Policy modeling of foreign exchange rates

This paper is neither a complete survey of empirical work on exchange rate determination, nor a review of the ballooning volume of theoretical models. It is instead an attempt to classify the main alternative approaches to modeling exchange rates. I shall concentrate on approaches that can be used to assess the effects of alternative policies. There will be four further sections in the paper. The first three sections will each deal withthe structure, empirical support, and policy consequences of three main types of model: purchasing power parity models emphasizing the close and immediate relation of goods markets; interest rate parity models emphasizing the close and immediate international linkage of markets for financial assets; and structural balance-of-payments models that do not assume either of the above linkages to be so strong and immediate as to eliminate the other, and that hence require separate (but interdependent) modeling of trade and capital linkages in the determination of exchange rates. Each of these main categories has many rather distinct models within it, and some models are not easily classified into one of the three categories; I hope that the three-way split will nevertheless serve to make some distinctions that are important for policy modeling.In the final section I shall try to summarize the available model results that pertain to national and international policy choices under a system of more flexible exchange rates, and then to suggest where more or better model building might usefully increase the amount of information available to guide policy decisions.     

Policy simulations with a macroeconometric model of the Indian economy

In this paper, the results of various dynamic policy simulations are analyzed within the context of a macroeconometric model of the Indian economy. The model contains 35 equations and offers a consistent framework for policy analysis. It is considerably expanded on the side of the fiscal sector and usefully incorporates the interdependence between monetary and fiscal sectors and gives due attention to supply side considerations. Magnitudes of effects of sustained policy changes are analyzed for the period 1964–1965 to 1974–1975. Impact multipliers and elasticities are also analyzed. Government expenditures variables and deficit financing are shown to have substantial impact on the system whereas changes in tax-rates, discount-rates, and liquidity ratios for commercial banks are shown to have only a marginal impact. The model is used for exploring the growth potential of the economy in a forecast period of five years under alternative assumptions regarding policy options.     

Three models of OPEC leadership and policy in the aftermath of Iran

Collapse of the Shah's regime has transformed Iran's attitude regarding oil production policy. The nature of OPEC leadership is changing as well. Three models examine the nature of this leadership inside OPEC: (1) the conventional price leadership model, (2) a model emphasizing a concept of egalitarian leadership, and (3) a team model composed of coalitions. The three models establish the limits within which OPEC leadership is exercised. A composite model drawing upon all three sets of results suggests that Saudi Arabia shapes cartel policy not by itself, but through a dominant coalition of states. For most of the period 1969–1978 this coalition has been stable. Following the unsettling changes of 1973, cooptation of Iran into the dominant coalition in 1974 was an important step in achieving a new level of stability. But during the turbulence of regime transformation in Iran, the nature of the governing coalition appears to have changed. One consequence may be that in the future Saudi Arabia will yield more willingly to arguments heard within OPEC on behalf of upwards price pressure, especially in an atmosphere of growing political isolation and overall tight supply.     

Monetary policy,trade-offs and the transmission of UK Monetary Policy

We provide a new method to model changes in monetary policy of the Bank of England (BoE) as well as the impact of these changes on UK economy. This is important as central bankers have widened the range of instruments in their monetary policy toolbox. Specifically, we estimate a proxy for the monetary policy stance and then analyse a time-varying parameter vector autoregressive with stochastic volatility model to explain the BoE’s trade-offs when making policy decisions and as well as to demonstrate dynamic impacts of monetary policy on inflation and economic growth. The empirical results show that our estimated monetary policy proxy is better at capturing the BoE’s policy when the interest rate lower bound becomes binding.     

Optimal control of large nonlinear models: An efficient method of policy search applied to the Dutch economy

A modification of optimal control for an economy under uncertainty, by splitting the technique into a simulation phase and a control phase, makes policy optimization feasible for large-scale nonlinear models. The advantages of this approach in a policy search are clearly illustrated by an application to Dutch economic planning. A historical analysis shows that it is important to treat unemployment and the balance of payments as the key targets. That dual target strategy, worked out for the current planning period, leads to economic expansion and employment creation rather than retreachment.     

Models of economic planning under uncertainty: A selective survey and appraisal

Uncertainty and risk have played significant roles in policy making, at the micro and macro levels, from formulation of policy models to their actual implementation in several countries. The impact of risk aversion on policy making has differedm however, both in magnitude and intensity. Thus, for less developed countries with large commodity exports, stabilization policies have played a role as important as those for income growth and employment; for centrally planned economies, the investment cycles leading to large-scale divergences of actual from planned targets in strategic sectors have led policy makers to consider the need for building adequate safety margins in the planning process. Finally, for developed economies, the applied theory of indicative planning and decentralization has stressed the various informational gaps and competing risks that may impede an efficient and cooperative solution between private and public sectors. A selective survey and appraisal of the planning methods as they relate to risk and uncertainty is attempted here for less developed, centrally planned, and developed market economies.     

Policy analysis in a socioeconomic model of basic needs applied to four countries

This article summarizes the results of a socioeconomic model of basic needs that was applied to four countries—Brazil, Colombia, India, and Kenya. A modeling approach was thought necessary in order to make more precise the concept of basic needs. Although the work has not been entirely successful in doing that, from the policy experiment attempted, and given the limitations of the models used, we believe that an approach centered on the provision of basic needs will help the poorest satisfy their needs more quickly than is possible under alternative approaches.     

Different macroclosures of the original Johansen model and their impact on policy evaluation

It seems necessary to get a better understanding of the economics involved in the rather large and complicated computable general equilibrium models now being implemented in several countries. This paper contributes to the discussion on how the results from such models depend on the choice of closure rule. Within a very general setup, the original Johansen model, the different behaviors of the model are discussed under different closure rules, and the effects of fiscal policy under the alternative closures are quantified by numerical experiments.     

Regional Computable General Equilibrium models: A review

Computable General Equilibrium (CGE) models are very popular for analyzing a wide range of policy issues. CGE applications vary from estimating the welfare impact of tax reform and alternative energy policies to the effect of foreign trade reforms, labour markets and employment. CGE models are commonly developed at the country level; however, modified versions of CGE, so called Regional CGE (RCGE) models, can be used at subnational disaggregation to examine impacts studied at the national counterparts on a specific region. RCGE models have grown in popularity as an alternative to the Input-Output (I-O) models, which are regularly used for regional analysis. RCGE models can provide comprehensive information, which make them more desirable analytical models for many researchers. Yet, RCGE models have not yet become a “go-to” for governmental policy practitioners when they are developing regional public policies. This paper reviews the current state of regional CGE models, describes their features, contributions and limitations and surveys some applications of the main three classes of RCGE models: region-specific, bottom-up, and top-down models. This paper concludes that the applications of RCGE are quite variable and flexible, with a new and more complex type of application to be developed with the advancement of computation economics. The paper offers recommendations on the micro, meso and macro conditions that are necessary to increase policy practitioners’ utilization of RCGE models.     

中印经济发展阶段比较研究

1978年中国改革开放政策的实施和1991年印度新的经济政策的颁布标志着世界两个发展中大国开启了开放条件下的经济发展进程。经济对外开放意味着两国将外部市场作为一个新的自变量置入本国的经济发展进程中。在开放的初始阶段,外部市场所起的决定性作用使得两国在新一轮的经济发展进程中选择了不同的发展路径,即中国走的是传统的工业化道路,通过发展制造业渡过工业化的初始阶段,而印度走的是非传统工业化道路,优先发展服务业,来拉动经济增长。未来一定时期内,中国将步入由国内市场来主导经济发展的阶段,将会继续沿着工业化的标准进程前行,而印度仍处于外部市场主导经济发展的阶段,这也就预示着印度的服务业发展仍将持续一定时期,同时印度将推进制造业的发展,以启动传统工业化进程。     

A computable prototype model of economic development

Economic development models need to advance beyond the two-gap type capital-output models of growth. This paper presents a prototype model of economic development where development is defined more broadly than aggregative output growth in terms of four objectives, namely, income, consumption, distribution, and employment. It is in keeping with the basic needs approach recently developed by the World Bank and other international organizations.The model formulation is based on the dualistic theory of capital formation and structural change. The specification is on the supply side. A novel aspect of the model is that it incorporates the role of education, health, and nutrition in economic development. Further it makes use of cross section data, which is unusual in model building.The model is put to illustrative use to generate dynamic policy multipliers of education and health expenditure. The results do not support the Malthusian fears that increased health expenditure would cause massive unemployment and reduce the standard of living in LDCs.     

A triple test for behavioral economics models and public health policy

We propose a triple test to evaluate the usefulness of behavioral economics models for public health policy. Test 1 is whether the model provides reasonably new insights. Test 2 is on whether these have been properly applied to policy settings. Test 3 is whether they are corroborated by evidence. We exemplify by considering the cases of social interactions models, self-control models and, in relation to health message framing, prospect theory. Out of these sets of models, only a correctly applied prospect theory fully passes the tests at present. Specifically, in broad agreement with the evidence, a gain frame has positive implications for welfare encourages disease prevention activity, though this does not apply if the perceived probability of the bad health outcome is large enough. We see our tests as being useful to identify how much health policy weight policy makers should assign to specific behavioral economic models; they are also useful to verify what next steps would be most useful in further research.     

Asset opportunity for the poor: an asset-based policy agenda towards inclusive growth in China

The concept of inclusive growth recently embraced by the Chinese government marks a new way of thinking about social policy and development. The primary goal of inclusive growth is to ensure that all people, especially the poorest, have an equal opportunity to participate in, and benefit from, the country's economic growth. In accordance with the new orientation of development strategies, there has been a paradigm shift in social policy from conventional income maintenance to promotion of the poor's asset accumulation and long-term development. Given China's striking social and economic inequalities, this article argues that an asset-based social policy is a key strategy in the strengthening of inclusive growth. The article highlights several areas of the welfare system where asset-based policies could be developed or expanded.     

Interest rate policies and inflation in interdependent economies: Recent policy dilemmas

This paper examines Federal Reserve Board policies that are premised on a negative short-run association of interest rate movements and the rate of inflation. In particular, econometric evidence is provided, supporting the view that tighter monetary policy appears to raise inflation rates in the short run. Conversely, it is demonstrated that easier monetary policy does not necessarily raise inflation rates in the short run. In the case of uncoordinated monetary restrictiveness, interest rate competition among major countries can produce higher inflation and lower growth than was originally intended.     

An international trade model to capture linkages among supply-constrained economies

The development of a country's domestic and international markets depends on its own actions as much as on those of its trading partners. The study of market linkages is thus vital for policy making. Borrowing from the conceptual framework of Leontief's input-output analysis and from the national accounts equation, this paper presents a new model to calculate multilateral trade multipliers while minimizing data requirements. The novelty of the approach consists in the column-wise (supply-oriented) normalization of trade as opposed to the row-wise (demand-oriented) normalization that prevails in the literature. The explanatory power of the model has been successfully tested on data that refer to 1973–1974. Divergence from reality inevitably reflects the great fluidity that characterized trade during that period. Although most successful when applied to trade among supply-oriented economies (such as those of socialist or developing countries), at present empirical tests have been run only for a handful of OECD and OPEC countries.     

What Policies Advance Infants and Toddlers? Evidence to Inform State and Federal Options

A variety of civic actors—government, associations, and local agencies—work to help parents advance the vitality of our youngest children. Empirical findings accumulating over the past half-century identify benefits for infants and toddlers stemming from three policy models: paid leave for parents after a newborn arrives; regular pediatric assessments, including home visiting; and quality caregivers situated in homes or centers. We review what is known about the effects of these policies, along with constituent elements of quality (mediators) that operate proximal to children's health, cognitive, and emotional growth. Much has been learned about how such collective action, carried out by local organizations, advance infant–toddler development. Methodological advances foster new knowledge: moving closer to causal inferences and pinpointing social mechanisms that enrich infant–toddler settings. Less well understood is how policy levers can move the malleable elements of program quality to raise the magnitude or sustainability of program effects. We note the benefits of income-support efforts for fragile families, while urging new work on how economic dynamics touch the capacity of parents and caregivers to better nurture infants and toddlers.     

我国宏观经济形势特点及政策分析

当前,我国经济正面临着宏观经济政策调整和经济发展方式转变的“双重转型”形势。国家经济政策的重点是稳增长,即努力寻求一个扩张政策和收紧政策之间的平衡点,尽早结束经济回调的过程。在复杂的形势下,国家正在进行稳增长政策的预调微调,整个经济增长止跌趋稳的迹象越来越明显。未来,我国要更多地着眼于经济转型,通过贯彻破产制度和理顺市场定价机制、加强债务管理、风险防范等制度调整和政策改革来加快经济转型,使我国经济进入新的发展态势。     

Mothers at the Service of the New Poverty Agenda: Progresa/Oportunidades, Mexico's Conditional Transfer Programme

This article considers some of the changes and continuities in social protection in Latin America through a focus on the ways in which motherhood is positioned as key to the success of the new anti‐poverty programmes that have followed structural reform. It examines a flagship cash transfer programme known as Progresa/Oportunidades (Opportunities) established in Mexico in 1997 and now being widely adopted in the region. Characterized by some commentators as a quintessentially neo‐liberal programme, it is argued that Oportunidades represents a novel combination of earlier maternalist social policy approaches with the conditional, co‐responsibility models associated with the recent approaches to social welfare and poverty relief endorsed by international policy actors. In the first section, the gendered assumptions that have governed Latin American social policy are described; the second outlines social policy provision in Latin America and identifies the key elements of the new approaches to poverty; and the third critically examines the broader implications of the Mexican programme's selective and gendered construction of social need premised, as it is, on re‐traditionalizing gendered roles and responsibilities.     

Alternative specifications of the demand for money and their implications for forecasting and policy analysis with large macroeconomic models

The demand for money is an important function in large macroeconomic models because of its central role in monetary policy. The interest rate responsiveness of money demand determines the interest rate changes consistent with the initial change in monetary policy and the subsequent changes on aggregate demand and the price level. This paper uses the DRI macroeconometric model to investigate these issues, finding that the model's predictive power and its estimates of the relative potency of monetary and fiscal policy are dependent upon the specification of the money demand function.