Richard N. Cooper

Boom, crisis, and adjustment : the macroeconomic experience of developing countries

Boon, Crisis, and Adjustment reviews the macroeconomic experiences of eighteen developing countries from 1974 to 1989. The authors address why the experiences and policy reactions have differed among the countries, and how their individual growth rates were affected by these policy reactions.

Should Capital Controls Be Banished

AT ITS SEMIANNUAL MEETING in April 1997 the Interim Committee of the International Monetary Fund (IMF) proposed that the organization’s Articles of Agreement (the basic “constitution” of international financial relations among its 182 member countries) be amended to include currency convertibility for capital transactions among its fundamental objectives. Since the IMF was founded in 1946, currency convertibility for current transactions—goods, services, travel, interest, and dividend payments— enshrined in Article VIII, has been not only a fundamental objective of the organization but a condition for membership in good standing. But convertibility for capital transactions was pointedly excluded from the basic objectives; indeed, early proposals would have enjoined member countries, when requested, to help other members enforce such controls on international capital transactions as they might impose, although that provision was ultimately not adopted. Private international capital movements were badly disrupted by the extensive debt defaults of the 1930s and the ravages of World War II. Since the 1940s, however, they have grown rapidly, regaining the importance in international transactions that they had before World War I and in the 1920s. The world of international economic intercourse is thus very different today from that envisaged by the architects of the IMF. Shortly after the Interim Committee’s meeting, the Asian financial crises erupted. Some observers attributed these crises in part to unwise or excessive capital liberalization. Malaysia dramatically reimposed controls on outward capital movements in September 1998, while other countries tightened their existing controls. All these developments have made

Macroeconomic Policy Adjustment in Interdependent Economies

Introduction, 1. — I. The model, 3.— II. Comparative statics of the model, 7. — III. The policy adjustment model, 9. — IV. Numerical examples, 12. — V. Simulated policy responses, 15. — VI. Conclusions from the analysis, 22.

The Gold Standard: Historical Facts and Future Prospects

GOLD is a hardy perennial. It provides a psychological and material safe haven for people all around the world, and its invocation still produces deep-seated visceral reactions in many. It is not surprising, then, that when economic conditions are unfavorable, proposals to strengthen the role of gold in the monetary system find an audience much wider than the gold bugs who have always seen the demise of the gold standard as the negative turning point in Western civilization. The early 1980s is one of these periods. A number of proposals have been put forward to reinstitute some monetary role for gold, varying from window dressing to a full-fledged revival of the gold standard. These proposals are being treated with a seriousness that would have been astonishing twenty, ten, or even five years ago. An official examination of the subject was undertaken by the Gold Commission, which was established by President Reagan in June 1981 and issued its contentious report in March 1982; and several bills have been submitted to Congress with the objective of reviving a monetary role for gold. I

Economic Interdependence and Foreign Policy in the Seventies

A Casual reading of contemporary news reports suggests that during the past decade economic issues have taken on growing importance in the relations of non-Communist developed countries. The disputes between the United States and Japan over textiles, between the United States and the European Economic Community over agricultural trade, and between France and Germany over currency alignments come readily to mind. It is perhaps symbolic of the enormous success of early postwar foreign policy that issues no graver than these play such a prominent part in relations among countries that, earlier in the century, were sporadically at each others throats.

The 1972-75 Commodity Boom

AN EXTRAORDINARY increase in commodity prices occurred in 1973-74. Even leaving aside crude oil as a special case, primary commodity prices on one index more than doubled between mid-1972 and mid-1974, while the prices of some individual commodities, such as sugar and urea (nitrogenous fertilizer), rose more than five times. While the timing differed from commodity to commodity, the sharp upward movement was widespread, affecting virtually all commodities. Most rose dramatically to twenty-year highs, and many went to historical highs. (This is not the innocuous statement it would be for manufactures, whose prices have been subject to a slow upward creep; many commodities had lower prices in 1970 than they did in 1953.) The sharp rise in commodity prices startled most observers, for it came on the heels of apparent oversupply in 1970-71, and it fed recently aroused concerns about long-term commodity shortages, seeming to confirm the gloomy forecasts of the eco-doomsters. The Limits to Growth, which forecast the ultimate collapse of the world system with unrestrained growth, was published with much fanfare in 1972, and together with the subsequent run-up of commodity prices, seemed to herald the arrival of a Ricardian economy in which growing population and output of manufactured goods would press on a limited resource base. In addition, the commodity boom came at a time of heightened concern about inflation. The general price level in the United States accelerated

The Kyoto Protocol: A Flawed Concept

The framework of the Kyoto Protocol, an agreement for the worlds rich countries to reduce their greenhouse gas emissions, is deeply flawed. This paper explains why. The Protocol lacks essential country coverage, provides an inadequate basis for allocating emission rights, lacks provision for monitoring and enforcement, and implies politically unacceptable transfers among governments under a (necessary and desirable) arrangement for trading emission rights. In addition, it would by itself do little to limit climate change. An alternative approach to limiting greenhouse gas emissions is suggested, focussing on international agreement on common actions to reduce emissions. And contingency plans for adaptation to climate change and for sequestration greenhouse gases are urged.

Prolegomena to the choice of an international monetary system

The international monetary system—the rules and conventions that govern financial relations between countries—is an important component of international relations. When monetary relations go well, other relations have a better chance of going well; when they go badly, other areas are likely to suffer too. Monetary relations have a pervasive influence on both domestic and international economic developments, and history is strewn with examples of monetary failure leading subsequently to economic and political upheaval. Recent years have seen considerable turmoil in international monetary relations, and a marked deterioration in relations between Europe, Japan, and America. Ideally, monetary relations should be inconspicuous, part of the background in a well-functioning system, taken for granted. Once they become visible and uncertain, something is wrong.

Key Currencies After the Euro

On January 1, 1999, eleven European countries introduced a new European currency, the euro, which by mid-2002 will lead to the complete withdrawal of their existing national currencies. This change is a bold monetary experiment of unprecedented magnitude. It will require substantial changes both in the execution of day-to-day economic transactions and in the overall functioning of European economies. An enormous amount of effort has been devoted to making the change as smooth as possible and to understanding the consequences of the change within Europe.

Toward a Common Currency

Over 100 countries have declared to the International Monetary Fund that their currencies are allowed to float against other currencies, meaning that the currency is not formally pegged to some other currency or basket of currencies. This was up from 38 in 1988, suggesting a significant move toward greater flexibility of exchange rates. Yet during the 1990s half a dozen countries installed currency boards, a particular strong form of exchange rate fixity; ten European currencies were eliminated in favor of a common currency, the euro; other countries were actively considering installing currency boards, or even adopting the US dollar for domestic use. After a quarter century of floating among the major currencies, exchange rate policy is still source of vexation, and the appropriate choice is by no means clear. Should a country allow its currency to float, subject perhaps to exchange market intervention from time to time? Or should it fix its currency to some other currency or currencies, and if so to which one(s)? Economists do not offer clearly persuasive answers to these questions. Yet for most countries, all but the largest, with the most developed domestic capital markets, the choice of exchange rate policy is probably their single most important macroeconomic policy decision, strongly influencing their freedom of action and 2 effectiveness of other macroeconomic policies, the evolution of their financial systems, and even the evolution of their economies. This paper will not answer these questions, but it will suggest that the responses that have been given by economists over the past few decades are inadequate and possibly quite poor advice to decision-makers. It goes on to suggest that in the long run the major industrialized nations-the core of the international monetary system-may find it advantageous to adopt a common currency. The choice of exchange rate regime was not always so vexing; during much of the modern era it was in practice dictated by convention, by internationally agreed rules, or by uncontrollable external circumstances. If we date the modern era from 1867, when a transAtlantic cable first linked Europe and North America electronically-connections were established within Europe from 1851, and across the Pacific in the 1870s-international monetary experience among the major countries can be divided into four distinct periods, each with fuzzy edges. The first covers the period roughly 1870-1914, during which most countries adopted a gold standard for their domestic money, implying fixed exchange rates among currencies …