The single most important aspect of an exchange rate regime is the degree
of ﬂexibility. The matter is of course more complicated than a simple choice
between ﬁxed exchange rate and ﬂoating. One can array exchange rate regimes
along a continuum, from most ﬂexible to least, and grouped in three major
Target zone or band
Institutionally ﬁxed corner
This chapter reviews the state of research concerning how a country should
choose where to locate along this continuum of exchange rate regimes.
The ‘‘corners hypothesis’’ - that countries are, or should be, moving away
from the intermediate regimes, in favor of either the hard peg corner or the
ﬂoating corner - was proposed by Eichengreen (1994) and rapidly became the
new conventional wisdom with the emerging market crises of the late 1990s.
But it never had a good theoretical foundation. The feeling that an intermediate
degree of exchange rate ﬂexibility is inconsistent with perfect capital mobility
is a misinterpretation of the principle of the impossible trinity. To take a clear
example, Krugman (1991) shows theoretically that a target zone is entirely
compatible with uncovered interest parity. The corners hypothesis began to lose
popularity after the failure of Argentina’s quasi currency board in 2001. Many
countries continue to follow intermediate regimes and do not seem any the worse
Attempts to address the optimal degree of exchange rate ﬂexibility within
a single theoretical model are seldom very convincing. Too many factors are
involved. Better instead to enumerate the arguments for and against exchange
rate ﬂexibility and then attempt to weigh them up. This chapter considers ﬁve advantages of ﬁxed exchange rates, followed by ﬁve advantages for exchange rate ﬂexibility. We then turn to analysis of how to weigh the pros and cons to choose a regime. The answer depends on characteristics of the individual country in question.
Countries with oil, mineral or other natural resource wealth, on average, have failed to show better economic performance than those without, often because of undesirable side effects. This is the phenomenon known as the Natural Resource Curse. This paper reviews the literature, classified according to six channels of causation that have been proposed. The possible channels are: (i) long-term trends in world prices, (ii) price volatility, (iii) permanent crowding out of manufacturing, (iv) autocratic/oligarchic institutions, (v) anarchic institutions, and (vi) cyclical Dutch Disease. With the exception of the first channel--the long-term trend in commodity prices does not appear to be downward--each of the other channels is an important part of the phenomenon. Skeptics have questioned the Natural Resource Curse, pointing to examples of commodity-exporting countries that have done well and arguing that resource exports and booms are not exogenous. The relevant policy question for a country with natural resources is how to make the best of them.
A new climate change treaty must address three current gaps: the absence of emissions targets extending far into the future; the absence of participation by the United States, China, and other developing countries; and the absence of reasons to expect compliance. Moreover, to be politically acceptable, a post-Kyoto treaty must recognize certain constraints regarding country-by-country economic costs. This article presents a framework for assigning quantitative emissions allocations across countries, one budget period at a time, through a two-stage plan: (a) China and other developing countries accept targets at business-as-usual (BAU) levels in the coming budget period, and, during the same period, the United States agrees to cuts below BAU; (b) all countries are asked to make further cuts in the future in accordance with a formula that includes a Progressive Reductions Factor, a Latecomer Catch-up Factor, and a Gradual Equalization Factor. An earlier proposal (Frankel 2009) for specific parameter values in the formulas achieved the environmental goal that carbon dioxide (CO2) concentrations plateau at 500 ppm by 2100. It met our political constraints by keeping every country’s economic cost below thresholds of Y = 1 percent of income in Present Discounted Value, and X = 5 percent of income in the worst period. The framework proposed in this article attains a stricter concentration goal of 460 ppm CO2 but only by loosening the political constraints.
We investigate whether leading indicators can help explain the cross-country incidence of the 2008–09 financial crisis. Rather than looking for indicators with specific relevance to the recent crisis, the selection of variables is driven by an extensive review of more than eighty papers from the previous literature on early warning indicators. Our motivation is to address suspicions that indicators found to be useful predictors in one round of crises are typically not useful to predict the next round. The review suggests that central bank reserves and past movements in the real exchange rate were the two leading indicators that had proven the most useful in explaining crisis incidence across different countries and episodes in the past. For the 2008–09 crisis, we use six different variables to measure crisis incidence: drops in GDP and industrial production, currency depreciation, stock market performance, reserve losses, and participation in an IMF program. We find that the level of reserves in 2007 appears as a consistent and statistically significant leading indicator of who got hit by the 2008–09 crisis, in line with the conclusions of the pre-2008 literature. In addition to reserves, recent real appreciation is a statistically significant predictor of devaluation and of a measure of exchange market pressure during the current crisis. We define the period of the global financial shock as running from late 2008 to early 2009, which probably explains why we find stronger results than earlier papers such as Obstfeld et al. (2009, 2010) and Rose and Spiegel (2009a,b, 2010, 2011) which use annual data.
Developing countries traditionally experience pass-through of exchange rate changes that is greater and more rapid than high-income countries experience. This is true equally of the determination of prices of imported goods, prices of local competitors’ products, and the general CPI. But developing countries in the 1990s experienced a rapid downward trend in the degree of pass-through and speed of adjustment, more so than did high-income countries. As a consequence, slow and incomplete pass-through is no longer exclusively a luxury of industrial countries. Using a new data set - prices of eight narrowly defined brand commodities, observed in 76 countries - we find empirical support for some of the factors that have been hypothesized in the literature, but not for others. Significant determinants of the pass-through coefficient include per capita incomes, bilateral distance, tariffs, country size, wages, long-term inflation, and long-term exchange rate variability. Some of these factors changed during the 1990s. Part (and only part) of the downward trend in pass-through to imported goods prices, and in turn to competitors’ prices and the CPI, can be explained by changes in the monetary environment - including a fall in long-term inflation. Real wages work to reduce pass-through to competitors’ prices and the CPI, confirming the hypothesized role of distribution and retail costs in pricing to market. Rising distribution costs, due perhaps to the Balassa-Samuelson-Baumol effect, could contribute to the decline in the pass-through coefficient in some developing countries.
The possibility that the renminbi may soon join the ranks of international currencies has generated much excitement. This paper looks to history for help in evaluating the factors determining its prospects. The three best precedents in the twentieth century were the rise of the dollar from 1913 to 1945, the rise of the Deutsche mark from 1973 to 1990, and the rise of the yen from 1984 to 1991. The fundamental determinants of international currency status are economic size, confidence in the currency, and depth of financial markets. The new view is that, once these three factors are in place, internationalization of the currency can proceed quite rapidly. Thus some observers have recently forecast that the RMB may even challenge the dollar within a decade. But they underestimate the importance of the third criterion, the depth of financial markets. In principle, the Chinese government could decide to create that depth, which would require accepting an open capital account, diminished control over the domestic allocation of credit, and a flexible exchange rate. But although the Chinese government has been actively promoting offshore use of the currency since 2010, it has not done very much to meet these requirements. Indeed, to promote internationalization as national policy would depart from the historical precedents. In all three twentieth-century cases of internationalization, popular interest in the supposed prestige of having the country’s currency appear in the international listings was scant, and businessmen feared that the currency would strengthen and damage their export competitiveness. Probably China, likewise, is not yet fully ready to open its domestic financial markets and let the currency appreciate, so the renminbi will not be challenging the dollar for a long time.
We begin, however, by asking: What is international currency status, and why does it matter?
In December 2010, the self-immolation of a Tunisian fruit vendor sparked what has come to be termed the “Arab Spring.” What first appeared as an isolated act of protest against local authorities quickly gained broader significance, as it was followed by a series of demonstrations that has shaken the grip of autocratic regimes across the Arab world. A year later, three longstanding dictators - Zine El Abidine Ben Ali of Tunisia, Hosni Mubarak of Egypt, and Muammar el-Qaddafi of Libya - have been ousted, after varying degrees of violence. Syria, Yemen, and Bahrain have all witnessed extensive turmoil, raising serious questions about the ahrain have all witnessed extensive turmoil, raising serious questions about the
legitimacy and survival of their rulers. Elsewhere, the political leaders of Morocco, Algeria, and Jordan have also been pressured into enacting reforms to try to assuage public demands.
We investigate how the link between individual schooling and political participation is affected by country characteristics. Using individual survey data, we ﬁnd that political participation is more responsive to schooling in land-abundant countries and less responsive in human capital - abundant countries, even while controlling for country political institutions and cultural attitudes. We ﬁnd related evidence that political participation is less responsive to schooling in countries with a higher skill premium, as well as within countries for individuals in skilled occupations. The evidence motivates a theoretical explanation in which patterns of political participation are inﬂuenced by the opportunity cost of engaging in political rather than production activities.
Quietly, with little apparent notice from even the strongest advocates for global mental health, China is undertaking the world’s largest - and arguably most
important - mental health services demonstration project, a project focused on providing comprehensive care for persons with severe mental illnesses. As
Professor Ma indicates in her short report, the ‘686 Project’ was launched as part of China’s commitment to rebuild its public health infrastructure following the
SARS epidemic, and has now moved beyond the initial pilot phase into a process of scaling up community mental health services throughout the country. China
is currently moving toward passage of its first national mental health law, so the project has profound implications for mental health policy in the country. It
will also provide useful models for the development of mental health policies in other countries with limited mental health personnel.
Los temas centrales que aborda este libro son la infraestructura de transportes en una dimensión sudamericana; el desarrollo descentralizado y la relación con Brasil; y la puesta en valor de la ubicación estratégica del Perú en Sudamérica, de cara a la Cuenca del Pacífico, y su inserción internacional.
La integración física se basa en un enfoque que parte del territorio para abordar los temas del desarrollo. Centrarse en este aspecto medular es la contribución más significativa que ha tenido la Iniciativa para la Integración de la Infraestructura Regional Suramericana (IIRSA). La noción clave es la de los Ejes de Integración y Desarrollo, que es analizada en profundidad en este volumen.
We consider the effect of legislative primaries on the electoral performance of political parties in a new democracy. While existing literature suggests that primaries may either hurt a party by selecting extremist candidates or improve performance by selecting high valence candidates or improving a party’s image, these mechanisms may not apply where clientelism is prevalent. A theory of primaries built on a logic of clientelism with intra-party conflict instead suggests different effects of legislative primaries for ruling and opposition parties, as well as spillover effects for presidential elections. Using matching with an original dataset on Ghana, we find evidence of a primary bonus for the opposition party and a primary penalty for the ruling party in the legislative election, while legislative primaries improve performance in the presidential election in some constituencies for both parties.
The long-awaited joint communication by the Commission and the High Representative for Foreign Affairs and Security Policy “Developing a European Union Policy towards the Arctic Region: Progress since 2008 and next steps” was issued in July 2012, four years after the groundbreaking Commission communication on the EU and the Arctic region.The 2008 communication was a difficult effort to identify the EU’s potential role in the Arctic, building on a checkered variety of policies and actions. The declared aim was “to lead to a structured and coordinated approach to Arctic matters, as the first layer of an Arctic policy” for the EU, thus “opening new cooperation perspectives with the Arctic states, helping all of us to increase stability and to establish the right balance between the priority goal of preserving the Arctic environment and the need for sustainable use of resources.” That aim has yet to be achieved, as the language of 2012 reveals: “Taking a comprehensive approach to Arctic issues, this new Joint Communication underlines the need for a coherent, targeted EU approach towards the Arctic, building on the EU’s strengths, promoting responsible development while engaging more extensively in dialogue and cooperation with all Arctic stakeholders.”
Adele Airoldi is a Fellow of the Center who was in residence at Harvard in 1994-1995.Download PDF
In societies divided on ethnic and religious lines, problems of democracy are magnified—particularly where groups are mobilized into parties. With the principle of majority rule, minorities should be less willing to endorse democratic institutions where their parties persistently lose elections. While such problems should also hamper transitions to democracy, several diverse Eastern European states have formed democracies even under these conditions. In this book, Sherrill Stroschein argues that sustained protest and contention by ethnic Hungarians in Romania and Slovakia brought concessions on policies that they could not achieve through the ballot box, in contrast to Transcarpathia, Ukraine. In Romania and Slovakia, contention during the 1990s made each group accustomed to each other's claims, and aware of the degree to which each could push its own. Ethnic contention became a de facto deliberative process that fostered a moderation of group stances, allowing democratic consolidation to slowly and organically take root.
The two traditional ways of thinking about justice at the global level either limit the applicability of justice to states or else extend it to all human beings. The view I defend rejects both these approaches and instead recognizes different considerations or conditions based on which individuals are in the scope of different principles of justice. Finding a philosophically convincing alternative to those approaches strikes me as the most demanding and important challenge contemporary political philosophy faces (one that in turn reflects the significance of the political issues that are at stake). My own view, and thus my attempt at meeting this challenge, acknowledges the existence of multiple grounds of justice. This book seeks to present a foundational theory that makes it plausible that there could be multiple grounds of justice and to defend a specific view of the grounds that I call pluralist internationalism. Pluralist Internationalism grants particular normative relevance to the state but qualifies this relevance by embedding the state into other grounds that are associated with their own principles of justice and that thus impose additional obligations on those who share membership in a state. The grounds that I discuss are shared membership in a state; common humanity; shared membership in the global order; shared involvement with the global trading system; and humanity’s collective ownership of the earth. (It is probably in the conceptualization of common ownership as a ground of justice that my view seems strangest.) Within this theory one must explore what obligations of justice pertain to states and other institutions. International institutions must be understood as agents of justice (rather than as entities that merely advance particular state interests). Moreover, it is international organizations or other entities of global administrative law that most plausibly create the context in which states give account to noncitizens for their contributions to justice.
This paper tests the theory of context-conditional political budget cycles in South Africa’s dominant party framework and demonstrates that the central government has both an incentive and the ability to implement PBCs on the subnational level. Using a unique panel dataset comprising South Africa’s nine provinces over the period 1995–2010 generates two main results: First, provinces where the national ruling party faces greater electoral competition receive higher per capita transfers in the year before an election. Second, this increase is driven by the conditional grant, which is the non- formula-based component of total the intergovernmental transfer. The ability to implement political budget cycles is successfully constrained when it comes to the formula-based equitable share component of the total transfer for which no evidence of electorally-induced funding is found. Overall, the results suggest that even in a dominant party framework, political competition can function as an incentive to implement political budget cycles.
Since the end of the Cold War, security studies have broadened to take into account a wide range of non-military threats ranging from poverty to environmental concerns rather than just national defense. Security scholars, backed by international organizations and a growing number of national governments, have developed the concept of Human Security, focusing on the welfare of ordinary people against a broad range of threats. This has aroused vigorous debate. Part I of this paper proposes an analytical model of Human Security. Part II argues that it is important to measure how ordinary people perceive risks, moving beyond state-centric notions of Human Security. We examine new evidence, drawing upon survey items specially designed to monitor perceptions of Human Security, included for the first time in the 6th wave of the World Values Survey (WVS), with fieldwork conducted in 2010–2012. Part III demonstrates that people distinguish three dimensions: national, community, and personal security and then explores some structural determinants driving these perceptions. Part IV discusses why perceptions of Human Security matter, in particular for explaining cultural values and value change around the world. The conclusion argues that the shift from a narrow focus on military security toward the broader concept of Human Security is a natural response to the changing challenges facing developed societies, in which the cost-benefit ratio concerning war has become negative and cultural changes have made war less acceptable. In this setting, valid measures of perceptions of Human Security have become essential, both to understand the determinants of Human Security among ordinary people, and to analyze their consequences.