Abstract: In this paper we investigate whether financial liberalization improves the efficiency with which investment funds are allocated. We develop a simple measure of efficiency and apply it to firm level panel data for Indonesia and Ecuador. We find evidence that financial liberalization has indeed improved the allocation of investment, particularly in Indonesia
Abstract: Anti-dumping is often defended as a pressure valve which reduces more illiberal forms of protectionist pressure. In the domino dumping model of Anderson (1992, 1993) this need not be true as exporters dump to obtain market access in the event of a VER. The contribution of this paper is to show that anti-dumping opens a channel for strategic lobbying through which lobbying commitments can have favorable effects on the decisions of exporting firms, and through which antidumping enforcement can encourage lobbying. Thus a "de-politicizing" institution can perversely be responsible for politicizing trade policy all the more.
Abstract: There are constraints on pricing congestible facilities. First, if heterogeneous users are observationally indistinguishable, then congestion charges must be anonymous. Second, the time variation of congestion charges may be constrained. Do these constraints undermine the feasibility of marginal cost pricing, and hence the applicability of the first-best theory of congestible facilities? We show that if heterogeneous users behave identically when using the congestible facility and if the time variation of congestion charges is unconstrained, then marginal cost pricing is feasible with anonymous congestion charges. If, however, the time variation of congestion charges is constrained, optimal pricing with anonymous congestion charges entails Ramsey pricing.
Abstract: A variety of methods for fitting the term structure of interest rates are based on "no-arbitrage" models. From the original cubic spline methods of McCulloch through the more recent smoothing spline approaches of Fisher and Zervos, attempts have been made to generate estimates which allow for local flexibility and a parsimonious representation. Alternative approaches, such as Coleman et al.'s piecewise linear forward rate function and Nelson and Siegel's parametric model have been proposed as superior.
We conduct an exhaustive examination of seven no-arbitrage methods of term structure modelling, applying each method to Treasuries and evaluating both price errors and yield errors in- and out-of-sample. We document a marked difference in the performance of the methods in- and out-of-sample. The Fisher et al. method works very well, but is computationally intensive. The much simpler Nelson-Siegel approach has surprising power in pricing bonds out-of-sample.
Abstract: This paper is a guide to welfare cost measurement with all the basic elements of fiscal policy active in a representative consumer economy. By developing a simple dual framework which nevertheless is more general than the special cases usually employed, we are able to clear up several confusions in the literature on the welfare cost of tax changes. We argue for the natural dominance of a single measure of welfare cost. We do a similar analysis of the parallel literature on government project evaluation, and are able to clear up the confusing concept of the marginal social cost of funds.
Abstract: This paper rehabilitates effective protection. The usual definition of the effective rate of protection is the percentage change in value added per unit induced by the tariff structure. The problem is that in general equilibrium this measure corresponds to no economically interesting magnitude. The effective rate of protection for sector j is defined here as the uniform tariff which is equivalent to the actual differentiated tariff structure in its effects on the rents to residual claimants in sector j. This definition applies to general as well as partial equilibrium economic structures, has obvious relevance for political economy models and seems to correspond to the motivation for the early effective protection literature. Like the earlier effective rate formula, the concept is operational using the widely available set of Computable General Equilibrium (CGE) models.
Abstract: Standard models of hyperinflation use a money demand function based on asset- market considerations: households adjust their real balances according to expected inflation, which is the negative of the real rate of return to money. But these models yield inaccurate and sometimes counterintuitive predictions. One is that if a hyperinflation is a price-level bubble, then hyperinflation is possible at any rate of money growth. Another is that, for some equilibria, an increase in a government's reliance on seignorage reduces rather than raises the steady-state inflation rate. This paper proposes an alternative way to look at hyperinflation based on a careful description of the microeconomics of monetary exchange. Money is primarily an institution required to finance consumption and only incidentally a financial asset. The decision to accept money is a decision to engage in monetary exchange, and a hyperinflation occurs when most households choose to abstain from monetary exchange. The macroeconomic implications of this model are more appealing than those of the traditional models. First, while a hyperinflation in my model may have the same properties as a price-level bubble, this "bubble" is very unlikely when money growth is low and inevitable when money grows too quickly. Second, a greater reliance on seignorage increases the rate of inflation, and can ultimately cause a hyperinflation. The model also mimics the non-monotonic path of real balances as inflation accelerates. Finally, the model suggests that it may be very difficult to restore a currency's place in exchange after a hyperinflation.