Real effects of money and welfare costs of inflation in an endogenously growing economy with transactions costs

Economic development ; Inflation (Finance) ; Money

The Colonization of Hong Kong: Establishing the Pearl of Britain-China Trade

We construct a staged development framework with multi-period discrete choices to study the colonization of Hong Kong, which facilitated the trade of several agricultural and manufactured products, including opium, between Britain and China. The model is particularly designed based on historical data and documentation collected from various sources. We show theoretically how institutions changed in response to the underlying key primitives and lead to the transition from the pre-Opium War era, to the post-Opium War era and then to the post-opium trade era, which span the period 1773-1933. Finally, we support our theoretical findings with historical evidence.Colonial Economy, Opium Trade, Endogenous Policy and Institutions, Staged Development.

Monetary Policy and Equilibrium Indeterminacy in a Cash-in-Advance Economy with Investment

In a cash-in-advance economy where cash is required in advance of purchasing both consumption and investment goods, we find that active interest rate rules generate equilibrium uniqueness, but passive rules can lead to real indeterminacy. Simulation shows that even in the presence of investment, passive rules are very likely to render indeterminacy.indeterminacy

Government financing in an endogenous growth model with financial market restrictions

In this paper we develop an endogenous growth model with market regulations on explicitly modeled financial intermediaries to examine the effects of alternative government financing schemes on growth, inflation, and welfare. ; We find that in the presence of binding legal reserve requirements, a marginal increase in government spending need not result in a reduction in the rate of economic growth if it is financed with an increase in the seigniorage tax rate. Raising the seigniorage tax base by means of an increase in the reserve requirement retards growth and has an ambiguous effect on inflation. An increase in income tax—financed government spending also suppresses growth and raises inflation although not to the extent that the required seigniorage tax rate alternative would. Switching from seigniorage to income taxation as a source of government finance is growth-reducing but deflationary. From a welfare perspective, the least distortionary way of financing an increase in the government spending requirements is by means of a marginal increase in the seigniorage tax rate. Finally, under the specification of logarithmic preferences, the optimal tax structure is indeterminate.Finance, Public ; Fiscal policy ; Financial markets

A general two-sector model of endogenous growth with human and physical capital: balanced growth and transitional dynamics

Economic development ; Human capital

A general two sector model of endogenous growth with human and physical capital

Human capital

On government credit programs

Credit rationing is a common feature of most developing economies. In response to it, the governments of these countries often operate extensive credit programs and lend, either directly or indirectly, to the private sector. We analyze the macroeconomic consequences of a typical government credit program in a small open economy. We show that such programs increase long-run production if the economy is in a development trap and that such programs often lead to endogenously arising aggregate volatility. On the other hand, they may eliminate certain indeterminacies created by endogenous credit market frictions.Banks and banking, Central ; Credit ; Productivity

An endogenous growth model of money, banking, and financial repression

In this paper, we develop an endogenous growth model with financial intermediation to examine the effects of financial repression on growth, inflation, and welfare. By limiting the liquidity provision, binding reserve requirements always suppress economic growth while their effect on inflation is a function, among other things, of the degree of repression. For example, contrary to previous claims, if financial repression is severe enough so that an informal financial sector emerges, liberalization is inflationary. Notwithstanding, liberalization in these cases is always welfare improving. Finally, we characterize the condition that gives rise to a unique optimal level of binding reserve requirements, i.e., the optimal degree of "moderate" financial repression

Barriers to international capital flows: when, why, how big, and for whom?

Until recently, the trend in world capital markets has been toward increasing “globalization.” Recent events in Latin America and Asia have forced a rethinking of the desirability of unrestricted world capital flows. In this paper we ask whether simple restrictions on capital mobility can succeed in reducing the volatility of funds flows, whether such restrictions are consistent with the long-term development of the countries that might impose them, whether such restrictions are beneficial for poorer countries while harming wealthier countries, and whether barriers to capital movements should be reduced in magnitude as the development process proceeds. ; We find first that appropriately selected barriers to capital movements can be used by a poorer country to eliminate the short-term volatility of capital flows and other economic volatility as well. Second, we find that these barriers are consistent with increased rather than reduced levels of economic development in both the short and long run. Third, we show that it is empirically plausible that such barriers will be reduced over time as economies develop. Fourth, we show that, in the long run, all countries can benefit from the presence of barriers to capital mobility. And, fifth, we show that barriers to capital mobility can increase the magnitude of net capital flows in a steady state.International economic relations ; International finance ; Capital movements ; Monetary policy

Apgar score and postnatal outcomes

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