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A model of optimum currency areas is presented using a general equilibrium model with regionally differentiated goods. The choice of a currency union depends upon the size of the underlying disturbances, the correlation between these disturbances, the costs of transactions across currencies, factor mobility across regions, and the interrelationships between demand for different goods. It is found that, while a currency union can raise the welfare of the regions within the union, it unambiguously lowers welfare for those outside the union.

Exports and Imports --- Foreign Exchange --- Labor --- Macroeconomics --- Financial Aspects of Economic Integration --- Labor Economics: General --- Labor Demand --- Employment --- Unemployment --- Wages --- Intergenerational Income Distribution --- Aggregate Human Capital --- Aggregate Labor Productivity --- International Monetary Arrangements and Institutions --- International economics --- Labour --- income economics --- Currency --- Foreign exchange --- Monetary unions --- Exchange rates --- Labor demand --- Economic integration --- Labor economics --- Labor market --- Economic theory --- Russian Federation --- Income economics

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This paper uses bilateral data on 420 merchandise trade flows between 21 industrial countries are used to estimate standard trade equations. The data set of over 11,000 observations allows the underlying elasticities to be estimated with considerable precision. Remarkably, a single specification appears to explain behavior across these countries in spite of the large number of individual flows analyzed. The results indicate a powerful long-run effect from supply on exports. Also, the real exchange rate elasticity depends upon the behavior of third country exchange rates. There is evidence of pricing to market and of a J-curve.

Exports and Imports --- Foreign Exchange --- Macroeconomics --- Neoclassical Models of Trade --- Models of Trade with Imperfect Competition and Scale Economies --- Trade: Forecasting and Simulation --- Trade: General --- Price Level --- Inflation --- Deflation --- Empirical Studies of Trade --- Currency --- Foreign exchange --- International economics --- Real exchange rates --- Exports --- Exchange rates --- Export prices --- Trade balance --- Balance of trade

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This paper uses vector autoregressions (VARs) to investigate four explanations of the extended slump in Japanese economic activity during the 1990s: the absence of bold and consistent fiscal stimulus; limited room for expansionary monetary policy because of a liquidity trap; asset price deflation reflecting the long-term problems caused by overinvestment, inadequate returns on saving, and debt overhang; and disruption of financial intermediation. The results indicate that disruption in financial intermediation, largely operating through the impact of changes in domestic asset prices on bank lending, has been the principal case of the slump.

Banks and Banking --- Macroeconomics --- Money and Monetary Policy --- Public Finance --- Real Estate --- Business Fluctuations --- Cycles --- Financial Markets and the Macroeconomy --- Price Level --- Inflation --- Deflation --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Nonagricultural and Nonresidential Real Estate Markets --- Interest Rates: Determination, Term Structure, and Effects --- National Government Expenditures and Related Policies: General --- Monetary economics --- Property & real estate --- Finance --- Public finance & taxation --- Asset prices --- Bank credit --- Land prices --- Real interest rates --- Expenditure --- Prices --- Money --- Financial services --- Credit --- Housing --- Interest rates --- Expenditures, Public --- Japan

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The recent slowdown in the U.S. economy has led to state and local government tax increases and expenditure cuts that have lowered aggregate demand, in contrast to earlier downturns when the sector provided significant automatic stabilizers. Several explanations for this change are examined, including the role of federal grants, mandates, tax revolts, and compensation. The first three factors are found to be relatively unimportant. There does, however, appear to have been a large change in relative compensation over the 1980s, which can account for much of the deterioration in finances.

Macroeconomics --- Public Finance --- Fiscal Policy --- State and Local Budget and Expenditures --- National Government Expenditures and Related Policies: General --- Taxation, Subsidies, and Revenue: General --- Public Enterprises --- Public-Private Enterprises --- Public finance & taxation --- Civil service & public sector --- Expenditure --- Fiscal stance --- Total expenditures --- Revenue administration --- Public sector --- Fiscal policy --- Economic sectors --- Expenditures, Public --- Revenue --- Finance, Public --- United States

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The effect of membership of the ERM on macroeconomic performance is analyzed using vector autoregression techniques. The results indicate that while the ERM has had little effect on the nature of the shocks hitting the economies, it has had a significant effect on the response of member countries to these shocks. In addition, long-time members of the ERM have significantly more correlated shocks than other countries. These results conform to the thesis that the ERM represents a move by countries with relatively similar underlying shocks to coordinate macroeconomic policy.

Agriculture: Aggregate Supply and Demand Analysis --- Comparative or Joint Analysis of Fiscal and Monetary Policy --- Conventional peg --- Currency --- Economic theory & philosophy --- Economic Theory --- Economic theory --- Exchange rate arrangements --- Exchange rate flexibility --- Financial Aspects of Economic Integration --- Floating exchange rates --- Foreign Exchange --- Foreign exchange --- International Monetary Arrangements and Institutions --- Prices --- Stabilization --- Supply and demand --- Supply shocks --- Treasury Policy --- United States