Linda Kamas

Dutch disease economics and the Colombian export boom

Abstract Dutch disease models predict a primary export boom may result in deindustrialization due to an appreciating real exchange rate. This paper examines the effects on the Colombian economy of large increases in foreign exchange earnings from coffee and illegal drug exports. As predicted by Dutch disease models, the relative price of nontraded goods rose and the real exchange rate appreciated. Once the boom was over, both were slow to return to previous levels. Nontraded sectors are shown to have increased their growth rates during the boom years, while traded goods experienced slower growth. Non-coffee exports also grew more slowly. Econometric estimation shows that the real exchange rate was sensitive to the price of coffee and fiscal expansion, that sectoral production adjusts to the exchange rate and level of absorption as predicted, and that non-coffee exports respond to changes in the real exchange rate and foreign demand. The paper concludes with a discussion of economic policy in response to the export boom.

Money, income and prices under fixed exchange rates: Evidence from causality tests and VARs

This paper investigates the impact of changes in monetary variables on the domestic and foreign sectors, the determinants of central bank policy, and the response to foreign monetary changes in Mexico and India. Multivariate Granger-causality tests, variance decompositions and impulse response functions are utilized to examine propositions regarding causal relationships among key economic variables. The results indicate that domestic monetary policy did not affect output in either country. A substantial balance of payments offset to changes in domestic credit was found in India, but not for Mexico. The Mexican central bank pursued an accommodative monetary policy, but did not sterilize. In India, the central bank sterilized, but did not respond to income or price fluctuations. Output responded in each country to changes in foreign money.

Monetary policy and inflation under the crawling peg: Some evidence from VARs for Colombia☆

Abstract This paper investigates the effects of monetary policy under the crawling peg in Colombia utilizing Granger Causality tests, variance decompositions, and impulse response functions from VARs. Several alternative lag selection criteria are used to specify the lag structures of the VARs. Variations in domestic credit appear to affect the balance of payments but not the exchange rate in Colombia, suggesting that the crawling peg has functioned more like a fixed than a flexible exchange rate. The size of the balance of payments offset is relatively large, but the models differ on its size. Domestic credit appears to have a weak effect on national output. Neither domestic credit nor the exchange rate play much of a role in explaining variation in inflation in Colombia. Inflation appears to be primarily inertial and the result of demand shocks. The results are consistent with the recent difficulties encountered in maintaining monetary targets in Colombia, and the persistence of inflation under contractionary monetary policy.

Real and nominal determinants of real exchange rates in Latin America: Short-run dynamics and long-run equilibrium

This article analyses the factors that determine the long-run real exchange rate in Argentina, Colombia and Mexico, distinguishing between real and nominal determinants. Cointegration analysis is utilised to establish that the real exchange rate has an equilibrium relationship with real variables (the terms of trade, capital flows, productivity, and government share of GDP) which excludes nominal variables (nominal exchange rate, money) and central bank intervention. Variance decompositions reveal that among the real variables that determine the real exchange rate, the terms of trade and productivity explain much of the variation in the real exchange rates. When nominal variables are included in the model, the nominal exchange rate accounts for most of the variation in the real exchange rates of all three countries. The impulse response functions are broadly consistent with theoretical predictions and shocks to the nominal variables have only transitory effects on the real exchange rate.

External disturbances and the independence of monetary policy under the crawling peg in Colombia

Abstract This study examines the impact of external economic disturbances and the independence of monetary policy in Colombia. A five-equation econometric model is estimated. The results indicate that external occurrences have had a significant impact on Colombian prices and output. Contrary to the assumptions of the monetary approach to the balance of payments, a substantial portion of foreign reserve flows were sterilized, and the short-run balance of payments offset to domestic credit expansion was less than complete.

Money and output under alternative exchange rate regimes in the USA

Abstract Economic theory suggests that the effects of money on output will depend on the exchange rate regime. This paper examines the relationship between money and output under fixed and flexible exchange rates in the USA. Johansens maximum likelihood estimation method is utilized to test for cointegration in a system consisting of money, the interest rate, prices, the trade balance and output during 1959–1971 and 1973–1990, with the exchange rate included in the analysis fo the second period. The results indicate that the variables are cointegrated, suggesting the existence of long-run equilibrium relationships between the domestic and external variables. Vaiance decompositions reveal a much larger role for money in explaining forecast error vaiance of output during the flexible exchange rate period. Money and the interest rate explain a substantial proportion of the variances of the trade balance and the exchange rate. This suggests that effects on the exchange rate and trade balance are an important component of the transmission mechanism of monetary policy. (JEL F41).

What Can Social Preferences Tell Us about Charitable Giving? Evidence on Responses to Price of Giving, Matching, and Rebates

This chapter investigates the relationship between heterogeneous social preferences and charitable giving under alternative prices of giving and types of subsidies. Using 10 allocation decisions, we categorize participants’ social preferences as self-interested, inequity averse, or social surplus maximizing. In subsequent charitable giving treatments, analysis of within-person decision-making gives support for several predictions consistent with social preference types: social surplus maximizers are most likely to give to a charity that increases production; inequity averters give more to charity than do other groups; all preference types give more when the price of giving declines; and social surplus maximizers are more responsive to the price of giving than are inequity averters.

The relative importance of foreign and domestic shocks to output and prices in Mexico and Colombia

The Relative Importance of Foreign and Domestic Shocks to Output and Prices in Mexico and Colombia. — This paper utilizes structural VARs to evaluate the relative importance of foreign and domestic sources of variation in output and prices in Mexico and Colombia. The real exchange rate and commodity export price have a large impact on both output and prices in Mexico, while in Colombia their effects are smaller. U. S. output and interest rates are found to play a significant role in determining output in Mexico and Colombia. For Mexico, external variables are found to be of much greater importance in the oil-exporting years after 1978 as compared to the 1960s.ZusammenfassungDie relative Bedeutung von ausländischen und inländischen Schocks für Produktion und Preise in Mexiko und Kolumbien. — In dem Artikel werden strukturelle vektorautoregressive Systeme verwendet, um die relative Bedeutung der ausländischen und inländischen Einflüsse auf die Variation von Produktion und Preisen in Mexiko und Kolumbien zu ermitteln. Der reale Wechselkurs und die Exportgüterpreise haben demnach einen großen Einfluß auf Produktion und Preise in Mexiko, während deren Einfluß in Kolumbien gering ist. Produktion und Zinssätze in den USA spielen in beiden Ländern eine bedeutende Rolle für die Produktionsentwicklung. In Mexiko haben die ausländischen Variablen in den Jahren nach 1978 mit ihren Ölexporten einen größeren Einfluß als in den sechziger Jahren.

Distributive and Reciprocal Fairness: What Can We Learn from Heterogeneous Social Preferences?

This study evaluates people’s concerns for distributive fairness (equality of outcomes and payoffs to those worse-off) and reciprocal fairness (receiving what one is due based on one’s past actions) utilizing dictator, ultimatum, and trust games. In the dictator games we classify individuals’ preferences as self-interested, inequity averse, efficiency maximizing, or compassionate social surplus maximizing. We find that the different utility functions of the social preference types guide participants’ behavior in the ultimatum and trust games. The self-interested and efficiency maximizers make the lowest offers in the ultimatum game, are least likely to reject a low offer in the ultimatum game, and send back the least amount in the trust game. Consistent with the goal of maximizing the sum of payoffs however, efficiency maximizers and compassionate social surplus maximizers make the highest offers in the trust game, and in attempts to ensure equal outcomes, inequity averters make low offers. Because those classified as self-interested or efficiency maximizing do not exhibit concern for pure distributive fairness, we can identify choices, in particular positive offers in the ultimatum games and positive amounts sent back in the trust games, as motivated only by concerns for reciprocal fairness. Furthermore, we find strong evidence supporting concern for reciprocal fairness in the trust games where the modal response of second movers in all preference groups is to equalize payments across participants.

Can Empathy Explain Gender Differences in Economic Policy Views in the United States

ABSTRACT This paper shows that different levels of empathy of men and women explain the well-documented gender differences in interventionist government economic policy views in the United States. Using the Davis Interpersonal Reactivity Index (IRI) to measure empathy, the study finds that more empathic people support more interventionist policies. While greater empathy leads both men and women to support more government action, there is no gender difference in the effects of empathy on policy views. When policy views are separated by area, gender differences on policies concerning poverty, inequality, and social welfare disappear once empathy is accounted for, though they persist in views on free markets.