Abstract We study the effects of growth volatility and inflation volatility on average rates of o... more Abstract We study the effects of growth volatility and inflation volatility on average rates of output growth and inflation for postwar US data in a multivariate asymmetric GARCH-M model. Our statistical model differs from other work in that we allow the conditional covariance of inflation and growth to be both nondiagonal and asymmetric. We show that the data reject diagonality and symmetry restrictions frequently imposed in the literature.
The effect of inflation on economic performance is both an important and controversia! topic. It ... more The effect of inflation on economic performance is both an important and controversia! topic. It is important, because if systematic inflation has real effects, govemments can influence economic performance. It is controversial, because there is httle theory to justify how trend inflation can affect economic growth. In fact, while much of the empirical hteratxire looks for a negative influence of inflation on growth, many economic theories predict neutrality or even a positive effect of inflation on growth.
Abstract: In this paper, we test the predictions of the war of attrition approach to delayed fisc... more Abstract: In this paper, we test the predictions of the war of attrition approach to delayed fiscal stabilizations. Specifically, we identify high deficit spells in the data and estimate duration models to test whether variables suggested by the war of attrition approach significantly affect the hazard function. In a variety of models, we consistently find strong support for what we consider to be the two major predictions of the war of attrition approach.
We study the relationship between average inflation and inflation uncertainty in Mexico from 1960... more We study the relationship between average inflation and inflation uncertainty in Mexico from 1960-1997. Friedman (1977) and Ball (1992) propose models where higher inflation creates increased uncertainty, whereas Cukierman & Meltzer (1986) and Cukierman (1992) argue that an apportunistic Central Bank will take advantage of higeruncertainty to raise the average inflation rate. We test these theories simultaneously using a GARCH-M model for monthly Mexican inflation.
While central bank reform has been widely prescribed for developing countries, the efficacy of ce... more While central bank reform has been widely prescribed for developing countries, the efficacy of central bank independence is still controversial. Most of the empirical work on the economic effects of central bank independence (hereafter, CBI) focus on a sub-set of industrialized countries and the results of these studies often do not hold up wen developing countries are considered.
Abstract This paper presents some empirical evidence on the issue of whether the rookie draft in ... more Abstract This paper presents some empirical evidence on the issue of whether the rookie draft in professional football promotes competitive balance in the winning records of National Football League teams. The results suggest that the rookie draft is a balancing institution, and that the ability to use the draft to improve winning performance varies across teams.
Abstract The effect of macroeconomic fluctuations on House elections is a long debated, but still... more Abstract The effect of macroeconomic fluctuations on House elections is a long debated, but still unresolved, issue. We argue that return rates are theoretically superior to vote shares as measures of electoral acountability and that incumbents, not candidates of the president's party, are the legislators voters hold responsible. We develop and test an incumbent accountability model using incumbent return rates in the US House from 1916 to 1994, finding a strongly significant effect of both income growth and the misery index.
There is little professional consensusregarding the effect of economic conditionson House Electio... more There is little professional consensusregarding the effect of economic conditionson House Elections. We argue that recentwork still uses the paradigm of Party toorganize their data and tests. Given thatrecent developments in the theory ofcongress emphasize the paradigm ofIncumbency, we investigate the empiricalrelevance of that competing paradigm.
Abstract We investigate the relationship between savings and investment at different time horizon... more Abstract We investigate the relationship between savings and investment at different time horizons for the postwar US. Our results suggest that there is no association between savings and investment rates in the long run, while, in the short run, an exogenous savings shock does raise the investment rate temporarily. We also show that this positive short-run relation became much smaller and statistically insignificant since the early 1980s.
Abstract In this paper we study the historical evolution of (A) the number of specific country gr... more Abstract In this paper we study the historical evolution of (A) the number of specific country groups in the world income distribution,(B) the relative positions of the groups over time, and (C) inter-group mobility. We accomplish this by applying Bayesian variable dimension mixture models to a sample of 135 countries over 6 decades. In the 1950s and 60s, there are most likely two distinct groups of countries in the overall income distribution and we see a large amount of upward mobility for countries in the lower group.
Abstract: Cross-country output divergence can occur in the neoclassical growth model with a commo... more Abstract: Cross-country output divergence can occur in the neoclassical growth model with a common long run growth rate if the variables that determine the steady state are also diverging across countries. However, in this paper we show that the observed output divergence is actually accompanied by strong policy convergence. That is, investment rates for both physical and human capital along with levels of government spending and openness to trade are all converging across countries.
Towards a Politico-Economic Model of US Monetary Policy We have entered a new age of monetary pol... more Towards a Politico-Economic Model of US Monetary Policy We have entered a new age of monetary policy, with relatively low and steady inflation prevailing for almost 20 years now. The macro literature is replete with models that reflect this favorable situation. Besides work on incentive contracts for central bankers, there is a growing literature that sets up a small equilibrium macro model with a representative citizen, then derives an optimal Fed policy rule or family of rules.
Abstract: In this paper, we develop a theoretical framework for, and conduct empirical tests of h... more Abstract: In this paper, we develop a theoretical framework for, and conduct empirical tests of how, production structures are jointly determined by factor endowments and financial development. On the theoretical side, we introduce an external finance constraint into the GDP function and derive an estimable equation for how sectoral shares are influenced by endowments and finance. On the empirical side, we use data from 1980-2000 for 48 countries and 28 sectors.
One of the most important challenges facing developing nations is the choice and maintenance of a... more One of the most important challenges facing developing nations is the choice and maintenance of an exchange rate regime. This issue is most often framed as a choice between fixed and flexible exchange rates, but from a macroeconomic standpoint, the exact nominal regime chosen is only a means to an end. What really matters is how that choice interacts with other policies to influence the behavior of the real exchange rate.
Abstract In this paper, we argue that real exchange rate appreciations can be costly because they... more Abstract In this paper, we argue that real exchange rate appreciations can be costly because they raise uncertainty about the future path of the real exchange rate. The result is driven by the existence of multiple types of policymakers with differing costs of exchange rate intervention and by uncertainty about the type of next period's policymaker. We derive the result in a simple model with two types of policymakers who rotate in office stochastically: one who follows an Ss rule and the other an automaton who never intervenes.
Abstract We argue that real exchange rate appreciations can be costly because they raise uncertai... more Abstract We argue that real exchange rate appreciations can be costly because they raise uncertainty about the future path of the real exchange rate. The result is driven by the existence of multiple types of policymakers with differing costs of exchange rate intervention and by uncertainty about the type of next period's policymaker. We illustrate the result in a simple model with two types of policymakers who rotate in office stochastically: one who follows an Ss rule and the other an automaton who never intervenes.
We study a game between a group of rich country investors and a group of developing countries. Co... more We study a game between a group of rich country investors and a group of developing countries. Countries adopt policy reform to raise the return to and try to attract foreign investment. We focus on the interaction between investors' incentives to acquire country-specific information on the incidence of reform and countries' incentives to undertake reform. Uninformed investors may still invest in the region based on a costless signal of the regional average return. In this case, reform is a regional public good.
This paper presents the first empirical evidence on the efficacy of raising interest rates ex ant... more This paper presents the first empirical evidence on the efficacy of raising interest rates ex ante as a deterrent to speculative attacks. Using a dataset that covers 54 countries from March 1964 through December 2005, we find strong evidence that raising interest rates in advance has significantly different impacts in different country groups. It significantly reduces the probability of attacks in countries that have a de facto hard peg but increases it in de facto softpegging countries.
Abstract Given that a high interest rate can be a double-edged sword, we argue that the battle be... more Abstract Given that a high interest rate can be a double-edged sword, we argue that the battle between speculators and the government can be well modeled as a war of attrition game under asymmetric information. We then solve for a pure strategy weak perfect Bayesian equilibrium in which each party's time until concession depends on their benefits from winning and their costs of fighting. Using this model, we are able to produce results that are novel for the speculative attack literature.
Resumen: Examinamos el efecto de diferentes regímenes de tipo de cambio sobre el comportamiento e... more Resumen: Examinamos el efecto de diferentes regímenes de tipo de cambio sobre el comportamiento económico de 16 países en desarrollo durante 1997. Mientras los déficit de la cuenta corriente son un buen pronóstico del grado subsecuente de depreciación monetaria durante el año, y si se mantiene constante dicho déficit, el régimen de tipo de cambio es estadísti camente irrelevante.
Abstract We study the effects of growth volatility and inflation volatility on average rates of o... more Abstract We study the effects of growth volatility and inflation volatility on average rates of output growth and inflation for postwar US data in a multivariate asymmetric GARCH-M model. Our statistical model differs from other work in that we allow the conditional covariance of inflation and growth to be both nondiagonal and asymmetric. We show that the data reject diagonality and symmetry restrictions frequently imposed in the literature.
The effect of inflation on economic performance is both an important and controversia! topic. It ... more The effect of inflation on economic performance is both an important and controversia! topic. It is important, because if systematic inflation has real effects, govemments can influence economic performance. It is controversial, because there is httle theory to justify how trend inflation can affect economic growth. In fact, while much of the empirical hteratxire looks for a negative influence of inflation on growth, many economic theories predict neutrality or even a positive effect of inflation on growth.
Abstract: In this paper, we test the predictions of the war of attrition approach to delayed fisc... more Abstract: In this paper, we test the predictions of the war of attrition approach to delayed fiscal stabilizations. Specifically, we identify high deficit spells in the data and estimate duration models to test whether variables suggested by the war of attrition approach significantly affect the hazard function. In a variety of models, we consistently find strong support for what we consider to be the two major predictions of the war of attrition approach.
We study the relationship between average inflation and inflation uncertainty in Mexico from 1960... more We study the relationship between average inflation and inflation uncertainty in Mexico from 1960-1997. Friedman (1977) and Ball (1992) propose models where higher inflation creates increased uncertainty, whereas Cukierman & Meltzer (1986) and Cukierman (1992) argue that an apportunistic Central Bank will take advantage of higeruncertainty to raise the average inflation rate. We test these theories simultaneously using a GARCH-M model for monthly Mexican inflation.
While central bank reform has been widely prescribed for developing countries, the efficacy of ce... more While central bank reform has been widely prescribed for developing countries, the efficacy of central bank independence is still controversial. Most of the empirical work on the economic effects of central bank independence (hereafter, CBI) focus on a sub-set of industrialized countries and the results of these studies often do not hold up wen developing countries are considered.
Abstract This paper presents some empirical evidence on the issue of whether the rookie draft in ... more Abstract This paper presents some empirical evidence on the issue of whether the rookie draft in professional football promotes competitive balance in the winning records of National Football League teams. The results suggest that the rookie draft is a balancing institution, and that the ability to use the draft to improve winning performance varies across teams.
Abstract The effect of macroeconomic fluctuations on House elections is a long debated, but still... more Abstract The effect of macroeconomic fluctuations on House elections is a long debated, but still unresolved, issue. We argue that return rates are theoretically superior to vote shares as measures of electoral acountability and that incumbents, not candidates of the president's party, are the legislators voters hold responsible. We develop and test an incumbent accountability model using incumbent return rates in the US House from 1916 to 1994, finding a strongly significant effect of both income growth and the misery index.
There is little professional consensusregarding the effect of economic conditionson House Electio... more There is little professional consensusregarding the effect of economic conditionson House Elections. We argue that recentwork still uses the paradigm of Party toorganize their data and tests. Given thatrecent developments in the theory ofcongress emphasize the paradigm ofIncumbency, we investigate the empiricalrelevance of that competing paradigm.
Abstract We investigate the relationship between savings and investment at different time horizon... more Abstract We investigate the relationship between savings and investment at different time horizons for the postwar US. Our results suggest that there is no association between savings and investment rates in the long run, while, in the short run, an exogenous savings shock does raise the investment rate temporarily. We also show that this positive short-run relation became much smaller and statistically insignificant since the early 1980s.
Abstract In this paper we study the historical evolution of (A) the number of specific country gr... more Abstract In this paper we study the historical evolution of (A) the number of specific country groups in the world income distribution,(B) the relative positions of the groups over time, and (C) inter-group mobility. We accomplish this by applying Bayesian variable dimension mixture models to a sample of 135 countries over 6 decades. In the 1950s and 60s, there are most likely two distinct groups of countries in the overall income distribution and we see a large amount of upward mobility for countries in the lower group.
Abstract: Cross-country output divergence can occur in the neoclassical growth model with a commo... more Abstract: Cross-country output divergence can occur in the neoclassical growth model with a common long run growth rate if the variables that determine the steady state are also diverging across countries. However, in this paper we show that the observed output divergence is actually accompanied by strong policy convergence. That is, investment rates for both physical and human capital along with levels of government spending and openness to trade are all converging across countries.
Towards a Politico-Economic Model of US Monetary Policy We have entered a new age of monetary pol... more Towards a Politico-Economic Model of US Monetary Policy We have entered a new age of monetary policy, with relatively low and steady inflation prevailing for almost 20 years now. The macro literature is replete with models that reflect this favorable situation. Besides work on incentive contracts for central bankers, there is a growing literature that sets up a small equilibrium macro model with a representative citizen, then derives an optimal Fed policy rule or family of rules.
Abstract: In this paper, we develop a theoretical framework for, and conduct empirical tests of h... more Abstract: In this paper, we develop a theoretical framework for, and conduct empirical tests of how, production structures are jointly determined by factor endowments and financial development. On the theoretical side, we introduce an external finance constraint into the GDP function and derive an estimable equation for how sectoral shares are influenced by endowments and finance. On the empirical side, we use data from 1980-2000 for 48 countries and 28 sectors.
One of the most important challenges facing developing nations is the choice and maintenance of a... more One of the most important challenges facing developing nations is the choice and maintenance of an exchange rate regime. This issue is most often framed as a choice between fixed and flexible exchange rates, but from a macroeconomic standpoint, the exact nominal regime chosen is only a means to an end. What really matters is how that choice interacts with other policies to influence the behavior of the real exchange rate.
Abstract In this paper, we argue that real exchange rate appreciations can be costly because they... more Abstract In this paper, we argue that real exchange rate appreciations can be costly because they raise uncertainty about the future path of the real exchange rate. The result is driven by the existence of multiple types of policymakers with differing costs of exchange rate intervention and by uncertainty about the type of next period's policymaker. We derive the result in a simple model with two types of policymakers who rotate in office stochastically: one who follows an Ss rule and the other an automaton who never intervenes.
Abstract We argue that real exchange rate appreciations can be costly because they raise uncertai... more Abstract We argue that real exchange rate appreciations can be costly because they raise uncertainty about the future path of the real exchange rate. The result is driven by the existence of multiple types of policymakers with differing costs of exchange rate intervention and by uncertainty about the type of next period's policymaker. We illustrate the result in a simple model with two types of policymakers who rotate in office stochastically: one who follows an Ss rule and the other an automaton who never intervenes.
We study a game between a group of rich country investors and a group of developing countries. Co... more We study a game between a group of rich country investors and a group of developing countries. Countries adopt policy reform to raise the return to and try to attract foreign investment. We focus on the interaction between investors' incentives to acquire country-specific information on the incidence of reform and countries' incentives to undertake reform. Uninformed investors may still invest in the region based on a costless signal of the regional average return. In this case, reform is a regional public good.
This paper presents the first empirical evidence on the efficacy of raising interest rates ex ant... more This paper presents the first empirical evidence on the efficacy of raising interest rates ex ante as a deterrent to speculative attacks. Using a dataset that covers 54 countries from March 1964 through December 2005, we find strong evidence that raising interest rates in advance has significantly different impacts in different country groups. It significantly reduces the probability of attacks in countries that have a de facto hard peg but increases it in de facto softpegging countries.
Abstract Given that a high interest rate can be a double-edged sword, we argue that the battle be... more Abstract Given that a high interest rate can be a double-edged sword, we argue that the battle between speculators and the government can be well modeled as a war of attrition game under asymmetric information. We then solve for a pure strategy weak perfect Bayesian equilibrium in which each party's time until concession depends on their benefits from winning and their costs of fighting. Using this model, we are able to produce results that are novel for the speculative attack literature.
Resumen: Examinamos el efecto de diferentes regímenes de tipo de cambio sobre el comportamiento e... more Resumen: Examinamos el efecto de diferentes regímenes de tipo de cambio sobre el comportamiento económico de 16 países en desarrollo durante 1997. Mientras los déficit de la cuenta corriente son un buen pronóstico del grado subsecuente de depreciación monetaria durante el año, y si se mantiene constante dicho déficit, el régimen de tipo de cambio es estadísti camente irrelevante.
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