Alternative Policy Regimes Research Articles

Zimbabwe’s Trade Performance Under Alternative Trade Policy Regimes

This study examines Zimbabwe’s export and import performance under alternative trade policy regimes, from 1976 to 2014. Taking into account export and import volumes, gross domestic product (GDP), price of exports and imports, foreign income, real effective exchange rate and policy changes, log-linear errorcorrection models were adopted to estimate export supply and import demand elasticities. The study concludes that the relationship of exports and imports to GDP is significantly positive, while foreign income has no significant effect. A devaluation is estimated to have a significantly negative effect on imports in the short-term. Though highly inelastic, the effect of prices of imports on import demand is estimated to be significantly negative in the short- and long-term, and that of exports on export supply is positively significant in the short-term. The adoption of outward-oriented strategies was estimated to result in a 13.86 per cent increase in exports in the long-term, and a 32.3 per cent increase in imports in the short-term between 1990 and 1995 alone, and an additional 33.62 per cent between 1996 and 2000. The analysis also reveals that adopting a multi-foreign currency regime will only significantly influence export supply in the long-term.

Fiscal Delegation in a Monetary Union: Instrument Assignment and Stabilization Properties

Motivated by the failure of fiscal rules to eliminate deficit bias in the euro area, this paper analyzes an alternative policy regime in which each Member State government delegates at least one fiscal instrument to an independent authority with a mandate to avoid excessive debt. Other fiscal decisions remain in the hands of member governments, including the allocation of spending across different public goods, and the composition of taxation. We study the short-and long-run properties of dynamic games representing different institutional configurations in a monetary union. Delegation of budget balance responsibilities to a national or union-wide fiscal authority implies large long-run welfare gains due to much lower steady-state debt. The presence of the fiscal authority also reduces the welfare cost of fluctuations in the demand for public spending, in spite of the fact that the authority imposes considerable “austerity” when it responds to fiscal shocks.

What is the Appropriate Counterfactual When Estimating Effects of Multilateral Trade Policy Reform?

AbstractMultilateral trade reforms, such as may eventually emerge from the WTO's Doha Development Agenda (DDA), tend to be phased in over a decade or so after agreement is reached. Given the DDA's slow progress, that implementation may not be completed before the end of the next decade. Ex‐ante analysis of the DDA's possible effects thus requires first modelling the world economy to 2030 and, in that process, projecting what trade‐related policies might be by then without a DDA. Typically, modellers assume the counterfactual policy regime to be a ‘business‐as‐usual’ projection assuming the status quo. Yet we know developing country governments tend to switch from taxing to assisting farmers in the course of economic development. This paper shows the difference made by including political economy‐determined agricultural protection growth endogenously in the baseline projection. We reveal that difference by projecting the world economy to 2030 using the Global Trade Analysis Project (GTAP) model with those two alternative policy regimes and then simulating a move to global free trade (the maximum benefit from a multilateral trade reform) in each of those two cases. The welfare effects of removing the counterfactual price distortions in 2030 are shown to be much larger in the case where agricultural protection grows endogenously than in the case assuming no policy changes over the projection period. This suggests the traditional way of estimating effects of a multilateral agricultural trade agreement may considerably understate the potential welfare gains.

Evaluations of different monetary policy regimes for a small developing open economy

Motivated by recent experiences in Iran, this paper incorporates structural characteristics that reinforce the reluctance of central banks to commit to free floating exchange rates (‘fear of floating’) into optimal policy formulation to determine the extent of exchange rate involvement in monetary policy. We utilize a small stylized model of a small developing open economy calibrated for the Iranian economy to compare the performance of alternative policy regimes, namely flexible domestic inflation targeting, flexible consumer price index inflation targeting, and real exchange targeting in handling higher openness, higher exchange rate pass through, and financial vulnerability. Evaluation of the above alternative policy regimes and relative stability of key macroeconomic variables are conducted through an optimal Ramsey policy approach. The results suggest that, in financially vulnerable small open developing economies, consumer price IT may not be the optimal policy and giving a higher positive weight to the real exchange rate in the central bank’s loss function and allowing policy reaction to this variable via the instrument rate can result in a lower social loss and more stability for the key macroeconomic variables, and hence a superior policy regime. Policy evaluation results based both on stabilization and welfare measures obtained in this paper imply that for the developing commodity (oil) exporting economies with high degrees of financial vulnerability and relatively high pass-through rates, an IT policy framework in which the real exchange rate is also targeted is a superior regime.

Expected lessons from the US experience with alternative cannabis policy regimes.

Commentary to: Considering marijuana legalization carefully: insights for other jurisdictions from analysis for Vermont

Rising Government Debt Under Labor Endogeneity

Several advanced economies are heading towards a period of fiscal stress; aging population raises government transfers which in turn increases nominal government debt. Existing literature studies how alternative combinations of monetary and fiscal policies can stabilize real debt in the face of exponentially rising transfers. This paper develops an overlapping generations (OG) model to study the implications of endogenous labor supply on the path of real government debt under alternative policy regimes and finds that switching to an alternative policy regime where monetary authority is passive in the face of rising transfers, even before the economy is at the fiscal limit, might stabilize inflation better than an active monetary regime. The model in the paper has been calibrated to the US economy to demonstrate dynamic effects.

Understanding energy-related regimes: A participatory approach from central Australia

For a particular community, what energy-related innovations constitute no-regrets strategies? We present a methodology to understand how alternative energy consuming activities and policy regimes impact on current and future liveability of socio-culturally diverse communities facing climate change. Our methodology augments the energy policy literature by harnessing three concepts (collaborative governance, innovation and political economic regime of provisioning) to support dialogue around changing energy-related activities. We convened workshops in Alice Springs, Australia to build capability to identify no-regrets energy-related housing or transport activities and strategies. In preparation, we interviewed policy actors and constructed three new housing-related future scenarios. After discussing the scenarios, policy and research actors prioritised five socio-technical activities or strategies. Evaluations indicate participants enjoyed opportunities given by the methodology to have focussed discussions about activities and innovation, while requesting more socially nuanced scenario storylines. We discuss implications for theory and technique development.

Exchange Rate Dynamics and Monetary Policy in a Small Open Economy: A DSGE Model

This paper compares alternative monetary policy rules in a small open economy that experiences internal shocks (productivity shocks) and external shocks to terms of trade and the foreign demand. A comparison of the volatility of the macroeconomic variables such as inflation, output, terms of trade, trade balance, investment and exchange rates under the different monetary rules is set to lead to the choice of the optimal exchange rate regime. I will show that these regimes can be ranked in terms of their implied volatility for the considered macroeconomic variables. A two-country version of the Calvo sticky price model is used to analyze the macroeconomic implications of four alternative monetary policy regimes for a small open economy: domestic inflation targeting, managed float, CPI targeting and an exchange rate peg. The degree of exchange rate pass-through is very important for the assessment of monetary rules. I find that the CPI targeting rule is the best policy in an economy that exhibits lagged exchange rate pass-through. With low pass-through, both the domestic and the overall prices respond sluggishly to shocks, and it is more efficient for the monetary authority to target the overall CPI rather than just domestic prices. In a low pass-through environment, the policy maker can simultaneously strictly target (CPI) inflation, but still allow high volatility in the nominal exchange rate to stabilize the real economy in face of shocks. The low rate of pass-through ensures that exchange rate shocks do not destabilize the price level. An important feature of low pass-through is that it eliminates the trade-off between output volatility and inflation volatility in the comparison of fixed relative to floating exchange rates.

Reflecting on 'Acquisition and disclosure of genetic information under alternative policy regimes: an economic analysis'.

Reflecting on ‘Acquisition and disclosure of genetic information under alternative policy regimes: an economic analysis’ by Debora Wilson (Health Economics, Policy and Law 2006; 1: 263–276) - Volume 10 Issue 4

Beyond the neoliberal orthodoxy: alternative financial policy regimes in Asia’s financial centers

This article conceptualizes the financial policy regimes of London, Hong Kong, Singapore and Shanghai, in the process of comparing and contrasting the sociopolitical relations that exist within the four cities. Based on the data collected from extensive field research, I identify four distinct financial policy regimes. First, a combination of low state intervention and influential industry actors in London reflects a financial policy regime that features dominant industry interest groups. While Hong Kong similarly features low state intervention, its industry actors are not influential. In contrast, financial sector development in Singapore features a ‘cocreation’ of financial policies by a close-knit network of state and industry actors. Lastly, Shanghai’s financial policy regime is largely dominated by state actors from both the central and local levels. By delineating and analyzing the policy regimes of the four international financial centers (IFCs), this article provides the first step toward a clearer and more critical understanding of how sociopolitical relations impact IFC development. In the process, it extends the analysis of IFCs beyond conventional neoliberal understandings of economic development.

The timing of environmental policy in a duopolistic market

In this paper the strategic use of innovation by two polluting firms to influence environmental policy is evaluated. The analysis is carried out by comparing two alternative policy regimes for two policy instruments: Taxes and standards. The first of the regimes assumes that the regulator commits to an ex-ante level of the policy instrument. In the second one, there is no commitment. The results show that when there is no commitment and a tax is used to control emissions, the strategic behavior of firms can be welfare improving if the efficiency of the clean technology is relatively low. If this is not the case, the strategic behavior of the duopolists has a detrimental effect on welfare regardless of the policy instrument used to control emissions.

Risk Sharing and Public Finance

Dominant macroeconomic policy regimes are anchored on the interest based debt finance that has created a divergence between the real sector and the financial sector of the economy. Uncertainty has been growing regarding the adequacy of current policy regimes to provide sustainable solutions to contemporary economic problems and challenges, including improvement in the quality of life in addition to the traditional objective of achieving growth with price stability. Policy tools that provide an incentive structure for closing the gap between financial and real sectors of the economy and at the same time enhance social solidarity through the mutual sharing of risks and return could provide more effective means of addressing these challenges. This concept paper offers an alternative policy regime that proposes first, a monetary policy that is targeted directly at asset market activities and private sector portfolio adjustments. Secondly, it suggests mobilization of funds for financing fiscal operations based on risk sharing through sale of government low-denomination equity participation papers directly to the public tradable in secondary markets. The latter proposal is supplemented with a reform of the tax structure. The benefits include better return to savers, improved financial inclusion through broadened public participation, improved governance and positive distributional implications for current and future generations. The objective of these policy reforms is to achieve stability and growth of the real economy, without losing sight of the goal of achieving justice and equity among members of the society.

Fiscal policy under alternative monetary policy regimes

In the particular policy framework of a monetary union, the management of fiscal policy becomes an issue of special relevance, because the fiscal discipline imposed by the monetary agreements could limit the scope of stabilization fiscal policies, and its implications on economic growth. In this paper we will review the theoretical implications of fiscal policy in open economies. But we will pay special attention to the particular case of monetary unions, in order to show the relevance of the macroeconomic model behind economic policy decisions.

Econometric Policy Evaluation in a Two Sector Model

This paper estimates a New-Keynesian structural model and evaluates alternative monetary policy regimes. An estimated two sector model and alternative policy regimes are used to calculate the optimal monetary policy frontier. The structural model that consists of two sectors: durable and nondurable, is estimated by the Full Information Maximum Likelihood (FIML) method. Given the structure of the economy and discretionary monetary policy regimes, we find that changes in monetary policy responses to aggregate or disaggregate inflation and output gap can imply substantial differences in long-run inflation and output variances. More importantly, this paper shows that in terms of monetary policy frontier, monetary policy could have been more effective if the central bank had focused on sectoral stabilization as opposed to traditional stabilization.

Exchange Rate and Current Account Dynamics with Habits over Consumption and Money Holdings

Incorporating two independent habits over consumption and money holdings into a small country model, we examine the adjustment dynamics of the current account and the exchange rate to expansionary monetary and fiscal shocks under two alternative policy regimes: (1) the endogenous income transfer regime; and (2) the endogenous fiscal spending regime. In response to the shocks under regime (1), the exchange rate depreciates on impact and in the long run whereas it appreciates (depreciates) in transition if preferences for real money balances exhibit distant (adjacent) complementarity. Under regime (2), the consumption habits and the monetary habits jointly generate possibly non-monotonic current account dynamics. An induced increase in fiscal spending in regime (2) can generate a current account surplus in the case where the monetary habits exhibit strong distant complementarity.

Prostitutes, Pimps, and Brothels: Intermediaries, Information, and Market Structure in Prostitution Markets

Prostitution is a multi‐billion dollar, globally distributed, low‐concentration service industry that is receiving increasing attention in the economics literature. This article focuses on a widespread, but little studied, feature of this environment—the role of intermediaries (pimps or brothel owners) on market outcomes. Prostitution laws and markets are perhaps unique in that transactions between principals (prostitutes and johns) are legal in many countries, while intermediary activity (pimping) is illegal. After surveying the varying cross‐country legality of agents we develop a simple theoretical model to analyze how the presence or absence of intermediaries shifts the distribution of market surplus. We show that eliminating pimps and brothels may shift surplus in non‐obvious ways, depending on the precise function they perform and on whether equilibrium is pooling or separating across “high quality” and “low quality” market segments. The implications of alternative policy regimes (intermediaries legal or illegal) are considered.

Alfred Marshall and the Quantity Theory of Money

Marshall made at least four contributions to the classical quantity theory. He endowed it with his Cambridge cash-balance money-supply-and-demand framework to explain how the nominal money supply relative to real money demand determines the price level. He combined it with the assumption of purchasing power parity to explain (i) the international distribution of world money under metallic standards and fixed exchange rates, and (ii) exchange rate determination under floating rates and inconvertible paper currencies. He paired it with the idea of money wage and/or interest rate stickiness in the face of price level changes to explain how money-stock fluctuations produce corresponding business-cycle oscillations in output and employment. He applied it to alternative policy regimes and monetary standards to determine their respective capabilities of delivering price-level and macroeconomic stability. In his hands the theory proved to be a powerful and flexible analytical tool.

Optimal monetary policy in a small open economy with inflation and output persistence

We study optimal monetary policy for a small open economy in a model where both inflation and output show persistence. We incorporate habit formation into intertemporal consumption decision and modify the Calvo price setting to include indexation to past inflation. The message conveyed from this study can be viewed as twofold. First, full stabilization of domestic prices or the output gap is not optimal policy. This is because stabilization of the output gap leads to serial correlation in domestic inflation, whereas under full stabilization of domestic prices the output gap displays some serial correlation. It is, however, shown that at the zero inflation steady state, stabilizing domestic prices is equivalent to stabilizing the output gap. Second, in the presence of foreign income shock inflation and the output gap are more stable under flexible CPI inflation targeting than under other alternative policy regimes considered.

You Can't Drag Them Away: An Economic Analysis of the Wild Horse and Burro Program

Since 1971 wild horses and burros living on federal land have been legally protected. This protection restricts the removal of horses from the range and stipulates restrictive conditions under which removed horses can be transferred to private ownership. The Bureau of Land Management periodically gathers some of these horses to prevent overpopulation on the range. An empirical analysis of BLM gathers finds political as well as biological influences on the probability and size of gathers. Once these horses are removed from the range, BLM tries to place them in private hands. However, the low quality of some wild horses and contractual restrictions prevent many of the animals from being transferred. As a result, BLM incurs substantial costs to feed these animals for the rest of their lives. An empirical analysis of the demand for wild horses decomposes the probability of disposal and the price received for the horses. These results permit analysis of alternative policy regimes that promote disposal of additional animals and lower program costs.

The dynamics of inflation: a study of a large number of countries

Over the last twenty years the statistical properties of inflation persistence has been the subject of intense investigation and debate without reaching a unanimous conclusion yet. In this article we attempt to shed further light to this debate using a battery of econometric techniques in order to provide robust evidence on the degree of inflation persistence and whether this has changed during the period in which several countries have followed inflation-targeting regimes or new monetary regimes. We consider the inflation rates of thirty developed and emerging economies using quarterly data for the period 1958 to 2007 which include alternative monetary policy regimes. The coefficient of the inflation parameter is estimated by Ordinary Least Squares (OLS), Autoregressive Moving Average (ARMA) and Autoregressive Fractionally Integrated Moving Average (ARFIMA) models. Furthermore, the grid-bootstrap Median Unbiased (MUB) estimator approach developed by Hansen (1999) is used to estimate the finite sample OLS estimates coupled with the 95% symmetric confidence interval. We also examine parameter stability of persistence coefficients by estimating a model with time-varying parameters.