James M. Boughton

Long-Run Money Demand in Large Industrial Countries

The long-run properties of money demand functions in the large industrial countries are examined under the hypothesis that the long-run functions have been stable but that the dynamic adjustment processes are more complex than those represented in most earlier models. The results broadly support this hypothesis, but for certain aggregates they also call into question some basic hypotheses about the nature of the demand function, including, notably, that of homogeneity with respect to the price level.

Tests of the performance of reduced-form exchange rate models

This study analyzes the performance of reduced-form exchange rate models through a number of tests of specification, stability, and prediction. It confirms earlier tests showing that monetary models do not perform well, but it finds more positive results for other models. Some portfoliobalance models are sufficiently stable to do better than a random walk in post-sample tests. The study concludes that monetary models are unduly restrictive in the way they incorporate purchasing power parity and perfect asset substitutability.

The CFA Franc Zone: Currency Union and Monetary Standard

The CFA franc zone comprises a group of countries in central and west Africa whose currencies have been firmly linked to the French franc since 1948. It combines the features of a currency union with those of an exchange rate peg, and an analysis of its effectiveness must examine both dimensions. Viewed from the perspective of a currency union among the African countries, it would appear that the zone would not constitute an optimum currency area. But when France is viewed as an integral part of the system, the benefits--including discipline, credibility, and stability in international competitiveness--become clearer.

The IMF and the force of History; Ten Events and Ten Ideas that Have Shaped the Institution

The International Monetary Fund was designed during World War II by men whose worldview had been shaped by the Great War and the Great Depression. Their views on how the postwar international monetary system should function were also shaped by their economics training and their nationalities. After the IMF began functioning as an institution, its evolution was similarly driven by a combination of political events (Suez, African independence, the collapse of global communism), economic events (the rising economic power of Europe, the Middle East, and Asia), and trends and cycles in economic theory (the monetary approach to the balance of payments, new classical economics, the rise and fall of the Washington Consensus). As they happened, these forces had effects that were perceived as adaptations to current events and new ideas within a fixed institutional structure and mandate. The cumulative effect of history on the institution has been rather more profound and requires a longer and larger perspective.

Why White, Not Keynes? Inventing the Post-War International Monetary System

The international monetary system is largely the product of negotiations during World War II between U.S. and U.K. officials, led respectively by Harry Dexter White and John Maynard Keynes. The design of the system, especially the International Monetary Fund, reflects the U.S. plan much more than the British. That outcome resulted not only from the superior economic position of the United States but also from differences between Whites and Keyness views on key issues. Examination of Whites economic papers shows that he was more multilateral than Keynes and placed a higher priority on monetary discipline.

International comparisons of money demand

Many studies of the demand for money, covering a wide variety of economies, have demonstrated the importance of financial innovations and shifts in monetary policy regimes, but they have also illustrated the difficulty of measuring and assessing such changes. Because innovations and regime shifts have differed markedly across countries, international comparisons can help identify their effects. This paper reviews the literature on money demand comparisons, focusing primarily on industrial countries. It finds that innovations have had widespread effects, but also that the demand for money is not generally less stable now than it was before those changes occurred.

On the Origins of the Fleming-Mundell Model

Forty years ago, Marcus Fleming and Robert Mundell developed independent models of macroeconomic policy in open economies. Why do we link the two, and why do we call the result the Mundell-Fleming, rather than Fleming-Mundell model?

Commodity and Manufactures Prices in the Long Run

The low level of primary commodity prices since 1985 is examined in the context of the behavior of those prices relative to prices of manufactured goods since 1854. The Prebisch-Singer hypothesis of a secular decline in relative commodity prices is sustained, but the recent decline is shown to be well outside the realm of historical experience. Commodity and manufactures prices are found to be cointegrated, conditional on the negative trend and a number of unexplained short-term swings. The earlier finding of a Gibson paradox is explained in terms of the difference between short- and long-run relationships.

Modeling money demand in large industrial countries: Buffer stock and error correction approaches

The empirical performance of two recent approaches to modeling money demand is compared by estimating functions for narrow and broad aggregates in five large industrial countries. Error correction modeling outperforms the Carr-Darby buffer stock model (which in turn outperforms the conventional partial adjustment model) within the 1974–1985 sample period. Post-sample, however, the comparisons are mixed. The specification of money demand appears to vary substantially from case to case.

The Case against Harry Dexter White Still not Proven

Harry Dexter White, the principal architect of the international financial system established at the end of the Second World War, was arguably the most important U. S. government economist of the 20th century. His reputation, however, has suffered because of allegations that he spied for the Soviet Union. That charge has recently been revived by the declassification of documents showing that he met with Soviet agents in 1944 and 1945. Evaluation of that evidence in the context of Whites career and worldview casts doubt on the case against him and provides the basis for a more benign interpretation.