Search

The western Baltic Sea cod (WBC) stock is at historically low levels, mainly attributed to high fishing pressure and low recruitment. Stable stock assessment metrics suggested recovery potential, given appropriate fisheries management measures. However, changing environmental conditions violate stability assumptions, may negatively affect WBC, and challenge the resource management. The present study explored 42 years of changes in WBC biological parameters. WBC body condition gradually decreased over the last decades for juveniles and adults, with a rapid decrease in recent years when a single cohort dominated the overfished stock. The hepato-somatic index and the muscle weight decreased by 50% and 10% in the last 10 years, respectively, suggesting severely decreasing energy reserves and productivity. The changes in energy reserves were associated with changes in environmental conditions (increase in bottom water temperature, expansion of hypoxic areas during late summer/autumn), and changes in diet composition (less herring). A key bottleneck is the warming and longer-lasting summer period when WBC, trapped between warmed shallow waters and hypoxic deeper waters, have to mobilize energy reserves to account for reduced feeding opportunities and thermal stress. Our results suggest that stock recovery is unlikely to happen by fisheries management alone if environmental trajectories remain unchanged. [ABSTRACT FROM AUTHOR]

This article examines the interaction between the emerging and traditional powers in global governance reform, and asks whether we are heading towards an international financial system that is more fragmented, where power is more diffused and national and regional arrangements play a more prominent role, at the expense of global multilateral institutions. It begins with a brief discussion of the global systemic and country-specific factors that motivate Brazil, China and other emerging countries to accumulate large currency reserves. We find that national arrangements for managing financial and currency crises will continue to hold sway for emerging countries in the wake of the global crisis. However, the actual capacity of regional arrangements in managing future financial crises is uncertain, and the significance of regional alternatives in the emerging architecture should not be overstated. The real capacity of East Asian regional arrangements to manage financial crises, payments problems or currency attacks is still untested, and key thresholds in multilateralization still lie ahead. In South America, multilateral lender-of-last-resort support inside the region is largely confined to the sub-regional level and is limited by Brazil's reticence. Enduring reliance on bilateral measures for financial crisis management is noted. Where there has been progress in regional solutions, since the global crisis, has been in the role of regional development banks in providing financing for developing countries to enact counter-cyclical policies. Such support also provides insulation for states in the region against the contagion effects of international financial crisis. We are in the midst of transitioning to a more diverse and multi-tiered global financial and monetary system. A reformed IMF could have a role to play in addressing global imbalances and encouraging a shift from national reserves to collective insurance, however, it would be preconditioned by significant shifts in the policy, lending operations, and internal governance of the Fund, and willingness among the G20 to strike a new consensus on how to deal with imbalances, and new accommodation on acceptable reserve levels. [ABSTRACT FROM AUTHOR]

This paper estimates the equilibrium exchange rates for Korea's real effective rates using Clark and MacDonald's (1999) behavioural equilibrium exchange rate (BEER) approach. The estimation result suggests that the real exchange rate was substantially overvalued during the period prior to the currency crisis of 1997-98. The subsequent adjustment, however, was disorderly in the sense that the real exchange rate overshot its long-run equilibrium value. There was also a large deviation, from the BEER, indicating that the sharp depreciation was not an equilibrium phenomenon. [ABSTRACT FROM AUTHOR]

We derive a precautionary demand for international reserves in the presence of sovereign risk and show that political-economy considerations modify the optimal level of reserve holdings. A greater chance of opportunistic behaviour by future policy makers and political corruption reduce the demand for international reserves and increase external borrowing. We provide evidence to support these findings. Consequently, the debt-to-reserves ratio may be less useful as a vulnerability indicator. A version of the Lucas Critique suggests that if a high debt-to-reserves ratio is a symptom of opportunistic behaviour, a policy recommendation to increase international reserve holdings may be welfare-reducing. [ABSTRACT FROM AUTHOR]

Many emerging market countries have suffered financial crises. One view blames soft pegs for these crises. Adherents of this view suggest that countries move to corner solutions—hard pegs or floating exchange rates. We analyze the behavior of exchange rates, reserves, and interest rates to assess whether there is evidence that country practice is moving toward corner solutions. We focus on whether countries that claim they are floating are indeed doing so. We find that countries that say they allow their exchange rate to float mostly do not—there seems to be an epidemic case of "fear of floating." [ABSTRACT FROM AUTHOR]

This paper characterises the effects of reserve requirements on financial loans in the presence of moral hazard on the lender side and sovereign risk on the borrower side. The impacts of such reserve requirements on the equilibrium default risk and borrowing are analysed and their welfare implications discussed. More generous bailouts, financed by the high-income block, encourage borrowing and increase the probability of default. The optimal reserve requirements for both lender and borrower are characterised. The introduction of a reserve requirement in either country reduces the default risk and raises the welfare of both the high-income and the emerging-market economies. [ABSTRACT FROM AUTHOR]

Friedman's (1960) proposal to pay interest on (required) reserves is considered in a setting that eliminates the indeterminacy of steady-state equilibrium discussed by Sargent and Wallace (1985). In an overlapping-generations model where the real rate of interest is technologically determined, the payment of interest on reserves results in a determinate, Pareto optimal steady-state equilibrium. However, interest payments on reserves reduce the steady-state welfare of all young agents and, for many economies, result in the existence of stationary sunspot equilibria. This is the case even if such equilibria cannot exist when reserves do not earn interest. [ABSTRACT FROM AUTHOR]

This paper, while treating the first issue with some generality, will take a rather limited view of the way in which information about the distribution of total reserves is assimilated. We shall assume that the planner begins with a given probability distribution of possible endowments of the natural resource, and that he updates this distribution over time by conditioning on the knowledge of his cumulative consumption at each instant. Thus we will abstract from the activity of exploration. This is a regrettable omission which we hope to correct in a later paper. The treatment of this initial problem seems essential to further progress in any event. The plan of the paper is as follows. We begin with a review of the problem of optimal depletion without production in a certain environment. Variational techniques are then employed to deduce necessary conditions for a solution to the problem of optimal exploitation under uncertainty. It is seen that the possibility of premature exhaustion considerably alters the requirements of an optimal path. We then determine a more complete characterization of an optimum and prove a number of qualitative and comparative static results, using dynamic programming arguments. An explicit solution for the problem is exhibited in a class of cases, and its properties studied. Finally, we consider the ability of the market mechanism to support the optimal allocation. [ABSTRACT FROM AUTHOR]

In this paper we developed a stochastic model for determining the optimal stock of international reserves. We derived formally the explicit solution for optimal reserve holdings as a function of the rate of interest, the variance of the stochastic process governing international payments and receipts and the mean rate of net payments. The model was tested empirically under the assumption that on average net payments are zero, and the results were consistent with the predictions of the theoretical model. It should be noted, however, that other empirical studies of the demand for reserves, using different specifications and different time periods, have encountered substantial difficulties in incorporating the rate of interest in the estimated reserve equation (for references see Frenkel (1978)). This might indicate that viewing the rate of interest as the measure of forgone earnings may not be always appropriate. Indeed, our own experiments indicate that the estimated parameters are somewhat sensitive to the specification and to the choice of the time period. Therefore, at the present, we view our empirical results only as suggestive. [ABSTRACT FROM AUTHOR]

This paper proposes to deal with this neglected aspect of reserve diffusion by applying a modified Markov chain analysis to the study of the process of money and credit expansion in response to an injection of additional reserve base. The model of money supply expansion presented above is like all linear models in economics, e.g. the multiplier--accelerator model, the input--output model, linear programming model, etc., in that it merely provides a basic framework on which subsequent modifications and embellishments are to be added. [ABSTRACT FROM AUTHOR]

We have reformulated the problem of the optimal management of international reserves in an appropriate framework of random walks and obtained a revised formula for the optimal level of international reserves. We have also shown that, in our reformulation, the effect of such elements as drift or serial correlation in the balance of payments, time lags in economic policies, and speculative reserve movements can be explicitly incorporated in analytical expression of the formula. The operationality of our approach as well as Heller's was not bought without cost. Throughout the paper, it is assumed that the balance of payments takes a positive or negative value with a given step of h, that deficits are adjusted solely by expenditure reducing policies, and that adjustment is undertaken only when reserve depletion occurs. Throughout this paper, it has been assumed that the marginal cost of income sacrifice is constant, independent of the magnitude of income sacrifice, or, in our simple framework, independent of the number of consecutive periods that require expenditure adjustments. If, in addition, the marginal cost of exchange rate changes is assumed to be constant regardless of the magnitude of the changes, then the optimal choice of a country will be to select the cheaper one of the two alternative adjustment policies (cf. Kreinin and Heller, 1974). The question of the proper combination of both types of policies, which was introduced at the end of Section 3, becomes meaningful only when the marginal costs of income and of exchange rate changes are increasing functions of the changes. The regime of the managed float may partly be justified in the world where these marginal costs are rising, because appealing to a proper combination of income and exchange rate adjustments can be more economical than appealing to only one of these adjustments. In this paper, we have limited ourselves to the modest task of seeking quantitative, operational guidelines for reserve ... [ABSTRACT FROM AUTHOR]

Stabilization programs in open economies typically consist of two stages. In the first stage the rate of currency devaluation is reduced, but the fiscal adjustment does not eliminate the fiscal deficit that causes growth of debt and loss of reserves, making a future policy change necessary. Only later, at a second stage, is this followed by either an abandonment of exchange rate management or by a sufficiently large cut in the fiscal deficit. We study how different second-stage policy changes affect economic dynamics during the first stage. These changes include tax increases, budget cuts on traded and nontraded goods, and increases in the growth rate of money. [ABSTRACT FROM AUTHOR]

Presents a financial report from the treasurer of the European Economic Association for 2003. Decline in total reserves of the association; Causes of the decline in reserves; Acculative surplus that the association has generated during 1996 to 1999; Changes in the roles of the treasurer.

This section comments on an article which observed a positive relationship between the dollar forward premium on gold and the ratio of gold to dollar assets in international reserve portfolios. The author concluded that this shows that gold is not a sterile asset; it has an expected rate of return that acts as a yield variable in the calculus of central banks making portfolio choices between gold and dollar assets. The expected rate of return on gold is represented by the size of the forward premium on gold, which mirrors expectations of capital gains to be realized in the event of appreciation of gold with respect to the dollar. The analysis, as the author recognizes, depends crucially on the assumption that an observed forward premium on gold reflects expectations of an increase in the dollar price of gold. The behavior of the forward gold premium, however, should reflect, in addition to expectations about the future price of gold, movements in the rate of return on dollar securities. Covered interest arbitrage between the dollar and gold should establish a positive relationship between the rate of interest on dollar securities and the forward gold premium, just as it creates a link between interest differentials and forward premiums in currency markets. If the three months' rate of return on dollar-denominated securities rises above the three months' forward premium on gold by an amount greater than the costs of moving into and holding dollar securities, arbitragers can profit by replacing gold with dollar securities in their portfolios and simultaneously buying an equivalent amount of gold forward. On the other hand, if the rate of return on dollar securities falls below the forward premium on gold by an amount greater than the costs of moving into and holding gold, arbitragers can profit by replacing dollar-security holdings with gold and selling an equivalent amount of gold forward.

This section responds to a comment on an article which observed a positive relationship between the dollar forward premium on gold and the ratio of gold to dollar assets in international reserve portfolios. In addition to the specific application to the study, the author's comment suggests a general problem for empirical portfolio studies that he does not explicitly identify. Multicollinearity plagues all empirical portfolio studies, almost by definition. An analysis of demand for an asset must include rate of return on assets that are close substitutes. But if assets are close substitutes so that they appear together in portfolios, the behavior of utility-maximizing portfolio managers means that the return on assets will be highly correlated, just as the author observes is the case for dollars and gold. But this problem only has operational significance if the correlation among explanatory variables is so high as to result in overly enlarged standard errors on the estimated coefficients attached to explanatory variables. The only gain to correcting for multicollinearity might be reduction of some of the standard errors. In general, the multicollinearity problem can be reduced if it is possible to show that n explanatory variables can be reduced to n-1 by means of a nearly exact linear relationship between any two explanatory variables.