Exchange rates and fundamentals: a generalization

Exchange rates have raised the ire of economists for more than twenty years. The problem is that few, if any, exchange rate models are known to systematically beat a naive random walk in out-of-sample forecasts. Engel and West (2005) show that these failures can be explained by the standard present value model (PVM) because it predicts random walk exchange rate dynamics if the discount factor approaches one and fundamentals have a unit root. This paper generalizes the Engel and West hypothesis to the larger class of open economy dynamic stochastic general equilibrium (DSGE) models. The Engel and West hypothesis is shown to hold for a canonical open economy DSGE model. We show that all the predictions of the standard PVM carry over to the DSGE PVM. The DSGE PVM also yields unobserved components (UC) models that we estimate using Bayesian methods and a quarterly Canadian-U.S. sample. Bayesian model evaluation reveals that the data support a UC model that calibrates the discount factor to one, implying the Canadian dollar–U.S. dollar exchange rate is a random walk dominated by permanent cross-country monetary and productivity shocks.Foreign exchange rates

The present-value model of the current account has been rejected: Round up the usual suspects

Tests of the present-value model of the current account are frequently rejected by the data. Standard explanations rely on the "usual suspects" of nonseparable preferences, shocks to fiscal policy and the world real interest rate, and imperfect international capital mobility. The authors confirm these rejections on postwar Canadian data, then investigate their source by calibrating and simulating alternative versions of a small open economy, real business cycle model. Monte Carlo experiments reveal that, although each of the suspects matters in some way, a "canonical" RBC model moves closest to the data when it features exogenous world real interest rate shocks.Balance of payments ; International finance ; Econometric models

Foreword

It is thus an exciting time of change for lawyers of all kinds, a time in which the University of San Diego School of Law has seized the day to inaugurate an outstanding journal on international and comparative law.... This inaugural volume treats issues at the core of how the international legal system is changing, and responding to change

The Alien Tort Statute and How Individuals Violate International Law

Does any argument favor a broad interpretation of the Alien Tort Statute? If I had to make such an agreement, I suppose I would try to cloud the difference between universal crimes and violations of international law. One way to do this would be to focus on those crimes that are also violations of the obligations of one state to another. For instance, an attack on a diplomat may be both a violation of international law (i.e., failure to prevent or punish the attack may result in international responsibility by the territorial state to the sending state) and a universal crime (i.e., a third state could try the perpetrator). The same argument could be made with respect to counterfeiting. Some states have asserted universal jurisdiction over the crime of counterfeiting,° although courts will, in most cases, classify the jurisdiction more accurately as protective. The Supreme Court has held, however, that the United States has the obligation to suppress counterfeiting of foreign currency in the United States. If so, one could say that the counterfeiter (a) committed an international crime, and (b) acted so as to result in a violation of the international obligations of the United States. But this, again, is not to say that the existence of an international crime necessarily implies an individual action resulting in international law violations. There just happens to be overlap. Certainly crimes are not automatically violations of international law, unless perhaps states with a right to prosecute certain criminals necessarily also have a duty to prosecute such criminals. But there is no reason why this should be so. There is, for instance, no widely accepted obligation to prosecute pirates. Lauterpacht flatly states that the law of nations does not make it a duty for every maritime state to punish all pirates, and the negotiators of the 1958 High Seas Convention rejected such a duty. While there may be some overlap, international crimes are distinct from individual actions that result in international law violations. An interpretation of the Alien Tort Statute that would result in United States court determinations of all international obligations of foreign states is impossibly broad. Trying to limit the statute to crimes is mixing apples and oranges. A meaningful jurisdictional interpretation of the Alien Tort Statute is the logical alternative

Intensional Contexts and the Rule that Statutes should be Interpreted as Consistent with International Law

Striving for consistency—for consistency, that is, properly understood—must characterize legal reasoning in order for the reasoning to deserve to be called legal. It may conceivably be good or moral for identically situated persons to be treated differently by institutions with power, but doing so can hardly be called legal. Very careful attention must be given, of course, to what is meant by identically situated, as no two different persons can be 100% identically situated. Their names, for instance, are different. By identical, we must mean no relevant distinction, or no distinction that serves a purpose that we can articulate and defend. Of course, people may have very different concepts of what is a relevant distinction and what is not, based on different conceptions of what is good, or valuable, or desirable. Evaluation of what distinctions are relevant is integral to the legal enterprise. The better it is done, the better law will serve the purposes that law is intended to serve. It is impossible to evaluate distinctions if consistency is not demanded. An argument that is inconsistent (in the sense that there is no defensible distinction justifying different treatment to similar situations) is therefore legally indefensible. For this reason, logic is bound up in the law. Sound legal reasoning must be logical legal reasoning. Otherwise the enterprise is flawed, if not doomed. Illogic is accordingly a bane of the law. It is thus with open arms that scholars should welcome Professors Rodes and Pospesel\u27s insightful treatise on symbolic logic for legal analysis. Law cannot be too logical. If seeming logic leads to intuitively unsatisfying results, a troublesome answer is to eschew logic. A preferable answer is to explain the flaw in the logic. In their chapter on Intensional Contexts, Rodes and Pospesel alert us to a logical flaw that, once explained, may help us reject legal results that give logic a bad name in the law. They use symbolic logic to do this. However, some bad law that seems to result from logical flaws may be more accurately attributed to differing value judgments or a differing weighing of public interests. If a legal result is criticized purely on the grounds that the logic fails, when in fact the logic is defensible but the policy is not, then it is just as hard to evaluate the criticism as in the reverse situation where there is a hidden flaw of logic. I am led to this observation from the seeming applicability of Rodes and Pospesel\u27s treatment of intensional contexts to a legal rule that I have recently been devoting some attention. That rule is the canon, or maxim, that statutes will be construed, if possible, to conform to the international law obligations of the United States. What follows is a description of the rule, along with examples of its application, and a traditional legal justification of the rule on policy grounds. This is followed by my criticism of application of the rule in a particular case, United States v. Palestine Liberation Organization, where the identified policies do not warrant its application. Next, I examine whether that criticism itself is subject to the criticism that a logical argument, along the lines of Rodes and Pospesel\u27s, would have done just as well. In the end I reject this. In doing so, I evaluate whether perhaps some of the challenging examples used by Rodes and Pospesel are more easily explained and resolved using traditional legal analysis than through symbolic propositional analysis

Intensional Contexts and the Rule That Statutes Should Be Interpreted as Consistent with International Law

Striving for consistency—for consistency, that is, properly understood—must characterize legal reasoning in order for the reasoning to deserve to be called legal. It may conceivably be good or moral for identically situated persons to be treated differently by institutions with power, but doing so can hardly be called legal. Very careful attention must be given, of course, to what is meant by identically situated, as no two different persons can be 100% identically situated. Their names, for instance, are different. By identical, we must mean no relevant distinction, or no distinction that serves a purpose that we can articulate and defend. Of course, people may have very different concepts of what is a relevant distinction and what is not, based on different conceptions of what is good, or valuable, or desirable. Evaluation of what distinctions are relevant is integral to the legal enterprise. The better it is done, the better law will serve the purposes that law is intended to serve. It is impossible to evaluate distinctions if consistency is not demanded. An argument that is inconsistent (in the sense that there is no defensible distinction justifying different treatment to similar situations) is therefore legally indefensible. For this reason, logic is bound up in the law. Sound legal reasoning must be logical legal reasoning. Otherwise the enterprise is flawed, if not doomed. Illogic is accordingly a bane of the law. It is thus with open arms that scholars should welcome Professors Rodes and Pospesel\u27s insightful treatise on symbolic logic for legal analysis. Law cannot be too logical. If seeming logic leads to intuitively unsatisfying results, a troublesome answer is to eschew logic. A preferable answer is to explain the flaw in the logic. In their chapter on Intensional Contexts, Rodes and Pospesel alert us to a logical flaw that, once explained, may help us reject legal results that give logic a bad name in the law. They use symbolic logic to do this. However, some bad law that seems to result from logical flaws may be more accurately attributed to differing value judgments or a differing weighing of public interests. If a legal result is criticized purely on the grounds that the logic fails, when in fact the logic is defensible but the policy is not, then it is just as hard to evaluate the criticism as in the reverse situation where there is a hidden flaw of logic. I am led to this observation from the seeming applicability of Rodes and Pospesel\u27s treatment of intensional contexts to a legal rule that I have recently been devoting some attention. That rule is the canon, or maxim, that statutes will be construed, if possible, to conform to the international law obligations of the United States. What follows is a description of the rule, along with examples of its application, and a traditional legal justification of the rule on policy grounds. This is followed by my criticism of application of the rule in a particular case, United States v. Palestine Liberation Organization, where the identified policies do not warrant its application. Next, I examine whether that criticism itself is subject to the criticism that a logical argument, along the lines of Rodes and Pospesel\u27s, would have done just as well. In the end I reject this. In doing so, I evaluate whether perhaps some of the challenging examples used by Rodes and Pospesel are more easily explained and resolved using traditional legal analysis than through symbolic propositional analysis

Anticipating Hong Kong\u27s Constitution from a U.S. Legal Perspective

This Article explores the possible nature of Hong Kong\u27s Constitution after July, 1997, and discusses alternative ways of interpreting and enforcing the constitution. The author first proposes three definitions for the word constitution\u27 (1) how political power is actually constituted, (2) a written document and (3) a referent for disputes. The author then explains Hong Kong\u27s unusual constitutional status where Hong Kong will be governed under a written constitution the Basic Law. and at the same time, many aspects of the Basic Law will be guaranteed by an international agreement, the Joint Declaration. The author proceeds to evaluate the means by which domestic bodies, such as the judiciary, may play a role in ensuring adherence to the written terms of the Basic Law. However, because the Standing Committee of China\u27s National People\u27s Congress retains ultimate interpretative power, the author proposes that the Joint Declaration may have more influence on China\u27s actions than Hong Kong\u27s Basic Law. The author then examines the executive and legislative structure of Hong Kong and its influence on political responsiveness in Hong Kong after July, 1997. Reflecting upon recent Chinese resistance to institutionalized political responsibility in China, the author suggests that international legal arguments may be the more effective legal means of ensuring political responsiveness