Panel unit root tests of purchasing power parity between Japanese cities, 1960–1998: disaggregated price data

This paper makes use of new panel unit root tests of Im et al. [Testing for unit roots in heterogeneous panels, Working paper, Department of Applied Economics, University of Cambridge, 1997], and Maddala and Wu [Oxford Bull. Econ. Stat. 61 (1999) 631] to examine whether long-run purchasing power parity (PPP) holds between major Japanese cities. By using a panel of 13 disaggregated consumer price indices from seven cities in Japan over the period 1960–1998, we are able to reject the null hypothesis that the relative price of goods between Japanese cities is non-stationary at the 5 percent level for all eight tradable goods and in two of the five non-tradable goods. Hence, we conclude that long-run PPP holds between major Japanese cities and PPP holds more for tradable goods than for non-tradable goods.     

How were the Federal Reserve Bank locations selected?

The Reserve Board Organization Committee decision to locate 12 Federal Reserve Banks is reviewed. Probability choice models estimate a city’s selection probability for a Federal Reserve Bank location. Results of predicted selections show reserve cities were selected for their spatial economic characteristics, including information contained in bankers’ preferences, infrastructure development, population and recent National Banking System growth, rather than Democratic Party politics. The Reserve Board Organization Committee placed Federal Reserve Banks in preeminent financial and commercial centers, and relied upon bankers’ preferences for the remaining non-obvious selections. Given 12 cities were to be selected, the conclusion drawn is the decision was in the public interest.     

To Spend the U.S. Government Surplus or to Increase the Deficit? A Numerical Analysis of the Policy Options

This paper provides a numerical analysis of the likely benefits from adopting alternative ways of reducing the projected fiscal surplus (as of the summer 2001) in the United States economy. Calibrating a small growth model, our results suggest that investing the surplus in public capital is likely to yield the greatest long-run welfare gains, although decreasing the capital income tax is only marginally inferior. Both these options dominate increasing government consumption expenditure or decreasing the tax on labor income. By shifting resources from consumption toward capital the two superior policies involve sharp intertemporal tradeoffs in welfare; significant short-run welfare losses are more than compensated by large long-run welfare gains. By contrast, the two inferior options are gradually welfare-improving through time. A crucial factor in determining the benefits of reducing the government surplus through spending is the size of the government sector relative to the social optimum. We find that the second-best optimum is to increase both forms of government expenditure to their respective social optima, while at the same time restructuring taxes by reducing the tax on capital and raising the tax on wage income to achieve the targeted reduction in the surplus. J. Japan. Int. Econ., December 2002, 16(4), pp. 405–435. Department of Economics, University of Washington, Seattle, Washington; and Department of Economics, Terry College of Business, University of Georgia, Atlanta, Georgia. © 2002 Elsevier Science (USA).Journal of Economic Literature Classification Numbers: E62, O41.     

Reverse-lag reserve accounting,bank behavior,and monetary control: A formal analysis

Conclusion The fundamental conclusion of the analysis contained in this paper is that Laurent's claims concerning the potential monetary control enhancements of the adoption of a reverse-lag reserve accounting system are correct. This result conflicts with those reached by other studies of the monetary control properties of RLA, because the model of RLA used in this paper has been based on an analysis of the microeconomic behavior of banks. The conclusion that monetary control could be improved by adoption of RLA vindicates Laurent's [1984] argument that a “microbank analysis” is fundamental to understanding correctly the workings of an RLA system. An important qualification that prohibits a conclusion that RLA clearly is superior to lagged or contemporaneous accounting is that the monetary control enhancements resulting from adoption of RLA are mitigated to some extent by the existence of the Federal Reserve discount window. Indeed, the relative desirability of RLA as compared to alternative reserve accounting systems cannot be evaluateda priori in the presence of a discount window. Any serious consideration of RLA would need to be prefaced by a careful study of the relationship of the money stock to bank borrowing in an RLA setting. The final version of this paper was written while the author was a visiting economist at the Board of Governors of the Federal Reserve System. This paper has benefited considerably from comments and suggestions by Robert Laurent, Kenneth Kopecky, Daniel Friel, Chris Waller, Elmus Wicker, and participants in a seminar at the Federal Reserve Bank of Chicago and in the Indiana University Money and Banking Seminar. Initial work on this topic was supported by an Indiana University Summer Faculty Fellowship. Any errors are the author's responsibility, and any views expressed in the paper do not necessarily reflect those of the Board of Governors of the Federal Reserve System or its staff.     

Nonlinear Aspects of Goods-Market Arbitrage and Adjustment: Heckscher''s Commodity Points Revisited

We propose that analysis of purchasing power parity (PPP) and the law of one price should explicitly take into account the possibility of “commodity points”—thresholds delineating a region of no central tendency among relative prices, possibly due to lack of perfect arbitrage in the presence of transaction costs and uncertainty. More than 80 years ago, Heckscher stressed the importance of such incomplete arbitrage in the empirical application of PPP. We devise an econometric method to identify commodity points. Price adjustment is treated as a nonlinear process, and a threshold autoregression offers a parsimonious specification within which both thresholds and adjustment speeds are estimated by maximum likelihood methods. Our model performs well using post-1980 data, and yields parameter estimates that appear quite reasonable: adjustment outside the thresholds might imply half-lives of price deviations measured in months rather than years, and the thresholds correspond to popular rough estimates as to the order of magnitude of actual transport costs. The estimated commodity points appear to be positively related to objective measures of market segmentation, notably nominal exchange rate volatility.J. Japan Int. Econ.December 1997,11(4), pp. 441–479. Department of Economics, University of California, Berkeley, California 94720-3880; and Department of Economics, Northwestern University, Evanston, Illinois 60208-2600.     

Efficient Monetary Policy Design near Price Stability

Using dynamic programming methods, we study the design of optimal monetary policy in a simple, calibrated open-economy model and evaluate the effect of the liquidity trap generated by the zero bound on nominal interest rates. We show that the optimal policy near price stability is asymmetric. As inflation declines, policy turns expansionary sooner and more aggressively than would be optimal in the absence of the zero bound. This introduces an upward bias in the average level of inflation. We also discuss operational issues associated with the interpretation and implementation of policy at the zero bound in relation to the recent situation in Japan. J. Japan. Int. Econ., December 2000, 14(4), pp. 327–365. Board of Governors of the Federal Reserve System, Washington, D.C. 20551 Copyright 2000 Academic Press.Journal of Economic Literature Classification Numbers: E31, E52, E58, E61.     

Exchange Rate Volatility, Nominal Rigidities, and Persistent Deviations from PPP

It is shown how nominal exchange rate volatility can cause persistent deviations in the real exchange rate. The key to nominal rigidities is a capital market imperfection implying that agents cannot hedge perfectly against consumption risks. As a consequence, nominal changes have real effects by both affecting the ex post real purchasing power of savings and by affecting the ex ante incentives in savings and labor supply. The consequences of exogenous changes in the nominal exchange rate are considered in an OLG version of a two sector small open economy with competitive product and labor markets.J. Japan. Int. Econ.,December 1997,11(4), pp. 584–609. Department of Economics, University of Aarhus, 8000 Aarhus, Denmark.     

Economic Integration of Countries with International Public Goods

This paper develops a model of economic integration that is subject to random emergency costs. To mitigate the effects of these disruptions, each country that belongs to a club provides an international public good. This paper incorporates voluntary provision of public goods into a rigorous general equilibrium model of economic integration under uncertainty. It is shown that an increase in the probability of war or the penalty ratio in a club may raise the welfare and the size of the club if risk aversion with respect to private consumption is not so large. J. Japan. Int. Econ., December 1994, 8(4), pp. 530–550. Department of Economics, University of Tokyo, Hongo, Tokyo 113, Japan; and Department of Economics, Osaka University, Toyonaka, Osaka 560, Japan.     

International Price Linkage within a Region: The Case of East Asia

This paper investigates how “prices” in East Asian economies correlate with those in Japan and the United States. The analysis is particularly noteworthy because although the East Asian economies are geographically close to Japan, their currencies have been tied more closely to the U.S. dollar. In this paper, we analyze two different types of “prices”: overall price levels in terms of the same currency and relative prices among different commodities. We demonstrate that overall price levels in the East Asian economies are more closely related to those in the United States. However, the relative prices in East Asia, especially those in Taiwan and Korea, are more closely correlated with those in Japan. These price correlation patterns are in marked contrast with those in other regions.J. Japan. Int. Econ.December 1993,11(4), pp. 643–666. Faculty of Economics, The University of Tokyo, Tokyo, Japan; and Department of Economics, The University of British Columbia, Vancouver, Canada, and Graduate School of Economics, Hitotsubashi University, Japan.     

美联储独立性的影响因素分析——政治系统论的视角

美国金融市场的繁荣一定程度上归功于美联储的超凡独立性,这一点被诸多学者所推崇。但是从政治系统论的角度来审视美联储的法律地位,国会、总统、法院、利益集团等都以自己独特的方式对美联储的独立性问题提出了挑战与制约,而美联储亦适时地调整自己的行为做以应对。美国经验告诉我们,一国政治体制对该国中央银行独立性的影响是深刻的,中国在对中国人民银行独立性进行探讨时,与其从法律角度来重构中国人民银行的独立性,倒不如在既有制度框架内实现各机构的协调。     

Agglomeration Economies and a Test for Optimal City Sizes in Japan

We estimate aggregate production functions for metrpolitan areas in Japan to derive the magnitudes of agglomeration economies. Using the estimates of agglomeration economies, we test if Japanese cities, in particular, Tokyo, are too large.J. Japan. Int. Econ.,December 1996,10(4), pp. 379–398. Faculty of Economics, University of Tokyo, 7-3-1 Hongo, Bunkyo-ku, Tokyo 113, Japan; Socio-Economic Research Center, Central Research Institute of Electric Power Industry, 1-6-1 Ohtemachi, Chiyoda-ku, Tokyo 100, Japan; and Institute of Socio-Economic Planning, University of Tsukuba, 1-1-1 Tennodai, Tsukuba, Ibaraki 305, Japan.     

Banker preferences,interbank connections,and the enduring structure of the Federal Reserve System

Established by a three person committee in 1914, the structure of the Federal Reserve System has remained essentially unchanged ever since, despite criticism at the time and over ensuing decades. This paper examines the original selection of cities for Reserve Banks and branches, and placement of district boundaries. We show that each aspect of the Fed's structure reflected the preferences of national banks, including adjustments to district boundaries after 1914. Further, using newly-collected data on interbank connections, we find that banker preferences mirrored established correspondent relationships. The Federal Reserve was thus formed on top of the structure that it was largely meant to replace.     

Does the law of one price hold in China? Testing price convergence using disaggregated data

This study examines to what extent prices diverge across China and how long it takes prices to converge following idiosyncratic shocks. We consider monthly data using disaggregated goods prices from 36 cities in China. Following [Imbs, J., Mumtaz, H., Ravn, M., and Rey, H., 2005. PPP strikes back: aggregation and the real exchange rate. Quarterly Journal of Economics 120, 1–44.], we use two estimation methods: a fixed effect method when considering goods individually and a mean group estimation specification for a panel including all goods simultaneously. The mean group method also accounts for dynamic heterogeneity across goods. Impulse response functions are obtained to calculate half-lives. With both methods, we find half-lives of only a few months or less, supporting the conjecture that convergence rates within a country are faster than rates estimated in an international context. However, the half-life reported here is still shorter than that for other studies using disaggregated intracountry data. Perhaps a lower degree of specialization and market differentiation in developing countries creates a greater potential for price convergence.     

The recent failure of U.S. monetary policy

Summary The very slow growth of the broad money supply has been a primary source of U.S. economic weakness in 1990 through 1992. The velocity link between M2 and the subsequent level of nominal GDP has not declined. But changes in bank reserves brought about by open market operations have had much less effect onM2 than the Fed anticipated for two reasons: (1) reserve requirements now apply to only a small fraction of totalM2; and (2) the new bank capital requirements limit some banks ability to lend. The Federal Reserve failed to appreciate the importance of these conditions and misjudged the strength of the monetary policy stimulus that it was providing.Professor of Economics, Harvard University, and President of the National Bureau of Economic Research.Sixth Tinbergen Lecture delivered on October 2, 1992, in The Hague for the Royal Netherlands Economic Association.     

Fiscal Policy Effectiveness in Japan

The effectiveness of fiscal policy in Japan over the past decade has been a matter of great controversy. We investigate the effectiveness of Japanese fiscal policy over the 1976–1999 period using a structural VAR analysis of real GDP, tax revenues, and public expenditures. We find that expansionary fiscal policy, whether in the form of tax cuts or of public works spending, had significant stimulative effects. Using a new method of computing policy multipliers from structural VARs, we calculate that the multiplier on tax cuts is about 25% higher at a four-year horizon than that on public works spending, though both are well in excess of one. A historical decomposition reveals that Japanese fiscal policy was contractionary over much of the 1990s, and a significant proportion of the variation in growth can be attributed to fiscal policy shocks; accordingly, most of the run-up in public debt is attributable to declining tax revenues due to the recession. Examining savings behavior directly, we find limited evidence of Ricardian effects, insufficient to offset the short-term effects of discretionary fiscal policy. J. Japan. Int. Econ., December 2002, 16(4), pp. 536–558. Federal Reserve Bank of New York, New York, and Institute for International Economics, Washington, DC. © 2002 Elsevier Science (USA).Journal of Economic Literature Classification Numbers: E62, E65, E21.     

Recollections of my Career

Subroto, Professor at the Faculty of Economics, University of Indonesia (FEUI), is one of the architects of the economic policies that brought growing prosperity to Indonesia over the New Order years Educated in Dutch colonial and Japanese occupation schools, he joined Indonesia's independence struggle, and later studied economics at FEUI, McGill University, MIT, and Stanford and Harvard Universities. He taught international economics and business cycles at FEUI and was Secretary of the Faculty. With Widjojo Nitisastro, Mohammad Sadh, Ali Wardhana and Emil Salim, Subroto was appointed a Personal Economic Adviser to General (later President) Soeharto's new government in 1966 In 1968 he joined the Department of Trade, and later was minister of departments responsible for transmigration, cooperatives, mining and energy. After a 17-year ministerial career serving in four consecutive cabinets, Subroto was Secretary General of OPEC for six years from 1988 He remains active in Indonesia's nongovernmental Indonesian Institute for Energy Economics (IIEE), writing on energy problems, and is also Rector of the private Pancasila University in South Jakarta As part of our occasional series of interviews with economists who have helped shape New Order Indonesia, Professor Subroto talked with Chris Manning and Thee Kian VVie of the Bulletin's Editorial Board about his experience as a cabinet minister and as Secretary General of OPEC, and about his views on Indonesia's economic development, particularly its energy problems.     

The Euro as a Reserve Currency

This paper presents historical and econometric evidence that the euro will come to rival the dollar as a reserve currency only slowly. The fact that it pays for central banks to hold their foreign reserves in a currency that is widely used in international transactions creates a network externality that gives the dollar an incumbency advantage. In addition, creating a market with sufficient stability to be attractive to international investors requires continuous liquidity management and periodic lender-of-last-resort operations by the issuing central bank. That the Maastricht Treaty assumes a strong separation between monetary policy and prudential regulation consequently bodes ill for the euro's prospects as a reserve currency.J. Japan. Int. Econ., Dec. 1998,12(4), pp. 483–506. Department of Economics and Department of Political Science, University of California, Berkeley, California 94720.Copyright 1998 Academic Press.Journal of Economic LiteratureClassification Number F3.     

打造属于中国的五星品牌酒店——访重庆天来大酒店总经理温耀晃

温耀晃个人简历温耀晃,美籍华人,出生于美国加利福利亚,毕业于美国华盛顿州西雅图大学数学系和酒店管理学院,主攻酒店餐饮部门管理。从事酒店工作40多年,曾在喜来登、万豪等国际五星酒店担任总经理职位,对酒店工作有深入的了解和经验。在中国及香港地区工作生活20年,会说一口流利的英文、中文、广东话和越南话。     

Why Are There Rich and Poor Countries? Symmetry-Breaking in the World Economy

To explain cross-country differences in economic performance, the economics of coordination failures typically portrays each country in a closed economy model with multiple equilibria and then argues that the Poor countries are in equilibria inferior to those achieved by the Rich. This approach cannot tell us anything about the degree of inequality in the world economy. A more satisfactory approach would be to build a world economy model and show why it has to be separated into the Rich and the Poor regions, i.e., to demonstrate the coexistence of the Rich and Poor as an inevitable aspect of the world trading system. In the present model, the symmetry-breaking of the world economy into the Rich and the Poor occurs because international trade causes agglomeration of different economic activities in different regions of the world. International trade thus creates a kind of pecking order among nations, and as in a game of musical chairs, some countries must be excluded from being Rich.J. Japan. Int. Econ., December 1996,10(4), pp. 419–439. Department of Economics, Northwestern University, Evanston, Illinois 60208