Essays on European economic and monetary integration

This thesis focuses on two aspects of European economic integration: exchange rate stabilization between non-euro Countries and the Euro Area, and real and nominal convergence of Central and Eastern European Countries. Each Chapter covers these aspects from both a theoretical and empirical perspective. Chapter 1 investigates whether the introduction of the euro was accompanied by a shift in the de facto exchange rate policy of European countries outside the euro area, using methods recently developed by the literature to detect "Fear of Floating" episodes. I find that European Inflation Targeters have tried to stabilize the euro exchange rate, after its introduction; fixed exchange rate arrangements, instead, apart from official policy changes, remained stable. Finally, the euro seems to have gained a relevant role as a reference currency even outside Europe. Chapter 2 proposes an approach to estimate Central Bank preferences starting from the Central Bank's optimization problem within a small open economy, using Sweden as a case study, to find whether stabilization of the exchange rate played a role in the Monetary Policy rule of the Riksbank. The results show that it did not influence interest rate setting; exchange rate stabilization probably occurred as a result of increased economic integration and business cycle convergence. Chapter 3 studies the interactions between wages in the public sector, the traded private sector and the closed sector in ten EU Transition Countries. The theoretical literature on wage spillovers suggests that the traded sector should be the leader in wage setting, with non-traded sectors wages adjusting. We show that large heterogeneity across countries is present, and sheltered and public sector wages are often leaders in wage determination. This result is relevant from a policy perspective since wage spillovers, leading to costs growing faster than productivity, may affect the international cost competitiveness of the traded sector.

Stochastic foundations of dynamic trade and labor market models

This dissertation consists of three self-contained papers that are related to two main topics. In particular, the first and third studies focus on labor market modeling, whereas the second essay presents a dynamic international trade setup.rnrnIn Chapter "Expenses on Labor Market Reforms during Transitional Dynamics", we investigate the arising costs of a potential labor market reform from a government point of view. To analyze various effects of unemployment benefits system changes, this chapter develops a dynamic model with heterogeneous employed and unemployed workers.rn rnIn Chapter "Endogenous Markup Distributions", we study how markup distributions adjust when a closed economy opens up. In order to perform this analysis, we first present a closed-economy general-equilibrium industry dynamics model, where firms enter and exit markets, and then extend our analysis to the open-economy case.rn rnIn Chapter "Unemployment in the OECD - Pure Chance or Institutions?", we examine effects of aggregate shocks on the distribution of the unemployment rates in OECD member countries.rn rnIn all three chapters we model systems that behave randomly and operate on stochastic processes. We therefore exploit stochastic calculus that establishes clear methodological links between the chapters.

Bilateral exchange rates and jobs

We study the labor market effects of realignment in fixed bilateral exchange rates, such as China's peg to the US dollar. We employ the open economy model by de Melo and Robinson to identify the core parameters of the real, trade side of the economy driving the unemployment effects of bilateral exchange rate realignment. A small open economy version of the model is explored analytically and a large multicountry version numerically. Analytics in the small open economy model show that unemployment effects of adjusting of a bilateral peg hinge on the fraction exported to and imported from the trading partner. A larger fraction exported to and a smaller fraction imported from the trading partner make it more likely that revaluation of a trading partner's currency has beneficial effects. Numerics in the large economy model show that Chinese revaluation can generate both positive and negative unemployment effects depending upon underlying parameter values. Adverse unemployment effects can go along with an improving trade balance.

A Generic Model of Financial Repression

The paper develops a growth model in an overlapping generations framework of a financially repressed small open economy, and analyzes the effects of financial liberalization. The following observations are made: An increase (decrease) of interest rate (reserve requirements) reduces (increases) the steady-state stock of capital and the trade balance, but improves (deteriorates) the level of foreign exchange reserves. However, financial liberalization, in any form, is always welfare-improving. The paper, thus, advocates financial liberalization policies to be oriented towards reduction of reserve requirements rather than interest rate deregulation, if foreign reserve holding is not in a critical position.

Automatic Stabilizer Feature of Fixed Exchange Rate Regimes in Emerging Markets

This paper shows that countries characterized by a financial accelerator mechanism may reverse the usual finding of the literature -- flexible exchange rate regimes do a worse job of insulating open economies from external shocks. I obtain this result with a calibrated small open economy model that endogenizes foreign interest rates by linking them to the banking sector's foreign currency leverage. This relationship renders exchange rate policy more important compared to the usual exogeneity assumption. I find empirical support for this prediction using the Local Projections method. Finally, 2nd order approximation to the model finds larger welfare losses under flexible regimes.

El estado como eje articulador de las relaciones sociales

El presente trabajo intenta realizar una síntesis de cómo se fue articulando la sociedad a partir del modelo capitalista de producción en el período histórico que transcurre desde el impulso desarrollado en la Segunda Revolución Industrial, a finales del siglo XIX , hasta la primera década del siglo XXI. Este período determinará una forma de integración social que va estar vinculada al trabajo asalariado y ligada a un Estado más presente, articulador y distribuidor de la riqueza social. Algunos de los elementos constitutivos que sostuvieron este modelo fueron el New Deal y la política económica keynesiana, que van a perdurar hasta bien entrada la década de 1970. En esta etapa, la relación capital-trabajo va a entrar en crisis; el modelo keynesiano de pleno empleo no le es útil al capitalismo; y, por lo tanto, el Estado va a permitir la incorporación de un nuevo discurso, enarbolado por los denominados economistas liberales ortodoxos y, ya en la última década del siglo XX , por el economista norteamericano John Williamson, relacionado con un movimiento intelectual denominado "Consenso de Washington"; esto dando lugar una nueva forma de estructuración social en la que van a coexistir ganadores y perdedores del sistema. Se intenta explicar, además, el impacto que provocó en la Argentina adherir al modelo neoliberal a través de una economía abierta (1989-2002). Por último, describimos la situación de la Provincia de San Luis; los dispositivos y mecanismos que utilizó para contrarrestar los dos dígitos de desocupación producidos después del año 2002; para ello, nos referimos al Plan de Inclusión Social, expuesto a través de datos estadísticos tomados del INDEC y de la Dirección Provincial de Estadísticas y Censos de la Provincia de San Luis

El estado como eje articulador de las relaciones sociales

El presente trabajo intenta realizar una síntesis de cómo se fue articulando la sociedad a partir del modelo capitalista de producción en el período histórico que transcurre desde el impulso desarrollado en la Segunda Revolución Industrial, a finales del siglo XIX , hasta la primera década del siglo XXI. Este período determinará una forma de integración social que va estar vinculada al trabajo asalariado y ligada a un Estado más presente, articulador y distribuidor de la riqueza social. Algunos de los elementos constitutivos que sostuvieron este modelo fueron el New Deal y la política económica keynesiana, que van a perdurar hasta bien entrada la década de 1970. En esta etapa, la relación capital-trabajo va a entrar en crisis; el modelo keynesiano de pleno empleo no le es útil al capitalismo; y, por lo tanto, el Estado va a permitir la incorporación de un nuevo discurso, enarbolado por los denominados economistas liberales ortodoxos y, ya en la última década del siglo XX , por el economista norteamericano John Williamson, relacionado con un movimiento intelectual denominado "Consenso de Washington"; esto dando lugar una nueva forma de estructuración social en la que van a coexistir ganadores y perdedores del sistema. Se intenta explicar, además, el impacto que provocó en la Argentina adherir al modelo neoliberal a través de una economía abierta (1989-2002). Por último, describimos la situación de la Provincia de San Luis; los dispositivos y mecanismos que utilizó para contrarrestar los dos dígitos de desocupación producidos después del año 2002; para ello, nos referimos al Plan de Inclusión Social, expuesto a través de datos estadísticos tomados del INDEC y de la Dirección Provincial de Estadísticas y Censos de la Provincia de San Luis

El estado como eje articulador de las relaciones sociales

El presente trabajo intenta realizar una síntesis de cómo se fue articulando la sociedad a partir del modelo capitalista de producción en el período histórico que transcurre desde el impulso desarrollado en la Segunda Revolución Industrial, a finales del siglo XIX , hasta la primera década del siglo XXI. Este período determinará una forma de integración social que va estar vinculada al trabajo asalariado y ligada a un Estado más presente, articulador y distribuidor de la riqueza social. Algunos de los elementos constitutivos que sostuvieron este modelo fueron el New Deal y la política económica keynesiana, que van a perdurar hasta bien entrada la década de 1970. En esta etapa, la relación capital-trabajo va a entrar en crisis; el modelo keynesiano de pleno empleo no le es útil al capitalismo; y, por lo tanto, el Estado va a permitir la incorporación de un nuevo discurso, enarbolado por los denominados economistas liberales ortodoxos y, ya en la última década del siglo XX , por el economista norteamericano John Williamson, relacionado con un movimiento intelectual denominado "Consenso de Washington"; esto dando lugar una nueva forma de estructuración social en la que van a coexistir ganadores y perdedores del sistema. Se intenta explicar, además, el impacto que provocó en la Argentina adherir al modelo neoliberal a través de una economía abierta (1989-2002). Por último, describimos la situación de la Provincia de San Luis; los dispositivos y mecanismos que utilizó para contrarrestar los dos dígitos de desocupación producidos después del año 2002; para ello, nos referimos al Plan de Inclusión Social, expuesto a través de datos estadísticos tomados del INDEC y de la Dirección Provincial de Estadísticas y Censos de la Provincia de San Luis

Agricultural Policies and Development of Myanmar's Agricultural Sector: An Overview

This paper reviews the development of the agricultural sector in Myanmar after the transition to an open economy in 1988 and analyzes the nature as well as the performance of the agricultural sector. The avoidance of social unrest and the maintenance of control by the regime are identified as the two key factors that have determined the nature of agricultural policy after 1988. A major consequence of agricultural policy has been a clear difference in development paths among the major crops. Production of crops that had a potential for development showed sluggish growth due to policy constraints, whereas there has been a self-sustaining increase in the output of those crops that have fallen outside the remit of agricultural policy.

Business Cycles of Non-mono-cultural Developing Economies: The Case of ASEAN Countries

Based on analyses of actual data, we reveal that many Asian developing economies own economic structural features of "non-mono-cultural economy" and the "large primary good sector", which have not been discussed in developing economies RBC literature. We also examine the input-output tables to develop a model reflecting actual developing economies' structures. Referring to the analyses, we construct RBC models of ASEAN countries. Based on the model, we find that approximately half of GDP volatility is attributable to domestic productivity shocks, and the remaining half is attributable to price shocks.

Monetary and Exchange Rate Policy in Malaysia before the Asian Crisis

This paper provides a case study to characterize the monetary policy regime in Malaysia, from a medium- and long-term perspective. Specifically, we ask how the central bank of Malaysia, Bank Negara Malaysia (BNM), has structured its monetary policy regime, and how it has conducted monetary and exchange rate policy under the regime. By conducting three empirical analyses, we characterize the monetary and exchange rate policy regime in Malaysia by three intermediate solutions on three vectors: the degree of autonomy in monetary policy, the degree of variability of the exchange rate, and the degree of capital mobility.

Is It Worthwhile for Indonesia to Rush into a Free Trade Deal with Japan?

This report represents a preliminary attempt to refine some basic ideas on the potential impact Indonesia might experience from a free trade arrangement with Japan, using a forward-looking, multi-regional, multi-sectoral applied general equilibrium model of global trade to capture growth effects through capital accumulation paying attention to the changes in the patterns of interregional capital flows that might happen even before the policy change occurs. The simulation results revealed that the welfare gains of rushing into trade liberalization with Japan are not so large. This makes out that taking time over negotiations might be the best choice for Indonesia if the government places priority on convincing the Indonesian people that a free trade deal with Japan will definitely bring positive effects, while proceeding rapidly might be the answer if the country is serious about recovering the welfare levels that might be lowered by free trade arrangements among Malaysia, the Philippines, and Japan.

An Empirical Analysis of the Monetary Policy Reaction Function in India

This paper empirically analyzes India’s monetary policy reaction function by applying the Taylor (1993) rule and its open-economy version which employs dynamic OLS. The analysis uses monthly data from the period of April 1998 to December 2007. When the simple Taylor rule was estimated for India, the output gap coefficient was statistically significant, and its sign condition was found to be consistent with theoretical rationale; however, the same was not true of the inflation coefficient. When the Taylor rule with exchange rate was estimated, the coefficients of output gap and exchange rate had statistical significance with the expected signs, whereas the results of inflation remained the same as before. Therefore, the inflation rate has not played a role in the conduct of India’s monetary policy, and it is inappropriate for India to adopt an inflation-target type policy framework.

International real business cycles : a re-visit

It is well known that several quantitative properties of international real business cycle models with are at odds with the data. First, the cross-country correlations are much higher for consumption than for output, while in the data the opposite is true (the BKK puzzle). Second, cross-country correlations of employment and investment are negative, while in the data they are positive. This paper quantitatively shows that preferences with a zero income effect on labor supply help generate a correct cross-country correlation in employment even without any restrictions on financial markets. In a bond economy, a zero income effect in labor supply, combined with time-to-build investment, can generate a positive cross-country correlation in investment, and the BKK puzzle is also resolved when the inter-temporal elasticity of substitution in labor supply is low.

Sources of fluctuations in parallel exchange rates and policy reform in Myanmar

Myanmar maintained a multiple exchange rate system, and the parallel market exchange rate was left untamed. In the last two decades, the Myanmar kyat exchange rate of the parallel market has exhibited the sharpest fluctuations among Southeast Asian currencies in real terms. Since the move to a managed float regime in April 2012, the question arises of whether exchange rate policies will be effective in stabilizing the real exchange rate. This paper investigates the sources of fluctuations in the real effective exchange rate using Blanchard and Quah’s (1989) structural vector autoregression model. As nominal shocks can be created by exchange rate policies, a persistent impact of a nominal shock implies more room for exchange rate policies. Decomposition of the fluctuations into nominal and real shocks indicates that the impact of nominal shocks is small and quickly diminishes, implying that complementary sterilization is necessary for effective foreign exchange market interventions.