Ramana Ramaswamy

The Real Effects of Monetary Policy in the European Union: What Are the Differences?

The main finding of this paper is that the European Union (EU) countries fall into two broad groups according to the effects of monetary policy adjustments on economic activity. Estimates based on a vector autoregression model indicate that the full effects of a contractionary monetary shock on output in one group of EU countries (Austria, Belgium, Finland, Germany, Netherlands, and United Kingdom) take roughly twice as long to occur, but are almost twice as deep as in the other group (Denmark, France, Italy, Portugal, Spain, and Sweden). The paper discusses the implications of these results for the effective conduct of monetary policy in the euro area.

Growth, Trade, and Deindustrialization

This paper shows that deindustrialization is explained primarily by developments that are internal to the advanced economies. These include the combined effects on manufacturing employment of a relatively faster growth of productivity in manufacturing, the associated relative price changes, and shifts in the structure of demand between manufactures and services. North-south trade explains less than one-fifth of deindustrialization in the advanced economies. Moreover, the contribution of north-south trade to deindustrialization has been mainly through its effects in stimulating labor productivity in northern manufacturing; it has had little enduring effect on the total volume of manufacturing output in the advanced economies.

Efficiency Wages And Wage Dispersion

The efficiency wage hypothesis has normally been used to generate an equilibrium level of unemployment. The authors use it, instead, to generate an equilibrium wage distribution. This paper starts by generalizing the previous work of R. M. Solow in this area. They then use their results on effort-wage elasticities to derive a model of wage dispersion. The wage rate is shown to be an increasing function of the damage potential of workers; that is, workers with the highest damage potential receive the highest wage. The analysis of the equilibrium of the wage distribution provides interesting qualitative insights into the nature of actual wage differentials. Copyright 1991 by The London School of Economics and Political Science.

The Yen-Dollar Rate: Have Interventions Mattered?

Using daily data for 1995–99, this paper estimates a simple forward looking model of the exchange rate to show that foreign exchange interventions have, on the whole, had small but persistent effects on the yen-dollar rate. Contrary to conventional wisdom, sterilized interventions have mattered. Consistent with conventional wisdom, coordinated interventions have a higher probability of success and move the yen-dollar rate by a larger margin than unilateral interventions. A probit model indicates that both an excessive appreciation and depreciation of the yen provoke interventions, and that interventions occur in clusters—if there is one today, there will likely be another tomorrow.

Japan`s Stagnant Nineties: A Vector Autoregression Retrospective

This paper uses a vector autoregression (VAR) approach to identify the driving forces of the growth slowdown in Japan during the 1990s. Negative shocks to both residential and nonresidential investment are shown to have been important determinants of the slowdown. Despite the collapse in asset prices, negative shocks to private consumption were relatively small. A surprising conclusion is that trends in public consumption had a dampening impact on activity in the nineties. The VAR estimations do not support the counterfactual conjecture that activity in Japan would have been significantly weaker in the absence of the expansionary shift in fiscal policy.

Centralized Bargaining, Efficiency Wages, and Flexibility

The main focus of the “wage bargaining” literature has been on the factors promoting real wage flexibility at the macro level. This paper, in contrast, examines the microeconomic issues of wage bargaining. More specifically, this paper appraises the following questions: (a) what are the conditions under which a firm prefers decentralized to centralized bargaining?, (b) what are the characteristic features of firms which prefer decentralized to centralized bargaining?, and (c) has the proportion of firms which prefer decentralized bargaining increased over time? These questions are examined in an efficiency wage model with insider-outsider features. This paper provides useful theoretical insights for understanding the issues involved in shifting from centralized to decentralized wage bargaining.

Recession and Recovery in the United Kingdom in the 1990s: Identifying the Shocks

This article uses a vector autoregression (VAR) approach to identify the causes of the 1990-92 recession in the UK. The VAR approach is shown to be particularly pertinent for quantifying the relative magnitude of the different demand shocks, and in decomposing them into monetary and expectational factors. The main finding is that the recent recession was precipitated primarily by shocks to consumption, and that the prior monetary tightening and the subsequent collapse in the housing market explain just part of this contraction. Non-monetary shocks also appear to have played an important role in bringing about the recession. The VAR model also offers interesting insights on the nature of the recovery that is currently under way.

Monetary Policy and Leading Indicators of Inflation in Sweden

This paper derives a set of leading indicators of inflation for Sweden. It also discusses methodological and policy issues pertaining to the estimation of these indicators. The main findings are: (1) narrow money is the most powerful leading inflation indicator; (2) broad money and inflation expectations have significant predictive information on inflation; (3) the output gap, interest rates, and the credit aggregate have some predictive information on inflation, and this information is confined to a shorter time horizon than either the monetary aggregates or inflation expectations; and (4) implied forward rates have only weak predictive information on inflation.

Inflation Targeting in the United Kingdom: Information Content of Financial and Monetary Variables

The main objective of this paper is to identify a set of leading indicators of inflation for the United Kingdom, and discuss the conceptual issues pertaining to inflation targeting. The main conclusions are that narrow money has strong leading indicator properties for inflation, while broad money does not. Long yields appear to have some information for the GDP deflator, and headline inflation, and short yields for underlying inflation. Spreads between commercial paper and gilts, and the yield curve, have very little predictive information on inflation. An interesting conclusion is that while the nominal effective exchange rate is not a good predictor of inflation, the sterling-deutsche mark exchange rate appears to have weak predictive information on the targeted measure of inflation.

Recession and Recovery in the United Kingdom in the 1990s: A Vector Autoregression Approach

This paper uses a vector autoregression (VAR) approach to identify the causes of the 1990-92 recession in the UK. The VAR approach is shown to be particularly pertinent for quantifying the relative magnitude of the different demand shocks, and in decomposing them into monetary and expectational factors. The main finding is that the recent recession was precipitated primarily by shocks to consumption, and that monetary factors explain just part of this contraction. The VAR model also offers interesting insights about the long duration of the recession and the nature of the recovery that is currently underway.