Working Papers
1994
January 1, 1994
Monetary Policy in Unified Currency Areas: The Cases of the Cama and Ecca During 1976-90
Description: The paper compares the performance of monetary policy in the Central African Monetary Area (CAMA) and the Eastern Caribbean Currency Area (ECCA) during 1976-90. Their institutional setup and mechanism for monetary control are examined to explain the opposite trends in the net external position of their banking system during this period. It concludes that monetary policy in the ECCA succeeded by relying on active interest rate management aimed at stemming capital outflows and adhering to stringent rules aimed at limiting credit expansion. The passive policy stance in the CAMA contributed to a significant redistribution of the area’s money stock.
Notes: Compares the performance of monetary policy in the Central African Monetary Area (CAMA) and the Eastern Caribbean Currency Area (ECCA) during 1976-90.
January 1, 1994
The Macroeconomic Determinants of Commodity Prices
Description: The “traditional structural approach” to the determination of real commodity prices has relied exclusively on demand factors as the fundamentals that explain the behavior of commodity prices. This framework, however, has been unable to explain the marked and sustained weakness in commodity prices during the 1980s and 1990s. This paper extends that framework in two important directions: First, it incorporates commodity supply in the analysis, capturing the impact on prices of the sharp increase in commodity exports of developing countries during the debt crisis of the 1980s. Second, we take a broader view of “world” demand that extends beyond the industrial countries and includes output developments in Eastern Europe and the former Soviet Union (FSU). The empirical results support these extensions, as both the fit of the model improves substantially and, more importantly, its ability to forecast increases markedly.
Notes: Also published in Staff Papers, Vol. 41, No. 2, June 1994.
January 1, 1994
Measuring the Transition: A User's Viewon National Accounts in Russia
Description: As Russia’s transition unfolds, the traditional national accounts concepts and reporting mechanisms become increasingly inadequate. As a result, the margin of error associated with basic price and quantity estimates widens substantially. A selection of key measurement and interpretation issues is discussed here, in operational rather than in methodological terms.
January 1, 1994
Money Demand, Bank Credit, and Economic Performance in Former Socialist Economies
Description: This paper examines factors determining the allocation of bank credit to the enterprise sector, and the implications of this allocation for aggregate supply and macro-economic performance, in the former socialist economies. It first develops a model to explain how changes in demand for money by the household sector directly influence the availability of working capital, which in turn determines aggregate output and employment. It then examines factors influencing the allocation of bank credit between enterprises and other borrowers, in particular the government. Finally, the paper discusses relative merits of bank finance and equity capital in financing medium- and long-term investment, and constraints on the development of efficient equity markets.
Notes: Also published in Staff Papers, Vol. 41, No. 2, June 1994.
1993
December 1, 1993
The Integration of World Capital Markets
Description: This paper discusses the extent to which national capital markets have become linked, and identifies several of the more important consequences of that increased degree of integration. Alternative approaches to the measurement of capital market integration are reviewed, including deviations from the law of one price, differences between actual and optimally diversified portfolios, correlations between domestic investment and domestic saving, and cross-country links in consumption behavior. Two recent episodes of large-scale international capital flows—namely, the turmoil in the European Monetary System in the fall of 1992, and the surge of capital inflows into Latin America during the last three years—are examined for insights into the workings of today’s global capital market. Finally, the paper offers some concluding remarks on the future development of international capital markets, on exchange rate management, on alternative approaches to living with larger and more influential financial markets, and on the financing of investment in the formerly centrally planned economies.
Notes: The turmoil in the European Monetary System in the fall of 1992, and the surge of capital inflows into Latin America during the last three years, are examined.
December 1, 1993
Endogeneity in Structural Unemployment Equations: The Case of Canada
Description: This paper examines the endogeneity of several structural variables which enter unemployment rate equations—the generosity of unemployment benefits, nonwage labor costs, the relative minimum wage, and the degree of unionization. It finds evidence of reverse causality for these structural variables based on causality tests. The structural unemployment rate equation is then estimated using instruments suggested by the empirical analysis of the structural variables. The paper confirms the earlier finding that the generosity of unemployment benefits, nonwage labor costs, and the relative minimum wage have a significant positive impact on the unemployment rate, but fails to find an effect for the degree of unionization.
December 1, 1993
U.S. Health Care Reform
Description: High and rapidly rising health care costs in the United States and growing ranks of uninsured persons have brought health care reform to the top of the U.S. Administration’s policy agenda. This paper describes the health care financing system in the United States, highlights what are viewed as its most serious shortcomings, and explores possible reasons for high and rising medical care costs. After brief descriptions of alternative reform proposals, the paper discusses universal coverage under managed competition and its ability to deal with the equity and efficiency problems in the U.S. health care system.
December 1, 1993
Recent U.S. Investment Incentives
Description: The apparent slowdown in U.S. investment and productivity growth in recent years has led to a number of proposals to stimulate investment through the adoption of tax incentives. This paper describes the incentives that were contained in the February 1993 Budget and estimates their effect on the user cost of capital. The recent evidence regarding the effect of tax changes on investment in the United States is reviewed, and the likely effect of the Budget’s proposals on investment and overall economic activity is simulated. The simulations suggest that the proposals would have had a stimulative but largely transitory effect on U.S. investment and output.
Notes: Describes the incentives that were contained in the February 1993 Budget and estimates their effect on the use cost of capital.
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