Working Papers
1991
March 1, 1991
Globalization of Financial Markets and Implications for Pacific Basin Developing Countries
Description: This paper analyzes the consequences of the growing interdependence of world financial markets for Pacific developing countries. Section I discusses trends in financial integration in the Pacific and the underlying movements in saving and investment. Section II seeks to quantify the increased capital mobility, in terms of rate of return differentials and the degree of correlation between savings and investment rates across countries. Section III focuses on policy implications of increasing integration, including the effectiveness of macroeconomic policy instruments, the usefulness of the current account as a target of policy, and the dangers of excessive taxation of financial intermediation.
March 1, 1991
A Noteon Dual Foreign Exchange Markets with official Rationing: Predetermined Versus Floating official Exchange Rate
Description: This paper examines the relationship between the long run rate of inflation and the allocation of transactions between markets in economies that operate dual exchange market regimes and ration foreign exchange in the official market. It shows that wider access of importers to the official market, and wider access of exporters to the free market, are associated with higher rates of inflation and vice versa. The direction of causality among the various variables, and thus the effects of economic policies, depend on whether the official exchange rate is predetermined or floating.
March 1, 1991
Macroeconomic Implications of Real Exchange Rate Targeting in Developing Countries
Description: This paper analyzes the macroeconomic effects of a variety of exogenous and policy-induced real disturbances when the authorities target the level of the real exchange rate. It first discusses the implications--particularly for inflation and the current account--of targeting the rate at an “overdepreciated” level. The paper then examines the dynamic response of both output and inflation to a number of shocks. Further applications of the model, particularly as regards fiscal explanations of inflation, high-inflation plateaus, and money-based stabilization programs, are also considered.
Notes: Analyzes the macroeconomic effects of a variety of exogenous and policy-induced real disturbances when the authorities target the level of the real exchange rate. Also published in Staff Papers, Vol. 38, No. 4, December 1991.
March 1, 1991
Price Pressure Gaps: An Application of P* Using Korean Data
Description: This paper presents estimates of a price-pressure indicator for Korea. It does this by constructing measures of how much M2 velocity and output differ from their long-term values. This, in turn, involves estimating a demand for money function in an error correction framework in which interest rates in the unorganized money market help to account for the effects of ongoing financial liberalization. An equation explaining the Korean inflation rate is identified in which both the monetary variable--the velocity gap--and the real variable--the output gap--play important roles.
March 1, 1991
Tax Reform in Economies in Transition: A Brief Introduction to the Main Issues
Description: The transition from a command to a market economy requires profound reforms of the tax system. Such a transition will put downward pressures on the level of taxation at a time when public expenditure remains high. This paper outlines the main characteristics of the tax systems in centrally-planned economies. It describes recent changes in those tax systems. Finally, it discusses the major difficulties that will be faced, and the errors that must be avoided, during the transition.
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