International Finance and Financial Crises: Essays in Honor of Robert P. Flood, Jr. PDF
Preview International Finance and Financial Crises: Essays in Honor of Robert P. Flood, Jr.
International Finance and Financial Crises Essays in Honor of Robert P. Flood, Jr. International Finance and Financial Crises Essays in Honor of Robert P. Flood, Jr. Edited by Peter Isard, Assaf Razin and Andrew K. Rose Partly reprinted from International Tax and Public Finance, Volume 6, No. 4 (1999) SPRINGER SCIENCE INTERNATIONAL MONETARY FUND +BUSINESS MEDIA, LLC Washington, D. C. Library of Congress Cataloging-in-Publication Data International finance and financial crises : essays in honor of Robert P. Flood, Jr. / edited by Peter Isard, AssafRazin, and Andrew K. Rose. p. cm. Proceedings of a conference. "Partly reprinted from the International tax and public finance. volume 6. no. 4 (1999)." IncIudes bibliographical references. ISBN 978-94-010-5770-7 ISBN 978-94-011-4004-1 (eBook) DOI 10.1007/978-94-011-4004-1 P. 1. Flood, Robert P. II. Isard, Peter. III. Razin, Assaf. IV. Rose, Andrew, 1959- . V. International tax and public finance. HG3881.16027 2000 332-dc21 99-40806 CIP Copyright@ 1999 by Springer Science+Business Media New York Originally published by K1uwer Academic Publishers, New York in 1999 Softcover reprint of the hardcover 1s t edition 1999 AII rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, mechanical, photo copying, recording, or otherwise, without the prior written permission of the publisher, Springer Science+Business Media, LLC Printed on acid-free paper. to Bob's parents, Robert and Nancy Flood, and to Ofa ir Razin Contents Preface ix Contributors and Conference Participants Xl A Tribute to Robert P. Flood, Jr. XV Stanley Fischer Overview xvii 1. Some Parallels Between Currency and Banking Crises Nancy P. Marion Comments 19 Carmen M. Reinhart Donald J. Mathieson General Discussion 27 2. Balance Sheets, the Transfer Problem, and Financial Crises 31 Paul Krugman Comments 45 Peter Garber Olivier Jeanne General Discussion 55 3. Financial Crises: What Have We Learned from Theory and Experience? 57 Summary of Panel Remarks Michael P. Dooley Rudiger Dornbusch David Folkerts-Landau Michael Mussa Remarks 63 Jacob A. Frenkel 4. On the Foreign Exchange Risk Premium in Sticky-Price General Equilibrium Models 71 Charles Engel Comments 87 James M. Boughton Richard A. Meese General Discussion 93 5. An Information-Based Model of Foreign Direct Investment: The Gains from Trade Revisited 95 Assaf Razin, Efraim Sadka, and Chi-Wa Yuen Comment 113 Joshua Aizenman General Discussion 119 Vlll CONTENTS 6. An International Dynamic Asset Pricing Model 121 Robert J. Hodrick, David Tat-Chee Ng, and Paul Sengmueller Comments 145 Louis Scott Paul D. Kaplan General Discussion 149 7. Role of the Minimal State Variable Criterion in Rational Expectations Models 151 Bennett T. McCallum Comment 171 Edwin Burmeister General Discussion 175 8. Exact Utilities under Alternative Monetary Policy Rules in a Simple Macro Model with Optimizing Agents 177 Dale W. Henderson and Jinill Kim Simple Monetary Policy Rules Under Model Uncertainty 207 Peter Isard, Douglas Laxton, and Ann-Charlotte Eliasson Comments 249 JoAnna Gray Lars E. O. Svensson Bennett T. McCallum General Discussion 261 Appendix. Robert P. Flood, Jr. -Bibliography 265 Preface This book contains the proceedings of a conference held in honor of Robert P. Flood, Jr. The "Floodfest" took place at the International Monetary Fund in Washington, DC on the occasion of Bob's fiftieth birthday in January 1999. The idea arose some two years earlier in a conversation between Peter Garber (Bob's longtime co-author) and Assaf Razin (an old friend and colleague). The sad origin of the event was the untimely and tragic death of Assaf's son Ofa ir from complications arising from Multiple Sclerosis, the same disease that continues to affect Flood. Razin and Garber quickly asked Andy Rose (another collaborator and friend of Bob's) to join the organizing team. The Research Department of the Inter national Monetary Fund, under the leadership of Michael Mussa, then generously offered to provide both financial and logistic support for the conference, including the organizing talents of Peter Isard (yet another friend and co-author of Bob's) and his administrative assistant, Norma Alvarado. A number of Bob's many friends and colleagues over the years were asked to consider contributing to the academic festivities. The request met with a gratifying response, as this book amply shows. Indeed, to accommodate the long list of people who wished to honor Bob, the program provided scope for a round table discussion on policy matters, two discussants for most of the papers, session chairs, and opportunities to participate from the audience. Bob has written on a variety of subjects over the years, including regime switching, speculative attacks, bubbles, stock market volatility, macro models with nominal rigidities, dual exchange rates, and target zones. Most of these topics are represented in this volume, the "Floodschrift" counterpart of the "Floodfest" conference. The volume begins with Stanley Fischer's tribute to Flood's scholarly contributions and also contains Bob's vitae as an appendix. The enthusiasm ofthe profession to honor Bob's achievements is one of the many signs of the affection and esteem with which we regard him. To many of us, Bob has offered much more than just academic scholarship and new ways of tackling economic problems. He has been an intellectual mentor, who has inspired us to think about economics in a whimsical way. He has encouraged us to think long and hard about both theory and empirics, trying to confront mathematical conjectures with the messy facts-and vice versa! And he has invited us into his home to meet his delightful family-his wife, Petrice (Pete), and children, Greg and Kate-inspiring us by the way he has confronted his disease without surrendering his enjoyment in life and work. Contributors and Conference Participants Pierre-Richard Agenor,l World Bank Joshua Aizenman, Dartmouth College Tamim Bayoumi,l International Monetary Fund Jagdeep Bhandari,l Florida Coastal School of Law James M. Boughton, International Monetary Fund Edwin Burmeister, Duke University Matthew Canzoneri, 1 Georgetown University Michael P. Dooley, University of California at Santa Cruz Rudiger Dornbusch, Massachusetts Institute of Technology Ann-Charlotte Eliasson, Stockholm University Charles Engel, University of Washington Stanley Fischer, International Monetary Fund Marjorie Flavin,l University of California at San Diego Robert P. Flood, Jr., International Monetary Fund David Folkerts-Landau, Deutsche Morgan Grenfell Jacob A. Frenkel, Bank of Israel Peter Garber, Deutsche Morgan Grenfell Jo Anna Gray, University of Oregon Dale W. Henderson, Federal Reserve Board Robert J. Hodrick, Columbia University Peter Isard, International Monetary Fund Olivier Jeanne, International Monetary Fund Paul D. Kaplan, Ibbotson Associates JiniJl Kim, University of Virginia Paul Krugman, Massachusetts Institute of Technology Douglas Laxton, International Monetary Fund Nancy P. Marion, Dartmouth College Donald J. Mathieson, International Monetary Fund Bennett T. McCallum, Carnegie-Mellon University Richard A. Meese, Barclays Global Investors Michael Mussa, International Monetary Fund David Tat-Chee Ng, Columbia University Maurice Obstfeld,z University of California at Berkeley Alessandro Prati, International Monetary Fund Assaf Razin, Tel Aviv University and Stanford University Carmen M. Reinhart, University of Maryland Andrew K. Rose,l University of California at Berkeley Efraim Sadka, Tel Aviv University Garry Schinasi,l International Monetary Fund Louis Scott, Morgan Stanley Dean Witter Paul Sengmueller, Columbia University Lars E. O. Svensson, Institute for International Economic Studies, Stockholm University Chi-Wa Yuen, University of Hong Kong 1 Chair of conference session. 2Presented the paper by Paul Krugman. Robert P. Flood, Jr. A Tribute to Robert P. Flood, Jr. STANLEY FISCHER Bob Flood received his B.A. from Wake Forest College, which he attended on a golf scholarship. Spuming the lure of professional sports-or having understood the theory of comparative advantage-he turned to more intellectual pursuits, enrolling in the Ph.D. program at the University of Rochester. At Rochester he met the young Mike Mussa and the young Rudi Dornbusch and, impressed and inspired by them, chose to specialize in international monetary economics. Under Mike Mussa's supervision, Bob wrote a thesis entitled "Essays on Real and Mon etary Aspects of Various Exchange Rate Systems." His Ph.D. was awarded in 1977, the same year that he published his first journal article ("Growth and the Balance of Payments," then a popular topic) in the Canadian Journal of Economics. In the fall of 1976, Bob joined the Department of Economics at the University of Virginia, where he was mentored by Ben McCallum. He left in 1980 to spend two and a half years visiting Dale Henderson's group in the International Finance Division at the Federal Reserve Board. After a brief return to Virginia, he moved in 1983 to Northwestern to join Bob Hodrick. And then in 1987, he was persuaded by Jacob Frenkel to join the Fund's Research Department-and the Fund has been benefiting ever since. Bob has been a prolific scholar during the twenty-two years since his doctorate. He has published almost sixty papers, as well as a book and a number of comments and reviews. He remains an active scholar, and continues to be a lively contributor to the profession's never ending debate on exchange rate regimes, as well as on speculative bubbles and currency crises. He has played an important role as mentor to some of the younger members of the IMF research community-and given his acceptance of the editorship of IMF Staff Papers, we very much hope and expect that role will grow substantially in the future. At Virginia, Bob began an extensive collaboration with Peter Garber, which resulted in seminal contributions to the analysis of "process switching." Technically, this literature analyses how macroeconomic behavior is affected by the prospect and/or realization of changes in policy regimes that are triggered when the operation of an initial regime induces relevant endogenous variables to move beyond certain thresholds and thus trigger a shift into another regime. The best known example is a switch in exchange rate regimes from fixed to floating. Flood and Garber's famous 1984 Journal of International Economics paper on collapsing exchange rate regimes formalized a model of speCUlative attacks in a linear setup. The model's clarity and simplicity both made it a hit from the start, and explain why it remains one of most highly cited HE papers of all times. As a result, Bob is known as one of the founding fathers of the modem literature on currency crises. But the
The list of books you might like
