Showing 1 - 5 of 5 Items

Date: 2012-09-01

Creator: Yao Tang, Ke Pang

Access: Open access

We compare the welfare of different combinations of monetary and currency policies in an open-economy macroeconomic model that incorporates two important features of many small economies: a high level of vertical international trade and a prevalent use of a large trade partner's currency as the invoicing currency for both imports and exports. In this environment, a small economy prefers a fixed exchange rate regime over a flexible regime, while the larger economy prefers a flexible exchange rate regime. There are two main causes underlying our results. First, in the presence of sticky prices, relative prices adjust through changes in the exchange rate. Multiple stages of production and trade make it more difficult for one exchange rate to balance the whole economy by adjusting several relative prices throughout the vertical chain of production and trade. Namely, there is a trade-off between delivering an efficient relative price between home and foreign final goods and delivering an efficient relative price between home and foreign intermediate goods. Second, because the small economy uses the larger economy's currency in trade, it faces a high degree of exchange rate pass-through under a flexible regime and hence suffers from the lack of efficient relative prices in vertical trade. The larger economy, however, does not face this problem because its level of exchange rate pass-through is low.

Date: 2013-10-10

Creator: Stephen Meardon

Access: Open access

In two pairs of episodes, first in 1824 and 1846 and then in 1892 and 1935, similar U.S.-Colombia trade agreements or their enabling laws were embraced first by protectionists and then by free traders. The history of the episodes supports the view that although political institutions exist to curb de facto political power, such power may be wielded to undo the institutions’ intended effects. The doctrinal affinities and interests of political actors are more decisive determinants of the free-trade or protectionist orientation of trade agreements than the agreements’ texts or legal superstructures. The long delay from signing to passage of the current U.S.-Colombia Free Trade Agreement is another case in point.

Date: 2013-10-28

Creator: Yao Tang, Yoshinori Kurokawa, Jiaren Pang

Access: Open access

We construct a dynamic Ricardian model of trade with money and nominal exchange rate. The model implies that the nominal wages of the trading countries are more likely to exhibit stronger positive comovements when the countries fix their bilateral exchange rates. Panel regression results based on data from OECD countries from 1973 to 2012 suggest that countries in the European Monetary Union (EMU) experienced stronger positive wage comovements with their main trade partners. When we restrict the regression to the subsample of the EMU countries, we find a significant increase in wage comovements after these countries joined the EMU in 1999 compared to the pre-euro era. In comparison, when the sample is restricted to the non-EMU countries, we find no evidence that non-currency union pegs affected the wage comovements.

Date: 2013-09-29

Creator: Stephen Meardon

Access: Open access

The most notable idea of Charles P. Kindleberger’s later career is the value of a single country acting as stabilizer of an international economy prone to instability. It runs through his widely read books, The World in Depression, 1929-1939 (1973), Manias, Crises, and Panics (1978), A Financial History of Western Europe (1984), and kindred works. “Hegemonic stability,” the idea is called in the literature it inspired. This essay traces Kindleberger’s attachment to the idea back to his tenure as chief of the State Department’s Division of German and Austrian Economic Affairs from 1945 to 1947 and adviser to the European Recovery Program from 1947 to 1948. In both capacities Kindleberger observed and participated indirectly in the 1948 monetary reform in Western Germany. In the 1990s, during his octogenary decade, he revisited the German monetary reform with a fellow participant, economist, and longtime friend, F. Taylor Ostrander. Their collaborative essay marked Kindleberger’s effort to reclaim hegemonic stability theory from the scholars who developed it following his works of the 1970s and 1980s.

Date: 2022-01-01

Creator: Maynor Alberto Loaisiga Bojorge

Access: Open access

For most of their histories, Costa Rica and Honduras were primarily agricultural societies with little economic diversification. However, around 1990, after the implementation of Washington Consensus reforms, the economies of both nations began to diverge. Costa Rica’s economy rapidly expanded for the following 30 years, while Honduras remained stagnant. Through a New Institutional Economics approach, I argue that institutional differences between Costa Rica and Honduras are responsible for the impressive economic growth Costa Rica has been able to achieve in the past few decades. Specifically, early political developments in Costa Rica have deeply imbedded relatively egalitarian values into the population, helping shape formal and informal inclusive political institutions. Meanwhile, Honduras experienced the development of extractive political institutions, as political and economic power was heavily concentrated in the hands of a select few. These political institutions were crucial during the implementation stages of Washington Consensus reforms, as strong and inclusive political institutions attracted Foreign Direct Investment that helped propel the Costa Rican economy and materialize its position as an outlier in the region. In contrast, lack of institutional guarantees discouraged foreign investors from investing money into the Honduran economy. Through a deep dive into the political histories of both nations, from European discovery to modernity, I conclude that the political institutions of these Central American nations have determined their economic growth paths.