GEI Working Paper Abstracts

Working papers produced by the research projects in the Global Economic Institutions Programme have begun to appear. They are available for £4/$8 each from: Subscriptions Officer, Centre for Economic Policy Research, 90-98 Goswell Road, London W1X 1LB, UK.

Papers: [1-5] | [6-10] | [11-15] | [16-20] | [21-25] | [26-30] | [31 - 35]

[46-47]

Working Paper No. 6

Credibility and Fundamentals: Were the Classical and Inter-war Gold Standards Well-behaved Target Zones?
C Paul Hallwood, Ronald MacDonald, Ian W Marsh

This paper investigates the question of whether the classical and inter-war international gold standards constituted credible target zones. We find little difference between the credibility of the two different gold standard periods, despite the supposed fundamental weaknesses associated with the inter-war period.

Working Paper No. 7

Comparing Global Economic Models
Peter R Mitchell, Joanne Sault, Peter N Smih, Kenneth F Willis

This paper presents the first account of comparative research on multi-country models carried out by an independent third party with full hands-on access to the models. It thus extends the Bureaus comparative research programme beyond the models of the UK economy on which it has hitherto been primarily focused. Three multi-country models form the basis for this pilot project. Three simulation experiments are undertaken, namely an increase in government expenditure and an increase in the target level of the money supply, in each of four leading G7 countries in turn, and an increase in the world price of oil. These are conducted in a standardized policy framework. With respect to fiscal policy, the MSG model’s fiscal closure rule is implemented on all three models, while for monetary policy, a regime of medium-term monetary targeting is adopted. The results reveal not only some broad similarities but also some important differences, both cross-model and cross-country, in the estimated macroeconomic responses. Some of theses can be explained, whole others await future research. Further consideration is given to two issues of model specification which provide an explanation of several observed differences. These concern the interest elasticity of the demand for money, and the degree of nominal inertia and forward-looking behaviour in the determination of wages and prices.

Working Paper No. 8

Fiscal Deficit Reductions in Line with the Maasricht Criteria for Monetary Union: An Empirical Analysis
Andrew J Hughes Hallett, Peter McAdam

Of the institutional arrangements for monetary union in Europe, the fiscal convergence criteria have proved the most difficult to achieve and the most controversial because of their presumed deflationary impact on economies already suffering high unemployment. This paper examines what fiscal corrections would be necessary in the four largest European economies to reach the 3% deficit criterion by 1999, and maintain that criterion thereafter. It argues that, because these criteria are defined as ratios, a change in the policy mix is required - not simply fiscal contractions. The interaction between fiscal and other policies is the crucial factor therefore. The change in policy mix might involve monetary relaxation, a currency devaluation, or perhaps most effectively wage restraint to boost competitiveness. In any event some action is needed to maintain (or boost) the ratio’s denominator, since fiscal cuts will otherwise cut both the numerator and denominator and leave the ratio unchanged. But because there is also a debt criterion and it is most unlikely that the deficit and debt criteria are reached simultaneously, it is very hard to reach the defecit criterion and then stay there without accompanying policies to maintain output since fiscal cuts will continue to deflate the economy, and hence output in the deficit ratio, in an attempt to reach the required debt ratio. To fix that aspect there has to be a reform of the tax regime aswell. These results point to growth and the design of the top regime as being the key features of the fiscal side of a successful monetary arrangements.

Working Paper No. 9

Managing Commodity Price Instability in Newly Liberalized Economies
Ronald C Duncan, Lamon Rutten

Domestic commodity price stabilization arrangements often been scrapped as part of recent economic reforms. Together with the failure of international commodity agreements, this has meant that management of commodity price risks in developing countries has to be undertaken by producers and consumers. Developing country access to international financial markets to hedge these risks is difficult but can be improved by removing regulatory and institutional barriers to the securitization of commodity stocks and the freeing up of international transactions in both commodities and foreign currency. Education of producers, consumers, intermediaries and government on the potential roles of financial markets will also assist.

Working Paper No. 10

The Timing of Reform
William Perraudin, Anne Sibert

Recent studies of the timing of stabilization and structural reform have emphasized the beneficial effects of crises that induce early resolution of bargaining processes. In this paper, we study the timing of a particular type of structural reform: privatization. We assume that pressure for privatization is exerted by an international lender who in exchange offers loans on concessionary terms. We show that either the prospect of a crisis or higher costs of postponing privatization can slow the process of reform.