Working Papers
1996
May 1, 1996
Multiple Exchange Rates, Fiscal Deficits and Inflation Dynamics
Description: The paper explores the inflationary implications of exchange rate regime reforms in a small open economy model combining the public finance view of inflation with multiple exchange markets. To account for the experience of many developing countries, the analysis focuses on transitions to multiple official exchange markets. In those countries, multiple exchange rates were often announced as temporary. The paper shows that the dynamic response of inflation to the reform markedly differ whether the announcement is credible or not. The paper also compares the response of inflation under a fixed crawl of nominal official rates and under the presence of policy rules aimed at reducing the spread between the official and parallel exchange rates.
May 1, 1996
Estimation of the Near Unit Root Model of Real Exchange Rates
Description: The time-series properties of real exchange rates, on a number of definitions, for 22 industrial countries during 1979-95 were used to re-examine whether PPP holds. It is shown that if real exchange rates reverted to a constant mean slowly, say by five percent a month, then at standard levels of significance we should expect 11 of the 22 series examined to yield evidence of mean reversion and to reject that hypothesis of a unit root. Using models that imply a constant unconditional mean or trend-stationary productivity changes, we find that only one of the 22 real exchange rates shows evidence against unit roots. This low rate of rejection of unit roots in real exchange rates can be construed as evidence against PPP.
May 1, 1996
Wage Indexation and the Cost of Disinflation
Description: While a standard academic presumption has been that wage indexation reduces the cost of disinflation, policymakers generally contend that wage indexing makes disinflation more difficult. To shed light on these views, this paper reexamines the effects of wage indexing on the output loss caused by money-based stabilization. It finds that the cost of disinflation with indexed wage contracts tends to be smaller than that with contracts that specify preset time-varying wages, but larger than that with contracts that specify fixed wages. Thus the academic and policymakers views can be both appropriate depending on the standard of reference.
May 1, 1996
R&D Spillovers and Global Growth
Description: The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
Notes: Prepared for the June 1996 meeting in Vienna, Austria of the International Seminar on Macroeconomics, jointly sponsored by the NBER and the European Economic Association.
May 1, 1996
German Unification: What Have We Learned From Multi-Country Models?
Description: This study reviews early simulations of the effects of German unification using three different rational-expectations multi-country models. Despite significant differences in their structures and in the implementations of the unification shock, the models delivered a number of common results that proved reasonably accurate guides to the direction and magnitude of the effects of unification on key macroeconomic variables. Unification was expected to give rise to an increase in German aggregate demand that would put upward pressure on output, inflation, and the exchange rate, and downward pressure on the current account balance. The model simulations also highlighted contractionary effects of high German interest rates on EMS countries.
May 1, 1996
Long-Term Trends in the Saving-Investment Balance and Persistent Current Account Surpluses in a Small Open Economy: The Case of the Netherlands
Description: This paper explores, from an investment-saving perspective, the factors underlying the persistent widening of the current account surplus in the Netherlands since the early 1980s. Standard intertemporal models, even appropriately extended to incorporate specific features of the Dutch economy, do not appear to fully account for this development. Accordingly, the paper focusses attention on the production side of the economy to gain further insight into the trends of the current account. Empirical evidence suggests that changes in relative factor prices and a relative demand shift toward non-tradable goods account for the bulk of the observed widening of the current account surplus. In turn, the impact of these factors on the current account appears to reflect both changes in factor proportions and deviations from perfect competition in the Dutch sheltered sector.
May 1, 1996
The Reform of Wholesale Payment Systems and its Impacton Financial Markets
Description: This paper reviews the ongoing efforts to reduce the risks inherent in the world’s principal wholesale payment systems. The paper assesses the major policy proposals to contain the growth in intraday credit exposures that arises in net settlement wholesale payment systems and in the real-time gross systems in which the central bank provides daylight overdrafts. It also discusses the benefits of these risk-management policies, and we assess the adverse impact of applying interest charges for intraday central-bank credit or of collateralizing such credit on liquidity in financial markets.
Notes: This paper is forthcoming as a G-30 Discussion Paper.
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