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Abstract:
Open-economy macroeconomists regularly invoke the policy trilemma that states that governments cannot simultaneously maintain an open capital account, a fixed exchange rate, and a domestically-oriented monetary policy. My thesis is that jurisdictions with substantial offshore activities find these and other macroeconomic choices significantly affected by something else: Concern for the continued health and development of their international financial business. Monetary, exchange-rate, and tax policies and the choice of domestic currency all will be impacted by this concern. The different choices made by (1) Denmark and Malta in ERM II, (2) offshore financial centers in Europe, and (3) financial centers in East Asia are considered to develop some general conclusions.

Offshore financial centers, international financial services, exchange-rate regime, taxation of nonresidents, currency substitution

Abstract:
Is price discovery and the calibration of news through American Depositary Receipts or Shares, traded in central markets, superseding local discovery in peripheral markets? This question remains very much open as the evidence we present on the durability of price innovations in two major Mexican stocks that are household words provides little support for the inevitable demise of local markets. Rather it appears that such markets may have some advantage in information efficiency that may compensate for the extra costs.

Emerging stock markets, ADR, information efficiency, stock price discovery

Abstract:
Is price discovery and the calibration of news through American Depositary Receipts or Shares, traded in central markets, superseding local discovery in peripheral markets? This question remains very much open as the evidence we present on the durability of price innovations in two major Mexican stocks that are household words provides little support for the inevitable demise of local markets. Rather it appears that such markets may have some advantage in information efficiency that may compensate for the extra costs.

Keywords: Emerging stock markets, ADR, information efficiency

Emerging stock markets, ADR, information efficiency, stock price discovery

Abstract:
A traditional OCA criterion holds that the more symmetric the shock exposure of countries, the more suited they are for currency union. According to Frankel and Rose (1998, 2002), growing correlation of the ex post income fluctuations of members also can provide endogenous justification for regional monetary union (MU) after its creation. Trade-enhancing effects of MU increase symmetry of shock exposure. But the single monetary policy of a multilateral MU in theory counteracts net disturbances to the union as a whole to the extent consistent with low inflation. This would leave mostly idiosyncratic disturbances and hence less symmetry among the national disturbance effects that remain. But recent evidence from the euro area yields results contrary to those expected.

Monetary Union, Monetary Policy, Optimum Currency Area (OCA)

Abstract:
A traditional OCA criterion holds that the more symmetric the shock exposure of countries, the more suited they are for currency union. According to Frankel and Rose (1998, 2002), growing correlation of the ex post income fluctuations of members also can provide endogenous justification for regional monetary union (MU) after its creation. Trade-enhancing effects of MU increase symmetry of shock exposure. But the single monetary policy of a multilateral MU in theory counteracts net disturbances to the union as a whole to the extent consistent with low inflation. This would leave mostly idiosyncratic disturbances and hence less symmetry among the national disturbance effects that remain. But recent evidence from the euro area yields results contrary to those expected.

Monetary Union, Monetary Policy, Optimum Currency Area (OCA)

Abstract:
This study analyzes policy responses during the depth of the 2007-09 Financial Crisis by focusing on instrument innovations, executive-branch reconfigurations, and legacies for U.S. governance. The period September 2008 - March 2009 encompassed that part of the long-festering financial crisis severe enough to leave troubling legacies for the conduct of economic policies. Executive discretion in economic governance hurriedly expanded and centralized to address the depth of the crisis. The U.S. Department of the Treasury, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation acting in tandem, freely exercised emergency authority to prop up the financial system. This paper shows these interventions to have short-run benefits and long-run costs for market efficiency and stability.

Financial Crisis, TARP, FDIC Guarantees, Federal Reserve Loans, Credit Market Stabilization

Abstract:
Rajan & Zingales (1998) use U.S. Compustat firm data for the 1980s to obtain measures of manufacturing sectors' Dependence on External Finance (DEF). They take any differences in these measures to be structural/technological and thus applicable to other countries. Their joint assumptions about how to obtain representative values of DEF by sector and about why these values differ between sectors have been used widely to show that sectors benefit unequally from a country's level of financial development. However, the assumptions as such have not been examined. The present study, conducted with cyclically adjusted annual DEF measures, attempts to do so using U.S. industry data for 1977-1997 aggregated by sector. The key findings are that structural/technological variables have low explanatory power for DEF and that the DEF figures calculated from micro data do not correspond closely to what is obtained from aggregate data. Hence assumptions crucial for RZ's argumentation have not been validated.

Growth and finance, financial development, industry structure

Abstract:
There are few recent historical precedents for maintaining the high degree of separation between internal monetary arrangements that still prevails between Hong Kong and Mainland China. This paper anticipates the erosion of this separation and considers the economics of the different forms which monetary unification of China could take. It argues that achieving such unification without resort to capital controls or expropriation is a precondition for developing a second major international currency in East Asia, rivaling the yen. Until the renminbi has established itself as an international currency inside a unified and sound financial system that is up to Hong Kong's current standards, there can be no progress toward a regional monetary union in East Asia. While an internal goal of Chinese Monetary Union is banking reform and financial integration, an external goal is to help emancipate both China and East Asia as a whole safely from the U.S. dollar standard.

Chinese monetary union, monetary union, dollarization, Hong Kong dollar, Renminbi, monetary history

Abstract:
Sub-Saharan Africa has made the least progress over the past three decades, and - except for South Africa - it is now one of the world's poorest regions. Even a country relatively untouched by war that had been widely hailed as "reformed" by the early 1990s, Tanzania, has turned in a disappointing growth performance that is hard to explain. Foreign assistance programs that try to bypass the national and local authorities in the recipient countries do not encourage institutional development and strengthen public-service ethos. In much of Sub-Saharan Africa, incentive compatibility of good governance for building the country together still has to be instilled before cumulative progress may be possible.

Sub-Saharan Africa, growth accounting, economic development, financial development, debt forgiveness

Abstract:
The outcomes of most social-service programs are complex and subject to conflicting ethical, utilitarian, and political assessments. As a result, different elements of private and public benefits will not be recognized or weighted equally by all providers and funders. Once agreement on the intended outcome has been reached, evaluation focuses on the optimal method and provider for obtaining it. This article considers econometric and experimental designs for determining the relative effectiveness of alternative treatments or providers, including designs proposed in other contributions to this symposium.

Faith-Based Organizations, social services, econometric program evaluation, experimental methods

Abstract:
The International Financial Services (IFS) industry is restructuring internally and by location. This paper outlines the economic forces and analytical methods that may be applied to examine the economic drivers of these processes as ever more cities, particularly in East Asia, are vying to attract IFS providers and their clients. The ICT revolution has made those IFS that can be commoditized footloose in search of cost efficiency. High value-added financial services, however, will continue to be developed and coordinated in a few major IFS centers that have invested in, or capitalized on, regional or global advantages for themselves and their clients. The resulting pattern of functional fragmentation and geographic dispersal may facilitate analyses of the competitiveness of different lines of the financial services business in a particular location by methods such as Data Envelopment and Stochastic Frontier Analysis. These forms of comparative efficiency analysis have recently been questioned and their results reinterpreted.

offshore centers, international financial services, Data Envelopment Analysis, Stochastic Frontier Analysis

Abstract:
Except perhaps for the lead countries of global finance that may maintain a useful degree of monetary independence from each other, joining a regional monetary union boosts financial development. It enhances liquidity and depth of financial markets through the provision of sound money used over a wide area and provides implicit insurance against macroeconomic risks. This paper shows that, for Mexico unlike Canada, macroeconomic volatility is much greater during periods when the nominal exchange rate with USD changes appreciably than when it is quasi-pegged. This finding suggests that the benefits of monetary union are greatest for emerging-market countries inside an economically integrating region.

Exchange arrangements, monetary union, NAFTA, emerging markets

Abstract:
Overpromising remains ingrained in international agreements, clouding their expected aggregate outcomes and how to assess the Parties' performance. This paper provides a theory-based explanation and evaluation of this regime and its consequences, with an empirical application to the Kyoto Protocol. It shows (1) overpromising to be part of a sustainable strategy for electoral success, and (2) there are common determinants of the countries' overpromising values that characterize the group regime. (3) Targets need to be adjusted for regression-predicted overpromising to yield rationally-expected outcomes. (4) Individual countries' performance is best identified by deviations of outcomes from their adjusted, not the agreed, targets.

Overpromising, international agreements, treaty compliance, performance measurement, politics and environment, Kyoto Protocol

Abstract:
Rajan and Zingales (1998) use U.S. Compustat firm data for the 1980s to obtain measures of manufacturing sectors' Dependence on External Finance (DEF). They take any differences in these measures to be structural/technological and thus applicable to other countries. Their joint assumptions about how to obtain representative values of DEF by sector and about why these values differ fundamentally between sectors have been adopted in additional studies seeking to show that sectors benefit unequally from a country's level of financial development. However, the assumptions as such have not been examined. The present study, conducted with cyclically adjusted annual measures of DEF derived from U.S. industry data for 1977-1997, attempts to do so using data that are aggregated by sector. We find that those variables that may be regarded as structural/technological have very low explanatory power, and that the DEF figures calculated from micro data do not correspond closely to what is obtained from aggregate figures. Hence key assumptions on which RZ's argumentation is based could not be validated.

Growth and finance, financial development, industry structure

Abstract:
CEE countries such as Poland started to experience a very high rate of financial development within a few years after emerging from socialism. A review of the literature suggests that this asymmetric development should have been most beneficial for those industry sectors most dependent on external finance. However, the widely-used Rajan and Zingales (1998) measure of young (exchange-listed U.S.) companies' dependence on external finance had no explanatory power for the structure of industry growth in Poland. This negative finding held for 1990-2001 as a whole and for two distinct sub-periods that differed in the speed of financial development. Reasons for this failure, and correlates of the RZ measure, are examined.

Financial Development, Dependence on External Finance, Industry Structure, Poland

Abstract:
Omitted from traditional OCA criteria, price effects are important because regional monetary union protects from pricing risks and contributes to greater uniformity and efficiency in price setting. Among member countries it reduces price dispersion in tradables in part by irrevocably fixing the internal exchange rate and in part by facilitating arbitrage. The larger integrated market of the euro area also encourages outside producers to engage in more pricing to market within it. With inflation differentials in tradables reduced throughout the euro area, systematic national inflation differentials are likely to be limited to those attributable to productivity differentials that cause differences in the inflation rate of nontradables.

Pricing to Market, Monetary Union, Local Pricing

Abstract:
The International Financial Services (IFS) industry is restructuring internally and by location. This paper outlines the economic forces and analytical methods that may be applied to examine the economic drivers of these processes as ever more countries and cities are vying for attracting IFS providers and their clients. The ICT revolution has made those IFS that can be commoditized footloose in search of cost efficiency. High value-added services, however, will continue to be developed and co-ordinated in a few major IFS centers that have invested in, or capitalized on, regional or global advantages for themselves and their clients. This fragmentation and geographic dispersion of the industry by service function and sophistication may facilitate analyses of the comparative economic efficiency of particular financial services by methods such as stochastic frontier analysis.

Offshore financial centers, international financial services, financial business location, financial business efficiency, data envelopment analysis, stochastic frontier analysis

Abstract:
When countries, and macroeconomic models, open up to international capital markets, the welfare gains available through completion of financial markets for contingencies potentially are much greater than those available from access to noncontingent international borrowing. Intercasual insurance, reducing exposure to differences in contingent future cases, and not intertemporal smoothing between now and then is the big story in open economies although the two must be told together.

Consumption Smoothing, International Economic Insurance, Arrow-Debreu Securities, Foreign Loans, International Risk Sharing

Abstract:
Regional monetary union offers important income and price-level insurance to its members. The welfare gains available through the completion of financial markets from income and consumption insurance alone are especially large. They are much greater than those available from access to noncontingent international borrowing among members that may be promoted by monetary union. While insurance tackles asymmetric, and hence diversifiable, risks, the single monetary policy seeks to cushion symmetric disturbances that have a net effect on the union as a whole. Thus increased correlations among residual country disturbances are not necessary for the ex post justification of a monetary union although they remain likely because of other effects.

Monetary union also ensures low inflation and low inflation dispersion among members. Some factors making for national inflation differentials, such as entering into monetary union at an undervalued exchange rate, have only transitory effects. Other dispersion effects, such as technology catch-up of some members with others, are more persistent but correspondingly mild. Monetary union further contributes to the efficiency of international pricing by both reducing and equalizing discriminatory degrees of pricing-to-market. Beneficial effects are expected from a better balance of power between major internally integrated markets such as those of the euro area and the United States.

Keywords: monetary union, insurance, stabilization, inflation

Monetary Union, Financial Insurance, Pricing to Market

Abstract:
International risk premiums on low-credibility currencies are routinely measured by yield differences with otherwise comparable instruments issued in a hard currency. Such measures, while adequate for any permanent component of country-specific risk, are incorrect when applied during periods of currency and banking crisis in emerging markets. The reason is that such crises typically generate large risk-adjusted real interest-rate differentials that may be compensated by future movements in the real exchange rate. If riskless rates can differ because only asset markets can adjust immediately to the new outlook created by a crisis, the risk premium can not be equated with observed international yield spreads. Instead, an intertemporal UIP model serves to estimate both permanent and temporary components of currency risk premiums. The usefulness of the results obtained with this model is demonstrated by showing that the measure of the surge in currency risk obtained for the tequila crisis bids fair to explain financial and economic declines that actually occurred.

Currency Risk, Emerging-Country Risk, Political Risk, Uncovered Interest

Abstract:
We explore the welfare consequences of the alternative monetary and exchange-rate regimes still available to the small country in open international financial markets in view of the optimum monetary policy that the large country adopts for itself. Both economies are based on nominal wage contracts with employment determined by the demand for labor under the contract terms. Reacting to movement in contemporaneously observable price variables, the monetary authorities of the large country, and of the small country under floating, aim to keep labor on its supply curve in the face of IS and LM shocks to aggregate demand, and shocks to aggregate supply. With monetary union, the small country trades discretionary monetary policy for greater stability in real exchange rates and insulation from its own idiosyncratic money supply and demand disturbances. The relative welfare costs of the different regimes for the small country are modeled and deduced from researched parameter values. The result is that there can be a stabilization rationale for accession to a monetary union except at low values of the correlations of like types of shocks for the large and small country.

Monetary Union, Accession, Stabilization Policy, Exchange-Rate Regime

Abstract:
Except perhaps for the lead countries of global finance that may maintain a useful degree of monetary independence from each other, joining a regional monetary union boosts financial development. It enhances liquidity and depth of financial markets through the provision of sound money used over a wide area and provides implicit insurance against macroeconomic risks. This paper shows that, for Mexico unlike Canada, macroeconomic volatility is much greater during periods when the nominal exchange rate with USD changes appreciably than when it is quasi-pegged. This finding suggests that the benefits of monetary union are greatest for emerging-market countries inside an economically integrating region.

The study uses PPP-GDP data per person and per workhour from the Groningen (Netherlands) Growth and Development Centre.

Exchange-rate arrangements, Monetary union, NAFTA, Emerging markets

Abstract:
Faith-based provision and reception of social services may yield results that differ either randomly or persistently (via fixed effects) from the outcomes achieved under non-faith-based, but certainly not value-free, administration of these services. Yet attributing raw differences in performance to unobservable factors assumed to derive from faith should be a last resort. Instead, the objective of analysis should be to identify any such factors and their cost and strength operationally so that they can become part of any program offered by existing providers or entrants. The capabilities of econometric, experimental, and microsimulation approaches to identification and evaluation are discussed.

Program evaluation, social services, fixed effects, experimental methods, microsimulations

Abstract:
This symposium offers a selection of significant research on the renminbi and broader East Asian exchange rate policy pressures and options first presented at a 2227 May 2006 conference in Bellagio, Italy. Its venue, Villa Serbelloni, was made available by the Rockefeller Foundation. Reforms of the international monetary and financial system have been discussed there since the 1960s. As was the case then, the focus of the conference was once again on the declining international anchor functions and relations with the US dollar, but this time in and with continental East Asia, rather than Europe and Japan.

Abstract:
Finance long has been described as the "governor" of economic development. Yet there are no agreed indicators of financial development or measures of the efficiency with which finance provides services to other sectors. This paper clarifies the choices by distinguishing price from quantity indicators of financial development. It recommends increased use of measures of spread between the required rate of return on productive investment and the rate of return on intermediated savings as soon as such data can be obtained from liberalized financial markets. For concreteness, data references are made to Mexico and Chile.

financial development, indicators, liberalization, Mexico, Chile

Abstract:
The lecture explores causes and consequences of the declining usefulness of the separate currency denominations maintained by that large number of 'small' open economies whose currencies play little or no role in international finance. So far, official multinational entities capable of taking up new threats to international financial stability, like the Group of Seven (G7), the G10 Finance Ministers and Central Bank Governors, the International Monetary and Financial Committee (IMFC) comprising 24 IMF Governors, and the Financial Stability Forum (FSF), have given little visible attention to these market-driven tendencies toward currency consolidation. As a result, there is scant official guidance on what to do about these tendencies so as to contribute to greater international financial stability in a multilateral framework. More such attention is overdue because the intermediate stages of currency competition in an emerging-market country in which there is more than one monetary standard in domestic use carry high risks to the stability of that country and its financial sector.