Shih-Wen Hu

Commodity Price Dynamics and Anticipated Shocks

In this paper we address the robustness of overshooting hypothesis in agricultural prices. We find that agricultural prices may undershoot their long-run level if the economy experiences an anticipated monetary shock rather than an unanticipated monetary shock. We also find that agricultural prices definitely display undershooting if the price of manufactures adjusts instantaneously rather than sluggishly. Copyright 1996, Oxford University Press.

Foreign Aid, Government Spending, and the Environment

Using an endogenous growth model, this paper examines the growth and welfare effects of the allocation of foreign aid in the recipient economy. As public inputs are a productive factor, a rise in the allocation of aid to the public inputs increases growth and hence the welfare of the economy. However, raising the ratio of aid to pollution abatement may not help an economy, because it crowds out public inputs. Since public inputs are also partly financed by income taxation, the welfare‐maximizing income tax rate is larger than the growth‐maximizing rate, because a portion of the aid constitutes a lump‐sum transfer and can increase household consumption and hence welfare.

Franchise fee, contract bargaining, and economic growth

This paper combines the industrial organization (IO) theory and the R&D-based endogenous growth theory in a model of a successive imperfect competitive economy. The current study assumes that firms between upstream and downstream industries bargain over both the price of intermediate goods and the franchise fee. Findings show that the intermediate goods firm with a R&D sector charges the price equal to the marginal cost. Economic rent may also be partly transferred into the franchise fee determined by the relative bargaining power. In particular, the traditional double marginalization result, such as in Spengler (1950), does not take place here due to the above-mentioned bargaining scheme. Finally, this work shows that final goods firms in vertically linked industries play an important role in an economic growth model. The more bargaining power the final goods firms have (or the more returns to specialization upstream firms have, or the less substitution elasticity the final goods have), the more the economy grows. However, the consumer preference for diversity seemingly does not affect economic growth rate.

Stock prices, foreign reserves, and regime collapse

Using a regime collapse model, this paper analyzes the impact of foreign financial disturbances in the foreign exchange market on the economy under the assumption of perfect foresight. When there are foreign financial disturbances and the amount of foreign exchange reserves reaches the threshold, the government contracts the domestic credit so as to prevent an additional decrease in foreign reserves. The results show that the relative scale of the threshold for foreign reserves influences the timing of the regime collapse, the extent of domestic credit contraction and the dynamic adjustment of the economy.

PRICE DYNAMICS, FOREIGN EXCHANGE AND ANTICIPATED SHOCKS IN A TOURISM ECONOMY

Using a dynamic model of an open monetary economy, this paper examines the effects of tourism-related anticipated shocks on goods prices and foreign exchange reserves. Foreign tourists consume mainly non-traded goods in holiday destinations, converting them into exportable goods. This gives rise to a tourism terms-of-trade effect that affects the accumulation of foreign exchange. Announcements of anticipated events bring tourist visits forward, resulting in an initial under-adjustment or an over-adjustment in the prices of the non-traded goods when the tourism terms-of-trade effect is positive or negative. This leads to an increase or a decrease in foreign reserves in the long run.

Monetary Announcement and Commodity Price Dynamics: A Portfolio Balance Model

This paper sets up a simple portfolio balance model and investigates how commodity prices will exhibit as the monetary authorities conduct a pre–announced monetary policy. It is found that agricultural prices will rise discretely on impact but may either overshoot or undershoot its long-run level at the instant of policy announcement. Our results also indicate that, during the period following the announcement but prior to the monetary expansion, rising agricultural prices are coupled with an accumulation in the stock of agricultural products. However, when monetary expansion actually takes place, two possible patterns of adjustment may happen: rising agricultural prices are matched by a decrease in the stock of agricultural products and falling agricultural prices are coupled with an accumulation in the stock of agricultural products.