Search

Begin New Search Topic Economy Political Geography Global Focus

181. Delayed Overshooting: It's an 80s Puzzle

Author:
Seong-Hoon Kim, Seongman Moon, and Carlos Velasco
Publication Date:
09-2014
Content Type:
Working Paper
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
We re-investigate the delayed overshooting puzzle. We find that delayed overshooting is primarily a phenomenon of the 1980s when the Fed was under the chairmanship of Paul Volcker. Related findings are as follows: (1) Uncovered interest parity fails to hold during the Volcker era and tends to hold in the other periods considered. (2) US monetary policy shocks have substantial impacts on exchange rate variations but misleadingly appear to have small impacts when monetary policy regimes are pooled. In brief, we confirm Dornbusch’s overshooting hypothesis.
Topic:
Economy and Overshooting
Political Geography:
Korea and Global Focus

182. A Risk Map of Markups: Why We Observe Mixed Behaviors of Markups

Author:
Seong-Hoon Kim
Publication Date:
09-2014
Content Type:
Working Paper
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
This paper proposes an explanation for mixed evidence on the behaviors of markups. The key mechanism consists of two complementary channels of risk internalization that arise when firms face uninsurable business risks. One channel is based on passive risk consideration, through which firms raise prices to abide by riskier business thereby associating higher production with higher prices. The other channel is based on active risk management, through which firms lower prices to handle riskier business thereby associating higher production with lower prices. The relative responsiveness of the two channels to a shock depends on each firm’s fundamental characteristics and leads to a sharp division of markup cyclicality across sectors.
Topic:
Economy, Business, and Risk
Political Geography:
Global Focus

183. A Proposal for a New Regional Financial Arrangement: The Reserve Liquidity Line

Author:
Young-Joon Park
Publication Date:
12-2014
Content Type:
Working Paper
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
This paper examines the limitations of the Chiang Mai Initiative Multilateralization (CMIM) as a regional financial safety net in East Asia, and proposes a new regional financial arrangement. To overcome the drawbacks of the CMIM, which has never been activated so far, a new regional financial arrangement suggests that ASEAN+3 members establish a regional reserve system based on a supranational regional reserve asset. The new regional financial arrangement, so-called “Reserve Liquidity Line” (RLL), guarantees a degree of automaticity in liquidity facility, based on upfront funding instead of pledge funding. As a backdrop of the regional reserve system, some market movements have been manifested to reduce excessive U.S. dollar dependency in East Asia and to enhance the use of local currencies. Establishing the RLL mechanism could find a way of making up for the weak points of the CMIM and responding to the regional needs for effective regional financial arrangements. The proposed operational mechanism of RLL comprises (i) institution building of ASEAN+3 Reserves System (ARS) to manage the Regional Reserves Asset (RRA), (ii) an Operations Account and a Substitution Account, and (iii) a sort of basket exchange rate for RRA valuation.
Topic:
Finance, Economy, Multilateralism, International Reserves, and Liquidity
Political Geography:
Global Focus

184. Fragile States Index 2014: The Book

Author:
J. J. Messner, Nate Haken, Krista Hendry, Patricia Taft, Kendall Lawrence, Laura Brisard, and Felipe Umana
Publication Date:
06-2014
Content Type:
Special Report
Institution:
The Fund for Peace
Abstract:
The Fragile States Index, produced by The Fund for Peace, is a critical tool in highlighting not only the normal pressures that all states experience, but also in identifying when those pressures are pushing a state towards the brink of failure. By highlighting pertinent issues in weak and failing states, The Fragile States Index—and the social science framework and software application upon which it is built—makes political risk assessment and early warning of conflict accessible to policy-makers and the public at large. The Fragile States Index is an annual ranking of 178 nations based on their levels of stability and the pressures they face. The Index is based on The Fund for Peace’s proprietary Conflict Assessment System Tool (CAST) analytical platform. Based on comprehensive social science methodology, data from three primary sources is triangulated and subjected to critical review to obtain final scores for the Fragile States Index. Millions of documents are analyzed every year, and by applying highly specialized search parameters, scores are apportioned for every country based on twelve key political, social and economic indicators and over 100 sub-indicators that are the result of years of painstaking expert social science research. The 2014 Fragile States Index, the tenth edition of the annual Index, comprises data collected between January 1, 2013 and December 31, 2013 — thus, certain well publicized events that have occurred since January 1, 2014 are not covered by the 2014 Index.
Topic:
Sovereignty, Authoritarianism, Democracy, Fragile States, Economy, State Building, and Instability
Political Geography:
Africa, Bosnia, Eastern Europe, Balkans, West Africa, Somalia, South Sudan, and Global Focus

185. Wage Differentials: Trade Openness and Wage Bargaining

Author:
Gustavo Gonzaga, Beatriz Muriel, and Cristina Terra
Publication Date:
04-2014
Content Type:
Working Paper
Institution:
Institute for Advanced Development Studies (INESAD)
Abstract:
We build a theoretical model that incorporates unionization in the labor market into a Heckscher-Ohlin-Samuelson (HOS) framework to investigate the impact of unionization on the Stolper-Samuelson Theorem. To capture the American economy case, we assume that unskilled labor in the manufactured goods sector is unionized, and that sector is intensive in skilled labor, and that trade liberalization increases the relative price of manufactured goods. In the HOS model, trade liberalization induces a reallocation of production towards the sector that uses intensively the country’s most abundant factor. The resulting change in relative labor demand impacts wage bargaining in the unionized sector, which, in turn, has a dampening effect on the Stolper-Samuelson effect. Moreover, wages of unionized workers are even less responsive to trade liberalization. Through traditional mandated-wages regressions, we show that skilled-wage differentials changes were less pronounced among more unionized sectors in the U.S. economy for the 1979-1990 period.
Topic:
Labor Issues, Economy, Manufacturing, Trade, and Wages
Political Geography:
Global Focus

186. Estimating the demand for tap water quality: Avertive expenditures on substitutes for hardness and aesthetic quality

Author:
Bruno Lanz and Allan Provins
Publication Date:
01-2014
Content Type:
Working Paper
Institution:
Centre for International Environmental Studies, The Graduate Institute (IHEID)
Abstract:
This paper uses avertive expenditures to estimate the demand for qualitative aspects of tap water supply. We focus on two characteristics that are of importance for water consumers: water hardness and aesthetic quality in terms of taste, smell and appearance. To elicit expenditures on substitute products, we survey more than 4,500 households in England and Wales. For water hardness, around 14% of households employ at least one water softener device, with mean and median yearly expenditure around £95 and £50 respectively. Substitutes for the aesthetic quality of tap water mainly include bottled water, water filter devices, or adding squash or cordial before drinking. Overall 39% of respondents report at least one such behaviour, with mean and median yearly expenditure around £92 and £60 respectively. These are substantial amounts given a yearly average household bill of £186 for water services. Matching household data to highly disaggregated records on regional water hardness, our econometric analysis suggests that a 10% reduction in water hardness is associated with a £1.50 reduction in avertive expenditures. We also exploit geographic variation in the aesthetic characteristics of tap water, and correlate self-reported quality ratings to expenditures. We find that a one-fifth increase in the rating of water taste is associated with a £19 reduction in yearly expenditures.
Topic:
Water, Economy, Demand, and Spending
Political Geography:
Global Focus

187. Clean substitutes and the effectiveness of carbon footprint labels vs. Pigovian subsidies: Evidence from a field experiment

Author:
Bruno Lanz, Jules-Daniel Wurlod, Luca Panzone, and Timothy Swanson
Publication Date:
09-2014
Content Type:
Working Paper
Institution:
Centre for International Environmental Studies, The Graduate Institute (IHEID)
Abstract:
We study how substitutability between clean and dirty alternatives affects the effectiveness of environmental regulation in a field experiment that controls for the choice set of respondents. We consider four product categories with clean and dirty alternatives: (i) cola products in plastic bottles vs. in aluminum cans; (ii) skimmed vs. whole milk; (iii) chicken meat vs. beef meat; and (iv) margarine vs. butter. We employ two neutrally framed treatments to quantify the willingness to substitute between clean and dirty alternatives in each product market, namely a change in relative prices and the removal of the dirty alternative, leaving respondents the option of buying one of the remaining clean alternatives or nothing. We then compare the impact of a carbon footprint label and a Pigovian subsidy to the clean alternatives. While both instruments increase the market share of the clean products, their impact is higher when clean and dirty alternatives are close substitutes. We also find evidence that motivation crowding is present and increases with substitutability. Our results highlight the importance of product markets in the design of consumer-orientated policies.
Topic:
Environment, Economy, Consumer Behavior, Market-Based Instruments, and Carbon Footprint
Political Geography:
Global Focus

188. The Economic Cost of Violence Containment

Author:
Institute for Economics and Peace (IEP)
Publication Date:
02-2014
Content Type:
Special Report
Institution:
Institute for Economics & Peace (IEP)
Abstract:
One of the major challenges in developing policies aimed at increasing peace is the difficulty of being able to accurately gauge the benefits that result from peace. Recognising this, the Institute for Economics and Peace (IEP) has developed a new and ground breaking methodology to estimate the cost of violence to the global economy, including calculations for 152 countries that detail the costs of thirteen different types of violence. This deeper insight into the breakdown of national costs of violence allows for better targeting of development assistance and also enables national governments to more accurately assess the costs associated with violence and the likely benefits that would flow from improvements in peace.
Topic:
Economics, Economy, Violence, Peace, and Containment
Political Geography:
Global Focus

189. The Governance of the Black Holes of the World Economy: Shadow Banking and Offshore Finance

Author:
Ronen Palan and Anastasia Nesvetailova
Publication Date:
02-2013
Content Type:
Working Paper
Institution:
City Political Economy Research Centre (CITYPERC), University of London
Abstract:
This paper focuses on regulatory challenges posed by the two interconnected structures of the global financial system – the economy of tax havens (or offshore financial centres), and the shadow banking system. The financial crisis of 2007-09 has revealed that tax havens structures and shadow banking entities play a central role in the practise of financial institutions reliant on financial innovation. Thriving on complexity, opaque networks and driven by arbitrage, the two phenomena pose tremendous challenges to national and international regulators aiming to restore the financial cycle in the recessionary environment. In this paper, we analyse ‘the state of play’ and the current plans for the governance of tax havens, offshore finance and the shadow banking industry. We find that although offshore financial centres and shadow banking are outside the scope of academic economics, they have attracted a lot of attention on the part of financial researchers and regulators. Along with other macro-prudential and system risk concerns, the regulation, or governance of these ‘black holes’ of the global economy is increasingly assuming a central place on the agenda of financial regulators. In what follows, we explore the reasons behind this development.
Topic:
Governance, Regulation, Economy, Shadow Banking, and Offshore Finance
Political Geography:
Global Focus

190. Good Regulation is Good Governance 101

Author:
K N Vaidyanathan
Publication Date:
12-2011
Content Type:
Special Report
Institution:
Gateway House: Indian Council on Global Relations
Abstract:
In 1925, at the time that Britain reverted to the gold standard, Winston Churchill, then Chancellor, said that he would like to see ‘finance less proud and industry more secure.’ The move was criticized by economists for overvaluation of the British Pound; but the quote was prescient and is especially relevant today, when the hubris of the financial markets has fractured the global economy so excessively. Course correction so far has relied on bailouts. Instead what is immediately needed is the observance of good governance in regulation and in the long term, a restructuring of the regulatory architecture. Key to this is the recovery of ground lost by the regulator in ensuring market integrity, reinforcement of the currency of financial markets viz., trust, and deliverance of market stability which will help the underlying economy and the society at large. In sum: ensuring good regulation through good governance. This is the challenge before regulators today. The impact and import of the global financial crisis can be judged by two simple numbers: global market capitalization and GDP growth. (Source – the World Federation of Exchanges www.world-exchanges.org data.worldbank.org), They grew from $17.1 trillion and $27.5 trillion in 1990 to $ 64.5 trillion and $ 63.2 trillion, in 2007 respectively. A year later, market capitalization had almost halved to $ 33.5 trillion while GDP growth fell from over 5% to 3% in 2008 and -0.5% in 2009. The crisis that surfaced in 2007 has already peaked twice, in 2008 and 2011, and is far from over. In every analysis, financial market regulators have been accused of sleeping at their desks, held captive by the industry, remaining benign as the party went on and even abetting the excesses both wittingly and unwittingly.
Topic:
Markets, Governance, Regulation, Economy, and Global Financial Crisis
Political Geography:
Global Focus