Holger C. Wolf

International evidence on tradables and nontradables inflation

Using 1970-1985 sectoral data for the OECD we find that inflation in nontradable goods is higher than in tradables, We identify a demand shift towards nontradables and faster growth of total factor productivity in the tradable goods sector as the prime causes of higher nontradables inflation. In addition. disinflation attempts and the exchange rate regime appear to have had significant influence on the relative inflation rate.

Extreme Inflation: Dynamics and Stabilization

No abstract is available for this paper.

The Law of One Price - A Case Study

We use retail transaction prices for a multinational retailer to examine the extent and permanence of violations of the law of one price (LOOP). For identical products, we find typical deviations of twenty to fifty percent, though there is muted evidence for convergence over time. Such differences might be due to differences in local costs. If so, relative prices of similar products (round versus square mirrors) should be equal across countries. In fact, relative prices vary significantly across very similar goods within a product group; indeed, the ordering of common currency prices often differs for similar products. The finding suggests that differences in local distribution costs, local taxes, and probably tariffs do not explain the price pattern, leaving strategic pricing or other factors resulting in varying markups as alternative explanations for the observed divergences.

International Evidenceon Tradables and Nontradables Inflation

Using 1970-85 sectoral data for the OECD we find that inflation in nontradable good exceeds inflation in tradables. We identify a demand shift towards nontradables and faster growth of total factor productivity in the tradable goods sector as the prime causes of the differential inflation. In addition, disinflation attempts and the exchange rate regime appear to have exerted significant influence on the relative inflation rate.

Malaria and Growth

The authors explore the two-sided link between malaria morbidity and Gross Domestic Product (GDP) per capita growth. Climate significantly affects cross-country differences in malaria morbidity. Tropical location is not destiny, however: greater access to rural health care and greater income equality are associated with lower malaria morbidity. But the interpretation of this link is ambiguous: does greater income inequality allow for improved anti-malaria efforts, or does malaria itself increase income inequality? Allowing for two-sided causation, the authors find a significant negative causal effect running from malaria morbidity to the growth rate of GDP per capita. In about a quarter of their sample countries, malaria is estimated to reduce GDP per capita growth by at least 0.25 percentage point a year.

Currency Boards in Retrospect and Prospect

Currency boards, more so than other exchange rate regimes, have come in and out of fashion. Defined by a fixed exchange rate with full convertibility, central bank liabilities backed with foreign exchange reserves, and a high cost of exiting the regime, currency boards were common in colonial times--until most were cast off as countries gained independence after World War II. In the 1990s, currency boards enjoyed a revival as the cornerstone of various macroeconomic stabilization programs--including many in central and eastern European transition economies--only to fall into disfavor again with the collapse of the Argentine regime in 2002. The authors of Currency Boards in Retrospect and Prospect take a balanced look at the effects of currency board regimes on inflation, output growth, and macroeconomic performance more generally. Drawing on historical experience, economic theory, cross-country empirical analysis, and case studies of currency boards in Argentina, Estonia, Lithuania, Bulgaria, and Bosnia and Herzegovina, the authors conclude that currency boards deliver significant reductions in inflation compared to other regimes and do not seem to result in slower growth or a markedly higher vulnerability to crisis.

Breaking the Fetters: Why Did Countries Exit the Interwar Gold Standard?

The slow demise of the interwar gold standard figures prominently in explanations of the spread and depth of the Great Depression. The reluctance of some countries to shed their golden fetters is puzzling in the face of the visible gains enjoyed by early quitters. We explore four hypotheses explaining these divergent choices by countries, focusing on different economic shocks, differences in the perceived credibility costs of exiting, different domestic political considerations and mentality and network effects. In a panel dataset comprising both core and periphery countries, we find support for all four explanations.

Imaginary moneys as international units of account

The choice of unit of account in longer term unhedged contracts involving parties from multiple countries influences the size and distribution of currency risk. Contracts currently predominantly use the same unit as means of payment and as unit of account. The relative performance of such single currency units of account are contrasted with basket units of account (“imaginary monies” (Einaudi, 1953)) without associated payments function.

Relationship-based and arms-length financial systems -- a European perspective

This paper surveys the debate on arms-length and relationship-based financial systems with a special focus on the Eastern Europe and Central Asia region. The paper argues that while the initial dominance of relationship-based systems in the region is consistent with the implications of the theoretical literature, the subsequent improvements in supporting institutions coupled with structural changes suggests a greater scope for arms-length elements going forward.

Comparative Life Expectancy in Africa

For health outcomes, is poverty destiny? The authors explore this question for life expectancy in Africa, where health outcomes are positively correlated with income, but where the link is far from uniform. The key variables associated with good health outcomes (controlling for health expenditures) are access rates - to health services, to clean water and sanitation, and to education, particularly for women. Health expenditure, either as percentage of GNP or per capita, is not a good predictor of health outcomes (endogeneity aside). The tenuous link among health expenditures, health service outputs, and health outcomes suggests marked differences in the mapping from spending to services and from services to outcomes. While few conclusions can be drawn on the aggregate level, the patterns raise questions about what share of public expenditure should be devoted to preventive as opposed to curative measures, and the relative importance of sanitation infrastructure versus traditional health care.