Transfer Effect in National Price Levels

A model of national price levels is developed to lay bare implicit assumptions behind the conventional view on the effect of productivity differentials and net foreign assets. The effect of productivity on national price levels is determined by the interaction of several countervailing channels, implying that the net effect can go in either direction for reasonable parameter values. By comparison, net foreign assets have a more robust effect on national price levels than productivity differentials. Basic theoretical implications are confirmed by the price level data of OECD countries.price levels; productivity; net foreign assets

International Reserves: Precautionary versus Mercantilist Views, Theory and Evidence

This paper tests the importance of precautionary and mercantilist motives in accounting for the hoarding of international reserves by developing countries, and provides a model that quantifies the welfare gains from optimal management of international reserves. While the variables associated with the mercantilist motive are statistically significant, their economic importance in accounting for reserve hoarding is close to zero and is dwarfed by other variables. Overall, the empirical results are in line with the precautionary demand. The effects of financial crises have been localized, increasing reserve hoarding in the aftermath of crises mostly in countries located in the affected region, but not in other regions. We also investigate the micro foundation of precautionary demand, extending Diamond and Dybvig (1983)'s model to an open, emerging market economy where banks finance long-term projects with short-term deposits. We identify circumstances that lead to large precautionary demand for international reserves, providing self-insurance against the adverse output effects of sudden stop and capital flight shocks. This would be the case if premature liquidation of long-term projects is costly, and the economy is de-facto integrated with the global financial system, hence sudden stops and capital flight may reduce deposits sharply. We show that the welfare gain from the optimal management of international reserves is of a first-order magnitude, reducing the welfare cost of liquidity shocks from a first-order to a second-order magnitude.

Financial Versus Monetary Mercantilism-Long-run View of Large International Reserves Hoarding

The sizable hoarding of international reserves by several East Asian countries has been frequently attributed to a modern version of monetary mercantilism -- hoarding international reserves in order to improve competitiveness. From a long-run perspective, manufacturing exporters in East Asia adopted financial mercantilism -- subsidizing the cost of capital -- during decades of high growth. They switched to hoarding large international reserves when growth faltered, making it harder to disentangle the monetary mercantilism from precautionary response to the heritage of past financial mercantilism. Monetary mercantilism also lowers the cost of hoarding, but may be associated with negative externalities leading to competitive hoarding.

Three Current Account Balances: A "Semi-Structuralist" Interpretation

Three large current account imbalances -- one deficit (the United States) and two surpluses (Japan and the Euro area) -- are subjected to a minimalist structural interpretation. Though simple, this interpretation enables us to assess how much of each of the imbalances require a real exchange rate adjustment. According to the estimates, a large part of the U.S. current account deficit (nearly 2 percentage points of the 2004 deficit of 5 1/2 percent of GDP) will undergo an adjustment process that involves real depreciation in its exchange rate. For Japan, a little more than 1 percentage point (of GDP) of the current account surplus is found to require an exchange rate movement (real appreciation) as the surpluses adjust down. For the Euro area, less than half a percentage point of its current account surplus is found to require an adjustment via real appreciation.

Resource-Efficient Scheduling Of Multiprocessor Mixed-Criticality Real-Time Systems

Timing guarantee is critical to ensure the correctness of embedded software systems that interact with the physical environment. As modern embedded real-time systems evolves, they face three challenges: resource constraints, mixed-criticality, and multiprocessors. This dissertation focuses on resource-efficient scheduling techniques for mixed-criticality systems on multiprocessor platforms. While Mixed-Criticality (MC) scheduling has been extensively studied on uniprocessor plat- forms, the problem on multiprocessor platforms has been largely open. Multiprocessor al- gorithms are broadly classified into two categories: global and partitioned. Global schedul- ing approaches use a global run-queue and migrate tasks among processors for improved schedulability. Partitioned scheduling approaches use per processor run-queues and can reduce preemption/migration overheads in real implementation. Existing global scheduling schemes for MC systems have suffered from low schedulability. Our goal in the first work is to improve the schedulability of MC scheduling algorithms. Inspired by the fluid scheduling model in a regular (non-MC) domain, we have developed the MC-Fluid scheduling algo- rithm that executes a task with criticality-dependent rates. We have evaluated MC-Fluid in terms of the processor speedup factor: MC-Fluid is a multiprocessor MC scheduling algo- rithm with a speed factor of 4/3, which is known to be optimal. In other words, MC-Fluid can schedule any feasible mixed-criticality task system if each processor is sped up by a factor of 4/3. Although MC-Fluid is speedup-optimal, it is not directly implementable on multiprocessor platforms of real processors due to the fractional processor assumption where multiple task can be executed on one processor at the same time. In the second work, we have considered the characteristic of a real processor (executing only one task at a time) and have developed the MC-Discrete scheduling algorithm for regular (non-fluid) scheduling platforms. We have shown that MC-Discrete is also speedup-optimal. While our previous two works consider global scheduling approaches, our last work con- siders partitioned scheduling approaches, which are widely used in practice because of low implementation overheads. In addition to partitioned scheduling, the work consid- ers the limitation of conventional MC scheduling algorithms that drops all low-criticality tasks when violating a certain threshold of actual execution times. In practice, the system designer wants to execute the tasks as much as possible. To address the issue, we have de- veloped the MC-ADAPT scheduling framework under uniprocessor platforms to drop as few low-criticality tasks as possible. Extending the framework with partitioned multiprocessor platforms, we further reduce the dropping of low-criticality tasks by allowing migration of low-criticality tasks at the moment of a criticality switch. We have evaluated the quality of task dropping solution in terms of speedup factor. In existing work, the speedup factor has been used to evaluate MC scheduling algorithms in terms of schedulability under the worst-case scheduling scenario. In this work, we apply the speedup factor to evaluate MC scheduling algorithms in terms of the quality of their task dropping solution under various MC scheduling scenarios. We have derived that MC-ADAPT has a speedup factor of 1.618 for task dropping solution

The Valuation Channel of External Adjustment

This paper explores the valuation channel of external adjustment in a two-country dynamic stochastic general equilibrium model (DSGE) with international equity trading. The theoretical model we set up matches key moments of the data for the United States at business cycle frequency at least as well as standard models of international real business cycles (RBCs). In our theoretical analysis, we find that two-asset trading is necessary for a valuation channel of external adjustment to emerge. However, other features of the economy, such as on the nature of the shock that generates the external imbalance and other features of the economy – the extent of nominal rigidity and the size of finacial frictions – determine the magnitude and significance of this channel of adjustment. The relative importance of the valuation channel is larger the higher the degree of nominal rigidity and the higher finacial intermediation costs. Monetary policy shocks have no valuation effects with flexible prices and trade only in equity. Specifying the theoretical model with net foreign assets different from zero in necessary to start matching satisfactorily empirical moments of changes in the US net foreign asset position.External adjustment, Portfolio Models, Valuation Channel, SDGE Models

New Rates from New Weights

This paper describes the result and the methodology of updating nominal and real effective exchange rate weights on the basis of trade data from 1999 to 2001. The underlying framework is an updated version of the IMF's current effective exchange rate calculation, which uses weights largely based on 1989-91 data. Since then, substantial changes have occurred in international trade relations, warranting a recalculation of effective exchange rate indices on the basis of new trade patterns. Updated weights show that the United States and developing countries (most notably China) have grown in their importance in global trade, while Japan and the European Union have declined, with substantial implications for the path of the dollar and exchange rate effects of emerging market crises since 1995. Copyright 2006, International Monetary Fund

The Valuation Channel of External Adjustment

Ongoing international financial integration has greatly increased foreign asset holdings across countries, enhancing the scope for a "valuation channel" of external adjustment (i.e., the changes in a country's net foreign asset position due to exchange rate and asset price changes). We examine this channel of adjustment in a dynamic stochastic general equilibrium model with international equity trading in incomplete asset markets. We show that the risk-sharing properties of international equity trading are tied to the distribution of income between labor income and profits when equities are defined as claims to firm profits in a production economy. For a given level of international financial integration (measured by the size of gross foreign asset positions), the quantitative importance of the valuation channel of external adjustment depends on features of the international transmission mechanism such as the size of financial frictions, substitutability across goods, and the persistence of shocks. Finally, moving from less to more international financial integration, risk sharing through asset markets increases, and valuation changes are larger, but their relative importance in net foreign asset dynamics is smaller.