Working Papers
1994
April 1, 1994
Operational Issues Related to the Functioning of Interbank Foreign Exchange Markets in Selected African Countries
Description: This paper discusses the main operational issues involved in the implementation of interbank foreign exchange systems in selected African countries. The countries considered are The Gambia, Ghana, Kenya, Mozambique, Nigeria, and Sierra Leone. The paper finds that exchange rates in these markets tend to be determined through transactions between dealers and clients at the retail level, for the most part, rather than through wholesale interdealer transactions. Additionally, many factors continue to limit the full development of these markets. In particular, informational problems limiting “real time” quotes, inadequate competition in the market, and insufficient regulations to reduce exchange rate risk and encourage “true” interdealer transactions. Despite these limitations, the markets studied have improved the efficiency of foreign exchange allocation and substantially narrowed exchange rate differentials between the official and parallel markets.
April 1, 1994
Credit Markets with Differences in Abilities: Education, Distribution, and Growth
Description: This paper addresses the growth, welfare, and distributional effects of credit markets. We construct a general equilibrium model where human capital is the engine of growth and individuals differ in their education abilities. We argue that the existence of credit markets encourages specialization, by which individuals choose during their youth to work or to receive formal education. This specialization unambiguously increases growth and welfare. The model also shows that in economies with high (low) average level of education abilities, the opening of credit markets induces a more disperse (equal) income distribution.
April 1, 1994
Trade Reforms of Uncertain Duration and Real Uncertainty: A First Approximation
Description: This paper examines trade reforms of uncertain duration undertaken in economies subject to real foreign and domestic shocks. These reforms induce consumption and import booms regardless of whether they succeed or fail and of the degree of intertemporal elasticity of substitution. If tariff revenue is rebated, a recession follows the boom, but without rebates a boom or a recession may follow depending on the outcome of the reform. Consumption fluctuations reflect imperfect credibility and real shocks, and the credibility component depends on the mean and risk of real asset returns. Thus, observed booms are a noisy signal of imperfect credibility. Quantitatively, lack of credibility produces sizable consumption cycles, but generally smaller than those induced by real disturbances.
Notes: Also published in Staff Papers, Vol. 41, No. 4, December 1994.
April 1, 1994
Interenterprise Arrears in Post-Communist Economies
Description: The reasons for the growth of interenterprise debt are analyzed. It is suggested that it results mainly from the appearance of normal trade credit in a liberalized economy, and when a monetary squeeze is part of a stabilization attempt that is not credible. In the latter case, the result can be a sharp fall in output. Non-market and market solutions to this problem are analyzed, and the advantages of the latter over the former are stressed.
April 1, 1994
A Formal Model of Optimum Currency Areas
Description: A model of optimum currency areas is presented using a general equilibrium model with regionally differentiated goods. The choice of a currency union depends upon the size of the underlying disturbances, the correlation between these disturbances, the costs of transactions across currencies, factor mobility across regions, and the interrelationships between demand for different goods. It is found that, while a currency union can raise the welfare of the regions within the union, it unambiguously lowers welfare for those outside the union.
Notes: Also published in Staff Papers, Vol. 41, No. 4, December 1994.
April 1, 1994
The Internationalization of Yen and Key Currency Questions
Description: The role of the yen in the International financial system is reconsidered from a comparative (historical) approach. Compared with the D-Mark in the postwar years, the limited use of the yen results not so much from regulations on capital movements as from the structure and behavior of Japanese economy. The history of the pound-sterling and the U.S. dollar reveals the fact that such factors as the network of foreign trade and economic size constitute the basis and “inertia” of a key-currency. Thus for a currency to rise to a key-position in global transactions, real factors are more decisive than financial market arrangement. Seen from the foreign economic relations, it is not possible for Japan to own a key-currency independent from the U.S. dollar.
April 1, 1994
A Framework for the Analysis of Pension and Unemployment Benefit Reform in Poland
Description: This paper examines the impacts on welfare, savings, labor supply, and the government budget of several possible reforms of the Polish pension and unemployment benefit systems. The framework of analysis is a life cycle simulation model of household consumption, labor supply and retirement decisions. The paper builds on past work by Perraudin and Pujol (1992). The present study focusses on the length of averaging periods in pension benefit calculations, measures to offset incentives to early retirement, and interactions between pension and unemployment benefit systems.
Notes: Also published in Staff Papers, Vol. 41, No. 4, December 1994.
April 1, 1994
Improving the Management of a Central Bank: A Case Study
Description: This paper examines how major efficiency gains and improved effectiveness were simultaneously achieved at the Reserve Bank of New Zealand over a five-year period. It identifies the business management concepts that were used to transform the organization, outlines how they were applied, and evaluates the benefits obtained. The paper concludes that substantial real efficiency gains were achieved, while effectiveness was maintained or enhanced. Looking more widely, the business management concepts used to achieve these benefits could be applied to other central banks.
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