WATERLOO ECONOMICS SERIES
Abstracts of Working Papers January 2000 - December 2000
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#0001 -- David Andolfatto, Scott Hendry, Kevin Moran, and Guang-Jia Zhang (June 1999,
Revised January 2000)
Persistent Liquidity Effects Following a Change in Monetary Policy
Regime
"We develop an equilibrium model of the monetary transmission mechanism that
highlights search frictions in the market for labour and information frictions in the
market for money.
A change in monetary policy regime, modelled here as an exogenous reduction in the
'long-run' money growth rate target, results in a large and persistent increase in the
interest rate owing to a persistent shortfall in liquidity. This persistent 'liquidity
effect' arises because of the limited information that individuals have concerning the
nature of the shock, which implies that individuals optimally update their inflation
forecasts using an 'adaptive' expectations rule. The subsequent period of high interest
rates curtails job creation activities in the business sector, making it more difficult
for the unemployed to find suitable job matches; employment bottoms out two to three
quarters following the shock. In the long run, however, employment rises above its initial
level, primarily because of the lower long-run interest rates associated with a
tight-money regime."
#0002 - Ayoub Yousefi - February 2000
Merchandise Trade Balances of Less Developed
Countries and Exchange Rate of the U.S. Dollar:
Cases of Iran, Venezuela & Saudi Arabia
"This study examines the effects of changes in the exchange rate
of the U.S. dollar on the trade balances of three oil-exporting countries,
Iran, Venezuela, and Saudi Arabia. An exchange rate pass-through model
is applied to allow changes in the exchange rate of the dollar to affect prices
of traded goods. We found that changes in the effective exchange rate
of the dollar pass through partially to these countries' import prices.
For the export prices, under the floating exchange rate system depreciation
of the dollar was found to cause export prices of these countries (except
Saudi Arabia) to rise. While changes in the exchange rate of the dollar
influence these countries' trade balances, the long-run trade balance adjustments
seem to follow different patterns and time profiles."
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