Browsing by Author "Smith, Gordon W."
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Item An economic evaluation of proposed copper buffer stock agreements on the optimal level of international reserves of Chile(1981) Wood, Dean; Smith, Gordon W.; Huddle, Donald L.; Soligo, RonaldIn the literature of optimal international reserves, a formula has been derived explaining the average level of reserves over a period as a function of the standard deviation of export earnings, the opportunity cost of reserves, the costs of adjusting to balance of payments imbalances, and the government's preferences between income levels and income variability. The formula represents 'optimal reserves' in that the government's utility function has been maximized subject to the constraints faced. It has been shown that LDCs experience greater export instability than do developed countries and many economists believe this puts them at a disadvantage for development purposes. As a partial solution, especially for countries which rely on only one or two primary commodities for the bulk of their export earnings, commodity buffer stock agreements have often been advocated as a way of decreasing this instability. Copper is one commodity under consideration for such an agreement while Chile relies on copper for approximately 75% of its export earnings. Using an econometric model of the world copper market, researchers have simulated price and production levels of copper over the period 1955 to 1974 had a buffer stock agreement been in effect. Using two of these simulations, the new standard deviation of Chile export earnings has been figured and inserted into the formula of optimal reserves. The results from the second and most important simulation used in this study, indicate that the average 'optimal' level of reserves would have decreased from $153.41 million to $18.78 million (US dollars of 197) for the twenty year period. This result indicates that a buffer stock operation for copper, with well chosen decision rules, would have enabled Chile to substantially reduce the average level of international reserves held from 1955 to 1974. It was estimated that Chile would have earned $287.65 million by the end of 1974 by investing funds which otherwise would have been held as reserves at their opportunity cost, assuming that the opportunity cost is 1%. If the opportunity cost of Chilean reserves had been only 5% during this period, the gain to the Chilean economy would have been $82.27 million, while if the opportunity cost of reserves had been 15%, the gain to the Chilean economy would have been $722.18 million (all dollar figures are in US dollars of 197).Item Commodity Agreements and the New International Economic Order(Rice University, 1975-10) Smith, Gordon W.; Electronic version made possible with funding from the Rice Historical Society and Thomas R. Williams, Ph.D., class of 2000.Item Empirical evidence on the demand and supply of money; the case of Cyprus(1983) Philippou, Andreas A.; Blanco, Herminio A.; Smith, Gordon W.; Soligo, RonaldThis thesis explores the nature of the demand and supply of money through the use of econometric tools. The interest rates are fixed in Cyprus and, therefore, an alternative way of measuring the cost of holding money has to be used. The tests show that the expected rate of inflation is the best substitute. Money demand is found to be a function of income, money stock in the previous period and the expected rate of inflation. Testing of the supply equation shows that the money multiplier is stable over time. Both equations are stable and have good forecasting ability. Finally, the joint estimation of supply and demand yields more efficient estimators than those found by estimating the equations individually.Item External debt in the Peruvian economy: 1972-1978(1982) Olaechea, Mariana; Smith, Gordon W.; Soligo, Ronald; Young, Richard D.This thesis examines the public and publicly guaranteed medium and long-term external debt situation of the Peruvian economy during the period 1972-1978. Two studies that aim at predicting potential debt servicing problems in a particular country-year, examined in this study, are applied to the Peruvian economy for the period following the debt reschedulings undertaken in 1968 and 1969. The results obtained from applying both econometric debt early warning systems to the Peruvian case show that, as expected, both systems overestimated the number and likelihood of actual formal reschedulings for the Peruvian economy; the debt rescheduling, in fact, took place in 1978. The faulty predictions were chiefly accounted for by the deficiencies of the debt service ratio as an indicator of possible debt servicing problems and by the balance of payments financing, which essentially, is not accounted for in both systems.Item Inflation and the Crawling Peg: the Peruvian case(1982) Choy, Ines Marylin; Blanco, Herminio A.; Huddle, Donald L.; Smith, Gordon W.It is suggested that in cases of frequent changes in the exchange rate, like in the Crawling Peg system, a vicious circle might develop: depreciation of the exchange rate may lead to increased domestic inflationary pressures and further rounds of changes in the exchange rate. This mechanism may be present in the Peruvian economy. A system of Crawling Peg has been adopted and although the deficit in the balance of payments was eliminated, the domestic rate of inflation is still very high. However, in the strict econometric sense, it is difficult to affirm that inflation causes changes in the exchange rate or vice versa because both variables are determined by factors such as the underlying monetary and fiscal policies. In order to examine the relationship between inflation and changes in the exchange rate a model is tested for the Peruvian case. In this model the exchange rate, international reserves and the rate of inflation are jointly determined. Although there is not a direct causality, in the econometric sense, there is a relationship between both variables. As long as the domestic rate of inflation is higher than the world rate of inflation there will be feedback between inflation and changes in the exchange rate.Item Japan's use of capital controls for exchange-rate management, 1975-1982(1983) Bennett, Sylvia K.; Smith, Gordon W.; Blanco, Herminio A.; Huddle, Donald L.Over the period of 1975-1982, Japan experienced substantial fluctuations in its currency and its current account position. With the oil price shocks and the evolution of the floating exchange rate system, much pressure was placed on the yen. A popular balance of payments policy used by Japan and several other countries has been to impose certain restrictions on capital exports and/or capital imports to offset or reinforce the relative currency demands related to merchandise and services trade. This thesis examines how Japan's use of capital controls changed over the years 1975-1982 to accommodate changes in the current account of the balance of payments. Examination of movements in components of the capital account and in covered interest differentials, in relation to changes in capital controls, demonstrates that there is presumption that the controls were largely effective in Japan's case, during most of the period under study. But as the general international climate for capital flows became more liberal, Japan's controls weakened. There is evidence that the controls were then not successful in stemming the desired capital flows.Item Overvaluation of the exchange rate: the Peruvian case, 1968-1975(1979) Mendoza, Valdemaro J.; Soligo, Ronald; Smith, Gordon W.; Young, Richard D.Between 1968 and 1975 the exchange rate became increasingly overvalued in Peru. During the same period.the government began to participate increasingly in the economy implementing a massive investment program. Expansionary fiscal and monetary policies supported its activities and resulted in an increase in the level of domestic demand over the production possibilities of the country. The current account balance deteriorated progressively reaching in 1975 a deficit of a magnitude never before experienced by the economy. Both, the overvaluation of the exchange rate and the overspending policy contributed to the formation of the trade disequilibriums. In 1975 international reserves were depleted and the first of a series of devaluations which would continue during 1976 and 1977- took place. The analysis of the effects of the overvaluation and the devaluation of the exchange rate is undertaken in terms of a two goods model of tradables and non-tradables under the small country assumption. An overvalued exchange rate favors the absorption of tradables while resources are shifted towards the sectors of production of non-tradables. To improve the balance of trade, a devaluation will have to reduce the domestic absorption of tradables and increase their level of production, if full employment of resources or short run inmobility of factors exist, devaluation will have to rely in the reduction in the level of domestic absorption to improve the balance of trade. In the long run, devaluation will favor a composition of absorption compatible with domestic production. The main conclusions of the analysis of the effects of the overvaluation and the devaluation in Peru are: i) The overvaluation by itself could not explain either the significant Increase in the demand for imports, or the increase in the domestic demand for exportables; ii) The nature of the Peruvian imports and exportables permits the conclusion that the trade disequilibriums resulted principally from the increase in domestic demand; iii) The principal effect of the overvaluation was manifested in the allocation of resources; iv) The initial effects of the devaluations was not strong enough to significantly improve the trade balance. However, exports increased and imports were reduced in the short run due to the reduction in the level of domestic absorption; v) This reduction resulted also in a decrease in the absorption of non-traded goods which determined a decrease in the level of domestic output.