Now showing 1 - 5 of 5
  • Publication
    Greed, impatience and exchange rate determination
    (University College Dublin. School of Economics, 2006-05)
    This paper offers a theoretical explanation for the determination of exchange rates under specific conditions which can/could be found in some OECD and newly industrialised countries. In an Obstfeld (1994) framework extended to incorporate government expropriation reneging on a fixed exchange rate promise unambiguously produces short term benefits, but long term losses. The choice of exchange rate regime depends on the combined effect of greediness (expropriation) and impatience (political instability), though not straightforwardly. In particular, similarly stable countries may choose different exchange rate regimes due to different levels of rent-seeking, for instance Mexico and Chile in the 1980s.
      203
  • Publication
    Maastricht criteria versus stability pact
    (University College Dublin. School of Economics, 2005-03)
    It is generally believed that fiscal consolidations should occur prior to a country's admission to the European Monetary Union (EMU). This paper argues that the fiscal Maastricht Criteria require badly timed, costly adjustments while not guaranteeing sustained Fiscal restraint. An effective Stability Pact is not only necessary, but should replace the Maastricht Criteria altogether. These conclusions are based on simulations scrutinising the effects both of contractionary fiscal policies and of joining a monetary union. In a case study type analysis it is shown that there is a strong case for both policy changes to happen at the same time.
      415
  • Publication
    The trade-off between monetary and fiscal solidity : international lenders and political instability
    (University College Dublin. School of Economics, 2004-05)
    This paper analysis the intertemporal public finance decision under political instability. The government’s choice between inflationary finance and foreign debt is constrained by an interest rate, which is affected both by market conditions and debt conditionality. The main result is that there is typically a trade-off between seigniorage taxation and foreign debt. There are two implications. First, monetary and fiscal solidity can typically not be achieved at the same time. Second, myopic behaviour produced by political instability leads to a reduction of seigniorage, not to an increase as argued, for instance, by Cukierman, Edwards and Tabellini (AER, 1992).
      138
  • Publication
    White Elephants and the Limits to Efficient Investment
    (University College Dublin. School of Economics, 2004-05)
    This paper studies a policymaker’s optimal choice between redistribution and efficient public investment. Under political instability, there is myopic government behavior which results in underinvestment. Above some critical value of political instability, it is optimal not to invest at all. This finding also suggests that it may be rational for governments to refrain from anti-corruption investment, even if they are not rent-seeking themselves.
      167
  • Publication
    Public investment under ethnic diversity and political uncertainty
    (University College Dublin. School of Economics, 2005-01)
    This paper addresses the puzzle that public services in some developing countries, especially in Africa, are poor despite large public expenditure. The intertemporal model here studies a government’s optimal choice between redistribution and public investment. Ethnic diversity and political uncertainty reinforce one another in producing myopic government behaviour which results in underinvestment. Above some critical value of political instability, it is optimal for the government not to invest at all.
      113