Working Papers
January 1, 0001
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1992
August 1, 1992
A Simple Monetary Model of a Shortage Economy
Description: During the transition from a centrally planned economy to a market economy, many countries seem to have experienced some degree of macroeconomic instability. This paper attempts to provide a theoretical explanation of this phenomenon. The paper develops a simple monetary model and shows how macroeconomic stability can be achieved in a rigid centrally planned economy, despite the inherent structural imbalances and irrational price system. On the other hand, the study shows that without hardening enterprise budget constraints, wage and price decontrol tends to destablize the economy and may lead to persistent budget deficits and inflation. The paper also provides a rigorous analysis of household savings and money demand in a shortage economy, and clarifies the somewhat confusing concept of “monetary overhang” in the literature.
Notes: Also published in Staff Papers, Vol. 40, No. 2, June 1993.
August 1, 1992
Wage and Public Debt Indexation
Description: This paper examines the relationship between the degree of wage indexation chosen by private agents and the degree of indexation of the public debt. It is shown that the government is likely to respond to an increase in the degree of wage indexation by increasing the portion of the public debt that is indexed. By contrast, the effect of an increase in public debt indexation on the degree of wage indexation is ambiguous. In equilibrium, depending on the sources of shocks to the economy, the degree of wage indexation may be positively or negatively related to that of debt indexation. This relationship is analyzed both in situations where the policymakers are able to precommit policies and in those where precommitment is not possible.
Notes: Also published in Staff Papers, Vol. 40, No. 2, June 1993.
August 1, 1992
Currency Substitution: The Recent Experience of Bolivia
Description: This paper analyzes the determinants of currency substitution in Bolivia in the period following the 1984/85 hyperinflation. We find that expected exchange rate depreciation and actual interest rate differentials between boliviano and dollar deposits in the Bolivian banking system are statistically significant determinants of the degree of currency substitution. However, the explanatory power of these variables is low compared to variables that measure the degree of inertia in the currency substitution process. Thus, further reductions in inflation or higher interest rates for boliviano bank deposits are likely to have but a small effect on dollarization.
August 1, 1992
Output Collapse in Eastern Europe: The Role of Credit
Description: Real bank credit in Eastern European countries after their recent stabilization programs is shown to have fallen sharply, except in the case of Hungary. The meaning of the fall is discussed under the present value and liquidity perspectives. Moreover, it is shown that the hypothesis that output contraction may be partly due to credit contraction cannot be ruled out. The hypothesis is tested on a sample of 85 branches of industry in Poland. The rationale for expecting a connection between credit and output and policy options to attenuate the liquidity crunch in post-socialist economies is also subject to analysis.
Notes: Also published in Staff Papers, Vol. 40, No. 1, March 1993.
August 1, 1992
Discretionary Monetary Policy Versus Rules: The Japanese Experience During 1986-91
Description: This paper compares the hypothetical performance of various monetary policy rules with that of the discretionary policies actually pursued in Japan over the 1986-91 period. The results suggest that simple rules based on targeting growth in either the money supply, nominal income, or prices would have failed to stabilize economic variables more successfully than discretionary policies. At the same time, it appears that an indicator of monetary conditions incorporating movements in the real exchange rate and the real interest rate would have been useful in assessing the effect of current policies on future activity.
August 1, 1992
Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors
Description: The characteristics of recent capital inflows into Latin America are discussed. It is argued that these inflows are partly explained by conditions outside the region, like recession in the United States and lower international interest rates. This suggests the possibility that a reversal of those conditions may lead to a future capital outflow, increasing the macroeconomic vulnerability of Latin American economies. Policy options are argued to be limited.
Notes: Also published in Staff Papers, Vol. 40, No. 1, March 1993.
August 1, 1992
Stock Market Response to Unexpected Macroeconomic News: The Australian Evidence
Description: This paper provides empirical evidence on the relationship between unexpected changes in macroeconomic variables and Australian stock returns over the period 1980-1991. The results suggest that stock returns are positively correlated with any surprise news in the current account deficit, the exchange rate and growth rate of real GDP, and negatively correlated with surprise news about the inflation rate and interest rates. Stock returns are also positively correlated with the unexpected unemployment rate and negatively correlated to revisions in the expected unemployment rate. The results furthermore suggest that market portfolios can detect the impact of common economic shocks better than the portfolios of the two main subsectors of the market.
Notes: Empirical study on the relationship between unexpected changes in macroeconomic variables and Australian stock returns over the period 1980-1991.
August 1, 1992
Inflation and Monetary Reform
Description: The introduction of a new currency has often occurred as part of a program to fight hyperinflation. In this context, non-uniform conversion rates for different types of assets and liabilities have been used as a means of reducing an initial “excess” stock of liquidity. The paper examines the anticipatory dynamics associated with such reforms. The analysis suggests that monetary reforms of this type have a deflationary effect upon announcement as well as during the transition period. Under uncertainty about the reform date, the direction of the initial jump in prices upon announcement is a priori ambiguous. Upon implementation, a monetary reform leads to a downward jump in prices.
August 1, 1992
Working Paper Summaries (WP/92/1 - WP/92/47)
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: Compilation of summaries of Working Papers released during January-June 1992.