchange rates. One of the key contributions of this article is the use of commodity (meats in this case) imports weighted exchange rates in the analysis. The standard practice in previous international agricultural trade studies related to either exchange rate pass-through or pricing to market was to use the aggregate trade weighted exchange rates usually provided by the Central Bank authorities or sources. Beef and poultry import prices indicate partial exchange rate pass-through while import prices of pork indicate zero exchange rate pass-through, primarily due to gate price policy system applied to pork imports. In terms of competitiveness, these results suggest relatively more competitive markets among poultry importing firms, somewhat competitive markets among beef importing firms, while competitiveness of pork importing firms could not be assessed due to existing import policies.     

Terms of trade and the exchange rates of New Zealand and Australia

Effects of the terms of trade on the bilateral exchange rate of New Zealand and Australia and of each of these countries with the USA are evaluated. There is strong evidence of cointegration of the exchange rates and a ration of the respective national price levels when the relative terms of trade of the countries are included in dynamic models. While evidence that the long-run equilibrium relationships satisfy purchasing power parity is mixed, relative improvement of a country's terms of trade results in real appreciation of its currency in all cases. The terms of trade are also found to be exogenous for the parameters of the long-run New Zealand–Australia exchange-rate equilibrium.