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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1991
December 1, 1991
Modelling the Yield Curve
Description: We test and estimate a variety of alternative models of the yield curve, using weekly, high-quality U.K. data. We extend the Campbell-Shiller technique to the overlapping data case and apply it to reject the pure expectations hypothesis under rational expectations. We also find that risk measures, in the form of conditional interest rate volatility, are unable to explain the term premium. A simple, market segmentation approach is, however, moderately successful in explaining the term premium.
December 1, 1991
The CFA Franc Zone: Currency Union and Monetary Standard
Description: The CFA franc zone comprises a group of countries in central and west Africa whose currencies have been firmly linked to the French franc since 1948. It combines the features of a currency union with those of an exchange rate peg, and an analysis of its effectiveness must examine both dimensions. Viewed from the perspective of a currency union among the African countries, it would appear that the zone would not constitute an optimum currency area. But when France is viewed as an integral part of the system, the benefits—including discipline, credibility, and stability in international competitiveness—become clearer.
December 1, 1991
Banking Policy and the Pricing of Deposit Guarantees: A New Approach
Description: This paper describes a new approach to pricing government deposit guarantees that uses techniques of stochastic process switching employed in the recent literature on exchange rate determination. Our model avoids inconsistent assumptions about the information available to investors and the government common in previous work based on an option pricing approach. We derive actuarially fair deposit insurance premia and optimal financial reorganization rules and examine the role of banking policies such as capital requirements.
Notes: Describes a new approach to pricing government deposit guarantees that uses techniques of stochastic process switching employed in the recent literature on exchange rate determinations.
December 1, 1991
Credibility and the Cost of Export Subsidies
Description: Recurring balance of payments crises in countries that pursued import substitution have led some of them to establish a variety of export incentives, in particular subsidies, as a way to revive and re-orient their economies. However, exporters are likely to be uncertain of the government’s commitment to export promotion because of the years of neglect. This paper analyzes the issue of the credibility of export subsidies and suggests that a government is able to convince exporters of its commitment only at a cost, which reduces the attractiveness of promoting exports by means of subsidies.
December 1, 1991
Government Ponzi Games and Debt Dynamics Under Uncertainty
Description: We investigate the conditions for sustainability of debt roll-over schemes under uncertainty. In contrast with the requirements identified in recent research, we show that a necessary and sufficient condition for sustainability of such schemes is that the asymptotic interest rate on government debt be lower than the asymptotic growth rate of the economy, a natural extension of a familiar criterion in a deterministic framework. However, we also show that for realistic parameter values, Ponzi games that are sustainable in the long run may display explosive patterns over relatively long horizons. This may explain why governments may be reluctant to play Ponzi games even when they are feasible in the long run.
December 1, 1991
Effects of Long-Run Demographic Changes in a Multi-Country Model
Description: The macroeconomic effects of population aging are explored using data for the G-7 countries and Australia. The link between changes in birth and mortality rates on the one hand, and dependency ratios on the other, is first discussed, then empirical evidence on the effects of dependency ratios on net foreign asset positions and on consumption is presented. Simulations of changes in dependency ratios are then reported, using demographic projections to the year 2025. Finally, the plausibility of the implied changes in net foreign asset positions is discussed.
Notes: The macroeconomic effects of population aging are explored using data for the G-7 countries and Australia.