Showing papers in "The Scandinavian Journal of Economics in 1976"
TL;DR: In this paper, the role of expectations in exchange rate determination and a direct observable measure of expectations is proposed, based on the information that is contained in data from the forward market for foreign exchange.
Abstract: This paper deals with the determinants of the exchange rate and develops a monetary view (or more generally, an asset view) of exchange rate determination. The first part traces some of the doctrinal origins of approaches to the analysis of equilibrium exchange rates. The second part examines some of the empirical hypotheses of the monetary approach as well as some features of the efficiency of the foreign exchange markets. Special emphasis is given to the role of expectations in exchange rate determination and a direct observable measure of expectations is proposed. The direct measure of expectations builds on the information that is contained in data from the forward market for foreign exchange. The empirical results are shown to be consistent with the hypotheses of the monetary approach.
1,281 citations
TL;DR: In this paper, the authors consider the extension of the fundamental principles of the monetary approach to balance of payments analysis to a regime of floating exchange rates, with active intervention by the authorities to control rate movements.
Abstract: This paper considers the extension of the fundamental principles of the monetary approach to balance of payments analysis to a regime of floating exchange rates, with active intervention by the authorities to control rate movements It makes four main points First, the exchange rate is the relative price of different national monies, rather than national outputs, and is determined primarily by the demands and supplies of stocks of different national monies Second, exchange rates are strongly influenced by asset holder’s expectations of future exchange rates and these expectations are influenced by beliefs concerning the future course of monetary policy Third, “real” factors, as well as monetary factors, are important in determining the behavior of exchange rates Fourth, the problems of policy conflict which exist under a system of fixed rates are reduced, but not eliminated, under a regime of controlled floating A brief appendix develops some of the implications of “rational expectations” for the theory of exchange rates
611 citations
TL;DR: The authors analyzes the role of momentary asset equilibrium and expectations in the determination of the exchange rate in the short run and the process of asset accumulation in determining the time path from momentary to long run equilibrium.
Abstract: This paper analyzes, by way of a dynamic model, the role of momentary asset equilibrium and expectations in the determination of the exchange rate in the short run, and the role of the process of asset accumulation in the determination of the time path from momentary to long-run equilibrium.
482 citations
TL;DR: The authors develops three perspectives on the determination of exchange rates and their interaction with macroeconomic equilibrium and aggregate policies, and concludes with an analysis of dual exchange rate systems as a stabilizing policy in the presence of speculative disturbances.
Abstract: This paper develops three perspectives on the determination of exchange rates and their interaction with macroeconomic equilibrium and aggregate policies. A long- run view characterizes exchange rate determination in terms of monetary and real factors where the real aspects include an explicit consideration of relative price structures. A short-run or “liquidity” view of the exchange rate emphasizes the role of asset market equilibrium and expectations. A policy view, finally, analyses the effectiveness of aggregate policies and points out that in the short-run nominal disturbances will tend to be transmitted internationally. The paper concludes with an analysis of dual exchange rate systems as a stabilizing policy in the presence of speculative disturbances.
269 citations
TL;DR: This article examined whether there is a trade-off between the degree of flexibility in exchange rates and the extent of reserve use and showed that there need not necessarily be a tradeoff between exchange-rate flexibility and reserve use.
Abstract: This paper examines whether, as has usually been assumed, there is a trade-off between the degree of flexibility in exchange rates and the extent of reserve use. The first section of the paper constructs a measure of reserve use in order to examine changes in the extent of reserve use since the advent of generalized floating. It is found that reserve use initially tended to increase following the move to floating, and that, despite some subsequent decline, it has remained substantial. The second section constructs and partially solves a formal model designed to illuminate the determinants of reserve use. It is shown that there need not necessarily be a trade-off between exchange-rate flexibility and the extent of reserve use.
40 citations
TL;DR: In this paper, it is argued that the skew in the cumulative distributions can also be explained by structural heterogeneity in the target population, but also by dynamic heterogeneity when the population changes as the process goes on, or by changing stimulus effects.
Abstract: Lekvall & Wahlbin (1973) have suggested that the right-hand skew often observed in growth and diffusion curves can be assumed to be the overt outcome of a combined exponential and logistic process. In this article it is argued that the skew in the cumulative distributions can also be accounted for not only by structural heterogeneity in the target population, but also by dynamic heterogeneity when the population changes as the process goes on, or by changing stimulus effects. Two simple models-one modifying the logistic and the other modifying the exponential function-are introduced. They can account not only for right-hand but also for left-hand skew, and have the logistic and exponential functions, respectively, as special cases. Since both of the models can give rise to S-shaped and J-shaped curves, it is argued that the shape of the growth curve in itself provides little information about the underlying process. The models can be combined, after which they yield a Riccati equation. The first model is illustrated by the spread of TV ownership in Norway.
33 citations
TL;DR: In this paper, the impact of floating exchange rates on international trade and investment by comparing the costs and risks encountered by traders under floating rates with those under pegged rates is discussed. But the authors do not consider price risk, which involves variations in the domestic price of tradeables as a result of changes in exchange rates.
Abstract: This article seeks to answer the question about the impact of floating exchange rates on international trade and investment by comparing the costs and risks encountered by traders under floating rates with those under pegged rates. Data indicate that transactions costs are five to ten times higher under floating rates, with the larger increases associated with the more volatile currencies. Exchange risk is measured under the two exchange rate systems by comparing the mean forecast errors between the forward rate and the spot rate at the maturity of the forward contracts and the standard deviations of these forecast errors; both mean and standard deviation have increased by a factor of five to ten. Finally price risk, which involves variations in the domestic price of tradeables as a result of changes in exchange rates, is shown to be substantially higher under the floating rate system.
31 citations
TL;DR: In this paper, it is shown that theoretically both are possible, but that changes in the money supply probably predominate, and that this conclusion seems to be consistent with the empirical evidence.
Abstract: Flexible exchange rates in earlier periods have usually meant that one or more countries left a metallic standard for some time. Three episodes dominate the historical material in this article: Sweden in the 18th century, England in the early 19th century and the period during and immediately after World War I. In all three cases there was a serious economic debate about the causes of the fluctuations in exchange rates. Two main views on this issue can be distinguished. One is that the fluctuations were caused by exogenous shifts in different items of the balance of payments. The other view attributes this role to the money supply. It is shown that theoretically both are possible, but that changes in the money supply probably predominate. This conclusion seems to be consistent with the empirical evidence.
30 citations
TL;DR: In this paper, the authors investigated the phenomenon of short-run labor migration in Western Europe, where guest workers represent a situation where the foreign worker is expected to reside in the host country for a relatively brief time period, and remit his earnings minus a small maintenance allowance to the country of his permanent residence.
Abstract: This paper is concerned with the phenomenon of guest workers in Western Europe. Recently, guest workers have come to play an important role in Western European labor markets, with such Northern countries as Switzerland, West Germany and The Netherlands importing workers from such Southern countries as Portugal, Turkey and the Mezzogiorno region of Italy. As the name implies, guest workers represent a situation where the foreign worker is expected to reside in the host country for a relatively brief time period, and remit his earnings minus a small maintenance allowance to the country of his permanent residence. The phenomenon under investigation therefore is one of short-run labor migration.
24 citations
TL;DR: In this paper, the authors identify several respects in which analysis of the macroeconomics of small open economies has to be modified beyond its development a decade ago, with special reference to the effectiveness of monetary and fiscal policies under alternative exchange rate regimes.
Abstract: This paper identifies several respects in which analysis of the macro-economics of small open economies has to be modified beyond its development a decade ago, with special reference to the effectiveness of monetary and fiscal policies under alternative exchange rate regimes. Capital movements must be viewed in the context of portfolio equilibrium rather than as continuous flows. Room must be made in monetarist formulations for holdings of foreign money. The impact of changes in exchange rates on nominal factor prices should be taken into account. And the effect of the exchange rate regime on the magnitude of the stabilization task must figure in any evaluation of alternative exchange rate regimes. Suggestions are made along each of these lines.
22 citations
TL;DR: In this article, the authors present a theoretical analysis of the performance of stabilization policy under alternative exchange rate regimes, as formulated inter alia by Marcus Fleming and Robert Mundell, as well as theoretical suggestions concerning the performance under alternative rate regimes.
Abstract: It is the fate of social scientists to shoot at moving targets. At about the time when macro economists started to understand the operations of a world economy with fixed exchange rates, or adjustable pegs, the system was replaced with a regime with considerable exchange rate flexibility, occasionally even floating rates. As a consequence, prevailing “embryos” to a theory of the balance of payments for a regime of flexible rates—as formulated by Milton Friedman, James Meade, Egon Sohmen and others—were suddenly put into empirical test and found to be in need of some modification. The same can be said about theoretical suggestions concerning the performance of stabilization policy under alternative exchange rate regimes, as formulated inter alia by Marcus Fleming and Robert Mundell.
TL;DR: In this article, the authors examined the relationship between the money stock and the price level in Sweden during the period 1732-1972, using a quantity theory framework, using time series on money and prices which have previously not been used for an investigation of this kind.
Abstract: This article examines the relationship between the money stock and the price level in Sweden during the period 1732-1972, using a quantity theory framework. Consistent time series on money and prices are constructed which have previously not been used for an investigation of this kind. In spite of a strong quantity theory tradition in Swedish monetary development, little empirical work has been purstied adopting a quantity theory approach.' The article contains (1) a concise review of Swedish monetary history, (2) an investigation of the secular growth patterns in money and prices for periods selected on the basis of monetary arrangements, years of secular inflations and deflations and years of war activity, (3) a study of the long-run and short-run relationships between money and prices using regression and correlogram techniques and (4) a look at the line of causation between the money stock and the price level. Throughout the article a collection of data on money and prices is used that is unique in terms of the length of time covered and in its consistency. As far as we know, similar series are not available for any other country for this length of time and of this quality.2 1. Framework of the Study The modern quantity theory of money constitutes the framework for this article. In expression (1) the quantity equation is given in its income version, where M denotes the money stock, V the velocity, P the price level and y national income expressed in constant prices ("real income"). Stating (1) in terms of growth rates, expression (2) is obtained where A represents percentage changes:
TL;DR: In this article, the authors derived from price-theoretical considerations with respect to the price formation of tradeable goods in the world goods market and it is independent of any explanation of inflation, whether it is Keynesian or monetarist, of a sociological or of any other type.
Abstract: Under a system of fixed exchange rates the phenomenon of inflation is a world phenomenon. This statement is derived from price-theoretical considerations with respect to the price formation of tradeable goods in the world goods market and it is independent of any explanation of inflation, whether it is Keynesian or monetarist, of a sociological or of any other type.
TL;DR: In this paper, a general equilibrium system where countries trade their surpluses and deficits is proposed, and inflation rates are then determined in a general equilibria system, where countries can trade off the costs of accommodating borrowing or lending against the benefits from getting closer to their desired inflation rates; inflation-prone countries are distinguished from inflation-shy countries.
Abstract: Is a regime of fixed or of flexible rates more conducive to inflation? In a flexible rate regime the authorities of each country can choose whatever rate of inflation they wish In the fixed rate system countries can depart from the world rate of inflation by running payments imbalances and will trade-off the costs of accommodating borrowing or lending against the benefits from getting closer to their desired inflation rates; inflation rates are then determined in a general equilibrium system where countries “trade” their surpluses and deficits “Inflation-prone” countries are distinguished from the “inflation-shy” Account is also taken of the special case of the reserve currency country
TL;DR: In this paper, the implications of Rawls''maxi-min' welfare criterion for intergenerational justice are explored for a simple model in which each generation cares about its own and the next generation's level of consumption.
Abstract: The implications of Rawls' 'maxi-min' welfare criterion for intergenerational justice are explored for a simple model in which each generation cares about its own and the next generation's level of consumption. In contrast with the conclusion drawn by Arrow from his narrower formulation of the problem, it is shown that the Rawlsian criterion need not preclude long run capital accumulation. The general forms of the optimal consumption, capital and utility streams are also derived undcr alternative assumptions about the psychic trade-off between own consumption and consumption of one's immediate descendents.
TL;DR: Lecture to the memory of Alfred Nobel, December 11, 1975(This abstract was borrowed from another version of this item) as mentioned in this paper. But this abstract is paraphrases of the lecture.
Abstract: Lecture to the memory of Alfred Nobel, December 11, 1975(This abstract was borrowed from another version of this item)(This abstract was borrowed from another version of this item)
TL;DR: In this paper, the authors combine the perspectives of economics and organization theory in a simple propositional framework to study acquisition and joint venture behavior of Swedish firms and conclude that industry concentration and financial strength are important determinants of both acquisition and JV behavior while differences in corporate goals and the characteristics of the other party in the relationship.
Abstract: Acquisitions and joint ventures can be seen as alternative ways to implement a change in a firm's strategic position. In this article we combine the perspectives of economics and organization theory in a simple propositional framework to study acquisition and joint venture behavior of Swedish firms. The hypotheses are confronted with empirical data from 24 sectors of the manufacturing industry. It is concluded that industry concentration and financial strength are important determinants of both acquisition and joint venture behavior while differences in corporate goals and the characteristics of the other party in the relationship
TL;DR: In this article, the authors discuss another example of inter-temporal price discrimination, one which differs from Ldfgren's in several respects but which is in the same spirit: "Prices... vary temporally... due to the fact that the firm deliberately exploits the different demand elasticities of various buyer groups."
Abstract: In a recent article in this Journal, K. G. L6fgren [1] has developed the theory of intertemporal price discrimination, using the example of a book publisher who sells a high-priced hard-cover edition initially and then later introduces a low-priced paperback edition. The price difference is greater than that justified by cost considerations and is based on the different demand elasticities between the hardcover market (well-to-do and/or eager) and the paperback market. Ldfgren analyzes the managerial problems, in a profit maximizing model, of when to introduce the paperback edition, and the prices and quantities-sold of the two editions. We would like to discuss another example of intertemporal price discrimination, one which differs from Ldfgren's in several respects but which is in the same spirit: "Prices ... vary temporally ... due to the fact that the firm deliberately exploits the different demand elasticities of various buyer groups ..." Our example is an important phenomenon in American retailing, the shortterm sale. This is the practice by which large retailers temporarily reduce prices on certain products for just a short period of time (one day or one week), with great advertising fanfare but virtually no advance notice. Such temporary price reductions are different from other types of sales such as bait-and-switch sales,2 loss-leader sales,3 "sales" on slow-moving items which (in hindsight) have been overpriced, and stock-clearance sales on end-of-season or discontinued items. They also differ from other cases of inter-temporal price differences, such as for vacation resorts and air travel; these other cases,
TL;DR: In this paper, a typical expected-utility-maximizing individual who is confronted with a Bohm-type referendum on a public project is shown that the bias will depend on the person's sense of his own influence on the decision at hand.
Abstract: In the Swedish Journal of Economics (March 1971, pp. 55-66), Peter Bohm proposes a "counter-strategic" method for estimating demand for public goods. Making the method of payment completely uncertain, he claims, would remove incentives to misrepresent preferences. In a referendum such as he suggests, the individuals would then accurately report their maximum willingnesses to pay for the project in question, and the sum of their responses could be compared with the project's cost to determine whether to provide the good. Unfortunately, this method does not eliminate incentives to misstate preferences, even when the payment methods are so uncertain as to be considered equally probable. The following example will show that, in general, incentives to overstate and to understate preferences will not cancel out, and the bias will depend on the person's sense of his own influence on the decision at hand. Consider a typical expected-utility-maximizing individual who is confronted with a Bohm-type referendum on a public project. Suppose the project is worth an amount V to him. Let him consider three alternative strategies:
TL;DR: In this paper, the authors presented calculations of the cost of capital of Swedish manufacturing firms with different patterns of capacity depreciations, with adjustments due to tax laws, and concluded that the firm has two sources of finance, the stock market and the credit market.
Abstract: Capital cost with regard to tax rules is derived for a firm maximizing stockholders' wealth. The firm has two sources of finance, the stock market and the credit market. Therefore the cost of equity and the cost of debt, with adjustments due to tax laws, are bases for the cost of capital. The paper ends by presenting calculations of the cost of capital of Swedish manufacturing firms with different patterns of capacity depreciations.
TL;DR: In this article, the long-run demand for money function in Finland has been investigated and it was shown that the demand for broad money is closely related to permanent income, whereas for narrow money a significant negative coefficient appears only in the postwar period and even then, the absolute value of elasticity is very small.
Abstract: This paper reports on estimation results concerning the long-run demand for money function in Finland. According to the results, the demand for broad money is closely related to permanent income. For narrow money, the relevant scale variable is the volume of transactions measured by current real income. The expected rate of change in prices exercises a strong influence on the demand for broad money, both in the interwar and the postwar periods; whereas for narrow money a significant negative coefficient appears only in the postwar period and even then, the absolute value of elasticity is very small.
TL;DR: In the late 1950's, there was a revival of economics as a science in the USSR, particularly related to the fact that mathematical and statistical methods and modern computational techniques came into use on a much larger scale than before as discussed by the authors.
Abstract: The 1920's constitute a very interesting period in Soviet economics. Constructive and original scientific work was carried out in many fields of economics, perhaps particularly in the field now called development economics. Some parts of this literature have gained new actuality in recent decades and have experienced a revival of interest. In this early period in Soviet economics there were also some attempts to use mathematical methods in connection with both research and economic planning, methods which were relatively advanced as compared with the general state of economics at that time. Feldman's work on a model for perspective planning has become famous, and there are works by Slutsky, Konlis and perhaps a few others which are known to specialists. However, there are probably many other works from this period which deserve to be brought to light again. The period from around 1930 through most of the 1950's was, apart from some scattered cases, a less interesting period from the point of view of economic science. Beginning in the late 1950's, however, there was a revival of economics as a science in the USSR, particularly related to the fact that mathematical and statistical methods and modern computational techniques came into use on a much larger scale than before. In this new wave, some of the activities were of course absorbed by attempts to recover what had been neglected or lost in the preceding decades, and it can hardly be denied that some rather uncritical and immature works appeared during this period. This is unavoidable in such a surge. There is no doubt, however, that a great advance took place from a scientific point of view, and that works appeared which are valuable and scientifically original as compared with the development of economics in other countries.
TL;DR: In this article, a socio-economic diffusion model for new consumer durables, defined as product classes, is presented, where social structure, interpersonal communication, word-of-mouth generation, prices and incomes are explicitly taken into account by the diffusion mechanism.
Abstract: A socio-economic diffusion model for new consumer durables, defined as product classes, is presented in this paper. Social structure, interpersonal communication, word-of-mouth generation, prices and incomes are explicitly taken into account by the diffusion mechanism. The model can be used to forecast the ownership of new consumer durables.
TL;DR: In this article, the authors investigated the trade-off between flexibility of exchange rates and the degree of intervention by authorities in exchange markets and measured the use of official reserves before and after floating, and the tradeoff between variance in the exchange rate and variance of intervention in a stochastic theoretical model of the exchange market.
Abstract: John Williamson’s paper investigates the trade-off between flexibility of exchange rates and the degree of intervention by authorities in exchange markets. The first part of the paper tries to measure the degree of use of official reserves before and after floating. The second part looks at the trade-off between variance in the exchange rate and variance of intervention in a stochastic theoretical model of the exchange market.
TL;DR: In this paper, the authors explore the performance of several methods of estimation when using combined cross-section time series data on dynamic partial adjustment labor demand relations and demonstrate that it is very difficult to obtain simultaneously reasonable estimates on the (Cobb-Douglas) production function parameters and the parameter expressing the speed of adjustment of actual to optimal employment.
Abstract: In this article we explore the performance of several methods of estimation when using combined cross section time series data on dynamic partial adjustment labor demand relations. We demonstrate that it is very difficult to obtain simultaneously reasonable estimates on the (Cobb-Douglas) production function parameters and the parameter expressing the speed of adjustment of actual to optimal employment. The ordinary least squares method provides the more reasonable estimates of the production function parameters, while the estimate of the adjustment parameter is highly distorted due to a particular type of serial correlation of the residual error. Other methods, which take the serial correlation into account, provide reasonable results for the adjustment parameter but worthless results for the production function parameters. The reason for this is likely to be a lack of robustness towards certain types of measurement errors.
TL;DR: In this paper, the authors studied the situation where the tax burden and the relative size of the public sector are stabilized on a constant level and discussed the resource distribution and production function properties of such a case.
Abstract: This article is aimed at studying the situation where the tax burden and the relative size of the public sector are stabilized on a constant level and at discussing the resource distribution and production function properties of such a case. The analysis is carried out within the framework of a neoclassical growth model. The golden age equilibrium solution is dealt with in particular, as the golden age framework seems more appropriate to the present problem than to most other problems.