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This paper examines the possibility of nonlinear effects of inflation on economic growth. It finds evidence of a significant structural break in the function that relates economic growth to inflation. The break is estimated to occur when the inflation rate is 8 percent. Below that rate, inflation does not have any effect on growth, or it may even have a slightly positive effect. When the inflation rate is above 8 percent, however, the estimated effect of inflation on growth rates is significant, robust and extremely powerful. The paper also demonstrates that when the existence of the structural break is ignored, the estimated effect of inflation on growth is biased by a factor of three.

Deflation --- Economic policy --- Empirical Studies of Trade --- Exports and Imports --- Inflation --- International economics --- International trade --- Macroeconomics --- Nternational cooperation --- Price Level --- Prices --- Terms of trade --- New Zealand

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This paper describes economic development in Bhutan during 1990s. It highlights that since the 1980s, considerable importance has been placed on developing resource-based industries—spearheaded by large government hydropower, forestry, and mining projects—financed mainly with concessional foreign assistance. Consistent with the country’s development philosophy, exploitation of forests has been carefully controlled owing to concerns about the impact on the environment. This paper also examines the financial and sectoral policies and related developments in Bhutan.

Exports and Imports --- Foreign Exchange --- Agribusiness --- Trade: General --- Foreign Aid --- Agriculture: General --- International economics --- Currency --- Foreign exchange --- Agricultural economics --- Exports --- Foreign aid --- Imports --- Agricultural sector --- International trade --- Economic sectors --- International relief --- Agricultural industries --- Bhutan

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This Background Paper on Sri Lanka provides information on the economic developments during 1992–95. Developments in the domestic and external sectors are discussed. The deficiencies of the official consumer price index that resulted in a substantial understatement of inflation performance in 1994 and alternative estimates of underlying inflation are described. The structural rigidities in the labor market that perpetuate high unemployment and limit job growth are also described. The paper also examines fiscal sustainability, which emerged as the key medium-term policy objective.

Investments: Commodities --- Exports and Imports --- Taxation --- Trade Policy --- International Trade Organizations --- Trade: General --- Agriculture: General --- Public finance & taxation --- International economics --- Investment & securities --- Tariffs --- Imports --- Agricultural commodities --- Duties --- Exports --- Taxes --- Commodities --- International trade --- Tariff --- Farm produce --- Sri Lanka

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This paper analyzes exchange rate behavior in a model where consumers trade goods to diversify shocks to their income. A model with traded and nontraded goods is simulated in a multilateral context based upon historical output correlations for the period 1970–92. Simulation results indicate that the observed volatility of multilateral real exchange rates for the United States, Germany and Japan is not inconsistent with exchange rate volatility implied by consumption-smoothing behavior.

Exports and Imports --- Foreign Exchange --- Macroeconomics --- Open Economy Macroeconomics --- Macroeconomic Aspects of International Trade and Finance: Forecasting and Simulation --- Empirical Studies of Trade --- International Investment --- Long-term Capital Movements --- Macroeconomics: Consumption --- Saving --- Wealth --- Currency --- Foreign exchange --- International economics --- Real effective exchange rates --- Real exchange rates --- Trade balance --- Foreign assets --- Consumption --- International trade --- External position --- National accounts --- Balance of trade --- Investments, Foreign --- Economics --- United States

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Africa has more countries than any other continent, and hence the largest number of potential monetary and exchange rate arrangements. This paper looks at whether the existing highly fractured monetary arrangements in Sub-Saharan Africa correspond to what might be expected from the theory of optimum currency areas. This is done by analyzing both the size and correlation of real disturbances across countries and the level of intra-regional trade. The results indicate little evidence that Sub-Saharan African countries would benefit in the near future from larger currency unions.

Conventional peg --- Currencies --- Currency --- Deflation --- Economic integration --- Exchange rate arrangements --- Exports and Imports --- Financial Aspects of Economic Integration --- Foreign Exchange --- Foreign exchange --- Government and the Monetary System --- Inflation --- International economics --- International Monetary Arrangements and Institutions --- Macroeconomics --- Monetary economics --- Monetary Systems --- Monetary unions --- Money and Monetary Policy --- Money --- Payment Systems --- Price Level --- Prices --- Regimes --- Standards --- South Africa