The Optimal Tariff Formula in a Two-Period Economy

The optimal tariff formula is derived for a large country trading both consumption goods and an investment good in a two-period economy. The formula greatly simplifies the results of the standard one-period economy where both consumption goods and real capital are traded with or without a non-traded good; in particular, the results do not depend on the relative intensities of the two goods.
JEL Classification Numbers: D11, F11, F34.     

Dynamics of quote and deal prices in the foreign exchange market

We empirically investigate price fluctuations of yen-dollar exchange rate using the high-frequency data recorded in the electronic broking system for seven-year period. The distribution of quote price changes has symmetric fat-tails approximated by a power law; however, that of deal price is asymmetrical. The autocorrelation function and diffusion of price changes indicate that quote price exhibits anti-correlation feature in short time scale, whereas deal price is essentially uncorrelated. The bid-ask spread shows power-law distribution and long range temporal correlations similar to that observed in absoute price changes.      

Remittances and the Dutch Disease: Evidence from Panel Data for 18 Developing Countries

In this paper, using the GMM technique we attempt to empirically investigate the Dutch disease effect of remittances. The analyses are based on an annual balanced panel data set for 18 developing countries, which have remittances to GDP ratio of 5 percent and above, over the years 1999–2015. It is found that an inflow of remittances has a positive effect on economic growth, whereas it leads to a depreciation of the real effective exchange rate.     

Retrospective on the Bubble Period and its Relationship to Developments in the 1990s

In reviewing what happened in the 1980s in Japan and how the bursting of the bubble created problems in the early 1990s, the following conclusions are obtained. (1) In order to limit damage to the economy from a bubble and its bursting, it is important to build a resilient financial system through strict supervision policy, so that asset‐price fluctuations would not weaken financial institutions. Supervision policy would include regulatory measures limiting lending concentration and exposure to real‐estate‐related sectors. (2) Monetary policy should pay attention to asset‐price movements. But it may be difficult and inappropriate to raise the interest rate sharply when inflation is low (below one per cent like in Japan), even though asset prices are increasing at 30–40 per cent. (3) The official discount rate could have been raised in the summer of 1988 in Japan, when the Federal Reserve and Bundesbank raised interest rates. This would have slowed down the rise of stock and land prices, but the bubble was already large by then. (4) The bubble in the second half of the 1980s was only partially responsible for the lost decade of the 1990s in Japan. A series of policy errors made a small problem of the burst bubble much bigger than necessary.     

Changing International Financial Architecture: Growing Chinese Influence?

It is often said that the 21st century will be the Asian century. Based on population and gross domestic product projections, it certainly looks as if this will be so. Will the existing international financial institutions give more voices, votes, and top positions to Asia? Or will Asia create its own institutions that would rival the old architecture? This present paper argues, first, that China, and possibly India, will be in a position to be so influential that the international financial architecture may have to go through significant changes. Second, the three large crises in the last 20 years have made Asian countries more confident that they can manage capital flows by accumulating large foreign reserves and by adopting sound macrofinancial policies. After 2009, China started to push various initiatives that will amount to creating its own sphere of influence with new regional institutions in the future.     

A Cross-Country Empirical Analysis of International Reserves

Using data from more than 100 economies for the period of 1975 to 2005, we conduct an extensive empirical analysis of the determinants of international reserve holdings. Four groups of determinants, namely, traditional macro variables, financial variables, institutional variables, and dummy variables that control for individual economies’ characteristics are considered. We find that the relationship between international reserves and their determinants is significantly different between developed and developing economies and is not stable over time. The estimation results indicate that, especially during the recent period, a developed economy tends to hold a lower level of international reserves than a developing one. Furthermore, there is only limited evidence that East Asian economies including China and Japan are accumulating an excessive amount of international reserves.