Debt policy under constraints: Philip II,the Cortes,and Genoese bankers

Under Philip II, Castile was the first country with a large nation‐wide domestic public debt. A new view of that fiscal system is presented that is potentially relevant for other fiscal systems in Europe before 1800. The credibility of the debt, mostly in perpetual redeemable annuities, was enhanced by decentralized funding through taxes administered by cities making up the Realm in the Cortes. The accumulation of short‐term debt depended on refinancing through long‐term debt. Financial crises in the short‐term debt occurred when the service of the long‐term debt reached the revenues of its servicing taxes. They were not caused by liquidity crises and were resolved after protracted negotiations in the Cortes by tax increases and interest rate reductions.     

欧债危机下中国的政策选择和发展机遇

欧洲主权债务危机从开始浮出水面,到发展、蔓延、危机升级,已持续了整整两年,而这场危机的影响力非但没有缩小,反而从欧元区边缘国向核心国扩散,导致整个欧元区经济陷入了一片恐慌之中。虽然中国并没有受到直接影响,但欧洲经济的颓势导致了我国对欧洲出口量的大幅度减少、大量热钱涌入等等问题,这就决定了我们不能袖手旁观,无动于衷。本文将尝试分析在这场危机中我国应采取的政策措施,以及为如何从中看到新的发展机遇提出看法,从而既达到为欧洲主权债务危机国提供援助以达到缓解世界经济动荡的目的,又尽可能使国内经济保持稳定态势。随着中国在国际政治、金融、贸易等地位的不断提高,我国所持有的态度、所采取的行动,也必将受到其他国家的广泛关注和热议。     

Post–World War Two industry policy: opportunities and constraints

There exists an entrenched conventional wisdom that, for the first seventy years of the twentieth century, Australia was closed to the global economy in the pursuit of an inward–looking and market–defying approach to development. This interpretation is neglectful of the broad forces at work and their evolution. The economic policy process inevitably embodies compromise between conflicting views and interests, including bureaucratic rivalries. An investigation of the role and treatment of the post–War industry bureaucracy provides some insight into the character of the contemporary balance of forces. Post–War development certainly involved dysfunctionalities, but the causes were located in a complex set of determinants rooted in culture rather than just inwardness or rent seeking. Thus, the importance of the protective tariff for the manufacturing sector in the 1960s deserves to be reinterpreted as a symptom rather than the cause of any underlying problems with policy character and policy priorities.     

Japanese government debt and sustainability of fiscal policy

We construct quarterly series of the revenues, expenditures, and debt outstanding for Japan from 1980 to 2010, and analyze the sustainability of the fiscal policy. We pursue three approaches to examine the sustainability. First, we calculate the minimum tax rate that stabilizes the debt to GDP ratio given the future government expenditures. Using 2010 as the base year, we find that the government revenue to GDP ratio must rise permanently to 40–47% (from the current 33%) to stabilize the debt to GDP ratio. Second, we estimate the response of the primary surplus when the debt to GDP ratio increases. We allow the relationship to fluctuate between two “regimes” using a Markov switching model. In both regimes, the primary surplus to GDP ratio fails to respond positively to debt, which suggests the process is explosive. Finally, we estimate a fiscal policy function and a monetary policy function with Markov switching. We find that the fiscal policy is “active” (the tax revenues do not rise when the debt increases) and the monetary policy is “passive” (the interest rate does not react to the inflation rate sufficiently) in both regimes. These results suggest that the current fiscal situation for the Japanese government is not sustainable.     

未作让步的债务重组的理论与实践

对于将来应付金额大于重组债务账面值这种情况 ,美国准则是作为债务重组加以规范 ,并规定采用实际利率法进行处理。我国准则未将其纳入规范内容 ,而且对如何处理所规定的方法过于随意。通过比较分析 ,文章提出应允许选用实际利率法与直线法中的一种 ,以利于今后向国际惯例过渡     

Disinflation without recession: Adaptive guideposts and monetary policy

Zusammenfassung Inflationsbek?mpfung ohne Rezession. — In dieser Arbeit wird das Theorem begründet, da\ ein einziger Pfad der Kontrollvariablen für die Gesamtnachfrage — hier der Geldversorgung — existiert, auf dem die Verminderung der Inflation auf das erwünschte Niveau vorgenommen werden kann, ohne da\ die Besch?ftigung auch nur zeitweise von der ?natürlichen Rate? abweicht — und das trotz gestaffelter und deshalb sich überlappender Lohnabschlüsse ohne Indexbindung mit fester Laufzeit. Der Beweis ist abh?ngig von dem Postulat perfekter Voraussicht in bezug auf die Entwicklung des durchschnittlichen Lohnsatzes und der Geldversorgung. In der Praxis würde der Erfolg eines solchen Programms zur Inflationsbek?mpfung die Einrichtung von Lohn-Leitlinien erfordern, die die Erwartungsbildung erleichtern.

---

Résumé Une desinflation sans une récession. — Cet article établit un théorème de l’existence d’un sentier unique de la variable de contr?le d’agrégat-demande, ici l’offre d’argent, qui atteint à une réduction du taux d’inflation sur le niveau prescrit sans même une déviation temporaire d’emploi du taux ?naturel?, malgré de la présence des obligations de taux de salaire échelonnées et c’est pourquoi chevauchantes d’un type pas indexé et avec une durée fixée. La démonstration dépend du postulat de la prévoyance parfaite regardant le cours du salaire d’argent moyen et de l’offre d’argent. En pratique, le succès d’un tel programme de desinflation rendrait nécessaire une structure de terme des postes de guide de salaire comme aide en formation et des expectatives.

---

Resumen Desinflación sin recesión. — En este artículo se establece un teorema sobre la existencia de una trayectoria única de la variable de control de demanda agregada, en este caso la oferta de dinero, que alcanza una reducción de la tasa de inflación al nivel prescrito sin siquiera una desviación temporal del empleo de la ?tasa natural?, a pesar de la presencia de promesas de tasas de salarios escalonados y traslapados de un tipo sin indexisación y de duración fija. La demostración depende del postulado de perfecta previsión con respecto al curso del salario monetario promedio y de la oferta de dinero. En la práctica, el éxito de un programa de desinflación de este tipo requerirá una estructura de condiciones indicativas para salarios como ayuda en la formación de expectativas.

     

Asian trade: long‐term patterns and key policy issues

Fragmentation‐based specialisation has become an integral part of the economic landscape of East Asia. Dependence on this new form of international specialisation is proportionately larger in East Asia, in particular in the Association of Southeast Asian Nations, than in North America and Europe. In this regard, an important recent development has been the rapid integration of China into regional production networks. This development is a counterpoint to the popular belief that China's global integration would crowd out other countries' opportunities for international specialisation. The rise of product fragmentation has strengthened the case for a global, rather than a regional, approach to trade and investment policymaking. Given the global orientation of the region's economies, we question whether there would be a significant benefit from current efforts to promote regional cooperation, unless the principle of ‘open regionalism’ is recognised. With both the Doha Round and APEC floundering, this is one of the major multilateral policy challenges of our time.     

‘Stop‐go’ policy and the restriction of postwar British house‐building

From the mid‐1950s to the early 1980s the Treasury and the Bank of England successfully advocated a policy of restricting both private and public sector house‐building, as a key but covert instrument of their wider ‘stop‐go’ macroeconomic policy framework. While the intensity of restrictions varied over the economic cycle, private house‐building was restricted (through limiting mortgage availability) for almost all this period. This was achieved by keeping building society interest rates low relative to other interest rates and thus starving the building society movement of mortgage funds. Mortgage restriction was never publicly discussed and sometimes operated alongside ambitious housing targets and well‐publicized policy initiatives to boost housing demand. This article outlines the evolution of house‐building restriction, together with its impacts on the housing sector and the wider economy. We review the evolution of the policy framework and its consequences, compare the level and stability of British house‐building during this period—historically and relative to other countries—and undertake time‐series econometric analysis of its impacts on both house‐building and house prices. Finally, implications for debates regarding stop‐go policy, Britain's housing problem, and the distributional consequences of government macroeconomic policy are discussed.     

The Franco‐German trade puzzle: an analysis of the economic consequences of the Franco‐Prussian war1

When the Franco‐German trade relationship is viewed from a long‐term perspective, the conventional view that trade ties were rather good before 1914 becomes doubtful. In fact, trade statistics point to the absolute and relative decline in trade flows between the two countries after the Franco‐Prussian war of 1870–1. This postwar episode of Franco‐German trade history is far from incidental. On the basis of a comprehensive study of Franco‐German trade by product, this article reveals a complete restructuring of French trade with Germany after the conflict and invites a new analysis of its economic consequences.     

Regional heterogeneity,the rise of public debt and monetary policy in post-bubble Japan: lessons for the EMU

Both Japan and parts of the European Monetary Union have experienced boom and bust in stock and real estate markets, which have been followed by a lasting crisis. The paper analyses the role of a high degree of regional heterogeneity for public debt and monetary policy in the context of crisis. It is shown for Japan that the attempts to maintain regional cohesion via a regional transfer mechanism has contributed to the unprecedented rise in public debt and persistent monetary expansion. Econometric estimations show that in Japan regional redistribution of funds has ensured homogeneous living conditions across Japanese regions pre- and post-crisis. The side condition is monetary expansion. A similar effect could emerge in Europe, if the crisis persists.     

Bagehot for beginners: the making of lender‐of‐last‐resort operations in the mid‐nineteenth century1

In this article we develop new tools to survey the development of lending‐of‐last‐resort operations in the mid‐nineteenth century. One finding is that free lending and extensive liquidity support against good collateral developed gradually after 1847, and was already a fact of life before Bagehot published Lombard Street. Another is that the extension of the Bank of England's lender‐of‐last‐resort function went along with a reduction of its exposure to default risks, in contrast with accounts that have associated lending of last resort with moral hazard. Finally, we provide a new interpretation of the ‘high rates’ advocated by Bagehot. We suggest they were meant to prevent banks from free‐riding on the safety offered by the central bank, and were aimed at forcing them to keep lending during crises so as to maintain a critical degree of liquidity in the money market.     

Openness and trade policy in China: an industrial analysis

This paper analyzes the tariff structure and its determinants in China, with our research conducted under the rubric of endogenous policy theory. We study the tariff rates for 95 industries in China in 1996. The potential determinants of tariff rates are collected from an array of variables characterizing industries in 1995. A principal component method is used to reduce these variables into four major dimensions. The first component comprises the information on the composition of employees broken down by age, education, and job classification. The second component is underlined by the profitability of the industry. The third component consists of those variables not picked up with high salience in the first two components. More closely resembling those in the second component than the first, these variables include gross product, foreign capital, inventory, sales revenue, and total loss. The fourth component receives high loadings from two variables: the number of firms in the industry and the number of firms that incur net losses in their operation. Using variables identified by the principal component analysis and postulated by the variants of the endogenous trade theory, regression analysis finds that the trade policy in China is mainly defined by an industrial policy favoring high-tech industries and a social policy minimizing social instability. The implications for China's entry into the World Trade Organization (WTO) are also provided in the paper.     

The macroeconomic impacts of government debt: An empirical analysis of the 1980s and 1990s

This study examines the macroeconomic impacts of government debt. Unlike previous studies, the current study restricts the estimation period to the 1980s and 1990s. The analysis is conducted using variance decompositions and impulse response functions derived from a vector autoregressive model. The results presented here support an extreme form of the Ricardian equivalence hypothesis. In this view, wealth falls as government debt rises. Because wealth falls as government debt rises, an increase in government debt leads to decreases in interest rates, output, and the price level.This work was supported by a grant from the Faculty Research and Creative Activities Support Fund of Western Michigan University. The author wishes to thank Nancy S. Barrett, James S. Fackler, W. Douglas McMillin, Susan Pozo, and Paul D. Thistle for comments and suggestions.     

US external debt sustainability revisited: Bayesian analysis of extended Markov switching unit root test

The sustainability of US external debt, which has been an issue of global concern, is analyzed using a Markov switching (MS) unit root test applied to the flow of debt, i.e., the current account. The first to apply the MS unit root test to the issue of US external debt in order to examine local stationarity and global stationarity were Raybaudi et al. (2004). This paper introduces an extended MS unit root test where the transition probability is time-varying rather than fixed, as is usually the case, and the change of probability is explained by the real exchange rate, which theory suggests has a close relationship with the external balance. The extended MS unit root test calculated by the Markov Chain Monte Carlo (MCMC) method provides us with new insights on the issue of US external debt in recent years, suggesting that even though the debt/current account–GDP ratio remains relatively high, the probability of stationarity (sustainability) is unexpectedly high when recent US dollar depreciation is taken into account.     

Trade policy under imperfect competition: The economics of Russian roulette

Summary Neo-classical economic theory shows that managed trade or protectionism is (almost) always welfare decreasing. However, measurements of the welfare costs of protectionism based on neo-classical models seem to suggest that these costs are quite small. We discuss general new insights and developments in the theory, policy and empiricism of international trade. The observation that intra-industry trade and the services sector are important has led to a shift in theory away from constant returns to scale and perfect competition towards economies of scale and scope, externalities, market imperfections, and imperfect competition. Although this, in principle, opens the door to beneficial government intervention in the economic process, we emphasize that the true costs of protection can potentially be much higher than is generally acknowledged as a result of the above mentioned shift.We would like to thank, without implicating, Martin Fase, Harry Garretsen, Catrinus Jepma, Simon Kuipers, Ger Lanjouw, Tenn Schmidt, Albert de Vaal, and Jean-Marie Viaene for stimulating conversations and useful suggestions. We thank Thijs Knaap for excellent research assistance.