Working Papers
January 1, 0001
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January 1, 0001
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1990
February 1, 1990
An Econometric Rational Expectations Macroeconomic Model for Developing Countries with Capital Controls
Description: A small macroeconomic model based on familiar theoretical considerations is developed and estimated using data from 31 developing countries. Efficient estimation techniques are used to control for country heterogeneity under the assumption of rational expectations. The estimates and the test statistics suggest that the model could serve well as a framework for developing-country macroeconomic analysis. An interesting feature of the specification of the model is that it allows the hypothesis of capital mobility to be explicitly tested. The empirical analysis suggests that on average developing countries tend to exhibit a high degree of capital mobility.
Notes: Also published in Staff Papers, Vol. 37, No. 3, September 1990.
February 1, 1990
Pricing Floating-Rate Debt and Related Interest Rate Options
Description: Most developing country debt is denominated in U.S. dollars and has a floating interest rate. The pricing of floating rate debt and related interest rate options are examined in this paper. Formulas for pricing ceilings and floors on floating rate debt are derived for several different models of interest rate variability. A framework for pricing risky debt and loan guarantees is presented, and the implications of the debtor country’s default option are analyzed. The elimination of large principal repayments, by collateralizing the principal, serves to reduce the debtor country’s incentive to use its default option.
February 1, 1990
Currency Bands, Target Zones, and Cash Limits: Thresholds for Monetary and Fiscal Policy
Description: Exchange rate behavior is analyzed in the context of a stochastic rational expectations model in which there are random shocks to the price setting mechanism and in which the authorities choose to impose either nominal or real exchange rate bands. Results are compared to those which emerge from a simple monetary model subject to velocity shocks. The effects of a realignment of the Band, and of fiscal policy used in conjunction with monetary policy to defend the band, are also examined.
Notes: Also published in Staff Papers, Vol. 38, No. 1, March 1991.
January 1, 1990
Macroeconomic Effects of Prelected Population Aging in Industrial Countries
Description: The effects of population aging are examined with the aid of a theoretical model and simulations of MULTIMOD. An older population will consume more of aggregate disposable income, require higher government expenditure, and decrease labor supply. These effects should raise real interest rates and lower the capital stock and output. Effects on current balances will depend on the relative speed and extent of aging. Simulations of projected demographic changes suggest that by 2025, real interest rates would be increased by several percentage points and net foreign assets increased in the United States, and decreased in Japan and Germany, as a result.
Notes: Also published in Staff Papers, Vol. 37, No. 3, September 1990.
January 1, 1990
The Identification of the Causes of Business Cycles Across Countries
Description: Empirical research has been conducted on the various theories of the business cycle over many countries. However, very little research has attempted to undertake a multi-country disaggregate investigation into the sources of output change. This paper decomposes fluctuations in industry output in a particular country into: (1) a nation specific shock; (2) an industry specific shock; (3) a world shock; and (4) an idiosyncratic factor. Using a dynamic factor analysis-state-space approach, the paper finds that the nation-specific shock is the most important impulse.
January 1, 1990
Financial Market Integration and Exchange Rate Policy
Description: This paper examines how a country’s exchange rate policy should be adjusted when the degree of integration between domestic and external financial markets increases as a result of both domestic financial liberalization and the relaxation of capital controls. As the financial structure is opened and liberalized, the optimal scale of exchange market intervention changes as the relative importance of different domestic and foreign shocks for output and price stability is altered. Nonetheless, the response of the optimal degree of intervention to increases in the variances of the various domestic and foreign shocks is similar across all financial structures.
1988
October 24, 1988
The Impact of Macroeconomic Policieson the Level of Taxation (andon the Fiscal Balance) in Developing Countries
Description: In recent years the level of taxation of many developing countries has changed dramatically over relatively short periods. These changes are too large and too sudden to attribute fully to a deterioration in tax administration or to changes in the traditional determinants of tax levels. The paper argues that they should be attributed mostly to macroeconomic policies. The paper discusses the connection between tax levels and (a) the real value of the official exchange rate, (b) import substitution policies, (c) trade liberalization, (d) inflation, (e) public debt, (f) financial policies. The paper concludes that more attention should be paid to those relationships and that tax reform should aim at neutralizing some of these effects.
1987
August 1, 1987
Presumptive Income Taxation: Administrative, Efficiency, and Equity Aspects
Description: This paper discusses assessment of income on the basis of approximate indicators as opposed to conventional records. Such a method of assessment, known as presumptive income taxation, is widely used in many developing and industrial countries; however, it has been neglected in public finance literature. In most cases the presumptive approach has been followed for administrative reasons, but this paper argues that more attention should be paid to the efficiency implications of presumptive taxes.