Report on adjustment lending II : lessons forEastern Europe

The Bank introduced adjustment lending in 1979 to help member countries restructure their economies to create conditions conducive to equitable growth while maintaining a sustainable balance of payments. A review of the experience of other nations with adjustment problems may provide useful knowledge for Eastern Europe as the region attempts to make the transition to market economies and to integrate with the world economy. Reforms such as those that Eastern Europe is initiating now have little precedent in recent economic history. Evidence from other countries indicates that output levels are likely to suffer in the early years of massive economic restructuring. Governments must be aware of these adjustment costs, which represent an investment in a better economic system. Recent experience in other countries suggests several constructive steps that Eastern European countries can take to ease their transition to market economies. These include : 1) placing a high priority on dealing with high open or repressed inflation and other manifestations of severe macroeconomic imbalances; 2) removing restrictions on labor mobility and on the exit and entry of firms at the same pace as they liberalize trade; and 3) moving early to create markets for working capital financing - with appropriate mechanisms to assess credit risks - in order to encourage economic restructuring.Economic Stabilization,Environmental Economics&Policies,Country Strategy&Performance,Economic Theory&Research,Achieving Shared Growth

Exchange Rate Regimes in the Americas: Is Dollarization the Solution?

The series of crises that have affected emerging markets in recent years have reopened the debate on the most appropriate exchange regime for an emergent economy. In particular, all countries that experienced severe crises in the 1990s had some sort of fixed exchange rate regime, the majority of them falling in the categories that Corden ( 2002) calls the fixed-but-adjustable exchange rate regime (FBAR) and in- between regimes of the pegged (including flexible and crawling pegs) and target zone types. As a result, in recent years countries have been emigrating to a corner solution: a credible fixed regime or a floating regime with a monetary anchor. Within the latter categories, the increasingly used monetary regime is the inflation targeting one. The paper discusses the advantages and disadvantages of alternative exchange rate regimes and ends with a discussion of the possibility of dollarization in the Americas.

Exchange Rate Regimes in the Americas: Is Dollarization the Solution?

The series of crises, which have affected emerging markets in recent years, have reopened the debate on the most appropriate exchange regime for an emergent economy. In particular, all countries that experienced severe crises in the 1990s had some sort of fixed exchange rate regime, the majority of them falling in the categories that Corden (2002) calls fixed-but-adjustable exchange rate regime (FBAR) and in between regimes of the pegged (including flexible and crawling pegs) and target zone types. As a result, in recent years countries have been emigrating to a corner solution: a credible fixed regime or a floating regime with a monetary anchor. Within the latter categories, the increasingly used monetary regime is the inflation targeting one. The paper discusses the advantages and disadvantages of alternative exchange rate regimes and ends with a discussion of the possibility of dollarization in the Americas.Exchange rate systems, inflation targeting, dollarization

Reaching One-Digit Inflation: The Chilean Experience

The main purpose of this paper is to analyze the process by which Chile was able to reduce inflation during the 1990s. In this period inflation was gradually reduced from close to 30% per annum in 1990 to only 6% in 1997. The paper concludes that three factors were important in helping to accomplish this performance. First, the independent Central Bank and its tough actions early on -to convey the message that it was ready to stand behind its mandate (to reduce inflation)- helped to shape inflationary expectations and in the process it led to lower wage inflation and ultimately a lower path for core inflation. Second, a restrictive monetary policy, and the foreign exchange intervention policies associated with it, resulted in a trajectory of the nominal exchange rate much below what would have been observed under a PPP rule adjusted for differences in productivity. This result was reinforced by the low credibility of the band reflected in the effect of the location of the exchange rate within the band on the observed rate. Third, the higher rate of growth of labor productivity, given the wage equation, resulted in a lower rate of growth of unit labor cost than otherwise. From these three effects the first effect, the enhanced credibility of the new policy operating through the formation of inflation expectations, was found to be the most important factor behind the success in reducing inflation rate.

Factorization and Effective Theories

We prove factorization in the decay of a B meson into a D* + jet using the Large Energy Effective Theory. The proof is non perturbative, does not require any gauge fixing and is exact in the limit of a very narrow jet. On the other hand, it is shown that this theory is unable to consistently describe completely exclusive processes such as for example a B which decays into a D* + pion, due to an oversimplification of transverse momentum dynamics. Therefore we present a variant of the Large Energy Effective Theory, i.e. a new effective theory for massless particles which properly takes into account transverse degrees of freedom and is the natural framework to study exclusive non-leptonic decays.Comment: 12 pages, no figures, LaTex correction

Private Capital Inflows and the Role of Economic Fundamentals

Private capital flows returned to the developing countries in the late 1980s, only a few years after the debt crisis. Underlying this surge in inflows there is a decrease in interest rates and a slowdown in economic activity in the developed countries, and an improvement in economic prospects and creditworthiness in the recipient countries. The latter is due, in part, to the implementation of structural reforms comprising the deregulation of financial and labor markets, the dismantling of barriers to trade, and the reduction of restrictions on capital movements.