Showing papers on "Purchasing power published in 1993"

The Economics of Life and Death

Abstract: National economic performance can reflect the health of the nation and the well-being of its citizens. National economics should encompass the economics and life and death. Mortality statistics or other health measures such as famines reduced life expectancies and higher female mortality can be used to gauge the economic health economic deprivation of a country. Analysis of mortality data can be useful in economic evaluations of social arrangements and public policy. Economic explanations of famine may be inadequately based on measures of food production and availability or income and purchasing power. A more complete understanding of famine is possible through analysis of the acquisition and distribution of food and the entitlement within different groups within society. Policy should be directed to the economic processes that affect a groups ability to procure food. The Bangladesh famine in 1974 could not have been predicted on the basis of food supply per capita because this measure was high in 1974. It was the floods and their destructive impact on rice production that left workers without the means to secure food. Panic led to hoarding which drove the prices up. US aid was delayed over political posturing. A similar example is given for the famine in Bengal in 1943 when the purchasing power of rural laborers real wages declined. The Ethiopian famine in 1973 was the result of a drought in Wollo province which did not substantially reduce national food production. Prevention of famine is possible by growing more food providing incentives to increase investment in agriculture diversification of production expansion of manufacturing investment in health care and education and increasing the purchasing power of the most famine-affected groups. Public employment programs could be directed to famine-affected groups as occurred in Maharashtra during the droughts of 1972-73. India after independence has been successful thus far in averting famine through this means. The approach relies in part on the market but also on politics. Chinas lack of political will allow their famine to continue for 3 years. Conflicts and wars affect famines. Famines can be averted only through luck in a dictatorship. A democracy more effectively guarantees attention to famine prevention. Famine reflects the failure in some economic and political structures.

"Second Generation" MNCs in China

Abstract: A survey of MNCs successfully committed to China shows that they have progressed far beyond the cautious experimental stage As the senior managers of many North American, European, and Asian MNCs realize that the forces working to open up China's economy have become irreversible, they are hastening to expand the scale, scope, and structure of their involvements. To understand these changes in more detail, McKinsey recently carried out a survey of MNCs that have a significant presence in China that are regarded by their peers as "doing China extremely well." These companies -- both industrial- and consumer-focused -- are not in China just to take temporary advantage of its low labor costs before hopscotching to another country when faster development inexorably drives those costs up. They are there for the long haul, have already figured out how to make profits and sustain them over time, and are working hard to lock out slower-moving competitors. In particular, they are focusing on managing local partners, keeping their business systems as simple as possible, and laying the organizational foundations for a China-wide presence. CHINA IS -- and will long remain -- a difficult and uncertain operating environment for MNCs. No economic sage, and certainly no responsible observer of the political scene, would disagree. But the long-term economic opportunities China offers are so remarkable that senior managers will find it prudent to pay attention to what the most active companies have been doing -- and learning. In fact, thanks to such learning, many of these pioneers are now moving, purposefully and aggressively, into a distinct second generation of involvement in China. Recent economic developments are, indeed, extraordinary.(*) In the urban locations where much of the country's growth is centered -- Shanghai and Guangzhou, for example -- consumer demand for a wide range of big-ticket items shows the continuing effects of soaring purchasing power. For more and more Chinese consumers, the issue is no longer whether they are able to afford, say, a $2 bottle of branded shampoo. They have already established themselves as purchasers of goods that require substantial savings and discretionary income. The changes afoot, however, are not confined to the resources or aspirations of local consumers. Over the past few years, Chinese government officials at all levels have clearly signaled their intention of leading the country toward a market-oriented economy far more open than before to the rest of the world. This is not mere rhetoric: * Price controls on 90 percent of consumer products have been lifted. * Centralized, volume-based planning for manufactured goods now applies to less than 20 percent of industrial output, compared with 95 percent in 1979. * Vice-Premier Zhu Rongji's much-publicized 16-point plan has genuinely begun to curb official corruption, excessive speculation in real estate, and unwarranted expansion of the money supply through uneconomic loans made by state banks. Current estimates are that 60 percent of these loans have been retrieved. * Efforts to undo the "iron rice bowl" working conditions for employees of state-owned enterprises have begun to pay off. Today, many workers operate under explicit labor contracts that -- at least in theory -- allow them to be transferred or even fired. Moreover, their salaries have largely been severed from the traditional accompanying package of housing, educational, and medical benefits. Companies are being encouraged to buy these benefits from competing service providers in the open market. * Industry sectors that had long been closed, de jure or de facto, to extensive foreign participation -- banking, insurance, retailing, petroleum refining, and infrastructure development among them -- are now beginning to open up. Hopewell Holdings, for example, has joined forces with Guangdong Provincial Highway Company to build and operate a US$1. …

Irving Fisher and His Compensated Dollar Plan

Abstract: This is a story that illustrates the interrelationship between economic history and economic thought: more precisely, between monetary history and monetary thought. So let me begin with a very brief discussion of the relevant history. In 1879, the United States returned to the gold standard from which it had departed at the time of the Civil War. This took place in a period in which "a combination of events, including a slowing of the rate of increase of the world's stock of gold, the adoption of the gold standard by a widening circle of countries, and a rapid increase in aggregate economic output, produced a secular decline...in the world price level measured in gold...." (Friedman and Schwartz 1963, p. 91; for further details, see Friedman 1990, and Laidler 1991, pp. 49-50). The specific situation thus generated in the United States was described by Irving Fisher(1-913c, p. 27) in the following words: "For a quarter of a century--from 1873 to 1896--the dollar increased in purchasing power and caused a prolonged depression of trade, culminating in the political upheaval which led to the free silver campaign of 1896, when the remedy proposed was worse than the disease." This was, of course, the campaign which climaxed with William J. Bryan's famous "cross of gold" speech in the presidential election of 1896. Fisher's view of this campaign reflected the fact that it called for the unlimited coinage of silver at a mint price far higher than its market value, a policy that would have led to a tremendous increase in the quantity of money and the consequent generation of strong inflationary pressures. Though Bryan was defeated in the subsequent election, his objective was nevertheless accomplished by the unprecedented increase in the output of gold that began in the 1890s as a result of the discovery of new gold deposits in South Africa and Alaska, as well as the development of more efficient processes for the extraction of gold from the ore. Thus the world output of gold in 1899 was nearly three times the average annual output during the 1880s, and in 1905 it was nearly four times as large (Wright 1941, pp. 825-26). As a result, the U.S. price level increased from 1896 to 1913 by almost 50 percent--a fact duly noted and emphasized by Fisher (1913b, p. 217).(1) It was this 40-year experience of serious economic, political, and social problems generated by significant changes in the price level--in either direction-that led Fisher to formulate his compensated dollar plan for stabilizing it. Another important fact is that "guilt by association" with the declared objective of the silver campaign to generate a great increase in the quantity of money and hence in prices had caused the quantity theory itself to fall into disrepute. This situation was clearly reflected in Fisher's statement in the preface to his 1911 Purchasing Power of Money that "it would seem that even the theorems of Euclid would be challenged and doubted if they should be appealed to by one political party as against another....The attempts by promoters of unsound money to make an improper use of the quantity theory--as in the first Bryan campaign--led many sound money men to the utter repudiation of the quantity theory." In fact, that situation was the immediate reason for Fisher's writing the book; namely, that "the quantity theory needs to be reintroduced into general knowledge" (ibid., p. viii). Note finally that when in 1913 Fisher proposed his compensated dollar plan, the Federal Reserve System had not yet come into existence. Though the Act establishing it was approved toward the end of that year, the role that it might play in stabilizing the price level did not become part of general thinking about monetary policy until the 1920s. This delay was due in part to the fact that in the first years of the Federal Reserve System, its policy was more or less dictated by the exigencies of World War I and, in part, to the time that was naturally needed for the System to gain experience in the workings of monetary policy (see Barer 1964, Chap. …

Search, Bargaining, Money and Prices: Recent Results and Policy Implications

Abstract: Recently, the search-theoretic approach to monetary economics has been generalized to incorporate bilateral bargaining theory in order to determine the purchasing power of money endogenously (the first-generation of models in this literature essentially assume that prices are fixed exogenously). The authors review these results. They then use the model to address a variety of issues in monetary economics. The authors analyze the relationships between monetary and real variables, including velocity, output, and welfare. They also discuss several aspects of monetary policy, including the effects of randomness in the money supply process. Copyright 1993 by Ohio State University Press.

The International Comparison of Value Added, Productivity and Purchasing Power Parities in Agriculture

Abstract: This study is part of the ICOP (International Comparison of Output and Productivity) project of the University of Groningen. It presents international comparisons of levels of value added, productivity and purchasing power parities (PPPs) in agriculture for 13 countries for 1975. An early version of this paper was issued in 1984 (Research Memorandum 162 of the Institute of Economic Research, Groningen). In 1985 a slightly revised version was given limited circulation. The present paper contains further revisions, makes an assessment of other studies in this field, confronts our results with those of Prasada Rao (1986 and 1992) and contains suggestions for further research.

Residential Land Price Changes in Mexican Cities and the Affordability of Land for Low-income Groups

Abstract: This research demonstrates that the price of residential land in Mexico declined significantly in real terms during the 1980s. Land prices appear to follow a cyclical trend which tracks Mexico's macro-economic performance. Data derived from advertised plot prices in newspapers, and from a large sample of household interviews conducted in low-income settlements in three intermediate-sized Mexican cities, suggest that, for the poor, real wage levels are the key determinant of changing affordability. The erosion of real wages has led to some decline in affordability, but this has largely been offset by multiple-earning strategies within households through which purchasing power may be maintained.

Economy within an Economy: the Manilla Currency, Exchange Rate Instability and Social Conditions in South-Eastern Nigeria, 1900–48

Abstract: This paper studies the effects of the coexistence of the manilla currency and British currency in south-eastern Nigeria, and the way in which this monetary situation created political tensions which eventually led to the redemption of the manilla. When British control of Southern Nigeria was formalized in 1900 and British currency introduced in the south-east in the following year, the inability of the colonial authorities to put into circulation adequate supplies of British coins, coupled with historically entrenched use of traditional currencies, compelled the colonial state to recognize the latter as legal tender. However, the continuing circulation of these currencies alongside British coins created financial and economic difficulties, causing the colonial state to adopt a number of legislative measures to eradicate them. While other traditional currencies capitulated to these measures, the manilla continued to be popular as a result of objective economic factors, and was strengthened by some of the very instruments designed to eliminate it. Meanwhile, the constantly fluctuating exchange rate of the manilla was generating discontent. These fluctuations were caused primarily by the gyrations of the world market. Improved prices of palm products–the main sources of British currency in the economy of southeastern Nigeria–brought about the appreciation of the manilla. This caused hardship among wage-earners by reducing the exchange value and the purchasing power of their meagre and fixed income which had to be converted to manillas in order to buy food and other locally produced goods and services. Periods of depression, on the other hand, caused manilla depreciation as a result of a diminished inflow of British currency. This reduced the income of peasant producers, while increasing the purchasing power of workers. The ferments generated by fluctuating manilla values have remained, until now, unidentified causal links in the political movements in south-eastern Nigeria, including especially the women's movements of the 1920s. The discontent intensified in the 1940s, when the influx of cash into the Nigerian economy caused by war-time military spending and the post-war commodity boom caused a continuous appreciation of the manilla. This development made life more difficult for workers, whose incomes were already being decimated by inflation. The resulting intensified political tension, as well as the existing obstacles to trade and smooth collection of taxes (also caused by unabating manilla fluctuations), made the demonetization of the manilla through redemption inevitable. With the elimination of the manilla, which had constituted a sub-system within the economic system of colonial Nigeria, the colonial state's economic control of Nigeria can be said to have been completed.

Search, bargaining, money and prices: recent results and policy implications

Abstract: Recently, the search-theoretic approach to monetary economics has been generalized to incorporate bilateral bargaining theory in order to determine the purchasing power of money endogenously (the first-generation of models in this literature essentially assume that prices are fixed exogenously). The authors review these results. They then use the model to address a variety of issues in monetary economics. The authors analyze the relationships between monetary and real variables, including velocity, output, and welfare. They also discuss several aspects of monetary policy, including the effects of randomness in the money supply process. Copyright 1993 by Ohio State University Press.(This abstract was borrowed from another version of this item.)

Cuba and the dilemma of modern agriculture

Abstract: Having lost 73% of its purchasing power and 42% of it gross national product since the fall of the Soviet Union, Cuba faces a crisis with the modern agricultural system it had developed over the past 30 years. The response has been to put an alternative model into practice. The successes and problems associated with this model are discussed.

Central Banking: Then and Now

Abstract: Thank you very much for that kind introduction. It is very nice indeed to be here in the Shenandoah Valley. Like Woodrow Wilson, I'm a native son of Virginia. Unlike him, I can't claim to have begun life in magnificent Valley. But I did have the pleasure of completing my undergraduate studies not too far from here at Washington and Lee. So I feel very much at home here, and I appreciate your invitation to be with you. The theme of this conference is "Facing Economic Issues: Clinton and Wilson." And this is a quite appropriate theme, because there are obvious parallels. President Clinton and the country face pressing economic problems today, many of which have been discussed by previous speakers at this conference. President Wilson also faced substantial economic challenges in his Administrations. One of President Wilson's greatest achievement--which occurred in his first year in office--was his orchestration of the difficult compromise, among a number of powerful and conflicting groups in the country, that culminated in passage of the Federal Reserve Act in December 1913 and the creation of our central bank, including its regional arms, the Federal Reserve Banks, the following year. Against this background, what I would like to do this morning is to tell you a story: an historical story, if I may, which seems appropriate in this setting. It is the story of the Federal Reserve, inflation, deflation and the between the three. Probably everyone here knows that the Fed is supposed to maintain the purchasing power of the American dollar and to prevent inflation. It is also supposed to prevent deflation, which is not much on people's minds today, but was at times in Wilson's day and certainly in the 1930s. Another way of saying this is that the Fed is supposed to keep the aggregate level of prices-not the individual prices of particular goods and services, but the aggregate price level-reasonably stable over time. A stable price level by definition implies the absence of both persistent inflation and persistent deflation. That the Fed is in some sense responsible for stabilizing the price level presupposes some benefit from doing so. As many of you know, there has been far less than complete agreement in the United States, both in the distant past and more recently, on the desirability of price-level stability--particularly the desirability of controlling inflation. Some people, especially those who borrow money regularly, benefit from inflation, at least temporarily and partially. But I think it's fair to say that a majority of Americans value a stable price level and a sound dollar, even if they don't think about it a lot. In general they don't want the frequently high and typically variable inflation rates that have plagued so many other countries in the past and now. Americans sense that stable prices and stable money prevent the arbitrary redistributions of real income and wealth that accompany inflation and weaken societies. They sense also that stable prices and stable money eliminate the confusion, uncertainty, risk and inefficiency that inflation introduces into the nation's free market system. Now while most Americans believe that the Fed is supposed to "fight" inflation and deflation in some general sense, they are also aware that the fight has been an uneven one and by no means fully successful in all periods of our history. On the contrary, the country went through a cataclysmic deflation in the 1930s. Subsequently it went through a substantial inflation in the late 1970s and early 1980s-not as traumatic and damaging as the experience in the '30s, but a very bad time nonetheless. What's the problem? Why hasn't the Fed done a better job? I am going to argue today that one reason-and maybe the main reason-is that the Fed does not now have, and it never has had, a clear congressional mandate to stabilize the price level. Consequently, the Fed's success in stabilizing the price level in at least some periods of its history has been and continues to be a function largely of (1) prevailing general economic conditions, (2) the strength of the Federal Reserve's leaders, and (3) old-fashioned luck. …

Australia and United States manufacturing: A comparison of real output, productivity levels and purchasing power, 1970-1989

Abstract: First of a new series of monographs arising from a major research project (COPPAA) which compares Australia's manufacturing sector and its productivity with that of the United States. Includes explanatory notes and a bibliography. Extensive use of graphs and tables of statistics. [GoogleBooks summary]

The Meaning of Money in the Great Depression

Abstract: The quality of the money stock declined during the banking crises of the early 1930s. Bank deposits did not serve as a secure short- term store of purchasing power for use in an emergency as well as they had previously, and during the periods of restricted deposits in late 1932 and early 1933, bank deposits could not fulfill their basic function of being a medium of exchange. This paper presents some evidence to show that the decline in the quality of the money stock contributed to the severity of the contraction.

Hypothesis Testing with Near-Unit Roots: The Case of Long-Run Purchasing-Power Parity

Abstract: HE HYPOTHESIS THAT the purchasing power of a given currency, like the dollar, will be equal across countries has strong appeal. if the hypothesis is true, then inflation and exchange rate movements will be such that a given currency will, over time, lose equal amounts of its purchasing power in all countries. The sequence of events by which deviations from purchasing-power parity would be eliminated can best be illustrated by example: If the dollar could put-chase more goods in other countries than in the United States, then U.S. consumers would purchase more goods from abroad, which would raise the demand for foreign currencies relative to the dollar and lead to a depreciation of the dollar and eventual equaliza. don of the dollar’s purchasing power across countries. Despite the intuitive appeal of such arguments for long-run purchasing-power parity, statistical tests have been mixed. This paper argues that previous test results have conflicted because tests of purchasing-power parity have relatively low power under both the null hypothesis that it holds, and the null that it fails. Hence this paper contains tests of both null hypotheses and shows that frequently neither is rejected for monthly data from five major industrialized countries. This result serves as a caution against testing only one null hypothesis, finding that the null hypothesis cannot be rejected for a broad set of countries and concluding that there is robust evidence for or against the theory of long-run purchasing-power parity.

The Meaning of Money in the Great Depression

Abstract: The quality of the money stock declined during the banking crises of the early 1930s. Bank deposits did not serve as a secure short- term store of purchasing power for use in an emergency as well as they had previously, and during the periods of restricted deposits in late 1932 and early 1933, bank deposits could not fulfill their basic function of being a medium of exchange. This paper presents some evidence to show that the decline in the quality of the money stock contributed to the severity of the contraction.

On Deficits and Debt

Abstract: ONE MIGHT EXPECT that our ability to survive under the large Federal deficits of the Reagan and Bush administrations would have inoculated us against the fear of Federal deficits. But so far the inoculation has not proved effective. Perhaps we have a psychological need to be obsessed with something, and now that our obsession with communism is gone, the fear of the public debt has regained its old place. Both obsessions have strong political and economic connotations. The former, the fear of communism, helped Nixon and his ilk to win elections; the latter, the fear of deficits, has limited the activities of the Federal government. The lack of public understanding of the difference between Federal and private finance has intensified this fear. It does not seem that this understanding has improved much over the last fifty years.(1) Our old puritanical injunctions against running into debt remain valid when applied to a private person. He or she can disregard them only at his or her peril. A large corporation has more leeway: it can borrow by issuing bonds, and replace them with new ones when they fall due. If many large corporations simultaneously decided to pay off their debts, our economy would collapse: it is based on credit, the inverse side of debt. Still, any corporation, however large, can go bankrupt. Indeed, a few years ago Chrysler and Lockheed had to be rescued by the Federal government, and Eastern Airlines disappeared altogether. Some of our state governments have not fared much better. (Look at California today.) But, the Federal government is in a class by itself: so long as its debt is expressed in dollars (which fortunately is the case), it can always print as many dollars as it needs to pay the interest, though nowadays it would issue bonds, sell them in the market and, if necessary, have the Federal Reserve repurchase them. The Federal government, the creator of the Federal Reserve system, is its own banker. By definition, a budget deficit means that the government spends more money than it receives, or, in other words, that it creates more purchasing power by its expenditures than it destroys through taxes. Is this good or bad? It depends. If the economy is working to capacity, the creation of extra purchasing power will do little good and much harm: it will cause an inflation, which is easy to start and hard to stop. But when the economy has plenty of unused resources, the additional purchasing power is welcome. At such a time, we should rebuild our physical infrastructure, improve our education, health, and environment, and intensify our scientific and industrial research efforts, without raising taxes and without reducing or eliminating other needed services, always keeping a watchful eye on economic barometers to make sure that we do not overdo it. All this sounds nice and easy, perhaps too easy to avoid suspicion. Are we to get something for nothing, as the old saying goes? Is there such a thing as a free lunch, after all? The offer of a free lunch is strictly temporary; it lasts only so long as unused resources, and particularly unemployed labor, are available, because they can be put to use with little, if any, social cost. But once they are gone, government expenditures, however desirable, must be matched with revenue. The early proponents of counter-cyclical fiscal policy believed that budget deficits incurred in depressed years would be balanced with surpluses earned in others. They failed to take into account the political aspects of their plan: every congressman will be more than happy to vote for a tax reduction or for increased appropriations for his favorite projects, but who will defend a tax increase to achieve a surplus? So, we have to face the prospect that the Federal debt will grow with time. Will this growth ruin the economy? First, let us look at some figures. By the end of 1992, the Federal debt had reached an all-time high of some 4.2 trillion dollars, a truly astronomical amount. …

Sources of growth and cyclical stability for Nevada counties: Transfer payments and property income

Abstract: The growing relative number, the improved economic well-being, and the migration of elderly retirees is not only reshaping the social and economic structure of many areas, it is also modifying both long-term and short-run patterns of economic growth. Transfer payments and property incomes, two of the most important source of elderly income, have been among the leading sources of national income growth over the past several decades. Unlike most labor-related industry sources of earnings, the level of transfer payments and property incomes received by the residents of the region is not directly dependent upon local economic activity. Consequently, as transfer payments and property incomes of elderly retirees become increasingly important sources of income and purchasing power within a region, they also can alter regional short-run cyclical patterns of income growth. This article examines the pattern of growth of transfer payments and property incomes in the context of national economic cycles, and explores the implication of those findings on metropolitan and nonmetropolitan Nevada economies.

The (Term) Structure of Interest Rates as a Predictor of Real Economic Growth: An Econometric Analysis for Germany

Abstract: In this article, I investigate interest rate based forecast models for German real economic activity, measured in annual growth rates of real GNP. One might ask why financial variables can be viewed as leading indicators of the business cycle. On financial markets economic agents allocate their consumption intertemporally; thus, the prices on financial markets — interest rates — are regarded as intertemporal prices of purchasing power, which are not only determined by present, but also by (expected) relevant future economic conditions such as the future path of real economic activity. Furthermore, financial markets can react much faster to business cycle relevant information (e.g. from fiscal- or monetary policy) and adjust their prices accordingly, long before the impact is reflected in the business cycle. Therefore, market prices on financial markets are supposed to contain economic agents’ expectations about future economic activity, and hence, if those expectations are systematically correct, can provide a look into the future.

Price Reform and the Consumer in Central and Eastern Europe

Abstract: The collapse of Communism in Poland, Hungary, and thenCzechoslovakia over the last several years has set the stage for the difficult beginning of free-market economies. In 1990, these countries started to wean consumers away from the government subsidies that had kept food prices artificially low for many years. After the subsidies stopped-and price controls were lifted-food prices soared at both producer and consumer levels. In quick succession, inflation rose and purchasing power dropped, reducing consumer demand-especially for meat and dairy products. Three years later, however, food prices in these countries appear to have stabilized, despite some continuing contraction in demand. Following the reforms, income has fallen, but a broad range of new goods have appeared on the market, fundamentally changing the range of choices available to consumers.

Regional Change in Middle Class Earnings and Standards of Living

Abstract: This research examines key components of the broad national debate over the decline of the middle economic class of the United States at the regional level. Full-time and part-time workers’distributions of earnings among the low-, middle- and upper-earner groups are examined for the four major Census regions from 1967 to 1987. The premise is that the postwar boom era was a period in which the earnings of one full-time worker could purchase a middle standard of living (using home ownership as a proxy) for a household. Thus, change in the purchasing power of full-time earnings for home ownership is tracked between 1967 and 1987 at the regional level. In addition, regional changes in levels of fringe-benefit recipiency are examined. Full-time workers have seen a dramatic upwards shift in their earnings disiributions in all regions, accompanied by substantial erosion in their purchasing power. Earnings distributions across regions have converged, but the costs of home ownership have diverged. As a result, certain regions offer locational advantages for consuming the middle standard of living. Arising from these findings, this paper concludes with a set of questions for policymakers.

Comment on Search, Bargaining, Money, and Prices: Some Recent Results and Policy Implications

Abstract: Trejos and Wright introduce a new dimension to the study of money, or, more precisely, the study of liquidity. Liquidity confers more than just purchasing power: It also confers bargaining power. If only a small fraction of the population possesses liquid assets, it is difficult for a seller to find a potential buyer with sufficient liquidity to support a transaction. It follows that the threat by a potential purchaser to walk away from a bargaining round caITies greater weight than if liquidity is more symmetrically distributed. This suggests a pathway for heterogeneity in money holdings to have real economic effects. Trejos and Wright incorporate this intuition into a model of production and exchange. They examine how prices, output, and social welfare can be affected by changes in the cross-sectional distribution of liquidity. Trejos and Wright's work represents a tour de force of theoretical modeling. However, the ultimate importance of this line of research will be determined by its contribution to our understanding of monetary non-neutrality and optimal monetary policy. In spite of its subtitle, the Trejos-Wright paper has little to say about these issues. The monetary variable in this paper, denoted M, is the fraction of agents holding money. M does not directly correspond to any policy variable at the disposal of a government or central bank. The paper refers to M as the money supply, an accurate label since, by construction, each agent possesses either one unit of money or none. However, to describe an increase in M as an expansion of the money supply is somewhat misleading, since the impact of a change in M on the economy is not due to a change in the total number of monetary units available, but to the change in the cross-sectional distribution of money. To apply the results of this model to actual questions of monetaxy policy requires specifying the linkage between policy instruments of the monetary authonty (such as the total supply of reserves available to the banking sector) and the cross-sectional distribution of liquidity. The substantive implications of the Trejos-Wright model depend on how this linkage is constructed. In this discussion, I first review the key intuition underlying the Trejos-Wright

The Forensic Economist in the International Setting: Applying Purchasing Power Parities to Nicaraguan Damage Claims

Abstract: the U.S. dollar value of the discounted stream of lifetime earnings minus personal consumption. First, lifetime earnings when expressed in local currency may be minuscule relative to U.S. earnings for comparable occupations. Second, the local real discount rate, if historical interest rates are used as a benchmark, may be low or even negative. Third, the official exchange rate may have been fixed artificially or may have been extremely volatile. In either case, the official or even black market rate may hardly represent a true conversion factor for translating the value of one economy's claims into another's currency. Data on life expectancy for most countries are available from UN-DIESA (1989), local earnings from the public records of each nation's social security system, and consumption data from a wide range of expenditure surveys.1 A realistic discount rate may be ascertained from local banks which have access to the less volatile U.S. securities markets. However, the purchasing power parity (PPP) rate may be a more reliable conversion factor for most third world countries than the official or black market exchange rate (OER or BMER) for equating the value of two currencies and is thought to approximate the equilibrium rate if the exchange markets were freed from interventions.2 Estimates of PPP rates for many countries with respect to the U.S. have been made by comparing costs in both currencies of (a) only goods and

Competition in Theory and in the Evolving Real World

Abstract: We shall take it for granted that the growth rate of GDP per head affords, in the long run, the best yardstick we can think of for measuring economic progress. It measures the outcome of steady increases in labour productivity. It expresses in figures the growing purchasing power of national income which we will in turn assume to be positively and closely linked with consumer welfare. Now, what kind of relationships exist between economic progress and competition in a supra-national setting?

International Investment and Rising Protectionism

Abstract: The relationship between international investments and protectionism is an evolving one. United States multinational enterprises have traditionally invested in Latin America for import substituting reasons. In other words, the foreign firm came in in order to take advantage of the internal market. In recent years, however, these firms have turned more and more to export markets, due to the collapse of purchasing power in Latin America. Japanese multinational enterprises, by contrast have traditionally invested abroad to take advantage of lower costs for the production of goods then reimported into Japan, and in general for exports on the world market. This tendency has accelerated since 1985, i.e. since the upward pressure on the yen began. There are other reasons for international investments but the two mentioned are the most important ones. International investments occur to take advantage of national markets, particularly when access becomes difficult due to protectionist walls. International investments also occur to take advantage of differences in labour costs as a springboard to conquer a corner of global markets.