Working Papers
January 1, 0001
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January 1, 0001
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January 1, 0001
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January 1, 0001
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1999
December 1, 1999
The Political Economy of Redistributive Social Security
Description: Population aging puts significant pressure on social security systems that are based mainly on a pay-as-you-go (PAYG) formula and determined by the political process in which both retirees and future retirees participate. This paper demonstrates that in an economic and demographic steady state, majoritarian democracy overspends on social security. It then shows that in case of demographic shock, the regular majority process can be paralyzed by the development of entrenched interest groups that could lose from majority decisions. Depending on the way these entrenched interests operate, they can be judged more or less desirable from the viewpoint of social justice.
December 1, 1999
Currency and Banking Crises: The Early Warnings of Distress
Description: The abruptness and virulence of the 1997 Asian crises have led many to claim that these crises are of a new breed and were thus unforecastable. This paper examines 102 financial crises in 20 countries and concludes that the Asian crises are not of a new variety. Overall, the 1997 Asian crises, as well as previous crises elsewhere, occur when economies are in distress, making the degree of fragility of the economy a useful indicator of future crises. Based on this idea, the paper proposes different composite leading indicators of crises, evaluated in terms of accuracy both in-sample and out-of-sample.
December 1, 1999
Demand for M2 in an Emerging-Market Economy: An Error-Correction Model for Malaysia
Description: This paper analyses demand for M2 in Malaysia from August 1973 to December 1995 under both the closed- and open-economy framework. Based on the cointegration and weak-exogeneity test results, short-run dynamic error-correction models are specified and estimated. The results indicate that the demand is for real M2. Both the long- and short-run models are well-specified and are fairly stable. The long-run income elasticity is close to one with the opportunity cost variables carrying the expected signs. The external events have some influence on the stability.
December 1, 1999
Flight Capital as a Portfolio Choice
Description: This paper sets flight capital in the context of portfolio choice, focusing upon the proportion of private wealth that is held abroad. There are large regional differences in this proportion, ranging from 5 percent in South Asia to 40 percent in Africa. We explain cross-country differences in portfolio choice by variables that proxy differences in the risk-adjusted rate of return on capital. We apply the results to four policy questions: how the East Asian crisis affected domestic capital outflows; herd effects; the effect of the IMF-World Bank debt relief initiative for heavily-indebted poor countries (HIPC) on capital repatriation; and why so much of Africa’s private wealth is held outside the continent.
December 1, 1999
The Myth of Comoving Commodity Prices
Description: There is a common perception that the prices of unrelated commodities move together. This paper re-examines this notion, using a measure of comovement of economic time series called concordance. Concordance measures the proportion of time that the prices of two commodities are concurrently in the same boom period or same slump period. Using data on the prices of several unrelated commodities, the paper finds no evidence of comovement in commodity prices. The results carry an important policy implication, as the study provides no support for earlier claims of irrational trading behavior by participants in world commodity markets.
December 1, 1999
Why Do Firms Pay Antidumping Duty?
Description: With the virtual elimination of tariffs and quotas under GATT, antidumping measures emerged as a key instrument of protection. Under antidumping actions exporters can either raise the price to eliminate the dumping margin or pay an antidumping duty. This paper analyzes the incentives to exporters to choose between duty or settlement outcomes and finds that due to the smaller loss in market share exporters may prefer an antidumping duty over voluntary settlement. The paper analyzes the welfare implications of these outcomes and finds that they are ambiguous.