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311. Is Inflation Targeting Best-Practice Monetary Policy?

Author:
Jon Faust and Dale W. Henderson
Publication Date:
05-2004
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
We describe the inflation targeting framework (ITF) and compare it against hypothetical bestpractice based on optimization. The core requirements of the ITF are an explicit long-run inflation goal and a commitment to transparency in policymaking. Advocates and practitioners of the ITF have made many contributions to clear goal setting and communication by central banks. However, we contend that ITF communication policies both as advocated and practiced often have some elements that either obfuscate or, in some cases, explicitly contradict the dictates of optimization in a stabilization-policy paradigm. In this paradigm, the central bank has an objective function that places weight on both inflation and output-gap stabilization and faces a conventional (exploitable) Phillips-curve trade-off. We point out some problems that the ITF communication policy may generate in this setting. Our analysis leads us to make four suggestions for communication policy intended to help central banks avoid these problems.
Topic:
Security, Economics, Emerging Markets, and International Trade and Finance

312. Foreign Participation in Local-Currency Bond Markets

Author:
Francis E. Warnock and John D. Burger
Publication Date:
02-2004
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
We analyze the development of, and foreign participation in, 49 local bond markets. Countries with stable inflation rates and strong creditor rights have more developed local bond markets and rely less on foreign-currency-denominated bonds. Less developed bond markets have returns characterized by high variance and negative skewness, factors eschewed by U.S. investors. Results based on a three-moment CAPM indicate, however, that it is diversifiable idiosyncratic risk that U.S. investors appear to shun. Taken as a whole our results hint at a virtuous cycle of bond market development: Creditor friendly policies and laws can spark local bond market development that enables the development of derivatives markets and, in turn, attracts foreign participation.
Topic:
Development, Economics, Emerging Markets, and International Trade and Finance
Political Geography:
United States

313. The Inferior Performance of State Owned Enterprises: Is it due to Ownership or Market Structure?

Author:
Leo A. Grünfeld, Eskil Goldeng, and Gabriel R. G. Benito
Publication Date:
03-2004
Content Type:
Working Paper
Institution:
Norwegian Institute of International Affairs
Abstract:
We analyze differences in performance between private companies (PCs) and state owned enterprises (SOEs), with an emphasis on the effects of market structure. We use a panel covering all registered companies during the 1990s in Norway, a country where SOEs play an important role in regular markets. Return on assets as well as costs measures are used as measures of performance in models that investigate markets where SOEs and PCs actually compete with each other. Although market shares and concentration affect performance, ownership identity still explains most of the inferior performance among SOEs.
Topic:
Development, Economics, Emerging Markets, and Industrial Policy
Political Geography:
Norway

314. Output and Price Fluctuations in China's Reform Years: What Role did Money Play?

Author:
Guanghua Wan and Yin Zhang
Publication Date:
08-2004
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
The Chinese economy underwent cyclical fluctuations in growth and inflation in the reform period. Contrasting views exist on the role of money in such fluctuations. This paper assesses these views employing structural VEC models based on the exchange equation. It is found that in the long run money accommodates, rather than causes, changes in output and prices. In the short run, price fluctuations are mostly attributable to shocks that have permanent effects on prices and money but not on real output. These shocks also account for a large proportion of fluctuations in money, and strongly influence the movements of output.
Topic:
Economics, Emerging Markets, and International Trade and Finance
Political Geography:
China and Asia

315. What Accounts for China's Trade Balance Dynamics?

Author:
Guanghua Wan and Yin Zhang
Publication Date:
08-2004
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper proposes a structural VAR model which extends the frameworks of Hoffmaister and Roldós (2001) and Prasad (1999). The model is then used to analyse the sources of China's trade balance fluctuations in the period of 1985–2000. Efforts are made to distinguish the forces which underlie the long-run trend in trade balance from those with transitory impacts. The effects of four types of shock are examined—the foreign supply shock, the domestic supply shock, the relative demand shock, and the nominal shock. Among other findings, two emerge as important. First, the movements in China's trade are largely the result of real shocks. Second, the Renminbi is undervalued, yet changes in the exchange rate bear little on the trade balance. Therefore, monetary measures would not suffice to redress China's trade 'imbalance'.
Topic:
Economics, Emerging Markets, and International Trade and Finance
Political Geography:
China and Asia

316. China's Business Cycles: Perspectives from an AD–AS Model

Author:
Guanghua Wan and Yin Zhang
Publication Date:
08-2004
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper represents a first attempt to study China's business cycles using a formal analytical framework, namely, a structural VAR model. It is found that: (a) demand shocks were the dominant source of macroeconomic fluctuations, but supply shocks had gained more importance over time; (b) the driving forces of demand shocks were consumption and fixed investment in the first cycle of 1985–90, but shifted to fixed investment and world demand in the second cycle of 1991–96 and the post-1997 deflation period; and (c) macroeconomic policies did not play an important part either in initiating or counteracting cyclical fluctuations.
Topic:
Demographics, Economics, and Emerging Markets
Political Geography:
China

317. The Black Media Entrepreneur and Economic Implications for the 21st Century

Author:
Emmanuel K. Ngwainmbi
Publication Date:
03-2004
Content Type:
Working Paper
Institution:
Columbia International Affairs Online
Abstract:
This paper appraises communications as business and examines the impact of new information technology on the productivity of the black entrepreneur (African American (AAs) and African (ABs) mid-scale businesspersons) and provides insights into market conditions in both communities to the mindset of the African entrepreneur and implications for partnership management. Further, it describes the black entrepreneur's access to business information, implications for partnership and a background for strategic planning. Research shows there are potential mutual benefits for African and African American media entrepreneurs, with proper strategic planning and information sharing.
Topic:
Development, Emerging Markets, and Industrial Policy
Political Geography:
Africa

318. The Putin Restoration

Author:
Leon Aron
Publication Date:
03-2004
Content Type:
Policy Brief
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
The Revolution had, indeed, two distinct phases: one in which the sole aim of the French nation seemed to be to make a clean sweep of the past; and a second, in which attempts were made to salvage fragments from the wreckage of the old order. For many of the laws and administrative methods which were suppressed in 1789 reappeared a few years later, much as some rivers after going underground re-emerge at another point, in new surroundings.
Topic:
Democratization, Economics, and Emerging Markets
Political Geography:
Russia, Europe, Asia, and France

319. The Duma Election

Author:
Leon Aron
Publication Date:
01-2004
Content Type:
Policy Brief
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
The December 7, 2003, election to the Russian parliament, the State Duma, has been portrayed in the U.S. media as mostly a product of the Kremlin's machinations. Its "administrative resources"--most importantly, its control of national television channels--are said to be almost entirely responsible for the winning performance of the "party of power," United Russia, which garnered 37 percent of the party-list vote among twenty-three parties and blocs on the ballot.
Topic:
Democratization, Economics, and Emerging Markets
Political Geography:
Russia, Europe, and Asia

320. EU Enlargement: Costs, Benefits, and Strategies for Central and Eastern European Countries

Author:
Marian L. Tupy
Publication Date:
09-2003
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
The accession of eight Central and Eastern European countries (CEECs) to the European Union in 2004 will bring some important benefits. The new members will gain from reduced barriers to trade and investment. By 2010, the movement of labor will also be freed. But accession to the EU is neither a necessary nor a sufficient condition for economic growth. The combined effects of market access and economic liberalization, not EU membership, optimize economic growth.
Topic:
Emerging Markets and International Political Economy
Political Geography:
Europe and Eastern Europe