Coordination, cooperation, contagion and currency crises

Article Abstract:

We present a micro-founded model where governments have an incentive to devalue to increase the national market share in a monopolistically competitive sector. Currency crises generated by self-fulfilling expectations are possible because workers demand high wages when they expect a devaluation. This decreases the competitiveness and profits of national firms and induces the government to devaluate. We show that the more important trade competition, the more likely self-fulfilling speculative crises and the larger the set of multiple equilibra. Coordination decrease the possibility of simultaneous self-fulfilling speculative crises in the region and reduces the set of multiple equilibra. However, regional coordination, even though welfare improving, makes countries more dependent on other countries' fundamentals so that it may induce more contagion. [C] 2001 Elsevier Science B.V. All rights reserved. Keywords: Contagion; Coordination; Cooperation; Fixed exchange rates; Exchange rate crisis; Trade competition JEL classification: F42; F41; F33

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Tariff jumping foreign investment and capital taxation

Article Abstract:

This paper reconsiders the welfare effects of `tariff jumping' direct investment if mobile capital is subjected to taxation. In contrast to the conventional wisdom, the receiving country may in this case gain from the incremental inflow of capital, as this diverts tax revenues from the rest of the world. In the case of perfect capital mobility, this possibility becomes a certainty. Our argument provides one rationale for a small country to levy a distorting tariff in a second best world in which capital taxes already exist. [C] 2001 Elsevier Science B.V. All rights reserved. Keywords: Capital taxation; Tariff jumping; Foreign direct investment JEL classification: F11; F13; F21; H20

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The morning after: explaining the slowdown in Japanese growth in the 1990s

Article Abstract:

This paper uses a VAR to investigate four possible of the extended slump in Japanese economic activity over the 1990s: the absence of bold and consistent fiscal stimulus; the limited room for expansionary monetary policy due to a liquidity trap; overinvestment and debt overhang; and disruption of financial intermediation. The results indicate that all of these factors played a role, but the major explanation is disruption in financial intermediation, largely operating through the impact of changes in domestic asset prices on bank lending. [C] 2001 Elsevier Science B.V. All rights reserved. Keywords: Economic slump; Financial intermediation JEL classification: E32; E44

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