The desirable exchange rate regime for a country might depend on the regimes of the other countries. Taking this point into consideration, this paper shows the conditions for relative superiority of the alternative exchange rate arrangements using a quasi three countries model of Mundell-Fleming type. These conditons include the new one for optimum currency areas. The compared alternatives consist of such arrangements as independent floats, solitary pegs, common pegs, and common floats. As the criterion of comparison, this paper adopts the analysis of Poole (1970) which has measured the variability of GNP in response to both real and monetary shocks.
This paper examines the possibility of the collapse of the nominal dollar accompanying the U.S.external adjustment. Based on a sticky-price dynamic general equilibrium two-country model, we show that due to the recent decline in the exchange rate pass-through to import prices, the dollar need not depreciate to a large extent. Only when the intratemporal substitutability between U.S. and foreign goods is sufficiently larger than unity and the intertemporal substitutability of consumption is sufficiently near unity, will a sharp depreciation occur with a shrinking of the U.S. external deficit. However, when the intratemporal substitutability is only slightly larger than unity and the intertemporal substitutability is sufficiently near zero, the U.S. external adjustment can occur with a moderate depreciation of the nominal dollar. Both the existing empirical results about these parameters and the recent movements of the U.S. current account and the dollar suggest that we cannot reject the latter scenario.
This paper investigates the effect of politics on the implementation of trade liberalization. We present a simple model to show the relationship between political economy factors and the determination of tariff cut rates in a trade liberalization process, and empirically examine whether the political economy factors played a key role in the Uruguay Round agricultural tariff reductions in Japan. Our empirical analysis shows that the farmers who could bring stronger political pressure to politicians resisted the tariff reductions more successfully and received greater protection than those who could not.
In this paper, we take an unemployment allowance into account in the Harris-Todaro model with an endogenous urban wage determined by a negotiation between a trade union and a firm. In the standard Harris-Todaro model, no unemployment allowance can yield a first-best optimum. However, we show in our model that a first-best competitive allocation of resources can be attained by the appropriate allowance.