Yosuke Takeda

The Choice Between Flexible Exchange Rates, Capital Control and the Currency Board in Asian Countries: A Perspective from the “Impossible Trinity”

We attempt to compare adjustment costs under exchange rate regimes in East Asian economies during their recovery processes. The criteria are the degree of overshooting in exchange rates, the changes in country risks, and the severity and duration of the recovery processes. Linear ranking is difficult. Managed rates with capital control worked for macroeconomic performance despite the welfare loss due to blocking capital flows. The currency board system worked well for stability, but recent experiences of Argentina and Hong Kong were deflationary. Under flexible rates, many economies that received IMF grants suffered a drastic initial downturn but later recovered vigorously. JEL Classification Numbers: F31, F32, F33.

A NOTE ON THE ROBUSTNESS OF THE TOBIN EFFECT IN INCOMPLETE MARKETS

Taking Dutta and Kapurs study (Review of Economic Studies 65, 551–572, 1998) as a case of the Tobin effect, this note investigates the extent to which the Tobin effect persists with the addition of sophisticated financial instruments in incomplete markets. On one hand, after dynamic contracts are introduced to the fullest extent, money demand as a precautionary device is crowded out completely, and there is thus no room for the Tobin effect to persist. On the other hand, the Tobin effect may be strengthened under conditions of coexistence of fiat money and dynamic insurance contracts with limited transfers thanks to relaxed incentive compatibility conditions in a moderately inflationary environment.

On the Role of the Rate of Time Preference in Macroeconomics: A Survey

This chapter surveys the literature on the role of the rate of time preference in macroeconomics. The tradition of Bohm-Bawerk (The positive theory of capital, MacMillan, London, 1891) and Fisher (The theory of interest, MacMillan, New York, NY, 1930) to contemplate on nature and causes of time discount was distilled by Samuelson (1937) in his elegant formulation of the discounted utility (DU) model, which almost dominated the profession for a long time. As noted by Koopmans (Econometrica 28:287–309, 1960) and Ramsey (Econ J 38:543–559, 1928), time consistency is a key postulate required for the DU formulation. Following Stroz (Rev Econ Stud 23:165–180, 1955), Phelps and Pollak (Rev Econ Stud 35:185–199, 1968) and Laibson (Q J Econ 112:443–477, 1997) explored a game-theoretic situation where the present self has a conflict with the future selves. Laibson’s hyperbolic discounting, motivated by the psychological and experimental findings that people tend to discount the immediate future more than the distant one, opens up a wide perspective in macroeconomics. Also, large accumulation of international debts can be attributed to the difference in time discount rates among nations. Homage to Koji Shimomura by Koichi Hamada My encounter with Koji Shimomura started in the autumn of 2000when he appeared in my office at Yale, thanks to the exchange agreement between the Research Institute of Economics and Business (RIEB) at Kobe University and the Economic Growth Center at Yale. I was puzzled by the question if the typical form of free trade agreement (FTA) without any compensatory tariff reductions or transfers to the rest of the world would always deteriorate the welfare of the rest of the world. In a few days, he transformed my old-fashioned approach into a full-fledged expenditure–revenue framework. K. Hamada Yale University, New Haven, CT 06520-8269, USA T. Kamihigashi and L. Zhao (eds.) International Trade and Economic Dynamics – Essays in Memory of Koji Shimomura. c 393