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  • Author: John H. Rogers, Shing-Yi B. Wang, Charles M. Engels
  • Publication Date: 09-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: We reexamine the evidence for border effects in deviations from the law of one price, using data for consumer prices from Canadian and U.S. cities. The study parallels Engel and Rogers (1996), except that this study uses actual price data rather than price index data. We find evidence of border effects both in the levels of prices and the percentage change in prices. Even accounting for distance between cities and relative population sizes, we find that the absolute difference between prices in the U.S. and Canada in our data (annual from 1990 to 2002) is greater than seven percent. This difference exists among tradables and nontradables, though for some categories of tradables (clothing and durables) the difference is smaller. The findings are similar for annual changes, though the magnitude is smaller: the border accounts for a difference in 1.5 percent in annual (log) price changes. Relative population sizes and distance are helpful in explaining price level differences (between Canadian and U.S. cities) for traded goods, but are less helpful in explaining price level differences for nontraded goods or for accounting for differences in price changes for either traded or nontraded goods.
  • Topic: International Relations, Economics, International Trade and Finance
  • Political Geography: Canada, North America
  • Author: Jon Wongswan
  • Publication Date: 09-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: Using the conditional Capital Asset Pricing Model (CAPM), this paper tests for the existence and pattern of contagion and capital market integration in global equity markets. Contagion is defined as significant excess conditional correlation among different countries' asset returns above what could be explained by economic fundamentals (systematic risks). Capital market integration is defined as the situation in which only systematic risks are priced. The paper uses a panel of sixteen countries, divided into three blocs: Asia, Latin America, and Germany-U.K.-U.S., for the period from 1990 through 1999. The results show evidence of contagion and capital market integration. In addition, contagion is found to be a regional phenomenon.
  • Topic: International Relations, Economics, Globalization, International Trade and Finance
  • Political Geography: United States, United Kingdom, Asia, Germany, Latin America
  • Author: Robert J. Vigfusson, Lawrence J. Christiano, Martin Eichenbaum
  • Publication Date: 09-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: This paper investigates the response of hours worked to a permanent technology shock. Based on annual data from Canada, we argue that hours worked rise after a positive technology shock. We obtain a similar result using annual data from the United States. These results contradict a large literature that claims that a positive technology shock causes hours worked to fall. We find that the different results are due to the literature making a specification error in the statistical model of per capital hours worked. Finally, we present results that Canadian monetary policy has accommodated technology shocks.
  • Topic: Economics, International Trade and Finance, Science and Technology
  • Political Geography: Canada, North America
  • Author: Joseph W. Gruber, Robert F. Martin
  • Publication Date: 09-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: We study the role an illiquid durable consumption good plays in determining the level of precautionary savings and the distribution of wealth in a standard Aiyagari model (i.e. a model with heterogeneous agents, idiosyncratic uncertainty, and borrowing constraints). Transactions costs induce an inaction region over which the durable stock and the associated user cost are not adjusted in response to changes in income, increasing, on average, the volatility of non-durable consumption. The volatility of total consumption is then a function of the share of the durable good in the utility function and the width of the inaction region. We are particularly interested in parameterizations which increase the precautionary motive for saving through an increase in "committed expenditure risk." We find, for an empirically relevant share of durable consumption and for all transaction costs below an upper threshold, that the level of precautionary savings is increasing in the transaction costs. Transaction costs have only a modest impact on the degree of wealth dispersion, as measured by the Gini index, as the associated increase in savings is close to linear in wealth. While we are unable to match the dispersion of wealth in the data, we increase the dispersion over a single asset model (Gini index of .71 for financial assets and .37 for total wealth) and we are able to match the relative dispersion of financial to durable assets, i.e. we find financial assets much more unequal than durable assets. We also match the ratio of housing wealth to total wealth for the median agent. We calibrate the model to data from the PSID, the CES, and the SCF.
  • Topic: Economics, Emerging Markets, International Trade and Finance, Science and Technology
  • Publication Date: 08-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: The United Nations Educational, Scientific and Cultural Organization, UNESCO, was founded after World War II to contribute to peace and security. Collaboration among nations through education, science and culture remains a cornerstone of a peaceful world order. The founders of UNESCO believed that the rule of law, respect for human rights, and freedom of expression would be strengthened through international cooperation. The need for the world community to renew its efforts to advance these principles has never been more urgent. American leadership in the service of peace and security can help mobilize multilateral institutions, including UNESCO, to stand up for common values that promote tolerance and thwart terrorism. The sanctity of human life must be a common commitment.
  • Topic: International Relations, Treaties and Agreements, United Nations
  • Political Geography: United States
  • Author: Joseph E. Gagon
  • Publication Date: 09-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: During the 1990s the United Kingdom experienced large and sudden exchange rate movements that had no apparent impact on overall consumer prices. This paper shows that the stability of U.K. consumer prices was made possible in part by offsetting movements in the price-cost margins of foreign exporters and in part by offsetting price-cost margins in the U.K. distribution sector. At the same time, U.K. manufacturers experienced margin swings in the opposite direction, largely due to their role as exporters. Thus, sterling depreciation boosted the profits of U.K. manufacturers and squeezed the profits of U.K. distributors, while sterling appreciation had the opposite effects.
  • Topic: Economics, International Trade and Finance, Science and Technology
  • Political Geography: United Nations
  • Author: Rebeca de la Rocque Palis, Roberto Luis Olinto Ramos, Patrice Robitaille
  • Publication Date: 08-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: Revisions to GDP announcements in many countries are often large, and Faust, Rogers, and Wright (2003) have found that G-7 GDP revisions are predictable to varying degrees. In this paper, we extend FRW to study revisions to Brazilian GDP announcements. We document that revisions to Brazilian GDP are large relative to those of G-7 countries. Brazilian GDP revisions are also predictable, which is consistent with the view that GDP revisions correct errors in preliminary GDP rather than reflect news. However, GDP revisions are far from being entirely predictable. Although GDP revisions are largest only one year following the initial GDP release, those revisions are nearly unpredictable.
  • Topic: International Relations, Economics, International Trade and Finance
  • Political Geography: Brazil, South America
  • Author: Jane Ihrig, David Prior
  • Publication Date: 08-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: <p>This paper examines if the type of exchange rate used or size of the movement in the exchange rate matters in estimating exchange-rate exposure of U.S. nonfinancial multinationals. We find that switching from a broad trade-weighted exchange rate to a 2-digit SIC industry exchange rate increases the number of significantly exposed firms in a simple Jorion (1990) regression by 60 percent. Then separating crisis from non-crisis months we find additional evidence of exposure. Although the value of exposure does not change with the size of the exchange rate movement, we find some firms have significant exposure only in crisis periods while others have significant exposure only during normal fluctuations in exchange rates. All told, we find about 1 in 4 firms' returns is significantly affected by movement in the exchange rate between 1995 and 1999. </p><blockquote><p> </p> </blockquote><p> </p><p> </p>
  • Topic: International Relations, Economics, International Trade and Finance
  • Political Geography: United States
  • Publication Date: 08-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: This Intelligence Community Assessment (ICA) was requested by Secretary of Health and Human Services Tommy Thompson and Ambassador Jack Chow, Deputy Assistant Secretary of State for International Health Affairs. It highlights the evolution of Severe Acute Respiratory Syndrome (SARS) and the potential implications of the disease for the United States under several scenarios; this paper does not attempt to provide a scientific assessment of the epidemiology of SARS. Even though SARS has infected and killed far fewer people than other common infectious diseases such as influenza, malaria, tuberculosis, and HIV/AIDS, it has had a disproportionately large economic and political impact because it spread in areas with broad international commercial links and received intense media attention as a mysterious new illness that seemed able to go anywhere and hit anyone.
  • Topic: International Relations, Human Welfare, Poverty, Third World
  • Political Geography: United States
  • Publication Date: 08-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: Sea basing is a critical capability for the United States in a world where flexible, quick-response military action will be required in areas far from fixed bases available or suitable for American military use. The seabase replaces or augments the fixed, in-theater airports and seaports, on which past military operations have focused and depended, with a maneuverability facility at sea - a mobile base of operations, command center, logistics node and transportation hub. A commander can place a seabase where and when he chooses to exploit enemy weaknesses and employ the element of surprise, confusing enemy defensive preparations. A seabase can be a center for reconstitution and redeployment of forces in succeeding stages of complex operations.
  • Topic: Defense Policy, Development, Science and Technology
  • Political Geography: United States
  • Publication Date: 08-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: U.S. national security leaders face a complex, dynamic set of demands in protecting the interests of the United States and its allies. Three key trends shape the nature and capability of the military forces required to meet these demands: 1. The limited ability to predict when, where, and under what conditions we will need to commit U.S. military forces, particularly for smaller-scale contingencies; 2. The need for forces that enjoy dominant superiority over potential adversaries, not simply an incremental advantage over an aggregate set of threats; and 3. The rapid development and global availability of information technology (IT). Taken together, these trends underscore the need for enhanced joint capabilities.
  • Topic: Defense Policy, Development, Science and Technology
  • Political Geography: United States
  • Author: John G. Ikenberry
  • Publication Date: 07-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: American global power – military, economic, technological, cultural, and political – is one of the great realities of our age. Never before has one country been so powerful and unrivaled. The United States began the 1990s as the world's only superpower and its advantages continued to grow through the decade. After the Cold War, the United States reduced its military spending at a slower rate than other countries and its economy grew at a faster pace. The globalization of the world economy has reinforced American economic and political dominance. No ideological challengers are in site. More recently, in response to terrorist attacks, the United States has embarked on a massive military buildup. In the recent National Security Strategy, the Bush administration has articulated an ambitious and provocative global military role for the United States in confronting new-age threats. Overall, American power advantages are multidimensional, unprecedented, and unlikely to disappear any time soon. The world has taken notice of these developments. Indeed, the post-Cold War rise of American power -- what might be called the rise of American "unipolarity" -- has unsettled world politics. Governments everywhere are worried about the uncertainties and insecurities that appear to flow from such extreme and unprecedented disparities of power. The shifting global security environment – triggered by the terrorist attacks of September 11th –also has conspired to upset old relationships and expectations. The American invasions of Afghanistan and Iraq have put American power on display and raised far-reaching questions about the use of force, alliances, weapons of mass destruction, sovereignty and interventionism. The world is in the midst of a great geopolitical adjustment process. Governments are trying to figure out how an American-centered unipolar order will operate. How will the United States use its power? Will a unipolar world be built around rules and institutions or the unilateral exercise of American power? This global worry about how a unipolar world will operate – in which the most basic questions about the character of world politics are at stake, namely, who benefits and who commands – is the not-so-hidden subtext of all the recent controversies in America's relations with the rest of the world. The question posed in this report is: how are the major countries around the world responding to American global preeminence? Overall, strategies and policies are mostly still in flux around the world. Responses up to now have been mostly ad hoc. Governments are learning, adapting, negotiating, and reacting – thus it is not possible to identify fixed "strategies of response." This report seeks to help us understand these evolving responses in two ways: first, it will provide conceptual tools to identify and track strategic responses by major states to American preeminence, and second, it will offer some preliminary characterizations of the patterns of response, particularly by Western Europe, Russia, and China. This report might be seen as a sort of "field guide" to global reactions rather than a definitive theoretical and empirical statement on the subject. I begin by offering a summary of the findings. After this, I look at the rise of American unipolar power and the variety of ways that American power is "experienced" around the world. In the next section, I survey the deeper sources and multifaceted character of American unipolar power. Next I explore the limits of the basic strategies of response to concentrated power – balancing, bandwagoning and binding. In the next section, I explore some of the emerging strategies that are appearing among the major countries. Finally, in the conclusion I return to the issue of unipolar power and rule-based order.
  • Topic: International Relations, Politics, Sovereignty
  • Political Geography: United States, America
  • Publication Date: 07-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: The Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (Antibribery Convention) of the Organization of Economic Cooperation and Development (OECD) is one of the most important instruments through which the U.S. government fights transnational corruption. The Convention obligates the Parties to criminalize bribery of foreign public officials in the conduct of international business. It is aimed at proscribing offers, promises or payments of bribes by companies based in the OECD signatory countries that engage in transactions in other countries.
  • Topic: Foreign Policy, Defense Policy, Economics
  • Political Geography: United States
  • Author: David C. Smith
  • Publication Date: 07-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: This paper examines the characteristics of loans to Japanese borrowers using a relatively unexplored, contract-specific data set. I find that Japanese banks charge less on loans to Japanese borrowers than do foreign banks, holding constant many of the risk characteristics of the borrower. Moreover, Japanese banks vary pricing less across these risks than do foreign banks, suggesting that Japanese banks tend not to distinguish good risks from bad. Taken together, the results suggest that problems at Japanese banks stem from the behavior of the banks themselves, not simply from poor economic conditions. I also document a significant shortening in the maturity structure of Japanese loans in the late 1990s.
  • Topic: Economics, Emerging Markets, International Trade and Finance
  • Political Geography: Japan, Israel
  • Author: Francis E. Warnock, Hali J. Edison
  • Publication Date: 07-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: We analyze a unique data set and uncover a remarkable result that casts a new light on the home bias phenomenon. The data are comprehensive, security-level holdings of emerging market equities by U.S. investors. We document, as expected, that at a point in time U.S. portfolios are tilted towards firms that are large, have fewer restrictions on foreign ownership, or are cross-listed on a U.S. exchange. The size of the cross-listing effect is striking. In contrast to the well-documented underweighting of foreign stocks, emerging market equities that are cross-listed on a U.S. exchange are incorporated into U.S. portfolios at full international CAPM weights. Our results suggest that information asymmetries play an important role in equity home bias and that the benefits of international risk sharing are limited to select firms.
  • Topic: Economics, Emerging Markets, International Trade and Finance
  • Political Geography: United States
  • Author: Francis E. Warnock, Hali J. Edison
  • Publication Date: 07-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: We analyze capital flows to emerging markets in a framework that incorporates two quantitative measures of financial integration, the intensity of capital controls and the extent of cross-border listings, while controlling for traditional global (push) and country-specific (pull) factors. Two important results emerge. First, the cross-listing of an emerging market firm on a U.S. exchange is an important but short-lived capital flows event, suggesting that the cross-listed stock is in effect a new security that U.S. investors quickly bring into their portfolios. Second, the effect of financial liberalization on capital flows is more nuanced than is suggested by event studies: A reduction in capital controls results in increased inflows only when the controls were binding. Among the standard push and pull factors, global factors are important—slack U.S. economic activity is associated with increased flows to emerging markets—and U.S. investors appear to chase expected, but not past, returns.
  • Topic: Economics, Emerging Markets, International Trade and Finance
  • Political Geography: United States
  • Publication Date: 07-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: Special operations are operations conducted in hostile, denied, or politically sensitive environments to acheive military, diplomatic, informational, and/or economic objectives employing military capabilities for which there is no broad conventional force requirement. These operations often require covert, clandestine, or discreet capabilities. Special operations are applicable across the range of military operations. They can be conducted independently or in conjunction with operations of conventional forces or other government agencies and may include operations by, with, or through indigenous or surrogate forces.Special operations differ from conventional military actions in the following ways: Greater degree of physical and political risk Unique operational techniques, mode of employment, and independence from friendly support Detailed operational intelligence and indigenous assets.
  • Topic: Defense Policy, Terrorism, War
  • Political Geography: United States
  • Publication Date: 07-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: In the terms of reference, the Under Secretary of Defense for Acquisition, Technology, and Logistics directed the task force “to conduct a comprehensive study of the ends and means of precision compellence, or the nuanced use of force, in concert with coalition partners, to achieve political, economic and moral change in countries affecting US interests.” Real-world events have since underscored the need for such a study; indeed, the U.S. military applied key elements of a measured, nuanced approach in both the Afghanistan and Iraq campaigns. We are pleased to note this evolution in operations and a parallel evolution in the thinking of the combatant commands and Services. Because of this evolution, it is no longer as necessary as it once was to sell the fundamental objectives of what we term here the discriminate use of force (DUF).
  • Topic: International Relations, Defense Policy, Science and Technology
  • Political Geography: United States
  • Publication Date: 09-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: The Responsibility Sharing Report presents the Department of Defense's annual assessment of the relative contributions toward the common defense and mutual security by our NATO allies, our Pacific allies (Australia, Japan and the Republic of Korea), and the Gulf Cooperation Council (GCC) nations. The cornerstone of effective alliance relationships is the fair and equitable sharing of the full range of mutual security responsibilities, and the appropriate balancing of costs and benefits.
  • Topic: Security, Defense Policy, NATO
  • Political Geography: Japan, Australia/Pacific, Korea
  • Publication Date: 06-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: The Joint Strike Fighter (JSF) program was conceived as an international acquisition program in order to attract financial investment and technological innovation from partner countries, as well as to partner early with governments whose military Services were likely users of this state-of-the-art coalition forces platform.
  • Topic: Defense Policy, Economics, Industrial Policy, Science and Technology
  • Publication Date: 06-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: This is the second 21st century Defense Science Board report on military training. The report itself has a training goal: instruct and convince the acquisition and personnel communities to recognize instinctively that (1) military proficiency is as dependent on the warriors who operate weapon systems as it is on the weapon system technology, and (2) a superb way to waste personnel or system acquisition money is to ignore training, or to tacitly allow training to pay the bills for acquisition or personnel system flaws in those more measurable arenas.
  • Topic: Defense Policy, Development, Science and Technology
  • Political Geography: United States
  • Publication Date: 06-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: Since 1999, the Department of Defense has used its real property inventory as the basis for the annual publication of the Base Structure Report. This report contains a comprehensive listing of installations and sites used by the Department, summarizes the current facilities inventory, and provides other basic information concerning the locations.
  • Topic: Security, Defense Policy, Economics
  • Political Geography: United States
  • Author: Jaime Marquez, Shing-Yi B. Wang
  • Publication Date: 06-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: We study whether aggregation residuals in U.S. private investment in information technology (IT) exhibit a predictable pattern that is consistent with Hicks' composite-good theorem and that may be used for forecasting. To determine whether one can extract such a pattern, we apply the general-to-specific strategy developed by Krolzig and Hendry (2001). This strategy combines ordinary least squares with a computer-automated algorithm that selects a specification based on coefficients' statistical significance, residual properties, and parameter constancy. Then, we derive the testable implications from Hicks' theorem and evaluate them with econometric formulations; we find qualified support for these implications. Having obtained these formulations, we evaluate their ex-post predictive accuracy and compare it to that of an autoregressive model. The key finding is that ignoring movement in relative prices results in a loss of information for predicting aggregation residuals.
  • Topic: Economics, International Trade and Finance, Science and Technology
  • Political Geography: United States
  • Author: David Johnson
  • Publication Date: 05-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: In 2000, an overwhelming 97 percent of Afghan girls did not attend school, and today only about 20 percent are literate. Tens of thousands of Afghan girls are now attending school for the first time in years.
  • Topic: International Relations, Democratization, Development
  • Political Geography: Afghanistan, Middle East
  • Author: Carolyn Evans, James Harrigan
  • Publication Date: 05-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: Time is money, and distance matters. We model the interaction of these truisms, and show the implications for global specialization and trade: products where timely delivery is important will be produced near the source of final demand, where wages will be higher as a result. In the model, timely delivery is important because it allows retailers to respond to fluctuating final demand without holding costly inventories, and timely delivery is only possible from nearby locations. Using a unique dataset that allows us to measure the retail demand for timely delivery, we show that the sources of US apparel imports have shifted in the way predicted by the model, with products where timeliness matters increasingly imported from nearby countries.
  • Topic: Economics, International Trade and Finance, Science and Technology
  • Political Geography: United States
  • Author: Jorge D. Selaive, Vicente Tuesta
  • Publication Date: 05-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: An unresolved issue in international macroeconomics is the apparent lack of risk-sharing across countries, which contradicts the prediction of models based on the assumption of complete markets. We assess the importance of financial frictions in this issue by constructing an incomplete market model with stationary net foreign assets (NFA) and imperfect pass-through (IPT). In this paper, there is a cost of bond holdings that allows us to incorporate the dynamics of NFA into the risk-sharing condition. On theoretical grounds, our results suggest that the dynamics of NFA may account for the lack of risk-sharing across countries. In addition, the IPT mechanism, by closing the current account channel, does not help to explain this feature of the data. On empirical grounds, we test the risk-sharing condition derived in the paper, and we find that growth factors of consumption and real exchange rates behave in a manner that may be consistent with a significant role for the net foreign asset position.
  • Topic: Development, Economics, International Trade and Finance
  • Political Geography: United States
  • Author: Jaime Marquez, Jane Ihrig
  • Publication Date: 05-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: One of the most remarkable macroeconomic developments of the past decade has been the widespread decline in inflation despite declines in unemployment rates. For the United States, these seemingly contradictory developments have been reconciled in terms of three factors: (1) an acceleration in productivity, (2) structural changes in labor markets that lowered the natural unemployment rate (NAIRU), and (3) improved credibility of monetary policy. Here we ask whether comparable factors were at work in foreign industrial countries. To address this question, we empirically characterize the relationship between inflation, the unemployment rate, and structural factors using an extended Phillips curve model with quarterly data through 1994. By undertaking counterfactual simulations from 1995 to 2001, we quantify the separate contributions of unemployment-rate movements, labor-market reforms (that affected the NAIRU), and productivity developments on inflation. In line with previous work on the United States, we find that productivity advancements were the main structural factor reducing inflation in the United States. For foreign countries, persistent labor-market slack was the main factor exerting downward pressure on inflation. This persistence stemmed, in part, from structural reforms that lowered the NAIRU while the unemployment rate was declining.
  • Topic: International Relations, Development, Economics, International Trade and Finance
  • Political Geography: United States
  • Publication Date: 05-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: The Undersecretary of Defense (Acquisition, Technology, and Logistics) and the Secretary of the Air Force cosponsored the Joint Defense Science Board (DSB)/Air Force Science Advisory Board (AFSAB) Task Force on the Acquisition of National Security Space Programs and directed the task force to Recommend improvements to the acquisition of space programs from initiation to deployment; Assess the nation's dependency on space; Characterize problems by looking at underlying causes and systemic issues such as cost growth and schedule delays that impact all space programs; and Analyze the Space-Based Infrared System (SBIRS), Future Imaging Architecture (FIA), and Evolved Expendable Launch Vehicle (EELV).
  • Topic: Security, Defense Policy
  • Political Geography: United States
  • Publication Date: 05-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: The United States Commission on International Religious Freedom (USCIRF) is an independent federal government agency created by the International Religious Freedom Act of 1998 (IRFA) to monitor religious freedom in other countries and advise the President, Secretary of State, and Congress on how best to promote it. The Commission is the only government commission in the world with a mandate to review and report violations of the internationally-guaranteed right to freedom of religion and belief worldwide. By providing reliable information, analysis, and careful and creative policy recommendations, the Commission gives the U.S. government and the American public the tools necessary to promote religious freedom throughout the world.
  • Topic: Foreign Policy, Diplomacy, Government, Human Rights, Religion
  • Political Geography: United States
  • Author: Eric M. Leeper, Jennifer E. Roush
  • Publication Date: 04-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: Money demand and the stock of money have all but disappeared from monetary policy analyses. Remarkably, it is more common for empirical work on monetary policy to include commodity prices than to include money. This paper establishes and explores the empirical fact that whether money enters a model and how it enters matters for inferences about policy impacts. The way money is modeled significantly changes the size of output and inflation effects and the degree of inertia that inflation exhibits following a policy shock. We offer a simple and conventional economic interpretation of these empirical facts.
  • Topic: Conflict Resolution, International Relations, Economics, International Trade and Finance
  • Author: Carlos Ó. Arteta
  • Publication Date: 03-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: In view of the role of liability dollarization in recent financial crises, whether or not the widespread presence of foreign-currency-denominated deposits and credits in developing-country banking systems leads to greater financial fragility is an open and pressing question. Using a comprehensive dataset on deposit and credit dollarization for a large number of developing and transition economies, I find little evidence that high dollarization heightens the probability of banking crises or currency crashes. Furthermore, while empirical results suggest that banking crises and currency crashes are contractionary, there is no robust evidence that they are more costly in highly dollarized countries than in countries where dollarization is low. This extensive empirical search highlights that macroeconomic and exchange rate policies are far more important than bank dollarization in determining crisis risks and costs.
  • Topic: Conflict Resolution, International Relations, Economics, International Trade and Finance
  • Author: Brian M. Doyle, David Bowman
  • Publication Date: 03-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: The considerable amount of research in recent years on New Keynesian, open-economy models -- models with nominal price rigidities and intertemporally maximizing agents -- has yielded fresh insights for what Alan Blinder has called the “dark art” of making monetary policy. The literature has made its greatest contributions in understanding the transmission of shocks across countries, exchange rate pass-through and the effects of different pricing rules, and how these impact optimal monetary policy rules and international policy coordination. While the literature has by no means solved the great mysteries of open-economy macroeconomics, it has laid out a framework where we can ask normative questions of monetary policy, such as how much a central bank should react to movements in the exchange rate. However, monetary policy remains an empirical endeavour, and would be helped by further work which empirically estimates or calibrates these new models.
  • Topic: International Relations, Development, Economics, International Trade and Finance, Monetary Policy
  • Author: J. Benson Durham
  • Publication Date: 02-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: In contrast to the empirical literature's focus on foreign direct investment (FDI), this study examines the effects of foreign portfolio investment (FPI) and “other” foreign investment (OFI) on economic growth using data on 88 countries from 1977 through 2000. Most measures suggest that FPI has no effect, and some results indicate that OFI has a negative impact on growth that is somewhat mitigated by initial financial and/or legal development. However, these results are questionable due to possible simultaneity bias. The empirical analyses also examine whether non-FDI foreign investment affects growth indirectly. FPI does not correlate positively with macroeconomic volatility, but the results indicate that the negative indirect effect of OFI through macroeconomic volatility comprises a substantial portion of the gross negative effect of OFI on growth.
  • Topic: International Relations, Economics, International Trade and Finance
  • Political Geography: United States
  • Author: Fang Cai
  • Publication Date: 02-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: This paper uses a unique dataset of audit trail transactions to examine the trading behavior of market makers in the Treasury bond futures market when Long-Term Capital Management (LTCM) faced binding margin constraints in 1998. Although identities are concealed in the dataset, I find strong evidence that during the crisis market makers in the aggregate engaged in front running against customer orders from a particular clearing firm (coded “PI7”) that closely match various features of LTCM's trades through Bear Stearns. That is, market makers traded on their own accounts in the same direction as PI7 customers did, but one or two minutes beforehand. Furthermore, a significant percentage of market makers made abnormal profits on most of the trading days during the crisis. Their aggregate abnormal profits, however, were more than offset by abnormal losses realized after the private sector recapitalization of LTCM. Moreover, I show that before the rescue, a market maker's cumulative abnormal profit was positively correlated both to her tie as contra party with PI7 and to the intensity of her front running, but these relationships turned negative after the rescue. The overall evidence suggests that the recapitalization plan effectively relaxed LTCM's binding constraints and therefore reversed the profitability of front running.
  • Topic: Economics, Emerging Markets, International Trade and Finance
  • Political Geography: United States
  • Author: Jon Wongswan
  • Publication Date: 02-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: This paper provides evidence of transmission of information from the U.S. and Japan to Korean and Thai equity markets during the period from 1995 through 2000. Information is defined as important macroeconomic announcements in the U.S., Japan, Korea, and Thailand. Using high-frequency intraday data, I focus the study on return volatility and trading volume because the implications of new information are much clearer than for returns. I find a large and significant association between emerging-economy equity volatility and trading volume and developed-economy macroeconomic announcements at short-time horizons. This is the first strong evidence of this sort of international information transmission. Previous studies' findings of at most weak evidence may be due to their use of lower frequency data and their focus on developed-economy financial market innovations as the measure of information.
  • Topic: Economics, International Trade and Finance
  • Political Geography: United States, Japan, Asia, Korea, Thailand
  • Author: John H. Rogers, James M. Nason
  • Publication Date: 02-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: Tests of the present-value model of the current account are frequently rejected by the data. Standard explanations rely on the “usual suspects” of non-separable preferences, shocks to fiscal policy and the world real interest rate, and imperfect international capital mobility. We con firm these rejections on post-war Canadian data, then investigate their source by calibrating and simulating alternative versions of a small open economy, real business cycle model. Monte Carlo experiments reveal that, although each of the suspects matters in some way, a “canonical” RBC model moves closest to the data when it features exogenous world real interest rate shocks.
  • Topic: Conflict Resolution, International Relations, Economics, International Trade and Finance
  • Publication Date: 02-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: The terrorist attacks of September 11, 2001, in Washington, D.C., New York City, and Pennsylvania were acts of war against the United States of America and its allies, and against the very idea of civilized society. No cause justifies terrorism. The world must respond and fight this evil that is intent on threatening and destroying our basic freedoms and our way of life. Freedom and fear are at war.
  • Topic: Security, Defense Policy, Terrorism
  • Political Geography: United States, Washington, Pennsylvania
  • Publication Date: 02-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: For this study, we built upon Secretary Rumsfeld's six operational goals for transformation, requirements from Joint Vision 2020, lessons learned from Operation Enduring Freedom, and previous industrial base studies. We drew on recommendations from experts in the Department of Defense, industry, and the investment community to create a compendium of representative emerging defense suppliers with transformational technologies and products. We identified 24 companies' key technologies, products, and best business practices in case studies. We also surveyed legacy defense suppliers and the Defense Advanced Research Projects Agency (DARPA) to capture key characteristics associated with programs and products judged to be among the organizations' most successful, most important and innovative, and fastest to field. Finally, we spoke with five prominent companies who have substantially exited the defense business.
  • Topic: Defense Policy, Economics, Industrial Policy, Science and Technology
  • Publication Date: 02-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: Section 2504 of title 10, United States Code, requires that the Secretary of Defense submit an annual report to the Committee on Armed Services of the Senate and the Committee on Armed Services of the House of Representatives, by March 1st of each year.
  • Topic: Defense Policy, Economics, Industrial Policy, Science and Technology
  • Political Geography: United States
  • Author: Robert F. Martin
  • Publication Date: 01-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: We study consumption of durable and nondurable goods when the durable good is subject to transaction costs. In the model, agents derive utility from a service flow of a durable good and a consumption flow of a nondurable good. The key feature of the model is the existence of a fixed transaction cost in the durable good market. The fixed cost induces an inaction region in the purchase of the durable good. More importantly, the inability to adjust the durable stock induces variation in consumption of the nondurable good over the inaction region. The variation is a function of the degree of complementarity between durable and nondurable goods in the period utility function, the rate of intertemporal substitution, and a precautionary motive induced by incomplete markets. We test the model using the PSID. Housing serves as the durable good. The data indicate an increase in consumption before moving to a smaller house and a decrease in consumption before moving to a larger house. This result is consistent with the model when there exists complementarity between the durable and nondurable good or when there is a strong precautionary effect.
  • Topic: Economics, Industrial Policy, International Trade and Finance
  • Political Geography: United States
  • Author: Francis E. Warnock, John D. Burger
  • Publication Date: 01-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: While there is a severe home bias in U.S. investors' foreign bond portfolios, we find that portfolio weights are greater for countries with more open capital accounts and whose bond returns are less correlated with U.S. returns. Positions in local-currency-denominated bonds are particularly sensitive to past and prospective returns volatility. An analysis of changes in portfolio weights over time indicates that U.S. investors have recently moved out of smaller markets and those with low and declining credit ratings. Our data also allow for an analysis of the size and currency composition of international bond markets. We find that countries with stronger institutions and better inflation performance have larger local currency bond markets. An implication for developing countries is that creditor friendly policies, such as vigilance on the inflation front and the development of strong institutions, can enable local bond market development and may in turn attract global investors.
  • Topic: International Relations, Economics, International Trade and Finance
  • Political Geography: United States
  • Author: Jonathan H. Wright, Alain P. Chaboud
  • Publication Date: 01-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: The failure of uncovered interest parity can be ascribed to the existence of a risk premium. The size of this risk premium may shrink to zero over sufficiently small intervals of time. In contrast, because no interest is paid on intradaily positions and interest is instead paid discretely at the point when a position is rolled over from one day to the next, the size of the interest differential remains fixed over any interval that covers the time of the discrete interest payment. This is true no matter how short that interval is. Using a large dataset of high frequency exchange rate data, we run uncovered interest parity regression over different time intervals. We replicate the rejection of the uncovered interest parity hypothesis with daily data, but find results that are consistently much more supportive of the uncovered interest parity hypothesis over short windows of intradaily data that span the time of the discrete interest payment.
  • Topic: Conflict Prevention, International Relations, Economics, International Trade and Finance
  • Author: Joseph E. Gagnon
  • Publication Date: 01-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: Krugman (1989) argued that differences across countries in estimated income elasticities of import demand are due to omission of an exporter supply effect. He showed that such an effect can be derived in a theoretical model with economies of scale in production and a taste for variety in consumption. In his model, countries grow by producing new varieties of goods, and they are able to export these goods without suffering any deterioration in their terms of trade. This paper analyzes U.S. import demand from different source countries and finds strong evidence of a supply effect of roughly half the magnitude (0.75) of the income elasticity (1.5). Price elasticities for the most part are estimated close to -1, which is typical for the literature. Exclusion of the supply effect leads to overestimation of the income elasticity. Results based on U.S. exports to different destinations are less robust, but largely corroborate these findings.
  • Topic: International Relations, Economics, International Trade and Finance
  • Political Geography: United States
  • Author: Francis E. Warnock, Sara B. Holland
  • Publication Date: 01-2003
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: High growth, liquid Chilean firms have greater relative weights in U.S. equity portfolios, but the most important determinant of a firm's portfolio weight is whether it is listed on a U.S. exchange. Cross-listing does not, however, appear to have permanent benefits: Weights in U.S. portfolios of firms that cross-listed in the mid-1990s increased at the expense of firms that cross-listed earlier. Put another way, firms appear to be able to access international capital at the time of the cross-listing, but this access may well be short-lived.
  • Topic: International Relations, Economics, International Trade and Finance
  • Political Geography: South America
  • Author: Kristina Balalovska, Mieczyslaw P. Boduszynski
  • Publication Date: 09-2003
  • Content Type: Working Paper
  • Institution: The Woodrow Wilson International Center for Scholars
  • Abstract: In the first half of 2003, postcommunist East European countries became pawns in two disputes between the European Union (EU) and the United States (US). The first, broadly covered by the Western media, was the clash over the US-led invasion of Iraq. The second was over the jurisdiction of the newly established International Criminal Court (ICC). Although the latter skirmish was less noticed in the wider world, it was in many ways the more significant of the two. In both cases, the small states of East and Central Europe were forced to choose between the conflicting demands of the EU and US. Unlike the battle over the Iraq war, EU member states were united on the point of not granting the US immunity in the ICC. Moreover, it was impossible to walk a tightrope between Europe and the US in the ICC case because it required decisive action, whereas on the question of whether or not to invade Iraqi, some postcommunist countries were able to lend tacit support to both sides. Finally, a lot more was at stake in the ICC issue, since both the US and the EU threatened defecting countries with concrete sanctions.
  • Topic: Government, International Organization, Politics, War, Sanctions
  • Political Geography: United States, Iraq, Europe, Macedonia
  • Author: Johnnie Carson
  • Publication Date: 09-2003
  • Content Type: Working Paper
  • Institution: The Woodrow Wilson International Center for Scholars
  • Abstract: An Introduction from Howard Wolpe: As the new Director of the Woodrow Wilson International Center's Africa Program, I am pleased to present the first of a series of “occasional papers” of interest to those concerned with Africa, and with American policy toward Africa. “From Moi to Kibaki: An Assessment of the Kenyan Transition” provides a remarkably clear and incisive analysis by one of the U.S. Foreign Service's most distinguished Africa specialists.We felt that Ambassador Johnnie Carson's public lecture deserved a wider audience, and was an ideal vehicle for the first of our series of occasional papers.
  • Topic: Democratization, Government, Politics
  • Political Geography: Africa
  • Author: Jean Pascal Zanders, John Hart, Frida Kulah, Richard Guthrie
  • Publication Date: 10-2003
  • Content Type: Working Paper
  • Institution: Stockholm International Peace Research Institute
  • Abstract: Since the end of military action in Iraq and the formation of the Coalition Provisional Authority in May 2003, most debate on the future of Iraq has focused on the short-term problems of governance, internal security and economic reconstruction in that country. In addition to the immediate problems, there is also a need to address long-term issues, such as what role Iraq will play in multilateral bodies. Although some issues can only be resolved in the long term, others will require initial decisions to be taken in the near future. In the very long term (measured in terms of decades) there is no option other than for Iraq to be involved in multilateral controls on chemical weapons (CW). However, in the medium term (measured in years) it is unclear what the best method would be to take Iraq from its current situation—as an occupied state with, at the very least, a past CW programme of which knowledge is incomplete—to a new situation where an Iraqi Government commits Iraq to membership of and adherence to multilateral disarmament regimes.
  • Topic: Arms Control and Proliferation, Human Welfare, Weapons of Mass Destruction
  • Political Geography: Iraq, Arabia
  • Author: Siemon T. Wezeman
  • Publication Date: 08-2003
  • Content Type: Working Paper
  • Institution: Stockholm International Peace Research Institute
  • Abstract: In December 1991, in Resolution 46/36 L, the United Nations General Assembly established the United Nations Register of Conventional Arms (UNROCA), a 'universal and non-discriminatory Register of Conventional Arms' to which nations were invited to report annually, on a voluntary basis, their imports and exports of certain types of conventional weapons during the previous calendar year. The main purpose of the Register was stated as being 'to prevent excessive and destabilizing accumulations of arms'. Resolution 46/36 L also mentioned as goals: (a) implementing new confidence-building measures, (b) the reduction of arms transfers (which by the mid-1980s had reached their highest level since 1950), (c) addressing the problem of the illicit and covert arms trade, including its effects on human rights, (d) reducing the burden placed by arms acquisitions on countries' economies, and (e) the reduction of military expenditures. In practical terms, nations were to start reporting in 1992 on weapons delivered in 1991, and the process was to be reviewed periodically by a group of government experts to consider the need for improvement.
  • Topic: Defense Policy, Arms Control and Proliferation, Human Welfare, United Nations
  • Author: Zdzislaw Lachowski, Björn Hagelin, Sam Perlo-Freeman, Petter Stålenheim, Dmitri Trofimov, Alyson J. K. Bailes
  • Publication Date: 07-2003
  • Content Type: Working Paper
  • Institution: Stockholm International Peace Research Institute
  • Abstract: The international attention paid to the nations of the South Caucasus region and Central Asia—a group of post-Soviet states beyond Europe's conventional frontiers but included in the Conference on/Organization for Security and Co-operation in Europe (CSCE/OSCE)—has been fitful at best over the past decade. During the last years of the 20th and at the start of the 21st century, after the conflicts in Georgia and Nagorno-Karabakh became (at least partly) 'frozen', security concerns about the regions tended to decline and to become overshadowed both by 'oil diplomacy' and by concern about developments within Russia itself, in Chechnya and Dagestan. In 2002–2003 a constellation of changes in the outside world has started to reverse this pattern. Chechnya is no longer a regular topic of high-level political debate between Russia and the West, and President Vladimir Putin has played the anti-terrorist card with some success to secure his freedom to deal with it as an internal security matter. The factors prompting greater international attention to Russia's south-western and southern neighbours, by contrast, have the potential to undermine—perhaps for good—any Russian pretension to decisive influence or an exclusive droit de regard in these regions. At the time of writing, however, this latest shift could again be called in question by a new diversion of focus to the 'greater Middle East' following hostilities in Iraq.
  • Topic: Defense Policy, Arms Control and Proliferation
  • Political Geography: Russia, Iraq, Europe, Central Asia, Caucasus, Middle East, Chechnya, Georgia
  • Author: Ekaterina Stepanova
  • Publication Date: 06-2003
  • Content Type: Working Paper
  • Institution: Stockholm International Peace Research Institute
  • Abstract: Since the tragic events of 11 September 2001, much has been said about potential links between the fight against terrorism and peace-building. In the meantime, the fight against terrorism and peace-building have, by and large, continued to be implemented separately and by different sets of actors.
  • Topic: Security, Peace Studies, Terrorism