This article summarises the principal results of the research papers published by the Reserve Bank in 1994. As in previous years, the Bank’s research has been directed at issues of relevance to monetary and financial policy-making. It has been made available to the public through the Bank’s annual conference volume, Research Discussion Papers, Occasional Papers and Bulletin articles. Over recen...

A simple quantitative model is presented that is consistent with the available evidence about the British economy during the early phase of the Industrial Revolution. The basic model is a variant of a standard growth model, calibrated to data from Great Britain for the period 1780-1850. The model is used to study the importance of foreign trade and the role of the declining cost of power during...

Views stated in Policy Discussion Papers are those of the authors and not necessarily those of the Federal Reserve Bank of Cleveland or of the Board of Governors of the Federal Reserve System. Materials may be reprinted, provided that the source is credited. Please send copies of reprinted materials to the editor. In this paper we provide a survey of the payment literature in a unifi ed framewo...

In one-good international macro models with non-diversifiable labor income risk country portfolios are heavily biased toward foreign assets. The fact that the opposite pattern of diversification is observed empirically constitutes the international diversification puzzle. This paper embeds a portfolio choice decision in a two-country, two-good version of the stochastic growth model. In this env...

he Globalization and Monetary Policy Institute cosponsored a conference on “International Linkages in a Globalized World and Implications for Monetary Policy” with the School of International Business Administration at Shanghai University of Finance and Economics (SHUFE) and Shanghai Institute of Finance and Law. The event was held at SHUFE on June 21–22. The theme was the impact of globalizati...

Empirical studies quantifying the economic effects of increased foreign direct investment (FDI) have not provided conclusive evidence that they are positive, as theory predicts. This paper shows that the lack of empirical evidence is consistent with theory if countries are in transition to FDI openness. Anticipated welfare gains lead to temporary declines in domestic investment and employment. ...

A country may adopt policy measures such as raising its foreign exchange reserves to better prepare for sudden reversal of international capital flows or currency attacks, which in principle should reduce financial vulnerability firms and the entire economy, but beneficial effect policies be partially offset by endogenous firms' decisions take on more risks. We present a robust previously undoc...

Standard macro models cannot explain why real exchange rates are volatile and disconnected from macro aggregates. Recent research argues that models with persistent growth rate shocks and recursive preferences can solve that puzzle. I show that this result is highly sensitive to the structure of financial markets. When just a bond is traded internationally, then long-run risk generates insuffic...