Proposal for an EC exchange-rate scheme

Leaving foreign exchange markets to themselves may not lead to realistic and stable exchange rates. Thus appropriate criteria for interference must be defined. The OPTICA (Optimal Currency Area) Group which was appointed by the European Commission tried to work out appropriate rules for the EC. Dr Scharrer, member of the group, explains their proposal; Professor Cohen and EC Vice President Ortoli give their comments.     

New firm location: An equilibrium model and its disequilibrium dynamics

This paper is centered on two basic statements: i) the birth of new firms is spatially related to location factors endowment and ii) the set of location factors can support only up to a given number of firms.The paper firstly defines the regional ex-ante demand for firms as a function of location factors set. In the following step a definition of regional equilibrium stock of firms is given and a static equilibrium model of new firms birth is built up. In a dynamic disequilibrium model the net birth of firms is a function of two disequilibrium terms: a sectoral and a regional one.The sectoral disequilibrium depends on the industry production structure, the regional disequilibrium is linked to the adaptation elasticity of location factors set to an exogenous shock.Finally, a first estimation on Italian data is performed, on the basis of which some new lines of analysis are suggested.     

Asymmetry in quasi-fixed exchange-rate systems

A stochastic model of an international payments system is formulated with the assumptions that: (1) international reserves are held in the form of a key currency; (2) fixed exchange rates are subject to infrequent change; (3) deficit countries depreciate more readily than surplus countries appreciate. The model is implemented with historical data. Time paths for international reserves and prices under alternative assumptions are secured through Monte-Carlo simulation. The paths show that anti-inflationary policy by the key-currency country — viz, the United States — is easily multiplied by exchange-rate changes by other countries.     

Real exchange-rate changes in the European community: A new approach to the determination of optimum currency areas

Deviations from relative purchasing power parity (real exchange-rate changes) are suggested as a comprehensive and operational criterion of the desirability of currency unification. Using consumer price indices, the criterion is applied to the European Community in 1959–1976 and in various subperiods. It is shown, inter alia, that the Community is probably a less desirable currency area than comparable existing currency unions like Germany, Italy and the U.S., that its failure to implement its 1971 plans for monetary union can hardly be attributed to unusually unfavourable external disturbances and that it is possible to identify the member countries which are the most suitable candidates for a pioneer venture in currency unification.     

Financial markets and exchange-rate regimes in transition to EMU

This paper highlights that the EMU transition process itself can pose challenges to individual accession countries and draws policy implications for ERM II. Differences in financial market development and international liabilities underscore the risks and benefits of ERM II, and may lead to conflict between short and long-term policy objectives.     

Cross-border production sharing and exchange-rate sensitivity of Mexico's trade balance

Increasing patterns of international trade occur in the form of cross-border production sharing – the dispersion of separate blocks of an integrated production process across different nations. In the case of ‘standard’ or ‘ordinary’ trade, imports are destined for use in the importing country, and exports are largely produced within the country. However, with production sharing, imported parts and components are destined for inclusion in the country's exports. A depreciation of a nation's currency raises its exports. At the same time, imported components become more expensive, which partly offsets the expansionary effect of the depreciation on exports. Using a simple theoretical framework, this paper shows that production networks lower the sensitivity of a country's trade balance to changes in exchange rates. The empirical examination finds Mexico's Maquiladora trade balance to be unresponsive to changes in both, its real effective as well as its real peso-dollar rates, while that for non-Maquiladora category is significantly responsive, in confirmation with the theorized hypothesis.     

Contagion,herding and exchange-rate instability — A survey

Despite the considerable body of literature on the subject of currency crises there is still very little agreement on the true drivers of these, crises and their transmission across countries. This article focuses in particular on the role of herd behaviour and financial contagion, and the high exchange-rate. volatility which is a direct consequence of these. It also looks at the adverse macroeconomic consequences of episodes with high exchange-rate volatility, especially in terms of labour market performance.     

Do currency boards increase the credibility of exchange-rate pegs?

After massive attacks against the peso in January 2002 the Argentine government abandoned its currency board arrangement. The collapse of the Argentine exchange-rate system initiated a new discussion about the pros and cons of currency boards. Why did the Argentine currency board fail? What does its collapse reveal about the conditions that have to be fulfilled for a currency board to function smoothly? What consequences can be drawn from the Argentine case with regard to the currency boards of countries in central and eastern Europe?     

Modeling nonlinear dynamics of daily futures price changes

The purpose of this article is to characterize linear and nonlinear serial dependence in daily futures price changes. The daily prices of four futures are included in this study: (i) S&P 500; (ii) Japanese yen; (iii) Deutsche mark; and (iv) Eurodollar. Our major empirical findings are: (i) Based on the results of nonlinearity tests (that is, the BDS, the Q², and the TAR-F tests), we found all futures price changes contain nonlinearity in the series; (ii) a GARCH model can explain the source of nonlinearity for three out of four series; (iii) a threshold autoregressive model and autoregressive volatility model can adequately represent nonlinear dynamics of S&P 500 series; and (iv) deterministic chaos is not evident in the scaled residuals from the nonlinear time series models. Hence we favor a statistical time series approach to represent the data-generating mechanism of futures price changes. © 1999 John Wiley & Sons, Inc. Jrl Fut Mark 19: 325–351, 1999     

New-structuralist exchange-rate policy and the pattern of specialization in Latin American countries

The present article critically examines the transmission channels from real exchange rate undervaluation to output growth adduced by New-Structuralism (NS). To this end, we slightly modify new-structuralist canonical model for small open peripheral economies, and make the underlying productive structure depend on income distribution. This allows us both to discuss: (a) the limits of the transmission channels adduced by NS in their own terms, that is, under the assumption that the tradable sector is the modern sector; and (b) the further limitations of these channels when the pattern of trade is more suitable to characterize Latin American countries, whose tradable sector mainly exports primary goods under conditions of differential rent. We conclude that the channels work under highly restrictive assumptions, and therefore the alleged positive relationship between real exchange rate and growth cannot be generally ascertained.     

Entry and exit in disequilibrium

Most entrepreneurship theory depicts disequilibrium as the most common state for entrepreneurial activity and yet remarkably very little empirical research investigates the role of entry and exit in this type of external environment. Drawing on economics and organizational ecology we outline reasons why the interrelation between entry, exit and incumbent firms is likely to vary when the actual number of firms is higher or lower than the number that a market can sustain. We also introduce a new empirical methodology to explain entry and exit levels in two different types of disequilibria comprising situations when markets under and over shoot carrying capacity. Using a data set on the retail industry, we find that in undershoots a lack of competition between incumbent firms restores equilibrium by creating room for new-firm entry. In contrast, in overshoots competition induced by new firms (in particular strong displacement) restores equilibrium. We also find that equilibrium-restoring mechanisms are faster in over than undershoots. The results highlight that the behaviour and impact of entry and exit varies depending on the type of disequilibrium.     

A disequilibrium analysis of the monetary trade model

This paper examines the monetary approach to the balance of payments under fixed exchange rates when domestic prices and wage rates are not fully flexible. This leads to a formulation in the spirit of a ‘disequilibrium analysis’. We analyze alternatively the cases where the prices of nontraded goods or the nominal wage rate are treated as state variables along with the stock of money. The properties of these systems are analyzed from the point of view of the momentary equilibrium and of the dynamic adjustment process.     

Some implications of search and switching costs for the price dynamics of electronic markets

This article develops a model, based on switching costs and technological uncertainty, which explains some aspects of the price dynamics of e‐commerce. Switching costs and intertemporal cost correlation lock‐in consumers. Firms initially charge low prices to build a customer base. If firms fail to reduce costs, and reservation prices are low, firms exit the industry. Over time, prices increase if no exit occurs, and decrease if exit occurs. Prices may also decrease over time, if the proportion of low search cost consumers increases.     

Dynamic analysis of a disequilibrium macroeconomic model with dual labor markets

We extend the general disequilibrium model of Malinvaud (1980) by using dual labor market theory. By considering two tiers of workers, we find that while the duality of the labor market expands an equilibrium regime in the short term, it does not always keep an equilibrium in the medium term. In the medium term, the business cycle converges toward a disequilibrium regime unless the goods market is potentially in equilibrium. Employment and wages at the steady state are affected by the size of the government expenditure, and the stability of wage bargaining is only a sufficient condition of the local stability of our dynamic system. Therefore, involuntary unemployment can be remedied only when goods demand is sufficiently large.     

International financial integration and real exchange rate long-run dynamics in emerging countries: Some panel evidence

The aim of this article is to provide new empirical evidence on the impact of international financial integration on the long-run Real Exchange Rate (RER) in 39 developing countries belonging to three different geographical regions (Latin America, Asia and MENA). It covers the period 1979–2004, and carries out ‘second-generation’ tests for non-stationary panels. Several factors, including international financial integration, are shown to drive the long-run RER in emerging countries. It is found that the new financial environment characterised by international financial integration leads to a depreciation of the RER in the long run. Further, RER misalignments take the form of an under-valuation in most MENA countries and an over-valuation in most Latin American and Asian countries.     

区域经济发展不均衡的因素分析模型及实证研究

近年来,关于中国地区经济增长和区域发展不平衡的研究非常多,但鲜有针对中国区域经济的平均指标(比如人均GDP)进行因素分析.本文通过构建平均指标的因素分析模型,对2000年与2009年广东省经济发展变化的驱动因素进行了实证研究.结果表明,造成区域经济发展不均衡的主要因素是劳动力流动不均衡,这一结果可以为我国协调区域均衡发展的工作提供政策启示.     

Price control and input inventory: The firm under disequilibrium trading

This paper analyzes the case of a small firm facing price controls in the market for its input and, therefore, the possibility of nonmarket clearing. The focus here is on input inventory levels, and their joint determination with purchase and use as input availability—or its probability density—shifts. The main result is that the firm will react to price shocks differently, depending upon whether the input market clears or is in excess demand. In particular, expected persistent increases in the input price lead to less storage when the market clears, but more storage when the firm is constrained in the state of excess demand.     

Trends in international business thought and literature: One country,two currencies? Hong Kong's exchange-rate regime after 1997

A key factor in assessing the future of the Hong Kong dollar is whether China would, after 1997, take the drastic step of abolishing the Hong Kong dollar in favor of the Renminbi (RMB) as legal tender. While this possibility should not be discounted, our view is that a merger of the two currencies would only occur in the distant future when the RMB becomes fully convertible. This study argues that the status quo of the HK$-US$ link would be preserved at least until the turn of the century. A combination of factors, including the overriding need to maintain confidence and stability in Hong Kong, which is crucial for a smooth transition of sovereignty; the weak relationship between either imported or domestic-generated inflation and the exchange rate link; and the misconception that Hong Kong's export competitiveness has been undermined by an overvalued Hong Kong dollar would help to support the argument that other alternative regimes for the Hong Kong dollar exchange rate would not be feasible in the short run. These alternative regimes include changing to a floating rate     

Specialization dynamics

This paper proposes a new empirical framework for analyzing specialization dynamics. A country’s pattern of specialization is viewed as a distribution across sectors, and statistical techniques for analyzing the evolution of this entire distribution are employed. The empirical framework is implemented using data on 20 industries in seven OECD countries since 1970. We find substantial mobility in patterns of specialization. Over time horizons of 5 years, this is largely explained by forces common across countries, including world prices and common changes in technical efficiency. Over longer time horizons, country-specific changes in factor endowments become more important. There is no evidence of an increase in countries’ overall degree of specialization.