@article {79476,
	title = {On Graduation from Fiscal Procyclicality},
	journal = {Journal of Development Economics},
	volume = {100},
	number = {1},
	year = {2013},
	pages = {32-47},
	abstract = {In the past, industrial countries have tended to pursue countercyclical or, at worst, acyclical fiscal policy. In sharp contrast, emerging and developing countries have followed procyclical fiscal policy, thus exacerbating the underlying business cycle. We show that, over the last decade, about a third of the developing world has been able to escape the procyclicality trap and actually become countercyclical. We then focus on the role played by the quality of institutions, which appears to be a key determinant of a country{\textquoteright}s ability to graduate. We show that, even after controlling for the endogeneity of institutions and other determinants of fiscal procyclicality, there is a causal link running from stronger institutions to less procyclical or more countercyclical fiscal policy.},
	url = {http://ac.els-cdn.com/S0304387812000533/1-s2.0-S0304387812000533-main.pdf?_tid=46e04090-26d4-11e3-9c38-00000aab0f26\&acdnat=1380218071_4d484335769528c70c8659058b87b5f9},
	author = {Frankel, Jeffrey}
}
@article {79461,
	title = {Over-optimistic Official Forecasts and Fiscal Rules in the Eurozone},
	journal = {Review of World Economy},
	volume = {149},
	number = {2},
	year = {2013},
	pages = {247-272},
	abstract = {Eurozone members are supposedly constrained by the fiscal caps of the Stability and Growth Pact. Yet ever since the birth of the euro, members have postponed painful adjustment. Wishful thinking has played an important role in this failure.  We find that governments{\textquoteright} forecasts are biased in the optimistic direction, especially during booms.  Eurozone governments are especially over-optimistic when the budget deficit is over the 3\% cap at the time the forecasts are made.  Those exceeding this cap systematically but falsely forecast a rapid future improvement. The new fiscal compact among the euro countries is supposed to make budget rules more binding by putting them into laws and constitutions at the national level.  But biased forecasts can defeat budget rules. What is the record in Europe with national rules? The bias is less among eurozone countries that have adopted certain rules at the national level, particularly creating an independent fiscal institution that provides independent forecasts.},
	url = {http://dx.doi.org/10.1007/s10290-013-0150-9},
	author = {Frankel, Jeffrey}
}
@book {81346,
	title = {NBER International Seminar on Macroeconomics 2011},
	year = {2012},
	pages = {476},
	publisher = {University of Chicago Press},
	organization = {University of Chicago Press},
	address = {Chicago},
	url = {http://papers.nber.org/books/fran11-1},
	editor = {Frankel, Jeffrey and Pissarides, Christopher}
}
@inbook {79526,
	title = {Choosing an Exchange Rate Regime},
	booktitle = {The Handbook of Exchange Rates},
	year = {2012},
	pages = {767-784},
	publisher = {John Wiley},
	organization = {John Wiley},
	address = {New York},
	abstract = {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
categories:
 Floating corner
 Free float
 Managed float
 Intermediate regimes
Target zone or band
 Basket peg
 Crawling peg
 Adjustable peg
 Institutionally fixed corner
Currency board
Dollarization
Monetary Union
This chapter reviews the state of research concerning how a country should
choose where to locate along this continuum of exchange rate regimes.
The {\textquoteleft}{\textquoteleft}corners hypothesis{\textquoteright}{\textquoteright} -  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{\textquoteright}s quasi currency board in 2001. Many
countries continue to follow intermediate regimes and do not seem any the worse
for it.
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.},
	url = {http://www.hks.harvard.edu/fs/jfrankel/ExRRegimes-MarshSarnoHdbkCh28.pdf},
	author = {Frankel, Jeffrey}
}
@inbook {79521,
	title = {The Natural Resource Curse: A Survey of Diagnoses and Some Prescriptions},
	booktitle = {Commodity Price Volatility and Inclusive Growth in Low-Income Countries},
	year = {2012},
	publisher = {International Monetary Fund},
	organization = {International Monetary Fund},
	address = {Washington D.C.},
	abstract = {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.},
	url = {http://www.imfbookstore.org/ProdDetails.asp?ID=CPVIEA},
	author = {Frankel, Jeffrey}
}
@article {79486,
	title = {Politically Feasible Emission Target Formulas to Attain 460 ppm CO2 Concentrations},
	journal = {Review of Environmental Economics and Policy},
	volume = {6},
	number = {1},
	year = {2012},
	pages = {86-109},
	abstract = {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{\textquoteright}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.},
	url = {dx.doi.org/10.1093/reep/rer022},
	author = {Frankel, Jeffrey}
}
@article {79481,
	title = {Are Leading Indicators Useful for Assessing Country Vulnerability? Evidence from the 2008-09 Global Financial Crisis},
	journal = {Journal of International Economics},
	volume = {87},
	number = {2},
	year = {2012},
	pages = {246-231},
	abstract = {We investigate whether leading indicators can help explain the cross-country incidence of the 2008{\textendash}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{\textendash}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{\textendash}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.},
	url = {http://www.sciencedirect.com/science/article/pii/S0022199611001735$\#$},
	author = {Frankel, Jeffrey}
}
@article {79471,
	title = {Slow Passthrough Around the World: A New Import for Developing Countries?},
	journal = {Open Economies Review},
	volume = {23},
	number = {2},
	year = {2012},
	pages = {213-251},
	abstract = {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{\textquoteright} 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{\textquoteright} 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{\textquoteright} 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.},
	url = {http://link.springer.com/article/10.1007\%2Fs11079-011-9210-8},
	author = {Frankel, Jeffrey}
}
@article {79466,
	title = {Internationalization of the RMB and Historical Precedents},
	journal = {Journal of Economic Integration},
	volume = {27},
	number = {3},
	year = {2012},
	pages = {329-365},
	abstract = {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{\textquoteright}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?},
	url = {http://www.hks.harvard.edu/fs/jfrankel/RMBintnztnJEI2012pg329~365.pdf},
	author = {Frankel, Jeffrey}
}
@article {69371,
	title = {Can Leading Indicators Assess Country Vulnerability? Evidence from the 2008{\textendash}2009 Global Financial Crisis},
	journal = {Journal of International Economics},
	year = {2012},
	note = {},
	month = {Jul 1, 2012},
	publisher = {Journal of International Economics},
	abstract = {We investigate whether leading indicators can help explain the cross-country incidence of the 2008{\textendash}2009 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{\textendash}2009 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{\textendash}2009 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.},
	url = {http://www.journals.elsevier.com/journal-of-international-economics/},
	author = {Frankel, Jeffrey and Saravelos, George}
}
@article {69376,
	title = {A Comparison of Product Price Targeting and Other Monetary Anchor Options, for Commodity Exporters in Latin America},
	journal = {Economia},
	volume = {12},
	number = {1},
	year = {2011},
	month = {Nov 1, 2011},
	pages = {1-57},
	publisher = {Economia},
	abstract = {Seven possible nominal variables are considered as candidates to be the anchor or target for monetary policy. The context is countries in Latin America and the Caribbean (LAC), which tend to be price takers on world markets, to produce commodity exports subject to volatile terms of trade, and to experience procyclical international finance. Three candidates are exchange rate pegs: to the dollar, euro and SDR. One candidate is orthodox Inflation Targeting. Three candidates represent proposals for a new sort of inflation targeting that differs from the usual focus on the CPI, in that prices of export commodities are given substantial weight and prices of imports are not: PEP (Peg the Export Price), PEPI (Peg an Export Price Index), and PPT (Product Price Targeting). The selling point of these production-based price indices is that each could serve as a nominal anchor while yet accommodating terms of trade shocks, in comparison to a CPI target. All seven nominal anchors deliver greater overall nominal price stability in our simulations than the inflationary historical monetary regimes actually followed by LAC countries (with the exception of Panama). A dollar peg does not particularly stabilize domestic commodity prices. As hypothesized, a product price target generally does a better job of stabilizing the real domestic prices of tradable goods than does a CPI target. CPI-targeters such as Brazil, Chile, and Peru respond to increases in world prices of imported oil with monetary policy that is sufficiently tight to appreciate their currencies, an undesirable property. A Product Price targeter or PEP country would respond to increases in world prices of its commodity exports by appreciation, a desirable property.},
	url = {http://www.brookings.edu/research/journals/2011/economiafall2011},
	author = {Frankel, Jeffrey}
}
@unpublished {67031,
	title = {Addressing the Leakage/Competitiveness Issue in Climate Change Policy Proposals},
	journal = { },
	year = {2009},
	note = {Forthcoming in Climate Change, Trade and Investment: Is a Collision Inevitable? edited by Lael Brainard. Washington, DC: Brookings Institution Press, 2009. This version revised, March 31, 2009.},
	month = {Apr 9, 2009},
	abstract = {We will likely see increasing efforts to minimize leakage of carbon to non-participating countries and to address concerns on behalf of the competitiveness of carbon-intensive industry. Environmentalists on one side and free traders on the other side fear that border measures such as tariffs or permit-requirements against imports of carbon-intensive products will collide with the WTO. There need not necessarily be a conflict, if the measures are designed sensibly. There are precedents{\textemdash}the shrimp-turtle case and the Montreal Protocol{\textemdash}that could justify border measures to avoid undermining the Kyoto Protocol or its successors, if the measures are carefully designed. But if the design is dominated by politics, as is likely, import penalties are likely to run afoul of the WTO, to distort trade, and perhaps even to fail in the goal of preventing leakage. Border measures should follow principles along the following lines:

They should follow guidelines multilaterally-agreed by countries participating in the emission targets of the Kyoto Protocol and/or its successors, against countries that are not doing so, rather than being applied unilaterally or by non-participants
Measures to address leakage to non-members can take the form of either tariffs or permit-requirements on carbon-intensive imports; they should not take the form of subsidies to domestic sectors that are considered to have been put at a competitive disadvantage
Independent panels of experts, not politicians, should be responsible for judgments as to findings of fact{\textemdash}what countries are complying or not, what industries are involved and what is their carbon content, what countries are entitled to respond with border measures, or the nature of the response
Import penalties should target fossil fuels and a half dozen or so of the most energy-intensive major industries{\textemdash}perhaps aluminum, cement, steel, paper, glass, iron and chemicals{\textemdash}rather than penalizing industries that are further removed from the carbon-intensive activity, such as firms that use inputs produced in an energy-intensive process
},
	author = {Frankel, Jeffrey}
}
@unpublished {67041,
	title = {The Estimated Trade Effects of the Euro: Why Are They Below Those From Historical Monetary Unions Among Smaller Countries?},
	year = {2009},
	note = {Presented at NBER conference "Europe and the Euro," October 17-18, 2008.},
	month = {Apr 13, 2009},
	abstract = {Andy Rose (2000), followed by many others, has used the gravity model of bilateral trade on a large data set to estimate the trade effects of monetary unions among small countries. The finding has been large estimates: Trade among members seems to double or triple, that is, to increase by 100-200\%. After the advent of EMU in 1999, Micco, Ordo{\~n}ez and Stein and others used the gravity model on a much smaller data set to estimate the effects of the euro on trade among its members. The estimates tend to be statistically significant, but far smaller in magnitude: on the order of 10-20\% during the first four years. What explains the discrepancy? This paper seeks to address two questions. First, do the effects on intra-euroland trade that were estimated in the euro{\textquoteright}s first four years hold up in the second four years? The answer is yes. Second, and more complicated, what is the reason for the big discrepancy vis-{\`a}-vis other currency unions? We investigate three prominent possible explanations for the gap between 15\% and 200\%. First, lags. The euro is still very young. Second, size. The European countries are much bigger on average than most of those who had formed currency unions in the past. Third, endogeneity of the decision to adopt an institutional currency link. Perhaps the high correlations estimated in earlier studies were spurious, an artifact of reverse causality. We test the hypotheses regarding lags and size directly; and we address the endogeneity problem by means of a natural experiment involving trade between the CFA countries of Africa and the euro countries of Europe. Contrary to expectations, we find little evidence that any of these factors explains a substantial share of the gap, let alone all of it.},
	author = {Frankel, Jeffrey}
}
@unpublished {65606,
	title = {The Forward Market in Emerging Currencies: Less Biased than in Major Currencies},
	year = {2006},
	note = {Also NBER Working Paper No. 12496. August 2006.},
	month = {Aug 1, 2006},
	abstract = {Many studies have replicated the finding that the forward rate is a biased predictor of the future change in the spot exchange rate. Usually the forward discount actually points in the wrong direction. But virtually all those studies apply to advanced economies and major currencies. We apply the same tests to a sample of 14 emerging market currencies. We find a smaller bias than for advanced country currencies. The coefficient is on average positive, i.e., the forward discount at least points in the right direction. It is never significantly less than zero. To us this suggests that a time-varying exchange risk premium may not be the explanation for traditional findings of bias. The reasoning is that emerging markets are probably riskier; yet we find that the bias in their forward rates is smaller. Emerging market currencies probably have more easily-identified trends of depreciation than currencies of advanced countries.},
	author = {Frankel, Jeffrey and Poonawala, Jumana}
}
@unpublished {65611,
	title = {Does Openness to Trade Make Countries Less Vulnerable to Sudden Stops? Using Gravity to Establish Causality},
	year = {2004},
	note = {Also NBER Working Paper No. 10957.},
	month = {Dec 1, 2004},
	abstract = {Openness to trade is one factor that has been identified as determining whether a country is prone to sudden stops in capital inflow, currency crashes, or severe recessions. Some believe that openness raises vulnerability to foreign shocks, while others believe that it makes adjustment to crises less painful. Several authors have offered empirical evidence that having a large tradable sector reduces the contraction necessary to adjust to a given cut-off in funding. This would help explain lower vulnerability to crises in Asia than in Latin America. Such studies may, however, be subject to the problem that trade is endogenous. We use the gravity instrument for trade openness, which is constructed from geographical determinants of bilateral trade. We find that openness indeed makes countries less vulnerable, both to severe sudden stops and currency crashes, and that the relationship is even stronger when correcting for the endogeneity of trade.},
	author = {Frankel, Jeffrey and Cavallo, Domingo}
}
@unpublished {63631,
	title = {External Opening and the World Trading System},
	year = {2004},
	note = {Working Paper 04{\textendash}07, Weatherhead Center for International Affairs, Harvard University, October 2004.\&nbsp;
},
	month = {Oct 1, 2004},
	abstract = {Countries can still reap substantial economic benefits from external opening {\textendash} an estimated 0.3 \% increase in income over 20 years for each .01 increase in the ratio of trade to GDP. Non{\textendash}economic effects of trade are more complicated. Taking the case of SO2 pollution, trade can be on net beneficial, while for CO2 the outlook is worse, absent effective global governance, due to the international free rider problem. The paper considers what should be priorities for the form and content of trade negotiations. The conclusion is to favor multilateral negotiations, as in the WTO. The author{\textquoteright}s back{\textendash}of{\textendash}the{\textendash}envelope attempt to take into account dynamic gains says that the increase in welfare from a truly successful Doha Round might be 2\% of global income. Environmental issues increasingly need to be addressed through multilateral institutions as well; they cannot be addressed through the assertion of national sovereignty.},
	author = {Frankel, Jeffrey}
}
@article {63536,
	title = {How the US Government Flubbed Its Opportunity to Exercise Global Economic Leadership},
	year = {2004},
	note = {},
	month = {Feb 11, 2004},
	author = {Frankel, Jeffrey}
}
@unpublished {63401,
	title = {The UK Decision re EMU: Implications of Currency Blocs for Trade and Business Cycle Correlations},
	year = {2004},
	note = {Working Paper 04{\textendash}01, Weatherhead Center for International Affairs, Harvard University, February 2004.\&nbsp;
},
	month = {Feb 1, 2004},
	abstract = {Recent econometric estimates suggest that currency unions have far greater effects on trade patterns than previously believed. Since currency unions are good for trade, and trade is good for growth, that is one major argument in favor of EMU. If there were evidence that the boost to trade within EMU was likely to come in part at the expense of trade with outsiders, that would imply something stronger, for a neighbor such as the United Kingdom: that life outside EMU would get progressively less attractive in the future. But there is no such evidence, either for currency unions in general (according to Frankel{\textendash}Rose) or for the first three years of EMU in particular (according to Micco, Stein, and Ordo{\~n}ez). Furthermore, there are the usual countervailing arguments for retaining monetary independence, particularly the famous asymmetric shocks. One possible argument for waiting is that UK trade with euroland is still increasing, probably due to lagged effects of joining the EU and the Single Market initiative. Estimates suggest that the growing trade links in turn lead to growing cyclical correlation. The implication is that the UK may better qualify for the optimum currency area criteria in the future than in the past. On the other hand, if, as a result of waiting to enter, London loses to Frankfurt its position as the leading financial center in the European time zone, that loss may not be readily recoverable in the future.},
	author = {Frankel, Jeffrey}
}
@article {63336,
	title = {Experience of and Lessons from Exchange Rate Regimes in Emerging Economies},
	year = {2003},
	note = {},
	month = {Oct 1, 2003},
	abstract = {This paper was written for Monetary and Financial Cooperation in East Asia, Macmillan Press, 2003, in consultation with the Regional Economic Monitoring Unit of the Asian Development Bank, and Takatoshi Ito and Yung Chul Park, coordinators of the ADB core study on exchange rate arrangements. The author would like to thank Sergio Schmukler for preparing Table 3.
The paper reviews recent trends in thinking on exchange rate regimes. It begins by classifying countries into regimes, noting the distinction between de facto and de jure regimes, but also noting the low correlation among proposed ways of classifying the latter. The advantages of fixed exchange rates versus floating are reviewed, including the recent evidence on the trade{\textendash}promoting effects of currency unions. Frameworks for tallying up the pros and cons include the traditional Optimum Currency Area criteria, as well as some new criteria from the experiences of the 1990s. The Corners Hypothesis may now be "peaking" as rapidly as it rose, in light of its lack of foundations. Empirical evidence regarding the economic performance of different regimes depends entirely on the classification scheme. A listing of possible nominal anchors alongside exchange rates observes that each candidate has its own vulnerability, leading to the author?s proposal to Peg the Export Price (PEP). The concluding section offers some implications for East Asia.},
	author = {Frankel, Jeffrey}
}
@article {63141,
	title = {Globalization and the Environment},
	year = {2003},
	note = {WCFIA Working Paper 03-02, May 2003.},
	month = {May 1, 2003},
	abstract = {Fears that globalization hurts the environment are not well{\textendash}founded. A survey reveals little statistical evidence, on average across countries, that openness to international trade undermines national attempts at environmental regulation through a "race to the bottom" effect. If anything, favorable "gains from trade" effects dominate, for measures of air pollution such as SO2 concentrations. Perceptions that WTO panel rulings have interfered with the ability of individual countries to pursue environmental goals are also poorly informed. Recent rulings have in fact confirmed that countries can enact environmental measures, even if they affect trade and even if they concern others? Processes and Production Methods (PPMs), provided the measures do not discriminate among producer countries.
People care about both the environment and the economy. As real incomes rise, their demand for environmental quality rises. This translates into environmental progress under the right conditions{\textendash}democracy, effective regulation, and externalities that are largely confined within national borders and are therefore amenable to national regulation. Increasingly, however, environmental problems spill across borders. Global externalities include climate change and ozone depletion. Economic growth alone will not address such problems, in a system where each country acts individually, due to the free rider problem. Multilateral institutions are needed, and national sovereignty is the obstacle, not the other way around.},
	author = {Frankel, Jeffrey}
}
@article {63541,
	title = {Iraq{\textquoteright}s Currency Solution? Tie the Dinar to Oil},
	year = {2003},
	note = {},
	month = {Aug 23, 2003},
	abstract = {Well{\textendash}functioning monetary arrangements are as important as other aspects of the infrastructure, in putting Iraq back on the road of economic development. After the unification of the two kinds of dinars that have been circulating, the next order of business will be to decide what should determine the value of the currency. What exchange rate regime is appropriate for Iraq, at this key juncture in its history?},
	author = {Frankel, Jeffrey}
}
@article {63346,
	title = {Republican and Democratic Presidents Have Switched Economic Policies},
	year = {2003},
	note = {},
	month = {Jan 1, 2003},
	abstract = {[This article expands on ideas in an op{\textendash}ed that appeared in the Financial Times, September 13, 2002. The author would like to thank for useful comments Jack Frankel, Bill Gale, Jeff Liebman, Arnold Kling and Peter Orszag.]
Almost overnight, the Bush Administration has thrown away long{\textendash}sought and hard{\textendash}fought budget balance. Official projections from the Congressional Budget Office now show renewed federal budget deficits lasting well into the future, contrary to what was forecast by the White House forecasts when passing its tax cuts. The projected cumulated 10{\textendash}year surplus has been slashed by more than half, relative to CBO?s last forecast in March. The truth is in fact worse than that, for many reasons. How did this happen? How did the Republican Party, long associated with fiscal conservatism, come to preside over so large a deviation from good economic policy?},
	author = {Frankel, Jeffrey}
}
@article {63366,
	title = {What Can an Economic Adviser Do When He Disagrees with the President?},
	year = {2003},
	note = {},
	month = {Mar 31, 2003},
	abstract = {Assuming he is confirmed by the Senate, Greg Mankiw, a leading Harvard economics professor, will soon be the new Chairman of President Bush?s Council of Economic Advisers. The president should be congratulated for such an outstanding choice. Mankiw may need some advice, however {\textemdash} a historical perspective, in particular, on what an adviser can do when official White House policy goes contrary to his convictions as a professional economist. Of course, it would be a remarkable coincidence if any president accepted every position that his economic advisers had taken on every issue. But there are likely to be especially large divergences between this president and good economics as represented, for example, by Mankiw?s own very popular textbook. This is why I am concerned. I am thinking of such issues as budget deficits, steel tariffs, agricultural subsidies, and conflict with the Fed. He will be joining an NEC director and Treasury secretary who have already been asked to sell a shift toward budget deficits that appears inconsistent with their past views. But it is possible for a Treasury Secretary or an Assistant to the President to toe the party line while in office, and then confess later that this did not entirely correspond to his true beliefs. (On the subject of budget deficits, see the memoirs of David Stockman and Richard Darman, for example, who were, respectively, Budget Director and Assistant to the President in the first Reagan Administration.) A professor of economics like Mankiw, who plans to return to Harvard after his service as a White House advisor, cannot engage in such inconsistencies, without risking losing some of the professional credibility that is so important to an academic career. Indeed, this truth{\textendash}telling constraint may be the most valuable advantage of having a Council of Economic Advisers, and may explain why Congress legislated the institution in the first place. Encumbered by academic reputations, they are unencumbered by long{\textendash}term political careers. It might help to know the variety of strategies tried by past economic advisers, when they have found themselves disagreeing with the president. The history may be especially instructive in that often the disagreements have been over some of the same issues likely to come up in the current administration.},
	author = {Frankel, Jeffrey}
}
@article {63341,
	title = {Currency Blocs and Market Integration: Implications for Trade and Business Cycle Correlations},
	year = {2002},
	note = {},
	month = {Oct 31, 2002},
	abstract = {Recent econometric estimates suggest that currency unions have far greater effects on trade patterns than previously believed. Since currency unions are good for trade, and trade is good for growth, that is one major argument in favor of EMU. If there were evidence that the boost to trade within EMU was likely to come in part at the expense of trade with outsiders, that would imply something stronger, for a neighbor such as the United Kingdom: that life outside EMU would get progressively less attractive in the future. But there is no such evidence, either for currency unions in general (according to Frankel{\textendash}Rose) or for the first three years of EMU in particular (according to Micco, Stein, and Ordo{\~n}ez). Furthermore, there are the usual countervailing arguments for retaining monetary independence, particularly the famous asymmetric shocks. One possible argument for waiting is that UK trade with euroland is still increasing, probably due to lagged effects of joining the EU and the Single Market initiative. Estimates suggest that the growing trade links in turn lead to growing cyclical correlation. The implication is that the UK may better qualify for the optimum currency area criteria in the future than in the past. On the other hand, if, as a result of waiting to enter, London loses to Frankfurt its position as the leading financial center in the European time zone, that loss may not be readily recoverable in the future.},
	author = {Frankel, Jeffrey}
}
@unpublished {61626,
	title = {An Estimate of the Effect of Common Currencies on Trade and Income},
	year = {2002},
	note = {},
	month = {Feb 1, 2002},
	abstract = {To quantify the implications of common currencies for trade and income, we use data for over 200 countries and dependencies. In our two{\textendash}stage approach, estimates at the first stage suggest that belonging to a currency union/board triples trade with other currency union members. Moreover, there is no evidence of trade{\textendash}diversion. Our estimates at the second stage suggest that every one percent increase in a country{\textquoteright}s overall trade (relative to GDP) raises income per capita by at least one third of a percent. We combine the two estimates to quantify the effect of common currencies on output. Our results support the hypothesis that important beneficial effects of currency unions come through the promotion of trade.},
	author = {Frankel, Jeffrey}
}
@article {63351,
	title = {Promoting Better National Institutions: The Role of the IMF},
	year = {2002},
	note = {},
	month = {Nov 11, 2002},
	abstract = {[Third Annual IMF Research Conference, Washington, DC, November 7?8, 2002.]
What do we mean by institutions? The generality of the word cries out for a definition. I am not going to attempt it. A narrow interpretation would consist of only specific legal bodies or procedural mechanisms. Examples include regulatory agencies (e.g., Securities and Exchange Commissions), standards{\textendash}setting bodies (e.g., for accounting), and what are sometimes called "commitment devices" (currency boards, guarantees of central bank independence, balanced budget amendments, the Stability and Growth Pact, etc.). A broad definition would include everything about a society that is more detailed than the basic theoretical model in a graduate economics textbook: from the existence of efficiency wages and a six{\textendash}month gold futures market, to culture. The notion of institutional quality that has become common in the growth literature lies at an intermediate level of generality, and pertains to Property rights and Rule of Law. I am happy to accept that usage. But, before I turn to it, I want to flag the wide variety of issues that could be termed institutional, and to observe that they may not necessarily all be correlated. For example, democracy is on many people?s list. But the commitment devices I named (currency boards, independent CBs, Stability Pact), are distinctive for being institutions that prevent macroeconomic policy from being determined in "too democratic" a manner.},
	author = {Frankel, Jeffrey}
}
@article {62961,
	title = {A Proposal to Anchor Monetary Policy by the Price of the Export Commodity},
	year = {2002},
	note = {WCFIA Working Paper 02-07, September 2002.},
	month = {Sep 1, 2002},
	abstract = {The debate over monetary standards and exchange rate regimes for developing countries is as wide open as ever. On the one hand, the big selling points of floating exchange rates{\textemdash}monetary independence and accommodation of terms of trade shocks{\textemdash}have not lived up to their promise. On the other hand, proposals for credible institutional monetary commitments to nominal anchors have each run aground on their own peculiar shoals. Rigid pegs to the dollar, for example, are dangerous when the dollar appreciates relative to other export markets.
This study explores a new proposal: that countries specialized in the export of a particular commodity should peg their currency to that commodity. When the dollar price of the commodity on world markets falls, the dollar exchange rate of the local currency would fall in tandem. The country would thus reap the best of both worlds: the advantage of a nominal anchor for monetary policy, together with the automatic accommodation to terms of trade shocks that floating rates claim to deliver. The paper conducts a set of counter-factual experiments. For each of a list of countries specialized in particular mineral or agricultural commodities, what would have happened, over the last 30 years, if it had pegged its currency to that commodity, as compared to pegging to the dollar, yen, or mark, or as compared to whatever exchange rate policy it actually followed historically? We compute under these scenarios the price of the commodity in local terms, and we then simulate the implications for exports. Illustrative of the results is that some victims of financial difficulties in the late 1990s might have achieved a stimulus to exports precisely when it was most needed, without having to go through wrenching currency collapses, if they had been on regimes of pegging to their export commodity: South Africa to gold or platinum, Nigeria and Indonesia to oil, Chile to copper, Argentina to wheat, Colombia to coffee, and so on.
Not all countries will benefit from a peg to their export commodity, and none will benefit in all time periods. Nonetheless, the results suggest that the proposal that some countries peg their currency to their principle export commodity deserves to take its place alongside pegs to major currencies and the other monetary regimes that countries consider.},
	author = {Frankel, Jeffrey}
}
@booklet {63136,
	title = {Is Trade Good or Bad for the Environment? Sorting Out the Causality},
	year = {2002},
	month = {Sep 1, 2002},
	abstract = {We contribute to the debate over globalization and the environment by asking: What is the effect of trade on a country?s environment, for a given level of GDP? We take specific account of the endogeneity of trade, using exogenous geographic determinants of trade as instrumental variables. We find that trade tends to reduce three measures of air pollution. Statistical significance is high for SO2 , moderate for NO2 , and lacking for particulate matter. While results for other environmental measures are not as encouraging, there is little evidence that trade has a detrimental effect on the environment.},
	author = {Frankel, Jeffrey}
}
@article {63356,
	title = {You{\textquoteright}re Getting Warmer: The Most Feasible Path for Addressing Global Climate Change Does Run Through Kyoto},
	year = {2002},
	note = {},
	month = {Jun 25, 2002},
	abstract = {When I first arrived at the White House in September 1996, I had no idea that one of the issues on which I would spend the most time during my period as a Member of President Clinton?s Council of Economic Advisers was global climate change. But Under Secretary of State Tim Wirth had the month before announced a major change in policy: that the United States would in multilateral negotiations now support "legally binding" quantitative targets for the emission of greenhouse gases. This left 15 months for the US Administration to decide what kind of specifics it wanted, at the Third Conference of Parties of the UN Framework Convention on Climate Change (UNFCCC), scheduled for November 1997 in Kyoto. Because other countries take their cue from the superpower (whether it is to support or oppose US positions), this countdown engendered a certain amount of suspense: What specifically would the U.S. propose at the Kyoto Conference, most notably regarding how the numerical targets should be determined? Outsiders demanded to know {\textendash}with particular tenacity in the case of the U.S. Congress, who feared the worst. I was a member of a large inter{\textendash}agency group that worked intensively on what was to become the Kyoto Protocol. I never thought that the agreement had a large chance of being ratified by the U.S. Senate, or of coming into force in a serious way. There were too many unbridgeable political chasms, as I will explain. Furthermore I understand the reasons why almost all economists, at least in the United States, disapprove of the Kyoto Protocol. Nevertheless, I am prepared to defend the Clinton version of the treaty, and I believe it was a step in the right direction. I will begin by noting that the weight of scientific opinion seems indeed to have concluded that the Earth is getting warmer, that increasing concentrations of carbon dioxide and other greenhouse gases are the major cause, and that anthropogenic emissions are in turn responsible. I am not a scientist. But the latest IPCC report concludes "The globally averaged surface temperature is projected to increase by 1.4 to 5.8 degrees Celsius" over the period 1990 to 2100, and "global mean sea level is projected to rise by 0.09 to 0.88 metres." The evidence has become clearer over the last ten or twenty years. President George Bush, the Second, made a big mistake when he initially allied himself with the minority of disbelievers. It was a political mistake if nothing else. Even granting that the incoming administration in 2001 did not want to pursue Kyoto, it was foolish and unnecessary for the White House to dismiss the climate change problem. This paper will take as given that the problem of global climate change is genuine, and is sufficiently important to be worth addressing by steps that are more than cosmetic. Because the externality is purely global {\textendash} a ton of carbon emitted into the air, no matter where in the world, has the same global warming potential {\textendash} the approach must be multilateral. Individual countries will not get far on their own, due to the free rider problem. Specifically, multilateral negotiations have since the Rio Summit of 1992 proceeded under the UNFCCC. The paper will summarize major decisions that the Clinton Administration had to make, and why it made them as it did. What were the quantitative limits on emissions to be? How would greenhouse gases other than carbon dioxide be treated? Would trading across time or across countries be permitted? And so on. In my time in the government, I was surprised to discover that policy makers often must make such technical{\textendash}sounding decisions with relatively little help from the body of technical knowledge and opinion outside the government. It is not just that academic research is too abstract to be of much direct help with the minutia of specific policy decisions. The pronouncements of think tanks and op{\textendash}ed writers also ignore practical complexities, because they seek to make big points for general audiences. We were largely on our own.},
	author = {Frankel, Jeffrey}
}
@article {63361,
	title = {The Role of Industrial Country Policies in Emerging Market Crises},
	year = {2001},
	note = {},
	month = {Dec 1, 2001},
	abstract = {This paper considers policies of the industrialized countries, as they pertain to crises in emerging markets. These fall into three areas: (1) their own macroeconomic policies, which determine the global financial environment; (2) their role in responding to crises when they occur, particularly through rescue packages, which have three components {\textemdash}reforms in debtor countries, public funds from creditor countries, and private sector involvement; and (3) efforts to reform the international financial architecture, with the aim of lessening the frequency and severity of future crises. A recurrent theme is the tension between mitigating crises that occur, and the moral hazard that such efforts create in the longer term. In addition to reviewing these three areas of policy, we consider the institutions through which the more powerful countries exercise their influence. We conclude with a discussion of the debate over the sins of the International Monetary Fund, and proposals for reform.},
	author = {Frankel, Jeffrey}
}
@booklet {61631,
	title = {Estimating the Effect of Currency Unions on Trade and Output},
	year = {2000},
	note = {Download PDF},
	month = {Aug 1, 2000},
	abstract = {Gravity{\textendash}based cross{\textendash}sectional evidence indicates that currency unions stimulate trade; cross{\textendash}sectional evidence indicates that trade stimulates output. This paper estimates the effect that currency union has, via trade, on output per capita. We use economic and geographic data for over 200 countries to quantify the implications of currency unions for trade and output, pursuing a two{\textendash}state approach. Our estimates at the first stage suggest that belonging to a currency union more than triples trade with the other members of the zone. Moreover, there is no evidence of trade{\textendash}diversion. Our estimates at the second stage suggest that every one percent increase in trade (relative to GDP) raises income per capita by roughly 1/3 of a percent over twenty years. We combine the two estimates to quantify the effect of currency union on output. Our results support the hypothesis that the beneficial effects of currency unions on economic performance come through the promotion of trade, rather than through a commitment to non{\textendash}inflationary monetary policy, or other macroeconomic influences.},
	author = {Frankel, Jeffrey}
}
@booklet {61616,
	title = {Globalization of the Economy},
	year = {2000},
	note = {Download PDF},
	month = {Aug 1, 2000},
	abstract = {Globalization of trade and finance has gone a long way over the last {\textendash}century. But it is less impressive than most non{\textendash}economists think, judged either by the standard of 100 years ago or by the hypothetical standard of perfect international integration. The paper documents the extent of globalization, and some reasons for the barriers that remains. It then briefly considers the implications for economic growth and the implications for goals not measured by GDP equality and the environment. The conclusion is that globalization is not the primary obstacle to efforts to address such concerns.},
	author = {Frankel, Jeffrey}
}
@booklet {61636,
	title = {Verifiability and the Vanishing Intermediate Exchange Rate Regime},
	year = {2000},
	note = {Download PDF},
	month = {Sep 1, 2000},
	abstract = {The corners hypothesis holds that intermediate exchange rate regimes are vanishing, or should be. Surprisingly for a new conventional wisdom, this hypothesis so far lacks analytic foundations. In part, the generalization is overdone. We nevertheless offer one possible theoretical rationale, a contribution to the list of arguments against intermediate regimes: they lack verifiability, needed for credibility. Central banks announce intermediate targets such as exchange rates, so that the public can judge from observed data whether they are following the policy announced. Our general point is that simple regimes are more verifiable by market participants than complicated ones. Of the various intermediate regimes (managed float, peg with escape clause, etc.), we focus on basket pegs, with bands. Statistically, it takes a surprisingly long span of data to distinguish such a regime from a floating exchange rate. We apply the econometrics, first, to the example of Chile and, second, by performing Monte Carlo simulations. The amount of data required to verify the declared regime may exceed the length of time during which the regime is maintained. The amount of information necessary increases with the complexity of the regime, including the width of the band and the number of currencies in the basket. },
	author = {Frankel, Jeffrey}
}
@booklet {61621,
	title = {No Single Currency Regime is Right for All Countries or At All Times},
	year = {1999},
	note = {Download PDF},
	month = {Sep 1, 1999},
	abstract = {This essay considers some prescriptions that are currently popular regarding exchange rate regimes: a general movement toward floating, a general movement toward fixing, or a general movement toward either extreme and away from the middle. The whole spectrum from fixed to floating is covered (including basket pegs, crawling pegs, and bands), with special attention to currency boards and dollarization. One overall theme is that the appropriate exchange rate regime varies depending on the specific circumstances of the country in question (which includes the classic optimum currency area criteria, as well as some newer criteria related to credibility) and depending on the circumstances of the time period in question (which includes the problem of successful exit strategies). Latin American interest rates are seen to be more sensitive to US interest rates when the country has a loose dollar peg than when it has a tight peg. It is also argued that such relevant country characteristics as income correlations and openness can vary over time, and that the optimum currency area criterion is accordingly endogenous. },
	author = {Frankel, Jeffrey}
}
