Canada and the IMF: Trailblazer or Prodigal Son?

Canada played an important role in the establishment of the IMF, yet in 1950 it was also the first major member to abandon the Bretton Woods par-value system in favour of a flexible exchange rate. Canada’s trail-blazing experience demonstrated that a flexible exchange rate can operate in stable and effective manner under a high degree of capital mobility. Equally important, it showed that monetary policy needs to be conducted differently under a flexible exchange rate and capital mobility. In 1962, Canada returned to the Bretton Woods system as a “prodigal son”, after a period of controversial monetary policy. This paper critically analyzes the interaction between Canadian and IMF officials regarding Canada’s exchange rate policy in view of the economic circumstances and the prevailing wisdom at the time. It also examines the impact on IMF research and policy because the Canadian experience influenced the work of Robert Mundell and Marcus Fleming, resulting in the development of the Mundell-Fleming model. Thus, the Canadian floating rate experience not only had important implications for the IMF and the Bretton Woods system, but also for macroeconomic theory and policy in open economies.     

Stabilization policy under flexible exchange rates and liquidity

Summary A two country model under flexible exchange rates is developed. The model shows that changes in the interest rate resulting from monetary or fiscal expansion has indeterminant effects on prices, output, capital flows and liquidity demand for money under conditions of a less than full employment equilibrium. Stabilization policy recommendations previously respected in this context fall under suspicion.     

Macroeconomic stabilization through monetary and fiscal policy coordination: Implications for European Monetary Union

In a two-country model, we consider the implications of monetary and fiscal policy coordination for macroeconomic stabilization. We show that the optimal regime is one of monetary and fiscal policy coordination under flexible exchange rates. In the context of the European Community, this suggests that the desire to fix exchange rates may not be costless. In addition, we show that fiscal coordination requires a relatively high degree of flexibility in fiscal policy. This result suggests that limits on the flexibility of fiscal policies, as suggested in the Delors Report, may hinder macroeconomic stabilization.     

后危机时期泰国的汇率安排及其改革模式

泰国是一个小型开放经济体,货币当局拥有较少的国际储备,在"不可能三角"中优先考虑了资本自由流动与货币政策独立性目标,泰国后危机时期实行了较具弹性的管理浮动汇率制。泰铢汇率的持续升值削弱了出口产品的国际竞争力,资本管制的非对称性增加了金融市场的不确定性,凸现出管理浮动汇率制的局限性。泰国未来的汇率制度改革,可以采取建立保持泰铢动态稳定的汇率安排和重视区域货币合作、汇率政策协调的两种模式。     

基于购买力平价理论的人民币汇率的实证检验

购买力平价对人民币汇率虽然具有一定的解释作用,但有很大的局限性。汇率的变动不仅仅与物价水平相关,还与一国的生产力发展水平、利率、资本流动等其他经济变量以及该国施行的货币政策、财政政策和汇率政策有关。因此,必须对购买力平价计量检验模型进行修正,以期更好地解释人民币汇率的变化并指导其调整。     

Policy Choices and Resilience to International Monetary Shocks

Abstract

The well-known trilemma theory states that the nominal exchange rate regime plays a crucial role in a country's ability to pursue monetary policy that is for its domestic objectives independent from other countries' influences. In particular, a flexible exchange rate is required for an independent monetary policy. Capital controls may help a country with a fixed exchange rate to gain some policy space but the effect of capital controls is leaky and often short-lived. We revisit these conventional wisdoms and find no strong evidence supporting them in practice. In particular, a flexible exchange rate does not reliably deliver monetary policy independence, but capital controls do. This is consistent with the view that most (developing) countries dislike either depreciation or appreciation of their currencies, and therefore would choose to follow US monetary policy moves even if they are on a flexible exchange rate regime. In other words, to build resilience to international monetary policy shocks, capital controls are a necessarily component.     

Asymmetries and state dependence: The impact of macro surprises on intraday exchange rates

This paper investigates the possible asymmetric response of 5-min intraday JPY/USD exchange rates to macroeconomic news announcements during 1999–2006 when the Japanese money market interest rate was effectively zero. This period provides a unique institutional setting when interest rates may rise but not decline, thereby constraining both endogenous policy reactions to news and private market expectations. Asymmetric responses to news, to the extent that they are important in exchange rate markets as they are in equity markets, would seem particularly likely to be evident during this period. We consider several ways asymmetric responses may be manifested and linked to macroeconomic news during this unusual period. We assess whether the intraday exchange rate responds differently depending on whether the news is emanating from Japan or the US; we consider the state of the business cycle; and we distinguish between “good” and “bad” news.     

Testing the Taylor Model Predictability for Exchange Rates in Latin America

Exchange rates forecasting performance is tested by a model which incorporates endogenous monetary policy through a Taylor rule reaction function. Other usual monetary and equilibrium empirical exchange rate models are also evaluated for comparison purposes. Predictability is tested by comparing the models to a benchmark random walk specification. We contribute to the recent literature in many ways. First, we include models of forward-looking endogenous monetary policy to the exchange rate forecasting exercise, the Taylor model. Second, our data, set across countries, is uniform in terms of economies adopting both inflation targeting and a flexible exchange rate. Third, our study sheds light on exchange rate determinants for emerging economies: Brazil, Chile, Colombia, Peru and Mexico. Our results show strong predictability evidence for the Taylor model and indicate that assuming models of endogenous monetary policy and the present value of expected fundamentals is a rewarding strategy to model exchange rate determination.     

Fiscal incentives,competition, and investment in China

This paper explores how fiscal incentives offered to local governments in China affect investment rates in their jurisdictions. Theoretically, we build a simple fiscal competition model to establish the linkage between local fiscal incentives and expenditure policy and consequently, capital movement. The key prediction of the model, borne out by data from Chinese provinces spanning 2004–2013, is that an increase in the local corporate income tax-sharing ratio, which proxies fiscal incentives offered to local governments, motivates local governments to compete for capital investment through increased public expenditure. Our results contribute to the literature on both fiscal federalism and state capacity by showing that local fiscal incentives significantly shape policy choices and local economic performance. In addition, by exploring fiscal incentives offered to local governments, we offer a novel explanation for the unusually high investment rate in China that has been sustained over a prolonged period.     

International Monetary and Financial Arrangements: Present and Future

The paper deals with a broad range of topics under the rubric of the international monetary system: exchange rate agreements, International Monetary Fund structure, history and functioning of the European Monetary Union, monetary and fiscal policies adopted in recent years by different countries, with a special emphasis on central bank independence and inflation control, capital flows and cross-border assets growth and their influence on financial stability, and policy proposals to enhance financial stability. With more than four-fifths of world trade conducted under managed or full flexibility the present system can be regarded more as a flexible than a fixed exchange rate regime. EMU is a major institutional innovation; while its economic benefits have been amply discussed and perhaps exaggerated, the economic costs seem to have been underestimated. Financial liberalization has resulted in huge benefits to savers and borrowers as capital has tended to flow to its most productive uses around the world, but it has also led to fears that this has sharply reduced the effectiveness of monetary policy. This liberalization imposes a constraint on monetary policy in the sense that it forces a much higher degree of economic convergence than was true before.     

固定汇率下资本账户开放对经济的影响——基于修正的Mundell模型的动态分析

本文拓展了蒙代尔(1960)的模型,并用该模型分析了固定汇率体系下资本账户开放对实际汇率和利率的影响,以及资本完全流动时经济的动态稳定性。本文的主要发现是,随着资本账户的开放,资本流动性的加强将会引起实际汇率和利率相对于初始状态的调整。而且,随着资本账户的放开,国内货币政策越来越受制于外部因素。模型的另一个发现是,当资本完全流动时,固定汇率体系呈现一种稳定的稳态。     

转型、经济增长与动态财政政策——Zou(1996)两步法

本文在Zou (1996)的框架基础上,通过内生政府支出,并且将生产性支出设定为存量,求解一个含有私人消费、公共消费、私人资本存量和公共资本存量的动态系统。结论表明,存在一个最优资本产权结构,使得经济能够登上平衡增长道路。与Barro（1990）等不同的是,本文的模型将转型与经济增长紧密联系起来,用资本产权结构的动态变化来表征经济的转型过程,进一步地,财政政策的动态学也有了市场基础。     

转型期的政治激励、财政分权与地方官员经济行为

本文在一个框架内考虑了政治激励与财政分权,考察了转型期我国地方官员的经济行为.中央强调经济增长与财政收入增加的考核导向,使得地方财政支出过度偏向基础设施建设而公共品支出不足,同时抑制了其中的官员私人消费支出.在资本不可流动但多期情形下,地方官员通过降低税率和加大基础设施投资来积累资本.在资本可流动情形下,地方官员为了吸引资本.有额外的激励降低征税力度和加大基础设施建设投入.在资本可流动情形下,地区初始发展水平差距意味着地区吸引资本能力的差异,这可能导致地区发展差距比资本不可流动情形下更大.由于资本有更好的流动性,地方倾向干将财政压力施加到劳动所得上,从而导致初次收入分配中劳动所得份额偏低.     

Persistent differences in national productivity growth rates with a common technology and free capital mobility: The roles of private thrift, public debt, capital taxation, and policy toward human capital formation

The paper develops a two-country endogenous growth model to investigate possible causes for the existence and persistence of productivity growth differentials between nations despite a common technology, constant returns to scale, and perfect international capital mobility. Private consumption is derived from a three-period overlapping generations specification. The source of productivity (growth) differentials in our model is the existence of a nontraded capital good (“human capital”) whose augmentation requires a nontraded current input (time spent by the young in education rather than leisure). We consider the influence on productivity growth differentials of private thrift, public debt, the taxation of capital and savings, and policy toward human capital formation.     

The role of macroeconomic policy in rebalancing growth

The aftermath of the global financial crisis of 2007–2009 has called the export-led growth model of many Asian economies into question. This paper describes the contribution that macroeconomic policy can make to promote a rebalancing of growth away from dependence on exports to developed economies to a more sustainable pattern of growth centered on domestic and regional demand. This represents a significant departure from the traditional uses of macroeconomic policy to stabilize the economic cycle and achieve stable and low inflation. The evidence suggests that macroeconomic policy can successfully contribute to growth rebalancing. Policy measures not only can affect aggregate demand directly, but can also affect it indirectly via their “microeconomic” impacts on private sector behavior such as the household savings rate. Although in the long-term fiscal policy should be balanced to maintain government debt stability and avoid crowding out of private investment, there may be substantial scope to expand monetary and fiscal policy in the medium-term to offset the deflationary effects of an appreciating currency during periods of current account reversal. Previous experience suggests that most of the needed stimulus can be provided by monetary policy, with only a supplementary role to be played by fiscal policy. Moreover, Asian economies with large current account surpluses tend to have sufficient fiscal space.     

FISCAL POLICY, ADJUSTMENT COSTS, AND ENDOGENOUS GROWTH

This paper develops a one-sector endogenous growth model inwhich investment incurs convex adjustment costs. Conditionsfor the existence of a balanced growth path are discussed. Fiscalissues are analyzed in a circumstance in which the governmentuses tax revenues to finance public expenditures that impacton both the productivity of the existing capital stock, andadjustments costs. The effect of these costs on the equilibriumgrowth rate and on the effectiveness of fiscal policy is discussed.Optimal fiscal policy is derived and the role of adjustmentcosts and congestion in determining the trade-off between differenttaxes is considered.     

Debt relief and fiscal sustainability

In this paper I analyze the relationship between fiscal policy,aggregate public sector debt sustainability, and debt relief. I develop a methodology to compute the fiscal policy path that is compatible with aggregate debt sustainability in the post-HIPC era. The model explicitly considers the role of domestic debt and quantifies the extent to which future debt sustainability depends on the availability of concessional loans at subsidized interest rates. The working of the model is illustrated for the case of Nicaragua, a country that in 2002 had one of the highest net present value of public external debt to GDP ratios. JEL no. F3, F34, F35.     

Some Evidence on the Relevance of Bank Behaviour for the Lending Channel in The Netherlands

This paper studies the behaviour of Dutch banks. We test the adjustment of banks' balance sheets in times of monetary policy changes during the period 1957–1991. As a reaction to a policy change, banks basically have two alternatives to adjust their net money creation: (1) sell securities in public capital markets, and/or issue long-term liabilities, and (2) change domestic loan supply. If banks opt for the latter a lending channel may be relevant, even in a small open economy with a fixed exchange rate and a high degree of international capital mobility. We test for the effectiveness of both indirect and direct instruments of monetary policy. It turns out that in case of changes in the official interest rate, the volume of bank loans is not affected and that banks display a kind of buffer-stock behaviour by diminishing their publicly traded assets. In situations with quantity restrictions on the growth of net money creation, however, the volume of loans is affected significantly when the quantity restriction is withdrawn thereby fulfilling a necessary condition for the bank lending channel to be effective.     

资本账户开放风险与对策研究

伴随着经济金融全球化推进,资本账户开放已成为一个国家在推动经济发展和强化对外交流中不可或缺的关键环节。但资本账户开放往往也会给开放国的金融秩序、货币汇率、对外贸易造成一定风险和挑战。本文指出资本账户开放可能导致开放国短期宏观经济过热、投机资本过度涌入等问题,并有针对性地提出保持稳定连续的宏观经济政策、实行富有弹性的汇率政策等对策。