Working Papers
2005
January 1, 2005
Assessing Protectionism and Subsidies in Agriculture: A Gravity Approach
Description: This paper provides the first comprehensive empirical analysis of agricultural trade using a gravity model. The data set covers bilateral trade in agricultural goods for 152 countries over the periods 1990-93 and 1999-2002. The estimations support claims that protectionism and distortive subsidies to agriculture remain widespread in more developed nations, which are shown to import less and export more agricultural products than expected given other economic, political, and geographic determinants of trade. However, some developing regions that are often thought to be the main victims of industrial-country protectionism are also found to be relatively closed to agricultural trade.
January 1, 2005
The Russian Flat Tax Reform
Description: Russia dramatically reduced its higher rates of personal income tax (PIT) in 2001 establishing a single marginal rate at the low level of 13 percent. In the following year, real revenue from the PIT actually increased by about 26 percent. This 'flat tax' experience has attracted much attention (and emulation) among policymakers, making it perhaps the most important tax reform of recent years. But it has been little studied. This paper asks whether the strong revenue performance of the PIT was itself a consequence of this reform, using both macro evidence and, in particular, micro-level data on the experiences of individuals and households affected by the reform to varying degrees. It concludes that there is no evidence of a strong supply side effect of the reform. Compliance, however, did improve quite substantially-by about one third according to our estimates-though it remains unclear whether this was due to the parametric reforms or to accompanying changes in enforcement.
January 1, 2005
State-Owned Banks, Stability, Privatization, and Growth: Practical Policy Decisions in a World Without Empirical Proof
Description: This paper provides an overview of the possible linkages between state-owned banks, privatization, and banking sector crises. Data on privatizations in over 65 countries is used together with data from the banking crisis literature to consider the relationship between state-owned banks and financial sector stability. The paper draws on the existing literature to provide guidance to policymakers regarding bank privatization.
January 1, 2005
Asset Mispricing Due to Cognitive Dissonance
Description: The behavior of equity prices is analyzed in a general equilibrium model where agents have preferences not only over consumption but also (implicitly) over their beliefs. To alleviate cognitive dissonance, investors endogenously choose to ignore information that conflicts too much with their ex ante expectations. Depending on the new information that is released, systematic overvaluation and undervaluation of equity prices arise, as well as too much and too little equity price volatility. The distortion in the asset pricing process is closely related to the precision of the information.
2004
December 1, 2004
Integrating a Unified Revenue Administration for Tax and Social Contribution Collections: Experiences of Central and Eastern European Countries
Description: During the 1990s, a failure to collect social contributions in Central and Eastern European countries deprived pension schemes of resources needed to meet their obligations. Based on these countries' experience, this paper examines the trend to increase coordination of tax and contribution collections. It sets out the rationale for establishing a unified agency as the best long-term strategy, and discusses policy and administrative issues in implementing this approach. The appendix presents three case studies for Albania, Bulgaria, and Romania, which are establishing a unified revenue administration. Another case study is presented for Sweden, which successfully integrated tax and social contributions collections in the 1980s.
December 1, 2004
The Relationship Between Macroeconomic Statistics Guidelines and Accounting Standards
Description: This paper aims to promote harmonization between macroeconomic statistics guidelines and accounting standards. It first highlights recent development that act as drivers to the harmonization of the two systems. It then compares the two systems and reviews approaches aimed at further harmonization. This is followed by a description of the specificity of each system in terms of the emphasis each puts on various aspects of data quality. The paper concludes that through differences between the two systems will remain, they are more likely to be documented, via statistical metadata, than in the past; in the public sector, there is a promising potential for data reconciliation in the form of bridging items; and convergence is likely to be achieved in selected areas.
December 1, 2004
Macroeconomic Implications of the Transition to Inflation Targeting and Capital Account Liberalization in Romania
Description: In the near future, Romania will introduce inflation targeting and fully liberalize its capital account. This paper aims to analyze, in a dynamic general-equilibrium model with sticky prices and monopolistic competition, how these two profound changes will affect the ability of monetary policy to pursue its objective of price stability. In particular, the resilience of the current and future monetary policy regimes to shocks is evaluated against two welfare criteria: a standard central bank loss function containing the deviations of inflation, output, and the real exchange rate from their equilibrium values, and the compensating variation measure of Lucas (1987).
December 1, 2004
Exchange Rate, Money, and Wages: What is Driving Prices in Armenia?
Description: This paper is the first attempt to look at inflation dynamics and monetary transmission mechanisms in Armenia in the context of a full information model containing three interrelated markets: foreign exchange, money, and labor. Using the vector error correction model (VECM) approach, we find that the exchange rate pass-through to prices is very strong relative to credit, wage, and interest rate channels. The analysis suggests a relatively fast adjustment of prices to long-run disequilibria in the exchange rate market, albeit with initial overshooting of the price level. In addition, we find no evidence of prices responding to changes in money and wages in a statistically significant manner.
December 1, 2004
A Common Currency for Belarus and Russia?
Description: This paper discusses costs, benefits, and implementation challenges of a possible currency union between Belarus and Russia. It shows that Belarus and Russia are economically closely linked but nevertheless do not fulfill all "optimal currency area" criteria, especially the macroeconomic symmetry condition. Furthermore, we argue that the different speeds of economic liberalization over the past decade have resulted in different economic structures, with Belarus still dependent on monetary financing of budgets and industries. However, a final cost-benefit analysis also needs to consider that currency unification may bring substantial benefits from reduced transaction costs, an improved macroeconomic environment in Belarus, and by acting as a catalyst to advance structural reforms in Belarus.
December 1, 2004
Central Bank Governance: A Survey of Boards and Management
Description: This paper identifies issues to consider when designing the structure, size, and composition of the governing boards and management of a central bank. While central bank autonomy and accountability are generally accepted as good practice, there is less consensus regarding the structure, size, and composition of the governing bodies. This paper surveys 101 central bank laws covering 113 countries and classifies the governance structure according to degree of autonomy, functions performed, size, composition, appointment procedures, and terms of the members. The paper concludes that an appropriate balance must be struck between the functions of the governing entities, simplicity, and country specific factors. The functions of the various bodies follow logically if a greater appreciation exists for the type of autonomy delegated to the central bank.