Thomas D. Willett

An economic theory of mutually advantageous issue linkages in international negotiations

There has been considerable interest in recent years in the question of issue linkages in international negotiations. What is significant about discussions of linkages in the present era is the stress put on making trade-offs explicit among issues. Most of the highly publicized cases of proposed issue linkages appear to have been motivated by attempts of individual countries or groups of countries to extend their dominant bargaining or veto power in one particular issue area into other areas so as to achieve maximum advantage from their whole array of international interactions. The existence of an additional rationale for linkage that relies upon mutual interest has important implications. Drawing on the economic theory of exchange, the use of issue linkages to facilitate the completion of a greater number of mutually beneficial agreements among nations is considered.

China as a Reserve Sink: The Evidence from Offset and Sterilization Coefficients

Abstract China has been stockpiling international reserves at an extremely rapid pace since the late 1990s and has surpassed Japan to become the largest reserve holder in the world. This paper undertakes an empirical investigation to assess the extent of de facto sterilization and capital mobility using monthly data between mid 2000 and late 2008. We find that China has been able to successfully sterilize a large portion of these reserve increases thus making it a reserve sink such as Germany was under the Bretton Wood system.

Presidential politics, budget deficits, and monetary policy in the United States; 1960–1976

ConclusionThis paper has focused on the extent to which the traditional tools of macroeconomic management in the United States, monetary and fiscal policy, have contributed to a political business cycle. Regardless of whether politicians can successfully influence real economic variables to their own ends, the evidence presented here suggests that they tried, and that they enjoyed some at least indirect aid from their ‘independent’ monetary authorities in doing so. Several major conclusions emerge. (1)Over the years 1960 to 1976 in the United States a cyclically adjusted Federal deficit was related to the Presidential electoral cycle. We find that roughly half of the high employment deficit was ultimately monetized, in the sense that an addition of one dollar to the deficit was associated with an increase in M1 of almost .50 cents.(2)Monetary policy responded systematically to this deficit in addition to other basic factors in the management of the money supply. The high employment deficit is in fact more important than any of the other variables included in the monetary reaction function estimated here.(3)When a political component of the high-employment deficit is isolated by observing the relationship of the electoral cycle to the deficit, the monetary authority may have responded even more to this component than to the residual deficit, although the politically induced deficit component as measured here is small relative to the total deficit.

The Dollarization Debate

This book takes a global approach, with an emphasis on North and Latin America respectfully, by discussing one of todays most controversial topics in business; Dollarization. With the collapse of the former Soviet Union, and the formation of the Euro in Europe, many countries and debating whether or not a common currency is in their best interest. This intriguing volume brings together the leading participants in the current dollarization debates. Many advocate the notion of a common currency, while others feel that in doing so will create financial costs for all that take part, with the severity varying from country to country. Available in OSO: http://www.oxfordscholarship.com/oso/public/content/economicsfinance/0195155351/toc.html

The Political economy of international organizations : a public choice approach

Part 1 The public choice approach to international economic issues and organizations - theory: the public choice approach to international political economy, Bruno Frey a public choice approach to international organization, Roland Vaubel canons of public choice analysis of international agreements, Rodney Smith international organizations from the constitutional point of view, B. Frey and Beat Gygi approaches to the study of international organizations - major paradigms in economics and political science, Patricia Dillon et al international institutions and the market for information, Michele Fratianni and John Pattison. Part 2 Applications: the GATT as an international discipline over trade restrictions - a public choice approach, Michael J. Finger a public choice perspective of the International Energy Programme, R. Smith United States policy and the Law of the Sea Conference, 1969-82 - a case study of multilateral negotiations, Ross Eckert the political economy of the International Monetary Fund - a public choice analysis, R. Vaubel determinants of foreign aid under alternative institutional arrangements, Friedrich Schneider and Hannelore Weck-Hannemann unanimous decisions in a redistributive context - the Council of Ministers of the European Communities, William S. Peirce the common agricultural policy of the European Community - a public choice interpretation, Tim Josling and H.Wayne Moyer a public choice view of the Delors Report, R. Vaubel.

Currency areas and exchange-rate flexibility

ZusammenfassungWÄhrungsgebiete und WechselkursflexibilitÄt. — Der vorliegende Aufsatz diskutiert den Plan von optimalen WÄhrungsgebieten und gibt eine kritische Betrachtung der Literatur über dieses Thema. WÄhrend es keine allgemeine übereinstimmung über eine einheitliche Theorie der Determinanten von optimalen WÄhrungsgebieten gibt, liefert die Literatur über optimale WÄhrungsgebiete nützliche Informationen für die Bildung von »guten« WÄhrungsrÄumen und hat dazu beigetragen, das allgemeine Niveau der Debatte über feste versus flexible Wechselkurse zu heben. Die Literatur über optimale WÄhrungsgebiete ist besonders für die derzeit laufenden Diskussionen innerhalb des Gemeinsamen Marktes über WÄhrungsvereinheitlichung und eine grö\ere WechselkursflexibilitÄt von Bedeutung. Der Aufsatz schlie\t mit dem Hinweis, da\ der schnellste und effektivste Weg zu einer letztlich echten WÄhrungsunion in der EWG über eine übergangsperiode von gleitenden ParitÄten führen dürfte, wÄhrend gleichzeitig die makroökonomische Wirtschaftsunion innerhalb der EWG allmÄhlich harmonisiert wird.RésuméRégions monétaires et flexibilité du taux des changes. —Cet article discute le projet de régions monétaires optima et passe en revue critique la littérature à ce sujet. Quoiqu’il n’y ait pas unanimité dans la théorie des déterminants des régions monétaires optima, la littérature qui s’occupe de ces régions fournit tout de mÊme des informations utiles pour la création de «bonnes» régions monétaires. En outre, elle a contribué à mettre sur un niveau plus élevé la discussion des cours des changes ou fixes ou flexibles. La littérature des régions monétaires optima est surtout utile pour les discussions qu’on poursuit actuellement au sein du marché commun au sujet d’une unification monétaire et d’une plus grande flexibilité des cours des changes. Finalement, l’article constate que la manière la plus rapide et la plus efficace d’arriver à une monnaie commune effective pour la CEE sera de passer par une période de transition à parités glissantes, période pendant laquelle l’union macroéconomique de la CEE s’harmonisera graduellement.ResumenUniones monetarias y flexibilidad cambiaria. —El autor discute el plan de crear áreas monetarias optimales y pasa una revista critica a la literatura sobre este tema. Aunque no existe una compatibilidad absoluta de opiniones en cuanto a los factores déterminantes de àreas monetarias optimales, se encuentran en la literatura informaciones utiles para la creación de áreas monetarias de dimensión razonable, lo cual ha contribuido a mejorar el nivel al que se discute el problema de tipos de cambios fijos vs. flexibles. La literatura sobre áreas monetarias optimales es de gran interés en vista de las discusiones que actualmente se llevan a cabo dentro del Mercado ComÚn con el fin de crear una unión monetaria y de aumentar la flexibilidad cambiaria. Concluye el autor de que el modo más rápido y efectivo para llegar a una verdadera union monetaria en la CEE es a través de un período de transición con paridades deslizantes, creándose al mismo tiempo sucesivamente la unión económica dentro de la CEE.RiassuntoAree monetarie e flessibilità dei corsi di cambio. —II presente articolo discute il piano di aree monetarie ottimali e dà una considerazione critica della letteratura su questo tema. Mentre non c’è nessun accordo generale su una teoria unitaria delle determinanti di aree monetarie ottimali, la letteratura su ottimali aree monetarie fornisce utili informazioni per la forroazione di «buoni» spazi monetari ed ha contribuito a ció, ad elevare il livello générale del dibattito su corsi di cambio fissi contro corsi di cambio flessibili. La letteratura su aree monetarie ottimali è soprattutto importante per la corrente discussione attuale all’interno del Mercato Comune sull’unificazione monetaria e su una maggiore flessibilità dei corsi di cambio. L’articolo termina con l’indicazione che il cammino più veloce e più effettivo per una autentica e definitiva unione monetaria nella CEE dovrebbe passare per un periodo di transizione di parità oscillanti, mentre contemporaneamente la macroeconomica unione economica delia CEE è gradualmente armonizzata.

Speculative behavior of foreign exchange rates during the current float

Abstract The current regime of floating exchange rates has been characterized by a number of informed observers as economically unsatisfactory. Use of terms such as “overshooting”, “bandwagon effects”, “destabilizing”, and “insufficient speculation” reflects serious misgivings on the part of many toward the long-run viability of a floating, rather than a fixed or semi-fixed, rate regime. Using fairly standard procedures, the authors have attempted to determine the extent to which the foreign exchange market exhibits the adverse features noted above. The authors conclude that by and large foreign exchange markets have not performed particularly poorly. The foreign exchange markets seem to be efficient at least in the weak form sense. Past exchange rate changes are not useful in predicting future exchange rate changes. This empirical finding contrasts sharply with the view that the markets “overshoot”, or that there are “bandwagon effects”, or that the amount of price stabilizing speculation is inadequate.

Reconsidering the principal components of central bank independence: The more the merrier?

We use principal component analysis to reassess the link between different attributes of central bank independence and inflation performance. We suggest that coding problems may account for the fact that almost none of the attributes included in the Cukierman index has a systematic, plausible relationship with inflation. The multi-faceted Cukierman index also seems to be out-performed by a much narrower index focusing solely on policy independence. These findings point to the importance of using public choice analysis to isolate the real problem here: namely, finding specific central bank structures that effectively insulate central bankers from political pressures.

The ranking of alternative tariff and quota policies in the presence of domestic monopoly

Abstract Bhagwati demonstrated the nonequivalence between tariffs and quotas in the presence of monopoly. This paper also assumes domestic production to be monopolized and shows that giving import licenses or tariff revenues to the domestic producer may raise or lower the welfare cost of protection and the price paid by consumers from the price under other tariff and quota arrangements which maintain the same market share for the domestic producer. However, if the monopolist realizes that commercial policy is an instrument used to maximize the policymakers welfare function, instead of being a goal in itself, the equivalence of tariffs and quotas re-emerges.

Interest Rate Policy and External Balance

Introduction, 242. — I. The pure stock adjustment model, 244. — II. The effects of portfolio growth, 246. — III. An empirical application: U.S. short term capital movements, 249. — IV. Interest costs, 252. — V. The interrelationships between interest rates, portfolio size, and capital and interest flows, 257. — VI. Summary and conclusions, 259.