Properties of an affine transport equation and its holonomy

An affine transport equation was used recently to study properties of angular momentum and gravitational-wave memory effects in general relativity. In this paper, we investigate local properties of this transport equation in greater detail. Associated with this transport equation is a map between the tangent spaces at two points on a curve. This map consists of a homogeneous (linear) part given by the parallel transport map along the curve plus an inhomogeneous part, which is related to the development of a curve in a manifold into an affine tangent space. For closed curves, the affine transport equation defines a "generalized holonomy" that takes the form of an affine map on the tangent space. We explore the local properties of this generalized holonomy by using covariant bitensor methods to compute the generalized holonomy around geodesic polygon loops. We focus on triangles and "parallelogramoids" with sides formed from geodesic segments. For small loops, we recover the well-known result for the leading-order linear holonomy ($\sim$ Riemann $\times$ area), and we derive the leading-order inhomogeneous part of the generalized holonomy ($\sim$ Riemann $\times$ area$^{3/2}$). Our bitensor methods let us naturally compute higher-order corrections to these leading results. These corrections reveal the form of the finite-size effects that enter into the holonomy for larger loops; they could also provide quantitative errors on the leading-order results for finite loops.Comment: 18 pages, 4 figures, new short section (Sec. 5) in v3; updated to match article published in GR

Fiscal Policy, intercountry adjustment and the real exchange rate within Europe

In EMU, a country may have difficulty ensuring stability in the face of asymmetric shocks; the response may be unstable, or, even if not, the real exchange rate might overshoot. Fiscal policy may help to stabilise inflation and also to target the real exchange rate. The paper argues that an improved fiscal policy process might result in improved macroeconomic performance within Europe. Within EMU, a country may have difficulty ensuring stability in the face of asymmetric shocks; the response may be unstable, or, even if not, the real exchange rate might overshoot. In this context, the rules of the SGP may interfere with the control of inflation control, with the short-run stabilisation of demand, and also with the longer term adjustment of intra-European real exchange rates. We recommend using fiscal policy to stabilise inflation and also to target the real exchange rate rather than deficits or debt. Such a policy would require a more active use of fiscal policy.adjustment, macroeconomic stability, fiscal policy, EMU, "Fiscal policy, intercountry adjustment and the real exchange rate within Europe", Allsopp , Vines

Woodford goes to Africa

This paper analyses the effects of inflation shocks, demands shocks, and aid shocks on low-income, quasi-emerging-market economies, and discusses how monetary policy can be used to manage these effects. We make use of a model developed for such economies by Adam et al. (2007). We examine the e¤ects of four things which this model features, which we take to be typical of such economies. These are: the existence of a tradeables/non-tradeables production structure, the fact that international capital movements are - at least initially - confined to the effects of currency substitution by domestic residents, the use of targets for financial assets in the implementation of monetary policy, and the pursuit, in some countries, of a fixed exchange rate. We then modify the model to examine the effect on such economies of three major changes, changes which we take to be part of the transition by such economies towards more fully- fledged emerging-market status: an opening of the capital account so that uncovered- interest-parity comes to hold, a move to floating exchange rates, and the replacement of fixed stocks of financial aggregates by the pursuit of a Taylor rule in the conduct of monetary policy.currency substitution, emerging market macroeconomics, interactions between fiscal and monetary policy, Taylor rule

How square is the policy frontier ?

This paper assesses the implications of discounting on a result derived by Bean (1998): that in a model of monetary policy where policy acts with a lag, the outcomes of monetary policy are very similar for a wide range of weightings of the (non-discounting) monetary authority's objective function, with respect to inflation stability versus output stability. We show that when the authority discounts the future, outcomes become more sensitive to preferences, and that it is important to take the discount rate into account when examining the question of how the authority's remit should be specified.

How OECD policies affected Latin America in the 1980s

The authors assess the effects of OECD monetary and fiscal policies on Latin America by means of simulation studies using the LBS/NIESR Global Econometric Model and a new empirical model of Latin America. The Latin American model pays special attention to the supply-side determination of natural rate of output and to the effects of asset accumulation. The Latin American model and its properties are presented by both empirical simulations and by means of a simple analytical representation. This model of Latin America is used in conjunction with the Global Econometric Model to study the macroeconomic interactions between Latin America and the rest of the world. The assumption in policy simulations is that G-3 exchange rates are forward-looking while Latin America pegs its currency to the U.S. dollar. It is postulated that Latin American fiscal policy adjustments target a baseline current account balance, in the face of external shocks. The simulation results reflect a number of important international links, which can be quantified as multiplier properties of the linked system of models. A permanent 5 percent contraction in the U.S. money supply induces a contraction of about the same order in Latin American GDP and capital stock. This is caused by higher U.S. interest rates and diminished Latin American competitiveness in third markets, reinforcing the fall in U.S. demand. Similarly, a combined monetary contraction in G-3 countries on a permanent footing - a contraction like the one in 1978-80 (U.S., 5.2 percent, German, 11.9 percent, and Japanese, 1.7 percent) hurts Latin America. Latin American GDP remains depressed by 4 percent and capital stock by 5 percent even after 10 years. The effects of negative income and interest rates emanating from G-3 countries are mutually reinforcing. U.S. fiscal expansion equal to 1 percent of baseline GDP, sustained over five years, transmits negatively to Latin America, where GDP falls 0.6 percent in the short run and remains depressed by 0.3 percent even after 10 years. The negative effects of higher interest rates and diminished competitiveness dominate the positive effects (which are short-lived) of expanded U.S. demand for Latin American exports. Similarly, G-3 fiscal spending shocks, which aregradually built up over five years, then reversed the next two years, have a mild negative effect on Latin American GDP. The G-3 fiscal shocks administered were set to their actual magnitudes relative to baseline GDP, as observed in 1980-85 (U.S. expansion of 3.5 percent but contraction in German and Japanese spending of 4.4 percent and 3.5 percent, respectively). Latin American GDP is lower than baseline GDP by 0.5 percent when the shocks peak at the end of five years, but continues to remain depressed 0.3 percent by the end of 10 years. The simulated effects of G-3 monetary and fiscal policies, with the shocks constructed to reflect their actual sizes in the early 1980s, suggest that Latin America's adjustment problems in that period cannot be attributed to G-3 fiscal imbalances that arose because of failures of G-3 fiscal policy coordination. But concerted G-3 monetary contraction in response to the second oil shock imposed heavy costs on Latin America; without it, Latin American GDP would have been 5 percent higher in the 1980s.Fiscal&Monetary Policy,Macroeconomic Management,Economic Theory&Research,Environmental Economics&Policies,Economic Stabilization

Five-Equation Macroeconomics A Simple View of the Interactions Between Fiscal Policy and Monetary Policy

This paper studies the interactions of fiscal and monetary policy when they stabilise a single economy against shocks in a dynamic setting. We assume that fiscal and monetary policies both stabilise the economy only by causing changes to aggregate demand. Our findings are as follows. If the both policymakers are benevolent, then the best outcome is achieved when the fiscal authority allows monetary policy to perform nearly all of the burden of stabilising the economy. If the monetary authorities are benevolent, but the fiscal authorities have distorted objectives, then a Nash equilibrium will result in large welfare losses: unilateral efforts by each authority to stabilise the economy will result in a rapid accumulation of public debt. However, if the monetary authorities are benevolent and the fiscal authorities have distorted objectives, but there is a regime of fiscal leadership, then the outcome will be very nearly as good as it is in the regime in which both policymakers are benevolent.Monetary Policy, Fiscal Policy, Macroeconomic Stabilisation

Is the WTO's article XXIV a free trade barrier?

Why is further multilateral trade liberalisation proving so difficult to achieve? This paper shows that Article XXIV itself, the set of WTO rules governing trade block formation, undermines the multilateral liberalisation process. Trade block formation under Article XXIV can be thought of as a coalition formation game with negative externalities. We suppose that the usual mechanism through which block formation exerts a negative externality on non-members - a rise in external tariffs - is precluded by Article XXIV. But essentially the same effect is created by internal tariff reduction. From this it follows that free trade is not an equilibrium