Open-Economy Macroeconomics: Proceedings of a Conference held in Vienna by the International Economic Association

437 Pages·1993·33.267 MB·English

by  Helmut Frisch, Andreas Wörgötter (eds.)

OPEN-ECONOMY MACROECONOMICS
Open-Economy
Macroeconomics
Proceedings ofa Conferenceheld in Vienna bythe
International Economic Association
Edited by
Helmut Frisch
ProfessorofEconomics
University ofTechnology.Vienna
and
Andreas Worgotter
Chairman.DepartmentofEconomics
InstituteforAdvancedStudies. Vienna
Palgrave Macmillan
inassociation with the
© International Economic Association 1993
Softcoverreprint ofthe bardeover 1st edition 1993 978-0-333-57313-6
All rights reserved. For information, write:
Scholarly and Reference Division,
St. Martin's Press, Inc., 175 Fifth Avenue,
New York, N.Y. 10010
First published in the United States of America in 1993
ISBN 978-1-349-12886-0 ISBN 978-1-349-12884-6 (eBook)
DOI 10.1007/978-1-349-12884-6
Library of Congress Cataloging-in-Publication Data
Open-economy macroeconomics: proceedings of a conference held in
Vienna by the International Economic Association I edited by Helmut
Frisch and Andreas Wörgötter.
p. cm.
Conference held in May/June 1991.
"[Published by] St. Martin's Press, in association with the
International Economic Association."
ISBN 978-0-312-09015-9
I. Macroeconomics-Congresses. I. Frisch, Helmut.
II. Wörgötter, Andreas. 111. International Economic Association.
IV. Series.
HB 172.5.064 1993
339--dc20 92-26619
CIP
Contents
The International Economic Association viii
Acknowledgements x
List ofContributors and Participants xii
Abbreviations and Acronyms xvii
Preface xix
Introduction Helmut Frischand Andreas Worgotter xxi
PART I MONETARY POLICY IN OPEN ECONOMIES
1 Exchange-rate Based Stabilisation under Imperfect
Credibility
Guillermo A. Calvo and CarlosA. Vegh 3
2 Devaluation, the Terms of Trade and Investment in a
Keynesian Economy
Michael Gavin 29
3 Sheet Anchors, Fixed Price Anchors and Price
Stability in a Monetary Union
AndrewJ. Hughes Hallett, David Vines and
Myrvin Anthony 46
4 Foreign Supply Shocks, Wage Indexation and Optimal
Monetary Policy
Franz X. Hof 70
PART II DOMESTIC ADJUSTMENT TO
FOREIGN SHOCKS
5 The Impact of Fiscal and Productivity Shocks on the
Natural Rate of Unemployment in a Two-Country
World
Hian Teck Hoon and Edmund S. Phelps 95
v
vi Contents
6 Shocks and Aggregate Low Frequency VariabUity in a
Small Open Economy
Christian C. Starck 119
7 Real Shocks and the Real Exchange Rate
Emil-Maria Claassen 137
8 EconomicAdjustment and Growth in Small
DevelopingCountries
DeLisle Worrell 153
PART III LABOUR AND CAPITAL MARKETS IN
OPEN ECONOMIES
9 InfluenceofFiscal Shocks on Exchange Rate
VolatUity under Imperfect Capital MobUityand
AssetSubstitutabUity
Saziye Gazioglu 167
10 Domesticand Foreign Shocks to Employment and
Capital Accumulation in Germany
Oliver Landmann and Iiirgen Jerger 186
II Capital Taxation, Housing Investment and Wealth
Accumulation in a Small Open Economy
Seren B. Nielsen and Peter Birch Serensen 203
12 Underemployment EquUibria in an Empirical
Macromodel for Austria
PeterNeudorfer and Karl Pichelmann 224
PART IV INTERDEPENDENCE OF OPEN
ECONOMIES
13 Measurement Errors and the Convergence Hypothesis
Edward E. Leamer 241
14 Three Parity Conditions in International Finance
Richard C. Marston 257
Contents vii
IS Endogenous Growth, Convergence and Fiscal PoUcles
in an Interdependent World
George S. Alogoskoujis and Frederick van der Ploeg 272
16 Consistent Conjectural EquiUbria and Economic
PoliciesCoordination
Henri Sterdyniak and Pierre Villa 289
PART V BUBBLES VERSUS FUNDAMENTALS:
MODELLING EXCHANGE RATE BEHAVIOUR
17 Stochastic Shocks, Fads and Exchange Rate
Fundamentals: an Empirical Evaluation of the
Target Zone Proposal
Nicos M. Christodoulakis 313
18 The Theory of Exchange Rate Determination and
Exchange Rate Forecasting
Giancarlo Gandolfo, Pier Carlo Padoan and
Giuseppe de Arcangelis 332
19 A Chaotic Monetary Model of the Exchange Rate
Paul De Grauwe and Hans Dewachter 353
20 Theories, Consistent Expectations and Exchange
Rate Dynamics
Michael Goldberg and Roman Frydman 377
21 Bandwagon Effects, or Rational Expectations in the
Exchange Rate?
Vasumathi Vijayraghavan 400
Index ofNames 409
Index ofSubjects 413
The International
Economic Association
A non-profit organisation with purely scientific aims, the Inter
national Economic Association (lEA) was founded in 1950.It is in
fact a federation of national economic associations and at present
includes fifty-eightsuch professional organisations from all parts of
the world. Its basic purpose is the development of economics as an
intellectual discipline. Its approach recognises a diversity of prob
lems,systemsand valuesinthe world and alsotakes note ofmethod
ologicaldiversities.
The lEA has, since its creation, tried to fulfil that purpose by
promoting mutual understanding of economists from the West and
the East, as well as from the North and the South, through the
organisation of scientific meetings and common research pro
grammes, and by means of publications on problems of current
importance. During itsforty-odd years of existence, it has organised
over 100 round-table conferences for specialists on topics ranging
from fundamental theories to methods and tools of analysis and
major problems of the present-day world. Nine triennial World
Congresses have also been held, which have regularly attracted the
participation of a great many economists from all over the world.
The Association isgoverned by a Council, composed of represen
tatives of all member associations, and by a fifteen-member Execu
tive Committee which is elected by the Council. The Executive
Committee (1989-92) iscomposed as follows:
President: Professor Anthony B. Atkinson, UK
Vice-President: Professor Luo Yuanzheng, China
Treasurer : Professor Alexandre Lamfalussy, Belgium
Past President : Professor Amartya Sen, India
Other Members : Professor Abel Aganbegyan, Russia
Professor Kenneth J. Arrow, USA
Professor Edmar Lisboa Bacha, Brazil
Professor P.R. Brahmananda, India
Professor WolfgangHeinrichs, Germany
Professor Edmond Malinvaud, France
Professor Takashi Negishi, Japan
viii
The International Economic Association ix
Professor Don Patinkin, Israel
Professor Agnar Sandmo, Norway
Professor Erich Streissler, Austria
Professor Stefano Zamagni, Italy
Advisers: Professor Oleg T. Bogomolov, Russia
Professor Karel Dyba, Czechoslovakia
Professor Mohammed Germouni, Morocco
Secretary-General: Professor Jean-Paul Fitoussi, France
General Editor : Mr Michael Kaser, UK
Adviserto
General Editor : Professor Sir Austin Robinson, UK
The Association has also been fortunate in having secured the
followingoutstanding economists to serve as President:
GottfriedHaberler(1950-3), HowardS. Ellis(1953-6), ErikLindahl
(1956-9), E.A.G. Robinson (1959-62), G. Ugo Papi (1962-5), Paul
A. Samuelson (1965-8), Erik Lundberg (1968-71), Fritz Machlup
(1971-4), Edmond Malinvaud (1974-7), Shigeto Tsuru (1977-80),
Victor L. Urquidi (1980-3), Kenneth J. Arrow (1983-6), Amartya
Sen (1986-9).
The activities of the Association are mainly funded from the
subscriptionsofmembersand grants from anumberoforganisations,
including continuing support from UNESCO.
Acknowledgements
The Vienna Conference of the lEA whichtook place at the Institute
for Advanced Studies, Vienna, Austria, was organised by a local
committee with the followingmembers:
ProfessorPaulDeGrauwe,KatholiekeUniversiteitLeuven,Leuven,
Belgium
ProfessorHelmutFrisch,University ofTechnology,Vienna,Austria
Professor Giancarlo Gandolfo,University of Rome 'La Sapienza',
Rome, Italy
Professor Richard C.Marston,The WhartonSchool,Universityof
Pennsylvania, Philadelphia, USA
Professor Erich Streissler, University of Vienna, Austria
Professor Andreas Worgotter, Institute for Advanced Studies,
Vienna, Austria
Financial and logistic support was generously provided by local
private and public foundations, as wellas private firms, and we are
especiallygrateful to:
Austrian National Bank, Vienna, Austria
Austria Tabakwerke AG, Vienna, Austria
Assocation of Austrian Industrialists, Vienna, Austria
Federal Chamber of Commerce, Vienna, Austria
Casinos Austria, Vienna, Austria
Chamber of Labour, Vienna, Austria
Lotto-Toto Gesellschaft, Vienna, Austria
Osterreichische KontrollbankAktiengesellschaft, Vienna, Austria
Osterreichische Postsparkasse, Vienna, Austria
Zentralsparkasseund KommerzialbankWien AG, Vienna, Austria
We also wish to express our gratitude to all participants whose
intellectual engagement ensuredthe conference'ssuccess,and whose
discipline made the timely publication of the conference volume
possible. We are especially grateful to Maureen Hadfield, who
participated at the conference and provided the editors with the
necessarysupportand encouragementtoprepare the proceedings for
publication.
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