Reserve Requirements and Real Exchange Rate Misalignments in Emerging Market Economies

A popular policy target in emerging markets is the real exchange rate as an undervalued real exchange rate is seen to enhance international competitiveness. Within an augmented Dornbusch model it is shown that the implicit tax of low remunerated reserve requirements represents an efficient tool to depreciate the real exchange rate. The model is empirically tested for a panel of Latin American, East Asian and Eastern European countries. Controlling for the impact of fiscal policies and direct capital controls, the reserve requirement tax significantly explains real exchange rate misalignments.     

Outlets for developing countries in the German market

As one of the biggest trade partners of the developing countries the Federal Republic of Germany is of necessity one of the states to which these countries will address their trade-political demands at UNCTAD V. An analysis shows however that, as the classic competences for trade policy decisions have been largely transferred to the EC, the Federal Republic is left with very little scope for action.     

Pluralität in der sozialen Sicherung

This paper recommends more plurality in social security provison, particularly in retirement and health insurance. Plurality is necessary, just because of such pragmatic reasons as population aging. The demographic changes to come will threaten the current monolithical public pay-as-you-go systems in their very substance. Moreover, more plurality makes sense because it opens new degrees of freedom, e.g., by better distributing the aging burden intertemporally. Finally, more plurality can be realized because the transition problem is soluable as we show in a simulation exercise for the German public retirement system.     

Measuring Motivations for the Reciprocal Responses Observed in a Simple Dilemma Game

A reciprocal action is an action meant to have a similar influence on another's payoff as another's action has on one's own. One hypothesis asserts that reciprocal action is triggered by the reciprocator's belief that another's action was good or ill intended. The other hypothesis says that the reciprocator is simply acting to implement fixed preferences over payoff allocations. We report on an experiment that allows us to study both positive (reward) and negative (punishment) reciprocal action in a single framework. Knowing the preferences for payoff allocations is sufficient to account for nearly all the reciprocal action we observe in our experiment.     

Long-term appointment of central bankers: costs and benefits

Why do independent central bank boards have a reputation for more moderate policy than do elected governments, even if the board's members have been appointed by the current or former government? This paper gives an explanation for the case of a political world with ‘zeitgeist shocks’ on the electorate's preferences. If the median position of preferences inside the board determines the monetary policy, a trade-off concerning member term length arises: a longer term entails more moderation, while enhancing the likelihood of detachment from contact to the electorate's current preferences.     

“The weighted average cost of capital is not quite right”: A rejoinder

Richard Miller's reply (2008) to my comment (2008) on his claim (2007) that the standard WACC formula fails to correctly remunerate shareholders and bondholders raises crucial questions on the nature of the project's debt that he considers in his calculations. To clarify this point, I here introduce several possible definitions of a loan associated with a project, and discuss their respective relevance for a WACC calculation. In addition, Mr. Miller's suggestion that the standard WACC formula is not quite right remains unsubstantiated.     

The impact of deviation from relative purchasing power parity equilibrium on U.S. foreign direct investment

Analyzing inbound and outbound foreign direct investment (FDI) between the U.S. and seven developed countries over the period from 1994 to 2004, this study provides strong evidence for a positive relationship between aggregate FDI flows and a strengthening of a home currency. Further, taking exchange rate disequilibrium into account, we find that an increase in U.S. inbound FDI is related to a strengthening of an undervalued and overvalued U.S. dollar, while an increase in U.S. outbound FDI (foreign inbound FDI) is mainly related to a strengthening of an overvalued foreign currency. Disaggregate FDI flow data show that these findings hold mainly for the manufacturing (food and machinery) and the wholesale industry. We argue that our findings may provide evidence for a co-existence of the wealth-effect hypothesis and a more profit and production oriented hypothesis, once the U.S. dollar is undervalued. Additionally, the results support the argument that the profit and production oriented hypothesis dominates the wealth effect in developed countries, especially in the manufacturing and wholesale industry. Moreover, the results support the view that foreign investors are interested in how overvalued or undervalued a currency is, rather than being interested only in the recent direction of change in the exchange rate. Finally, all findings are robust with respect to several estimation procedures.